-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dq98Qz37zQSxzuTO1hJ4OUN+uywKLzEBvDeRBbglRSFS2Zi4ygzzYEz/m/3eL5xE e7zYg/aSs9R6KMXyP2cA9Q== 0000880224-05-000005.txt : 20050331 0000880224-05-000005.hdr.sgml : 20050331 20050331152333 ACCESSION NUMBER: 0000880224-05-000005 CONFORMED SUBMISSION TYPE: 40-F PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050331 DATE AS OF CHANGE: 20050331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERTAPE POLYMER GROUP INC CENTRAL INDEX KEY: 0000880224 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 000000000 STATE OF INCORPORATION: A8 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 40-F SEC ACT: 1934 Act SEC FILE NUMBER: 001-10928 FILM NUMBER: 05719774 BUSINESS ADDRESS: STREET 1: 110E MONTEE DE LIESSE STREET 2: ST LAURENT CITY: QUEBEC H4T 1N4 CANAD STATE: A8 BUSINESS PHONE: 5147310731 MAIL ADDRESS: STREET 1: 110 E MONTEE LIESSE CITY: ST LAURENT STATE: A8 ZIP: 00000 40-F 1 ipg200440f.txt IPG 2004 40-F/AIF UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 40-F [___] REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 [ X ] ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 2004 Commission file number: 1-10928 INTERTAPE POLYMER GROUP INC. (Exact name of Registrant as specified in its charter) Canada (Jurisdiction of incorporation or organization) Not Applicable (I.R.S. Employer Identification Number) Primary Standard Industrial Classification Code Number: 2670 110E Montee de Liesse, St. Laurent, Quebec H4T 1N4 Canada (866) 202-4713 (Address and telephone number of Registrant's principal executive offices) Burgess H. Hildreth, 3647 Cortez Road West, Bradenton, Florida, 34219 (941) 739-7500 (Name, address and telephone number of Agent for service in the United States) Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each Exchange on which registered: Common Shares, without New York Stock Exchange nominal or par value Toronto Stock Exchange Securities registered or to be registered pursuant to Section 12(g) of the Act: Not Applicable Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: Not Applicable For annual reports, indicate by check mark the information filed with this form: [ X ] Annual Information Form [ X ] Audited Annual Financial Statements The number of outstanding shares of each of the issuer's classes of capital stock as of December 31, 2004 is: 41,236,961 Common Shares -0- Preferred Shares Indicate by check mark whether the registrant by filing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the "Exchange Act"). If "Yes" is marked, indicate the file number assigned to the registrant in connection with such rule. Yes _______ No X 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 _______ The information contained in this 40-F and the exhibits attached hereto are incorporated by reference into Registration Statement No. 333-109944. Controls and Procedures. Disclosure Controls and Procedures. Intertape Polymer Group Inc. maintains disclosure controls and procedures designed to ensure not only that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, but also that information required to be disclosed by Intertape Polymer Group Inc. is accumulated and communicated to Management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on the annual evaluation made by Management as of December 31, 2004 of Intertape Polymer Group Inc.'s disclosure controls and procedures, with the participation of the principal executive officer and principal financial officer, the principal executive officer and principal financial officer have concluded that Intertape Polymer Group Inc.'s disclosure controls and procedures were adequate and effective to accomplish the purposes for which they were designed. Changes in Internal Control Over Financial Reporting. Based on the annual evaluation made by Management as of December 31, 2004 of Intertape Polymer Group Inc.'s internal control over financial reporting, with the participation of the principal executive and principal financial officers, the principal executive officer and principal financial officer have concluded that there have been no changes in Intertape Polymer Group Inc.'s internal controls over financial reporting that occurred during 2004 that has materially affected, or is reasonably likely to materially affect, Intertape Polymer Group Inc.'s internal control over financial reporting. Blackout Period Notices. During 2004, Intertape Polymer Group Inc. was not required to send its directors and executive officers notices pursuant to Rule 104 of Regulation BTR concerning any equity security subject to a blackout period under Rule 101 of Regulation BTR. Intertape Polymer Group Inc.'s blackout periods are regularly scheduled and a description of such periods, including their frequency and duration and plan transactions to be suspended or affected are included in the documents under which Intertape Polymer Group Inc.'s plans operate and is disclosed to employees before enrollment or within thirty (30) days thereafter. Audit Committee Financial Expert. The Board of Directors of Intertape Polymer Group Inc. has determined that it has at least one audit committee financial expert serving on its audit committee. Mr. J. Spencer Lanthier, being the former Chairman and Chief Executive Officer of KPMG Canada, and having the attributes set forth in Paragraph 8(b) of General Instruction B to Form 40-F, has been determined to be an audit committee financial expert. Further, Mr. Lanthier is "independent" as that term is defined by the New York Stock Exchange's corporate governance standards applicable to Intertape Polymer Group Inc. -3- The Securities and Exchange Commission has stated that the designation of Mr. Lanthier as an audit committee financial expert does not make him an "expert" for any purpose, including without limitation, for purposes of Section 11 of the Securities Act of 1933. Further, such designation does not impose any duties, obligations or liability on Mr. Lanthier greater than those imposed on members of the audit committee and Board of Directors not designated as an audit committee financial expert, nor does it affect the duties, obligations or liability of any other member of the audit committee or Board of Directors. Code of Ethics. Intertape Polymer Group Inc. has adopted a code of ethics entitled "Intertape Polymer Group Inc. Code of Business Conduct and Ethics", which is applicable to all of its employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, and all persons performing similar functions. During the 2004 fiscal year, Intertape Polymer Group Inc. did not amend its Code of Business Conduct and Ethics and did not grant a waiver from any provision of its Code of Business Conduct and Ethics. Intertape Polymer Group Inc. will provide, without charge, to any person upon written or oral request, a copy of its Code of Business Conduct and Ethics. Requests should be directed to Burgess H. Hildreth, Intertape Polymer Group Inc., 3647 Cortez Road West, Bradenton, Florida 34210. Mr. Hildreth may be reached by telephone at (941) 739-7500. Principal Accountant Fees and Services. A table setting forth the fees billed for professional services rendered by Raymond Chabot Grant Thornton LLP, Chartered Accountants, the Company's principal accountant, for the fiscal years ended December 31, 2004 and December 31, 2003, is set forth in Item 17.5 of Intertape Polymer Group's Annual Information Form attached hereto as Exhibit 1. Intertape Polymer Group Inc.'s Audit Committee pre-approves all audit engagement fees and terms of all significant permissible non-audit services provided by independent auditors. With respect to services other than audit, review or attest services set forth in the table referenced above, none were approved pursuant to the de minimus exception provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. Off-Balance Sheet Arrangements. Intertape Polymer Group Inc. maintains no off-balance sheet arrangements. Tabular Disclosure of Contractual Obligations. The information required by Paragraph (12) of General Instruction B to Form 40-F is located on Page 18 of Management's Discussion and Analysis contained in Intertape Polymer Group's 2004 Annual Report attached hereto as Exhibit 2 and made a part hereof by this reference. -4- Identification of the Audit Committee. Intertape Polymer Group Inc. has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee is comprised of four of the seven directors of Intertape Polymer Group Inc.: J. Spencer Lanthier, L. Robbie Shaw, Gordon R. Cunningham, and Thomas E. Costello. For additional information with respect to the Company's Audit Committee, see Item 17 of the Company's Annual Information Form attached hereto as Exhibit 1. Undertaking. Intertape Polymer Group Inc. undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Securities and Exchange Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities. Signature. Pursuant to the requirements of the Exchange Act, Intertape Polymer Group Inc. certifies that it meets all of the requirements for filing on Form 40-F, and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized. INTERTAPE POLYMER GROUP INC. (Registrant) By:/s/Andrew M. Archibald, C.A. (Signature) Name: Andrew M. Archibald, C.A. Title: Chief Financial Officer and Secretary Date: March 31, 2005 -5- EXHIBIT INDEX Exhibit No. Description Page No. ___________ ___________ ________ 1 Annual Information Form dated March 31, 2005 7 2 2004 Annual Report, including: 53 Management's Discussion and Analysis for 2004 (Pg. 6) Audited Annual Consolidated Financial Statements (Pg. 27) 3 Consent of Raymond Chabot Grant Thornton LLP, Chartered Accountants 54 4 Certifications pursuant to Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of the U.S. Sarbanes-Oxley Act of 2002 55 5 Certification pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002 59 -6- EXHIBIT 1 _________ Item 1. INTERTAPE POLYMER GROUP INC. ANNUAL INFORMATION FORM For the Year ended December 31, 2004 Dated: March 31, 2005 -7- INTERTAPE POLYMER GROUP INC. ANNUAL INFORMATION FORM Table of Contents Page Item 1. Cover Page 7 Item 2. Corporate Structure 10 2.1 Name, Address and Incorporation 10 2.2 Intercorporate Relationships 10 Item 3. General Development of the Business 11 3.1 Three Year History 11 3.2 Significant Acquisitions 15 Item 4. Narrative Description of the Business 15 4.1 General 15 4.2 Key Markets and Products 16 4.3 Sales and Marketing 20 4.4 Manufacturing and Quality Control 21 4.5 Equipment and Raw Materials 21 4.6 Research and Development and New Products 22 4.7 Trademarks and Patents 22 4.8 Competition 23 4.9 Environmental Regulation 23 4.10 Employees 24 Item 5. Cautionary Statements and Risk Factors 25 5.1 Forward-Looking Statements 25 5.2 Risk Factors 26 Item 6. Dividends 34 Item 7. General Description of Capital Structure 34 7.1 General Description of Capital Structure 34 7.2 Ratings 35 -8- Item 8. Market For Securities 35 8.1 Trading Price and Volume on the Toronto Stock Exchange 35 8.2 Trading Price and Volume on the New York Stock Exchange 36 Item 9. Escrowed Securities 37 Item 10. Directors and Officers 37 Item 11. Legal Proceedings 40 Item 12. Interest of Management and Others in Material Transactions 40 Item 13. Transfer Agents and Registrars 41 Item 14. Material Contracts 41 Item 15. Experts 44 15.1 Name of Experts 44 15.2 Interests of Experts 44 Item 16. Additional Information 44 Item 17. Audit Committee 45 17.1 Audit Committee Charter 45 17.2 Composition of the Audit Committee 45 17.3 Relevant Education and Experience 45 17.4 Pre-Approved Policies and Procedures 45 17.5 External Auditor Services Fees 46 Exhibit A Audit Committee Charter 47 Exhibit B Amended and Restated Shareholder Protection Rights Plan Agreement 51 Exhibit C Amended Executive Stock Option Plan as Amended and Consolidated to June 2, 2004 52 -9- Item 2. Corporate Structure 2.1 Name, Address and Incorporation The business of Intertape Polymer Group Inc. ("Intertape Polymer Group" or the "Company") was established by Melbourne F. Yull, Intertape Polymer Group's Chairman of the Board and Chief Executive Officer, when Intertape Systems Inc., a predecessor of the Company, established a pressure-sensitive tape manufacturing facility in Montreal. Intertape Polymer Group was incorporated under the Canada Business Corporations Act on December 22, 1989 under the name "171695 Canada Inc." On October 8, 1991, the Company filed a Certificate of Amendment changing its name to "Intertape Polymer Group Inc." A Certificate of Amalgamation was filed by the Company on August 31, 1993, at which time the Company was amalgamated with EBAC Holdings Inc. The shareholders, at the Company's June 11, 2003 annual and special meeting voted on the replacement of the Company's By-Law No. 1 with a new General By-Law 2003-1. The intent of the replacement by-law was to conform the Company's general by-laws with amendments that were made to the Canadian Business Corporations Act since the adoption of the general by-laws and to simplify certain aspects of the governance of the Company. Intertape Polymer Group's corporate headquarters is located at 110E Montee de Liesse, Montreal, Quebec, Canada H4T 1N4 and the address of its registered office is 1155 Rene-Levesque Blvd. West, Montreal, Quebec, Canada H3B 3V2. 2.2 Intercorporate Relationships Intertape Polymer Group is a holding company which owns various operating companies in the United States and Canada. Intertape Polymer Inc., incorporated under the Canada Business Corporations Act, is the principal operating company for the Company's Canadian operations. Central Products Company, a Delaware corporation, is the principal operating company for the Company's United States and international operations. The table below lists for each of the subsidiaries of the Company their respective place of incorporation and the percentage of voting securities beneficially owned or over which control or direction is exercised directly or indirectly by Intertape Polymer Group. Certain subsidiaries, each of which represents not more than ten percent of consolidated assets and not more than ten percent of consolidated sales and operating revenues of the Company, and all of which, in the aggregate, represent not more than twenty percent of total consolidated assets and total consolidated sales and operating revenues of the Company at December 31, 2004, have been omitted. -10- Corporation Place of Percentage of Incorporation Ownership or Control ________________________________________________________________________________ Intertape Polymer Group Inc. Canada Parent Intertape Polymer Inc. Canada 100% IPG Financial Services Inc. Delaware 100% IPG Holding Company of Nova Scotia Nova Scotia 100% IPG Finance LLC Delaware 100% Intertape Inc. Virginia 100% Central Products Company Delaware 100% Intertape Polymer Corp. Delaware 100% IPG Administrative Services Inc. Delaware 100% Intertape Woven Products Services S.A. de C.V. Mexico 100% IPG Holdings LP Delaware 100% Polymer International Corp. Virginia 100% IPG (US) Inc. Delaware 100% IPG (US) Holdings Inc. Delaware 100% Intertape Polymer US Inc. Delaware 100% IPG Technologies Inc. Delaware 100% Fibope Portuguesa-Filmes Biorientados S.A. Portugal 100% Item 3. General Development of the Business 3.1 Three Year History The Company commenced operations in 1981 and since has evolved into a recognized leader in the development and manufacture of specialized polyolefin plastic and paper packaging products and related packaging systems. For several years, Intertape Polymer Group's business strategy was primarily one of growth. Commencing in the mid-1990's, the Company made several strategically important acquisitions to further its business plan to either develop or acquire new products to complete the "basket of products" approach to the Company's markets. Over the past three years, the Company has transitioned from a period of rapid expansion to a period of operational consolidation and debt reduction. The Company has focused on implementing -11- improvements aimed both at realizing the benefits of past acquisitions and optimizing the Company's efficiency and the quality of its products and services. In 2001, the Company completed the initial implementation of its Regional Distribution Centers ("RDCs") strategy. The streamlined operations of the five RDCs permitted the Company to close the approximately twenty-five leased warehouse facilities it was maintaining and consolidate product shipments through the RDCs. During 2002, the Company continued to monitor the operations of its RDCs and re-assessed its overall RDC strategy. As a result, in its ongoing efforts to increase its efficiency, the Company announced in 2003 that it would consolidate three RDCs into a new facility adjacent to its existing manufacturing operations in Danville, Virginia. The new RDC became operational in February 2004 and has lowered warehousing costs to the Company as well as enhanced service levels to its customers. Over the last three years, the Company has invested approximately $43.1 million in capital expenditures principally to purchase more efficient production equipment and to expand information systems capabilities. One of the benefits of these investments has been the Company's ability to reduce the number of its production and distribution facilities, while maintaining its existing capacities. In the fourth quarter of 2004, as part of the Company's ongoing review of the efficiency and effectiveness of its production and distribution network, the Company announced and substantially completed the closure of two of its manufacturing facilities, one in Cumming, Georgia and the second in Montreal, Quebec, as well as the closure of its distribution center in Cumming, Georgia. In December, 2003, the Company consolidated its two water activated tape facilities into its Menasha, Wisconsin operation. As part of a continuous cost improvement process, in 2002 the Company completed the consolidation of its U.S. based operations for Flexible Intermediate Bulk Container ("FIBC") production into its Piedras Negras facility in Mexico. The Company's facility located in Piedras Negras, Mexico, 150 miles southwest of San Antonio, Texas, is in an industrial park with adjacent buildings that will permit future growth, if required. Acquisitions have been and remain a part of the Company's growth strategy. In February 2004, the Company completed the purchase for a cash consideration of $5.5 million plus contingent consideration (dependent on business retention), the assets relating to the masking and duct tape operations of tesa tape, inc. The Company also finalized a three-year agreement to supply duct tape and masking tape to tesa. The production of the acquired business was integrated into the Company's Columbia, South Carolina manufacturing facility. This acquisition provided the Company's retail business with access to several large retail chains not previously serviced by the Company. In June 2003, the Company acquired the remaining fifty percent of the issued and outstanding common shares of Fibope Portuguesa-Filmes Biorientados S.A. ("Fibope"). Intertape Polymer Group acquired Fibope in order to provide a viable platform from which to introduce its North American made products into European markets. -12- Set forth below is a summary of the Company's acquisitions since 1996. Completed Acquisitions ______________________
Year Annual Cost of Acquisitions Company Location Products __________________________________________________________________________________________ (US$ in millions) 1996 $ 5.3 Tape, Inc. Green Bay, Wisconsin Water-activated packaging tapes 1997 $ 42.9 American Tape Co. Marysville, Michigan Pressure-sensitive Richmond, Kentucky tapes, masking tapes 1998 $113.2 Anchor Continental, Inc. Columbia, South Carolina Pressure-sensitive Inc. tapes, masking and duct tapes Rexford Paper Company Milwaukee, Wisconsin Pressure-sensitive and water-activated tapes 1999 $111.3 Central Products Company Menasha, Wisconsin Pressure-sensitive Brighton, Colorado and water-activated carton sealing tapes Spinnaker Electrical Tape Pressure-sensitive Company Carbondale, Illinois electrical tapes 2000 $ 38.4(subject to adjustment) Olympian Tape Sales, Inc. Cumming, Georgia Distribution of packaging products 2003 $7.2 Fibope Portuguesa- Portugal Manufacture and Filmes Biorientados distribution of shrink film S.A. 2004 $5.5 tesa tape inc. Columbia, South Carolina Masking and duct tape
Historically, the Company has been able to maintain value-added percentages within a narrow range of less than 0.75% because it passed on raw material cost increases to its customers. ("Value-added" is the difference between material costs and selling prices, expressed as a percentage of sales.) During 2002, in the Company's view, this situation changed as a result of a timing lag between raw material cost increases and full implementation of selling price increases. In 2003, the Company implemented a series of unit selling price increases that, coupled with certain of the Company's cost reduction programs, did result in improved gross margins. Throughout 2004, the Company, along with the industry, continued to experience rising raw material costs. Market pressures and the normal time lag between incurring raw material cost increases and passing the increases on to customers in the form of higher sales prices prevented the Company from achieving meaningful sales price increases until the second quarter of the year. During the last three quarters of 2004 and the first quarter of 2005, the Company has been able to implement price increases, which have had the effect of limiting the decrease in value-added. -13- On July 28, 2004, the Company entered into a new senior secured credit facility consisting of a US$200.0 million seven-year delayed draw Term Loan B facility, a US$65.0 million five-year revolving credit facility, and a US$10.0 million five-year revolving credit facility to be issued in Canadian Dollars. The credit facility is secured by a first priority security interest in substantially all of the tangible and intangible assets of, and is guaranteed by, the Company and substantially all of its subsidiaries. Further, on July 28, 2004, the Company completed an offering of US$125.0 million 8-1/2% Senior Subordinated Notes due 2014. The proceeds from the refinancing were used to repay the Company's then existing bank credit facility, redeem all three series of its then existing senior secured notes, pay related make-whole premiums, accrued interest and transaction fees and provide cash for general working capital purposes. The credit agreement governing the senior secured credit facility and the indenture governing the outstanding Senior Subordinated Notes each contain restrictive covenants that, among other things, limit the Company's ability to incur additional indebtedness, make restricted payments, make loans or advances to subsidiaries and other entities, invest in capital expenditures, sell its assets or declare dividends. In addition, under its new Senior Secured Credit Facility, the Company is required to maintain certain financial ratios, including a maximum total leverage ratio, a minimum interest coverage ratio and a minimum fixed charge ratio. For additional information regarding the Company's Senior Secured Credit Facility and Senior Subordinated Notes, see Item 14, "Material Contracts". Intertape Polymer Group reduced indebtedness associated with long-term debt instruments by $50.2 million during 2002, and a further $64.3 million during 2003. Long-term debt increased during 2004 as a result of the capital lease for the new RDC, and the $325.0 million borrowed in connection with the refinancing completed in August 2004. During 2003 Intertape Polymer Group entered into a capital lease agreement for the new Danville RDC. The twenty-year lease agreement commenced in January 2004. The value of the building and the related capital lease obligation of Intertape Polymer Group Inc. is $7.2 million. As part of the refinancing completed in late 2001, the balance of the then short-term debt was cancelled and replaced with new facilities, Facility B and Facility C, in the aggregate amount of $95.0 million with two-year and four-year terms, respectively. In 2002, the Company repaid and cancelled Facility B, the $35.0 million, two-year term bank facility, which was due to be fully repaid by the end of 2003. During 2003, the Company repaid $60.0 million and cancelled Facility C two years earlier than required. In addition, amounts due under the Company's existing notes were reduced by $2.5 million during 2003. The Company anticipates continued revenue growth in 2005. Intertape Polymer Group believes it will see the favorable impact of its cost reduction program on its bottom line in 2005. -14- During 2005, the Company intends to continue to invest in equipment to improve productivity and expand certain of its operations vertically which should also create new product capabilities. In addition, the Company believes it should begin to see the anticipated benefits from its realignment of its mid-management, including a better profit margin as a result of pricing disciplines. The Company believes that by dropping accountability down to the mid-management level, it will rekindle the entrepreneurial culture within the Company and place greater focus on increasing market share, better managing of product mix and improving the product development process. 3.2 Significant Acquisitions In February, 2004, the Company acquired certain of the assets of tesa tape, inc. ("tesa") in connection with tesa's masking and duct tape operations for a purchase price of US$5.5 million, plus contingent consideration dependent on business retention. The Company also entered into a three-year agreement to supply duct tape and masking tape to tesa. Intertape Polymer Group integrated the business acquired from tesa into its Columbia, South Carolina, facility. This acquisition provided Intertape Polymer Group access to several large retail chains not previously serviced by the Company in accordance with the Company's growth strategy. The acquisition of the assets of tesa, however, does not meet the definition of "significant acquisition" as that term is understood with reference to Part 8 of the Canadian National Instrument 51-102-Continuous Disclosure Obligations and a Form 51-102F4 was not filed. Acquisitions are an important part of the Company's strategy for growth and it will continue to investigate favorable opportunities that present themselves during 2005. Item 4. Narrative Description of the Business 4.1 General Intertape Polymer Group is a leader in the specialty packaging industry in North America. It develops, manufactures and sells a variety of specialized polyolefin plastic and paper-based products as well as complementary packaging systems for use in industrial and retail applications. The Company's products include carton sealing tapes, including Intertape (R) pressure-sensitive and water-activated tapes; industrial and performance specialty tapes, including masking, duct, electrical and reinforced filament tapes; Exlfilm (R) shrink film; Stretchflex (R) stretch wrap; engineered fabric products; and flexible intermediate bulk containers. The Company designs its specialty packaging products for aerospace, automotive and industrial applications. These specialty packaging products are sold to a broad range of industrial and specialty distributors, retail stores and large end-users in diverse markets. Intertape Polymer Group believes it has assembled one of the broadest and deepest ranges of products in the industry by leveraging its advanced manufacturing technologies, its extensive research and development capabilities and its comprehensive strategic acquisition program. Since 1995, the Company has made a series of strategic acquisitions in order to offer a broader range of products to better serve its markets. These products include water- activated tapes, masking tapes, duct tapes, filament tapes and natural rubber adhesive tapes. At the same time, the Company has continued to develop new -15- products, including shrink and stretch wrap films. 4.2 Key Markets and Products Intertape (R) Carton Sealing Tape: Pressure-Sensitive and Water- ________________________________________________________________ Activated Tapes _______________ The Company produces a variety of pressure-sensitive plastic film carton sealing tape, ranging from commodity-designed standard tape to tape tailored to meet customers' unique requirements. The product range encompasses tape with film thickness from 25 microns to 50 microns and adhesives formulated for manual as well as automatic applications. Carton sealing tape lends itself to use in high speed taping machines that replace other closure methods such as staples, hot melt glues and cold glues. The tape the Company produces includes a wide range of customized colored and printed tape, as well as tape designed for cold temperature applications and label protection. The Company believes that it is one of the leading manufacturers of pressure-sensitive carton sealing tape. Carton sealing tape is manufactured and sold under the Intertape (R) name to industrial distributors and leading retailers, and is also manufactured for sale under private labels. It is produced at the Company's Danville, Virginia, Richmond, Kentucky, and Brighton, Colorado, facilities and is primarily utilized by end-users for sealing corrugated cartons. Geographic territories in which the Company markets its products are serviced by sales personnel and manufacturers' representatives coordinated by regional managers. Distributors are appointed on a basis designed to achieve market penetration of both commodity and higher grade products. Intertape Polymer Group markets carton sealing tapes, industrial tapes, equipment, and stretch and shrink films as a "basket of packaging products," an approach which it believes is unique in the industry and differentiates the Company from its competitors. This broad assortment of products is available from the Company's three RDCs and offers its distribution partners opportunities for increased inventory turns, reduced storage space and lower transaction costs. Intertape Polymer Group's acquisition of Tape, Inc. in 1996 and Central Products Company in 1999 added a complete range of water-activated adhesive tapes to the Company's product mix. This product line is generally sold through the same distribution network as pressure-sensitive carton sealing tape, which has allowed the Company to increase its market penetration for this product. Water-activated tapes are used exclusively in the mail order business and the furniture and apparel industries where a strong mechanical bond is needed to seal large boxes that will be subject to rigorous handling during shipment. The Company believes it is the largest producer of this type of tape and has in excess of 70% of the North American market. The Company's principal competitors for the sale of carton sealing tape products are Minnesota Mining & Manufacturing Co. ("3M"), Shurtape Technologies, Inc. and Sekisui TA Industries, Inc. -16- Intertape (R) Masking Tapes: Performance and General Purpose ____________________________________________________________ Intertape Polymer Group added masking tapes to its product line in December 1997 through the acquisition of American Tape Co., a leading manufacturer of these products and expanded the Company's position in this product line with the acquisition of Anchor Continental, Inc. in September 1998. Masking tapes are used for a variety of end-use applications which can be broadly described under two categories: performance and general purpose. Performance applications include use in painting of aircraft, cars, buses and boats, where the properties of the tape, such as high temperature resistance and clean adhesive releases, are individually designed for the customer's process. General purpose applications include packaging and bundling, and residential and commercial paint applications. In February 2004, the Company purchased the assets of tesa's masking tape operations, which had been a key competitor in this product line. The Company also entered into a three-year supply agreement with tesa. Intertape Polymer Group's processing capabilities include solvent and synthetic rubber, hot melt and acrylic adhesive alternatives. The Company believes that its unique adhesive systems provide it with a competitive advantage in this market. The Company's main competitors for the sale of masking tapes include 3M and Shurtape Technologies. Intertape (R) Reinforced Filament Tape: Performance and General Purpose _______________________________________________________________________ In addition to masking tapes, the Company's purchases of American Tape and Anchor also introduced reinforced filament tapes and tensiled polypropylene tapes ("MOPP") to its product line. Reinforced, general and specialty products are manufactured at the Company's facilities in Richmond, Kentucky and Marysville, Michigan. These facilities produce filament tape using synthetic, natural rubber and hot melt adhesives coated on a variety of plastic films. The reinforcement is provided by fiberglass yarns laminated between the adhesive and backing layers. MOPP tapes are made from highly oriented polypropylene films and complement the reinforced filament products in several of the unitizing and bundling operations. Many of these filament tapes are odorless, stainless, and provide clean removal and are used in bundling, sealing, unitizing, palletizing and packaging, notably for household appliances. -17- The Company's main competitor in the industrial filament tape market is 3M, and for commodity filament tapes its main competitor is TaraTape. Intertape (R) Duct Tape _______________________ The acquisition of Anchor in 1998 provided Intertape Polymer Group with significant capacity in its duct tape product line, which has now been enhanced by the acquisition of the assets of the duct tape operations of tesa. Duct tapes are manufactured at the Company's Columbia, South Carolina facility. Most of the duct tape volume consists of polyethylene-coated cloth. Aluminum foil type tape accounts for much of the non-polyethylene coated product sales of the Company's duct tape products. The Company has also entered into a three-year supply agreement with tesa for duct tape products. The Company's main competitors in the duct tape market are Tyco Adhesives and Shurtape Technologies. Exlfilm (R) Shrink Wrap ___________________ Exlfilm (R) is a specialty plastic film which shrinks under controlled heat to conform to package shape as compared to other packaging forms that require unique machinery for different product sizes and shapes. The process provides versatility because it permits the over-wrapping of a variety of products of considerably different sizes and dimensions, such as printing and paper products, packaged foods, cassettes, toys, games and sporting goods and hardware and housewares. Intertape Polymer Group manufactures Exlfilm (R) at its facilities in Truro, Nova Scotia, Tremonton, Utah, and Portugal. With the development of cross-linking technology, the Company has introduced a new line of high performance shrink film, Exlfilmplus (R) which can be used to satisfy additional end-user applications. The Company's shrink wrap products are sold through a select group of specialty distributors primarily to manufacturers of packaged goods and printing and paper products who package their products internally. In addition to being served by the Company, the United States and Canadian markets for polyolefin shrink wrap are currently served by two large United States manufacturers, Sealed Air and Bemis Company, and to a lesser extent by foreign manufacturers. Stretchflex (R) Stretch Wrap ____________________________ Stretchflex (R) is a multi-layer plastic film that can be stretched without application of heat. It is used industrially to wrap pallet loads of various products to ensure a solid load for shipping. The Company has a total of seven cast lines, all using the state-of-the-art five-layer technology. This technology, combined with re-engineered film allows the Company to produce polyolefin stretch wrap that has higher performance while reducing manufacturing costs. The Company has the capacity to produce a total of 130 million pounds of Stretchflex (R) annually at its Danville, Virginia plant and its facility in Tremonton, Utah. -18- The North American market for polyolefin stretch wrap is served by a number of manufacturers, the largest of which are AEP, Tyco, and Linear Films. The Company's key strategic acquisitions have positioned it as a stronger supplier of specialty packaging industrial tapes, second only, by management's estimates, to 3M in North America, with the additional capability to provide shrink and stretch wrap, product lines that 3M does not offer. Industrial Electrical Tapes ___________________________ Following the Company's 1999 acquisition of certain assets of Spinnaker Electrical Tape Company, which included its Carbondale, Illinois facility, Intertape Polymer Group became a manufacturer of specialty electrical and electronic tape. The manufacturing capability and technology at the Carbondale, Illinois facility, coupled with the Company's high temperature- resistant products manufactured at its Marysville, Michigan facility provides it with access to high margin markets. Competing manufacturers of industrial electrical tapes include 3M and Permacel. Acrylic Coating _______________ The Company entered into the acrylic market in 1995 through its Danville, Virginia plant. Acrylic coatings, when applied to film tapes, offer extended shelf life as well as increased performance under the extremes of low and high temperatures. In addition, certain applications utilize engineered fabric products as the base material to which acrylic coating is applied. The Company is completely self-sufficient in the production of film for pressure tapes for acrylic based adhesive tapes. Engineered Fabric Products __________________________ Intertape Polymer Group produces a variety of finished products utilizing coated engineered polyolefin fabrics, such as bags and lumber wrap, as well as coated engineered polyolefin fabrics that are sold to other manufacturers which convert these fabrics into finished products, such as packaging, protective covers, pond liners, housewrap, recreational products and temporary structures. Nova-Thene (R) ProWrap lumber wrap is a polypropylene fabric which is extrusion coated and printed to customer specifications. It is used in the forest products industry to package kiln-dried cut lumber and other wood products. The Company believes that polypropylene products have certain advantages over traditional paper-plastic laminate and all polyethylene products, including superior strength, ease of application, durability, better appearance and the potential to be recycled. The Company also manufactures other coated engineered polyolefin fabrics that it supplies to converters which produce finished products for specific applications, such as temporary and permanent shelters, recreational products, protective covers, pond liners, and flame retardant brattice cloth. The Company has developed a patented engineered fabric, Nova-Shield (TM), that meets the fire retardant specifications required for human occupancy and -19- maintains the UV specifications for extended outdoor use. This product is used in applications where PVC was the primary fabric previously used. Further, the Company has entered the metal wrap market with a patent pending wrap, Nova-Wrap (TM), for steel and aluminum coils and sheets. The Company manufactures Nova-Pac (TM) sleeves for packaging fiberglass, cotton, synthetic fibers and other products. Intertape Polymer Group's most recent engineered fabric product introduction is Aquamaster (TM), a coated fabric to be used primarily to line man-made canals to prevent water loss into the ground. In addition, the Company competes with manufacturers of coated engineered fabrics such as Amoco Fabrics and Fibers Company and Fabrene, which sell their products to converters. FIBCs _____ The Company produces flexible intermediate bulk containers, or FIBCs, at a facility in Piedras Negras, Mexico. The market for FIBCs is highly competitive and is not dominated by any single manufacturer. 4.3 Sales and Marketing As of December 31, 2004, the Company maintained a sales force of 128 personnel. The Company participates in industry trade shows and uses trade advertising as part of its marketing efforts. The Company's overall customer base is diverse, with no single customer accounting for more than 5% of total sales in 2004. Sales from facilities located in the United States and Canada accounted for approximately 85% and 15% of total sales, respectively, in 2002, 86% and 14% in 2003, and 80% and 20% in 2004. Export sales currently represent less than 6% of total sales and are included in United States or Canadian sales depending on the manufacturing facility from which the sale originates. The Company's sales are primarily focused on distribution products and engineered fabric products. Distribution products go to market through a network of paper and packaging distributors throughout North America. Products sold into this segment include carton sealing, masking, duct and reinforced tapes, Exlfilm (R) and Stretchflex (R). In order to enhance sales of the Company's pressure-sensitive carton sealing tape, it also sells carton closing systems, including automatic and semi-automatic carton sealing equipment. The Company's Exlfilm (R) and Stretchflex (R) products are sold through an existing industrial distribution base primarily to manufacturers of packaged goods and printing and paper products which package their products internally. The industrial electrical tapes are sold to the electronics and electrical industries. The Company's engineered fabric products are sold directly to end-users. The Company offers a line of lumberwrap, valve bags, FIBCs and specialty fabrics manufactured from plastic resins. The engineered fabric products are marketed throughout North America. -20- 4.4 Manufacturing and Quality Control Intertape Polymer Group's philosophy is to manufacture those products that are efficient for it from a cost and customer-service perspective. In cases in which the Company manufactures its own products, the Company seeks to do so utilizing the lowest cost raw material and add value to such products by vertical integration. The majority of the Company's products are manufactured through a process which starts with a variety of polyolefin resins which are extruded into film for further processing. Wide width biaxially oriented polypropylene film is extruded in the Company's facilities and this film is then coated in high-speed equipment with in-house-produced adhesive and cut to various widths and lengths for carton sealing tape. The same basic process applies for reinforced filament tape, which also uses polypropylene film and adhesive but has fiberglass strands inserted between the layers. Specific markets demand different adhesives and the Company manufactures acrylic solvent based rubber, "hot melt," aqueous acrylic, solvent acrylic, silicone and water-activated adhesives to respond to all demands. Masking tapes utilize the same process with paper as the coating substrate. Duct tapes utilize a similar process with either polyethylene or aluminum foil type coated cloth. The Company is the only North American supplier of all four technologies of carton sealing tape: hot melt, acrylic, water-activated and natural rubber. Further, the Company is the only United States manufacturer of natural rubber carton sealing tape. This broad family of carton sealing tapes is further enhanced by the Company's tape application equipment which is made in Florida. The Company has utilized its technology for basic film extrusion, essential to the low cost production of pressure-sensitive tape products, to expand its product line into highly technical and sophisticated films. Extrusion of up to five layers of various resins is done in four of the Company's plants. These high value added films service the shrink and stretch wrap markets, both of which have high entry barriers. The Company maintains at each manufacturing facility a quality control laboratory and a process control program on a 24-hour basis to monitor the quality of all packaging and engineered fabric products it manufactures. At the end of 2004, five of our plants were certified under the ISO-9001:2000 quality standards program. 4.5 Equipment and Raw Materials Intertape Polymer Group purchases mostly custom designed manufacturing equipment, including extruders, coaters, finishing equipment, looms, printers, bag manufacturing machines and injection molds, from manufacturers located in the United States and Western Europe, and participates in the design and upgrading of such equipment. The Company is not dependent on any one manufacturer for such equipment. Polyolefin resins are a widely produced petrochemical product and are available from a variety of sources worldwide. The Company purchases raw materials from a limited number of vendors with whom, over time, it has developed long-term relationships. The Company believes that such long-term -21- relationships, together with its centralized purchasing operations, have enhanced its ability to obtain a continuity of supply of raw materials on competitively favorable purchase terms. In certain cases, the Company has entered into short-term supply contracts for raw materials, including resin. Historically, fluctuations in raw material prices experienced by the Company have been passed on to its customers over time, however, the timing and extent of recent price increases have made it difficult to pass the full impact of such increases on to customers. The Company was unable to achieve meaningful sales price increases until the second quarter of 2004 due to market pressures and the normal time lag between incurring raw material cost increases and passing the increases on to customers in the form of higher sales prices. 