-----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, D+KZ2m2sMT6XT3aJxnkvvejQMU6lqUNdJfBfOAChXK7CLfq4NpWX3utOwaT0gE6o V6dud01rgKLCVMxxmearzA== 0000950129-97-002707.txt : 19970703 0000950129-97-002707.hdr.sgml : 19970703 ACCESSION NUMBER: 0000950129-97-002707 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 31 FILED AS OF DATE: 19970702 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER AMERICAS ACQUISITION CORP CENTRAL INDEX KEY: 0000944649 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 061420850 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30683 FILM NUMBER: 97635734 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: SUITE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER AMERICAS INC CENTRAL INDEX KEY: 0000944717 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 760280373 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30683-01 FILM NUMBER: 97635735 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER CHLOR ALKALI CO INC CENTRAL INDEX KEY: 0000944718 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 510302028 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30683-02 FILM NUMBER: 97635736 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMPERIAL WEST CHEMICAL CO CENTRAL INDEX KEY: 0000944719 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 952375683 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30683-03 FILM NUMBER: 97635737 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALL PURE CHEMICAL CO CENTRAL INDEX KEY: 0000944720 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 942314942 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30683-04 FILM NUMBER: 97635738 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACK MOUNTAIN POWER CO CENTRAL INDEX KEY: 0000944721 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 760291143 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30683-05 FILM NUMBER: 97635739 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALL PURE CHEMICAL NORTHWEST INC CENTRAL INDEX KEY: 0000944722 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 942714064 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30683-06 FILM NUMBER: 97635740 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER CHLOR ALKALI INTERNATIONAL INC CENTRAL INDEX KEY: 0000944723 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 980118164 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30683-07 FILM NUMBER: 97635741 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOW CORP CENTRAL INDEX KEY: 0000944724 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 880336831 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30683-08 FILM NUMBER: 97635742 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TC HOLDINGS INC CENTRAL INDEX KEY: 0001041860 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 860311265 STATE OF INCORPORATION: NM FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30683-09 FILM NUMBER: 97635743 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TC PRODUCTS INC CENTRAL INDEX KEY: 0001041861 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 911536884 STATE OF INCORPORATION: NM FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30683-10 FILM NUMBER: 97635744 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER EAST INC CENTRAL INDEX KEY: 0001041862 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 510375981 STATE OF INCORPORATION: NM FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30683-11 FILM NUMBER: 97635745 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 S-4 1 PIONEER AMERICAS ACQUISITION CORP. FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PIONEER AMERICAS ACQUISITION CORP. (Exact name of registrant as specified in its charter) DELAWARE 2812 06-1420850 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) PIONEER AMERICAS, INC. DELAWARE 76-0280373 PIONEER CHLOR ALKALI COMPANY, INC. DELAWARE 51-0302028 IMPERIAL WEST CHEMICAL CO. NEVADA 95-2375683 ALL-PURE CHEMICAL CO. CALIFORNIA 94-2314942 BLACK MOUNTAIN POWER COMPANY TEXAS 76-0291143 ALL-PURE CHEMICAL NORTHWEST, INC. WASHINGTON 94-2714064 PIONEER CHLOR ALKALI INTERNATIONAL, BARBADOS 98-0118164 INC. NEVADA 88-0336831 G.O.W. CORPORATION DELAWARE 51-0375981 PIONEER (EAST), INC. NEW MEXICO 86-0311265 T.C. HOLDINGS, INC. WASHINGTON 91-1536884 T.C. PRODUCTS, INC. (State or other jurisdiction of (I.R.S. Employer (Exact name of registrants as incorporation or organization) Identification No.) specified in their charters)
--------------- 4200 NATIONSBANK CENTER, 700 LOUISIANA STREET, HOUSTON, TEXAS 77002, (713) 225-3831 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices) --------------- KENT R. STEPHENSON, ESQ. PIONEER AMERICAS ACQUISITION CORP. 4200 NATIONSBANK CENTER 700 LOUISIANA STREET HOUSTON, TEXAS 77002 (713) 225-3831 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- with a copy to: CORNELIUS T. FINNEGAN III, ESQ. WILLKIE FARR & GALLAGHER ONE CITICORP CENTER 153 EAST 53RD STREET NEW YORK, NEW YORK 10022 (212) 821-8000 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] --------------- CALCULATION OF REGISTRATION FEE
============================================================================================================================ PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE OFFERING PRICE REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------------- 9 1/4% Series B Senior Secured Notes Due 2007...................................... $200,000,000 100% $200,000,000 $60,607 - ---------------------------------------------------------------------------------------------------------------------------- Guarantees(1)............................... (2) (2) (2) (2) ============================================================================================================================
(1) Pioneer Americas, Inc., Pioneer Chlor Alkali Company, Inc., Imperial West Chemical Co., All-Pure Chemical Co., Black Mountain Power Company, All-Pure Chemical Northwest, Inc., Pioneer Chlor Alkali International, Inc., G.O.W. Corporation, Pioneer (East), Inc., T.C. Holdings, Inc. and T.C. Products, Inc. are wholly-owned subsidiaries of Pioneer Americas Acquisition Corp. and each is registering Guarantees of the payment of the principal of, premium, if any, and interest on the Notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no registration fee is required with respect to the Guarantees. (2) Not applicable. --------------- The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JULY 2, 1997 PROSPECTUS PIONEER AMERICAS ACQUISITION CORP. OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 9 1/4% SERIES B SENIOR SECURED NOTES DUE 2007 FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 9 1/4% SERIES A SENIOR SECURED NOTES DUE 2007 --------------------- Pioneer Americas Acquisition Corp., a Delaware company ("PAAC" or the "Company"), hereby offers to exchange (the "Exchange Offer") up to $200,000,000 in aggregate principal amount of its 9 1/4% Series B Senior Secured Notes Due 2007 (the "Exchange Notes") for up to $200,000,000 in aggregate principal amount of its outstanding 9 1/4% Series A Senior Secured Notes Due 2007 issued in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Original Notes" and, together with the Exchange Notes, the "Notes"). The terms of the Exchange Notes will be substantially identical in all respects (including principal amount, interest rate, maturity and ranking) to the terms of the Original Notes for which they may be exchanged pursuant to the Exchange Offer, except that (i) the Exchange Notes will be freely transferable by holders thereof (except as provided below) and (ii) the Exchange Notes will be issued without any covenant of the Issuers (as defined) regarding registration. The Exchange Notes will be issued under the indenture governing the Original Notes. The Exchange Notes will be, and the Original Notes are, senior obligations of the Company and will be and are fully and unconditionally guaranteed on a senior basis by all of the subsidiaries of the Company (the "Subsidiary Guarantors", and together with the Company, the "Issuers"). In addition, the guarantee of Pioneer Chlor Alkali Company, Inc. ("PCAC") with respect to the Exchange Notes will be, and with respect to the Original Notes is, secured by (i) a first mortgage lien on the chlor-alkali production facility acquired in the Tacoma Acquisition (as defined), (ii) a first priority security interest in certain agreements related to the Tacoma Acquisition and (iii) first mortgage liens on PCAC's chlor-alkali production facilities located in Henderson, Nevada and St. Gabriel, Louisiana, and the guarantee of Pioneer Americas, Inc. ("PAI") with respect to the Exchange Notes will be, and with respect to the Original Notes is, secured by a pledge of the Capital Stock of PCAC and All-Pure Chemical Co. ("All-Pure") held by PAI. The Exchange Notes will rank pari passu with all other existing and future Senior Indebtedness (as defined) and senior to all subordinated Indebtedness of the Company. As of June , 1997, the Company and its subsidiaries had approximately $ million of outstanding Senior Indebtedness. For a complete description of the terms of the Exchange Notes, including provisions relating to the ability of the Issuers to create indebtedness that is senior or pari passu to the Exchange Notes, see "Description of the Notes." There will be no cash proceeds to the Issuers from the Exchange Offer. The Notes will bear interest from and including their respective dates of issuance. Holders whose Original Notes are accepted for exchange will receive accrued interest thereon to, but not including, the date of issuance of the Exchange Notes, such interest to be payable with the first interest payment on the Exchange Notes, but will not receive any payment in respect of interest on the Original Notes accrued after the issuance of the Exchange Notes. The Original Notes were originally issued and sold on June 17, 1997 in a transaction not registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon the exemption provided in Section 4(2) of the Securities Act and Rule 144A of the Securities Act (the "Initial Offering"). Accordingly, the Original Notes may not be reoffered, resold or otherwise pledged, hypothecated or transferred in the United States unless so registered or unless an applicable exemption from the registration requirements of the Securities Act is available. Based upon interpretations by the Staff (the "Staff") of the Securities and Exchange Commission (the "Commission") issued to third parties, the Issuers believe that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired Original Notes directly from the Issuers or (iii) a broker-dealer who acquired Original Notes as a result of market making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Broker-dealers who acquired Original Notes as a result of market making or other trading activities may use this Prospectus, as supplemented or amended, in connection with resales of the Exchange Notes. The Issuers have agreed that, for a period not to exceed 180 days after the Exchange Date (as defined), they will make this Prospectus available to any broker-dealer for use in connection with any such resale. Any holder that cannot rely upon such interpretations must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. The Original Notes and the Exchange Notes constitute new issues of securities with no established trading market. Any Original Notes not tendered and accepted in the Exchange Offer will remain outstanding. To the extent that Original Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered, and tendered but unaccepted, Original Notes could be adversely affected. Following consummation of the Exchange Offer, the holders of Original Notes will continue to be subject to the existing restrictions on transfer thereof and the Issuers will have no further obligation to such holders to provide for the registration under the Securities Act of the Original Notes except under certain limited circumstances. (See "Original Notes Registration Rights.") No assurance can be given as to the liquidity of the trading market for either the Original Notes or the Exchange Notes. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Original Notes being tendered for exchange. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1997, unless extended (the "Expiration Date"). The date of acceptance for exchange of the Original Notes (the "Exchange Date") will be the first business day following the Expiration Date, upon surrender of the Original Notes. Original Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date; otherwise such tenders are irrevocable. --------------------- SEE "RISK FACTORS" ON PAGE 13 FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------- The date of this Prospectus is , 1997 3 AVAILABLE INFORMATION The Company and the Subsidiary Guarantors have filed with the Commission a Registration Statement on Form S-4 (the "Registration Statement," which term shall include all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the Exchange Notes being offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to in the Registration Statement are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports and other information required by the Commission. Periodic reports and other information filed by the Company with the Commission may be inspected at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding companies that file electronically with the Commission. The address of such site is http://www.sec.gov. Copies of such material can also be obtained from the Company upon request. Any such request should be directed to the Secretary of the Company at 4200 NationsBank Center, 700 Louisiana Street, Houston, Texas 77002, telephone number (713) 225-3831. The Company's obligation to file periodic reports with the Commission pursuant to the Exchange Act may be suspended if the Notes are held of record by fewer than 300 holders at the beginning of any fiscal year of the Company, other than the fiscal year in which the Exchange Offer Registration Statement (as defined) or any Shelf Registration Statement (as defined) becomes effective. The Company has agreed that, whether or not it is required to do so by the rules and regulations of the Commission, for so long as any of the Notes remain outstanding, it will furnish to the holders of the Notes and submit to the Commission (unless the Commission will not accept such materials) (i) all quarterly and annual financial information that would be required to be contained in filings with the Commission on Forms 10-Q and 10-K if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants, and (ii) all reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, for so long as any of the Notes remain outstanding, the Company has agreed to make available upon request to any prospective purchaser of, or beneficial owner of Notes in connection with any offer or sale thereof, the information required by Rule 144A(d)(4) under the Securities Act. NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SUBSIDIARY GUARANTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF. ii 4 TABLE OF CONTENTS
PAGE ---- AVAILABLE INFORMATION...................... ii PROSPECTUS SUMMARY......................... 1 RISK FACTORS............................... 13 Consequences of Failure to Exchange...... 13 Financial Leverage....................... 13 Industry Cyclicality..................... 13 Environmental Regulation................. 14 Operating Hazards and Uninsured Risks.... 18 Limitations on Security Interest......... 18 No Assurance of Realizable Value from Collateral............................. 18 Potential Environmental Liability of Secured Lenders........................ 19 Competition.............................. 19 Dependence on Key Customers and Key Suppliers.............................. 19 Ranking of the Notes..................... 20 Tax Matters.............................. 20 Change of Control........................ 20 Control by Certain Stockholders.......... 21 Forward-Looking Statements Lack of Public Market................................. 21 USE OF PROCEEDS............................ 23 THE EXCHANGE OFFER......................... 24 Purpose of the Exchange Offer............ 24 Terms of the Exchange.................... 24 Expiration Date; Extensions; Termination; Amendments............................. 25 How to Tender............................ 26 Terms and Conditions of the Letter of Transmittal............................ 27 Withdrawal Rights........................ 28 Acceptance of Original Notes for Exchange; Delivery of Exchange Notes... 28 Conditions to the Exchange Offer......... 28 Exchange Agent........................... 29 Solicitation of Tenders; Expenses........ 29 Appraisal Rights......................... 30 Federal Income Tax Consequences.......... 30 Other.................................... 30 THE ACQUISITION............................ 31 The Tacoma Acquisition................... 31 Use of Proceeds from Initial Offering.... 32 THE COMPANY AND PIONEER.................... 33 The Company.............................. 33 Pioneer.................................. 33 CAPITALIZATION............................. 35 PRO FORMA FINANCIAL INFORMATION.............................. 36 SELECTED HISTORICAL FINANCIAL DATA......... 45 MANAGEMENT'S DISCUSSION AND ANALYSIS F FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................... 48
PAGE ---- BUSINESS................................... 54 General.................................. 54 Industry Overview........................ 54 Strategy................................. 57 Operating Units.......................... 58 Facilities............................... 64 Saguaro Power............................ 67 Basic Investments........................ 67 Competition.............................. 67 Employees................................ 68 Environmental and Safety Regulation...... 68 Insurance................................ 75 Legal Proceedings........................ 75 MANAGEMENT................................. 76 Directors and Executive Officers of PAAC................................... 76 Executive Compensation................... 78 Pension Plan............................. 81 Employment Agreements and Change-in- Control Arrangements................... 81 Compensation of Directors................ 82 Compensation Committee Interlocks and Insider Participation.................. 82 CERTAIN TRANSACTIONS....................... 83 STOCK OWNERSHIP............................ 85 DESCRIPTION OF OTHER INDEBTEDNESS.......... 86 New Credit Facilities.................... 86 First Mortgage Notes..................... 87 Other.................................... 87 DESCRIPTION OF THE NOTES................... 88 General.................................. 88 Payment Terms............................ 88 Ranking.................................. 88 Guarantees............................... 89 Security................................. 90 Intercreditor Agreements................. 91 Certain Bankruptcy Limitations........... 91 Optional Redemption...................... 92 Change of Control........................ 93 Certain Covenants........................ 95 Release of Note Collateral............... 105 Certain Definitions...................... 106 Defaults and Remedies.................... 116 Transfer and Exchange.................... 117 Amendment, Supplement and Waiver......... 117 Legal Defeasance and Covenant Defeasance............................. 118 The Trustee.............................. 119 Book-entry; Delivery and Form............ 119 ORIGINAL NOTES REGISTRATION RIGHTS......... 121 PLAN OF DISTRIBUTION....................... 123 LEGAL MATTERS.............................. 124 EXPERTS.................................... 124 CHANGE IN INDEPENDENT ACCOUNTANTS.......... 124 INDEX TO FINANCIAL STATEMENTS.............. F-1
iii 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless the context otherwise requires, (i) the term PAAC refers to Pioneer Americas Acquisition Corp., (ii) the terms PAI and Predecessor Company refer to Pioneer Americas, Inc. and its subsidiaries, (iii) the term Company means PAAC and its subsidiaries and (iv) the term Pioneer refers to Pioneer Companies, Inc., the parent company of PAAC. "Pro forma net sales" for Pioneer Chlor Alkali Company, Inc. gives effect to the acquisition of a chlor-alkali production facility and related business located in Tacoma, Washington consummated on June 17, 1997 (the "Tacoma Acquisition"). "Pro forma net sales" for All-Pure Chemical Co. gives effect to the acquisition of T.C. Products, Inc. ("T.C. Products"), a regional producer of bleach and related products that was acquired in July 1996. "Pro forma net sales" and "pro forma EBITDA" for the Company and its subsidiaries gives effect to these acquisitions. See "The Company and Pioneer". THE COMPANY The Company manufactures and markets chlorine and caustic soda and several related downstream water treatment products. The Company conducts its business primarily through its subsidiaries: Pioneer Chlor Alkali Company, Inc. ("PCAC"), with pro forma net sales of $205.7 million for the twelve months ended March 31, 1997, and All-Pure Chemical Co. ("All-Pure"), with pro forma net sales of $54.7 million for such period. The Company also owns a 50% unconsolidated joint venture interest in Kemwater North America Company ("Kemwater"). For the twelve months ended March 31, 1997, the Company's pro forma net sales and pro forma EBITDA (as defined) were $260.4 million and $80.7 million, respectively. Chlorine and caustic soda are the seventh and sixth most commonly produced chemicals, respectively, in the United States, based on volume, and are used in a wide variety of applications and chemical processes. Chlorine and caustic soda are co-products, concurrently produced in a ratio of 1 to 1.1, respectively, through the electrolysis of salt water. A chlor-alkali electrochemical unit ("ECU") consists of 1 ton of chlorine and 1.1 tons of caustic soda. During the twelve months ended March 31, 1997, after giving pro forma effect to the Tacoma Acquisition, the Company produced approximately 565,800 tons of chlorine and 635,300 tons of caustic soda. Chlorine is used in the manufacture of over 15,000 products, comprising approximately 60% of all commercial chemistry, 85% of all pharmaceutical chemistry and 95% of all crop protection chemistry. Products manufactured with chlorine as a raw material include water treatment chemicals, plastics, detergents, pharmaceuticals, disinfectants and agricultural chemicals. Chlorine is also used directly in water disinfection applications. In the United States and Canada, virtually all public drinking water is made safe to drink by chlorination, and a significant portion of industrial and municipal waste water is treated with chlorine or chlorine derivatives to kill water-borne pathogens and remove solids. Caustic soda is a versatile chemical alkali used in a diverse range of manufacturing processes, including metal smelting, petroleum production and refining, pulp and paper production and paint manufacturing. Caustic soda is combined with chlorine and water to produce bleach and is used as an active ingredient in a wide variety of other end use products, including detergents, rayon and cellophane. The Company has expanded its presence in the western United States by acquiring the Tacoma, Washington-based chlor-alkali business of OCC Tacoma, Inc. ("OCC Tacoma"), a subsidiary of Occidental Chemical Corporation ("OxyChem"). Following the Tacoma Acquisition, the Company owns and operates three chlor-alkali production facilities, located in St. Gabriel, Louisiana; Henderson, Nevada; and Tacoma, Washington, with aggregate production capacity of 574,000 ECUs. These facilities produce chlorine and caustic soda for sale in the merchant markets and for use as raw materials in the ten downstream production facilities of All-Pure and Kemwater located in California, Washington and Georgia. The downstream operations use chlorine and caustic soda in the production of bleach, iron chlorides, polyaluminum chlorides and other water treatment chemicals. After giving effect to the Tacoma Acquisition and the acquisition of T.C. Products, the Company used approximately 13% of its chlorine production capacity and 1 6 approximately 6% of its caustic soda production capacity to supply substantially all of the chlorine and caustic soda requirements of its downstream businesses in 1996. Primary markets for the Company's products include water treatment for industrial, municipal and consumer applications, polyvinyl chloride ("PVC") and other plastics, detergents and agricultural chemicals. The Company believes that the chlorine and caustic soda currently produced at its Henderson and Tacoma facilities provide a significant source of supply for the West Coast region, where the Company is also the largest supplier of chlorine and bleach for water treatment purposes and where Kemwater is the largest producer of iron chlorides. The Company believes the St. Gabriel and Tacoma facilities are leading suppliers of premium, low-salt grade caustic soda in their respective regions. The Company believes the Tacoma Acquisition will allow the Company to more efficiently supply its downstream operations in the western and northwestern United States. THE TACOMA ACQUISITION On June 17, 1997, Pioneer, the Company and OCC Tacoma, a subsidiary of OxyChem, consummated the Tacoma Acquisition. Pursuant to the Asset Purchase Agreement (the "Purchase Agreement"), dated as of May 14, 1997, the Company acquired substantially all of the assets and properties used by OCC Tacoma in the chlor-alkali business at Tacoma, Washington, including the Tacoma chlor-alkali production facility (the "Tacoma Facility"). The purchase price consisted of (i) $97.0 million, payable in cash, (ii) 55,000 shares of Convertible Redeemable Preferred Stock, par value $.01 per share, of Pioneer (the "Pioneer Preferred Stock"), having a liquidation preference of $100 per share, and (iii) the assumption of certain obligations related to the acquired chlor-alkali business. The amount of cash to be paid is subject to adjustment under the terms of the Purchase Agreement. The Company believes that the Tacoma Acquisition presented an attractive opportunity to acquire a well-maintained chlor-alkali production facility, which includes sophisticated membrane cell technology, in a location contiguous to the Company's existing customer base. By acquiring a low-cost facility in the Pacific Northwest, the Company is well-positioned to direct output to outlying market areas while more efficiently supplying the All-Pure and Kemwater downstream operations, principally in the western and northwestern United States. The Tacoma Facility provides the Company with an opportunity to further expand into chlor-alkali markets in the Pacific Northwest based on the Company's operating efficiencies and disciplined market penetration. The Tacoma Facility is located in an industrial complex on the Hylebos waterway. It serves customers in the Pacific Northwest and California and to a lesser extent, foreign caustic soda customers. Annual capacity is approximately 225,000 tons of chlorine, 247,500 tons of caustic soda, 44,000 tons of hydrochloric acid and 8,800 tons of calcium chloride. The site has docks capable of handling ocean-going vessels up to 30,000 DWT size, and is served by a rail fleet of 492 leased tankcars included as a part of the Tacoma Acquisition. The Company believes that the plant would have generated pro forma net sales of $80.5 million and pro forma EBITDA of $33.5 million for the twelve months ended March 31, 1997, if the Tacoma Acquisition had occurred at the beginning of such period. Pursuant to the terms of the Purchase Agreement, the Company, OxyChem and OCC Tacoma entered into certain related agreements in connection with the Tacoma Acquisition. Pursuant to a Chlorine Purchase Agreement, OCC Tacoma will purchase 100,000 tons of chlorine from the Company during the year following the Tacoma Acquisition, which would have represented approximately 6% of the Company's pro forma net sales for the twelve months ended March 31, 1997. In addition, the Company has the right to require OCC Tacoma to purchase, and OCC Tacoma has the right to require the Company to sell, certain decreasing amounts of chlorine during the second through fifth years following the Tacoma Acquisition. Pursuant to a Chlorine and Caustic Soda Sales Agreement, the Company will sell to OxyChem those quantities of chlorine and caustic soda necessary for OxyChem to satisfy its obligations under contracts with certain of OxyChem's national account customers. 2 7 BUSINESS STRATEGY The Company's management team is pursuing a business strategy designed to capitalize on its competitive strengths in terms of its marketing expertise, production and distribution capabilities and geographic focus. The Company seeks to manage effectively the intrinsic cyclicality of the chlor-alkali industry while continuing to grow and improve profitability by pursuing a strategy which includes the following principal elements: - Focusing on the Merchant Chlor-Alkali Market. The Company is dedicated to serving the merchant chlor-alkali market, acting as a reliable source of supply of chlorine and caustic soda. The Company is committed to being flexible and responsive in periods of volatile chlor-alkali demand, making it the preferred supplier for many of its customers. Unlike its major competitors, the Company does not compete with its PVC customers and, as a result, is viewed as a preferred, non-competing source of raw materials. - Optimizing Plant Efficiencies through High Capacity Utilization. The Company seeks to maximize profitability by achieving a constant flow of product through its plants. The Company strives to maintain a steady demand for its output through (i) programs aimed primarily at growing markets such as PVC and water treatment; (ii) renewable contracts with major customers and the Chlorine Purchase Agreement with OCC Tacoma; (iii) direct linkage with major customers via pipelines, including a proposed seven-mile liquid chlorine pipeline from the St. Gabriel facility (the "Pipeline Project") expected to be completed in 1998; and (iv) captive demand for chlorine and caustic soda through its downstream water treatment operations. As a result of these actions, the Company's Henderson and St. Gabriel chlor-alkali plants have operated at 101%, 100% and 100% capacity utilization during 1994, 1995 and 1996, respectively, up from 93% in 1990. - Improving Cost Efficiency. The Company continually seeks to improve its cost competitiveness through a combination of productivity enhancements, strict operating cost controls, capital improvements and maintenance of high capacity utilization rates. Despite inflation, the Company's cash production costs per ECU decreased by 5% from 1990 through 1996, while ECU production per employee increased by 20%. In addition, the Company seeks to reduce distribution costs and improve plant operating efficiency through the efficient use of its strategic locations with deep water port facilities, direct pipeline connections to customers and opportunistic product exchanges with chlor-alkali producers in other regions. - Focusing on Geographic Diversity and Market Penetration. The Company's products are manufactured and marketed in a number of markets, providing a wide base for future growth and distribution to help mitigate the effects of regional and economic fluctuations. Following the Tacoma Acquisition, the Company has major chlor-alkali facilities in three states (Louisiana, Nevada and Washington) and downstream water treatment chemical processing plants serving several distinct areas of the country. The Company is well-positioned to direct its chlor-alkali output to additional areas while more efficiently supplying the growth in its own downstream operations in the western, northwestern and southeastern United States. Through focused expansion, the Company has been able to penetrate new and outlying market areas while maintaining its strong presence in the Gulf Coast region and areas west of the Rocky Mountains. - Expanding Water Treatment Operations. The Company has developed water treatment operations whose steady requirements for chlorine and caustic soda help maintain high operating rates at the Company's chlor-alkali facilities which, in turn, decreases unit production costs. In addition to serving as a source of demand, these growing businesses service diverse product markets and regions and can tend to offset industry cyclicality in the chlorine and caustic soda markets by providing a more stable downstream source of revenue. - Growing through Product Line Extensions and Strategic Acquisitions. Management believes that there are significant opportunities to continue the Company's growth both internally and through strategic acquisitions. The Company focuses its product development efforts on areas identified by its customers 3 8 as being of major commercial importance. For example, in the area of water treatment, the Company has developed or acquired rights to a number of innovative coagulant products which represent cost effective, advanced waste water treatment solutions. In addition, the Company is constantly reviewing acquisitions in related markets and since 1990 has consummated five downstream acquisitions, which provide attractive product offerings and geographic coverage. RECENT INDUSTRY TRENDS The chlorine and caustic soda markets are cyclical markets that are sensitive to relative changes in supply and demand, which are in turn affected by general economic conditions, capacity additions and other factors. Over the last five years, the market for PVC, the largest use of chlorine in the United States, has experienced steady growth, resulting in strong demand for chlorine. However, the use of chlorine as a bleaching agent in the pulp and paper industry and as feedstock in the production of chlorofluorocarbons ("CFCs") has been reduced significantly due to regulatory pressures. As a result of these factors and a general decline in economic growth in the early 1990s, the North American chlor-alkali industry experienced declining prices, as ECU prices fell by over 52% from $389 per ECU in the fourth quarter of 1989 to $185 per ECU in the second quarter of 1993. After a significant improvement in domestic economic growth, in early 1994 chlor-alkali markets experienced increased levels of demand. Limited new capacity was added during this time, resulting in greater capacity utilization and higher domestic and export prices for chlor-alkali products. These conditions continued in 1995 and the increase in demand enabled the Company and the industry in general to increase selling prices significantly at a time when operating costs generally did not increase. Toward the end of 1995, however, ECU prices began to decrease as strengthening demand for chlorine was offset by an oversupply of caustic soda. The industry has continued to operate at full capacity and management does not anticipate a significant increase in capacity over the next several years. The Company therefore believes that the previous volatility in ECU prices should moderate over such period. THE COMPANY AND PIONEER PAAC is a wholly-owned subsidiary of Pioneer, a publicly-traded company that immediately prior to the acquisition of PAI had no operations. Pioneer has an available net operating loss carryforward for federal income tax reporting purposes which it believes was approximately $36.8 million at March 31, 1997. In April 1995, PAAC acquired PAI for a purchase price, including the retirement of debt and the redemption of preferred stock, of approximately $152.3 million in cash and $11.5 million of subordinated promissory notes of Pioneer, as well as certain amounts payable after the closing based on certain of PAI's real estate holdings. Interlaken Investment Partners, L.P., a Delaware limited partnership (the "Interlaken Partnership"), beneficially owns approximately 34.9% of the voting power of Pioneer, and William R. Berkley, Chairman of Pioneer and PAAC (who may be deemed to beneficially own all shares of Pioneer common stock held by the Interlaken Partnership), may be deemed to beneficially own approximately 56.0% of the voting power of Pioneer. See "Stock Ownership." 4 9 THE REFINANCINGS Concurrent with the closing of the Tacoma Acquisition on June 17, 1997, the Company consummated a series of related transactions (the "Refinancings") comprised of (i) the Initial Offering, (ii) a cash tender offer (the "Tender Offer") to purchase all of its existing 13 3/8% First Mortgage Notes due 2005 (the "First Mortgage Notes") and the related solicitation of consents (the "Consent Solicitation") and (iii) borrowings of $100.0 million in term loans under a new term loan facility. THE TENDER OFFER AND CONSENT SOLICITATION On May 19, 1997, PAAC commenced the Tender Offer for all of its existing First Mortgage Notes and the related Consent Solicitation from holders of the First Mortgage Notes to delete or modify certain covenants and other provisions governing the First Mortgage Notes. On June 17, 1997, all outstanding First Mortgage Notes were repurchased in the Tender Offer. NEW CREDIT FACILITIES On June 17, 1997, the Company entered into new credit facilities (the "New Credit Facilities"), consisting of a $100.0 million term loan facility (the "Term Facility") and a $35.0 million revolving loan and letter of credit facility (the "Revolving Facility"). See "Description of Other Indebtedness -- New Credit Facilities." Term Facility The Company entered into the Term Facility, to provide for term loans (the "Term Loans") in an aggregate principal amount up to $100.0 million. The Company borrowed $100.0 million in Term Loans on June 17, 1997 in connection with the Refinancings and the Tacoma Acquisition. Revolving Facility The Company entered into the Revolving Facility, to provide for revolving loans (the "Revolving Loans") in an aggregate principal amount up to $35.0 million, of which up to $10.0 million will be available for the issuance of letters of credit. The Company did not incur Revolving Loans at closing in connection with the Refinancings and the Tacoma Acquisition but had $2.8 million in letters of credit outstanding at such time under the Revolving Facility. 5 10 THE EXCHANGE OFFER The Exchange Offer......... The Company is offering to exchange (the "Exchange Offer") up to $200,000,000 aggregate principal amount of 9 1/4% Series B Senior Secured Notes due 2007 (the "Exchange Notes") for up to $200,000,000 aggregate principal amount of its outstanding 9 1/4% Series A Senior Secured Notes due 2007 issued in reliance upon an exemption from registration under the Securities Act (the "Original Notes"). The terms of the Exchange Notes will be substantially identical in all respects (including principal amount, interest rate, maturity and ranking) to the terms of the Original Notes for which they may be exchanged pursuant to the Exchange Offer, except that (i) the Exchange Notes will be freely transferable by holders thereof except as provided herein (see "The Exchange Offer -- Terms of the Exchange" and "-- Terms and Conditions of the Letter of Transmittal") and (ii) the Exchange Notes will be issued without any covenant regarding registration under the Securities Act. Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired Original Notes directly from an Issuer or (iii) broker-dealers who acquired Original Notes as a result of market making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes. Minimum Condition.......... The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Original Notes being tendered for exchange. Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1997 unless extended (the "Expiration Date"). Exchange Date.............. The first date of acceptance for exchange for the Original Notes will be the first business day following the Expiration Date. Conditions to the Exchange Offer.................... The obligation of the Issuers to consummate the Exchange Offer is subject to certain conditions. See "The Exchange Offer -- Conditions to the Exchange Offer." The Issuers reserve the right to terminate or amend the Exchange Offer at any time prior to the Expiration Date upon the occurrence of any such condition. Withdrawal Rights.......... Tenders may be withdrawn at any time prior to the Expiration Date. Any Original Notes not accepted for any reason will be returned without expense to the tendering holders thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Procedures for Tendering Original Notes........... See "The Exchange Offer -- How to Tender." 6 11 Federal Income Tax Consequences............. The exchange of Original Notes for Exchange Notes by holders will not be a taxable exchange for federal income tax purposes, and holders should not recognize any taxable gain or loss or any interest income as a result of such exchange. Effect on Holders of Original Notes............. As a result of the making of this Exchange Offer, and upon acceptance for exchange of all validly tendered Original Notes pursuant to the terms of this Exchange Offer, the Issuers will have fulfilled a covenant contained in the terms of the Original Notes and the Exchange and Registration Rights Agreement (the "Registration Rights Agreement") dated as of June 17, 1997 between the Issuers, Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc, as initial purchasers, and, accordingly, the holders of the Original Notes will have no further registration or other rights under the Registration Rights Agreement, except under certain limited circumstances. See "Original Notes Registration Rights." Holders of the Original Notes who do not tender their Original Notes in the Exchange Offer will continue to hold such Original Notes and will be entitled to all the rights and limitations applicable thereto under the Indenture, dated as of June 17, 1997, among the Company, the Subsidiary Guarantors and United States Trust Company of New York, as Trustee (the "Trustee"), relating to the Original Notes and the Exchange Notes (the "Indenture"). All untendered, and tendered but unaccepted, Original Notes will continue to be subject to the restrictions on transfer provided for in the Original Notes and the Indenture. To the extent that Original Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Original Notes could be adversely affected. See "Risk Factors -- Consequences of Failure to Exchange." TERMS OF THE NOTES The Exchange Offer applies to $200,000,000 aggregate principal amount of the Original Notes. The form and terms of the Exchange Notes are the same as the form and terms of the Original Notes for which they may be exchanged except that the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof. The Exchange Notes will evidence the same debt as the Original Notes and will be entitled to the benefits of the Indenture. See "Description of the Notes." Notes Offered.............. $200,000,000 aggregate principal amount of 9 1/4% Series B Senior Secured Notes due 2007. Maturity................... June 15, 2007. Interest Payment Dates..... June and December of each year, commencing December 15, 1997. Ranking.................... The Notes will be senior obligations of the Company, and will rank pari passu with all existing and future Senior Indebtedness of the Company and senior to all Subordinated Indebtedness of the Company. The Notes, however, will be effectively subordinated to secured Senior Indebtedness of the Company and its subsidiaries with respect to the assets securing such Indebtedness. Such secured Senior Indebtedness will include loans under the New Credit Facilities. The Guarantee of PCAC with respect to the Notes and the Term Loans is effectively 7 12 secured (i) by a first mortgage lien on the Tacoma Facility, (ii) by a first priority security interest in certain agreements related to the Tacoma Acquisition and (iii) by first mortgage liens on the Henderson and St. Gabriel facilities. The guarantee of PAI with respect to the Notes and the Term Loans is secured by a pledge of the Capital Stock of PCAC and All-Pure held by PAI. In addition, the Company and its Subsidiaries may incur up to $50.0 million of Senior Indebtedness which will be secured on a pari passu basis with the Notes. As of March 31, 1997, after giving pro forma effect to the Initial Offering and the Refinancings, the Company and its Subsidiaries would have had outstanding approximately $306.8 million aggregate principal amount of secured Senior Indebtedness. As of March 31, 1997, on a pro forma basis, the Company and its Subsidiaries would have had, subject to certain restrictions (including borrowing base limitations), the ability to draw up to $32.2 million of additional secured Senior Indebtedness under the Revolving Facility. See "Risk Factors -- Ranking of the Notes," "Description of Other Indebtedness -- New Credit Facilities" and "Description of the Notes -- Ranking." Security................... The Notes will be effectively secured by the Note Collateral (as defined). Pursuant to an Intercreditor and Collateral Agency Agreement (the "Intercreditor Agreement") by and among the Company, PAI, PCAC, the Trustee under the Indenture, the agent under the Term Facility (the "Term Loan Agent") and the collateral agent thereunder (the "Collateral Agent"), the Collateral Agent will hold the Collateral (as defined) securing the Notes and the Term Loans for the equal and ratable benefit of the Trustee, the holders of the Notes, the Term Loan Agent and the holders of the Term Loans. The Collateral will be limited to (i) a first mortgage lien on the Tacoma Facility (including real property, buildings, fixtures and certain equipment), (ii) a first priority security interest in certain agreements related to the Tacoma Acquisition, (iii) first mortgage liens on the Henderson and St. Gabriel facilities (including real property, buildings, fixtures and certain equipment) and (iv) a pledge of the Capital Stock of PCAC and All-Pure. The Intercreditor Agreement will provide generally that the holders of a majority of the obligations secured by the Collateral may direct the Collateral Agent with respect to certain matters. The Indenture will provide that any release of Note Collateral, including Trust Moneys, will be subject to the provisions of Section 314(d) of the Trust Indenture Act relating to, among other things, the delivery of a certificate or an opinion of an engineer, appraiser or other expert as to the fair value of Note Collateral being released from the Liens of the Security Documents. See "Description of the Notes -- Security" and "-- Intercreditor Agreement." Guarantees................. The Notes will be fully and unconditionally guaranteed on a senior basis by the Subsidiary Guarantors (which will be PAI and its subsidiaries). The Guarantee of each Subsidiary Guarantor will rank pari passu with all existing and future Senior Indebtedness of such Subsidiary Guarantor and senior to all Subordinated Indebtedness, if any, of such Subsidiary Guarantor, except that the Guarantees will be effectively subordinated to secured Senior Indebtedness of the Subsidiary Guarantors with respect to the assets securing such Indebtedness. The Guarantees will be joint and several obligations of the Subsidiary Guarantors. PCAC has granted 8 13 liens on certain of its assets and property (including the Tacoma Facility) to secure its Guarantee of the Notes, and PAI has pledged the Capital Stock of PCAC and All-Pure to secure PAI's Guarantee of the Notes. See "Description of the Notes -- Guarantees." Optional Redemption........ The Notes will be redeemable in cash at the option of the Company, in whole or in part, at any time or from time to time on or after June 15, 2002, at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. In addition, the Company may also redeem in cash at its option at any time prior to June 15, 2000 up to 35% of the aggregate principal amount of the Notes originally issued at a purchase price of 109.25% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption, with the net proceeds of (i) an Equity Offering by the Company or (ii) an Equity Offering by Pioneer, but only to the extent that Pioneer contributes such net proceeds to the Company as a capital contribution; provided that at least 65% of the aggregate principal amount of the Notes originally issued remains outstanding immediately after giving effect to such redemption. See "Description of the Notes -- Optional Redemption." Change of Control.......... Upon a Change of Control, each holder of the Notes will have the right to require the Company to repurchase all or a portion of such holder's Notes then outstanding at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of repurchase. The Company's ability to repurchase the Notes may be limited by, among other things, the Company's financial resources at the time of repurchase. See "Risk Factors -- Change of Control" and "Description of the Notes -- Change of Control." Certain Covenants.......... The indenture governing the Notes (the "Indenture") contains certain covenants with respect to the Company and its subsidiaries which restrict, among other things, (a) the incurrence of additional indebtedness, (b) the payment of dividends and other restricted payments, (c) the creation of certain liens, (d) the use of proceeds from sales of assets and subsidiary stock, (e) sale and leaseback transactions and (f) transactions with affiliates. The Indenture also restricts the Company's ability to consolidate or merge with or into, or to transfer all or substantially all of its assets to, another person. These restrictions and requirements are subject to a number of important qualifications and exceptions. See "Description of the Notes -- Certain Covenants." Exchange Offer; Registration Rights........ Pursuant to an Exchange and Registration Rights Agreement (the "Registration Rights Agreement") among the Company, the Subsidiary Guarantors and the Initial Purchasers, the Company and the Subsidiary Guarantors have agreed to file by the 30th day following the date of closing of the Initial Offering (the "Closing Date") a registration statement (the "Exchange Offer Registration Statement") with respect to an offer to exchange the Original Notes for the Exchange Notes, which will be registered under the Securities Act with terms (other than restrictions on transfer as set forth in "Notices to Investors") substantially identical to those of the Original Notes and to use their best efforts to cause such registration statement to become effective by the 150th day 9 14 following the Closing Date and, upon becoming effective, to commence the Exchange Offer and cause the same to remain open for acceptance for not less than 20 business days after the date of commencement. If the Exchange Offer is not consummated within 30 business days following the date the Exchange Offer Registration Statement is declared effective or, under certain circumstances, the initial purchasers in the Initial Offering (the "Initial Purchasers") so request, the Company and the Subsidiary Guarantors will file and use their best efforts to cause to be declared effective a shelf registration statement with respect to resales of the Original Notes from time to time and will use their best efforts to keep such registration statement effective until three years after the effective date thereof. If the applicable registration statement is not filed or declared effective or ceases to be effective or the Exchange Offer is not consummated within the applicable time periods related thereto (each, a "Registration Default"), the Company will be required to pay Liquidated Damages to each holder of the Original Notes, in the amount of $.05 per week per $1,000 principal amount of Original Notes for the initial 90-day period following such Registration Default. The amount of such Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of Original Notes at the beginning of each subsequent 90-day period, up to a maximum amount of $.50 per week per $1,000 principal amount of Original Notes. If, subsequently, such Registration Default is cured, the accrual of Liquidated Damages will cease. See "Original Notes Registration Rights." Use of Proceeds............ There will be no proceeds to the Issuers from the exchange pursuant to the Exchange Offer. The net proceeds from the Initial Offering, together with borrowings under the Term Facility, were used to pay the cash portion of the purchase price of the Tacoma Acquisition, to repurchase First Mortgage Notes in the Tender Offer, to pay the consent fee in the Consent Solicitation and for working capital and general corporate purposes. See "The Acquisition." Transfer Restrictions...... The Original Notes have not been registered under the Securities Act or under the securities laws of any state and may not be offered or sold within the United States or to, or for the benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or applicable state securities laws. Risk Factors............... Holders of Original Notes should carefully consider the matters set forth under the caption "Risk Factors" prior to making a decision with respect to the Exchange Offer. See "Risk Factors." 10 15 SUMMARY CONSOLIDATED FINANCIAL DATA The following financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Selected Historical Financial Data," "Pro Forma Financial Information" and the audited and unaudited historical financial statements of the Company and the Tacoma Plant and the respective notes thereto appearing elsewhere in this Prospectus.
PRO FORMA(4) ------------------------ PREDECESSOR TWELVE COMPANY COMBINED THREE MONTHS THREE MONTHS MONTHS YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, DECEMBER 31, MARCH 31, 1994(1) 1995(2) 1996(3) 1996 1997 1996 1997(5) ------------ ------------ ------------ ------------ ------------ ------------ --------- (DOLLARS IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA) INCOME STATEMENT DATA: Revenues.................... $167,217 $200,756 $183,326 $44,292 $38,743 $267,238 $260,397 Cost of sales............... 134,556 135,575 126,739 30,797 29,003 181,680 179,134 -------- -------- -------- ------- ------- -------- -------- Gross profit................ 32,661 65,181 56,587 13,495 9,740 85,558 81,263 Selling, general and administrative expenses... 22,529 26,883 23,528 6,090 6,170 27,207 26,837 -------- -------- -------- ------- ------- -------- -------- Operating income............ 10,132 38,298 33,059 7,405 3,570 58,351 54,426 Equity in net income (loss) of unconsolidated subsidiary................ 183 204 (2,607) (110) (1,055) (2,607) (3,552) Interest expense, net....... 6,407 14,570 17,290 3,944 4,458 26,390 26,768 Settlement of litigation and insurance claims, net..... 3,326 -- -- -- -- -- -- Other income, net........... 1,154 318 1,684 89 231 1,702 1,883 -------- -------- -------- ------- ------- -------- -------- Income (loss) before income taxes and extraordinary items..................... 8,388 24,250 14,846 3,440 (1,712) 31,056 25,989 Income tax provision........ 3,242 11,017 6,735 2,028 178 12,380 10,450 -------- -------- -------- ------- ------- -------- -------- Income (loss) before extraordinary item........ 5,146 13,233 8,111 1,412 (1,890) $ 18,676 $ 15,539 ======== ======== Extraordinary item, net of applicable tax(6)......... -- 3,420 -- -- -- -------- -------- -------- ------- ------- Net income (loss)........... $ 5,146 $ 9,813 $ 8,111 $ 1,412 $(1,890) ======== ======== ======== ======= ======= OTHER FINANCIAL DATA: Depreciation and amortization.............. 13,595 16,764 15,695 4,217 4,080 24,717 24,382 Capital expenditures........ 5,681 17,003 17,121 3,907 2,337 21,900 20,057 ADDITIONAL INFORMATION: EBITDA(7)................... $ 28,207 $ 55,380 $ 50,438 $11,711 $ 7,881 $ 84,770 $ 80,691 Ratio of pro forma EBITDA to pro forma interest........ 3.2x 3.0x Ratio of pro forma net debt to pro forma EBITDA....... 3.1x 3.2x OPERATING DATA: Average ECU price........... $ 327 $ 414 $ 385 $ 385 $ 377 $ 374 $ 371 ECU production (in thousands)................ 321.1 327.9 345.7 86.4 85.0 559.7 565.8 Annualized ECU production per employee.............. 1,189 1,123 1,137 1,137 1,118 1,186 1,199 Chlor-alkali operating rate...................... 101% 100% 100% 99% 97% 98% 99%
AS OF MARCH 31, 1997 ------------------------ ACTUAL PRO FORMA(4) -------- ------------ BALANCE SHEET DATA: Working capital............................................. $ 3,026 $ 40,662 Total assets................................................ 291,595 443,453 Total debt.................................................. 141,757 306,757 Common stockholders' equity................................. 72,433 59,291
(see footnotes on following page) 11 16 - --------------- (1) GPS Pool Supply, Inc. ("GPS") was acquired in May 1994 and therefore the results of operations for the year ended December 31, 1994 include the results of operations from the date of acquisition in May 1994 through December 31, 1994. GPS generated third party sales during such partial period of $9.4 million. (2) For comparative purposes the combined results of operations for the year ended December 31, 1995 include the Company's operating results for the period from Inception through December 31, 1995 and the Predecessor Company's operating results from January 1, 1995 through April 20, 1995. The Company believes that this provides a meaningful basis for comparison. (3) Kemwater was formed in connection with the acquisition of Kemira Water Treatment, Inc. ("KWT") in February 1996 to continue the business activities previously conducted by Imperial West Chemical Co. ("Imperial West") and, accordingly, the results of operations for the year ended December 31, 1996 include the results of operations of Imperial West only for the month of January 1996. Since the acquisition, 50% of Kemwater's results of operations are included as equity in net loss of unconsolidated subsidiary. Prior to the formation of Kemwater, the financial statements of Imperial West were consolidated with the Company's consolidated financial statements. (4) The pro forma statement of income data for the year ended December 31, 1996 gives effect to the Initial Offering, the other Refinancings, the Tacoma Acquisition and the acquisition of T.C. Products as if they had occurred on January 1, 1996. The pro forma statement of income data for the twelve months ended March 31, 1997 gives effect to the Initial Offering, the other Refinancings, the Tacoma Acquisition and the acquisition of T.C. Products as if they had occurred on April 1, 1996. The pro forma balance sheet data as of March 31, 1997 gives effect to the Initial Offering, the other Refinancings and the Tacoma Acquisition as if they had occurred on March 31, 1997. The pro forma financial data is not necessarily indicative of either future results of operations or the results that might have occurred if the foregoing transactions had been consummated on the indicated date. (5) The pro forma financial information for the twelve months ended March 31, 1997 is calculated by subtracting the pro forma three months ended March 31, 1996 from the pro forma year ended December 31, 1996 and adding the pro forma three months ended March 31, 1997. (6) An extraordinary item of $3.4 million, net of an income tax benefit of $2.1 million, was due to costs incurred and previously capitalized costs written off, pertaining to debt refinanced by the Predecessor Company prior to the PAI Acquisition. (7) EBITDA is defined as earnings before interest, income taxes, depreciation and amortization and equity in net income (loss) of unconsolidated subsidiaries and is presented because the Company believes that it provides useful information regarding its ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other combined income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of the Company's profitability or liquidity. 12 17 RISK FACTORS In addition to the other information contained in this Prospectus, before tendering their Original Notes for the Exchange Notes offered hereby, holders of Original Notes should consider carefully the following factors, which may be generally applicable to the Original Notes as well as the Exchange Notes: CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Original Notes who do not exchange their Original Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Original Notes as set forth in the legend thereon as a consequence of the issuance of the Original Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Original Notes may not be offered or sold unless registered under the Securities Act and applicable state securities laws, or pursuant to an exemption therefrom. Except under certain limited circumstances, the Issuers do not intend to register the Original Notes under the Securities Act. In addition, any holder of Original Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. To the extent Original Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Original Notes not tendered could be adversely affected. See "The Exchange Offer" and "Original Notes Registration Rights." FINANCIAL LEVERAGE As of March 31, 1997, after giving pro forma effect to the Initial Offering, the other Refinancings and the Tacoma Acquisition, PAAC would have had approximately $306.8 million of indebtedness and $59.3 million of stockholders' equity. See "Capitalization." The degree to which PAAC is leveraged could have important consequences to holders of the Notes, including the following: (i) the Company has significant cash interest expense for the Notes and other debt; (ii) the Company's significant degree of leverage could make it vulnerable to changes in industry and general economic conditions; and (iii) the Company's ability to obtain additional financings for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired. In addition, the Company's operating flexibility with respect to certain business matters is limited by covenants contained in the Indenture and in the New Credit Facilities. Among other things, these covenants limit the ability of the Company and its subsidiaries to incur additional indebtedness, create liens upon assets, apply the proceeds from disposal of assets, make dividend payments and other distributions on capital stock and redeem any capital stock. There can be no assurance that such covenants will not adversely affect the Company's ability to finance its future operations or capital needs or to engage in other business activities which may be in the interest of the Company. See "Description of Other Indebtedness -- New Credit Facilities" and "Description of the Notes -- Certain Covenants." PAAC expects to generate sufficient cash flow from operations to meet its debt service obligations. However, the ability of the Company to satisfy its obligations, including its obligations on the Notes, will be dependent upon the future performance of the Company and will be subject to financial, business and other factors affecting the business and operations of the Company, including factors beyond its control, such as prevailing economic conditions and regulatory matters. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." INDUSTRY CYCLICALITY Substantially all of the Company's revenues are attributable to the sale of chlorine, caustic soda and other chemicals that use chlorine or caustic soda as a primary raw material. The chlorine and caustic soda markets are cyclical markets that are sensitive to relative changes in supply and demand, which are in turn affected by general economic conditions, capacity additions and other factors. Over the last five years, the market for 13 18 PVC, the largest use of chlorine in the United States, has experienced steady growth, resulting in strong demand for chlorine. However, the use of chlorine as a bleaching agent in the pulp and paper industry and as feedstock in the production of CFCs has been reduced significantly due to regulatory pressures. As a result of these factors and a general decline in economic growth in the early 1990s, the North American chlor-alkali industry experienced declining prices, as ECU prices fell by over 52% from $389 per ECU in the fourth quarter of 1989 to $185 per ECU in the second quarter of 1993. After a significant improvement in domestic economic growth in early 1994, chlor-alkali markets experienced increased levels of demand. Limited new capacity was added during this time, resulting in greater capacity utilization and higher domestic and export prices for chlor-alkali products. These conditions continued in 1995 and the increase in demand enabled the Company and the industry in general to increase selling prices significantly at a time when operating costs generally did not increase. Toward the end of 1995, however, ECU prices began to decrease as strengthening demand for chlorine was offset by an oversupply of caustic soda. There can be no assurance that demand for the Company's products will be sustained or that it will keep pace with unanticipated capacity additions or that other events which may adversely affect the supply/demand balance for chlorine and caustic soda will not occur. ENVIRONMENTAL REGULATION The Company and its operations are subject to extensive federal, state and local laws, regulations, rules and ordinances relating to pollution, the protection of the environment and the release or disposal of regulated materials. The operation of any chemical manufacturing plant and the distribution of chemical products entail obligations under current environmental laws, and present or future laws may affect the Company's capital and operating costs relating to compliance, impose cleanup requirements with respect to site contamination resulting from past, present or future spills and releases and affect the markets for the Company's products. Furthermore, there can be no assurance that such costs or liabilities will not be material. The Company relies on indemnification from the previous owners in connection with certain environmental liabilities at its chlor-alkali plants and other facilities. There can be no assurance, however, that such indemnification arrangements will be adequate to protect the Company from environmental liabilities at these sites or that such third parties will perform their obligations under the respective indemnification arrangements, in which case the Company would be required to incur significant expenses for environmental liabilities, which would have a material adverse effect on the Company. See "Business -- Environmental and Safety Regulation -- Indemnities." Compliance Costs. Environmental laws and regulations impose requirements pertaining to emissions to the air, discharges to water, management and disposal of solid and hazardous wastes and other activities of the Company in connection with its manufacturing operations. Failure to observe these requirements may lead to enforcement actions brought by governmental agencies or private parties, and can lead to substantial civil or criminal fines and other penalties. The Company believes that its operations are currently in general compliance with environmental laws and regulations, the violation of which could result in a material adverse effect on the Company's business, properties or results of operations on a consolidated basis. There can be no assurance, however, that material costs will not be incurred as a result of instances of noncompliance or new regulatory requirements. Cleanup Costs. Environmental laws and regulations also impose liability for the cleanup of contamination, even if the contamination resulted from historical activities that were in compliance with applicable legal requirements at the time they occurred. Such costs may arise at facilities owned or operated by the Company or at off-site facilities to which the Company sent wastes for treatment, storage or disposal. As a result of historical activities, incidental spills or other releases, many of the facilities owned or operated by the Company are known to be, or could be, affected by contamination of soil or groundwater. The Company has conducted investigations, including Phase I pre-acquisition assessments and, in some cases, soil or groundwater sampling, at its facilities and has implemented or is implementing cleanup actions where required by regulatory authorities. The investigations have generally been non-invasive in nature and are inherently limited in the sense that conclusions are drawn and recommendations developed from information obtained from limited research and site evaluation; there can be no assurance that any such investigation can determine the 14 19 existence of any hazardous materials at a given site. In addition, the Company, along with other parties with an interest in the Henderson, Nevada industrial complex, has entered into a consent agreement with the State of Nevada, pursuant to which the Company has submitted a "Phase I Environmental Conditions Assessment." The Company has also executed a Phase II Consent Agreement, which covers additional investigation of the plant site, including sampling. The Company is also aware of certain claims that have been asserted with respect to off-site facilities, which claims could lead to liability for the Company. See "Business -- Environmental and Safety Regulation -- Superfund" and "-- Remediation Matters." Such investigation and cleanup activities have not had a material adverse effect on the operations or financial results of the Company to date. There can be no assurance, however, that the Company is aware of all such site contamination issues, that regulatory authorities will not require cleanup in the future for sites that are not currently being remediated, or that remedial standards will not become more stringent. Accordingly, no assurance can be given that such activities will not have a material adverse effect on the operations or financial results of the Company in the future. Environmental Regulation of Products. Environmental regulations can directly or indirectly affect the markets for the Company's products by regulating the uses of the Company's products or the chemicals or materials made from those products. Certain environmental groups and international commissions have urged the restriction or ban of chlorine-related processes and products, based on concerns that the products or by-products from these applications might cause damage to human health or the environment. Such pressures may stimulate regulatory initiatives which could have the effect of reducing the use of chlorine by customers in the Company's markets or could have the effect of increasing competition from other chlorine producers with respect to the Company's markets. Each such effect was experienced by the Company from 1990 to 1992 following increased regulation of the use of CFCs, although during that period demand for chlorine from other market segments more than offset the loss of demand from reduced production of CFCs. The Company is working with other industry representatives to advocate a risk-based scientific approach for evaluating the alleged health and environmental risks of chlorine and chlorinated compounds, which are used in a broad range of consumer products, including water, plastics, detergents, agricultural chemicals and pharmaceuticals. See "Business -- Environmental and Safety Regulation." Environmental Cost Summary. The Company's operating expenses relating to environmental matters totaled $1.7 million during the year ended December 31, 1996 and $0.3 million for the three months ended March 31, 1997. The Company does not anticipate a material increase in these types of expenses during the remainder of 1997. Capital expenditures for environmental related matters were $4.3 million during the year ended December 31, 1996 and are expected to be approximately $4.1 million in 1997. Capital expenditures and, to a lesser extent, costs and operating expenses relating to environmental matters for years after 1997 will be subject to evolving regulatory requirements and will depend to a great degree on the types of procedures that may be approved by various federal and state governmental agencies with respect to environmental clean-up. Henderson Remediation Matters; ZENECA Indemnity; PAI Sellers' Indemnity. The Company's plant in Henderson, Nevada is located within an area known as the "Basic Complex" that was originally owned by and constructed under the direction of the United States government in the 1940s and since that time has been used for chemical manufacturing by several companies. Soil and groundwater contamination have been identified within and adjoining the land owned by the Company. See "Business -- Environmental and Safety Regulation -- Remediation Matters." Certain of the Company's environmental liabilities in connection with the Henderson facility are addressed by indemnifications provided by the previous owner of the Henderson facility, and by the sellers under the PAI Acquisition Agreement (as defined). The Henderson plant was acquired by the Company in October 1988 in connection with the purchase of Stauffer Chlor Alkali Company, Inc. from ICI Delaware Holdings, Inc. ("ICI"), a subsidiary of ICI Americas, Inc. ("ICI Americas"). Under the acquisition agreement relating to such acquisition, ICI indemnified the Company for certain environmental liabilities that might be incurred by the Company as a result of actions occurring prior to the closing date, including actions (other than chlor-alkali related actions) at the Henderson property and liabilities for actions at other sites in the Basic Complex and liabilities arising in connection with off-site disposal sites. See "Business -- 15 20 Environmental and Safety Regulation -- Indemnities." The Company has been advised by ZENECA Delaware Holdings, Inc. and ZENECA, Inc. (collectively, the "ZENECA Companies") that the indemnity obligations of ICI and ICI Americas under the acquisition agreement have been assumed by the ZENECA Companies. Payments for environmental liabilities under the indemnity from the ZENECA Companies (the "ZENECA Indemnity"), together with other non-environmental liabilities for which ICI agreed to indemnify the Company, cannot exceed approximately $65 million. Through March 31, 1997, the Company has been reimbursed for approximately $12 million of costs covered by the ZENECA Indemnity, but the ZENECA Companies may have directly incurred additional costs that would further reduce the total amount remaining under the ZENECA Indemnity. As a result of the PAI Acquisition, the ZENECA Indemnity will terminate in accordance with its terms on April 20, 1999, except with respect to claims as to which PAI has satisfied the contractual requirements for extending the indemnity. See "Business -- Environmental and Safety Regulation -- Indemnities." In April 1995, pursuant to a Stock Purchase Agreement, dated as of March 24, 1995 (the "PAI Acquisition Agreement"), PAAC acquired PAI (the "PAI Acquisition") for a purchase price, including the retirement of debt and the redemption of preferred stock, of approximately $152.3 million in cash and $11.5 million of subordinated promissory notes of Pioneer (the "Pioneer Seller Notes"), as well as certain amounts payable after the closing based upon earnings or proceeds attributable to certain of PAI's direct and indirect real estate holdings which were not necessary for PAI's chlor-alkali business. In the PAI Acquisition Agreement, the sellers agreed to indemnify Pioneer, PAAC and their affiliates for certain environmental liabilities that result from certain discharges of hazardous materials, or violations of environmental laws, arising prior to the PAI Acquisition from or relating to the PAI plant sites or arising before or after the PAI Acquisition with respect to certain environmental liabilities relating to the real estate owned by Basic Investments and Victory Valley (each as defined) and certain real property adjoining the sites of the Company's Henderson, St. Gabriel and Mojave plants (collectively, the "Contingent Payment Properties"). See "Business -- Basic Investments." Amounts payable pursuant to such indemnification obligations (the "PAI Sellers' Indemnity") will generally be payable as follows: (i) out of certain reserves established on PAI's balance sheet at December 31, 1994; (ii) either by offset against the amounts payable under the Pioneer Seller Notes or from amounts held in an account (the "Contingent Payment Account") established under the related Contingent Payment Agreement; and (iii) in certain circumstances and subject to specified limitations, out of the personal assets of the sellers. The Company is required to reimburse the sellers with amounts recovered under the ZENECA Indemnity or from other third parties. The Company and the sellers have agreed that they will cooperate in matters relating to the ZENECA Indemnity. The sellers will not be required to make any payments under the PAI Sellers' Indemnity out of their personal assets until the end of the tenth year from the PAI Acquisition, and to the extent that liabilities exceed amounts realized from sales of Contingent Payment Properties, the Company would be limited, for a ten-year period, principally to its rights of offset against the Pioneer Seller Notes (and to amounts available under the ZENECA Indemnity, to the extent then in effect) to cover such liabilities. The Pioneer Seller Notes will be payable in five equal annual principal installments, beginning on the sixth anniversary of the PAI Acquisition. The Company believes that the remediation costs relating to its Henderson chlor-alkali facilities will not be material and that the Company will be reimbursed by the ZENECA Companies, under the PAI Sellers' Indemnity or from other responsible parties for substantially all of the non-chlor-alkali related remediation costs it may incur in connection with the Henderson, Nevada facility. No assurance can be given, however, that the Company will not be required to incur significant expenses for remedial and other liabilities under environmental laws in connection with the Henderson facility or operations, whether at or near the Henderson facility or at off-site locations, or that such expenses will be reimbursed under the ZENECA Indemnity or the PAI Sellers' Indemnity or by other responsible parties. In any such event, the Company may be required to fund costs and expenses or other environmental liabilities, and such funding could have a material adverse effect on the Company. See "Business -- Environmental and Safety Regulation." 16 21 No assurance can be given that the indemnification provisions of the PAI Sellers' Indemnity will be adequate to protect the Company from the environmental liabilities intended to be covered by the PAI Sellers' Indemnity. In particular, no assurance can be given that funds will be available in the Contingent Payment Account in amounts, or at the times, necessary to pay any such liabilities as they arise. Further, no assurance can be given that the sellers will have the financial resources to perform their personal obligations under the PAI Sellers' Indemnity, that the sellers will promptly pay any liability for which they are responsible or that the Company will be able to recover funds or assets from the sellers (particularly in view of the ten-year period that must pass before the sellers would be personally liable under the PAI Sellers' Indemnity) or that the Company will not be required to incur significant costs for environmental conditions not covered by the PAI Sellers' Indemnity. In addition, because the sellers may recognize certain economic benefits from the Contingent Payment Properties, there can be no assurance that conflicts will not arise between the interests of sellers who are directors or officers of the Company or its subsidiaries and the Company. Tacoma Remediation Matters; OCC Tacoma Indemnity. The Tacoma Facility is located adjacent to the Hylebos Waterway, which is connected to Commencement Bay. The Hylebos Waterway is one of the study areas included in the Commencement Bay Nearshore/Tideflats site which has been placed on the National Priorities List for remediation under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). OxyChem is a member of the Hylebos Cleanup Committee ("HCC"), which has entered into a consent agreement with the Environmental Protection Agency ("EPA") under which HCC will prepare a pre-remedial design for cleanup of the Hylebos Waterway. OxyChem is participating in a voluntary, non-binding mediation under which an arbitrator will allocate liability for the waterway among approximately 30 participating Potentially Responsible Parties ("PRPs"). The aggregate costs of the cleanup of the Hylebos Waterway will depend upon cleanup levels established by the EPA. Such cleanup levels have been proposed by the EPA, and are presently under discussion among the EPA, the HCC and other interested parties. The Tacoma Facility has a federal Resource Conservation and Recovery Act ("RCRA") treatment, storage, and disposal facility permit which requires the plant to investigate groundwater contamination at the site and to treat the groundwater to standards established in the permit. Pursuant to this requirement, the plant has installed a groundwater extraction, treatment and injection system (not included in the Tacoma Acquisition), which withdraws the groundwater, removes volatile organic compounds and returns the treated water to the subsurface through wells that are designed to control off-site migration of contamination. Certain areas at the Tacoma Facility are currently being voluntarily investigated under the oversight of the Washington Department of Ecology ("DOE") or the EPA. OxyChem has been named as a Potentially Liable Party ("PLP") under state law for remediation of, or it is voluntarily investigating, certain off-site, upland disposal sites used by the Tacoma Facility. OCC Tacoma agreed to retain responsibility for these sites. Two other properties, located immediately adjacent to the Tacoma Facility, have allegedly been affected by operations at the Tacoma Facility. A groundwater contamination plume under the Tacoma Facility extends to the northwest and west. This area is being addressed by the Tacoma Facility's groundwater treatment system. The owner of the neighboring property to the south has alleged that waste from the Tacoma Facility was disposed of on its property, and that the operations of the Tacoma Facility also caused groundwater contamination. This area is currently under investigation with the oversight of the Washington DOE. OCC Tacoma agreed to indemnify the Company for certain pre-closing environmental conditions. The OCC Tacoma indemnity is subject to limitations as to dollar amount and duration, as well as certain other conditions. After the applicable period of OCC Tacoma's indemnification, the Company will indemnify OCC Tacoma for remaining liabilities other than those from hazardous materials present as a result of pre-closing releases in the non-Hylebos area of Commencement Bay, public, private or commercial disposal facilities upland of the waterways and natural resource damages arising under state or federal statutes, for which liability will be retained by OCC Tacoma. The Company has reviewed the time frames currently estimated for remediation of the known environmental conditions associated with Commencement Bay, the Hylebos Waterway, the plant and adjacent properties and the Company presently believes that it should have no material liability upon the termination of OCC Tacoma's indemnity. There can be no assurance that such 17 22 indemnity will be adequate to protect the Company, that remediation will proceed on the present schedule, that it will involve the presently anticipated remedial methods, or that unanticipated conditions will not be identified. If these or other changes occur, the Company could incur a material liability for which it is not insured or indemnified. See "Business -- Environmental and Safety Regulation -- Indemnities." OPERATING HAZARDS AND UNINSURED RISKS The Company's operations are subject to risks inherent in the chemical industry, such as explosions, fires, chemical spills or releases, pollution and other environmental risks. Any significant interruption of operations at the Company's principal facilities could have a material adverse effect on the Company. The Company has in the past experienced chlorine releases at its plants. In 1991, there was a release of approximately 42 tons of chlorine from the Henderson facility. The Company has resolved substantially all of the personal injury, property damage and regulatory claims relating to this release, and certain of the costs incurred as a result of the accident were recovered under applicable insurance policies. See "Business -- Environmental and Safety Regulation." The Company maintains general liability insurance and property and business interruption insurance with coverage limits it believes are adequate. Because of the nature of industry hazards, it is possible that liabilities for pollution and other damages arising from a major occurrence could exceed insurance coverage or policy limits or that such insurance may not be available at reasonable rates in the future. Any such liabilities, which could arise due to injury and loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage and suspension of operations, could have a material adverse effect on the Company. See "Business -- Insurance." LIMITATIONS ON SECURITY INTEREST The Notes will be effectively secured by the Note Collateral more fully described under "Description of the Notes -- Security." Such security interest generally is limited to (i) a first mortgage lien on the Tacoma Facility, (ii) a first priority security interest in certain agreements related to the Tacoma Acquisition, (iii) first mortgage liens on PCAC's chlor-alkali production facilities located in Henderson, Nevada and St. Gabriel, Louisiana, and (iv) a pledge of the Capital Stock of PCAC and All-Pure. Upon a default on indebtedness secured by the Note Collateral, including the Notes, and a declaration of acceleration of the Notes as a result thereof, the Trustee may, subject to the provisions of the Intercreditor Agreement, cause the Collateral Agent to take such action as it may deem advisable to protect and enforce the rights of the Trustee and the holders in the Note Collateral, including causing any Note Collateral to be sold and the proceeds to be applied to the pro rata payment of the indebtedness secured by the Note Collateral, including the Notes, before such proceeds are applied to debts of other creditors of PCAC and/or PAI, except to the extent that certain liens, including landlord's, warehousemen's and materialmen's liens and certain tax liens, may, as a matter of law, have priority over the lien and security interest granted to the Collateral Agent in the Note Collateral. The ability of the Collateral Agent to cause any Note Collateral to be sold may be delayed pursuant to the automatic stay provisions under the United States Bankruptcy Code, as amended (the "Bankruptcy Code"), if PAAC, PCAC and/or PAI is the subject of any bankruptcy or receivership proceedings. The Indenture permits the release of Note Collateral without substitution of Note Collateral of equal value under certain circumstances. See "Description of the Notes -- Release of Note Collateral." The Company and its Subsidiaries may incur up to $50.0 million of Senior Indebtedness which will be secured on a pari passu basis with the Notes. In addition, the Indenture will permit the Company and its subsidiaries, under certain circumstances, to incur additional Indebtedness, including Indebtedness secured by assets that do not constitute Note Collateral. See "Description of the Notes -- Certain Covenants." NO ASSURANCE OF REALIZABLE VALUE FROM NOTE COLLATERAL In connection with the granting of liens on the Note Collateral, the Company made no representation as to the value or sufficiency of such Note Collateral. Accordingly, there can be no assurance that the proceeds of sale of any Note Collateral pursuant to the Indenture and the related security documents following a declaration of acceleration of the Notes, will be sufficient to satisfy any payment of principal of, or accrued and unpaid interest, if any, on, the Notes. Any deficiency claim would rank pari passu in right of payment with all 18 23 other unsecured senior indebtedness of PAAC. In addition, the ability of the Collateral Agent to realize upon the Note Collateral may be inhibited or impaired by applicable bankruptcy law. See "Description of the Notes -- Certain Bankruptcy Considerations." POTENTIAL ENVIRONMENTAL LIABILITY OF SECURED LENDERS Lenders that hold a security interest in real property may, in certain specific circumstances, be held liable under certain environmental laws for the costs of remediating or preventing releases or threatened releases of hazardous substances at the mortgaged property. See "Description of the Notes -- Security." While lenders that neither foreclose on nor participate in the management of the mortgaged property (as interpreted under applicable law) generally have not been subject to such liability, currently, the law is unclear with respect to lenders that take possession of a mortgaged property or that participate in the management of a mortgaged property. In this regard, the Collateral Agent, the Trustee or the holders of the Notes would need to evaluate the impact of these potential liabilities before determining to foreclose on the mortgaged properties securing such Notes and exercising other available remedies. In addition, the Collateral Agent or the Trustee, as the case may be, may decline to foreclose upon the mortgaged properties or exercise remedies available to the extent that they do not receive indemnification to their satisfaction from the holders of the Notes. See "Description of the Notes -- Security." COMPETITION The industries in which the Company operates are highly competitive. Many of the Company's competitors are larger and have greater financial resources than the Company. Among the Company's competitors are two of the world's largest chemical companies, OxyChem and The Dow Chemical Company. Because of their greater financial resources, these companies may be better able than the Company to withstand severe price competition and volatile market conditions. In addition, as a result of the reduced demand for chlorine by the pulp and paper industry and in the production of CFCs, certain competitors may rely on price competition to capture market share. See "Business -- Competition." DEPENDENCE ON KEY CUSTOMERS AND KEY SUPPLIERS Novartis Crop Protection Inc. ("Novartis") accounted for approximately 13% of the Company's net sales for the year ended December 31, 1996 and was the only customer that accounted for more than 10% of the Company's sales during such period. Novartis would have accounted for approximately 9% of the Company's pro forma net sales in 1996. The loss of Novartis or a number of other significant customers would have a material adverse effect on the Company's financial condition, results of operations and cash flows. In connection with the Tacoma Acquisition, the Company and OCC Tacoma entered into a Chlorine Purchase Agreement, pursuant to which OCC Tacoma will purchase 100,000 tons of chlorine from the Company during the year following the Tacoma Acquisition, which would have represented approximately 6% of the Company's pro forma net sales for the twelve months ended March 31, 1997, and the Company has the right to require OCC Tacoma to purchase, and OCC Tacoma has the right to require the Company to sell, certain decreasing amounts of chlorine during the second through fifth years following the Tacoma Acquisition. Pursuant to a Chlorine and Caustic Soda Sales Agreement, the Company will sell to OxyChem those quantities of chlorine and caustic soda necessary for OxyChem to satisfy its obligations under contracts with certain of OxyChem's national account customers. There can be no assurance that the Company will be able to replace chlorine sales under such agreements with sales to alternative customers in the future. There can be no assurance that the historical levels of business from these customers will be maintained in the future. The production of chlor-alkali products principally requires salt, electricity and water as raw materials, and if the supply of such materials were limited or a significant supplier were unable to meet its obligations under the current supply arrangements, the Company could be forced to incur increased costs. Additional raw materials purchased by the Company include scrap iron, aluminum oxide compounds and sulfuric acid. Any significant interruption in supply or increase in prices for raw materials could have a material adverse effect on the Company's financial condition, results of operation or cash flows. 19 24 RANKING OF THE NOTES The Notes will be senior obligations of the Company and will rank pari passu with all existing and future Senior Indebtedness of the Company (including the loans under the New Credit Facilities) and senior to all Subordinated Indebtedness of the Company. The Notes, however, will be effectively subordinated to secured Senior Indebtedness of the Company and its subsidiaries with respect to the assets securing such Indebtedness (such as accounts receivable, inventory and certain related assets of the Company and its subsidiaries that secure the loans under the Revolving Facility). The guarantee of PCAC with respect to the Notes and the Term Loans will be secured by (i) a first mortgage lien on the Tacoma Facility, (ii) a first priority security interest in certain agreements related to the Tacoma Acquisition, and (iii) first mortgage liens on PCAC's chlor-alkali production facilities located in Henderson, Nevada and St. Gabriel, Louisiana, and the guarantee of PAI with respect to the Notes and the Term Loans is secured by a pledge of the Capital Stock of PCAC and All-Pure held by PAI. In addition, the Company and its Subsidiaries may incur up to $50.0 million of Senior Indebtedness which will be secured on a pari passu basis with the Notes. As of March 31, 1997, after giving pro forma effect to the Initial Offering, the other Refinancings and the Tacoma Acquisition, the Company and its Subsidiaries would have had outstanding approximately $306.8 million aggregate principal amount of secured Senior Indebtedness. It is expected that as of March 31, 1997, on a pro forma basis, the Company and its Subsidiaries would have had, subject to certain restrictions (including borrowing base limitations), the ability to draw up to $32.2 million of additional secured Senior Indebtedness under the Revolving Facility. Pursuant to the Indenture governing the Notes, PAAC and the Subsidiary Guarantors may incur additional secured and unsecured Indebtedness, or provide guarantees of Indebtedness, in certain circumstances. See "Description of Other Indebtedness" and "Description of the Notes -- Ranking" and "-- Certain Covenants." TAX MATTERS Pioneer has an available net operating loss carryforward ("NOL") for federal income tax reporting purposes which it believes was approximately $36.8 million at March 31, 1997. The NOL would be available for offset against future federal taxable income, including income of PAI (except PAI "built-in" gain recognized during the five-year period following the acquisition of PAI as provided by section 384 of the Internal Revenue Code of 1986, as amended (the "Code")), if generated during the carryforward period, which expires between 2003 to 2010. See "The Company and Pioneer -- Pioneer." Tax benefits arising from net operating loss carryforwards are subject to challenge by the Internal Revenue Service and may not be available. In particular, the use of the NOL may be reduced or eliminated if (a) an ownership change within the meaning of Code section 382 has occurred or occurs after the Offering with respect to Pioneer, (b) a subsidiary of Pioneer that in prior years generated a significant portion of the NOL was not permitted to file a consolidated return with Pioneer or (c) Code section 269 (applicable to certain transactions the principal purpose of which is tax avoidance) applies to PAAC's acquisition of PAI. Until April 1998, the Tacoma Acquisition may increase the possibility that Pioneer may experience an "ownership change" under Code Section 382, either through subsequent issuances of stock by Pioneer or through certain public trading in the Pioneer stock. Pioneer's ability to use the NOL to offset operating income of PAI will also depend on Pioneer's ability to establish certain facts and to prevail with respect to certain legal issues in any controversy with the Internal Revenue Service. If challenged by the Internal Revenue Service, Pioneer believes that it can present adequate proof of these facts and prevail with respect to these legal issues to the satisfaction of the Internal Revenue Service or in litigation. If Pioneer is unable to establish such facts and prevail with respect to such legal issues, its ability to use the NOL may be substantially restricted, and Pioneer's after-tax cash flow may be materially adversely affected. CHANGE OF CONTROL Upon the occurrence of a "Change of Control", as defined in the Indenture, each holder of Notes will have the right to require that PAAC purchase such holder's Notes in whole or in part at a purchase price in 20 25 cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest. PAAC's ability to redeem Notes may be limited by the availability of sufficient funds, restrictions imposed by any other debt obligations (including the New Credit Facilities) that may then be in effect and compliance with applicable securities laws. The Term Facility requires a mandatory prepayment of the Term Loans at 100% of the principal amount thereof, plus accrued and unpaid interest, with respect to a change of control under the Term Facility. The Revolving Facility prohibits the Company from repurchasing Notes if at the time of such repurchase an event of default under the Revolving Facility exists or would be caused thereby. The occurrence of a Change of Control may cause an event of default under the New Credit Facilities, upon which event of default all amounts outstanding under the New Credit Facilities may become due and payable. After giving effect to the Initial Offering, the other Refinancings and the Tacoma Acquisition, PAAC does not currently have, and no assurance can be given that PAAC will have, sufficient funds available to purchase all of the outstanding Notes were they to be tendered in response to an offer made as a result of a Change of Control. Further, the provisions of the Indenture may not afford holders of Notes protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving PAAC that may adversely affect holders of Notes, if such transaction does not result in a Change of Control. See "Description of the Notes -- Change of Control." CONTROL BY CERTAIN STOCKHOLDERS William R. Berkley, Chairman of Pioneer and PAAC (who may be deemed to beneficially own all shares of Pioneer common stock held by the Interlaken Partnership), may be deemed to beneficially own approximately 56.0% of Pioneer's outstanding voting power. Pioneer, in turn, owns all of the outstanding common stock of PAAC, which owns all of the outstanding stock of PAI. As a result, Mr. Berkley is able to control the election of PAAC's Board of Directors and thereby direct the management and policies of PAAC, PAI and its subsidiaries. See "Stock Ownership." FORWARD-LOOKING STATEMENTS Certain statements contained in this Prospectus, including without limitation, statements containing the words "believes," "anticipates," "intends," "expects" and words of similar import, constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both domestic and foreign; industry capacity; demographic changes; existing government regulations and changes in, or the failure to comply with, government regulations; legislative proposals concerning pollution, protection of the environment and the release or disposal of regulated materials; liability and other claims asserted against the Company; competition; the loss of any significant customers; changes in operating strategy or development plans; the ability to attract and retain qualified personnel; the significant indebtedness of the Company after the Tacoma Acquisition; the successful integration of the Tacoma Facility following the Tacoma Acquisition; the availability and terms of capital to fund the expansion of the Company's business; and other factors referenced in this Prospectus. Certain of these factors are discussed in more detail elsewhere in this Prospectus, including, without limitation, under the captions "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business." Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward- looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. LACK OF PUBLIC MARKET FOR THE NOTES The Notes constitute a new issue of securities with no established trading market, and there can be no assurance as to (i) the liquidity of any such market that may develop, (ii) the ability of holders of Notes to 21 26 sell their Notes or (iii) the price at which the holders of Notes would be able to sell their Notes. If such a market were to exist, the Notes could trade at prices that may be higher or lower than their principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar notes and the financial performance of the Company and its subsidiaries. PAAC has been advised by the Initial Purchasers that they presently intend to make a market in the Original Notes and the Exchange Notes. However, the Initial Purchasers are not obligated to do so, and any market-making activity with respect to the Original Notes or the Exchange Notes may be discontinued at any time without notice. In addition, such market-making activity will be subject to the limits imposed by the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and may be limited during such exchange offer or the pendency of an applicable shelf registration statement. See "Original Notes Registration Rights." There can be no assurance that even following registration of the Original Notes or the Exchange Notes, as the case may be, an active trading market will exist for the Original Notes or the Exchange Notes, as the case may be, or that any such trading market will be liquid. 22 27 USE OF PROCEEDS There will be no proceeds to the Issuers from the exchange pursuant to the Exchange Offer. The net proceeds to the Company from the issuance of the Original Notes in the Initial Offering were approximately $194.0 million. The net proceeds received by the Company, together with borrowings under the Term Facility, were used to pay the cash portion of the purchase price of the Tacoma Acquisition, to repurchase First Mortgage Notes in the Tender Offer, to pay the consent fee in the Consent Solicitation and for working capital and general corporate purposes. See "The Acquisition -- Use of Proceeds from Initial Offering." 23 28 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER The Original Notes were originally issued and sold on June 17, 1997. Such sales were not registered under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act and Rule 144A of the Securities Act. Pursuant to the Registration Rights Agreement, the Company and the Subsidiary Guarantors have agreed to file by the 30th day following the Closing Date of the Initial Offering, a registration statement (the "Exchange Offer Registration Statement") with respect to an offer to exchange the Original Notes for the Exchange Notes and to use their best efforts to cause such registration statement to become effective by the 150th day following the Closing Date and, upon becoming effective, to commence the Exchange Offer and cause the same to remain open for acceptance for not less than 20 business days after the date of commencement. If the Exchange Offer is not consummated within 30 days following the date the Exchange Offer Registration Statement is declared effective or, under certain circumstances, the Initial Purchasers so request, the Company and the Subsidiary Guarantors will file and use their best efforts to cause to be declared effective a shelf registration statement with respect to resales of the Original Notes and the Guarantees from time to time and will use their best efforts to keep such registration statement effective until three years after the effective date thereof. If the applicable registration statement is not filed or declared effective or ceases to be effective or the Exchange Offer is not consummated within the applicable time periods related thereto (each, a "Registration Default"), the Company will be required to pay Liquidated Damages to each holder of the Original Notes, in the amount of $.05 per week per $1,000 principal amount of Original Notes for the initial 90-day period following such Registration Default. The amount of such Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of Original Notes at the beginning of each subsequent 90-day period, up to a maximum amount of $.50 per week per $1,000 principal amount of Original Notes. If, subsequently, such Registration Default is cured, the accrual of Liquidated Damages will cease. See "Original Notes Registration Rights." The sole purpose of the Exchange Offer is to fulfill the obligations of the Issuers with respect to the Registration Rights Agreement. TERMS OF THE EXCHANGE The Issuers hereby offer to exchange, upon the terms and subject to the conditions set forth herein and in the Letter of Transmittal accompanying this Prospectus (the "Letter of Transmittal"), $1,000 in principal amount of Exchange Notes for each $1,000 in principal amount of the Original Notes. The terms of the Exchange Notes are identical in all respects to the terms of the Original Notes for which they may be exchanged pursuant to this Exchange Offer, except that the Exchange Notes will generally be freely transferable by holders thereof, and the holders of the Exchange Notes (as well as remaining holders of any Original Notes) will not be entitled to registration rights under the Registration Rights Agreement. See "Original Notes Registration Rights." The Exchange Notes will evidence the same debt as the Original Notes and will be entitled to the benefits of the Indenture. See "Description of the Notes." The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Original Notes being tendered for exchange. Based on interpretations by the Staff set forth in no-action letters issued to third parties, the Issuers believe that Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired Original Notes directly from the Issuer or (iii) broker-dealers who acquired Original Notes as a result of market making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business, and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes. Each broker-dealer that receives Exchange Notes pursuant to the Exchange Offer must acknowledge that it 24 29 will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging, and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Broker-dealers who acquired Original Notes as a result of market making or other trading activities may use this Prospectus, as supplemented or amended, in connection with resales of the Exchange Notes. The Issuers have agreed that, for a period not to exceed 180 days after the Exchange Date, they will make this Prospectus available to any broker-dealer for use in connection with any such resale. Any holder that cannot rely upon such interpretations must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Tendering holders of Original Notes will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of the Original Notes pursuant to the Exchange Offer. The Exchange Notes will bear interest from and including their respective dates of issuance. Holders whose Original Notes are accepted for exchange will receive accrued interest thereon to, but not including, the date of issuance of the Exchange Notes, such interest to be payable with the first interest payment on the Exchange Notes, but will not receive any payment in respect of interest on the Original Notes accrued after the issuance of the Exchange Notes. EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS The Exchange Offer expires on the Expiration Date. The term "Expiration Date" means 5:00 p.m., New York City time, on , 1997, unless the Issuers in their sole discretion extend the period during which the Exchange Offer is open, in which event the term "Expiration Date" means the latest time and date on which the Exchange Offer, as so extended by the Issuers, expires. The Issuers reserve the right to extend the Exchange Offer at any time and from time to time prior to the Expiration Date by giving written notice to United States Trust Company of New York (the "Exchange Agent") and by timely public announcement communicated, unless otherwise required by applicable law or regulation, by making a release to the Dow Jones News Service. During any extension of the Exchange Offer, all Original Notes previously tendered pursuant to the Exchange Offer will remain subject to the Exchange Offer. The initial Exchange Date will be the first business day following the Expiration Date. The Issuers expressly reserve the right to (i) terminate the Exchange Offer and not accept for exchange any Original Notes for any reason, including if any of the events set forth below under "-- Conditions to the Exchange Offer" shall have occurred and shall not have been waived by the Issuers and (ii) amend the terms of the Exchange Offer in any manner, whether before or after any tender of the Original Notes. If any such termination or amendment occurs, the Issuers will notify the Exchange Agent in writing and will either issue a press release or give written notice to the holders of the Original Notes as promptly as practicable. Unless the Issuers terminate the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date, the Issuers will exchange the Exchange Notes for the Original Notes on the Exchange Date. If the Issuers waive any material condition to the Exchange Offer, or amend the Exchange Offer in any other material respect, and if at the time that notice of such waiver or amendment is first published, sent or given to holders of Original Notes in the manner specified above, the Exchange Offer is scheduled to expire at any time earlier than the expiration of a period ending on the fifth business day from, and including, the date that such notice is first so published, sent or given, then the Exchange Offer will be extended until the expiration of such period of five business days. This Prospectus and the related Letter of Transmittal and other relevant materials will be mailed by the Issuers to record holders of Original Notes and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the lists of holders for subsequent transmittal to beneficial owners of Original Notes. 25 30 HOW TO TENDER The tender to the Issuers of Original Notes by a holder thereof pursuant to one of the procedures set forth below will constitute an agreement between such holder and the Issuers in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. General Procedures. A holder of an Original Note may tender the same by (i) properly completing and signing the Letter of Transmittal or a facsimile thereof (all references in this Prospectus to the Letter of Transmittal shall be deemed to include a facsimile thereof) and delivering the same, together with the certificate or certificates representing the Original Notes being tendered and any required signature guarantees (or a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") pursuant to the procedure described below), to the Exchange Agent at its address set forth on the back cover of this Prospectus on or prior to the Expiration Date or (ii) complying with the guaranteed delivery procedures described below. If tendered Original Notes are registered in the name of the signer of the Letter of Transmittal and the Exchange Notes to be issued in exchange therefor are to be issued (and any untendered Original Notes are to be reissued) in the name of the registered holder, the signature of such signer need not be guaranteed. In any other case, the tendered Original Notes must be endorsed or accompanied by written instruments of transfer in form satisfactory to the Issuers and duly executed by the registered holder and the signature on the endorsement or instrument of transfer must be guaranteed by a firm (an "Eligible Institution") that is a member of a recognized signature guarantee medallion program (an "Eligible Program") within the meaning of Rule 17Ad-15 under the Exchange Act. If the Exchange Notes and/or Original Notes not exchanged are to be delivered to an address other than that of the registered holder appearing on the note register for the Original Notes, the signature on the Letter of Transmittal must be guaranteed by an Eligible Institution. Any beneficial owner whose Original Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender Original Notes should contact such holder promptly and instruct such holder to tender Original Notes on such beneficial owner's behalf. If such beneficial owner wishes to tender such Original Notes himself, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering such Original Notes, either make appropriate arrangements to register ownership of the Original Notes in such beneficial owner's name or follow the procedures described in the immediately preceding paragraph. The transfer of record ownership may take considerable time. Book-Entry Transfer. The Exchange Agent will make a request to establish an account with respect to the Original Notes at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within two business days after receipt of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Original Notes by causing the Book-Entry Transfer Facility to transfer such Original Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Original Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address specified on the back cover page of this Prospectus on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. Guaranteed Delivery Procedures. If a holder desires to accept the Exchange Offer and time will not permit a Letter of Transmittal or Original Notes to reach the Exchange Agent before the Expiration Date, a tender may be effected if the Exchange Agent has received at its office listed on the back cover hereof on or prior to the Expiration Date a letter, telegram or facsimile transmission from an Eligible Institution setting forth the name and address of the tendering holder, the names in which the Original Notes are registered and, 26 31 if possible, the certificate numbers of the Original Notes to be tendered, and stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange trading days after the date of execution of such letter, telegram or facsimile transmission by the Eligible Institution, the Original Notes, in proper form for transfer, will be delivered by such Eligible Institution together with a properly completed and duly executed Letter of Transmittal (and any other required documents). Unless Original Notes being tendered by the above-described method (or a timely Book-Entry Confirmation) are deposited with the Exchange Agent within the time period set forth above (accompanied or preceded by a properly completed Letter of Transmittal and any other required documents), the Issuers may, at their option, reject the tender. Copies of a Notice of Guaranteed Delivery which may be used by Eligible Institutions for the purposes described in this paragraph are being delivered with this Prospectus and the related Letter of Transmittal. A tender will be deemed to have been received as of the date when the tendering holder's properly completed and duly signed Letter of Transmittal accompanied by the Original Notes (or a timely Book-Entry Confirmation) is received by the Exchange Agent. Issuances of Exchange Notes in exchange for Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to similar effect (as provided above) by an Eligible Institution will be made only against deposit of the Letter of Transmittal (and any other required documents) and the tendered Original Notes (or a timely Book-Entry Confirmation). All questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of Original Notes will be determined by the Issuers, whose determination will be final and binding. The Issuers reserve the absolute right to reject any or all tenders not in proper form or the acceptances for exchange of which may, in the opinion of counsel to the Issuers, be unlawful. The Issuers also reserve the absolute right to waive any of the conditions of the Exchange Offer or any defect or irregularities in tenders of any particular holder whether or not similar defects or irregularities are waived in the case of other holders. None of the Issuers, the Exchange Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or shall incur any liability for failure to give any such notification. The Issuers' interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL The Letter of Transmittal contains, among other things, the following terms and conditions, which are part of the Exchange Offer. The party tendering Original Notes for exchange (the "Transferor") exchanges, assigns and transfers the Original Notes to the Issuers and irrevocably constitutes and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to cause the Original Notes to be assigned, transferred and exchanged. The Transferor represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Original Notes and to acquire Exchange Notes issuable upon the exchange of such tendered Original Notes, and that, when the same are accepted for exchange, the Issuers will acquire good and unencumbered title to the tendered Original Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The Transferor also warrants that it will, upon request, execute and deliver any additional documents deemed by the Issuers to be necessary or desirable to complete the exchange, assignment and transfer of tendered Original Notes. The Transferor further agrees that acceptance of any tendered Original Notes by the Issuers and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Issuers of its obligations under the Registration Rights Agreement and that the Issuers shall have no further obligations or liabilities thereunder (except in certain limited circumstances). All authority conferred by the Transferor will survive the death or incapacity of the Transferor and every obligation of the Transferor shall be binding upon the heirs, legal representatives, successors, assigns, executors and administrators of such Transferor. By tendering Original Notes, the Transferor certifies (a) that it is not an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act, that it is not a broker-dealer that owns Original Notes acquired directly from the Issuers or an affiliate of the Issuers, that it is acquiring the Exchange Notes offered 27 32 hereby in the ordinary course of such Transferor's business and that such Transferor has no arrangement with any person to participate in the distribution of such Exchange Notes or (b) that it is an "affiliate" (as so defined) of the Issuers or of the initial purchasers in the Initial Offering of the Original Notes, and that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable to it. WITHDRAWAL RIGHTS Original Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Exchange Agent at its address set forth on the back cover of this Prospectus. Any such notice of withdrawal must specify the person named in the Letter of Transmittal as having tendered Original Notes to be withdrawn, the certificate numbers of Original Notes to be withdrawn, the principal amount of Original Notes to be withdrawn (which must be an authorized denomination), a statement that such holder is withdrawing his election to have such Original Notes exchanged, and the name of the registered holder of such Original Notes, and must be signed by the holder in the same manner as the original signature on the Letter of Transmittal (including any required signature guarantees) or be accompanied by evidence satisfactory to the Issuers that the person withdrawing the tender has succeeded to the beneficial ownership of the Original Notes being withdrawn. The Exchange Agent will return the properly withdrawn Original Notes promptly following receipt of notice of withdrawal. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by the Issuers, and such determination will be final and binding on all parties. ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Upon the terms and subject to the conditions of the Exchange Offer, the acceptance for exchange of Original Notes validly tendered and not withdrawn and the issuance of the Exchange Notes will be made on the Exchange Date. For the purposes of the Exchange Offer, the Issuers shall be deemed to have accepted for exchange validly tendered Original Notes when, as and if the Issuers have given written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Original Notes for the purposes of receiving Exchange Notes from the Issuers and causing the Original Notes to be assigned, transferred and exchanged. Upon the terms and subject to the conditions of the Exchange Offer, delivery of Exchange Notes to be issued in exchange for accepted Original Notes will be made by the Exchange Agent promptly after acceptance of the tendered Original Notes. Original Notes not accepted for exchange by the Issuers will be returned without expense to the tendering holders (or in the case of Original Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the procedures described above, such non-exchanged Original Notes will be credited to an account maintained with such Book-Entry Transfer Facility) promptly following the Expiration Date or, if the Issuers terminate the Exchange Offer prior to the Expiration Date, promptly after the Exchange Offer is so terminated. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, or any extension of the Exchange Offer, the Issuers will not be required to issue Exchange Notes in respect of any properly tendered Original Notes not previously accepted and may terminate the Exchange Offer (by oral or written notice to the Exchange Agent and by timely public announcement communicated, unless otherwise required by applicable law or regulation, by making a release to the Dow Jones News Service) or, at its option, modify or otherwise amend the Exchange Offer, if (a) there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order or decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission, (i) seeking to restrain or prohibit the making or consummation of the Exchange Offer or any other transaction contemplated by the Exchange Offer, 28 33 (ii) assessing or seeking any damages as a result thereof, or (iii) resulting in a material delay in the ability of the Issuers to accept for exchange or exchange some or all of the Original Notes pursuant to the Exchange Offer; (b) any statute, rule, regulation, order or injunction shall be sought, proposed, introduced, enacted, promulgated or deemed applicable to the Exchange Offer or any of the transactions contemplated by the Exchange Offer by any government or governmental authority, domestic or foreign, or any action shall have been taken, proposed or threatened, by any government, governmental authority, agency or court, domestic or foreign, that in the sole judgment of the Issuers might directly or indirectly result in any of the consequences referred to in clauses (a)(i) or (ii) above or, in the sole judgment of the Issuers, might result in the holders of Exchange Notes having obligations with respect to resales and transfers of Exchange Notes which are greater than those described in the interpretations of the Commission referred to on the cover page of this Prospectus, or would otherwise make it inadvisable to proceed with the Exchange Offer; or (c) a material adverse change shall have occurred in the business, condition (financial or otherwise), operations, or prospects of the Issuers. The foregoing conditions are for the sole benefit of the Issuers and may be asserted by them with respect to all or any portion of the Exchange Offer regardless of the circumstances (including any action or inaction by the Issuers) giving rise to such condition or may be waived by the Issuers in whole or in part at any time or from time to time in their sole discretion. The failure by the Issuers at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right, and each right will be deemed an ongoing right which may be asserted at any time or from time to time. In addition, the Issuers have reserved the right, notwithstanding the satisfaction of each of the foregoing conditions, to terminate or amend the Exchange Offer. Any determination by the Issuers concerning the fulfillment or non-fulfillment of any conditions will be final and binding upon all parties. In addition, the Issuers will not accept for exchange any Original Notes tendered and no Exchange Notes will be issued in exchange for any such Original Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or qualification of the Indenture under the Trust Indenture Act of 1939 (the "Trust Indenture Act"). EXCHANGE AGENT United States Trust Company of New York has been appointed as the Exchange Agent for the Exchange Offer. Letters of Transmittal must be addressed to the Exchange Agent at its address set forth on the back cover page of this Prospectus. Delivery to an address other than as set forth herein, or transmissions of instructions via a facsimile or telex number other than the ones set forth herein, will not constitute a valid delivery. SOLICITATION OF TENDERS; EXPENSES The Issuers have not retained any dealer-manager or similar agent in connection with the Exchange Offer and will not make any payments to brokers, dealers or others for soliciting acceptances of the Exchange Offer. The Issuers will, however, pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for reasonable out-of-pocket expenses in connection therewith. The Issuers will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding tenders for their customers. The expenses to be incurred in connection with the Exchange Offer, including the fees and expenses of the Exchange Agent and printing, accounting and legal fees, will be paid by the Company and are estimated at approximately $250,000. No person has been authorized to give any information or to make any representations in connection with the Exchange Offer other than those contained in this Prospectus. If given or made, such information or representations should not be relied upon as having been authorized by the Issuers. Neither the delivery of this Prospectus nor any exchange made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Issuers since the respective dates as of which information is given herein. The Exchange Offer is not being made to (nor will tenders be accepted from or on behalf of) 29 34 holders of Original Notes in any jurisdiction in which the making of the Exchange Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, the Issuers may, at their discretion, take such action as it may deem necessary to make the Exchange Offer in any such jurisdiction and extend the Exchange Offer to holders of Original Notes in such jurisdiction. In any jurisdiction the securities laws or blue sky laws of which require the Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer is being made on behalf of the Issuers by one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. APPRAISAL RIGHTS HOLDERS OF ORIGINAL NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER. FEDERAL INCOME TAX CONSEQUENCES The exchange of Original Notes for Exchange Notes by holders will not be a taxable exchange for federal income tax purposes, and holders should not recognize any taxable gain or loss or any interest income as a result of such exchange. OTHER Participation in the Exchange Offer is voluntary and holders should carefully consider whether to accept. Holders of the Original Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. As a result of the making of, and upon acceptance for exchange of all validly tendered Original Notes pursuant to the terms of this Exchange Offer, the Issuers will have fulfilled a covenant contained in the terms of the Original Notes and the Registration Rights Agreement. Holders of the Original Notes who do not tender their certificates in the Exchange Offer will continue to hold such certificates and will be entitled to all the rights, and limitations applicable thereto, under the Indenture, except for any such rights under the Registration Rights Agreement, which by their terms terminate or cease to have further effect as a result of the making of this Exchange Offer. See "Description of the Notes." All untendered Original Notes will continue to be subject to the restriction on transfer set forth in the Indenture. To the extent that Original Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Original Notes could be adversely affected. See "Risk Factors -- Consequences of Failure to Exchange." The Issuers may in the future seek to acquire untendered Original Notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. The Issuers have no present plan to acquire any Original Notes which are not tendered in the Exchange Offer. 30 35 THE ACQUISITION THE TACOMA ACQUISITION On June 17, 1997, Pioneer, the Company and OCC Tacoma, a subsidiary of OxyChem, consummated the Tacoma Acquisition. Pursuant to the Purchase Agreement, the Company acquired substantially all of the assets and properties used by OCC Tacoma in the chlor-alkali business at Tacoma, Washington, including the Tacoma Facility. The purchase price consisted of (i) $97.0 million, payable in cash, (ii) 55,000 shares of Pioneer Preferred Stock, having a liquidation preference of $100 per share, and (iii) the assumption of certain obligations related to the acquired chlor-alkali business. Prior to closing, Pioneer assigned its rights and obligations under the Purchase Agreement to PCAC (except for rights to acquire certain inventory, which were assigned to PAAC). The Company believes that the Tacoma Acquisition presented an attractive opportunity to acquire a well-maintained chlor-alkali production facility, which includes sophisticated membrane cell technology, in a location contiguous to the Company's existing customer base. By acquiring a low-cost production facility in the Pacific Northwest, the Company is well-positioned to direct output to outlying market areas while more efficiently supplying the All-Pure and Kemwater downstream operations, principally in the western and northwestern United States. The Tacoma Facility provides the Company with an opportunity to further expand chlor-alkali markets in the Pacific Northwest based on the Company's operating efficiencies and disciplined market penetration. The Tacoma Facility is located in an industrial complex on the Hylebos waterway. It serves customers in the Pacific Northwest and California and, to a lesser extent, foreign caustic soda customers. Annual capacity is approximately 225,000 tons of chlorine, 247,500 tons of caustic soda, 44,000 tons of hydrochloric acid and 8,800 tons of calcium chloride. The site has docks capable of handling ocean-going vessels up to 30,000 DWT size, and is served by a rail fleet of 492 leased tankcars included as a part of the Tacoma Acquisition. The Company believes that the plant would have generated pro forma net sales of $80.5 million and pro forma EBITDA of $33.5 million during the twelve months ended March 31, 1997, if the Tacoma Acquisition had occurred at the beginning of such period. Pursuant to the terms of the Purchase Agreement, the Company, OxyChem and OCC Tacoma entered into certain related agreements in connection with the Tacoma Acquisition. Pursuant to a Chlorine Purchase Agreement, OCC Tacoma will purchase 100,000 tons of chlorine from the Company during the year following the Tacoma Acquisition, which would have represented approximately 6% of the Company's pro forma net sales for the twelve months ended March 31, 1997. In addition, the Company has the right to require OCC Tacoma to purchase, and OCC Tacoma has the right to require the Company to sell, up to 100,000 tons of chlorine during the second year following the Tacoma Acquisition and up to 75,000 tons of chlorine during the third year following the Tacoma Acquisition. All deliveries will be from the Tacoma Facility to OxyChem's plant at Ingleside, Texas. Market prices will apply to all such transactions, with transportation costs to be borne and paid by OCC Tacoma. The Company will also have the right to require OCC Tacoma to purchase up to 50,000 tons of chlorine during the fourth year following the Tacoma Acquisition and up to 25,000 tons of chlorine during the fifth year following the Tacoma Acquisition at market prices, with each of the parties to bear 50% of the transportation costs from Tacoma to Ingleside for any purchases during such fourth and fifth years. Pursuant to a Chlorine and Caustic Soda Sales Agreement, the Company will sell to OxyChem those quantities of chlorine and caustic soda necessary for OxyChem to satisfy its obligations under contracts with certain of OxyChem's national account customers. The Company estimates that during the year following the Tacoma Acquisition the Company will sell approximately 22,400 tons of chlorine and 46,000 tons of caustic soda under the agreement, at prices set each quarter at levels equal to 95% of the average prices received by OxyChem under its arm's-length customer contracts during the preceding quarter. The final deliveries of chlorine and caustic soda under the arrangement will occur in December 2000. In connection with the Tacoma Acquisition, the Company acquired OCC Tacoma's leases of terminal facilities and related terminal services in Wilmington and Richmond, California and, pursuant to two Product 31 36 Exchange and Terminal Services Agreements, the Company agreed to allow OxyChem to use the terminals for the storage and transfer of up to 16,000 tons of OxyChem's caustic soda during the year following the Tacoma Acquisition, to the extent the parties do not otherwise enter into product exchange transactions. Under any such transactions, the Company will accept deliveries from one of OxyChem's facilities in the Gulf Coast area and OxyChem will accept deliveries from the Richmond and Wilmington terminal facilities. The Company and OCC Tacoma also entered into an Interim Services Agreement, pursuant to which OCC Tacoma will provide certain interim services to the Company during the transition of plant operations, and an Environmental Operating Agreement, which provides certain agreements and indemnities with respect to environmental matters affecting the Tacoma Facility. The obligations of OCC Tacoma under its agreements with the Company have been guaranteed by OxyChem. See "Business -- Operating Units" and "-- Environmental and Safety Regulation." Each share of Pioneer Preferred Stock issued in connection with the Tacoma Acquisition will be convertible at any time into eight shares of Class A Common Stock of Pioneer, and each share will be redeemable at Pioneer's option at redemption prices equal to the following percentages of liquidation value: 102% during the first year after the Tacoma Acquisition, 104% during the second year after the Tacoma Acquisition, 106% during the third year after the Tacoma Acquisition, 108% during the fourth year after the Tacoma Acquisition and 110% during each of the fifth through the tenth years after the Tacoma Acquisition. On the first business day after the end of the tenth year after the Tacoma Acquisition, Pioneer is required to redeem any Pioneer Preferred Stock which remains outstanding at a price of $100 per share. No dividends are payable on the Pioneer Preferred Stock. The Pioneer Preferred Stock is entitled to eight votes per share (subject to adjustment) and will vote with the Pioneer common stock on all matters. The Pioneer Preferred Stock issued to OCC Tacoma represents approximately 4.8% of the voting power of Pioneer. The cash portion of the purchase price for the Tacoma Acquisition is subject to adjustment based on the difference, if any, between the aggregate value of the inventories of raw materials, work-in-process, finished goods and spares and stores transferred to the Company pursuant to the Tacoma Acquisition and the agreed minimum value of such inventories as set forth in the Purchase Agreement. USE OF PROCEEDS FROM INITIAL OFFERING The net proceeds from the sale of the Original Notes of approximately $194.0 million, together with net proceeds of $97.6 million from borrowings under the Term Facility, were used to pay the cash portion of the purchase price of the Tacoma Acquisition, to repurchase PAAC's 13 3/8% First Mortgage Notes due 2005 in the Tender Offer, to pay the consent fee in the Consent Solicitation and for working capital and general corporate purposes. 32 37 THE COMPANY AND PIONEER THE COMPANY The Predecessor Company was formed in October 1988 to acquire two existing chlor-alkali plants. Subsequently, the Company acquired several businesses engaged in municipal, industrial and commercial water treatment, and on June 17, 1997 acquired the Tacoma Facility as its third chlor-alkali plant. The Company conducts its business primarily through PCAC and All-Pure. The Company also owns a 50% unconsolidated joint venture interest in Kemwater (which effective in February 1996 succeeded to the operations of Imperial West). Pioneer owns the remaining 50% joint venture interest in Kemwater. PCAC. Following the Tacoma Acquisition, PCAC owns and operates three chlor-alkali production facilities, located in St. Gabriel, Louisiana; Henderson, Nevada; and Tacoma, Washington. These facilities produce chlorine and caustic soda for sale in the merchant markets and for use as raw materials by PCAC, All-Pure and Kemwater in the manufacture of downstream products. The Henderson facility also produces hydrochloric acid, and the Tacoma Facility also produces hydrochloric acid and calcium chloride. PCAC also has an indirect 15% equity interest in Saguaro Power Company LP ("Saguaro Power"), which owns and operates a 90-megawatt cogeneration facility located on approximately six acres of the Henderson property. All-Pure. The Company believes that All-Pure is the largest distributor of packaged chlor-alkali products in the region of the United States west of the Rocky Mountains and the only full-line marketer of bleach in the region. All-Pure manufactures bleach and repackages chlorine and hydrochloric acid and distributes these products along with caustic soda and related products to municipalities, swimming pool supply distributors and selected commercial and retail markets. In July 1996, All-Pure acquired T.C. Products, which is engaged in the manufacture and marketing of bleach and related products from its plant in Tacoma, Washington. All-Pure purchases substantially all of its chlorine and caustic soda and a substantial portion of its hydrochloric acid from PCAC. Because bleach contains a high percentage of water, freight costs and logistics are an important competitive factor. All-Pure's production plants and distribution facilities are strategically located in or near most of the largest population centers of the West Coast. Kemwater. Kemwater, a 50% owned joint venture, manufactures and supplies iron chlorides to the potable and waste water markets in the region of the United States west of the Rocky Mountains, supplying municipal customers such as the cities of Los Angeles, Sacramento and San Diego. Iron chlorides are used primarily to remove solids from waste water streams and to control hydrogen sulfide emissions. Kemwater also manufactures and markets polyaluminum chlorides for markets in the southeastern United States, as well as aluminum sulfate for the potable and waste water and industrial water treatment industries, sodium aluminate for the production of catalysts and paint ingredients, and bleach for municipal water disinfection. Kemwater has exclusive licenses to use the existing and future advanced water treatment technology of Kemira Oy of Finland ("Kemira") in the development and sale of products and services for the potable water, waste water and industrial water treatment markets in the United States (other than the northeastern United States) and the Caribbean, and nonexclusive access to the use of the technology for the Canadian and Mexican markets, with an option to acquire an exclusive license for those markets in the future. For the year ended December 31, 1996, Kemwater purchased all of its chlorine and caustic soda requirements and a substantial portion of its hydrochloric acid requirements from PCAC, and it is anticipated that in the future PCAC will continue to provide Kemwater with a substantial amount of its raw materials. PIONEER PAAC is a wholly-owned subsidiary of Pioneer, a publicly-traded company that immediately prior to the acquisition of PAI had no operations. Pioneer has an available net operating loss carryforward for federal income reporting purposes which it believes was approximately $36.8 million at March 31, 1997. In April 1995, PAAC acquired PAI for a purchase price, including the retirement of debt and the redemption of preferred stock, of approximately $152.3 million in cash and $11.5 million of subordinated promissory notes of Pioneer, as well as certain amounts payable after the closing based on certain of PAI's real estate holdings. 33 38 The Interlaken Partnership beneficially owns approximately 34.9% of the voting power of Pioneer, and William R. Berkley, Chairman of Pioneer and PAAC (who may be deemed to beneficially own all shares of Pioneer common stock held by the Interlaken Partnership), may be deemed to beneficially own approximately 56.0% of the voting power of Pioneer. See "Stock Ownership." PAAC maintains its headquarters at 4200 NationsBank Center, 700 Louisiana Street, Houston, Texas 77002, and its telephone number is (713) 225-3831. PAAC was incorporated in the State of Delaware in March 1995. 34 39 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1997, and as adjusted to reflect the Initial Offering, the other Refinancings and the Tacoma Acquisition. See "The Acquisition." The table should be read in conjunction with the historical financial information of the Company and the Tacoma Plant and the respective notes thereto and the unaudited pro forma information of the Company and the notes thereto appearing elsewhere in this Prospectus. See the notes to the Pro Forma Financial Information for an explanation of adjustments made to arrive at pro forma amounts. See also "Description of the Notes."
