MAAX Inc. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- going private transaction -- amalgamation is going private transaction because senior officer of acquired entity to enter into employment agreements with acquiror -- none of the senior officers entering into employment agreements beneficially owned or exercised control or direction over more than 1% of the acquired entity's outstanding shares -- independent committee of acquired entity approved transaction -- acquired entity to be obtain approval of its independent shareholders -- valuation exemption granted.

Ontario Rules

Rule 61-501 - Insider Bids, Issuer Bids, Going Private Transactions and Related Party Transactions, ss. 4.4(1), 4.5(1) and 9.1.

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO AND QUEBEC

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

MAAX INC.

MRRS DECISION DOCUMENT

WHEREAS MAAX Inc. (the "Applicant") proposes to enter into a merger transaction as more fully described hereinafter;

AND WHEREAS the local securities regulatory authority or regulator (the "Decision Makers") in each of the Provinces of Ontario and Québec (the "Jurisdictions") has received an application from the Applicant for a decision under the securities legislation of the Jurisdictions (the "Legislation") to grant an exemption from the formal valuation requirements (the "Valuation Requirements") applicable to a going private transaction under Section 4.3 of the Agence nationale d'encadrement du secteur financier Policy Statement Q-27 -- Protection of Minority Securityholders in the Course of Certain Transactions ("Policy Q-27") and Section 4.4 of Ontario Securities Commission Rule 61-501 -- Insider Bids, Issuer Bids, Going Private Transactions and Related Party Transactions ("Rule 61-501");

AND WHEREAS under the Mutual Reliance System for Exemptive Relief Applications (the "System"), the Agence nationale d'encadrement du secteur financier is the principal regulator for this application;

AND WHEREAS, unless otherwise defined, the terms herein have the meaning set out in National Instrument 14-101 - Definitions or in the Agence nationale d'encadrement du secteur financier Notice 14-101;

AND WHEREAS the Applicant has represented to the Decision Makers that:

1. On March 11, 2004, the Applicant announced that it has entered into a merger agreement (the "Merger Agreement") with 3087052 Nova Scotia Company ("3087052"), 3087053 Nova Scotia Company ("3087053"), 9139-4460 Québec Inc. ("Subco") and 9139-7158 Québec Inc. ("Subco II").

2. 3087052, 3087053, Subco and Subco II have been formed by J.W. Childs Associates, L.P., Borealis Private Equity Limited Partnership, Borealis (QLP) Private Equity Limited Partnership and Ontario Municipal Employees Retirement Board (collectively, the "Sponsor Group").

3. Under the Merger Agreement, the Applicant has agreed, subject to certain terms and conditions, to amalgamate (the "Amalgamation") with Subco and Subco II pursuant to the provisions of the Companies Act (Québec).

4. The Applicant is incorporated under the laws of the Province of Québec and is a reporting issuer under the Securities Act (Québec) (the "Act") and in all of the other provinces of Canada.

5. The authorized capital of the Applicant consists of an unlimited number of common shares (the "Common Shares") and an unlimited number of Class A and Class B preferred shares, of which 24,399,459 Common Shares were issued and outstanding as of March 19, 2004. The Common Shares are listed and posted for trading on the Toronto Stock Exchange (the "TSX"). The Applicant is not in default of any requirement under the Act and is not named on the list of defaulting reporting issuers.

6. The Applicant is involved mainly in the design, development and manufacture of bathroom products and spas and also specializes in the manufacture of kitchen cabinets and bathroom vanities.

7. The Applicant targets both North American and European markets, and the products it manufactures in Canada, the United States and Europe target mainly the home improvement and construction markets. The Applicant operates 10 plants in Canada, 13 plants in the United States and one plant in Europe. It also has a network of 12 distribution centres, with three being located in Canada and nine in the United States. The Applicant currently employs some 3,800 people including 1,950 in Canada, 1,800 in the United States and 50 in Europe.

8. On September 9, 2003, the Board of Directors of the Applicant announced its intention to solicit and consider offers to purchase all of the issued and outstanding Common Shares. The Board adopted this course of action following the announcement by Placide Poulin, Chairman and founder of the Applicant, of his decision to sell the Common Shares he directly and indirectly holds, which represent approximately 12% of the issued and outstanding Common Shares.

9. In connection with the solicitation and consideration of offers, the Board of Directors created an independent committee of its Board of Directors (the "Independent Committee") to initiate the process and solicit offers for all of the Common Shares. Under its mandate, the Independent Committee was authorized by the Board to carry out a sale process on behalf of the Applicant, to consider any offers for all the issued and outstanding Common Shares, to negotiate and recommend to the Board any acceptable transaction for all the issued and outstanding Common Shares. In connection with this mandate, the Independent Committee was authorized to retain its own financial and legal advisors. All the members of the Independent Committee are unrelated and independent directors of the Applicant. The Independent Committee is chaired by Raymond Garneau, Chairman of the Board of Industrielle-Alliance, and its other members are the following directors of the Applicant:

• Marcel Dutil, President and Chief Executive Officer of The Canam Manac Group Inc.;

• Paul Gobeil, Vice-Chairman of the Board of Métro Inc.;

• Rémi Marcoux, Chairman of the Board and Chief Executive Officer of Transcontinental Group G.T.C. Ltd.;

• Dennis Wood, Chairman of the Board of DWH Inc.

10. On September 24, 2003, the Applicant announced that the Independent Committee had engaged Merrill Lynch, Pierce, Fenner & Smith Incorporated as financial advisor and Borden Ladner Gervais LLP as legal advisor to assist the Independent Committee in managing the public sale process with the objective of maximizing shareholder value.