4.6 Research and Development and New Products The Company has increased its emphasis on applied research which is more efficient in identifying new product opportunities, thus reducing research and development expenses. Research and development continues to focus on new products, technology developments, new product processes and formulations. The Company anticipates the introduction of several new products into its markets in 2005. In 2005, the Company expects to have a continuing rollout of new products including Genesys (TM), a high performance machine-grade stretch film, Veneer Tape (TM), a water activated tape product, and several new filament and masking tapes. Research and development expenses in 2002, 2003, and 2004 totaled $3.2 million, $3.3 million, and $4.2 million, respectively. 4.7 Trademarks and Patents Intertape Polymer Group markets its tape products under the trademark Intertape (R) and various private labels. The Company's valve or open mouth bags are marketed under the registered trademark Nova-Pac (R). Its engineered fabric polyolefin fabrics are sold under the registered trademark Nova- Thene (R). The Company's shrink wrap is sold under the registered trademark Exlfilm (R). Its stretch films are sold under the registered trademark Stretchflex (R). FIBC's are sold under the registered trademark Cajun (R) Bags. The Company has approximately 137 active registered trademarks, 52 in the United States, 20 in Canada, and 65 foreign, which include trademarks acquired from American Tape, Anchor, Rexford Paper Company and Central Products Company. The Company currently has 36 pending trademark applications. It does not have, nor does management believe it important to the Company's business to have, patent protection for its carton sealing tape products. However, the Company has pursued patents in select areas where unique products offer a competitive advantage in profitable markets, primarily in engineered coated products for which the Company has 3 patents and 9 patents pending, film for which it has 5 patents and 12 patents pending, tape products for which it has 8 patents and 5 patents pending, and adhesive products for which it has 1 patent and 3 patents pending. 4.8 Competition The Company competes with other manufacturers of plastic packaging products as well as manufacturers of alternative packaging products, such as paper, cardboard and paper-plastic combinations. Some of these competitors -22- are larger companies with greater financial resources. Management believes that competition, while primarily based on price and quality, is also based on other factors, including product performance characteristics and service. No statistics, however, on the packaging market as a whole are currently publicly available. See "Products" above for a discussion of the Company's main competitors. The Company believes that significant barriers to entry exist in the packaging market. Management considers the principal barriers to be the high cost of vertical integration which is necessary to operate competitively, the significant number of patents which already have been issued in respect of various processes and equipment, and the difficulties and expense of developing an adequate distribution network. 4.9 Environmental Regulation Intertape Polymer Group's operations are subject to extensive environmental regulation in each of the countries in which it maintains facilities. For example, United States (federal and state) and Canadian (federal and provincial) environmental laws applicable to the Company include statutes and regulations intended to (i) allocate the cost of investigating, monitoring and remedying soil and groundwater contamination among specifically identified parties, (ii) prevent future soil and groundwater contamination; (iii) impose national ambient standards and, in some cases, emission standards, for air pollutants which present a risk to public health, welfare or the natural environment; (iv) govern the handling, management, treatment, storage and disposal of hazardous wastes and substances; and (v) regulate the discharge of pollutants into protected waterways. The Company's use of hazardous substances in its manufacturing processes and the generation of hazardous wastes not only by the Company, but by prior occupants of its facilities, suggest that hazardous substances may be present at or near certain of the Company's facilities or may come to be located there in the future. Consequently, the Company is required to monitor closely its compliance under all the various environmental regulations applicable to the Company. In addition, the Company arranges for the off-site disposal of hazardous substances generated in the ordinary course of its business. Intertape Polymer Group obtains Phase I or similar environmental site assessments, and Phase II environmental site assessments, if necessary, for most of the manufacturing facilities it owns or leases at the time the Company either acquires or leases such facilities. These assessments typically include general inspections and may involve soil sampling and/or ground water analysis. The assessments have not revealed any environmental liability that, based on current information, the Company believes will have a material adverse effect on the Company. Nevertheless, these assessments may not reveal all potential environmental liabilities and current assessments are not available for all facilities. Consequently, there may be material environmental liabilities that the Company is not aware of. In addition, ongoing clean up and containment operations may not be adequate for purposes of future laws and regulations. The conditions of the Company's properties could also be affected in the future by neighboring operations or the conditions of the land in the vicinity of the Company's properties. These developments and -23- others, such as increasingly stringent environmental laws and regulations, increasingly strict enforcement of environmental laws and regulations, or claims for damage to property or injury to persons resulting from the environmental, health or safety impact of the Company's operations, may cause it to incur significant costs and liabilities that could have a material adverse effect on the Company. Except as described below, the Company believes that all of its facilities are in material compliance with applicable environmental laws and regulations, and that the Company has obtained, and is in material compliance with, all material permits required under environmental law. The Company is currently remediating contamination at its Columbia, South Carolina plant, and it installed a hydraulic barrier at its now closed St. Laurent, Quebec plant to prevent off-site migration of contaminated groundwater. Contamination at the Company's St. Laurent location may have migrated to the adjacent property. The Company is investigating to determine what additional action is required. The Company has completed remediation activities at its Marysville, Michigan facility and has requested final approval of the remediation from the State of Michigan. In addition, although certain of the Company's facilities emit toluene and other pollutants into the air, the emissions are within current permitted limitations. The Company believes that these emissions from its U.S. facilities will meet the applicable future federal Maximum Available Control Technology ("MACT") requirements, although additional testing or modifications at the facilities may be required. Currently, the Company estimates the cost of additional testing or modification at the facilities to comply with MACT requirements will be less than $500,000 through 2005. The Company believes that the ultimate resolution of these matters should not have a material adverse effect on its financial condition or results of operations. Intertape Polymer Group and its operating subsidiaries are required to maintain numerous environmental permits and governmental approvals for its operations. Some of the environmental permits and governmental approvals that have been issued to the Company or its operating subsidiaries contain conditions and restrictions, including restrictions or limits on emissions and discharges of pollutants and contaminants, or may have limited terms. If the Company or any of its operating subsidiaries fails to satisfy these conditions or to comply with these restrictions, it may become subject to enforcement action and the operation of the relevant facilities could be adversely affected. The Company may also be subject to fines, penalties or additional costs. The Company or its operating subsidiaries may not be able to renew, maintain or obtain all environmental permits and governmental approvals required for the continued operation or further development of its facilities, as a result of which the operation of its facilities may be limited or suspended. 4.10 Employees As of December 31, 2004, Intertape Polymer Group employed approximately 2,600 people, 700 of whom held either sales-related, operating or administrative positions and 1,900 of whom were employed in production. Approximately 166 hourly employees at the Marysville plant are unionized and subject to a collective bargaining agreement which expires on April 29, 2007. Approximately 172 hourly employees at the Menasha plant are unionized and subject to a collective bargaining agreement which expires on July 31, 2008. Approximately 294 employees at the Piedras Negras, Mexico -24- facility are unionized and are subject to an agreement dated January 1, 2003, which continues indefinitely and provides for, among other things, annual salary reviews and bi-annual reviews of terms. Finally, approximately 39 hourly employees at the Carbondale plant are unionized and subject to a collective bargaining agreement which expires on March 4, 2006. The Company has never experienced a work stoppage and it considers its employee relations to be satisfactory. Item 5. Cautionary Statements and Risk Factors 5.1 Forward-Looking Statements This Annual Information Form, including the Management's Discussion & Analysis incorporated herein by reference, contains certain "forward-looking statements" concerning, among other things, discussions of the business strategy of Intertape Polymer Group and expectations concerning the Company's future operations, liquidity and capital resources. When used in this Annual Information Form, the words "anticipate", "believe", "estimate", "intends", "expect" and similar expressions are generally intended to identify forward- looking statements. Such forward-looking statements, including statements regarding intent, belief or current expectations of the Company or its management, are not guarantees of future performance and involve risks and uncertainties. All statements other than statements of historical fact made in this Annual Information Form or in any document incorporated herein by reference are forward-looking statements. In particular, the statements regarding industry prospects and the Company's future results of operations or financial position are forward-looking statements. Forward-looking statements reflect the Company's current expectations and are inherently uncertain. Actual results may differ materially from those in the forward- looking statements as a result of various factors, including those factors set forth below and other factors discussed elsewhere in this Annual Information Form and in the Management's Discussion & Analysis included in the Company's Annual Report. In addition to the other information contained in this Annual Information Form, readers should carefully consider the above cautionary statements as well as the risk factors set forth below. The Company undertakes no duty to update its forward-looking statements, including its earnings outlook. Although the Company believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect the Company's actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements. These factors include, among other things the Company's significant indebtedness and ability to incur substantially more debt; restrictions and limitations contained in the agreements governing its debt; the Company's substantial leverage and ability to generate sufficient cash to service its debt; increases in the cost of the Company's principal raw materials; availability of raw materials; the effects of acquisitions the Company might make; the timing and market acceptance of the Company's new products; the Company's ability to achieve anticipated cost savings from its corporate initiatives; competition in the industry and markets in which the Company operates; the Company's ability to comply with applicable environmental laws; potential litigation relating to the Company's intellectual property rights; the loss of, or deterioration of the Company's relationship with, any significant customers; changes in operating expenses or the need for additional capital expenditures; changes in the Company's strategy; and general economic conditions. -25- In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Annual Information Form and in the Management's Discussion and Analysis will in fact transpire. The Management's Discussion and Analysis and the Annual Report incorporated herein by reference contain certain non-GAAP financial measures as defined under SEC rules, including adjusted net earnings, EBITDA, and adjusted EBITDA. The Company believes such non-GAAP financial measures improve the transparency of the Company's disclosure, provide a meaningful presentation of the Company's results from its core business operations, excluding the impact of items not related to the Company's ongoing core business operations, and improve the period-to-period comparability of the Company's results from its core business operations. As required by SEC rules, the Company has provided in its Management Discussion and Analysis and Annual Report reconciliations of those measures to the most directly comparable GAAP measures. In addition to the other information contained in this Annual Information Form, readers should carefully consider the above cautionary statements as well as the risk factors set forth below. 5.2 Risk Factors Risks Relating to the Company's Business ________________________________________ o Increases in raw material costs or the unavailability of raw materials may adversely affect the Company's profitability. Intertape Polymer Group has historically been able to pass on significant raw material cost increases through price increases to its customers. Nevertheless, the Company's results of operations for individual quarters can and have been negatively impacted by delays between the time of raw material cost increases and price increases in its products. For example, during 2004, significant increases in the costs of polypropylene and natural rubber adversely affected the Company's profitability because it was unable to pass along all of these price increases to its customers on a timely basis. The Company had difficulty in increasing its prices to offset these higher costs due to the failure of competitors to increase prices and customer resistance to price increases. The Company's profitability in the future may be adversely affected due to continuing increases in raw material prices. Additionally, the Company relies on its suppliers for deliveries of raw materials. If any of its suppliers were unable to deliver raw materials to the Company for an extended period of time, there is no assurance that the Company's raw material requirements would be met by other suppliers on acceptable terms, or at all, which could have a material adverse effect on the Company's results of operations. o Acquisitions have been and are expected to continue to be a substantial part of the Company's growth strategy, which could expose it to significant business risks. -26- An important aspect of Intertape Polymer Group's business strategy is to make strategic acquisitions that will complement its existing products, expand its customer base and markets, improve distribution efficiencies and enhance its technological capabilities. Financial risks from these acquisitions include the use of the Company's cash resources and incurring additional debt and liabilities. Further, there are possible operational risks including difficulties in assimilating and integrating the operations, products, technology, information systems and personnel of acquired companies; the loss of key personnel of acquired entities; the entry into markets in which the Company has no or limited prior experience; and difficulties honoring commitments made to customers of the acquired companies prior to the acquisition. The failure to adequately address these risks could adversely affect the Company's business. Although the Company performs due diligence investigations of the businesses or assets that it acquires, and anticipates continuing to do so for future acquisitions, there may be liabilities related to the acquired business or assets that the Company fails to, or is unable to, uncover during its due diligence investigation and for which the Company, as a successor owner, may be responsible. When feasible, the Company seeks to minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities because of their limited scope, amount or duration, the financial resources of the indemnitor or warrantor or other reasons. o The Company's ability to achieve its growth objectives depends in part on the timing and market acceptance of its new products. Intertape Polymer Group's business plan involves the introduction of new products, which are both developed internally and obtained through acquisitions. The Company's ability to introduce these products successfully depends on the demand for the products, as well as their price and quality. In the event the market does not accept these products or competitors introduce similar products, the Company's ability to expand its markets and generate organic growth could be negatively impacted which could have an adverse affect on its operating results. o The Company's future results may be adversely affected by receiving fewer savings from its corporate initiatives than expected. The Company achieved cost reductions of $5.5 million in 2002, $6.0 million in 2003, and $7.6 million in 2004 through a variety of corporate initiatives. The Company expects to achieve further cost reductions in future years. There can be no assurance that all of the estimated savings from these initiatives will be realized. Although the Company currently expects to achieve its goals, the Company may encounter unanticipated difficulties in implementing its initiatives. o The Company faces significant competition. The markets for Intertape Polymer Group's products are highly competitive. Competition in its markets is primarily based upon the quality, breadth and -27- performance characteristics of its products, customer service and price. The Company's ability to compete successfully depends upon a variety of factors, including its ability to maintain high plant efficiencies and operating rates and low manufacturing costs, as well as its access to quality, low-cost raw materials. Some of the Company's competitors outside of North America may, at times, have lower raw material, energy and labor costs and less restrictive environmental and governmental regulations to comply with than the Company does. Other competitors may be larger in size or scope than is the Company, which may allow them to achieve greater economies of scale on a global basis or allow them to better withstand periods of declining prices and adverse operating conditions. In addition, there has been an increasing trend among the Company's customers towards consolidation. With fewer customers in the market for its products, the strength of the Company's negotiating position with these customers could be weakened, which could have an adverse effect on its pricing, margins and profitability. o Intertape Polymer Group faces risks related to its international operations. The Company has customers and operations located outside the United States and Canada. In 2004, sales to customers located outside the United States and Canada represented approximately 7.9% of its sales. The Company's international operations present it with a number of risks and challenges, including the effective marketing of the Company's products in other countries; tariffs and other trade barriers; and different regulatory schemes and political environments applicable to its operations in these areas, such as environmental and health and safety compliance. In addition, the Company's financial statements are reported in U.S. dollars while a portion of its sales is made in other currencies, primarily the Canadian dollar and the euro. A portion of the Company's debt is also denominated in currencies other than the U.S. dollar. As a result, fluctuations in exchange rates between the U.S. dollar and foreign currencies can have a negative impact on the Company's reported operating results and financial condition. Moreover, in some cases, the currency of the Company's sales does not match the currency in which it incurs costs, which can negatively affect its profitability. Fluctuations in exchange rates can also affect the relative competitive position of a particular facility where the facility faces competition from non-local producers, as well as the Company's ability to successfully market its products in export markets. o The Company's operations are subject to comprehensive environmental regulation and involve expenditures which may be material in relation to its operating cash flow. The Company's operations are subject to extensive environmental regulation in each of the countries in which it maintains facilities. For example, United States (Federal and state) and Canadian (Federal and provincial) environmental laws applicable to the Company include statutes and regulations intended to allocate the cost of investigating, monitoring and remedying soil and groundwater contamination among specifically identified parties, as well as to prevent future soil and groundwater contamination; -28- imposing national ambient standards and, in some cases, emission standards, for air pollutants which present a risk to public health, welfare or the natural environment; governing the handling, management, treatment, storage and disposal of hazardous wastes and substances; and regulating the discharge of pollutants into protected waterways. The Company's use of hazardous substances in its manufacturing processes and the generation of hazardous wastes not only by the Company, but by prior occupants of its facilities suggest that hazardous substances may be present at or near certain of the Company's facilities or may come to be located there in the future. Consequently, the Company is required to monitor closely its compliance under all the various environmental regulations applicable to it. In addition, the Company arranges for the off-site disposal of hazardous substances generated in the ordinary course of its business. The Company obtains Phase I or similar environmental site assessments, and Phase II environmental site assessments, if necessary, for most of the manufacturing facilities it owns or leases at the time it either acquires or leases such facilities. These assessments typically include general inspections and may involve soil sampling and/or ground water analysis. The assessments have not revealed any environmental liability that, based on current information, the Company believes will have a material adverse effect on it. Nevertheless, these assessments may not reveal all potential environmental liabilities and current assessments are not available for all facilities. Consequently, there may be material environmental liabilities that the Company is not aware of. In addition, ongoing clean up and containment operations may not be adequate for purposes of future laws and regulations. The conditions of the Company's properties could also be affected in the future by neighboring operations or the conditions of the land in the vicinity of its properties. These developments and others, such as increasingly stringent environmental laws and regulations, increasingly strict enforcement of environmental laws and regulations, or claims for damage to property or injury to persons resulting from the environmental, health or safety impact of its operations, may cause the Company to incur significant costs and liabilities that could have a material adverse effect on it. Except as described below, the Company believes that all of its facilities are in material compliance with applicable environmental laws and regulations and that it has obtained, and is in material compliance with, all material permits required under environmental laws. The Company is currently remediating contamination at its Columbia, South Carolina plant, and it installed a hydraulic barrier at its now closed St. Laurent, Quebec plant to prevent off-site migration of contaminated groundwater. Contamination at the Company's St. Laurent location may have migrated to the adjacent property. The Company is investigating to determine what additional action is required. The Company has completed remediation activities at its Marysville, Michigan facility and has requested final approval of the remediation from the State of Michigan. In addition, although certain of the Company's facilities emit toluene and other pollutants into the air, these emissions are within current permitted limitations. The Company believes that these emissions from its U.S. facilities will meet the applicable future federal Maximum Available Control Technology ("MACT") requirements, although additional testing or modifications at the facilities may be required. Currently, the Company estimates the cost of additional testing or modification at the facilities to comply with MACT requirements -29- will be less than $500,000 through 2005. The Company believes that the ultimate resolution of these matters should not have a material adverse effect on its financial condition or results of operations. The Company's facilities are required to maintain numerous environmental permits and governmental approvals for its operations. Some of the environmental permits and governmental approvals that have been issued to the Company or to its facilities contain conditions and restrictions, including restrictions or limits on emissions and discharges of pollutants and contaminants, or may have limited terms. If the Company fails to satisfy these conditions or to comply with these restrictions, it may become subject to enforcement actions and the operation of the relevant facilities could be adversely affected. The Company may also be subject to fines, penalties or additional costs. The Company may not be able to renew, maintain or obtain all environmental permits and governmental approvals required for the continued operation or further development of the facilities, as a result of which the operation of the facilities may be limited or suspended. o The Company may become involved in litigation relating to its intellectual property rights, which could have an adverse impact on its business. Intertape Polymer Group relies on patent protection, as well as a combination of copyright, trade secret and trademark laws, nondisclosure and confidentiality agreements and other contractual restrictions to protect its proprietary technology. Litigation may be necessary to enforce these rights, which could result in substantial costs to the Company and a substantial diversion of management attention. If the Company does not adequately protect its intellectual property, its competitors or other parties could use the intellectual property that the Company has developed to enhance their products or make products similar to the Company's and compete more efficiently with it, which could result in a decrease in the Company's market share. While the Company has attempted to ensure that its products and the operations of its business do not infringe other parties' patents and proprietary rights, its competitors or other parties may assert that the Company's products and operations may be covered by patents held by them. In addition, because patent applications can take many years to issue, there may be applications now pending of which the Company is unaware, which may later result in issued patents which the Company's products may infringe. If any of the Company's products infringe a valid patent, it could be prevented from selling them unless the Company can obtain a license or redesign the products to avoid infringement. A license may not always be available or may require the Company to pay substantial royalties. The Company may not be successful in any attempt to redesign any of its products to avoid any infringement. Infringement or other intellectual property claims, regardless of merit or ultimate outcome, can be expensive and time-consuming and can divert management's attention from the Company's core business. Risks Relating to the Company's Indebtedness ____________________________________________ o The Company's substantial debt could adversely affect its financial condition and prevent it from fulfilling its obligations under its Senior Secured Credit Facility or Senior Subordinated Notes. -30- The Company has a significant amount of indebtedness. As of December 31, 2004, the Company had outstanding debt of approximately $334,127,000, which represented 45.2% of its total capitalization. Of such total debt, approximately $199.5 million, or all of the Company's outstanding senior debt, was secured. Furthermore, an additional $71.2 million (net of $3.8 million in outstanding letters of credit) in loans available under the Company's Senior Credit Facility, subject to certain restrictive covenants, also would be secured, if drawn upon. The Company's substantial indebtedness could adversely affect its financial condition and make it more difficult for the Company to satisfy its obligations with respect to the Senior Subordinated Notes, as well as its obligations under its new Senior Secured Credit Facility. The Company's substantial indebtedness could also increase its vulnerability to adverse general economic and industry conditions; require the Company to dedicate a substantial portion of its cash flows from operations to payments on its indebtedness, thereby reducing the availability of the Company's cash flows to fund working capital, capital expenditures, research and development efforts and other general corporate purposes; limit the Company's flexibility in planning for, or reacting to, changes in its business and the industry in which it operates; place the Company at a competitive disadvantage compared to its competitors that have less debt; and limit the Company's ability to borrow additional funds on terms that are satisfactory to it or at all. o Despite the Company's level of indebtedness, it will be able to incur substantially more debt. Incurring such debt could further exacerbate the risks to the Company's financial condition described above. The Company will be able to incur significant additional indebtedness in the future. Although the indenture governing the Senior Subordinated Notes and the credit agreement governing the Senior Secured Credit Facility each contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and the indebtedness incurred in compliance with these restrictions could be substantial. The restrictions also do not prevent the Company from incurring obligations that do not constitute indebtedness. To the extent new debt is added to the Company's currently anticipated debt levels, the substantial leverage risks described above would increase. o The Company's Senior Subordinated Notes and Senior Secured Credit Facility contain covenants that limit its flexibility and prevents the Company from taking certain actions. The indenture governing the Company's Senior Subordinated Notes and the credit agreement governing the Company's Senior Secured Credit Facility include a number of significant restrictive covenants. These covenants could adversely limit the Company's ability to plan for or react to market conditions, meet its capital needs and execute its business strategy. These covenants, among other things, limit the Company's ability and the ability of its restricted subsidiaries to incur additional debt; pay dividends and make other restricted payments; create or permit certain liens; issue or sell capital stock of restricted subsidiaries; use the proceeds from sales of assets; make certain investments; create or permit restrictions on the ability of the guarantors to pay dividends or to make other distributions to -31- the Company; enter into certain types of transactions with affiliates; engage in unrelated businesses; enter into sale and leaseback transactions; and consolidate or merge or sell the Company's assets substantially as an entirety. The Company's Senior Secured Credit Facility includes other and more restrictive covenants and prohibits the Company from prepaying its other debt, including the Senior Subordinated Notes, while borrowings under the Company's Senior Secured Credit Facility are outstanding. The Company's Senior Secured Credit Facility also requires it to maintain certain financial ratios and meet other financial tests. The Company's failure to comply with these covenants could result in an event of default, which, if not cured or waived, could result in the Company being required to repay these borrowings before their scheduled due date. If the Company were unable to make this repayment or otherwise refinance these borrowings, the lenders under the Senior Secured Credit Facility could elect to declare all amounts borrowed under the Company's Senior Secured Credit Facility, together with accrued interest, to be due and payable, which, in some instances, would be an event of default under the indenture governing the Senior Subordinated Notes. In addition, these lenders could foreclose on the Company's assets. If the Company was unable to refinance these borrowings on favorable terms, the Company's results of operations and financial condition could be adversely impacted by increased costs and less favorable terms, including interest rates and covenants. Any future refinancing of the Company's Senior Secured Credit Facility is likely to contain similar restrictive covenants and financial tests. o The Company may not be able to generate sufficient cash flow to meet its debt service obligations. The Company's ability to generate sufficient cash flows from operations to make scheduled payments on its debt obligations will depend on its future financial performance, which will be affected by a range of economic, competitive, regulatory, legislative and business factors, many of which are outside of the Company's control. If the Company does not generate sufficient cash flows from operations to satisfy its debt obligations, the Company may have to undertake alternative financing plans, such as refinancing or restructuring its debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. The Company cannot assure that any refinancing would be possible or that any assets could be sold on acceptable terms or otherwise. The Company's inability to generate sufficient cash flows to satisfy its debt obligations, or to refinance its obligations on commercially reasonable terms, would have an adverse effect on the Company's business, financial condition and results of operations. In addition, any refinancing of the Company's debt could be at higher interest rates and may require the Company to comply with more onerous covenants, which could further restrict its business operations. o Because Intertape Polymer Group is a Canadian company, it may be difficult to enforce rights under U.S. bankruptcy laws. Intertape Polymer Group and certain of its subsidiaries are incorporated under the laws of Canada and a substantial amount of its assets are located outside of the United States. Under bankruptcy laws in the United States, courts typically assert jurisdiction over a debtor's property, wherever located, including property situated in other countries. However, courts -32- outside of the United States may not recognize the United States bankruptcy court's jurisdiction over property located outside of the territorial limits of the United States. Accordingly, difficulties may arise in administering a United States bankruptcy case involving a Canadian debtor with property located outside of the United States, and any orders or judgments of a bankruptcy court in the United States may not be enforceable outside the territorial limits of the United States. o It may be difficult for investors to enforce civil liabilities against Intertape Polymer Group under U.S. federal and state securities laws. Intertape Polymer Group and certain of its subsidiaries are incorporated under the laws of Canada. Certain of their directors and executive officers are residents of Canada and a portion of their assets are located outside of the United States. In addition, certain subsidiaries are located in other foreign jurisdictions. As a result, it may be difficult or impossible for U.S. investors to effect service of process within the United States upon Intertape Polymer Group, its Canadian subsidiaries, or its other foreign subsidiaries, or those directors and officers or to realize against them upon judgments of courts of the United States predicated upon the civil liability provisions of U.S. federal securities laws or securities or blue sky laws of any state within the United States. The Company believes that a judgment of a U.S. court predicated solely upon the civil liability provisions of the Securities Act and/or the Exchange Act would likely be enforceable in Canada if the U.S. court in which the judgment was obtained had a basis for jurisdiction in the matter that was recognized by a Canadian court for such purposes. The Company cannot assure that this will be the case. There is substantial doubt whether an action could be brought in Canada in the first instance on the basis of liability predicated solely upon such laws. o Anti-takeover provisions in the Company's Shareholder Protection Rights Plan may prevent an acquisition. Intertape Polymer Group has a Shareholder Protection Rights Plan (the "Plan") which will remain in effect through the date immediately following the date of the Company's 2006 annual shareholders' meeting, unless otherwise extended. The effect of the Plan is to require anyone who seeks to acquire 20% or more of Intertape Polymer Group's voting shares to make a bid complying with specific provisions of the Plan. Thus, the provisions of the Plan could prevent or delay the acquisition of the Company by means of a tender offer, a proxy contest, or otherwise, in which shareholders might receive a premium over the then current market price of the Company's common shares. o The Company's exemptions under the Exchange Act as a foreign private issuer limits the protections and information afforded investors. Intertape Polymer Group is a foreign private issuer within the meaning of the rules promulgated under the Exchange Act. As such, it is exempt from certain provisions applicable to United States companies with securities registered under the Exchange Act, including: the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission of quarterly reports on Form 10-Q or current reports on Form 8-K; the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; -33- and the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any "short-swing" trading transaction (i.e., a purchase and sale, or sale and purchase, of the issuer's equity securities within a period of less than six months). Because of these exemptions, purchasers of Intertape Polymer Group's securities are not afforded the same protections or information generally available to investors in public companies organized in the United States. Intertape Polymer Group previously filed its annual reports on Form 20-F. Commencing with the year ended December 31, 2000, the Company files its annual report on Form 40-F. Intertape Polymer Group reports on Form 6-K with the Commission and publicly releases quarterly financial reports. Item 6. Dividends The Company has no written policy for the payment of dividends. So long as the payment does not result in a violation of the Company's covenants with its lenders and noteholders, there are no other restrictions that would prevent the Company from paying dividends. However, the Company has not paid dividends in the past three years and has no current intention to pay dividends in the upcoming fiscal year. For details regarding the covenants of our lenders and noteholders please refer to the Registration Statement filed on www.sedar.com in Canada and www.sec.gov in the U.S. on October 26, 2004 as Registration No. 333-119982, as amended. Item 7. General Description of Capital Structure 7.1 General Description of Capital Structure Intertape Polymer Group has authorized an unlimited number of voting common shares without par value. The Company also has authorized an unlimited number of non-voting Class A preferred shares issuable in a series, ranking in priority to the common shares with respect to dividends and return of capital on dissolution. The Board of Directors is authorized to fix, before issuance, the designation, rights, privileges, restrictions and conditions attached to the shares of each series of Class A preferred shares. As of December 31, 2004, there were 41,236,961 issued and outstanding common shares and no issued and outstanding preferred shares of the Company. 7.2 Ratings Intertape Polymer US Inc., a finance subsidiary of Intertape Polymer Group, has issued in the aggregate $125 million Senior Subordinate Notes that bear interest at 8-1/2% per annum and will mature August 1, 2014. Moody Investor Service, Inc. ("Moody") last rated the Senior Subordinate Notes on July 7, 2004 and at that time rated them B3 (stable). Standard & Poor's ("S&P") last rated the Senior Subordinated Notes on July 2, 2004 and rated them B-. The credit ratings provided by S&P and Moody's (collectively "Rating Agencies") are not recommendations to buy, hold or sell the securities, as such ratings do not comment on the market price or suitability for a -34- particular investor. There is no assurance that any rating will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a Rating Agency in the future if in its judgment circumstances so warrant. Credit ratings are intended to provide investors with an independent measure of credit quality of an issue of securities. Ratings for debt instruments are presented in ranges by each of the Rating Agencies. The highest quality of securities are rated AAA, in the case of S&P and Aaa, in the case of Moody's. The lowest quality of securities are rated D, in the case of S&P and C, in the case of Moody's. Pursuant to Moody's rating system, notes which are rated B are considered speculative and are subject to a high credit risk. Moody appends numerical modifiers from 1 to 3 on its long-term debt ratings which indicate where the obligation ranks in its rating category, with 1 being the highest. Moody's outlook is its assessment regarding the likely direction of the ratings over the medium term, 18 to 36 months. According to the S&P rating system, issuers of debt securities rated B are judged to have the current capacity to meet their financial commitment but adverse business, financial or economic conditions will likely impair the issuer's capacity to meet its financial obligations. S&P also uses the plus or minus sign to show relative standing within the major rating categories. The issue rating definitions are expressed in terms of default risk, thus subordinated debt is typically rated lower than senior debt and the rating of subordinated debt may not conform exactly with the category definition. Item 8. Market for Securities 8.1 Trading Price and Volume on the Toronto Stock Exchange The Company's common shares are traded on the Toronto Stock Exchange under the symbol "ITP". Set forth below is the price range and volume traded on the Toronto Stock Exchange for each month of 2004. Month Price Range Volume Traded _____ ___________ _____________ January CDN $13.65-17.00 61,466 February $13.68-16.15 177,890 March $12.00-14.88 117,695 April $10.21-14.72 64,761 May $ 8.67-10.67 128,970 June $ 9.08-10.39 74,945 July $10.00-12.35 62,728 August $10.20-11.60 111,380 September $ 8.59-10.74 39,280 -35- October $ 9.00-10.47 51,275 November $ 8.86-10.39 56,213 December $ 9.05-11.10 68,428 8.2 Trading Price and Volume on the New York Stock Exchange The Company's common shares are also traded on the New York Stock Exchange under the symbol "ITP". The 2004 monthly price range and volume traded on the New York Stock Exchange is as follows: Month Price Range Volume Traded _____ ___________ _____________ January US $10.44-13.34 79,115 February $10.42-12.30 84,252 March $ 9.02-10.99 46,965 April $ 7.49-10.79 66,966 May $ 6.30-7.69 29,170 June $ 6.68-7.69 83,752 July $ 7.53-9.30 50,809 August $ 7.76-8.44 43,163 September $ 6.75-8.29 89,542 October $ 7.34-8.22 28,185 November $ 7.28-8.65 44,900 December $ 7.40-9.15 41,572 Item 9. Escrowed Securities Number of Securities Percentage of Class Designation of Class Held in Escrow as of 12/31/04 ____________________ ____________________ ___________________ Common 250,587 0.607% The escrow agent is SunTrust Bank, Corporate Trust Services Division, Atlanta, Georgia. The shares were placed into escrow pursuant to the terms of an Escrow Agreement dated September 25, 2000, entered into in connection with the Company's acquisition of the assets of Olympian Tape Sales Inc. The shares are to be released upon the settlement of certain claims arising out of the transaction and the agreement of the parties thereto. Item 10. Directors and Officers The following table sets forth the name, residence, position, and principal occupations for the last five (5) years of each Director of the Company as of the date hereof, as well as the date upon which each Director was first elected. Each Director serves for a term of one year and may be 36- nominated for re-election at the following annual shareholders' meeting. The next annual shareholders' meeting is to be held on May 25, 2005, at which time the current term of each Director will expire. It is contemplated that each Director will be nominated for election at the upcoming annual meeting.