AS OF MARCH 31, 1997 ------------------------- ACTUAL AS ADJUSTED -------- ----------- (DOLLARS IN THOUSANDS) Short-term debt: Current portion of long-term debt......................... $ 128 $ 128 -------- -------- Total short-term debt............................. 128 128 -------- -------- Long-term debt: New Credit Facilities (1)................................. -- 100,000 9 1/4% Notes offered hereby............................... -- 200,000 Long-term debt............................................ 141,629 6,629 -------- -------- Total long-term debt.............................. 141,629 306,629 -------- -------- Stockholders' equity: Common Stock(2)........................................... 1 1 Additional paid in capital(3)............................. 61,124 66,624 Retained earnings (deficit)(4)............................ 11,308 (7,334) -------- -------- Total stockholders' equity........................ 72,433 59,291 -------- -------- Total capitalization.............................. $214,190 $366,048 ======== ========
- ------------ (1) Represents borrowings of $100.0 million in Term Loans. The Company did not incur Revolving Loans at closing in connection with the Refinancings and the Tacoma Acquisition but had $2.8 million in letters of credit outstanding at such time under the Revolving Facility. See "Description of Other Indebtedness -- New Credit Facilities." (2) Par value $.01 per share, 1,000 shares authorized, issued and outstanding. (3) Concurrent with the Tacoma Acquisition, Pioneer issued to OCC Tacoma the Pioneer Preferred Stock. As a result, Pioneer contributed additional paid-in capital of $5.5 million to PAAC. (4) Includes, on an As Adjusted basis, the extraordinary loss on the early extinguishment of debt associated with the Tender Offer for the $135.0 million of First Mortgage Notes, of $18.6 million, net of an income tax benefit of $12.4 million. 35 40 PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma financial information (the "Pro Forma Financial Information") of the Company has been derived from and should be read in conjunction with (i) the audited consolidated financial statements of the Company and the related notes thereto included elsewhere herein which statements have been audited by Deloitte & Touche LLP, independent auditors, whose report is included elsewhere herein and (ii) the audited financial statements of the Tacoma Plant and the related notes thereto included elsewhere herein, which statements have been audited by Arthur Andersen LLP, independent auditors, whose report is included elsewhere herein. The Pro Forma Financial Information has been prepared to illustrate the effects of the Initial Offering, the other Refinancings, the Tacoma Acquisition and the acquisition of T.C. Products. This pro forma financial information does not necessarily present the financial position or results of operations as they would have been if the companies involved had constituted one entity for the periods presented. See "Prospectus Summary -- The Tacoma Acquisition" and "The Acquisition." The pro forma balance sheet as of March 31, 1997 gives effect to the Initial Offering, the other Refinancings and the Tacoma Acquisition as if they had occurred on March 31, 1997. The pro forma statement of operations for the year ended December 31, 1996 gives effect to the Initial Offering, the other Refinancings, the Tacoma Acquisition and the acquisition of T.C. Products as if they had occurred on January 1, 1996. The pro forma statement of operations for the three months ended March 31, 1997 gives effect to the Initial Offering, the other Refinancings and the Tacoma Acquisition as if they had occurred on January 1, 1997. The pro forma statement of operations for the three months ended March 31, 1996 gives effect to the Initial Offering, the other Refinancings, the Tacoma Acquisition and the acquisition of T.C. Products as if they had occurred on January 1, 1996. The acquisition of T.C. Products was effective July 1, 1996 and was accounted for using the purchase method. The Pro Forma Financial Information is not necessarily indicative of either future results of operations or the results that might have occurred if the foregoing transactions had been consummated on the indicated date. The Tacoma Acquisition is accounted for using the purchase method. The total purchase price of the Tacoma Acquisition will be allocated to the Tacoma Facility's assets and liabilities based upon the estimated fair value of the assets and liabilities being acquired. The pro forma adjustments reflected in the Pro Forma Financial Information are based upon information available as of the date hereof, while the actual adjustments will be based upon evaluations and estimates of fair values at the time of closing of the Tacoma Acquisition. Accordingly, there can be no assurance that the actual adjustments will not differ significantly from the pro forma adjustments reflected in the Pro Forma Financial Information. The pro forma adjustments reflect certain plans and assumptions of management of the Company. No assurance can be given that such plans will be implemented as now contemplated or that such assumptions will prove to be accurate. 36 41 PRO FORMA BALANCE SHEET AS OF MARCH 31, 1997 (UNAUDITED)
ACTUAL PRO FORMA ------------------- ------------------------- TACOMA AS COMPANY PLANT ADJUSTMENTS ADJUSTED -------- ------- ----------- -------- (DOLLARS IN THOUSANDS) ASSETS Current assets Cash........................................ $ 14,640 $ 6 $ 30,125(a) $ 44,771 Accounts receivable, net.................... 18,438 -- 18,438 Due from parent............................. 2,840 -- 2,840 Inventories................................. 8,896 5,181 1,781(b) 15,858 Prepaid expenses............................ 806 1,990 (1,447)(c) 1,349 -------- ------- --------- -------- Total current assets................ 45,620 7,177 30,459 83,256 Property, plant and equipment, net............ 92,224 60,695 18,480(d) 171,399 Investment in and advances to unconsolidated subsidiary.................................. 28,553 -- 28,553 Other assets, net............................. 19,268 794 19,233(e) 39,295 Excess cost over the fair value of net assets acquired, net............................... 105,930 -- 15,020(f) 120,950 -------- ------- --------- -------- Total assets........................ $291,595 $68,666 $ 83,192 $443,453 ======== ======= ========= ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Accounts payable............................ $ 17,677 $ 2,104 $ (2,104)(g) $ 17,677 Accrued liabilities......................... 21,614 3,037 (3,037)(h) 21,614 Returnable deposits......................... 3,175 -- 3,175 Current portion of long-term debt........... 128 -- 128 -------- ------- --------- -------- Total current liabilities........... 42,594 5,141 (5,141) 42,594 Long-term debt, less current maturities....... 141,629 -- (135,000)(i) 6,629 Term Loans.................................. -- -- 100,000(j) 100,000 9 1/4% Senior Secured Notes due 2007........ -- -- 200,000(j) 200,000 Returnable deposits........................... 3,272 -- 3,272 Accrued pension and other employee benefits... 14,555 -- 14,555 Deferred income taxes......................... -- 2,384 (2,384)(k) -- Other long-term liabilities................... 17,112 27,924 (27,924)(l) 17,112 Stockholder's equity..................... 72,433 33,217 (46,359)(m) 59,291 -------- ------- --------- -------- Total liabilities and stockholder's equity............................ $291,595 $68,666 $ 83,192 $443,453 ======== ======= ========= ========
(see footnotes on following page) 37 42 NOTES TO PRO FORMA BALANCE SHEET AS OF MARCH 31, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS) (a) Excess cash after payment of purchase price and related acquisition and financing costs. (b) Elimination of the last in first out ("LIFO") reserve from the Tacoma Plant's balance sheet as the Company uses the first in first out ("FIFO") or average cost methods for inventory valuation. (c) Reflects the following: (1) Elimination of the Tacoma Plant's deferred taxes as the transaction is an asset purchase.......................... $(1,249) (2) Elimination of OCC Tacoma's prepaid pension expense......... (198) ------- $(1,447) =======
(d) Adjustment to fair value of acquired property, plant and equipment in accordance with the purchase method of accounting. (e) Reflects the following: (1) Capitalization of transaction and financing costs........... $10,875 (2) Write-off of existing financing costs....................... (4,070) (3) Deferred tax benefit on extraordinary item.................. 12,428 ------- $19,233 =======
(f) Addition of excess of cost over the fair value of net assets acquired. (g) Elimination of accounts payable not assumed by the Company in the Tacoma Acquisition. (h) Elimination of accrued liabilities not assumed by the Company in the Tacoma Acquisition. (i) Repurchase of existing 13 3/8% First Mortgage Notes. (j) Debt incurred under the Offering and the Term Loans in connection with the other Refinancings and the Tacoma Acquisition. (k) Elimination of deferred taxes as the transaction is an asset purchase. (l) Elimination of other long-term liabilities not assumed by the Company in the Tacoma Acquisition. (m) Reflects the following: (1) Elimination of the Tacoma Plant's historical equity in accordance with the purchase method of accounting......... $(33,217) (2) Equity contribution by Pioneer for preferred stock issued by Pioneer to OCC Tacoma as part of the purchase price....... 5,500 (3) Extraordinary item, early extinguishment of debt, net of applicable tax............................................ (18,642) -------- $(46,359) ========
38 43 PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
ACTUAL PRO FORMA ------------------- ------------------------------------------- TACOMA T.C. PRODUCTS AS COMPANY PLANT ACQUISITION(1) ADJUSTMENTS(2) ADJUSTED -------- ------- -------------- -------------- -------- (DOLLARS IN THOUSANDS) Revenues............................ $183,326 $73,715 $4,255 $5,942(a) $267,238 Cost of sales....................... 126,739 52,420 2,550 (29)(b) 181,680 -------- ------- ------ ------ -------- Gross profit........................ 56,587 21,295 1,705 5,971 85,558 Selling, general and administrative expenses.......................... 23,528 1,782 900 997(c) 27,207 -------- ------- ------ ------ -------- Operating income.................... 33,059 19,513 805 4,974 58,351 Equity in net loss of unconsolidated subsidiary........................ 2,607 -- -- -- 2,607 Interest expense, net............... 17,290 -- 271 8,829(d) 26,390 Other income (expense), net......... 1,684 (2,209) 11 2,216(e) 1,702 -------- ------- ------ ------ -------- Income before income taxes and extraordinary item................ 14,846 17,304 545 (1,639) 31,056 Provision for income taxes.......... 6,735 6,059 241 (655)(f) 12,380 -------- ------- ------ ------ -------- Income before extraordinary item.... $ 8,111 $11,245 $ 304 $ (984) $ 18,676 ======== ======= ====== ====== ========
(see footnotes on following page) 39 44 NOTES TO PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (DOLLARS IN THOUSANDS) (1) Reflects the pro forma financial results of T.C. Products for the period of January 1, 1996 to July 1, 1996, the period prior to ownership by the Company. (2) Reflects the adjustments to the Tacoma Plant's operating results to reflect operations as part of the Company: (a) Reflects the following: (1) Elimination of freight costs associated with the sale of 100,000 tons per year of chlorine shipped to the Gulf Coast for which OCC Tacoma will bear the cost..................... $ 6,394 (2) Adjustment to sales to OCC Tacoma for the difference between historical prices and Gulf Coast prices..................... 60 (3) Additional 5% commission to be paid to OxyChem on OxyChem's national accounts to be serviced by the Company............. (512) -------- $ 5,942 ========
(b) Reflects the following: (1) Elimination of the impact of LIFO accounting previously used by the Tacoma Plant as the Company uses FIFO or average cost methods of accounting for inventory valuation............... $ 652 (2) Additional depreciation expense with respect to the properties, plant and equipment purchased in connection with the Tacoma Acquisition using the straight-line method over an average life of 20 years................................. 351 (3) Elimination of operating lease expense for equipment capitalized by the Company which was previously leased by OCC Tacoma.................................................. (1,532) (4) Incremental insurance costs................................. 500 -------- $ (29) ========
(c) Reflects the following: (1) Elimination of OxyChem corporate allocations................ $ (1,782) (2) Addition of the Company's incremental selling, general and administrative expenses..................................... 750 (3) Additional amortization expense with respect to intangible assets purchased in connection with the Tacoma Acquisition using the straight-line method over periods of 5 to 25 years....................................................... 2,029 -------- $ 997 ========
(d) Incremental interest expense related to the Term Loans with an assumed interest rate of 8.375% and to the Notes with an interest rate of 9.25%. A 0.25% change in the interest rate applicable to the Term Loans would change pro forma interest expense by $250. (e) Reflects the following: (1) Elimination of environmental expense associated with the Tacoma Plant's accrual of known environmental matters....... $ 1,932 (2) Elimination of fees related to the Tacoma Plant's sales of receivables................................................. 377 (3) Elimination of amortization of deferred gain on equipment capitalized by the Company, which was previously leased by the Tacoma Plant............................................ (93) -------- $ 2,216 ========
(f) Represents the tax effect of all pro forma adjustments. 40 45 PRO FORMA STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
ACTUAL PRO FORMA ------------------ ----------------------- TACOMA AS COMPANY PLANT ADJUSTMENTS ADJUSTED ------- ------- ----------- -------- (DOLLARS IN THOUSANDS) Revenues........................................... $38,743 $18,738 $ 1,065(a) $58,546 Cost of sales...................................... 29,003 13,590 (121)(b) 42,472 ------- ------- ------- ------- Gross profit....................................... 9,740 5,148 1,186 16,074 Selling, general and administrative expenses....... 6,170 269 426(c) 6,865 ------- ------- ------- ------- Operating income................................... 3,570 4,879 760 9,209 Equity in net loss of unconsolidated subsidiary.... 1,055 -- 1,055 Interest expense, net.............................. 4,458 -- 2,207(d) 6,665 Other income, net.................................. 231 542 (540)(e) 233 ------- ------- ------- ------- Income (loss) before income taxes and extraordinary item............................................. (1,712) 5,421 (1,987) 1,722 Provision for income taxes......................... 178 1,898 (795)(f) 1,281 ------- ------- ------- ------- Income (loss) before extraordinary item............ $(1,890) $ 3,523 $(1,192) $ 441 ======= ======= ======= =======
(see footnotes on following page) 41 46 NOTES TO PRO FORMA STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS) (a) Reflects the following: (1) Elimination of freight costs associated with the sale of 100,000 tons per year of chlorine shipped to the Gulf Coast for which OCC Tacoma will bear the cost..................... $ 793 (2) Reclassification of freight rebate from other income to offset freight costs included in revenues................... 586 (3) Adjustment to sales to OCC Tacoma for the difference between historical prices and Gulf Coast prices..................... (186) (4) Additional 5% commission to be paid to OxyChem on OxyChem's national accounts to be serviced by the Company............. (128) ------ $1,065 ======
(b) Reflects the following: (1) Elimination of the impact of LIFO accounting previously used by the Tacoma Plant as the Company uses FIFO or average cost methods of accounting for inventory valuation............... $ 101 (2) Additional depreciation expense with respect to the properties, plant and equipment purchased in connection with the Tacoma Acquisition using the straight-line method over an average life of 20 years................................. 36 (3) Elimination of operating lease expense for the equipment capitalized by the Company which was previously leased by OCC Tacoma.................................................. (383) (4) Incremental insurance costs................................. 125 ------ $ (121) ======
(c) Reflects the following: (1) Elimination of OxyChem corporate allocations................ $ (269) (2) Addition of the Company's incremental selling, general and administrative expenses..................................... 188 (3) Additional amortization expense with respect to intangible assets purchased in connection with the Tacoma Acquisition using the straight-line method over periods of 5 to 25 years....................................................... 507 ------ $ 426 ======
(d) Incremental interest expense related to the Term Loans with an assumed interest rate of 8.375% and to the Notes with an interest rate of 9.25%. (e) Reflects the following: (1) Elimination of fees related to the Tacoma Plant's sales of receivables................................................. $ 69 (2) Elimination of amortization of deferred gain on equipment capitalized by the Company, which was previously leased by the Tacoma Plant............................................ (23) (3) Reclassification of freight rebate to revenues to offset freight costs............................................... (586) ------ $ (540) ======
(f) Represents the tax effect of all pro forma adjustments. 42 47 PRO FORMA STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
ACTUAL PRO FORMA ----------------- ------------------------------------------------ TACOMA T.C. PRODUCTS AS COMPANY PLANT ACQUISITION(1) ADJUSTMENTS(2) ADJUSTED ------- ------- -------------- -------------- ----------- (DOLLARS IN THOUSANDS) Revenues........................... $44,292 $17,504 $2,128 $1,463(a) $65,387 Cost of sales...................... 30,797 13,065 1,275 (119)(b) 45,018 ------- ------- ------ ------ ------- Gross profit....................... 13,495 4,439 853 1,582 20,369 Selling, general and administrative expenses......................... 6,090 446 450 249(c) 7,235 ------- ------- ------ ------ ------- Operating income................... 7,405 3,993 403 1,333 13,134 Equity in net loss of unconsolidated subsidiary........ 110 -- -- 110 Interest expense, net.............. 3,944 -- 136 2,207(d) 6,287 Other income (expense), net........ 89 (599) 6 556(e) 52 ------- ------- ------ ------ ------- Income before income taxes and extraordinary item............... 3,440 3,394 273 (318) 6,789 Provision for income taxes......... 2,028 1,189 121 (127)(f) 3,211 ------- ------- ------ ------ ------- Income before extraordinary item... $ 1,412 $ 2,205 $ 152 $ (191) $ 3,578 ======= ======= ====== ====== =======
(see footnotes on following page) 43 48 NOTES TO PRO FORMA STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) (DOLLARS IN THOUSANDS) (1) Reflects the pro forma financial results of T.C. Products for the period of January 1, 1996 to July 1, 1996, the period prior to ownership by the Company. (2) Reflects the adjustments to the Tacoma Plant's operating results to reflect operations as part of the Company: (a) Reflects the following: (1) Elimination of freight costs associated with the sale of 100,000 tons per year of chlorine shipped to the Gulf Coast for which OCC Tacoma will bear the cost..................... $1,602 (2) Additional 5% commission to be paid to OxyChem on OxyChem's national accounts to be serviced by the Company............. (139) ------ $1,463 ======
(b) Reflects the following: (1) Elimination of the impact of LIFO accounting previously used by the Tacoma Plant as the Company uses FIFO or average costs methods of accounting for inventory valuation......... $ (75) (2) Additional depreciation expense with respect to the properties, plant and equipment purchased in connection with the Tacoma Acquisition using the straight-line method over an average life of 20 years................................. 214 (3) Elimination of operating lease expense for the equipment capitalized by the Company which was previously leased by OCC Tacoma.................................................. (383) (4) Incremental insurance costs................................. 125 ------ $ (119) ======
(c) Reflects the following: (1) Elimination of OxyChem corporate allocations................ $ (446) (2) Addition of the Company's incremental selling, general and administrative expenses..................................... 188 (3) Additional amortization expense with respect to intangible assets purchased in connection with the Tacoma Acquisition using the straight-line method over periods of 5 to 25 years....................................................... 507 ------ $ 249 ======
(d) Incremental interest expense related to the Term Loans with an assumed interest rate of 8.375% and to the Notes with an interest rate of 9.25%. (e) Reflects the following: (1) Elimination of environmental expense associated with the Tacoma Plant's accrual of known environmental matters....... $ 483 (2) Elimination of fees related to the Tacoma Plant's sales of receivables................................................. 96 (3) Elimination of amortization of deferred gain on equipment capitalized by the Company, which was previously leased by the Tacoma Plant............................................ (23) ------ $ 556 ======
(f) Represents the tax effect of all pro forma adjustments. 44 49 SELECTED HISTORICAL FINANCIAL DATA The following table sets forth selected historical financial data of the Predecessor Company for the years ended December 31, 1992, 1993, and 1994 and the period from January 1, 1995 through April 20, 1995. Such data were derived from the Predecessor Company's financial statements, which were audited by Ernst & Young LLP, independent auditors, except for the financial statements of certain of the Company's investments, which were audited by other independent auditors. The table also sets forth the historical financial information of the Company for the period from March 6, 1995 ("Inception") through December 31, 1995 and the year ended December 31, 1996. Such data were audited by Deloitte & Touche LLP. For comparative purposes the combined year ended December 31, 1995 has been included. The table also sets forth the historical financial information of the Company for the three months ended March 31, 1996 and 1997. The consolidated balance sheets at March 31, 1996 and March 31, 1997 and the consolidated statements of operations for the three months ended March 31, 1996 and March 31, 1997 are unaudited and reflect all adjustments, consisting of normal recurring items, which management considers necessary for a fair presentation. Operating results for the first three months of 1997 are not necessarily indicative of results to be expected for the year ending December 31, 1997. The data should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Prospectus. The following table should also be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations." 45 50 SELECTED HISTORICAL FINANCIAL DATA
PREDECESSOR COMPANY -------------------------------------------------- PERIOD FROM PERIOD FROM INCEPTION YEAR ENDED DECEMBER 31, JANUARY 1, 1995 THROUGH ------------------------------ THROUGH APRIL 20, DECEMBER 31, 1992 1993 1994(1) 1995 1995 -------- -------- -------- ----------------- ------------ (DOLLARS IN THOUSANDS, EXCEPT RATIOS) INCOME STATEMENT DATA: Revenues........................... $157,401 $151,191 $167,217 $ 57,848 $142,908 Cost of sales...................... 126,149 131,711 134,556 37,400 98,175 -------- -------- -------- -------- -------- Gross profit....................... 31,252 19,480 32,661 20,448 44,733 Selling, general and administrative expenses......................... 22,602 21,850 22,529 7,047 19,836 -------- -------- -------- -------- -------- Operating income (loss)............ 8,650 (2,370) 10,132 13,401 24,897 Equity in net income (loss) of unconsolidated subsidiary........ 26 1,149 183 204 -- Interest expense, net.............. 8,189 7,551 6,407 1,665 12,905 Settlement of litigation and insurance claims, net............ 2,755 8,360 3,326 -- -- Other income (expense), net........ 1,104 954 1,154 (319) 637 -------- -------- -------- -------- -------- Income (loss) before taxes and extraordinary items.............. 4,346 542 8,388 11,621 12,629 Income tax provision............... 1,765 486 3,242 4,809 6,208 -------- -------- -------- -------- -------- Income (loss) before extraordinary item............................. 2,581 56 5,146 6,812 6,421 Extraordinary item, net of applicable tax(4)................ -- -- -- 3,420 -- -------- -------- -------- -------- -------- Net income (loss).................. $ 2,581 $ 56 $ 5,146 $ 3,392 $ 6,421 ======== ======== ======== ======== ======== BALANCE SHEET DATA (AT PERIOD END): Working capital.................... $ 7,697 $ (5,521) $ (4,351) $ 10,013 $ 10,450 Total assets....................... 165,915 154,922 163,039 165,329 264,731 Total debt, redeemable preferred stock and redeemable stock put warrants......................... 76,848 67,709 57,865 57,677 135,000 Common stockholders' equity........ 20,165 19,721 23,102 26,370 55,427 OTHER FINANCIAL DATA: Capital expenditures............... 6,652 5,888 5,681 3,447 13,556 Depreciation and amortization...... 12,992 13,446 13,595 4,490 12,274 Ratio of earnings to fixed charges(5)....................... 1.4x -- 1.8x 5.1x 1.8x ADDITIONAL INFORMATION: EBITDA(6).......................... $ 25,501 $ 20,390 $ 28,207 $ 17,572 $ 37,808 COMBINED THREE MONTHS ENDED YEAR ENDED YEAR ENDED --------------------- DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, 1995(2) 1996(3) 1996 1997 ------------ ------------ --------- --------- (DOLLARS IN THOUSANDS, EXCEPT RATIOS) INCOME STATEMENT DATA: Revenues........................... $200,756 $183,326 $ 44,292 $ 38,743 Cost of sales...................... 135,575 126,739 30,797 29,003 -------- -------- -------- -------- Gross profit....................... 65,181 56,587 13,495 9,740 Selling, general and administrative expenses......................... 26,883 23,528 6,090 6,170 -------- -------- -------- -------- Operating income (loss)............ 38,298 33,059 7,405 3,570 Equity in net income (loss) of unconsolidated subsidiary........ 204 (2,607) (110) (1,055) Interest expense, net.............. 14,570 17,290 3,944 4,458 Settlement of litigation and insurance claims, net............ -- -- -- -- Other income (expense), net........ 318 1,684 89 231 -------- -------- -------- -------- Income (loss) before taxes and extraordinary items.............. 24,250 14,846 3,440 (1,712) Income tax provision............... 11,017 6,735 2,028 178 -------- -------- -------- -------- Income (loss) before extraordinary item............................. 13,233 8,111 1,412 (1,890) Extraordinary item, net of applicable tax(4)................ 3,420 -- -- -- -------- -------- -------- -------- Net income (loss).................. $ 9,813 $ 8,111 $ 1,412 $ (1,890) ======== ======== ======== ======== BALANCE SHEET DATA (AT PERIOD END): Working capital.................... $ 10,450 $ 3,334 $ 7,201 $ 3,026 Total assets....................... 264,731 291,010 269,808 291,595 Total debt, redeemable preferred stock and redeemable stock put warrants......................... 135,000 141,757 135,000 141,757 Common stockholders' equity........ 55,427 74,323 58,264 72,433 OTHER FINANCIAL DATA: Capital expenditures............... 17,003 17,121 3,907 2,337 Depreciation and amortization...... 16,764 15,695 4,217 4,080 Ratio of earnings to fixed charges(5)....................... 2.4x 1.7x 1.7x 0.6x ADDITIONAL INFORMATION: EBITDA(6).......................... $ 55,380 $ 50,438 $ 11,711 $ 7,881
(see footnotes on following page) 46 51 NOTES TO SELECTED HISTORICAL FINANCIAL DATA (1) GPS was acquired in May 1994 and therefore the results of operations for the year ended December 31, 1994 include the results of operations from the date of acquisition in May 1994 through December 31, 1994. GPS generated third party sales during such partial period of $9.4 million. (2) For comparative purposes the combined results of operations for the year ended December 31, 1995 include the Company's operating results for the period from Inception through December 31, 1995 and the Predecessor Company's operating results from January 1, 1995 through April 20, 1995. The Company believes that this provides a meaningful basis for comparison. (3) Kemwater was formed in connection with the acquisition of KWT in February 1996 to continue the business activities previously conducted by Imperial West and, accordingly, the results of operations for the year ended December 31, 1996 include the results of operations of Imperial West only for the month of January 1996. Since the acquisition, 50% of Kemwater's results of operations are included as equity in net loss of unconsolidated subsidiary. Prior to the formation of Kemwater, the financial statements of Imperial West were consolidated with the Company's consolidated financial statements. (4) An extraordinary item of $3.4 million, net of an income tax benefit of $2.1 million, was due to costs incurred and previously capitalized costs written off, pertaining to debt refinanced by the Predecessor Company prior to the PAI Acquisition. (5) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) before provision for income taxes, excluding equity in net income (loss) of subsidiaries owned 50% or less by the Company, plus fixed charges net of capitalized interest. Fixed charges consist of interest expense, including capitalized interest, the portion of rental expense representative of an interest factor from operating leases and the amortization of financing costs. The Company's earnings were insufficient to cover total fixed charges for the year ended December 31, 1993. The coverage deficiency was $0.6 million. (6) EBITDA is defined as earnings before interest, income taxes, depreciation and amortization and equity in net income (loss) of unconsolidated subsidiaries and is presented because the Company believes that it provides useful information regarding its ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other combined income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of the Company's profitability or liquidity. 47 52 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth revenues of the Company for the periods indicated.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------------------- ------------------ PREDECESSOR COMPANY COMBINED(1) ----------- ----------- 1994 1995 1996(2) 1996(2) 1997 ----------- ----------- -------- ------- ------- (DOLLARS IN THOUSANDS) Revenues PCAC.............................. $ 88,907 $118,298 $129,570 $32,913 $28,574 All-Pure.......................... 47,872 49,549 51,317 8,940 10,169 Kemwater/Imperial West(3)......... 30,438 32,909 2,439 2,439 -- -------- -------- -------- ------- ------- Total revenues............ $167,217 $200,756 $183,326 $44,292 $38,743 ======== ======== ======== ======= =======
- --------------- (1) For comparative purposes the combined results of operations for the year ended December 31, 1995 include the Predecessor Company's operating results from January 1, 1995 through April 20, 1995 and the Company's operating results for the period from Inception through December 31, 1995. The Company believes that this provides a meaningful basis for comparison. (2) T.C. Products was acquired by All-Pure in July 1996 and, accordingly, the results of operations for the year ended December 31, 1996 includes the results of operations since the acquisition date. T.C. Products generated third party sales during such period of $5.1 million. (3) Kemwater was formed in connection with the acquisition of KWT in February 1996 to continue the business activities previously conducted by Imperial West and, accordingly, the results of operations for the year ended December 31, 1996 include the results of operations of Imperial West only for the month of January 1996. Since the acquisition, 50% of Kemwater's results of operations are included as equity in net loss of unconsolidated subsidiary. Prior to the formation of Kemwater, the financial statements of Imperial West were consolidated with the Company's consolidated financial statements. GENERAL The Company manufactures and markets chlorine and caustic soda in the United States and is a major manufacturer and marketer of several related downstream water treatment products. The Company generates revenues principally through PCAC and All-Pure. The Company also owns a 50% unconsolidated interest in Kemwater, which was formed in February 1996 to continue the operations previously conducted by the Company's Imperial West subsidiary and to operate the business acquired through the acquisition of KWT. Chlorine and caustic soda markets and profitability have been, and are likely to continue to be, cyclical. Periods of high demand, high capacity utilization and increasing operating margins tend to result in new plant investments and increased production until supply exceeds demand, followed by periods of declining prices and declining capacity utilization until the cycle is repeated. In addition, markets for chlorine and caustic soda are affected by general economic conditions, both in the United States and elsewhere in the world, and a downturn in the economy could have a material adverse effect on the Company's operations and its cash flows. Large quantities of chlorine are not typically stored on- or off-site. Chlor-alkali production rates are therefore typically based on short-term chlorine demand (typically one month). However, chlor-alkali plants do not achieve optimum cost efficiency if production rates are cycled. The maintaining of steady production rates is made difficult by the cyclical nature of the chlor-alkali business, which is at times exacerbated by the fact that the price and demand curves for chlorine differ from those of caustic soda. Peak and trough demand for chlorine and caustic soda rarely coincide and caustic soda demand, in the past, has tended to trail chlorine 48 53 demand into and out of economic growth cycles. In addition, in recent years the end markets for chlorine and caustic soda have increasingly diverged. Chlorine demand over the last three years has experienced steady growth, following trends in PVC, urethane intermediates and water treatment markets. This increased demand has been partially offset by declining chlorine use in the pulp and paper industry and as a feedstock in the production of CFCs due to regulatory pressures. Due to increased demand, published chlorine prices have risen from approximately $145 per ton during 1994 to approximately $160 per ton at the end of 1996. As chlorine demand continued to be strong in 1996, the industry's operating rate remained high. However, this resulted in an overproduction of chlorine's co-product, caustic soda, relative to demand. This oversupply led to decreasing caustic soda prices, offsetting increased chlorine prices and resulting in ECU netbacks (net selling prices) decreasing during 1996 from 1995 levels. To achieve operating efficiencies and to help mitigate the effects of cyclicality on the Company's business, the Company has pursued a strategy of converting chlorine and caustic soda into products that are used in markets with steady demand, particularly water treatment chemicals. In pursuit of this strategy, the Predecessor Company acquired Imperial West and All-Pure in 1990 and GPS in 1994, and the Company acquired T.C. Products in July 1996, each of which is a major manufacturer and distributor of water treatment chemicals such as iron chlorides, aluminum sulfate, repackaged chlorine and bleach, primarily in the western United States. Due in part to these acquisitions and the improved chlorine market, the Predecessor Company and the Company increased ECU capacity utilization rates over the last seven years from 93% in 1990 to approximately 100% in 1996. On February 2, 1996, Imperial West participated in the acquisition of KWT from a subsidiary of Kemira. KWT produces specialty and commodity inorganic coagulants, including polyaluminum chlorides, aluminum sulfate, sodium aluminate and ferric sulfate, at its plant in Savannah, Georgia for sale to the water treatment market in the eastern United States and the Caribbean. The combined operations of Imperial West and KWT are now conducted by Kemwater, 50% of the common stock of which is held by a subsidiary of PAAC and 50% of the common stock which is owned by a subsidiary of Pioneer. A subsidiary of PAAC also owns all of the outstanding shares of Kemwater's preferred stock. The Company's investment in Kemwater is accounted for by the equity method. Effective July 1, 1996, All-Pure acquired T.C. Products through the acquisition of its parent, T.C. Holdings, Inc. from its shareholders. Consideration for the acquisition consisted of net cash payments of $5.5 million and All-Pure subordinated notes with an aggregate principal amount of $4.5 million due July 30, 2001, subject to prepayment. The Company's existing cash balances were used to fund the cash portion of the purchase price. T.C. Products continues to manufacture and package bleach and related products at its plant in Tacoma, Washington. The purchase of T.C. Products has been accounted for as a purchase transaction and, accordingly, the consolidated financial statements subsequent to July 1, 1996 reflect the purchase price, including transaction costs, allocated to tangible and intangible assets acquired and liabilities assumed, based on their fair values as of July 1, 1996, and include the results of operations of T.C. Products subsequent to such date. THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996 Revenues Revenues decreased by $5.5 million, or approximately 13%, to $38.7 million for the three months ended March 31, 1997 from $44.3 million for the three months ended March 31, 1996. Revenues at PCAC decreased by $4.3 million, or approximately 13%, to $28.6 million as a result of both ECU pricing pressure and lower unit sales volumes of caustic soda. ECU prices declined by approximately 2%, which reflects a $40 per ton decrease in caustic soda prices offset partially by a $36 per ton increase in chlorine prices. Caustic soda sales also declined as a result of a 21% decrease in unit sales volumes (21,000 tons) resulting from a lower emphasis on sales of lower priced product as well as weather related delays in Mississippi River barge 49 54 shipments due to flooding. Chlorine sales were higher in the first quarter of 1997 as compared to the first quarter of 1996, which reflects a higher chlorine sales price and relatively flat sales volume. Revenues for All-Pure increased 14%, or $1.2 million in the first quarter of 1997 compared to the same quarter a year ago. This increase was primarily related to the inclusion of T.C. Products, which the Company acquired in the second quarter of 1996. Cost of Sales Cost of sales decreased by $1.8 million, or approximately 6%, to $29.0 million for the three months ended March 31, 1997 from $30.8 million for the three months ended March 31, 1996. The decrease was primarily the result of lower sales volumes for caustic soda and chlorine, which was partially offset by the inclusion of T.C. Products. In addition, PCAC experienced higher power costs at St. Gabriel in the first quarter of 1997 as compared to the first quarter of 1996. Gross Profit Gross profit margin decreased from 30% during the first quarter of 1996 to approximately 25% during the first quarter of 1997. This decrease was a result of the lower sales volumes and higher production costs at PCAC described above. Selling, General and Administrative Selling, general and administrative expenses increased slightly to $6.2 million in the first quarter of 1997 from $6.1 million in the first quarter of 1996. The increase was primarily related to the inclusion of T.C. Products. Equity in Net Loss of Unconsolidated Subsidiary Equity in net loss of unconsolidated subsidiary increased by approximately $0.9 million for the three months ended March 31, 1997 due to increased losses sustained by Kemwater. Kemwater's profitability decreased as a result of higher raw material costs which it was unable to pass through to its customers. Interest Expense Interest expense increased by approximately $0.5 million to $4.4 million in the first quarter of 1997 from $3.9 million in the first quarter of 1996. The increase was primarily the result of the additional debt incurred with the T.C. Products acquisition in July 1996. Income (Loss) Before Taxes As a result of the above, income (loss) before income taxes decreased $5.1 million to a loss of $1.7 million for the three months ended March 31, 1997 from a net income of $3.4 million for the three months ended March 31, 1996. Income Tax Provision Provision for income taxes declined to $0.2 million in the first quarter of 1997 from $2.0 million in the first quarter of 1996 as a result of the decline in the Company's profitability outlined above. Taxable income is higher than book income due to the non-deductibility of amortization of the excess cost over the fair value of net assets acquired. A provision is recorded on the income statement based on taxable income; however, federal income taxes payable are reduced and paid-in capital is increased due to the utilization of the net operating loss carryforward. Net Income As a result of the factors outlined above, net income for the first quarter of 1997 declined to a net loss of $1.9 million from a net income of $1.4 million in the first quarter of 1996. 50 55 YEAR ENDED DECEMBER 31, 1996 COMPARED TO COMBINED YEAR ENDED DECEMBER 31, 1995 Revenues Revenues decreased by $17.4 million or approximately 9% to $183.3 million for 1996 compared to $200.8 million in 1995. The transfer of the Imperial West business to Kemwater in February 1996 caused a decrease in Imperial West's revenues of approximately $30.5 million. This decrease was partially offset by an $8.3 million increase in revenues at PCAC related to sales to Kemwater which, as a result of this change of ownership, are no longer eliminated in consolidation. Also affecting PCAC's 1996 as compared to 1995 revenues was a 9% increase in caustic soda sales volumes of 31,000 tons ($7.4 million), a 6% increase in chlorine sales volumes of 20,000 tons ($3.0 million) and an approximate 7% decrease in ECU sales prices ($10.6 million). Revenues for All-Pure in 1996 increased by $1.7 million, which included the impact of $5.4 million of revenues from the T.C. Products acquisition in July 1996, which was partially offset by a decrease in All-Pure sales volumes in 1996 as compared with 1995. Cost of Sales Cost of sales decreased by approximately $8.8 million, or 7%, to $126.7 in 1996 from $135.5 million in 1995. The decrease was the result of the transfer of the Imperial West operations to Kemwater ($20.5 million). Offsetting this decrease was an increase in manufacturing costs ($4.2 million), which was primarily related to increased electricity costs, and increased caustic soda and chlorine sales volume ($6.1 million). In addition, All-Pure's 1996 cost of sales were higher primarily as the result of the inclusion of T.C. Products which increased cost of sales by $3.1 million. Gross Profit Gross profit decreased by $8.6 million, or 13%, from $65.2 million in 1995 to $56.6 million in 1996. Gross margin decreased from 32% in 1995 to 31% in 1996. The decline was a result of a reduction of the factors outlined above. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased approximately $3.4 million to $23.5 million in 1996 due primarily to the transfer of Imperial West operations to Kemwater during 1996. Equity in Net Loss of Unconsolidated Subsidiaries Equity in net loss of unconsolidated subsidiaries represents the Company's 50% ownership interest in Kemwater which was formed in February 1996 as the result of the acquisition of KWT by Imperial West. Kemwater experienced a loss in 1996 as a result of increased competitive pressure in their markets. Interest Expense, Net Interest expense increased by $2.7 million or 19% to $17.3 million for 1996. This increase was a result of including a full year of interest expense for the debt incurred in connection with the PAI Acquisition in April 1995 as well as the debt incurred in financing the T.C. Products acquisition. Income Tax Provision Provision for income taxes was $6.7 million in 1996 with an effective tax rate of 45% as compared to $11.0 million in 1995, with an effective tax rate of 45%. The decrease in the income tax provision was primarily a result of the decrease in the Company's income before income tax and extraordinary item to $14.8 million for 1996 from $24.2 million in 1995. 51 56 Net Income Due to the factors described above, net income for the year ended December 31, 1996 decreased to $8.1 million from $9.8 million for 1995, which includes an extraordinary expense of $3.4 million for the write-off of financing costs. COMBINED YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Revenues Revenues increased by $33.5 million or 20% to $200.7 million for the 1995 period. This increase was primarily due to a $29.4 million increase in chlor-alkali sales at PCAC, resulting from an industry-wide strengthening of ECU prices. The average ECU price during the 1995 period increased 27% over the same period in 1994. Gross Profit Gross profit increased as a percentage of revenues to 32% in 1995 from 20% in 1994 due to a combination of increased revenues and lower raw material costs which more than offset higher transportation and other expenses and an inventory step-up related to the PAI Acquisition. Selling, General and Administrative Expense Selling, general and administrative expense increased by $4.4 million or 19% to $26.9 million for the year ended December 31, 1995. This increase was primarily the result of an acquisition by the Predecessor Company in May 1994, additional compensation pursuant to the Company's incentive compensation program, and increased amortization as a result of the PAI Acquisition. Interest Expense, Net Interest expense increased by $8.2 million or 127% to $14.6 million for the 1995 period from $6.4 million for 1994. This increase was a result of debt incurred with the PAI Acquisition. Income Before Taxes and Extraordinary Item As a result of the above, net income before taxes and extraordinary item increased by $15.9 million or 189% to $24.2 million of income for the year ended December 31, 1995 from $8.4 million for the year ended December 31, 1994. Income Tax Provision Provision for income taxes increased $7.8 million to $11.0 million for the year ended December 31, 1995 from $3.2 million for the comparable 1994 period due to higher income. Taxable income is higher than book income due to the non-deductibility of amortization of the excess cost over the fair value of the net assets acquired. A provision is recorded on the income statement; however, federal income taxes payable are reduced due to the utilization of the net operating loss carryforward. Extraordinary Item An extraordinary item of $3.4 million net of an income tax benefit of $2.1 million recorded during the 1995 period was due to costs incurred, and previously capitalized costs written off, pertaining to debt refinanced by the Predecessor Company in the 1995 period prior to the PAI Acquisition. Net Income As a result of the foregoing, net income increased 91% to $9.8 million. 52 57 LIQUIDITY AND CAPITAL RESOURCES The Company is highly leveraged. Concurrently with the closing of the Initial Offering and the Tacoma Acquisition, the Company entered into the New Credit Facilities. The New Credit Facilities consist of a $100.0 million senior Term Facility and a $35.0 million Revolving Facility, subject to borrowing base limitations that relate to the level of accounts receivable and inventory. As of March 31, 1997, on a pro forma basis after giving effect to the Initial Offering, the other Refinancing and the Tacoma Acquisition, the Company would have had outstanding indebtedness of approximately $306.8 million. The Company believes that cash flow from current and anticipated future levels of operations and, to a lesser extent, the availability under the Revolving Facility, will be adequate to make required payments of interest and principal on the indebtedness that is outstanding, as well as to fund its foreseeable capital expenditures and working capital requirements. The Company estimates that annualized cash interest of $26.9 million will be payable on the Notes and Term Loans. The Company anticipates that capital expenditures for 1997, excluding acquisitions, will be approximately $20.4 million, including approximately $4.1 million for environmental compliance matters. The Company believes that forecasted capital expenditures will permit it to maintain its facilities on a basis competitive within the industry through improved efficiency and throughput and continuation of high operating rates. The Company's belief that it will generate sufficient cash flow for its requirements is based upon, among other things, the assumptions that: (i) the Company's cash flow will be positive as a result of the continuing operating profitability of its business; (ii) the Company will invest in working capital in accordance with prior practices; (iii) the Company will not incur any material capital expenditures in excess of its business plan; and (iv) the Company has the benefit of a tax-sharing agreement with Pioneer which reduces the amount of taxes payable by the Company. Net Cash Provided by Operating Activities. During the year ended December 31, 1996, the Company generated $32.5 million in cash from operating activities from profitability, depreciation, the utilization of the NOL and a decrease in working capital (excluding the effects of the purchases of KWT and T. C. Products). During the three months ended March 31, 1997, the Company generated $3.6 million in cash for operating activities from depreciation and amortization. Net Cash Used in Investing Activities. Cash used in investing activities for the year ended December 31, 1996 was $29.2 million, primarily due to capital expenditures related to property, plant and equipment and the purchases of KWT and T.C. Products by the Company. Cash used in investing activities for the three months ended March 31, 1997 was $3.4 million, primarily due to such expenditures. Net Cash Used in Financing Activities. Cash used in financing activities for the year ended December 31, 1996 was $757,000, primarily due to a payment of dividends to Pioneer. There were no financing activities during the three months ended March 31, 1997. ACCOUNTING CHANGES The Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"), on January 1, 1996. SFAS No. 121 sets forth guidance on how to measure an impairment of long-lived assets and when to recognize such an impairment. The adoption of this standard did not have a material impact on the Company's financial position or results from operations. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 establishes new standards for computing and presenting earnings per share. The Company is required to adopt the provisions of SFAS No. 128 for its consolidated financial statements for the year ended December 31, 1997 and subsequent interim periods. Upon adoption, the standard also requires the restatement of all prior period earnings per share information presented. The adoption of SFAS No. 128 is not expected to have a material effect on the Company's earnings per share computations or disclosures. 53 58 BUSINESS GENERAL The Company is a manufacturer and marketer of chlorine and caustic soda in the United States and is a major manufacturer and marketer of several related downstream water treatment products. The Company conducts its business primarily through PCAC and All-Pure. The Company also owns a 50% unconsolidated joint venture interest in Kemwater (which effective in February 1996 succeeded to the operations of Imperial West). Pioneer owns the remaining 50% joint venture interest in Kemwater. INDUSTRY OVERVIEW The Company operates in chlor-alkali and chlor-alkali related industries. Chlorine and caustic soda are co-products, concurrently produced in a ratio of 1 to 1.1. An ECU consists of 1 ton of chlorine and 1.1 tons of caustic soda. Chlorine is used in the manufacture of over 15,000 products, comprising approximately 60% of all commercial chemistry, 85% of all pharmaceutical chemistry and 95% of all crop protection chemistry. Products manufactured with chlorine as a raw material include plastics, detergents, pharmaceuticals, water treatment chemicals and agricultural chemicals. Chlorine also is used directly in water disinfection applications. In the United States and Canada, virtually all public drinking water is made safe to drink by chlorination, and a significant portion of industrial and municipal waste water is treated by chlorine and chlorinated chemicals to kill water-borne pathogens and remove solids. The caustic soda market is even more diverse than that of chlorine. It is used in thousands of industrial and commercial processes (either as an essential raw material, as an intermediate or as a medium to control acidity) including metal smelting, petroleum production and refining, pulp and paper production and paint manufacturing. Caustic soda is combined with chlorine and water to produce bleach and is also used as an active ingredient in a wide variety of end use products, including detergents, rayon and cellophane. The following table sets forth certain information regarding the principal industry-wide applications for the Company's products.
PRODUCTS PRINCIPAL APPLICATIONS -------- ---------------------- Chlorine....................... Agricultural chemical and pharmaceutical manufacturing, steel, PVC and other plastics, detergents, paints, water purification, bleach, pulp and paper products, mining, textiles Caustic soda................... Cleaners, pulp and paper products, oil production and refining, rayon, cellophane, vegetable oils, cosmetics, aluminum, food processing, bleach, water treatment, mining Hydrochloric acid.............. Cleaning, mining, dyes, ink, titanium, textiles, rocket fuel, exotic metals, water treatment, oil production Hydrogen....................... Boiler and turbine fuel, chemical manufacturing, petroleum Calcium chloride............... Concrete formulation, dust control, pulp and paper products Iron chlorides................. Waste and potable water treatment, electronics Polyaluminum chlorides......... Waste and potable water treatment Sodium aluminate............... Catalyst production, paints, waste and potable water treatment Ferric sulfate................. Waste and potable water treatment Aluminum sulfate............... Waste and potable water treatment, pulp and paper products Bleach......................... Waste and potable water treatment, household and commercial cleaners, food processing, swimming pool treatment
The United States represents approximately one-fourth of world chlor-alkali production capacity, with approximately 12.9 million tons of chlorine and 13.9 million tons of caustic soda production capacity. OxyChem and The Dow Chemical Company are the two largest chlor-alkali producers in the United States, each with approximately one quarter of United States capacity. The remaining capacity is held by approximately 20 companies. Approximately 70% of United States chlor-alkali capacity is located on the Gulf Coast of Texas and Louisiana. The Company believes that following the Tacoma Acquisition it has 54 59 approximately 4.1% of U.S. chlor-alkali capacity. The Company believes that the chlorine and caustic soda currently produced at its Henderson facility provide a significant source of supply for the West Coast region, where the Company is also the largest supplier of chlorine and bleach for water treatment purposes and where Kemwater is the largest producer of iron chlorides. The Company believes the St. Gabriel and Tacoma facilities are leading suppliers of premium, low-salt grade caustic soda in their respective regions. The Company believes the Tacoma Facility is a significant producer of chlorine and caustic soda in the Pacific Northwest and will allow the Company to more efficiently supply its downstream operations in the western and northwestern United States. There has been a long-term downward trend in total North-American chlor-alkali production capacity as industry participants have closed inefficient production facilities. Since 1982, 29 United States facilities with an annual production capacity of approximately 3.4 million ECUs have been permanently shut down. As a result, total industry production capacity has decreased from a peak of approximately 14.2 million ECUs in 1982 to approximately 13.6 million ECUs in 1996. Over the same time period, there has been a long-term upward trend in capacity utilization, increasing from a low of approximately 62% in 1982 to approximately 99% in 1996. This trend is a result of the combination of decreasing industry production capacity and increasing chlor-alkali demand. The Company believes that the chlor-alkali capacity increases announced for completion in late 1997 will increase overall North-American capacity by approximately 2%, keeping pace with the overall projected chlorine demand increase. The Company anticipates that the global chlorine supply/demand balance will remain relatively stable over the next few years. The following graph highlights these trends. INDUSTRY CAPACITY AND UTILIZATION RATES [CAPACITY AND UTILIZATION RATES GRAPH] Source: The Chlorine Institute, Inc., industry and Company data. 55 60 Environmental pressures over the last five years have led to a substantial decline in chlorine demand in two major chlorine markets -- pulp and paper and CFCs. Usage of chlorine by the pulp and paper industry declined by 36%, from 1.2 million tons in 1991 to 771,610 tons in 1996. The use of chlorine for the production of CFCs has been almost completely discontinued. The Company believes that the current level of chlorine demand by the pulp and paper industry will continue to decline over the next five years. The declines in these markets have been offset by the growth in chlorine demand for PVC, polycarbonate resins and isocyanates, water treatment applications and engineering plastics. In addition, the Company believes that as the global economy continues to improve, export demand for chlorine derivatives should increase. The Company believes that caustic soda demand will grow at a slower pace than chlorine demand. Industry sources estimate that world chlor-alkali demand will grow by approximately one to two percent annually. The chlorine and caustic soda markets are cyclical markets that are sensitive to relative changes in supply and demand, which are in turn affected by general economic conditions, capacity additions and other factors. Over the last five years, the market for PVC, the largest use of chlorine, has experienced steady growth, resulting in strong demand for chlorine. However, the use of chlorine as a bleaching agent in the pulp and paper industry and as feedstock in the production of CFCs has been reduced significantly due to regulatory pressures. As a result of these factors and a general decline in economic growth in the early 1990s, the North American chlor-alkali industry experienced declining prices, as ECU prices fell by over 52% from $389 per ECU in the fourth quarter of 1989 to $185 per ECU in the second quarter of 1993. After a significant improvement in domestic economic growth, in early 1994 chlor-alkali markets experienced increased levels of demand. Limited new capacity was added during this time, resulting in greater capacity utilization and higher domestic and export prices for chlor-alkali products. These conditions continued in 1995 and the increase in demand enabled the Company and the industry in general to increase selling prices significantly at a time when operating costs generally did not increase. Toward the end of 1995, however, ECU prices began to decrease as strengthening demand for chlorine was offset by an oversupply of caustic soda. The industry has continued to operate at full capacity and management does not anticipate a significant increase in capacity over the next several years. The Company therefore believes that the previous volatility in ECU prices should moderate over such period. 56 61 The following graph presents industry-wide average annual ECU prices since 1976 and the Company's average annual ECU prices since 1991. INDUSTRY AVERAGE ANNUAL ECU PRICES Source: United States Commerce Department, industry and Company data. STRATEGY The Company's management team is pursuing a business strategy designed to capitalize on its competitive strengths in terms of its marketing expertise, production and distribution capabilities and geographic focus. The Company seeks to manage effectively the intrinsic cyclicality of the chlor-alkali industry while continuing to grow and improve profitability by pursuing a strategy which includes the following principal elements: - Focusing on the Merchant Chlor-Alkali Market. The Company is dedicated to serving the merchant chlor-alkali market, acting as a reliable source of supply of chlorine and caustic soda. The Company is committed to being flexible and responsive in periods of volatile chlor-alkali demand, making it the preferred supplier for many of its customers. Unlike its major competitors, the Company does not compete with its PVC customers and, as a result, is viewed as a preferred, non-competing source of raw materials. - Optimizing Plant Efficiencies through High Capacity Utilization. The Company seeks to maximize profitability by achieving a constant flow of product through its plants. The Company strives to maintain a steady demand for its output through (i) programs aimed primarily at growing markets such as PVC and water treatment; (ii) renewable contracts with major customers and the Chlorine Purchase Agreement with OCC Tacoma; (iii) direct linkage with major customers via pipelines, including the Pipeline Project, a proposed seven-mile liquid chlorine pipeline from the St. Gabriel facility expected to be completed in 1998; and (iv) captive demand for chlorine and caustic soda through its downstream water treatment operations. As a result of these actions, the Company's 57 62 Henderson and St. Gabriel chlor-alkali plants have operated at 101%, 100% and 100% capacity utilization during 1994, 1995 and 1996, respectively, up from 93% in 1990. - Improving Cost Efficiency. The Company continually seeks to improve its cost competitiveness through a combination of productivity enhancements, strict operating cost controls, capital improvements and maintenance of high capacity utilization rates. Despite inflation, the Company's cash production costs per ECU decreased by 5% from 1990 through 1996, while ECU production per employee increased by 20%. In addition, the Company seeks to reduce distribution costs and improve plant operating efficiency through the efficient use of its strategic locations with deep water port facilities, direct pipeline connections to customers and opportunistic product exchanges with chlor-alkali producers in other regions. - Focusing on Geographic Diversity and Market Penetration. The Company's products are manufactured and marketed in a number of markets, providing a wide base for future growth and distribution to help mitigate the effects of regional and economic fluctuations. Following the Tacoma Acquisition, the Company has major chlor-alkali facilities in three states (Louisiana, Nevada and Washington) and downstream water treatment chemical processing plants serving several distinct areas of the country. The Company is well-positioned to direct its chlor-alkali output to additional areas while more efficiently supplying the growth in its own downstream operations in the western, northwestern and southeastern United States. Through focused expansion, the Company has been able to penetrate new and outlying market areas while maintaining its strong presence in the Gulf Coast region and areas west of the Rocky Mountains. - Expanding Water Treatment Operations. The Company has developed downstream water treatment operations whose steady requirements for chlorine and caustic soda help maintain high operating rates at the Company's chlor-alkali facilities which, in turn, decreases unit production costs. In addition to serving as a source of demand, these growing businesses service diverse product markets and regions and can tend to offset industry cyclicality in the chlorine and caustic soda markets by providing a more stable downstream source of revenue. - Growing through Product Line Extensions and Strategic Acquisitions. Management believes that there are significant opportunities to continue the Company's growth both internally and through strategic acquisitions. The Company focuses its product development efforts on areas identified by its customers as being of major commercial importance. For example, in the area of water treatment, the Company has developed or acquired rights to a number of innovative coagulant products which represent cost effective, advanced waste water treatment solutions. In addition, the Company is constantly reviewing acquisitions in related markets and since 1990 has consummated five downstream acquisitions, which provide attractive product offerings and geographic coverage. OPERATING UNITS PCAC PCAC manufactures chlorine and caustic soda for sale to third parties and to All-Pure and Kemwater as raw materials in the manufacture of chlor-alkali related products, including bleach and iron chlorides. In addition to chlorine and caustic soda, PCAC produces commercial quantities of hydrochloric acid and hydrogen. PCAC's chlor-alkali operations generated pro forma net sales representing approximately 78% of the Company's total pro forma net sales in 1996. Pro forma merchant sales of chlorine (including resales of purchased chlorine) accounted for approximately 35% of PCAC's pro forma net sales in such period. Pro forma merchant sales of caustic soda accounted for approximately 60% of PCAC's pro forma net sales in such period. Pro forma merchant sales of hydrochloric acid and hydrogen accounted for approximately 5% of PCAC's pro forma net sales in such period. On a pro forma basis, approximately 10% of PCAC's chlorine production was used by PCAC for the production of hydrochloric acid and other chemical products, while approximately 14% of chlorine production and 6% of caustic soda production was supplied to All-Pure and Kemwater for bleach and iron chloride production, repackaging and distribution. 58 63 Following the Tacoma Acquisition, PCAC owns and operates three chlor-alkali production facilities, located in St. Gabriel, Louisiana; Henderson, Nevada; and Tacoma, Washington, with aggregate production capacity of 574,000 ECUs. The Tacoma Facility manufactures chlorine, caustic soda, hydrochloric acid and calcium chloride. Annual capacity is approximately 225,000 tons of chlorine, 247,500 tons of caustic soda, 44,000 tons of hydrochloric acid and 8,800 tons of calcium chloride. The products are sold to many customers previously being served by the plant, as well as to the Company's downstream operations at All-Pure and Kemwater. The Company believes that the plant would have generated pro forma net sales of $80.5 million and pro forma EBITDA of $33.5 million for the twelve months ended March 31, 1997, if the Tacoma Acquisition had occurred at the beginning of such period. On a pro forma basis, such sales would represent approximately 31% of the Company's total net sales. The Tacoma Facility utilizes both membrane cell and diaphragm cell technology to produce chlorine, caustic soda and hydrogen. The membrane cells account for approximately 45% of the total plant capacity and the diaphragm cells account for approximately 55% of the total plant capacity. The chlorine is stored in pressurized tanks on-site, and the caustic soda solution is stored in tanks at the plant and at off-site terminals. Bulk shipments of evaporated sea salt are brought in from Baja California, Mexico under a long-term contract with Mitsubishi. The typical salt load on a ship is approximately 35,000 tons, and is stored on-site on an open-air salt storage pad, for dilution and processing. PCAC's other chlor-alkali production facilities are located in Henderson, Nevada and St. Gabriel, Louisiana. The Henderson facility utilizes diaphragm cell technology and the St. Gabriel facility utilizes mercury cell technology. The elemental chlorine gas is dried, liquefied through compression and refrigeration and stored in pressurized tanks. The caustic soda solution is stored in tanks at the plants and off-site terminals. Hydrogen, produced as a by-product, is transported by pipeline to the point of its final consumption, used internally in the production of hydrochloric acid or vented. Production rates for chlorine and caustic soda are generally set based upon demand for chlorine, because storage capacity for chlorine is both limited and expensive. When demand is less than plant operational capacity and available storage is filled, production operations must be curtailed. PCAC currently leases a fleet of 672 rail cars for chlorine distribution, 503 rail cars for caustic soda distribution, 103 rail cars for hydrochloric acid distribution and three rail cars for calcium chloride distribution. These cars can, under certain circumstances, be used to provide additional storage capacity. Chlorine. PCAC has the capacity to produce approximately 349,000 tons of chlorine annually at its Henderson and St. Gabriel plants. Expansion projects between 1990 and 1996 have increased the production capacity at the Henderson plant by approximately 37,300 tons of chlorine per year. For the year ended December 31, 1996, the Company produced approximately 345,700 tons of chlorine. Directly and through exchanges, PCAC supplied the equivalent of approximately 76,100 tons of chlorine to All-Pure and Kemwater for bleach and iron chloride production and for repackaging and distribution. An additional 44,800 tons of chlorine, approximately 13% of PCAC's chlorine production, was used to produce hydrochloric acid at the Henderson plant. Chlorine was also sold to approximately 30 customers or shipped on behalf of exchange partners. Caustic Soda. PCAC has the capacity to produce approximately 383,900 tons of caustic soda annually at its Henderson and St. Gabriel plants. The St. Gabriel plant's mercury cell production process yields a higher grade of caustic soda, commonly known as low salt. This higher grade caustic soda is a niche product which is required for certain end uses and therefore receives premium pricing in the marketplace. For the year ended December 31, 1996, PCAC produced approximately 379,700 tons of caustic soda, approximately 57% of which was low salt grade. PCAC supplied all caustic soda required by All-Pure and Kemwater for bleach production and distribution. Caustic soda was also sold to approximately 75 customers or shipped on behalf of exchange partners. Hydrochloric Acid. PCAC has the capacity to produce approximately 130,000 tons of hydrochloric acid annually at its Henderson plant by combining hydrogen and chlorine. For the year ended December 31, 1996, 59 64 PCAC produced approximately 134,300 tons of hydrochloric acid. PCAC supplied the equivalent of approximately 18% of its hydrochloric acid production to All-Pure and Kemwater for distribution and production of iron chlorides. The remainder was sold to approximately 45 customers or shipped on behalf of exchange partners. PCAC can and does vary the production of hydrochloric acid depending upon the relative prices of chlorine and hydrochloric acid. Hydrogen. Hydrogen produced at the Henderson facility is used to manufacture hydrochloric acid and is sold to a third party for use as turbine fuel. Hydrogen produced at the St. Gabriel plant is used as a boiler fuel and is sold as a feedstock to another chemical company. For the year ended December 31, 1996, PCAC produced approximately four million cubic feet of hydrogen, a portion of which was sold to Saguaro Power as fuel and a portion to Borden Chemicals and Plastics, LP ("BCP") as feedstock. Approximately 24% of the hydrogen was used internally in the production of hydrochloric acid and as boiler fuel. At both plants, hydrogen not used or sold is vented. Sales and Marketing. Pursuant to a Chlorine Purchase Agreement, OCC Tacoma will purchase 100,000 tons of chlorine during the year following the Tacoma Acquisition, which would have represented approximately 6% of the Company's pro forma net sales for the twelve months ended March 31, 1997. In addition, the Company has the right to require OCC Tacoma to purchase, and OCC Tacoma has the right to require the Company to sell, up to 100,000 tons of chlorine during the second year following the Tacoma Acquisition and up to 75,000 tons of chlorine during the third year following the Tacoma Acquisition. All deliveries will be from the Tacoma Facility to OxyChem's plant at Ingleside, Texas. Market prices will apply to all such transactions, with transportation costs to be borne and paid by OCC Tacoma. The Company will also have the right to require OCC Tacoma to purchase up to 50,000 tons of chlorine during the fourth year following the Tacoma Acquisition and up to 25,000 tons of chlorine during the fifth year following the Tacoma Acquisition at market prices, with each of the parties to bear 50% of the transportation costs from Tacoma to Ingleside for any purchases during such fourth and fifth years. Pursuant to a Chlorine and Caustic Soda Sales Agreement, the Company will sell to OxyChem those quantities of chlorine and caustic soda necessary for OxyChem to satisfy its obligations under contracts with certain of OxyChem's national account customers. The Company estimates that during the year following the Tacoma Acquisition the Company will sell approximately 22,400 tons of chlorine and 46,000 tons of caustic soda under the agreement, at prices set each quarter at levels equal to 95% of the average price received by OxyChem under its arm's-length customer contracts during the preceding quarter. The final deliveries of chlorine and caustic soda under the arrangement will occur in December 2000. One PCAC customer, Novartis, accounted for approximately 13% of the Company's net sales for the year ended December 31, 1996 and would have accounted for approximately 9% of the Company's pro forma net sales for such period. PCAC has a five-year contract with Novartis that expires in 1998 and requires Novartis to purchase from PCAC 100% of Novartis's annual requirement of chlorine. Product is transported directly to Novartis through pipelines from the St. Gabriel plant. Logistics play a significant role in marketing chlor-alkali and chlor-alkali related products for two primary reasons. First, many customers take shipments to fulfill requirement on an as-needed basis. PCAC must therefore manage potential short-term dislocations between sales and production due to seasonal or other factors in order to maintain the high, steady production rates at which the plants operate most efficiently. Second, the relatively high cost of distribution tends to regionalize producers and markets. To minimize these exposures, PCAC has developed product exchange relationships with other producers for its primary products. The purpose of these exchanges is to lower freight and other distribution costs, control inventory, maintain steady operating rates and diversify sales through exchanges of different products and product grades. In addition, PCAC utilizes product exchanges in instances where it can capture more of a premium for its low-salt grade caustic soda than it might otherwise receive. The Company continually seeks improved methods of meeting the needs of its customers. As a part of that effort, the Company is currently acquiring the necessary permits and easements for the Pipeline Project, a seven-mile liquid chlorine pipeline, which will extend from the St. Gabriel facility to Geismar, Louisiana. The state-of-the-art pipeline, which will be equipped with leak and excavation detection systems, will be capable of 60 65 delivering 600 tons of chlorine per day to customers in the Geismar area. It is estimated that the Pipeline Project will be completed in 1998. In order to maintain high capacity utilization rates at its chlor-alkali plants, PCAC seeks to sell more chlorine than it can produce and therefore frequently purchases chlorine for resale. In this manner, it is often able to adjust chlorine purchase levels, rather than plant production levels, in response to changes in the demand for chlorine. This strategy resulted in chlorine production of 345,700 tons for the year ended December 31, 1996, implying a capacity utilization rate of approximately 100%. PCAC's chlor-alkali operations employ 25 personnel in sales, marketing and distribution. The corporate executive offices in Houston, Texas include sales administration and distribution functions and oversight of the field sales offices. Field sales offices are located in Huntington Beach, California and St. Louis, Missouri. Unlike most of its competitors, PCAC has maintained its customer service centers at its plants. This facilitates the close synchronization of sales, production, shipping and accounting which has given PCAC the capability of filling "just-in-time" orders. The customer service centers at the Henderson and St. Gabriel plants are responsible for all order-entry and shipping and rail fleet management. Sales of chlor-alkali products are primarily on a direct basis to customers under annual or longer-term contractual arrangements. The arrangements identify delivery, product quality and other standard terms and allow PCAC to make advance determination of output requirements, although generally price provisions are flexible so that both PCAC and the customer receive the benefit of prices which bear a relationship to the current market price. In addition to direct sales, PCAC has resale agreements with approximately 20 independent distributors for caustic soda and hydrochloric acid. All-Pure All-Pure manufactures bleach and repackages chlorine and hydrochloric acid and distributes these products along with caustic soda and other related products in the western U.S. All-Pure also purchases and distributes various complementary dry and specialty products such as calcium hypochloride and sulfur dioxide, and purchases, tabletizes and repackages dry and specialty water treatment products for distribution to municipalities, swimming pool supply distributors and selected commercial and retail markets in southern California. All-Pure's products are generally sold on a delivered basis and are delivered primarily through a fleet of trucks, including equipment owned by Kemwater. In July 1996, All-Pure acquired T.C. Products, which is engaged in the manufacture and marketing of household bleach and related products from its plant in Tacoma, Washington. All-Pure generated pro forma net sales representing approximately 21% of the Company's total pro forma net sales in 1996. Pro forma sales of bleach accounted for approximately 56% of All-Pure's pro forma sales for such period. Pro forma sales of repackaged chlorine accounted for approximately 25% of All-Pure's pro forma sales for such period. Pro forma sales of specialty swimming pool and spa chemicals accounted for approximately 7% of All-Pure's pro forma sales for such period. The remaining 12% of All-Pure's pro forma sales was derived from sales of other chlor-alkali related products. While the technology for bleach-making and chlorine-repackaging is neither difficult nor capital-intensive, the local operating permits required to engage in these activities are not easily acquired. Management believes that these operating permits constitute a significant barrier to entry into the business, particularly in California. Because bleach contains a high percentage of water, freight costs and logistics are an important consideration in product distribution. All-Pure's production plants and distribution facilities are strategically located in or near most of the largest population centers of the West Coast. For safety reasons, some municipalities have switched from chlorine gas to bleach for water disinfection purposes, and should other municipalities decide to switch from chlorine gas to bleach for this purpose, All-Pure has significant spare bleach-making capacity that can be used to supply product in bulk. Bleach. All-Pure has the capacity to produce approximately 200 million gallons of bleach annually. For the year ended December 31, 1996, All-Pure produced approximately 34.0 million gallons of bleach, which was sold in containers ranging from gallon containers to tank trucks. Chlorine Repackaging. All-Pure repackages and distributes chlorine to end users in the western U.S. As a regional distributor of chlorine, All-Pure purchases chlorine in rail cars and repackages the chlorine for sale to 61 66 customers. For the year ended December 31, 1996, All-Pure repackaged and sold approximately 29.2 tons of chlorine. Product Distribution. In addition to chlorine and hydrochloric acid, All-Pure distributes caustic soda and other related products in the western U.S. For the year ended December 31, 1996, All-Pure sold approximately 4,800 tons of caustic soda to customers located primarily in northern California. Dry and Specialty Pool and Spa Chemicals. All-Pure purchases dry and specialty pool and spa products for distribution to the pool water treatment supply industry. In addition, All-Pure repackages dry pool chemicals for distribution. Sales and Marketing. All-Pure primarily repackages chlor-alkali chemicals, manufactures bleach and distributes these products as well as other products purchased for resale to approximately 2,200 customers in a variety of markets. The dynamics of each market vary significantly, requiring All-Pure to be extremely versatile in its methods of marketing. All-Pure also manufactures and distributes bleach for swimming pool water treatment in southern California. All-Pure repackages and distributes complementary products such as hydrochloric acid and specialty pool and spa products. Delivered costs of All-Pure's products are freight sensitive because the products contain water, or are packaged in steel containers that constitute approximately 40% of the gross weight of the delivered unit, and because such products provide relatively low per-volume sales revenue. All-Pure has an advantage over its competitors through its multiple plant locations, which limit freight costs through their close proximity to customers, allowing All-Pure to provide reliable supply and service. The majority of products are sold as water treatment chemicals for swimming pools, potable water and waste water. Seasonality is a variable that impacts sales of water treatment chemicals for swimming pools. In order to lessen the impact of seasonality on their business, All-Pure focuses on increasing household bleach sales during the winter months. All-Pure is divided into three regional profit centers -- southern California, northern California and the Pacific Northwest each under the direction of a general manager, who, in turn, reports to senior management of Pioneer. There are 12 sales representatives overall. The administrative support staff is at All-Pure headquarters, currently located in Tracy, California. In 1997, All-Pure headquarters were relocated to rented offices in Walnut Creek, California shared with Kemwater. It is anticipated that the ability to share certain administrative support functions will provide cost savings for both All-Pure and Kemwater. Kemwater The combined operations of Imperial West and KWT are now conducted by Kemwater, 50% of the common stock of which is held by a subsidiary of PAAC and 50% of the common stock of which is owned by a subsidiary of Pioneer. A subsidiary of PAAC also owns all of the outstanding shares of Kemwater's preferred stock. Since the Company does not own a controlling interest in Kemwater, the Company accounts for Kemwater using the equity method. In the consolidated financial statements, the Company's investment in Kemwater is presented as "Investment in and advances to unconsolidated subsidiary" and its equity in the loss of Kemwater is shown as "Equity in net loss of unconsolidated subsidiary." In the 1995 consolidated financial statements, Imperial West is consolidated and includes total assets of $25.7 million, total revenues of $23.7 million and a net loss of $0.6 million. Kemwater manufactures six chemical products: iron chlorides (ferric and ferrous chlorides), polyaluminum chlorides, aluminum sulfate, sodium aluminate, ferric sulfate solution and bleach. Kemwater markets these products and other inorganic chemicals purchased by it to municipalities and industrial customers for use primarily in the treatment of potable water and waste water. Kemwater's products are generally sold on a delivered basis and are delivered primarily through a fleet of tank trucks, including Kemwater's own equipment. All of Kemwater's chlorine requirements for its production of iron chlorides and bleach are provided by PCAC. 62 67 Kemwater is the major supplier of iron chlorides to the waste and potable water markets west of the Rocky Mountains. Iron chlorides are used primarily to remove organic solids from waste water and potable water streams and to control hydrogen sulfide emissions. Kemwater also manufactures polyaluminum chlorides in Savannah, Georgia. The majority of polyaluminum chloride sales are currently in the southeastern United States. Kemwater also uses terminals at its facilities in Mojave, California and Spokane, Washington for distribution of polyaluminum chlorides in the western U.S. and Canada. Additionally, Kemwater sells polyaluminum chlorides through exclusive distributors in Mexico, the Caribbean and western Canada. Kemwater will be adding polyaluminum chloride production capacity to its western plants. Kemwater has exclusive licenses to use Kemira's existing and future advanced water treatment technology in the development and sale of products and services for the potable water, waste water and industrial water treatment markets in the United States (other than the northeastern United States) and the Caribbean, and nonexclusive access to the use of the technology for the Canadian and Mexican markets, with an option to acquire an exclusive license for those markets in the future. Kemwater also manufactures and markets aluminum sulfate to the water treatment and pulp and paper industries and is a manufacturer of bleach for municipal water disinfection. Kemwater markets liquid inorganic chemicals in bulk to municipalities and industry for use mainly in the treatment of municipal and industrial waste water and potable water. Kemwater differentiates itself from its competitors through emphasis on superior product quality, customer service and a private tank truck transportation fleet. Kemwater employs 16 personnel in sales, marketing and customer service. Kemwater sells its products directly to customers primarily on municipal bid contracts. The contracts typically have terms of one or more years with prices fixed on an annual basis. Sales through distributors accounted for less than 10% of product sales volume for the year ended December 31, 1996. Kemwater's headquarters is currently located in Antioch, California. In 1997, its headquarters were relocated to Walnut Creek, California, to rented offices shared with All-Pure. It is anticipated that the ability to share certain administrative support functions will provide cost savings for both Kemwater and All-Pure. 63 68 FACILITIES The following table sets forth certain information regarding the Company's principal production, distribution and storage facilities. All property is leased unless otherwise indicated.