11. As part of the public sale process, a total of 75 potential interested purchasers were contacted by Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the Independent Committee, 16 of which were potential "strategic" buyers whose operations are largely similar or related to those of the Applicant, and 59 of which were potential "financial" buyers whose primary business is the use of private equity. Confidentiality agreements were negotiated on behalf of the Independent Committee with more than half of these potential interested purchasers. For those parties that signed a confidentiality agreement, a confidential descriptive memorandum relating to the Applicant and a bid procedure letter were delivered to them and the parties were requested to provide a non-binding expression of interest to the Independent Committee on October 31, 2003 indicating the consideration they would be prepared to pay for all of the issued and outstanding Common Shares and on what other terms and conditions they would be interested in acquiring the Applicant. Based on these expressions of the interest, the Independent Committee selected certain parties which were then allowed access to a data room (containing various due diligence materials relating to the Applicant), permitted to meet with the Applicant's senior management and able to conduct visits to selected facilities of the Applicant. Subsequent to these events, these selected parties were requested to provide binding letters of intent to the Independent Committee by December 19, 2003.

12. Following its review and consideration of the letters of intent received, the Independent Committee agreed in mid-January 2004 to enter into a period of exclusive negotiations with the Sponsor Group. The negotiations between the Independent Committee and the Sponsor Group that took place during this period of exclusivity led to the Amalgamation proposal to acquire all of the outstanding shares of the Applicant at a price of $22.50 per share payable in cash. More specifically, the Applicant will amalgamate with Subco and Subco II under the Companies Act (Québec), with the Applicant's shareholders receiving pursuant to the Amalgamation one redeemable preferred share for each common share of the Applicant held. The redeemable preferred shares will be redeemed immediately after the Amalgamation at a price of $22.50 per share in cash. The consideration of $22.50 represents a premium of 22% over the closing price of $18.51 per share of the Applicant on the day prior to the public announcement of the sale process, and a 29% premium over the 20-day volume weighted average price prior to the public announcement of the sale process.

13. Merrill Lynch, Pierce, Fenner & Smith Incorporated and National Bank Financial Inc. have each provided to the Independent Committee an opinion for use by the Board of Directors of the Applicant that the consideration of $22.50 per Common Share is fair to the Applicant's shareholders from a financial point of view. The Board of Directors, upon the unanimous recommendation of the Independent Committee, has unanimously determined that the Amalgamation is fair to the shareholders of the Applicant and is in the best interest of the Applicant. The Board of Directors has agreed to recommend that the Applicant's shareholders vote in favour of the Amalgamation.

14. Under the Merger Agreement, the Independent Committee has negotiated for the benefit of the Board of Directors a "fiduciary out" for a superior proposal which 3087052 and 3087053 choose not to match.

15. Persons who can be considered as "related parties" for purposes of Policy Q-27 and Rule 61-501, other than the members of the Independent Committee, have not been involved in the negotiations with the Sponsor Group with respect to the Merger Agreement and the Amalgamation.

16. The Sponsor Group has entered into support and voting agreements (the "Support and Voting Agreements") with (i) Placide Poulin and Gestion Camada Inc. (a holding company controlled by Placide Poulin) who are the largest shareholders of the Applicant with collectively approximately 12% of the outstanding Common Shares, (ii) Marie-France Poulin, (iii) David Poulin, (iv) Richard Garneau and Gestion Sori Inc. (a holding company wholly-owned by Richard Garneau), and (v) André Héroux, pursuant to which such shareholders have agreed to irrevocably support and vote all of their Common Shares (their shares represent approximately 14.5% of the outstanding Common Shares) in favour of the Amalgamation. Such shareholders have not been involved in the negotiations with the Sponsor Group.

17. Shortly following the announcement in September, 2003 by the Board of Directors of the Applicant of the sale auction process, the Applicant offered a retention package (the "Package") to each of the following senior employees (collectively, the "Senior Employees"):

- Terry Rake

- Guy Bérard

- Dan Stewart

- Patrice Hénaire

- Gert-Jan Kloppers

- Benoît Boutet

- Michel Tremblay

- Richard Albright

- Larry Winters

- Jean Rochette

Under the terms of the Package, each Senior Employee will be entitled to receive a lump-sum payment representing a portion of his base salary as an incentive to remain in the employment of the Applicant during the sale process, the aggregate value of all lump-sum payments being $335,000. In addition, each Package provides that in the event of a change of control of the Applicant, resulting in the termination of the Senior Employee's employment, he shall be entitled to receive a cash amount equal to one year of his total remuneration (base salary and annual bonus).

18. Furthermore, the Merger Agreement provides that the Amalgamation is subject to the execution, on or before the effective date of the Amalgamation, of a new employment agreement and a share ownership agreement between the Applicant and André Héroux, President and Chief Executive Officer of the Applicant, in accordance with the term sheets executed concurrently with the Merger Agreement.

19. At the time the execution of the Merger Agreement was publicly announced, none of the Senior Employees and André Héroux beneficially owned or exercised control or direction over more than 1% of the outstanding Common Shares.

20. A proxy circular will be mailed to the Applicant's shareholders in connection with the special shareholders' meeting to be held on or about May 7, 2004 to approve the Amalgamation. At the meeting, the by-law relating to the Amalgamation will be required to be approved by at least two-thirds of the votes cast by holders of Common Shares and to be approved by a majority of the votes cast by holders of Common Shares determined in accordance with Section 8.1(3) of Policy Q-27 and Section 8.1(3) of Rule 61-501.

AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers in the Jurisdictions under the Legislation is that, in connection with the Amalgamation, an exemption from the Valuation Requirements be granted to the Applicant pursuant to Section 9.1 of Policy Q-27 and Section 9.1 of Rule 61-501.

March 31, 2004.

"Josée Deslauriers"