Name and Position and Occupation First Year as City of Residence Director Melbourne F. Yull Director, Chairman of the Board Sarasota, Florida CEO of the Company 1989 Michael L. Richards Director Westmount, Quebec Attorney, Senior Partner, Stikeman Elliott LLP 1989 Ben J. Davenport, Jr. Director Chatham, Virginia CEO, Chatham Oil Company, a distributor of oil, gasoline and propane; Chairman & CEO, First Piedmont Corporation, a waste hauling business 1994 L. Robbie Shaw Director Halifax, Nova Scotia Former Vice President, Nova Scotia Community College, to which he currently acts as a consultant 1994 Gordon R. Cunningham Director Toronto, Ontario President, Cumberland Asset Management Corp., a discretionary investment management firm 1998 J. Spencer Lanthier Director Toronto, Ontario Former Chairman & CEO, KPMG Canada from 1993 to 1999 (Since Retired) 2001 Thomas E. Costello Director Longboat Key, Florida Former CEO of xpedx , a subsidiary of International Paper Company from 1991 to 2002 (Since Retired) 2002
-37- The following table sets forth the name, residence and position of each executive officer of the Company as of the date hereof, as well as the date upon which each executive officer was first elected:
Name and Municipality of Residence Position and Occupation Melbourne F. Yull Sarasota, Florida Chief Executive Officer 1992 Andrew M. Archibald, C.A. Chief Financial Officer and Secretary Sarasota, Florida 1995 Burgess H. Hildreth Sarasota, Florida Vice President, Human Resources 1998 James A. Jackson Sarasota, Florida Vice President, Chief Information Officer 1998 H. Dale McSween Sarasota, Florida Executive Vice President, Operations 1999 Gregory A. Yull Sarasota, Florida President, Distribution Products 1999 Jim Bob Carpenter Sarasota, Florida Executive Vice President, Global Sourcing 1999 Duncan R. Yull Executive Vice President, Strategic Sarasota, Florida Planning & International Business 1999 Piero Greco Laval, Quebec Treasurer 2002 Victor DiTommaso, CPA Sarasota, Florida Vice President, Finance 2003 Mark J. Dougherty President, Consumer Products 2004 Sarasota, Florida
The principal occupations of each executive officer for the last five (5) years is as follows: Melbourne F. Yull, established the business and has been the Company's Chief Executive Officer since 1992. Andrew M. Archibald has been Chief Financial Officer and Secretary since May 1995. He was Vice President Administration from May 1995 through January 2005. He was Vice President Finance from May, 1995, to January 15, 1999. Prior thereto he served as Vice-President, Finance and Secretary of the Company since 1989. -38- Burgess H. Hildreth has been Vice President, Human Resources, since October, 1998. Prior to that he had been the Vice President Administration of Anchor Continental, Inc. since June, 1996. James A. Jackson has been Vice-President, Chief Information Officer, since September 1, 1998. Prior to that he had been the Managing Partner of Spectrum Information Management Systems since 1996. H. Dale McSween was appointed Executive Vice President, Operations in January, 2005. Prior to that he served as President, Distribution Products, since December, 1999 and as Executive Vice-President and Chief Operating Officer from May 1995. Gregory A. Yull, a son of Melbourne F. Yull, was appointed President, Distribution Products, in January, 2005. He served as President, Film Products, since June, 1999. Prior to that he was Products Manager - Films since 1995. Jim Bob Carpenter was appointed Executive Vice President, Global Sourcing in January, 2005. Prior to that he served as the President, Woven Products, Procurement, since May 1, 1999 and prior to that, he was the General Manager of Polypropylene Fina Oil & Chemical Co. Duncan R. Yull, a son of Melbourne F. Yull, was appointed Executive Vice President, Strategic Planning and International Business in January, 2005. He was Vice President Sales, Distribution Products, since December, 1999. Prior to that he was a Regional Sales Manager for the Company until 1997 and was the Director of Sales until December, 1999. Piero Greco has been with the Company since January 2001 and was appointed Treasurer on October 21, 2002. Prior to that he had served as the Treasury Manager for Bombardier Inc. since October, 1997. Victor DiTommaso was appointed Vice President, Finance on April 24, 2003. Prior to that he had served as the Senior Vice President of Information Technology of Walls Industries, Inc. since July, 2000, and Senior Vice President of Finance since July, 1998. Mark J. "Doc" Dougherty was appointed President, Consumer Products in January, 2005. He served as President, Retail since February, 2004. Prior to that, he was Executive Vice President and General Manager of North America for U.S. Smokeless Tobacco Co. in 2003. Prior to that he was President and Managing Director of Crossmark, Inc., Global Division, during 2001 and 2002. Prior to that he served in various executive management capacities for PepsiCo. from January 1993 through December 2000. As of March 26, 2005, the directors and executive officers of the Company as a group owned beneficially, directly or indirectly, or exercised control or direction over, 840,982 common shares, representing approximately 2% of all common shares outstanding. In addition, the directors and executive officers as a group have 3,070,437 options to purchase common shares of the Company. -39- The Board of Directors has established three committees, the Audit Committee, the Compensation Committee, and the Nominating & Governance Committee to facilitate the carrying out of its duties and responsibilities and to meet applicable statutory requirements. The Toronto Stock Exchange Guidelines for Corporate Governance (the "Guidelines") recommend that the Audit Committee be made up of outside directors only and that other board committees should be comprised generally of outside directors, a majority of whom should be unrelated directors. The Audit Committee complies with the Guidelines as it is composed of four outside directors, namely L. Robbie Shaw, Gordon R. Cunningham, Thomas E. Costello, and J. Spencer Lanthier. The Compensation Committee, as presently constituted, has one related director and three unrelated directors, namely Michael L. Richards, L. Robbie Shaw, Ben J. Davenport, Jr., and Gordon R. Cunningham. Mr. Richards is deemed to be a related director, inasmuch as the law firm of Stikeman Elliott LLP, of which he is a senior partner, provides legal services to the Company on a regular basis. However, the Company believes that its relationship with Stikeman Elliott LLP does not inhibit Mr. Richards' ability to act impartially, nor his ability to act independently of the views of the management of the Company. The Nominating & Governance Committee is composed of all of the members of the Board, the majority of whom are unrelated directors. Item 11. Legal Proceedings The Company is not currently party to any proceedings or legal claim, nor does it have any knowledge of any potential proceeding or legal claim, that involves or would involve a claim for damages that exceeds ten percent of the current assets of the Company. While the Company or its subsidiaries are parties to various legal actions, the Company is of the view that such actions are ordinary in nature and incidental to the operation of its business and that the outcome of these actions are not likely to have a material adverse effect upon the Company. Item 12. Interest of Management and Others in Material Transactions The Company is unaware of any material interest of any of its directors or officers or of any person who beneficially owns or exercises control or direction over shares carrying more than ten percent of the voting rights attached to the Company's shares, or any associate or affiliate of any such person, in any transaction since the beginning of the last completed financial year or in any proposed transactions that has materially affected or will materially affect the Company or any of its affiliates. The Company made prior to July 31, 2002 interest-free loans payable on demand by the Company to certain of its directors and officers. The balances of such loans as of December 31, 2004, are set forth in the table below: Name and Principal Position Loan Balance as of 12/31/2004 ___________________________ _____________________________ M. F. Yull Chairman of the Board, Chief Executive Officer and a Director US$560,683.00 G. A. Yull President - Film Products US$125,000.00 -40- A. M. Archibald Chief Financial Officer, Secretary, Vice President Administration US$132,859.00 D. R. Yull Vice President Sales & Marketing - Distribution Products US$ 59,730.00 H. D. McSween President - Distribution Products US$ 25,785.00 J. Jackson Vice President, Chief Information Officer US$ 10,000.00 Item 13. Transfer Agents and Registrars Set forth below are the Company's transfer agents and registrars with respect to its common shares, who also maintain the registers of the transfers of the stock of the Company: In Canada: CIBC Mellon Trust Company 2001 University Street, 16th Floor Montreal, Quebec, Canada H3A 4L8 In the U.S.: Mellon Investor Services L.L.C. 85 Challenger Road, 2nd Floor Ridgefield Park, New Jersey U.S.A. 07660 Wilmington Trust Company, Corporate Capital Markets, 1100 North Market Street, Wilmington, DE 19890-1626, is the Trustee under the Indenture with respect to the Company's registered 8-1/2% Senior Subordinated Notes due 2014. Item 14. Material Contracts Since January 1, 2002, Intertape Polymer Group directly or through its subsidiaries has entered into the following material contracts: o an Amended and Restated Shareholder Protection Rights Plan Agreement adopted by the shareholders of the Company on June 11, 2003, amending and restating the Shareholder Protection Rights Plan originally entered into on August 24, 1993, as first amended on May 21, 1998. The 2003 Amended and Restated Plan, among other things, extended the Plan through the date immediately following the date of the Company's 2006 annual Shareholders' meeting. The effect of the Plan is to require anyone who seeks to acquire 20% or more of Intertape Polymer Group's voting shares to make a bid complying with specific provisions of the Plan. Thus, the provisions of the Plan could prevent or delay the acquisition of the Company by means of a tender offer, a proxy contest, or otherwise, in which shareholders might receive a premium -41- over the then current market price of the Company's common shares. A copy of the Amended and Restated Shareholder Protection Rights Plan Agreement is attached hereto as Exhibit "B". o a new employment agreement with Melbourne F. Yull dated January 1, 2004. Pursuant to the terms of the employment agreement, Mr. Yull continues to serve as Chairman of the Board and Chief Executive Officer of Intertape Polymer Group. His compensation level is reviewed annually by the Company in accordance with its internal policies. Mr. Yull's fixed annual gross salary for 2004 was $508,832.00. The employment agreement provides, among other things, for annual bonuses based on the budgeted objectives of the Company. o an Amended Executive Stock Option Plan as amended and consolidated to June 2, 2004. The Plan was established by Intertape Polymer Group in 1992 and has been amended from time to time. The Plan is administered by the Board of Directors. The shares offered under the Plan are common shares of the Company. The purpose of the Plan is to promote a proprietary interest in the Company among the executives, the key employees and the non-management directors of the Company and its subsidiaries, in order to both encourage such persons to further the development of the Company and to assist the Company in attracting and retaining key personnel necessary for the Company's long term success. The Board of Directors designates from time to time from the eligible executives those executives to whom options are to be granted and determines the number of shares covered by such options. Generally, participation in the Plan is limited to persons holding positions that can have an impact on the Company's long-term results. The number of common shares to which the options relate are determined by taking into account, among other things, the market price of the common shares and each optionee's base salary. The exercise price payable for each common share covered by an option is determined by the Board of Directors but will not be less than the market value of the underlying common shares on the day preceding the effective date of the grant. The Plan provides that options issued thereunder shall vest 25% per year over four years. Currently the maximum number of common shares that may be issued under the Plan is 4,094,538. A copy of the Plan is attached hereto as Exhibit "C". o a Credit Agreement dated as of July 28, 2004, among the Company and certain of its subsidiaries, the Lenders referred to therein, Citigroup Global Markets Inc., as Sole Lead Arranger and Sole Bookrunner, Citicorp North America, Inc., as Administrative Agent, The Toronto-Dominion Bank, as Syndication Agent, and Comerica Bank and HSBC Bank USA, National Association, as Co-Documentation Agents. The Credit Agreement represents the new Senior Secured Credit Facility entered into by the Company and its subsidiaries. The initial funding under the new Senior Secured Credit Facility occurred on August 4, 2004. The Company's new Senior Secured Credit Facility consists of -42- a US$200.0 million seven-year delayed draw Term B facility to be made available in U.S. Dollars; a US$65.0 million five-year revolving credit facility to be made available in U.S. Dollars; and a US$10.0 million five-year revolving credit facility to be made available in Canadian Dollars. The Company and substantially all of its subsidiaries guaranteed the Senior Secured Credit Facility. Further, the Senior Secured Credit Facility is secured by a first priority perfected security interest in substantially all tangible and intangible assets of the Company and its subsidiaries. o a Purchase Agreement, Registration Rights Agreement and Indenture each dated as of July 28, 2004, in connection with the issuance by Intertape Polymer US Inc., a finance subsidiary of Intertape Polymer Group, of the aggregate principal amount of US$125.0 million of 8-1/2% Senior Subordinated Notes due 2014. The Notes were offered to institutional investors and are guaranteed on a senior subordinated basis by the Company and substantially all of its subsidiaries. Interest will accrue and be payable on the Notes semi-annually in arrears on February 1 and August 1. For a copy of the Purchase Agreement, Registration Rights Agreement, and Indenture, as well as details of the terms of the Senior Subordinated Notes, see the Registration Statement filed on October 26, 2004 as Registration No. 333-119982 as amended on www.sec.gov in the United States. o a Supply Agreement dated February 2, 2004, among Intertape Polymer Corp. and Central Products Company, subsidiaries of Intertape Polymer Group, as buyer, and tesa tape inc., as seller, in connection with the acquisition of the assets relating to the masking and duct tape operations of tesa tape inc. The Supply Agreement provides that the Company will manufacture and supply to tesa tape inc. products previously produced by tesa tape inc. prior to the acquisition. A copy of all of the foregoing contracts, except as otherwise noted, are available on www.sedar.com and on www.sec.gov. Item 15. Experts 15.1 Name of Experts The following are the names of each person or company who has prepared or certified a statement, report or valuation described or included in a filing, or referred to in a filing made by Intertape Polymer Group during 2004: Raymond Chabot Grant Thornton LLP; Montreal, Quebec Stikeman Elliott LLP; Montreal, Quebec Shutts & Bowen LLP; Orlando, Florida Stewart, McKelvey, Stirling, Scales; Halifax, Nova Scotia F. Castelo Branco & Associates; Lisbon, Portugal Chancery Chambers; Bridgetown, Barbados Goodrich Riquelme Y Asociados; Mexico City, Mexico -43- 15.2 Interests of Experts None of the experts set forth in Item 15.1 above directly or indirectly, held at the time their statement, report or valuation was prepared; received after their statement, report or valuation was prepared; or shall receive, any registered or beneficial interest in any securities or other property of Intertape Polymer Group or any of its subsidiaries. Michael L. Richards is a senior partner of the law firm of Stikeman Elliott LLP and is a Director of the Company. As at December 31, 2004, Mr. Richards owned 77,000 common shares of the Company and outstanding options to purchase an additional 36,000 common shares of the Company. J. Gregory Humphries is a partner of the law firm of Shutts & Bowen LLP and acts as a Director and officer of certain of the U.S. subsidiaries of the Company. The Company is of the view that its relationship with Stikeman Elliott LLP and Shutts & Bowen LLP does not inhibit Mr. Richards' or Mr. Humphries' respective ability to act impartially, or their ability to act independently of the views of management. It is anticipated that both gentlemen will be re-elected. Item 16. Additional Information Additional information with respect to the Company, including directors' and officers' remuneration and indebtedness, principal holders of the Company's securities, and securities authorized for issuance under equity compensation plans is contained in the Company's information circular for its most recent annual meeting of security holders that involved the election of directors. Additional financial information is provided in the Company's Consolidated Financial Statements and Management's Discussion and Analysis for the fiscal year ended December 31, 2004. All of this information, as well as additional information, may be found on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com. Item 17. Audit Committee 17.1 Audit Committee Charter The text of the Audit Committee's Charter is attached hereto as Exhibit "A". 17.2 Composition of the Audit Committee The members of the Audit Committee of Intertape Polymer Group are Thomas J. Costello, Gordon R. Cunningham, J. Spencer Lanthier, and L. Robbie Shaw. Each of the Audit Committee members are independent and financially literate as such terms are defined by Multilateral Instrument 52-110 - Audit Committee. -44- 17.3 Relevant Education and Experience Mr. Costello earned a Bachelor of Science in Business and an MBA from Indiana University Kelly School of Business. He was the Chief Executive Officer of xpedx, a subsidiary of International Paper Company, from 1991 until his retirement in 2002. Mr. Cunningham earned a Bachelor of Arts and an SJD from the University of Toronto. He was awarded an honorary LLD from the University of Victoria. Mr. Cunningham is the President of Cumberland Asset Management Corp., a discretionary investment management firm. Previously, Mr. Cunningham served as the President and Chief Executive Officer of London Life Insurance Company, one of Canada's largest life insurers. Mr. Lanthier, C.A., currently serves as the member of the board of directors of several publicly traded corporations. He was the Chairman and Chief Executive Officer of KPMG Canada and also served as a member of KPMG's board of directors from 1993 until his retirement in 1999. Mr. Shaw earned a Bachelor of Arts in Politics and History from Queens University and an LLB from Dalhousie Law School. Until the acquisition of Meloche Monnex Inc. by Toronto Dominion Bank last year, Mr. Shaw was the Chair of its Audit Committee. He has also held several executive positions, including the Vice President of Finance and Administration of Dalhousie University and the operating head of the Canadian Business Unit of National Sea Products. Most recently, Mr. Shaw was the Vice President of the Nova Scotia Community College and now acts as a consultant to the College. 17.4 Pre-Approval Policies and Procedures Intertape Polymer Group's Audit Committee pre-approves all audit engagement fees and the terms of all significant permissible non-audit services provided by independent auditors. 17.5 External Auditor Service Fees The following table sets forth the fees billed for professional services rendered by Raymond Chabot Grant Thornton LLP, Chartered Accountants, Intertape Polymer Group Inc.'s principal accountant, for the fiscal years ended December 31, 2004 and December 31, 2003: Year ended December 31, 2004 2003 ___________________________ Audit Fees $1,022,850 $807,772 Audit-Related Fees -0- 5,694 Tax Fees 146,462 80,421 All Other Fees -0- -0- __________ ________ Total Fees: $1,169,312 $893,887 -45- Audit Fees. Audit fees were for professional services rendered for the audits of Intertape Polymer Group Inc.'s consolidated financial statements, assisting its Audit Committee in discharging its responsibilities for the review of the Company's interim consolidated financial statements and services that generally only the independent auditor can reasonably provide, such as comfort letters, consents and assistance and review of documents filed with the Securities and Exchange Commission and Canadian securities regulatory authorities. Audit-Related Fees. Audit-related fees were for assurance and related services that are reasonably related to the performance of the audit or review of Intertape Polymer Group Inc.'s consolidated financial statements and are not reported under Audit Fees above. These services included consultations concerning financial accounting and reporting standards and the review of responses to the Canadian securities regulatory authorities' observation letters. Tax Fees. Tax fees were for tax compliance, tax advice and tax planning. These services included the preparation of the Canadian subsidiaries' income tax returns, the preparation of information returns for foreign affiliates, assistance with questions regarding tax audits and tax planning relating to common forms of domestic and international taxation (i.e. income tax, capital tax and excise tax) and advisory services regarding restructurings. All Other Fees. All other fees were for services provided other than the audit fees, audit-related fees and tax fees described above. These services consisted mainly of miscellaneous corporate reporting and advisory services. -46- EXHIBIT "A" to AIF INTERTAPE POLYMER GROUP INC. AUDIT COMMITTEE CHARTER ______________________________________________________________________________ CHARTER The Audit Committee of the Board of Directors (the "Board") of Intertape Polymer Group Inc. (the "Corporation") will be responsible for assisting the Board in carrying out its duties and responsibilities relating to corporate accounting policies, financial reporting and procedures, and the quality and integrity of the financial reports of the Corporation. The external auditors are ultimately accountable to the Board and the Audit Committee, as representatives of the shareholders. The Audit Committee, subject to any action that may be taken by the Board, shall have the ultimate authority and responsibility to select and nominate for shareholder approval, evaluate and, as deemed appropriate, recommend to the shareholders the removal of the external auditors. The Audit Committee shall be responsible for overseeing the independence of the external auditors. In discharging its role, the Audit Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Corporation. The Audit Committee shall have the authority to retain special legal, accounting or other consultants to advise the Audit Committee for this purpose. COMMITTEE MEMBERSHIP The Audit Committee shall consist of no fewer than three directors. The members of the Audit Committee shall meet the independence and experience requirements of the Sarbanes-Oxley Act, the New York Stock Exchange, and The Toronto Stock Exchange. The members of the Audit Committee shall be appointed annually by the Board on the recommendation of the Nominating & Governance Committee. Audit Committee members may be replaced by the Board. COMMITTEE AUTHORITY AND RESPONSIBILITIES The Audit Committee shall have the sole authority to recommend to the shareholders the appointment or replacement of the external auditors, and shall approve all audit engagement fees and terms and all significant non-audit engagements with the external auditors. The Audit Committee shall consult with management but shall not delegate these responsibilities. The Audit Committee shall meet as often as it determines, but not less frequently than quarterly. The Audit Committee may form and delegate authority to subcommittees when appropriate. -47- The Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to retain special legal, accounting or other consultants to advise the Committee. The Audit Committee may request any officer or employee of the Corporation or the Corporation's legal counsel or external auditors to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee. The Audit Committee shall meet with management and the external auditors in separate executive sessions at least quarterly. The Audit Committee shall make regular reports to the Board. The Audit Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. The Audit Committee shall annually review the Audit Committee's own performance. The Audit Committee, to the extent it deems necessary or appropriate, shall: Financial Statement and Disclosure Matters 1. Review and discuss with management and the external auditors the annual audited financial statements, including disclosures made in management's discussion and analysis, and recommend to the Board whether the audited financial statements should be included in the Corporation's Form 40-F and Annual Report to Shareholders. 2. Review and discuss with management and the external auditors the Corporation's quarterly financial statements prior to their filing and publication, including the results of the external auditors' reviews of the quarterly financial statements. 3. Discuss with management and the external auditors significant financial reporting issues and judgments made in connection with the preparation of the Corporation's financial statements, including any significant changes in the Corporation's selection or application of accounting principles, any major issues as to the adequacy of the Corporation's internal controls, the development, selection and disclosure of critical accounting estimates, and analyses of the effect of alternative assumptions, estimates or GAAP methods on the Corporation's financial statements. 4. Discuss with management the Corporation's earnings press releases, including the use of "pro forma" or "adjusted" non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies. 5. Discuss with management and the external auditors the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Corporation's financial statements. 6. Discuss with management the Corporation's major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Corporation's risk assessment and risk management policies. -48- 7. Discuss with the external auditors the matters required to be discussed by auditing standards relating to the conduct of the audit. In particular, discuss: (a) The adoption of, or changes to, the Corporation's significant auditing and accounting principles and practices as suggested by the external auditors or management. (b) The management letter provided by the external auditors and the Corporation's response to that letter. (c) Any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to requested information, and any significant disagreements with management Oversight of the Corporation's Relationship with the External Auditors ______________________________________________________________________ 8. Review the experience and qualifications of the senior members of the external auditors' team. 9. Obtain and review a report from the external auditors at least annually regarding (a) the auditors' internal quality-control procedures, (b) any material issues raised by the most recent quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm, (c) any steps taken to deal with any such issues, and (d) all relationships between the external auditors and the Corporation. Evaluate the qualifications, performance and independence of the external auditors, including considering whether the auditor's quality controls are adequate and the provision of non-audit services is compatible with maintaining the auditors' independence, and taking into account the opinions of management. The Audit Committee shall present its conclusions to the Board and, if so determined by the Audit Committee, recommend that the Board take additional action to satisfy itself of the qualifications, performance and independence of the auditors. 10. Consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the lead audit partner or even the external auditing firm itself on a regular basis. 11. Recommend to the Board policies for the Corporation's hiring of employees or former employees of the external auditors who were engaged on the Corporation's account. 12. Determine from the audit team of the external auditors any professional matters dealt with at the national office level of the external auditors. 13. Meet with the external auditors prior to the audit to discuss the planning and staffing of the audit. -49- Oversight of the Corporation's Internal Audit Function ______________________________________________________ 14. Review and discuss with management and the external auditors the appropriateness of having a senior internal auditing executive. 15. If a senior internal auditing executive is appointed, review the significant reports to management prepared by the internal auditing department and management's responses. Compliance Oversight Responsibilities _____________________________________ 17. Obtain from the external auditors assurance that Section 10A of the Securities Exchange Act of 1934 has been complied with. 18. Obtain reports from management, the Corporation's senior internal auditing executive if one is appointed and the external auditors that the Corporation and its subsidiary/foreign affiliated entities are in conformity with applicable legal requirements and the Corporation's Code of Business Conduct and Ethics. Review reports and disclosures of insider and affiliated party transactions. Advise the Board with respect to the Corporation's policies and procedures regarding compliance with applicable laws and regulations and with the Corporation's Code of Business Conduct and Ethics. 19. Discuss with management and the external auditors any correspondence with regulators or governmental agencies and any employee complaints or published reports, which raise material issues regarding the Corporation's financial statements or accounting policies. 20. Discuss with the Corporation's legal counsel matters that may have a material impact on the financial statements or the Corporation's compliance policies. LIMITATION OF AUDIT COMMITTEE'S ROLE While the Audit Committee has the responsibilities and powers set forth herein, it is not the duty of the Committee to prepare the Corporation's financial statements, to plan or conduct audits of those financial statements, or to determine that those financial statements are complete and accurate and in accordance with generally accepted accounting principles in Canada or any other country. This is the responsibility of the Corporation's management and the external auditors. Nor is it the duty of the Audit Committee to conduct investigations, to resolve disagreements, if any, between management and the external auditors or to assure compliance with applicable laws and regulations. -50- EXHIBIT "B" TO AIF AMENDED AND RESTATED SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT -51- EXHIBIT "C" TO AIF AMENDED EXECUTIVE STOCK OPTION PLAN -52- Exhibit 2 2004 ANNUAL REPORT -53- Exhibit 3 CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS We consent to the incorporation of our report dated February 28, 2005, on our audits of the consolidated financial statements of Intertape Polymer Group Inc. as at December 31, 2004 and 2003 and for each of the years in the three-year period ended December 31, 2004, which report is included in this Annual Report on Form 40-F. Raymond Chabot Grant Thornton LLP Chartered Accountants Montreal, Canada March 31, 2005 -54- Exhibit 4 CERTIFICATIONS I, Melbourne F. Yull, Chairman of the Board and Chief Executive Officer of Intertape Polymer Group Inc., certify that: 1. I have reviewed this annual report on Form 40-F of Intertape Polymer Group Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] for the Registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and c. Disclosed in this annual report any change in the Registrant's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are -55- reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: March 31, 2005 /s/Melbourne F. Yull Melbourne F. Yull, Chairman of the Board and Chief Executive Officer -56- I, Andrew M. Archibald, C.A., Chief Financial Officer and Secretary of Intertape Polymer Group Inc., certify that: 1. I have reviewed this annual report on Form 40-F of Intertape Polymer Group Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] for the Registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and c. Disclosed in this annual report any change in the Registrant's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and -57- b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: March 31, 2005 /s/Andrew M. Archibald Andrew M. Archibald, C.A., Chief Financial Officer and Secretary -58- Exhibit 5 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002 The undersigned, Melbourne F. Yull, Chairman of the Board and Chief Executive Officer, and Andrew M. Archibald, C.A., Chief Financial Officer and Secretary, hereby certify that this report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents in all material respects the financial condition and results of operations of Intertape Polymer Group Inc. as of and for the periods presented in this report. Date: March 31, 2005 /s/Melbourne F. Yull Melbourne F. Yull, Chairman of the Board and Chief Executive Officer Date: March 31, 2005 /s/Andrew M. Archibald Andrew M. Archibald, C.A., Chief Financial Officer and Secretary -59- CERTIFIED EXTRACT OF RESOLUTIONS OF THE BOARD OF DIRECTORS OF INTERTAPE POLYMER GROUP INC. ADOPTED ON MARCH 30, 2005 "APPROVAL OF ANNUAL INFORMATION FORM WHEREAS the Chairman presented to the meeting a draft of an annual information form of the Corporation to be dated March 31, 2005. WHEREAS the Chairman informed the meeting that the Corporation proposes to file the annual information form with the securities commissions and other appropriate regulatory authorities in each of the provinces and territories of Canada in order to permit the Corporation to be able to qualify its securities for distribution through the use of a short form prospectus under National Instrument 44-101 - Short Form Prospectus Distributions. BE IT RESOLVED THAT: 1. the annual information form ("AIF") of the Corporation to be dated March 31, 2005, substantially in the form of the document presented to this meeting, be and the same is hereby approved, subject to such additions, deletions and changes therein as may be consented to by any one director or officer of the Corporation; 2. the Corporation be and it is hereby authorized to file the English and French (when and if available) language versions of the AIF, as the same may be amended from time to time, with the securities commissions and appropriate regulatory authorities in each of the provinces and territories of Canada in order to qualify the Corporation as an eligible issuer under National Instrument 44-101 - Short Form Prospectus Distributions; 3. any one director or officer of the Corporation be, and he is, hereby authorized and directed, for and on behalf of the Corporation, to file or cause to be filed the English and French (when and if available) language versions of the AIF under the securities legislation of any of the provinces and territories of Canada and to file such other documents and to do such other things as he may, in his sole discretion, consider necessary, appropriate or useful in connection with, or to carry out the provisions of this resolution; 4. the Corporation file with the United States Securities and Exchange Commission an Annual Report on Form 40-F (the "Form 40-F") covering the Corporation's fiscal year ended December 31, 2004, such Form 40-F to be substantially in the form of the draft presented to the Board of Directors, together with such changes or modifications as may be deemed necessary or appropriate by any director or officer of the Corporation with and upon the advice of counsel, and any director or officer of the Corporation be, and he is, hereby authorized, empowered and directed to execute in the name and on -60- behalf of the Corporation, to procure all other necessary signatures to, and to file with the United States Securities and Exchange Commission, the Form 40-F and any all amendments or supplements thereto; 5. any director or officer of the Corporation be, and he is, hereby authorized and directed for and on behalf of the Corporation, to execute, whether under the corporate seal of the Corporation or otherwise, and to deliver all such certificates, undertakings and other documents and to do all such other acts and things as he may, in his sole discretion, consider necessary or advisable in connection with or to carry out the provisions of this resolution." I, the undersigned, Andrew M. Archibald, C.A., Chief Financial Officer and Secretary, of Intertape Polymer Group Inc. hereby certify that the foregoing resolutions were duly adopted by the Board of Directors of Intertape Polymer Group Inc. on March 30, 2005 and that the said resolutions are, as of the date hereof, in full force and effect and have not been amended. IN WITNESS WHEREOF, I HAVE SIGNED in, Bradenton, Florida, this 31st day of March, 2005. /s/Andrew M. Archibald Andrew M. Archibald, C.A. Chief Financial Officer and Secretary -61- EX-1 2 ipg2004annualreport.txt IPG 2004 ANNUAL REPORT 2004 ANNUAL REPORT INTERTAPE POLYMER GROUP INC. IPG CORPORATE PROFILE Intertape Polymer Group Inc. (IPG) is an acknowledged leader in the packaging industry. Leveraging its advanced manufacturing technologies, extensive R&D capabilities and a comprehensive strategic acquisition program, the Company believes it has assembled the broadest and deepest range of products in the industry. IPG is widely-recognized for its development and manufacture of specialized polyolefin plastic and paper-based packaging products, as well as complementary packaging systems for industrial and retail use. Additionally, IPG is a woven and flexible intermediate bulk container (FIBC) manufacturer. Its performance products, including tapes and cloths, are designed for demanding aerospace, automotive and industrial applications and are sold to a broad range of industrial/specialty distributors, retail stores and large end-users in diverse industries. Through its innovative regional distribution center concept, IPG offers customers an extensive range of products geared to lower their transaction costs and increase inventory turns. This marketing advantage is unmatched in the industry, and has helped IPG establish a market position that clearly differentiates it from its competitors. Established in 1981 and headquartered in Montreal, Quebec and Sarasota/ Bradenton, Florida, IPG employs approximately 2,600 employees with operations in 16 locations, including 10 manufacturing facilities in North America and one in Europe. Intertape Polymer Group Inc. is a publicly traded company with its common shares listed on the New York Stock Exchange and the Toronto Stock Exchange under the stock symbol "ITP." Table of Contents _________________ Message to Shareholders............................................3 Management's Discussion & Analysis: Financial Highlights............................................6 Consolidated Quarterly Statements of Earnings..................7a Adjusted Consolidated Earnings..................................8 Our Business...................................................10 Results of Operations..........................................11 Off-Balance Sheet Arrangements and Related Party Transactions..16 Liquidity and Capital Resources................................16 Critical Accounting Estimates..................................22 Changes in Accounting Policies.................................22 Impact of Accounting Pronouncements Not Yet Implemented........23 Disclosure Required by NYSE....................................23 Additional Information.........................................23 Management's Responsibility for Financial Statements..............24 Auditors' Report .................................................25 Comments by Auditors..............................................26 Financial Statements: Consolidated Earnings.............................................27 Consolidated Retained Earnings ...................................27 Consolidated Cash Flows...........................................28 Consolidated Balance Sheets.......................................29 Notes to Consolidated Financial Statements..................30 to 54 Intertape Polymer Group Locations.................................55 Other Information.................................................56 Corporate Headquarters ______________________ 110E Montee de Liesse Montreal, Quebec Canada, H4T 1N4 Investor Relations Tel: 866-202-4713 Fax: 941-727-3798 Web: www.intertapepolymer.com E-mail: itp$info@intertapeipg.com Forward-Looking Statements __________________________ Certain statements and information set forth in this Annual Report, including statements regarding the business and anticipated financial performance of the Company, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. Forward-looking statements are subject to the safe harbor created by the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding the Company's cost savings from its consolidation efforts, projected sales and earnings, the success of new products, the Company's product mix, and our future financing plans. Forward- looking statements can be identified in some cases by terms such as "may", "should", "could", "intends", "anticipates", "potential", and similar expressions intended to identify forward-looking statements. These statements, which reflect our current views regarding future events, are based on assumptions and subject to risks and uncertainties. Among the factors that could cause actual results to differ from the forward-looking statements include, but are not limited to, inflation and general economic conditions, changes in the level of demand for the Company's products, competitive pricing pressures, general market trends, failure to achieve planned cost savings associated with consolidation, restrictions and limitations placed on the Company by its debt instruments, international risks including exchange rate fluctuations, trade disruptions, and political instability of foreign markets that we produce in or purchase materials from, and the availability and price of raw materials. This Annual Report contains certain non-GAAP financial measures as defined under SEC rules, including adjusted net earnings, EBITDA, and adjusted EBITDA. The Company believes such non-GAAP financial measures improve the transparency of the Company's disclosure, provide a meaningful presentation of the Company's results from its core business operations, excluding the impact of items not related to the Company's ongoing core business operations, and improve the period-to-period comparability of the Company's results from its core business operations. As required by SEC rules, the Company has provided reconciliations of those measures to the most directly comparable GAAP measures. Additional discussion of factors that could cause actual results to differ materially from management's projections, estimates and expectations is contained in the Company's SEC filings. These and other factors should be considered carefully and undue reliance should not be placed on forward-looking statements. The Company undertakes no duty to update its forward-looking statements, including its earnings outlook, other than as required under applicable law. 2 Message to Shareholders Dear Shareholders, In 2004 we continued on the path we began in 2002, to build a better Intertape by concentrating on three key elements: revenue growth, productivity improvement and a strengthening of the balance sheet. Once again we believe we have made some excellent progress. However, the year was not without its share of challenges, not the least of which were the unprecedented increases in some key raw material inputs for our industry. We surpassed the year's revenue growth target of 10% and, notwithstanding the impact of higher raw material costs on our gross margins, we were able to increase our earnings before income taxes excluding refinancing expense and manufacturing facility closure costs ("adjusted earnings before income taxes") by 14.0% from $17.1 million in 2003 to $19.5 million in 2004. Adjusted earnings before income taxes is a non-GAAP financial measure that we believe permits more meaningful comparisons of the Company's performance for these periods. A reconciliation of consolidated net earnings to adjusted consolidated net earnings is included in Management's Discussion and Analysis. Sales rose 11.4% for the year as a result of unit growth, price increases and acquisition-related sales. Gross margin, on the other hand, declined from 22.4% in 2003 to 20.7% in 2004, mainly because of raw material cost increases. Polypropylene more than doubled in cost, polyethylene was not far behind, and adhesive costs were up 40%-50%. While we successfully implemented price increases throughout the year, the frequency and cumulative magnitude of raw material cost increases made it difficult for us to keep up. We estimate that this cost the Company about $15.0-$18.0 million in lost gross profit for the year, or 2.0-2.5 percentage points on gross margin. The refinancing expense and manufacturing facility closure costs represent charges in conjunction with some major financial and operational initiatives undertaken during the year. While these decisions created a negative short- term financial impact, we felt they were important for Intertape's longer- term health and that the payback periods were favorable in the circumstances. We believe this strategy has enhanced our financial and operational cost structures and that this will better allow us to achieve profitable growth and higher returns. In February, we completed the acquisition of certain assets relating to the masking tape and duct tape operations of tesa tape, inc. With this purchase, not only did we increase our sales, but we were also able to utilize existing production capacity at our Columbia, South Carolina facility and gain access to new customers to whom we are able to sell other products from our existing portfolio. In mid-year, we refinanced essentially all of our bank indebtedness and long-term debt. This was a major undertaking, but one which had substantial benefits for us. It has enabled us to reduce financial expenses and increase our financial flexibility because of improved repayment terms and covenants. Assuming year-end interest rates and debt levels remain constant throughout 2005, we expect to realize a further reduction of financial expenses in the range of 10.0% compared to what we incurred in 2004. At the same time, we also arranged for a new source of funds. We now have a $75.0 million committed revolving credit facility that, as at December 31, 2004, had not been drawn. This is in addition to $22.4 million of cash and investments we held at year-end. In the latter part of the year, we announced the closing of two more manufacturing facilities, Cumming, Georgia and Montreal, Quebec. Since late 2002, we have closed seven facilities. Our ability to carry out these closures reflects, in part, the nature of the capital investments we have made over the past two years. We have invested in state-of-the art technology in certain of our facilities, such as our new regional distribution center in Danville, Virginia, which has enabled us to create more cost effective capacity. To be clear, when we closed these facilities, we were not shrinking capacity, but simply reducing infrastructure costs. These actions were part of our commitment made in 2004 to reduce costs by $25.0 million within three years. 3 A culture of accountability Late in the year we initiated a realignment of our internal organizational structure. As outlined above, we have addressed specific financial and operational issues to deal with some immediate revenue and profitability challenges. However, it was clear to us that to build a better Intertape we also had to ensure that our organization was properly aligned so that we could effectively leverage our core competencies in order to achieve our goals of profitable growth and maximizing returns. To effect such a change in focus for our managers, we introduced new performance metrics oriented towards profitable growth and revamped their compensation accordingly. Performance payments will now be based on a combination of unit growth and margins. We have also invested in developing the tools and systems needed to support this realignment. Our managers will have the best available information on which to base their decisions. They will also have increased authority to make decisions that will affect their part of the business. The objective is to implant a culture of accountability deep into the organization. This is a major shift for us, which has been well-received. We firmly believe that an outcome of this change will be a renewed company-wide entrepreneurial culture, similar to that of our earlier days of rapid growth. This approach will also enable a greater focus on increasing market share, better managing of product mix, improving the product development process and more pricing discipline, all of which will be conducive to profitable growth and maximization of returns. Global sourcing Another important consideration for us was addressing the significant changes taking place to the players and dynamics of the global marketplace. For example, the consolidation amongst oil and chemical companies has dramatically reduced the number of resin suppliers in the marketplace. On the demand side, we have been feeling the impact of the increasing appetite of the Chinese and Indian economies for these same raw materials. On the other hand, China and India also represent potential sources of complementary products to ours and would help us broaden our offerings, which in both the industrial and retail markets is seen as an important competitive advantage. Consequently, we decided to create a global sourcing group that would be focused full time on ensuring that we are getting the best deals possible for our production needs, as well as searching worldwide for new products to add to our portfolio. Looking forward Revenue growth, improved productivity and a strong balance sheet remain the cornerstones of our strategy. In 2005, we are targeting revenue growth of at least 10%. We do not anticipate any material improvement in our sector of the economy, and resin costs will likely remain at or around their current high levels for the year ahead. Selling price increases will likely remain a meaningful part of the landscape for the coming year. Recent pricing actions by some of our competitors have provided encouraging signs that there still exists some pricing power within our markets. We will continue to add new products to our portfolio, both internally- developed and externally-sourced in order to maintain our competitive breadth- of-line advantage. We believe our current basket of products represents the widest range of products being offered in our industry. On the retail front, we have plans to significantly improve our brand recognition through innovative promotional programs. For Europe and Asia, 2005 will be a year of setting the groundwork for increased market penetration, with the results of this preparatory work being felt more fully in 2006. Our capital spending for 2005 should be in the range of $23.0 million to $27.0 million. Most of these expenditures will be to improve the productivity of our current operations, while some will also be directed to increasing our in-house capabilities in the film production process. I would like to thank our management team and employees for their efforts in minimizing as much as possible the effects of the massive increase in material costs and for the enthusiasm with which they embraced the major realignments in responsibility. The advice and support of our Board members in both these areas were appreciated. 4 On behalf of the Intertape Polymer Group team, may I say that we look forward to the challenges facing us in making the coming year a successful and rewarding one for our shareholders. /s/Melbourne F. Yull Chairman and Chief Executive Officer 5 Management's Discussion and Analysis March 11, 2005 This Management's Discussion and Analysis ("MD&A") supplements the consolidated financial statements and related notes for the year ended December 31, 2004. Except where otherwise indicated, all financial information reflected herein is prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and is expressed in US dollars. FINANCIAL HIGHLIGHTS (In thousands of U.S. dollars except per share data, selected ratios and trading volume information.)