LOCATION MANUFACTURED PRODUCTS: TYPE OF FACILITY -------- --------------------------------------- PCAC Facilities St. Gabriel, Louisiana*...................... Chlorine and caustic soda Hydrogen Henderson, Nevada*........................... Chlorine and caustic soda Hydrochloric acid Bleach Tacoma, Washington*.......................... Chlorine and caustic soda Calcium chloride Hydrochloric acid Tampa, Florida............................... Caustic soda storage tanks Richmond, California......................... Caustic soda storage tanks Wilmington, California....................... Caustic soda storage tanks All-Pure Facilities Tracy, California............................ Bleach Chlorine repackaging Santa Fe Springs, California................. Bleach Chlorine repackaging Kalama, Washington........................... Bleach Chlorine repackaging Tacoma, Washington*.......................... Bleach Fresno, California........................... Distribution center City of Industry, California................. Bleach Chlorine repackaging Hydrochloric acid repackaging Dry chemical repackaging
- --------------- * Owned property PCAC Facilities St. Gabriel, Louisiana Plant. PCAC's St. Gabriel plant is located on a 100-acre site near Baton Rouge, Louisiana and serves the southern U.S. and Mississippi River markets and the export market. Approximately 228 acres adjoining this site are available to the Company for future industrial development. The plant was completed in 1970 and is situated on the Mississippi River with river frontage and deep water docking, loading and unloading facilities. The dock is capable of berthing ocean-going vessels of up to 36,000 DWT. Annual capacity at St. Gabriel is 197,000 tons of chlorine and 216,700 tons of caustic soda. In 1996, the plant received ISO 9002 registration. St. Gabriel is the newest mercury-cell plant in the U.S. The mercury-cell production process yields a higher quality of caustic soda, called low-salt grade, which usually receives premium pricing in the marketplace. Caustic soda produced by mercury cells does not require evaporation to meet market concentration requirements. Accordingly, even though mercury cell technology uses more electricity than membrane cell or diaphragm cell technology, total costs of production are generally competitive. 64 69 The production of chlor-alkali products principally requires salt, electricity and water as raw materials. Salt is delivered under long-term supply contracts to the St. Gabriel plant by barge. Electricity is supplied to the plant under long-term contracts through regional power networks. Water is provided at the St. Gabriel plant from on-site water wells. St. Gabriel's chlorine production system includes a three-tower drying system, multi-stage centrifugal chlorine compressors and a three-stage liquefaction system. St. Gabriel has a utility section consisting of two boiler systems for steam generation used principally for heating. Each boiler, capable of producing 325,000 pounds per hour of steam, has fuel feedstock flexibility, allowing conversion from outside-sourced natural gas to internally generated hydrogen. Chlorine tank storage capacity at the St. Gabriel plant is 3,000 tons, which provides storage for approximately six days of production. The St. Gabriel plant supplies its largest customer, Novartis, which is located adjacent to the St. Gabriel facility, with chlorine directly through a dedicated pipeline. No other chlor-alkali producer has a dedicated line to such customer. Caustic soda storage capacity is 10,500 tons, which provides for approximately 18 days of production. Additional production storage capacity is available using rail cars. Hydrogen produced at the St. Gabriel plant is piped directly to BCP under a long-term contract. Henderson, Nevada Plant. PCAC's Henderson plant is located on a 374-acre site near Las Vegas, Nevada and serves customers in the western U.S. It is the closest chlor-alkali plant to the important southern California area by over 500 miles. Approximately 70 acres are developed and used for production facilities. The original plant began operation in 1942. Annual capacity at the plant is 152,000 tons of chlorine, 167,200 tons of caustic soda, 130,000 tons of hydrochloric acid and 5,100 tons of bleach. The Henderson plant is part of an industrial complex shared with three other manufacturing companies. Common facilities and property are owned and managed by subsidiaries of Basic Investments, which provide common services to the four site companies. Basic Investments' facilities include extensive water and high voltage power distribution systems and access roads. Salt is delivered under long-term supply contracts to the Henderson plant by rail car. Electricity is supplied to the plant under long-term contracts through regional power networks. The electric power is distributed within the Henderson industrial site through facilities owned and operated by a subsidiary of Basic Investments. The Henderson plant obtains water from Lake Mead pursuant to PCAC's Category IV federal water rights. The water is transported by means of a 25-mile pipeline system operated by a subsidiary of Basic Investments. The plant was upgraded and rebuilt in 1976-1977 to use diaphragm cell technology, and in 1978 quadruple-effect caustic soda evaporation units were installed. Incremental expansions during the period from 1990 to 1995 resulted in plant capacity increases of 105 ECUs per day. The evaporation plant requires 2.2 tons of steam per ton of caustic soda produced. Steam for the facility is currently provided under a favorable long-term contract with Saguaro Power, a cogeneration electricity producer in which PCAC has an indirect 15% interest. PCAC also has its own boilers at the Henderson facility that are capable of producing steam. PCAC leases two units used in the production of hydrochloric acid. Following evaporation to desired levels of concentration, caustic soda is stored in tanks and off-site terminals. Caustic soda storage capacity is 7,000 tons, which provides storage for approximately 16 days of production. Chlorine tank storage capacity at the Henderson plant is 600 tons, which provides storage for approximately two days of production. Additional production storage capacity for chlorine and caustic soda is available using rail cars, and the Company's terminals in Richmond, California and Wilmington, California provide additional caustic soda storage capacity. Hydrochloric acid storage capacity at the Henderson plant is 1,500 tons, which provides for approximately three days of production. Additional storage capacity is available using rail cars. Tacoma, Washington Plant. The Tacoma Facility is located on a 31-acre site which is part of an industrial complex on the Hylebos waterway in Tacoma, Washington. It serves customers in the Pacific Northwest and California and, to a lesser extent, foreign caustic soda customers. The site has docks capable of 65 70 handling ocean-going vessels up to 30,000 DWT size. Annual capacity is approximately 225,000 tons of chlorine, 247,500 tons of caustic soda, 44,000 tons of hydrochloric acid and 8,800 tons of calcium chloride. The plant uses both diaphragm cells installed in the late 1970s and membrane cells installed in 1988. The state-of-the-art membrane cell production process yields a higher quality of caustic soda and thus for some end uses receives premium pricing. The membrane cells account for approximately 45% of the total plant caustic soda capacity, with the diaphragm cells accounting for the remaining caustic soda production capacity. The operations of the two systems are designed to optimize the capabilities of the plant in a cost-efficient manner, resulting in a cost-competitive facility. Steam for the facility is produced on-site in two natural gas fired steam boilers. The boilers are capable of using a portion of the hydrogen generated in the cell operations as fuel. Process water for the plant is purchased from the City of Tacoma and sea water is used for cooling purposes throughout the facility. Electric power is purchased from the Tacoma Department of Public Utilities under a contract extending to September 30, 2001. Prices are fixed except for the top 27 MW portion of the load, or approximately 33% of the total electricity usage, which is purchased on a market-price basis. Steam for the facility is produced on-site in two natural gas fired steam boilers. The gas for these units is supplied under a contract effective through September 30, 1997. The boilers are capable of utilizing a portion of the hydrogen generated in the cell operations. Process water for the plant is purchased from the City of Tacoma and sea water is used for cooling purposes throughout the facility. Chlorine tank storage capacity is 1,500 tons, which provides storage for approximately 2 1/2 days of production. Caustic soda storage capacity is 11,100 tons, providing storage for approximately 16 days of production. Additional production storage capacity is available using rail cars, and the Company's leased terminals in Richmond, California and Wilmington, California provide additional storage capacity for caustic soda. The Company also acquired a leased railroad tankcar fleet as part of the Tacoma Acquisition. The Tacoma Facility is a WISHA Star site. ISO 9002 registration was completed in December 1996. Tampa, Florida. To facilitate distribution to the southeastern region of the U.S., PCAC leases two caustic soda storage tanks at Tampa, Florida with a capacity of 5,100 tons, approximately nine days of production from the St. Gabriel facility. Richmond, California. As a part of the Tacoma Acquisition, PCAC acquired the leases to three caustic soda storage tanks at Richmond, California, which are used to facilitate distribution to customers in northern California. The tanks have a capacity of 9,100 tons, approximately 13 days of production from the Tacoma Facility. Wilmington, California. PCAC acquired the leases to four caustic soda storage tanks at Wilmington, California as a part of the Tacoma Acquisition. Those tanks and PCAC's existing leased tank at the same facility provide storage capacity of 17,400 tons, representing approximately 38 days of production from the Henderson facility or approximately 25 days of production from the Tacoma Facility. The tanks are used to facilitate distribution to the southern California region. All-Pure Facilities Tracy, California. The Tracy facility is located 60 miles east of Oakland and serves the central California and San Francisco Bay area markets. The plant includes a 262,000 ton per year bleach production facility and a chlorine repackaging facility on a 15-acre tract. The land at the facility is leased under a lease expiring in the year 2000. All-Pure's home office is currently located in a leased facility in Tracy. Santa Fe Springs, California. The Santa Fe facility is located in the Los Angeles area and serves the southern California markets. The plant includes a 262,000 ton per year bleach production facility and a chlorine repackaging facility on a 4.5-acre tract. The land at the facility is leased under a lease expiring in 1998 with a five-year renewal option. Kalama, Washington. Located 30 miles north of Portland, Oregon, the Kalama facility serves the northern Oregon and Washington markets. The plant includes a 52,500 ton per year bleach production facility 66 71 and a chlorine repackaging facility on a three-acre tract. The land at the facility is leased under a month-to-month lease; All-Pure and the lessor are engaged in discussions regarding a long-term lease extension or the lease of a new site within the same port facility. Tacoma, Washington. The T.C. Products facility in Tacoma serves the Pacific Northwest market. The plant consists of a 105,000 ton per year bleach production facility on a five-acre tract. Fresno, California. The Fresno facility consists of an approximately 10,000 square foot warehouse, excluding office space, and serves the central California market. All product shipped from the warehouse is transferred from the Tracy, California production facility for distribution to customers. The land at the facility is leased under a lease expiring in June 2001. City of Industry, California. The City of Industry facility is located in the Los Angeles area and serves the southern California, southern Nevada and western Arizona markets. The plant includes a 262,000 ton per year bleach production facility and chlorine, hydrochloric acid and dry chemical repackaging facilities on a five-acre tract. The facility includes a 96,000 square foot warehouse. The land at the facility is leased under a lease expiring in 1998 with options to extend until 2008. SAGUARO POWER PCAC has an indirect 15% equity interest in Saguaro Power, which owns and operates a 90-megawatt cogeneration facility located on approximately six acres of the Henderson property. The Saguaro Power facility is operated by an indirect subsidiary of S.C.E. Capital Company. The facility uses natural gas, which is supplied under a defined price long-term contract, as feedstock to produce electricity and steam. Electricity is sold to one customer under a long-term contract, and steam is sold primarily to PCAC, which has a right to resell steam to other companies in the Henderson industrial complex. PCAC leases the property to Saguaro Power under a lease that expires in 2022. The cost to the Company of purchasing steam from Saguaro Power is substantially less than the cost to the Company of producing the steam internally. BASIC INVESTMENTS PCAC's facility in Henderson, Nevada is located within an industrial complex operated by Basic Investments. Other industrial operators in the complex are Kerr-McGee Chemical Corporation ("Kerr McGee"), Titanium Metals Corporation ("Timet") and Chemical Lime Company ("Chemical Lime") which, together with PCAC, own all of the capital stock of Basic Investments. PCAC owns approximately 32% of the common stock of Basic Investments, including voting shares which entitle it to elect two members of the seven person board of directors. The Company's interests in Basic Investments and in Victory Valley Land Company, L.P. (referred to collectively as the "Basic Ownership"), together with certain real property (the "Excess Land"), constitute assets that, pursuant to the PAI Acquisition Agreement, will be held for the economic benefit of the sellers for a period of 20 years. Any proceeds from such interests are deposited into an escrow account and are available to satisfy certain obligations of the sellers under environmental and other obligations in favor of Pioneer, PAAC and their affiliates. After payment or provision for payment of such obligations, amounts received by the Company on account of the Basic Ownership will be remitted to the PAI sellers for such 20-year period. The sellers also have certain rights during such period with respect to determinations affecting the Basic Ownership, including the right (subject to certain conditions) to direct the sale or disposition of interests constituting the Basic Ownership and the sale or disposition of Excess Land and the right (with certain exceptions) to vote the interests constituting the Basic Ownership. Since the PAI Acquisition, approximately 64 acres of Excess Land have been sold, and the escrow account had a balance of approximately $4.4 million on March 31, 1997. COMPETITION The chlor-alkali industry is highly competitive. Most of the Company's competitors are larger and have greater financial resources than the Company. Many of the Company's competitors are some of the world's 67 72 largest chemical companies that have their own raw material resources and numerous regional companies that specialize in a smaller number of chemical products. While a significant portion of the Company's business is based upon widely available technology, the difficulty in obtaining permits for the production of chlor-alkali and chlor-alkali related products is a barrier to entry. The Company's ability to compete effectively depends on its ability to deliver quality products at competitive prices and to provide reliable and responsive service to its customers. The U.S. chlor-alkali industry is currently dominated by two producers, OxyChem and The Dow Chemical Company, each with approximately one quarter of U.S. capacity. The remaining capacity is held by approximately 20 companies. Approximately 70% of U.S. chlor-alkali capacity is located on the Gulf Coast in Texas and Louisiana. The Company currently has approximately 4.1% of U.S. chlor-alkali capacity. The Company believes it has a strong regional presence with respect to many of its products in the markets it serves. Competitors in the chlor-alkali related industries in which the Company operates are numerous and the industry is highly fragmented. The Company believes that All-Pure is the largest supplier of chlorine and bleach for water treatment purposes in the region of the United States west of the Rocky Mountains and that Kemwater is the largest producer of iron chlorides in such region. EMPLOYEES As of June 30, 1997, the Company had 913 employees. Approximately 100 of the Company's employees at its Henderson, Nevada plant are covered by collective bargaining agreements with the United Steelworkers of America and the International Association of Machinists and Aerospace Workers that are in effect until March 2001. Approximately 115 employees at the Tacoma Facility are represented by the International Chemical Workers Union and International Union of Operating Engineers under collective bargaining agreements that expire in September 1997 and June 1998, respectively. Approximately 110 of the Company's employees at an All-Pure facility are covered by collective bargaining agreements with the Steel, Paper House, Chemical Drivers and Helpers Union and the International Chemical Workers Union that are in effect until September 1997 and January 1998, respectively. An additional 30 employees are covered by a collective bargaining agreement with the Teamsters Union in Tacoma, Washington which is in effect until December 1997. The Company's employees at its other production facilities are not covered by union contracts or collective bargaining agreements. The Company considers its relationship with its employees to be good and has not experienced any strikes or work stoppages. ENVIRONMENTAL AND SAFETY REGULATION General Environmental Matters General. The manufacturing operations of the Company are subject to federal, state and local laws and regulations relating to protection of the environment, including those applicable to waste management, discharge of pollutants into the air and water, cleanup liability from historical waste disposal practices and employee health and safety. Each of the federal environmental programs typically has a state counterpart. The state environmental programs generally must be at least as stringent as the federal requirements, and some state regulations are more onerous than the federal requirements. Both federal and state environmental programs allow the imposition of substantial civil and criminal penalties for noncompliance. Although the Company believes that its operations are in general compliance with applicable environmental laws and regulations, risks of substantial costs and liabilities are inherent in chemical manufacturing operations, and there can be no assurance that significant costs and liabilities will not be incurred. Moreover, it is possible that other developments, such as new environmental laws and regulations or stricter enforcement and cleanup policies, could result in substantial costs and liabilities to the Company. The Company has accrued $11.9 million related to expected future environmental restoration and remediation costs, computed on an undiscounted basis. In the opinion of management, there is currently no material estimable range of loss in excess of the amount recorded. However, it is possible that new information about the sites for which the 68 73 reserve has been established, new technology or future developments could require the Company to reassess its potential exposure related to environmental matters. The Company relies on indemnification from the previous owners in connection with certain environmental liabilities at its chlor-alkali plants and other facilities. There can be no assurance, however, that such indemnification arrangements will be adequate to protect the Company from environmental liabilities at these sites or that such third parties will perform their obligations under the respective indemnification arrangements, in which case the Company would be required to incur significant expenses for environmental liabilities, which would have a material adverse effect on the Company. Air Quality. The Company's operations are subject to the Federal Clean Air Act and the amendments to that act which were enacted in 1990. The Company will be subject to some of the additional environmental regulations adopted by the federal EPA and state environmental agencies to implement the Clean Air Act Amendments of 1990. The Tacoma plant has applied for a Title V operating permit under these regulations. Among the requirements that are potentially applicable to the Company are those that require the EPA to establish hazardous air pollutant emissions requirements for chlorine production facilities. Although the Company cannot estimate the cost of complying with these requirements until the implementing regulations are proposed, at this time the Company does not believe that such requirements will have a material adverse effect on it. Most of the Company's plants manufacture or use chlorine, which is in gaseous form if released into the air. Chlorine gas in relatively low concentrations can irritate the eyes, nose and skin and in large quantities or high concentrations can cause permanent injury or death. In 1991, there was an accidental release of approximately 42 tons of chlorine from the Henderson facility. In response, local emergency authorities evacuated areas in and around the City of Henderson. The Company has resolved substantially all of the personal injury, property damage and regulatory claims relating to this release, and substantially all the costs incurred as a result of the accident have been recovered under applicable insurance policies. There was a release of about 10 tons of chlorine from the St. Gabriel facility in 1992 and another release in 1994 of less than one ton of chlorine, and from 1995 to date, there have been six releases from the Company's plants, each of which was less than 35 pounds. These releases were controlled by plant personnel, in some cases with the assistance of local emergency response personnel, and there were no material claims against the Company as a result of these incidents. The Company maintains systems to detect emissions of chlorine at its plants, and the St. Gabriel and Henderson plants are members of their local industrial emergency response networks. The Company believes that its insurance coverage is adequate with respect to costs that might be incurred in connection with any future release, although there can be no assurance that the Company will not incur substantial expenditures that are not covered by insurance if a release does occur in the future. Water Quality. The Company maintains waste water discharge permits for many of its facilities pursuant to the Federal Water Pollution Control Act of 1972, as amended, and comparable state laws. Where required, the Company has also applied for permits to discharge stormwater under such laws. In order to meet the discharge requirements applicable to stormwater, it will be necessary to modify surface drainage or make other changes at certain plants. The Company plans to spend an additional $2.1 million by the end of 1997 for modifications to the stormwater system at the Henderson plant. The Company believes that the costs associated with stormwater discharge at Henderson and its other plants will not have a material adverse effect on the Company's financial condition, liquidity or operating results. The various states in which the Company operates also have water pollution control statutes and regulatory programs which include groundwater, as well as surface water, protection provisions. The requirements of these laws vary and are generally implemented through a state regulatory agency. These water protection programs typically require site discharge permits, and spill notification, prevention and corrective action plans. At several of the Company's facilities, investigations or remediations are underway and at some of these locations regulatory agencies are considering whether additional actions are necessary to protect or remediate surface or groundwater resources and the Company could be required to incur additional costs to construct and operate remediation systems in the future. In addition, at several of its facilities, the Company is in the process of replacing or closing ponds for the collection of wastewater. The Company plans to spend approximately $1.3 million during the next 15 years for closure of eight chlor-alkali waste water disposal ponds at its Henderson plant. 69 74 Chlorine Regulation. Chlorine uses in two markets, pulp and paper bleaching and as a feedstock in the production of CFCs, have declined since the late 1980s. This decline was based on concerns that the products or by-products from those applications might cause damage to human health or the environment. Certain environmental groups and international commissions have urged the restriction or ban of chlorine-related processes and products and the EPA is considering new or additional regulation of chlorine-containing substances such as the herbicide atrazine and byproducts from the treatment of drinking water. Such pressures and regulatory initiatives could have the effect of reducing the use of chlorine by customers in the Company's markets or could have the effect of increasing competition from other chlorine producers with respect to the Company's markets. The Company is working with other industry representatives to advocate a risk-based scientific approach for evaluating the alleged health and environmental risks of chlorine and chlorinated compounds which are used for a broad range of consumer products, such as plastics, water and pharmaceuticals. The Company believes that a risk-based approach will show that the risk associated with not using such compounds, or the risks of other chemicals that might be proposed to replace them, support a conclusion that there is no need for a ban or substantial new restrictions, but the necessary studies have not been completed with respect to all of such areas. OSHA and Community Right-to-Know. The Company is subject to laws and regulations concerning occupational health and safety, emergency planning and community right-to-know disclosures. These laws include the Federal Occupational Safety and Health Act ("OSHA") and the Emergency Planning and Community Right-to-Know Act of 1986 ("EPCRA"). OSHA and comparable state statutes establish workplace standards that apply generally to businesses in the manufacturing sector, including the Company's businesses. EPCRA establishes notification requirements for businesses, like the Company's, that use regulated hazardous substances. The Company is not aware of any failures to comply with OSHA or EPCRA requirements that could reasonably be expected to result in a material adverse effect on the Company's business, properties or results of operations on a consolidated basis. The Company's St. Gabriel plant uses mercury in its chlorine manufacturing process. The Company currently complies with both OSHA and industry standards for employees who could be exposed to mercury. The Federal Occupational Safety and Health Administration has previously proposed to lower the maximum permissible exposure level for mercury, and the Company believes that it will be able to comply with the new standard if it is reproposed at the same level. It is possible, however, that even lower mercury emissions or exposure limits could be imposed in the future by the Federal Occupational Safety and Health Administration or the EPA and the cost of compliance with such new limits cannot be estimated at the present time. Hazardous and Solid Wastes. The Company's manufacturing facilities generate hazardous and non-hazardous solid wastes which are subject to the requirements of RCRA and comparable state statutes. Under the 1984 amendments to RCRA, the EPA promulgated regulations banning the land disposal of certain hazardous wastes unless the wastes meet defined treatment or disposal standards, including certain mercury-containing wastes generated by the Company's St. Gabriel plant. In response to these regulations, the St. Gabriel plant has substantially reduced the quantity of wastes that are subject to the land ban. The Company has installed an in-plant treatment system that reduces the level of mercury in its wastes below the hazardous classification. The Company's disposal costs could increase substantially if its present disposal sites become unavailable due to capacity or regulatory restrictions. The Company presently believes, however, that its current disposal arrangements, together with the new treatment system, will allow the Company to continue to dispose of land-banned wastes with no material adverse effect on it. Superfund. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons for the clean-up of releases of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that disposed or arranged for the disposal of hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources. In the ordinary course of the Company's operations, substances are generated that fall within the definition of "hazardous substances," and the Company is the 70 75 owner or operator of several sites at which hazardous substances have been released into soil or groundwater. Under CERCLA, regulatory agencies or third parties may incur costs to investigate or remediate such conditions and seek reimbursement from the Company for such costs. However, no investigations or remedial activities are currently being conducted under CERCLA by third parties at any of the Company's facilities. Such activities are being carried out at certain facilities under the other statutory authorities discussed above. Indemnities ZENECA Indemnity. The Company's Henderson plant is located within what is known as the "Basic Complex." Soil and groundwater contamination have been identified within and adjoining the Basic Complex, including land owned by the Company. A groundwater treatment system has been installed at the facility and, pursuant to a consent agreement with the Nevada Division of Environmental Protection, a study is being conducted to further evaluate soil and groundwater contamination at the facility and other properties within the Basic Complex and to determine whether additional remediation will be necessary with respect to the Company's property. In connection with the 1988 acquisition of the Henderson and St. Gabriel properties by PAI, the sellers agreed to indemnify the Company with respect to, among other things, certain environmental liabilities associated with historical operations at the Henderson site. Zeneca Delaware Holdings, Inc. and Zeneca, Inc. (collectively, the "ZENECA Companies") have assumed the indemnity obligations. In general, PAI is indemnified against environmental costs which arise from or relate to pre-closing actions which involved disposal, discharge or release of materials resulting from the former agricultural chemical and other non-chlor-alkali manufacturing operations at the Henderson plant. The ZENECA Companies are also responsible for costs arising out of the pre-closing actions of Basic Investments and pre-closing actions at the Basic Complex and for other pre-closing environmental liabilities arising at other off-site locations. Under the ZENECA Indemnity, the Company may only recover indemnified amounts for environmental work to the extent that such work is required to comply with environmental laws or is reasonably required to prevent an interruption in the production of chlor-alkali products. The ZENECA Indemnity also covers certain claims by non-governmental third parties. The Company is responsible for environmental costs relating to the chlor-alkali manufacturing operations at the Henderson plant, both pre- and post-acquisition, for certain actions taken without ZENECA's consent and for certain operation and maintenance costs of a groundwater treatment system at the facility. Payments for environmental liabilities under the ZENECA Indemnity, together with other non-environmental liabilities for which the ZENECA Companies agreed to indemnify the Company, cannot exceed approximately $65 million. Through March 31, 1997, the Company has been reimbursed for approximately $12 million of costs covered by the ZENECA Indemnity, but the ZENECA Companies may have directly incurred additional costs that would further reduce the total amount remaining under the ZENECA Indemnity. In 1994, the Company recorded an additional $3.2 million environmental reserve related to pre-closing actions at sites that are the responsibility of ZENECA. At the same time a receivable was recorded from ZENECA for the same amount. It is the Company's policy to record such amounts when a liability can be reasonably estimated. No additional amounts were recorded in 1995, 1996 or 1997. As a result of the PAI Acquisition, the ZENECA Indemnity will terminate on April 20, 1999. The ZENECA Indemnity will continue to cover claims after the expiration of the term of the indemnity provided that, prior to the expiration of the indemnity, proper notice to the ZENECA Companies is given and either the ZENECA Companies have assumed control of such claims or the Company is contesting the legal requirements that gave rise to such claims, or has commenced removal, remedial or maintenance work with respect to such claims, or has commenced an investigation which results in the commencement of such work within ninety days. The Company believes that the ZENECA Companies will continue to honor their obligations under the ZENECA Indemnity for claims properly presented by the Company. It is possible, however, that disputes could arise between the parties concerning the effect of contractual language and that the Company would have to subject its claims for clean-up expenses, which could be substantial, to the contractually-established arbitration process. 71 76 PAI Sellers' Indemnity. In the PAI Acquisition Agreement, the sellers agreed to indemnify Pioneer, PAAC and their affiliates for certain environmental liabilities that result from certain discharges of hazardous materials, or violations of environmental laws, arising prior to the closing date from or relating to the PAI plant sites or arising before or after the closing date with respect to certain environmental liabilities relating to the Contingent Payment Properties. Amounts payable pursuant to the PAI Sellers' Indemnity will generally be payable as follows: (i) out of certain reserves established on PAI balance sheet at December 31, 1994; (ii) either by offset against the amounts payable under the Pioneer Seller Notes or from amounts held in the Contingent Payment Account; and (iii) in certain circumstances and subject to specified limitations, out of the personal assets of the sellers. See "Business -- Basic Investments." The Company is required to reimburse the sellers with amounts recovered under the ZENECA Indemnity or from other third parties. The Company and the sellers have agreed that they will cooperate in matters relating to the ZENECA Indemnity. The Company has also agreed to indemnify the sellers for certain environmental liabilities that may arise after the closing date. See "Risk Factors -- Environmental Regulation -- Henderson Remediation Matters; ZENECA Indemnity; PAI Sellers' Indemnity." OCC Tacoma Indemnity. The Tacoma Facility is located adjacent to the Hylebos Waterway, which is connected to Commencement Bay. The Hylebos Waterway is one of the study areas included in the Commencement Bay Nearshore/Tideflats site which has been placed on the National Priorities List for remediation under CERCLA. OxyChem is a member of the Hylebos Cleanup Committee ("HCC"), which has entered into a consent agreement with the EPA under which HCC will prepare a pre-remedial design for cleanup of the Hylebos Waterway. OxyChem is participating in a voluntary, non-binding mediation under which an arbitrator will allocate liability for the waterway among approximately 30 participating PRPs. The aggregate costs of the cleanup of the Hylebos Waterway will depend upon cleanup levels established by the EPA. Such cleanup levels have been proposed by the EPA, and are presently under discussion among the EPA, the HCC and other interested parties. The Tacoma Facility has a RCRA treatment, storage, and disposal facility permit which requires the plant to investigate groundwater contamination at the site and to treat the groundwater to standards established in the permit. Pursuant to this requirement, the plant has installed a groundwater extraction, treatment and injection system (not included in the Tacoma Acquisition), which withdraws the groundwater, removes volatile organic compounds (including trichloroethylene and perchloroethylene) and returns the treated water to the subsurface through wells that are designed to control off-site migration of contamination. The plant has estimated that this groundwater system will operate for at least 30 years. Certain areas at the Tacoma Facility are currently being voluntarily investigated under the oversight of the Washington Department of Ecology ("DOE") or the EPA. OxyChem has been named as a Potentially Liable Party ("PLP") under state law for remediation of, or it is voluntarily investigating, certain off-site, upland disposal sites used by the Tacoma Facility. OCC Tacoma has agreed to retain responsibility for these sites. Two other properties, located immediately adjacent to the Tacoma Facility, have allegedly been affected by operations at the Tacoma Facility. A groundwater contamination plume under the Tacoma Facility extends to the northwest and west. This area is being addressed by the Tacoma Facility's groundwater treatment system. The owner of the neighboring property to the south has alleged that waste from the Tacoma Facility was disposed of on its property, and that the operations of the Tacoma Facility also caused groundwater contamination. This area is currently under investigation with the oversight of the Washington DOE. In connection with the Tacoma Acquisition, OCC Tacoma agreed to indemnify the Company with respect to certain environmental matters, which indemnity is guaranteed by OxyChem. In general, the Company will be indemnified against damages incurred for remediation of certain environmental conditions, for certain environmental violations caused by pre-closing operations at the site and for certain common law claims. The conditions subject to the indemnity are sites at which hazardous materials have been released prior to closing as a result of pre-closing operations at the site, including Commencement Bay (outside the Hylebos area), off-site disposal sites in areas upland of the waterways and natural resource damages (together, the "Excluded Environmental Conditions"). In addition, OCC Tacoma will indemnify the Company for certain costs relating to releases of hazardous materials from pre-closing operations at the site into Hylebos 72 77 Waterway, site groundwater containing certain volatile organic compounds that must be remediated under the RCRA permit, and historical disposal areas on the embankment adjacent to the site for maximum periods of 24 or 30 years, depending upon the particular condition, after which the Company will have full responsibility for any remaining liabilities with respect to such conditions. OCC Tacoma may obtain an early expiration date for conditions other than the Excluded Environmental Conditions by obtaining a discharge of liability or an approval letter from a governmental authority. Although there can be no assurance that the presently anticipated remediation work will be completed prior to the expiration of the indemnity, or that additional remedial requirements will not be imposed thereafter, the Company believes that the residual liabilities, if any, can be managed in a manner that will not have a material adverse effect on the Company. OCC Tacoma will also indemnify the Company against certain other environmental conditions and environmental violations caused by pre-closing operations that are identified after the closing. Environmental conditions that are subject to formal agency action within five years after closing or to an administrative or court order within ten years after closing, and environmental violations that are subject to formal agency action within two years after closing or to an administrative or court order within five years after closing, will be covered by the indemnity up to certain dollar amounts and time limits. The Company will indemnify OCC Tacoma for environmental conditions and environmental violations identified after the closing if (i) an order or agency action is not imposed within the relevant time frames or (ii) applicable expiration dates or dollar limits are reached. The Company is responsible for remediation of environmental conditions and correction of environmental violations caused by post-closing actions at the site (other than post-closing actions by OCC Tacoma and its representatives) and the Company will indemnify OCC Tacoma for such conditions and violations. Moreover, if the Company takes certain actions which increase the cost of remediation or result in the identification of new environmental conditions after the closing, the Company will be liable for such costs. In particular, the Company may not, without OCC Tacoma's consent, construct new facilities within designated areas of the site that are being or will be remediated. In addition, the Company must consult with OCC Tacoma prior to construction or expansion in other areas of the site that requires the disturbance, excavation or remediation of soil, sediment or groundwater. This could limit the Company's ability to expand production capacity or to add material new capacity at the site. The indemnity obtained from OCC Tacoma for the Excluded Environmental Conditions, for expansion of or repairs to improvements at the site and for certain other matters is personal to the Company and its affiliates and may not, without OCC Tacoma's consent, be assigned to other persons. The Company has reviewed the time frames currently estimated for remediation of the known environmental conditions associated with Commencement Bay, the Hylebos Waterway, the plant and adjacent properties and the Company presently believes that it will have no material liability upon the termination of OCC Tacoma's indemnity. However, the OCC Tacoma indemnity is subject to limitations as to dollar amount and duration, as well as certain other conditions, and there can be no assurance that such indemnity will be adequate to protect the Company, that remediation will proceed on the present schedule, that it will involve the presently anticipated remedial methods, or that unanticipated conditions will not be identified. If these or other changes occur, the Company could incur a material liability for which it is not insured or indemnified. Remediation Matters General. Most of the plant sites on which the Company's manufacturing operations are located have been used for many years. Although the Company believes that prior operators utilized operating and disposal practices that met industry standards at the time, state and federal laws relating to remediation of historical disposal sites have become more stringent. As a result, to the extent wastes have been released or disposed of at its manufacturing sites, the Company has in the past been, and will in the future be, required to remediate contaminated property or remove previously disposed wastes and address related liabilities. In the past the Company has been subject to claims by neighboring landowners and other third parties asserting claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. However, the Company has resolved, or expects to resolve, such claims without material liability. 73 78 Basic Complex. Environmental contamination, including soil and groundwater contamination, has been identified within and adjoining the Basic Complex, including land owned and occupied by the Company. The Company is cooperating with the NDEP with respect to the issues affecting such property. In 1983, Stauffer Chemical, Montrose and the NDEP entered into a Consent Order requiring Stauffer Chemical and Montrose to install a groundwater intercept system to analyze for designated organic chemicals identified in the groundwater outside Stauffer Chemical's plant site and to remove certain chemicals to levels specified in the Consent Order. At that time, the NDEP made a finding that the organic contamination that had migrated off site did not represent an imminent or substantial endangerment to human health or the environment. In consideration for the companies' implementation of the groundwater intercept system, the State of Nevada and the NDEP granted the companies a release and covenant not to sue under certain environmental statutes for any civil liabilities or claims arising out of the presence of the organics covered by the Consent Order, subject to the compliance by the companies with the Consent Order. The companies have implemented the groundwater intercept system, and it meets the treatment levels specified in the Consent Order. Although the Company is not a party to the Consent Order, the Company contractually agreed, in connection with its acquisition of the Henderson facility, to operate the system and to pay for 50% of certain operating and maintenance costs for the system. Montrose agreed to pay the other 50% of such costs, and ZENECA must pay for remaining obligations arising as a result of the Consent Order. While it is possible that these costs could increase substantially if the existing groundwater treatment system must be modified or expanded, or additional groundwater remediation is required, the Company believes that some of these costs would be borne by Montrose and ZENECA, and the remaining costs would not have a material adverse effect on the Company. At the present time, however, the Company cannot reasonably estimate the scope of any other operating and maintenance requirements or their probable cost. PCAC, along with Stauffer Management Company ("Stauffer Management") (a ZENECA subsidiary), Montrose, Kerr McGee, Timet and Chemical Lime entered into a Consent Agreement in 1991 with the NDEP under which the parties agreed to provide reports summarizing documented information regarding historical waste disposal at each of their sites at the Basic Complex. These reports were Phase I of the "Environmental Conditions Assessment" (or "ECA") process for the Basic Complex. PCAC and Stauffer Management submitted the required report for the PCAC plant site in April 1993. The Phase I Report identified both present and former waste management areas, including disposal sites for agricultural chemicals formerly manufactured at the site and ponds used for disposal of chlor-alkali waste water. PCAC and Stauffer Management have entered into a Phase II agreement with the NDEP, which would cover additional investigation of the plant site, including additional soil and groundwater sampling. The parties have received a Letter of Understanding which identifies the areas that will be addressed in Phase II. Montrose also filed a report covering its leased portions of the Henderson property and has negotiated a Phase II agreement with the NDEP. In certain instances, PCAC, Stauffer Management and Montrose will cooperate in the preparation of information required for Phase II. PCAC and Stauffer Management also participated as members of the Henderson Industrial Site Steering Committee in the submission in April 1993 of a report regarding the Basic Complex common disposal areas. Historical waste management areas identified in the report included a landfill, waste water transmission ditches and waste water disposal ponds. These areas were used in the past for disposal of wastes manufactured in the Basic Complex. A Phase II agreement requiring additional investigations of the Basic Complex common area has also been negotiated. It is likely that a third phase of work, including remediation of soil or groundwater, may follow the Phase II investigations. Because the costs of future remedial obligations cannot be determined until the investigation is complete, it is not possible to determine whether, if at all, such costs will exceed amounts currently reserved with respect to such liabilities. The EPA is not a party to the various agreements with the NDEP and therefore is not bound by the terms of such agreements, nor is it bound by the release and covenant not to sue set forth in the Consent Order. The EPA is not presently pursuing any enforcement action relating to remediation of historical waste disposal at PCAC or the Basic Complex common area. There can be no assurance, however, that the EPA will not attempt to exercise its jurisdiction under federal environmental statutes, including CERCLA, with respect to the Basic Complex common areas or the individual plant sites in the future. If the EPA elects to exercise its 74 79 jurisdiction over the Basic Complex or the Henderson plant and pursue an independent enforcement action, it is possible that the costs of remediation would substantially exceed those that the Company currently anticipates under the terms of the NDEP Consent Agreement. The Company believes that the remediation costs related to the Company's chlor-alkali facilities will not be material and that it will be reimbursed under the ZENECA Indemnity or the PAI Sellers' Indemnity or by other responsible parties for substantially all of the non-chlor-alkali related remediation costs that may be incurred in connection with historical waste disposal at the Henderson plant and the Basic Complex common areas. The inactive waste management areas at the Henderson facility include a drum disposal area, ponds and other waste disposal areas at which significant quantities of wastes from historical non-chlor-alkali manufacturing operations were disposed of or accumulated. Generally, these historical disposal areas have been closed by leaving the wastes in place and capping them with a clay cover to minimize the migration of any contaminants. Groundwater monitoring wells were installed downgradient to detect any significant contaminant migration. To date, the results from these wells and communications with the NDEP indicate that on-site containment will continue to be an acceptable long-term waste management solution for these historical wastes. However, if off-site disposal is required, because of more stringent disposal standards in the future or unanticipated significant groundwater impacts from these areas, the cost of such disposal could be substantial and could, together with other remediation obligations, approach or exceed the amount available under the ZENECA Indemnity, the PAI Sellers' Indemnity or by other responsible parties. No assurance can be given that the Company will not be required to incur significant expenses for remedial and other liabilities under environmental laws in connection with the Henderson facility or operations, whether at or near the Henderson facility or at off-site locations, or that such expenses will be reimbursed under the ZENECA Indemnity or the PAI Sellers' Indemnity or by other responsible parties. See "Risk Factors -- Environmental Regulation." Antioch Plant. Kemwater's Antioch plant received a Clean-up and Abatement Order from the California Regional Water Quality Control Board (the "RWQCB") relating to contaminated groundwater. The RWQCB has requested Kemwater to prepare a work plan for additional investigation and remediation of the groundwater. Kemwater is preparing a plan for additional investigation and is reviewing the costs associated with remediation technologies that would meet the state standards. In the event that treatment of the ground water is necessary, there can be no assurance that it would not have a material adverse effect on Kemwater. INSURANCE The Company maintains general liability insurance and property and business interruption insurance, as well as worker's compensation insurance. In accordance with customary industry practice, the Company is not fully insured against all risks incident to its business. Because of the nature of industry hazards, it is possible that liabilities for pollution and other damages arising from a major occurrence could exceed insurance coverage or policy limits or that such insurance may not be available at reasonable rates in the future. Any such liabilities could have a material adverse effect on the Company. LEGAL PROCEEDINGS The Company has been named as a defendant in various legal proceedings arising in the ordinary course of its business. In the opinion of management, none of such litigation is material to the Company's financial statements. 75 80 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS OF PAAC The directors and executive officers of PAAC as of July 1, 1997 are as follows:
NAME AGE POSITION ---- --- -------- William R. Berkley................... 51 Chairman of the Board Michael J. Ferris.................... 52 President and Chief Executive Officer and Director Philip J. Ablove..................... 57 Vice President and Chief Financial Officer and Director Jerry B. Bradley..................... 51 Vice President, Human Resources Verrill M. Norwood................... 65 Vice President, Environmental and Regulatory Affairs Kent R. Stephenson................... 48 Vice President, General Counsel and Secretary Ronald E. Ciora...................... 55 President of All-Pure James E. Glattly..................... 50 President of PCAC Andrew M. Bursky..................... 40 Director Donald J. Donahue.................... 70 Director Richard C. Kellogg, Jr............... 45 Director Paul J. Kienholz..................... 66 Director Jack H. Nusbaum...................... 56 Director Thomas H. Schnitzius................. 54 Director
The Board of Directors has an Executive Committee and an Audit Committee. The current members of the Executive Committee are Messrs. Berkley, Bursky, Ferris and Nusbaum. The current members of the Audit Committee are Messrs. Donahue and Nusbaum. The current members of the Compensation and Stock Option Committee are Messrs. Donahue and Nusbaum. William R. Berkley has been a director of PAAC since its formation in March 1995 and Chairman of the Board and a director of Pioneer since its formation in 1987. He also serves as Chairman of the Board of several companies which he controls or founded. These include W.R. Berkley Corporation, a property and casualty insurance holding company, and Interlaken Capital, Inc., a private investment and consulting firm. Mr. Berkley is also a director of Strategic Distribution, Inc., a publicly traded distributor of maintenance and safety products to industry. Michael J. Ferris has served as President and Chief Executive Officer of PAAC and Pioneer since January 5, 1997. Prior to joining PAAC and Pioneer, he was employed by Vulcan Materials Company, a company engaged in the production of industrial materials and commodities, from March 1974 to January 1997, where he served as Executive Vice President, Chemicals from 1996 to 1997. Mr. Ferris is also a director of ChemFirst, Inc., a specialty chemical company. Philip J. Ablove has served as Vice President and Chief Financial Officer of PAAC and Pioneer since March 1996, after serving as Acting Chief Financial Officer since October 1995, and has been a director of PAAC since its formation in March 1995 and a director of Pioneer and its corporate predecessor since January 1991. He was President and Chief Executive Officer of Pioneer's corporate predecessor from January 1991 to July 1992, and he served as a consultant to such entity from October 1990 to January 1991. Mr. Ablove served as a consultant to Pioneer from October 1995 to March 1996. He has served as a consultant to various companies since 1983. Jerry B. Bradley has served as Vice President of Human Resources of PAAC and of Pioneer since October 1995. From May 1993 to October 1995, Mr. Bradley was President of Tandem Partners, Inc., a human resources consulting firm. From 1978 to 1993 he was employed by Occidental Chemical Corporation, where he served as Vice President, Human Resources from 1978 to 1993. Verrill M. Norwood has served as Vice President of Environmental and Regulatory Affairs of PAAC since the consummation of the PAI Acquisition on April 20, 1995, and as Vice President of Environmental 76 81 and Regulatory Affairs of PAI since 1990. Prior to joining PAI, Mr. Norwood was employed by Olin Corporation from 1973 to 1990, where he served as Vice President, Environmental Affairs from 1978 to 1990. Kent R. Stephenson has served as Vice President, General Counsel and Secretary of PAAC since the consummation of the PAI Acquisition on April 20, 1995, as Vice President, General Counsel and Secretary of PAI since June 1995, and as Vice President, General Counsel and Secretary of PAI since 1993. Prior to joining PAI, he was employed by Zapata Corporation, a publicly traded gas services company, from 1978 to 1993. Mr. Stephenson served as Senior Vice President, General Counsel and Secretary of Zapata from 1987 to 1993. Ronald E. Ciora has served as President of All-Pure since November 1995. From March 1989 to November 1995, he was President and Chief Operating Officer of DPC Industries, Inc., DX Distribution, Inc. and DXI Industries, Inc., which are companies engaged in chemical distribution, chlorine repackaging and bleach manufacturing. James E. Glattly has served as President of PCAC since December 1996, and served as Vice President of Sales and Marketing of PAAC from April 1995 to December 1996 and as Vice President of Sales and Marketing of PAI from 1988 to December 1996. Prior to joining PAI, he was employed by Occidental Chemical Corporation from 1985 to 1988 and from 1974 to 1983, where he served in various capacities, including Western Regional Manager and various other sales positions. From 1983 to 1985 Mr. Glattly served as General Manager of HCI Chemical. Andrew M. Bursky has been a director of PAAC since its formation in March 1995 and a director of Pioneer since January 1994. Mr. Bursky has been Managing Director of Interlaken Capital, Inc. since May 1980. He has been Chairman of the Board of Strategic Distribution, Inc. since July 1988. Mr. Bursky was an executive officer of Idle Wild Farm, Inc., a privately owned manufacturer of frozen food, and Blue Lustre Products, Inc., a privately owned company engaged in the sale and leasing of carpet cleaning equipment and other carpet cleaning products, which in October 1993 and October 1995, respectively, while he was an executive officer, filed chapter 11 petitions for reorganization under federal bankruptcy law. Donald J. Donahue has been a director of PAAC since its formation in March 1995 and a director of Pioneer since February 1988. Mr. Donahue served as Chairman of the Board of Magma Copper Company from 1987 to 1996 and as Chairman of Nacolah Holding Co., a life and health insurance company, from 1990 to 1993. From 1984 to 1985, Mr. Donahue served as Chairman and was a director of KMI Continental Group, Inc., a natural resource conglomerate. From 1975 to 1984, he was Vice Chairman and a director of Continental Group, Inc. Mr. Donahue is a director of Chase Brass Industries, Inc. and a director of Counsellors Tandem Securities Fund, Inc. and 15 other registered investment companies managed by EMW Warburg Pincus Counsellors, Inc. Richard C. Kellogg, Jr. has been a director of PAAC and Pioneer since April 1995. He served as Chairman of the Board and Chief Executive Officer of PAAC and as President of Pioneer from April 1995 to January 1997. He was a co-founder of PAI, serving as its Chairman of the Board and a director from its inception in 1988 to January 1997. From 1983 to 1993, Mr. Kellogg served as Vice President of Trans Marketing Houston, Inc. ("TMHI"), an international trading company that he co-founded dealing in refined petroleum products and chemicals. TMHI filed for bankruptcy in April 1993 and a liquidation plan was approved by the federal bankruptcy court in December 1993. Paul J. Kienholz has been a director of PAAC and Pioneer since June 1996. He served as President and Chief Operating Officer of PAAC from the consummation of the PAI Acquisition on April 20, 1995 until his retirement in November 1996, and as President of PAI from 1988 until his retirement. Prior to joining PAI, Mr. Kienholz was employed by PPG Industries, Inc. from 1959 to 1988, where he served in various capacities, including Director, Chlor-Alkali Products. Jack H. Nusbaum has been a director of PAAC since its formation in March 1995 and a director of Pioneer since 1988. Mr. Nusbaum is a Senior Partner and Chairman of the New York law firm of Willkie Farr & Gallagher, where he has been a partner for more than the past twenty-five years. He is a director of 77 82 W.R. Berkley Corporation, Fine Host Corporation, Strategic Distribution, Inc., The Topps Company, Inc. and Prime Hospitality Corp. Thomas H. Schnitzius has served as a director of each of Pioneer and PAAC since the consummation of the PAI Acquisition on April 20, 1995, and as a director of PAI since October 1993. He has been a principal in the Houston investment banking firm of Schnitzius & Vaughan since its formation in October 1987. Prior to 1987, he was a principal in the investment banking firm of Schnitzius & Co., Ltd. EXECUTIVE COMPENSATION Executive officers of PAAC are compensated in their capacity as executive officers of Pioneer or certain of its other subsidiaries. The following table sets forth certain information concerning compensation for service to Pioneer and its subsidiaries paid (i) during the last three fiscal years to William R. Berkley, Chairman of the Board of Pioneer, who received no compensation for acting in a capacity similar to that of a chief executive officer, (ii) during the period from April 21, 1995 to December 31, 1995 and during 1996, to Richard C. Kellogg, Jr., who acted in a capacity similar to that of a chief executive officer during such period, (iii) during the period from April 21, 1995 to December 31, 1995 and during 1996, to Pioneer's other four most highly compensated executive officers serving during 1996 and (iv) during the period from April 21, 1995 to December 31, 1995 and during 1996, to Paul J. Kienholz, who retired as President and Chief Operating Officer of PAAC on November 30, 1996: SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ANNUAL COMPENSATION AWARDS ALL OTHER NAME AND PRINCIPAL ------------------------------- OTHER ANNUAL ------------ COMPEN- POSITION YEAR(1) SALARY($) BONUS($) COMPENSATION(2)($) OPTIONS(3) SATION($) ------------------ ------- --------- -------- ------------------ ------------ --------- William R. Berkley 1996 8,000(4) 0 22,000 0 0 Chairman of the Board 1995 8,000(4) 0 22,000 0 0 1994 0 0 6,000 0 0 Richard C. Kellogg, Jr. 1996 300,000 75,000 0 0 3,750(6) President(5) 1995 206,731 135,900 0 131,691 4,590(6) James C. Glattly 1996 193,336 50,000 0 0 3,750(6) President, PCAC(7) 1995 114,327 69,675 0 53,500 2,453(6) Philip J. Ablove 1996 183,318 40,000 0 0 1,406(6) Vice President and Chief Financial Officer Verrill M. Norwood 1996 172,497 25,000 0 0 10,890(8) Vice President, Environmental, 1995 104,423 58,793 0 26,750 320,893(9) Health & Safety, PCAC Ronald E. Ciora 1996 165,000 50,000 0 0 2,062(6) President, All-Pure 1995 18,827 -- 0 16,050 45,000(10) Paul J. Kienholz 1996 250,000 50,000 0 0 16,623(12) President, PCAC(11) 1995 172,243 124,125 0 56,175 539,092(13)
- --------------- (1) Each of Messrs. Kellogg, Kienholz, Glattly and Norwood were officers of PAI on April 20, 1995, when PAI was acquired by Pioneer. After the PAI Acquisition, each served as an executive officer of Pioneer (including service as an executive officer of one or more subsidiaries of Pioneer), and information with respect to 1995 compensation is provided for each only with respect to services provided to Pioneer and its subsidiaries during the portion of the year beginning on April 21, 1995. Information with respect to Mr. Ablove, who became Vice President and Chief Financial Officer of Pioneer on March 8, 1996, and Mr. Ciora, who became President of All-Pure on December 1, 1995, is provided for the portions of the relevant years during which each served. (2) Mr. Berkley is not an officer of Pioneer. As a director of Pioneer he receives an annual retainer, all or a portion of which has been paid through the delivery of shares under Pioneer's 1993 Non-Employee Director Stock Plan. The retainer for service as a director during each of 1995 and 1996 was $22,000 per 78 83 year, with payment for 1996 in the form of 2,700 shares of Class A Common Stock and $7,994 in cash, and with payment for 1995 in the form of 3,320 shares of Class A Common Stock. The $6,000 in payment of the retainer and director's meeting fees for 1994 was paid in the form of 4,000 shares of Class A Common Stock. (3) Expressed in terms of the numbers of shares of Pioneer's Class A Common Stock underlying options granted during the year. All such options were granted under Pioneer's 1995 Stock Incentive Plan. (4) Represents director's meeting fees. (5) Mr. Kellogg resigned as President of Pioneer and PAAC on January 4, 1997 and no longer serves as an executive officer. (6) Represents amounts contributed to match a portion of the employee's contributions under a 401(k) plan. (7) Mr. Glattly served as Vice President, Sales and Marketing of PAAC and PCAC until December 1, 1996, when he was named President of PCAC. (8) Includes (a) $7,140, representing payment under a supplemental pension plan, and (b) $3,750, which was contributed to match a portion of contributions under a 401(k) plan. (9) Includes (a) $318,575, representing payment upon the termination of a salary continuation agreement in effect since 1993, together with payment for the resulting tax liability, and (b) $2,318, which was contributed to match a portion of contributions under a 401(k) plan. (10) Represents an amount paid as compensation for the loss of benefits from a previous employer. (11) Mr. Kienholz served as President of PCAC until December 1, 1996. He retired on January 1, 1997, and no longer serves as an executive officer (12) Includes (a) $12,873, representing payment under a supplemental pension plan, and (b) $3,750, which was contributed to match a portion of contributions under a 401(k) plan. (13) Includes (a) $533,206, representing payment upon the termination of a salary continuation agreement in effect since 1988, together with payment for the resulting tax liability, and (b) $5,886, which was contributed to match a portion of contributions under a 401(k) plan. Pioneer has adopted the 1995 Stock Incentive Plan (the "1995 Stock Incentive Plan"), under which 802,500 shares of Class A Common Stock of Pioneer were reserved for issuance pursuant to the grant of stock based awards to employees of Pioneer and its subsidiaries, including PAAC. Such awards may include incentive stock options, nonqualified stock options, stock appreciation rights ("SARs"), restricted stock awards, phantom stock unit awards, performance share unit awards and other forms of equity-based incentive compensation, or combinations of the foregoing. No more than 133,750 shares of Class A Common Stock may be issued to any one person pursuant to awards of options or SARs during any one year. Share numbers referred to above and in the following discussions have each been adjusted as a result of the 7% stock dividend paid on January 7, 1997. Applicable stock option exercise prices have also been adjusted as a result of the stock dividend. On April 20, 1995, options exercisable for approximately 535,000 shares of Class A Common Stock of Pioneer were granted to the employees of PAAC and its subsidiaries pursuant to the 1995 Stock Incentive Plan. Such options are exercisable at a price of $6.07 per share, the fair market value of the Class A Common Stock as of the date of grant. None of the options is exercisable prior to April 20, 1998. In 1996 Pioneer adopted the Key Executive Stock Grant Plan, under which 535,000 shares of Class A Common Stock of Pioneer were reserved for issuance pursuant to the grant of stock based awards to senior executives of Pioneer and its subsidiaries, including PAAC. Such awards are to be made in the form of phantom stock awards under Pioneer's incentive compensation bonus plan, payable upon vesting in shares of Class A Common Stock. No awards have been made under the Key Executive Stock Grant Plan. 79 84 OPTION GRANTS IN LAST FISCAL YEAR In 1996, Philip J. Ablove was the only named executive officer who received a grant of options to purchase Class A Common Stock of Pioneer. The following table provides information with respect to such grant:
INDIVIDUAL GRANTS POTENTIAL REALIZABLE ----------------------------------------------------------- VALUE AT ASSUMED NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK SHARES OPTIONS EXERCISE PRICE APPRECIATION FOR UNDERLYING GRANTED TO OR BASE OPTION TERM(2) OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------- NAME(1) GRANTED(#) 1996 (PER SHARE) DATE 5%($) 10%($) ------- ----------- ---------------- ------------- ---------- ---------- ---------- Philip J. Ablove...... 53,500 100.0 $5.61 6/04/06 $188,753 $478,378
- --------------- (1) The options were granted under Pioneer's 1995 Stock Incentive Plan at fair market value on the date of grant. The options granted are exercisable in 17,833-share increments on June 4 in the years 1999 through 2001. (2) These amounts represent assumed rates of appreciation in market value from the date of grant until the end of the option term, at the rates set by the Securities and Exchange Commission, and therefore are not intended to forecast possible future appreciation, if any, in Pioneer's stock price. Pioneer did not use an alternative formula for a grant date valuation, as it is not aware of any formula which will determine with reasonable accuracy a present value based on future unknown or volatile factors. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table shows with respect to the named executive officers the number of shares covered by both exercisable and non-exercisable stock options as of December 31, 1996, with respect to options to purchase Class A Common Stock of Pioneer. Also reported are the values for in-the-money options which represent the positive spread between the exercise price of any such existing stock options and the year-end price of the Class A Common Stock of Pioneer. No shares of Class A Common Stock of Pioneer were issued during 1996 to any individual as the result of the exercise of stock options.
NUMBER OF SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISABLE OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT 1996(#) DECEMBER 31, 1996($)(1) ---------------------------- ---------------------------- NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ------- ----------- ------------- ----------- ------------- Richard C. Kellogg, Jr........... -0- 131,691 -0- -0- James E. Glattly................. -0- 53,500 -0- -0- Philip J. Ablove................. -0- 53,500 -0- -0- Verrill M. Norwood, Jr........... -0- 26,750 -0- -0- Ronald E. Ciora.................. -0- 16,050 -0- -0- Paul J. Kienholz(2).............. -0- 56,175 -0- -0-
- --------------- (1) The closing price of the Class A Common Stock of Pioneer on December 31, 1996, the last trading day of Pioneer's fiscal year, was $5.00 per share. (2) As a result of Mr. Kienholz' retirement on December 31, 1996, the options held by him expired on March 31, 1997. PENSION PLAN PCAC's pension plan provides defined benefit retirement coverage to the executive officers of Pioneer and substantially all of PCAC's employees. At the normal retirement age of 65, participants receive benefits based on their credited service and their covered compensation for the average of their highest five complete consecutive plan years out of their last ten complete consecutive plan years. Covered compensation under the plan includes base pay, overtime and shift differential pay and certain annual performance and sales incentive 80 85 programs and commissions, but excludes all other items of compensation. However, the Internal Revenue Code limits remuneration which may be taken into account (subject to certain grandfather rules) under the pension plan for 1995 to $150,000. The benefits in the table set forth below are computed as a straight life annuity at age 65. Benefits are not subject to any deduction for social security since the basic benefit formula incorporates the average social security breakpoint in calculating the benefit. Pioneer's other operating subsidiaries do not have similar plans. PENSION PLAN TABLE
YEARS OF SERVICE(1) --------------------------------------------------- REMUNERATION 15 20 25 30 35 ------------ ------- ------- ------- ------- ------- $125,000......................... $27,153 $36,204 $45,255 $54,306 $63,357 150,000......................... 32,778 43,704 54,630 65,556 76,482 175,000......................... 32,778 43,704 54,630 65,556 76,482 200,000......................... 32,778 43,704 54,630 65,556 76,482 225,000......................... 32,778 43,704 54,630 65,556 76,482 250,000......................... 32,778 43,704 54,630 65,556 76,482 300,000......................... 32,778 43,704 54,630 65,556 76,482 400,000......................... 32,778 43,704 54,630 65,556 76,482 450,000......................... 32,778 43,704 54,630 65,556 76,482 500,000......................... 32,778 43,704 54,630 65,556 76,482
- --------------- (1) The estimated years of credited service for each of the named executive officers of PAAC as of December 31, 1996, were: Mr. Kellogg -- 5 years; Mr. Kienholz -- 7 years; Mr. Glattly -- 7 years; and Mr. Norwood -- 4 years. Messrs. Kienholz and Norwood also participate in a supplemental retirement plan which was established by Pioneer in 1995 in order to fund amounts due to such individuals under agreements reached when they were hired in 1988 and 1993, respectively. Under such plan, Mr. Kienholz began receiving supplemental retirement payments in the amount of $1,073 per month after he reached age 65 in December 1995, and Mr. Norwood began receiving receive supplemental retirement payments in the amount of $1,428 after he reached age 65 in July 1996. EMPLOYMENT AGREEMENTS AND SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS On April 20, 1995, Pioneer entered into a five-year employment agreement with Richard M. Kellogg, Jr. pursuant to which Mr. Kellogg served as President of Pioneer through January 1997 and continues to serve as an employee of Pioneer. Pursuant to the terms of the agreement, Pioneer will continue to pay Mr. Kellogg's annual salary of $300,000 per year through April 20, 2000. On April 20, 1995, PCAC extended its existing employment agreement with Mr. Kienholz, pursuant to which Mr. Kienholz served as President of PCAC. The agreement provided for an annual salary of at least $200,000, and for continuing employment until October 31, 1996. Mr. Kienholz retired on December 31, 1996. On April 20, 1995, Pioneer entered into three-year employment agreements with Messrs. Glattly and Norwood. The employment agreement with Mr. Glattly provides for an annual salary of at least $165,000. The employment agreement with Mr. Norwood provides for an annual salary of at least $143,100. On March 8, 1996, Philip J. Ablove, who is a director of Pioneer and PAAC, was elected Vice President and Chief Financial Officer of Pioneer, after serving as acting Chief Financial Officer and a management consultant to Pioneer since October 1995. Pioneer has agreed to pay Mr. Ablove an annual salary of $225,000. Following any change of control during his employment by Pioneer, he would be entitled to a severance payment equal to at least 12 months' salary. On January 4, 1997, Pioneer entered into a three-year employment agreement with Michael J. Ferris, pursuant to which Mr. Ferris serves as President and Chief Executive Officer of Pioneer and PCAC. The 81 86 agreement provides for an annual salary of not less than $350,000, and that during 1997 Mr. Ferris will also receive a cash bonus of not less than $200,000, payable quarterly in arrears. Under each of the employment agreements currently in effect, the employee will be entitled to receive other benefits made available to executive officers and to receive bonus compensation in accordance with any management incentive plan established by the Board of Directors. Each of the employment agreements provides that if the executive's employment thereunder is terminated by the employer without "just cause" or by the employee for "good reason" (as such terms are defined in the employment agreement), the executive shall continue to receive his annual salary until the last date of the employment term or, if later, the first anniversary of the termination date, subject to certain provisions for offset, and will continue to receive certain other benefits provided for in the agreement. Termination following a change in control does not constitute "just cause" or "good reason", but "good reason" does include the failure of any successor to the employer by operation of law to assume the employment agreement. Pioneer and Mr. Ferris entered into a Stock Purchase Agreement dated January 4, 1997, in connection with Mr. Ferris' employment as President and Chief Executive Officer of Pioneer. In accordance with the terms of the agreement, on February 13, 1997, Pioneer sold 150,000 shares of Pioneer's Class A Common Stock to Mr. Ferris for $5.346 per share, or $801,900 in the aggregate. The price paid was the average of the closing sale prices of the Common Stock as reported on the NASDAQ National Market System on the days during which the Common Stock was traded during the 30 consecutive trading days immediately preceding the date of the agreement. The shares were sold to Mr. Ferris in reliance on the exemption provided by Section 4(2) of the Securities Act. On January 4, 1997, Mr. Ferris was granted an incentive stock option to purchase 133,750 share of Class A Common Stock under Pioneer's 1995 Stock Incentive Plan, at an exercise price of $5.00 per share, the fair market value of a share of Class A Common Stock on the date of grant. The option is exercisable in 20,000-share increments on January 4 in the years 1998 through 2003, with an additional 13,750 exercisable on January 4, 2004. Mr. Ferris was also granted a non-qualified stock option to purchase 191,250 shares of Class A Common Stock at an exercise price of $5.00 per share. The option is exercisable in 38,250-share increments on January 4 in the years 1998 through 2002. As a part of his compensation package, it was also agreed that Mr. Ferris will receive a future grant of a non-qualified stock option to purchase 25,000 shares of Class A Common Stock on January 4 in each of the years 1998, 1999 and 2000. Shares subject to the options will have exercise prices of $6.00, $7.00 and $8.00, respectively. COMPENSATION OF DIRECTORS Directors of PAAC do not receive a fee for service as directors. Directors of PAAC are reimbursed for travel expenses incurred in attending board and committee meetings. All of the directors of PAAC also serve as directors of Pioneer. In 1992, the Board of Directors of Pioneer established a policy under which each director who is not also an employee of Pioneer receives an annual retainer and a fee for each meeting attended. Pursuant to Pioneer's 1993 Non-Employee Director Stock Plan, Pioneer granted each non-employee director who served throughout the year 2,700 shares of Class A Common Stock of Pioneer and $7,994 in cash in payment of the 1996 annual retainer of $22,000, and each director was paid $2,000 for each Board of Directors meeting attended in 1996. Mr. Ablove received 501 shares and $1,489 in cash in payment of the retainer as a result of his service as a non-employee director during a portion of the year. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION William R. Berkley, a member of the Compensation and Stock Option Committee of PAAC and Pioneer, is a director of PAAC and the Chairman of the Board of Directors of Pioneer. Mr. Berkley (who may be deemed to beneficially own all shares of Pioneer common stock held by the Interlaken Partnership) may be deemed to beneficially own approximately 59.9% of the voting power of Pioneer. See "Stock Ownership." 82 87 CERTAIN TRANSACTIONS PCAC, a wholly-owned subsidiary of PAAC, is party to an agreement with Basic Investments, an entity in which PCAC owns a minority interest (and which constitutes part of the Basic Ownership held for the benefit of the sellers in the PAI Acquisition), for the delivery of water to the Henderson production facility. The agreement provides for the delivery of a minimum of eight million gallons of water per day. The agreement expires on December 31, 2014, unless terminated earlier in accordance with the provisions thereof. Basic Investments also charges PCAC and other companies in the Basic Complex for power distribution services. For the year ended December 31, 1996, Basic Investments charged PCAC approximately $500,000 for the provision of such services. At December 31, 1996, net receivables from Basic Investments were $300,000. See "Business -- Basic Investments." PCAC sells certain services to and purchases steam from Saguaro Power. For the year ended December 31, 1996, sales to Saguaro Power totaled $1.0 million and purchases from Saguaro Power totaled $1.8 million; as of December 31, 1996, Saguaro Power owed PCAC $0.1 million and PCAC owed Saguaro Power $0.2 million. See "Business -- Saguaro Power." PCAC is also party to a development management agreement with Victory Valley, an entity controlled by Basic Investments and in which PCAC owns a minority interest (and which constitutes part of the Basic Ownership held for the benefit of the sellers in the PAI Acquisition). Pursuant to the agreement, Victory Valley manages the development of certain real property in Henderson, Nevada which is a portion of the Excess Land owned by PCAC. PCAC sells certain products to Kemwater at market prices. Sales to Kemwater totaled $8.8 million during the year ended December 31, 1996. Kemwater provides transportation services to PCAC at market prices which totaled $1.8 million for 1996. PAI sold caustic soda to TMHI for export from 1988 to 1993 and participated in certain joint insurance programs. Mr. Kellogg, who was an executive officer and director of PAI, co-founded TMHI and served as a director and executive officer of TMHI. PAI wrote off $1.3 million of receivables in 1992 and charged an additional $1.1 million against income in 1993 related to sales to TMHI that were deemed uncollectible. In April 1993, TMHI filed for bankruptcy. In connection with the consummation of the PAI Acquisition, Pioneer issued and sold (i) to the Interlaken Partnership, 3,039,772 shares of Class A Common Stock of Pioneer for an aggregate purchase price of $15 million, and (ii) to Mr. Kellogg, 515,000 shares of Class A Common Stock of Pioneer for an aggregate purchase price of approximately $2.5 million. An entity controlled by Mr. Berkley is the sole general partner of the Interlaken Partnership, and Mr. Berkley also owns approximately 32.3% of the limited partnership interests in the Interlaken Partnership. The Interlaken Partnership beneficially owns approximately 34.9% of the voting power of Pioneer, and William R. Berkley, Chairman of Pioneer and PAAC (who may be deemed to beneficially own all shares of Pioneer common stock held by the Interlaken Partnership), may be deemed to beneficially own approximately 56.0% of the voting power of Pioneer. Mr. Berkley has the right to vote and otherwise act in respect of the shares of Pioneer beneficially owned by the Interlaken Partnership in his capacity, through controlled entities, as the sole general partner of the Interlaken Partnership. See "Stock Ownership." Upon consummation of the PAI Acquisition, Interlaken Capital, Inc., an entity controlled by Mr. Berkley, received a fee of approximately $1.6 million from PAAC in connection with financial advisory services with respect to the PAI Acquisition and related financings. The firm was also paid a fee of $300,000, plus reimbursement of reasonable out-of-pocket expenses, for services rendered in connection with the KWT transaction. The firm was paid a fee of approximately $1.3 million, plus reimbursement of reasonable out-of-pocket expenses, for services rendered in connection with the Tacoma Acquisition. Upon consummation of the PAI Acquisition, Pioneer and PAI entered into employment agreements with the executive officers of PAI, and Pioneer granted to such executive officers options to purchase shares of Pioneer's Class A Common Stock pursuant to its 1995 Stock Incentive Plan. See "Management -- Executive Compensation." 83 88 PAAC and its subsidiaries (the "PAAC Group") have entered into a tax sharing agreement (the "Tax Sharing Agreement") with Pioneer and the other members of the consolidated group (the "Pioneer Group") of which Pioneer is the common parent. Under the Tax Sharing Agreement, (i) Pioneer is obligated to pay the federal income tax liability of the Pioneer Group and (ii) the PAAC Group is required to make tax sharing payments to Pioneer in an amount equal to its share of the Pioneer Group's consolidated cash tax liability, if any. In determining the PAAC Group's share of the Pioneer Group's consolidated cash tax liability (x) available net operating loss carryforwards each year will be determined as if any prior use of those carryforwards by members of the Pioneer Group other than the PAAC Group (the "Non-PAAC Group"), except carryforwards generated by the Non-PAAC Group after the PAI Acquisition, had not occurred ("Previously Used NOLs") and (y) net operating loss carryforwards, except carryforwards generated by the Non-PAAC Group after the PAI Acquisition, will first reduce the "separate tax liability" of the PAI Group each year to the fullest extent permitted by the Code before any net operating loss use by the Non-PAAC Group except that Previously Used NOLs may only be utilized by the PAAC Group. Jack H. Nusbaum, a director of Pioneer and PAAC, is a Senior Partner and Chairman of the law firm of Willkie Farr & Gallagher, which regularly acts as counsel to Pioneer and PAAC and is acting as counsel to Pioneer and PAAC in connection with the Exchange Offer. Thomas H. Schnitzius, a director of Pioneer and PAAC, is a principal of Schnitzius & Vaughan, an investment banking firm. PAI retained Schnitzius & Vaughan to provide merger and acquisition and financial advisory services to PAI. PAI paid Schnitzius & Vaughan a $250,000 fee for financial advisory services rendered in connection with PAI's March 1995 debt refinancing. In addition, as compensation for financial services rendered to it by Schnitzius & Vaughan in connection with the PAI Acquisition, PAI paid that firm a fee of approximately $1.0 million upon the consummation of the PAI Acquisition, plus reimbursement of reasonable out-of-pocket expenses relating to such services. The firm was also paid a fee of $300,000, plus reimbursement of reasonable out-of-pocket expenses, for services rendered in connection with the KWT transaction, and a fee of $150,000, plus reimbursement of reasonable out-of-pocket expenses, for services rendered in connection with the T.C. Products acquisition. Schnitzius & Vaughan provides financial advisory services on an on-going basis to the Company, for which it received fees of $476,000 for 1996. The firm is currently paid a retainer for such services of $6,000 per month. The firm was paid a fee of approximately $450,000, plus reimbursement of reasonable out-of-pocket fees and expenses, for services rendered in connection with the Tacoma Acquisition. 84 89 STOCK OWNERSHIP Since the formation of PAAC in March 1995, all of the outstanding shares of common stock, par value $.01 per share, of PAAC have been owned by Pioneer. The following table sets forth, as of July 1, 1997, certain information regarding ownership of PAAC common stock by (i) each person known by PAAC to be the beneficial owner of more than five percent of the PAAC common stock, (ii) each of the directors of PAAC and the executive officers of PAAC named in the Summary Compensation Table and (iii) all directors and executive officers of PAAC as a group. Except as otherwise indicated, each party has sole voting and investment power over the shares beneficially owned.