2004 2003 2002 ________________________________________________________________________________ Operations $ $ $ Consolidated sales 692,449 621,321 601,575 Net earnings (loss) Cdn GAAP 11,358 18,178 (54,454) Net earnings (loss) US GAAP 12,739 16,501 (54,454) Cash flows from operations before changes in non-cash working capital items 27,722 38,137 30,281 ________________________________________________________________________________ 2004 2003 2002 ________________________________________________________________________________ Per Common Share $ $ $ Net earnings (loss) Cdn GAAP - basic 0.28 0.51 (1.66) Net earnings (loss) US GAAP - basic 0.31 0.46 (1.66) Net earnings (loss) Cdn GAAP - diluted 0.27 0.50 (1.66) Net earnings (loss) US GAAP - diluted 0.31 0.46 (1.66) Cash flows from operations before changes in non-cash working capital items 0.67 0.93 0.92 Book value Cdn GAAP 9.80 9.22 8.67 Book value US GAAP 9.60 9.05 8.47 ________________________________________________________________________________ 2004 2003 2002 ________________________________________________________________________________ Financial Position $ $ $ Working capital 150,099 68,725 61,240 Total assets Cdn GAAP 836,711 739,245 703,344 Total assets US GAAP 843,831 745,902 705,187 Total long-term debt 334,127 251,991 312,766 Shareholders' equity Cdn GAAP 404,300 377,510 293,093 Shareholders' equity US GAAP 396,183 370,434 286,491 ________________________________________________________________________________ 2004 2003 2002 ________________________________________________________________________________ Selected Ratios $ $ $ Working capital 2.49 1.54 1.52 Debt/capital employed Cdn GAAP 0.45 0.40 0.52 Debt/capital employed US GAAP 0.46 0.40 0.52 Return on equity Cdn GAAP 2.8% 4.8% (18.6)% Return on equity US GAAP 3.2 4.5% (19.0)% ________________________________________________________________________________ 6 2004 2003 2002 ________________________________________________________________________________ Stock Information $ $ $ ________________________________________________________________________________ Weighted average shares outstanding (Cdn GAAP) - basic + 41,186 35,957 32,829 Weighted average shares outstanding (US GAAP) - basic + 41,186 35,957 32,829 Weighted average shares outstanding (US GAAP) - diluted + 41,446 36,052 32,829 Weighted average shares outstanding (Cdn GAAP) - diluted + 41,446 36,052 32,829 Shares outstanding as at December 31 + 41,237 40,945 33,821 ________________________________________________________________________________ 2004 2003 2002 ________________________________________________________________________________ The Toronto Stock Exchange (CA$) $ $ $ Market price as at December 31 10.90 16.49 6.49 High: 52 weeks 16.93 16.51 20.08 Low: 52 weeks 8.59 4.50 5.50 Volume: 52 weeks+ 20,790 16,542 14,651 ________________________________________________________________________________ 2004 2003 2002 ________________________________________________________________________________ New York Stock Exchange $ $ $ Market price as at December 31 9.11 12.73 4.12 High: 52 weeks 13.34 12.73 12.80 Low: 52 weeks 6.30 3.10 3.60 Volume: 52 weeks+ 13,843 14,831 13,705 ________________________________________________________________________________ The Toronto Stock Exchange(CA$) High Low Close ADV* Q1 16.93 12.00 12.75 114,031 Q2 14.72 8.67 10.28 86,359 Q3 12.35 8.59 9.50 70,186 Q4 10.99 8.86 10.90 57,617 ________________________________________________________________________________ New York Stock Exchange High Low Close ADV* Q1 13.34 9.02 9.80 67,192 Q2 10.79 6.30 7.61 57,379 Q3 9.30 6.75 7.64 58,541 Q4 9.15 7.28 9.11 37,083
* Average daily volume +In thousands 7 CONSOLIDATED QUARTERLY STATEMENTS OF EARNINGS (In thousands of US dollars, except per share amounts)
1st Quarter 2nd Quarter _________________________________ _____________________________________ 2004 2003 2002 2004 2003 2002 _________________________________ _____________________________________ $ $ $ $ $ $ Sales 162,100 153,592 146,737 171,934 150,249 153,657 Cost of sales 129,986 119,793 113,321 134,097 116,166 119,713 ___________________________________________________________ _____________________________________ Gross Profit 32,114 33,799 33,416 37,837 34,083 33,944 Selling, general and administrative expenses 22,307 21,982 20,299 22,793 20,830 20,454 Stock-based compensations expense 70 351 Impairment of goodwill Research and development 962 894 967 1,153 1,086 796 Financial expenses 6,768 7,700 8,983 7,236 7,825 7,872 Refinancing expense Manufacturing facility closure costs ___________________________________________________________ ____________________________________ 30,107 30,576 30,249 31,532 29,741 29,122 Earnings(loss)before income taxes 2,007 3,223 3,167 6,305 4,342 4,822 Income taxes (recovery) (284) 322 348 654 439 534 ___________________________________________________________ ____________________________________ Net earnings (loss) 2,291 2,901 2,819 5,651 3,903 4,288 ___________________________________________________________ ____________________________________ Earnings(loss)per share Cdn GAAP - Basic - US $ 0.06 0.09 0.09 0.14 0.12 0.13 Cdn GAAP - Diluted - US $ 0.06 0.09 0.09 0.14 0.12 0.13 US GAAP - Basic - US $ 0.06 0.09 0.09 0.14 0.12 0.13 US GAAP - Diluted - US $ 0.06 0.09 0.09 0.14 0.12 0.13 ___________________________________________________________ ____________________________________ Average number of shares outstanding Cdn GAAP - Basic 40,971,739 33,821,074 30,155,360 41,215,111 33,832,527 33,622,896 Cdn GAAP - Diluted 41,528,581 33,821,497 30,505,692 41,396,403 33,912,232 34,249,454 US GAAP -Basic 40,971,739 33,821,074 30,155,360 41,215,111 33,832,527 33,622,896 US GAAP - Diluted 41,528,581 33,821,497 30,505,692 41,396,403 33,912,232 34,249,454 ___________________________________________________________ ____________________________________
7a CONSOLIDATED QUARTERLY STATEMENTS OF EARNINGS (In thousands of US dollars, except per share amounts)
3rd Quarter 4th Quarter ________________________________ _____________________________________ 2004 2003 2002 2004 2003 2002 ________________________________ _____________________________________ $ $ $ $ $ $ Sales 177,671 159,798 149,920 180,744 157,682 151,261 Cost of sales 140,480 123,489 120,632 144,689 122,975 121,764 ____________________________________________________________ _____________________________________ Gross Profit 37,191 36,309 29,288 36,055 34,707 29,497 Selling, general and administrative expenses 23,327 22,264 21,109 25,799 24,973 23,462 Stock-based compensations expense 270 355 Impairment of goodwill 70,000 Research and development 1,121 1,080 926 997 212 480 Financial expenses 5,948 7,409 8,297 4,302 5,587 7,621 Refinancing expense 30,444 Manufacturing facility closure costs 2,100 7,386 3,005 ____________________________________________________________ _____________________________________ 61,110 30,753 32,432 38,839 33,777 101,563 Earnings(loss)before income taxes (23,919) 5,556 (3,144) (2,784) 930 (72,066) Income taxes (recovery) (9,664) (643) (357) (20,455) (4,244) (13,292) ____________________________________________________________ _____________________________________ Net earnings (loss) (14,255) 6,199 (2,787) 17,671 5,174 (58,774) ____________________________________________________________ _____________________________________ Earnings(loss)per share Cdn GAAP - Basic - US $ (0.35) 0.18 (0.08) 0.43 0.13 (1.74) Cdn GAAP - Diluted - US $ (0.35) 0.18 (0.08) 0.43 0.13 (1.74) US GAAP - Basic - US $ (0.35) 0.18 (0.08) 0.43 0.13 (1.74) US GAAP - Diluted - US $ (0.35) 0.18 (0.08) 0.43 0.13 (1.74) ____________________________________________________________ ____________________________________ Average number of shares outstanding Cdn GAAP - Basic 41,285,161 35,302,174 33,701,307 41,273,840 40,870,426 33,821,074 Cdn GAAP - Diluted 41,285,161 35,397,800 33,701,307 41,468,992 41,225,776 33,821,074 US GAAP -Basic 41,285,161 35,302,174 33,701,307 41,273,840 40,870,426 33,821,074 US GAAP - Diluted 41,285,161 35,397,800 33,701,307 41,468,992 41,225,776 33,821,074 ____________________________________________________________ ____________________________________
7a Management's Discussion and Analysis Adjustments for non-recurring items and manufacturing facility closure costs. Years Ended December 31, (In millions of US dollars, except per share amounts)
As Reported 2004 2003 2002 __________________________________________ ________ ________ ________ $ $ $ Sales 692.4 621.3 601.6 Cost of sales 549.2 482.4 475.4 __________________________________________ ________ ________ ________ Gross Profit 143.2 138.9 126.2 Selling, general and administrative expenses 94.2 89.9 85.3 Stock-based compensation expense 1.0 0.1 Impairment of goodwill 70.0 Research and development 4.2 3.3 3.2 Financial expenses 24.3 28.5 32.8 Refinancing expense 30.4 Manufacturing facility closure costs 7.4 3.0 2.1 __________________________________________ ________ ________ ________ 161.5 124.8 193.4 Earnings (loss) before income taxes (18.3) 14.1 (67.2) Income taxes (recovery) (29.7) (4.1) (12.7) __________________________________________ ________ ________ ________ Net earnings (loss) 11.4 18.2 (54.5) __________________________________________ ________ ________ ________ Earnings (loss) per share - As Reported 2004 2003 2002 __________________________________________ ________ ________ ________ Basic 0.28 0.51 (1.66) Diluted 0.27 0.50 (1.66) Adjustments for non-recurring items 2004 2003 2002 ___________________________________________ ________ ________ ________ Impairment of Goodwill 70.0 Refinancing Expense 30.4 Adjustments for Manufacturing 2004 2003 2002 ___________________________________________ ________ ________ ________ Facility Closure Costs 7.4 3.0 2.1 ___________________________________________ ________ ________ ________
8 ADJUSTED CONSOLIDATED EARNINGS Adjustments for non-recurring items and manufacturing facility closure costs. Years Ended December 31, (In millions of US dollars, except per share amounts)
As Adjusted 2004 2003 2002 __________________________________________ ________ ________ ________ $ $ $ Sales 692.4 621.3 601.6 Cost of sales 549.2 482.4 475.4 __________________________________________ ________ ________ ________ Gross Profit 143.2 138.9 126.2 Selling, general and administrative expenses 94.2 89.9 85.3 Stock-based compensation expense 1.0 0.1 Research and development 4.2 3.3 3.2 Financial expenses 24.3 28.5 32.8 __________________________________________ ________ ________ ________ 123.7 121.8 121.3 Earnings before income taxes 19.5 17.1 4.9 Income taxes (recovery) (16.5) (3.0) (5.2) __________________________________________ ________ ________ ________ Net earnings 36.0 20.1 10.1 __________________________________________ ________ ________ ________ Earnings per share - As Adjusted 2004 2003 2002 __________________________________________ ________ ________ ________ Basic 0.87 .56 0.31 Diluted 0.87 .56 0.31
Note: These tables reconcile consolidated earnings as reported in the accompanying consolidated financial statements to adjusted consolidated earnings after the elimination of non-recurring items and manufacturing facility closure costs. The Company has included these non-GAAP financial measures because it believes the measures permit more meaningful comparisons of its performance between the periods presented. 9 MANAGEMENT'S DISCUSSION & ANALYSIS Our Business Intertape Polymer Group Inc. ("IPG" or the "Company") was founded in 1981 and is a recognized leader in the specialty packaging industry in North America. IPG develops, manufactures and sells a variety of specialized polyolefin films, paper and film pressure sensitive tapes and complementary packaging systems for use in industrial and retail applications. Our products include carton sealing tapes, including Intertape (R) pressure-sensitive and water- activated tapes; industrial and performance specialty tapes, including masking, duct, electrical and reinforced filament tapes; Exlfilm (R) shrink film; Stretchflex (R) stretch wrap; engineered fabric products; and flexible intermediate bulk containers. We design our specialty packaging products for aerospace, automotive and industrial applications. Our specialty packaging products are sold to a broad range of industrial and specialty distributors, retail stores and large end-users in diverse markets. During 2004, the Company completed several initiatives designed to improve its competitiveness in the marketplace, expand its customer base, provide needed flexibility for future growth and enhance its earning power. Additionally, simultaneously with accomplishing these initiatives, the Company proactively addressed a rapidly rising raw material cost environment with multiple sales price increases beginning in the second quarter of the year. Refinancing In the third quarter of 2004, the Company successfully refinanced substantially all of its bank indebtedness and long-term debt. We believe the refinancing will benefit the Company through lower interest costs of approximately $7.0 million annually, increased working capital flexibility and a schedule of principal repayments that provides greater opportunity for reinvestment in the business over the next several years. Facility Rationalizations Over the last three years, the Company has invested approximately $43.1 million in capital expenditures principally to purchase more efficient production equipment and to expand information systems capabilities. One of the benefits of these investments has been the ability to reduce the number of production and distribution facilities, while maintaining existing capacities. In the fourth quarter of 2004, as part of the Company's ongoing review of the efficiency and effectiveness of its production and distribution network, the Company announced and substantially completed the closure of two of its manufacturing facilities, one in Cumming, Georgia and the second in Montreal, Quebec, as well as the closure of its distribution center in Cumming, Georgia. The one-time costs associated with these 2004 closures are estimated to total $8.7 million, of which, $7.4 million was incurred in the fourth quarter of 2004 and the balance will be incurred in 2005. These closures are expected to save the Company approximately $6.3 million in annualized operating costs with the cost savings beginning in the first quarter of 2005 and the full impact, on an annualized, basis expected to be realized starting in the third quarter of 2005. In January 2004, the Company opened its newly constructed Regional Distribution Center (RDC) in Danville, Virginia, replacing three existing RDCs. This consolidation has reduced transactional costs. It also provides the Company with the means to maximize the benefits of its information systems which are designed to improve customer service levels and further reduce transactional costs. Acquisition In February 2004, the Company completed the purchase for a cash consideration of $5.5 million plus contingent consideration (dependent on business retention), assets relating to the masking and duct tape operations of tesa tape, inc. (tesa). At the same time, the Company finalized its three-year agreement to supply duct tape and masking tape to tesa. The production of the acquired business was integrated into the Company's Columbia, South Carolina manufacturing facility. This acquisition provided the Company's retail business with access to several large retail chains not previously serviced by the Company. 10 Raw Material Costs and Sales Prices The Company, along with the industry, experienced rising raw material costs throughout 2004. Market pressures and the normal time lag between incurring raw material cost increases and passing the increases on to customers in the form of higher sales prices prevented the Company from achieving meaningful sales price increases until the second quarter of the year. During the last three quarters of 2004 and the first quarter of 2005, the Company has been able to realize significant price increases. Results of Operations Our consolidated financial statements are prepared in accordance with Canadian GAAP with US dollars as the reporting currency. Note 22 to the consolidated financial statements provides a summary of significant differences between Canadian GAAP and US GAAP. The following discussion and analysis of operating results includes adjusted financial results for the three years ended December 31, 2004. A reconciliation from the operating results found in the consolidated financial statements to the adjusted operating results discussed herein, can be found in the tables appearing on pages 8 and 9 hereof. Included in this MD&A are references to events and circumstances which have influenced the Company's quarterly operating results presented in the table of Consolidated Quarterly Statements Of Earnings appearing on page 7a hereof. As discussed in the "Sales" and "Gross Profit and Gross Margin" sections, the Company's quarterly sales and gross profits are largely influenced by the timing of raw material cost increases and the Company's ability or inability to pass the increases through to customers in the form of higher unit selling prices. While the actual amounts increase, selling, general and administrative expenses are relatively constant or decline as a percentage of sales, with the exception of the fourth quarter of 2003 which is discussed in detail in the "Selling, General and Administrative Expenses" section hereof. IPG's quarterly financial expenses through the second quarter of 2004 were most significantly influenced by the levels of Company bank indebtedness and long-term debt. The debt reductions occurring at the end of the first quarter of 2002 and the third quarter of 2003 were as a result of two separate common stock equity offerings as discussed in the section titled "Capital Stock", and have had a significant impact on quarterly financial expenses. Regular scheduled debt repayments also decreased quarterly financial expenses during 2002, 2003 and the first half of 2004. In the third quarter of 2004, the Company refinanced substantially all of its bank indebtedness and long-term debt. Despite increasing the overall level of debt, in order to pay for the refinancing, lower interest rates on the new borrowings have reduced third quarter and fourth quarter financial expenses from prior levels (excluding the one-time cost of the refinancing of approximately $30.4 million). Of the $325.0 million borrowed during the refinancing, $200.0 million was floating rate debt and, accordingly, future levels of financial expense will fluctuate with interest rates. Sales IPG's consolidated sales increased by 11.4% for the year 2004 to $692.4 from $621.3 million for the year 2003 and 3.3% to $621.3 million for the year 2003 from $601.6 million in 2002. The sales increase for 2004 includes the sales associated with the February 2004 tesa acquisition as well as the full year effect of the June 2003 acquisition of the remaining 50% interest in Fibope Portuguesa Filmes Biorientados, S.A. ("Fibope"). Fluctuating foreign exchange rates did not have a significant impact on the Company's 2004 or 2003 sales. In 2004, the Company had a sales volume increase of approximately 2.9%, excluding the volume increase associated with the tesa acquisition. The fourth quarter 2004 sales volume increase, on the same basis, was slightly less than the annual rate of increase. Like several of its competitors in the North American packaging industry, the Company experienced a sales volume decline during the first half of 2003 as compared to the same period in 2002. The Company recovered most of this decline during the fourth quarter of 2003. The sales volume increase seen in the fourth quarter of 2003 was primarily attributable to the Company's RDC strategy, the breadth of the product offering, improved customer service and an improving economic environment. In response to rising raw material costs, the Company instituted substantial selling price increases beginning in the second quarter of 2004. The rate of selling price increases accelerated throughout the year. Selling prices for most of 11 the Company's product lines increased in 2003 after several years of selling price declines. Selling prices declined in the first part of 2002, continuing a trend from 2001. The selling price declines tracked the steady decline in raw material costs during those periods. The Company anticipates continued revenue growth in 2005, as a result of continued sales volume growth and higher average selling prices. Gross Profit and Gross Margin Gross profit totaled $143.2 million in 2004, an increase of 3.1% from 2003. Gross profit was $138.9 million in 2003, up 10.1% from 2002. Gross profit represented 20.7% of sales in 2004, 22.4% in 2003, and 21.0% in 2002. "Value-added" is used by the Company to mean the difference between material costs and selling prices, expressed as a percentage of sales. Historically, the Company has been able to maintain value-added percentages within a narrow range of less than 0.75% because it passes on raw materials cost increases to the customer. During 2002, this situation changed as a direct result of a timing lag between raw material cost increases and full implementation of selling price increases, due to continued economic uncertainty. Although, raw material costs continued to increase throughout 2003, the Company's successful implementation of a series of unit selling price increases resulted in improved gross margins. During 2004, the dollar impact of raw material cost increases grew substantially. While the Company was able to raise its selling prices, the magnitude of the cost and selling price increases altered the historical relationship between material costs and selling prices. The result was a decline in IPG's gross margin from 22.4% in 2003 to 20.7% in 2004. Additionally, the gross margin in the fourth quarter of 2004 declined to 19.9% from 20.9% in the third quarter of 2004. This margin decline is attributable to the fact that the substantial fourth quarter unit sales price increases contributed only a modest amount of gross profit. Most of the unit sales price increases in the fourth quarter of 2004 went towards recovery of rising raw materials costs. Cost reduction programs announced late in 2002 favorably impacted gross margins for both 2002 and 2003 and mitigated the decline in gross margins for 2004. During 2002, the Company announced a three-year, $17.5 million cost reduction program. Cost reductions of $5.5 million and $6.0 million were achieved in 2002 and 2003 respectively. The balance of the cost reductions under the program was exceeded in 2004, in part due to the closure of the Company's Green Bay manufacturing facility at the end of 2003, which provided $1.6 million in additional manufacturing cost reductions in 2004, over and above the $6.0 million for 2004 expected from the original cost reduction program. The Company believes it will realize further cost reductions in 2005 as a result of its ongoing facility rationalization process and productivity improvement programs. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") for the year ended December 31, 2004 totaled $94.2 million, an increase of $4.3 million from the $89.9 million incurred for the year ended December 31, 2003. The 2003 SG&A expenses were up $4.6 million from $85.3 million in 2002. As a percentage of sales, SG&A expenses were 13.6% 14.5%, and 14.2% for 2004, 2003 and 2002 respectively. Much of the increase for 2004 and 2003 relates to higher unit sales within the Company's retail distribution channel, which carries a larger selling structure than other sales channels. Of the 2003 increase of $4.6 million in SG&A costs, approximately $2.6 million was incurred during the fourth quarter. An amount of $2.2 million of this increase was attributable to items such as higher promotional incentives and a customer bankruptcy. 12 Stock-Based Compensation In the fourth quarter of 2003, the Company early adopted the fair value method of accounting for stock options and recorded an expense of approximately $0.1 million for the stock options granted to employees during calendar 2003. For 2004, the Company recorded approximately $1.0 million in stock-based compensation expense related to options granted to employees during 2003 and 2004. Operating Profit This discussion presents the Company's operating profit and adjusted operating profit for 2004, 2003 and 2002. Operating profit is not a financial measure under GAAP in Canada or the United States. The Company's management uses operating profit to measure and evaluate the profit contributions of the Company's product offerings as well as the contribution by channel of distribution. Because "operating profit" and "adjusted operating profit" are non-GAAP financial measures, companies may present similar titled items determined with differing adjustments. Presented below is a table reconciling this non-GAAP financial measure with the most comparable GAAP measurement. The reader is encouraged to review this reconciliation. Operating profit is defined by the Company as gross profit less SG&A expenses and stock-based compensation. OPERATING PROFIT RECONCILIATION (In millions of US dollars) 2004 2003 2002 $ $ $ Gross Profit 143.2 138.9 126.2 Less: SG&A Expense 94.2 89.9 85.3 Less: Stock-Based Compensation 1.0 0.1 _____ _____ _____ Operating Profit 48.0 48.9 40.9 Operating profit for 2004 amounted to $48.0 million compared to $48.9 million for 2003 and $40.9 million for 2002. Operating profits have fluctuated for a number of reasons. For 2004, the gross profit increase was offset by the increase in SG&A expense. The increase in stock-based compensation expense for 2004 compared to 2003 resulted in the decline in operating profit between 2003 and 2004. Despite the increase in SG&A expenses discussed above, operating profits for 2003 rose due to the $12.7 million increase in gross profit during that year. The Company's operating profit for the fourth quarter of 2004 was $9.9 million compared to $9.7 million for the fourth quarter of 2003. Most of the improvement in operating profits was the result of the higher gross profits achieved in 2004. The improved gross profits were the result of the Company being able to increase sales prices in the fourth quarter of 2004 to levels exceeding the raw material cost increases for the quarter. Impairment of Goodwill In accordance with the requirements of the Canadian Institute of Chartered Accountants ("CICA"), which are equivalent to the applicable US standards, the Company performs an annual goodwill impairment test as at December 31. For the purposes of the impairment test, based on the specific requirements of the accounting pronouncements, the Company determined that it was a single reporting unit. The Company calculated the fair value of this reporting unit using the discounted cash flow method, and compared it with other methods including multiples of sales and earnings before interest, income taxes, depreciation and amortization ("EBITDA"), and with historical transactions where appropriate. From these approaches, the fair market value was determined. For 2002, an impairment was charged to operating expenses of $70.0 million. This impairment related to goodwill from the acquisition activity of the Company during the period from 1996 through 2000 in light of 2002 economic and market conditions. There was no goodwill impairment charge incurred for 2003 or 2004. 13 Research and Development R&D remains an important function within the Company. Taken as a percentage of sales, R&D was 0.6% for 2004 and 0.5% for both 2003 and 2002. The increase in R&D expenditures for 2004 is the result of the benefit of larger research and development tax credits recognized in 2003 and 2002 as compared to 2004. The Company continues to focus its R&D efforts on new products, new technology developments, new product processes and formulations. EBITDA A reconciliation of the Company's EBITDA, a non-GAAP financial measure, to GAAP net earnings (loss) is set out in the EBITDA reconciliation table below. EBITDA should not be construed as earnings before income taxes, net earnings (loss) or cash from operating activities as determined by GAAP. The Company defines EBITDA as net income (loss) before (i) income taxes; (ii) financial expenses, net of amortization; (iii) refinancing expense; (iv) amortization of other intangibles and capitalized software costs; and (v) depreciation. Adjusted EBITDA is defined as EBITDA before manufacturing facility closure costs and goodwill impairment. Other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do. EBITDA and Adjusted EBITDA are not measurements of financial performance under GAAP and should not be considered as alternatives to cash flow from operating activities or as alternatives to net income as indicators of our operating performance or any other measures of performance derived in accordance with GAAP. The Company has included these non-GAAP financial measures because it believes that it permits investors to make a more meaningful comparison of IPG's performance between periods presented. In addition, the Company's covenants contained in the loan agreement with its lenders require certain debt to Adjusted EBITDA ratios be maintained, thus EBITDA and Adjusted EBITDA are used by Management and the Company's lenders in evaluating the Company's performance. EBITDA RECONCILIATION TO NET EARNINGS (LOSS) (In millions of US dollars) 2004 2003 2002 $ $ $ Net Earnings (loss) - As Reported 11.4 18.2 (54.5) Add Back: Financial Expenses, net of amortization 23.0 26.7 31.4 Refinancing Expense 30.4 Income Taxes (29.7) (4.1) (12.8) Depreciation & Amortization 29.9 29.4 28.7 EBITDA 65.0 70.2 (7.2) Manufacturing facility closure costs 7.4 3.0 2.1 Goodwill Impairment 70.0 Adjusted EBITDA 72.4 73.2 64.9 EBITDA was $65.0 million for 2004, $70.2 million for 2003, and ($7.1) million for 2002. Adjusted EBITDA was $72.4 million, $73.2 million, and $64.9 million for the years 2004, 2003 and 2002 respectively. The Company's EBITDA for the fourth quarter of 2004 was $9.1 million compared to $14.6 million for the fourth quarter of 2003. The Adjusted EBITDA was $16.5 million in the fourth quarter of 2004 as compared to $17.6 million in the fourth quarter of 2003. Financial Expenses Financial expenses decreased 15.0% to $24.3 million for 2004 as compared to $28.5 million for 2003. Financial expenses for 2003 decreased 13.0% to $28.5 million as compared to $32.8 million in 2002. 14 Financial expense for 2004 reflects the full year benefit of the debt reduction that occurred at the end of September 2003 (a debt reduction funded through the raising of equity capital), as well as the third quarter 2004 refinancing of substantially all of the Company's bank indebtedness and long- term debt. Financial expenses for 2003 and 2002 reflected the concerted effort the Company placed on managing the balance sheet, generating cash and reducing debt and raising additional equity capital. Financial expense for the fourth quarter of 2004 totaled $4.3 million, a 23.0% decrease compared to $5.6 million for the fourth quarter of 2003. The decrease is principally because of the lower interest rates resulting from the third quarter 2004 refinancing. Refinancing Expense On July 28, 2004, the Company completed the offering of $125.0 million of senior subordinated notes. On August 4, 2004 the Company borrowed the $200.0 million term loan portion of a new $275.0 million senior secured credit facility. The proceeds from the refinancing were used to repay the existing bank credit facility, redeem all three series of existing senior secured notes, pay related make-whole premiums, accrued interest and transaction fees and general corporate purposes. In the third quarter of 2004, the Company recorded a one-time pretax charge of approximately $30.4 million ($19.9 million net of related tax benefits) associated with the refinancing transaction. Income Taxes In the past three years, the Company's statutory income tax rate has been impacted primarily by a lower rate on foreign-based income, manufacturing and processing deductions, transactions that resulted in permanent differences and changes in the valuation allowance. In addition, in 2002, the statutory income tax rate was impacted by the non-taxable portion of the charge for goodwill impairment. As at December 31, 2004, the Company had approximately $55.7 million in Canadian operating loss carry-forwards for tax purposes expiring from 2007 through 2014, and $175.5 million in US federal and state operating losses for tax purposes expiring from 2010 through 2024. In assessing the valuation of future income tax assets, management considers whether it is more likely than not that some portion or all of the future income tax assets will not be realized. Management considers the scheduled reversal of future income tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company expects the future income tax assets to be realized, net of the valuation allowance at December 31, 2004, as a result of the reversal of existing taxable temporary differences. Based on management's assessment, a $16.5 million valuation allowance was established as at December 31, 2004, which is $14.6 million lower than the allowance established as at December 31, 2003. Net Earnings - Canadian and US GAAP For 2004, the Company posted net earnings of $11.4 million as compared to $18.2 million in 2003 and a loss of $54.5 million in 2002. Adjusted net earnings (see table on page 9) amounted to $36.0 million for 2004, $20.1 million for 2003 and $10.1 million for 2002. The Company believes adjusted net earnings provide a better comparison of results for the periods presented because it does not take into account non-recurring items and manufacturing facility closure costs in each period. The Company had net earnings of $17.7 million for the fourth quarter of 2004 as compared to net earnings for the fourth quarter of 2003 totaling $5.2 million. The substantial increase in fourth quarter 2004 earnings was due to a tax asset valuation adjustment that contributed most of a $20.4 million income tax benefit. On a pretax basis for the fourth quarter of 2004, the Company had a loss of $2.8 million compared to a profit of $0.9 for the fourth quarter of 2003 income. This pretax decrease in profits was due to the larger facility closure costs reported in 2004 compared to 2003. Excluding plant facility closure costs, pretax profits for the fourth quarter of 2004 grew to $4.6 million from $3.9 million in 2003. The Company's net earnings for the fourth quarter of 2003 were $5.2 million compared to a net loss of $58.8 million in the fourth quarter of 2002. The fourth quarter of 2002 included a charge for goodwill impairment of $63.3 15 million net of income tax benefit. The fourth quarter of 2002 net earnings excluding the impairment charge was $4.5 million. The higher earnings for the fourth quarter of 2003 was the net result of improved gross margins, reduced financial expenses, increased plant facility closure costs and a lower income tax benefit as compared to the fourth quarter of 2002. Canadian GAAP net earnings conform in all material respects to amounts that would have to be reported had the financial statements been prepared under US GAAP, except for the effect of variable accounting, which would result in an increase in net earnings of approximately $1.4 million in 2004 (reduction of $1.7 million in 2003 and nil in 2002). Consequently, in accordance with US GAAP, net earnings in 2004 would be approximately $12.7 million ($16.5 million in 2003 and a net loss of $54.5 million in 2002). For further details, see Note 22a to the consolidated financial statements. In the case of IPG, net earnings are equal to earnings from continuing operations, as the Company had no discontinued operations, extraordinary items, or changes in accounting principles that resulted in a charge against earnings for these periods. Earnings Per Share - Canadian and US GAAP Basic and diluted net earnings per share in accordance with Canadian GAAP conform in all material respects to amounts that would have been reported had the financial statements been prepared under US GAAP, except for the impact of variable accounting previously discussed under the caption "Net earnings - Canadian and US GAAP". Consequently, in accordance with US GAAP, basic and diluted net earnings per share would be $0.31 in 2004 ($0.46 in 2003 and a net loss per share of $1.66 in 2002). The Company reported earnings per share of $0.28 basic and $0.27 diluted for 2004 as compared to earnings per share of $0.51 basic and $0.50 diluted for 2003. In 2002, the Company reported a loss per share of $1.66, basic and diluted. The weighted-average number of common shares outstanding for the purpose of the basic EPS calculation was 41.2 million for 2004 (41.4 million diluted), 36.0 million (36.1 million diluted) for 2003 and 32.8 million basic and diluted for 2002. The increases in the weighted-average number of shares outstanding in 2003 and 2002 were primarily due to the equity offerings during each fiscal period and the issuance of shares in June 2003 to acquire the remaining 50% common equity interest in Fibope. The increase in the weighted-average number of shares outstanding in 2004 is due to the full year effect of the September 2003 equity offering and the June 2003 Fibope acquisition. The adjusted EPS (see table on page 9) for 2004 was $0.87 basic and diluted, compared to $0.56 basic and diluted for 2003, and to $0.31 basic and diluted for 2002. Off-Balance Sheet Arrangements and Related Party Transactions The Company maintains no off-balance sheet arrangements and is not a party to related party transactions. Liquidity and Capital Resources Cash Flow In 2004, the Company used cash of $4.1 million in operating activities. In 2003 and 2002, the Company generated cash flow from operating activities of $40.4 million and $35.2 million, respectively. In the fourth quarter of 2004, the Company generated $1.7 million cash flow from operating activities compared to $9.2 million for the fourth quarter of 2003. Cash from operations before changes in non-cash working capital items decreased in 2004 by $10.4 million to $27.7 million from $38.1 million in 2003. In 2003, cash from operations before changes in non-cash working capital items increased by $7.8 million to $38.1 million from $30.3 million in 2002. The increases in 2003 and 2002 reflect improved profitability. The decrease in 2004 is primarily the result of a $21.9 million make-whole payment to the Company's previous noteholders in the third quarter which was incurred as part of the refinancing. Excluding this item, cash from operations before changes in non-cash working capital items was $49.6 million, an $11.5 million increase over 2003. For the fourth quarter of 2004, cash from operations before changes in non-cash working capital was $10.2 million 16 compared to $4.7 million in the fourth quarter of 2003. The improvement in 2004 is the result of a $3.0 million non-cash deduction in 2003 and lower cash income taxes in the fourth quarter of 2004 compared to the fourth quarter of 2003. In 2004, non-cash working capital items used $31.8 million in net cash flow, of which $8.5 million was used in the fourth quarter. An increase in trade and other receivables of $12.7 million and an increase in inventories of $20.1 million accounted for the use of working capital. Rapidly rising raw material costs over the course of the year consumed cash in the form of higher inventory investments. Also impacting inventories was the Company's practice of pre-buying raw materials in anticipation of future raw material costs increases. The tesa acquisition in February 2004 increased working capital requirements for inventories and trade accounts receivable to accommodate the acquired customers. Increases in unit sales prices also increased the balance of trade accounts receivable owed by customers. The fourth quarter 2004 non-cash working capital use was primarily the result of higher raw material costs included in inventories, the build-up of inventories to facilitate the Montreal, Quebec and Cumming, Georgia plant closures at year-end and normal prepayments in connection with insurance renewals. The increases were mitigated by a reduction in trade accounts receivable during the fourth quarter of 2004. The reduction in trade accounts receivable, similar to the one in the fourth quarter of 2003 is due to the timing of customer orders and shipments in advance of the holiday season. In 2003, non-cash working capital items generated $2.3 million additional net cash flow. This was driven by an increase in trade payables of $10.5 million less an increase in trade and other receivables of $2.4 million and an increase in inventories of $5.1 million. The increase in inventories was a result of several factors. Firstly, there was a need to increase finished goods inventory in the water activated product line to accommodate the closure of the Green Bay facility at the end of December and insure a smooth transition for IPG's customers. Secondly, masking and duct tape inventories were increased in order to facilitate the February 2004 transfer of customers from tesa to IPG. Lastly, certain finished goods inventories were increased to facilitate the consolidation of three RDC's into the new RDC located in Danville, Virginia which opened in late January 2004. In 2002, non-cash working capital items generated additional net cash flow of approximately $5.0 million. This was in part due to a $5.7 million decrease in receivables, which was largely attributable to a decrease in rebates owed to us. We also reduced our investment in inventories by $9.9 million due to the reduction attributable to the implementation of the RDC strategy and the warehouse management system, which resulted in better supply chain management practices. The cash flow generated by changes in these items was partly offset by a decrease of $11.4 million in accounts payable. Cash flow used in investing activities was $37.6 million for 2004 as compared to $20.6 million for 2003 and $16.9 million for 2002. These investing activities include a net increase in property, plant and equipment of $18.4 million for 2004, $13.0 million for 2003 and $11.7 million for 2002. In the first quarter of 2004, the Company purchased the duct and masking tape operations of tesa for $5.5 million. In addition, goodwill increased $6.2 million in 2003 as a result of the payment of an additional amount related to a prior acquisition. Other assets increased $13.2 million during 2004, $1.4 million during 2003 and $5.2 million in 2002. The increase in 2004 includes $10.5 million incurred for debt issuance costs associated with the refinancing. Cash flow used in investing activities was $6.7 million for the fourth quarter of 2004 compared to $4.0 million for the fourth quarter of 2003, an increase of $2.2 million. Most of the increase was due to increased spending on capital assets in 2004 compared to 2003. Cash flow provided by financing activities totaled $63.2 million in 2004 and cash flow used in financing activities amounted to $16.4 million in 2003 and $20.0 million in 2002. During the third quarter of 2004, the Company borrowed $325.0 million to refinance substantially all of its bank indebtedness and long-term debt. During 2004, the Company issued approximately 345,000 shares for consideration of $2.7 million to fund its contributions to various pension funds and for the exercise of employees' stock options. During 2003, the Company issued 5,750,000 shares from treasury for consideration of $41.3 million. The proceeds were used to pay down short-term bank indebtedness under the line of credit and retire long-term debt. The Company also issued approximately 343,000 shares for consideration of $2.4 million to fund its contributions to various pension funds and for the exercise of employees' stock options. The Company retired long-term debt in the amount of $64.3 million in 2003 utilizing a combination of net cash flows from operations, the proceeds from the equity offering and increased borrowings under the line of credit. During 2002, the Company reduced bank debt by approximately $45.9 million and the amount due to the senior secured noteholders by 17 $24.4 million. In 2002, the Company also issued 5,100,000 common shares from treasury for consideration of $47.7 million, which was used to reduce long- term and short-term debt and approximately 215,000 common shares for consideration of $2.0 million to partially fund its contribution to various pension funds and for the exercise of employee stock options. In 2003, the Company entered into a twenty-year capital lease for its RDC in Danville, Virginia. The lease commenced in January 2004. This non-cash transaction was valued at $7.2 million and is reflected in the December 31, 2004 consolidated balance sheet as an increase in property, plant and equipment and long-term debt. Liquidity As at December 31, 2004, working capital stood at $150.1 million as compared to $68.7 million as at December 31, 2003. The increase of $81.4 million is due to the increase in receivables and inventories previously discussed, cash on hand of $21.9 million and a $27.8 million reduction in bank indebtedness and the current portion of long-term debt due to the refinancing. The refinancing substantially reduced the Company's principal debt repayments until 2010 and also provided additional cash for general corporate purposes. The Company believes that it has sufficient working capital to meet the requirements of its day-to-day operations, given its operating margins and projected budgets. Quick assets, which are the total current assets excluding prepaid expenses and future income taxes, increased by $57.4 million during 2004 and $14.5 million during 2003 after declining by $12.7 million in 2002. The 2004 increase was primarily due to the increased cash provided by the refinancing, the increases in trade receivables resulting from higher sales volume and increased inventories due to higher raw material costs and pre-buying. The 2003 increase was driven by the above described need to increase certain finished goods inventories and an increase in trade receivables as a result of higher sales volumes. The 2002 reduction was brought about by the reduction in receivables and improved inventory control. The Company's cash liquidity is influenced by several factors, the most significant of which is the Company's level of inventory investment. The Company periodically increases its inventory levels when business conditions suggest that it is in the Company's interest to do so, such as buying opportunities to mitigate the impact of rising raw material costs. The Company does not expect these higher inventory investments to continue indefinitely, but until the circumstances reverse themselves, the Company believes it has adequate cash and credit availability to support these strategies. Days outstanding in trade receivables were 53.6 days at the end of 2004 as compared to 52.5 days at the end of 2003 and 52.3 days at the end of 2002. Due to the rising raw material costs and the pre-buying of raw materials, inventory turnover (cost of sales divided by inventories) slipped to 6.1 times in 2004 compared to 6.9 times in 2003 and 7.8 times in 2002. Currency Risk The Company is subject to currency risk through its Canadian and European operations. Changes in the exchange rates may result in decreases or increases in the foreign exchange gains or losses. The Company does not use derivative instruments to reduce its exposure to foreign currency risk, as historically these risks have not been significant. Capital Expenditures Total property, plant and equipment expenditures were $18.4 million, $13.0 million and $11.7 million for the years 2004, 2003 and 2002 respectively. In recent years, property, plant and equipment expenditures have been maintained at lower than historical levels. Fewer capital projects have been undertaken as the Company has been working to reduce its debt. Recent spending has been concentrated on machine efficiency projects and improvement of management information systems. Some of this investment has been in support of the Company's facility rationalization efforts. Management is projecting property, plant and equipment expenditures of $23.0 million to $27.0 million for the year 2005. The refinancing in the third quarter of 2004 has positioned the Company to increase its capital investment for 18 further growth and productivity. Based on current volume and anticipated market demand the Company believes it has sufficient capacity available to accommodate increases in volumes in most products without additional capital expenditure. In addition, management believes the Company is now positioned to take advantage of opportunities that may arise to grow its market share in existing products, expand its product offerings or expand geographically. Bank Indebtedness and Credit Facilities The Company has a US$65.0 million five-year revolving credit facility available in US dollars and a US$10.0 million five-year revolving credit facility available in Canadian dollars. As at the end of 2004, the Company had not drawn on these facilities except for $3.8 million in outstanding letters of credit. The facilities are part of a $275.0 million Senior Secured Credit Facility described below, entered into on July 28, 2004. The Senior Secured Credit Facility, along with the issuance of new Senior Subordinated Notes also described below, allowed the Company to refinance substantially all of its bank indebtedness and long-term debt including its previously existing $50.0 million revolving line of credit. As at December 31 2003, $31.1 million of this prior line of credit was utilized, compared to $26.8 million utilized as at December 31, 2002. As at December 31, 2003, the credit facility availability was $18.9 million as compared to $23.2 million as at the December 31, 2002. When combined with on-hand cash and cash equivalents and temporary investments, the Company had total cash and credit availability , subject to covenant restrictions, of $93.6 million as at December 31, 2004, $32.6 million as at December 31, 2003 and $38.6 million as at December 31, 2002. Long-Term Debt On July 28, 2004, the Company completed the offering of $125.0 million of Senior Subordinated Notes due 2014. On August 4, 2004, initial funding under the Company's new $275.0 million Senior Secured Credit Facility occurred, consisting of a $200.0 million term loan and a total of $75.0 million in revolving credit facilities. The proceeds from the refinancing were used to repay the Company's then existing bank credit facility, redeem all three series of its then existing senior secured notes, pay related make-whole premiums, accrued interest and transaction fees and provide cash for general working capital purposes. The Senior Secured Credit Facility is guaranteed by the Company and substantially all of its subsidiaries and is secured by a first priority perfected security interest in substantially all tangible and intangible assets owned by the Company and substantially all of its subsidiaries, subject to certain customary exceptions. The Company reduced indebtedness associated with long-term debt instruments by $50.2 million during 2002 and a further $64.3 million during 2003. In 2004, the Company's non-current long-term debt increased by $96.0 million however, due to the refinancing, it is at a reduced cost to the Company. A portion of the Company's increase in indebtedness in 2004 is also attributable to the capital lease for the new RDC in Danville, Virginia, and the reclassification of short-term debt to long-term debt as a result of the refinancing. 19 Tabular Disclosure of Contractual Obligations Our principal contractual obligations and commercial commitments relate to our outstanding debt and our operating lease obligations. The following table summarizes these obligations as of December 31, 2004:
Contractual Obligations Payment Due by Period (in millions of U.S. Dollars) Total Less than 1-3 4-5 After 1 year years years 5 years Long-Term Debt 327.0 2.9 5.1 4.3 314.7 Capital (Finance) Lease Obligations 11.3 0.6 1.1 1.2 8.4 Operating Lease Obligations 15.6 4.9 5.9 3.5 1.3 Purchase Obligations --- --- --- --- --- Other Long-Term Liabilities Reflected on Balance Sheet under GAAP of the primary financial statements --- --- --- --- --- Total 353.9 8.4 12.1 9.0 324.4
IPG anticipates that funds generated by its operations and funds available to it under its new Senior Secured Credit Facility will be sufficient to meet working capital requirements and anticipated obligations under its new Senior Secured Credit Facility and the Senior Subordinated Notes and to finance capital expenditures for the foreseeable future. The Company has experienced, and expects to continue to experience in the future, fluctuations in its quarterly results of operations. IPG's ability to make scheduled payments of principal or interest on, or to make other payments on and refinance, its indebtedness, or to fund planned capital expenditures and existing capital commitments, will depend on IPG's future performance, which is subject to general economic conditions, a competitive environment and other factors, a number of which are outside of the Company's control. The credit agreement governing the Senior Secured Credit Facility and the indenture governing the outstanding Senior Subordinated Notes each contain restrictive covenants that, among other things, limit the Company's ability to incur additional indebtedness, make restricted payments, make loans or advances to subsidiaries and other entities, invest in capital expenditures, sell its assets or declare dividends. In addition, under its new Senior Secured Credit Facility, the Company is required to maintain certain financial ratios, including a maximum total leverage ratio, a minimum interest coverage ratio and a minimum fixed charge ratio. The company was in compliance with its financial covenants as at December 31, 2004. Capital Stock As at March 11, 2005 there were 41,236,961 common shares of the Company outstanding. In 2004, 2003, and 2002, employees exercised stock options worth $1.0 million, $0.7 million and $0.3 million respectively. Further, in each of 2004, 2003 and 2002, $1.7 million worth of shares were issued in relation to funding the Company's US employee stock ownership retirement savings plan. During November 2004, the Company announced that it had registered a Normal Course Issuer Bid (NCIB) in Canada, under which the Company is authorized to repurchase up to 5.0% of its outstanding common shares. In the fourth quarter of 2004, there were 53,200 shares purchased for cancellation at a cost to the Company of $0.4 million. There were no shares purchased for cancellation during either 2002 or 2003. In the third quarter of 2003, the Company issued 5,750,000 common shares at a price of CA$10.00 per share (US$7.18 per share after issue costs) for a cash infusion of US$41.3 million net of issue costs. In the first quarter of 2002, the Company issued 5,100,000 common shares at a price of CA$15.50 per share (US$9.35 per share after issue costs) 20 providing the Company with cash of US$47.7 million net of issue costs. The proceeds from the stock issues were used to reduce short-term bank indebtedness, repay long-term bank indebtedness and repay principal amounts under the Company's then existing notes. During 2003, in a transaction valued at $7.2 million, 1,030,767 common shares were issued to acquire the remaining 50% common equity interest of Fibope. As part of the purchase price for the acquisition of Central Products Company in 1999, the Company issued 300,000 share purchase warrants effective through August 9, 2004 that permitted the holder to purchase common shares of the Company at a price of $29.50 per share. On December 29, 2003, the warrants were cancelled as a result of settling a claim with the holders of the warrants. The recorded value of the warrants has been reclassified to contributed surplus. Accumulated currency translation adjustments increased $15.4 million during 2003, from $3.8 million as at December 31, 2002 to $19.2 million as at December 31, 2003. In 2004, the increase was $12.0 million from $19.2 million as at December 31, 2003 to $31.2 million as at December 31, 2004. The increases in both years were due to the strengthening of the Canadian dollar and Euro relative to the US dollar. Business Acquisitions In February 2004, the Company purchased for a cash consideration of $5.5 million plus contingent consideration (dependent on business retention), assets relating to the masking and duct tape operations of tesa. At the same time, the Company finalized its three-year agreement to supply duct tape and masking tape to tesa. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets and liabilities based on their estimated fair values as at the date of the acquisition. During 2003, the Company acquired the remaining 50% common equity interest in Fibope, a manufacturer and distributor of film products in Portugal. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets and liabilities based on their estimated fair values as at the date of the acquisition. Previously, the Company had accounted for its investment in Fibope as a joint venture using the proportionate consolidation method. The Company acquired this interest in order to provide a viable platform from which to introduce products made in its various North American facilities into the European markets. The purchase price of $7.2 million was settled by the issuance of 1,030,767 common shares of the Company. The Company acquired assets with a fair value of $11.1 million, including approximately $3.4 million of goodwill, and assumed liabilities of $3.9 million, of which $2.2 million was interest-bearing debt. Pension and Post-Retirement Benefit Plans IPG's pension benefit plans are currently showing an unfunded deficit of $10.5 million at the end of 2004 as compared to $9.9 million at the end of 2003. For 2004, the Company contributed $2.3 million to the plans. For 2003, the Company contributed $3.8 million to the plans and for 2002 the Company contributed $1.0 million to the plans. The Company expects to meet its pension benefit plan funding obligations in 2005 through cash flows from operations. The Company may need to divert some of its resources in the future in order to resolve this funding deficit. Dividend on Common Shares No dividends were declared on the Company's stock in 2004, 2003 or 2002. 21 Critical Accounting Estimates The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the recorded amounts of revenues and expenses during the reporting period. On an on-going basis management reviews its estimates, including those relating to the allowance for doubtful accounts, reserve for slow moving and unmarketable inventories and income taxes based on currently available information. Actual results may differ from those estimates. The allowance for doubtful accounts is based on reserves for specific accounts which management believes may not be fully recoverable combined with an overall reserve reflective of the Company's historical bad debt experience and current economic conditions. Establishing and updating the reserve for slow moving and unmarketable inventories starts with an evaluation of the inventory on hand as compared to historical and expected future sales of the products. For items identified as slow-moving or unmarketable; the cost of products is compared with their estimated net realizable values and a valuation reserve is established when the cost exceeds the estimated net realizable value. In assessing the realizability of future income tax assets, management considers whether it is more likely than not that some portion or all of the future income tax assets will not be realized. Management considers the scheduled reversal of future income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Changes in Accounting Policies Stock-based compensation In September 2003, the Canadian Institute of Chartered Accountants ("CICA") revised the transitional provisions for Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments, for voluntary adoption of the fair value based method of accounting for stock options granted to employees which previously had not been accounted for at fair value to provide the same alternative methods of transition as are provided under US GAAP. These provisions could have been applied retroactively or prospectively. However, the prospective application was only available to enterprises that elected to apply the fair value based method of accounting for fiscal years beginning before January 1, 2004. Effective January 1, 2003, the Company adopted, on a prospective basis, the fair value based method of accounting for stock options as provided for under revised transitional provisions. Accordingly, the Company has recorded an expense of approximately $1.0 million and $0.1 million for the stock options granted to employees during the years ended December 31, 2004 and 2003 respectively. Prior to 2003, the Company provided in its consolidated financial statements pro forma disclosures of net earnings and net earnings per share information as if the fair value based method of accounting had been applied and no compensation expense was recognized when stock options were granted. Employee future benefits On January 1, 2004, the CICA amended CICA Handbook Section 3461, Employee Future Benefits. Section 3461 requires additional disclosures about the assets, cash flows and net periodic benefit cost of defined benefit pension plans and other employee future benefit plans. The new annual disclosures are effective for years ending on or after June 30, 2004, and new interim disclosures were effective for periods ending on or after that date. As at June 30, 2004, the Company adopted the new disclosure requirements of Section 3461 and provided the additional disclosures of the defined benefit pension plans and other employee future benefit plans in Note 20. Impairment of Long-Lived Assets Effective January 1, 2004, the Company adopted, on a prospective basis, the new recommendations of CICA Handbook Section 3063, Impairment of Long-lived Assets. This new Section provides guidance on the recognition, measurement and disclosure of the impairment of long-lived assets. It replaces the write- down provisions in Property, Plant and Equipment, Section 3061. The Section requires an impairment loss for a long-lived asset to be held and used 22 be recognized when its carrying amount exceeds the sum of the undiscounted cash flows expected from its use and eventual disposition. An impairment loss for a long-lived asset to be held and used should be measured as the amount by which its carrying amount exceeds its fair value. This change in accounting policy did not result in any adjustment to the carrying value of the Company's property, plant and equipment. Asset Retirement Obligations In March 2003, the CICA issued Handbook Section 3110, Asset Retirement Obligations which replaces the limited guidance on future removal and site restoration costs previously provided in Section 3061, Property, Plant and Equipment. It establishes standards for recognition, measurement and disclosure of a liability for an asset retirement obligation and the associated asset retirement cost. The section provides for an initial recognition of the fair value of a liability for an asset retirement obligation in the period in which it is incurred, when a reasonable estimate of fair value can be made. The asset retirement obligation is recorded as a liability with a corresponding increase to the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost is allocated to expenses using a systematic and rational allocation method and is adjusted to reflect period-to-period changes in the liability resulting from passage of time and revisions to either timing or the amount of the original estimate of the undiscounted cash flow. The Company adopted Section 3110 prospectively on January 1, 2004 and the application of this standard did not have a material impact on either results of operations for the year ended December 31, 2004 or on the financial position as at December 31, 2004. Impact of Accounting Pronouncements Not Yet Implemented In January 2003, the CICA issued Accounting Guideline No. 15, Consolidation of Variable Interest Entities ("AcG-15") which harmonizes Canadian GAAP with the US Financial Accounting Standards Board ("FASB") Interpretation No. 46. This Guideline applies to annual and interim periods beginning on or after November 1, 2004. The Company expects that this pronouncement will not have a material impact on its results of operations and financial condition. In November 2004, the FASB issued SFAS 151, Inventory Costs - An Amendment of ARB No. 43, Chapter 4. SFAS 151 amends the guidance in ARB No. 43, Chapter 4 Inventory Pricing, to clarify the accounting for certain abnormal amounts in establishing inventory valuation. The proposed statement would recognize as current-period charges, idle facility expense, excessive spoilage, double freight, and rehandling costs regardless of whether they meet the criterion of so abnormal: as stated in ARB No. 43. The proposed statement would also require that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The Company is currently evaluating the effect that the adoption of SFAS 151 will have on its consolidated results of operations and financial condition. December 2004, the FASB issued SFAS 153, Exchange of Non-monetary Assets - An Amendment of APB Opinion No. 29. SFAS 153 eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion 26, Accounting for Non-monetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005. The Company is currently evaluating the effect that the adoption of SFAS 153 will have on its consolidated results of operations and financial condition. Disclosure Required by the NYSE A summary of the significant ways that the governance of the Company differs from that of a US listed company is available on the Company's website at www.intertapepolymer.com under "Investor Relations". Additional Information Additional information relating to IPG, including its Annual Information Form is filed on SEDAR at www.sedar.com in Canada and on EDGAR at www.sec.gov in the US. 23 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS TO THE SHAREHOLDERS OF INTERTAPE POLYMER GROUP INC. The consolidated financial statements of Intertape Polymer Group Inc. and the other financial information included in this annual report are the responsibility of the Company's Management and have been examined and approved by its Board of Directors. These consolidated financial statements have been prepared by Management in accordance with Canadian generally accepted accounting principles and include some amounts that are based on Management's best estimates and judgements. The selection of accounting principles and methods is Management's responsibility. The Company maintains internal control systems designed to ensure that the financial information produced is relevant and reliable. Management recognizes its responsibility for conducting the Company's affairs in a manner to comply with the requirements of applicable laws and established financial standards and principles, and for maintaining proper standards of conduct in its activities. The Board of Directors assigns its responsibility for the financial statements and other financial information to the Audit Committee, all of whom are non-management and unrelated directors. The Audit Committee's role is to examine the financial statements and annual report and recommend that the Board of Directors approve them, to examine the internal control and information protection systems and all other matters relating to the Company's accounting and finances. In order to do so, the Audit Committee meets periodically with external auditors to review their audit plans and discuss the results of their examination. This committee is responsible for recommending the appointment of the external auditors or the renewal of their engagement. The Company's external auditors, Raymond Chabot Grant Thornton LLP appointed by the shareholders at the Annual and Special Meeting on June 2, 2004, have audited the Company's consolidated financial statements and their report indicating the scope of their audit and their opinion on the consolidated financial statements follows. Sarasota/Bradenton, Florida and Montreal, Canada February 28, 2005 /s/ Melbourne F. Yull Melbourne F. Yull Chairman and Chief Executive Officer /s/ Andrew M. Archibald Andrew M. Archibald Chief Financial Officer and Secretary 24 AUDITORS' REPORT TO THE SHAREHOLDERS OF INTERTAPE POLYMER GROUP INC. We have audited the consolidated balance sheets of Intertape Polymer Group Inc. as at December 31, 2004 and 2003 and the consolidated statements of earnings, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2004 and 2003 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2004 in accordance with Canadian generally accepted accounting principles. /s/Raymond Chabot Grant Thornton LLP Chartered Accountants Montreal, Canada February 28, 2005 25 COMMENTS BY AUDITORS FOR AMERICAN READERS ON CANADA-US REPORTING DIFFERENCES INTERTAPE POLYMER GROUP INC. In the United States of America, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of the Company's financial statements, such as the changes described in note 2 to the consolidated financial statements. Our report to the shareholders dated February 28, 2005 is expressed in accordance with Canadian reporting standards, which do not require a reference to such change in accounting principles in the auditors' report when the change is properly accounted for and adequately disclosed in the consolidated financial statements. /s/Raymond Chabot Grant Thornton LLP Chartered Accountants Montreal, Canada February 28, 2005 26
CONSOLIDATED EARNINGS Years Ended December 31, (in thousands of US dollars, except per share amounts) 2004 2003 2002 ___________ __________ _________ $ $ $ Sales 692,449 621,321 601,575 Cost of sales 549,252 482,423 475,430 ___________ __________ _________ Gross profit 143,197 138,898 126,145 ___________ __________ _________ Selling, general and administrative expense 94,226 89,917 85,324 Impairment of goodwill (Note 14) 70,000 Research and development 4,233 3,272 3,169 Financial expenses (Note 5) 24,253 28,521 32,773 Refinancing expense (Note 15) 30,444 Manufacturing facility closure costs (Note 4) 7,386 3,005 2,100 ___________ __________ _________ 161,588 124,845 193,366 ___________ __________ _________ Earnings (loss) before income taxes (18,391) 14,053 (67,221) Income taxes (recovery)(Note 6) (29,749) (4,125) (12,767) ___________ __________ _________ Net earnings (loss) 11,358 18,178 (54,454) ___________ __________ _________ Earnings (loss) per share (Note 7) Basic 0.28 0.51 (1.66) ___________ __________ _________ Diluted 0.27 0.50 (1.66) ___________ __________ _________
CONSOLIDATED RETAINED EARNINGS
Years Ended December 31, (in thousands of US dollars) 2004 2003 2002 ___________ __________ _________ $ $ $ Balance, beginning of year 68,291 50,113 104,567 Net earnings (loss) 11,358 18,178 (54,454) ___________ __________ _________ 79,649 68,291 50,113 Premium on purchase for cancellation of common shares 40 ___________ __________ _________ Balance, end of year 79,609 68,291 50,113 ___________ __________ _________
The accompanying notes are an integral part of the consolidated financial statements. 27 CONSOLIDATED CASH FLOWS
Years Ended December 31, (in thousands of US dollars) 2004 2003 2002 __________ __________ __________ $ $ $ OPERATING ACTIVITIES Net earnings (loss) 11,358 18,178 (54,454) Non-cash items Depreciation and amortization 29,889 29,375 28,653 Impairment of goodwill 70,000 Loss on disposal of property, plant and equipment 1,280 Property, plant and equipment impairment and other non-cash charges in connection with facility closures 5,848 732 Future income taxes (28,806) (7,148) (15,198) Write-off of debt issue expenses 8,482 Other non-cash items (95) (3,000) __________ _________ __________ Cash flows from operations before changes in non-cash working capital items 27,722 38,137 30,281 __________ _________ __________ Changes in non-cash working capital items Trade receivables (11,345) (741) 475 Other receivables (1,308) (1,647) 5,186 Inventories (20,115) (5,139) 9,851 Parts and supplies (266) (776) (767) Prepaid expenses 202 100 1,567 Accounts payable and accrued liabilities 1,051 10,465 (11,361) __________ _________ _________ (31,781) 2,262 4,951 __________ _________ _________ Cash flows from operating activities (4,059) 40,399 35,232 __________ _________ _________ INVESTING ACTIVITIES Temporary investment (497) Property, plant and equipment (18,408) (12,980) (11,716) Business acquisition (Note 8) (5,500) Goodwill (6,217) Other assets (13,178) (1,435) (5,213) __________ _________ ________ Cash flows from investing activities (37,583) (20,632) 16,929) __________ _________ ________ FINANCING ACTIVITIES Net change in bank indebtedness (13,967) 4,910 (19,525) Issue of long-term debt 325,787 Repayment of long-term debt (250,936) (64,329) (50,209) Issue of common shares 2,717 43,009 49,689 Common shares purchased for cancellation (418) __________ _________ ________ Cash flows from financing activities 63,183 (16,410) (20,045) __________ _________ ________ Net increase (decrease) in cash and cash equivalents 21,541 3,357 (1,742) Effect of foreign currency translation adjustments 341 (3,357) 1,742 Cash, beginning of year Cash and cash equivalents, end of year 21,882 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Interest paid 23,170 29,309 30,428 Income taxes paid 2,004 1,790 413
The accompanying notes are an integral part of the consolidated financial statements. 28 CONSOLIDATED BALANCE SHEETS
December 31, (In thousands of US dollars) 2004 2003 _______ _______ $ $ ASSETS Current assets Cash and cash equivalents 21,882 Temporary investment (Nopte 9) 497 Trade receivables (net of allowance for doubtful accounts of $4,065; $3,911 in 2003) 101,628 89,297 Other receivables (Note 10) 13,381 11,852 Inventories (Note 11) 90,677 69,956 Parts and supplies 13,618 13,153 Prepaid expenses 7,788 7,924 Future income taxes (Note 6) 1,509 2,682 _______ _______ 250,980 194,864 Property, plant and equipment (Note 12) 352,610 354,627 Other assets (Note 13) 16,474 12,886 Future income taxes (Note 6) 36,689 3,812 Goodwill (Note 14) 179,958 173,056 _______ _______ 836,711 739,245 LIABILITIES Current liabilities Bank indebtedness (Note 15) 13,944 Accounts payable and accrued liabilities 97,849 95,270 Installments on long-term debt 3,032 16,925 _______ _______ 100,881 126,139 Future income taxes (Note 6) 4,446 Long-term debt (Note 16) 331,095 235,066 Other liabilities (Note 17) 435 530 _______ _______ 432,411 361,735 SHAREHOLDERS' EQUITY Capital stock(Note 18) 289,180 286,841 Contributed surplus (Note 18) 4,326 3,150 Retained earnings 79,609 68,291 Accumulated currency translation adjustments 31,185 19,228 _______ _______ 404,300 377,510 _______ _______ 836,711 739,245
The accompanying notes are an integral part of the consolidated financial statements. On behalf of the Board /s/J. Spencer Lanthier /s/Gordon Cunningham J. Spencer Lanthier, Director Gordon Cunningham, Director 29 Notes To Consolidated Financial Statements December 31, (In US dollars; tabular amounts in thousands, except as otherwise noted) 1. GOVERNING STATUTES The Company, incorporated under the Canada Business Corporations Act, is based in Montreal, Canada, and in Sarasota/Bradenton, Florida. The common shares of the Company are listed on the New York Stock Exchange in the United States of America ("United States" or "US") and on the Toronto Stock Exchange in Canada. 2. ACCOUNTING POLICIES The consolidated financial statements are expressed in US dollars and were prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), which, in certain respects, differ from the accounting principles generally accepted in the United States, as shown in note 22. Certain amounts have been reclassified from the prior years to conform to the current year presentation. Accounting Changes Stock-based compensation In September 2003, the Canadian Institute of Chartered Accountants ("CICA") revised the transitional provisions for Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments, for voluntary adoption of the fair value based method of accounting for stock options granted to employees which previously had not been accounted for at fair value to provide the same alternative methods of transition as are provided under US GAAP. These provisions could have been applied retroactively or prospectively. However, the prospective application was only available to enterprises that elected to apply the fair value based method of accounting for fiscal years beginning before January 1, 2004. Effective January 1, 2003, the Company adopted, on a prospective basis, the fair value based method of accounting for stock options as provided for under revised transitional provisions. Accordingly, the Company has recorded an expense of approximately $1,046,000 and $130,000 for the stock options granted to employees during the years ended December 31, 2004 and 2003 respectively. Prior to 2003, the Company provided in its consolidated financial statements pro forma disclosures of net earnings and net earnings per share information as if the fair value based method of accounting had been applied and no compensation expense was recognized when stock options were granted. Employee future benefits On January 1, 2004, the CICA amended CICA Handbook Section 3461, Employee Future Benefits. Section 3461 requires additional disclosures about the assets, cash flows and net periodic benefit cost of defined benefit pension plans and other employee future benefit plans. The new annual disclosures are effective for years ending on or after June 30, 2004, and new interim disclosures were effective for periods ending on or after that date. As at June 30, 2004, the Company adopted the new disclosure requirements of Section 3461 and provided the additional disclosures of the defined benefit pension plans and other employee future benefit plans in Note 20. 30 Impairment of Long-Lived Assets Effective January 1, 2004, the Company adopted, on a prospective basis, the new recommendations of CICA Handbook Section 3063, Impairment of Long-lived Assets. This new Section provides guidance on the recognition, measurement and disclosure of the impairment of long-lived assets. It replaces the write- down provisions in Property, Plant and Equipment, Section 3061. The Section requires an impairment loss for a long-lived asset to be held and used be recognized when its carrying amount exceeds the sum of the undiscounted cash flows expected from its use and eventual disposition. An impairment loss for a long-lived asset to be held and used should be measured as the amount by which its carrying amount exceeds its fair value. This change in accounting policy did not result in any adjustment to the carrying value of the Company's property, plant and equipment. Asset Retirement Obligations In March 2003, the CICA issued Handbook Section 3110, Asset Retirement Obligations which replaces the limited guidance on future removal and site restoration costs previously provided in Section 3061, Property, Plant and Equipment. It establishes standards for recognition, measurement and disclosure of a liability for an asset retirement obligation and the associated asset retirement cost. The section provides for an initial recognition of the fair value of a liability for an asset retirement obligation in the period in which it is incurred, when a reasonable estimate of fair value can be made. The asset retirement obligation is recorded as a liability with a corresponding increase to the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost is allocated to expenses using a systematic and rational allocation method and is adjusted to reflect period- to-period changes in the liability resulting from passage of time and revisions to either timing or the amount of the original estimate of the undiscounted cash flow. The Company adopted Section 3110 prospectively on January 1, 2004 and the application of this standard did not have a material impact on either results of operations for the year ended December 31, 2004 or on the financial position as at December 31, 2004. Accounting estimates The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the recorded amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the recorded amounts of revenues and expenses during the reporting period. On an ongoing basis, management reviews its estimates, including those relating to the allowance for doubtful accounts, reserve for slow moving and unmarketable inventories and income taxes based on currently available information. Actual results may differ from those estimates. Principles of consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated. Investments in joint ventures have been proportionately consolidated based on the Company's ownership interest. Fair value of financial instruments The fair value of cash and cash equivalents, temporary investment, trade receivables, other receivables, bank indebtedness as well as accounts payable and accrued liabilities is equivalent to carrying amounts, given the short maturity period of such financial instruments. The fair value of long-term debt was established as described in note 16. 31 Foreign Currency Translation Reporting currency The accounts of the Company's operations having a functional currency other than the US dollar have been translated into the reporting currency using the current rate method as follows: assets and liabilities have been translated at the exchange rate in effect at year-end and revenues and expenses have been translated at the average rate during the year. All translation gains or losses of the Company's net equity investments in these operations have been included in the accumulated currency translation adjustments account in shareholders' equity. Changes in this account for all periods presented result solely from the application of this translation method. Foreign currency translation Transactions denominated in currencies other than the functional currency have been translated into the functional currency as follows: monetary assets and liabilities have been translated at the exchange rate in effect at the end of each year and revenue and expenses have been translated at the average exchange rate for each year, except for depreciation and amortization which are translated at the historical rate; non-monetary assets and liabilities have been translated at the rates prevailing at the transaction dates. Exchange gains and losses arising from such transactions are included in earnings. Revenue recognition Revenue from product sales is recognized when there is persuasive evidence of an arrangement, the amount is fixed or determinable, delivery of the product to the customer has occurred, there are no uncertainties surrounding product acceptance and collection of the amount is considered probable. Title to the product generally passes upon shipment of the product. Sales returns and allowances are treated as reductions to sales and are provided for based on historical experience and current estimates. Research and Development Research and development expenses are expensed as they are incurred, net of any related investment tax credits, unless the criteria for capitalization of development expenses in accordance with Canadian GAAP are met. Stock option plan The Company has a stock-based compensation plan that grants stock options to employees. Stock-based compensation expense is recognized over the vesting period of the options granted. Any consideration paid by employees on exercise of stock options is credited to capital stock together with any related stock-based compensation expense recorded in contributed surplus. Earnings per share Basic earnings per share are calculated using the weighted average number of common shares outstanding during the year. The treasury stock method is used to determine the dilutive effect of stock options and warrants. Cash and cash equivalents The Company's policy is to present cash and temporary investments having a term of three months or less with cash and cash equivalents. 32 Accounts receivable Credit is extended based on evaluation of a customer's financial condition and generally, collateral is not required. Accounts receivable are stated at amounts due from customers based on agreed upon payment terms net of an allowance for doubtful accounts. Accounts outstanding longer than the agreed upon payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the customer's current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they are determined to be uncollectible, and any payments subsequently received on such receivable are credited to the allowance for doubtful accounts. Inventories and parts and supplies valuation Raw materials are valued at the lower of cost and replacement cost. Work in process and finished goods are valued at the lower of cost and net realizable value. Cost is principally determined by the first in, first out method. The cost of work in process and finished goods includes the cost of raw materials, direct labor and manufacturing overhead. Parts and supplies are valued at the lower of cost and replacement cost. Property, plant and equipment Property, plant and equipment are stated at cost less applicable investment tax credits and government grants earned and are depreciated over their estimated useful lives principally as follows: Methods Rates and Periods _______ _________________ Buildings Diminishing balance or straight-line 5% or 15 to 40 years Manufacturing equipment Straight-line 5 to 20 years Furniture, office and computer equipment, software and other Diminishing balance or straight-line 20% or 3 to 10 years The Company follows the policy of capitalizing interest during the construction and preproduction periods as part of the cost of significant property, plant and equipment. Normal repairs and maintenance are expensed as incurred. Expenditures which materially increase values, change capacities or extend useful lives are capitalized. Depreciation is not charged on new property, plant and equipment until they become operative. Deferred charges Debt issue expenses are deferred and amortized on a straight-line basis over the term of the related obligation. Other deferred charges are amortized on a straight-line basis over the period benefited varying from 1 to 5 years. Goodwill Goodwill is the excess of the cost of acquired businesses over the net of the amounts assigned to assets acquired and liabilities assumed. Goodwill is not amortized. It is tested for impairment annually or more frequently if events or changes in circumstances indicate that it is impaired. Any potential goodwill impairment is identified by comparing the carrying amount of a reporting unit with its fair value. If any potential impairment is identified, it is quantified by comparing the carrying amount of goodwill to its fair value. When the carrying amount of goodwill exceeds the fair value of the goodwill, an impairment loss should be recognized in an amount equal to the excess. The fair value is calculated as discussed in note 14. 33 Environmental costs The Company expenses, on a current basis, recurring costs associated with managing hazardous substances and pollution in ongoing operations. The Company also accrues for the fair value of a liability for costs associated with the remediation of environmental pollution in the period in which it is incurred and when a reasonable estimate of fair value can be made. Pension plans and other post-retirement benefits The Company has defined benefit and defined contribution pension plans and other post-retirement benefit plans for its Canadian and American employees. The following policies are used with respect to the accounting for the defined benefit and other post-retirement benefit plans: - - The cost of pensions and other post-retirement benefits earned by employees is actuarially determined using the projected benefit method prorated on service and is charged to earnings as services are provided by the employees. The calculations take into account management's best estimate of expected plan investment performance, salary escalation, retirement ages of employees, participants' mortality rates and expected health care costs; - - For the purpose of calculating the expected return on plan assets, those assets are valued at the market-related value for certain plans and, for other plans, at fair value; - - Past service costs from plan amendments are amortized on a straight-line basis over the average remaining service period of employees who are active at the date of amendment; - -Actuarial gains (losses) arise from the difference between actual long-term rate of return on plan assets for a period and the expected long-term rate of return on plan assets for that period from changes in actuarial assumptions used to determine the accrued benefit obligation. The excess of the net actuarial gains (losses) over 10% of the greater of the benefit obligation and the market-related value or the fair value of plan assets is amortized over the average remaining service period of active employees. - -On January 1, 2000, the Company adopted the new accounting standard on employee future benefits using the prospective application method. The Company is amortizing the transitional obligations on a straight-line basis over the average remaining service periods of employees expected to receive benefits under the benefit plans as of January 1, 2000. Income taxes The Company provides for income taxes using the liability method of tax allocation. Under this method, future income tax assets and liabilities are determined based on deductible or taxable temporary differences between the financial statement values and tax values of assets and liabilities, using substantially enacted income tax rates expected to be in effect for the year in which the differences are expected to reverse. A valuation allowance is recognized to the extent the recoverability of future income tax assets is not considered to be more likely than not. New accounting pronouncements In January 2003, the CICA issued Accounting Guideline No. 15, "Consolidation of Variable Interest Entities" ("AcG-15") which harmonizes Canadian GAAP with the US Financial Accounting Standards Board ("FASB") Interpretation No. 46. This guideline applies to annual and interim periods beginning on or after November 1, 2004. The Company expects that this pronouncement will not have a material impact on its results of operations and financial condition. 34 3. JOINT VENTURE The Company's pro rata share of its joint venture's operations included in the consolidated financial statements is summarized as follows: 2003 2002 (6 Months)(i) $ $ _____________________________________________________________________ Earnings Sales 2,298 4,216 Gross profit 651 797 Financial expenses 40 198 Net earnings (loss) 180 (65) Cash flows From operating activities 972 520 From investing activities (345) (35) From financing activities 82 1,071 Balance sheets Assets Current assets 1,637 Long-term assets 6,051 Liabilities Current liabilities 1,459 Long-term debt 1,574 (i) The Company acquired the remaining 50% common equity interest on June 26, 2003. During the year ended December 31, 2002 and the six-month period ended June 30, 2003, the Company had no sales to its joint venture. As a result of the acquisition discussed in note 8, the Company had no investment in a joint venture at December 31, 2004 and 2003. 4. MANUFACTURING FACILITY CLOSURES During the fourth quarter of 2004, the Company announced the closure of its Cumming, Georgia and Montreal, Quebec, manufacturing locations pursuant to its ongoing plan to lower costs, enhance customer order fulfillment and effectively optimize inventory investments. Approximately thirty-seven and eighty employees are affected at Cumming and Montreal, respectively. The total charge related to this plan amounts to approximately $7.4 million of which $5.8 million is non-cash. The total charge includes an amount of $0.5 million of termination-related benefits, an amount of $4.5 million related to impairment of property, plant and equipment and $2.4 million for other facility related closure costs. As at December 31, 2004 a balance of $2.2 million was included in accounts payable and accrued liabilities. Closure activities should be completed by August 2005, including additional closure costs of approximately $1.1 million. During 2003, management approved a plan to consolidate the Company's water activated tape operations at its Menasha, Wisconsin plant. The consolidation was completed during 2003. The plan involved closing its Green Bay, Wisconsin facility, and relocating some employees and equipment to its Menasha, Wisconsin facility. Eighty-six employees were terminated. The total charge for this plan amounted to $3.0 million, including $1.7 million of termination related benefits, and is included in manufacturing facility closure costs in the 2003 consolidated statement of earnings. As at December 31, 2003, a balance of $1.9 million was included in accounts payable and accrued liabilities and a balance of $1.2 million as at December 31, 2004. During 2002, management approved a plan for the consolidation of its operations related to the Flexible Intermediate Bulk Container division which was completed in June 2003. The plan involved the closing of two manufacturing plants and a reduction of seventy-seven employees. The total charge for the restructuring is $2.1 million including $1.8 million of termination related benefits. As at December 31, 2002 the balance of $1.3 million was included in accounts payable and accrued liabilities and nil as at December 31, 2004 and 2003. 35 5. INFORMATION INCLUDED IN THE CONSOLIDATED STATEMENTS OF EARNINGS
2004 2003 2002 ______ ______ ______ $ $ $ Depreciation of property, plant and equipment 28,621 26,957 25,337 Amortization of other deferred charges 3 609 1,924 Amortization of debt issue expenses included in financial expenses below 1,265 1,809 1,392 Write off of debt issue expenses 8,482 Financial expenses Interest on long-term debt 22,340 26,675 28,559 Interest on credit facilities 830 1,804 2,369 Interest income and other 2,045 742 2,310 Interest capitalized to property, plant and equipment (962) (700) (465) ______ ______ ______ 24,253 28,521 32,773 ______ ______ ______ Loss on disposal of property, plant and equipment 1,280 Impairment of property, plant and equipment 4,539 732 Foreign exchange loss (gain) 16 (1,192) Investment tax credits recorded as a reduction of research and development expenses 435 800 2,088
6. INCOME TAXES The provision for income taxes consists of the following:
2004 2003 2002 ______ _______ ______ $ $ $ Current (943) 3,023 2,431 Future (28,806) (7,148) (15,198) ______ _______ ______ (29,749) (4,125) (12,767) ______ _______ _______
The reconciliation of the combined federal and provincial statutory income tax rate to the Company's effective income tax rate is detailed as follows:
2004 2003 2002 ______ ______ ______ % % % Combined federal and provincial income tax rate 41.7 42.5 42.7 Manufacturing and processing (8.1) 3.3 (1.6) Foreign losses recovered(foreign income taxed) at lower rates (12.8) 6.3 (1.7) Goodwill impairment (33.0) Impact of other differences 61.4 (92.3) 28.8 Change in valuation allowance 79.6 10.8 (16.2) ______ ______ ______ Effective income tax rate 161.8 (29.4) 19.0 ______ ______ ______
36 6. INCOME TAXES (Continued) The net future income tax assets are detailed as follows:
2004 2003 _______ _______ $ $ Future income tax assets Trade and other receivables 1,112 1,104 Accounts payable and accrued liabilities 765 Tax credits and loss carry-forwards 104,350 94,719 Other 14,658 5,901 Valuation allowance (16,508) (31,145) _______ _______ 103,612 71,344 _______ _______ Future income tax liabilities Inventories 214 311 Property, plant and equipment 64,134 64,539 Accounts payable and accrued liabilities 1,066 _______ _______ 65,414 64,850 _______ _______ Net future income tax assets 38,198 6,494 Net current future income tax assets 1,509 2,682 Net long-term future income tax assets 36,689 3,812 _______ _______ Total net future income tax assets 38,198 6,494
As at December 31, 2004, the Company has $55.7 million of Canadian operating loss carry-forwards expiring 2007 through 2014 and $175.5 million of US federal and state operating losses expiring 2010 through 2024. In assessing the realizability of future income tax assets, management considers whether it is more likely than not that some portion or all of the future income tax assets will not be realized. Management considers the scheduled reversal of future income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company expects the future income tax assets, net of the valuation allowance, as at December 31, 2004, to be realized as a result of the reversal of existing taxable temporary differences. As part of the above analysis, the valuation allowance was decreased by $14.6 million between December 31, 2003 and December 31, 2004 (increase of $4.5 million between December 31, 2002 and December 31, 2003). The decrease in valuation allowance resulted in $14.6 million of additional income tax benefit. 37 7. EARNINGS (LOSS) PER SHARE The following table provides reconciliation between basic and diluted earnings loss) per share: 2004 2003 2002 __________ __________ __________ $ $ $ Net earnings (loss) 11,358 18,178 (54,454) __________ __________ __________ Weighted average number of common shares outstanding 41,186,143 35,956,550 32,829,013 Effect of dilutive stock options and warrants(i) 259,721 95,770 __________ __________ __________ Weighted average number of diluted common shares outstanding 41,445,864 36,052,320 32,829,013 __________ __________ __________ Basic earnings (loss) per share 0.28 0.51 (1.66) Diluted earnings (loss) per share 0.27 0.50 (1.66) (i) The following number of equity instruments were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented: 2004 2003 2002 __________ __________ __________ Number of Number of Number of Instruments Instruments Instruments __________ __________ __________ Options 2,328,773 2,843,216 2,996,673 Warrants 300,000 300,000 __________ __________ __________ 2,328,773 3,143,216 3,296,673 8. BUSINESS ACQUISITION In February 2004, the Company purchased for a cash consideration of $5.5 million plus contingent consideration (dependent on business retention), assets relating to the masking and duct tape operations of tesa tape, inc. ("tesa tape"). At the same time, the Company finalized its three-year agreement to supply duct tape and masking tape to tesa tape. The purchase was accounted for as a business combination and, accordingly, the purchase method of accounting was used. The purchase price was allocated to the assets purchased based on their estimated fair values as at the date of acquisition and includes $0.9 million of equipment and $4.6 million of goodwill. The goodwill is deductible over 15 years for income tax purposes. Any contingent consideration paid will be recorded as an increase in goodwill. On June 26, 2003, the Company acquired the remaining 50% common equity interest in Fibope Portuguesa Filmes Biorientados S. A. ("Fibope"), a manufacturer and distributor of film products in Portugal. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets and liabilities based on their estimated fair values as at the date of the acquisition. Previously, the Company had accounted for its investment in Fibope as a joint venture using the proportionate consolidation method. The purchase price of $7.2 million was settled by the issuance of 1,030,767 common shares of the Company. The Company acquired assets with a fair value of $11.1 million, including approximately $3.4 million of goodwill, and assumed liabilities of $3.9 million, of which $2.2 million was interest-bearing debt. The operating results of the acquired business have been included in the consolidated financial statements from the effective date of acquisition (see note 3). During July 2003, the Company satisfied a contingent consideration arising from the September 1, 2000 acquisition of certain assets of Olympian Tape Sales, Inc. d/b/a United Tape Company ("UTC"), by making a $6.0 million cash payment to a third party. The cash payment and certain related expenses were recorded as an increase in the goodwill of $6.2 million arising from the UTC acquisition. The Company has additional related expenses that are subject to reimbursement in whole or in part from amounts available under an escrow agreement created at the time of the acquisition. Expenses, if any, not reimbursed will be recorded as additional goodwill upon settlement of the escrow account. 38 9. TEMPORARY INVESTMENT A temporary investment was acquired in the amount of $0.5 million (CA$0.6 million), bearing interest at 2.25% and maturing August 3, 2005. The temporary investment is given in guarantee of an outstanding letter of credit for the same amount. 10. OTHER RECEIVABLES 2004 2003 $ $ Income and other taxes 8,914 7,009 Rebates receivable 1,193 861 Sales taxes 1,316 863 Other 1,958 3,119 ______ ______ 13,381 11,852 11. INVENTORIES 2004 2003 $ $ Raw materials 30,908 18,910 Work in process 14,255 12,583 Finished goods 45,514 38,463 ______ ______ 90,677 69,956 12. PROPERTY, PLANT AND EQUIPMENT
2004 _____________________________________________ Accumulated Cost depreciation Net ____________ ____________ ___________ $ $ $ Land 3,040 3,040 Buildings 65,823 27,496 38,327 Building under capital lease 7,214 263 6,951 Manufacturing equipment 430,764 166,234 264,530 Furniture, office and computer equipment, software and other 60,907 31,009 29,898 Manufacturing equipment under construction and software projects under development 9,864 9,864 ____________ ____________ ___________ 577,612 225,002 352,610 ____________ ____________ ___________
2003 _____________________________________________ Cost Accumulated Net depreciation ____________ ____________ ___________ $ $ $ Land 3,045 3,045 Buildings 61,857 23,368 38,489 Manufacturing equipment 424,112 151,383 272,729 Furniture, office and computer equipment, software and other 58,607 25,872 32,735 Manufacturing equipment under construction and software projects under development 7,629 7,629 ____________ ____________ ___________ 555,250 200,623 354,627 ____________ ____________ ___________