AMOUNT AND TITLE OF NAME OF NATURE PERCENT CLASS BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS -------- ---------------- ----------------------- -------- Common Stock Pioneer Companies, Inc.......................... 1,000 100% 4200 NationsBank Center 700 Louisiana Street Houston, TX 77002 William R. Berkley.............................. 1,000(1) 100% c/o Pioneer Companies, Inc. 165 Mason Street Greenwich, CT 06830 All Directors and Executive Officers as a group (14 persons).................................... 1,000(1) 100%
- --------------- (1) Mr. Berkley, Chairman of the Board and principal shareholder of Pioneer, may be deemed to beneficially own the shares of PAAC common stock owned by Pioneer. Mr. Berkley disclaims beneficial ownership of all such shares. The Interlaken Partnership beneficially owns approximately 34.9% of the voting power of Pioneer and William R. Berkley, Chairman of Pioneer and PAAC (who may be deemed to beneficially own all shares of Pioneer common stock held by the Interlaken Partnership), may be deemed to beneficially own approximately 56.0% of the voting power of Pioneer. As a result of Mr. Berkley's ownership of Pioneer voting stock, Mr. Berkley is able to control the election of PAAC's Board of Directors and thereby direct the management and policies of PAAC, PAI and its subsidiaries. Pioneer's authorized and outstanding common stock consists of Class A Common Stock, entitled to one vote per share, and Class B Common Stock, entitled to one-tenth of one vote per share and convertible into Class A Common Stock on a share-for-share basis. The Class B Common Stock of Pioneer was issued to Pioneer's former lending banks under the plan of reorganization of Pioneer and its subsidiaries in 1992. Information obtained from a Schedule 13G, dated July 21, 1992, filed with the Securities and Exchange Commission by Chemical Bank ("Chemical"), Barnett Bank of South Florida, N.A. ("Barnett") and The Chase Manhattan Bank ("Chase") indicates that (i) Chemical had acquired 616,768 shares of Class B Common Stock of Pioneer of which it was the beneficial owner with sole voting and dispositive power, (ii) Barnett had acquired 122,146 shares of Class B Common Stock of which it was the beneficial owner with sole voting and dispositive power and (iii) Chase had acquired 84,295 shares of Class B Common Stock of which it was the beneficial owner with sole voting and dispositive power. In September 1995, Barnett converted its Class B Common Stock into Class A Common Stock. The holdings of Chemical and Chase will represent approximately 0.7% and 0.1%, respectively, of the voting power of Pioneer upon consummation of the Tacoma Acquisition and, in the aggregate, approximately 7.7% of the number of shares of Pioneer common stock outstanding. Upon consummation of the Tacoma Acquisition, Pioneer issued 55,000 shares of Pioneer Preferred Stock, constituting all of the issued and outstanding shares of Pioneer Preferred Stock, to OCC Tacoma. Each share of Pioneer Preferred Stock is convertible at any time into eight shares of Class A Common Stock of Pioneer. Each share of Pioneer Preferred Stock is entitled to eight votes per share (subject to adjustment) and votes with the Pioneer common stock on all matters. The Pioneer Preferred Stock issued to OCC Tacoma upon consummation of the Tacoma Acquisition represents approximately 4.8% of the voting power of Pioneer. 85 90 DESCRIPTION OF OTHER INDEBTEDNESS NEW CREDIT FACILITIES Term Facility Concurrent with the closing of the Initial Offering, the other Refinancings and the Tacoma Acquisition, the Company entered into a nine and one-half year $100.0 million Term Facility provided by a syndicate of financial institutions. Quarterly amortization of the Term Loans will be in an aggregate annual principal amount equal to 1% of the initial principal amount beginning September 30, 1997, with the remaining 90.75% of the initial principal amount maturing on December 15, 2006. Indebtedness under the Term Facility will be subject to mandatory prepayment provisions including, without limitation: (i) upon the occurrence of a change of control (to be defined in a manner similar to "change of control" in the Indenture) and (ii) with 100% of the net proceeds from asset sales permitted under the Term Facility (provided that up to $35.0 million of such proceeds since the closing of the Term Facility may be re-invested within 365 days of their receipt in the Company or its subsidiaries in their current lines of business). Borrowings under the Term Facility bear interest at a floating rate, based at the Company's option on LIBOR or the administrative agent's alternate base rate. Indebtedness under the Term Facility is guaranteed by all direct and indirect subsidiaries of the Company, provided that a non-U.S. subsidiary will only be required to deliver a guarantee to the extent it would not result in material increased tax or similar liabilities for the Company and its subsidiaries on a consolidated basis. The Term Facility is secured on a pari passu basis with the Notes, by (a) a first mortgage lien and security interest in the real property, buildings, fixtures and equipment relating to the Tacoma Facility, (b) a first-priority, perfected security interest in certain agreements related to the Tacoma Acquisition, (c) first mortgage liens on the Henderson, Nevada and St. Gabriel, Louisiana chlor-alkali production facilities of PCAC, including real property, buildings, fixtures and equipment, and (d) a first-priority, perfected pledge of all the capital stock of PCAC and All-Pure. The Term Facility contains covenants similar to the covenants contained in the Indenture. Events of default with respect to the Term Facility include, among others, failure to make payment when due, defaults under certain other agreements or instruments of indebtedness and certain other events of default similar to those contained in the Indenture. Revolving Facility Concurrent with the closing of the Initial Offering, the other Refinancings and the Tacoma Acquisition, the Company entered into the Revolving Facility under which the agent bank (the "Bank") and the other lenders provide a revolving loan and letter of credit facility to the Company, subject to the conditions set forth therein. The Bank extends credit to the Company on a revolving basis at any time and from time to time for a period of five years following the Initial Offering in an aggregate principal amount of Revolving Loans outstanding of not in excess of $35.0 million, up to $10.0 million of which amount will be available for the issuance of letters of credit ("Letters of Credit"); provided that the aggregate amount of the Revolving Loans and the aggregate undrawn face amount of Letters of Credit may not at any time exceed the borrowing base (the "Borrowing Base"), which will be the sum of, subject to certain exceptions, (i) up to 85% of eligible accounts receivable and (ii) up to 50% of eligible inventory, not to exceed the lesser of (a) $10.0 million or (b) 35% of the amount of the foregoing clause (i). The obligations of PAAC under the Revolving Facility are secured by a first priority lien on all accounts receivables and inventory, and certain assets related thereto, of the Company and certain of its subsidiaries, including Kemwater. Borrowings under the Revolving Facility bear interest at a rate determined by reference to the Bank's reference rate in effect from time to time (the "Reference Rate") or, at the Company's option, the Bank's LIBOR interest rate (the "LIBOR Rate"). The interest rate will be adjusted quarterly based upon the ratio of total debt to earnings before interest, taxes and 86 91 depreciation and amortization for the preceding four quarters. If any borrowings are not repaid when due, the outstanding principal amount of such borrowings will bear interest at the then applicable rate plus 2.0%. The Company will pay the Bank, monthly in arrears, a commitment fee based on the average difference between $35.0 million and the aggregate of the Revolving Loans and the aggregate undrawn face amount of the Letters of Credit outstanding. PAAC will also pay other customary fees including a fee on Letters of Credit based on the average aggregate undrawn face amount of Letters of Credit outstanding. The Revolving Facility is guaranteed by PAI and its subsidiaries. The Revolving Facility contains customary covenants with respect to, among other things, (i) maintenance of a ratio of EBITDA to interest expense and (ii) restrictions on the incurrence of additional liens or indebtedness. The Company intends to use any borrowings under the Revolving Facility for its ongoing working capital needs and general corporate purposes. Letters of Credit will be used to support obligations of the Company incurred in the ordinary course of business. OTHER Other long-term debt of PAAC consists of $4.5 million of outstanding variable rate subordinated notes, with principal payments due July 31, 2001, and $2.3 million of an outstanding variable rate tax-exempt bond, financed through the Economic Development Corporation of Pierce County, Washington, with principal payments due in variable annual installments through 2014. 87 92 DESCRIPTION OF THE NOTES GENERAL The Exchange Notes will be issued, and the Original Notes were issued, under an Indenture (the "Indenture") among the Company, as issuer, all of the Company's Subsidiaries (collectively, the "Subsidiary Guarantors") and United States Trust Company of New York, as trustee (the "Trustee"). The terms and conditions of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act") as in effect on the date of the Indenture. The Notes are subject to all such terms and conditions, and reference is made to the Indenture and the Trust Indenture Act for a statement thereof. The following statements are summaries of the provisions of the Notes and the Indenture and do not purport to be complete. Such summaries make use of certain terms defined in the Indenture and are qualified in their entirety by express reference to the Indenture. Certain of such defined terms are set forth below under "-- Certain Definitions." For purposes of this "Description of the Notes," the "Company" means Pioneer Americas Acquisition Corp. A copy of the Indenture will be available upon request to the Company. The Notes will be limited to $200.0 million aggregate principal amount and will be issued in fully registered form without coupons in denominations of $1,000 and any integral multiple of $1,000. Principal of, premium and Liquidated Damages, if any, and interest on the Notes will be payable, and the Notes will be transferable, at the corporate trust office or agency of the Trustee maintained for such purposes in New York, New York. Initially, the Trustee will act as paying agent and registrar under the Indenture. The Company and its Subsidiaries may act as paying agent and registrar under the Indenture, and the Company may change any paying agent and registrar without notice to the Persons who are registered holders ("Holders") of the Notes. The Company may pay principal, premium and interest by check and may mail an interest check to a Holder's registered address. Holders must surrender the Notes to the paying agent to collect principal and premium payments. No service charge will be made for any registration of transfer or exchange of the Notes, except for any tax or other governmental charge that may be imposed in connection therewith. PAYMENT TERMS Interest on the Notes will initially accrue from the respective issue date, and thereafter from the most recent date to which interest has been paid. Interest will be payable semi-annually on June 15 and December 15 of each year, commencing December 15, 1997, at the rate of 9 1/4% per annum to Holders of the Notes as of the close of business on June 1 and December 1 next preceding the applicable interest payment date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Notes mature on June 15, 2007. Payment of the Notes is guaranteed by the Subsidiary Guarantors, jointly and severally, on a senior basis. See "-- Guarantees." RANKING The Notes will be senior obligations of the Company and will rank pari passu with all existing and future Senior Indebtedness of the Company (including the loans under the New Credit Facilities and senior to all Subordinated Indebtedness of the Company. The Notes, however, will be effectively subordinated to secured Senior Indebtedness of the Company and its subsidiaries with respect to the assets securing such Indebtedness (such as the accounts receivable, inventory and certain related assets of the Company and its subsidiaries which are expected to secure the Indebtedness under the Revolving Facility). The guarantee of PCAC with respect to the Notes will be secured by (i) a first mortgage lien on the Tacoma Facility, (ii) a first priority security interest in certain agreements related to the Tacoma Acquisition, and (iii) first mortgage liens on PCAC's chlor-alkali production facilities located in Henderson, Nevada and St. Gabriel, Louisiana and the guarantee of PAI with respect to the Notes will be secured by a pledge of the Capital Stock of PCAC and All-Pure held by PAI. Such liens will also secure, equally and ratably, PCAC's guarantee and PAI's guarantee, respectively, of the Term Loans. In addition, the Company and its Subsidiaries may incur up to $50.0 million of Senior Indebtedness which will be secured on a pari passu basis with the Notes. 88 93 As of March 31, 1997, after giving pro forma effect to the Refinancings and the Tacoma Acquisition, the Company and its Subsidiaries would have had outstanding approximately $306.8 million aggregate principal amount of secured Senior Indebtedness. It is expected that as of March 31, 1997, on a pro forma basis, the Company and its Subsidiaries would have had, subject to certain restrictions (including borrowing base limitations), the ability to draw up to $32.2 million of additional secured Senior Indebtedness under the Revolving Facility. See "Risk Factors -- Ranking of the Notes" and "Description of Other Indebtedness." Holders of secured Indebtedness of the Company or the Subsidiary Guarantors have claims with respect to the assets constituting collateral for such Indebtedness that are prior to the claims of holders of the Notes and the Guarantees, respectively. In the event of a default on the Notes, or a bankruptcy, liquidation or reorganization of the Company or the Subsidiary Guarantors, such assets will be available to satisfy obligations with respect to the Indebtedness secured thereby before any payment therefrom could be made on the Notes or the Guarantees, as the case may be. To the extent that the value of such collateral is not sufficient to satisfy the Indebtedness secured thereby, amounts remaining outstanding on such Indebtedness would be entitled to share, together with the Indebtedness under the Notes and the Guarantees, as the case may be, with respect to any other assets of the Company and the Subsidiary Guarantors. See "-- Security." GUARANTEES The Subsidiary Guarantors will, jointly and severally, unconditionally guarantee the due and punctual payment of principal of, premium, if any, and interest on, the Notes. Such guarantees will be senior obligations of each Subsidiary Guarantor, and will rank pari passu with all existing and future Senior Indebtedness of such Subsidiary Guarantor and senior to all Subordinated Indebtedness of such Subsidiary Guarantor. The guarantee of PCAC with respect to the Notes and the Term Loans will be secured by (i) a first mortgage lien on the Tacoma Facility, (ii) a first priority security interest in certain agreements related to the Tacoma Acquisition, and (iii) first mortgage liens on PCAC's chlor-alkali production facilities located in Henderson, Nevada and St. Gabriel, Louisiana. The guarantee of PAI with respect to the Notes and the Term Loans will be secured by a pledge of the Capital Stock of PCAC and All-Pure. See "-- Security" and "-- Intercreditor Agreement." The Subsidiary Guarantors on the date of this Prospectus are set forth below: Pioneer Americas, Inc. Pioneer Chlor Alkali Company, Inc. Imperial West Chemical Co. All-Pure Chemical Co. Black Mountain Power Company All-Pure Chemical Northwest, Inc. Pioneer Chlor Alkali International, Inc. G.O.W. Corporation Pioneer (East), Inc. T.C. Holdings, Inc. T.C. Products, Inc. Subsidiary Guarantors will include such other Subsidiaries of the Company that become Subsidiary Guarantors as described under "-- Certain Covenants -- Guarantees." The Indenture provides that the obligations of the Subsidiary Guarantors under their respective Guarantees will be reduced to the extent necessary to prevent the Guarantees from violating or becoming voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Upon any sale, exchange, transfer or other disposition to any Person of all of the Company's or a Restricted Subsidiary's Equity Interests in, or all or substantially all of the assets of, any Subsidiary Guarantor which is in compliance with the Indenture, such Subsidiary Guarantor will be released from all its obligations under its Guarantee. 89 94 Separate financial statements of the Subsidiary Guarantors are not included herein because (i) the Company is a holding company with no independent operations, (ii) the Guarantees are full and unconditional (except to the extent necessary to comply with fraudulent conveyance laws), (iii) such Subsidiary Guarantors are jointly and severally liable with respect to the Guarantees, and (iv) all of the Subsidiaries of the Company currently in existence are Subsidiary Guarantors and the aggregate consolidated net assets, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the net assets, earnings and equity of the Company on a consolidated basis. SECURITY PCAC has granted to United States Trust Company of New York, as collateral agent (the "Collateral Agent"), for the benefit of (x) the Trustee, for itself and the Holders, and (y) the agent under the Term Facility (the "Term Loan Agent"), for itself and the other Term Loan lenders, (i) a first mortgage lien and security interest in the real property, buildings, fixtures and certain equipment relating to the Tacoma Facility, (ii) a first priority security interest in certain agreements related to the Tacoma Acquisition, including the Purchase Agreement, the Chlorine Purchase Agreement, the Chlorine and Caustic Soda Sales Agreement and the Environmental Operating Agreement, and (iii) first mortgage liens on the Henderson and St. Gabriel chlor-alkali production facilities (including real property, buildings, fixtures and certain equipment). PAI will grant to the Collateral Agent for the benefit of (x) the Trustee, for itself and the Holders, and (y) the Term Loan Agent, for itself and the other Term Loan lenders, a pledge of the Capital Stock of PCAC and All-Pure pursuant to a stock pledge agreement (the "Stock Pledge Agreement"). The items described in (i) through (iii) above and the Capital Stock of PCAC and All-Pure are collectively referred to herein as the "Note Collateral." See "The Acquisition", "Risk Factors -- Limitations on Security Interest" and "-- Intercreditor Agreement." There can be no assurance that the proceeds of any sale of the Note Collateral in whole or in part pursuant to the Indenture and the related security documents following an Event of Default would be sufficient to satisfy payments due on any of the Notes or the other secured Indebtedness. See "Risk Factors -- Limitations on Security Interest." In addition, the ability of the Collateral Agent, the Trustee, any of the Holders, the Term Loan Agent, the Term Loan lenders (the "Secured Parties") to realize upon the Note Collateral may be subject to certain bankruptcy law limitations in the event of a bankruptcy. See "-- Certain Bankruptcy Limitations." The collateral release provisions of the Indenture will permit the release of Note Collateral without substitution of collateral of equal value under certain circumstances. See "-- Release of Note Collateral." As described under "-- Certain Covenants -- Limitations on Asset Sales," the Net Proceeds of certain Asset Sales may under specified circumstances be required to be utilized to make a pro rata offer to purchase Notes. For so long as any of the Original Notes or the Exchange Notes, as the case may be, are outstanding, if an Event of Default occurs under the Indenture and a declaration of acceleration of the Original Notes or the Exchange Notes, as the case may be, occurs as a result thereof, the Trustee, on behalf of the Holders, and as directed by Holders of a majority of the total principal amount of the Notes, in addition to any rights or remedies available to it under the Indenture, may, subject to the provisions of the Intercreditor Agreement (as defined under "-- Intercreditor Agreement"), cause the Collateral Agent to take such action as it may deem advisable to protect and enforce the rights of the Trustee and the Holders in the Note Collateral, including the institution of foreclosure proceedings. The proceeds received by the Collateral Agent from any foreclosure with respect to the Note Collateral will be applied by the Collateral Agent first to pay the expenses of such foreclosure and fees and other amounts then payable to the Collateral Agent under the Intercreditor Agreement, and thereafter to pay, pro rata: (i) the obligations under the Indenture, including amounts then payable to the Trustee under the Indenture and the principal of, premium, if any, and interest on the Notes and any Exchange Notes, and (ii) the obligations under the Term Facility, including amounts then payable to the Term Loan Agent and the principal of, premium, if any, and interest on the Term Loans. Dispositions of Note Collateral may be subject to delay pursuant to the Intercreditor Agreement. See "-- Intercreditor Agreement." 90 95 Real property pledged as security to a lender may be subject to known and unforeseen environmental risks. Under CERCLA, a lender who does not foreclose on a property may be held liable, in certain limited circumstances, for the costs of remediating or preventing releases or threatened releases of hazardous substances at a mortgaged property. There may be similar risks under various state laws and common law theories. Such liability has seldom been imposed, and finding a lender liable generally has been based on the lender's having become sufficiently involved in the operations of the borrower so that its activities are deemed to constitute "participation in the management." A lender may also be considered to be a current owner of a property who can be held liable under CERCLA if the lender takes title to property by foreclosure, although certain courts have held that mere foreclosure on the borrower's property, in order to protect the lender's security interest, does not make the lender liable under CERCLA. The uncertain state of current law does not provide any assurance that lenders can avoid the risk of liability under CERCLA if they foreclose on properties or become involved in work-outs or similar situations that may entail some involvement in, or influence over, facility operations. INTERCREDITOR AGREEMENT The Company, PAI, PCAC, the Trustee, the Term Loan Agent and the Collateral Agent have entered into an Intercreditor and Collateral Agency Agreement (the "Intercreditor Agreement"). The Intercreditor Agreement provides generally that (i) with respect to administering the Note Collateral and amending, supplementing or waiving the provisions of the instruments relating to the security interests granted therein, the holders of a majority of the aggregate outstanding principal amount of the obligations secured by the Note Collateral (the "Majority Holders") may direct the Collateral Agent, provided that the Majority Holders include the holders of a majority of the aggregate outstanding principal amount of the Term Loans; (ii) with respect to releasing a substantial portion of the Note Collateral in circumstances not otherwise permitted by the Indenture or the Term Facility, the Majority Holders may direct the Collateral Agent, provided that the Majority Holders include the holders of 100% of the aggregate outstanding principal amount of the Term Loans; and (iii) with respect to foreclosing on or otherwise pursuing remedies with respect to the Note Collateral, the holders of a majority of the aggregate outstanding principal amount of either (x) the Notes or (y) the Term Loans may direct the Collateral Agent, provided that the holders taking such action hold an aggregate principal amount of such debt representing at least 15% of the aggregate outstanding principal amount of the obligations secured by the Note Collateral. All cash or cash equivalents received by the Collateral Agent (x) upon the release of Note Collateral, (y) as proceeds of insurance or condemnation or other taking awards, or (z) as proceeds of any sale (including an Asset Sale authorized under the terms of the Indenture) or other disposition of Note Collateral (collectively, "Trust Moneys") shall be subject to a lien and security interest in favor of the Collateral Agent for the benefit of the Secured Parties in accordance with the terms of Intercreditor Agreement. If an Event of Default shall have occurred and be continuing, and the obligations secured by the Note Collateral shall have been accelerated, then upon the instructions of the holders of the obligations secured by the Note Collateral, in accordance with the terms of the Intercreditor Agreement, the Collateral Agent shall, as soon as practicable, apply the Trust Moneys relating to the Note Collateral first to pay amounts then payable to the Collateral Agent under the Intercreditor Agreement, and thereafter to pay, pro rata: (i) the obligations under the Indenture, including amounts then payable to the Trustee under the Indenture and the principal of, premium, if any, and interest on the Original Notes and the Exchange Notes and (ii) the obligations under the Term Facility, including amounts then payable to the Term Loan Agent and the principal of, premium, if any, and interest on the Term Loans. CERTAIN BANKRUPTCY LIMITATIONS The right of the Collateral Agent to repossess and dispose of the Note Collateral upon the occurrence of an Event of Default is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy case were to be commenced by or against the Company, PAI or PCAC prior to the Collateral Agent's having repossessed and disposed of the relevant Note Collateral. Under the Bankruptcy Code, a secured creditor such as the Collateral Agent is prohibited from repossessing its security from a debtor in a bankruptcy case, or from 91 96 disposing of security repossessed from such debtor, without bankruptcy court approval. Moreover, the Bankruptcy Code permits the debtor to continue to retain and to use collateral even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given "adequate protection." The meaning of the term "adequate protection" may vary according to circumstances, but it is intended in general to protect the value of the secured creditor's interest in the collateral and may include cash payments or the granting of additional security, if and at such times as the court in its discretion determines, for any diminution in the value of the collateral as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. In view of the lack of a precise definition of the term "adequate protection" and the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the Original Notes, the Exchange Notes, or the other secured indebtedness could be delayed following commencement of a bankruptcy case, whether or when the Collateral Agent could repossess or dispose of the Note Collateral or whether or to what extent holders of such indebtedness would be compensated for any delay in payment or loss of value of the Note Collateral through the requirement of "adequate protection." Furthermore, in the event that the bankruptcy court determines the value of the collateral is not sufficient to repay all amounts due on such indebtedness, the holders of such indebtedness would hold "undersecured claims." Applicable federal bankruptcy laws do not permit the payment and/or accrual of interest, costs and attorney's fees for "undersecured claims" during the pendency of a debtor's bankruptcy case. OPTIONAL REDEMPTION The Notes will not be redeemable at the option of the Company prior to June 15, 2002. On or after that date, the Notes will be redeemable at the option of the Company, in whole or in part from time to time, on not less than 30 nor more than 60 days' prior notice, mailed by first-class mail to the Holders' registered addresses, in cash, at the following redemption prices (expressed as percentages of the principal amount), if redeemed in the 12-month period commencing June 15 in the year indicated below, in each case plus accrued and unpaid interest and Liquidated Damages, if any, to the date fixed for redemption:
YEAR REDEMPTION ---- ---------- 2002........................................................ 104.625% 2003........................................................ 103.083% 2004........................................................ 101.542% 2005 and thereafter......................................... 100.000%
The Notes will not be subject to, or entitled to the benefits of, any sinking fund. Notwithstanding the foregoing, at any time prior to June 15, 2000, the Company may redeem, in part, up to 35% of the aggregate principal amount of the Notes originally issued at a purchase price of 109.25% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date fixed for redemption, with the net proceeds of (i) any Equity Offering by the Company or (ii) any Equity Offering by Pioneer, but only to the extent that Pioneer contributes such net proceeds to the Company as a capital contribution; provided that at least 65% of the aggregate principal amount of the Notes originally issued remains outstanding immediately after giving effect to such redemption. In order to effect the foregoing redemption, the Company will be required to send the redemption notice not later than 60 days after the receipt of the proceeds of such public offering. Notes may be redeemed or repurchased as set forth below under "-- Change of Control" and "-- Certain Covenants -- Limitations on Asset Sales" in part in multiples of $1,000. If less than all the Notes issued under the Indenture are to be redeemed, the Trustee will select the Notes to be redeemed pro rata, by lot or by any other method which the Trustee deems fair and appropriate. The Indenture provides that if any Note is to be redeemed or repurchased in part only, the notice which relates to the redemption or repurchase of such Note will state the portion of the principal amount of such Note to be redeemed or repurchased and will state that on or after the date fixed for redemption or repurchase a new Note equal to the unredeemed portion thereof will be issued. 92 97 On and after the date fixed for redemption or repurchase, interest will cease to accrue on the Notes or portions thereof called for redemption or tendered for repurchase. CHANGE OF CONTROL The Indenture provides that in the event of a Change of Control (the date of such occurrence being the "Change of Control Date"), the Company will notify the Holders in writing of such occurrence and will make an irrevocable offer (the "Change of Control Offer") to purchase on a business day (the "Change of Control Payment Date") not later than 60 days following the Change of Control Date, all Notes then outstanding at a purchase price (the "Purchase Price") equal to 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the Change of Control Payment Date. Notice of a Change of Control Offer will be mailed by the Company to the Holders at their registered addresses not less than 30 days nor more than 45 days before the Change of Control Payment Date. The Change of Control Offer is required to remain open for at least 20 business days and until 5:00 p.m., New York City time, on the Change of Control Payment Date. The notice will contain all instructions and materials necessary to enable Holders to tender (in whole or in part in a principal amount equal to $1,000 or a whole multiple thereof) their Notes pursuant to the Change of Control Offer. Substantially simultaneously with mailing of the notice, the Company will cause a copy of such notice to be published in a newspaper of general circulation in the Borough of Manhattan, The City of New York. The notice, which governs the terms of the Change of Control Offer, will state, among other things: (i) that the Change of Control Offer is being made pursuant to this covenant; (ii) the Purchase Price and the Change of Control Payment Date; (iii) that any Notes not surrendered or accepted for payment will continue to accrue interest; (iv) that any Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (v) that any Holder electing to have a Note purchased (in whole or in part) pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice (or otherwise make effective delivery of the Note pursuant to book-entry procedures and the related rules of the applicable depositories) at least five business days before the Change of Control Payment Date; and (vi) that any Holder will be entitled to withdraw his election if the Paying Agent receives, not later than three business days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase, the certificate number of the Note and a statement that such Holder is withdrawing his election to have such Note purchased. On the Change of Control Payment Date, the Company will: (i) accept for payment the Notes, or portions thereof, surrendered and properly tendered and not withdrawn, pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the Purchase Price of all the Notes, or portions thereof, so accepted; and (iii) deliver to the Trustee the Notes so accepted together with an officer's certificate stating that such Notes have been accepted for payment by the Company. The Paying Agent will promptly mail or deliver to Holders of Notes so accepted payment in an amount equal to the Purchase Price. Holders whose Notes are purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. A "Change of Control" means the occurrence of any of the following: (i) a "person" or "group" (as such terms are used in Sections 14(d)(2) and 13(d)(3), respectively, of the Exchange Act), other than any of (x) William R. Berkley and his Affiliates and/or (y) Interlaken Capital, Inc. and its Affiliates (each individually a "Substantial Shareholder" and collectively the "Substantial Shareholders"), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of at least 50% of the outstanding voting power of the fully diluted Voting Stock of Pioneer or the Company, (ii) the adoption of a plan relating to the liquidation or dissolution of Pioneer or the Company, (iii) the merger or consolidation of Pioneer or the Company with or into another corporation with the effect that the stockholders of Pioneer or the Company immediately prior to such merger or consolidation cease to be the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act) of 50% or more of the combined voting power of the securities of the 93 98 surviving corporation of such merger or the corporation resulting from such merger or consolidation ordinarily (and apart from rights arising under special circumstances) having the right to vote in the election of directors outstanding immediately after such merger or consolidation or (iv) during any period of two consecutive calendar years individuals who at the beginning of such period constituted the Board of Directors of Pioneer or the Company (together with any new directors whose election by the Board of Directors of Pioneer or the Company, or whose nomination for election by the shareholders of Pioneer or the Company, was approved by a vote of a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors of Pioneer or the Company then in office. Notwithstanding the foregoing, a Change of Control will not be deemed to have occurred under clause (iii) above solely as a result of a merger or consolidation of the Company with or into Pioneer provided that such merger or consolidation is permitted by the covenant described below under "-- Certain Covenants -- Limitations on Mergers; Sales of Assets." The Company will comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act, any other tender offer rules under the Exchange Act and other securities laws or regulations in connection with the offer to repurchase and the repurchase of the Notes as described above. The Company's ability to repurchase the Notes pursuant to a Change of Control Offer will be limited by, among other things, the Company's financial resources at the time of repurchase. There can be no assurance that sufficient funds will be available at the time of any Change of Control to make any required repurchases. Furthermore, there can be no assurance that the Company will be able to fund the repurchase of Notes upon a Change of Control within the limitations imposed by the terms of other then-existing Senior Indebtedness. The Revolving Facility prohibits the Company from repurchasing Notes if at the time of such repurchase an event of default under the Revolving Facility exists or would be caused thereby. The occurrence of a Change of Control may cause an event of default under the New Credit Facilities, upon which event of default all amounts outstanding under the New Credit Facilities may become due and payable. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company will be required under the Indenture, within 30 days following a Change of Control to (i) seek the consent of its lenders to the purchase of the Notes or (ii) refinance the Indebtedness that prohibits such purchase. If the Company does not obtain such a consent or refinance such borrowings, the Company will remain prohibited from repurchasing Notes. The Company's failure to purchase tendered Notes or make a Change of Control Offer following a Change of Control would constitute an Event of Default under the Indenture. An amendment of or waiver under the Indenture may not waive the Company's obligation to make a Change of Control Offer without the consent of the Holders of at least two-thirds in outstanding principal amount of the Notes. The existence of the right of Holders to require the Company to repurchase their Notes upon the occurrence of a Change of Control may deter a third party from acquiring Pioneer or the Company in a transaction which would constitute a Change of Control. Subject to certain limitations described below in "-- Certain Covenants", including the limitation on incurrence of additional Indebtedness, Pioneer or the Company could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of Senior Indebtedness (or any other Indebtedness) outstanding at such time or otherwise affect Pioneer's or the Company's capital structure or credit ratings. The Change of Control provisions will not prevent a leveraged buyout led by Pioneer or the Company management, a recapitalization of Pioneer or the Company or a change in a majority of the members of the Board of Directors of Pioneer or the Company which is approved by the then-present Board of Directors, as the case may be. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, create or permit to exist or become effective any restriction (other than restrictions not more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Company) than those in effect under Existing Indebtedness and the New Credit Facilities) that would materially impair the ability of the Company to make a Change of Control Offer to purchase the Notes or, if such Change of Control Offer is made, to pay for the Notes tendered for purchase. 94 99 CERTAIN COVENANTS The Indenture contains, among others, the following covenants: Limitations on Indebtedness. The Indenture provides that the Company will not, and will not permit its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become liable with respect to or become responsible for the payment of, contingently or otherwise ("incur"), any Indebtedness; provided, however, that the Company, or a Restricted Subsidiary of the Company, may incur Indebtedness if at the time of such incurrence and after giving pro forma effect thereto, the Company's Consolidated Cash Flow Coverage Ratio for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is incurred, calculated on a pro forma basis as if such Indebtedness was incurred on the first day of such four full fiscal quarter period, would be at least 2.0 to 1.0. The Indenture further provides that notwithstanding the foregoing limitations, the incurrence of the following will not be prohibited: (a) Indebtedness of the Company evidenced by the Notes, the Exchange Notes and Indebtedness of the Subsidiary Guarantors evidenced by the Guarantees and the guarantees with respect to the Exchange Notes; (b) Indebtedness of the Company evidenced by the Term Loans and Indebtedness of the Restricted Subsidiaries evidenced by the guarantees with respect to the Term Loans; (c) Indebtedness of the Company or any Restricted Subsidiary constituting Existing Indebtedness, and any extension, deferral, renewal, refinancing or refunding thereof; (d) Indebtedness of the Company or any Restricted Subsidiary incurred under one or more Credit Facilities in an aggregate principal amount at any one time outstanding not to exceed the Borrowing Base at the time such Indebtedness was incurred, less the aggregate amount of all permanent repayments of revolving loans under such Credit Facilities made in accordance with the second paragraph of the covenant described under "-- Limitations on Asset Sales"; (e) Capitalized Lease Obligations of the Company or any Restricted Subsidiary and Indebtedness of the Company or any Restricted Subsidiary secured by Liens that secure the payment of all or part of the purchase price of assets or property acquired or constructed in the ordinary course of business after the date of the Indenture; provided, however, that the aggregate principal amount of such Capitalized Lease Obligations plus such Indebtedness of the Company and all of the Restricted Subsidiaries does not exceed $10.0 million outstanding at any time; (f) Indebtedness of the Company to any Restricted Subsidiary or of any Restricted Subsidiary to the Company or another Restricted Subsidiary (but only so long as such Indebtedness is held by the Company or a Restricted Subsidiary); (g) Indebtedness under Hedging Obligations, provided, however, that, in the case of foreign currency exchange or similar agreements which relate to other Indebtedness, such agreements do not increase the Indebtedness of the Company or any Restricted Subsidiary outstanding other than as a result of fluctuations in foreign currency exchange rates, and in the case of interest rate protection agreements, only if the notional principal amount of such interest rate protection agreement does not exceed the principal amount of the Indebtedness to which such interest rate protection agreement relates; (h) Indebtedness in respect of performance, completion, guarantee, surety and similar bonds, banker's acceptances or letters of credit provided by the Company or any Restricted Subsidiary in the ordinary course of business; (i) In addition to any Indebtedness otherwise permitted to be Incurred under the Indenture, up to $10.0 million aggregate principal amount of Indebtedness at any one time outstanding; and 95 100 (j) Any refinancing, refunding, deferral, renewal or extension (each, a "Refinancing") of any Indebtedness of the Company or any Restricted Subsidiary permitted by the initial paragraph of this covenant and clauses (a) and (b) of the second paragraph of this covenant (the "Refinancing Indebtedness"); provided, however, that (i) such Refinancing Indebtedness does not exceed the aggregate principal amount of the Indebtedness so refinanced, plus the amount of any premium required to be paid in connection with such Refinancing in accordance with the terms of such Indebtedness or the amount of any premium reasonably determined by the Board of Directors as necessary to accomplish such Refinancing, plus the amount of reasonable and customary out-of-pocket fees and expenses payable in connection therewith, (ii) the Refinancing Indebtedness does not provide for any mandatory redemption, amortization or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in the Indebtedness being refinanced, refunded, deferred, renewed or extended and (iii) if the Indebtedness being refinanced, refunded, deferred, renewed or extended is subordinated to the Notes, the Refinancing Indebtedness incurred to refinance, refund, defer, renew or extend such Indebtedness is subordinated in right of payment to the Notes on terms at least as favorable to the Holders as those contained in the documentation governing the Indebtedness being so refinanced, refunded, deferred, renewed or extended. Notwithstanding anything to the contrary contained in the Indenture, the Company and its Restricted Subsidiaries each may guarantee Indebtedness of the Company or any Restricted Subsidiary that is permitted to be incurred under the Indenture; provided that if such Indebtedness is subordinated in right of payment to any other Indebtedness of the obligor, then such guarantee shall be subordinated to Indebtedness of such guarantor to the same extent. Limitations on Restricted Payments. The Indenture provides that the Company will not, nor will it cause, permit or suffer any Restricted Subsidiary to, (i) declare or pay any dividends or make any other distributions (including through mergers, liquidations or other transactions commonly known as leveraged buyouts) on any class of Equity Interests of the Company or such Restricted Subsidiary (other than dividends or distributions payable by a Wholly-Owned Restricted Subsidiary on account of its Equity Interests held by the Company or another Restricted Subsidiary or payable in shares of Capital Stock of the Company other than Redeemable Stock), (ii) make any payment on account of, or set apart money for a sinking or other analogous fund for, the purchase, redemption or other retirement of such Equity Interests, (iii) purchase, defease, redeem or otherwise retire any Subordinated Indebtedness, or (iv) make any Restricted Investment, either directly or indirectly, whether in cash or property or in obligations of the Company (all of the foregoing being called "Restricted Payments"), unless, (x) in the case of a dividend, such dividend is payable not more than 60 days after the date of declaration and (y) after giving effect to such proposed Restricted Payment, all the conditions set forth in clauses (1) through (3) below are satisfied (A) at the date of declaration (in the case of any dividend), (B) at the date of such setting apart (in the case of any such fund) or (C) on the date of such other payment or distribution (in the case of any other Restricted Payment) (each such date being referred to as a "Computation Date"): (1) no Default or Event of Default has occurred and is continuing or would result from the making of such Restricted Payment; (2) at the Computation Date for such Restricted Payment and after giving effect to such Restricted Payment on a pro forma basis, the Company or such Restricted Subsidiary could incur $1.00 of additional Indebtedness pursuant to the covenant described in the initial paragraph under "-- Limitations on Indebtedness;" and (3) the aggregate amount of Restricted Payments declared, paid or distributed subsequent to the Closing Date (including the proposed Restricted Payment) does not exceed the sum of (i) 50% of the cumulative Consolidated Net Income of the Company for the period subsequent to July 1, 1997 to and including the last day of the Company's last fiscal quarter ending prior to the Computation Date (each such period to constitute a "Computation Period") (or, if such aggregate cumulative Consolidated Net Income is a loss, minus 100% of such loss) of the Company during the Computation Period, (ii) the aggregate Net Cash Proceeds of the issuance or sale or the exercise (other than to a Subsidiary or an 96 101 employee stock ownership plan or other trust established by the Company or any of its Subsidiaries for the benefit of their employees) of the Company's Equity Interests (other than Redeemable Stock) subsequent to the Closing Date, (iii) the aggregate Net Cash Proceeds of the issuance or sale (other than to a Subsidiary) of any debt securities of the Company that have been converted into or exchanged for Equity Interests (other than Redeemable Stock) of the Company to the extent such debt securities were originally issued or sold for cash, plus the aggregate Net Cash Proceeds received by the Company at the time of such conversion or exchange, in each case subsequent to the Closing Date, (iv) cash contributions to the Company's capital subsequent to the Closing Date and (v) $5.0 million. If no Default or Event of Default has occurred and is continuing or would occur as a result thereof, the prohibitions set forth above are subject to the following exceptions: (a) Restricted Investments in obligations representing a portion of the proceeds of any Asset Sale consummated in accordance with the covenant described under "-- Limitations on Asset Sales", provided, however, that such Restricted Investments will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (b) any purchase or redemption of Equity Interests or Subordinated Indebtedness made by exchange for, or out of the proceeds of the substantially concurrent sale of, Equity Interests of the Company (other than Redeemable Stock and other than Equity Interests issued or sold to a Subsidiary or an employee stock ownership plan), provided, however, that (x) such purchase or redemption will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph and (y) the Net Cash Proceeds from such sale will be excluded for purposes of clause (3)(ii) of the preceding paragraph to the extent utilized for purposes of such purchase or redemption; (c) any purchase or redemption of Subordinated Indebtedness of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Indebtedness of the Company or any Restricted Subsidiary which is permitted to be issued pursuant to the provisions of the covenant described under "-- Limitation on Indebtedness," provided, however, that such purchase or redemption will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (d) the repurchase, redemption or other acquisition or retirement for value of Capital Stock of Pioneer or the Company held by management or other employees of Pioneer or the Company or any Subsidiary pursuant to any shareholders agreement, management or employee stock option agreement or management or employee equity subscription agreement, in accordance with the provisions of any such arrangement, in an amount not greater than $500,000 in any calendar year plus the portion of any such amounts which remains unused at the end of the two prior calendar years, but in no event to exceed $1.5 million in any calendar year; provided, however, that any such purchase, redemption, acquisition or retirement for value will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (e) payments to Pioneer pursuant to any tax sharing arrangement so long as payments thereunder do not exceed the amount of the Company and its consolidated subsidiaries' share of Federal and state income taxes actually paid or to be paid by Pioneer, provided, however, that such payments will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (f) payments to Pioneer to perform accounting, legal, corporate reporting and administrative functions in the ordinary course of business in an amount not greater than $500,000 in any calendar year, or to pay required fees in connection with the Tacoma Acquisition, provided, however, that such payments will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; and (g) Investments described in clause (vi) of the definition of Permitted Investments, provided, however, that such Investments will be included in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph. For purposes of this covenant, (a) the amount of any Restricted Payment declared, paid or distributed in property of the Company or any Restricted Subsidiary will be deemed to be the net book value of any such property that is intangible property and the Fair Market Value (as determined by and set forth in a resolution of the Company's Board of Directors) of any such property that is tangible property at the Computation Date, in each case, after deducting related reserves for depreciation, depletion and amortization; (b) the amount of any Restricted Payment declared, paid or distributed in obligations of the Company or any Restricted 97 102 Subsidiary will be deemed to be the principal amount of such obligations as of the date of the adoption of a resolution by the Board of Directors of the Company or such Restricted Subsidiary authorizing such Restricted Payment; and (c) a distribution to holders of the Company's Equity Interests of (i) shares of Capital Stock or other Equity Interests of any Restricted Subsidiary of the Company or (ii) other assets of the Company, without, in either case, the receipt of equivalent consideration therefor will be regarded as the equivalent of a cash dividend equal to the excess of the Fair Market Value of the Equity Interests or other assets being so distributed at the time of such distribution over the consideration, if any, received therefor. The Company shall deliver to the Trustee an officers' certificate stating that such Restricted Payment is permitted, attaching a copy of the applicable resolution of the Company's Board of Directors pursuant to which the value of the Restricted Payment to be made was determined and setting forth the basis upon which the calculations required by this covenant were computed. Limitations on Liens. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of their respective assets or properties now owned or acquired after the Closing Date, or any income or profits therefrom, excluding, however, from the operation of the foregoing any of the following: (a) Liens existing as of the Closing Date or pursuant to an agreement or document in existence on the Closing Date, including the New Credit Facilities and security and intercreditor documents related thereto; (b) Permitted Liens; (c) Liens on assets or property of the Company, or on assets or property of Restricted Subsidiaries of the Company, to secure the payment of all or a part of the purchase price of assets or property acquired or constructed in the ordinary course of business after the date of the Indenture; provided, however, that (i) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, (ii) the Indebtedness secured by such Liens is otherwise permitted to be incurred under the Indenture, (iii) such Liens do not encumber any other assets or property of the Company or any of its Restricted Subsidiaries and (iv) the Indebtedness secured by such Liens may not be created more than 100 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to such Liens; (d) Liens on assets or property acquired by the Company or any Restricted Subsidiary after the date of the Indenture; provided, however, that (i) such Liens existed on the date such assets or property were acquired and were not incurred as a result of or in anticipation of such acquisition and (ii) such Liens do not extend to or cover any assets or property of the Company or any of its Restricted Subsidiaries other than the assets or property so acquired; (e) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under the Indenture and which is permitted to be refinanced under the Indenture; provided, however, that such Liens do not extend to or cover any assets or property of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so refinanced; (f) Liens on assets or property of the Company or any Restricted Subsidiary that is subject to a Sale and Leaseback Transaction, provided, however, that the aggregate principal amount of Attributable Indebtedness in respect of all Sale and Leaseback Transactions then outstanding does not at the time such a Lien is incurred exceed $10.0 million; (g) Liens on property or shares of Capital Stock of a Person at the time such Person becomes a Restricted Subsidiary; provided, however, that such Liens are not created, incurred or assumed in contemplation of the acquisition thereof by the Company or a Subsidiary; provided further, that such Liens may not extend to any other property owned by the Company or a Restricted Subsidiary; 98 103 (h) Liens securing Indebtedness of a Restricted Subsidiary owing to the Company or a Wholly-Owned Restricted Subsidiary; (i) Liens on inventory, accounts receivable or related general intangibles of any Restricted Subsidiary securing the obligations under clause (d) of the covenant described under "-- Limitations on Indebtedness"; (j) pari passu Liens on the Note Collateral securing up to $50.0 million aggregate principal amount of Indebtedness permitted to be incurred under the initial paragraph of the covenant described under "-- Limitations on Indebtedness," provided that (i) the proceeds of such Indebtedness are used to acquire or construct additional property, plant and equipment that will be utilized in one or more Related Businesses, (ii) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, and (iii) the assets or property acquired or constructed with such Indebtedness are pledged to the Collateral Agent in accordance with the Intercreditor Agreement to become part of the Collateral securing the Notes and the Term Loans on a pari passu basis with such Indebtedness, and in connection therewith (A) the holders of such Indebtedness or any trustee or other representative thereof becomes party to the Intercreditor Agreement, as amended, and is authorized to exercise rights and remedies in accordance therewith, and (B) the Collateral Agent receives an endorsement to its title insurance policies relating to the mortgage liens constituting part of the Note Collateral insuring the continuing priority of such mortgage liens as set forth in the title insurance policies; and (k) Liens on assets or property of the Company, or on assets or property of Restricted Subsidiaries of the Company, acquired or constructed after the date of the Indenture other than in the ordinary course of business and other than assets or property acquired or constructed in replacement, repair or improvement of any assets or property constituting Note Collateral; provided, however, that (i) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, (ii) the Indebtedness secured by such Liens is otherwise permitted to be incurred under the Indenture and (iii) such Liens do not encumber the Note Collateral. Limitations on Payment Restrictions Affecting Restricted Subsidiaries. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distribution to the Company or its Restricted Subsidiaries on its Equity Interests, (ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make loans or advances to the Company or any other Restricted Subsidiary or (iv) transfer any of its property or assets to the Company or any other Restricted Subsidiary, except (A) consensual encumbrances or restrictions contained in or created pursuant to the New Credit Facilities, other Existing Indebtedness listed on a schedule to the Indenture and security and intercreditor documents related thereto in existence on the Closing Date, (B) consensual encumbrances or restrictions in the Notes, the Exchange Notes and the Indenture, (C) any restriction, with respect to a Restricted Subsidiary of the Company that is not a Subsidiary of the Company on the Closing Date, in existence at the time such entity becomes a Restricted Subsidiary of the Company; provided that such encumbrance or restriction is not created in anticipation of or in connection with such entity becoming a Subsidiary of the Company and is not applicable to any Person or the properties or assets of any Person other than a Person that becomes a Subsidiary, (D) any encumbrances or restrictions pursuant to an agreement effecting a refinancing of Indebtedness referred to in clauses (A) or (C) of this covenant or contained in any amendment to any agreement creating such Indebtedness, provided that the encumbrances and restrictions contained in any such refinancing or amendment are not materially more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Company) than those provided for in such Indebtedness being refinanced or amended, (E) encumbrances or restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Closing Date pursuant to the provisions of the covenant described under "-- Limitations on 99 104 Indebtedness", provided that any such encumbrances or restrictions are not materially more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Company) than the most restrictive of those provided for in the Indebtedness referred to in clause (A) or (C) of this covenant, (F) any such encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease, (G) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary in compliance with the Indenture pending the closing of such sale or disposition; or (H) any encumbrance or restriction due to applicable law. Limitations on Asset Sales. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, make any Asset Sale (other than to the Company or other Restricted Subsidiary) unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed of, and at least 80% of the consideration received by the Company or such Restricted Subsidiary from such Asset Sale is in the form of cash; provided however, that the amount of any cash equivalent or note or other obligation received by the Company or such Restricted Subsidiary from the transferee in any such transaction that is converted within 90 days by the Company or such Restricted Subsidiary into cash will be deemed upon such conversion to be cash for purposes of this provision; and (ii) the Net Proceeds received by the Company or such Restricted Subsidiary from such Asset Sale are applied in accordance with the following paragraphs. If all or a portion of the Net Proceeds of any Asset Sale are not required to be applied to repay permanently any Senior Indebtedness of the Company then outstanding as required by the terms thereof, or the Company determines not to apply such Net Proceeds to the permanent prepayment of any Senior Indebtedness outstanding (in the case of any optional prepayment of Term Loans, only if such prepayment is effected on a pro rata basis in accordance with the Intercreditor Agreement and in the case of a revolving credit facility or similar arrangement that makes credit available, the commitment thereunder is also permanently reduced by such amount) or if no such Senior Indebtedness is then outstanding, then the Company may within 365 days of the Asset Sale, invest the Net Proceeds in the Company or in one or more Restricted Subsidiaries in a Related Business. The Term Facility requires that any cumulative Net Proceeds received in excess of $35.0 million will be used to make a mandatory prepayment of the Term Loans. The amount of Net Proceeds neither used to permanently repay or prepay Senior Indebtedness nor used or invested as set forth in this paragraph constitutes "Excess Proceeds." When the aggregate amount of Excess Proceeds from one or more Asset Sales equals $10.0 million or more, the Company will apply 100% of such Excess Proceeds within 365 days subsequent to the consummation of the Asset Sale which resulted in the Excess Proceeds equalling $10.0 million or more to the purchase of Notes tendered to the Company for purchase at a price equal to 100% of the principal amount thereof, plus accrued interest and Liquidated Damages, if any, to the date of purchase pursuant to an offer to purchase made by the Company (an "Asset Sale Offer") with respect to the Notes. Any Asset Sale Offer may include a pro rata offer under similar circumstances to purchase other Senior Indebtedness requiring a similar offer. Any Asset Sale Offer will be made substantially in accordance with the procedures for a Change of Control Offer described under "-- Change of Control." Until such time as the Net Proceeds from any Asset Sale are applied in accordance with this covenant, such Net Proceeds will be segregated from the other assets of the Company and the Subsidiaries and invested in cash or Eligible Investments, except that the Company or any Restricted Subsidiary may use any Net Proceeds pending the utilization thereof in the manner (and within the time period) described above, to repay revolving loans (under the Revolving Facility or otherwise) without a permanent reduction of the commitment thereunder. The Company will cause a notice of any Asset Sale Offer to be mailed to the Holders at their registered addresses not less than 30 days nor more than 45 days before the purchase date. Such notice will contain all instructions and materials necessary to enable Holders to tender their Notes to the Company. Upon receiving notice of an Asset Sale Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent that Holders properly tender Notes in an amount exceeding the 100 105 Asset Sale Offer, Notes of tendering Holders will be repurchased on a pro rata basis (based on amounts tendered). The Company's ability to repurchase the Notes pursuant to an Asset Sale Offer may be prohibited by the New Credit Facilities if at the time of such repurchase an event of default under the New Credit Facilities exists or would be caused thereby. Any future credit agreements to which the Company becomes a party may restrict the Company's ability to repurchase the Notes pursuant to an Asset Sale Offer. In the event the Company is required to make an Asset Sale Offer at a time when the Company is prohibited from making such Offer, the Company will be required under the Indenture, on or prior to the date that the Company is required to make an Asset Sale Offer, to (i) seek the consent of its lenders to repurchase Notes pursuant to such Asset Sale Offer or (ii) refinance the Indebtedness that prohibits such Asset Sale Offer. If the Company does not obtain such a consent or refinance such borrowings, the Company will remain prohibited from making such Offer. The Company's failure to purchase Notes pursuant to an Asset Sale Offer or make such Asset Sale Offer would constitute an Event of Default under the Indenture. See "-- Change of Control." The Company will comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act, any other tender offer rules under the Exchange Act and other securities laws or regulations in connection with any offer to repurchase and the repurchase of the Notes as described above. The Company will not, and will not permit any of its Restricted Subsidiaries to, create or permit to exist or become effective any consensual restriction (other than restrictions not more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Company) than those in effect under Existing Indebtedness and the New Credit Facilities) that would materially impair the ability of the Company to comply with the provisions of this "Limitations on Asset Sales" covenant. Limitations on Sale and Leaseback Transactions. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction unless (i) at the time of the occurrence of such transaction and after giving effect to such transaction and (x) in the case of a Sale and Leaseback Transaction which is a Capitalized Lease Obligation, giving effect to the Indebtedness in respect thereof, and (y) in the case of any other Sale and Leaseback Transaction, giving effect to the Attributable Indebtedness in respect thereof, the Company or such Restricted Subsidiary could incur $1.00 of additional Indebtedness pursuant to the covenant described in the initial paragraph under "-- Limitations on Indebtedness," (ii) at the time of the occurrence of such transaction, the Company or such Restricted Subsidiary could incur Indebtedness secured by a Lien on property in a principal amount equal to or exceeding the Attributable Indebtedness in respect of such Sale and Leaseback Transaction pursuant to the covenant described under "-- Limitations on Liens", and (iii) the transfer of assets in such Sale and Leaseback Transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, the covenant described under "-- Limitations on Asset Sales." Limitations on Mergers; Sales of Assets. The Indenture provides that the Company will not consolidate with or merge into, or sell, assign, convey, lease or transfer all or substantially all of its assets and those of its Subsidiaries taken as a whole to, any Person, unless (i) the resulting, surviving or transferee Person expressly assumes all the obligations of the Company under the Notes and the Indenture; (ii) such Person is organized and existing under the laws of the United States of America, a state thereof or the District of Columbia; (iii) at the time of the occurrence of such transaction and after giving effect to such transaction on a pro forma basis, such Person could incur $1.00 of additional Indebtedness pursuant to the covenant described in the initial paragraph under "-- Limitations on Indebtedness" (assuming a market rate of interest with respect to such additional Indebtedness); (iv) at the time of the occurrence of such transaction and after giving effect to such transaction on a pro forma basis, the Consolidated Net Worth of such Person is equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; (v) each Subsidiary Guarantor, to the extent applicable, will by supplemental indenture confirm that its Guarantee will apply to such Person's obligations under the Notes; and (vi) immediately before and immediately after giving effect to such transaction and treating any Indebtedness which becomes an obligation of the Company or any of its Subsidiaries or of such Person as a result of such transaction as having been incurred by the Company or such 101 106 Subsidiary or such Person, as the case may be, at the time of such transaction, no Default or Event of Default has occurred and is continuing. No Subsidiary Guarantor will, and the Company will not permit a Subsidiary Guarantor to, in a single transaction or series of related transactions merge or consolidate with or into any other corporation (other than the Company or any other Subsidiary Guarantor) or other entity, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any entity (other than the Company or any other Subsidiary Guarantor) unless at the time and giving effect thereto: (i) either (1) such Subsidiary Guarantor is the continuing corporation or (2) the entity (if other than such Subsidiary Guarantor) formed by such consolidation or into which such Subsidiary Guarantor is merged or the entity which acquires by sale, assignment, conveyance, transfer, lease or disposition the properties and assets of such Subsidiary Guarantor is a corporation duly organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and expressly assumes by a supplemental indenture, executed and delivered to the Trustee, in a form reasonably satisfactory to the Trustee, all the obligations of such Guarantor under the Notes and the Indenture; and (ii) immediately before and immediately after giving effect to such transaction, no Default or Event of Default has occurred and is continuing. The provisions of this paragraph will not apply to any transaction (including any Asset Sale made in accordance with " -- Limitations on Asset Sales" above) with respect to any Subsidiary Guarantor if the Guarantee of such Subsidiary Guarantor is released in connection with such transaction in accordance with the applicable provisions of the Indenture. Upon any sale, exchange, transfer or other disposition to any Person of all of the Company's or a Restricted Subsidiary's Equity Interests in, or all or substantially all of the assets of, any Subsidiary Guarantor which is in compliance with the Indenture, such Subsidiary Guarantor will be released from all its obligations under its Guarantee. In the event of any transaction (other than a lease) described in and complying with the conditions listed in the immediately preceding paragraphs in which the Company or any Subsidiary Guarantor is not the continuing corporation, the successor Person formed or remaining will succeed to, and be substituted for, and may exercise every right and power of, the Company or such Subsidiary Guarantor, as the case may be, and the Company or such Subsidiary Guarantor, as the case may be, would be discharged from its obligations under the Indenture, the Notes or its Guarantee, as the case may be. The governing law of the Indenture and the Notes is New York law. New York law offers no clear guidance as to the definition of the term "all or substantially all" in the context of the "Limitations on Mergers; Sales of Assets" covenant in an indenture such as the Indenture. To the extent that the law of other jurisdictions does offer guidance as to the definition of the term, such jurisdictions have applied a qualitative test as well as quantitative tests to determine the meaning of "all or substantially all" on a case-by-case basis. The lack of an established meaning for the term "all or substantially all" could lead to uncertainty as to the ability of the Holders of Notes to determine whether or not a transaction governed by this "Limitations on Mergers; Sales of Assets" covenant has occurred. Subsidiary Guarantees. The Indenture provides that if (i) any Subsidiary of the Company becomes a Restricted Subsidiary after the Closing Date, (ii) the Company or any Subsidiary of the Company that is a Subsidiary Guarantor transfers or causes to be transferred, in one transaction or a series of related transactions, property or assets (including, without limitation, businesses, divisions, real property, assets or equipment) which in the aggregate have a value equal to or greater than 15% of the Company's total assets determined on a consolidated basis as of the time of transfer to any Subsidiary or Subsidiaries of the Company that is not a Subsidiary Guarantor or are not Subsidiary Guarantors, (iii) any Subsidiary of the Company which has a value equal to or greater than 5% of the Company's total assets determined on a consolidated basis as of the time of determination directly or indirectly guarantees or otherwise becomes obligated with respect to any Senior Indebtedness of the Company, or (iv) any Subsidiary of the Company becomes a guarantor of the Term Loans after the Closing Date, the Company will cause such Subsidiary or Subsidiaries to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiary or Subsidiaries will unconditionally guarantee all of the Company's obligations under the Indenture and the Notes on the same terms as the other Subsidiary Guarantors, which Guarantee will rank pari passu with any Senior Indebtedness of such Subsidiary. 102 107 Transactions with Affiliates. The Indenture provides that the Company and its Restricted Subsidiaries will not, directly or indirectly, enter into any transaction or series of related transactions with or for the benefit of any of their respective Affiliates other than with the Company or any Restricted Subsidiaries, except on an arm's-length basis and if (x)(i) in the case of any such transaction in which the aggregate rental value, remuneration or other consideration (including the value of a loan), together with the aggregate rental value, remuneration or other consideration (including the value of a loan) of all such other transactions consummated in the year during which such transaction is proposed to be consummated, exceeds $750,000, the Company delivers board resolutions to the Trustee evidencing that the Board of Directors of the Company and the Independent Directors that are disinterested each have (by a majority vote) determined in good faith that the aggregate rental value, remuneration or other consideration (including the value of any loan) inuring to the benefit of such Affiliate from any such transaction is not greater than that which would be charged to or extended by the Company or its Subsidiaries, as the case may be, on an arm's-length basis for similar properties, assets, rights, goods or services by or to a Person not affiliated with the Company or its Subsidiaries, as the case may be, and (ii) in the case of any such transaction in which the aggregate rental value, remuneration or other consideration (including the value of any loan), together with the aggregate rental value, remuneration or other consideration (including the value of any loan) of all such other transactions consummated in the year during which such transactions are proposed to be consummated, exceeds $7.5 million, the Company delivers to the Trustee board resolutions as described in clause (x)(i) of this paragraph and an opinion of a nationally recognized investment banking firm, unaffiliated with the Company and the Affiliate which is party to such transaction, to the effect that the aggregate rental price, remuneration or other consideration (including the value of a loan) inuring to the benefit of such Affiliate from any such transaction is not greater than that which would be charged to or extended by the Company or its Subsidiaries, as the case may be, on an arm's-length basis for similar properties, assets, rights, goods or services by or to a Person not affiliated with the Company or its Subsidiaries, as the case may be, and (y) all such transactions referred to in clauses (x)(i) and (ii) are entered into in good faith. Any transaction required to be approved by Independent Directors pursuant to the preceding paragraph must be approved by at least one such Independent Director. The provisions of the preceding paragraph do not prohibit (i) any Restricted Payment permitted to be paid pursuant to the provisions of the covenant described under "-- Limitations on Restricted Payments" other than with respect to Investments described in the following clause (ii), (ii) any Investment made in Kemwater during a period of three years following the Closing Date, provided that such Investment matures or is required to be redeemed within one year of its being made, (iii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iv) loans or advances to employees in the ordinary course of business consistent with past practices, not to exceed $500,000 aggregate principal amount outstanding at any time, (v) the payment of fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any of its Subsidiaries, as determined by the board of directors of the Company or any of its Subsidiaries in good faith and (vi) Existing Affiliate Agreements, including amendments thereto entered into after the Closing Date provided that the terms of any such amendment either (A) are not, in the aggregate, less favorable to the Company than the terms of such agreement prior to such amendment, or (B) if such terms are, in the aggregate, less favorable to the Company, such amendment satisfies the requirements of the preceding paragraph. Limitation on Ownership of Wholly-Owned Restricted Subsidiary Stock. The Indenture provides that the Company (a) will not, and will not permit any Wholly-Owned Restricted Subsidiary of the Company to, transfer, convey, sell or otherwise dispose of any Capital Stock of any Wholly-Owned Restricted Subsidiary of the Company (other than All-Pure and its subsidiaries) to any Person (other than the Company or a Wholly-Owned Restricted Subsidiary of the Company), unless (i) such transfer, conveyance, sale or other disposition is of all the Capital Stock of such Wholly-Owned Restricted Subsidiary and (ii) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described under the caption "-- Limitations on Asset Sales," and (b) will not permit any Wholly-Owned Restricted Subsidiary of the Company (other than All-Pure and its subsidiaries) to issue any of its Equity Interests 103 108 (other than, if necessary, Capital Stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, to the extent mandated by applicable law) to any Person other than to the Company or a Wholly-Owned Restricted Subsidiary of the Company. Impairment of Security Interest. The Indenture provides that the Company will not, and will not cause or permit any Restricted Subsidiaries to, take or omit to take any action which action or omission might or would have the result of affecting or impairing the Liens and security interest in favor of the Collateral Agent for the benefit of the Secured Parties with respect to the Note Collateral and the Company will not grant to any Person, or suffer any Person to have any interest whatsoever in the Note Collateral, in each case other than as otherwise permitted by the Indenture, the Term Facility or the Security Documents. The Company will not, and will not cause or permit any Restricted Subsidiaries to, enter into any agreement or instrument that by its terms requires that the proceeds received from any sale of Note Collateral be applied to repay, redeem, defease or otherwise acquire or retire any Indebtedness of any Person, other than pursuant to the Indenture, the Term Facility or any instrument governing Indebtedness permitted to be secured by a Lien on the Note Collateral pursuant to the covenant described under "-- Limitations on Liens." A release of any of the Note Collateral strictly in accordance with the terms and conditions of the Indenture and the Security Documents will not be deemed for any purpose to be an impairment of security under the Indenture. Amendment to Security Documents. The Indenture provides that the Company will not amend, modify or supplement, or permit or consent to any amendment, modification or supplement of, the Security Documents in any manner or to any extent that would constitute an Event of Default under the Indenture or the Security Documents; provided that the Indenture and the Security Documents may be amended, modified or supplemented as set forth under the caption "Amendment, Supplement or Waiver." Stock Pledge Agreements. The Indenture provides that if (i) any Restricted Subsidiary of the Company engages in any business activity other than the holding of the Capital Stock of one or more Subsidiaries of the Company (or in the case of Imperial West, engaging in any business activity other than the holding of its Investment in Kemwater) and (ii) such Restricted Subsidiary has a value equal to or greater than 5% of the Company's total assets determined on a consolidated basis as of the time of determination, then the Company will, and will cause the applicable Subsidiary or Subsidiaries of the Company (the "Pledgor Subsidiary" or "Pledgor Subsidiaries") to, execute and deliver to the Trustee and the Collateral Agent one or more stock pledge agreements substantially in the form of the stock pledge agreement attached as an exhibit to the Indenture providing for the pledge to the Collateral Agent for the benefit of (x) the Trustee, for itself and the Holders, and (y) the Term Loan Agent, for itself and the other Term Loan lenders, all of the Capital Stock of such Restricted Subsidiary held by the Company and the Pledgor Subsidiary or Pledgor Subsidiaries, together with certificates evidencing such Capital Stock, which Capital Stock will become "Note Collateral" for purposes of the Intercreditor Agreement. The Indenture further provides that if (i) there are no Term Loans outstanding, (ii) there is no Indebtedness (the "New Indebtedness") outstanding which refinanced the Term Loans and requires pledges of Capital Stock of one or more Restricted Subsidiaries of the Company in connection therewith, (iii) all other amounts due and owing to the Term Loan lenders under the Term Facility or the New Indebtedness lenders under the agreement providing for the issuance of the New Indebtedness, as the case may be, have been paid in full, (iv) the Term Facility agreement or the agreement providing for the issuance of the New Indebtedness, as the case may be, has been terminated, and (v) the Company has delivered to the Trustee and the Collateral Agent an officers' certificate stating that the foregoing requirements have been satisfied (which officers' certificate must also be signed by the Term Loan Agent or the agent, trustee or other representative of the New Indebtedness, as the case may be), then (x) the Company will be released from its obligations to comply with this covenant, (y) the failure to comply with this covenant will not constitute a Default or Event of Default with respect to the Notes, and (z) all stock pledge agreements entered into by the Company and one or more Subsidiaries of the Company after the Closing Date pursuant to this covenant will be terminated, and all certificates evidencing Capital Stock pledged thereunder will be released, by the Collateral Agent. If at any time after the operation of the immediately preceding paragraph the Company or any Subsidiary of the Company intends to incur any Indebtedness which requires the pledge of Capital Stock of one or more 104 109 Restricted Subsidiaries of the Company in connection therewith, neither the Company nor such Subsidiary will incur such Indebtedness without directly securing the Notes with such pledge of Capital Stock on an equal and ratable basis (or prior to in the case of Indebtedness subordinated to the Notes or the Guarantees, as the case may be) and in connection therewith the Company's obligation to comply with the provisions of this covenant will be reinstated if a covenant or agreement similar to this covenant is included in the agreement providing for the issuance of such Indebtedness. Provision of Financial Statements. The Indenture provides that, whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent permitted under the Exchange Act, file with the Commission the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) if the Company were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject. The Company will also in any event (x) within 15 days of each Required Filing Date (i) transmit by mail to all holders of Notes, as their names and addresses appear in the security register, without cost to such holders and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were subject to such Sections and (y) if filing such documents by the Company with the Commission is not permitted under the Exchange Act, promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective holder of Notes at the Company's cost. Limitation on Applicability of Certain Covenants. The Indenture provides that notwithstanding anything to the contrary therein, the covenants described above entitled "Limitations on Indebtedness," "Limitations on Restricted Payments," "Limitations on Liens," "Limitations on Payment Restrictions Affecting Restricted Subsidiaries," "Limitations on Asset Sales" and "Transactions with Affiliates" will not apply to transactions effected pursuant to and in accordance with the Contingent Payment Agreement and amounts related to such transactions will not be required to be included in any calculation required by any such covenant. Such transactions include (i) any payment made by the Company or a Restricted Subsidiary, (ii) any assets or property transferred by the Company or a Restricted Subsidiary, (iii) the application of any proceeds received by the Company or any Restricted Subsidiary in connection with any transfer of assets or property made by such Person, (iv) any escrow or segregation of moneys to be paid by the Company or a Restricted Subsidiary, (v) any Investment of such escrowed or segregated moneys by the Company or a Restricted Subsidiary or any other Investment under the Contingent Payment Agreement, (vi) any obligation of the Company or a Restricted Subsidiary to make any such payments or to effect any such escrow or segregation of moneys, (vii) any Indebtedness incurred by the Company or a Restricted Subsidiary that is non-recourse to the assets of the Company, such Restricted Subsidiary or any other Restricted Subsidiary, other than the borrower's interest in Basic Investments, Victory Valley, the Excess Land and/or any other assets or funds held under the Contingent Payment Agreement, and as to which neither the Company nor any Restricted Subsidiary (other than the borrower) provides credit support or is directly or indirectly liable, or (viii) any Lien incurred by the Company or any Restricted Subsidiary in connection with Indebtedness described in clause (vii) above that does not extend to assets of the Company or any Restricted Subsidiary other than such Person's interest in Basic Investments, Victory Valley, the Excess Land and/or any other assets or funds held under the Contingent Payment Agreement. Additional Covenants. The Indenture also contains covenants with respect to the following matters: (i) payment of principal, premium and interest; (ii) maintenance of an office or agency in the City of New York; (iii) arrangements regarding the handling of money held in trust; (iv) maintenance of corporate existence; (v) payment of taxes and other claims; (vi) maintenance of properties; and (vii) maintenance of insurance. RELEASE OF NOTE COLLATERAL The Company will be permitted to sell Note Collateral in an Asset Sale and obtain a release of the liens of the Security Documents in such Note Collateral only upon compliance with the covenant described in "-- Certain Covenants -- Limitations on Asset Sales" and only upon delivery to the Trustee and the 105 110 Collateral Agent of (a) a notice that, among other things, describes the interests to be released, states the fair market value of the released interests as of a date no later than 60 days before the date of such notice, and certifies that the purchase price received is not less than the fair market value of such released interest as of the date of such release, (b) the Net Proceeds of the Asset Sale, (c) an officer's certificate certifying, among other things, the terms of the Indenture governing Asset Sales and all other applicable terms have been complied with, (d) an opinion of counsel as to the Asset Sale, and (e) satisfactory evidence from a title company that the Liens of the Collateral Agent on the remaining Note Collateral continue unimpaired as perfected first priority liens. To the extent Trust Moneys consist of insurance proceeds or condemnation or other taking awards, any such moneys which may be used to effect a restoration of the affected Note Collateral will be permitted to be withdrawn by the Company and paid by the Collateral Agent, at the direction of the Trustee, upon a request by the Company to reimburse the Company or PCAC for expenditures made or costs incurred to repair, rebuild or replace the destroyed, damaged, or taken Note Collateral, and upon delivery of (a) an officer's certificate certifying, among other things, as to expenditures made or costs incurred, the necessity or desirability in the conduct of the Company's business of the repaired, rebuilt, or replaced property, and the fair market value of such property as of the date of the expenditures, (b) an opinion of counsel as to the validity and perfection of the Collateral Agent's lien on the repaired or replaced Note Collateral and (c) an architect's certificate as to the costs of such restoration and compliance with law. To the extent Trust Moneys consist of proceeds of an Asset Sale, and the Company intends to reinvest such proceeds in the Company or in one or more Restricted Subsidiaries in a Related Business, such Trust Moneys will be permitted to be withdrawn by the Company upon request to the Trustee and upon receipt by the Trustee and the Collateral Agent of (a) notice of such withdrawal, (b) an officer's certificate certifying compliance with the Indenture, (c) instruments granting the Collateral Agent first priority liens, for the benefit of the Secured Parties, on the real or personal property interests in which the Company or its Restricted Subsidiary have invested, and (d) an opinion of counsel as to the instruments governing such liens and security interests. Trust Moneys will be permitted to be applied from time to time (x) to the payment of principal and interest on the Notes, or (y) to the extent otherwise permitted by the Indenture, to redeem or repurchase Notes, including without limitation pursuant to a Change of Control Offer or (to the extent such Trust Moneys constitute proceeds from Asset Sales) an Asset Sale Offer, or (z) at the direction of the Company and PCAC, to pay any other Senior Indebtedness secured by liens in the Note Collateral (but only to the extent such Trust Moneys constitute proceeds from Asset Sales), in each case upon receipt by the Trustee and the applicable Collateral Agent of (a) resolutions of the boards of directors of the Company and PCAC directing such application, (b) cash equaling the accrued interest, if any, required to be paid in connection with such payment or purchase, (c) an officer's certificate, and (d) an opinion of counsel. Trust Moneys received by the applicable Collateral Agent or the Trustee pursuant to an Asset Sale Offer remaining after the completion of such Asset Sale Offer will be permitted to be withdrawn by the Company upon request of the Company and delivery of an officer's certificate and an opinion of counsel. The Indenture provides that any release of Note Collateral, including Trust Moneys, will be subject to the provisions of Section 314(d) of the Trust Indenture Act relating to, among other things, the delivery of a certificate or an opinion of an engineer, appraiser or other expert as to the fair value of Note Collateral being released from the Liens of the Security Documents. CERTAIN DEFINITIONS "Affiliate" means, with respect to any party, any Person directly or indirectly controlling or controlled by or under direct or indirect common control with such party including any estate or trust under will of such party. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 5% or more of the voting securities of a Person will be deemed to be control. 106 111 "Asset Sale" means, with respect to the Company or any Restricted Subsidiary, the sale, lease, conveyance or other disposition (including, without limitation, by way of merger or consolidation, and whether by operation of law or otherwise) to any Person other than the Company or a Wholly-Owned Restricted Subsidiary of any of the Company's or such Restricted Subsidiary's assets (including, without limitation, (x) any sale or other disposition of Equity Interests of any Restricted Subsidiary and (y) any sale or other disposition of any noncash consideration received by the Company or such Restricted Subsidiary from any prior transaction or series of related transactions that constituted an Asset Sale under the Indenture), whether owned on the date of the Indenture or subsequently acquired, in one transaction or a series of related transactions: provided, however, that the following will not constitute Asset Sales: (i) transactions (other than transactions described in clause (y) above and transactions involving Collateral as defined in the Stock Pledge Agreement) in any calendar year with aggregate cash and/or Fair Market Value of any other consideration received (including, without limitation, the unconditional assumption of Indebtedness) of less than $1.0 million; (ii) a transaction or series of related transactions that results in a Change in Control; (iii) any sale of assets of the Company and its Restricted Subsidiaries or merger permitted under the covenant described under "Certain Covenants -- Limitations on Mergers; Sales of Assets"; (iv) any sale or other disposition of inventory, property (whether real, personal or mixed) or equipment that has become worn out, obsolete or damaged or otherwise unsuitable or no longer needed for use in connection with the business of the Company or any Restricted Subsidiary, as the case may be, in the good faith determination of the Board of Directors; and (v) any sale of inventory to customers in the ordinary and customary course of business. "Attributable Indebtedness" means, with respect to any Sale and Leaseback Transaction, as at the time of determination, the greater of (i) the Fair Market Value of the property subject to such transaction and (ii) the present value (discounted at a rate equivalent to the Company's then current weighted average cost of funds for borrowed money, compounded on a semi-annual basis) of the total net obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended). As used in the preceding sentence, the "total net obligations of the lessee for rental payments" under any lease for any such period means the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. In the case of any lease which is terminable by the lessee upon payment of a penalty, such net amount of rent also includes the amount of such penalty, but no rent will be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Basic Investments" means Basic Investments, Inc., a Nevada corporation. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Borrowing Base" means, as of any date, an amount equal to the sum of (a) 85% of the net book value of all accounts receivable of the Company and its Restricted Subsidiaries as of such date, (b) 50% of the net book value of all inventory owned by the Company and its Restricted Subsidiaries as of such date, and (c) the lesser of (x) $10.0 million and (y) 85% of the net book value of all accounts receivable of Kemwater as of such date plus 50% of the net book value of all inventory as of such date owned by Kemwater, all calculated on a consolidated basis and in accordance with GAAP. To the extent that information is not available as to the amount of accounts receivable or inventory as of a specific date, the Company may utilize the most recent available quarterly or annual financial report for purposes of calculating the Borrowing Base. "Capital Stock" means, with respect to any Person, any common stock, preferred stock and any other capital stock of such Person and shares, interests, participations or other ownership interest (however designated), of any Person and any rights (other than debt securities convertible into, or exchangeable for, capital stock), warrants or options to purchase any of the foregoing, including (without limitation) each class of common stock and preferred stock of such Person if such Person is a corporation and each general and limited partnership interest of such Person if such Person is a partnership. 107 112 "Capitalized Lease Obligation" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP and the amount of such Indebtedness will be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Flow" for any period means the Consolidated Net Income of the Company and its Restricted Subsidiaries for such period, plus the following to the extent included in calculating such Consolidated Net Income: (i) Consolidated Interest Expense, (ii) income tax expense and (iii) depreciation, depletion and amortization expense. "Closing Date" means June 17, 1997. "Consolidated Cash Flow Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of Cash Flow for the period of the most recent four consecutive fiscal quarters for which internal financial statements are available prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters of the Company and its Restricted Subsidiaries; provided, however, that (A) if the Company or any Restricted Subsidiary has incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Cash Flow Coverage Ratio is an incurrence of Indebtedness, or both, Cash Flow and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been issued on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (B) if since the beginning of such period the Company or any Restricted Subsidiary has made any Asset Sale, the Cash Flow for such period will be reduced by an amount equal to the Cash Flow (if positive), directly attributable to the assets which are the subject of such Asset Sale for such period, or increased by an amount equal to the Cash Flow (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period will be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with any such sale or other disposition for such period (or, if the Capital Stock of any Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (C) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) has made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made under the Indenture, which constitutes all or substantially all of an operating unit of a business, Cash Flow and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto (including the incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (D) in making such computation, Consolidated Interest Expense attributable to any Indebtedness incurred under any revolving credit facility will be computed based on the average daily balance of such Indebtedness during such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, and the amount of Consolidated Interest Expense associated with any Indebtedness incurred in connection therewith, the pro forma calculations will be determined in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness will be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period. "Consolidated Indebtedness" means the Indebtedness of the Company and its consolidated Restricted Subsidiaries determined on a consolidated basis in conformity with GAAP. "Consolidated Interest Expense" means, for any period, interest expense of the Company and its consolidated Restricted Subsidiaries, excluding amortization of any deferred financing fees, plus, to the extent not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest 108 113 expense, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) interest actually paid by the Company or any such Restricted Subsidiary under any guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Hedging Obligations (including amortization of fees), (viii) Preferred Stock dividends in respect of all Redeemable Stock of the Company held by Persons other than the Company or a Wholly-Owned Restricted Subsidiary and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with loans incurred by such plan or trust to purchase newly issued or treasury shares of the Capital Stock of the Company. "Consolidated Net Income" means, for any period, and as to any Person, the aggregate Net Income of such Person and its Subsidiaries (other than, in the case of the Company, the Unrestricted Subsidiaries of the Company) for such period determined in accordance with GAAP; provided that (i) the Net Income of any Person which is not a Subsidiary of such Person but which is consolidated with such Person or is accounted for by such Person by the equity method of accounting will be included only to the extent of the amount of cash dividends or cash distributions paid to such Person or a Wholly-Owned Restricted Subsidiary of such Person (other than, in the case of the Company, the Unrestricted Subsidiaries of the Company), (ii) the Net Income of any Person acquired by such Person or a Subsidiary of such Person in a pooling of interests transaction for any period prior to the date of such acquisition will be excluded, (iii) the Net Income of any Subsidiary of such Person that is subject to restrictions, direct or indirect, on the payment of dividends or the making of distributions to such Person will be excluded to the extent of such restrictions, (iv) the Net Income of (A) any Unrestricted Subsidiary and (B) any Subsidiary less than 80% of whose securities having the right (apart from the right under special circumstances) to vote in the election of directors are owned by the Company or its Wholly-Owned Restricted Subsidiaries will be included only to the extent of the amount of cash dividends or cash distributions actually paid by such Subsidiary to the Company or a Wholly-Owned Restricted Subsidiary of the Company, (v) in the case of the Company, the Net Income attributable to any business, properties or assets acquired (by way of merger, consolidation, purchase or otherwise) by the Company or any Restricted Subsidiary of the Company for any period prior to the date of such acquisition will be excluded, (vi) all extraordinary gains and losses, and any gain or loss realized upon the termination of any employee pension benefit plan, in respect of dispositions of assets other than in the ordinary course of business and any one-time increase or decrease to Net Income which is required to be recorded because of the adoption of new accounting policies, practices or standards required by GAAP (together, in each case, with any provision for taxes) will be excluded, and (vii) all amounts of "other income, net" classified as such on one or more lines of such Person's statement of operations, in accordance with GAAP, net of applicable income taxes, will be excluded from such Person's aggregate Net Income; provided that in the case of the Company the foregoing exclusion will not apply to cash dividends or cash distributions paid to the Company in respect of its indirect equity interest in Saguaro Power Company, a Limited Partnership, to the extent included in clause (i) of this definition. "Consolidated Net Worth" means, for any Person, the total of the amounts shown on the balance sheet of such Person and its consolidated Subsidiaries, determined on a consolidated basis without duplication in accordance with GAAP, as of the end of the most recent fiscal quarter of such Person ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the amount of Capital Stock (other than Redeemable Stock) plus (ii) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit). "Contingent Payment Agreement" means the Contingent Payment Agreement dated as of April 20, 1995 among Pioneer, the Company and the Sellers named therein. "Credit Facility" means any revolving credit facility or similar arrangement that makes credit available entered into by and among the Company and/or any of its Subsidiaries that is a Guarantor and the lending institutions party thereto, including any credit agreement, related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. 109 114 "Eligible Investments" means, (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than 90 days from the date of acquisition, (ii) time deposits and certificates of deposit with maturities of not more than 90 days from the date of acquisition, of any commercial banking institution that is a member of the Federal Reserve System having capital and surplus in excess of $500.0 million, whose debt has a rating at the time of any such investment of at least "A-2" or the equivalent thereof by Standard & Poor's Ratings Group or at least "P-2" or the equivalent thereof by Moody's Investors Service, Inc., or any bank or financial institution party to the Term Facility or the Revolving Facility, (iii) fully secured repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) entered into with any bank or financial institution meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by the parent corporation of any commercial banking institution that is a member of the Federal Reserve System having capital and surplus in excess of $500.0 million and commercial paper or master notes of issuers, rated at the time of any such investment at least "A-2" or the equivalent thereof by Standard & Poor's Ratings Group or at least "P-2" or the equivalent thereof by Moody's Investors Service, Inc., or any bank or financial institution party to the Term Facility or the Revolving Facility, and in each case maturing within 270 days after the date of acquisition, and (v) any shares in an open-end mutual fund organized by a bank or financial institution having combined capital and surplus of at least $500.0 million investing solely in investments permitted by the foregoing clauses (i), (ii) and (iv). "Equity Interests" means shares, interests, participations or other equivalents (however designated) of Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security which is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means an offering of Equity Interests (other than Redeemable Stock) of any Person made on a primary basis by such Person (including a rights offering to existing stockholders of such Person), which yields gross proceeds to such Person of $15.0 million or more. "Excess Land" means certain real property adjoining the sites of PCAC's Henderson, Nevada and St. Gabriel, Louisiana plants and the Mojave, California property owned by Imperial West that is not used in the business conducted at such sites, which real property is referred to and defined in the Contingent Payment Agreement as the "Subject Parcels." "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means notes issued pursuant to any Exchange Offer Registration Statement. "Exchange Offer Registration Statement" means the registration statement filed by the Company and the Subsidiary Guarantors with the Securities and Exchange Commission (the "Commission") with respect to an offer to exchange the Original Notes for the Exchange Notes. "Existing Affiliate Agreements" means (i) agreements between Pioneer Americas, Inc. or any of its subsidiaries and Saguaro Power Company, a Limited Partnership, relating to the delivery of steam and other services, existing on the date of the Indenture and listed on a schedule thereto, (ii) the Tax Sharing Agreement of Pioneer and its subsidiaries, (iii) agreements between Pioneer Americas, Inc. or any of its subsidiaries and Basic Investments relating to the delivery of water and power, power transmission services, and other services, existing on the date of the Indenture and listed on a schedule thereto and (iv) any other agreements with affiliates of the Company, existing on the date of the Indenture and listed on a schedule thereto. "Existing Indebtedness" means all Indebtedness (other than the Term Loans and the Revolving Loans outstanding) of the Company or any Restricted Subsidiary existing on the date of the Indenture and listed on a schedule thereto. "Fair Market Value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value will be determined by a 110 115 majority of the members of the Board of Directors of the Company, and a majority of the disinterested members of such Board of Directors, if any, acting in good faith and will be evidenced by a duly and properly adopted resolution of the Board of Directors. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, which are in effect from time to time. "Hedging Obligations" means the obligations of any Person or entity pursuant to any swap or cap agreement, exchange agreement, collar agreement, option, futures or forward hedging contract, derivative instrument or other similar agreement or arrangement designed to protect such Person or entity against fluctuations in interest rates or foreign exchange rates or the price of raw materials and other chemical products used or produced in the Company's business, as the case may be. "incur" has the meaning ascribed thereto in the covenant described under "-- Certain Covenants -- Limitations on Indebtedness"; provided that (a) with respect to any Indebtedness of any Restricted Subsidiary of the Company that is owing to the Company or another Restricted Subsidiary of the Company, any disposition, pledge or transfer of such Indebtedness to any Person (other than the Company or a Wholly-Owned Restricted Subsidiary) will be deemed to be an incurrence of such Indebtedness and (b) with respect to any Indebtedness of the Company or a Restricted Subsidiary that is owing to another Restricted Subsidiary, any transaction pursuant to which a Wholly-Owned Restricted Subsidiary to which such Indebtedness is owing ceases to be a Wholly-Owned Restricted Subsidiary will be deemed to be an incurrence of such Indebtedness, and provided, further that any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary will be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. The term "incurrence" has a corresponding meaning. "Indebtedness" of any Person means, without duplication, all liabilities with respect to (i) indebtedness for money borrowed or which is evidenced by a bond, debenture, note or other similar instrument or agreement, but excluding trade credit evidenced by any such instrument or agreement; (ii) reimbursement obligations, letters of credit and bankers' acceptances; (iii) indebtedness with respect to Hedging Obligations; (iv) Capitalized Lease Obligations; (v) indebtedness, secured or unsecured, created or arising in connection with the acquisition or improvement of any property or asset or the acquisition of any business; (vi) all indebtedness secured by any Lien upon property owned by such Person and all indebtedness secured in the manner specified in this clause even if such Person has not assumed or become liable for the payment thereof; (vii) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person or otherwise representing the deferred and unpaid balance of the purchase price of any such property, including all indebtedness created or arising in the manner specified in this clause even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property; (viii) guarantees, direct or indirect, of any indebtedness of other Persons referred to in clauses (i) through (vii) above, or of dividends or leases, taxes or other obligations of other Persons, excluding any guarantee arising out of the endorsement of negotiable instruments for collection in the ordinary course of business; (ix) contingent obligations in respect of, or to purchase or otherwise acquire or be responsible or liable for, through the purchase of products or services, irrespective of whether such products are delivered or such services are rendered, or otherwise, any such indebtedness referred to in clauses (i) through (vii) above; (x) any obligation, contingent or otherwise, arising under any surety, performance or maintenance bond; and (xi) Redeemable Stock of the Company valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends; which indebtedness, Capitalized Lease Obligation, guarantee or contingent or other obligation such Person has directly or indirectly created, incurred, assumed, guaranteed or otherwise become liable or responsible for, whether then outstanding or thereafter created in the case of clauses (i) through (x) above, to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability on the balance sheet of such Person in accordance with GAAP. For purposes of the foregoing definition, the "maximum fixed repurchase price" of any Redeemable Stock which does not have a fixed repurchase price will be calculated in accordance with the terms of such Redeemable Stock as if such 111 116 Redeemable Stock were purchased on any date on which Indebtedness is required to be determined pursuant to the Indenture. As used herein, Indebtedness with respect to any Hedging Obligation means, with respect to any specified Person on any date, the net amount (if any) that would be payable by such specified Person upon the liquidation, close-out or early termination on such date of such Hedging Obligation. For purposes of the foregoing, any settlement amount payable upon the liquidation, close-out or early termination of a Hedging Obligation will be calculated by the Company in good faith and in a commercially reasonable manner on the basis that such liquidation, close-out or early termination results from an event of default or other similar event with respect to such specified Person. Any reference in this definition to indebtedness will be deemed to include any renewals, extensions and refundings of any such indebtedness or any indebtedness issued in exchange for such indebtedness. "Independent Director" means a director of the Company other than a director (i) who (apart from being a director of the Company or any of its Subsidiaries) is an employee, insider, associate or Affiliate of the Company or any of its Subsidiaries or has held any such position during the previous year or (ii) who is a director, an employee, insider, associate or Affiliate of another party to the transaction in question. "Investment" means any direct or indirect advance, loan, other extension of credit or capital contribution (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others) to, purchase or acquisition of Equity Interests, bonds, notes, debentures or other securities of, or purchase or other acquisition of all or a substantial part of the business, Equity Interests or other evidence of beneficial ownership of, or any other investment in or guarantee of any Indebtedness of, any Person or any other item that would be classified as an investment on a balance sheet prepared in accordance with GAAP. Investments do not include advances to customers and suppliers in the ordinary course of business and on commercially reasonable terms. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Equity Interests of such Subsidiary not sold or disposed of determined as provided in the final paragraph of the covenant described under "-- Certain Covenants -- Limitations on Restricted Payments." "Lien" means any mortgage, pledge, lien, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement and any lease in the nature thereof). "Net Cash Proceeds" means, with respect to any issuance or sale of Equity Interests or debt securities that have been converted into or exchanged for Equity Interests, as referred to under "-- Certain Covenants -- Limitations on Restricted Payments," the proceeds of such issuance or sale in the form of cash or cash equivalents, net of attorneys' fees, accountants' fees and brokerage, consultation, underwriting and other fees and expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Net Income" of any Person, for any period, means the net income (loss) of such Person and its subsidiaries (other than, in the case of the Company, its Unrestricted Subsidiaries) determined in accordance with GAAP. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, the proceeds of insurance paid on account of the loss of or damage to any property, or compensation or other proceeds for any property taken by condemnation, eminent domain or similar proceedings, and any non-cash consideration received by the Company or any Restricted Subsidiary from any Asset Sale that is converted into or sold or otherwise disposed of for cash within 90 days after the relevant Asset Sale), net of (i) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), (ii) any taxes paid or payable as a result thereof, (iii) all amounts required to be applied to the repayment of, or representing the amount of permanent reductions in the commitments relating to, Indebtedness secured by a Lien on the asset or assets the subject of such Asset Sale which Lien is permitted pursuant to the terms of the Indenture, (iv) any reserve for adjustment in respect of the sale price of such asset or assets required by 112 117 GAAP, (v) all distributions and other payments required to be made (including any amounts held pending distribution) to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale, and (vi) all payments due under Existing Affiliate Agreements arising out of an Asset Sale. The amount of any taxes required to be accrued as a liability under GAAP as a consequence of an Asset Sale will be the amount thereof as determined in good faith by the Board of Directors of the Company. "Permitted Investment" means (i) any Eligible Investment, (ii) any Investment in the Company, (iii) Investments in existence on the Closing Date, and any such Investment in Basic Investments, Basic Land Company, Basic Management, Inc., Basic Water Company or Victory Valley which has been reclassified or converted into an alternate form of Investment in the same or a successor entity, (iv) intercompany notes permitted under clause (f) of the covenant described under "-- Certain Covenants -- Limitations on Indebtedness," (v) Investments in any Wholly-Owned Restricted Subsidiary or any Person which, as a result of such Investment, becomes a Wholly-Owned Restricted Subsidiary; provided that such Wholly-Owned Restricted Subsidiary is engaged in a Related Business, and (vi) other Investments after the Closing Date in joint ventures, corporations, limited liability companies, partnerships or Unrestricted Subsidiaries engaged in a Related Business that do not at any one time outstanding exceed $5.0 million; provided that the amount of Investments pursuant to clause (vi) will be included in the calculation of Restricted Payments pursuant to the covenant described under "-- Certain Covenants -- Limitations on Restricted Payments." "Permitted Liens" means as of any particular time, any one or more of the following: (a) Liens for taxes, rates and assessments not yet past due or, if past due, the validity of which is being contested in good faith by the Company or any Restricted Subsidiary by appropriate proceedings promptly instituted and diligently conducted and against which the Company has established appropriate reserves in accordance with GAAP; (b) the Lien of any judgment rendered which is being contested in good faith by the Company or any of its Restricted Subsidiaries by appropriate proceedings promptly instituted and diligently conducted and against which the Company has established appropriate reserves in accordance with GAAP and which does not have a material adverse effect on the ability of the Company and its Restricted Subsidiaries to operate their business or operations; (c) other than in connection with Indebtedness, any Lien arising in the ordinary course of business (i) to secure payments of workers' compensation, unemployment insurance, pension or other social security or retirement benefits, or to secure the performance of bids, tenders, leases, progress payments, contracts (other than for the payment of money) or to secure public or statutory obligations of the Company, or any Restricted Subsidiary, or to secure surety or appeal bonds to which the Company or any Restricted Subsidiary is a party, (ii) imposed by law dealing with materialmen's, mechanics', workmen's, repairmen's, warehousemen's, landlords', vendors' or carriers' Liens created by law, or deposits or pledges which are not yet due or, if due, the validity of which is being contested in good faith by the Company or any Restricted Subsidiaries by appropriate proceedings promptly instituted and diligently conducted and against which the Company has established appropriate reserves in accordance with GAAP, (iii) rights of financial institutions to set off and chargeback arising by operation of law and (iv) similar Liens; (d) servitudes, licenses, easements, encumbrances, restrictions, rights-of-way and rights in the nature of easements or similar charges which will not in the aggregate materially adversely impair the use of the subject property by the Company or a Restricted Subsidiary; (e) zoning and building by-laws and ordinances, municipal bylaws and regulations, and restrictive covenants, which do not materially interfere with the use of the subject property by the Company or a Restricted Subsidiary as such property is used as of the date of the Indenture; and (f) any extension, renewal, substitution or replacement (or successive extensions, renewals, substitutions or replacements), as a whole or in part, of any of the Liens referred to in clauses (a) through (e) of this definition or the Indebtedness secured thereby; provided that (i) such extension, renewal, substitution or replacement Lien is limited to that portion of the property or assets, now owned or hereafter acquired, that secured the Lien prior to such extension, renewal, substitution or replacement 113 118 Lien and (ii) the Indebtedness secured by such Lien (assuming all available amounts were borrowed) at such time is not increased. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock," as applied to the Equity Interests of any corporation, means stock of any class or classes (however designated) which is preferred over shares of stock of any other class of such corporation as to the distribution of assets on any voluntary or involuntary liquidation or dissolution of such corporation or as to dividends. "Redeemable Stock" means any Equity Interest that by its terms or otherwise (i) is required to be redeemed prior to the maturity of the Notes, (ii) matures or is redeemable, in whole or in part, at the option of the Company, any Subsidiary or the holder thereof or pursuant to a mandatory sinking fund at any time prior to the maturity of the Notes, or (iii) is convertible into or exchangeable for debt securities which provide for any scheduled payment of principal prior to the maturity of the Notes at the option of the issuer at any time prior to the maturity of the Notes, until the right to so convert or exchange is irrevocably relinquished. "Related Business" means any corporation or other entity engaged in, and any asset utilized in, the manufacture or distribution of chlorine, caustic soda, bleach, hydrochloric acid, iron and other chlorides and aluminum sulfate, and in lines of business reasonably related thereto. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Subsidiary" means (i) any Subsidiary Guarantor, (ii) any Subsidiary of the Company in existence on the date hereof to which any line of business or division (and the assets associated therewith) of any Subsidiary Guarantor are transferred after the date of the Indenture, (iii) any Subsidiary of the Company organized or acquired after the date of the Indenture, unless such Subsidiary has been designated as an Unrestricted Subsidiary by a resolution of the Board of Directors as provided in the definition of "Unrestricted Subsidiary" and (iv) any Unrestricted Subsidiary which is designated as a Restricted Subsidiary by the Board of Directors; provided, that immediately after giving effect to any such designation (A) no Default or Event of Default has occurred and is continuing and (B) in the case of any designation referred to in clause (iii) or (iv) hereof, the Company could incur at least $1.00 of Indebtedness pursuant to the covenant described in the initial paragraph under "-- Certain Covenants -- Limitations on Indebtedness," on a pro forma basis taking into account such designation. The Company will evidence any such designation to the Trustee by promptly filing with the Trustee an officers' certificate certifying that such designation has been made and complies with the requirements of the immediately preceding sentence. Notwithstanding any provision of the Indenture to the contrary, each Subsidiary Guarantor will be a Restricted Subsidiary. "Sale and Leaseback Transaction" with respect to any Person, means any arrangement with another Person for the leasing of any real or tangible personal property, which property has been or is to be sold or transferred by such Person to such other Person in contemplation of such leasing. "Security Documents" means the Intercreditor Agreement and all security agreements, mortgages, deeds of trust, pledge agreements, collateral assignments or any other instrument evidencing or creating any security interest in favor of the Collateral Agent in all or any portion of the Note Collateral, in each case as amended, supplemented or otherwise modified from time to time. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Company or its Restricted Subsidiaries, whether outstanding on the date of the Indenture or thereafter incurred as permitted by the Indenture, unless, in the case of any particular Indebtedness, the agreement or instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness is junior or subordinated in right of payment to any item of Indebtedness of the Company or its Restricted Subsidiaries. Without limiting the generality of the foregoing, "Senior Indebtedness" includes the principal of, premium, if any, and interest and all other obligations of every nature of the Company from time to time owed under the New Credit Facilities. Notwithstanding the foregoing, "Senior 114 119 Indebtedness" does not include (i) in the case of the obligation of the Company in respect of each Note, the obligation of the Company in respect of the other Notes, (ii) any liability for foreign, federal, state, local or other taxes owed or owing by the Company or any Restricted Subsidiary to the extent that such liability constitutes Indebtedness, (iii) Indebtedness of the Company to any Restricted Subsidiary or of any Restricted Subsidiary to the Company or another Restricted Subsidiary, (iv) that portion of any Indebtedness which at the time of issuance is issued in violation of the Indenture and (v) Indebtedness and amounts incurred in connection with obtaining goods, materials or services in the ordinary course of business (other than such Indebtedness which is owed to banks and other financial institutions or secured by the goods or materials which were purchased with such Indebtedness). "Subordinated Indebtedness" means Indebtedness of the Company or any Subsidiary Guarantor subordinated in right of payment to the Notes or any Guarantee, as the case may be. "Subsidiary" means, with respect to the Company, (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors, under ordinary circumstances, is at the time owned, directly or indirectly, by the Company, by the Company and one or more of its Subsidiaries or by one or more of the Company's Subsidiaries or (ii) any other Person or entity of which at least a majority of voting interest, under ordinary circumstances, is at the time owned, directly or indirectly, by the Company, by the Company and one or more of its Subsidiaries or by one or more of the Company's Subsidiaries. "Trust Moneys" means all cash or Eligible Investments received by the Collateral Agent: (a) in exchange for the release of property from the Lien of any of the Security Documents; or (b) as compensation for or proceeds of the sale of all or any part of the Note Collateral taken by eminent domain or purchased by, or sold pursuant to any order of, a governmental authority or otherwise disposed of; or (c) as proceeds of insurance upon any, all or part of the Note Collateral (other than any liability insurance proceeds payable to the Collateral Agent for any loss, liability or expense incurred by it); or (d) as proceeds of any other sale or other disposition of all or any part of the Note Collateral by or on behalf of the Collateral Agent or any collection, recovery, receipt, appropriation or other realization of or from all or any part of the Note Collateral pursuant to the Security Documents or otherwise; or (e) for application under the Indenture as provided in the Indenture or any Security Document, or whose disposition is not otherwise specifically provided for in the Indenture or in any Security Document. "Unrestricted Subsidiary" means, until such time as it may be designated as a Restricted Subsidiary by the Board of Directors of the Company as provided in and in compliance with the definition of "Restricted Subsidiary," (i) any Subsidiary of the Company organized or acquired after the date of the Indenture designated as an Unrestricted Subsidiary by the Board of Directors of the Company in which all investments by the Company or any Restricted Subsidiary are made only from funds available for the making of Restricted Payments as described under "-- Certain Covenants -- Limitations on Restricted Payments" and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Equity Interests of, or owns, or holds any Lien upon, any property of, any Subsidiary of the Company which is not a Subsidiary of such Subsidiary to be so designated; provided that (w) each Subsidiary to be so designated and each of its Subsidiaries has not, at the time of designation, and does not thereafter, directly or indirectly, incur any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries, (x) immediately after giving effect to such designation no Default or Event of Default has occurred and is continuing, (y) all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation equal in amount to the Fair Market Value of such Investments at the time of such designation and would be Restricted Payments permitted to be paid pursuant to the provisions of the covenant described under "-- Certain Covenants -- Limitations on Restricted Payments" and (z) the amount of such Restricted Payments will be included in the calculation of the amount of Restricted Payments previously made pursuant to such covenant. The Company will evidence any such designation by promptly filing with the Trustee an 115 120 officers' certificate certifying that such designation has been made and complies with the requirements of the immediately preceding sentence. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case under clause (i) or (ii) above, are not callable or redeemable at the option of the issuer thereof. "Victory Valley" means Victory Valley Land Company, L.P., a Delaware limited partnership. "Voting Stock" of any Person means Capital Stock of such Person which ordinarily has voting power for the election of directors (or Persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Wholly-Owned Restricted Subsidiary" means, with respect to any Person, a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than capital stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, to the extent mandated by applicable law) are owned by such Person or by one or more Wholly-Owned Restricted Subsidiaries of such Person and one or more Wholly-Owned Restricted Subsidiaries of such Person. DEFAULTS AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in payment of interest on the Notes; (ii) default in payment of principal of, or premium with respect to, the Notes; (iii) failure by the Company or a Subsidiary Guarantor, if applicable, to comply with the covenants entitled "Limitations on Restricted Payments," "Limitations on Indebtedness," "Subsidiary Guarantees," "Limitations on Liens," "Limitations on Asset Sales," "Limitations on Sale and Leaseback Transactions," "Limitations on Ownership of Restricted Subsidiary Stock," "Change of Control," and "Limitation on Mergers; Sales of Assets;" (iv) failure by the Company or a Subsidiary Guarantor, if applicable, to comply with any of its other agreements in the Indenture, the Security Documents or the Notes for a period that continues for 60 days after receipt of written notice from the Trustee or from the Holders of at least 25% of the aggregate principal amount of the Notes then outstanding, specifying such default; (v) the Company denies or disaffirms in writing its obligations under the Indenture or the Notes; (vi) a Subsidiary Guarantor denies or disaffirms in writing its obligations under its Guarantee, or any Guarantee for any reason ceases to be, or is asserted in writing by any Subsidiary Guarantor or the Company not to be, in full force and effect and enforceable in accordance with its terms, except to the extent contemplated by the Indenture and any such Guarantee; (vii) a default under any Indebtedness of the Company or any of its Subsidiaries, which default (A) is caused by a failure to pay the final scheduled principal installment on such Indebtedness on the stated maturity date thereof (which failure continues beyond any applicable grace period) or (B) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness with respect to which the principal amount remains unpaid at its final maturity or the maturity of which has been so accelerated, aggregates $5.0 million or more; (viii) final judgments rendered against the Company or any of its Restricted Subsidiaries (other than any judgment as to which and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) of $5.0 million or more which remain undischarged or unstayed for a period of 60 days; (ix) any of the Security Documents ceases to be in full force and effect (other than in accordance with their respective terms), or any of the Security Documents ceases to give either Collateral Agent the Liens, rights, powers and privileges purported to be created thereby, or any Security Document is declared null and void, or the Company or PCAC or PAI denies any of its obligations under any Security Document or any Note Collateral becomes subject to any Lien other than the Liens created or permitted by the Indenture or the Security Documents; and (x) certain events of bankruptcy or insolvency of the Company or any of its Restricted Subsidiaries. 116 121 If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes may declare the Notes due and payable immediately. However, if an Event of Default resulting from bankruptcy or insolvency occurs, such amount will be due and payable without any declaration or any act on the part of the Trustee or the Holders. Such declaration or acceleration may be rescinded and past defaults may be waived by the Holders of a majority in principal amount of the Notes upon conditions provided in the Indenture. Holders may not enforce the Indenture, the Security Documents or the Notes, except as provided therein. The Trustee may require an indemnity satisfactory to it before enforcing the Indenture, the Security Documents or the Notes. Subject to certain limitations, Holders of a majority in principal amount of the Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture, that is unduly prejudicial to the rights of any Holder or that would subject the Trustee to personal liability. The Trustee may withhold from the Holders of the Notes notice of any continuing default (except a default in payment of principal, premium, if any, or interest) if it determines in good faith that withholding notice is in their interest. The Company is required to file periodic reports with the Trustee as to the absence of Default. If a Default exists, the Company is required to describe the Default and efforts undertaken to remedy the Default. Directors, officers, employees or stockholders, as such, of the Company, the Subsidiary Guarantors and the other Subsidiaries of the Company will not have any liability for any obligations of the Company or any Subsidiary Guarantors under the Notes, any Guarantee or the Indenture or for any claim based on, in respect of, or by reason of, such obligations. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. TRANSFER AND EXCHANGE A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law. The Registrar need not transfer or exchange any Note previously selected for redemption. A registered Holder of a Note will be treated as the owner thereof for all purposes. No Note will be valid until the Trustee or an authenticating agent manually signs the certificate of authentication on the Note. Each Note will become effective on the date upon which it is so signed. AMENDMENT, SUPPLEMENT AND WAIVER Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented, and any past default or compliance with any provision may be waived, with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Without the consent of any Holder, the Company and the Subsidiary Guarantors will be permitted to amend or supplement the Indenture, the Security Documents or the Notes to comply with the provisions of the Indenture in the case of a consolidation, merger or sale of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole, to provide for uncertificated Notes in addition to or in place of certificated Notes, to cure any ambiguity, defect or inconsistency, to comply with any requirement of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act, to comply with any requirement of the Commission or applicable law to effectuate the Exchange Offer, to add additional guarantees with respect to the Notes, to further secure the Notes or the Guarantees, to add to the covenants of the Company or any Subsidiary for the benefit of the holders of the Notes, to surrender any right or power conferred upon the Company or any Subsidiary or to make any other change that does not adversely affect the rights of any Holder. Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder) (i) reduce the principal amount of Notes whose holders must consent to an amendment or waiver of the Indenture or the Security Documents; (ii) reduce the rate of, or 117 122 change the time for payment of, interest, including default interest, on any Note; (iii) reduce the principal of or change the fixed maturity of any Note, or alter the optional redemption provisions, or alter the price at which the Company will offer to purchase such Note pursuant to an Asset Sale Offer or a Change of Control Offer; (iv) make any Note payable in money other than that stated in such Note; (v) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of the Notes to receive payments of principal of or interest on the Notes; (vi) waive a Default or Event of Default in the payment of principal of, premium if any, or interest on the Notes, including any such obligation arising pursuant to an Asset Sale Offer, a Change of Control Offer (except a rescission of acceleration of the Notes by the Holders of at least a majority (or, in the case of the failure to make a Change of Control Offer, two-thirds) in principal amount of the Notes then outstanding and a waiver of the payment default that resulted from such acceleration); (vii) waive the obligation to make an Asset Sale Offer or any payment required to be made pursuant to an Asset Sale Offer, a Change of Control Offer or a Guarantee; (viii) affect the ranking of the Notes; (ix) release all or substantially all of the Note Collateral other than pursuant to the terms of the Indenture or the Security Documents; or (x) make any change in the foregoing amendment and waiver provisions. An amendment or waiver may not waive the Company's obligation to make a Change of Control Offer without the consent of the Holders of at least two-thirds in outstanding principal amount of the Notes. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of the obligations of the Company and each Subsidiary Guarantor discharged with respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due but only from assets deposited by the Company pursuant to clause (i) of the following paragraph, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration or transfer of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and any Subsidiary Guarantor released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations will not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes. In order to effect either a Legal Defeasance or a Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, of such principal or installment of principal of, premium, if any, or interest on the outstanding Notes; (ii) in the case of Legal Defeasance, the Company will deliver to the Trustee an opinion of counsel reasonably acceptable to the Trustee confirming that (A) the Company has received from the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, including by means of a Revenue Ruling published by the Internal Revenue Service, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company will deliver to the Trustee an opinion of counsel reasonably acceptable to the Trustee confirming that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default has occurred and is 118 123 continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any Subsidiary Guarantor is a party or by which the Company or any Subsidiary Guarantor is bound; (vi) the Company will deliver to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and that the Trustee has a perfected security interest in such trust funds for the ratable benefit of the Holders of the outstanding Notes; (vii) the Company will deliver to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Notes or any Guarantee over the other creditors of the Company or any Subsidiary Guarantor or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or any Subsidiary Guarantor or others; and (viii) the Company will deliver to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise under the circumstances in the conduct of such Person's own affairs. The Indenture and provisions of the Trust Indenture Act incorporated by reference therein contain limitations on the rights of the Trustee, should it become a creditor of the Company or any Subsidiary Guarantor, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest, it must eliminate such conflict or resign. The Company or any Subsidiary Guarantor may have customary banking relationships with the Trustee in the ordinary course of business. The Trustee acts as trustee under the indenture with respect to the First Mortgage Notes. BOOK-ENTRY; DELIVERY AND FORM The certificates representing the Notes will be issued in fully registered form. The Company expects that the Exchange Notes initially will each be represented by a single global certificate in fully registered form (the "Global Note") and will be deposited with the Trustee as custodian for The Depository Trust Company ("DTC") and registered in the name of a nominee of DTC. Global Note. The Company expects that upon the issuance of the Global Note, DTC or its custodian will credit, on its book-entry registration and transfer system, the respective principal amount of Exchange Notes of the individual beneficial interests represented by such Global Note to the accounts of Persons who have accounts with such depositary. Ownership of beneficial interests in the Global Note will be limited to Persons who have accounts with DTC ("participants") or Persons who hold interests through participants. Ownership of beneficial interests in the Global Note will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of Persons other than participants). So long as DTC, or its nominee, is the registered owner or holder of the Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Exchange Notes represented by such Global Note for all purposes under the Indenture and the Exchange Notes. No beneficial owner of an interest in the Global Note will be able to transfer that interest except in accordance with DTC's applicable procedures, in addition to those provided for under the Indenture. 119 124 Payments of the principal of, premium (if any) and interest on, the Global Note will be made to DTC or its nominee, as the case may be, as the registered owner thereof. Neither the Company, the Trustee nor any Paying Agent will have any responsibility or liability for any aspect of the record relating to or payments made on account of beneficial ownership interests in the Global Note or for maintaining, supervising or reviewing any record relating to such beneficial ownership interest. The Company expects that DTC or its nominee, upon receipt of any payment of principal, premium, if any, or interest in respect of the Global Note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note as shown on the records of DTC or its nominee. The Company also expects that payments by participants to owners of beneficial interests in such Global Note held through such participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. The Company expects that transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in same day funds. If a holder requires physical delivery of a Certificated Note for any reason, including to sell Exchange Notes to Persons in states which require physical delivery of such Notes or to pledge such Notes, such holder must transfer its interest in the Global Note in accordance with the normal procedures of DTC and the procedures set forth in the Indenture. DTC has advised the Company that it will take any action permitted to be taken by a holder of Exchange Notes (including the presentation of Exchange Notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in the Global Note is credited and only in respect of such portion of the aggregate principal amount of Exchange Notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the Notes or the Indenture, DTC will exchange the Global Note for Certificated Notes, which it will distribute to its participants. To the Company's knowledge, DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Although DTC customarily agrees to the foregoing procedures in order to facilitate transfers of interests in global notes among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Securities. If DTC is at any time unwilling or unable to continue as a depositary for the Global Note and a successor depositary is not appointed by the Company within 90 days, Certificated Notes will be issued in exchange for the Global Note. 120 125 ORIGINAL NOTES REGISTRATION RIGHTS The Company, the Subsidiary Guarantors and the Initial Purchasers entered into the Registration Rights Agreement on the Closing Date pursuant to which the Company and the Subsidiary Guarantors agreed, for the benefit of holders of the Original Notes, to, at their expense (i) on or prior to the 30th day following the Closing Date, file the Exchange Offer Registration Statement with the Commission with respect to the Exchange Offer pursuant to which the Original Notes will be exchanged for the Exchange Notes, which will have terms identical to the Original Notes and will be guaranteed by the Subsidiary Guarantors on the same terms as the Guarantees (except that the Exchange Notes will not contain terms with respect to transfer restrictions or any provision relating to this paragraph) and (ii) use their best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act by the 150th day after the Closing Date. Upon effectiveness of the Exchange Offer Registration Statement, the Company and the Subsidiary Guarantors agreed to offer to all holders of the Notes an opportunity to exchange their securities for a like principal amount of the Exchange Notes. The Company and the Subsidiary Guarantors agreed to keep the Exchange Offer open for acceptance for not less than 20 business days after the date the Exchange Offer Registration Statement is declared effective, and to comply with Regulation 14E and Rule 13e-4 under the Exchange Act (other than the filing requirements of Rule 13e-4). For each Original Note surrendered to the Company for exchange pursuant to the Exchange Offer, the holder of such Original Note will receive an Exchange Note having a principal amount at maturity equal to that of the surrendered Original Note. Interest on each Exchange Note will accrue from the last interest payment date on which interest was paid on the Original Note surrendered in exchange therefor or, if no interest has been paid on such Original Note, from the date of original issuance. Under existing interpretations of the staff of the Commission's Division of Corporation Finance (the "Staff"), the Exchange Notes will generally be freely transferable after the Exchange Offer without further registration under the Securities Act; provided that broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer will be subject to a prospectus delivery requirement with respect to resales of such Exchange Notes. To date, the Staff has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to transactions involving an exchange of securities such as the exchange pursuant to the Exchange Offer (other than a resale of an unsold allotment from the sale of the Notes to the Initial Purchasers) with the prospectus contained in the Exchange Offer Registration Statement. Pursuant to the Registration Rights Agreement, the Company has agreed to permit Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use the prospectus contained in the Exchange Offer Registration Statement in connection with the resale of such Exchange Notes for a period of 180 days. Each holder of the Original Notes who wishes to exchange its Original Notes for Exchange Notes in the Exchange Offer will be required to make certain representations to the Company, including that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in a public distribution (within the meaning of the Securities Act) of the Exchange Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or the Subsidiary Guarantors, or if it is such an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable to it. In addition, each holder who is not a broker-dealer will be required to represent that it is not engaged in, and does not intend to engage in, a public distribution of the Exchange Notes. Each holder who is a broker-dealer and who receives Exchange Notes for its own account in exchange for Original Notes that were acquired by it as a result of market-making activities or other trading activities, will be required to acknowledge that it will deliver a prospectus in connection with any resale by it of such Exchange Notes. In the event that applicable interpretations of the Staff do not permit the Company and the Subsidiary Guarantors to effect the Exchange Offer or if for any other reason the Exchange Offer is not consummated by the 30th business day following the date the Exchange Offer Registration Statement is declared effective, or if the Initial Purchasers so request with respect to the Original Notes not eligible to be exchanged for Exchange Notes in the Exchange Offer or if any holder of Original Notes is not eligible to participate in the Exchange 121 126 Offer or does not receive freely tradeable Exchange Notes in the Exchange Offer, the Company and the Subsidiary Guarantors will, at their expense, (a) promptly file a shelf registration statement (a "Shelf Registration Statement" and together with the Exchange Offer Registration Statement, the "Registration Statements") permitting resales from time to time of the Original Notes, (b) use their best efforts to cause such registration statement to become effective and (d) use their best efforts to keep such registration statement current and effective until two years from the date it becomes effective or such shorter period that will terminate when all the Original Notes covered by such registration statement have been sold pursuant thereto. The Company and the Subsidiary Guarantors, at their expense, will provide to each holder of the Original Notes copies of the prospectus, which is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the Original Notes from time to time. A holder of Original Notes who sells such Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such holder (including certain indemnification obligations). In the event that (i) the Exchange Offer Registration Statement is not filed with the Commission on or prior to the 30th day after the Closing Date or declared effective on or prior to the 150th day after the Closing Date, (ii) the Exchange Offer is not consummated on or prior to the 30th business day following the date the Exchange Offer Registration Statement is declared effective, (iii) the Shelf Registration Statement is not filed or declared effective within the required time periods or (iv) any of the Registration Statements required by the Registration Rights Agreement is declared effective but thereafter ceases to be effective (except as specifically permitted therein) for a period of 15 consecutive days without being succeeded immediately by any additional Registration Statement filed and declared effective (each such event, a "Registration Default"), then the Company will pay liquidated damages ("Liquidated Damages") to each holder of Original Notes, with respect to the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to $.05 per week per $1,000 principal amount of Original Notes held by such holder. The amount of the Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of Original Notes at the beginning of each subsequent 90-day period, up to a maximum amount of $.50 per week per $1,000 principal amount of Original Notes. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. The exchange of Original Notes for Exchange Notes by holders will not be a taxable event for federal income tax purposes, and holders should not recognize any taxable gain or loss or any interest income as a result of such exchange. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which is available upon request to the Company. 122 127 PLAN OF DISTRIBUTION Based on interpretations by the Staff set forth in no-action letters issued to third parties, the Issuers believe that Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired Original Notes directly from the Issuers or (iii) broker-dealers who acquired Original Notes as a result of market-making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business, and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes; provided that broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer will be subject to a prospectus delivery requirement with respect to resales of such Exchange Notes. To date, the Staff has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to transactions involving an exchange of securities such as the exchange pursuant to the Exchange Offer (other than a resale of an unsold allotment from the sale of the Original Notes to the Initial Purchasers) with the prospectus contained in the Exchange Offer Registration Statement. Pursuant to the Registration Rights Agreement, the Company has agreed to permit Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use this Prospectus in connection with the resale of such Exchange Notes. The Issuers have agreed that, for a period not to exceed 180 days after the Exchange Date, they will make this Prospectus, and any amendment or supplement to this Prospectus, available to any broker-dealer that requests such documents in the Letter of Transmittal. Each holder of the Original Notes who wishes to exchange its Original Notes for Exchange Notes in the Exchange Offer will be required to make certain representations to the Company as set forth in "The Exchange Offer -- Terms and Conditions of the Letter of Transmittal." In addition, each holder who is a broker-dealer and who receives Exchange Notes for its own account in exchange for Original Notes that were acquired by it as a result of market-making activities or other trading activities, will be required to acknowledge that it will deliver a prospectus in connection with any resale by it of such Exchange Notes. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has agreed to pay all expenses incidental to the Exchange Offer other than commissions and concessions of any brokers or dealers and will indemnify holders of the Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act, as set forth in the Registration Rights Agreement. 123 128 LEGAL MATTERS Certain legal matters with respect to the Exchange Notes will be passed upon for PAAC by Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022. Jack H. Nusbaum, a Senior Partner and Chairman of Willkie Farr & Gallagher, is a director of Pioneer and PAAC and beneficially owns 13,652 shares of Pioneer's Class A Common Stock. EXPERTS The consolidated financial statements and schedule of Pioneer Americas Acquisition Corp. as of December 31, 1995 and 1996 and for the period from March 6, 1995 through December 31, 1995, included in this Prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is included herein. The consolidated financial statements and schedule of Pioneer Americas Acquisition Corp. are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements and schedule of Pioneer Americas, Inc. (the Predecessor Company) as of December 31, 1994 and for the period from January 1, 1995 through April 20, 1995 and for the year ended December 31, 1994, included in this Prospectus, have been audited by Ernst & Young LLP, independent auditors, as stated in their reports, which are included herein, which are based in part on the reports of Piercy, Bowler, Taylor & Kern, independent auditors of Basic Investments, Inc. The consolidated financial statements and schedule of Pioneer Americas, Inc. (the Predecessor Company) are included in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. The financial statements of the Tacoma Plant as of December 31, 1996 and December 31, 1995 and for each of the three years in the period ended December 31, 1996, included in this Prospectus and elsewhere in this Registration Statement, have been audited by Arthur Andersen LLP, independent public accountants, as stated in their reports, with respect thereto, and/or included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. CHANGE IN INDEPENDENT PUBLIC AUDITORS Effective October 16, 1995, each of the Subsidiary Guarantors, by action of its board of directors, engaged Deloitte & Touche LLP as its independent accountants. Deloitte & Touche LLP has acted as independent accountants of PAAC since the inception of PAAC and it was determined that, following the acquisition of the Subsidiary Guarantors by PAAC, Deloitte & Touche LLP should act as independent accountants of the Subsidiary Guarantors as well. Ernst & Young LLP had been the independent accountants for PAI prior to its dismissal, effective October 16, 1995. The reports of Ernst & Young LLP on the financial statements of PAI for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with the audits of the financial statements of PAI for each of the two fiscal years ended December 31, 1994, and in the subsequent interim period, there were no disagreements with Ernst & Young LLP on any matters of accounting principles or practices, financial statement disclosure or auditing scope and procedures which, if not resolved to the satisfaction of Ernst & Young LLP, would have caused Ernst & Young LLP to make reference to the matter in their report. 124 129 INDEX TO FINANCIAL STATEMENTS
PAGE ---- (1) Pioneer Americas Acquisition Corp. and subsidiary companies: Report of Deloitte & Touche LLP, independent auditors.......................................... F- 2 Report of Ernst & Young LLP, independent auditors.......................................... F- 3 Report of Piercy, Bowler, Taylor & Kern, independent public accountants.................... F- 4 Consolidated balance sheets of the Company as of December 31, 1996 and 1995........................ F- 5 Consolidated statements of operations of the Company for the year ended December 31, 1996 and the period from March 6, 1995 ("Inception") through December 31, 1995 and of the Predecessor Company for the period from January 1, 1995 through April 20, 1995 and for the year ended December 31, 1994................................. F- 6 Consolidated statements of stockholders' equity of the Company for the period from Inception through December 31, 1995 and for the year ended December 31, 1996 and of the Predecessor Company for the year ended December 31, 1994 and for the period from January 1, 1995 through April 20, 1995.......................................... F- 7 Consolidated statements of cash flows of the Company for the year ended December 31, 1996 and the period from Inception through December 31, 1995 and of the Predecessor Company for the period from January 1, 1995 through April 20, 1995 and for the year ended December 31, 1994..... F- 8 Notes to consolidated financial statements.......... F- 9 Consolidated balance sheets of the Company as of March 31, 1997 (unaudited) and December 31, 1996.............................................. F-25 Unaudited consolidated statements of operations of the Company for the three months ended March 31, 1997 and March 31, 1996........................... F-26 Unaudited consolidated statements of cash flows of the Company for the three months ended March 31, 1997 and March 31, 1996........................... F-27 Notes to unaudited consolidated financial statements........................................ F-28 (2) Tacoma Plant: Report of Arthur Andersen LLP, independent public accountants....................................... F-32 Balance sheets for the Tacoma Plant at December 31, 1996 and 1995................................. F-33 Statements of operations and changes in owner's investment for the Tacoma Plant for the years ended December 31, 1996, 1995 and 1994............ F-34 Statements of cash flows of the Tacoma Plant for the years ended December 31, 1996, 1995 and 1994.............................................. F-35 Notes to financial statements....................... F-36 Unaudited balance sheets for the Tacoma Plant at March 31, 1997 and 1996........................... F-46 Unaudited statements of operations and changes in owner's investment for the Tacoma Plant for the three months ended March 31, 1997 and 1996........ F-47 Unaudited statements of cash flows of the Tacoma Plant for the three months ended March 31, 1997 and 1996.......................................... F-48 Notes to unaudited financial statements............. F-49
F-1 130 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Pioneer Americas Acquisition Corp. We have audited the accompanying consolidated balance sheets of Pioneer Americas Acquisition Corp. and its subsidiaries (the "Company"), as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year ended December 31, 1996 and for the period from March 6, 1995 (Inception) through December 31, 1995. Our audit also includes the consolidated financial statement schedule II. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1996 and 1995, and the results of their operations and their cash flows for the year ended December 31, 1996 and the period from Inception through December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Houston, Texas March 7, 1997 F-2 131 INDEPENDENT AUDITORS' REPORT The Board of Directors Pioneer Americas, Inc. We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of Pioneer Americas, Inc. (the "Predecessor Company") for the period from January 1, 1995 through April 20, 1995 and for the year ended December 31, 1994. Our audits also included the related financial statement schedule II. These financial statements and schedule are the responsibility of the Predecessor Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. The financial statements of certain of the Predecessor Company's investments (as described in Note 5) have been audited by other auditors whose report has been furnished to us; insofar as our opinion on the consolidated financial statements relates to data included for these investments, it is based solely on their report. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of the Predecessor Company for the period from January 1, 1995 through April 20, 1995 and for the year ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. ERNST & YOUNG LLP Houston, Texas June 26, 1995 F-3 132 INDEPENDENT AUDITORS' REPORT Board of Directors Basic Investments, Inc. Henderson, Nevada We have audited the combined statements of income, equity and cash flows of Basic Investments, Inc. and affiliates (the Company) for the year ended December 31, 1994. These combined 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the results of combined operations and cash flows of Basic Investments, Inc. and affiliates for the year ended December 31, 1994 in conformity with generally accepted accounting principles. Piercy, Bowler, Taylor & Kern Certified Public Accountants and Business Advisors A Professional Corporation Las Vegas, Nevada January 30, 1995 F-4 133 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, -------------------- 1996 1995 -------- -------- ASSETS Current assets: Cash...................................................... $ 14,417 $ 11,218 Accounts receivable, less allowance for doubtful accounts: 1996, $1,311; 1995, $1,424............................. 18,830 27,825 Due from parent........................................... 2,547 574 Inventories............................................... 6,247 11,347 Prepaid expenses.......................................... 1,156 3,766 -------- -------- Total current assets.............................. 43,197 54,730 Property, plant, and equipment, at cost: Land................................................... 3,735 1,711 Buildings and improvements............................. 17,062 13,997 Machinery and equipment................................ 71,704 67,587 Cylinders and tanks.................................... 4,540 4,503 Construction in progress............................... 11,871 9,394 -------- -------- 108,912 97,192 Less accumulated depreciation.......................... (16,429) (7,795) -------- -------- 92,483 89,397 Investment in and advances to unconsolidated subsidiary..... 28,586 -- Other assets, net of accumulated amortization: 1996, $2,458; 1995, $1,068.............................................. 19,621 11,664 Excess cost over the fair value of net assets acquired, net of accumulated amortization: 1996, $7,556; 1995, $3,311... 107,123 108,940 -------- -------- Total assets...................................... $291,010 $264,731 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable.......................................... $ 17,221 $ 20,183 Accrued liabilities....................................... 19,276 20,660 Returnable deposits....................................... 3,238 3,437 Current portion of long-term debt......................... 128 -- -------- -------- Total current liabilities......................... 39,863 44,280 Long-term debt, less current maturities..................... 141,629 135,000 Returnable deposits......................................... 3,272 3,281 Accrued pension and other employee benefits................. 14,100 13,573 Other long-term liabilities................................. 17,823 13,170 Commitments and contingencies (Note 10) Stockholder's equity: Common stock, $.01 par value, authorized 1,000 shares, issued and outstanding 1,000 shares.................... 1 1 Additional paid-in capital................................ 61,124 49,652 Retained earnings......................................... 13,198 5,774 -------- -------- Total stockholder's equity........................ 74,323 55,427 -------- -------- Total liabilities and stockholder's equity........ $291,010 $264,731 ======== ========
See notes to consolidated financial statements. F-5 134 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
PREDECESSOR COMPANY ------------------------------- PERIOD FROM PERIOD FROM INCEPTION JANUARY 1, 1995 YEAR ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, APRIL 20, DECEMBER 31, 1996 1995 1995 1994 ------------ ------------ --------------- ------------ Revenues................................ $183,326 $142,908 $57,848 $167,217 Cost of sales........................... 126,739 98,175 37,400 134,556 -------- -------- ------- -------- Gross profit............................ 56,587 44,733 20,448 32,661 Selling, general and administrative expenses.............................. 23,528 19,836 7,047 22,529 -------- -------- ------- -------- Operating income........................ 33,059 24,897 13,401 10,132 Equity in net loss of unconsolidated subsidiary............................ (2,607) -- -- -- Interest expense, net................... (17,290) (12,905) (1,665) (6,407) Settlement of litigation and insurance claims, net........................... -- -- -- 3,326 Other income (expense), net............. 1,684 637 (115) 1,337 -------- -------- ------- -------- Income before taxes and extraordinary item.................................. 14,846 12,629 11,621 8,388 Income tax provision.................... 6,735 6,208 4,809 3,242 -------- -------- ------- -------- Income before extraordinary item........ 8,111 6,421 6,812 5,146 Extraordinary item, early extinguishment of debt (net of income tax benefit of $2,140)............................... -- -- 3,420 -- -------- -------- ------- -------- Net income.............................. 8,111 6,421 3,392 5,146 Accretion of dividends on preferred stock and adjustment to redeemable stock put warrants.................... -- -- -- (1,824) -------- -------- ------- -------- Net income applicable to common stock... $ 8,111 $ 6,421 $ 3,392 $ 3,322 ======== ======== ======= ========
See notes to consolidated financial statements. F-6 135 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
NUMBER OF COMMON ADDITIONAL SHARES COMMON PAID-IN RETAINED OUTSTANDING STOCK CAPITAL EARNINGS TOTAL ----------- ------ ---------- --------- ------- Post Acquisition Balance at Acquisition.................. 1 $ 1 $46,062 $ -- $46,063 Recognition of the NOL benefit........ -- -- 3,590 -- 3,590 Dividend paid to parent............... -- -- -- (647) (647) Net income............................ -- -- -- 6,421 6,421 ----- --- ------- ------- ------- Balance at December 31, 1995............ 1 1 49,652 5,774 55,427 Recognition of the NOL benefit........ -- -- 11,472 -- 11,472 Dividend paid to parent............... -- -- -- (687) (687) Net income............................ -- -- -- 8,111 8,111 ----- --- ------- ------- ------- Balance at December 31, 1996............ 1 $ 1 $61,124 $13,198 $74,323 ===== === ======= ======= ======= Predecessor Company Balance at December 31, 1993............ 1,453 $14 $ 4,028 $15,679 $19,721 Common Stock issuance................. 56 1 158 -- 159 Adjust carrying value of stock warrants........................... -- -- -- (1,424) (1,424) Accretion of excess redemption value of redeemable preferred stock over carrying value and amount of dividends not declared or paid..... -- -- -- (500) (500) Net income............................ -- -- -- 5,146 5,146 ----- --- ------- ------- ------- Balance at December 31, 1994............ 1,509 15 4,186 18,901 23,102 Accretion of excess redemption value of redeemable preferred stock over carrying value and amount of dividends not declared or paid..... -- -- -- (124) (124) Net income............................ -- -- -- 3,392 3,392 ----- --- ------- ------- ------- Balance at April 20, 1995............... 1,509 $15 $ 4,186 $22,169 $26,370 ===== === ======= ======= =======
See notes to consolidated financial statements. F-7 136 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PREDECESSOR COMPANY PERIOD FROM ------------------------------- INCEPTION PERIOD FROM YEAR ENDED THROUGH JANUARY 1, 1995 YEAR ENDED DECEMBER 31, DECEMBER 31, THROUGH DECEMBER 31, 1996 1995 APRIL 20, 1995 1994 ------------ ------------ --------------- ------------ OPERATING ACTIVITIES: Net income............................. $ 8,111 $ 6,421 $ 3,392 $ 5,146 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........ 15,695 12,274 4,490 13,595 Provision for bad debts.............. -- 138 47 1,235 Write-off of previous finance costs............................. -- -- 1,282 -- Gain on disposal of property, plant and equipment..................... -- -- 13 (4) Provision for SAR's.................. -- -- -- 968 Equity in net loss (earnings) of unconsolidated subsidiaries....... 2,607 -- (204) (183) Net change in deferred taxes......... 4,339 3,590 (2,086) (1,256) Net effect of changes in operating assets and liabilities (net of acquisitions)..................... 1,701 5,865 (4,323) 2,918 -------- --------- --------- -------- Net cash flows from operating activities........................... 32,453 28,288 2,611 22,419 -------- --------- --------- -------- INVESTING ACTIVITIES: Acquisitions of businesses........... (5,459) (152,318) -- -- Investment in and advances to unconsolidated subsidiaries....... (6,645) -- -- -- Capital expenditures................. (17,121) (13,556) (3,447) (5,681) Proceeds from sale of property, plant and equipment..................... -- -- 58 694 -------- --------- --------- -------- Net cash flows from investing activities........................... (29,225) (165,874) (3,389) (4,987) -------- --------- --------- -------- FINANCING ACTIVITIES: Borrowings: Proceeds.......................... -- 153,500 106,000 83,900 Repayments........................ (70) (27,500) (103,971) (99,961) Dividends paid to parent............. (687) (416) -- -- Dividends paid on preferred stock and purchase of stock put warrant..... -- -- (2,341) -- Proceeds from issuance of common stock............................. -- 21,000 -- 170 -------- --------- --------- -------- Net cash flows from financing activities........................... (757) 146,584 (312) (15,891) -------- --------- --------- -------- Net increase (decrease) in cash........ 2,471 8,998 (1,090) 1,541 Cash at beginning of period............ 11,218 -- 3,310 1,769 Cash acquired in acquisition........... 728 2,220 -- -- -------- --------- --------- -------- Cash at end of period.................. $ 14,417 $ 11,218 $ 2,220 $ 3,310 ======== ========= ========= ========
See notes to consolidated financial statements. F-8 137 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Pioneer Americas Acquisition Corp. (Pioneer) is a Delaware corporation formed on March 6, 1995 (Inception). Pioneer is 100% owned by Pioneer Companies, Inc. (PCI). On April 20, 1995, Pioneer acquired Pioneer Americas, Inc. (Pioneer Americas or the Predecessor Company) for approximately $177 million (the Acquisition). Pioneer Americas manufactured chlorine, caustic soda and related products used in a variety of applications including water treatment, plastics, detergents, and agricultural chemicals. Consideration for the Acquisition included cash, assumption of certain liabilities and repayment of debt of the Predecessor Company, redemption of preferred stock of the Predecessor Company and fees and expenses related to the Acquisition. In connection with the Acquisition, PCI sold common stock, issued long-term debt and entered into a new bank revolving credit facility. The Acquisition was accounted for as a purchase; accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their fair market value and the operations of the Predecessor Company were included in the consolidated financial statements from the date acquired. The Acquisition resulted in $112 million of excess cost over the fair value of the net assets acquired, which is being amortized on a straight line basis over 25 years. In February 1996, Pioneer acquired an interest in Kemwater North America Company (Kemwater) for $0.3 million of cash and a contribution of the assets and liabilities of its subsidiary Imperial West Chemical Co. (Imperial West). Kemwater was formed to conduct the operations of Imperial West and KWT, Inc. (acquired by PCI in February 1996). Kemwater, which manufactures and supplies iron chlorides that are used to remove solids from water streams and to control hydrogen sulfide emissions by the potable and waste water markets, is owned 50% by Pioneer and 50% by PCI. Since it does not own a controlling interest in Kemwater, Pioneer accounts for Kemwater using the equity method. In the 1996 consolidated financial statements, Pioneer's investment in Kemwater is presented as Investment in and advances to unconsolidated subsidiary and its equity in the loss of Kemwater is shown as Equity in net loss of unconsolidated subsidiary. In the 1995 consolidated financial statements of Pioneer, Imperial West is consolidated and includes the following: total assets of $25.7 million, total revenues of $23.7 million and net loss of $0.6 million. Had the acquisition been made as of January 1, 1996 and 1995, it would not have had a significant impact on the consolidated financial statements for 1996 and 1995. The acquisition did not have a material impact on Pioneer s financial statements, and therefore pro forma information is not presented. Pioneer acquired T.C. Products in July 1996 for $10.0 million. T.C. Products manufactures bleach and related products. The acquisitions was accounted for as a purchase; accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their fair market value and the operations for the acquired company was included in the consolidated financial statements from the date acquired. The acquisition resulted in $7.0 million of excess cost over the fair value of the net assets acquired, which is being amortized on a straight line basis over 25 years. Had the acquisition been made as of January 1, 1996 and 1995, it would not have had a significant impact upon the consolidated financial statements for 1996 and 1995. The acquisition did not have a material impact on Pioneer's financial statements, and therefore pro forma information is not presented. The consolidated financial statements include the accounts of Pioneer and its consolidated subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated in consolidation. All dollar amounts in tabulations in the notes to the consolidated financial statements are stated in thousands of dollars unless otherwise indicated. Amounts presented in the notes to the consolidated financial statements for the Predecessor Company are based upon its historical accounting basis for the periods presented. Such amounts do not include effects of the purchase of the Predecessor Company by Pioneer. Amounts presented in the notes to the consolidated financial statements for the Predecessor Company for the period from January 1, 1995 through April 20, 1995 F-9 138 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and for the year ended December 31, 1994 are included under the captions Predecessor Company, 1995 and Predecessor Company, 1994, respectively. The Company operates in one industry segment and one geographic area. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Interest income is netted against interest expense for the periods presented. The Company had interest income for the year ended December 31, 1996 and the period from Inception through December 31, 1995 of $0.7 million and $0.3 million, respectively. The Predecessor Company had interest income of $0.1 million for each of the period from January 1, 1995 through April 20, 1995 and the year ended December 31, 1994. Inventories Inventories are valued at the lower of cost or market. Finished goods and work-in-process costs are calculated under the average cost method, which includes appropriate elements of material, labor, and manufacturing overhead costs, while the first-in, first-out method is utilized for raw materials, supplies, and parts. The Company enters into agreements with other companies to exchange chemical inventories in order to minimize working capital requirements and to facilitate distribution logistics. Balances related to quantities due to or payable by the Company are included in inventory. The results of operations for the period from Inception through December 31, 1995 include the effects of an increase of $1.7 million to cost of sales due to the step-up in value of inventory in connection with the Acquisition. Property, Plant, and Equipment Depreciation for financial reporting purposes is computed primarily under the straight-line method over the estimated remaining useful lives of the assets. Asset lives range from 5 years to 15 years with a predominant life of 10 years. Other Assets Other assets include amounts for deferred financing costs which are being amortized on a straightline basis over the term of the related debt. Amortization of such costs using the interest method would not result in material differences in the amounts amortized during the periods presented. Amortization expense for other assets for the year ended December 31, 1996 was $1.3 million and for the period from Inception through December 31, 1995 was approximately $1.1 million. Other assets of the Predecessor Company included amounts for organization costs, deferred financing costs, non-compete agreements, permits, licenses, and customer lists obtained in conjunction with the acquisitions of All-Pure Chemical Co. ("All-Pure"), GPS Pool Supply, Inc. ("GPS") and Imperial West, which were being amortized on a straight-line basis over their estimated useful lives. The Predecessor Company s deferred financing costs were being amortized on a straight-line basis over the term of the related debt. Amortization of such costs using the interest method would not result in material differences in the amounts amortized during the periods presented. Amortization expense for other assets was approximately $0.8 million for the period from January 1, 1995 through April 20, 1995 and $1.7 million for the year ending December 31, 1994. F-10 139 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Excess Cost Over the Fair Value of Net Assets Acquired Excess cost over the fair value of net assets acquired of approximately $115 million is amortized on a straight-line basis over periods of up to 25 years. The carrying value of excess cost over the fair value of net assets acquired is reviewed annually and if this review indicates that such excess cost will not be recoverable, as determined based on the estimated future undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying value of excess cost over the fair value of net assets acquired will be reduced by the estimated shortfall of discounted cash flows or the fair value of the related entity. No such reductions were made in 1996 or 1995. Amortization expense for excess cost over the fair value of net assets acquired was approximately $4.7 million for the year ended December 31, 1996 and $3.3 million for the period from Inception through December 31, 1995. The Predecessor Company's excess cost over the fair value of net assets acquired of approximately $12.8 million and is amortized on a straight-line basis over 20 years. Amortization expense was approximately $0.2 million for the period from January 1, 1995 through April 20, 1995 and $0.6 million for 1994. Environmental Expenditures Remediation costs are accrued based on estimates of known environmental remediation exposure. Such accruals are based upon management's best estimate of the ultimate cost and are recorded even if significant uncertainties exist over the ultimate cost of the remediation. Ongoing environmental compliance cost, including maintenance and monitoring costs, are charged to operations as incurred. Returnable Deposits Customers are required to pay a security deposit on cylinders, tanks, and containers. These deposits are refunded to the customer upon the termination of service and return of cylinders, tanks, and containers. Income Taxes The Company files a consolidated tax return with PCI. Pioneer has entered into a tax sharing agreement with PCI whereby the Company will make tax sharing payments to PCI with respect to federal cash income taxes reflecting the consolidated cash tax liability of PCI. The tax sharing agreement has the effect of presenting the income tax provision on a separate return basis. For financial reporting purposes, deferred income taxes are determined utilizing an asset and liability approach. This method gives consideration to the future tax consequences associated with differences between the financial accounting basis and tax basis of the assets and liabilities, and the ultimate realization of any deferred tax asset resulting from such differences. State income taxes are included in income taxes payable. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Impairment of Long-Lived Assets During 1996, the Company adopted a new accounting standard for the impairment of long-lived assets. This standard requires that certain assets be reviewed for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recovered. If it is determined that the asset's carrying amount is not recoverable, the new accounting standard requires that the carrying value be reduced to F-11 140 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the fair value of the assets. Implementation of this standard did not have a significant impact on the Company's 1996 consolidated financial statements. Reclassification Certain amounts have been reclassified in prior years to conform to the current year presentation. All reclassifications have been applied consistently for the periods presented. 3. SUPPLEMENTAL CASH FLOW INFORMATION Net effect of changes in operating assets and liabilities (net of acquisitions) are as follows:
PREDECESSOR COMPANY ------------------- 1996 1995 1995 1994 ------- ------- -------- -------- Accounts receivable............................ $ 5,228 $ 802 $(3,617) $(4,889) Due from parent................................ (1,973) 111 -- 535 Receivable from insurance carriers and agents....................................... -- -- -- (102) Income taxes receivable........................ -- -- -- 2,738 Inventories.................................... 3,151 1,541 (638) (876) Prepaid expenses............................... 76 (1,404) 722 (371) Other assets................................... (1,254) (3,104) (1,342) (305) Accounts payable............................... (4,168) (1,030) 4,899 862 Accrued liabilities............................ (4,457) 8,777 (3,784) 3,783 Returnable deposits............................ (199) (234) (259) (323) Other long-term liabilities.................... 4,770 (71) (726) 1,079 Accrued pension and other employee benefits.... 527 477 422 787 ------- ------- ------- ------- Net change in operating accounts............... $ 1,701 $ 5,865 $(4,323) $ 2,918 ======= ======= ======= =======
Following is supplemental cash information:
PREDECESSOR COMPANY --------------- 1996 1995 1995 1994 ------- -------- ------ ------ Cash paid during the period for: Interest...................................... $18,297 $ 8,288 $3,067 $4,482 ------- -------- ------ ------ Income taxes.................................. $ 3,556 $ 1,707 $1,852 $3,730 ======= ======== ====== ====== Investing activities of acquisitions during the period: Cash paid for acquisition..................... $ 5,459 $152,318 $ -- $ 238 Long-term debt issued......................... 4,500 11,463 -- 3,254 Liabilities assumed........................... 3,994 90,596 -- -- NOL benefit recognized........................ -- 13,600 -- -- ------- -------- ------ ------ Fair value of assets acquired................. $13,953 $267,977 $ -- $3,492 ======= ======== ====== ======
Included in the above table are the acquisitions of T.C. Products in 1996; Pioneer Americas, Inc. in 1995; and GPS in 1994 by the Predecessor Company. Other non-cash items included in the consolidated financial statements include: increase in stockholders' equity of $11.5 million and $3.6 million in 1996 and 1995, respectively, due to recognizing the benefit of the net operating loss carryforward; and exchange of $135 million of 13 3/8% First Mortgage Notes for $135 million of 13 3/8% First Mortgage Notes in 1996. F-12 141 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INVENTORIES Inventories consisted of the following at December 31:
1996 1995 ------- ------- Raw materials, supplies and parts........................... $ 7,512 $ 9,849 Finished goods and work-in-process.......................... 2,668 3,155 Inventories under exchange agreements....................... (3,933) (1,657) ------- ------- $ 6,247 $11,347 ======= =======
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES Kemwater Pioneer and PCI each own a 50% interest in Kemwater which was formed in February 1996 to continue the business activities previously conducted by Pioneer's subsidiary, Imperial West and to operate the business acquired by PCI through the acquisition of KWT, Inc. At December 31, 1996, Pioneer's investment in and advances to Kemwater aggregated $28.6 million. Advances to Kemwater are primarily for purchase of product and to fund Kemwater's current operations and capital requirements. Pioneer and PCI have funded, and intend to continue funding in the foreseeable future, Kemwater's operations and capital requirements; accordingly, Pioneer has reduced its investment at December 31, 1996 to a deficit of $0.3 million. Following is a summary of selected items from Kemwater's balance sheet at December 31, 1996 and operations for the year ended December 31, 1996 (in thousands): Current assets............................................. $13,004 Non-current assets......................................... 32,224 Current liabilities........................................ 7,294 Non-current liabilities.................................... 40,498 Revenues................................................... 36,142 Gross profit............................................... 1,865 Net loss................................................... (5,214)
BII and VVLC The Company, through its subsidiary Pioneer Chlor Alkali Company, Inc. ("PCAC"), owns approximately 32% of the common stock of Basic Investments, Inc. ( BII ), which owns and maintains the water and power distribution network within the Henderson, Nevada industrial complex and which is a large landowner in Clark County, Nevada. The remainder of the common stock of BII is owned by other companies located in the industrial complex. Prior to the Acquisition, the investment in BII was accounted for by the Predecessor Company under the equity method after adjustment to reflect PCAC's basis. PCAC has an approximate 21% limited partnership interest in Victory Valley Land Company ("VVLC"). The purpose of the business is to receive, hold and develop the lands, water rights, and other assets contributed by the partners for investment. A wholly owned subsidiary of BII, acting as general partner with a 50% interest in VVLC, contributed all rights, title, and interest in and to certain land to VVLC. PCAC assigned certain water rights to VVLC. Prior to the Acquisition, the investment in VVLC was accounted for by the Predecessor Company under the equity method. The Company s interests in BII and in VVLC (referred to as the Basic Ownership) constitute assets that, pursuant to the Acquisition Agreement and a related Contingent Payment Agreement, will be held for the economic benefit of the Sellers for a period of 20 years. Dividends and distributions received by the Company on account of the Basic Ownership (including amounts payable as a result of sales of land or other assets F-13 142 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) owned by BII or VVLC) are deposited into a Contingent Payment Account and used to satisfy certain obligations of the Sellers under environmental and other indemnities in favor of the Company. After payment or provision for payment of such obligations in accordance with the provisions of the Contingent Payment Agreement, amounts received by the Company subsequent to April 20, 1995 on account of the Basic Ownership will be remitted to the Sellers under the Contingent Payment Agreement for such 20-year period. The Sellers also have certain rights during such period with respect to determinations affecting the Basic Ownership, including the right (subject to certain limited conditions) to direct the sales or disposition of interests constituting the Basic Ownership and the right (with certain limited exceptions) to vote the interests constituting the Basic Ownership, notwithstanding the ownership of such interests by the Company. Since the Sellers maintain the economic benefit of the Basic Ownership, and the Company has not received, nor expects to receive in the future, any economic benefit from BII or VVLC, the Company has not maintained these balances in its consolidated financial statements since the Acquisition. The BII financial information includes the accounts of VVLC. The following is a summary of financial information pertaining to BII and VVLC for the Predecessor Company for the year ended December 31, 1994: Revenues.................................................... $5,659 Costs and expenses.......................................... 4,834 ------ Income before taxes......................................... 825 Income tax expenses......................................... (274) ------ Net income........................................ $ 551 ====== Equity in earnings (included in other income)..... $ 183 ======
6. ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31:
1996 1995 ------- ------- Payroll, benefits, and pension.............................. $ 2,371 $ 5,371 Interest and bank fees...................................... 4,595 4,941 Future tax effects.......................................... 2,237 2,293 Miscellaneous accrued liabilities........................... 10,073 8,055 ------- ------- Accrued liabilities....................................... $19,276 $20,660 ======= =======
7. PENSION AND OTHER EMPLOYEE BENEFITS Annual pension costs and liabilities for the Company under its two defined-benefit plans covering all of its employees are determined by actuaries using various methods and assumptions. The Company has agreed to voluntarily contribute such amounts as are necessary to provide assets sufficient to meet the benefits to be paid to its employees. The Company s present intent is to make annual contributions, which are actuarially computed, in amounts not more than the maximum nor less than the minimum allowable under the Internal Revenue Code. For purposes of determining annual expenses and funding contributions, the following assumptions were used for the years ended December 31:
1996 1995 1994 ---- ---- ---- Rate of return of plan assets............................... 8.0% 8.0% 8.0% Discount rate............................................... 7.5% 7.5% 7.5% Annual compensation increase................................ 4.0% 4.0% 5.0%
F-14 143 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pension expense for the periods presented was comprised of:
PREDECESSOR COMPANY --------------- 1996 1995 1995 1994 ------- ----- ----- ------ Service cost.................................... $ 597 $ 410 $ 178 $ 571 Interest cost................................... 892 566 260 770 Return on plan assets........................... (1,132) (394) (149) (537) Amortization of prior service and other......... 462 56 (7) 225 ------- ----- ----- ------ Total pension expense................. $ 819 $ 638 $ 282 $1,029 ======= ===== ===== ======
The funded status of the pension plans for which assets exceed accumulated benefits and the plan for which accumulated benefits exceed assets as of the actuarial valuation dates of December 31, 1996 and 1995 were as follows:
1996 1995 -------------------------------- --------------- ACCUMULATED ASSETS EXCEED ACCUMULATED BENEFITS EARNED ACCUMULATED BENEFITS EARNED ASSETS BENEFITS ASSETS --------------- ------------- --------------- Actuarial present value of benefits based on service to date and present pay levels: Vested benefit obligation............... $ 3,823 $ 6,122 $ 8,488 Non-vested benefit obligation........... 212 389 1,513 ------- ------- ------- Accumulated benefit obligation.......... 4,035 6,511 10,001 Plan assets at fair value............... 3,318 6,963 7,293 ------- ------- ------- Plan assets in excess (less than) accumulated benefit obligation....... 717 (452) (2,708) Additional amounts related to projected salary increases..................... 2,171 911 2,199 ------- ------- ------- Plan assets less than total projected benefit obligation................... (1,454) (1,363) (4,907) Unrecognized gain....................... 236 1,254 185 Unrecognized prior service cost......... (372 220 (202) ------- ------- ------- Pension obligation...................... $ 1,318 $ 2,837 $ 4,890 ======= ======= =======
Plan assets at December 31, 1996 and 1995 consist primarily of fixed income investments and equity investments. The Company offers defined-contribution plans for its employees with the employees generally contributing from 1% to 15% of their compensation. Aggregate contributions by the Company to such plans were $0.4 million and $0.2 million in 1996 and 1995, respectively. Aggregate contributions by the Predecessor Company for such plans were $0.1 million for the period from January 1, 1995 through April 20, 1995 and none for 1994. F-15 144 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In addition to providing pension benefits, PCAC provides certain health care and life insurance benefits for retired employees. Substantially all of PCAC s employees may become eligible for those benefits if they reach normal retirement age while working for the Company. The following table presents the plan's funded status reconciled with amounts recognized in the Company's balance sheet at December 31:
1996 1995 ------- ------ Accumulated post-retirement benefit obligation: Retirees.................................................. $ 3,737 $3,669 Fully eligible active plan participants................... 1,483 1,380 Other active plan participants............................ 4,986 4,169 ------- ------ 10,206 9,218 Unrecognized net loss....................................... (125) -- ------- ------ Accrued post retirement benefit cost...................... $10,081 $9,218 ======= ======
Net periodic post-retirement benefit cost for the periods presented includes the following components:
PREDECESSOR COMPANY ----------- 1996 1995 1995 1994 ------ ---- ---- ---- Service cost.............................................. $ 369 $243 $109 $324 Interest cost............................................. 693 449 176 519 Amortization of transition obligation over 20 years....... -- 15 8 32 Other components.......................................... -- 48 -- -- ------ ---- ---- ---- Net periodic post-retirement benefit cost....... $1,062 $755 $293 $875 ====== ==== ==== ====
The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is 10.0% for 1996 (the same as the rate previously assumed for 1995 and 1994) and is assumed to decrease gradually to 6% for 2010 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated post-retirement benefit obligation as of December 31, 1996, 1995 and 1994 by $0.8 million, $0.7 million, and $0.6 million, respectively, and the aggregate of the service and interest cost components of the net periodic post-retirement benefit cost for each of 1996, 1995 and 1994 by $0.1 million. The weighted-average discount rate used in determining the accumulated post-retirement benefit obligation was 7.5% at December 31, 1996, 1995, and 1994. As a result of the Acquisition, the unrecognized net loss and unrecognized transition obligation amounts as of that date were recognized. 8. BANK CREDIT FACILITY In April 1995, the Company entered into a credit agreement which provides for the three-year Bank Credit Facility with Bank of America, Illinois ("BAI"). The Company may borrow up to $30.0 million, subject to certain borrowing base limitations. At December 31, 1996, no amounts were outstanding under the Bank Credit Facility. The revolving loans bear interest at a rate equal to, at the Company s option, (i) the reference rate set by BAI or (ii) the LIBOR Base Rate. The Bank Credit Facility requires the Company to pay a fee equal to one half of one percent per annum on the total unused balance. Indebtedness outstanding under the Bank Credit Facility is collateralized by a security interest in all of the inventory, accounts receivable and certain other assets of PCAC and All-Pure. Up to $10.0 million of the Borrowing Base, as defined by the Bank Credit Facility, can be utilized for letters of credit. The Borrowing Base at December 31, 1996 was approximately $18.6 million. After consideration of applicable outstanding letters of credit of F-16 145 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) approximately $2.9 million, the unused availability of the Borrowing Base was approximately $15.7 million at December 31, 1996. The Bank Credit Facility contains restrictive covenants that, among other things and under certain conditions, limit the ability of the Company to incur additional indebtedness, to acquire or dispose of assets or operations and to pay dividends or redeem shares of stock. 9. LONG-TERM DEBT Long-term debt consisted of the following at December 31:
1996 1995 ---- ---- 13 3/8% First Mortgage Notes, due 2005.................................. $135,000 $135,000 Subordinated notes payable to sellers of T.C. Products, principal payments due July 31, 2001, with a variable interest rate based on a bank's prime rate plus 1%, interest is paid monthly............................... 4,500 -- Tax-exempt bond financed through the Economic Development Corporation of Pierce County, Washington, principal payments due in variable annual installments through 2014, with a variable interest rate based on current market values of comparable securities, interest is paid monthly............................... 2,257 -- -------- -------- Total................................... 141,757 135,000 Current maturities of long-term debt.... (128) -- -------- -------- Long-term debt.......................... $141,629 $135,000 ======== ========
Long-term debt matures as follows: $0.1 million in 1997; $0.1 million in 1998; $0.1 million in 1999; $0.1 million in 2000; $4.6 million in 2001; and $136.6 million thereafter. As part of the Acquisition in April 1995, the Company issued and sold $135 million of 13 3/8% Senior Notes due in 2005. In January 1996, the Company exchanged, as part of a public offering, the $135 million of Notes for $135 Million of 13 3/8% First Mortgage Notes due in 2005. Like the Senior Notes, the Mortgage Notes are senior secured obligations of the Company, ranking senior in right of payment to all subordinated indebtedness. The Mortgage Notes are fully and unconditionally guaranteed on a joint and several basis by all of the Company's direct and indirect wholly-owned subsidiaries and are secured by the first mortgage liens on certain manufacturing facilities. The Company is a holding company with no operating assets or operations. Financial statements of the Company's direct and indirect wholly-owned subsidiaries are not separately included as the Company's management does not believe this information would be material to investors. The Mortgage Notes are redeemable at the Company's option starting in 2000. Before 1998, the Company may redeem a maximum of $35 million of the Mortgage Notes at 113% of the principal amount due with funds from a public offering of common stock of the Company or PCI (to the extent such funds are contributed to the Company). Upon a change of control, as defined in the agreement, the Company is required to offer to purchase the Mortgage Notes for 101% of the principal due. The Mortgage Notes and other long-term debt contain various restrictions on the Company, which, among other things, limit the ability of the Company to incur additional indebtedness, to acquire or dispose of assets or operations and to pay dividends or redeem shares of stock. F-17 146 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. FINANCIAL INSTRUMENTS Concentration of Credit Risk The Company manufactures and sells chlorine and caustic-based products to companies in diverse industries. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. The Company's sales are primarily to customers in the western and southeastern regions of the United States. Credit losses relating to these customers have been within management's expectations. The Company maintains cash deposits with major banks, which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institutions and believes that any possible loss is minimal. Net sales of the Company included sales to a major customer of approximately $23.5 million for the year ended December 31, 1996. Net sales of the Predecessor Company included sales to a major customer of approximately $7.5 million for the period from January 1, 1995 through April 20, 1995 and $18.7 million in 1994. Investments It is the policy of the Company to invest its excess cash in investment instruments or securities whose value is not subject to market fluctuations such as master notes of issuers rated at the time of such investment of at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's or any bank or financial institution party to the Company's Bank Credit Facility with Bank of America. Fair Value of Financial Instruments In preparing disclosures about the fair value of financial instruments, the Company has assumed that the carrying amount approximates fair value for cash and cash equivalents, receivables, short-term borrowings, accounts payable and certain accrued expenses because of the short maturities of those instruments. The fair values of long-term debt instruments are estimated based upon quoted market values (if applicable), or on the current interest rates available to the Company for debt with similar terms and remaining maturities. Considerable judgment is required in developing these estimates and, accordingly, no assurance can be given that the estimated values presented herein are indicative of the amounts that would be realized in a free market exchange. The Company held no derivative financial instruments as of December 31, 1996 and 1995. At December 31, 1996, the fair market value of all of the Company's financial instruments approximated the book value, except its 13 3/8% First Mortgage Notes Due 2005, which had a book value of $135 million and a fair value based upon its current quoted market price of $153 million. 11. COMMITMENTS AND CONTINGENCIES Letters of Credit At December 31, 1996 the Company had letters of credit and performance bonds outstanding of approximately $5.2 million and $2.5 million, respectively. These letters of credit and performance bonds were issued for the benefit of: customers under sales agreements securing delivery of products sold, a power company as a deposit for the supply of electricity, and a state environmental agency as required for manufacturers in the state. The letters of credit expire at various dates in 1997 and 1998. No amounts were drawn on the letters of credit at December 31, 1996. F-18 147 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Purchase Commitments The Company has committed to purchase salt used in the production process under contracts which continue through December 31, 2003. Based on the contract terms, a minimum of 563,111 tons of salt are to be purchased in 1997, 280,000 tons in 1998 and 225,000 tons in each of the years 1999 through 2003. The future minimum salt commitments are as follows (in thousands): 1997....................................................... $ 4,402 1998....................................................... 2,480 1999....................................................... 1,903 2000....................................................... 1,960 2001....................................................... 2,019 Thereafter................................................. 4,221 ------- Total purchase commitments....................... $16,985 =======
Operating Leases The Company leases certain manufacturing and distribution facilities, computer equipment, and administrative offices under noncancelable leases. Minimum future rental payments on such leases with terms in excess of one year in effect at December 31, 1996 are as follows (in thousands): 1997.................................... $ 8,318 1998.................................... 7,960 1999.................................... 7,916 2000.................................... 6,267 2001.................................... 5,786 Thereafter.............................. 4,685 ------- Total minimum obligations..... $40,932 =======
Lease expense charged to operations for the year ended December 31, 1996 and for the period from Inception through December 31, 1995 was approximately $7.8 million and $6.3 million, respectively. Lease expense charged to the Predecessor Company's operations for the period from January 1, 1995 through April 20, 1995 and the year ended December 31, 1994 was approximately $3.3 million and $8.4 million, respectively. Litigation During 1993, Imperial West was awarded $1.4 million as the result of a breach of contract claim it had asserted against the lessor of one of the Imperial West plants. Appeals of the judgment were upheld and the award together with interest was paid in January 1996. The consolidated financial statements at December 31, 1995 included a receivable for the award. The lessor also filed suit alleging that Imperial West was required to remediate alleged contamination prior to the termination of the lease in July 1995. The parties settled that action under terms pursuant to which (i) Imperial West paid the lessor $900,000 upon the termination of the lease in July 1995, and (ii) the lessor transferred title to the property to Imperial West. In addition, Imperial West agreed to indemnify the lessor against any future environmental liability with respect to the property. Certain insurers paid a portion of Imperial West's defense costs in connection with the lawsuit by the lessor. In 1994, the trustee in the bankruptcy of a company which was a customer of the Predecessor Company filed suit against the Predecessor Company, seeking the recovery of up to $2.2 million in payments made to the Predecessor Company on a basis which the trustee alleges was preferential to other creditors' claims. F-19 148 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Management has been advised by counsel that the range of any loss which may be incurred as the result of the suit will be substantially below the amount claimed, and the Company is vigorously contesting the action. The Company does not believe this action will have a significant effect on its financial position or results of operations. The Company is party to other legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defenses and/or insurance coverage with respect to these matters and management does not believe that they will materially affect the Company's operations or financial position. 12. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax liabilities and assets are as follows at December 31:
1996 1995 ------- -------- Deferred tax liabilities: Tax over book basis -- property, plant and equipment...................... $20,006 $ 22,063 Other -- net.......................... 399 1,435 ------- -------- Total deferred tax liabilities................. 20,405 23,498 ------- -------- Deferred tax assets: Post employment benefits.............. 5,552 5,791 Alternative minimum tax credit carryforward....................... 671 -- Allowance for doubtful accounts....... 511 569 Other accrued liabilities............. 6,165 6,530 Net operating loss carry forward of PCI................................ 14,391 22,091 ------- -------- Total deferred tax assets..... 27,290 34,981 Valuation allowance for deferred tax assets................................ -- (11,433) ------- -------- Net deferred tax assets................. 27,290 23,498 ------- -------- Net deferred taxes...................... $ 6,885 $ -- ======= ========
Significant components of the provision for income taxes for the periods presented are as follows:
PREDECESSOR COMPANY -------------------- 1996 1995 1995 1994 ------ ------ -------- -------- Current: Federal............................... $ 614 $ 799 $ 5,938 $ 3,930 State................................. 1,528 1,830 957 568 ------ ------ ------- ------- Total current................. 2,142 2,629 6,895 4,498 ------ ------ ------- ------- Deferred: Federal............................... 5,032 4,180 (1,816) (1,010) State................................. (439) (601) (270) (246) ------ ------ ------- ------- Total current................. 4,593 3,579 (2,086) (1,256) ------ ------ ------- ------- Total income tax provision.... $6,735 $6,208 $ 4,809 $ 3,242 ====== ====== ======= =======
F-20 149 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREDECESSOR COMPANY ----------------------------------- 1996 1995 1995 1994 ---------------- ---------------- ---------------- ---------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- ------ ------- ------ ------- Tax at U.S. statutory rates............. $4,390 35% $4,420 35% $4,068 35% $2,936 35% State income taxes, net of federal tax benefits.............................. 708 6 799 6 407 3 321 4 Amortization of excess cost over the fair value of net assets acquired..... 1,591 14 1,159 9 69 1 221 2 Adjustment of previously provided taxes................................. -- -- -- -- -- -- (285) (3) Other, net.............................. 46 -- (170) (1) 265 2 49 1 ------ -- ------ -- ------ -- ------ -- $6,735 55% $6,208 49% $4,809 41% $3,242 39% ====== == ====== == ====== == ====== ==
At December 31, 1996, PCI had available to it on a consolidated tax return basis approximately $35.6 million of net operating loss carryforward ("NOL") for income tax purposes (expiring 2003 to 2010). The NOL is available for offset against future taxable income if generated during the carryforward period. A tax sharing agreement provides that the Company will be liable to PCI for its separate tax liability only to the extent the consolidated group has a tax liability. However as long as PCI's NOL is available to the consolidated group to reduce taxable income, the Company s tax liability to PCI will be substantially reduced. As a result of the tax sharing agreement, the NOL is reflected by the Company for financial reporting purposes. For the year ended December 31, 1996 and the period from Inception through December 31, 1995, the benefit of the utilization of the NOL of $11.5 million and $3.6 million, respectively was recognized as an increase to additional paid-in capital. Approximately $13.6 million was recognized as an increase to additional paid-in capital as part of the purchase price allocation of the Acquisition. 13. OTHER LONG-TERM LIABILITIES -- ENVIRONMENTAL The Company's operations are subject to extensive environmental laws and regulations related to protection of the environment, including those applicable to waste management, discharge of pollutants into the air and water, clean-up liability from historical waste disposal practices, and employee health and safety. At several of the Company s facilities, investigations or remediations are underway and at some of these locations regulatory agencies are considering whether additional actions are necessary to protect or remediate surface or groundwater resources, and the Company could be required to incur additional costs to construct and operate remediation systems in the future. In addition, at several of its facilities, the Company is in the process of replacing or closing ponds for the collection of wastewater. The Company plans to spend approximately $1.3 million during the next fifteen years for closure of eight chlor-alkali waste water disposal ponds at the Henderson plant. The Company believes that it is in substantial compliance with existing governmental regulations. PCAC's Henderson plant is located within what is known as the "Basic Complex." Soil and groundwater contamination have been identified within and adjoining the Basic Complex, including land owned by PCAC. A groundwater treatment system was installed at the facility in 1983 and, pursuant to a Consent Agreement with the Nevada Division of Environmental Protection, a study is being conducted to further evaluate soil and groundwater contamination at the facility and other properties within the Basic Complex and to determine whether additional remediation will be necessary with respect to PCAC's property. In connection with the October 1988 acquisition of the chlor-alkali business by the Predecessor Company, ICI Delaware Holdings, Inc. and ICI Americas, Inc. (such companies or their successors, the "ZENECA Companies") agreed to indemnify the Predecessor Company for certain environmental liabilities F-21 150 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (the "ZENECA Indemnity"), including liabilities associated with operations at the Company's plant located in Henderson, Nevada (the "Henderson Plant"). In general, the ZENECA Companies agreed to indemnify the Predecessor Company from environmental costs which arise from or relate to pre-closing actions which involved disposal, discharge, or release of materials resulting from non-chlor-alkali manufacturing operations at the Henderson Plant and at other properties within the same industrial complex. Payments under the indemnity cannot exceed approximately $65 million. Due to the change in ownership resulting from the Acquisition, the ZENECA Indemnity will terminate on April 20, 1999. The ZENECA Indemnity will continue to cover claims after the expiration of the term of the indemnity provided that, prior to the expiration of the indemnity, proper notice to the ZENECA Companies is given and the Company has taken certain other actions. The Company believes that the ZENECA Companies will continue to honor their obligations under the ZENECA Indemnity for claims properly presented by the Company. It is possible, however, that disputes could arise between the parties and that the Company would have to subject its claims for clean-up expenses, which could be substantial, to the contractually established arbitration process. In the opinion of management, any environmental liability in excess of the amount indemnified and accrued on the consolidated balance sheet, if any, would not have a material adverse effect on the consolidated financial statements. In the Acquisition Agreement, the Sellers agreed to indemnify the Company for certain environmental liabilities that result from certain discharges of hazardous materials, or violations of environmental laws, arising prior to April 20, 1995 (the "Closing Date") from or relating to the Pioneer plant sites or arising before or after the Closing Date with respect to certain environmental liabilities relating to certain properties held for the benefit of the Sellers ("Sellers' Indemnity"). Amounts payable pursuant to the Sellers' Indemnity will generally be payable as follows: (i) out of certain reserves established on the Predecessor Company s balance sheet at December 31, 1994; (ii) either by offset against the amounts payable under the Seller Notes or from amounts held pursuant to the Contingent Payment Agreement, and (iii) in certain circumstances and subject to specified limitations, out of the personal assets of the Sellers. Subject to certain exceptions and limitations set forth in the Acquisition Agreement, a claim notice with respect to amounts payable pursuant to the Sellers' Indemnity must generally be given within 15 years of the Closing Date. PCI is required to reimburse the Sellers for amounts paid under the Sellers' Indemnity with amounts recovered under the ZENECA Indemnity or from other third parties. PCI and the Sellers have agreed that they will cooperate in matters relating to the ZENECA Indemnity. Remediation costs are accrued based on estimates of known environmental remediation exposure. Such accruals are based upon management s best estimate of the ultimate cost and are recorded even if significant uncertainties exist over the ultimate cost of the remediation. Ongoing environmental compliance cost, including maintenance and monitoring costs, are charge to operations as incurred. The liabilities are based upon all available facts, existing technology, past experience and cost-sharing arrangements, including the viability of other parties. Charges made against income for recurring environmental matters, included in "cost of sales" on the statements of operations, totaled approximately $1.7 million and $1.2 million for the year ended December 31, 1996 and for the period from Inception through December 31, 1995, respectively, and $0.4 million and $1.8 million for the Predecessor Company for the period from January 1, 1995 through April 20, 1995 and the year ended December 31, 1994, respectively. Capital expenditures for environmental-related matters at existing facilities were approximately $4.3 million and $2.2 million for the year ended December 31, 1996 and for the period from Inception through December 31, 1995, respectively, and $0.2 million and $0.5 million for the Predecessor Company for the period from January 1, 1995 through April 20, 1995 and the year ended December 31, 1994, respectively. Future environmental-related capital expenditures will depend upon regulatory requirements, as well as timing related to obtaining necessary permits and approvals. Estimates of future environmental restoration and remediation costs are inherently imprecise due to currently unknown factors such as the magnitude of possible contamination, the timing and extent of such F-22 151 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) restoration and remediation, the extent to which such costs are recoverable from third parties, and the extent to which environmental laws and regulations may change in the future. The Predecessor Company established a reserve of approximately $9.0 million at the time of its acquisition of its Henderson, Nevada and St. Gabriel, Louisiana facilities with respect to potential remediation costs relating to matters not covered by the ZENECA Indemnity, consisting primarily of remediation costs that may be incurred by the Company for chlor-alkali-related remediation of the Henderson and St. Gabriel facilities. The recorded accrual included certain amounts related to anticipated closure and post-closure actions that may be required in the event that operation of the present chlor-alkali plants ceases. Such accrual is recorded in the Company's consolidated balance sheets at December 31, 1996 and 1995. However, complete analysis and study has not been completed and therefore additional future charges may be recorded at the time a decision for closure is made. In 1994, the Predecessor Company recorded an additional $3.2 million environmental reserve related to pre-closing actions at sites that are the responsibility of the ZENECA Companies. Such accrual is reflected in the Company's consolidated balance sheets at December 31, 1996 and 1995. Other assets include an account receivable of the same amount from the ZENECA Companies. The Company believes it will be reimbursed by the ZENECA Companies for substantially all of such costs that are incurred at the Henderson Plant and other properties within the same industrial complex. Additionally, certain other environmental matters exist which have been assumed directly by the ZENECA Companies. No assurance can be given that actual costs will not exceed accrued amounts or the amounts currently estimated. The imposition of more stringent standards or requirements under environmental laws or regulations, new developments or changes respecting site cleanup costs, or a determination that the Company is potentially responsible for the release of hazardous substances at other sites could result in expenditures in excess of amounts currently estimated by the Company to be required for such matters. Further, there can be no assurance that additional environmental matters will not arise in the future. 14. RELATED PARTY TRANSACTIONS The Company has a 15% partnership interest in Saguaro Power Company ("Saguaro"), which owns a cogeneration plant located in Henderson, Nevada. The Company's interest in Saguaro is accounted for using the cost method of accounting. The Company sells certain products and services to and purchases steam from Saguaro at market prices. Transactions with Saguaro are as follows:
PREDECESSOR COMPANY -------------- 1996 1995 1995 1994 ------ ------ ---- ------ Sales to Saguaro.................................. $1,005 $ 754 $353 $1,286 Purchases from Saguaro............................ 1,840 1,388 616 2,096 Partnership distribution from Saguaro (included in other income)................................... 735 637 -- 1,290
Accounts receivable from and accounts payable to Saguaro are at the Company's normal terms and are generally not significant to the Company's consolidated balance sheet. The Company is a party to an agreement negotiated on an arms-length basis with BII for the delivery of the Company's water to the Henderson production facility. The agreement provides for the delivery of a minimum of eight million gallons of water per day. The agreement expires on December 31, 2014, unless terminated earlier in accordance with the provisions of the agreement. For the year ended December 31, 1996 and the period from Inception through December 31, 1995, BII charged expenses to the Company of approximately $0.2 million and $0.2 million, respectively. For the period from January 1, 1995 through April 20, 1995 and the year ended December 31, 1994, BII charged expenses to the Predecessor Company of approximately $0.2 million and $0.5 million, respectively. F-23 152 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company sells certain products to Kemwater at market prices. Sales to Kemwater totaled $8.8 million during the year ended December 31, 1996. Kemwater provides transportation services to the Company at market prices which totaled $1.8 million for 1996. F-24 153 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, DECEMBER 31, 1997 1996 ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 14,640 $ 14,417 Accounts receivable, less allowance for doubtful accounts of $1,440 at March 31, 1997 and $1,311 at December 31, 1996................................................... 18,438 18,830 Due from parent........................................... 2,840 2,547 Inventories............................................... 8,896 6,247 Prepaid expenses.......................................... 806 1,156 -------- -------- Total current assets.............................. 45,620 43,197 Property, plant and equipment: Land...................................................... 3,735 3,735 Buildings and improvements................................ 17,218 17,062 Machinery and equipment................................... 73,194 71,704 Cylinders and tanks....................................... 4,583 4,540 Construction in progress.................................. 12,501 11,871 -------- -------- 111,231 108,912 Less accumulated depreciation............................. (19,007) (16,429) -------- -------- 92,224 92,483 Investment in and advances to unconsolidated subsidiary..... 28,553 28,586 Other assets, net of accumulated amortization of $2,803 at March 31, 1997 and $2,458 at December 31, 1996............ 19,268 19,621 Excess cost over fair value of net assets acquired, net of accumulated amortization of $8,749 at March 31, 1997 and $7,556 at December 31, 1996............................... 105,930 107,123 -------- -------- Total assets...................................... $291,595 $291,010 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 17,677 $ 17,221 Accrued liabilities....................................... 21,614 19,276 Returnable deposits....................................... 3,175 3,238 Current portion of long-term debt......................... 128 128 -------- -------- Total current liabilities......................... 42,594 39,863 Long-term debt.............................................. 141,629 141,629 Returnable deposits......................................... 3,272 3,272 Accrued pension and other employee benefits................. 14,555 14,100 Other long-term liabilities................................. 17,112 17,823 Commitments and contingencies Stockholder's equity: Common stock, $.01 par value, authorized 1,000 shares, issued and outstanding 1,000 shares.................... 1 1 Additional paid-in capital................................ 61,124 61,124 Retained earnings......................................... 11,308 13,198 -------- -------- Total stockholders' equity........................ 72,433 74,323 -------- -------- Total liabilities and stockholders' equity........ $291,595 $291,010 ======== ========
See notes to unaudited consolidated financial statements. F-25 154 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------ 1997 1996 ------- ------- Revenues.................................................... $38,743 $44,292 Cost of sales............................................... 29,003 30,797 ------- ------- Gross profit................................................ 9,740 13,495 Selling, general and administrative expense................. 6,170 6,090 ------- ------- Operating income............................................ 3,570 7,405 Equity in net loss of unconsolidated subsidiary............. (1,055) (110) Interest expense, net....................................... (4,458) (3,944) Other income, net........................................... 231 89 ------- ------- Income (loss) before taxes.................................. (1,712) 3,440 Income tax provision........................................ 178 2,028 ------- ------- Net income (loss)........................................... $(1,890) $ 1,412 ======= =======
See notes to unaudited consolidated financial statements. F-26 155 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------ 1997 1996 ------- ------- Operating activities: Net income (loss)......................................... $(1,890) $ 1,411 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......................... 4,080 4,217 Equity in net loss of unconsolidated subsidiaries...... 1,055 110 Net change in deferred taxes........................... (42) 1,425 Net effect of changes in operating assets and liabilities (net of acquisitions)..................... 379 (2,088) ------- ------- Net cash flows from operating activities.................... 3,582 5,075 ------- ------- Investing activities: Investment in and advances to unconsolidated subsidiary... (1,022) (600) Capital expenditures...................................... (2,337) (3,907) ------- ------- Net cash flows from investing activities.................... (3,359) (4,507) ------- ------- Net increase in cash........................................ 223 568 Cash acquired in purchase................................... -- 505 Cash at beginning of period................................. 14,417 11,218 ------- ------- Cash at end of period....................................... $14,640 $12,291 ======= =======
See notes to unaudited consolidated financial statements. F-27 156 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION The consolidated balance sheet as of March 31, 1997 and the statements of operations and cash flows for all periods presented are unaudited and reflect all adjustments, consisting of normal recurring items, which management considers necessary for a fair presentation. Operating results for the first three months of 1997 are not necessarily indicative of results to be expected for the year ending December 31, 1997. The consolidated statements include the accounts of Pioneer Americas Acquisition Corp. and its consolidated subsidiaries (collectively referred to as the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. All dollar amounts in the tabulations in the notes to the consolidated financial statements are stated in thousands of dollars unless otherwise indicated. The consolidated balance sheet at December 31, 1996 is derived from the December 31, 1996 audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles, since certain information and disclosures normally included in the notes to the financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited financial statements should be read in conjunction with the financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 1996. 2. SUPPLEMENTAL CASH FLOW INFORMATION Net effect of changes in operating assets and liabilities (net of acquisitions) are as follows:
THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 ------- ------- Accounts receivable......................................... $ 392 $ 1,584 Due from parent............................................. (293) (766) Inventories................................................. (2,649) (682) Prepaid expenses............................................ 350 1,659 Other assets................................................ 98 (121) Accounts payable............................................ 456 (7,971) Accrued liabilities......................................... 2,345 295 Returnable deposits......................................... (63) (120) Other long-term liabilities................................. (256) 4,034 ------- ------- Net change in operating accounts.................. $ 379 $(2,088) ======= =======
F-28 157 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Following is supplemental cash information:
THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 ------- ------- Supplemental disclosures of cash flow information: Cash payments for: Interest............................................... $ 605 $ 231 Income taxes........................................... 135 2,150 Acquisition of KWT, Inc. during the period: Cash paid for acquisition.............................. $ 1,572 Long-term debt issued.................................. 8,017 Liabilities assumed.................................... 2,167 ------- Fair value of assets acquired.......................... $11,756 =======
Other non-cash items included in the consolidated financial statements include an increase in shareholder's equity of $1.4 million for the three months ended March 31, 1996 due to the recognition of the net operating loss carryforward. 3. INVENTORIES Inventories consist of the following:
MARCH 31, DECEMBER 31, 1997 1996 --------- ------------ Raw materials, supplies and parts........................... $ 7,914 $ 7,512 Finished goods and work-in-process.......................... 4,407 2,668 Inventories under exchange agreements....................... (3,425) (3,933) ------- ------- $ 8,896 $ 6,247 ======= =======
4. COMMITMENTS AND CONTINGENCIES The Company is subject to various legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defenses and/or insurance coverage with respect to these matters and management does not believe that they will materially affect the Company's operations or financial position. F-29 158 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, ------------------ 1997 1996 ------- ------- Revenues.................................................... $38,743 $44,292 Cost of sales............................................... 29,003 30,797 ------- ------- Gross profit................................................ 9,740 13,495 Selling, general and administrative expense................. 6,170 6,090 ------- ------- Operating income............................................ 3,570 7,405 Equity in net loss of unconsolidated subsidiary............. (1,055) (110) Interest expense, net....................................... (4,458) (3,944) Other income, net........................................... 231 89 ------- ------- Income (loss) before taxes.................................. (1,712) 3,440 Income tax provision........................................ 178 2,028 ------- ------- Net income (loss)........................................... $(1,890) $ 1,412 ======= =======
Revenues Revenues decreased by $5.5 million or approximately 13% to $38.7 million for the three months ended March 31, 1997. Electrochemical unit (ECU) prices decreased approximately 3% while caustic soda and chlorine sales volumes decreased by 21% and 3%, respectively. The decrease in caustic soda sales was due to the weather-related delays in Mississippi River barge shipments. Revenues for All-Pure Chemical Co. (All-Pure) increased 13% or $1.2 million in the first quarter of 1997 compared to the same quarter a year ago. This increase was due to the revenues associated with the acquisition of T.C. Products, Inc. which the Company acquired in the second quarter of 1996. Cost of Sales Cost of sales decreased by $1.8 million or almost 6% to $29.0 million for the three months ended March 31, 1997. This decrease was the result of lower cost of sales for caustic soda and chlorine due to lower sales volumes, partially offset by the acquisitions mentioned above. Gross Profit Gross profit margin decreased from 30% during the first quarter of 1996 to approximately 25% during the first quarter of 1997. This decrease was a result of lower ECU prices described above along with somewhat higher ECU manufacturing costs. In addition, gross profit of All-Pure decreased due to higher raw material costs. Equity in Net Loss of Unconsolidated Subsidiary Equity in net loss of unconsolidated subsidiary increased by approximately $0.9 million due to losses sustained by the unconsolidated subsidiary during the first quarter of 1997. These losses were attributable to decreased gross margins as a result of higher raw material costs. Income (Loss) Before Taxes As a result of the above, income (loss) before income taxes decreased $5.1 million to a loss of $1.7 million for the three months ended March 31, 1997 from income of $3.4 million for the three months ended March 31, 1996. F-30 159 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. SUBSEQUENT EVENT As of May 14, 1997, PCI entered into an Asset Purchase Agreement (the "Purchase Agreement") with OCC Tacoma, Inc. ("OCC Tacoma"), a subsidiary of Occidental Chemical Corporation, pursuant to which the Company will acquire substantially all of the assets and properties used by OCC Tacoma in the chlor- alkali business at Tacoma, Washington (the "Tacoma Acquisition"), including the Tacoma chlor-alkali production facility. The purchase price is equal to the sum of (i) $97.0 million, payable in cash, (ii) 55,000 shares of Convertible Redeemable Preferred Stock, par value $.01 per share, of PCI, having a liquidation preference of $100 per share, and (iii) assumption of certain obligations related to the acquired chlor-alkali business. The amount of cash to be paid is subject to adjustment under the terms of the Purchase Agreement. In connection with the Tacoma Acquisition, on May 15, 1997, the Board of Directors of Pioneer approved the offering of Senior Secured Notes due 2007, to be issued and sold in reliance upon an exemption from registration under the Securities Act of 1933, as amended. On May 9, 1997, the Board of Directors of Pioneer approved Pioneer's offer to purchase all of its existing Mortgage Notes (the "Tender Offer") and related consent solicitation (the "Consent Solicitation"). Proceeds from the offering would be used, among other things, to pay the cash portion of the Tacoma Acquisition and to repurchase Mortgage Notes in the Tender Offer. On May 19, 1997, Pioneer commenced the Tender Offer and Consent Solicitation. On June 17, 1997, Pioneer repurchased all outstanding Mortgage Notes in the Tender Offer and consummated the Tacoma Acquisition. F-31 160 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors, OCCIDENTAL CHEMICAL CORPORATION: We have audited the accompanying balance sheets of the Tacoma Plant (as defined in Note 1) of Occidental Chemical Corporation, an indirect wholly-owned subsidiary of Occidental Petroleum Corporation, as of December 31, 1996 and 1995, and the related statements of operations and changes in owner's investment and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of Occidental Chemical Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Tacoma Plant of Occidental Chemical Corporation as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Dallas, Texas February 28, 1997 F-32 161 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (AMOUNTS IN THOUSANDS)
1996 1995 ------- ------- CURRENT ASSETS Cash........................................................ $ 6 $ 6 Inventories................................................. 4,818 4,790 Deferred income taxes....................................... 1,287 2,389 Other current assets........................................ 1,009 95 ------- ------- Total current assets.............................. 7,120 7,280 PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation of $80,650 in 1996 and $74,768 in 1995....... 61,512 62,857 OTHER ASSETS, net........................................... 795 973 ------- ------- TOTAL ASSETS...................................... $69,427 $71,110 ======= ======= CURRENT LIABILITIES Accounts payable............................................ $ 2,720 $ 2,919 Accrued liabilities......................................... 4,510 8,248 ------- ------- Total current liabilities......................... 7,230 11,167 DEFERRED INCOME TAXES....................................... 1,961 2,727 ACCRUED ENVIRONMENTAL LIABILITIES........................... 20,481 21,242 OTHER LIABILITIES........................................... 7,791 8,244 ------- ------- Total liabilities................................. 37,463 43,380 COMMITMENTS AND CONTINGENT LIABILITIES (Note 6) OWNER'S INVESTMENT.......................................... 31,964 27,730 ------- ------- TOTAL LIABILITIES AND OWNER'S INVESTMENT.......... $69,427 $71,110 ======= =======
The accompanying notes are an integral part of these statements. F-33 162 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT STATEMENTS OF OPERATIONS AND CHANGES IN OWNER'S INVESTMENT FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (AMOUNTS IN THOUSANDS)
1996 1995 1994 ------- ------- ------- EXTERNAL SALES, net......................................... $61,848 $60,871 $40,588 SALES TO OWNER AT MARKET VALUE.............................. 11,867 9,270 10,069 ------- ------- ------- TOTAL SALES, net............................................ 73,715 70,141 50,657 OPERATING COSTS AND EXPENSES: Cost of Sales............................................. 52,420 53,252 53,420 Selling, general and administrative expenses.............. 1,782 1,995 1,782 Other operating expense................................... 2,209 2,607 2,254 ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES........................... 17,304 12,287 (6,799) Income tax expense (benefit).............................. 6,059 4,301 (2,377) ------- ------- ------- NET INCOME (LOSS)........................................... 11,245 7,986 (4,422) PENSION LIABILITY ADJUSTMENT................................ 439 643 (105) INCREASE (DECREASE) IN OWNER'S INVESTMENT................... (7,450) (4,567) 8,646 OWNER'S INVESTMENT, beginning of year....................... 27,730 23,668 19,549 ------- ------- ------- OWNER'S INVESTMENT, end of year............................. $31,964 $27,730 $23,668 ======= ======= =======
The accompanying notes are an integral part of these statements. F-34 163 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (AMOUNTS IN THOUSANDS)
1996 1995 1994 ------- ------- ------- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss)......................................... $11,245 $ 7,986 $(4,422) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization of assets................ 6,247 5,928 5,587 Deferred income taxes.................................. 99 1,088 1,073 Other noncash charges to income........................ 1,941 2,039 1,630 Changes in operating assets and liabilities: Increase in inventories................................ (28) (851) (193) Decrease (increase) in other current assets............ (914) (93) 3 Decrease in accounts payable and accrued liabilities... (3,937) (204) (3,588) Other, net................................................ (2,589) (4,794) (3,723) ------- ------- ------- Net cash provided (used) by operating activities............ 12,064 11,099 (3,633) ------- ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures...................................... (4,614) (6,532) (5,011) ------- ------- ------- Net cash used by investing activities....................... (4,614) (6,532) (5,011) ------- ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Increase (decrease) in owner's investment................. (7,450) (4,567) 8,646 ------- ------- ------- Net cash provided (used) by financing activities............ (7,450) (4,567) 8,646 ------- ------- ------- Change in cash.............................................. -- -- 2 Cash -- beginning of year................................... 6 6 4 ------- ------- ------- Cash -- end of year......................................... $ 6 $ 6 $ 6 ======= ======= =======
The accompanying notes are an integral part of these statements. F-35 164 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Organization, business and basis of presentation -- The accompanying financial statements present the financial position, results of operations and cash flows of the Tacoma plant (the Tacoma Plant) of Occidental Chemical Corporation (OCC), a New York corporation. The financial statements are prepared for a proposed acquisition by Pioneer Companies, Inc. (Pioneer) of the Tacoma Plant (see Note 11). All of the outstanding common shares of OCC are owned indirectly by Occidental Petroleum Corporation (Occidental). Certain amounts in the accompanying financial statements have been allocated in a reasonable and consistent manner in order to depict the financial position, results of operations and cash flows of the Tacoma Plant on a stand-alone basis. The Tacoma Plant, located in Tacoma, Washington, consists of a chlor-alkali process which manufactures chlorine, sodium hydroxide and related products, and a discontinued ammonia process that has not operated since 1992. The Tacoma Plant's products are sold to national and international markets as well as to other plants and affiliates of OCC. The accompanying financial statements exclude the previously discontinued manufacturing processes associated with unrelated product lines, including chlorinated organic compounds. Additionally, the Tacoma Plant does business as OCC and enters into operating and sales contracts administered by OCC. These include national sales agreements as well as purchase and energy agreements. Occidental utilizes a centralized cash management system for its operations, including the Tacoma Plant. Cash distributed to or advanced from Occidental has been reflected in Owner's investment in the accompanying balance sheets. In addition, settlements of transactions with OCC and other Occidental affiliates are recorded through Owner's investment. Supplemental cash flow information -- For the years ended December 31, 1996, 1995 and 1994, all cash payments for income taxes were made by Occidental. For the same periods, there were no cash payments for interest. As of December 31, 1996 and 1995, net trade receivables of $7,604,000 and $8,952,000, respectively, were transferred to an affiliate (see Note 2). Property, plant and equipment -- Property, plant and equipment additions, major renewals and improvements are capitalized at cost. Maintenance and repair costs are charged to expense as incurred. The cost and related accumulated depreciation, depletion and amortization of property, plant and equipment sold or retired are removed from the property, plant and equipment accounts and any resulting gain or loss is recorded. Depreciation of plant and equipment is primarily provided using the units-of-production method. Costs incurred during the construction period of major projects are capitalized and accumulated in Construction in progress (see Note 5). Upon completion, the costs are transferred to the appropriate Property, plant and equipment accounts. Interest costs incurred during the construction period of major projects which extend longer than one year are capitalized and amortized over the lives of the related assets. There were no such major projects during 1996, 1995 or 1994. F-36 165 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Income taxes -- The Tacoma Plant is included in the consolidated U.S. federal income tax return of Occidental. The Tacoma Plant uses the asset and liability method required by Statement of Financial Accounting Standards (SFAS) No. 109 -- "Accounting for Income Taxes." Deferred income taxes are recorded at enacted rates to recognize the future effects of temporary differences which arise between financial statement assets and liabilities and their basis for income tax reporting purposes. A portion of the income tax provision for this return is allocated to the Tacoma Plant on the basis of a tax sharing arrangement between OCC and Occidental Chemical Holding Corporation (OCHC), an indirect parent of OCC. Current and deferred income tax provisions allocated by OCC are based on taxable income determined as though the Tacoma Plant filed as an independent company, making the same tax return elections used in Occidental's consolidated return. However, this arrangement also permits the Tacoma Plant to recognize income tax benefits for current year operating losses and deductible temporary differences without limiting such benefits. Amounts due to Occidental for current income tax provisions are netted in Owner's investment in the accompanying balance sheets. Risks and uncertainties -- The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts, generally not by material amounts. Management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the Tacoma Plant's financial position and results of operations. Included in the accompanying balance sheets are deferred income tax assets of $11,061,000 and $12,555,000 as of December 31, 1996 and 1995, respectively, consisting of the current portion of $1,287,000 and $2,389,000, shown as current deferred income tax assets and the noncurrent portion which is netted against deferred income tax liabilities (see Note 7). Realization of that asset is dependent upon the generation of sufficient future taxable income. It is expected that the recorded deferred income tax asset will be realized through future operating income and reversal of taxable temporary differences. Since the Tacoma Plant's two principal products are commodities, significant changes in the prices of chlorine and sodium hydroxide could have a significant impact on the Tacoma Plant's results of operations for any particular year. Fair value of financial instruments -- The Tacoma Plant values financial instruments as required by SFAS No. 107 -- "Disclosures About Fair Value of Financial Instruments." The carrying value of on-balance sheet financial instruments approximates fair value. (2) RECEIVABLES -- As of December 31, 1996 and 1995, OCC transferred, with limited recourse, to an Occidental affiliate net trade receivables of the Tacoma Plant under a revolving sale program, in connection with the ultimate sale for cash of such receivables. The net trade receivables transferred amounted to $7,604,000 and $8,952,000 as of December 31, 1996 and 1995, respectively. OCC transferred the receivables to the affiliate in a noncash transaction that was reflected as a reduction in the Tacoma Plant's Owner's investment. OCC has retained the F-37 166 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (2) RECEIVABLES -- (CONTINUED) collection responsibility with respect to the receivables sold. An interest in newly created receivables is transferred monthly, net of collections made from customers. Fees related to the sales of receivables under this program, which are allocated from OCC, were $377,000, $425,000 and $333,000 for the years ended December 31, 1996, 1995 and 1994, respectively, and are included in Other operating expense. (3) INVENTORIES -- Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) cost method was used in determining the costs of raw materials and finished goods. Materials and supplies inventories were determined using the weighted-average cost method. Inventories consisted of the following as of December 31, 1996 and 1995 (in thousands):
1996 1995 ------- ------- Raw materials............................................... $ 1,291 $ 1,653 Materials and supplies...................................... 3,338 3,152 Finished goods.............................................. 2,071 2,519 ------- ------- 6,700 7,324 LIFO reserve................................................ (1,882) (2,534) ------- ------- Inventory at lower of cost or market........................ $ 4,818 $ 4,790 ======= =======
During the years ended December 31, 1996 and 1994, certain inventory quantities carried at LIFO were reduced. These reductions resulted in a liquidation of LIFO inventory quantities, the effect of which did not have a material impact on Cost of sales. (4) CHANGE IN ACCOUNTING PRINCIPLE -- In December 1992, the Financial Accounting Standards Board issued SFAS No. 112 -- "Employers' Accounting for Postemployment Benefits," which substantially changed the existing method of accounting for employer benefits provided to inactive or former employees after active employment but before retirement. This statement requires that the cost of postemployment benefits (principally medical benefits for inactive employees) be recognized in the financial statements during employees' active working careers. OCC adopted SFAS No. 112 effective January 1, 1994, but the adoption did not have a material impact on the Tacoma Plant's financial position or results of operations. (5) PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment at December 31, 1996 and 1995 consisted of the following (in thousands):
1996 1995 -------- -------- Land and land improvements.................................. $ 2,951 $ 2,875 Buildings................................................... 9,173 8,915 Machinery and equipment..................................... 118,212 114,530 Construction in progress.................................... 11,826 11,305 -------- -------- 142,162 137,625 Accumulated depreciation.................................... (80,650) (74,768) -------- -------- $ 61,512 $ 62,857 ======== ========
F-38 167 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (6) COMMITMENTS AND CONTINGENT LIABILITIES -- Commitments -- The Tacoma Plant leases railcars as well as certain machinery and equipment under noncancelable operating leases. The operating lease for machinery and equipment expires in 2001, at which time the property can be purchased for the then fair market value or the lease can be renewed at the then fair rental value for two years. At December 31, 1996, future minimum lease payments under noncancelable operating leases were as follows (in thousands): 1997........................................................ $ 3,784 1998........................................................ 3,561 1999........................................................ 3,412 2000........................................................ 3,560 2001........................................................ 3,178 Thereafter.................................................. 16,582 ------- Total minimum lease payments.............................. $34,077 =======
Rental expense totaled approximately $4,156,000, $4,164,000 and $4,262,000 for the years ended December 31, 1996, 1995 and 1994, respectively. OCC purchases the entire requirement of salt for the Tacoma Plant from Mitsubishi International Corporation (MIC) under the terms of a contract ending on December 31, 1996. The contract requires OCC to purchase a predetermined annual quantity of salt at an established price. Payments are made to MIC each month in the amount of one-twelfth of the annual quantity at the established price for that year. Total purchases under this contract were $8,202,000, $7,712,000 and $6,339,000 for the years ended December 31, 1996, 1995 and 1994, respectively. In May 1996, OCC entered into a new contract with MIC to purchase salt for the Tacoma Plant under similar terms for 1997 through 1999. OCC purchases electric power for the Tacoma Plant from the City of Tacoma, Department of Public Utilities, Light Division (the City) under the terms of a contract expiring in September 2001. The contract has three monthly levels of commitment. The first two take-or-pay levels are for fixed quantities of power at predetermined prices. The third level is for power consumed above the take-or-pay quantities at market prices. Under the terms of the contract, any power committed to but not consumed by the Tacoma Plant can be resold by the City, the proceeds of which will be applied against the Tacoma Plant's commitment. Total purchases under this contract were $13,621,000, $13,894,000 and $13,643,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Lawsuits -- An individual brought a lawsuit in 1995 against OCC alleging personal injury from exposure to chlorine gas released from the Tacoma Plant in 1994. Although a release did occur, the alleged causation and damages are denied. It is impossible at this time to determine the ultimate legal liabilities that may arise from this lawsuit. However, in management's opinion, the lawsuit should not have a material adverse effect upon the financial position or results of operations of the Tacoma Plant. F-39 168 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (7) INCOME TAXES -- Income tax expense (benefit) for the years ended December 31, 1996, 1995 and 1994 consisted of the following (in thousands):
1996 1995 1994 ------ ------ ------- Current U.S. federal.................................... $5,960 $3,213 $(3,450) Deferred U.S. federal................................... 99 1,088 1,073 ------ ------ ------- $6,059 $4,301 $(2,377) ====== ====== =======
The following table reconciles the maximum statutory U.S. federal income tax rate multiplied by the Tacoma Plant's income (loss) before income taxes to the recorded income tax expense (benefit) (in thousands):
1996 1995 1994 ------ ------ ------- U.S. federal income tax at 35%.......................... $6,056 $4,300 $(2,380) Nondeductible expenses and other........................ 3 1 3 ------ ------ ------- $6,059 $4,301 $(2,377) ====== ====== =======
Pension liability adjustments charged directly to Owner's investment in 1996, 1995 and 1994 were net of tax charges (benefits) of $237,000, $347,000 and ($23,000), respectively. Deferred income taxes reflect the future tax consequences of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts. Temporary differences are associated with the financial statement assets and liabilities shown in the table below. Deferred income tax assets and liabilities have been recorded in the following amounts as of December 31, 1996 and 1995 (in thousands):
1996 1995 ---------------------- ---------------------- DEFERRED TAX DEFERRED TAX ASSETS LIABILITIES ASSETS LIABILITIES ------- ----------- ------- ----------- Inventories................................ $ 371 $ -- $ 340 $ -- Property, plant and equipment, net......... -- 11,565 -- 12,592 Other assets............................... -- 170 -- 301 Accrued liabilities........................ 916 -- 2,049 -- Other liabilities.......................... 9,774 -- 10,166 -- ------- ------- ------- ------- $11,061 $11,735 $12,555 $12,893 ======= ======= ======= =======
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- The Tacoma Plant participates in various defined contribution retirement plans sponsored by Occidental for its salaried, union and nonunion hourly employees that provide for periodic contributions by OCC based on plan-specific criteria, such as base pay, age level, and employee contributions. OCC contributed and the Tacoma Plant expensed $250,000, $255,000 and $240,000 under the provisions of these plans during the years ended December 31, 1996, 1995 and 1994, respectively. Also, the Tacoma Plant's retirement and postretirement defined benefit plans for union hourly employees are accrued based on various assumptions and discount rates, as described below. The actuarial assumptions F-40 169 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- (CONTINUED) used could change in the near term as a result of changes in expected future trends and other factors which, depending on the nature of the changes, could cause increases or decreases in the liabilities accrued. Pension costs for the Tacoma Plant defined benefit pension plan, for union hourly employees determined by independent actuarial valuations, are funded by payments to trust funds that are administered by independent trustees. The components of the net pension cost for the years ended December 31, 1996, 1995 and 1994 were as follows (in thousands):
1996 1995 1994 ------- ------- ----- Service cost -- benefits earned during the period........ $ 374 $ 389 $ 347 Interest cost on projected benefit obligation............ 660 676 674 Estimated return on plan assets.......................... (1,492) (1,699) (252) Net amortization and deferral............................ 891 1,348 (133) ------- ------- ----- Net pension cost............................... $ 433 $ 714 $ 636 ======= ======= =====
The Tacoma Plant recorded adjustments to Owner's investment of an increase of $439,000 in 1996 and $643,000 in 1995 and a decrease of $105,000 in 1994 to reflect the net-of-tax difference between the additional liability required under pension accounting provisions and the corresponding intangible asset. The following table sets forth the defined benefit plan's funded status and amounts recognized in the Tacoma Plant balance sheets at December 31, 1996 and 1995 (in thousands):
ACCUMULATED BENEFITS EXCEED ASSETS --------------------- 1996 1995 -------- --------- Present value of the estimated pension benefits to be paid in the future: Vested benefits........................................... $9,043 $ 8,473 Nonvested benefits........................................ 437 410 ------ ------- Accumulated benefit obligation.............................. 9,480 8,883 Excess of projected benefit obligation over accumulated benefit obligation..................................... 426 399 ------ ------- Total projected benefit obligations......................... 9,906 9,282 Plan assets at fair value................................... 9,701 8,085 ------ ------- Projected benefit obligation in excess of plan assets....... $ 205 $ 1,197 ====== ======= Projected benefit obligation in excess of plan assets....... $ 205 $ 1,197 Unrecognized net asset...................................... 160 192 Unrecognized prior service cost............................. (195) (215) Unrecognized net loss....................................... (363) (1,266) Additional minimum liability(a)............................. -- 891 ------ ------- Pension liability (prepaid pension)......................... $ (193) $ 799 ====== =======
(a) A related amount up to the limit allowable under SFAS No. 87 -- "Employers' Accounting for Pensions" has been included in Other assets. Amounts exceeding such limits have been charged to Owner's investment. F-41 170 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- (CONTINUED) In 1996 and 1995, the discount rate used in determining the actuarial present value of the projected benefit obligations was 7.5 percent. The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations was 4.5 percent in 1996 and 1995. The expected long-term rate of return on assets was 8 percent in 1996 and 1995. OCC provides medical, dental and life insurance for certain active, retired, and disabled employees of the Tacoma Plant and their eligible dependents. Beginning in 1993, certain salaried participants pay for all medical cost increases in excess of increases in the Consumer Price Index (CPI). The benefits generally are funded by OCC as the benefits are paid during the year. The cost of providing these benefits is based on claims filed and insurance premiums paid for the period. To reflect the Tacoma Plant's participation in the OCC plan, the net periodic postretirement benefit costs and the postretirement benefit obligations are based on an allocation of the OCC actuarial study using participant counts at the Tacoma Plant for each of the years presented in the tables below. This allocation excludes amounts attributable to salaried retirees and surviving spouses because nonunion retiree information is not maintained for such participants by plant location. The OCC postretirement benefit obligation as of December 31, 1996 and 1995 was determined by application of the terms of medical, dental, and life insurance plans, including the effect of established maximums on covered costs, together with relevant actuarial assumptions and health care cost trend rates projected at a CPI increase of 3 percent and 4 percent in 1996 and 1995, respectively (except for union employees). For union employees, the health care cost trend rates were projected at annual rates ranging ratably from 9 percent in 1996 to 6 percent through the year 2002 and level thereafter. The effect of a one percent annual increase in these assumed cost trend rates would increase the allocated accumulated postretirement benefit obligation by approximately $660,000 and the allocated annual service and interest costs by approximately $95,000 in 1996. The weighted average discount rate used in determining the accumulated postretirement benefit obligation as of December 31, 1996 and 1995 was 7.5 percent. The plans are unfunded. The following table sets forth the allocation of OCC postretirement plans' combined status, reconciled with the amounts included in the accompanying balance sheets at December 31, 1996 and 1995 (in thousands):
1996 1995 ------ ------ Accumulated postretirement benefit obligation: Retirees.................................................. $3,924 $3,820 Fully eligible active plan participants................... 642 630 Other active plan participants............................ 3,573 3,310 ------ ------ Total accumulated postretirement benefit obligation......... 8,139 7,760 Unrecognized prior service cost............................. (109) (156) Unrecognized net loss....................................... (586) (691) ------ ------ Allocated accrued postretirement benefit cost............... $7,444 $6,913 ====== ======
F-42 171 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- (CONTINUED) The allocated net periodic postretirement benefit cost included the following components for the years ended December 31, 1996, 1995 and 1994 (in thousands):
1996 1995 1994 ---- ---- ---- Service cost -- benefits attributed to service during the period.................................................... $202 $194 $190 Interest cost on accumulated postretirement benefit obligation................................................ 582 572 570 Net amortization and deferral............................... 47 47 47 ---- ---- ---- Allocated net periodic postretirement benefit cost.......... $831 $813 $807 ==== ==== ====
(9) RELATED PARTY TRANSACTIONS -- The Tacoma Plant has been charged for certain financial and operational support services provided by OCC, such as marketing, sales and customer service, transportation and distribution, and technical services. Charges for such support services included in the accompanying statements of operations totaled $8,759,000, $8,806,000 and $10,151,000 for the years ended December 31, 1996, 1995 and 1994, respectively. These charges were allocated based on ratios including such factors as revenues, operating income, fixed assets, and working capital in a reasonable and consistent manner. Included in the above allocations are research and development costs, which are charged to operations by OCC as incurred, and were $70,000, $96,000 and $143,000 for the years ended December 31, 1996, 1995 and 1994, respectively. These charges are included in Selling, general and administrative expenses in the accompanying statements of operations. See Note 1 regarding the centralized cash management system of Occidental. See Note 2 regarding the transfer of receivables to an affiliate. (10) ENVIRONMENTAL COSTS -- General -- Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to existing conditions caused by past operations, and that do not contribute to current or future revenue generation, are expensed. Reserves for estimated costs are recorded when environmental remedial efforts are probable and the costs can be reasonably estimated. In determining the reserves, the Tacoma Plant uses the most current information available, including similar past experiences, available technology, regulations in effect, the timing of remediation and cost-sharing arrangements. The environmental reserves are based on management's estimate of the most likely costs to be incurred and are reviewed periodically and adjusted as additional or new information becomes available. In October 1996, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 96-1 "Environmental Remediation Liabilities," which provides authoritative guidance on specific accounting issues that are present in the recognition, measurement, display, and disclosure of environmental remediation liabilities. The provisions of this SOP are effective for fiscal years beginning after December 15, 1996. OCC plans to adopt the provisions of this SOP in 1997. The impact of adopting this SOP, if any, on the financial statements of the Tacoma Plant has not been determined. F-43 172 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (10) ENVIRONMENTAL COSTS -- (CONTINUED) Tacoma Plant site -- Historic operations of various discontinued processes and equipment at the Tacoma Plant site, including past activities of other owners or operators of all or a portion of the Tacoma Plant site, have resulted in releases of certain hazardous and nonhazardous substances and materials into the soil, surface water, groundwater and intertidal and subtidal sediments at and in the vicinity of the Tacoma Plant site. The Tacoma Plant is permitted under the Resource Conservation and Recovery Act (RCRA). Although permitted waste management units at the Tacoma Plant site have been closed in accordance with RCRA, the current RCRA permit requires the owner and operator of the Tacoma Plant to take corrective action to address the presence of certain substances in groundwater associated with past practices at the Tacoma Plant site. The Tacoma Plant is controlling migration of and remediating substances in groundwater through extraction, treatment and reinjection (see Reserves and expenditures for the Tacoma Plant site section of Note 10 below). In addition, governmental authorities have identified OCC as a "potentially responsible party" for the Commencement Bay Nearshore/Tideflats Superfund Site (the CB/NT site), which includes the Hylebos Waterway, pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act. The CB/NT site covers in excess of ten square miles and includes the Tacoma Plant site and other properties along the Hylebos Waterway and in the vicinity of Commencement Bay. More than 100 potentially responsible parties have been identified with respect to the Hylebos Waterway area of the CB/NT site. OCC is participating with a group of entities in performing a pre-remedial design investigation to evaluate potential alternatives for remediation of sediments in the Hylebos Waterway. It is reasonably possible that the activities of the Tacoma plant chlor-alkali process and discontinued processes have contributed to the presence of hazardous and nonhazardous substances and materials at and in the vicinity of the Tacoma Plant site. It is impossible at this time to determine the quantity of such substances and materials, if any, attributable to these processes, and OCC does not have sufficient information available to determine a range of potential liability. Reserves and expenditures for the Tacoma Plant site -- At December 31, 1996 and 1995, the current portion of the reserve for groundwater remediation at the Tacoma Plant site included in Accrued liabilities was $2,550,000 and $5,200,000, respectively. The reserve for remediation was originally established in 1990. Additions to the remediation reserve of $1,932,000, $2,030,000 and $1,530,000 for the years ended December 31, 1996, 1995 and 1994, respectively, are included in Other operating expense. The Tacoma Plant's estimated operating expenses relating to compliance with environmental laws and regulations governing ongoing operations on the Tacoma Plant site were approximately $901,000, $983,000 and $958,000 for the years ended December 31, 1996, 1995 and 1994, respectively. In addition, estimated capital expenditures for environmental compliance on the Tacoma Plant site for the years ended December 31, 1996, 1995 and 1994 were approximately $1,175,000, $693,000 and $82,000, respectively. (11) SALE OF TACOMA PLANT -- Pioneer is currently negotiating to purchase selected assets, liabilities and operations of the Tacoma Plant primarily including, but not limited to, property, plant and equipment and inventories. As of February 1, 1997, F-44 173 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (11) SALE OF TACOMA PLANT -- (CONTINUED) OCC transferred substantially all of the Tacoma Plant's assets and liabilities into OCC Tacoma, Inc., a newly created, wholly-owned subsidiary of OCC. The assets, liabilities and operations included in these financial statements are those required to present the Tacoma Plant as a stand-alone entity and include certain assets, liabilities and operations that are not included in the proposed sale to Pioneer, such as certain railcar and equipment leases. Excluded operations include, among other things, support services such as marketing, sales and customer service, transportation and distribution, and technical services. In addition, OCC will retain various chlorine and caustic soda account contracts which will be supplied in part by a proposed arrangement between Pioneer and OCC. Negotiations are ongoing concerning a mutually acceptable method of acquisition by Pioneer. As currently contemplated, in addition to the primary asset conveyance instrument, related agreements would allocate responsibility, as between OCC and Pioneer, for environmental costs and obligations associated with the Tacoma Plant site arising from pre-closing events or occurrences, including any investigation, monitoring, treatment or remediation of substances and materials in water, soils and sediments at and in the vicinity of the Tacoma Plant site, the Hylebos Waterway and the CB/NT site. This allocation of responsibility is expected to include cost and time limitations, above or after which OCC's responsibility for environmental costs and obligations associated with the Tacoma Plant site between the parties would terminate. F-45 174 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT BALANCE SHEETS MARCH 31, 1997 AND 1996 UNAUDITED (AMOUNTS IN THOUSANDS)
1997 1996 ------- ------- CURRENT ASSETS: Cash...................................................... $ 6 $ 6 Inventories............................................... 5,181 4,265 Deferred income taxes..................................... 1,249 1,794 Other current assets...................................... 741 1,114 ------- ------- Total current assets.............................. 7,177 7,179 PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation of $82,207 in 1997 and $76,010 in 1996....... 60,695 62,617 OTHER ASSETS, net........................................... 794 928 ------- ------- TOTAL ASSETS...................................... $68,666 $70,724 ======= ======= CURRENT LIABILITIES: Accounts payable.......................................... $ 2,104 $ 3,316 Accrued liabilities....................................... 3,037 5,008 ------- ------- Total current liabilities......................... 5,141 8,324 DEFERRED INCOME TAXES....................................... 2,384 2,497 ACCRUED ENVIRONMENTAL LIABILITIES........................... 20,001 21,102 OTHER LIABILITIES........................................... 7,923 8,337 ------- ------- Total liabilities................................. 35,449 40,260 COMMITMENTS AND CONTINGENT LIABILITIES (Note 5) OWNER'S INVESTMENT.......................................... 33,217 30,464 ------- ------- TOTAL LIABILITIES AND OWNER'S INVESTMENT.......... $68,666 $70,724 ======= =======
The accompanying notes are an integral part of these statements. F-46 175 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT STATEMENTS OF OPERATIONS AND CHANGES IN OWNER'S INVESTMENT FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 UNAUDITED (AMOUNTS IN THOUSANDS)
1997 1996 ------- ------- EXTERNAL SALES, net......................................... $13,770 $15,059 SALES TO OWNER AT MARKET VALUE.............................. 4,968 2,445 ------- ------- TOTAL SALES, net.................................. 18,738 17,504 OPERATING COSTS AND EXPENSES: Cost of sales............................................. 13,590 13,065 Selling, general and administrative expenses.............. 269 446 Other operating (income) expense.......................... (542) 599 ------- ------- INCOME BEFORE INCOME TAXES.................................. 5,421 3,394 Income tax expense........................................ 1,898 1,189 ------- ------- NET INCOME.................................................. 3,523 2,205 PENSION LIABILITY ADJUSTMENT................................ -- 8 INCREASE (DECREASE) IN OWNER'S INVESTMENT................... (2,270) 521 OWNER'S INVESTMENT, beginning of period..................... 31,964 27,730 ------- ------- OWNER'S INVESTMENT, end of period........................... $33,217 $30,464 ======= =======
The accompanying notes are an integral part of these statements. F-47 176 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 UNAUDITED (AMOUNTS IN THOUSANDS)
1997 1996 ------- ------- CASH FLOW FROM OPERATING ACTIVITIES: Net income................................................ $ 3,523 $ 2,205 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of assets................ 1,613 1,436 Deferred income taxes.................................. 461 361 Other noncash charges to income........................ -- 519 Changes in operating assets and liabilities: Decrease (increase) in inventories..................... (363) 525 Decrease (increase) in other current assets............ 268 (1,019) Decrease in accounts payable and accrued liabilities... (2,089) (2,843) Other, net................................................ (242) (613) ------- ------- Net cash provided by operating activities................... 3,171 571 ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures...................................... (901) (1,092) ------- ------- Net cash used by investing activities....................... (901) (1,092) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Increase (decrease) in owner's investment................. (2,270) 521 ------- ------- Net cash provided (used) by financing activities............ (2,270) 521 ------- ------- Change in cash.............................................. -- -- Cash -- beginning of period................................. 6 6 ------- ------- Cash -- end of period....................................... $ 6 $ 6 ======= =======
The accompanying notes are an integral part of these statements. F-48 177 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS UNAUDITED MARCH 31, 1997 AND 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Organization, business and basis of presentation -- The accompanying unaudited interim financial statements present the financial position, results of operations and changes in owner's investment and cash flows of the Tacoma plant (the Tacoma Plant) of Occidental Chemical Corporation (OCC-NY), a New York corporation, and of OCC Tacoma, Inc., a Delaware corporation (OCC-NY alone or together with its subsidiary, OCC Tacoma, Inc. herein referred to as OCC). As of February 1, 1997, OCC-NY transferred substantially all of the Tacoma Plant's assets and liabilities into OCC Tacoma, Inc., a newly created, wholly-owned subsidiary of OCC-NY. The financial statements are prepared for a proposed acquisition by Pioneer Companies, Inc. (Pioneer) of the Tacoma Plant (see Note 10). Certain information and disclosures normally included in the notes to financial statements have been condensed or omitted pursuant to such rules and regulations, but resultant disclosures are in accordance with generally accepted accounting principles as they apply to interim reporting. These interim financial statements should be read in conjunction with the Tacoma Plant's audited financial statements for the year ended December 31, 1996 (1996 Financial Statements). The Tacoma Plant, located in Tacoma, Washington, consists of a chlor-alkali process which manufactures chlorine, sodium hydroxide and related products, and a discontinued ammonia process that has not operated since 1992. The Tacoma Plant's products are sold to national and international markets as well as to other plants and affiliates of OCC. The accompanying financial statements exclude the previously discontinued manufacturing processes associated with unrelated product lines, including chlorinated organic compounds. Additionally, the Tacoma Plant does business as OCC and enters into operating and sales contracts administered by OCC. These include national sales agreements as well as purchase and energy agreements. In the opinion of OCC's management, the accompanying interim financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the Tacoma Plant's financial position as of March 31, 1997 and 1996 and the results of operations and changes in owner's investment and cash flows for the three months then ended. The results of operations and cash flows for the period ended March 31, 1997 are not necessarily indicative of the results of operations or cash flows to be expected for the full year. Reference is made to Note 1 to the 1996 Financial Statements for a summary of significant accounting policies. Supplemental cash flow information -- For the three months ended March 31, 1997 and 1996, all cash payments for income taxes were made by Occidental Petroleum Corporation (Occidental). For the same periods, there were no cash payments for interest. As of March 31, 1997 and 1996, net trade receivables of $5,021,000 and $7,671,000, respectively, were transferred to an affiliate (see Note 2). F-49 178 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS UNAUDITED MARCH 31, 1997 AND 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Risks and uncertainties -- The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts, generally not by material amounts. Management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the Tacoma Plant's financial position and results of operations. Included in the accompanying balance sheets are deferred income tax assets of $10,892,000 and $11,952,000 as of March 31, 1997 and 1996, respectively, consisting of a current portion of $1,249,000 and $1,794,000, shown as current deferred income tax assets and the noncurrent portion which is netted against deferred income tax liabilities. Realization of that asset is dependent upon the generation of sufficient future taxable income. It is expected that the recorded deferred income tax asset will be realized through future operating income and reversal of taxable temporary differences. Since the Tacoma Plant's two principal products are commodities, significant changes in the prices of chlorine and sodium hydroxide could have a significant impact on the Tacoma Plant's results of operations for any particular period. (2) RECEIVABLES -- As of March 31, 1997 and 1996, OCC transferred, with limited recourse, to an Occidental affiliate net trade receivables of the Tacoma Plant under a revolving sale program, in connection with the ultimate sale for cash of such receivables. The net trade receivables transferred amounted to $5,021,000 and $7,671,000 as of March 31, 1997 and 1996, respectively. OCC transferred the receivables to the affiliate in a noncash transaction that was reflected as a reduction in the Tacoma Plant's Owner's investment. OCC has retained the collection responsibility with respect to the receivables sold. An interest in newly created receivables is transferred monthly, net of collections made from customers. Fees related to the sales of receivables under this program, which are allocated from OCC, were $69,000 and $96,000 for the three months ended March 31, 1997 and 1996, respectively, and are included in Other operating expense. (3) INVENTORIES -- Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) cost method was used in determining the costs of raw materials and finished goods. Materials and supplies inventories were determined using the weighted-average cost method. Inventories consisted of the following as of March 31, 1997 and 1996 (in thousands):
1997 1996 ------- ------- Raw materials............................................... $ 1,221 $ 817 Materials and supplies...................................... 3,422 3,095 Finished goods.............................................. 2,319 2,962 ------- ------- 6,962 6,874 LIFO reserve................................................ (1,781) (2,609) ------- ------- Inventory at lower of cost or market........................ $ 5,181 $ 4,265 ======= =======
F-50 179 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS UNAUDITED MARCH 31, 1997 AND 1996 (3) INVENTORIES -- (CONTINUED) During the three months ended March 31, 1997 and 1996, certain inventory quantities carried at LIFO were reduced. These reductions resulted in a liquidation of LIFO inventory quantities, the effect of which did not have a material impact on Cost of sales. (4) PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment at March 31, 1997 and 1996 consisted of the following (in thousands):
1997 1996 -------- -------- Land and land improvements.................................. $ 3,017 $ 2,875 Buildings................................................... 9,653 8,915 Machinery and equipment..................................... 118,593 114,417 Construction in progress.................................... 11,639 12,420 -------- -------- 142,902 138,627 Accumulated depreciation.................................... (82,207) (76,010) -------- -------- $ 60,695 $ 62,617 ======== ========
(5) COMMITMENTS AND CONTINGENT LIABILITIES -- Commitments -- Reference is made to Note 6 to the 1996 Financial Statements for a description of lease commitments, as well as salt and electric power purchase commitments. Total purchases under the salt contract were $1,379,000 and $2,050,000 for the three months ended March 31, 1997 and 1996, respectively. Total purchases under the electric power contract were $3,143,000 and $3,314,000 for the three months ended March 31, 1997 and 1996, respectively. Lawsuits -- Reference is made to Note 6 to the 1996 Financial Statements for a description of lawsuits. (6) INCOME TAXES -- Income tax expense for the three months ended March 31, 1997 and 1996 consisted of the following (in thousands):
1997 1996 ------ ------ Current U.S. federal........................................ $1,437 $ 828 Deferred U.S. federal....................................... 461 361 ------ ------ $1,898 $1,189 ====== ======
Reference is made to Note 7 to the 1996 Financial Statements for a description of income taxes. F-51 180 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS UNAUDITED MARCH 31, 1997 AND 1996 (7) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- Reference is made to Note 8 to the 1996 Financial Statements for a description of retirement plans and postretirement benefits. (8) RELATED PARTY TRANSACTIONS -- The Tacoma Plant has been charged for certain financial and operational support services provided by OCC-NY, such as marketing, sales and customer service, transportation and distribution, and technical services. Charges for such support services included in the accompanying statements of operations totaled $2,162,000 and $2,319,000 for the three months ended March 31, 1997 and 1996, respectively. These charges were allocated based on ratios including such factors as revenues, operating income, fixed assets, and working capital in a reasonable and consistent manner. Included in the above allocations are research and development costs, which are charged to operations by OCC-NY as incurred, and were $3,000 and $7,000 for the three months ended March 31, 1997 and 1996, respectively. These charges are included in Selling, general and administrative expenses in the accompanying statements of operations. Reference is made to Note 1 to the 1996 Financial Statements regarding the centralized cash management system of Occidental. See Note 2 regarding the transfer of receivables to an affiliate. (9) ENVIRONMENTAL COSTS -- General -- Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to existing conditions caused by past operations, and that do not contribute to current or future revenue generation, are expensed. Reserves for estimated costs are recorded when environmental remedial efforts are probable and the costs can be reasonably estimated. In determining the reserves, the Tacoma Plant uses the most current information available, including similar past experiences, available technology, regulations in effect, the timing of remediation and cost-sharing arrangements. The environmental reserves are based on management's estimate of the most likely costs to be incurred and are reviewed periodically and adjusted as additional or new information becomes available. Tacoma Plant site -- Historic operations of various discontinued processes and equipment at the Tacoma Plant site, including past activities of other owners or operators of all or a portion of the Tacoma Plant site, have resulted in releases of certain hazardous and nonhazardous substances and materials into the soil, surface water, groundwater and intertidal and subtidal sediments at and in the vicinity of the Tacoma Plant site. The Tacoma Plant is permitted under the Resource Conservation and Recovery Act (RCRA). Although permitted waste management units at the Tacoma Plant site have been closed in accordance with RCRA, the current RCRA permit requires the owner and operator of the Tacoma Plant to take corrective action to address the presence of certain substances in groundwater associated with past practices at the Tacoma Plant site. The Tacoma Plant is controlling migration of and remediating substances in groundwater through extraction, treatment and reinjection (see Reserves and expenditures for the Tacoma Plant site section of Note 9 below). F-52 181 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS UNAUDITED MARCH 31, 1997 AND 1996 (9) ENVIRONMENTAL COSTS -- (CONTINUED) In addition, governmental authorities have identified OCC-NY as a "potentially responsible party" for the Commencement Bay Nearshore/Tideflats Superfund Site (the CB/NT site), which includes the Hylebos Waterway, pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act. The CB/NT site covers in excess of ten square miles and includes the Tacoma Plant site and other properties along the Hylebos Waterway and in the vicinity of Commencement Bay. More than 100 potentially responsible parties have been identified with respect to the Hylebos Waterway area of the CB/NT site. OCC is participating with a group of entities in performing a pre-remedial design investigation to evaluate potential alternatives for remediation of sediments in the Hylebos Waterway. It is reasonably possible that the activities of the Tacoma plant chlor-alkali process and discontinued processes have contributed to the presence of hazardous and nonhazardous substances and materials at and in the vicinity of the Tacoma Plant site. It is impossible at this time to determine the quantity of such substances and materials, if any, attributable to these processes, and OCC does not have sufficient information available to determine a range of potential liability. Reserves and expenditures for the Tacoma Plant site -- At March 31, 1997 and 1996, the current portion of the reserve for groundwater remediation at the Tacoma Plant site included in Accrued liabilities was $2,550,000 and $3,335,000, respectively. The reserve for remediation was originally established in 1990. An addition to the remediation reserve of $483,000 for the three months ended March 31, 1996 is included in Other operating expense. In October 1996, the American Institute of Certified Public Accountants issued Statement of Position No. 96-1 "Environmental Remediation Liabilities" (SOP 96-1), which provides authoritative guidance on specific accounting issues that are present in the recognition, measurement, display and disclosure of environmental remediation liabilities. OCC implemented SOP 96-1 effective January 1, 1997. The implementation of SOP 96-1 resulted in a $367,000 increase in Income before taxes for the Tacoma Plant for the three months ended March 31, 1997. (10) SALE OF TACOMA PLANT -- Pioneer is currently negotiating to purchase selected assets, liabilities and operations of the Tacoma Plant primarily including, but not limited to, property, plant and equipment and inventories. The assets, liabilities and operations included in these financial statements are those required to present the Tacoma Plant as a stand-alone entity and include certain assets, liabilities and operations that are not included in the proposed sale to Pioneer, such as certain railcar and equipment leases. Excluded operations include, among other things, support services such as marketing, sales and customer service, transportation and distribution, and technical services. In addition, OCC-NY will retain various chlorine and caustic soda account contracts which will be supplied in part by a proposed arrangement between Pioneer and OCC-NY. Negotiations are ongoing concerning a mutually acceptable method of acquisition by Pioneer. As currently contemplated, in addition to the primary asset conveyance instrument, related agreements would allocate responsibility, as between OCC and Pioneer, for environmental costs and obligations associated with the Tacoma Plant site arising from pre-closing events or occurrences, including any investigation, monitoring, treatment or remediation of substances and materials in water, soils and sediments at and in the vicinity of the Tacoma Plant site, the Hylebos Waterway and the CB/NT site. This allocation of responsibility is expected to F-53 182 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS UNAUDITED MARCH 31, 1997 AND 1996 (10) SALE OF TACOMA PLANT -- (CONTINUED) include cost and time limitations, above or after which OCC's responsibility for environmental costs and obligations associated with the Tacoma Plant site would terminate. In connection with the proposed sale to Pioneer, OCC has signed a letter of intent to terminate a certain operating lease by acquiring the machinery and equipment currently under lease. F-54 183 PIONEER AMERICAS ACQUISITION CORP. All tendered Original Notes, executed Letters of Transmittal, and other related documents should be directed to the Exchange Agent. Requests for assistance and for additional copies of the Prospectus, the Letter of Transmittal and other related documents should be directed to the Exchange Agent. >The Exchange Agent for the Exchange Offer is UNITED STATES TRUST COMPANY OF NEW YORK By Facsimile: (212) 420-6152 ATTENTION: CUSTOMER SERVICE Confirm by telephone: (800) 548-6565 By Registered or Certified Mail: UNITED STATES TRUST COMPANY OF NEW YORK P.O. BOX 844 COOPER STATION >NEW YORK, NEW YORK 10276 By Hand: UNITED STATES TRUST COMPANY OF NEW YORK 111 BROADWAY NEW YORK, NEW YORK 10006 ATTENTION: CORPORATE TRUST OPERATIONS By Overnight Courier: UNITED STATES TRUST COMPANY OF NEW YORK 770 BROADWAY NEW YORK, NEW YORK 10003 ATTENTION: CORPORATE TRUST OPERATIONS 184 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. PAAC, which is a Delaware corporation, is empowered by the Delaware General Corporation Law, subject to the procedures and limitations stated therein, to indemnify any person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding in which such person is made a party by reason of his being or having been a director, officer, employee or agent of PAAC. The statute provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise. The Certificate of Incorporation and by-laws of PAAC provide for indemnification of the directors and officers of such entities to the full extent permitted by the Delaware General Corporation Law. PAAC maintains an insurance policy providing for indemnification of its officers, directors and certain other persons against liabilities and expenses incurred by any of them in certain stated proceedings and under certain stated conditions. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits
2.1 -- Asset Purchase Agreement, dated as of May 14, 1997, by and among OCC Tacoma, Inc. and Pioneer (incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K, dated June 17, 1997). 3.1 -- Certificate of Incorporation of PAAC (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.2 -- By-laws of PAAC (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.3 -- Certificate of Incorporation of PAI (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.4 -- By-laws of PAI (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.5 -- Certificate of Incorporation of PCAC (incorporated by reference to Exhibit 3.5 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.6 -- By-laws of PCAC (Incorporated by reference to Exhibit 3.6 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.7 -- Certificate of Incorporation of Imperial West (incorporated by reference to Exhibit 3.7 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.8 -- By-laws of Imperial West (incorporated by reference to Exhibit 3.8 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.9 -- Certificate of Incorporation of All-Pure (incorporated by reference to Exhibit 3.9 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). II-1
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3.10 -- By-laws of All-Pure (incorporated by reference to Exhibit 3.10 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.11 -- Certificate of Incorporation of Black Mountain Power Company (incorporated by reference to Exhibit 3.11 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.12 -- By-laws of Black Mountain Power Company (incorporated by reference to Exhibit 3.12 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.13 -- Certificate of Incorporation of All-Pure Chemical Northwest, Inc. (incorporated by reference to Exhibit 3.13 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.14 -- By-laws of All-Pure Chemical Northwest, Inc. (incorporated by reference to Exhibit 3.14 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.15 -- Certificate of Incorporation of Pioneer Chlor Alkali International, Inc. (incorporated by reference to Exhibit 3.15 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.16 -- By-laws of Pioneer Chlor Alkali International, Inc. (incorporated by reference to Exhibit 3.16 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.17 -- Certificate of Incorporation of G.O.W. Corporation (incorporated by reference to Exhibit 3.17 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.18 -- By-laws of G.O.W. Corporation (incorporated by reference to Exhibit 3.18 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.19 -- Certificate of Incorporation of Pioneer (East), Inc. 3.20 -- By-laws of Pioneer (East), Inc. 3.21 -- Certificate of Incorporation of T.C. Holdings, Inc. 3.22 -- By-laws of T.C. Holdings, Inc. 3.23 -- Certificate of Incorporation of T.C. Products, Inc. 3.22 -- By-laws of T.C. Products, Inc. 4.1 -- Indenture, dated as of June 17, 1997, by and among PAAC, the Subsidiary Guarantors defined therein and United States Trust Company of New York, as Trustee, relating to $200,000,000 principal amount of 9 1/4% Series A Senior Notes due 2007, including form of Note and Guarantees. 4.2(a) -- Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by PCAC (Tacoma, Washington). 4.2(b) -- Mortgage, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by PCAC (St. Gabriel, Louisiana). 4.2(c) -- Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by PCAC (Henderson, Nevada). 4.3(a) -- Term Loan Agreement, dated as of June 17, 1997, among PAAC, Various Financial Institutions, as Lenders, DLJ Capital Funding, Inc., as the Syndication Agent, Salomon Brothers Holding Company Inc, as the Documentation Agent and Bank of America Illinois, as the Administrative Agent (the "Term Loan Agreement").
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4.3(b) -- Subsidiary Guaranty, dated June 17, 1997, executed by each of the Subsidiaries party thereto, as guarantor, respectively, in favor of the Lenders, guaranteeing the obligations of one another under the Term Loan Agreement. 4.4 -- Security Agreement, dated as of June 17, 1997, among PCAC and United States Trust Company of New York, as Collateral Agent. 4.5 -- Stock Pledge Agreement, dated as of June 17, 1997, among PAI and United States Trust Company of New York, as Collateral Agent. 4.6(a) -- Loan and Security Agreement, dated as of June 17, 1997, by and among PAAC, Bank of America Illinois, as Agent and Lender and the other Lenders party thereto (the "Revolving Loan Agreement"). 4.6(b) -- Master Corporate Guaranty, dated June 17, 1997, executed by each of the Subsidiaries party thereto, as guarantor, respectively, in favor of Bank of America Illinois, as Agent, for the ratable benefit of the Lenders, guaranteeing the obligations of one another under the Revolving Loan Agreement. 4.6(c) -- Master Security Agreement, dated June 17, 1997, executed by each of the Subsidiaries party thereto, as debtor, respectively, in favor of Bank of America Illinois, as Agent, for the ratable benefit of the lenders. 4.7 -- Intercreditor and Collateral Agency Agreement, dated as of June 17, 1997 by and among United States Trust Company of New York, as Trustee and Collateral Agent, Bank of America Illinois, as Agent, PAAC, PAI and PCAC. 4.8 -- Exchange and Registration Rights Agreement, dated as of June 17, 1997, by and among PAAC, the Subsidiary Guarantors and the Initial Purchasers. *5.1 -- Opinion of Willkie Farr & Gallagher. *5.2 -- Opinion of Kent R. Stephenson, Esq. *8.1 -- Opinion of Willkie Farr & Gallagher with respect to certain tax matters. 10.1 -- Contingent Payment Agreement, dated as of April 20, 1995, by and among Pioneer (formerly, GEV corporation), PAAC and the Sellers defined therein (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Pioneer, dated April 20, 1995). 10.2 -- Tax Sharing Agreement, dated as of April 20, 1995, by and among Pioneer, PAAC and the Subsidiary Guarantors defined therein (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 10.3 -- Pioneer Companies, Inc. 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 10.4 -- Pioneer Companies, Inc. Key Executive Stock Grant Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Pioneer for the quarterly period ended June 30, 1996). 10.5 -- Pioneer Chlor Alkali Company, Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K of Pioneer for the fiscal year ended December 31, 1995). 10.6 -- Employment Agreement, dated as of April 20, 1995, between Pioneer and Richard C. Kellogg, Jr. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Pioneer for the quarterly period ended June 30, 1995).
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10.7 -- Employment Agreement, dated November 1, 1992, and First Amendment to Employment Agreement, dated as of April 20, 1995, between Pioneer Chlor Alkali Company, Inc. and Paul J. Kienholz (incorporated by reference to Exhibit 10.7 to Pioneer's Annual Report on Form 10-K for the year ended December 31, 1995). 10.8 -- Employment Agreement, dated April 20, 1995, between Pioneer Americas, Inc. and James E. Glattly (incorporated by reference to Exhibit 10.8 to Pioneer's Annual Report on Form 10-K for the year ended December 31, 1995). 10.9 -- Employment Agreement, dated April 20, 1995, between Pioneer Americas, Inc. and Verrill M. Norwood, Jr. (incorporated by reference to Exhibit 10.9 to Pioneer's Annual Report on Form 10-K for the year ended December 31, 1995). 10.10 -- Executive Employment Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996). 10.11 -- Stock Purchase Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996). 10.12 -- Non-Qualified Stock Option Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996). *10.13 -- Chlorine and Caustic Soda Sales Agreement, dated as of June 17, 1997, between Occidental Chemical Corporation and PCAC. *10.14 -- Chlorine Purchase Agreement, dated as of June 17, 1997, between OCC Tacoma, Inc. and PCAC. *10.15 -- Environmental Operating Agreement, dated as of June 17, 1997, between OCC Tacoma and PCAC. 12.1 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges. 16.1 -- Letter from Ernst & Young LLP regarding change in independent accountants (incorporated by reference to Exhibit 16.1 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 21.1 -- Subsidiaries of the Registrants. 23.1 -- Independent Auditors' Consent of Deloitte & Touche LLP. 23.2 -- Independent Auditors' Consent of Ernst & Young LLP. 23.3 -- Independent Auditors' Consent of Piercy, Bowler, Taylor & Kern. 23.4 -- Independent Public Accountants' Consent of Arthur Andersen LLP. *23.5 -- Consents of Willkie Farr & Gallagher (included in their opinions filed as Exhibits 5.1 and 8.1). *23.6 -- Consent of Kent R. Stephenson, Esq. (included in his opinion filed as Exhibit 5.2). 24.1 -- Powers of Attorney (included in the signature pages hereto). 25.1 -- Statement on Form T-1 of Eligibility of Trustee. 99.1 -- Form of Letter of Transmittal. 99.2 -- Form of Notice of Guaranteed Delivery. 99.3 -- Form of Letter to Clients. 99.4 -- Form of Letter to Nominees.
II-4 188 - --------------- * To be filed by amendment. (b) Financial Statement Schedules: SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS All other schedules have been omitted because they are not applicable or not required or the required information is included in the financial statements or notes thereto. ITEM 22. UNDERTAKINGS. The undersigned Registrants hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Registrants pursuant to the provisions, described under Item 20 above, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrants of expenses incurred or paid by a director, officer or controlling person of the Registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrants hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned Registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this Registration Statement when it became effective. II-5 189 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 2nd day of July, 1997. PIONEER AMERICAS ACQUISITION CORP. By: /s/ PHILIP J. ABLOVE ---------------------------------- Name: Philip J. Ablove Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ MICHAEL J. FERRIS President, Chief Executive Officer July 2, 1997 - ----------------------------------------------------- and Director (principal executive Michael J. Ferris officer) /s/ PHILIP J. ABLOVE Vice President, Chief Financial July 2, 1997 - ----------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting July 2, 1997 - ----------------------------------------------------- officer) John R. Beaver /s/ WILLIAM R. BERKLEY Director July 2, 1997 - ----------------------------------------------------- William R. Berkley /s/ ANDREW M. BURSKY Director July 2, 1997 - ----------------------------------------------------- Andrew M. Bursky /s/ DONALD J. DONAHUE Director July 2, 1997 - ----------------------------------------------------- Donald J. Donahue /s/ RICHARD C. KELLOGG, JR. Director July 2, 1997 - ----------------------------------------------------- Richard C. Kellogg, Jr.
II-6 190
SIGNATURE TITLE DATE --------- ----- ---- /s/ PAUL J. KIENHOLZ Director July 2, 1997 - ----------------------------------------------------- Paul J. Kienholz /s/ JACK H. NUSBAUM Director July 2, 1997 - ----------------------------------------------------- Jack H. Nusbaum /s/ THOMAS H. SCHNITZIUS Director July 2, 1997 - ----------------------------------------------------- Thomas H. Schnitzius
II-7 191 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 2nd day of July, 1997. PIONEER AMERICAS, INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ MICHAEL J. FERRIS Chairman of the Board and President July 2, 1997 - ----------------------------------------------------- (principal executive officer) Michael J. Ferris /s/ PHILIP J. ABLOVE Vice President, Chief Financial July 2, 1997 - ----------------------------------------------------- Officer, Treasurer and Director Philip J. Ablove (principal financial officer) /s/ JOHN R. BEAVER Controller (principal accounting July 2, 1997 - ----------------------------------------------------- officer) John R. Beaver /s/ WILLIAM L. MAHONE Director July 2, 1997 - ----------------------------------------------------- William L. Mahone
II-8 192 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 2nd day of July, 1997. PIONEER CHLOR ALKALI COMPANY, INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES E. GLATTLY President and Director (principal July 2, 1997 - ----------------------------------------------------- executive officer) James E. Glattly /s/ PHILIP J. ABLOVE Vice President and Chief Financial July 2, 1997 - ----------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting July 2, 1997 - ----------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board July 2, 1997 - ----------------------------------------------------- Michael J. Ferris /s/ WILLIAM L. MAHONE Director July 2, 1997 - ----------------------------------------------------- William L. Mahone
II-9 193 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 2nd day of July, 1997. IMPERIAL WEST CHEMICAL CO. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES M. WINGARD President and Director (principal July 2, 1997 - ----------------------------------------------------- executive officer) James M. Wingard /s/ PHILIP J. ABLOVE Vice President and Chief Financial July 2, 1997 - ----------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting July 2, 1997 - ----------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board July 2, 1997 - ----------------------------------------------------- Michael J. Ferris /s/ WILLIAM L. MAHONE Director July 2, 1997 - ----------------------------------------------------- William L. Mahone
II-10 194 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 2nd day of July, 1997. ALL-PURE CHEMICAL CO. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD E. CIORA President and Director (principal July 2, 1997 - ----------------------------------------------------- executive officer) Ronald E. Ciora /s/ PHILIP J. ABLOVE Vice President and Chief Financial July 2, 1997 - ----------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting July 2, 1997 - ----------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board July 2, 1997 - ----------------------------------------------------- Michael J. Ferris /s/ WILLIAM L. MAHONE Director July 2, 1997 - ----------------------------------------------------- William L. Mahone
II-11 195 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 2nd day of July, 1997. BLACK MOUNTAIN POWER COMPANY By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ TERRY K. GRAVES President and Director (principal July 2, 1997 - ----------------------------------------------------- executive officer) Terry K. Graves /s/ PHILIP J. ABLOVE Vice President and Chief Financial July 2, 1997 - ----------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting July 2, 1997 - ----------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board July 2, 1997 - ----------------------------------------------------- Michael J. Ferris /s/ JAMES E. GLATTLY Director July 2, 1997 - ----------------------------------------------------- James E. Glattly
II-12 196 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 2nd day of July, 1997. ALL-PURE CHEMICAL NORTHWEST, INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD E. CIORA President and Director (principal July 2, 1997 - ----------------------------------------------------- executive officer) Ronald E. Ciora /s/ PHILIP J. ABLOVE Vice President and Chief Financial July 2, 1997 - ----------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting July 2, 1997 - ----------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board July 2, 1997 - ----------------------------------------------------- Michael J. Ferris
II-13 197 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 2nd day of July, 1997. PIONEER CHLOR ALKALI INTERNATIONAL, INC. By: /s/ KENT R. STEPHENSON ---------------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ MICHAEL J. FERRIS Chairman of the Board (principal July 2, 1997 - ----------------------------------------------------- executive officer) Michael J. Ferris /s/ PHILIP J. ABLOVE Vice President (principal financial July 2, 1997 - ----------------------------------------------------- officer) Philip J. Ablove /s/ JOHN R. BEAVER Controller (principal accounting July 2, 1997 - ----------------------------------------------------- officer) John R. Beaver /s/ DAVID F. CALLAGHAN Director July 2, 1997 - ----------------------------------------------------- David F. Callaghan /s/ JAMES A. FIELDS Director July 2, 1997 - ----------------------------------------------------- James A. Fields /s/ DAVID A. LESLIE Director July 2, 1997 - ----------------------------------------------------- David A. Leslie
II-14 198 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 2nd day of July, 1997. G. O. W. CORPORATION By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ TERRY K. GRAVES President and Director (principal July 2, 1997 - ----------------------------------------------------- executive officer) Terry K. Graves /s/ PHILIP J. ABLOVE Vice President and Chief Financial July 2, 1997 - ----------------------------------------------------- Officer (principal financial Philip J. Ablove officer) /s/ JOHN R. BEAVER Controller (principal accounting July 2, 1997 - ----------------------------------------------------- officer) John R. Beaver
II-15 199 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 2nd day of July, 1997. PIONEER (EAST), INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ KENT R. STEPHENSON President, Secretary and Chairman of July 2, 1997 - ----------------------------------------------------- the Board (principal executive Kent R. Stephenson officer) /s/ ROBERT C. WILLIAMS Treasurer and Director (principal July 2, 1997 - ----------------------------------------------------- financial and accounting officer) Robert C. Williams /s/ VICTORIA L. GARRETT Director July 2, 1997 - ----------------------------------------------------- Victoria L. Garrett
II-16 200 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 2nd day of July, 1997. T.C. HOLDINGS, INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD E. CIORA President and Director (principal July 2, 1997 - ----------------------------------------------------- executive officer) Ronald E. Ciora /s/ PHILIP J. ABLOVE Vice President and Chief Financial July 2, 1997 - ----------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting July 2, 1997 - ----------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board July 2, 1997 - ----------------------------------------------------- Michael J. Ferris /s/ WILLIAM L. MAHONE Director July 2, 1997 - ----------------------------------------------------- William L. Mahone
II-17 201 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 2nd day of July, 1997. T.C. PRODUCTS, INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD E. CIORA President and Director (principal July 2, 1997 - ----------------------------------------------------- executive officer) Ronald E. Ciora /s/ PHILIP J. ABLOVE Vice President and Chief Financial July 2, 1997 - ----------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting July 2, 1997 - ----------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board July 2, 1997 - ----------------------------------------------------- Michael J. Ferris /s/ WILLIAM L. MAHONE Director July 2, 1997 - ----------------------------------------------------- William L. Mahone
II-18 202 SCHEDULE II PIONEER AMERICAS ACQUISITION CORP. VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF DESCRIPTION OF PERIOD EXPENSE ADDITIONS DEDUCTIONS PERIOD ----------- ---------- ---------- --------- ---------- ---------- Period from March 6, 1995 through December 31, 1995: Allowance for doubtful accounts....... $ -- $255 $1,416(C) $(247)(A) $1,424 Year ended December 31, 1996: Allowance for doubtful accounts....... 1,424 (98) -- (15)(A) 1,311 Quarter ended March 31, 1997: Allowance for doubtful accounts....... 1,311 27 102 -- 1,440
PREDECESSOR COMPANY VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF DESCRIPTION OF PERIOD EXPENSE ADDITIONS DEDUCTIONS PERIOD ----------- ---------- ---------- --------- ---------- ---------- Year ended December 31, 1994: Allowance for doubtful accounts....... 521 1,235 300(B) (18)(A) 2,038 Period from January 1, 1995 through April 20, 1995: Allowance for doubtful accounts....... 2,038 47 -- (169)(A) 1,916
- --------------- (A) Uncollectible accounts written off, net of recoveries. (B) Allowance balance established in May 1994 for the acquisition of GPS. (C) Allowance balance established on April 20, 1995 for the acquisition of Pioneer Americas, Inc. 203 EXHIBIT INDEX
EXHIBIT DESCRIPTION ------- ----------- 2.1 -- Asset Purchase Agreement, dated as of May 14, 1997, by and among OCC Tacoma, Inc. and Pioneer (incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K, dated June 17, 1997). 3.1 -- Certificate of Incorporation of PAAC (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.2 -- By-laws of PAAC (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.3 -- Certificate of Incorporation of PAI (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.4 -- By-laws of PAI (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.5 -- Certificate of Incorporation of PCAC (incorporated by reference to Exhibit 3.5 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.6 -- By-laws of PCAC (Incorporated by reference to Exhibit 3.6 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.7 -- Certificate of Incorporation of Imperial West (incorporated by reference to Exhibit 3.7 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.8 -- By-laws of Imperial West (incorporated by reference to Exhibit 3.8 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.9 -- Certificate of Incorporation of All-Pure (incorporated by reference to Exhibit 3.9 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.10 -- By-laws of All-Pure (incorporated by reference to Exhibit 3.10 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.11 -- Certificate of Incorporation of Black Mountain Power Company (incorporated by reference to Exhibit 3.11 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.12 -- By-laws of Black Mountain Power Company (incorporated by reference to Exhibit 3.12 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.13 -- Certificate of Incorporation of All-Pure Chemical Northwest, Inc. (incorporated by reference to Exhibit 3.13 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.14 -- By-laws of All-Pure Chemical Northwest, Inc. (incorporated by reference to Exhibit 3.14 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995).
204
EXHIBIT DESCRIPTION ------- ----------- 3.15 -- Certificate of Incorporation of Pioneer Chlor Alkali International, Inc. (incorporated by reference to Exhibit 3.15 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.16 -- By-laws of Pioneer Chlor Alkali International, Inc. (incorporated by reference to Exhibit 3.16 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.17 -- Certificate of Incorporation of G.O.W. Corporation (incorporated by reference to Exhibit 3.17 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.18 -- By-laws of G.O.W. Corporation (incorporated by reference to Exhibit 3.18 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.19 -- Certificate of Incorporation of Pioneer (East), Inc. 3.20 -- By-laws of Pioneer (East), Inc. 3.21 -- Certificate of Incorporation of T.C. Holdings, Inc. 3.22 -- By-laws of T.C. Holdings, Inc. 3.23 -- Certificate of Incorporation of T.C. Products, Inc. 3.24 -- By-laws of T.C. Products, Inc. 4.1 -- Indenture, dated as of June 17, 1997, by and among PAAC, the Subsidiary Guarantors defined therein and United States Trust Company of New York, as Trustee, relating to $200,000,000 principal amount of 9 1/4% Series A Senior Notes due 2007, including form of Note and Guarantees. 4.2(a) -- Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by PCAC (Tacoma, Washington). 4.2(b) -- Mortgage, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by PCAC (St. Gabriel, Louisiana). 4.2(c) -- Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by PCAC (Henderson, Nevada). 4.3(a) -- Term Loan Agreement, dated as of June 17, 1997, among PAAC, Various Financial Institutions, as Lenders, DLJ Capital Funding, Inc., as the Syndication Agent, Salomon Brothers Holding Company Inc, as the Documentation Agent and Bank of America Illinois, as the Administrative Agent (the "Term Loan Agreement"). 4.3(b) -- Subsidiary Guaranty, dated June 17, 1997, executed by each of the Subsidiaries party thereto, as guarantor, respectively, in favor of the Lenders, guaranteeing the obligations of one another under the Term Loan Agreement. 4.4 -- Security Agreement, dated as of June 17, 1997, among PCAC and United States Trust Company of New York, as Collateral Agent. 4.5 -- Stock Pledge Agreement, dated as of June 17, 1997, among PAI and United States Trust Company of New York, as Collateral Agent. 4.6(a) -- Loan and Security Agreement, dated as of June 17, 1997, by and among PAAC, Bank of America Illinois, as Agent and Lender and the other Lenders party thereto (the "Revolving Loan Agreement"). 4.6(b) -- Master Corporate Guaranty, dated June 17, 1997, executed by each of the Subsidiaries party thereto, as guarantor, respectively, in favor of Bank of America Illinois, as Agent, for the ratable benefit of the Lenders, guaranteeing the obligations of one another under the Revolving Loan Agreement.
205
EXHIBIT DESCRIPTION ------- ----------- 4.6(c) -- Master Security Agreement, dated June 17, 1997, executed by each of the Subsidiaries party thereto, as debtor, respectively, in favor of Bank of America Illinois, as Agent, for the ratable benefit of the lenders 4.7 -- Intercreditor and Collateral Agency Agreement, dated as of June 17, 1997 by and among United States Trust Company of New York, as Trustee and Collateral Agent, Bank of America Illinois, as Agent, PAAC, PAI and PCAC. 4.8 -- Exchange and Registration Rights Agreement, dated as of June 17, 1997, by and among PAAC, the Subsidiary Guarantors and the Initial Purchasers. *5.1 -- Opinion of Willkie Farr & Gallagher. *5.2 -- Opinion of Kent R. Stephenson, Esq. *8.1 -- Opinion of Willkie Farr & Gallagher with respect to certain tax matters. 10.1 -- Contingent Payment Agreement, dated as of April 20, 1995, by and among Pioneer (formerly, GEV corporation), PAAC and the Sellers defined therein (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Pioneer, dated April 20, 1995). 10.2 -- Tax Sharing Agreement, dated as of April 20, 1995, by and among Pioneer, PAAC and the Subsidiary Guarantors defined therein (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 10.3 -- Pioneer Companies, Inc. 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 10.4 -- Pioneer Companies, Inc. Key Executive Stock Grant Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Pioneer for the quarterly period ended June 30, 1996). 10.5 -- Pioneer Chlor Alkali Company, Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K of Pioneer for the fiscal year ended December 31, 1995). 10.6 -- Employment Agreement, dated as of April 20, 1995, between Pioneer and Richard C. Kellogg, Jr. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Pioneer for the quarterly period ended June 30, 1995). 10.7 -- Employment Agreement, dated November 1, 1992, and First Amendment to Employment Agreement, dated as of April 20, 1995, between Pioneer Chlor Alkali Company, Inc. and Paul J. Kienholz (incorporated by reference to Exhibit 10.7 to Pioneer's Annual Report on Form 10-K for the year ended December 31, 1995). 10.8 -- Employment Agreement, dated April 20, 1995, between Pioneer Americas, Inc. and James E. Glattly (incorporated by reference to Exhibit 10.8 to Pioneer's Annual Report on Form 10-K for the year ended December 31, 1995). 10.9 -- Employment Agreement, dated April 20, 1995, between Pioneer Americas, Inc. and Verrill M. Norwood, Jr. (incorporated by reference to Exhibit 10.9 to Pioneer's Annual Report on Form 10-K for the year ended December 31, 1995). 10.10 -- Executive Employment Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996).
206
EXHIBIT DESCRIPTION ------- ----------- 10.11 -- Stock Purchase Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996). 10.12 -- Non-Qualified Stock Option Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996). *10.13 -- Chlorine and Caustic Soda Sales Agreement, dated as of June 17, 1997, between Occidental Chemical Corporation and PCAC. *10.14 -- Chlorine Purchase Agreement, dated as of June 17, 1997, between OCC Tacoma, Inc. and PCAC. *10.15 -- Environmental Operating Agreement, dated as of June 17, 1997, between OCC Tacoma and PCAC 12.1 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges. 16.1 -- Letter from Ernst & Young LLP regarding change in independent accountants (incorporated by reference to Exhibit 16.1 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 21.1 -- Subsidiaries of the Registrants. 23.1 -- Independent Auditors' Consent of Deloitte & Touche LLP. 23.2 -- Independent Auditors' Consent of Ernst & Young LLP. 23.3 -- Independent Auditors' Consent of Piercy, Bowler, Taylor & Kern. 23.4 -- Independent Public Accountants' Consent of Arthur Andersen LLP. *23.5 -- Consents of Willkie Farr & Gallagher (included in their opinions filed as Exhibits 5.1 and 8.1). *23.6 -- Consent of Kent R. Stephenson, Esq. (included in his opinion filed as Exhibit 5.2). 24.1 -- Powers of Attorney (included in the signature pages hereto). 25.1 -- Statement on Form T-1 of Eligibility of Trustee. 99.1 -- Form of Letter of Transmittal. 99.2 -- Form of Notice of Guaranteed Delivery. 99.3 -- Form of Letter to Clients. 99.4 -- Form of Letter to Nominees.