Property, plant and equipment are net of investment tax credits of approximately $0.5 million in 2003. 39 In 2003, the Company entered into a twenty year capital lease for the new Regional Distribution Center in Danville, Virginia. The lease commenced January 2004. This non-cash transaction was valued at $7.2 million and is reflected in the consolidated balance sheet as an increase to property, plant and equipment and long-term debt. 13. OTHER ASSETS 2004 2003 $ $ Debt issue expenses and other deferred charges, at amortized cost 14,446 10,460 Loans to officers and directors, including loans regarding the exercise of stock options, without interest, various repayment terms 914 877 Other receivables 301 271 Other, at cost 813 1,278 ______ ______ 16,474 12,886 14. ACCOUNTING FOR GOODWILL The Company performs an annual impairment test as at December 31. The Company determined that it has one reporting unit. The Company calculates the fair value of this reporting unit using the discounted cash flows method, and compared with other methods including multiples of sales and earnings before interest, taxes, depreciation, and amortization ("EBITDA") and, with historical transactions where appropriate. From these approaches, the fair market value was determined. For 2002, an impairment was charged to operating expenses of $70.0 million. This impairment related to the prior acquisition activity of the Company during the period from 1996 through 2000 in light of 2002 economic and market conditions. No impairment charge was required for 2004 and 2003. The carrying amount of goodwill as at December 31 is detailed as follows: 2004 2003 $ $ Balance as at December 31 249,958 243,056 Accumulated impairment 70,000 70,000 _______ _______ Net balance as at December 31 179,958 173,056 15. BANK INDEBTEDNESS AND CREDIT FACILITIES Refinancing On July 28, 2004 the Company completed the offering of $125.0 million of Senior Subordinated Notes due 2014. On August, 4, 2004 the Company established a new $275.0 million Senior Secured Credit Facility, consisting of a $200.0 million Term Loan and a $75.0 million Revolving Credit Facility. The proceeds from the refinancing were used to repay the existing bank credit facility, redeem all three series of existing senior secured notes, pay related make- whole premiums, accrued interest and transaction fees and provide cash for general working capital purposes. As a result of the refinancing, the Company recorded a one-time pre-tax charge of approximately $30.4 million. The principal elements of the one-time charge are a make-whole payment of approximately $21.9 million and the write-off of deferred financing costs of $8.5 million attributable to the debt that was refinanced. 40 Bank Indebtedness The bank indebtedness consists of the utilized portion of the short-term revolving bank credit facilities and cheques issued which have not been drawn from the facilities. As at December 31, 2004, the Company had bank loans available under a US$75.0 million revolving credit facility with a five-year term. The loan bears interest at various interest-rates including US prime rate plus a premium varying between 100 and 200 basis points, Canadian prime rate plus a premium varying between 100 and 200 basis points and LIBOR plus a premium varying between 200 and 300 basis points. As at December 31, 2004, the credit facility had not been drawn. Subject to convenant restrictions, an amount of $71.2 million was available due to outstanding letters of credit of $3.8 million. The credit facility has been guaranteed by the Company and substantially all of its subsidiaries and secured by a first lien on all assets of the Company and substantially all of its subsidiaries. The credit facilities contain certain financial covenants, including interest expense coverage, debt leverage and fixed charge coverage ratios. In 2003, the bank indebtedness consisted of the utilized portion of the short- term revolving bank credit facilities and cheques issued which had not been drawn from the facilities and was reduced by any cash and cash equivalents. As at December 31, 2003, the Company had bank loans under a US$50.0 million revolving credit facility ("Facility A"), extendible annually at the option of the lenders, converting to a two-year term loan if not extended by the lenders. The loan had various interest-rates including US prime rate plus a premium varying between 0 and 275 basis points and LIBOR plus a premium varying between 75 and 350 basis points. As at December 31, 2003, the effective interest rate was approximately 4.34% and $31.1 million was utilized. An amount of $3.5 million of this credit facility was used for outstanding letters of credit. 16. LONG-TERM DEBT Long-term debt consists of the following: 2004 2003 $ $ a) US$125,000,000 Senior Subordinated Notes 125,000 b) US$200,000,000 Term Loan 199,500 c) US$137,000,000 Series A and B Senior Notes 123,804 d) US$137,000,000 Senior Notes 123,330 e) Obligation under capital lease 7,166 f) Other debt 2,461 4,857 _______ _______ 334,127 251,991 Less: current portion of long-term debt 3,032 16,925 _______ _______ 331,095 235,066 a) Senior Subordinated Notes Senior Subordinated Notes bearing interest at 8.50%, payable semi-annually on February 1 and August 1. All principal is due on August 1, 2014. Senior Subordinated Notes are guaranteed on an unsecured senior subordinated basis by the Company and substantially all of its existing subsidiaries. 41 b) Term Loan Term Loan bearing interest at LIBOR plus a premium varying between 200 and 300 basis points, payable in quarterly installments of $0.5 million starting on December 31, 2004 until June 30, 2010, followed by four quarterly installments of $47.125 million thereafter and maturing on July 28, 2011. As at December 31, 2004, the effective interest rate was approximately 4.67%. The Term Loan is guaranteed by the Company and each of its material subsidiaries. The Term Loan is also secured by a first priority perfected security interest in substantially all of the tangible and intangible assets of the Company and each of its material subsidiaries, subject to certain customary exceptions. c) Series A and B Senior Notes Series A and B Senior Notes were repaid and cancelled in August 2004 (US$123.8 million was outstanding as of the time of repayment). The interest rate in effect at the time of the repayment was 10.03% (10.03% in 2003). The Series A and B Senior Notes were secured by a first ranking charge on all of the tangible and intangible assets of the Company and a second ranking charge on the accounts receivable and inventories. d) Senior Notes Senior Notes were repaid and cancelled in August 2004 (US$123.3 million was outstanding as of the time of repayment). The interest rate in effect at the time of the repayment was 9.06% (9.06% in 2003). Senior Notes were secured by a first ranking charge on all of the tangible and intangible assets of the Company and a second ranking charge on the accounts receivable and inventories. e) Obligation Under Capital Lease Obligation under capital lease, bearing interest at 5.10%, payable in monthly installments and maturing in 2024 (Note 12). f) Other Debt Other debt consisting of government loans, mortgage loans and other loans at fixed and variable interest rates ranging from interest-free to 9.03% and requiring periodic principal repayments through 2010. The Company has complied with the maintenance of financial ratios and with other conditions that are stipulated in the covenants pertaining to the various loan agreements. 42 Long-term debt repayments are due as follows: Obligations under Other long-term capital leases loans $ $ 2005 574 2,855 2006 574 2,797 2007 574 2,317 2008 574 2,139 2009 574 2,139 Thereafter 8,431 314,714 Total minimum lease payments 11,301 Interest expense included in minimum lease payments 4,135 ______ _______ Total 7,166 326,961 Fair Value For all debts with fixed interest rates, the fair value has been determined based on the discounted value of cash flows under the existing contracts using rates representing those which the Company could currently obtain for loans with similar terms, conditions and maturity dates. For the debts with floating interest rates, the fair value is closely equivalent to their carrying amounts. The carrying amounts and fair values of the Company's long-term debt as at December 31, 2004 and 2003 are as follows: 2004 2004 2003 2003 Fair Value Carrying Amount Fair value Carrying Amount $ $ $ $ Long-term debt 341,703 334,127 270,246 251,991 17. OTHER LIABILITIES 2004 2003 $ $ Provision for future site rehabilitation costs 435 530 During the year ended December 31, 2004, the Company reviewed the provision for future site rehabilitation costs. This resulted in a reversal of $0.1 million of provision in 2004. During the year ended December 31, 2003, the Company determined that a reserve for acquisition-related contingencies was no longer required and the $3.0 million liability was reversed into the consolidated statement of earnings as a reduction in selling, general and administrative expenses. During the year ended December 31, 2002, the Company reviewed certain provisions, which it had previously established in accounting for prior years' business acquisitions. This process included the obtaining from third parties environmental studies. As a result, the Company reversed against earnings $0.8 million of provisions in 2002 which had been recorded in prior years for specific business acquisitions. A company-wide environmental reserve for on-going operations of $0.8 million was established in 2002. During 2002, $0.2 million in remediation costs were charged against this reserve. 43 18. CAPITAL STOCK a) Capital stock - authorized Unlimited number of shares without par value Common shares, voting and participating Class "A" preferred shares, issuable in series, ranking in priority to the common shares with respect to dividends and return of capital on dissolution. The Board of Directors is authorized to fix, before issuance, the designation, rights, privileges, restrictions and conditions attached to the shares of each series. b) Capital stock - Issued and fully paid The changes in the number of outstanding common shares and their aggregate stated value from January 1, 2002 to December 31, 2004 were as follows:
2004 2003 2002 Number of Stated Number of Stated Number of Stated Shares Value Shares Value Shares Value __________ _______ __________ _______ __________ _______ $ $ $ Balance, beginning of year 40,944,876 286,841 33,821,074 236,035 28,506,110 186,346 Shares issued for cash in public offering 5,750,000 41,250 5,100,000 47,691 Shares issued for business acquisitions 1,030,767 7,175 Shares issued to the USA Employees' Stock Ownership and Retirement Savings Plan 225,160 1,727 238,535 1,695 172,976 1,697 Shares purchased for cancellation (53,200) (378) Shares issued for cash upon exercise of stock options 120,125 990 104,500 686 41,988 301 __________ _______ __________ _______ __________ _______ Balance, end of year 41,236,961 289,180 40,944,876 286,841 33,821,074 236,035 __________ _______ __________ _______ __________ _______
c) Share purchase warrants On December 29, 2003, the 300,000 share purchase warrants outstanding were cancelled as a result of settling an outstanding claim with the holders. The recorded value of the warrants was reclassified to contributed surplus. The warrants, which would have expired on August 9, 2004, permitted holders to purchase common shares of the Company at a price of $29.50 per share. 44 d) Contributed surplus 2004 2003 Balance, beginning of year 3,150 Cancellation of share purchase warrants 3,150 Stock-based compensation expense 1,046 Adjustment of stock-based compensation 130 _____ _____ Balance, end of year 4,326 3,150 e) Shareholders' protection rights plan On June 11, 2003, the shareholders approved an amendment and restatement of the shareholders' protection rights plan originally established in 1993. The effect of the rights plan is to require anyone who seeks to acquire 20% or more of the Company's voting shares to make a bid complying with specific provisions. The plan will expire on the date immediately following the date of the Company's annual meeting of shareholders to be held in 2006. f) Stock options Under the Company's amended executive stock option plan, options may be granted to the Company's executives and directors for the purchase of up to 4,094,538 shares of common stock. Options expire no later than 10 years after the date of granting. The plan provides that such options will vest and may be exercisable 25% per year over four years. All options were granted at a price equal to the average closing market values on the day immediately preceding the date the options were granted. The changes in number of options outstanding were as follows:
2004 2003 2002 _____________________ _____________________ _____________________ Weighted Weighted Weighted average average average exercise Number of exercise Number of exercise Number of price options price options price options ________ _________ ________ _________ ________ _________ $ $ $ Balance, beginning of the year 9.52 3,165,716 10.02 2,996,673 10.06 2,407,250 Granted 10.26 921,750 5.15 498,500 9.88 688,500 Exercised 8.24 (120,125) 6.56 (104,500) 7.17 (41,988) Cancelled 13.01 (195,186) 7.28 (224,957) 9.19 (57,089) _________ _________ _________ Balance, end of year 9.37 3,772,155 9.52 3,165,716 10.02 2,996,673 _________ _________ _________ Options exercisable at the end of the year 2,068,655 1,729,951 1,529,894 _________ _________ _________
45 The following table summarizes information about options outstanding and exercisable at December 31, 2004:
Options Outstanding Options Exercisable _____________________________________ _____________________ Weighted Weighted Weighted average average average contractual exercise exercise Number (in years) price Number price _________ ___________ ________ _________ ________ Range of exercise prices $ $ $3.90 to $4.85 316,000 1.7 3.99 80,250 4.00 $7.05 to $10.19 2,309,882 3.2 8.79 1,420,882 9.06 $10.84 to $14.71 1,017,773 3.0 11.32 439,023 11.83 $16.30 to $17.19 116,500 8.4 16.39 116,500 16.39 $27.88 12,000 5.6 27.88 12,000 27.88 _________ ___________ ________ _________ ________ 3,772,155 3.2 9.37 2,068,655 9.97 _________ ___________ ________ _________ ________
On January 10, 2001, the Company repriced 474,163 of unexercised stock options held by employees, other than directors and executive officers. The repriced options had exercise prices ranging from US$16.30 to US$23.26 (CA$26.01 to CA$37.11) and expiry dates in 2003 and 2006. The revised exercise price was set at US$8.28 (CA$13.21), being the average of the closing price on the Toronto Stock Exchange and the New York Stock Exchange on January 9, 2001. All other terms and conditions of the respective options, including the percentage vesting and the vesting and expiry dates, remained unchanged. In January 2003, the Company adopted the fair value based method of accounting for stock-based compensation and other stock-based payments. Under transitional provisions prescribed by the CICA, the Company prospectively applied the recognition provisions to awarded stock options issued in 2003 and thereafter. The transitional provisions of the CICA are similar to those of the FASB. The Company recorded a pre-tax stock-based compensation expense of approximately $130,000. For stock options granted during the year ended December 31, 2002, the Company is required to make pro forma disclosures of net earnings (loss) and basic and diluted earnings (loss) per share as if the fair value based method of accounting had been applied. 46 Accordingly, the Company's net earnings (loss) and basic and diluted earnings (loss) per share would have been increased or decreased to the pro forma amounts indicated in the following table:
2004 2003 2002 ________ ________ ________ $ $ $ Net earnings (loss) - as reported 11,358 18,178 (54,454) Add: Stock-based employee compensation expense included in reported net earnings 1,046 130 Total stock-based employee compensation expense determined under fair value based method (1,800) (884) (515) ________ ________ ________ Pro forma net earnings (loss) 10,604 17,424 (54,969) ________ ________ Earnings (loss) per share: Basic - as reported 0.28 0.51 (1.66) _________ ________ ________ Basic - pro forma 0.26 0.48 (1.67) _________ ________ ________ Diluted - as reported 0.27 0.50 (1.66) _________ ________ ________ Diluted - pro forma 0.26 0.48 (1.67) _________ ________ ________
The pro forma effect on net earnings and earnings per share is not representative of the pro forma effect on net earnings and earnings per share of future years because it does not take into consideration the pro forma compensation cost related to options awarded prior to January 1, 2002. The fair value of options granted was estimated using the Black-Scholes option-pricing model, taking into account the following weighted average assumptions: 2004 2003 2002 Expected life 5 years 5 years 5 years Expected volatility 55% 50% 50% Risk-free interest rate 3.14% 2.80% 4.57% Expected dividends $0.00 $0.00 $0.00 The weighted average fair value per share of options granted is: $5.29 $2.41 $4.38 19. COMMITMENTS AND CONTINGENCIES a) Commitments As at December 31, 2004, the Company had commitments aggregating approximately $15.6 million up to 2010 for the rental of offices, warehouse space, manufacturing equipment, automobiles and other. Future minimum payments are $4.9 million in 2005, $3.3 million in 2006, $2.6 million in 2007, $1.6 million in 2008, $1.9 million in 2009 and $1.3 million thereafter. b) Contingencies The Company is party to various claims and lawsuits which are being contested. In the opinion of management, the outcome of such claims and lawsuits will not have a material adverse effect on the Company. 47 20. PENSION AND POST-RETIREMENT BENEFIT PLANS The Company has several defined contribution plans and defined benefit plans for substantially all its employees in both Canada and the United States. These plans are generally contributory in Canada and non-contributory in the United States. Defined Contribution Plans In the United States, the Company maintains a savings retirement plan (401[k] Plan) for the benefit of certain employees who have been employed for at least 90 days. Contribution to these plans is at the discretion of the Company. The Company contributes as well to a multi-employer plan for employees covered by collective bargaining agreements. In Canada, the Company maintains a defined contribution plan for its salaried employees. The Company contributes to the plan amounts equal to 4% of each participant's eligible salary. The Company has expensed $0.9 million for these plans for the year ended December 31, 2004 ($2.4 million and $2.6 million for 2003 and 2002 respectively). Defined Benefit Plans The Company has, in the United States, two defined benefit plans (hourly and salaried). Benefits for employees are based on compensation and years of service for salaried employees and fixed benefits per month for each year of service for hourly employees. In Canada, certain non-union hourly employees of the Company are covered by a plan which provides a fixed benefit of $14.60 ($12.81 and $10.83 in 2003 and 2002, respectively) per month for each year of service. In the United States, the Company provides group health care and life insurance benefits to certain retirees. Total Cash Payments Total cash payments for employee future benefits for 2004, consisting of cash contributed by the Company to its funded pension plans, cash payments directly to beneficiaries for its unfunded other benefit plans, cash contributed to its defined contribution plans and cash contributed to its multi-employee defined benefit plan were $4.1 million ($5.6 million in 2003 and $2.7 million in 2002). Investment Policy The Company's Investment Committee establishes a target mix of equities and bonds of 70% equities and 30% bonds over time. In January of 2003, the Committee determined, with assistance from the investment manager and trustee, to temporarily increase the allocation for the US plans to 80% equity and 20% bonds due to the performance, current and expected, in the bond market and the expected appreciation in the small and midcap equity markets. The increased investment in those markets was 7.5% target in small cap and 2.5% in mid cap. That direction was reviewed with the same advisors, and the Committee determined to continue this approach at its meetings in 2004 and as late as February of 2005. The relatively heavy emphasis on equities is due to the better performance over time in equities versus bonds and the fact that the Company's pension funds do not have a large number of current recipients. In Canada, the funds are split evenly between two balanced mutual funds, thus, over time, achieving the target mix of 70% equities and 30% bonds. The rate of return decision is a function of advice from our actuaries and their review of our current holdings, general market trends, and common levels used by other employers. 48 Information relating to the various plans is as follows:
Pension plans Other plans _______________________ ______________________ 2004 2003 2004 2003 ___________ _________ __________ __________ $ $ $ $ Accrued benefit obligations Balance, beginning of year 29,873 24,071 906 840 Current service cost 654 574 15 12 Interest cost 1,853 1,714 56 58 Benefits paid and expenses (1,061) (902) (59) (52) Plan amendments 34 755 Actuarial losses 2,354 3,205 103 48 Foreign exchange rate adjustment 303 456 ___________ _________ __________ __________ Balance, end of year 34,010 29,873 1,021 906 ___________ _________ __________ __________ Plan assets Balance, beginning of year 19,959 13,181 Actual return on plan assets 2,074 3,565 Employer contributions 2,292 3,837 Benefits paid (1,061) (902) Foreign exchange rate adjustment 203 278 ___________ _________ __________ __________ Balance, end of year 23,467 19,959 ___________ _________ __________ __________ Funded status - deficit 10,543 9,914 1,021 906 Unamortized past service costs (2,457) (2,603) (8) Unamortized net actuarial gain(loss) (12,884) (11,231) (60) 34 Unamortized transition assets (obligation) 104 101 (30) (34) ___________ _________ __________ __________ Accrued benefit liability (prepaid benefit) (4,694) (3,819) 923 906 ___________ _________ __________ __________
Weighted Average Plan Asset Allocations as at December 31 Pension plans Other plans _______________________ ______________________ 2004 2003 2004 2003 ___________ _________ __________ __________ Asset Category Equity Securities 80% 79% Debt Securities 16% 16% Other 4% 5% ___________ _________ Total 100% 100% The accrued prepaid benefit related to the defined benefit pension plans amounting to approximately $4.7 million in 2004 ($3.8 million in 2003) is included with other assets and accounts payable and accrued liabilities for an amount of approximately $0.5 million in 2004 ($0.5 million in 2003) and $4.2 million in 2004 ($3.3 million in 2003), respectively. The accrued benefit liability related to other plans amounting to approximately $0.9 million in 2004 and 2003 is included in accounts payable and accrued liabilities. 49 Net Benefit Cost
Pension plans Other plans _____________________________ ________________________ 2004 2003 2002 2004 2003 2002 ______ ________ _______ ______ ________ ______ $ $ $ $ $ $ Current service cost 654 574 497 15 12 11 Interest cost 1,853 1,714 1,545 56 58 54 Actual return on plan assets (2,074) (3,565) 2,439 Actuarial losses 2,354 3,205 1,140 103 48 31 Plan Amendments 34 755 1,136 Elements of employee future benefit costs before adjustments to recognize the long-term nature of employee future benefit costs 2,821 2,683 6,757 174 118 96 Difference between expected return and actual return on plan assets for year 264 2,154 (4,007) Difference between actuarial loss recognized for year and actual actuarial loss on accrued benefit obligation (1,791) (2,745) (902) (103) (52) (31) Difference between amortization of past service costs for year and actual plan amendments for year 189 (581) (1,014) Amortization of transition obligation (5) 11 (3) 4 4 (1) ______ ________ _______ ______ ________ ______ Net benefit cost for the year 1,478 1,520 831 75 70 64 ______ ________ _______ ______ ________ ______
The average remaining service period of the active employees covered by the pension plans ranges from 11.40 to 25.60 years for 2004 and from 11.76 to 26.70 years for 2003. The significant assumptions which management considers the most likely and which were used to measure its accrued benefit obligations and net periodic benefit costs are as follows: Weighted Average Assumption used to determine Benefit Obligations as at December 31 Pension plans Other plans _______________________ ______________________ 2004 2003 2004 2003 ___________ _________ __________ __________ Discount Rate 5.75% 6.25% 5.75% 6.25% Weighted Average Assumption used to determine Net Benefit Cost for years ended December 31 Pension plans Other plans _______________________ ______________________ 2004 2003 2002 2004 2003 2002 _______________________ ______________________ Discount Rate 6.25% 7.00% 7.25% 6.25% 7.00% 7.25% Expected Long Term Return on Plan Assets US Plans 8.50% 8.50% 9.25% Canadian Plans 7.00% 7.00% 9.25% For measurement purposes, a 5.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2004 (5.0% in 2003 and 2002) and deemed to remain constant through 2009. An increase or decrease of 1% of this rate would have the following impact: Increase of 1% Decrease of 1% $ $ ______________ ______________ Impact on net periodic cost 2 (2) Impact on accrued benefit obligation 41 (36) 50 The Company expects to contribute $2.4 million to its defined benefit pension plans and $0.1 million to its health and welfare plans in 2005. 21. SEGMENT DISCLOSURES The Company manufactures and sells an extensive range of specialized polyolefin plastic packaging products primarily in Canada and in the United States. All products have to be considered part of one reportable segment as they are made from similar extrusion processes and differ only in the final stages of manufacturing. A vast majority of the Company's products, while brought to market through various distribution channels, generally have similar economic characteristics. The following table presents sales by country based on the location of the manufacturing facilities:
2004 2003 2002 _______ _______ _______ $ $ $ Canada 140,032 121,544 119,101 United States 576,156 523,282 510,500 Other 14,361 9,148 3,817 Transfers between geographic areas (38,100) (32,653) (31,843) _______ _______ _______ Total sales 692,449 621,321 601,575 _______ _______ _______
The following table presents property, plant and equipment and goodwill by country based on the locations of assets:
2004 2003 2002 _______ _______ _______ $ $ $ Property, plant and equipment, net Canada 54,128 53,049 46,347 United States 287,104 289,136 299,564 Other 11,378 12,442 5,619 _______ _______ _______ Total property, plant and equipment, net 352,610 354,627 351,530 _______ _______ _______
2004 2003 2002 _______ _______ _______ $ $ $ Goodwill, net Canada 24,917 22,688 17,855 United States 151,674 147,001 140,784 Other 3,367 3,367 _______ _______ _______ Total goodwill, net 179,958 173,056 158,639 _______ _______ _______
22. DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA a) Net earnings and earnings per share Net earnings of the Company and earnings per share established under Canadian GAAP conform in all material respects to the amounts that would be reported if the financial statements would have been prepared under US GAAP, except for the effect of variable accounting (Note 22d), which would result in an increase in net earnings of approximately $1.4 million in 2004 (reduction of $1.7 million in 2003 and nil in 2002). Consequently, in accordance with US GAAP, net earnings in 2004 would be approximately $12.7 million ($16.5 million in 2003 and a net loss of $54.5 million in 2002) and basic and diluted net earnings per share would be $0.31 in 2004 ($0.46 in 2003 and a net loss per share of $1.66 in 2002). 51 b) Consolidated balance sheets Under Canadian GAAP, the financial statements are prepared using the proportionate consolidation method of accounting for joint ventures. Under US GAAP, these investments would be accounted for using the equity method. Note 3 to the consolidated financial statements provides details of the impact of proportionate consolidation on the Company's consolidated financial statements for 2003 and 2002, including the impact on the consolidated balance sheets for 2002. The other differences in presentation that would be required under US GAAP to the consolidated balance sheets, other than as disclosed below, are not viewed as significant enough to require further disclosure. c) Consolidated cash flows Canadian GAAP permits the disclosure of a subtotal of the amount of funds provided by operations before changes in non-cash working capital items to be included in the consolidated statements of cash flows. US GAAP does not permit this subtotal to be presented. d) Accounting for compensation programs Effective January 31, 2003 the Company adopted the fair value based method of accounting for stock-based compensation granted to employees on a prospective basis in accordance with Statement of Financial Accounting standard ("SFAS") No. 148 Accounting for Stock-Based Compensation, Transition and Disclosure, an amendment of FASB Statement No. 123. Under the prospective method, the Company is required to recognize compensation costs for all employee awards granted, modified, or settled after January 1, 2003. Through December 31, 2002, the Company chose to continue to measure compensation costs related to awards of stock options using the intrinsic value based method of accounting. In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), which became effective on July 1, 2000, requiring that the cancellation of outstanding stock options by the Company and the granting of new options with a lower exercise price (the replacement options) be considered as an indirect reduction of the exercise price of the stock options. Under FIN 44, the replacement options and any repriced options are subject to variable accounting from the cancellation date or date of grant, depending on which stock options were identified as the replacement options. Using variable accounting, the Company is required to recognize, at each reporting date, compensation expense for the excess of the quoted market price of the stock over the exercise prices of the replacement or repriced options until such time as the replacement options are exercised, forfeited or expire. The prospective adoption of the fair value based method for recognition of compensation costs did not change the accounting for the replacement and repriced options as they will continue to be accounted for the intrinsic value method (or be subject to the variable accounting) until they are exercised, forfeited, modified or expire. The impact on the Company's financial results of variable accounting will depend on the fluctuations in the Company's stock price and the dates of the exercises, forfeitures or cancellations of the stock options. Depending on these factors, the Company could be required to record significant compensation expense during the life of the options which expire in 2006. In November 2000, 300,000 and 50,000 replacement options were issued at exercise prices of US$10.13 (CA$15.50) and US$14.71 (CA$21.94) respectively, and in May and August 2001, 54,000 and 40,000 replacement options were issued for US$11.92 (CA$18.80) and US$9.00 (CA$13.80), respectively. In addition, in January 2001, 474,163 options were repriced at US$8.28 (CA$12.40) (see Note 18). As at December 31, 2004, the Company's quoted market stock price was $9.11 (CA$10.90) per share. The impact of variable accounting for 2004 would be a reduction of the compensation expense of approximately $1.4 million under US GAAP (expense of $1.7 million in 2003). The compensation expense would not materially impact the net loss reported in the consolidated statement of earnings for 2002 under US GAAP. 52 Under US GAAP, the Company is required to make pro forma disclosures of net earnings (loss), basic earnings (loss) per share and diluted earnings (loss) per share as if the fair value based method of accounting had been applied. The fair value of options granted in 2004, 2003 and 2002 was estimated using the Black-Scholes option-pricing model, taking into account the following weighted average assumptions: 2004 2003 2002 Expected life 5 years 5 years 5 years Expected volatility 55% 50% 50% Risk-free interest rate 3.14% 2.80% 4.57% Expected dividends $0.00 $0.00 $0.00 2004 2003 2002 The weighted average fair value per share of options granted is: $5.29 $2.41 $4.38 Accordingly, the Company's net earnings (loss) and earnings (loss) per share would have been increased or decreased to the pro forma amounts indicated in the following table: 2004 2003 2002 ________ ________ ________ $ $ $ Net earnings (loss) in accordance with US GAAP - as reported 12,739 16,501 (54,454) Add: Stock-based employee compensation expense included in reported net earnings 1,046 130 Deduct: Total stock-based employee compensation expense determined under fair value based method (2,245) (2,635) (2,367) ________ ________ ________ Pro forma net earnings (loss) 11,540 13,996 (56,821) ________ ________ ________ Earnings (loss) per share: Basic - as reported 0.31 0.46 (1.66) ________ ________ ________ Basic - pro forma 0.28 0.39 (1.73) ________ ________ ________ Diluted - as reported 0.31 0.46 (1.66) ________ ________ ________ Diluted - pro forma 0.28 0.39 (1.73) e) Accumulated pension benefit obligation Under US GAAP, if the accumulated pension benefit obligation exceeds the fair value of benefit plan assets, a liability must be recognized in the balance sheet that is at least equal to the unfunded accumulated benefit obligation. To the extent that the additional minimum liability is created by a plan improvement, an intangible asset can be established. Any additional minimum liability not covered by an intangible asset will cause a net of tax reduction in accumulated other comprehensive income. 53 The following sets out the adjustments required to the Company's consolidated balance sheets to conform with US GAAP accounting for pension benefit obligations: 2004 2003 2002 ________ ________ ________ $ $ $ Future income tax assets would increase by 4,767 4,155 3,878 Other assets would increase by 2,353 2,502 1,843 Accounts payable and accrued liabilities would increase by 15,237 13,733 12,323 Shareholders' equity would decrease by (8,117) (7,076) (6,602) f) Consolidated comprehensive income As required under US GAAP, the Company would have reported the following consolidated comprehensive income: 2004 2003 2002 ________ ________ ________ $ $ $ Net earnings (loss) in accordance with US GAAP 12,739 16,501 (54,454) Currency translation adjustments 11,957 15,433 3,768 Minimum pension liability adjustment, net of tax (Note 22 e)) (1,041) (474) (3,147) Consolidated comprehensive income (loss) 23,655 31,460 (53,833) 23. SIGNIFICANT NEW ACCOUNTING PRONOUNCEMENTS UNDER US GAAP Inventory costs In November 2004, the FASB issued SFAS 151, Inventory Costs - An Amendment of ARB No. 43, Chapter 4. SFAS 151 amends the guidance in ARB No. 43, Chapter 4 Inventory Pricing, to clarify the accounting for certain abnormal amounts in establishing inventory valuation. The proposed statement would recognize as current-period charges, idle facility expense, excessive spoilage, double freight, and rehandling costs regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43. The proposed statement would also require that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The Company is currently evaluating the effect that the adoption of SFAS 151 will have on its consolidated results of operations and financial condition. Exchange of non-monetary assets In December 2004, the FASB issued SFAS 153, Exchanges of Non-monetary Assets - - An Amendment of APB Opinion No. 29. SFAS 153 eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion 29, Accounting for Non-monetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005. The Company is currently evaluating the effect that the adoption of SFAS 153 will have on its consolidated results of operations and financial condition. 54 Intertape Polymer Group Locations Corporate Offices Montreal, Quebec, Canada Sarasota/Bradenton, Florida, USA Brighton, Colorado, USA 3 4 Menasha, Wisconsin, USA 3 4 Carbondale, Illinois, USA 3 4 Columbia, South Carolina, USA 3 4 Piedras Negras, Mexico 2 3 4 Cumming, Georgia, USA 3 Porto, Portugal 3 4 Danville, Virginia, USA 1 2 3 4 Richmond, Kentucky, USA 3 4 Montreal, Quebec, Canada 1 2 3 Tremonton, Utah, USA 3 4 Los Angeles, California, USA 1 Truro, Nova Scotia, Canada 2 3 4 Marysville, Michigan, USA 2 3 4 1 Regional Distribution Center 2 ISO Certified 3 Distribution 4 Manufacturing Location Please note: In 2004 the Company announced the closures of its Cumming, Georgia and Montreal, Quebec manufacturing locations. These changes are included in the above presentation Other Information _________________ BOARD OF DIRECTORS o Melbourne F. Yull Chairman and Chief Executive Officer o L. Robbie Shaw* Former Vice President, Nova Scotia Community College o Michael L. Richards Senior Partner, Stikeman Elliott LLP o J. Spencer Lanthier* Currently serves as a Member of the Board of Several Publicly Traded Companies o Ben J. Davenport, Jr. Chairman, First Piedmont Corporation Chairman and CEO Chatham Oil Company CEO, Piedmont Transportation Inc. o Gordon Cunningham* President, Cumberland Asset Management o Thomas E. Costello* Currently serves as a Member of the Board of Several Publicly Traded Companies *Member of Audit Committee HONORARY DIRECTORS o James A. Motley, Sr. Director, American National Bank & Trust Company American National Bancshares, Inc. o Irvine Mermelstein Managing Partner, Market-Tek EXECUTIVE OFFICERS o Melbourne F. Yull Chairman and Chief Executive Officer o Andrew M. Archibald, C.A. Chief Financial Officer and Secretary o Jim Bob Carpenter Executive Vice President, Global Sourcing o H. Dale McSween Executive Vice President, Operations o Gregory A. Yull President, Distribution Products o M. J. Doc Dougherty President, Consumer Products o Burgess H. Hildreth Vice President, Human Resources o James A. Jackson Vice President, Chief Information Officer o Victor V. DiTommaso, CPA Vice President, Finance o Duncan R. Yull Executive Vice President, Strategic Planning & International Business o Piero Greco, C.A. Treasurer TRANSFER AGENT AND REGISTRAR Canada: CIBC Mellon Trust Company 2001 University Street, 16th Floor Montreal, Quebec, Canada H3A 4L8 USA: Mellon Investor Services L.L.C. 85 Challenger Road, 2nd Floor Ridgefield Park, New Jersey, USA. 07660 AUDITORS Raymond Chabot Grant Thornton LLP 600 de la Gauchetiere West, Suite 1900 Montreal, Quebec, Canada H3B 4L8 USA: Grant Thornton International 130 E. Randolph Street Chicago, Illinois, USA. 60601-6203 INVESTOR INFORMATION Stock and Share Listing Common shares are listed on the New York Stock Exchange and the Toronto Stock Exchange, trading under the symbol ITP. Shareholder and Investor Relations Shareholders and investors having inquiries or wishing to obtain copies of the Company's Annual Report or other US Securities Exchange Commission or Canadian Securities Commissions filings should contact: Mr. Andrew M. Archibald, C.A Chief Financial Officer Intertape Polymer Group Inc. 3647 Cortez Road West Bradenton, Florida 34210 (866) 202-4713 E-mail: itp$info@intertapeipg.com ANNUAL MEETING OF SHAREHOLDERS The Annual Meeting of Shareholders will be held Wednesday, May 25th, 2005 at 4:00PM at the Fairmont Queen Elizabeth Hotel located at 900 Rene Levesque Blvd. West, Montreal, Quebec, Canada. The meeting is to be held in the Mackenzie Room. EX-99.J OTH MAT CONT 3 exhibitcamdstockoptionplan.txt IPG AMENDED STOCK OPTION PLAN (EXH. C TO AIF) INTERTAPE POLYMER GROUP INC. EXECUTIVE STOCK OPTION PLAN (as amended and consolidated to June 2, 2004) (number of options increased to 4,094,538 effective February 19, 2004) 1. PURPOSE OF THE PLAN The purpose of the Amended Executive Stock Option Plan (the "Plan") of Intertape Polymer Group Inc. (the "Company") is: (a) to promote a proprietary interest in the Company and its subsidiaries among their executives and directors; (b) to encourage the executives and directors of the Company and of its subsidiaries to further the development of the Company and its subsidiaries; and (c) to attract and retain the key employees necessary for the Company's and its subsidiaries' long-term success. 2. ADMINISTRATION The Plan shall be administered by the Board of Directors of the Company (the "Board"). The Board shall have full and complete authority to interpret the Plan and to prescribe such rules and regulations and make such other determinations as it deems necessary or desirable for the administration of the Plan. All decisions and determinations of the Board respecting the Plan shall be binding upon the Optionees (as hereinafter defined) and Directors (as hereinafter defined) and conclusive. 3. ELEGIBILITY AND PARTICIPATION The Board will designate those eligible employees who may participate in the Plan. Generally, participation in the Plan will be limited to those positions that can have a significant impact on the Company's or its subsidiaries' long-term results. Directors (as hereinafter defined) will be eligible under the Plan to receive grants in accordance with Section 5 hereof. 4. DESCRIPTION AND NUMBER OF SECURITIES OFFERED The shares offered shall be "Common Shares" (the "Shares") of the Company. The total number of Shares reserved for issuance under the Plan shall be 4,094,538 Shares of the Company. The number of Shares of the Company so reserved for issuance to any one person shall not exceed five percent (5%) of the issued and outstanding Shares of the Company and the number of Shares issuable to any one insider and such insider's associates within a one-year period shall not exceed 5% of outstanding Shares. The number of Shares reserved for issuance pursuant to stock options granted to insiders under the Plan or any other compensation arrangement of the Company shall not exceed 10% of the outstanding Shares and the number of Shares issuable to insiders within a one-year period under the Plan or any other compensation arrangement of the Company shall not exceed 10% of the outstanding Shares. 5. GRANTS The Board shall designate from time to time from among the eligible employees those employees (the "Optionees") and the directors of the Company and of its subsidiaries (collectively, the "Directors" and individually, a "Director") to whom a grant (the "Grant") shall be made. The Board shall determine, at its discretion, the number of Shares to which such Grant relates, with reference inter alia to the Market Value of the Shares and taking into consideration, with respect to an Optionee, the Optionee's base salary. The Board shall determine, with respect to a Grant, at its discretion: (i) subject to the provisions hereof, the terms and conditions attaching thereto; and (ii) the date on which such Grant becomes effective. The aggregate maximum number of options to purchase Shares that may be granted under the Plan to Directors who are not part of management shall not exceed one percent (1%) of outstanding Shares of the Company. 6. PRICE OF THE SHARES For the purposes of the Plan, "Market Value" shall mean the average of the closing price of the Shares on The Toronto Stock Exchange and the New York Stock Exchange (collectively, the "Exchanges") for the day immediately preceding the effective date of the Grant, subject to the rules and policies of the Exchanges. Notwithstanding the foregoing, the Market Value shall not be lower than the closing price of the Shares on The Toronto Stock Exchange for the day immediately preceding the effective date of the Grant. The price of the Shares to be purchased through the exercise of an option shall be determined by the Board. The Board may determine different price for different Grants, but any such price shall never be less than the Market Value. The options granted under the Plan may not at any time be repriced. 7. OPTION PERIOD The options granted by the Board shall expire not later than ten (10) years after the effective date of the Grant. The options granted to Optionees shall not be exercisable immediately on the effective date of such Grant, but shall vest twenty-five percent (25%) per year over four (4) years. Accordingly, twenty-five percent (25%) of the options so granted to Optionees shall be exercisable on or after the first anniversary of the effective date of the Grant and a further twenty-five percent (25%) of the options so granted shall be exercisable on or after each of the second, third and fourth anniversaries of the effective date of the Grant. The options granted to Directors, who are not officers of the Corporation, shall vest as to twenty-five percent (25%) of the options so granted to Directors on the effective date of the Grant and a further twenty-five percent (25%) of the options so granted shall be exercisable on or after each of the first, second and third anniversaries of the effective date of the Grant Unless otherwise determined by the Board, all vested options under a particular Grant which have not been previously exercised or canceled shall expire twenty-four (24) months after the date of vesting of the last tranche of such Grant. 8. PAYMENT OF THE SHARES Each Optionee and each Director must pay in full for the Shares purchased by way of exercising an option under the Plan. 9. TERMINATION OF EMPLOYMENT, RETIREMENT AND DEATH 9.1 When an Optionee ceases to be an employee of the Company or one of its subsidiaries, for any reason other than retirement or death, the Optionee shall be entitled to exercise, within a period of three (3) months from termination of employment, the options that have vested to the Optionee as at the time of termination. All of the Optionee's non vested options shall be immediately canceled. 9.2 When a Director ceases to be a Director, such Director shall be entitled to exercise, within a period of three (3) months from such an event, the options that have vested to the Director at the time such Director ceases to be a Director. All the Director's non vested options shall be immediately canceled. 9.3 In the case of retirement, the Optionee shall be entitled to exercise, within a period of twelve (12) months from retirement, the options that have vested to the Optionee as at the time of retirement. All of the Optionee's non-vested options shall be immediately canceled. 9.4 In the case of an Optionee's or Director's death, the estate of the Optionee or Director shall be entitled to exercise, within a period of twelve (12) months from death, any option for which rights have vested to the Optionee or Director as at the time of death. All of the Optionee's or Director's non-vested options shall be immediately canceled. 10. DURATION, AMENDMENT OR TERMINATION OF PLAN Subject to the approval of The Toronto Stock Exchange, the Board may amend or terminate the Plan at any time but, in such event, the rights of Optionees or Directors related to any options granted but unexercised under the Plan shall be preserved and maintained and no amendment can confer additional benefits upon Optionees or Directors or other eligible employees without prior approval by the shareholders of the Company. 11. OFFER FOR SHARES OF THE COMPANY In the event that, at any time, a bona fide offer to purchase all or part of the Shares outstanding is made to all holders of Shares, notice of such offer shall be given by the Company to each Optionee and Director and all granted but unexercised options will become exercisable immediately, but only to the extent necessary to enable an Optionee or Director to tender his/her Shares should he/she so desire. 12. SUBDIVISION, CONSOLIDATION, CONVERSTION OR RECLASSIFICATION In the event that the Shares of the Company are subdivided, consolidated, converted or reclassified by the Company, or that any other action of a similar nature affecting such Shares is taken by the Company, any unexercised option shall be appropriately adjusted, and the number of Shares reserved for issuance under the Plan shall be adjusted in the same manner. 13. NECESSARY APPROVAL The Company's obligation to issue and deliver Shares in accordance with the Plan, as well as any amendment thereto, is subject to the approval of regulatory authorities having jurisdiction over the Company's Shares. 14. RIGHT NON-ASSIGNABLE The rights of an Optionee or a Director pursuant to the provisions of this Plan are non assignable. 15. GOVERNING LAW The provisions of the Plan shall be interpreted in accordance with the laws of the Province of Quebec. 