EX-3.19 2 CERTIFICATE OF INCORPORATION OF PIONEER(EAST) INC. 1 EXHIBIT 3.19 CERTIFICATE OF INCORPORATION OF PIONEER (EAST), INC. FIRST: The name of the Corporation is Pioneer (East), Inc. (the "Corporation"). SECOND: The registered office of the Corporation in the State of Delaware is located at 900 Market Street, Suite 200, Wilmington, County of New Castle, Delaware 19801. The registered agent of the Corporation at that address is Griffin Corporate Services, Inc. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporation may be organized under the General Corporation Law of the State of Delaware; provided that the Corporation's activities shall be confined to the management and maintenance of its intangible investments and the collection and distribution of the income from such investments or from tangible property physically located outside Delaware, all as defined in, and in such manner to qualify for exemption from income taxation under, Section 1902(b)(8) of Title 30 of the Delaware Code, or under the corresponding provision of any subsequent law. 2 FOURTH: The Corporation shall have authority to issue 1,000 shares of common stock, having a par value of $.01 (one cent) per share. FIFTH: The Corporation shall indemnify directors and officers of the Corporation to the fullest extent permissible by law. SIXTH: The directors of the Corporation shall incur no personal liability to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director; provided, however, that the directors of the Corporation shall continue to be subject to liability (i) for any breach of their duty of loyalty to the Corporation or stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the directors derived any improper personal benefit. In discharging the duties of their respective positions, the board of directors, committees of the board, individual directors and individual officers may, in considering the best interest of the Corporation, consider the effects of any actions upon employees, suppliers and customers of the Corporation, communities in which offices or other establishments of the Corporation are located, and all other pertinent factors. In addition, the personal liability of the directors shall further be limited to the fullest extent permitted by any future amendments to Delaware law. -2- 3 SEVENTH: The business and affairs of the Corporation shall be managed by or under the direction of the board of directors, the number of members of which shall be set forth in the by-laws of the Corporation. The directors need not be elected by ballot unless required by the by-laws of the Corporation. EIGHTH: Meetings of the stockholders will be held within the State of Delaware. The books of the Corporation will be kept (subject to the provisions contained in the General Corporation Law) in the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the Corporation. NINTH: In the furtherance and not in limitation of the objects, purposes and powers prescribed herein and conferred by the laws of the State of Delaware, the board of directors is expressly authorized to make, amend and repeal the by-laws. TENTH: The Corporation reserves the right to amend or repeal any provision contained in the Certificate of Incorporation in the manner now or hereinafter prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to the reservation. ELEVENTH: The Corporation shall have no power and may not be authorized by its stockholders or directors (i) to perform or omit to do any act that would cause the Corporation to lose its status as a corporation exempt from the Delaware Corporation -3- 4 income tax under Section 1902(b)(8) of Title 30 of the Delaware Code, or under the corresponding provision of any subsequent law, or (ii) to conduct any activities outside of Delaware which could result in the Corporation being subject to tax outside of Delaware. TWELFTH: The name and mailing address of the incorporator is Barbara A. Steen, 900 Market Street, Suite 200, Wilmington, Delaware 19801. THIRTEENTH: The powers of the incorporator shall terminate upon election of directors. I, THE UNDERSIGNED, being the incorporator hereinbefore named for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 5th day of June, 1996. /s/ Barbara A. Steen -------------------------------- Barbara A. Steen, Incorporator -4- EX-3.20 3 BY-LAWS OF PIONEER (EAST), INC. 1 EXHIBIT 3.20 PIONEER (EAST), INC. BY-LAWS ARTICLE I STOCKHOLDERS Section 1. Annual Meeting. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen (13) months subsequent to the later of the date of incorporation or the last annual meeting of stockholders. Section 2. Special Meetings. Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called by the Board of Directors or the chief executive officer and shall be held at such place, on such date, and at such time as they or he or she shall fix. Section 3. Notice of Meetings. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). 2 When a meeting is adjourned to another place, date, or time, written notice need not be given of the adjourned meeting if the place, date, and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 4. Quorum. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. -2- 3 If a notice of any adjourned special meeting or stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. Section 5. Organization. Such person as the Board of Directors may have designate and/or, in the absence of such a person, the chief executive officer of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints. Section 6. Conduct of Business. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. Section 7. Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an -3- 4 instrument in writing filed in accordance with the procedure established for the meeting. Each stockholder shall have one (1) vote for every share of stock entitled to vote which is registered in his or her name on the record date for the meeting, except as otherwise provided herein or required by law. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefore by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast. Section 8. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any propose germane to the meeting, during ordinary business hours for a -4- 5 period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. Section 9. Consent of Stockholders in Lieu of Meeting. Any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be made by hand or by certified or registered mail, return receipt requested. -5- 6 Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the date the earliest dated consent is delivered to the Corporation, a written consent or consents signed by a sufficient number of holders to take action are delivered to the Corporation in the manner prescribed in the first paragraph of this Section. ARTICLE II BOARD OF DIRECTORS Section 1. Number and Term of Officer. The number of directors who shall constitute the whole Board shall be such number as the Board of Directors shall from time to time have designated, except that in the absence of any such designation, such number shall be three (3). Each director shall be elected for a term of one year and until his or her successor is elected and qualified, except as otherwise provided herein or required by law. Whenever the authorized number of directors is increased between annual meetings of the stockholders, a majority of the directors then in office shall have the power to elect such new directors for the balance of a term and until their successors are elected and qualified. Any decrease in the authorized number of directors shall not become effective until the expiration of the term of the directors then in office unless, at the time of such decrease, there shall be vacancies on the board which are being eliminated by the decrease. -6- 7 Section 2. Vacancies. If the office of any director becomes vacant by reason of death, resignation, disqualification, removal or other cause, a majority of the directors remaining in office, although less than a quorum, may elect a successor for the unexpired term and until his or her successor is elected and qualified. Section 3. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by one-third (1/3) of the directors then in office (rounded up to the nearest whole number) or by the chief executive officer and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given each director by whom it is not waived by mailing written notice not less than five (5) days before the meeting or by telegraphing or telexing or by facsimile transmission of the same not less than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. -7- 8 Section 5. Quorum. At any meeting of the Board of Directors, a majority of the total number of the whole Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof Section 6. Participation in Meetings By Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 7. Conduct of Business. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 8. Powers. The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as -8- 9 may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: Section (1) To declare dividends from time to time in accordance with law; Section (2) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; Section (3) To authorize the creation, making and issuance, in such form as it may determine, or written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith; Section (4) To remove any officer of the Corporation with or without cause, and from time to time to confer the powers and duties of any officer upon any other person for the time being; Section (5) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; Section (6) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; Section (7) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and, -9- 10 Section (8) To adopt from time to time regulations, not inconsistent with these By-laws, for the management of the Corporation's business and affairs. ARTICLE III COMMITTEES Section 1. Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or -10- 11 disqualified member. Section 2. Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall constitute a quorum unless the committee shall consist of one (1) or two (2) members, in which event, one (1) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. ARTICLE IV OFFICERS Section 1. Officers. The officers of the Corporation shall be elected by the Board of Directors, and shall include a President, a Secretary, a Treasurer, and such other officers, employees and agents as appointed, from time to time, in accordance with these By-laws. Additionally, the President shall have the power to appoint such Vice Presidents and other officers equivalent or junior thereto as the President may deem appropriate. Section 2. Term. Each officer of the Corporation shall serve at the pleasure of the Board of Directors, and the Board may remove any officer -11- 12 at any time with or without cause. Any officer, if appointed by the President of the Corporation, may likewise be removed by the President of the Corporation. Section 3. Authority and Duties. All officers and agents of the Corporation shall have such authority and perform such duties in the management of the property and affairs of the Corporation as generally pertain to their respective offices, as well as such authority and duties as may be determined by the Board of Directors. Section 4. Execution of Instruments. Checks, notes, drafts, other commercial instruments, assignments, guarantees of signatures, and contracts (except as otherwise provided herein or by law) shall be executed by the President, any Vice President, the Secretary, the Treasurer, or such officers or employees or agents as the Board of Directors or any of such designated officers may direct. Section 5. Compensation. The Board of Directors shall have power to fix, or to delegate the power to fix, the compensation for services in any capacity of all officers, employees or agents of the Corporation. The Board of Directors shall have the authority to establish, within legal limits, such pension, retirement, stock purchase and stock option plans, and such other fringe benefit plans for the benefit of officers, employees, or agents as it deems to be in the best interest of the Corporation. -12- 13 Section 6. Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the President, any Vice President, the Secretary, the Treasurer or any officer of the Corporation authorized by such officers shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE V STOCK Section 1. Certificates of Stock. Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile. Section 2. Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these By-Laws, an outstanding certificate for the number of shares involved shall -13- 14 be surrendered for cancellation before a new certificate is issued therefor. Section 3. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion, or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto. -14- 15 A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall be not more than ten (10) days after the date upon which the resolution fixing the record date is adopted. If no record date has been fixed by the Board of Directors and no prior action by the Board of Directors is required by the Delaware General Corporation Law, the record date shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in the manner prescribed by Article I, Section 9 hereof. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the Delaware General Corporation Law with respect to the proposed action by written consent of the stockholders, the record date for determining stockholders entitled to consent to corporate action in writing shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. -15- 16 Section 4. Lost, Stolen, or Destroyed Certificates. In the event of the loss, theft, or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft, or destruction and concerning the giving of a satisfactory bond or bonds or indemnity. Section 5. Regulations. The issue, transfer, conversion, and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI NOTICES Section 1. Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee, or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram or mailgram. Any such notice shall be addressed to such stockholder, director, officer, employee, or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand-delivered, or dispatched, if delivered through the mails or by telegram or mailgram, shall be the time of the giving of the notice. -16- 17 Section 2. Waivers. A written waiver of any notice, signed by a stockholder, director, officer, employee, or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee, or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. ARTICLE VII MISCELLANEOUS Section 1. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these By- Laws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. Section 3. Reliance upon Books, Reports, and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully -17- 18 protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated or by any other person as to matters which such director or committee member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 4. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 5. Time Periods. In applying any provision of these By-Laws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or an officer of the -18- 19 Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes, or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section 3 of this Article VIII with respect to proceedings to enforce rights to indemnification, the corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. -19- 20 Section 2. Right to Advancement of Expenses. The right to indemnification conferred in Section 1 of this Article VIII shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section 2 or otherwise. The rights to indemnification and to the advancement of expenses conferred in Sections 1 and 2 of this Article VIII shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the indemnitee's heirs, executors, and administrators. Section 3. Right of Indemnitee to Bring Suit. If a claim under Section 1 or 2 of this Article VIII is not paid in full by the Corporation within sixty (60) days after a -20- 21 written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring, suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable -21- 22 standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VIII or otherwise shall be on the Corporation. Section 4. Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Article VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Certificate of Incorporation, By-Laws, agreement, vote of stockholders, or disinterested directors or otherwise. Section 5. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the Corporation or another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. -22- 23 Section 6. Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. ARTICLE IX AMENDMENTS These By-Laws may be amended or repealed by the Board of Directors at any meeting or by the stockholders at any meeting. -23- EX-3.21 4 CERTIFICATE OF INCORPORATION OF T.C. HOLDINGS, INC 1 EXHIBIT 3.21 ARTICLES OF INCORPORATION The undersigned acting as an Incorporator of a corporation under the New Mexico Business Corporation Act adopts the following Articles of Incorporation for the corporation: ARTICLE I Its corporate name will be: WESTERN STATES CHEMICAL SUPPLY CORP. ARTICLE II It is organized to buy and sell chemicals and for every other purpose permitted by the Business Corporation Act. ARTICLE III It will have authority to issue one class of 50,000 shares of $1.00 par value common. ARTICLE IV Its initial registered office address will be 600 First Plaza, Albuquerque, New Mexico, and its initial registered agent at that address will be Graham Browne. ARTICLE V The names and address of the six Directors who will constitute its initial Board of Directors are: Charles E. Graves Fred L. Taylor George De Morales 2602 N. 27th Avenue 2602 N. 27th Avenue 2602 N. 27th Avenue Phoenix, Arizona Phoenix, Arizona Phoenix, Arizona Richard H. Newton Graham Browne Richard F. Kolt 2602 N. 27th Avenue 600 First Plaza P.O. Box 5621 Phoenix, Arizona Albuquerque, N.M. Tucson, Arizona
DATED: January 15, 1976 /s/ Graham Browne ------------------------------------ Graham Browne 600 First Plaza Albuquerque, New Mexico 2 STATEMENT OF CANCELLATION OF REACQUIRED SHARES WESTERN STATES CHEMICAL SUPPLY CORP., submits the following statement of cancellation by resolution of its Board of Directors of shares of the Corporation reacquired by it other than redeemable shares redeemed or purchased: 1. The Board of Directors duly adopted on May 1, 1979, a resolution cancelling 760 reacquired shares of $1.00 par value common. 2. The aggregate number of issued shares after giving effect to the cancellation is 240. 3. The amount of the stated capital of the Corporation after giving effect to such cancellation is $240.00. DATED: May 1, 1979. WESTERN STATES CHEMICAL SUPPLY CORP. By /s/ Dick Belveal ----------------------- Dick Belveal, President and By /s/ Al Clerc --------------------- Al Clerc, Secretary STATE OF ARIZONA ) ) ss. COUNTY OF MARICOPA ) I certify that on May 1, 1979, Dick Belveal and Al Clerc, being duly sworn, declared he is one of the corporate officers who signed the foregoing document executed by the Corporation and that the statements contained therein are true. /s/ ----------------------------------- Notary Pubic My commission expires: 10/21/81 3 STATEMENT OF CORRECTION OF STATEMENT OF CANCELLATION OF REACQUIRED SHARES WESTERN STATES CHEMICAL SUPPLY CORP., submits the following statement of correction of a statement of cancellation of shares of the Corporation, filed in the office of the New Mexico State Corporation Commission on August 31, 1979: 1. The Board of Directors resolution set forth in the statement of cancellation was erroneous and is null and void. 2. The correct aggregate number of issued shares is 1,000 shares of $1.00 par value common. 3. The correct amount of the stated capital of the Corporation is $1,000,00. DATED: September 27, 1979. WESTERN STATES CHEMICAL SUPPLY CORP. By /s/ Dick Belveal ----------------------- Dick Belveal, President and By /s/ Al Clerc --------------------- Al Clerc, Secretary STATE OF ARIZONA ) ) ss. COUNTY OF MARICOPA ) I certify that on September 27, 1979, DICK BELVEAL, being duly sworn, declared he is one of the corporate officers who signed the foregoing document executed by the Corporation and that the statements contained therein are true. /s/ ---------------------------------------- Notary Pubic My commission expires: 10/21/81 4 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF WESTERN STATES CHEMICAL SUPPLY CORP. 0866335 Pursuant to the provisions of Section 53-13-4, NMSA 1978, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: FIRST: The corporate name of the corporation is WESTERN STATES CHEMICAL SUPPLY CORP. SECOND: The following amendment to the Articles of Incorporation was adopted by the Shareholders of the corporation on June 25, 1996, in the manner prescribed by the New Mexico Business Corporation Act: "ARTICLE I "Its corporate name will be: T.C. HOLDINGS, INC." THIRD: The number of shares of the corporation outstanding at the time of such adoption was 1,000, and the number of shares entitled to vote thereon was 1,000. FOURTH: The designation and number of outstanding shares of each class entitled to vote thereon as a class were as follows: Class Number of Shares ----- ---------------- Common 1,000 FIFTH: The number of shares voting for such amendment was 1,000, and the number of shares voting against such amendment was zero. SIXTH: The number of shares of each class entitled to vote thereon as a class for and against such amendment, respectively, was: Class Number of Shares ----- -------------------- For Against --- ------- Common 1,000 0 SEVENTH: The manner, if not set forth in such amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the amendment shall be effected, is as follows: No change. 5 DATED: June 26, 1996 WESTERN STATES CHEMICAL SUPPLY CORP.: By: /s/ Albert J. Clerc ------------------------------------ ALBERT J. CLERC, Vice President/ Secretary Under penalty of perjury, the undersigned declares that the foregoing document executed by the corporation and that the statements contained therein are true and correct to the best of my knowledge. By:/s/ Albert J. Clerc ------------------------------------ ALBERT J. CLERC, Vice President/ Secretary 2 EX-3.22 5 BY-LAWS OF T.C. HOLDINGS, INC. 1 EXHIBIT 3.22 BY-LAWS OF WESTERN STATES CHEMICAL SUPPLY CORP. I SHAREHOLDERS 1. Meetings: The Annual Meeting of Shareholders will be held on the second Wednesday in January at 10:00 a.m. at the place fixed by the Board. Special Meetings of Shareholders may be called by the President, the Board, or the holders of one-tenth of the shares entitled to vote at the meeting, and will be held at the time and place fixed by the person calling the Special Meeting. If the place of meeting is not fixed, the meeting will be held at the registered office of the Corporation. 2. Notice: Written Notice stating the time, place, and, if a Special Meeting, the purpose, will be delivered not less than ten nor more than fifty days before the meeting date either personally or by mail at the direction of the President, the Secretary, or the persons calling the meeting, to each Shareholder of record entitled to vote at the meeting. If mailed, a Notice is deemed delivered when deposited postage prepaid in the United States mail addressed to the Shareholder at the address shown by the Corporation transfer books. 3. Quorum - Voting: A majority of the shares entitled to vote represented in person or by proxy will constitute a quorum at a meeting of Shareholders. A quorum once attained continues until adjournment despite voluntary withdrawal of enough shares to leave less than a quorum. If a quorum is present, the affirmative 2 vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter will be the act of the Shareholders unless the vote of a greater number or class voting is required by the Business Corporation Act. II DIRECTORS 1. Number, Tenure, Qualification, Election: The Board will consist of six Directors each of whom will be elected annually by the Shareholders at their Annual Meeting to serve until their successors have been elected and qualified. Directors need not be Shareholders or New Mexico residents. A Director may be removed with or without cause by the Shareholders, or may resign. Vacancies may be filled by a majority of the remaining Directors though less than a quorum. 2. Meetings: An Annual Meeting of the Board will be held without notice immediately following the Shareholders' Annual Meeting. Special Meetings of the Board may be called by any Director or Officer, and will be held at the time and place fixed by the person calling the Special Meeting. Written Notice stating the time, place and purpose of the Special Meeting will be delivered either personally, by mail, or by telegram at the direction of the person calling the meeting, to each Director at least 24 hours before the Special Meeting time. If mailed or telegraphed, a Notice is deemed delivered when deposited, postage or charges prepaid, with the transmitting agency, addressed to the Director. 2 3 3. Quorum - Action: A majority of the number of Directors fixed by the By-laws will constitute a quorum at Board Meetings. A quorum once attained continues until adjournment despite voluntary withdrawal of enough Directors to leave less than a quorum. The act of a majority of Directors present at a meeting at which a quorum is present will be the act of the Board. The Directors will manage the business and affairs of the Corporation, and may act only as a Board with each Director having one vote. III OFFICERS 1. Number, Tenure, Qualification and Election: The officers of the Corporation will be a Chairman of the Board, President, Vice President, Secretary and Treasurer, and such other officers as the Board may decide, each of whom will be elected annually by the Board at its Annual Meeting to serve until their successors are elected and qualified. Officers need not be Shareholders, or Directors, or New Mexico residents. An officer may be removed with or without cause by the Board, or may resign. Vacancies and newly created offices will be filled by the Board. One person may hold more than one office, but no person may be both President and Secretary. Officers will perform the duties, and will have the power and authority, assigned by the Board, incident to the office, and provided in these By-laws. 2. Chairman of the Board: The Chairman of the Board will, if present, preside at all meetings of the Shareholders and of the Board of Directors, will have the same powers as the 3 4 President, including the power to sign documents on behalf of the Corporation, and will be Chief Executive Officer of the Corporation. 3. President and Vice President: The President, or the Vice President during the absence, disability, or failure to act of both the President and the Chairman of the Board, will preside at all Corporation meetings except meetings at which the Chairman of the Board is present, and when authorized will sign all documents of the corporation. 4. Secretary and Assistants: The Secretary, or any Assistant Secretary during the absence, disability, or failure to act, of the Secretary, will keep and have custody of, the record of Shareholders, the stock transfer books, and the minutes of the proceedings of the Shareholders and Directors, will give all Notices required, and when authorized will execute, attest, seal, and deliver documents of the Corporation. 5. Treasurer and Assistants. The Treasurer, or any Assistant Treasurer during the absence, disability, or failure to act, of the Treasurer, will have custody of the property of, and will keep correct and complete books and records of account for, the Corporation. IV ACTION WITHOUT A MEETING Any action required or permitted to be taken at a meeting of Shareholders or Directors may be taken without a meeting if a consent in writing setting forth the action so taken is signed by all of the Shareholders entitled to vote with respect 4 5 to the subject matter thereof, or by all the Directors, as the case may be. V WAIVER OF NOTICE Whenever any notice is required to be given to any Shareholder or Director, a waiver thereof in writing signed by the person entitled to the notice is equivalent to the giving of the notice. The attendance of a Shareholder in person or by proxy, or of a Director, at a meeting constitutes a waiver of notice of the meeting except when attendance is for the sole purpose of objecting because the meeting is not lawfully called or convened. VI SEAL The Board may adopt a corporate seal which the Corporation may use by impressing or affixing it or a facsimile thereof, but the failure to have or affix a corporate seal does not affect the validity of any instrument or any action taken in reliance thereon or in pursuance thereof. VII SHARE CERTIFICATES AND TRANSFER The Board will adopt the form of certificate to represent the shares of the Corporation. Each Shareholder is entitled to a certificate, signed by the President or Vice President, and the Secretary or an Assistant Secretary, and representing the number of full and fractional fully paid shares owned by the Shareholder. Share transfer and issuance will be done by the Secretary, or the designee thereof, in the manner 5 6 provided by the Business Corporation Act and Uniform Commercial Code of New Mexico. The name and address of the Shareholder to which the certificate is issued, the number and class of shares represented, and the date of original issue or from whom transferred shall be entered on the record of Shareholders of the Corporation. The person or entity in whose name shares stand on the record of Shareholders of the Corporation will be Shareholders and will be deemed by the Corporation to be the owner of the shares for all purposes whether or not the Corporation has other knowledge. Shares will be transferred only on the stock transfer books of the Corporation. VIII MONETARY MATTERS 1. Funds and Borrowing: The depository for corporate funds, the persons entitled to draw against these funds, the persons entitled to borrow on behalf of the Corporation, and the manner of accomplishing these matters will be determined by the Board. 2. Compensation: The compensation for Directors and Officers will be established by the Board. Compensation of employees will be established by the President subject to review by the Board. 3. Fiscal Year: The fiscal year of the Corporation will be established by the Board. 6 7 IX INTERESTED PARTIES No transaction of the Corporation will be affected because a Shareholder, Director, Officer or Employee of the Corporation is interested in the transaction. Such interested parties will be counted for quorum purposes, and may vote, when the Corporation considers the transaction. Such interested parties will not be liable to the Corporation for the party's profits, or the Corporation's losses, from the transaction. X AMENDMENTS These By-laws may be altered, amended, or repealed by the Board unless the power to do so is reserved to the Shareholders by the Articles of Incorporation. SECRETARY'S CERTIFICATE I certify the foregoing to be the true copy of the By-laws duly adopted by the Corporation on January 23, 1976. /s/ --------------- Secretary 7 8 FIRST AMENDMENT TO BY-LAWS OF WESTERN STATES CHEMICAL SUPPLY CORP. I certify that on July 1, 1976, the Directors amended the first grammatical sentence of Section 1, Article I of the Corporation's By-laws to change the Annual Meeting date to the third Wednesday in September. /s/ ---------------- Secretary 9 SECOND AMENDMENT TO BY-LAWS OF WESTERN STATES CHEMICAL SUPPLY CORP. I certify that on September 15, 1976, the Directors amended the first grammatical sentence of Section 1, Article II of the Corporation's By-laws to change the number of Directors from six to five. /s/ ------------- Secretary 10 THIRD AMENDMENT TO BY-LAWS OF WESTERN STATES CHEMICAL SUPPLY CORP. The following amendment to the By-laws of the Corporation was adopted by the Directors on September 1, 1977: The By-laws of the Corporation are amended by deleting the first sentence of Article II, Section 1, and substituting the following therefor: "The Board will consist of one Director, who will be elected annually by the Shareholders at their Annual Meeting to serve until his successor is elected and qualified." 11 FOURTH AMENDMENT TO BY-LAWS OF WESTERN STATES CHEMICAL-SUPPLY CORP. The following amendment to the By-laws of the Corporation was adopted by the Directors on May 1, 1979: The By-laws of the Corporation are amended by deleting the first sentence of Article II, Section 1, and substituting the following therefor: "The Board will consist of three Directors, who will be elected annually by the Shareholders at their Annual Meeting to serve until their successors are elected and qualified." /s/ --------------- Secretary 12 FIFTH AMENDMENT TO BY-LAWS OF WESTERN STATES CHEMICAL SUPPLY CORP. The following amendment to the By-laws of the Corporation was adopted, by the Directors on September 17, 1980: The By-Laws of the Corporation are amended by deleting the first sentence of Article II, Section 1, and substituting the following therefor: "The Board will consist of two Directors, who will be elected annually by the Shareholders at their Annual Meeting to serve until their successors are elected and qualified." /s/ ------------- Secretary 13 SIXTH AMENDMENT TO BY-LAWS OF T.C. HOLDINGS, INC. An amendment to the By-Laws of the Company was adopted by the Directors by adoption of the following resolution on August 1, 1996: RESOLVED, that the By-Laws of the Company be, and they hereby are, amended by deleting the first sentence of Article II, Section 1, and substituting the following therefor: The Board will consist of three Directors, who will be elected annually by the Shareholders at their Annual Meeting to serve until their successors are elected and qualified. /s/ ------------- Secretary EX-3.23 6 CERTIFICATE OF INCORPORATION OF T.C. PRODUCTS, INC 1 EXHIBIT 3.23 ARTICLES OF INCORPORATION OF T.C. PRODUCTS, INC. ARTICLE I - NAME The name of this corporation is T.C. PRODUCTS, INC. ARTICLE II - PURPOSES This corporation is organized for the following purposes: A. To manufacture and/or sell plastics, household products and industrial products. B. To engage in any business, trade or activity which may be conducted lawfully by a corporation organized under the Washington Business Corporation Act, as said Act may be amended from time to time. ARTICLE III - SHARES This corporation is authorized to issue 1,000,000 shares of common stock and each share shall have a par value of $1.00. ARTICLE IV - PREEMPTIVE RIGHTS Each shareholder shall have preemptive rights to acquire additional shares which may be issued by this corporation to the extent preemptive rights apply to such shares under the Washington Business Corporation Act and upon the following terms and conditions: A. Preempted Shares. Before any unissued shares (at any time authorized) of this corporation are offered for sale or otherwise disposed of, the shareholders shall have the first 2 right to purchase such shares ("preempted shares"). Each shareholder shall be entitled to purchase a percentage of such preempted shares equal to the percentage he, she, or it owns of all shares then outstanding, or such lesser number of the preempted shares as the shareholder elects to purchase. Such allocation of shares shall be subject to adjustments as determined by the Board of Directors which are necessary to avoid the issue of fractional shares. B. Terms and Conditions. The purchase of preempted shares by existing shareholders shall be on terms and conditions, including purchase price, not less favorable than those under which it is proposed they be offered for sale or otherwise disposed of to others. C. Notice of Proposed Disposition; Waiver of Preemptive Rights. Written notice shall be given to each shareholder of each proposal for the sale or other disposition of the preempted shares, which notice shall set forth the number of shares involved and the terms of such proposed sale or other disposition. The preemptive rights of any shareholders shall be deemed waived as follows: 1. If the shareholder at any time agrees in writing to waive his, her, or its rights as to any specific preempted shares, the waiver shall be deemed effective as to those shares; 2. If, within fourteen (14) days after the written notice is given to a shareholder as provided in this Section C, such shareholder does not agree in writing to purchase all the preempted shares he, she, or it is entitled to purchase, the 2 3 waiver shall be deemed effective as to those shares such shareholder has not agreed to purchase. D. Sale Pursuant to Waiver. If there is a waiver of rights under Section C of this Article, this corporation may sell the shares to which such waiver pertains to anyone during the one year period immediately following the date such shareholder is given the notice contemplated by Section C of this Article, at a price to the purchaser of not less than the price set forth in such notice, and otherwise on terms and conditions not less favorable to this corporation than those set forth in such notice, but this corporation may pay, or there may be deducted from such price, such reasonable compensation to underwriters or dealers as may be lawfully paid by this corporation. If such shares are not sold during such one year period, they shall again become subject to the preemptive rights of this Article. E. Notices. Notices shall be deemed given hereunder when mailed, postage prepaid, to either the last known address of a shareholder or the latest address shown on this corporation's stock records for such shareholder. F. Limitation on Preemptive Rights. There shall exist no preemptive rights with respect to shares of this corporation except as provided in this Article. G. Written Demand to Exercise Preemptive Rights. Regardless of whether the notice provisions of this Article have been observed, a shareholder who fails to make written demand upon this corporation to exercise his, her, or its preemptive rights within two years after the preempted shares have been 3 4 issued and recorded in this corporation's stock transfer books shall be deemed to have waived any preemptive rights to such shares. ARTICLE V - NO CUMULATIVE VOTING At each election for directors, every shareholder entitled to vote at such election has the right to vote in person or by proxy the number of shares held by such shareholder for as many persons as there are directors to be elected. No cumulative voting for directors shall be permitted. ARTICLE VI - BYLAWS The Board of Directors shall have the power to adopt, amend or repeal the Bylaws or adopt new Bylaws. Nothing herein shall deny the concurrent power of the shareholders to adopt, alter, amend or repeal the Bylaws. ARTICLE VII - REGISTERED OFFICE AND AGENT The name of the initial registered agent of this corporation and the address of its initial registered office is as follows: Roy F. Kussmann 1102 Broadway, Suite 500 Tacoma, Washington 98402 ARTICLE VIII - DIRECTORS A. The number of directors of this corporation shall be determined in the manner specified by the Bylaws and may be increased or decreased from time to time in the manner provided therein. The initial Board of Directors shall consist of Three (3) directors and their names and addresses are as follows:
Name Address ---- ------- Richard L. Belveal 2001 Thorne Road Tacoma, WA. 98421
4 5 Albert J. Clerc 2001 Thorne Road Tacoma WA. 98421 Sally A. Harler 2001 Thorne Road Tacoma WA. 98421
B. The term of the initial directors shall be until the first annual meeting of the shareholders or until their respective successors are elected and qualified, unless removed in accordance with the provisions of the Bylaws. ARTICLE IX - INCORPORATOR The name and address of the incorporator is as follows:
Name Address ---- ------- Roy F. Kussmann 1102 Broadway, Suite 500 Tacoma, WA 98402
ARTICLE X - LIMITATION OF DIRECTORS' LIABILITY A director shall have no liability to the corporation or its shareholders for monetary damages for conduct as a director, except for acts or omissions that involve intentional misconduct by the director, or a knowing violation of law by the director, or for conduct violating RCW 23B.08.310, or for any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled. If the Washington Business Corporation Act is hereafter amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the full extent permitted by the Washington Business Corporation Act, as so amended. Any repeal or modification of this Article shall not adversely affect any right or protection of a director of the 5 6 corporation existing at the time of such repeal or modification for or with respect to an act or omission of such director occurring prior to such repeal or modification. ARTICLE XI - INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 1. Right to Indemnification. Each person who was, or is threatened to be made a party to or is otherwise involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the corporation or, while a director or officer, he or she is or was serving at the request of the corporation as a director, trustee, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, trustee, officer, employee or agent or in any other capacity while serving as a director, trustee, officer, employee or agent, shall be indemnified and held harmless by the corporation, to the full extent permitted by applicable law as then in effect, against all expense, liability and loss (including attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, trustee, officer, employee or agent and shall inure to the benefit of their respective heirs, executors and 6 7 administrators; provided, however, that except as provided in Section 2 of this Article with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Section 1 shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses in advance of the final disposition of a proceeding shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section 1 or otherwise. Section 2. Right of Claimant to Bring Suit. If a claim under Section 1 of this Article is not paid in full by the corporation within sixty (60) days after a written claim has been received by the corporation, except in the case of a claim for expenses incurred in defending a proceeding in advance of its final disposition, in which case the applicable period shall be twenty (20) days, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the claimant shall be entitled to be paid also the expense of 7 8 prosecuting such claim. The claimant shall be presumed to be entitled to indemnification under this Article upon submission of a written claim (and, in an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition, where the required undertaking has been tendered to the corporation), and thereafter the corporation shall have the burden of proof to overcome the presumption that the claimant is not so entitled. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of or reimbursement or advancement of expenses to the claimant is proper in the circumstances nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses shall be a defense to the action or create a presumption that the claimant is not so entitled. Section 3. Nonexclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, Bylaws, agreement, vote of shareholders or disinterested directors or otherwise. Section 4. Insurance, Contracts and Funding. The corporation may maintain insurance, at its expense, to protect 8 9 itself and any director, trustee, officer, employee or agent (and their respective heirs, executors and administrators) of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Washington Business Corporation Act. The corporation may, without further shareholder action, enter into contracts with any director or officer of the corporation in furtherance of the provisions of this Article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article. Section 5. Indemnification of Employees and Agents of the Corporation. The corporation may, by action of its Board of Directors from time to time, provide indemnification and pay expenses in advance of the final disposition of a proceeding to employees and agents of the corporation with the same scope and effect as the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the corporation or pursuant to rights granted pursuant to, or provided by, the Washington Business Corporation Act or otherwise. 9 10 The undersigned person, of the age of eighteen years or more, as incorporator of this corporation under the Washington Business Corporation Act, adopts these Articles of Incorporation. DATED: November 8, 1991. /s/ Roy F. Kussman ---------------------------------------- Roy F. Kussmann, Incorporator 10 11 CONSENT TO SERVE AS REGISTERED AGENT I, Roy F. Kussmann, hereby consent to serve as Registered Agent, in the State of Washington, for the following corporation, T.C. Products, Inc. I understand that as agent for the corporation, it will be my responsibility to receive service of process in the name of the corporation; to forward all mail to the corporation; and to immediately notify the office of the Secretary of State in the event of my resignation, or of any changes in the registered office address of the corporation for which I am agent. DATED: November 8, 1991. /s/ Roy F. Kussmann ---------------------------------------- Roy F. Kussmann 1102 Broadway, Suite 500 Tacoma, WA 98402 rfk\tc.art 11 EX-3.24 7 BY-LAWS OF T.C. PRODUCTS, INC. 1 EXHIBIT 3.24 BYLAWS OF T. C. PRODUCTS, INC. ARTICLE I. Registered Office and Registered Agent The registered office of the corporation shall be located in the State of Washington at such place as may be fixed from time to time by the Board of Directors upon filing of such notices as may be required by law, and the registered agent shall have a business office identical with such registered office. Any change in the registered agent or registered office shall be effective upon filing such change with the office of the Secretary of State of the State of Washington. ARTICLE II. Shareholders' Meetings Section 1. Annual Meetings. The annual meeting of the shareholders of this corporation, for the purpose of election of directors and for such other business as may come before it, shall be held at the registered office of the corporation, or such other place as may be designated by the notice of the meeting, on the 100 day of each and every year, at 10 a.m., but in case such day shall be a legal holiday, the meeting shall be held at the same hour and place on the next succeeding day not a holiday. Section 2. Special Meetings. Special meetings of the shareholders of this corporation may be called at any time by the holders of 50% of the voting shares of the corporation, or by the President, or by a majority of the Board of Directors. No business shall be transacted at any special meeting of shareholders except as is specified in the notice calling for said meeting. The Board of Directors may designate any place as the place of any special meeting called by the President or the Board of Directors, and special meetings called at the request of shareholders shall be held at such place as may be determined by the Board of Directors and placed in the notice of such meetings. Section 3. Notice of Meetings. Written notice of annual or special meetings of shareholders stating the place, day, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by the secretary or persons authorized to call the meeting to each shareholder of record entitled to vote at the meeting. Such notice shall be given not less than ten (10) days nor more 2 than sixty (60) days prior to the date of the meeting, except that notice of a meeting to act on an amendment to the Articles of Incorporation, a plan of merger or share exchange, a proposed sale, lease, exchange, or other disposition of all or substantially all of the assets of the corporation other than in the usual or regular course of business, or the dissolution of the corporation shall be given no fewer than twenty (20) days or no more than sixty (60) days before the meeting date. Notice may be transmitted by: mail, private carrier or personal delivery; telegraph or teletype; or telephone, wire, or wireless equipment which transmits a facsimile of the notice. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the corporation. Section 4. Waiver of Notice. Notice of the time, place and purpose of any meeting may be waived in writing (either before or after such meeting) and will be waived by any shareholder by his attendance thereat in person or by proxy, unless the shareholder, at the beginning of the meeting objects to holding the meeting or transacting business at the meeting. Any shareholder so waiving shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. Section 5. Quorum and Adjourned Meetings. A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. A majority of the shares represented at a meeting, even if less than a quorum, may adjourn the meeting from time to time without further notice. At such reconvened meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at a duly organized meeting and at any adjournment of such meeting (unless a new record date is or must be set for the adjourned meeting), notwithstanding the withdrawal of enough shareholders from either meeting to leave less than a quorum. Section 6. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Section 7. Voting Record. After fixing a record date for a shareholders' meeting, the corporation shall prepare an alphabetical list of the names of all shareholders on the record date who are entitled to notice of the shareholders' meeting. The list shall be arranged by voting group, and within each voting group by class or series of shares, and show the address of and number of shares held by each shareholder. A shareholder, shareholder's agent, or a shareholder's attorney may inspect the shareholder's list, beginning ten (10) days prior to the -2- 3 shareholders' meeting and continuing through the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held during regular business hours and at the shareholder's expense. The shareholders' list shall be kept open for inspection during such meeting or any adjournment. Section 8. Voting of Shares. Except as otherwise provided in the Articles of Incorporation or in these Bylaws, every shareholder of record shall have the right at every shareholders' meeting to one vote for every share standing in his name on the books of the corporation. If a quorum exists, action on a matter, other than election of directors, is approved by a voting group of shareholders if the votes cast within the voting group favoring the action exceed the votes cast within the voting group opposing the action, unless the Articles of Incorporation or the Washington Business Corporation Act require a greater number of affirmative votes. Section 9. Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or entitled to receive payment of any dividend, the board of directors may fix in advance a record date for any such determination of shareholder, such date to be not more than seventy (70) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the day before the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, unless the board of directors fixes a new record date, which it must do if the meeting is adjourned more than one hundred twenty (120) days after the date is fixed for the original meeting. ARTICLE III. Directors Section 1. General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the board of directors except as otherwise provided by the laws under which this corporation is formed or in the Articles of Incorporation. Section 2. Number. The number of directors of the corporation shall be Three (3). The number of directors can be -3- 4 increased or decreased from time to time by amending this Section 2, provided that the number shall not be less than one (1) nor more than nine (9) directors, the specific number to be set by resolution of the Board of Directors or the shareholders; and provided further, that no decrease shall shorten the term of any incumbent director. Section 3. Tenure and Qualifications. Each directors shall hold office until the next annual meeting of shareholders. Despite the expiration of a director's term, the director continues to serve until the director's successor shall have been elected and qualified or until there is a decrease in the number of directors. Directors need not be residents of the state or shareholders of the corporation. Section 4. Election. The directors shall be elected by the shareholders at their annual meeting each year; and if, for any cause, the directors shall not have been elected at an annual meeting, they may be elected at a special meeting of shareholders called for that purpose in the manner provided by these Bylaws. Section 5. Vacancies. In case of any vacancy in the board of directors, including a vacancy resulting from an increase in the number of directors, the board of directors; a majority of the remaining directors, if they do not constitute a quorum; or the shareholders may fill the vacancy. Section 6. Resignation. Any director may resign at any time by delivering written notice to the board of directors, its chairperson, the president or the secretary of the corporation. A resignation shall be effective when the notice is delivered unless the notice specifies a later effective date. Section 7. Removal of Directors. At a meeting of shareholders called expressly for that purpose, the entire board of directors, or any member thereof, may be removed, with or without cause, by a vote of the holders of a majority of shares then entitled to vote at an election of such directors. Section 8. Meetings. (a) The annual meeting of the board of directors shall be held immediately after the annual shareholders' meeting at the same place as the annual shareholders' meeting or at such other place and at such time as may be determined by the directors. No notice of the annual meeting of the board of directors shall be necessary. (b) Special meetings may be called at any time and place upon the call of the president, secretary, or any of the directors. Notice of the time and place of each special meeting shall be given by the secretary, or the persons calling the meeting, by mail, private carrier, radio, telegraph, the telegram, facsimile transmission, personal communication by -4- 5 telephone or otherwise at least two (2) days in advance of the time of the meeting. The purpose of the meeting need not be given in the notice. Notice of any special meeting may be waived in writing or by telegram (either before or after such meeting) and will be waived by any director by attendance thereat. (c) Regular meetings of the board of directors shall be held at such place and on such day and hour as shall from time to time be fixed by resolution of the board of directors. No notice of regular meetings of the board of directors shall be necessary. (d) At any meeting of the board of directors, any business may be transacted, and the board of directors may exercise all of its powers. Section 9. Quorum and Voting. (a) A majority of the directors presently in office shall constitute a quorum, but a lesser number may adjourn any meeting from time to time until a quorum is obtained, and no further notice thereof need be given. (b) If a quorum is present when a vote is taken, the affirmative vote of a majority of the directors present at the meeting is the act of the board of directors. Section 10. Compensation. By resolution of the board of directors, the directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Section 11. Presumption of Assent. A director of the corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless: (a) The director objects at the beginning of the meeting, or promptly upon the director's arrival, to holding it or transacting business at the meeting; (b) The director delivers written notice of the director's dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation within a reasonable time after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. Section 12. Committees. The board of directors, by resolution adopted by a majority of the full board of directors, -5- 6 may designate from among its members one or more committees, each of which must have two or more members and, to the extent provided in such resolution, shall have and may exercise all the authority of the board of directors, except that no such committee shall have the authority to: authorize or approve a distribution except according to a general formula or method prescribed by the board of directors; approve or propose to shareholders action that the Washington Business Corporation Act requires to be approved by shareholders; fill vacancies on the board of directors or on any of its committees; amend any Articles of Incorporation not requiring shareholder approval; adopt, amend or repeal Bylaws; approve a plan of merger not requiring shareholder approval; or authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the board of directors may authorize a committee, or a senior executive officer of the corporation, to do so within limits specifically prescribed by the board of directors. ARTICLE IV. Special Measures for Corporate Action Section 1. Actions by Written Consent. Any corporate action required or permitted by the Articles of Incorporation, Bylaws, or the laws under which this corporation is formed, to be voted upon or approved at a duly called meeting of the directors, committee of directors, or shareholders may be accomplished without a meeting if one or more unanimous written consents of the respective directors or shareholders, setting forth the actions so taken, shall be signed, either before or after the action taken, by all the directors, committee members, or shareholders, as the case may be. Action taken by unanimous written consent is effective when the last director or committee member signs the consent, unless the consent specifies a later effective date. Action taken by unanimous written consent of the shareholders is effective when all consents are in possession of the corporation, unless the consent specifies a later effective date. Section 2. Meetings by Conference Telephone. Members of the board of directors, members of a committee of directors, or shareholders may participate in their respective meetings by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time; participation in a meeting by such means shall constitute presence in person at such meeting. -6- 7 ARTICLE V. Officers Section 1. Officers Designated. The officers of the corporation shall be a president, one or more vice presidents (the number thereof to be determined by the Board of Directors), a secretary, and a treasurer, each of whom shall be elected by the board of directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the board of directors. Any two or more offices may be held by the same person unless otherwise prohibited by the laws of the State of Washington. The board of directors may, in its discretion, elect a chairperson of the board of directors; and, if a chairperson has been elected, the chairperson shall, when present, preside at all meetings of the board of directors and the shareholders and shall have such other powers as the board may prescribe. Section 2. Election, Qualification and Term of Office. Each of the officers shall be elected by the board of directors. None of said officers, except the president and the chairperson of the board of directors, need be a director, but a vice president who is not a director cannot succeed to or fill the office of president. The officers shall be elected by the board of directors at each annual meeting of the board of directors. Except as hereinafter provided, each of said officers shall hold office from the date of his election until the next annual meeting of the board of directors and until his successor shall have been duly elected and qualified. Section 3. Powers and Duties. (a) President. The president shall be the chief executive officer of the corporation and, subject to the direction and control of the board of directors, shall have general charge and supervision over its property, business, and affairs. He shall, unless a chairperson of the board of directors has been elected and is present, preside at meetings of the shareholders and the board of directors. (b) Vice President. In the absence of the president or his inability to act, the senior vice president shall act in his place and stead and shall have all the powers and authority of the president, except as limited by resolution of the board of directors. (c) Secretary. The secretary shall: (1) keep the minutes of the shareholders' and of the board of directors' meetings in one or more books provided for that purpose; (2) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (3) be custodian of the corporate records and of the seal of the corporation and affix -7- 8 the seal of the corporation to all documents as may be required; (4) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (5) sign with the president, or a vice president, certificate for shares of the corporation, the issuance of which shall have been authorized by resolution of the board of directors; (6) have general charge of the stock transfer books of the corporation; and (7) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the board of directors. (d) Treasurer. Subject to the direction and control of the board of directors, the treasurer shall have the custody, control, and disposition of the funds and securities of the corporation and shall account for the same; and, at the expiration of his term of office, he shall turn over to his successor all property of the corporation in his possession. Section 4. Assistant Secretaries and Assistant Treasurers. The assistant secretaries, when authorized by the board of directors, may sign with the president, or a vice president, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the board of directors. The assistant treasurers shall, respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or the treasurer, respectively, or by the president or the board of directors. Section 5. Removal. The board of directors shall have the right to remove any officer whenever in its judgment the best interests of the corporation will be served thereby. Section 6. Vacancies. The board of directors shall fill any office which becomes vacant with a successor who shall hold office for the unexpired term and until his successor shall have been duly elected and qualified. Section 7. Salaries. The salaries of all officers of the corporation shall be fixed by the board of directors. ARTICLE VI. Share Certificates Section 1. Issuance, Form and Execution of Certificates. No shares of the corporation shall be issued unless authorized by the board. Such authorization shall include the maximum number of shares to be issued, the consideration to be received for each share, the value of noncash consideration, and a statement that -8- 9 the board has determined that such consideration is adequate. Certificates for shares of the corporation shall be in such form as is consistent with the provisions of the Washington Business Corporation Act and shall state: (a) The name of the corporation and that the corporation is organized under the laws of this state; (b) The name of the person to whom issued; and (c) The number and class of shares and the designation of the series, if any, which such certificate represents. They shall be signed by two officers of the corporation, and the seal of the corporation may be affixed thereto. Certificates may be issued for fractional shares. No certificates shall be issued for any share until the consideration established for its issuance has been paid. Section 2. Transfers. Shares may be transferred by delivery of the certificate therefor, accompanied either by an assignment in writing on the back of the certificate or by a written power of attorney to assign and transfer the same, signed by the record holder of the certificate. The board of directors may, by resolution, provide that beneficial owners of shares shall be deemed holders of record for certain specified purposes. Except as otherwise specifically provided in these Bylaws, no shares shall be transferred on the books of the corporation until the outstanding certificate therefor has been surrendered to the corporation. Section 3. Loss or Destruction of Certificates. In case of loss or destruction of any certificate of shares, another may be issued in its place upon proof of such loss or destruction and upon the giving of a satisfactory indemnity bond to the corporation. A new certificate may be issued without requiring any bond, when in the judgment of the board of directors it is proper to do so. ARTICLE VII. Books and Records Section 1. Books of Account, Minutes and Share Register. The corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, and a record of all actions taken by a committee of the board of directors exercising the authority of the board of directors on behalf of the corporation. The corporation shall maintain appropriate accounting records. The corporation or its agent shall maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by -9- 10 class of shares showing the number and class of shares held by each. The corporation shall keep a copy of the following records at its principal office: the Articles or Restated Articles of Incorporation and all amendments to them currently in effect; the Bylaws or Restated Bylaws and all amendments to them currently in effect; the minute of all shareholders' meetings, and records of all actions taken by shareholders without a meeting, for the past three years; its financial statements for the past three years, including balance sheets showing in reasonable detail the financial condition of the corporation as of the close of each fiscal year, and an income statement showing the results of its operation during each fiscal year prepared on the basis of generally accepted accounting principles or, if not, prepared on a basis explained therein; all written communications to shareholders generally within the past three years; a list of the names and business addresses of its current directors and officers; and its most recent annual report delivered to the Secretary of State of Washington. Section 2. Copies of Resolutions. Any person dealing with the corporation must rely upon a copy of any of the records of the proceedings, resolutions, or votes of the board of directors or shareholders, when certified by the president or secretary. ARTICLE VIII. Amendment of Bylaws Section 1. By the Shareholders. These Bylaws may be amended, altered, or repealed at any regular or special meeting of the shareholders if notice of the proposed alteration or amendment is contained in the notice of the meeting. Section 2. By the Board of Directors. These Bylaws may be amended, altered, or repealed by the affirmative vote of a majority of the whole board of directors at any regular or special meeting of the board. ARTICLE IX. Fiscal Year The fiscal year of the corporation shall be set by resolution of the board of directors. -10- 11 ARTICLE X. Rules of Order The rules contained in the most recent edition of Robert's Rules of Order, Newly Revised, shall govern all meetings of shareholders and directors where those rules are not inconsistent with the Articles of Incorporation, Bylaws, or special rules of order of the corporation. T.C. PRODUCTS, INC. By /s/ Sally A. Harler ------------------- Secretary -11- EX-4.1 8 INDENTURE, DATED AS OF 6/17/97 BY AND AMONG PAAC 1 EXHIBIT 4.1 PIONEER AMERICAS ACQUISITION CORP. as Issuer, PIONEER AMERICAS, INC., PIONEER CHLOR ALKALI COMPANY, INC., IMPERIAL WEST CHEMICAL CO., ALL-PURE CHEMICAL CO., BLACK MOUNTAIN POWER COMPANY, ALL PURE CHEMICAL NORTHWEST, INC., PIONEER CHLOR ALKALI INTERNATIONAL, INC., G.O.W. CORPORATION, PIONEER (EAST), INC., T.C. HOLDINGS, INC., T.C. PRODUCTS, INC., as Subsidiary Guarantors and UNITED STATES TRUST COMPANY OF NEW YORK as Trustee ------------------------ INDENTURE Dated as of June 17, 1997 ------------------------ $200,000,000 9 1/4% Senior Secured Notes due 2007 2 TABLE OF CONTENTS
Page ---- PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Acquisition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 All-Pure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Asset Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Asset Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Attributable Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Bankruptcy Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Board Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Capitalized Lease Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Collateral Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Collateral Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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PAGE ---- Company Request" or "Company Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Consolidated Cash Flow Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Consolidated Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Consolidated Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Contingent Payment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Corporate Trust Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Equity Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Equity Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Excess Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Exchange Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Exchange Offer Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Existing Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Hedging Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Imperial West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 incur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Indenture Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Independent Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Initial Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Initial Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Institutional Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Intercreditor Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Interest Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Kemwater . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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PAGE ---- Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Majority Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Mortgaged Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Net Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Net Cash Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Net Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 New Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Offering Memorandum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Opinion of Independent Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 PAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 PCAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Permitted Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Permitted Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Pioneer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Predecessor Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Private Placement Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 QIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Redeemable Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Regular Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Related Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Resale Restriction Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Restoration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Restricted Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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PAGE ---- Restricted Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Revolving Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Rule 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Sale and Leaseback Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Secured Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Security Register" and "Security Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Seller Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Shelf Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Special Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Stock Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Subsidiary Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Substantial Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Tacoma Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Tax Sharing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Term Loan Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Term Loan Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Trust Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Unrestricted Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Voting Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Wholly-Owned Restricted Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 102. Other Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 103. Compliance Certificates and Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 104. Form of Documents Delivered to Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 105. Acts of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 106. Notices, etc., to Trustee, the Company and any Subsidiary Guarantor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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PAGE ---- Section 107. Notice to Holders; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 108. Conflict with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 109. Effect of Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 110. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 111. Separability Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 112. Benefits of Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 113. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 114. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 115. Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 116. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 117. Communication by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 118. No Recourse Against Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 ARTICLE TWO SECURITY FORMS Section 201. Forms Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 202. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 203. Form of Face of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 204. Form of Reverse of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 205. Form of Trustee's Certificate of Authentication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 206. Form of Guarantee of Each of the Subsidiary Guarantors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE THREE THE SECURITIES Section 301. Title and Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 302. Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 303. Execution, Authentication, Delivery and Dating. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 304. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 305. Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 306. Book-Entry Provisions for U.S. Global Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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PAGE ---- Section 307. Special Transfer Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 308. Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 309. Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 310. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 311. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 312. Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 313. Deposit of Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 314. CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 ARTICLE FOUR DEFEASANCE AND COVENANT DEFEASANCE Section 401. Company's Option to Effect Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 402. Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 403. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 404. Conditions to Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 405. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 406. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 407. Repayment of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 ARTICLE FIVE REMEDIES Section 501. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 502. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Section 503. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Section 504. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 505. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 506. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 507. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 508. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
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PAGE ---- Section 509. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 510. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 511. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Section 512. Waiver of Stay, Extension or Usury Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 ARTICLE SIX THE TRUSTEE Section 601. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 602. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 603. Trustee Not Responsible for Recitals, Dispositions of Securities or Application of Proceeds Thereof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Section 604. Trustee and Agents May Hold Securities; Collections; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Section 605. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 606. Compensation and Indemnification of Trustee and Its Prior Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 607. Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Section 608. Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Section 609. Resignation and Removal; Appointment of Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Section 610. Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Section 611. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Section 612. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 613. Certain Duties and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 701. Company to Furnish Trustee Names and Addresses of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 702. Disclosure of Names and Addresses of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
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PAGE ---- Section 703. Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 704. Reports by Company and Subsidiary Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE Section 801. When the Company May Merge, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Section 802. Successor Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 ARTICLE NINE SUPPLEMENTAL INDENTURES Section 901. Supplemental Indentures and Agreements without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Section 902. Supplemental Indentures and Agreements with Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Section 903. Execution of Supplemental Indentures and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Section 904. Revocation Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Section 905. Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Section 906. Reference in Securities to Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 ARTICLE TEN COVENANTS Section 1001. Payment of Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Section 1002. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Section 1003. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Section 1004. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Section 1005. [Intentionally omitted.] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Section 1006. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Section 1007. Limitations on Payment Restrictions Affecting Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
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PAGE ---- Section 1008. Limitations on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Section 1009. Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Section 1010. Limitation on Sale and Leaseback Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Section 1011. Limitation on Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Section 1012. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Section 1013. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Section 1014. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Section 1015. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Section 1016. Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Section 1017. Stock Pledge Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Section 1018. Money for Security Payments to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Section 1019. Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Section 1020. Limitation on Ownership of Wholly-Owned Restricted Subsidiary Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Section 1021. Impairment of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Section 1022. Amendment to Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Section 1023. Limitation on Applicability of Certain Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 ARTICLE ELEVEN REDEMPTION OF SECURITIES Section 1101. Rights of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Section 1102. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Section 1103. Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Section 1104. Selection by Trustee of Securities to Be Redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Section 1105. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Section 1106. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Section 1107. Securities Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Section 1108. Securities Redeemed or Purchased in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Section 1109. Asset Sale Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
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PAGE ---- ARTICLE TWELVE SATISFACTION AND DISCHARGE Section 1201. Satisfaction and Discharge of Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Section 1202. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 ARTICLE THIRTEEN GUARANTEE Section 1301. Subsidiary Guarantors' Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Section 1302. Continuing Guarantee; No Right of Set Off; Independent Obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Section 1303. Guarantee Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Section 1304. Right to Demand Full Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Section 1305. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Section 1306. The Subsidiary Guarantors Remain Obligated in Event the Company Is No Longer Obligated to Discharge Indenture Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Section 1307. Fraudulent Conveyance; Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Section 1308. Guarantee Is in Addition to Other Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 Section 1309. Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 Section 1310. No Bar to Further Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 Section 1311. Failure to Exercise Rights Shall Not Operate as a Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Section 1312. Trustee's Duties; Notice to Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Section 1313. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Section 1314. Release of Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Section 1315. Execution of Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 Section 1316. Payment Permitted by Each of the Subsidiary Guarantors if No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 Section 1317. Notice to Trustee by Each of the Subsidiary Guarantors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 Section 1318. Article Applicable to Paying Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Section 1319. No Suspension of Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
(x) 12
PAGE ---- ARTICLE FOURTEEN SECURITY Section 1401. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Section 1402. Recording; Priority; Opinions, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Section 1403. Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Section 1404. Trust Indenture Act Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Section 1405. Suits to Protect Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Section 1406. Determinations Relating to Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Section 1407. Trust Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 SCHEDULE 1 Existing Affiliate Agreements SCHEDULE 2 Existing Indebtedness EXHIBIT A Form of Certificate to be Delivered in Connection with Transfers to Non-QIB Accredited Investors EXHIBIT B Form of Mortgage EXHIBIT C Form of Intercreditor Agreement EXHIBIT D Form of Stock Pledge Agreement
(xi) 13 Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of June 17, 1997
Trust Indenture Indenture Act Section Section - --------------- --------- Section 310 (a)(1) . . . . . . . . . . . . . . . . . . 608 (a)(2) . . . . . . . . . . . . . . . . . . 608 (a)(3) . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . 607, 609 (c) . . . . . . . . . . . . . . . . . . N.A. Section 311 (a) . . . . . . . . . . . . . . . . . . 612 (b) . . . . . . . . . . . . . . . . . . 612 (c) . . . . . . . . . . . . . . . . . . N.A. Section 312 (a) . . . . . . . . . . . . . . . . . . 701 (b) . . . . . . . . . . . . . . . . . . 117 (c) . . . . . . . . . . . . . . . . . . 117 Section 313 (a) . . . . . . . . . . . . . . . . . . 703 (b)(1) . . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . . 703 (c) . . . . . . . . . . . . . . . . . . 703 (d) . . . . . . . . . . . . . . . . . . 703 Section 314 (a) . . . . . . . . . . . . . . . . . . 704, 1003 (b) . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . 103 (c)(2) . . . . . . . . . . . . . . . . . . 103 (c)(3) . . . . . . . . . . . . . . . . . . 103 (d) . . . . . . . . . . . . . . . . . . 103 (e) . . . . . . . . . . . . . . . . . . 103 (f) . . . . . . . . . . . . . . . . . . N.A. Section 315 (a) . . . . . . . . . . . . . . . . . . 602, 613, 903 (b) . . . . . . . . . . . . . . . . . . 601, 602, 903 (c) . . . . . . . . . . . . . . . . . . 602, 903 (d) . . . . . . . . . . . . . . . . . . 602, 903 (e) . . . . . . . . . . . . . . . . . . 512 Section 316 (a)(last sentence) . . . . . . . . . . . . . . . . . . 101 ("Outstanding") (a)(1)(A) . . . . . . . . . . . . . . . . . . 502, 505 (a)(1)(B) . . . . . . . . . . . . . . . . . . 504 (a)(2) . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . 507 (c) . . . . . . . . . . . . . . . . . . 105 Section 317 (a)(1) . . . . . . . . . . . . . . . . . . 508 (a)(2) . . . . . . . . . . . . . . . . . . 509 (b) . . . . . . . . . . . . . . . . . . N.A. Section 318 (a) . . . . . . . . . . . . . . . . . . 310
N.A. means not applicable. - ---------------------- Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture. 14 INDENTURE, dated as of June 17, 1997, (the "Indenture") among PIONEER AMERICAS ACQUISITION CORP., a Delaware corporation (the "Company"), PIONEER AMERICAS, INC., PIONEER CHLOR ALKALI COMPANY, INC., each a Delaware corporation, IMPERIAL WEST CHEMICAL CO., a Nevada corporation, ALL-PURE CHEMICAL CO., a California corporation, BLACK MOUNTAIN POWER COMPANY, a Texas corporation, ALL PURE CHEMICAL NORTHWEST, INC., a Washington corporation, PIONEER CHLOR ALKALI INTERNATIONAL, INC., a Barbados corporation, G.O.W. CORPORATION, a Nevada corporation, PIONEER (EAST), INC., a Delaware corporation, T.C. HOLDINGS, INC., a New Mexico corporation, T.C. PRODUCTS, INC., a Washington corporation (collectively, the "Subsidiary Guarantors"), and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee (the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of 9 1/4% Senior Secured Notes due 2007, Series A (the "Initial Securities") and 9 1/4% Senior Secured Notes due 2007, Series B (the "Exchange Notes" and together with the Initial Securities, the "Securities"), of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture and the Securities. Each Subsidiary Guarantor has duly authorized the issuance of a guarantee (the "Guarantees") of the Securities, of substantially the tenor hereinafter set forth, and to provide therefor, each Subsidiary Guarantor has duly authorized the execution and delivery of this Indenture and the Guarantee. This Indenture is subject to, and shall be governed by, the provisions of the Trust Indenture Act that are required to be part of and to govern indentures qualified under the Trust Indenture Act. All things necessary have been done to make (i) the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, (ii) the Guarantees, when executed by each of the Subsidiary Guarantors and authenticated and delivered 15 hereunder, the valid obligation of each of the Subsidiary Guarantors and (iii) this Indenture a valid agreement of the Company and each of the Subsidiary Guarantors in accordance with the terms of this Indenture. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is covenanted and agreed, for the benefit of each other and for the equal and proportionate benefit of the Holders of the Securities issued under this Indenture, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (e) all references to $, US$, dollars or United States dollars shall refer to the lawful currency of the United States of America. - 2 - 16 "Acquisition" means the acquisition by Pioneer of all the assets of a chlor-alkali production facility and related businesses located in Tacoma, Washington pursuant to the Asset Purchase Agreement. "Acquisition Agreements" means the Asset Purchase Agreement, the Chlorine Purchase Agreement dated as of June 17, 1997 between PCAC and OCC Tacoma, Inc., the Chlorine and Caustic Soda Sales Agreement dated as of June 17, 1997 between PCAC and Occidental Chemical Corporation, and the Environmental Operating Agreement dated as of June 17, 1997 between PCAC and OCC Tacoma, Inc. "Affiliate" means, with respect to any party, any Person directly or indirectly controlling or controlled by or under direct or indirect common control with such party including any estate or trust under will of such party. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 5% or more of the voting securities of a Person shall be deemed to be control. "All-Pure" means All-Pure Chemical Co., a California corporation, and any successor thereto. "Asset Purchase Agreement" means the Asset Purchase Agreement dated as of May 14, 1997 between Pioneer and the Seller named therein, and their successors and assigns. "Asset Sale" means, with respect to the Company or any Restricted Subsidiary, the sale, lease, conveyance or other disposition (including, without limitation, by way of merger or consolidation, and whether by operation of law or otherwise) to any Person other than the Company or a Wholly-Owned Restricted Subsidiary of any of the Company's or such Restricted Subsidiary's assets (including, without limitation, (x) any sale or other disposition of Equity Interests of any Restricted Subsidiary and (y) any sale or other disposition of any noncash consideration received by the Company or such Restricted Subsidiary from any prior transaction or series of related transactions that constituted an Asset Sale hereunder), whether owned on the Closing Date or subsequently acquired, in one transaction or a series of related transactions: provided, however, that the following shall not constitute Asset Sales: (i) transactions (other than transactions described in clause (y) above and transactions involving the Collateral as defined in the Stock Pledge Agreement) in any calendar year with aggregate cash and/or Fair Market Value of any other - 3 - 17 consideration received (including, without limitation, the unconditional assumption of Indebtedness) of less than $1,000,000; (ii) a transaction or series of related transactions that results in a Change in Control; (iii) any sale of assets of the Company and its Restricted Subsidiaries or merger permitted under Article Eight; (iv) any sale or other disposition of inventory, property (whether real, personal or mixed) or equipment that has become worn out, obsolete or damaged or otherwise unsuitable or no longer needed for use in connection with the business of the Company or any Restricted Subsidiary, as the case may be, in the good faith determination of the Board of Directors; and (v) any sale of inventory to customers in the ordinary and customary course of business. "Attributable Indebtedness" means, with respect to any Sale and Leaseback Transaction, as at the time of determination, the greater of (i) the Fair Market Value of the property subject to such transaction and (ii) the present value (discounted at a rate equivalent to the Company's then current weighted average cost of funds for borrowed money, compounded on a semi-annual basis) of the total net obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended). As used in the preceding sentence, the "total net obligations of the lessee for rental payments" under any lease for any such period means the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. In the case of any lease which is terminable by the lessee upon payment of a penalty, such net amount of rent also includes the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. - 4 - 18 "Bankruptcy Law" means chapter 11 of Title 11 of the United States Code, as amended, or any similar United States federal or state law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Board Resolution" of any corporation means a copy of a resolution certified by the Secretary or an Assistant Secretary of such corporation to have been duly adopted by the board of directors of such entity and to be in full force and effect on the date of such certification and delivered to the Trustee. "Borrowing Base" means, as of any date, an amount equal to the sum of (a) 85% of the net book value of all accounts receivable of the Company and its Restricted Subsidiaries as of such date, (b) 50% of the net book value of all inventory owned by the Company and its Restricted Subsidiaries as of such date, and (c) the lesser of (x) $10,000,000 and (y) 85% of the net book value of all accounts receivable of Kemwater as of such date plus 50% of the net book value of all inventory as of such date owned by Kemwater, all calculated on a consolidated basis and in accordance with GAAP. To the extent that information is not available as to the amount of accounts receivable or inventory as of a specific date, the Company may utilize the most recent available quarterly or annual financial report for purposes of calculating the Borrowing Base. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York or the city in which the Corporate Trust Office is located are authorized or obligated by law or executive order to close. "Capital Stock" means, with respect to any Person, any common stock, preferred stock and any other capital stock of such - 5 - 19 Person and shares, interest, participations or other ownership interest (however designated), of any Person and any rights (other than debt securities convertible into, or exchangeable for, capital stock), warrants or options to purchase any of the foregoing, including (without limitation) each class of common stock and preferred stock of such Person if such Person is a corporation and each general and limited partnership interest of such Person if such Person is a partnership. "Capitalized Lease Obligation" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means, (i) any evidence of Indebtedness with a maturity of one year or less from the date of acquisition issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit or acceptances with a maturity of one year or less from the date of acquisition of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $250,000,000; (iii) commercial paper with a maturity of one year or less from the date of acquisition issued by a corporation that is not an Affiliate of the Company organized under the laws of any state of the United States of America or the District of Columbia and rated at least A-1 by S&P or at least P-1 by Moody's or at least an equivalent rating category of another nationally recognized securities rating agency; (iv) any money market deposit accounts issued or offered by a domestic commercial bank having capital and surplus in excess of $250,000,000; and (v) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the government of the United States of America or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition; provided that the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions With Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985. - 6 - 20 "Cash Flow" for any period means the Consolidated Net Income of the Company and its Restricted Subsidiaries for such period, plus the following to the extent included in calculating such Consolidated Net Income: (i) Consolidated Interest Expense, (ii) income tax expense and (iii) depreciation, depletion and amortization expense. A "Change of Control" means the occurrence of any of the following: (i) a "person" or "group" (as such terms are used in Sections 14(d)(2) and 13(d)(3), respectively, of the Exchange Act), other than Substantial Shareholders, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of at least 50% of the outstanding voting power of the fully diluted Voting Stock of Pioneer or the Company, (ii) the adoption of a plan relating to the liquidation or dissolution of Pioneer or the Company, (iii) the merger or consolidation of Pioneer or the Company with or into another corporation with the effect that the stockholders of Pioneer or the Company immediately prior to such merger or consolidation cease to be the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act) of 50% or more of the combined voting power of the securities of the surviving corporation of such merger or the corporation resulting from such merger or consolidation ordinarily (and apart from rights arising under special circumstances) having the right to vote in the election of directors outstanding immediately after such merger or consolidation or (iv) during any period of two consecutive calendar years individuals who at the beginning of such period constituted the board of directors of Pioneer or the Company (together with any new directors whose election by the board of directors of Pioneer or the Company, or whose nomination for election by the shareholders of Pioneer or the Company, was approved by a vote of a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors of Pioneer or the Company then in office. Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred under clause (iii) above solely as a result of a merger or consolidation of the Company with or into Pioneer provided that such merger or consolidation is permitted by Article Eight of this Indenture. - 7 - 21 "Closing Date" means the date of consummation of the offering and sale of the Initial Securities. "Code" means the Internal Revenue Code of 1986, as amended. "Collateral" means (i) a first mortgage lien and security interest in PCAC's interest in real property, buildings, fixtures, and certain equipment relating to the Tacoma Facility, (ii) a first priority security interest in PCAC's interest in the Acquisition Agreements, (iii) first mortgage liens on PCAC's chlor-alkali production facilities located in Henderson, Nevada and St. Gabriel, Louisiana (including real property, buildings, fixtures and certain equipment), and (iv) a pledge of PAI's interest in the Capital Stock of PCAC and All-Pure, each as further described in the respective Security Documents with respect thereto. "Collateral Agent" means United States Trust Company of New York, as collateral agent under the Intercreditor Agreement, and any successor thereto. "Collateral Proceeds" has the meaning specified in Section 1009 of the Indenture. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Company" means Pioneer Americas Acquisition Corp., a corporation incorporated under the laws of Delaware, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Common Stock" means the common stock, par value $.01 share, of the Company. - 8 - 22 "Company Request" or "Company Order" means a written request or order signed in the name of the Company by any one of its Chairman of the Board of Directors, its President or a Vice President (regardless of vice presidential designation), and by any one of its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Consolidated Cash Flow Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of Cash Flow for the period of the most recent four consecutive fiscal quarters for which internal financial statements are available prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters of the Company and its Restricted Subsidiaries; provided, however, that (A) if the Company or any Restricted Subsidiary has incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Cash Flow Coverage Ratio is an incurrence of Indebtedness, or both, Cash Flow and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been issued on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (B) if since the beginning of such period the Company or any Restricted Subsidiary has made any Asset Sale, the Cash Flow for such period shall be reduced by an amount equal to the Cash Flow (if positive), directly attributable to the assets which are the subject of such Asset Sale for such period, or increased by an amount equal to the Cash Flow (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with any such sale or other disposition for such period (or, if the Capital Stock of any Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (C) if - 9 - 23 since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) has made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made under the Indenture, which constitutes all or substantially all of an operating unit of a business, Cash Flow and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (D) in making such computation, Consolidated Interest Expense attributable to any Indebtedness incurred under any revolving credit facility shall be computed based on the average daily balance of such Indebtedness during such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, and the amount of Consolidated Interest Expense associated with any Indebtedness incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period. "Consolidated Interest Expense" means, for any period, interest expense of the Company and its consolidated Restricted Subsidiaries, excluding amortization of any deferred financing fees, plus, to the extent not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) interest actually paid by the Company or any such Restricted Subsidiary under any guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Hedging Obligations (including amortization of fees), (viii) Preferred Stock dividends in respect of all Redeemable Stock of the Company held by Persons other than the Company or a Wholly-Owned Restricted Subsidiary of the Company and (ix) the cash - 10 - 24 contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with loans incurred by such plan or trust to purchase newly issued or treasury shares of the Capital Stock of the Company. "Consolidated Net Income" means, for any period, and as to any Person, the aggregate Net Income of such Person and its Subsidiaries (other than, in the case of the Company, the Unrestricted Subsidiaries of the Company) for such period determined in accordance with GAAP; provided that (i) the Net Income of any Person which is not a Subsidiary of such Person but which is consolidated with such Person or is accounted for by such Person by the equity method of accounting shall be included only to the extent of the amount of cash dividends or cash distributions paid to such Person or a wholly-owned Restricted Subsidiary of such Person (other than, in the case of the Company, the Unrestricted Subsidiaries of the Company), (ii) the Net Income of any Person acquired by such Person or a Subsidiary of such Person in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iii) the Net Income of any Subsidiary of such Person that is subject to restrictions, direct or indirect, on the payment of dividends or the making of distributions to such Person shall be excluded to the extent of such restrictions, (iv) the Net Income of (A) any Unrestricted Subsidiary and (B) any Subsidiary less than 80% of whose securities having the right (apart from the right under special circumstances) to vote in the election of directors are owned by the Company or its Wholly-Owned Restricted Subsidiaries shall be included only to the extent of the amount of cash dividends or cash distributions actually paid by such Subsidiary to the Company or a Wholly-Owned Restricted Subsidiary of the Company, (v) in the case of the Company, the Net Income attributable to any business, properties or assets acquired (by way of merger, consolidation, purchase or otherwise) by the Company or any Restricted Subsidiary of the Company for any period prior to the date of such acquisition shall be excluded, (vi) all extraordinary gains and losses, and any gain or loss realized upon the termination of any employee pension benefit plan, in respect of dispositions of assets other than in the ordinary course of business and any one-time increase or decrease to Net Income which is required to be recorded because of the - 11 - 25 adoption of new accounting policies, practices or standards required by GAAP (together, in each case, with any provision for taxes) shall be excluded, and (vii) all amounts of "other income, net" classified as such on one or more lines of such Person's statement of operations, in accordance with GAAP, net of applicable income taxes, shall be excluded from such Person's aggregate Net Income; provided that in the case of the Company the foregoing exclusion shall not apply to cash dividends or cash distributions paid to the Company in respect of the Company's indirect equity interest in Saguaro Power Company, a Limited Partnership, to the extent included in clause (i) of this definition. "Consolidated Net Worth" means, for any Person, the total of the amounts shown on the balance sheet of such Person and its consolidated Subsidiaries (other than, in the case of the Company, the Unrestricted Subsidiaries of the Company), determined on a consolidated basis without duplication in accordance with GAAP, as of the end of the most recent fiscal quarter of such Person ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the amount of Capital Stock (other than Redeemable Stock) plus (ii) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit). "Contingent Payment Agreement" means the Contingent Payment Agreement dated as of April 20, 1995 among the Company, Pioneer and the Sellers named therein. "Corporate Trust Office" means the office of the Trustee or an affiliate or agent thereof at which at any particular time the corporate trust business for the purposes of this Indenture shall be principally administered, which office at the date of execution of this Indenture is located at 114 West 47th Street, New York, New York 10036-1532, Attention: Corporate Trust Division. "Credit Facility" means any revolving credit facility or similar arrangement that makes credit available entered into by and among the Company and/or any of its Subsidiaries that is a Guarantor and the lending institutions party thereto, including any credit agreement, related notes, guarantees, collateral - 12 - 26 documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Default" means any event which is, or after notice or passage of any time or both would be, an Event of Default. "Depositary" means The Depository Trust Company, its nominees and their respective successors. "Eligible Investments" means, (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than 90 days from the date of acquisition, (ii) time deposits and certificates of deposit with maturities of not more than 90 days from the date of acquisition, of any commercial banking institution that is a member of the Federal Reserve System having capital and surplus in excess of $500,000,000, whose debt has a rating at the time of any such investment of at least "A-2" or the equivalent thereof by S&P or at least "P-2" or the equivalent thereof by Moody's or any bank or financial institution party to the Term Loan Agreement or the Revolving Credit Agreement, (iii) fully secured repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) entered into with any bank or financial institution meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by the parent corporation of any commercial banking institution that is a member of the Federal Reserve System having capital and surplus in excess of $500,000,000 and commercial paper or master notes of issuers, rated at the time of any such investment at least "A-2" or the equivalent thereof by S&P or at least "P-2" or the equivalent thereof by Moody's or any bank or financial institution party to the Term Loan Agreement or the Revolving Credit Agreement, and in each case maturing within 270 days after the date of acquisition, and (v) any shares in an open-end mutual fund organized by a bank or financial institution having combined capital and surplus of at least $500,000,000 investing solely in investments permitted by the foregoing clauses (i), (ii) and (iv). - 13 - 27 "Equity Interests" means shares, interests, participations or other equivalents (however designated) of Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security which is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means an offering of Equity Interests (other than Redeemable Stock) of any Person made on a primary basis by such Person (including a rights offering to existing stockholders of such Person), which yields gross proceeds to such Person of $15,000,000 or more. "Event of Default" has the meaning specified in Article Five of this Indenture. "Excess Land" means certain real property adjoining the sites of PCAC's Henderson, Nevada and St. Gabriel, Louisiana plants and the Mojave, California property owned by Imperial West that is not used in the business conducted at such sites, which real property is referred to and defined in the Contingent Payment Agreement as the "Subject Parcels." "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means Securities issued pursuant to any Exchange Offer Registration Statement and guaranteed by the Subsidiary Guarantors. "Exchange Offer" means the offer which may be made by the Company pursuant to the Registration Rights Agreement to exchange the Initial Securities for the Exchange Notes. "Exchange Offer Registration Statement" means the registration statement to be filed by the Company and the Subsidiary Guarantors with the Commission with respect to an offer to exchange the Securities for another series of senior secured notes of the Company and guarantees by the Subsidiary Guarantors registered under the Securities Act with substantially identical terms to the Initial Securities. "Existing Affiliate Agreements" means (i) agreements between the Company or any of its subsidiaries and Saguaro Power - 14 - 28 Company, a Limited Partnership, relating to the delivery of steam and other services, existing on the Closing Date and listed on Schedule 1 hereto, (ii) the Tax Sharing Agreement and (iii) agreements between the Company or any of its subsidiaries and Basic Investments, Inc. relating to the delivery of water and power, power transmission services, and other services, existing on the Closing Date and listed on Schedule 1 hereto and (iv) any other agreements with affiliates of the Company, existing on the Closing Date and listed on Schedule 1 hereto. "Existing Indebtedness" means all Indebtedness (other than Indebtedness outstanding under the Term Loan Agreement and the Revolving Credit Agreement) of the Company or any Restricted Subsidiary existing on the Closing Date and listed on Schedule 2 hereto. "Fair Market Value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value shall be determined by a majority of the members of the Board of Directors, and a majority of the disinterested members of such Board of Directors, if any, acting in good faith and shall be evidenced by a duly and properly adopted resolution of the Board of Directors. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, which are in effect from time to time. "Guarantee" means the guarantee by any Subsidiary Guarantor of the Company's Indenture Obligations pursuant to a guarantee given in accordance with this Indenture, including, without limitation, the Guarantees by the Subsidiary Guarantors included in Article Thirteen of this Indenture and any Guarantee delivered pursuant to Section 1019 hereof. "Hedging Obligations" means the obligations of any Person or entity pursuant to any swap or cap agreement, exchange - 15 - 29 agreement, collar agreement, option, futures or forward hedging contract, derivative instrument or other similar agreement or arrangement designed to protect such Person or entity against fluctuations in interest rates or foreign exchange rates or the price of raw materials and other chemical products used or produced in the Company's business, as the case may be. "Holder" means a Person in whose name a Security is registered in the Security Register. "Imperial West" means Imperial West Chemical Co., a Nevada corporation, and any successor thereto. "incur" has the meaning ascribed in Section 1008 hereof; provided that (a) with respect to any Indebtedness of any Restricted Subsidiary of the Company that is owing to the Company or another Restricted Subsidiary of the Company, any disposition, pledge or transfer of such Indebtedness to any Person (other than the Company or a Wholly-Owned Restricted Subsidiary) shall be deemed to be an incurrence of such Indebtedness and (b) with respect to any Indebtedness of the Company or a Restricted Subsidiary that is owing to another Restricted Subsidiary, any transaction pursuant to which a Wholly-Owned Restricted Subsidiary to which such Indebtedness is owing ceases to be a Wholly-Owned Restricted Subsidiary shall be deemed to be an incurrence of such Indebtedness, and provided, further that any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary shall be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. The term "incurrence" has a corresponding meaning. "Indebtedness" of any Person means, without duplication, all liabilities with respect to (i) indebtedness for money borrowed or which is evidenced by a bond, debenture, note or other similar instrument or agreement, but excluding trade credit evidenced by any such instrument or agreement; (ii) reimbursement obligations, letters of credit and bankers' acceptances; (iii) indebtedness with respect to Hedging Obligations; (iv) Capitalized Lease Obligations; (v) indebtedness, secured or unsecured, created or arising in connection with the acquisition or improvement of any property or asset or the acquisition of any business; (vi) all - 16 - 30 indebtedness secured by any Lien upon property owned by such Person and all indebtedness secured in the manner specified in this clause even if such Person has not assumed or become liable for the payment thereof; (vii) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person or otherwise representing the deferred and unpaid balance of the purchase price of any such property, including all indebtedness created or arising in the manner specified in this clause even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property; (viii) guarantees, direct or indirect, of any indebtedness of other Persons referred to in clauses (i) through (vii) above, or of dividends or leases, taxes or other obligations of other Persons, excluding any guarantee arising out of the endorsement of negotiable instruments for collection in the ordinary course of business; (ix) contingent obligations in respect of, or to purchase or otherwise acquire or be responsible or liable for, through the purchase of products or services, irrespective of whether such products are delivered or such services are rendered, or otherwise, any such indebtedness referred to in clauses (i) through (vii) above; (x) any obligation, contingent or otherwise, arising under any surety, performance or maintenance bond; and (xi) Redeemable Stock of the Company valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends; which indebtedness, Capitalized Lease Obligation, guarantee or contingent or other obligation such Person has directly or indirectly created, incurred, assumed, guaranteed or otherwise become liable or responsible for, whether then outstanding or thereafter created in the case of clauses (i) through (x) above, to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability on the balance sheet of such Person in accordance with GAAP. For purposes of the foregoing definition, the "maximum fixed repurchase price" of any Redeemable Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Stock as if such Redeemable Stock were purchased on any date on which Indebtedness is required to be determined pursuant to the Indenture. As used herein, Indebtedness with respect to any Hedging Obligation means, with respect to any specified Person on any date, the net amount (if any) that would be payable by such specified Person upon the liquidation, close-out or early termination on such date - 17 - 31 of such Hedging Obligation. For purposes of the foregoing, any settlement amount payable upon the liquidation, close-out or early termination of a Hedging Obligation shall be calculated by the Company in good faith and in a commercially reasonable manner on the basis that such liquidation, close-out or early termination results from an event of default or other similar event with respect to such specified Person. Any reference in this definition to indebtedness shall be deemed to include any renewals, extensions and refundings of any such indebtedness or any indebtedness issued in exchange for such indebtedness. "Indenture Obligations" means the obligations of the Company and any other obligor under this Indenture or under the Securities, including any Subsidiary Guarantor, to pay principal, premium, if any, interest and Liquidated Damages, if any, when due and payable, and all other amounts due or to become due under or in connection with this Indenture (including, without limitation, all sums due to the Trustee pursuant to Section 606 hereof), the Securities and the performance of all other obligations to the Trustee and the Holders under this Indenture and the Securities, according to the terms hereof and thereof. "Independent Director" means a director of the Company other than a director (i) who (apart from being a director of the Company or any of its Subsidiaries) is an employee, insider, associate or Affiliate of the Company or any of its Subsidiaries or has held any such position during the previous year or (ii) who is a director, an employee, insider, associate or Affiliate of another party to the transaction in question. "Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc. "Initial Securities" means the Securities issued on the Closing Date and guaranteed by the Subsidiary Guarantors. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Insurance Proceeds" has the meaning specified in each Mortgage. - 18 - 32 "Intercreditor Agreement" means the Intercreditor and Collateral Agency Agreement dated as of June 17, 1997 among the Company, PAI, PCAC, the Trustee, the Term Loan Agent, Bank of America Illinois as agent under the Revolving Credit Agreement and the Collateral Agent. "Intercreditor Collateral Account" means the Collateral Account as defined in the Intercreditor Agreement. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Investment" means any direct or indirect advance, loan, other extension of credit or capital contribution (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others) to, purchase or acquisition of Equity Interests, bonds, notes, debentures or other securities of, or purchase or other acquisition of all or a substantial part of the business, Equity Interests or other evidence of beneficial ownership of, or any other investment in or guarantee of any Indebtedness of, any Person or any other item that would be classified as an investment on a balance sheet prepared in accordance with GAAP. Investments do not include advances to customers and suppliers in the ordinary course of business and on commercially reasonable terms. In the event the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Equity Interests of such Subsidiary not sold or disposed of determined as provided in the final paragraph of Section 1006 hereof. "Kemwater" means Kemwater North America Company, a Delaware corporation, and any successor thereto. "Lien" means any mortgage, pledge, lien, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement and any lease in the nature thereof). - 19 - 33 "Liquidated Damages" means all liquidated damages owing to the Holders pursuant to the Registration Rights Agreement. "Majority Holders" has the meaning specified in the Intercreditor Agreement. "Maturity" when used with respect to any Security means the date on which the principal of such Security becomes due and payable as therein provided or as provided in this Indenture, whether at Stated Maturity, the Asset Sale Purchase Date, the Change of Control Payment Date, or the Redemption Date and whether by declaration of acceleration, Change of Control, call for redemption or otherwise. "Moody's" means Moody's Investors Service, Inc. or any successor rating agency. "Mortgage" means each mortgage, deed of trust, or similar security instrument which from time to time affects any property that secures PCAC's obligations in respect of its Guarantee under this Indenture and the Term Loan Agreement, as such instruments may be amended, supplemented or otherwise modified from time to time. "Mortgaged Property" has the meaning specified in each Mortgage. "Net Award" has the meaning specified in each Mortgage. "Net Cash Proceeds" means, with respect to any issuance or sale of Equity Interests or debt securities that have been converted into or exchanged for Equity Interests, as referred to under Section 1006 hereof, the proceeds of such issuance or sale in the form of cash or cash equivalents, net of attorneys' fees, accountants' fees and brokerage, consultation, underwriting and other fees and expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Net Income" of any Person, for any period, means the net income (loss) of such Person and its subsidiaries (other than, in the case of the Company, its Unrestricted Subsidiaries) determined in accordance with GAAP. - 20 - 34 "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, the proceeds of insurance paid on account of the loss of or damage to any property, or compensation or other proceeds for any property taken by condemnation, eminent domain or similar proceedings, and any non-cash consideration received by the Company or any Restricted Subsidiary from any Asset Sale that is converted into or sold or otherwise disposed of for cash within 90 days after the relevant Asset Sale), net of (i) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), (ii) any taxes paid or payable as a result thereof, (iii) all amounts required to be applied to the repayment of, or representing the amount of permanent reductions in the commitments relating to, Indebtedness secured by a Lien on the asset or assets the subject of such Asset Sale which Lien is permitted pursuant to the terms of the Indenture, (iv) any reserve for adjustment in respect of the sale price of such asset or assets required by GAAP, (v) all distributions and other payments required to be made (including any amounts held pending distribution) to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale, and (vi) all payments due under Existing Affiliate Agreements arising out of an Asset Sale. The amount of any taxes required to be accrued as a liability under GAAP as a consequence of an Asset Sale shall be the amount thereof as determined in good faith by the Board of Directors. "New Credit Facilities" means the Term Loan Agreement and the Revolving Credit Agreement. "Offering Memorandum" means the offering memorandum of the Company, dated June 11, 1997, in connection with the offer and sale of the Initial Securities. "Officers' Certificate" means a certificate signed by the Chairman of the Board, Vice Chairman, the President or a Vice President (regardless of vice presidential designation), and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company or any Subsidiary Guarantor, as the case may be, and delivered to the Trustee. - 21 - 35 "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, any of the Subsidiary Guarantors or the Trustee, unless an Opinion of Independent Counsel is required pursuant to the terms of this Indenture, and who shall be reasonably acceptable to the Trustee. "Opinion of Independent Counsel" means a written opinion of counsel issued by someone who is not an employee or consultant of the Company or any Subsidiary Guarantor and who shall be reasonably acceptable to the Trustee. "Outstanding" when used with respect to Securities means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (a) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Securities, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders; provided that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor reasonably satisfactory to the Trustee has been made; (c) Securities, except to the extent provided in Sections 402 and 403 hereof, with respect to which the Company has effected defeasance or covenant defeasance as provided in Article Four; and (d) Securities in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof reasonably satisfactory to it that such Securities are held by a bona fide purchaser in whose hands the Securities are valid obligations of the Company; - 22 - 36 provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company, any Subsidiary Guarantor, or any other obligor upon the Securities or any Affiliate of the Company, any Subsidiary Guarantor, or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the reasonable satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company, any guarantor or any other obligor upon the Securities or any Affiliate of the Company, any Subsidiary Guarantor or such other obligor. "PAI" means Pioneer Americas, Inc., a Delaware corporation, and any successor thereto. "Paying Agent" means any person authorized by the Company to pay the principal of, premium, if any, interest or Liquidated Damages, if any, on any Securities on behalf of the Company. "PCAC" means Pioneer Chlor Alkali Company, Inc., a Delaware corporation, and any successor thereto. "Permitted Indebtedness" means, collectively, the following: (a) Indebtedness of the Company evidenced by the Initial Securities, the Exchange Notes and Indebtedness of any Subsidiary Guarantor evidenced by the Guarantees with respect thereto; (b) Indebtedness of the Company evidenced by the Term Loan Notes and Indebtedness of the Restricted Subsidiaries evidenced by the guarantees with respect to the Term Loan Notes. - 23 - 37 (c) Indebtedness of the Company or any Restricted Subsidiary constituting Existing Indebtedness and any extension, deferral, renewal, refinancing or refunding thereof; (d) Indebtedness of the Company or any Restricted Subsidiary incurred under one or more Credit Facilities in an aggregate principal amount at any one time outstanding not to exceed the Borrowing Base at the time such Indebtedness was incurred, less the aggregate amount of all permanent repayments of revolving loans under such Credit Facilities made in accordance with Section 1009(b)(i) hereof. (e) Capitalized Lease Obligations of the Company or any Restricted Subsidiary and Indebtedness of the Company or any Restricted Subsidiary secured by Liens that secure the payment of all or part of the purchase price of assets or property acquired or constructed in the ordinary course of business after the Closing Date; provided, however, that the aggregate principal amount of such Capitalized Lease Obligations plus such Indebtedness of the Company and all of the Restricted Subsidiaries does not exceed $10,000,000 outstanding at any time; (f) Indebtedness of the Company to any Restricted Subsidiary or of any Restricted Subsidiary to the Company or another Restricted Subsidiary (but only so long as such Indebtedness is held by the Company or a Restricted Subsidiary); (g) Indebtedness under Hedging Obligations, provided, however, that, in the case of foreign currency exchange or similar agreements which relate to other Indebtedness, such agreements do not increase the Indebtedness of the Company or any Restricted Subsidiary outstanding other than as a result of fluctuations in foreign currency exchange rates, and in the case of interest rate protection agreements, only if the notional principal amount of such interest rate protection agreement does not exceed the principal amount of the Indebtedness to which such interest rate protection agreement relates; - 24 - 38 (h) Indebtedness in respect of performance, completion, guarantee, surety and similar bonds, banker's acceptances or letters of credit provided by the Company or any Restricted Subsidiary in the ordinary course of business; (i) In addition to any Indebtedness otherwise permitted to be Incurred under the Indenture, up to $10,000,000 aggregate principal amount of Indebtedness at any one time outstanding; and (j) Any refinancing, refunding, deferral, renewal or extension (each, a "Refinancing") of any Indebtedness of the Company or any Restricted Subsidiary permitted by the initial paragraph of Section 1008 hereof or described in clauses (a) and (b) of this definition (the "Refinancing Indebtedness"); provided, however, that (i) such Refinancing Indebtedness does not exceed the aggregate principal amount of Indebtedness so refinanced, plus the amount of any premium required to be paid in connection with such Refinancing in accordance with the terms of such Indebtedness or the amount of any premium reasonably determined by the Board of Directors as necessary to accomplish such Refinancing, plus the amount of reasonable and customary out-of-pocket fees and expenses payable in connection therewith, (ii) the Refinancing Indebtedness does not provide for any mandatory redemption, amortization or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in the Indebtedness being refinanced, refunded, deferred, renewed or extended and (iii) if the Indebtedness being refinanced, refunded, deferred, renewed or extended is subordinated to the Securities, the Refinancing Indebtedness incurred to refinance, refund, defer, renew or extend such Indebtedness is subordinated in right of payment to the Securities on terms at least as favorable to the Holders as those contained in the documentation governing the Indebtedness being so refinanced, refunded, deferred, renewed or extended. "Permitted Investment" means (i) any Eligible Investment, (ii) any Investment in the Company, (iii) Investments in existence on the Closing Date, and any such Investment in Basic Investments, Inc., Basic Land Company, Basic Management, - 25 - 39 Inc., Basic Water Company or Victory Valley Land Company, L.P. which has been reclassified or converted into an alternate form of Investment in the same or a successor entity, (iv) intercompany notes permitted under clause (f) of the definition of "Permitted Indebtedness" herein, (v) Investments in any Wholly-Owned Restricted Subsidiary or any Person which, as a result of such Investment, becomes a Wholly-Owned Restricted Subsidiary; provided that such Wholly-Owned Restricted Subsidiary is engaged in a Related Business, and (vi) other Investments after the Closing Date in joint ventures, corporations, limited liability companies, partnerships or Unrestricted Subsidiaries engaged in a Related Business that do not at any one time outstanding exceed $5,000,000 ; provided that the amount of Investments pursuant to this clause (vi) shall be included in the calculation of Restricted Payments pursuant to Section 1006 hereof. "Permitted Liens" means as of any particular time, any one or more of the following: (a) Liens for taxes, rates and assessments not yet past due or, if past due, the validity of which is being contested in good faith by the Company or any Restricted Subsidiary by appropriate proceedings promptly instituted and diligently conducted and against which the Company has established appropriate reserves in accordance with GAAP; (b) the Lien of any judgment rendered which is being contested in good faith by the Company or any of its Restricted Subsidiaries by appropriate proceedings promptly instituted and diligently conducted and against which the Company has established appropriate reserves in accordance with GAAP and which does not have a material adverse effect on the ability of the Company and its Restricted Subsidiaries to operate their business or operations; (c) other than in connection with Indebtedness, any Lien arising in the ordinary course of business (i) to secure payments of workers' compensation, unemployment insurance, pension or other social security or retirement benefits, or to secure the performance of bids, tenders, leases, progress payments, contracts (other than for the payment of money) or to secure public or statutory - 26 - 40 obligations of the Company, or any Restricted Subsidiary, or to secure surety or appeal bonds to which the Company or any Restricted Subsidiary is a party, (ii) imposed by law dealing with materialmen's, mechanics', workmen's, repairmen's, warehousemen's, landlords', vendors' or carriers' Liens created by law, or deposits or pledges which are not yet due or, if due, the validity of which is being contested in good faith by the Company or any Restricted Subsidiaries by appropriate proceedings promptly instituted and diligently conducted and against which the Company has established appropriate reserves in accordance with GAAP, (iii) rights of financial institutions to setoff and chargeback arising by operation of law, and (iv) similar Liens; (d) servitudes, licenses, easements, encumbrances, restrictions, rights-of-way and rights in the nature of easements or similar charges which shall not in the aggregate materially adversely impair the use of the subject property by the Company or a Restricted Subsidiary; (e) zoning and building by-laws and ordinances, municipal bylaws and regulations, and restrictive covenants, which do not materially interfere with the use of the subject property by the Company or a Restricted Subsidiary as such property is used as of the Closing Date; and (f) any extension, renewal, substitution or replacement (or successive extensions, renewals, substitutions or replacements), as a whole or in part, of any of the Liens referred to in clauses (a) through (e) of this definition or the Indebtedness secured thereby; provided that (i) such extension, renewal, substitution or replacement Lien is limited to that portion of the property or assets, now owned or hereafter acquired, that secured the Lien prior to such extension, renewal, substitution or replacement Lien and (ii) the Indebtedness secured by such Lien (assuming all available amounts were borrowed) at such time is not increased. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. - 27 - 41 "Pioneer" means Pioneer Companies, Inc., a Delaware corporation, and any successor thereto. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 308 hereof in exchange for a mutilated Security or in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Security. "Preferred Stock," as applied to the Equity Interests of any corporation, means stock of any class or classes (however designated) which is preferred over shares of stock of any other class of such corporation as to the distribution of assets on any voluntary or involuntary liquidation or dissolution of such corporation or as to dividends. "Private Placement Legend" means the legend initially set forth on the Securities in the form set forth in the first paragraph of Section 202 hereof. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Real Property" means any interest in any real property or any portion thereof, whether owned in fee or leased or otherwise owned. "Redeemable Stock" means any Equity Interest that by its terms or otherwise (i) is required to be redeemed prior to the maturity of the Securities, (ii) matures or is redeemable, in whole or in part, at the option of the Company, any Subsidiary or the holder thereof or pursuant to a mandatory sinking fund at any time prior to the maturity of the Securities, or (iii) is convertible into or exchangeable for debt securities which provide for any scheduled payment of principal prior to the maturity of the Securities at the option of the issuer at any time prior to the maturity of the Securities, until the right to so convert or exchange is irrevocably relinquished. - 28 - 42 "Redemption Date" when used with respect to any Security to be redeemed pursuant to any provision in this Indenture means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price" when used with respect to any Security to be redeemed pursuant to any provision in this Indenture means the price at which it is to be redeemed pursuant to this Indenture. "Registration Rights Agreement" means the Exchange and Registration Rights Agreement dated as of June 17, 1997, by and among the Company, the Subsidiary Guarantors and the Initial Purchasers, as the same may be modified and supplemented and in effect from time to time. "Registration Statement" means a Registration Statement as defined and described in the Registration Rights Agreement. "Regular Record Date" for the interest payable on any Interest Payment Date means the June 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Related Business" means any corporation or other entity engaged in, and any asset utilized in, the manufacture or distribution of chlorine, caustic soda, bleach, hydrochloric acid, iron and other chlorides and aluminum sulfate, and in lines of business reasonably related thereto. "Resale Restriction Termination Date" means the date which is two years after the later of the date of original issue of the Securities and the last date on which the Company or any Affiliate of the Company was the owner of such Securities (or any predecessor thereto). "Responsible Officer" when used with respect to the Trustee means any officer assigned to the Corporate Trust Office or the agent of the Trustee appointed hereunder, including any vice president, assistant vice president, assistant secretary, or - 29 - 43 any other officer or assistant officer of the Trustee or the agent of the Trustee appointed hereunder to whom any corporate trust matter is referred because of his or her knowledge of and familiarity with the particular subject. "Restoration" has the meaning set forth in each Mortgage. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Subsidiary" means (i) any Subsidiary Guarantor, (ii) any Subsidiary of the Company in existence on the date hereof to which any line of business or division (and the assets associated therewith) of any Subsidiary Guarantor are transferred after the Closing Date, (iii) any Subsidiary of the Company organized or acquired after the Closing Date, unless such Subsidiary has been designated as an Unrestricted Subsidiary by a resolution of the Board of Directors as provided in the definition of "Unrestricted Subsidiary" and (iv) any Unrestricted Subsidiary which is designated as a Restricted Subsidiary by the Board of Directors; provided, that immediately after giving effect to any such designation (A) no Default or Event of Default has occurred and is continuing and (B) in the case of any designation referred to in clause (iii) or (iv) hereof, the Company could incur at least $1.00 of Indebtedness pursuant to the initial paragraph under Section 1008 hereof, on a pro forma basis taking into account such designation. The Company shall evidence any such designation to the Trustee by promptly filing with the Trustee an Officers' Certificate certifying that such designation has been made and complies with the requirements of the immediately preceding sentence. Notwithstanding any provision of the Indenture to the contrary, each Subsidiary Guarantor shall be a Restricted Subsidiary. "Revolving Credit Agreement" means the Loan and Security Agreement dated as of June 17, 1997, among the Company and Bank of America Illinois, as agent and a lender, and the other lenders named therein, as amended from time to time. "Rule 144A" means Rule 144A under the Securities Act. - 30 - 44 "S&P" means Standard & Poor's Ratings Group or any successor rating agency. "Sale and Leaseback Transaction" with respect to any Person, means any arrangement with another Person for the leasing of any real or tangible personal property, which property has been or is to be sold or transferred by such Person to such other Person in contemplation of such leasing. "Secured Indebtedness" means any Senior Indebtedness (other than the Securities) which by its terms is secured, and by the terms of this Indenture is permitted to be secured, by Liens on the Collateral. "Securities" means any of the securities, as defined in the first paragraph of the recitals hereof, that are authenticated and delivered under this Indenture. For all purposes of this Indenture, the term "Securities" shall include any Exchange Notes to be issued and exchanged for any Initial Securities pursuant to the Registration Rights Agreement and this Indenture and, for purposes of this Indenture, all Initial Securities and Exchange Notes shall vote together as one series of securities under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Security Agreement" means the security agreement dated as of June 17, 1997 by PCAC, as debtor, to the Collateral Agent, as secured party in respect of the Acquisition Agreements. "Security Documents" means (i) each Mortgage, (ii) the Security Agreement, (iii) the Stock Pledge Agreement, (iv) the Intercreditor Agreement, (v) the documentation relating to the Intercreditor Collateral Account, and (vi) all security agreements, mortgages, deeds of trust, pledges, collateral assignments or any other instrument evidencing or creating any security interest in favor of the Collateral Agent in all or any portion of the Collateral, in each case as amended, supplemented or otherwise modified from time to time. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305 hereof. - 31 - 45 "Seller Notes" means the subordinated installment notes of Pioneer issued in connection with the acquisition by Pioneer of PAI. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Company or its Restricted Subsidiaries, whether outstanding on the Closing Date or thereafter incurred as permitted herein, unless, in the case of any particular Indebtedness, the agreement or instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness is junior or subordinated in right of payment to any item of Indebtedness of the Company or its Restricted Subsidiaries. Without limiting the generality of the foregoing, "Senior Indebtedness" includes the principal of, premium, if any, and interest and all other obligations of every nature of the Company from time to time owed to the lenders (or their agents) under the New Credit Facilities or any Refinancing thereof permitted under clause (d) of the definition of Permitted Indebtedness. Notwithstanding the foregoing, "Senior Indebtedness" does not include (i) in the case of the obligation of the Company in respect of each Security, the obligation of the Company in respect of the other Securities, (ii) any liability for foreign, federal, state, local or other taxes owed or owing by the Company or any Restricted Subsidiary to the extent that such liability constitutes Indebtedness, (iii) Indebtedness of the Company to any Restricted Subsidiary or of any Restricted Subsidiary to the Company or another Restricted Subsidiary, (iv) that portion of any Indebtedness which at the time of issuance is issued in violation of the Indenture and (v) Indebtedness and amounts incurred in connection with obtaining goods, materials or services in the ordinary course of business (other than such Indebtedness which is owed to banks and other financial institutions or secured by the goods or materials which were purchased with such Indebtedness). "Shelf Registration Statement" means any registration statement filed by the Company and the Subsidiary Guarantors with the Commission pursuant to the Registration Rights Agreement, other than an Exchange Offer Registration Statement. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 309 hereof. - 32 - 46 "Stated Maturity" when used with respect to any Indebtedness or any installment of interest thereon, means the date specified in such Indebtedness as the fixed date on which the principal of such Indebtedness or such installment of interest is due and payable. "Stock Pledge Agreement" means the pledge agreement from PAI, as debtor, to the Collateral Agent, as secured party, in respect of all the issued and outstanding Capital Stock owned by PAI of PCAC and All-Pure. "Subordinated Indebtedness" means Indebtedness of the Company or any Subsidiary Guarantor subordinated in right of payment to the Securities or any Guarantee, as the case may be. "Subsidiary" means, with respect to the Company, (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors, under ordinary circumstances, is at the time owned, directly or indirectly, by the Company, by the Company and one or more of its Subsidiaries or by one or more of the Company's Subsidiaries or (ii) any other Person or entity of which at least a majority of voting interest, under ordinary circumstances, is at the time owned, directly or indirectly, by the Company, by the Company and one or more of its Subsidiaries or by one or more of the Company's Subsidiaries. "Subsidiary Guarantor" means the Subsidiaries listed as Subsidiary Guarantors in this Indenture or any other guarantor of the Indenture Obligations. "Substantial Shareholder" means each of (i) William R. Berkley and his Affiliates and/or (ii) Interlaken Capital, Inc. and its Affiliates. "Survey" has the meaning specified in the Intercreditor Agreement. "Tacoma Facility" means PCAC's chlor-alkali production facility in Tacoma, Washington. "Tax Sharing Agreement" means the Tax Sharing Agreement dated as of April 20, 1995 among Pioneer and its subsidiaries. - 33 - 47 "Term Loan Agent" means Bank of America Illinois as administrative agent under the Term Loan Agreement and any successor thereto. "Term Loan Agreement" means the loan agreement dated as of June 17, 1997, among the Company, the Term Loan Agent and the lenders named therein, including and together with any and all related notes, guarantees, instruments and agreements executed in connection therewith, as such loan agreement and/or related documents may be amended, restated, supplemented, renewed, replaced or otherwise modified from time to time. "Term Loan Notes" means the notes representing loans in an initial aggregate principal amount of $100,000,000 made to the Company pursuant to the Term Loan Agreement, as such notes may be exchanged, replaced, amended, restated, supplemented or otherwise modified from time to time. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. "Trust Moneys" means all cash or Eligible Investments received by the Collateral Agent: (a) in exchange for the release of property from the Lien of any of the Security Documents; or (b) as compensation for or proceeds of the sale of all or any part of the Collateral taken by eminent domain or purchased by, or sold pursuant to any order of, a governmental authority or otherwise disposed of; or (c) as proceeds of insurance upon any, all or part of the Collateral (other than any liability insurance proceeds payable to the Collateral Agent for any loss, liability or expense incurred by it); or (d) as proceeds of any other sale or other disposition of all or any part of the Collateral by or on behalf of the Collateral Agent or any collection, recovery, receipt, appropriation or other realization of or from all or any part of the Collateral pursuant to the Security Documents or otherwise; or (f) for application under the Indenture as provided in the Indenture or any Security Document, or whose disposition is not otherwise specifically provided for in the Indenture or in any Security Document. "Trustee" means the Person named as the "trustee" in the first paragraph of this instrument, until a successor trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor trustee. - 34 - 48 "Unrestricted Subsidiary" means, until such time as it may be designated as a Restricted Subsidiary by the Board of Directors as provided in and in compliance with the definition of "Restricted Subsidiary," (i) any Subsidiary of the Company organized or acquired after the Closing Date designated as an Unrestricted Subsidiary by the Board of Directors in which all investments by the Company or any Restricted Subsidiary are made only from funds available for the making of Restricted Payments as described under Section 1006 hereof and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Equity Interests of, or owns, or holds any Lien upon, any property of, any Subsidiary of the Company which is not a Subsidiary of such Subsidiary to be so designated; provided that (w) each Subsidiary to be so designated and each of its Subsidiaries has not, at the time of designation, and does not thereafter, directly or indirectly, incur any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries, (x) immediately after giving effect to such designation no Default or Event of Default has occurred and is continuing, (y) all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated shall be deemed to be Restricted Payments at the time of such designation equal in amount to the Fair Market Value of such Investments at the time of such designation and would be Restricted Payments permitted to be paid pursuant to the provisions of Section 1006 hereof and (z) the amount of such Restricted Payments shall be included in the calculation of the amount of Restricted Payments previously made pursuant to Section 1006 hereof. The Company shall evidence any such designation by promptly filing with the Trustee an Officers' Certificate certifying that such designation has been made and complies with the requirements of the immediately preceding sentence. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or - 35 - 49 (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case under clause (i) or (ii) above, are not callable or redeemable at the option of the issuer thereof. "Voting Stock" of any Person means Capital Stock of such Person which ordinarily has voting power for the election of directors (or Persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Wholly-Owned Restricted Subsidiary" means, with respect to any Person, a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than capital stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, to the extent mandated by applicable law) are owned by such Person or by one or more Wholly-Owned Restricted Subsidiaries of such Person. Section 102. Other Definitions.