16. PARTICIPATION VOLUNTARY 16.1 The participation of an Optionee or Director in the Plan is entirely voluntary and non obligatory and shall not be interpreted as conferring upon any such Optionee or Director any rights or privileges other than those rights and privileges expressly provided in the Plan. 16.2 The Plan does not provide any guarantee against any loss or profit which may result from fluctuation in the Market Value of the Shares. EX-99.H OTH MAT CONT 4 shareholderrightsplan.txt IPG SHAREHOLDER RIGHTS PLAN (EXH. B TO AIF) INTERTAPE POLYMER GROUP INC. and CIBC MELLON TRUST COMPANY as Rights Agent AMENDED AND RESTATED SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT June 11, 2003 STIKEMAN ELLIOTT LLP TABLE OF CONTENTS ARTICLE 1 INTERPRETATION 1.1 Certain Definitions 1 1.2 Currency 13 1.3 Headings 13 1.4 Number and Gender 14 1.5 Acting Jointly or in Concert 14 1.6 Statutory References 14 ARTICLE 2 THE RIGHTS 2.1 Legend on Common Share Certificates 14 2.2 Initial Exercise Price; Exercise of Rights; Detachment of Rights 15 2.3 Adjustments to Exercise Price; Number of Rights 17 2.4 Date on Which Exercise is Effective 23 2.5 Execution, Authentication, Delivery and Dating of Rights Certificates 23 2.6 Registration, Registration of Transfer and Exchange 23 2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates 24 2.8 Persons Deemed Owners 25 2.9 Delivery and Cancellation of Rights Certificates 25 2.10 Agreement of Rights Holders 25 2.11 Rights Certificate Holder not Deemed a Shareholder 26 ARTICLE 3 ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS 3.1 Flip-in Event 27 ARTICLE 4 THE RIGHTS AGENT 4.1 General 27 4.2 Merger or Amalgamation or Change of Name of Rights Agent 28 4.3 Duties of Rights Agent 29 4.4 Change of Rights Agent 30 ARTICLE 5 MISCELLANEOUS 5.1 Redemption and Waiver 31 5.2 Expiration 33 5.3 Issuance of New Rights Certificates 33 5.4 Supplements and Amendments 33 5.5 Fractional Rights and Fractional Shares 35 5.6 Rights of Action 35 5.7 Notice of Proposed Actions 35 5.8 Notices 36 5.9 Successors 36 5.10 Benefits of this Agreement 37 5.11 Governing Law 37 5.12 Severability 37 5.13 Effective Date 37 5.14 Determinations and Actions by the Board of Directors 37 5.15 Rights of Board, Corporation and Offeror 37 5.16 Regulatory Approvals 38 5.17 Declaration as to Non-Canadian and Non-U.S. Holders 38 5.18 Time of the Essence 38 5.19 Execution in Counterparts 38 SCHEDULE SCHEDULE 2.2(3) SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT THIS AMENDED AND RESTATED SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT dated June 11, 2003 between Intertape Polymer Group Inc. (the "Corporation"), a corporation amalgamated under the Canada Business Corporations Act, and CIBC Mellon Trust Company (formerly known as The R-M Trust Company), a trust company incorporated under the laws of Canada, as Rights Agent (the "Rights Agent", which term shall include any successor Rights Agent hereunder). WITNESSES THAT: WHEREAS the Corporation and the Rights Agent entered into a shareholder protection rights plan agreement dated as of August 24, 1993, such shareholder protection rights plan agreement which was subsequently amended and restated on May 21, 1998 (the "Corporation's Shareholder Protection Rights Plan Agreement"); and WHEREAS the shareholders of the Corporation have determined to amend and restate the Corporation's Shareholder Protection Rights Plan Agreement as set out herein (the amended and restated Corporation's Shareholder Protection Rights Plan Agreement being referred to herein as the "Rights Plan"); NOW THEREFORE, in consideration of the foregoing premises and the respective covenants and agreements set forth herein, the parties hereby agree as follows: ARTICLE 1 INTERPRETATION 1.1 Certain Definitions. For purposes of the Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" means, any Person who is the Beneficial Owner of twenty percent (20%) or more of the outstanding Voting Shares of the Corporation; provided, however, that the term "Acquiring Person" shall not include: (i) the Corporation or any Subsidiary of the Corporation; (ii) any Person who becomes the Beneficial Owner of twenty percent (20%) or more of the outstanding Voting Shares of the Corporation as a result of one or any combination of: (A) Corporate Acquisitions, (B) Permitted Bid Acquisitions, (C) Corporate Distributions, (D) Exempt Acquisitions, or (E) Convertible Security Acquisitions; provided, however, that if a Person shall become the Beneficial Owner of twenty percent (20%) or more of the Voting Shares of the Corporation then outstanding by reason of one or more or any combination of the operation of a Corporate Acquisition, Permitted Bid Acquisition, Corporate Distribution, Exempt Acquisition or Convertible Security Acquisition and, after such Corporate Acquisition, Permitted Bid Acquisition, Corporate Distribution, Exempt Acquisition or Convertible Security Acquisition, becomes the Beneficial Owner of an additional one percent (1%) or more of the outstanding Voting Shares of the Corporation other than pursuant to Corporate Acquisitions, Permitted Bid Acquisitions, Corporate Distributions, Exempt Acquisitions or Convertible Security Acquisitions, then as of the date of such acquisition, such Person shall become an Acquiring Person; (iii) for a period of ten (10) days after the Disqualification Date (as hereinafter defined), any Person who becomes the Beneficial Owner of twenty percent (20%) or more of the outstanding Voting Shares of the Corporation as a result of such Person becoming disqualified from relying on Clause 1.1(e)(3) hereof solely because such Person makes or proposes to make a Take-over Bid in respect of securities of the Corporation alone or by acting jointly or in concert with any other Person (the first date of public announcement (which, for the purposes of this definition, shall include, without limitation, a report filed pursuant to section 101 of the Securities Act (Ontario)) by such Person or the Corporation of a current intent to commence such a Take-over Bid being herein referred to as the "Disqualification Date"); and (iv) an underwriter or member of a banking or selling group that acquires Voting Shares of the Corporation from the Corporation in connection with a distribution of securities (including, for greater certainty, by way of private placement of such securities) to the public. (b) "Affiliate" when used to indicate a relationship with a specified Person, means a Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified Person. (c) "Agreement" means this agreement as amended, modified or supplemented from time to time. (d) "Associate" when used to indicate a relationship with a specified Person, means any relative of such specified Person who has the same home as such specified Person, or any Person to whom such specified Person is married or with whom such specified Person is living in a conjugal relationship outside marriage, or any relative of such spouse or other Person who has the same home as such specified Person. (e) A Person shall be deemed the "Beneficial Owner", and to have "Beneficial Ownership" of, and to "Beneficially Own": (i) any securities of which such Person or any Affiliate or Associate of such Person is the owner in law or equity; (ii) any securities as to which such Person or any of such Person's Affiliates or Associates has the right to acquire (A) upon the exercise of any Convertible Securities, or (B) pursuant to any agreement, arrangement or understanding, in each case if such right is exercisable immediately or within a period of 60 days thereafter whether or not on condition or the happening of any contingency (other than customary agreements with and between underwriters and banking group or selling group members with respect to a distribution of securities or pursuant to a pledge of securities in the ordinary course of business); and (iii) any securities that are Beneficially Owned within the meaning of Clause 1.1(e)(i) or (ii) hereof by any other Person with whom such Person is acting jointly or in concert; provided, however, that a Person shall not be deemed the "Beneficial Owner", or to have "Beneficial Ownership" of, or to "Beneficially Own", any security as a result of the existence of any one or more of the following circumstances: (1) such security has been deposited or tendered, pursuant to a Take-over Bid made by such Person or made by any Affiliate or Associate of such Person or made by any other Person acting jointly or in concert with such Person, unless such deposited or tendered security has been taken up or paid for, whichever shall first occur; (2) by reason of the holder of such security having agreed to deposit or tender such security to a Take-over Bid made by such Person or any of such Person's Affiliates or Associates or any other Person referred to in Clause (iii) of this definition pursuant to a Permitted Lock-Up Agreement, but only until such time as the securities are taken up or paid for under the Take-over Bid; (3) such Person or any Affiliate or Associate of such Person or any other Person acting jointly or in concert with such Person, holds such security; provided that (i) the ordinary business of any such Person (the "Fund Manager") includes the management of investment funds for others (which others may include or be limited to one or more employee benefit plans or pension plans) and/or includes the acquisition or holding of securities for a non-discretionary account of a Client (as defined below) by a dealer or broker registered under applicable securities laws to the extent required, and such security is held by the Fund Manager in the ordinary course of such business in the performance of such Fund Manager's duties for the account of any other Person (a "Client"), (ii) such Person (the "Trust Company") is licensed to carry on the business of a trust company under applicable law and, as such, acts as trustee or administrator or in a similar capacity in relation to the estates of deceased or incompetent Persons or in relation to other accounts and holds such security in the ordinary course of such duties for the estate of any such deceased or incompetent Person (each an "Estate Account") or for such other accounts (each an "Other Account"), (iii) the Person (the "Statutory Body") is an independent Person established by statute for purposes that include, and the ordinary business or activity of such person includes, the management of investment funds for employee benefit plans, pension plans, insurance plans of various public bodies and the Statutory Body holds such security for the purposes of its activities as such, (iv) the ordinary business of any such Person includes acting as an agent of the Crown in the management of public assets (the "Crown Agent"), or (v) the Person, any of such Person's Affiliates or Associates or any other Person acting jointly or in concert with such Person holds such security, provided that the Person is the administrator or the trustee of one or more pension funds or plans (each a "Pension Fund") registered under the laws of Canada or any province thereof or the United States or any state thereof (the "Independent Person"), or is a Pension Fund and holds such securities for the purposes of its activities as an Independent Person or as a Pension Fund, and further provided that such Person does not hold more than thirty percent (30%) of the Voting Shares of the Corporation; provided, however, that in any of the foregoing cases no one of the Fund Manager, the Trust Company, the Statutory Body, the Crown Agent, the Independent Person or the Pension Fund makes or announces a current intention to make a Take-over Bid in respect of securities of the Corporation alone or by acting jointly or in concert with any other Person (other than pursuant to a distribution by the Corporation or by means of ordinary market transactions (including prearranged trades entered in the ordinary course of business of such Person) executed through the facilities of a stock exchange or organized over-the-counter market); (4) such Person is a Client of the same Fund Manager as another Person on whose account the Fund Manager holds such security, or such Person is an Estate Account or an Other Account of the same Trust Company as another Person on whose account the Trust Company holds such security, or such Person is a Pension Fund with the same Independent Person as another Pension Fund; (5) such Person is a Client of a Fund Manager and such security is owned at law or in equity by the Fund Manager, or such Person is an Estate Account or an Other Account of a Trust Company and such security is owned at law or in equity by the Trust Company, or such Person is a Pension Fund and such security is owned at law or in equity by the Independent Person; or (6) such Person is a registered holder of securities as a result of carrying on the business of, or acting as a nominee of, a securities depository. For purposes of this Agreement, the percentage of Voting Shares Beneficially Owned by any Person, shall be and be deemed to be the product of one hundred (100) and the number of which the numerator is the number of votes for the election of all directors generally attaching to the Voting Shares Beneficially Owned by such Person and the denominator of which is the number of votes for the election of all directors generally attaching to all outstanding Voting Shares. Where any Person is deemed to Beneficially Own unissued Voting Shares, such Voting Shares shall be deemed to be issued and outstanding for the purpose of calculating the percentage of Voting Shares Beneficially Owned by such Person. (f) "Board of Directors" means, at any time, the duly constituted board of directors of the Corporation. (g) "Business Day" means any day other than a Saturday, Sunday or a day on which banking institutions in Montreal are authorized or obligated by law to close. (h) "Canadian Dollar Equivalent" of any amount which is expressed in United States dollars shall mean on any date the Canadian dollar equivalent of such amount determined by multiplying such amount by the U.S.- Canadian Exchange Rate in effect on such date. (i) "CBCA" means the Canada Business Corporations Act R.S.C. 1985, c. C-44, and the regulations thereunder, and any comparable or successor laws or regulations thereto. (j) "close of business" on any given date means the time on such date (or, if such date is not a Business Day, the time on the next succeeding Business Day) at which the office of the transfer agent for the Common Shares in the City of Montreal (or, after the Separation Time, the office of the Rights Agent in the City of Montreal) is closed to the public. (k) "Common Shares", when used with reference to the Corporation, means the common shares without par value in the capital of the Corporation. (l) "Competing Bid" means a Take-over Bid that: (i) is made while another Permitted Bid is in existence, and (ii) satisfies all the components of the definition of a Permitted Bid, except that the requirements set out in Clause (ii) of the definition of a Permitted Bid shall be satisfied if the Take-over Bid shall contain, and the take up and payment for securities tendered or deposited thereunder shall be subject to, an irrevocable and unqualified condition that no Voting Shares shall be taken up or paid for pursuant to the Competing Bid prior to the close of business on the date that is no earlier than the date which is the later of thirty-five (35) days after the date the Competing Bid is made or sixty (60) days after the earliest date on which any other Permitted Bid or Competing Bid that is then in existence was made and only if at that date, more than fifty percent (50%) of the then outstanding Voting Shares held by Independent Shareholders have been deposited or tendered to the Competing Bid and not withdrawn. (m) "controlled": a corporation is "controlled" by another Person if: (i) securities entitled to vote in the election of directors carrying more than fifty percent (50%) of the votes for the election of directors are held, other than by way of security only, by or for the benefit of the other Person; and (ii) the votes carried by such securities are entitled, if exercised, to elect a majority of the board of directors of such corporation; and "controls", "controlling" and "under common control with" shall be interpreted accordingly. (n) "Convertible Security" means at any time: (i) any right (regardless of whether such right constitutes a security) to acquire Voting Shares from the Corporation; and (ii) any securities issued by the Corporation from time to time (other than the Rights) carrying any exercise, conversion or exchange right; in each case pursuant to which the holder thereof may acquire Voting Shares or other securities which are convertible into or exercisable or exchangeable for Voting Shares. (o) "Convertible Security Acquisition" means the acquisition of Voting Shares upon the exercise, conversion or exchange of Convertible Securities received by a Person pursuant to a Permitted Bid Acquisition, Exempt Acquisition or a Corporate Distribution. (p) "Corporate Acquisition" means an acquisition by the Corporation or a Subsidiary of the Corporation or the redemption by the Corporation of Voting Shares of the Corporation which by reducing the number of Voting Shares of the Corporation outstanding increases the proportionate number of Voting Shares Beneficially Owned by any Person. (q) "Corporate Distribution" means an acquisition as a result of: (i) a stock dividend or a stock split or other event pursuant to which a Person receives or acquires Voting Shares on the same pro rata basis as all other holders of Voting Shares of the same class; or (ii) any other event pursuant to which all holders of Voting Shares of the Corporation are entitled to receive Voting Shares or Convertible Securities on a pro rata basis, including, without limiting the generality of the foregoing, pursuant to the receipt or exercise of rights issued by the Corporation and distributed to all the holders of a class of Voting Shares to subscribe for or purchase Voting Shares or Convertible Securities of the Corporation, provided that such rights are acquired directly from the Corporation and not from any other Person and provided further that the Person in question does not thereby acquire a greater percentage of Voting Shares, or Convertible Securities representing the right to acquire Voting Shares of such class, than the percentage of Voting Shares of the class Beneficially Owned immediately prior to such acquisition. (r) "Disqualification Date" has the meaning ascribed thereto in Section 1.1(a)(iii) hereof. (s) "Effective Date" has the meaning ascribed thereto in Section 5.13 hereof. (t) "Election to Exercise" has the meaning ascribed thereto in Section 2.2(4) hereof. (u) "Exempt Acquisition" means an acquisition: (i) in respect of which the Board of Directors has waived the application of Section 3.1 hereof pursuant to the provisions of Section 5.1(2), 5.1(3) or 5.1(4) hereof; (ii) which was made on or prior to the Record Time; (iii) which was made pursuant to a dividend reinvestment plan of the Corporation or other similar share purchase plan made available to the holders of shares of the Corporation generally; (iv) pursuant to a distribution to the public by the Corporation of Voting Shares or Convertible Securities made pursuant to a prospectus provided that the Person in question does not thereby acquire a greater class percentage of Voting Shares, or Convertible Securities representing the right to acquire Voting Shares of such class, than the percentage of Voting Shares of the class Beneficially Owned immediately prior to such acquisition; or (v) pursuant to an issuance and sale by the Corporation of Voting Shares or Convertible Securities by way of a private placement by the Corporation, provided that (x) all necessary stock exchange approvals for such private placement have been obtained and such private placement complies with the terms and conditions of such approvals, and (y) the purchaser does not become the Beneficial Owner of more than 25% of the Voting Shares outstanding immediately prior to the private placement (and in making this determination, the securities to be issued to such purchaser on the private placement shall be deemed to be held by such purchaser but shall not be included in the aggregate number of outstanding Voting Shares immediately prior to the private placement). (v) "Exercise Price" means, as of any date, the price at which a holder may purchase the securities issuable upon exercise of one whole Right. Until adjustment thereof in accordance with the terms hereof, the Exercise Price shall be $100. (w) "Expiration Time" means the earlier of: (i) the Termination Time, and (ii) the close of business on the date immediately following the date of the Corporation's annual meeting of shareholders to be held in 2006. (x) "Flip-in Event" means a transaction in or pursuant to which any Person becomes an Acquiring Person. (y) "Independent Shareholders" means holders of Voting Shares of the Corporation, but shall not include (i) any Acquiring Person or any Offeror, or any Affiliate or Associate of such Acquiring Person or such Offeror, or any Person acting jointly or in concert with such Acquiring Person or such Offeror, or (ii) any employee benefit plan, stock purchase plan, deferred profit sharing plan or any similar plan or trust for the benefit of employees of the Corporation or a Subsidiary of the Corporation, unless the beneficiaries of any such plan or trust direct the manner in which the Voting Shares are to be voted or direct whether the Voting Shares are to be tendered to a Take-over Bid; and shall include any Person referred to in Clause 1.1(e)(3) hereof (other than any Person who pursuant to Clause 1.1(e)(3) is deemed to Beneficially Own the Voting Shares). (z) "Market Price" per share of any securities on any date of determination means the average of the daily closing prices per share of such securities (determined as described below) on each of the twenty (20) consecutive Trading Days through and including the Trading Day immediately preceding such date; provided, however, that if an event of a type analogous to any of the events described in Section 2.3 hereof shall have caused the closing prices used to determine the Market Price on any Trading Days not to be fully comparable with the closing price on such date of determination or, if the date of determination is not a Trading Day, on the immediately preceding Trading Day, each such closing price so used shall be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 hereof in order to make it fully comparable with the closing price on such date of determination or, if the date of determination is not a Trading Day, on the immediately preceding Trading Day. The closing price per share of any securities on any date shall be (i) the closing board lot sale price or, if such price is not available, the average of the closing bid and asked prices, for each share as reported by the stock exchange on which the greater number of shares has been traded on such day or if the shares are listed only on one (1) stock exchange at that time, that stock exchange, or (ii) if for any reason none of such prices is available on such day or the securities are not listed or admitted to trading on any stock exchange, the closing board lot sale price or, if such price is not available, the average of the closing bid and asked prices, for each share as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the securities exchange in Canada or the United States on which the securities are primarily traded, or (iii) if not so listed, the last quoted price, or if not so quoted, the average of the high bid and low asked prices for each share of such securities in the over-the-counter market, or (iv) if on any such date the securities are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securities selected in good faith by the Board of Directors; provided, however, that if on any such date the securities are not traded in the over-the-counter market, the closing price per share of such securities on such date shall mean the fair value per share of such securities on such date as determined in good faith by a nationally or internationally recognized investment dealer or investment banker. The Market Price shall be expressed in Canadian dollars and if initially determined in respect of any day forming part of the twenty (20) consecutive trading day period in United States dollars, such amount shall be translated into Canadian dollars at the Canadian Dollar Equivalent thereof. (aa) "Offer to Acquire" shall include: (i) an offer to purchase, a public announcement of an intention to make an offer to purchase, or a solicitation of an offer to sell; and (ii) an acceptance of an offer to sell, whether or not such offer to sell has been solicited; or any combination thereof, and the Person accepting an offer to sell shall be deemed to be making an Offer to Acquire to the Person that made the offer to sell. (bb) "Offeror" means a Person who has announced a current intention to make, or who makes and has outstanding, a Take-over Bid. (cc) "Offeror's Securities" means Voting Shares of the Corporation Beneficially Owned by an Offeror, any Affiliate or Associate of such Offeror or any Person acting jointly or in concert with the Offeror. (dd) "Permitted Bid" means a Take-over Bid that is made by means of a Take-over Bid circular and which also complies with the following additional provisions: (i) the Take-over Bid shall be made to all registered holders of Voting Shares (other than the Voting Shares held by the Offeror); (ii) the Take-over Bid shall contain, and the take up and payment for securities tendered or deposited thereunder shall be subject to, an irrevocable and unqualified condition that no Voting Shares shall be taken up or paid for pursuant to the Take-over Bid prior to the close of business on the date which is not less than sixty (60) days following the date of the Take-over Bid and that no Voting Shares shall be taken up or paid for pursuant to the Take-over Bid unless, at such date, more than fifty percent (50%) of the then outstanding Voting Shares held by Independent Shareholders have been deposited to the Take-over Bid and not withdrawn; (iii) the Take-over Bid shall contain an irrevocable and unqualified provision that, unless the Take-over Bid is withdrawn, Voting Shares of the Corporation may be deposited pursuant to such Take-over Bid at any time during the period of time described in Clause (ii) of this Section 1.1(dd) and that any Voting Shares deposited pursuant to the Take-over Bid may be withdrawn at any time until taken up and paid for; and (iv) the Take-over Bid shall contain an irrevocable and unqualified provision that should the condition referred to in Clause (ii) of this Section 1.1(dd) be met: (A) the Offeror will make a public announcement of that fact on the date the Take-over Bid would otherwise expire; and (B) the Take-over Bid will be extended for a period of not less than ten (10) Business Days from the date it would otherwise expire. (ee) "Permitted Bid Acquisitions" means share acquisitions made pursuant to a Permitted Bid or a Competing Bid. (ff) "Permitted Lock-Up Agreement" means an agreement between a Person and one or more holders (each a "Locked-up Person") of Voting Shares or Convertible Securities (the terms of which are publicly disclosed and a copy of which is made available to the public (including the Corporation) not later than the date the Lock-up Bid (as defined below) is publicly announced or, if the agreement was entered into after the date of the Lock-up Bid, not later than the date the agreement was entered into), pursuant to which such Locked-up Persons agree to deposit or tender Voting Shares or Convertible Securities to a Take-over Bid (the "Lock-up Bid") made by the Person or any of such Person's Affiliates or Associates or any other Person referred to in Clause (iii) of the definition of Beneficial Owner and where the agreement: (i) (A) permits the Locked-up Person to withdraw Voting Shares or Convertible Securities in order to tender or deposit Voting Shares or Convertible Securities to another Take-over Bid (or terminate the agreement in order to support another transaction) that represents an offering price for each Voting Share or Convertible Security that exceeds, or provides a value for each Voting Share or Convertible Security that is greater than, the offering price or value represented by or proposed to be represented by the Lock-up Bid, provided that the other Take-over Bid or transaction is made for at least the same number of Voting Shares or Convertible Securities as the Lock-up Bid; or (B) permits the Locked-up Person to withdraw Voting Shares or Convertible Securities in order to tender or deposit the Voting Shares or Convertible Securities to another Take-over Bid (or terminate the agreement in order to support another transaction) that represents an offering price for each Voting Share or Convertible Security that exceeds, or provides a value for each Voting Share or Convertible Security that is greater than, the offering price or value represented by or proposed to be represented by, the Lock-up Bid by as much or more than a specified amount (the "Specified Amount") and the Specified Amount is not greater than 7% of the offering price or value that is represented by the Lock-up Bid, provided that the other Take-over Bid or transaction is made for at least the same number of Voting Shares or Convertible Securities as the Lock-up Bid; and (ii) provides for no "break-up" fees, "top-up" fees, penalties, payments, expenses or other amounts that exceed in the aggregate the greater of: (A) the cash equivalent of 2.5% of the price or value payable under the Lock-up Bid to the Locked-up Person, and (B) 50% of the amount by which the price or value payable under another Take-over Bid or another transaction to a Locked-up Person exceeds the price or value of the consideration that such Locked-up Person would have received under the Lock-up Bid, to be payable, directly or indirectly, by such Locked-up Person pursuant to the agreement in the event that the Lock-up Bid is not successfully concluded or if any Locked-up Person fails to tender Voting Shares or Convertible Securities pursuant thereto; and, for greater certainty, the agreement may contain a right of first refusal or require a period of delay to give the Offeror an opportunity to at least match a higher consideration in another Take-over Bid or transaction or contain any other similar limitation on a Locked-up Person's right to withdraw Voting Shares or Convertible Securities from the agreement, so long as any such limitation does not preclude the exercise by the Locked-up Person of the right to withdraw Voting Shares or Convertible Securities in sufficient time to tender to the other Take- over Bid or to support the other transaction. (gg) "Person" means any individual, firm, partnership, limited partnership, limited liability company or partnership, association, trust, trustee, executor, administrator, legal or personal representative, government, governmental body, entity or authority, group, body corporate, corporation, unincorporated organization or association, syndicate, joint venture or any other entity, whether or not having legal personality, and any of the foregoing in any derivative, representative or fiduciary capacity and pronouns have a similar extended meaning. (hh) "Record Time" means the close of business on September 1, 1993. (ii) "Redemption Price" has the meaning ascribed thereto in Section 5.1(1) hereof. (jj) "regular periodic cash dividends" means cash dividends paid at regular intervals in any fiscal year of the Corporation to the extent that such cash dividends do not exceed, in the aggregate, the greatest of: (i) two hundred percent (200%) of the aggregate amount of cash dividends declared payable by the Corporation on its Common Shares in its immediately preceding fiscal year; and (ii) one hundred percent (100%) of the aggregate consolidated net income of the Corporation, before extraordinary items, for its immediately preceding fiscal year. (kk) "Right" means a right issued pursuant to this Agreement. (ll) "Rights Certificate" has the meaning ascribed thereto in Section 2.2(3) hereof. (mm) "Rights Register" has the meaning ascribed thereto in Section 2.6(1) hereof. (nn) "Securities Act (Ontario)" means the Securities Act (Ontario), and the regulations and rules thereunder, and any comparable or successor laws, regulations and rules thereto. (oo) "Separation Time" means the close of business on the tenth (10th) Trading Day after the earlier of (i) the Stock Acquisition Date, (ii) the date of the commencement of, or first public announcement of the intent of any person (other than the Corporation or any Subsidiary of the Corporation) to commence, a Take-over Bid (other than a Permitted Bid or Competing Bid) or such later date as may be determined by the Board of Directors and (iii) the date on which a Permitted Bid or Competing Bid ceases to qualify as such or such later date as may be determined by the Board of Directors provided that, if any Take-over Bid referred to in Clause (ii) of this Section 1.1(oo) or any Permitted Bid or Competing Bid referred to in Clause (iii) of this Section 1.1(oo) expires, is cancelled, terminated or otherwise withdrawn prior to the Separation Time, such Take-over Bid, Permitted Bid or Competing Bid, as the case may be, shall be deemed, for the purposes of this Section 1.1(oo), never to have been made and provided further that if the Board of Directors determines pursuant to Sections 5.1(2), (3) or (4) hereof to waive the application of Section 3.1 hereof to a Flip-in Event, the Separation Time in respect of such Flip-in Event shall be deemed never to have occurred. (pp) "Stock Acquisition Date" means the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to section 101 of the Securities Act (Ontario)) by the Corporation or an Offeror or Acquiring Person of facts indicating that a Person has become an Acquiring Person. (qq) "Subsidiary": a corporation shall be deemed to be a Subsidiary of another corporation if: (i) it is controlled by: (A) that other; (B) that other and one or more corporations each of which is controlled by that other; or (C) two or more corporations each of which is controlled by that other; or (ii) it is a Subsidiary of a corporation that is that other's Subsidiary. (rr) "Take-over Bid" means an Offer to Acquire Voting Shares of the Corporation or securities convertible into or exchangeable for or carrying a right to purchase Voting Shares of the Corporation where the Voting Shares of the Corporation subject to the Offer to Acquire, together with the Voting Shares of the Corporation into which the securities subject to the Offer to Acquire are convertible, exchangeable or exercisable, and the Offeror's Securities, constitute in the aggregate twenty percent (20%) or more of the outstanding Voting Shares of the Corporation at the date of the Offer to Acquire. (ss) "Termination Time" means the time at which the right to exercise Rights shall terminate pursuant to Sections 5.1(1) or (5) hereof. (tt) "Trading Day", when used with respect to any securities, means a day on which the principal Canadian stock exchange or American stock exchange or market on which such securities are listed or admitted to trading is open for the transaction of business or, if the securities are not listed or admitted to trading on any Canadian stock exchange or American stock exchange or market, a Business Day. (uu) "U.S. - Canadian Exchange Rate" shall mean on any date: (i) if on such date the Bank of Canada sets an average noon spot rate of exchange for the conversion of one United States dollar into Canadian dollars, such rate; and (ii) in any other case, the rate for such date for the conversion of one United States dollar into Canadian dollars which is calculated in the manner which shall be determined by the Board of Directors from time to time acting in good faith. (vv) "Voting Shares" means the Common Shares and any other shares of capital stock or voting interests of the Corporation entitled to vote generally in the election of all directors. 1.2 Currency. All sums of money which are referred to in this Agreement are expressed in Canadian dollars, unless otherwise specified. 1.3 Headings. The division of this Agreement into Articles, Sections and Clauses and the insertion of headings, subheadings and a table of contents are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 1.4 Number and Gender. Wherever the context so requires, terms used herein importing the singular number only shall include the plural and vice-versa and words importing only one gender shall include all others. 1.5 Acting Jointly or in Concert. For the purposes of this Agreement, a Person is acting jointly or in concert with every Person who is a party to an agreement, commitment or understanding, whether formal or informal, with the first Person or any Associate or Affiliate of the first Person to acquire or make an Offer to Acquire Voting Shares of the Corporation (other than customary agreements with and between underwriters or banking group members or selling group members with respect to a distribution of securities or to a pledge of securities in the ordinary course of business). 1.6 Statutory References. Unless the context otherwise requires or except as expressly provided herein, any reference herein to a specific part, section, clause or Rule of any statute or regulation shall be deemed to refer to the same as it may be amended, re-enacted or replaced or, if repealed and there shall be no replacement therefor, to the same as it is in effect on the date of this Agreement. ARTICLE 2 THE RIGHTS 2.1 Legend on Common Share Certificates. (1) Certificates issued for Common Shares after the Record Time but prior to the close of business on the earlier of the Separation Time and the Expiration Time shall evidence one Right for each Common Share represented thereby and, commencing as soon as reasonably practicable after the effective date of this Agreement, shall have impressed on, printed on, written on or otherwise affixed to them, a legend in substantially the following form: Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder thereof to certain rights described in a Shareholder Protection Rights Plan Agreement, dated August 24, 1993, as amended and restated from time to time (the "Rights Agreement"), between Intertape Polymer Group Inc. and CIBC Mellon Trust Company, a copy of which is on file at the principal executive offices of the Corporation the terms of which are incorporated herein by reference. Under certain circumstances set out in the Rights Agreement, the rights may be redeemed, may expire, may become null and void (if, in certain cases, they are "Beneficially Owned" by an "Acquiring Person") or may be evidenced by separate certificates and no longer evidenced by this certificate. Upon written request, copy of the Rights Agreement will be mailed within five days to the holder of this Certificate. (2) Until the earlier of the Separation Time and the Expiration Time, certificates representing Common Shares that are issued and outstanding at the Record Time shall evidence one Right for each Common Share evidenced thereby notwithstanding the absence of the foregoing legend. Following the Separation Time, Rights will be evidenced by Rights Certificates issued pursuant to Section 2.2 hereof. 2.2 Initial Exercise Price; Exercise of Rights; Detachment of Rights. (1) Right to entitle holder to purchase one Common Share prior to adjustment. Subject to adjustment as herein set forth and subject to Section 3.1(1) hereof, each Right will entitle the holder thereof, from and after the Separation Time and prior to the Expiration Time, to purchase, for the Exercise Price as at the Business Day immediately preceding the date of exercise of the Right, one Common Share (which price and number of Common Shares are subject to adjustment as set forth below and are subject to Section 3.1(1) hereof). Notwithstanding any other provision of this Agreement, any Rights held by the Corporation or any of its Subsidiaries shall be void. (2) Rights not exercisable until Separation Time. Until the Separation Time, (i) the Rights shall not be exercisable and no Right may be exercised, and (ii) for administrative purposes each Right will be evidenced by the certificates for the associated Common Shares registered in the names of the holders thereof (which certificates shall also be deemed to be Rights Certificates) and will be transferable only together with, and will be transferred by a transfer of, such associated Common Shares. (3) Delivery of Rights Certificate and disclosure statement. From and after the Separation Time and prior to the Expiration Time, (i) the Rights shall be exercisable, and (ii) the registration and transfer of the Rights shall be separate from, and independent of, Common Shares. Promptly following the Separation Time, the Corporation will prepare and the Rights Agent will mail to each holder of record of Rights as of the Separation Time (other than an Acquiring Person and, in respect of any Rights Beneficially Owned by such Acquiring Person which are not held of record by such Acquiring Person, the holder of record of such Rights (a "Nominee")) at such holder's address as shown by the records of the Corporation (the Corporation hereby agreeing to furnish copies of such records to the Rights Agent for this purpose), (A) a certificate (a "Rights Certificate") in substantially the form of Schedule 2.2(3) hereto appropriately completed, representing the number of Rights held by such holder at the Separation Time, and having such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Corporation may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law, rule, regulation or judicial or administrative order or with any rule or regulation made pursuant thereto or with any rule or regulation of any self-regulatory organization, stock exchange or quotation system on which the Rights may from time to time be listed or traded, or to conform to usage, and (B) a disclosure statement describing the Rights, provided that a Nominee shall be sent the materials provided for in (A) and (B) in respect of all Common Shares held of record by it which are not Beneficially Owned by an Acquiring Person. In order for the Corporation to determine whether any Person is holding Common Shares which are Beneficially Owned by another Person, the Corporation may require such first mentioned Person to furnish it with such information and documentation as the Corporation considers advisable. (4) Exercise of Rights. Rights may be exercised in whole or in part on any Business Day after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent (at its principal stock transfer office in the City of Montreal, or at its principal stock transfer office in the cities designated from time to time for that purpose by the Corporation) the Rights Certificate evidencing such Rights together with an election to exercise such Rights (an "Election to Exercise") substantially in the form attached to the Rights Certificate duly completed and executed, accompanied by payment by certified cheque, banker's draft or money order payable to the order of the Corporation, of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for Common Shares in a name other than that of the holder of the Rights being exercised, all of the above to be received before the Expiration Time by the Rights Agent at its principal office in any of the cities listed on the Rights Certificate. (5) Duties of Rights Agent upon receipt of Election to Exercise. Upon receipt of a Rights Certificate, which is accompanied by (i) a completed and duly executed Election to Exercise, and (ii) payment as set forth in Section 2.2(4) above, the Rights Agent (unless otherwise instructed by the Corporation) will thereupon promptly: (A) requisition from the transfer agent for the Common Shares certificates representing the number of Common Shares to be purchased (the Corporation hereby irrevocably authorizing its transfer agent to comply with all such requisitions); (B) when appropriate, requisition from the Corporation the amount of cash to be paid in lieu of issuing fractional Common Shares; (C) after receipt of such certificates, deliver the same to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such registered holder; (D) when appropriate, after receipt, deliver such cash (less any amounts required to be withheld) to or to the order of the registered holder of the Rights Certificate; and (E) tender to the Corporation all payments received on exercise of the Rights. (6) Partial Exercise of Rights. In case the holder of any Rights shall exercise less than all of the Rights evidenced by such holder's Rights Certificate, a new Rights Certificate evidencing the Rights remaining unexercised will be issued by the Rights Agent to such holder or to such holder's duly authorized assigns. (7) Duties of the Corporation. The Corporation covenants and agrees that it will: (a) take all such action as may be necessary and within its power to ensure that all Common Shares or other securities delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Exercise Price), be duly and validly authorized, executed, issued and delivered and fully paid and non-assessable; (b) take all such action as may be necessary and within its power to ensure compliance with the provisions of Section 3.1 hereof including, without limitation, all such action to comply with any applicable requirements of the CBCA, the Securities Act (Ontario) and any applicable comparable securities legislation of each of the provinces of Canada and any other applicable law, rule or regulation, in connection with the issuance and delivery of the Rights Certificates and the issuance of any Common Shares or other securities upon exercise of Rights; (c) use reasonable efforts to cause, from and after such time as the Rights become exercisable, all Common Shares issued upon exercise of Rights to be listed upon issuance on the principal stock exchange on which the Common Shares were traded prior to the Stock Acquisition Date; (d) cause to be reserved and kept available out of its authorized and unissued Common Shares, the number of Common Shares that, as provided in this Agreement, will from time to time be sufficient to permit the exercise in full of all outstanding Rights; (e) pay when due and payable any and all Canadian and, if applicable, United States, federal and provincial transfer taxes and charges (not including any income or capital taxes of the holder or exercising holder or any liability of the Corporation to withhold tax) which may be payable in respect of the original issuance or delivery of the Rights Certificates, provided that the Corporation shall not be required to pay any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for shares or other securities in a name other than that of the registered holder of the Rights being transferred or exercised; and (f) after the Separation Time, except as permitted by Sections 5.1 or 5.4 hereof, not take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. 2.3 Adjustments to Exercise Price; Number of Rights. The Exercise Price, the number and kind of Common Shares or other securities subject to purchase upon exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 2.3: (a) Adjustment to Exercise Price upon changes to share capital. In the event the Corporation shall at any time after the Record Time: (i) declare or pay a dividend on the Common Shares payable in Common Shares (or other securities exchangeable for or convertible into or giving a right to acquire Common Shares or other securities) other than the issue of Common Shares or such exchangeable or convertible securities to holders of Common Shares in lieu of but not in an amount which exceeds the value of regular periodic cash dividends; (ii) subdivide or change the outstanding Common Shares into a greater number of Common Shares; (iii) combine or change the outstanding Common Shares into a smaller number of Common Shares; or (iv) issue any Common Shares (or other securities exchangeable for or convertible into or giving a right to acquire Common Shares or other securities) in respect of, in lieu of or in exchange for existing Common Shares, except as otherwise provided in this Section 2.3; the Exercise Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of Common Shares, or other securities, as the case may be, issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Exercise Price then in effect, the aggregate number and kind of Common Shares or other securities, as the case may be, which, if such Right had been exercised immediately prior to such date and at a time when the Common Share transfer books of the Corporation were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both this Section 2.3 and Section 3.1 hereof, the adjustment provided for in this Section 2.3 shall be in addition to and, shall be made prior to, any adjustment required pursuant to Section 3.1 hereof. (b) Adjustment to Exercise Price upon issue of rights, options and warrants. In case the Corporation shall at any time after the Record Time fix a record date for the issuance of rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within forty-five (45) calendar days after such record date) to subscribe for or purchase Common Shares (or shares having the same rights, privileges and preferences as Common Shares ("equivalent common shares")) or securities convertible into or exchangeable for or carrying a right to purchase Common Shares or equivalent common shares at a price per Common Share or per equivalent common share (or having a conversion price or exchange price or exercise price per share, if a security convertible into or exchangeable for or carrying a right to purchase Common Shares or equivalent common shares) less than ninety percent (90%) of the Market Price per Common Share on such record date, the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Common Shares outstanding on such record date, plus the number of Common Shares that the aggregate offering price of the total number of Common Shares and/or equivalent common shares so to be offered (and/or the aggregate initial conversion, exchange or exercise price of the convertible or exchangeable securities or rights so to be offered, including the price required to be paid to purchase such convertible or exchangeable securities or rights so to be offered) would purchase at such Market Price per Common Share, and the denominator of which shall be the number of Common Shares outstanding on such record date, plus the number of additional Common Shares and/or equivalent common shares to be offered for subscription or purchase (or into which the convertible or exchangeable securities are initially convertible, exchangeable or exercisable). In case such subscription price may be paid by delivery of consideration, part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors, whose determination shall be described in a certificate filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Such adjustment shall be made successively whenever such a record date is fixed and, in the event that such rights or warrants are not so issued, the Exercise Price shall be adjusted to be the Exercise Price which would then be in effect if such record date had not been fixed. For purposes of this Agreement, the granting of the right to purchase Common Shares (or equivalent common shares) (whether from treasury shares or otherwise) pursuant to any dividend or interest reinvestment plan and/or any Common Share purchase plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and/or the investment of periodic optional payments and/or employee benefit, stock option or similar plans (so long as such right to purchase is in no case evidenced by the delivery of rights or warrants) shall not be deemed to constitute an issue of rights, options or warrants by the Corporation; provided, however, that, in the case of any dividend or interest reinvestment plan, the right to purchase Common Shares (or equivalent common shares) is at a price per share of not less than ninety percent (90%) of the current market price per share (determined as provided in such plans) of the Common Shares. (c) Adjustment to Exercise Price upon Corporate Distributions. In case the Corporation shall at anytime after the Record Time fix a record date for a distribution to all holders of Common Shares (including any such distribution made in connection with a merger, amalgamation, arrangement, plan, compromise or reorganization in which the Corporation is the continuing or successor corporation) of evidences of indebtedness, cash (other than a regular periodic cash dividend or a regular periodic cash dividend paid in Common Shares, but including any dividend payable in securities other than Common Shares), assets or subscription rights, options or warrants (excluding those referred to in Section 2.3(b) above), the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Market Price per Common Share on such record date, less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights, options or warrants applicable to a Common Share and the denominator of which shall be such Market Price per Common Share. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Exercise Price shall be adjusted to be the Exercise Price which would have been in effect if such record date had not been fixed. (d) De minimis threshold for adjustment to Exercise Price. Notwithstanding anything herein to the contrary, no adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Exercise Price; provided, however, that any adjustments which by reason of this Section 2.3(d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2.3 shall be made to the nearest cent or to the nearest one-hundredth of a Common Share or other share, as the case may be. Notwithstanding the first sentence of this Section 2.3(d), any adjustment required by this Section 2.3 shall be made no later than the earlier of (i) three (3) years from the date of the transaction which mandates such adjustment or (ii) the Expiration Time. (e) Corporation may provide for alternate means of adjustment. Subject to the prior consent of the holders of Voting Shares or Rights obtained as set forth in Section 5.4(2) or (3) hereof, as applicable, in the event the Corporation shall at any time after the Record Time issue any shares of capital stock (other than Common Shares), or rights or warrants to subscribe for or purchase any such capital stock, or securities convertible into or exchangeable for any such capital stock, in a transaction referred to in Sections 2.3(a)(i) or (iv) or 2.3(b) or (c) above, if the Board of Directors acting in good faith determines that the adjustments contemplated by Sections 2.3(a), (b) and (c) above in connection with such transaction will not appropriately protect the interests of the holders of Rights, the Corporation shall be entitled to determine what other adjustments to the Exercise Price, number of Rights and/or securities purchasable upon exercise of Rights would be appropriate and, notwithstanding Sections 2.3(a), (b) and (c) above, such adjustments, rather than the adjustments contemplated by Sections 2.3(a), (b) and (c) above, shall be made. The Corporation and the Rights Agent shall amend this Agreement as appropriate to provide for such adjustments. (f) Adjustment to Rights exercisable into shares other than Common Shares. If as a result of an adjustment made pursuant to Section 3.1 hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares other than Common Shares, thereafter the number of such other shares so receivable upon exercise of any Right and the Exercise Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Shares contained in Sections 2.3(a), (b), (c), (d), (e), (g), (h), (i), (j), (k), and (l) above and below, as the case may be, and the provisions of this Agreement with respect to the Common Shares shall apply on like terms to any such other shares. (g) Rights to evidence right to purchase Common Shares at adjusted Exercise Price. Each Right originally issued by the Corporation subsequent to any adjustment made to the Exercise Price hereunder shall evidence the right to purchase, at the adjusted Exercise Price, the number of Common Shares purchasable from time to time hereunder upon exercise of such Right, all subject to further adjustment as provided herein. (h) Adjustment to number of Common Shares purchasable upon adjustment to Exercise Price. Unless the Corporation shall have exercised its election as provided in Section 2.3(i) below, upon each adjustment of the Exercise Price as a result of the calculations made in Sections 2.3(b) and (c) above, each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of Common Shares (calculated to the nearest one ten-thousandth) obtained by (A) multiplying (x) the number of shares purchasable upon exercise of a Right immediately prior to this adjustment by (y) the Exercise Price in effect immediately prior to such adjustment of the Exercise Price, and (B) dividing the product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price. (i) Election to adjust number of Rights upon adjustment to Exercise Price. The Corporation shall be entitled to elect on or after the date of any adjustment of the Exercise Price to adjust the number of Rights, in lieu of any adjustment in the number of Common Shares purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of Common Shares for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing the Exercise Price in effect immediately prior to adjustment of the Exercise Price by the Exercise Price in effect immediately after adjustment of the Exercise Price. The Corporation shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Exercise Price is adjusted or any day thereafter but, if Rights Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment, of the number of Rights pursuant to this Section 2.3(i), the Corporation shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 5.5 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Corporation, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and may bear, at the option of the Corporation, the adjusted Exercise Price and shall be registered in the names of the holders of record of Rights Certificates on the record date for the adjustment specified in the public announcement. (j) Rights Certificates may contain Exercise Price before adjustment. Irrespective of any adjustment or change in the Exercise Price or the number of Common Shares issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Exercise Price per share and the number of shares which were expressed in the initial Rights Certificates issued hereunder. (k) Corporation may in certain cases defer issues of securities. In any case in which this Section 2.3 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Corporation may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of Common Shares and other securities of the Corporation, if any, issuable upon such exercise over and above the number of Common Shares and other securities of the Corporation, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment; provided, however, that the Corporation shall deliver to such holder an appropriate instrument evidencing such holder's right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment. (l) Corporation has discretion to reduce Exercise Price for tax reasons. Notwithstanding anything in this Section 2.3 to the contrary, the Corporation shall be entitled to make such reductions in the Exercise Price, in addition to those adjustments expressly required by this Section 2.3, as and to the extent that in their good faith judgment, the Board of Directors shall determine to be advisable in order that any (A) consolidation or subdivision of the Common Shares, (B) issuance of any Common Shares at less than the Market Price, (C) issuance of securities convertible into or exchangeable for Common Shares, (D) stock dividends or (E) issuance of rights, options or warrants, referred to in this Section 2.3 hereafter made by the Corporation to holders of its Common Shares, shall not be taxable to such shareholders. (m) In any case in which this Section 2.3 shall require any adjustment, the Corporation shall deliver to the Rights Agent a certificate duly executed by an officer of the Corporation describing such adjustment, in addition to any other statement or document required by this Section 2.3. 2.4 Date on Which Exercise is Effective. Each person in whose name any certificate for Common Shares is issued upon the exercise of Rights, shall for all purposes be deemed to have become the holder of record of the Common Shares represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered (together with a duly completed Election to Exercise) and payment of the Exercise Price for such Rights (and any applicable transfer taxes and other governmental charges payable by the exercising holder hereunder) was made; provided, however, that if the date of such surrender and payment is a date upon which the Common Share transfer books of the Corporation are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Common Share transfer books of the Corporation are open. 2.5 Execution, Authentication, Delivery and Dating of Rights Certificates (1) The Rights Certificates shall be executed on behalf of the Corporation by its Chairman, President or any of its Vice-Presidents and by its Secretary or one of its Assistant Secretaries. The signature and attestation of any of these officers on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Corporation shall bind the Corporation, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the countersignature and delivery of such Rights Certificates. (2) Promptly after the Corporation learns of the Separation Time, the Corporation will notify the Rights Agent of such Separation Time and will deliver Rights Certificates executed by the Corporation to the Rights Agent for countersignature and a disclosure statement as described in Section 2.2(3), and the Rights Agent shall manually or by facsimile signature countersign and send such Rights Certificates and disclosure statement to the holders of the Rights pursuant to Section 2.2(3) hereof. No Rights Certificate shall be valid for any purpose until countersigned by the Rights Agent as aforesaid. (3) Each Rights Certificate shall be dated the date of countersignature thereof. 2.6 Registration, Registration of Transfer and Exchange. (1) The Corporation will cause to be kept a register (the "Rights Register") in which, subject to such reasonable regulations as it may prescribe, the Corporation will provide for the registration and transfer of Rights. The Rights Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the Rights Register for the Corporation and registering Rights and transfers of Rights as herein provided. In the event that the Rights Agent shall cease to be the Rights Registrar, the Rights Agent will have the right to examine the Rights Register at all reasonable times. After the Separation Time and prior to the Expiration Time, upon surrender for registration of transfer or exchange of any Rights Certificate and subject to the provisions of Section 2.6(3) below and the other provisions of this Agreement, the Corporation will execute and the Rights Agent will countersign, register and deliver, in the name of the holder or the designated transferee or transferees as required pursuant to the holder's instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificates so surrendered. (2) All Rights issued upon any registration of transfer or exchange of Rights Certificates shall be the valid obligations of the Corporation, and such Rights shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or exchange. (3) Every Rights Certificate surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Corporation or the Rights Agent, as the case may be, duly executed by the registered holder thereof or such holder's attorney duly authorized in writing. As a condition to the issuance of any new Rights Certificate under this Section 2.6, the Corporation or the Rights Agent may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and the Corporation may require payment of a sum sufficient to cover any other expenses (including the fees and expenses of the Rights Agent) in connection therewith. 2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates. (1) If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, the Corporation shall execute and the Rights Agent shall countersign and deliver in exchange therefor a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so surrendered. (2) If there shall be delivered to the Corporation and the Rights Agent prior to the Expiration Time (i) evidence to their reasonable satisfaction of the destruction, loss or theft of any Rights Certificate, and (ii) such indemnity or other security as may be required by them to save each of them and any of their agents harmless then, in the absence of notice to the Corporation or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Corporation shall execute and upon its request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen. (3) As a condition to the issuance of any new Rights Certificate under this Section 2.7, the Corporation or the Rights Agent may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and the Corporation may require payment of a sum sufficient to cover any other expenses (including the fees and expenses of the Rights Agent) in connection therewith. (4) Every new Rights Certificate issued pursuant to this Section 2.7 in lieu of any destroyed, lost or stolen Rights Certificate shall evidence an original additional contractual obligation of the Corporation, whether or not the destroyed lost or stolen Rights Certificate shall be at any time enforceable by anyone, and the holder thereof shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other holders of Rights duly issued by the Corporation. 2.8 Persons Deemed Owners. Prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) for registration of transfer, the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent shall be entitled to deem and treat the person in whose name a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever. As used in this Agreement, unless the context otherwise requires, the term "holder" of any Rights shall mean the registered holder of such Rights (or, prior to the Separation Time, the associated Common Shares). 2.9 Delivery and Cancellation of Rights Certificates. All Rights Certificates surrendered upon exercise or for redemption, registration of transfer or exchange shall, if surrendered to any person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Corporation may at any time deliver to the Rights Agent for cancellation any Rights Certificates previously countersigned and delivered hereunder which the Corporation may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificate shall be countersigned in lieu of or in exchange for any Rights Certificates cancelled as provided in this Section 2.9 except as expressly permitted by this Agreement. The Rights Agent shall, subject to applicable laws, destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Corporation. 2.10 Agreement of Rights Holders. Every holder of Rights, by accepting the same, consents and agrees with the Corporation and the Rights Agent and with every other holder of Rights: (a) to be bound by and subject to the provisions of this Agreement, as amended or supplemented from time to time in accordance with the terms hereof, in respect of all Rights held; (b) that prior to the Separation Time each Right will be transferable only together with, and will be transferred by a transfer of, the Common Share certificate representing such Right; (c) that after the Separation Time, the Rights Certificates will be transferable only on the Rights Register as provided herein; (d) that prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) for registration of transfer, the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent shall be entitled to deem and treat the person in whose name the Rights Certificate (or prior to the Separation Time, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on such Rights Certificate or the associated Common Share certificate made by anyone other than the Corporation or the Rights Agent) for all purposes whatsoever, and neither the Corporation nor the Rights Agent shall be affected by any notice to the contrary; (e) that such holder of Rights has waived his right to receive any fractional Rights or any fractional shares upon exercise of Right; (f) that, in accordance with Section 5.4 hereof, without the approval of any holder of Rights and upon the sole authority of the Board of Directors acting in good faith this Agreement may be supplemented or amended from time to time pursuant to and as provided herein; and (g) that notwithstanding anything in this Agreement to the contrary, neither the Corporation nor the Rights Agent shall have any liability to any holder of a Right or any other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation, or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation. 2.11 Rights Certificate Holder not Deemed a Shareholder. No holder, as such, of any Rights or Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose whatsoever the holder of any Common Share or any other share or security of the Corporation which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed or deemed to confer upon the holder of any Right or Rights Certificate, as such, any of the rights, titles, benefits or privileges of a holder of Common Shares or any other shares or securities of the Corporation or any right to vote at any meeting of shareholders of the Corporation whether for the election of directors or otherwise or upon any matter submitted to holders of shares of the Corporation at any meeting thereof, or to give or withhold consent to any action of the Corporation, or to receive notice of any meeting or other action affecting any holder of Common Shares or any other shares or securities of the Corporation except as expressly provided herein, or to receive dividends, distributions or subscription rights, or otherwise, until the Right or Rights evidenced by Rights Certificates shall have been duly exercised in accordance with the terms and provisions hereof. ARTICLE 3 ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS 3.1 Flip-in Event. (1) Subject to Section 3.1(2) below, and Sections 5.1(2), (3) and (4) hereof, in the event that prior to the Expiration Time a Flip-in Event shall occur, the Corporation shall take such action as may be necessary to ensure and provide within eight (8) Business Days of such occurrence, or such longer period as may be required to satisfy all applicable requirements of the Securities Act (Ontario), and the securities legislation of each other province of Canada that, except as provided below, each Right shall thereafter constitute the right to purchase from the Corporation upon exercise thereof in accordance with the terms hereof that number of Common Shares of the Corporation having an aggregate Market Price on the date of the occurrence of such Flip-in Event equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such Right to be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 hereof in the event that after such date of occurrence an event of a type analogous to any of the events described in Section 2.3 hereof shall have occurred with respect to such Common Shares). (2) Notwithstanding anything in this Agreement to the contrary, upon the occurrence of any Flip-in Event, any Rights that are Beneficially Owned by (i) an Acquiring Person, or any Affiliate or Associate of an Acquiring Person, or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of such Acquiring Person, or any Affiliate or Associate of such Person so acting jointly or in concert, or (ii) a transferee or other successor in title of Rights, directly or indirectly, of an Acquiring Person (or of any Affiliate or Associate of an Acquiring Person) or of any Person acting jointly or in concert with an Acquiring Person or any Associate or Affiliate of an Acquiring Person (or of any Affiliate or Associate of such Person so acting jointly or in concert) who becomes a transferee or successor in title concurrently with or subsequent to the Acquiring Person becoming such, shall become null and void without any further action, and any holder of such Rights (including transferees or successors in title) shall not have any rights whatsoever to exercise such Rights under any provision of this Agreement and shall not have thereafter any other rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. ARTICLE 4 THE RIGHTS AGENT 4.1 General. (1) The Corporation hereby appoints the Rights Agent to act as agent for the Corporation in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Corporation may from time to time appoint such Co-Rights Agents ("Co-Rights Agents") as it may deem necessary or desirable. In the event the Corporation appoints one or more Co-Rights Agents, the respective duties of the Rights Agent and Co-Rights Agents shall be as the Corporation may determine. The Corporation also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or wilful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability, which right to indemnification will survive the termination of this Agreement. The Corporation agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. (2) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any certificate for Voting Shares or Common Shares or any Rights Certificate or certificate for other securities of the Corporation, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. 4.2 Merger or Amalgamation or Change of Name of Rights Agent. (1) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or amalgamated or with which it may be consolidated, or any corporation resulting from any merger, amalgamation, statutory arrangement or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the shareholder or stockholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 4.4. In case at the time such successor Rights Agent succeeds to the agency created by this Agreement any of the Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates have not been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates will have the full force provided in the Rights Certificates and in this Agreement. (2) In case at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. 4.3 Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Corporation and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Corporation) and the opinion of such counsel will be full and complete authorisation and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion; (b) Whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Corporation prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a Person believed by the Rights Agent to be the Chairman of the Board, the President or any Vice President of the Corporation and delivered to the Rights Agent; and such certificate will be full authorisation to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate; (c) The Rights Agent will be liable hereunder only for its own negligence, bad faith or wilful misconduct; (d) The Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates for Voting Shares or Common Shares or the Rights Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and will be deemed to have been made by the Corporation only; (e) The Rights Agent will not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorisation, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any Common Share certificate or Rights Certificate (except its countersignature thereof); nor will it be responsible for any breach by the Corporation of any covenant or condition contained in this Agreement or in any Rights Certificate; nor will it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Subsection 3.1(2)) or any adjustment required under the provisions of Section 2.3 or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of the certificate contemplated by Section 2.3 describing any such adjustment); nor will it by any act hereunder be deemed to make any representation or warranty as to the authorisation of any Common Shares to be issued pursuant to this Agreement or any Rights or as to whether any Common Shares will, when issued, be duly and validly authorised, executed, issued and delivered and fully paid and non-assessable; (f) The Corporation agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement; (g) The Rights Agent is hereby authorised and directed to accept instructions with respect to the performance of its duties hereunder from any Person believed by the Rights Agent to be the Chairman of the Board, the President, any Vice President, or the Treasurer or the Controller of the Corporation, and to apply to such Persons for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such Person; (h) The Rights Agent and any shareholder or stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in Common Shares, Rights or other securities of the Corporation or become pecuniarily interested in any transaction in which the Corporation may be interested, or contract with or lend money to the Corporation or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Corporation or for any other legal entity; and (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Corporation resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. 4.4 Change of Rights Agent. The Rights Agent may resign and be discharged from its duties under this Agreement upon 90 days' notice (or such lesser notice as is acceptable to the Corporation) in writing mailed to the Corporation and to each transfer agent of Common Shares by registered or certified mail, and to the holders of the Rights in accordance with Section 5.8. The Corporation may remove the Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent and to each transfer agent of the Common Shares by registered or certified mail, and to the holders of the Rights in accordance with Section 5.8. If the Rights Agent should resign or be removed or otherwise become incapable of acting, the Corporation will appoint a successor to the Rights Agent. If the Corporation fails to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of any Rights (which holder shall, with such notice, submit such holder's Rights Certificate for inspection by the Corporation), then the holder of any Rights may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Corporation or by such a court, shall be a corporation incorporated under the laws of Canada or a province thereof authorised to carry on the business of a trust company. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Corporation will file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares, and mail a notice thereof in writing to the holders of the Rights. Failure to give any notice provided for in this Section 4.4, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. ARTICLE 5 MISCELLANEOUS 5.1 Redemption and Waiver. (1) Subject to the prior consent of the holders of Voting Shares or Rights obtained as set forth in Section 5.4(2) or Section 5.4(3) hereof, as applicable, the Board of Directors acting in good faith may, at any time prior to the occurrence of a Flip-in Event, elect to redeem all but not less than all of the then outstanding Rights at a redemption price of $0.00001 per Right appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 hereof in the event that an event of the type described in Section 2.3 hereof shall have occurred (such redemption price being herein referred to as the "Redemption Price"). (2) Subject to the prior consent of the holders of Voting Shares obtained as set forth in Section 5.4(2) hereof, the Board of Directors may, at any time prior to the occurrence of a Flip-in Event as to which the application of Section 3.1 hereof has not been waived pursuant to this Section 5.1, if such Flip-in Event would occur by reason of an acquisition of Voting Shares otherwise than pursuant to a Take-over Bid made by means of a Take-over Bid circular to all registered holders of Voting Shares and otherwise than in the circumstances set forth in Section 5.1(4) hereof, waive the application of Section 3.1 hereof to such Flip-in Event. In such event, the Board of Directors shall extend the Separation Time to a date at least ten (10) Business Days subsequent to the meeting of shareholders called to approve such waiver. (3) The Board of Directors acting in good faith, may, prior to the occurrence of a Flip-in Event, and upon prior written notice delivered to the Rights Agent, determine to waive the application of Section 3.1 hereof to a Flip-in Event that may occur by reason of a Take-over Bid made by means of a Take-over Bid circular to all registered holders of Voting Shares; provided that if the Board of Directors waives the application of Section 3.1 hereof to a particular Flip-in Event pursuant to this Section 5.1(3), the Board of Directors shall be deemed to have waived the application of Section 3.1 hereof to any other Flip-in Event occurring by reason of any Take-over Bid made by means of a Take-over Bid circular to all registered holders of Voting Shares prior to the expiry of any Take-over Bid in respect of which a waiver is, or is deemed to have been granted, pursuant to this Section 5.1(3). (4) The Board of Directors may, prior to the close of business on the tenth (10th) day following the Stock Acquisition Date, determine, upon prior written notice delivered to the Rights Agent, to waive or to agree to waive the application of Section 3.1 hereof to a Flip-in Event, provided that both of the following conditions are satisfied: (a) the Board of Directors has determined that a Person became an Acquiring Person by inadvertence and without any intention to become, or knowledge that Person would become, an Acquiring Person; and (b) such Acquiring Person has reduced its Beneficial Ownership of Voting Shares (or has entered into a contractual arrangement with the Corporation, acceptable to the Board of Directors, to do so within thirty (30) days of the date on which such contractual arrangement is entered into) such that at the time the waiver becomes effective pursuant to this Section 5.1(4) it is no longer an Acquiring Person; and in the event of such a waiver, for the purposes of this Agreement, the Flip-in Event shall be deemed never to have occurred. (5) Where a Person acquires pursuant to a Permitted Bid, a Competing Bid or an Exempt Acquisition under Section 5.1(3) above, outstanding Voting Shares, then the Corporation shall immediately upon the consummation of such acquisition redeem the Rights at the Redemption Price. (6) If the Corporation is obligated under Section 5.1(5) above to redeem the Rights, or if the Board of Directors elects under Section 5.1(1) above or Section 5.1(8) below to redeem the Rights, the right to exercise the Rights will thereupon, without further action and without notice, terminate and each Right will after redemption be null and void and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. (7) Within ten (10) days after the Corporation is obligated under Section 5.1(5) above to redeem the Rights, or the Board of Directors elects under Section 5.1(1)) above or Section 5.1(8) below to redeem the Rights, the Corporation shall give notice of redemption to the holders of the then outstanding Rights by mailing such notice to all such holders at their last address as they appear upon the Rights Register or, prior to the Separation Time, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. The Corporation may not redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 5.1 and other than in connection with the purchase of Common Shares prior to the Separation Time. (8) Where a Take-over Bid that is not a Permitted Bid Acquisition is withdrawn or otherwise terminated after the Separation Time has occurred and prior to the occurrence of a Flip-in Event, the Board of Directors may elect to redeem all the outstanding Rights at the Redemption Price. (9) Notwithstanding the Rights being redeemed pursuant to Section 5.1(8) above, all the provisions of this Agreement shall continue to apply as if the Separation Time had not occurred and Rights Certificates representing the number of Rights held by each holder of record of Common Shares as of the Separation Time had not been mailed to each such holder and for all purposes of this Agreement the Separation Time shall be deemed not to have occurred and the Rights shall remain attached to outstanding Voting Shares, subject to and in accordance with the provisions of this Agreement. 5.2 Expiration. No person shall have any rights whatsoever pursuant to or arising out of this Agreement or in respect of any Right after the Expiration Time, except the Rights Agent as specified in Section 4.1(1) hereof. 5.3 Issuance of New Rights Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Corporation may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the number or kind or class of shares purchasable upon exercise of Rights made in accordance with the provisions of this Agreement. 5.4 Supplements and Amendments. (1) The Corporation may from time to time supplement or amend this Agreement without the approval of any holders of Rights or Voting Shares to correct any clerical or typographical error or to maintain the validity of the Agreement as a result of a change in any applicable legislation or regulations or rules thereunder. Notwithstanding anything in this Section 5.4 to the contrary, no supplement or amendment shall be made to the provisions of article 4 hereof except with the written concurrence of the Rights Agent to such supplement or amendment. (2) Subject to Section 5.4(1) above, the Corporation may, with the prior consent of the holders of the Voting Shares obtained as set forth below, at any time prior to the Separation Time amend, vary or rescind any of the provisions of this Agreement and the Rights (whether or not such action would materially adversely affect the interests of the holders of Rights generally). Such consent shall be deemed to have been given if provided by the holders of Voting Shares at a meeting of the holders of Voting Shares, which meeting shall be called and held in compliance with applicable laws and regulatory requirements and the requirements in the articles and by-laws of the Corporation. Subject to compliance with any requirements imposed by the foregoing, consent shall be deemed to have been given if the proposed amendment, variation or revision is approved by the affirmative vote of a majority of the votes cast by all holders of Voting Shares (other than any holder of Voting Shares who is an Offeror pursuant to a Take-over Bid that is not a Permitted Bid or Competing Bid with respect to all Voting Shares Beneficially Owned by such Person), represented in person or by proxy at the meeting. (3) The Corporation may, with the prior consent of the holders of Rights, at any time after the Separation Time and before the Expiration Time, amend, vary or rescind any of the provisions of this Agreement and the Rights (whether or not such action would materially adversely affect the interests of the holders of Rights generally). (4) Any approval of the holders of Rights shall be deemed to have been given if the action requiring such approval is authorized by the affirmative votes of the holders of Rights present or represented at and entitled to be voted at a meeting of the holders of Rights and representing a majority of the votes cast in respect thereof. For the purposes hereof, each outstanding Right (other than Rights which are void pursuant to the provisions hereof) shall be entitled to one vote, and the procedures for the calling, holding and conduct of the meeting shall be those, as nearly as may be, which are provided in the Corporation's by-laws and the CBCA with respect to a meeting of shareholders of the Corporation. (5) The Corporation shall be required to provide the Rights Agent with notice in writing of any such amendment, variation or deletion to this Agreement as referred to in this Section 5.4 within 5 days of effecting such amendment, variation or deletion. (6) Any supplements or amendments made by the Corporation to this Agreement pursuant to Section 5.4(1) above which are required to maintain the validity of this Agreement as a result of any change in any applicable legislation or regulations or rules thereunder shall: (a) if made before the Separation Time, be submitted to the shareholders of the Corporation at the next meeting of shareholders and the shareholders may, by the majority referred to in Section 5.4(2) above confirm or reject such amendment; and (b) if made after the Separation Time, be submitted to the holders of Rights at a meeting to be called for on a date not later than immediately following the next meeting of shareholders of the Corporation and the holders of Rights may, by resolution passed by the majority referred to in Section 5.4(4) above, confirm or reject such amendment. A supplement or amendment of the nature referred to in this Section 5.4(6) shall be effective from the date of the resolution of the Board of Directors adopting such supplement or amendment until it is confirmed or rejected or until it ceases to be effective (as described in the next sentence) and, where such supplement or amendment is confirmed, it continues in effect in the form so confirmed. If such supplement or amendment is rejected by the shareholders or the holders of Rights or is not submitted to the shareholders or holders of Rights as required, then such supplement or amendment shall cease to be effective from and after the termination of the meeting at which it was rejected or to which it should have been but was not submitted or from and after the date of the meeting of holders of Rights that should have been but was not held, and no subsequent resolution of the Board of Directors to amend, vary or delete any provision of this Agreement to substantially the same effect shall be effective until confirmed by the shareholders or holders of Rights, as the case may be. 5.5 Fractional Rights and Fractional Shares. (1) The Corporation shall not be required to issue fractions of Rights or to distribute Rights Certificates which evidence fractional Rights. Any such fractional Right shall be null and void and the Corporation will not have any obligation or liability in respect thereof. (2) The Corporation shall not be required to issue fractions of Common Shares or other securities upon exercise of the Rights or to distribute certificates which evidence fractional Common Shares or other securities. In lieu of issuing fractional Common Shares or other securities, the Corporation shall pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided, an amount in cash equal to the same fraction of the Market Price of one Common Share. The Rights Agent shall have no obligation to make any payments in lieu of fractional Common Shares unless the Corporation shall have provided the Rights Agent with the necessary funds to pay in full all amounts payable in accordance with Section 2.2(5). 5.6 Rights of Action. Subject to the terms of this Agreement, all rights of action in respect of this Agreement, other than rights of action vested solely in the Rights Agent, are vested in the respective registered holders of the Rights; and any registered holder of any Rights, without the consent of the Rights Agent or of the registered holder of any other Rights, may, on such holder's own behalf and for such holder's own benefit and the benefit of other holders of Rights enforce, and may institute and maintain any suit, action or proceeding against the Corporation to enforce such holder's right to exercise such holder's Rights in the manner provided in such holder's Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of the obligations of any Person subject to, this Agreement. 5.7 Notice of Proposed Actions. In case the Corporation shall propose after the Separation Time and prior to the Expiration Time to effect the liquidation, dissolution or winding-up of the Corporation or the sale of all or substantially all of the Corporation's assets, then, in each such case, the Corporation shall give to each holder of a Right, in accordance with Section 5.8 hereof, a notice of such proposed action, which shall specify the date on which such liquidation, dissolution, winding up, or sale is to take place, and such notice shall be so given at least twenty (20) Business Days prior to the date of taking of such proposed action. 5.8 Notices. (1) Notices or demands authorized or required by this Agreement to be given or made by the Rights Agent or by the holder of any Rights to or on the Corporation shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Intertape Polymer Group Inc. 110 E Montee de Liesse Ville St-Laurent, Quebec H4T 1N4 Attention: President and Chief Executive Officer Telephone: (514) 731-7591 Telecopier: (514) 731-5039 (2) Any notice or demand authorized or required by this Agreement to be given or made by the Corporation or by the holder of any Rights to or on the Rights Agent shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Corporation) as follows: CIBC Mellon Trust Company 2001 University 16th Floor Montreal, Quebec H3A 2A6 Attention: Manager Telephone: (514) 285-3603 Telecopier: (514) 285-3640 (3) Notices or demands authorized or required by this Agreement to be given or made by the Corporation or the Rights Agent to or on the holder of any Rights shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as it appears upon the Rights Register or, prior to the Separation Time, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. 5.9 Successors. All the covenants and provisions of this Agreement by or for the benefit of the Corporation or the Rights Agent shall bind and enure to the benefit of their respective successors and assigns hereunder. 5.10 Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Corporation, the Rights Agent and the holders of the Rights any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Corporation, the Rights Agent and the holders of the Rights. 5.11 Governing Law. This Agreement and each Right issued hereunder shall be deemed to be a contract made under the laws of the Province of Quebec and for all purposes shall be governed by and construed in accordance with the laws of such Province. 5.12 Severability. If any Section, Clause, term or provision hereof or the application thereof to any circumstances or any right hereunder shall, in any jurisdiction and to any extent, be invalid or unenforceable, such Section, Clause, term or provision or such right shall be ineffective only in such jurisdiction and to the extent of such invalidity or unenforceability in such jurisdiction without invalidating or rendering unenforceable or ineffective the remaining Sections, Clauses, terms and provisions hereof or rights hereunder in such jurisdiction or the application of such Section, Clause, term or provision or rights hereunder in any other jurisdiction or to circumstances other than those as to which it is specifically held invalid or unenforceable. 5.13 Effective Date. This Agreement is effective and in full force and effect in accordance with its terms and conditions as of and from August 24, 1993 (the "Effective Date"). 5.14 Determinations and Actions by the Board of Directors. All actions, calculations and determinations (including all omissions with respect to the foregoing) which are done or made by the Board of Directors, in good faith, in relation to or in connection with this Agreement, shall not subject the Board of Directors or any director of the Corporation to any liability to the holders of the Rights. 5.15 Rights of Board, Corporation and Offeror. Without limiting the generality of the foregoing, nothing contained herein shall be construed to suggest or imply that the Board of Directors shall not be entitled to recommend that holders of Voting Shares reject or accept any Take-over Bid or take any other action (including, without limitation, the commencement, prosecution, defence or settlement of any litigation and the submission of additional or alternative Take-over Bids or other proposals to the holders of Voting Shares of the Corporation) with respect to any Take-over Bid or otherwise that the Board of Directors believes is necessary or appropriate in the exercise of its fiduciary duties. 5.16 Regulatory Approvals. This Agreement shall be subject in any jurisdiction to the receipt of any required prior or subsequent approval or consent from any governmental or regulatory authority in such jurisdiction including any securities regulatory authority or stock exchange. 5.17 Declaration as to Non-Canadian and Non-U.S. Holders. If in the opinion of the Board of Directors (who may rely upon the advice of counsel) any action or event contemplated by this Agreement would require compliance with the securities laws or comparable legislation of a jurisdiction outside Canada and the United States of America, the Board of Directors acting in good faith may take such actions as it may deem appropriate to ensure such compliance. In no event shall the Corporation or the Rights Agent be required to issue or deliver Rights or securities issuable on exercise of Rights to Persons who are citizens, residents or nationals of any jurisdiction other than Canada or the United States in which such issue or delivery would be unlawful without registration of the relevant Persons or securities for such purposes, or (until such notice is given as required by law) without advance notice to any regulatory or self-regulatory body. 5.18 Time of the Essence. Time shall be of the essence in this Agreement. 5.19 Execution in Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement. INTERTAPE POLYMER GROUP INC. CIBC MELLON TRUST COMPANY By:___________________________ By:______________________ Melbourne F. Yull Authorized Signatory Chairman of the Board and Chief Executive Officer By:___________________________ By:______________________ Andrew M. Archibald Authorized Signatory Chief Financial Officer, Secretary and Vice President Administration SCHEDULE 2.2(3) FORM OF RIGHTS CERTIFICATE Certificate No. ____________ ___________ Rights THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE CORPORATION, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SECTION 3.1(2) OF THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON, ANY PERSON ACTING JOINTLY OR IN CONCERT WITH AN ACQUIRING PERSON OR THEIR RESPECTIVE ASSOCIATES AND AFFILIATES (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND THEIR RESPECTIVE TRANSFEREES SHALL BECOME VOID WITHOUT ANY FURTHER ACTION. RIGHTS CERTIFICATE This certifies that _______________ or registered assigns, is the registered holder of the number of Rights set forth above each of which entitles the registered holder thereof, subject to the terms, provisions and conditions of the Amended and Restated Shareholder Protection Rights Plan Agreement dated August 24, 1993, as amended and restated from time to time (the "Rights Agreement"), between Intertape Polymer Group Inc., a Corporation amalgamated under the Canada Business Corporations Act (the "Corporation"), and CIBC Mellon Trust Company (formerly known as The R-M Trust Company), a trust company incorporated under the laws of Canada, as rights agent (the "Rights Agent", which term shall include any successor Rights Agent under the Rights Agreement) to purchase from the Corporation at any time after the Separation Time (as such term is defined in the Rights Agreement) and prior to the Expiration Time (as such term is defined in the Rights Agreement) (or such earlier expiration time as is provided in the Rights Agreement) one fully paid common share of the Corporation (a "Common Share") at the Exercise Price referred to below, upon presentation and surrender of this Rights Certificate together with the Form of Election to Exercise duly executed and submitted to the Rights Agent at its principal office in the City of Montreal. The Exercise Price shall initially be $100 (Canadian) per Right and shall be subject to adjustment in certain events as provided in the Rights Agreement. In certain circumstances described in the Rights Agreement, each Right evidenced hereby may entitle the registered holder thereof to purchase or receive assets, debt securities or other equity securities of the Corporation (or a combination thereof) all as provided in the Rights Agreement. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Rights Agent, the Corporation and the holders of the Rights. Copies of the Rights Agreement are on file at the registered head office of the Corporation and are available upon written request. This Rights Certificate, with or without other Rights Certificates, upon surrender at any of the offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing an aggregate number of Rights entitling the holder to purchase a like aggregate number of Common Shares as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered. If this Rights Certificate shall be exercised in part, the registered holder shall be entitled to receive, upon surrender hereof, another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Rights Certificate may be, and under certain circumstances are required to be, redeemed by the Corporation at a redemption price of $0.00001 per Right. No fractional Common Shares will be issued upon the exercise of any Right or Rights evidenced hereby. No holder of this Rights Certificate, as such, shall be entitled to vote, receive dividends or be deemed for any purpose the holder of Common Shares or of any other securities of the Corporation which may at any time be issuable upon the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof any of the rights of a shareholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to shareholders of the Corporation at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders of the Corporation (except as expressly provided in the Rights Agreement), or to receive dividends, distributions or subscription rights, or otherwise until the Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been manually countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Corporation. INTERTAPE POLYMER GROUP INC. Date: __________________________ By:__________________________ By:_________________________ Title:_______________________ Title:______________________ Countersigned: CIBC MELLON TRUST COMPANY By __________________________ (To be attached to each Rights Certificate) FORM OF ELECTION TO EXERCISE TO: INTERTAPE POLYMER GROUP INC. The undersigned hereby irrevocably elects to exercise __________ whole Rights represented by the attached Rights Certificate to purchase the Common Shares issuable upon the exercise of such Rights and requests that certificates for such Shares be issued to: _______________________________ (NAME) _______________________________ (ADDRESS) _______________________________ (CITY AND STATE OR PROVINCE) If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: _______________________________ (NAME) _______________________________ (ADDRESS) _______________________________ (CITY AND STATE OR PROVINCE) __________________________________________________________________ SOCIAL INSURANCE, SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER Dated ___________________________ Signature Guaranteed ____________________________________________ Signature (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever) Signature must be guaranteed by a Canadian chartered bank, a Canadian trust company or a member of a recognized stock exchange or a member of the Securities Transfer Association Medallion Program (Stamp). To be completed if true The undersigned hereby represents, for the benefit of all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof or any Person acting jointly or in consent with any of the foregoing or any Affiliate or Associate of such Person (as defined in the Rights Agreement). _____________________________________________ Signature NOTICE In the event the certification set forth in the Form of Election to Exercise is not completed, the Corporation will deem the Beneficial Owner of the Rights evidenced by this Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and accordingly such Rights shall be null and void. FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Rights Certificate) FOR VALUE RECEIVED ______________________________________________ hereby sells, assigns and transfers unto ______________________________________ _______________________________________________________ (Please print name and address of transferee) the Rights represented by this Rights Certificate, together with all right, title and interest therein and does hereby irrevocably constitute and appoint _____________________________ as attorney to transfer the within Rights on the books of the Corporation, with full power of substitution. Dated __________________________ Signature Guaranteed ______________________________________________ Signature (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever) Signature must be guaranteed by a Canadian chartered bank, a Canadian trust company or a member of a recognized stock exchange or a member of the Securities Transfer Association Medallion Program (Stamp). To be completed if true The undersigned hereby represents, for the benefit of all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof or any Person acting jointly or in consent with any of the foregoing (as defined in the Rights Agreement). _____________________________________________ Signature NOTICE In the event the certification set forth in the Form of Assignment is not completed, the Corporation will deem the Beneficial Owner of the Rights evidenced by this Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and accordingly such Rights shall be null and void. -----END PRIVACY-ENHANCED MESSAGE-----