Defined in Term Section ---- ---------- "Act" 105 "Additional Collateral" 1401 "Adjusted Net Assets" 1309 "Agent Members" 306 "Asset Sale Offer" 1009 "Asset Sale Offer Amount" 1109 "Asset Sale Offer Period" 1109 "Asset Sale Purchase Date" 1109 "Asset Sale Purchase Price" 1009 "Change of Control Date" 1014 "Change of Control Offer" 1014 "Change of Control Payment Date" 1014 "Change of Control Purchase Price" 1014 "Collateral Proceeds" 1009 "Commencement Date" 1109 "Computation Date" 1006 "Computation Period" 1006
- 36 - 50 "covenant defeasance" 403 "Custodian" 501 "Defaulted Interest" 309 "defeasance" 402 "Defeasance Redemption Date" 404 "Defeased Securities" 401 "Excess Proceeds" 1009 "Funding Subsidiary Guarantor" 1309 "New Indebtedness" 1017 "Physical Securities" 201 "Pledgor Subsidiary" or "Pledgor Subsidiaries" 1017 "Refinancing" 101* "Refinancing Indebtedness" 101* "Registration Default" 203 "Required Filing Date" 704 "Restricted Payment" 1006 "Senior Collateral" 204, 1401 "U.S. Global Security" 201 - ----------------- * See "Permitted Indebtedness", paragraph (j) of Section 101
Section 103. Compliance Certificates and Opinions. Upon any application or request by the Company or any Subsidiary Guarantor to the Trustee to take any action under any provision of this Indenture, the Company, any Subsidiary Guarantor and any other obligor on the Securities shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenants compliance with which constitutes a condition precedent) relating to the proposed action have been complied with, an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that, in the case of any such application or request as to which the furnishing of such documents, certificates and/or opinions is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. - 37 - 51 Every certificate or Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinion contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 104. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company, any Subsidiary Guarantor or other obligor of the Securities may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion may be based, insofar as it relates to - 38 - 52 factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company, any Subsidiary Guarantor or other obligor of the Securities stating that the information with respect to such factual matters is in the possession of the Company, any Subsidiary Guarantor or other obligor of the Securities, unless such counsel knows that the certificate or opinion or representations with respect to such matters are erroneous. Opinions of Counsel required to be delivered to the Trustee may have qualifications customary for opinions of the type required and counsel delivering such Opinions of Counsel may rely on certificates of the Company or government or other officials customary for opinions of the type required, including certificates certifying as to matters of fact, including that various financial covenants have been complied with. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 105. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient in accordance with such reasonable rules as the Trustee may determine. - 39 - 53 (b) The ownership of Securities shall be proved by the Security Register. (c) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind every future Holder of the same Security or the Holder of every Security issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done, suffered or omitted to be done by the Trustee, any Paying Agent or the Company or any Subsidiary Guarantor in reliance thereon, whether or not notation of such action is made upon such Security. (d) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of such Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding Trust Indenture Act Section 316(c), any such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not more than 30 days prior to the first solicitation of Holders generally in connection therewith and no later than the date such solicitation is completed. In the absence of any such record date fixed by the Company, regardless as to whether a solicitation of the Holders is occurring on behalf of the Company or any Holder, the Trustee may, at its option, fix in advance a record date for the determination of such Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Trustee shall have no obligation to do so. Any such record date shall be a date not more than 30 days prior to the first solicitation of Holders generally in connection therewith and no later than a date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date - 40 - 54 shall be deemed to be Holders for purposes of determining whether Holders of the requisite proportion of Securities then outstanding have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for this purpose the Securities then Outstanding shall be computed as of such record date; provided that no such request, demand, authorization, direction, notice, consent, waiver or other Act by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. (e) If at any time a request, demand, authorization, direction, notice, consent, waiver or other action to be given or taken by the Majority Holders is required pursuant to the terms of the Intercreditor Agreement, the Trustee shall solicit the direction of the Holders as to such request, demand, authorization, direction, notice, consent, waiver or other action. The Holders of a majority in principal amount of the Securities then Outstanding may direct the Trustee's response to such request, demand, authorization, direction, notice, consent, waiver or other action. Section 106. Notices, etc., to Trustee, the Company and any Subsidiary Guarantor. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (a) the Trustee by any Holder or by the Company or any Subsidiary Guarantor or any other obligor of the Securities shall be sufficient for every purpose hereunder if in writing (including telecopy, with respect to the Company or any Subsidiary Guarantor only) and mailed, first-class postage prepaid, telecopied, hand delivered, or delivered by recognized overnight courier, to or with the Trustee at 114 West 47th Street, New York, New York, 10036-1532, Attention: Corporate Trust Division, telecopy: 212-852-1625 or at any other address previously furnished in writing to the Holders, the Company, any Subsidiary Guarantor or any other obligor of the Securities by the Trustee; or - 41 - 55 (b) the Company or any Subsidiary Guarantor shall be sufficient for every purpose hereunder if in writing (including telecopy) and mailed, first-class postage prepaid, telecopied, hand delivered, or delivered by recognized overnight courier, to the Company or such Subsidiary Guarantor addressed to it at 4200 NationsBank Center, 700 Louisiana Street, Houston, TX 77002, Attention: Vice President, General Counsel and Secretary, telecopy: 713-225-4426 or at any other address previously furnished in writing to the Trustee. Section 107. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, or delivered by recognized overnight courier, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice when mailed to a Holder in the aforesaid manner shall be conclusively deemed to have been received by such Holder whether or not actually received by such Holder. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event as required by any provision of this Indenture, then any method of giving such notice as shall be reasonably satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. - 42 - 56 Section 108. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with any provision of the Trust Indenture Act or another provision which is required or deemed to be included in this Indenture by any of the provisions of the Trust Indenture Act, the provision or requirement of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Section 109. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 110. Successors and Assigns. All covenants and agreements in this Indenture by the Company and the Subsidiary Guarantors shall bind their successors and assigns, whether so expressed or not. Section 111. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 112. Benefits of Indenture. Nothing in this Indenture or in the Securities or the Guarantees, express or implied, shall give to any Person (other than the parties hereto and their successors hereunder, any Paying Agent and the Holders) any benefit or any legal or equitable right, remedy or claim under this Indenture. - 43 - 57 Section 113. Governing Law. This Indenture and the Securities and the Guarantees shall be governed by, and construed in accordance with, the laws of the State of New York. Section 114. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest, principal, premium, if any, or Liquidated Damages, if any, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity and no interest or Liquidated Damages, if any, shall accrue with respect to such payment for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, to the next succeeding Business Day. Section 115. Schedules and Exhibits. All schedules and exhibits attached hereto are by this reference made a part hereof with the same effect as if herein set forth in full. Section 116. Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. Section 117. Communication by Holders with Other Holders. Holders may communicate pursuant to Trust Indenture Act Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Subsidiary Guarantors, the Trustee, the Registrar and anyone else shall have the protection of Trust Indenture Act Section 312(c). - 44 - 58 Section 118. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company or any of the Subsidiary Guarantors, shall not have any liability for any obligations of the Company under the Securities or this Indenture for any obligation of the Subsidiary Guarantors under the Guarantees or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Holder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. ARTICLE TWO SECURITY FORMS Section 201. Forms Generally. The Securities, the Guarantees and the Trustee's certificate of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by the Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange, any organizational document or governing instrument or applicable law or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security. Securities offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent global Securities substantially in the form set forth in this Article (the "U.S. Global Security") deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the U.S. Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. - 45 - 59 Securities offered and sold other than as described in the preceding paragraph shall be issued in the form of permanent certificated Securities in registered form in substantially the form set forth in this Article (the "Physical Securities"). The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. Section 202. Restrictive Legends. Each U.S. Global Security and Physical Security shall bear the following legend on the face thereof until after the Resale Restriction Termination Date, unless and until a Security is exchanged for an Exchange Note in connection with an effective registration pursuant to the Registration Rights Agreement or another effective registration and resale of the Securities occurs pursuant to the Registration Rights Agreement: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(k) AS PERMITTING THE RESALE BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE"), EXCEPT (A) TO THE COMPANY; (B) PURSUANT TO A REGISTRATION - 46 - 60 STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; (C) PURSUANT TO RULE 144A, FOR SO LONG AS IT IS AVAILABLE, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A; (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) or (7) OF THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT; OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. Each U.S. Global Security, whether or not an Exchange Note, shall also bear the following legend on the face thereof: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. - 47 - 61 TRANSFER OF THIS U.S. GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO., OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS U.S. GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 307 OF THE INDENTURE. Section 203. Form of Face of Security. (a) The form of the face of the Securities shall be substantially as follows: PIONEER AMERICAS ACQUISITION CORP. ___________________ 9 1/4% SENIOR SECURED NOTES DUE 2007 CUSIP No: No. __________ $___________ PIONEER AMERICAS ACQUISITION CORP., a Delaware corporation (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ___________ or registered assigns, the principal sum of __________ United States dollars on June 15, 2007, at the office or agency of the Company referred to below, and to pay interest thereon from the date of original issuance, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually on June 15, and December 15, in each year, commencing December 15, 1997 at the rate of 9 1/4% per annum (subject to adjustment as provided below), in United States dollars, until the principal hereof is paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date shall, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be June 1, or December 1 (whether or not a Business - 48 - 62 Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid, or duly provided for, and interest on such defaulted interest at the interest rate borne by the Securities, to the extent lawful, shall forthwith cease to be payable to the Holder on such Regular Record Date, and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of, premium, if any, interest and Liquidated Damages, if any, on this Security shall be made at the office or agency of the Company maintained for that purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. This Security is entitled to the benefits of Guarantees by each of the Subsidiary Guarantors of the punctual payment when due of the Indenture Obligations made in favor of the Trustee for the benefit of the Holders. Such Guarantees shall be senior obligations of each Subsidiary Guarantor, and shall rank pari passu with all existing and future Senior Indebtedness of such Subsidiary Guarantor and senior to all Subordinated Indebtedness of such Subsidiary Guarantor. The Guarantees of PCAC and PAI shall be secured by Collateral. Reference is hereby made to Article Thirteen of the Indenture for a statement of the respective rights, limitations of rights, duties and obligations under the Guarantees of each of the Subsidiary Guarantors. - 49 - 63 Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof or by the authenticating agent appointed as provided in the Indenture by manual signature, this Security shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the manual or facsimile signature of its authorized officers and its corporate seal to be affixed or reproduced hereon. Dated: PIONEER AMERICAS ACQUISITION CORP. By ------------------------------------ [SEAL] Attest: - ------------------------------------ Secretary Section 204. Form of Reverse of Securities. (a) The form of the reverse of the Securities shall be substantially as follows: This Security is one of a duly authorized issue of Securities of the Company designated as its 9 1/4% Senior Secured Notes due 2007 (herein called the "Securities"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $200,000,000, which may be issued under an indenture (herein called the "Indenture") dated as of June 17, 1997, among the Company, the Subsidiary Guarantors and United States Trust Company of New York, as trustee (herein - 50 - 64 called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Subsidiary Guarantors, the Trustee and the Holders of the Securities, and of the terms upon which the Securities and the Guarantees are, and are to be, authenticated and delivered. The Indenture contains provisions for defeasance at any time of (a) the entire Indebtedness on the Securities and (b) certain restrictive covenants and related Defaults and Events of Default, in each case upon compliance or noncompliance with certain conditions set forth therein. The Securities shall be senior obligations of the Company, and shall rank pari passu with all existing and future Senior Indebtedness of the Company and senior to all Subordinated Indebtedness of the Company. The Securities shall not be redeemable at the option of the Company prior to June 15, 2002. On or after that date, the Securities shall be redeemable at the option of the Company, in whole or in part from time to time, on not less than thirty (30) nor more than sixty (60) days' prior notice, mailed by first-class mail to the Holders' registered addresses, in cash, in amounts of $1,000 or an integral multiple of $1,000 at the following Redemption Prices (expressed as percentages of the principal amount), if redeemed in the 12-month period commencing June 15 in the year indicated below: Year Redemption ---- ---------- 2002 104.625% 2003 103.083% 2004 101.542% 2005 and thereafter 100.000% in each case together with accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date (subject to the right of Holders of record on relevant record dates to receive interest and Liquidated Damages, if any, due on an Interest Payment Date). If less than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata, by lot or by any other method the Trustee shall deem fair and appropriate. - 51 - 65 Notwithstanding the foregoing, at any time on or prior to June 15, 2000, the Company may redeem, in part, up to $70,000,000 in aggregate principal amount of Securities at a purchase price of 109.25% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date fixed for redemption, with the net proceeds of (i) any Equity Offering by the Company or (ii) any Equity Offering by Pioneer, but only to the extent that Pioneer contributes such net proceeds to the Company as a capital contribution; provided that at least $130,000,000 aggregate principal amount of the Securities must remain outstanding after such redemption. Upon the occurrence of a Change of Control, each Holder may require the Company to repurchase all or a portion of such Holder's Securities in an amount of $1,000 or integral multiples of $1,000, at a purchase price in cash equal to 101% of the principal amount thereof, together with accrued and unpaid interest and Liquidated Damages, if any, to the date of repurchase. Under certain circumstances, in the event the Net Proceeds received by the Company from one or more Asset Sales, which proceeds are not applied within 365 days subsequent to the consummation of the Asset Sale to repay permanently any Senior Indebtedness then outstanding or to an investment in the Company or in one or more Restricted Subsidiaries in a Related Business, exceed $10,000,000 the Company shall be required to apply such proceeds to repurchase the Securities tendered to the Company for purchase at a price equal to at least 100% of the principal amount thereof, plus accrued interest and Liquidated Damages, if any, to the date of purchase pursuant to an offer to purchase made by the Company with respect to the Securities. In the case of any redemption of Securities, interest installments whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities of record as of the close of business on the relevant record date referred to on the face hereof. Securities (or portions thereof) for whose redemption and payment provision is made in accordance with the Indenture shall cease to bear interest from and after the date of redemption. - 52 - 66 In the event of redemption of this Security in part only, a new Security or Securities for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default shall occur and be continuing, the principal amount of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions (including certain amendments permitted without the consent of any Holders) as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the Subsidiary Guarantors and the rights of the Holders under the Indenture and the Guarantees at any time by the Company, the Subsidiary Guarantors and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company and the Subsidiary Guarantors with certain provisions of the Indenture and the Guarantees and certain past Defaults under the Indenture and the Guarantees and their consequences. Any such consent or waiver by or on behalf of the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, any Subsidiary Guarantor or any other obligor upon the Securities (in the event such other obligor is obligated to make payments in respect of the Securities), which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Security at the times, place, and rate, and in the coin or currency, herein prescribed. - 53 - 67 The Securities are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to and at the time of due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security is overdue, and neither the Company, the Trustee nor any agent shall be affected by notice to the contrary. [The Company and the Subsidiary Guarantors have entered into an Exchange and Registration Rights Agreement dated as of June 17, 1997 (the "Registration Rights Agreement") with the Initial Purchasers described therein. Pursuant to the Registration Rights Agreement, the Company and the Subsidiary Guarantors have agreed, among other things, for the benefit of the Holders that they shall, at their expense, (i) file with the Commission on or prior to 30 days from the Closing Date an Exchange Offer Registration Statement with the Commission with respect to a registered offer to exchange this Security for an Exchange Note, and (ii) use their best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act on or prior to 150 days after the Closing Date. The Holders of the Initial Securities shall be entitled to receive Liquidated Damages in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the Registration Rights Agreement. Reference is hereby made to the Registration Rights Agreement for a statement of the respective rights, duties and obligations thereunder of the Company, the Subsidiary Guarantors and the Holders of the Securities.(1) - ------------------- (1) To be included in each Security prior to expiration of the obligations of the Company and the Subsidiary Guarantors under the Registration Rights Agreement. - 54 - 68 In order to secure the due and punctual payment of principal of and interest and Liquidated Damages, if any, on the Securities when and as the same shall become due and payable, whether on an Interest Payment Date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of and interest (to the extent permitted by law), if any, on the Securities, and performance of all other obligations of the Company to the Holders or the Trustee under this Indenture and the Securities and of all obligations of PCAC and PAI under their respective Guarantees and under this Indenture and the Securities, the Company, PCAC and PAI have entered into the Security Documents with the Collateral Agent. The Securities shall be secured by Liens on and security interests in the Collateral subject to pari passu Liens and security interests and other permitted encumbrances as described further in the Security Documents. Each Holder, by accepting a Security, agrees to all of the terms and provisions of the Security Documents as the same may be amended from time to time pursuant to the respective provisions thereof and of the Indenture. Each Holder acknowledges that a release of any of the Collateral or any Lien strictly in accordance with the terms and provisions of the Security Documents and the terms and provisions of the Indenture will not be deemed for any purpose to be an impairment of the security under the Indenture. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and the Security Documents. All terms used in this Security which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. - 55 - 69 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Please print or typewrite name and address including zip code of assignee - ------------------------------------------------------------------------------- the within Security and all rights thereunder, hereby irrevocably constituting and appointing - ------------------------------------------------------------------------------- attorney to transfer said Security on the books of the Company with full power of substitution in the premises. In connection with any transfer of this Security occurring prior to the date which is the earlier of the date of an effective Registration or the Resale Restriction Termination Date, the undersigned confirms that without utilizing any general solicitation or general advertising: [Check One] [ ] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder, or [ ] (b) this Security is being transferred other than in accordance with (a)above and documents are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless and until - 56 - 70 the conditions to any such transfer of registration set forth herein and in Section 307 of the Indenture shall have been satisfied. Date: --------------------------- ------------------------------------ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date: --------------------------- ------------------------------------ NOTICE: To be executed by an executive officer OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Security purchased by the Company pursuant to Section 1014 or 1109 of the Indenture, check the Box: [ ]. - 57 - 71 If you wish to have a portion of this Security purchased by the Company pursuant to Section 1014 or 1109 of the Indenture, state the amount (in authorized denominations): $ -------------- Date: -------------- Your Signature: ------------------------------------------------- (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ------------------------------------------------- Section 205. Form of Trustee's Certificate of Authentication. TRUSTEE'S CERTIFICATE OF AUTHENTICATION. This is one of the Securities referred to in the within-mentioned Indenture. UNITED STATES TRUST COMPANY OF NEW YORK As Trustee By ------------------------------------ Authorized Signatory Section 206. Form of Guarantee of Each of the Subsidiary Guarantors. The form of Guarantee shall be set forth on the Securities substantially as follows: GUARANTEES For value received, each of the undersigned hereby unconditionally guarantees, jointly and severally, to the Holder of this Security the payment of principal of, premium, if any, - 58 - 72 interest and Liquidated Damages, if any, on this Security in the amounts and at the time when due and interest on the overdue principal and interest, if any, of this Security, if lawful, and the payment or performance of all other obligations of the Company under the Indenture or the Securities, to the Holder of this Security and the Trustee, all in accordance with and subject to the terms and limitations of this Security and Article Thirteen of the Indenture. This Guarantee shall not become effective until the Trustee duly manually executes the certificate of authentication on this Security. PIONEER AMERICAS, INC. Attest By ------------------------ ---------------------------- Name: Name: Title: Title: PIONEER CHLOR ALKALI COMPANY, INC. Attest By ------------------------ ---------------------------- Name: Name: Title: Title: IMPERIAL WEST CHEMICAL CO. Attest By ------------------------ ---------------------------- Name: Name: Title: Title: - 59 - 73 ALL-PURE CHEMICAL CO. Attest By ------------------------ ---------------------------- Name: Name: Title: Title: BLACK MOUNTAIN POWER COMPANY Attest By ------------------------ ---------------------------- Name: Name: Title: Title: ALL PURE CHEMICAL NORTHWEST, INC. Attest By ------------------------ ---------------------------- Name: Name: Title: Title: PIONEER CHLOR ALKALI INTERNATIONAL, INC. Attest By ------------------------ ---------------------------- Name: Name: Title: Title: G.O.W. CORPORATION Attest By ------------------------ ---------------------------- Name: Name: Title: Title: - 60 - 74 PIONEER (EAST), INC. Attest By ------------------------ ---------------------------- Name: Name: Title: Title: T.C. HOLDINGS, INC. Attest By ------------------------ ---------------------------- Name: Name: Title: Title: T.C. PRODUCTS, INC. Attest By ------------------------ ---------------------------- Name: Name: Title: Title: - 61 - 75 ARTICLE THREE THE SECURITIES Section 301. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $200,000,000 in principal amount of Securities plus any Exchange Notes which may be issued upon consummation of an Exchange Offer, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 303, 304, 305, 306, 307, 308, 906, 1009, 1014 or 1108 hereof. The Securities shall be known and designated as the "9 1/4% Senior Secured Notes due 2007" of the Company. The Stated Maturity of the principal amount of the Securities shall be June 15, 2007, and the Securities shall each bear interest at the rate of 9 1/4% from the Closing Date or from the most recent Interest Payment Date to which interest has been paid, as the case may be, payable on December 15, 1997 and semiannually thereafter on June 15, and December 15, in each year, until the principal thereof is paid or duly provided for. The principal of, premium, if any, interest and Liquidated Damages, if any, on the U.S. Global Security shall be payable to the Depositary or its nominee, as the case may be, as the sole registered owner and the sole Holder of the U.S. Global Security represented thereby. The principal of, premium, if any, interest and Liquidated Damages, if any, on the Securities shall be payable at the office or agency of the Company maintained for such purpose; provided, however, that at the option of the Company interest may be paid by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Security Register. The Securities shall be redeemable as provided in Article Eleven. At the election of the Company, the entire Indebtedness on the Securities or certain of the Company's obligations and covenants and certain Events of Default thereunder may be defeased as provided in Article Four. - 62 - 76 Section 302. Denominations. The Securities shall be issuable only in fully registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. Section 303. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by one of its Chairman of the Board, its President or one of its Vice Presidents under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices on the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as provided in this Indenture and not otherwise. Upon a Company Order, the Trustee shall authenticate and deliver an additional series of notes in an aggregate principal amount not to exceed $200,000,000 for issuance in exchange for all or a portion of the Initial Securities previously issued and surrendered for cancellation pursuant to an exchange offer registered under the Securities Act, in accordance with the Registration Rights Agreement. The Exchange Notes may have such distinctive series designation and such changes in the form thereof as are specified in the Company Order referred to in the preceding sentence, and shall be guaranteed by the Subsidiary Guarantors on substantially identical terms as the Initial Securities. - 63 - 77 Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. In case the Company or any Subsidiary Guarantor, pursuant to Article Eight, shall be consolidated, merged with or into any other Person or shall sell, assign, convey, transfer or lease substantially all of its properties and assets to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company or such Subsidiary Guarantor shall have been merged, or the Person which shall have received a sale, assignment, conveyance, transfer or lease as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Securities authenticated or delivered prior to such consolidation, merger, sale, assignment, conveyance, transfer or lease may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Securities as specified in such request for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time Outstanding for Securities authenticated and delivered in such new name. - 64 - 78 The Trustee (at the expense of the Company) may appoint an authenticating agent acceptable to the Company to authenticate Securities on behalf of the Trustee. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Security Registrar or Paying Agent to deal with the Company and its Affiliates. Section 304. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 1002 hereof, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. Section 305. Registration of Transfer and Exchange. All provisions of this Section 305 shall be subject to Section 307 hereof. The Company shall cause to be kept at the Corporate Trust Office of the Trustee, or such other office as the Trustee - 65 - 79 may designate, a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 hereof being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as the Security Registrar may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee or an agent thereof or of the Company shall initially be the "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated pursuant to Section 1002 hereof, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series of any authorized denomination or denominations, of a like aggregate principal amount. Any Holder of the U.S. Global Security shall, by acceptance of such U.S. Global Security, agree that transfers of beneficial interests in such U.S. Global Security, may be effected only through a book-entry system maintained by the Holder of such U.S. Global Security (or its agent), and that ownership of a beneficial interest in the Security shall be required to be reflected in a book entry. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination or denominations (including an exchange of Initial Securities for Exchange Notes), of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities of the same series which the Holder making the exchange is entitled to receive; provided that no exchanges of Initial Securities for Exchange Notes shall occur until a Registration Statement shall have been declared effective by the Commission and that any Initial Securities that are exchanged for Exchange Notes shall be canceled by the Trustee. - 66 - 80 All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same Indebtedness, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer, or for exchange or redemption shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to a Holder for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to pay all documentary, stamp or similar issue or transfer taxes or other governmental charges that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges of Initial Securities for Exchange Notes and exchanges pursuant to Section 303, 304, 305, 306, 307, 308, 906, 1009, 1014 or 1108 hereof not involving any transfer. The Company shall not be required (a) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business (i) 15 days before the date of selection of Securities for redemption under Section 1104 hereof and ending at the close of business on the day of such mailing or (ii) 15 days before an Interest Payment Date and ending on the close of business on the Interest Payment Date, or (b) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of Securities being redeemed in part. Section 306. Book-Entry Provisions for U.S. Global Security. All provisions of this Section 306 shall be subject to Section 307 hereof. (a) The U.S. Global Security initially shall (i) be registered in the name of the Depositary for such U.S. Global - 67 - 81 Security or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 202 hereof. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any U.S. Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under the U.S. Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such U.S. Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Security. (b) Transfers of the U.S. Global Security shall be limited to transfers of such U.S. Global Security in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in the U.S. Global Security may be transferred in accordance with the rules and procedures of the Depositary and the provisions of Section 307 hereof. Beneficial owners may obtain Physical Securities in exchange for their beneficial interests in the U.S. Global Security upon request in accordance with the Depositary's and the Registrar's procedures. In addition, Physical Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in the U.S. Global Security if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the U.S. Global Security and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Security Registrar has received a request from the Depositary. (c) In connection with any transfer of a portion of the beneficial interest in the U.S. Global Security to beneficial owners pursuant to Subsection (b) of this Section, the Security Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Security in - 68 - 82 an amount equal to the principal amount of the beneficial interest in the U.S. Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Securities of like tenor and amount. (d) In connection with the transfer of the entire U.S. Global Security to beneficial owners pursuant to Subsection (b) of this Section, the U.S. Global Security shall be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the U.S. Global Security, an equal aggregate principal amount of Physical Securities of authorized denominations. (e) Any Physical Security delivered in exchange for an interest in the U.S. Global Security pursuant to Subsection (b) or Subsection (c) of this Section shall, except as otherwise provided by paragraph (a)(i)(x) and paragraph (d) of Section 307 hereof, bear the applicable legend regarding transfer restrictions applicable to the Physical Security set forth in Section 202 hereof. (f) The registered Holder of the U.S. Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. Section 307. Special Transfer Provisions. Unless and until an Initial Security is exchanged for an Exchange Note in connection with an effective Exchange Offer Registration Statement or a Shelf Registration Statement is declared effective with respect to such Initial Securities and an Initial Security is sold pursuant to the plan of distribution thereunder, the following provisions shall apply: (a) Transfers to Non-QIB Institutional Accredited Investors. The following provisions shall apply with respect to the registration of any proposed transfer of a Security to any Institutional Accredited Investor which is not a QIB: - 69 - 83 (i) The Security Registrar shall register the transfer of any Security, whether or not such Security bears the Private Placement Legend, if (x) the requested transfer is on or after the Resale Restriction Termination Date or (y) the proposed transferee has delivered to the Security Registrar a letter containing certain representations and agreements substantially in the form of Exhibit A hereto. (ii) If the proposed transferor is an Agent Member holding a beneficial interest in the U.S. Global Security, upon receipt by the Security Registrar of (x) the documents, if any, required by paragraph (i) and (y) instructions given in accordance with the Depositary's and the Security Registrar's procedures, the Security Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Security in an amount equal to the principal amount of the beneficial interest in the U.S. Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Securities of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Security to a QIB: (i) If the Security to be transferred consists of Physical Securities, the Security Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company - 70 - 84 and the Security Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A. (ii) If the proposed transferee is an Agent Member, and the Security to be transferred consists of Physical Securities, upon receipt by the Security Registrar of instructions given in accordance with the Depositary's and the Security Registrar's procedures, the Security Registrar shall reflect on its books and records the date and an increase in the principal amount of the U.S. Global Security in an amount equal to the principal amount of the Physical Securities to be transferred, and the Trustee shall cancel the Physical Security so transferred. (c) Private Placement Legend. Any Security authenticated and issued hereunder shall not be required to bear the legend set forth in Section 202 hereof, if such Security shall be issued upon: (i) the transfer or exchange of a Security and contemporaneously therewith the Company shall have received an Opinion of Counsel, at its expense, in form and substance reasonably satisfactory to the Company, to the effect that such Security to be issued upon such transfer or exchange may be so issued without such legend because (A) such Security is being exchanged for an Exchange Note, (B) such Security shall have been registered under the Securities Act, the registration statement in connection therewith shall have been declared effective and such Security shall have been disposed of pursuant to such effective registration - 71 - 85 statement, or (C) the circumstances contemplated by paragraph (a)(i)(x) of this Section 307 exist, and the Company shall have delivered to the Trustee and the Security Registrar a copy of such Opinion of Counsel together with an Officers' Certificate directing the Trustee and the Security Registrar to deliver an unlegended Security in connection with such transfer or exchange; such Officers' Certificate and Opinion of Counsel shall be delivered by the Company as soon as practicable after its receipt of a written request by a Holder for such a transfer or exchange; or (ii) the transfer or exchange of a Security not bearing such legend. (d) General. (i) By its acceptance of any Security bearing the Private Placement Legend, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it shall transfer such Security only as provided in this Indenture. (ii) Prior to any transfer or exchange of a legended Security for another legended Security, the Company shall have received an opinion of counsel of the Holder (which may include in-house counsel of such Holder experienced in matters of Federal securities law), at its expense, in form and substance reasonably satisfactory to the Company to the effect that such transfer does not require registration under the Securities Act and the Company shall have delivered to the Trustee and the Security Registrar a copy of such opinion of counsel of the Holder together with an Officers' Certificate directing the Trustee and the Security Registrar to transfer or exchange the legended Security for another legended Security. The Trustee and the Security Registrar shall forward copies of all letters, notices and other written communications - 72 - 86 received pursuant to Section 306 hereof or this Section 307 to the Company for approval prior to any transfer or exchange. Notwithstanding anything to the contrary set forth herein, the Trustee and the Security Registrar shall have no duty to monitor compliance with any Federal, state or other securities laws. Section 308. Mutilated, Destroyed, Lost and Stolen Securities. If (a) any mutilated Security is surrendered to the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company, each Subsidiary Guarantor and the Trustee, such security or indemnity, in each case, as may be required by them to save each of them harmless, then, in the absence of notice to the Company, any Subsidiary Guarantor or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a replacement Security of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a replacement Security, pay such Security. Upon the issuance of any replacement Securities under this Section, the Company may require the payment of a sum sufficient to pay all documentary, stamp or similar issue or transfer taxes or other governmental charges that may be imposed in relation thereof and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every replacement Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company and the Subsidiary Guarantors, whether or not the destroyed, lost or stolen Security shall be at any time - 73 - 87 enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 309. Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date and interest on such defaulted interest at the then applicable interest rate borne by the Securities, to the extent lawful (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the Regular Record Date; and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Subsection (a) or (b) below: (a) the Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date (not less than 30 days after such notice) of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such - 74 - 88 Defaulted Interest as in this Subsection provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company in writing of such Special Record Date. In the name and at the expense of the Company, the Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities are registered on such Special Record Date and shall no longer be payable pursuant to the following Subsection (b). (b) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this Subsection, such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security (including any Exchange Security issued in exchange for an Initial Security) shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Section 310. Persons Deemed Owners. The Company, any Subsidiary Guarantor, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 309 hereof) interest and - 75 - 89 Liquidated Damages, if any, on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Company, any Subsidiary Guarantor, the Trustee nor any agent of the Company, any Subsidiary Guarantor or the Trustee shall be affected by notice to the contrary. Section 311. Cancellation. All Securities surrendered for payment, purchase, redemption, registration of transfer or exchange shall be delivered to the Trustee and, if not already canceled, shall be promptly canceled by it. The Company and any Subsidiary Guarantor may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company or such Subsidiary Guarantor may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be destroyed and certification of their destruction delivered to the Company. The Trustee shall provide the Company a list of all Securities that have been canceled from time to time as requested by the Company. Section 312. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. Section 313. Deposit of Moneys. Prior to 10:00 a.m., New York City time, on each Interest Payment Date and at Maturity, the Company shall have deposited with the Trustee or a Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date or at Maturity, as the case may be, in a timely manner which permits the Trustee or such Paying Agent to remit payment to the Holders on such Interest Payment Date or at Maturity, as the case may be. - 76 - 90 Section 314. CUSIP Number. The Company in issuing the Securities may use a "CUSIP" number(s), and if so, the Trustee shall use the CUSIP number(s) in notices of redemption or exchange as a convenience to Holders, provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number(s) printed in the notice or on the Securities and that reliance may be placed on the other identification numbers printed on the Securities. ARTICLE FOUR DEFEASANCE AND COVENANT DEFEASANCE Section 401. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may, at its option by Board Resolution, at any time, with respect to the Securities, elect to have either Section 402 or Section 403 hereof be applied to all of the Outstanding Securities (the "Defeased Securities"), upon compliance with the conditions set forth below in this Article Four. Section 402. Defeasance and Discharge. Upon the Company's exercise under Section 401 hereof of the option applicable to this Section 402, the Company, each of the Subsidiary Guarantors and any other obligor upon the Securities, if any, shall be deemed to have been discharged from its obligations with respect to the Defeased Securities on the date the conditions set forth below are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the Defeased Securities, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 405 hereof and the other Section of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Securities and this Indenture, including obligations to the Trustee, if any (and the Trustee, at the expense of the Company, and, upon written request, shall - 77 - 91 execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of Defeased Securities to receive, solely from the trust fund described in Section 404 hereof and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, interest and Liquidated Damages, if any, on such Securities when such payments are due, (b) the Company's obligations with respect to such Defeased Securities under Sections 304, 305, 308, 1002 and 1018 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder including, without limitation, the Trustee's rights under Section 606 hereof and the Company's obligations in connection therewith, and (d) this Article Four. Subject to compliance with this Article Four, the Company may exercise its option under this Section 402 notwithstanding the prior exercise of its option under Section 403 hereof with respect to the Securities. Section 403. Covenant Defeasance. Upon the Company's exercise under Section 401 hereof of the option applicable to this Section 403, the Company and each Subsidiary Guarantor shall be released from its obligations under any covenant or provision contained or referred to in Sections 1003, 1004, 1005, 1006, 1007, 1008, 1009, 1010, 1011, 1012, 1014, 1015, 1016, 1019, 1020, 1021 and 1022 hereof with respect to the Defeased Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Defeased Securities shall thereafter be deemed to be not "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the Defeased Securities, the Company and each Subsidiary Guarantor may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or Article, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or Article or by reason of any reference in any such Section or Article to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 501(3) or (4) hereof but, except as specified above, the remainder of this Indenture and such Defeased Securities shall be unaffected thereby. - 78 - 92 Section 404. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 402 or Section 403 hereof to the Defeased Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 608 hereof who shall agree to comply with the provisions of this Article Four applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (a) United States dollars in an amount, or (b) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms shall provide, not later than one day before the due date of any payment, money in an amount, or (c) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants or a nationally recognized investment banking firm expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge the principal of, premium, if any, interest and Liquidated Damages, if any, on the Defeased Securities on the Stated Maturity of such principal or installment of principal or interest (such date being referred to as the "Defeasance Redemption Date"), if when exercising under Section 401 hereof either its option applicable to Section 402 hereof or its option applicable to Section 403 hereof, the Company shall have delivered to the Trustee an irrevocable notice to redeem all of the Outstanding Securities on the Defeasance Redemption Date); provided that the Trustee shall have been irrevocably instructed to apply such United States dollars or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities. - 79 - 93 (2) In the case of an election under Section 402 hereof, the Company shall have delivered to the Trustee an Opinion of Independent Counsel in the United States of America stating that (A) the Company has received from the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, including by means of a Revenue Ruling published by the Internal Revenue Service, in either case to the effect that, and based thereon such Opinion of Independent Counsel in the United States of America shall confirm that, the Holders of the Outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (3) In the case of an election under Section 403 hereof, the Company shall have delivered to the Trustee an Opinion of Independent Counsel in the United States of America to the effect that the Holders of the Outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (4) No Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Subsections 501(10) or (11) hereof are concerned, at any time during the period ending on the 91st day after the date of deposit. (5) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default under, any material agreement or instrument (other than this Indenture) to which the Company or any Subsidiary Guarantor is a party or by which it is bound. (6) The Company shall have delivered to the Trustee an Opinion of Independent Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. - 80 - 94 (7) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Securities or any Guarantee over the other creditors of the Company or any Subsidiary Guarantor with the intent of defeating, hindering, delaying or defrauding creditors of the Company, any Subsidiary Guarantor or others. (8) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Independent Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 402 hereof or the covenant defeasance under Section 403 hereof (as the case may be) have been complied with as contemplated by this Section 404. Opinions of Counsel or Opinions of Independent Counsel required to be delivered under this Section may have qualifications customary for opinions of the type required and counsel delivering such opinions may rely on certificates of the Company or government or other officials customary for opinions of the type required, including certificates certifying as to matters of fact, including that various financial covenants have been complied with. Section 405. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 1018 hereof, all United States dollars and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee--collectively for purposes of this Section 405, the "Trustee") pursuant to Section 404 hereof in respect of the Defeased Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and - 81 - 95 to become due thereon in respect of principal, premium, if any, interest and Liquidated Damages, if any, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 404 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Defeased Securities. Anything in this Article Four to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any United States dollars or U.S. Government Obligations held by it as provided in Section 404 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect defeasance or covenant defeasance. Section 406. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Obligations in accordance with Section 402 or 403 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and each Subsidiary Guarantor's obligations under this Indenture and the Securities (including, without limitation, the provisions of Article Thirteen hereof) shall be revived and reinstated as though no deposit had occurred pursuant to Section 402 or 403 hereof, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such United States dollars or U.S. Government Obligations in accordance with Section 402 or 403 hereof, as the case may be; provided, however, that if the Company makes any payment to the Trustee or Paying Agent of principal of, premium, if any, interest or Liquidated Damages, if any, on any Security following the reinstatement of its obligations, the Trustee or Paying Agent shall promptly pay any such amount to the Holders of the Securities and the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. - 82 - 96 Section 407. Repayment of the Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, interest or Liquidated Damages, if any, on any Security and remaining unclaimed for two years after such principal, and premium, if any, interest or Liquidated Damages, if any, has become due and payable shall be paid to the Company on its written request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Issuer as trustee thereof, shall thereupon cease, provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than thirty (30) days from the date of such notification or publication, any unclaimed balance of such money then remaining shall promptly be repaid to the Company. ARTICLE FIVE REMEDIES Section 501. Events of Default. An "Event of Default" shall occur if: (1) there shall be a default in the payment of interest on any Security when the same becomes due and payable and the Default continues for a period of thirty (30) days; (2) there shall be a default in the payment of the principal of, or premium with respect to, any Security when - 83 - 97 the same becomes due and payable, at maturity, upon redemption, in connection with a Change of Control, an Asset Sale or otherwise; (3) the Company or any Subsidiary Guarantor fails to observe or perform any covenant, condition or agreement on the part of the Company or such Subsidiary Guarantor to be observed or performed pursuant to Section 1006, 1008, 1009, 1010, 1012, 1014, 1019, 1020 or Article Eight hereof; (4) the Company or any Subsidiary Guarantor fails to observe or perform any other covenant, condition or agreement in this Indenture, the Securities or the Security Documents and such failure continues for the period and after the notice specified below; (5) the Company denies or disaffirms its obligations under this Indenture or the Securities; (6) a Subsidiary Guarantor denies or disaffirms its obligations under its Guarantee, or any Guarantee for any reason ceases to be, or is asserted in writing by any Subsidiary Guarantor or the Company not to be, in full force and effect and enforceable in accordance with its terms, except to the extent contemplated by the Indenture and any such Guarantee; (7) a default occurs under any Indebtedness of the Company or any of its Subsidiaries (other than the Securities or the Guarantees), whether such Indebtedness now exists or is created after the Closing Date if either (A) such default results from the failure to pay the final scheduled principal installment in respect of any such Indebtedness on the stated maturity date thereof (after giving effect to any grace period) or (B) as a result of such default, the maturity of such Indebtedness has been accelerated prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of all other Indebtedness with respect to which the principal amount remains unpaid at its final maturity (after giving effect to any grace period in respect of such final scheduled principal installment) or the maturity of which has been so accelerated, aggregates $5,000,000 or more; - 84 - 98 (8) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Restricted Subsidiaries and such judgment or judgments remain undischarged, unbonded or unstayed for a period of sixty (60) days, provided that the aggregate of all such judgments (other than any judgment as to which and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) equals or exceeds $5,000,000; (9) any representation, warranty or certification made or deemed made in any of the Security Documents is untrue or incorrect in any material respect when made, any of the Security Documents ceases to be in full force and effect and valid, binding and enforceable (other than in accordance with their respective terms), or any of the Security Documents ceases to give either of the Collateral Agents a valid and perfected Lien of the priority required thereby or the rights, powers and privileges purported to be created thereby (other than in accordance with their respective terms), or any of the Security Documents is declared null and void, or the Company, PCAC or PAI denies any of its obligations under any of the Security Documents or any Collateral becomes subject to any Lien other than the Liens created or permitted by the Security Documents or the Indenture; (10) the Company, any Subsidiary Guarantor or any other Restricted Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case, (b) consents to the entry of an order for relief against it in an involuntary case in which it is a debtor, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, - 85 - 99 (d) makes a general assignment for the benefit of its creditors, or (e) admits in writing its inability to pay debts as the same become due; or (11) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company, any Subsidiary Guarantor or any other Restricted Subsidiary in an involuntary case in which it is a debtor, (b) appoints a Custodian of the Company, any Subsidiary Guarantor or any other Restricted Subsidiary or for all or substantially all of their property, (c) orders the liquidation of the Company, any Subsidiary Guarantor or any other Restricted Subsidiary, and the order or decree remains unstayed and in effect for sixty (60) days. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. A Default under clause (4) is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in principal amount of the Securities then Outstanding notify the Company and the Trustee, of the Default and the Company does not cure the Default within sixty (60) days after receipt of such notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." The failure to make any payment on the Securities when due shall, after the expiration date of any applicable grace period, constitute an Event of Default under this Indenture. - 86 - 100 Section 502. Acceleration. If an Event of Default (other than an Event of Default specified in clauses (10) and (11) of Section 501 hereof) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the Securities then Outstanding by written notice to the Company and the Trustee, may declare the unpaid principal of and any accrued interest and Liquidated Damages, if any, on all the Securities to be due and payable. Upon such declaration the principal and interest and Liquidated Damages, if any, shall be due and payable immediately. If an Event of Default specified in clause (10) or (11) of Section 501 hereof occurs, such an amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of a majority (or, in the case of the failure to make a Change of Control Offer pursuant to Section 1014 hereof, two-thirds) in principal amount of Securities then Outstanding by written notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if: (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Securities, (iii) the principal of and premium, if any, and Liquidated Damages, if any, on any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at a rate borne by the Securities, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Securities; and - 87 - 101 (b) all Events of Default, other than the non-payment of principal of the Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 504 hereof. No such rescission shall affect any subsequent Default or impair any right consequent thereon provided in Section 504 hereof. Section 503. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy (under this Indenture or otherwise) to collect the payment of principal, premium, if any, interest or Liquidated Damages, if any, on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 504. Waiver of Past Defaults. Holders of a majority (or, in the case of the failure by the Company to make a Change of Control Offer pursuant to Section 1014 hereof, two-thirds) in aggregate principal amount of the Securities then Outstanding by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a continuing Default or Event of Default in the payment of the principal of or interest on any Security held by a non-consenting Holder. Upon any such waiver, such Default shall - 88 - 102 cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 505. Control by Majority. The Holders of a majority in principal amount of the Securities then Outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders, or that may involve the Trustee in personal liability. Section 506. Limitation on Suits. A Holder may pursue a remedy with respect to this Indenture or the Securities only if: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in principal amount of the Securities then Outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within sixty (60) days after receipt of the request and the offer and, if requested, the provision of the indemnity; and (5) during such sixty (60) day period the Holders of a majority in principal amount of the Securities then Outstanding do not give the Trustee a direction inconsistent with the request. - 89 - 103 A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. Section 507. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, but subject to Article Thirteen the right of any Holder of a Security to receive payment of principal, premium, if any, and interest on the Security, on or after the respective due dates expressed in the Security (or, in the case of redemption or repurchase, on the Redemption Date or repurchase date), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder, subject to Article Thirteen. Section 508. Collection Suit by Trustee. If an Event of Default specified in Section 501(1) or (2) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any Subsidiary Guarantor for the whole amount of principal, premium, if any, interest and Liquidated Damages, if any, remaining unpaid on the Securities and interest on overdue principal and, to the extent lawful, premium and interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, subject to Article Thirteen. If the Company or any Subsidiary Guarantor, as the case may be, fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any Subsidiary Guarantor or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any Subsidiary Guarantor or any other obligor upon the Securities, wherever situated. - 90 - 104 If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders under this Indenture or the Guarantees by such appropriate private or judicial proceedings as the Trustee shall deem most effectual to protect and enforce such rights, including, seeking recourse against any Subsidiary Guarantor pursuant to the terms of any Guarantee, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy, including, without limitation, seeking recourse against any Subsidiary Guarantor pursuant to the terms of a Guarantee, or to enforce any other proper remedy, subject however to Section 505 hereof. Section 509. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company or any Subsidiary Guarantor or any other obligor upon the Securities, their creditors or their property and shall be entitled and empowered, subject to Article Thirteen, to collect, receive and distribute any money or other property payable or deliverable on any such claims and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 606 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 606 hereof out of the estate in any such proceeding shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties which the Holders of the Securities may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained - 91 - 105 shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 510. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to (i) the Trustee, its agents and attorneys for amounts due under Section 606 hereof, including payment of all compensation, expenses and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection and (ii) the Collateral Agent, pursuant to the terms of the Intercreditor Agreement; Second: subject to Article Thirteen, to (i) Holders for amounts due and unpaid on the Securities for principal, premium, if any, interest and Liquidated Damages, if any, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, premium, if any, interest and Liquidated Damages, if any, respectively, and (ii) subject to the Intercreditor Agreement, to the Term Loan Agent for obligations under the Term Loan Agreement, including amounts of principal of, premium, if any, and interest on such obligations; Third: subject to Article Thirteen, without duplication, to Holders for any other Indenture Obligations owing to the Holders under this Indenture or the Securities; and Fourth: subject to Article Thirteen, to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders. - 92 - 106 Section 511. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 507 hereof or a suit by Holders of more than 10% in principal amount of the Securities then Outstanding or to any suit instituted by any Holder for the enforcement of the payment of the principal of, premium, if any, interest or Liquidated Damages, if any, on any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption or repurchase, on or after the Redemption Date or repurchase date). Section 512. Waiver of Stay, Extension or Usury Laws. Each of the Company and any Subsidiary Guarantor covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive the Company or any Subsidiary Guarantor from paying all or any portion of the principal of, premium, if any, interest or Liquidated Damages, if any, on the Securities contemplated herein or in the Securities or which may affect the covenants or the performance of this Indenture; and each of the Company and any Subsidiary Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. - 93 - 107 ARTICLE SIX THE TRUSTEE Section 601. Notice of Defaults. Within ninety (90) days after the occurrence of any Default, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, notice of such Default hereunder known to the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of, premium, if any, or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as a trust committee of Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders. Section 602. Certain Rights of Trustee. Subject to the provisions of Trust Indenture Act Sections 315(a) through 315(d): (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of Indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) the Trustee may consult with counsel and any written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder or under any Security Document in good faith and in reliance thereon in accordance with such advice or Opinion of Counsel; - 94 - 108 (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or any Security Document at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred therein or thereby in compliance with such request or direction; (e) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Indenture or any Security Document other than any liabilities arising out of the gross negligence of the Trustee; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval, appraisal, bond, debenture, note, coupon, security or other paper or document unless requested in writing to do so by the Holders of not less than a majority in aggregate principal amount of the Securities then Outstanding; provided that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expenses or liabilities as a condition to proceeding; the reasonable expenses of every such investigation shall be paid by the Company or, if paid by the Trustee or any predecessor Trustee, shall be repaid by the Company upon demand; provided, further, that the Trustee in its discretion may make such further inquiry or investigation into such facts or matters as it may deem fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; - 95 - 109 (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder or under any Security Document either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) no provision of this Indenture or any Security Document shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers; (i) notwithstanding anything to the contrary set forth herein or in any Security Document, under no circumstances shall the Trustee be required to take possession of or maintain an action to foreclose upon any Mortgaged Property; and (j) no implied covenants or obligations shall be read into this Indenture or any other Security Document against the Trustee. Section 603. Trustee Not Responsible for Recitals, Dispositions of Securities or Application of Proceeds Thereof. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility on Form T-1, if any, supplied to the Company are true and accurate subject to the qualifications set forth therein. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. - 96 - 110 Section 604. Trustee and Agents May Hold Securities; Collections; etc. The Trustee, any Paying Agent, Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities, with the same rights it would have if it were not the Trustee, Paying Agent, Security Registrar or such other agent and, subject to Trust Indenture Act Sections 310 and 311, may otherwise deal with the Company and receive, collect, hold and retain collections from the Company with the same rights it would have if it were not the Trustee, Paying Agent, Security Registrar or such other agent. Section 605. Money Held in Trust. All moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by mandatory provisions of law. Except for funds or securities deposited with the Trustee pursuant to Article Four, the Trustee may invest all moneys received by the Trustee, until used or applied as herein provided, in Cash Equivalents in accordance with the written directions of the Company. The Trustee shall not be liable for any losses incurred in connection with any investments made in accordance with Section 605 hereof, unless the Trustee acted with gross negligence or in bad faith. With respect to any losses on investments made under this Section 605, the Company is liable for the full extent of any such loss. Section 606. Compensation and Indemnification of Trustee and Its Prior Claim. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation for all services rendered by it hereunder (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) and the Company covenants and agrees to pay or reimburse the Trustee and each predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this - 97 - 111 Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ), except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee and each predecessor Trustee for, and to hold it harmless against, any loss, liability, tax, assessment or other governmental charge (other than taxes applicable to the Trustee's compensation hereunder) or expense incurred without gross negligence or bad faith on such Trustee's part, arising out of or in connection with the acceptance or administration of this Indenture or any Security Document or the trusts hereunder and such Trustee's duties hereunder, including enforcement of this Section 606 and also including any liability which the Trustee may incur as a result of failure to withhold, pay or report any tax, assessment or other governmental charge, and the costs and expenses of defending itself against or investigating any claim of liability in the premises. The obligations of the Company under this Section to compensate and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for expenses, disbursements and advances shall constitute an additional obligation hereunder and shall survive the satisfaction and discharge of this Indenture, or the resignation or removal of any Trustee. To secure the Company's payment obligations in this Section 606, the Trustee shall have a Lien prior to the Securities on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of or interest or Liquidated Damages, if any, on particular Securities. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(9) or (10), the expenses and the compensation for the services shall be preferred over the status of Holders in any proceeding under any Bankruptcy Law and are intended to constitute expenses of administration under any Bankruptcy Law. Section 607. Conflicting Interests. The Trustee shall comply with the provisions of Section 310(b) of the Trust Indenture Act. - 98 - 112 Section 608. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be eligible to act as trustee under Trust Indenture Act Section 310(a)(1) and which shall have a combined capital and surplus of at least $50,000,000 or which shall be a wholly owned subsidiary of a company that has a combined capital and surplus of at least $50,000,000, to the extent there is an institution eligible and willing to serve. If the Trustee does not have an office in The City of New York, the Trustee may appoint an agent in The City of New York reasonably acceptable to the Company to conduct any activities which the Trustee may be required under this Indenture to conduct in The City of New York. If the Trustee does not have an office in The City of New York or has not appointed an agent in The City of New York, the Trustee shall be a participant in the Depository Trust Company and FAST distribution systems. If such corporation published reports of condition at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect hereinafter specified in this Article Six. Section 609. Resignation and Removal; Appointment of Successor Trustee. (a) No resignation or removal of the Trustee and no appointment of a successor trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor trustee under Section 610 hereof. (b) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign by giving written notice thereof to the Company. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument executed by authority of the Board of Directors, a copy of which shall be delivered to the resigning - 99 - 113 Trustee and a copy to the successor trustee. If an instrument of acceptance by a successor trustee shall not have been delivered to the Trustee within thirty (30) days after the giving of such notice of resignation, the resigning Trustee may, or any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper, appoint a successor trustee. (c) The Trustee may be removed at any time by an Act of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of Trust Indenture Act Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 608 hereof and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 511 hereof, the Holder of any Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent - 100 - 114 jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor trustee and supersede the successor trustee appointed by the Company. If no successor trustee shall have been so appointed by the Company or the Holders of the Securities and accepted appointment in the manner hereinafter provided, the Holder of any Security who has been a bona fide Holder for at least six months may, subject to Section 511 hereof, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities as their names and addresses appear in the Security Register. Each notice shall include the name of the successor trustee and the address of its Corporate Trust Office or agent hereunder. Section 610. Acceptance of Appointment by Successor. Every successor trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee as if originally named as Trustee hereunder; but, nevertheless, on the written request of the Company or the successor trustee, upon - 101 - 115 payment of its charges then unpaid, such retiring Trustee shall, pay over to the successor trustee all moneys at the time held by it hereunder and shall execute and deliver an instrument transferring to such successor trustee all such rights, powers, duties and obligations. Upon request of any such successor trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a prior claim upon all property or funds held or collected by such Trustee or such successor trustee to secure any amounts then due such Trustee pursuant to the provisions of Section 606 hereof. No successor trustee with respect to the Securities shall accept appointment as provided in this Section 610 unless at the time of such acceptance such successor trustee shall be eligible to act as trustee under the provisions of Trust Indenture Act Section 310(a) and this Article Six and shall have a combined capital and surplus of at least $50,000,000 or which shall be a wholly owned subsidiary of a company that has a combined capital and surplus of at least $50,000,000 and have a Corporate Trust Office or an agent selected in accordance with Section 608 hereof. Upon acceptance of appointment by any successor trustee as provided in this Section 610, the Company shall give notice thereof to the Holders of the Securities, by mailing such notice to such Holders at their addresses as they shall appear on the Security Register. If the acceptance of appointment is substantially contemporaneous with the resignation, then the notice called for by the preceding sentence may be combined with the notice called for by Section 609 hereof. If the Company fails to give such notice within ten (10) days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be given at the expense of the Company. Section 611. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding - 102 - 116 to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under Trust Indenture Act Section 310(a) and this Article Six and shall have a combined capital and surplus of at least $50,000,000 or which shall be a wholly owned subsidiary of a company that has a combined capital and surplus of at least $50,000,000 and have a Corporate Trust Office or an agent selected in accordance with Section 608 hereof without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee and deliver such Securities so authenticated; and, in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor trustee; and in all such cases such certificate shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have; provided that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. Section 612. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or other obligor under the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). A Trustee who has resigned or been removed shall be subject to the Trust Indenture Act Section 311(a) to the extent indicated therein. - 103 - 117 Section 613. Certain Duties and Responsibilities. (1) Except during the continuance of an Event of Default, (a) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (b) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture, but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture but shall not be required to verify the contents thereof. (2) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 701. Company to Furnish Trustee Names and Addresses of Holders. The Company shall furnish or cause to be furnished to the Trustee (a) semiannually, not more than ten (10) days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date; and - 104 - 118 (b) at such other times as the Trustee may request in writing, within thirty (30) days after receipt by the Company of any such request, a list of similar form and content as of a date not more than fifteen (15) days prior to the time such list is furnished; provided, however, that if and so long as the Trustee shall be the Security Registrar, no such list need be furnished. Section 702. Disclosure of Names and Addresses of Holders. Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Holders in accordance with Trust Indenture Act Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Trust Indenture Act Section 312. Section 703. Reports by Trustee. Within sixty (60) days after May 15 of each year commencing with the first May 15 after the Closing Date, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, as provided in Trust Indenture Act Section 313(c), a brief report dated as of such May 15 in accordance with and to the extent required by Trust Indenture Act Section 313(a). The Trustee shall also comply with Trust Indenture Act Section 313(b). Commencing at the time this Indenture is qualified under the Trust Indenture Act, a copy of each report at the time of its mailing to Holders shall be filed with the Commission and each stock exchange on which the Securities are listed of which the Company has notified the Trustee in writing. The Company shall notify the Trustee when Securities are listed on any stock exchange. - 105 - 119 Section 704. Reports by Company and Subsidiary Guarantors. (a) Whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, the Company shall, to the extent permitted under the Exchange Act, file with the Commission the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) if the Company were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject. The Company shall also in any event (x) within 15 days of each Required Filing Date (i) transmit by mail to all Holders of Securities, as their names and addresses appear in the security register, without cost to such Holders and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were subject to such Sections and (y) if filing such documents by the Company with the Commission is not permitted under the Exchange Act, promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective Holder of Securities at the Company's cost. (b) For so long as any of the Securities remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, the Company covenants and agrees that it shall, during any period in which it is not subject to Section 13(a), 13(c) or 15(d) under the Exchange Act, make available to any Holder of the Securities in connection with any sale thereof and any prospective purchaser of the Securities from such Holder, in each case upon request, the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Securities Act. (c) The Trustee has no duty to review any financial or other reports for purposes of determining compliance with this or any other provisions of this Indenture. - 106 - 120 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE Section 801. When the Company May Merge, Etc. (a) The Company shall not consolidate with or merge into, or sell, assign, convey, lease or transfer all or substantially all of its assets and those of its Subsidiaries taken as a whole to, any Person, unless (i) the resulting, surviving or transferee Person expressly assumes all the obligations of the Company under the Securities and this Indenture; (ii) such Person shall be organized and existing under the laws of the United States of America, a state thereof or the District of Columbia; (iii) at the time of the occurrence of such transaction and after giving effect to such transaction on a pro forma basis, such Person could incur $1.00 of additional Indebtedness pursuant to the covenant described in the initial paragraph under Section 1008 (assuming a market rate of interest with respect to such additional Indebtedness); (iv) at the time of the occurrence of such transaction and after giving effect to such transaction on a pro forma basis, the Consolidated Net Worth of such Person shall be equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; (v) each Subsidiary Guarantor, to the extent applicable, shall by supplemental indenture confirm that its Guarantee shall apply to such Person's obligations under the Securities; and (vi) immediately before and immediately after giving effect to such transaction and treating any Indebtedness which becomes an obligation of the Company or any of its Subsidiaries or of such Person as a result of such transaction as having been incurred by the Company or such - 107 - 121 Subsidiary or such Person, as the case may be, at the time of such transaction, no Default or Event of Default shall have occurred and be continuing. The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel, covering clauses (i), (ii), (v) and (vi) above, stating that the proposed transaction and such supplemental indentures comply with this Indenture and with Section 903 hereof. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel which opinion shall also comply with Section 903 hereof. (b) No Subsidiary Guarantor shall, and the Company shall not permit a Subsidiary Guarantor to, in a single transaction or series of related transactions merge or consolidate with or into any other corporation (other than the Company or any other Subsidiary Guarantor) or other entity, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any entity (other than the Company or any other Subsidiary Guarantor) unless at the time and giving effect thereto: (i) either (1) such Subsidiary Guarantor shall be the continuing corporation or (2) the entity (if other than such Subsidiary Guarantor) formed by such consolidation or into which such Subsidiary Guarantor is merged or the entity which acquires by sale, assignment, conveyance, transfer, lease or disposition the properties and assets of such Subsidiary Guarantor shall be a corporation duly organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and expressly assumes by a supplemental indenture, executed and delivered to the Trustee, in a form reasonably satisfactory to the Trustee, all the obligations of such Subsidiary Guarantor under the Securities and the Indenture; and (ii) immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. - 108 - 122 Such Subsidiary Guarantor shall deliver to the Trustee prior to the consummation of the proposed transaction, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or disposition and such supplemental indenture, if required, comply with this Indenture. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel, which opinion shall also comply with Section 903 hereof. The provisions of this Section 801(b) shall not apply to any transaction (including any Asset Sale made in accordance with Section 1009) with respect to any Subsidiary Guarantor if the Guarantee of such Subsidiary Guarantor is released in connection with such transaction in accordance with Section 1019(b). Section 802. Successor Substituted. Upon any consolidation or merger, or any sale, assignment, conveyance, transfer or disposition of all or substantially all of the properties and assets of the Company or any Subsidiary Guarantor in accordance with Section 801 hereof, the successor Person formed by such consolidation or into which the Company or such Subsidiary Guarantor, as the case may be, is merged or the successor Person to which such sale, assignment, conveyance, transfer, lease or disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Subsidiary Guarantor, as the case may be, under this Indenture, the Securities and/or such Guarantee, as the case may be, with the same effect as if such successor had been named as the Company or such Subsidiary Guarantor, as the case may be, herein, in the Securities and/or in such Guarantee, as the case may be. When a successor assumes all the obligations of its predecessor under this Indenture, the Securities or a Guarantee, as the case may be, the predecessor shall be released from those obligations; provided that in the case of a transfer by lease, the predecessor shall not be released from the payment of principal and interest on the Securities or a Guarantee, as the case may be. - 109 - 123 ARTICLE NINE SUPPLEMENTAL INDENTURES Section 901. Supplemental Indentures and Agreements without Consent of Holders. Without the consent of any Holders, the Company and the Subsidiary Guarantors, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto or agreements or other instruments with respect to any Guarantee, in form and substance satisfactory to the Trustee, for any of the following purposes: (i) to cure any ambiguity, defect or inconsistency; (ii) to provide for the assumption pursuant to Article Eight of the Company's or a Subsidiary Guarantor's obligations to the Holders in the case of a merger, consolidation or sale of assets; (iii) to provide for uncertificated Securities in addition to or in place of certificated Securities; (iv) to make any change that does not adversely affect the rights hereunder or thereunder of any Holder; (v) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act; (vi) to add a Subsidiary Guarantor pursuant to the requirements of Section 1019 hereof; (vii) to evidence and provide the acceptance of the appointment of a successor trustee hereunder; (viii) to provide additional collateral for the Securities or the Guarantees or other Indebtedness permitted to be secured by the Collateral, including in connection with the additional Liens referred to in Section 1012(j) hereof, and in connection therewith, to modify covenants, to provide additional indemnity to the Trustee, and to modify - 110 - 124 other provisions of this Indenture, the Securities or the Guarantees that relate to such collateral or that will or may be impacted by the providing of such collateral, and to enter into agreements, documents or other instruments to effect the foregoing, including, without limitation, intercreditor and collateral agency agreements relating to Liens on such collateral on a pari passu basis in favor of the Trustee for the benefit of the Holders; (ix) to comply with any requirement of the Commission or applicable law to effectuate the Exchange Offer; or (x) to add to the covenants of the Company, any Subsidiary Guarantor or any other obligor upon the Securities for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company, any Subsidiary Guarantor or any other obligor upon the Securities, as applicable, herein, in the Securities or in any Guarantee. Section 902. Supplemental Indentures and Agreements with Consent of Holders. With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company, each Subsidiary Guarantor and the Trustee, the Company and each Subsidiary Guarantor (if a party thereto) when authorized by a Board Resolution and the Trustee may enter into an indenture or indentures supplemental hereto or agreements or other instruments with respect to any Guarantee in form and substance satisfactory to the Trustee for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture, the Securities or any Guarantee; provided, however, that no such supplemental indenture, agreement or instrument shall, without the consent of the Holder of each Outstanding Security affected thereby: (i) reduce the principal amount of Securities whose Holders must consent to an amendment or waiver; - 111 - 125 (ii) reduce the rate of, or change the time for payment of, interest, including default interest, on any Security; (iii) reduce the principal of or change the fixed maturity of any Security, or alter the optional redemption provisions, or alter the price at which the Company shall offer to purchase such Securities pursuant to Sections 1014 or 1109 hereof; (iv) make any Security payable in money other than that stated in the Security; (v) make any change in Sections 504 or 507 hereof; (vi) waive a Default or Event of Default in the payment of principal of, premium, if any, or interest on the Securities, including any such obligation arising under Sections 1009 and 1109 or Section 1014 hereof (except a rescission of acceleration of the Securities pursuant to Section 502 hereof by the Holders of at least a majority (or in the case of the failure to make a Change of Control Offer, two-thirds) in aggregate principal amount of the Securities then Outstanding and a waiver of the payment default that resulted from such acceleration); (vii) waive a purchase payment required to be made under Section 1009 and 1109 or Section 1014 or a payment under Article Thirteen hereof with respect to any Security; (viii) affect the ranking of the Securities; (ix) release all or substantially all of the Collateral other than pursuant to the terms of the Indenture or the Security Documents; or (x) make any change in the provisions of this Section 902. Upon the written request of the Company and each Subsidiary Guarantor, accompanied by a copy of a Board Resolution authorizing the execution of any such supplemental indenture or Guarantee, and upon the filing with the Trustee of evidence of the consent of Holders as aforesaid, the Trustee shall, subject - 112 - 126 to Section 903 hereof, join with the Company and each Subsidiary Guarantor in the execution of such supplemental indenture or Guarantee. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture or Guarantee or agreement or instrument relating to any Guarantee, but it shall be sufficient if such Act shall approve the substance thereof. Section 903. Execution of Supplemental Indentures and Agreements. In executing, or accepting the additional trusts created by, any supplemental indenture, agreement or instrument permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Trust Indenture Act Section 315(a) through 315(d) and Section 602 hereof) shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate stating that the execution of such supplemental indenture, agreement or instrument is authorized or permitted by this Indenture, that no consent is required or that all requisite consents have been received and that such supplemental indenture constitutes the legal, valid and binding obligation of the Company, such Subsidiary Guarantor or successor, as the case may be, enforceable against such entity in accordance with its terms, subject to customary exceptions. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture, agreement or instrument which affects the Trustee's own rights, duties or immunities under this Indenture, any Guarantee or otherwise. Section 904. Revocation Effect of Supplemental Indentures. Until a supplemental indenture, amendment or waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of consent is not made on any Security. - 113 - 127 Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. Section 906. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may bear a notation in form satisfactory to the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform to any such supplemental indenture may be prepared and executed by the Company and each Subsidiary Guarantor and authenticated and delivered by the Trustee in exchange for Outstanding Securities. ARTICLE TEN COVENANTS Section 1001. Payment of Principal, Premium and Interest. The Company shall duly and punctually pay the principal of, premium, if any, and interest on the Securities in accordance with the terms of the Securities and this Indenture. Section 1002. Maintenance of Office or Agency. The Company shall maintain (or cause to be maintained) an office or agency where Securities may be presented or surrendered for payment. The Company also shall maintain (or - 114 - 128 cause to be maintained) in The City of New York an office or agency where Securities may be surrendered for registration or transfer, redemption or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location and any change in the location of any such offices or agencies. If at any time the Company shall fail to maintain (or cause to be maintained) any such required offices or agencies or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the office of the agent of the Trustee described above and the Company hereby appoints such agent as its agent to receive all such presentations, surrenders, notices and demands. The Company may from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Securities may be presented or surrendered for any or all such purposes, and may from time to time rescind such designation. The Company shall give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such office or agency. Section 1003. Compliance Certificate. (i) The Company shall deliver to the Trustee, within one hundred and twenty (120) days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each has kept, observed, performed and fulfilled its Indenture Obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge each has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof or thereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each is taking or proposes to take with respect thereto). - 115 - 129 (ii) The Company shall deliver to the Trustee, within sixty (60) days after the end of the first three quarters of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal quarter has been made under the supervision of the signing Officers with a view to determining whether each has kept, observed, performed and fulfilled its Indenture Obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge each has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof or thereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each is taking or proposes to take with respect thereto). (iii) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered to the Trustee pursuant to Section 704(a) shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation reasonably satisfactory to the Trustee) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that the Company or any of its Subsidiaries has violated any provisions of Article Eight or Article Ten hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (iv) The Company shall, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default, Event of Default or other event of default and what action the Company is taking or propose to take with respect thereto. - 116 - 130 Section 1004. Taxes. The Company shall, and shall cause each of its Subsidiaries to, pay prior to delinquency all material taxes, assessments and governmental levies except as are being contested in good faith and by appropriate proceedings diligently conducted and in respect of which appropriate reserves (in the good faith judgment of management of the Company) are being maintained in accordance with GAAP. Section 1005. [Intentionally omitted.] Section 1006. Limitation on Restricted Payments. Subject to the other provisions of this Section 1006, the Company shall not, nor shall it cause, permit or suffer any Restricted Subsidiary to, (i) declare or pay any dividends or make any other distributions (including through mergers, liquidations or other transactions commonly known as leveraged buyouts) on any class of Equity Interests of the Company or such Restricted Subsidiary (other than dividends or distributions payable or paid by a Wholly-Owned Restricted Subsidiary of the Company on account of its Equity Interests held by the Company or another Restricted Subsidiary or payable or paid in shares of Capital Stock of the Company other than Redeemable Stock), (ii) make any payment on account of, or set apart money for a sinking or other analogous fund for, the purchase, redemption or other retirement of such Equity Interests, (iii) purchase, defease, redeem or otherwise retire any Subordinated Indebtedness, or (iv) make any Restricted Investment, either directly or indirectly, whether in cash or property or in obligations of the Company or any Restricted Subsidiary (all of the foregoing being called "Restricted Payments"), unless, (x) in the case of a dividend, such dividend is payable not more than 60 days after the date of declaration and (y) after giving effect to such proposed Restricted Payment, all the conditions set forth in clauses (1) through (3) below are satisfied (A) at the date of declaration (in the case of any dividend), (B) at the date of such setting apart (in the case of any such fund) or (C) on the date of such - 117 - 131 other payment or distribution (in the case of any other Restricted Payment) (each such date being referred to as a "Computation Date"): (1) no Default or Event of Default shall have occurred and be continuing or would result from the making of such Restricted Payment; (2) at the Computation Date for such Restricted Payment and after giving effect to such Restricted Payment on a pro forma basis, the Company or such Restricted Subsidiary could incur $1.00 of additional Indebtedness pursuant to the covenant described in the initial paragraph under Section 1008 hereof; and (3) the aggregate amount of Restricted Payments declared, paid or distributed subsequent to the Closing Date (including the proposed Restricted Payment) shall not exceed the sum of (i) 50% of the cumulative Consolidated Net Income of the Company for the period subsequent to July 1, 1997 to and including the last day of the Company's last fiscal quarter ending prior to the Computation Date (each such period to constitute a "Computation Period") (or, if such aggregate cumulative Consolidated Net Income is a loss, minus 100% of such loss of the Company during the Computation Period), (ii) the aggregate Net Cash Proceeds of the issuance or sale or the exercise (other than to a Subsidiary or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries for the benefit of their employees) of the Company's Equity Interests (other than Redeemable Stock) subsequent to the Closing Date, (iii) the aggregate Net Cash Proceeds of the issuance or sale (other than to a Subsidiary) of any debt securities of the Company that have been converted into or exchanged for Equity Interests (other than Redeemable Stock) of the Company to the extent such debt securities were originally issued or sold for cash, plus the aggregate Net Cash Proceeds received by the Company at the time of such conversion or exchange, in each case subsequent to the Closing Date, (iv) cash contributions to the Company's capital subsequent to the Closing Date and (v) $5,000,000. - 118 - 132 If no Default or Event of Default has occurred and is continuing or would occur as a result thereof, the prohibitions set forth above are subject to the following exceptions: (a) Restricted Investments in obligations representing a portion of the proceeds of any Asset Sale consummated in accordance with Section 1009 hereof, provided, however, that such Restricted Investments shall be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (b) any purchase or redemption of Equity Interests or Subordinated Indebtedness made by exchange for, or out of the proceeds of the substantially concurrent sale of, Equity Interests of the Company (other than Redeemable Stock and other than Equity Interests issued or sold to a Subsidiary or an employee stock ownership plan), provided, however, that (x) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph and (y) the Net Cash Proceeds from such sale shall be excluded for purposes of clause 3(ii) of the preceding paragraph to the extent utilized for purposes of such purchase or redemption; (c) any purchase or redemption of Subordinated Indebtedness of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Indebtedness of the Company or any Restricted Subsidiary which is permitted to be issued pursuant to the provisions of Section 1008 hereof, provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (d) the repurchase, redemption or other acquisition or retirement for value of Capital Stock of the Company or Pioneer held by management or other employees of the Company, Pioneer or any Subsidiary pursuant to any shareholders agreement, management or employee stock option agreement or management or employee equity subscription agreement in accordance with the provisions of any such arrangement, in an amount not greater than $500,000 in any calendar year plus the portion of any such amounts which remains unused at the end of the two prior calendar years, but in no event to exceed $1,500,000 in any calendar year, provided, however, that any such repurchase, redemption, acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (e) payments to Pioneer pursuant to any tax sharing arrangement so long as payments - 119 - 133 thereunder do not exceed the amount of the Company and its consolidated subsidiaries' share of Federal and state income taxes actually paid or to be paid by Pioneer, provided, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (f) payments to Pioneer to perform accounting, legal, corporate reporting and administrative functions in the ordinary course of business in an amount not greater than $500,000 in any calendar year, or to pay required fees in connection with the Acquisition and related transactions, including the registration under applicable laws and regulations of its debt or equity securities issued in connection therewith, provided, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; and (g) Investments described in clause (vi) of the definition of Permitted Investments, provided, however, that such Investments shall be included in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph. For purposes of this Section 1006, (a) the amount of any Restricted Payment declared, paid or distributed in property of the Company or any Restricted Subsidiary shall be deemed to be the net book value of any such property that is intangible property and the Fair Market Value (as determined by and set forth in a resolution of the Board of Directors) of any such property that is tangible property at the Computation Date, in each case, after deducting related reserves for depreciation, depletion and amortization; (b) the amount of any Restricted Payment declared, paid or distributed in obligations of the Company or any Restricted Subsidiary shall be deemed to be the principal amount of such obligations as of the date of the adoption of a resolution by the board of directors of the Company or such Restricted Subsidiary authorizing such Restricted Payment; and (c) a distribution to holders of the Company's Equity Interests of (i) shares of Capital Stock or other Equity Interests of any Restricted Subsidiary of the Company or (ii) other assets of the Company, without, in either case, the receipt of equivalent consideration therefor shall be regarded as the equivalent of a cash dividend equal to the excess of the Fair Market Value of the Equity Interests or other assets being so distributed at the time of such distribution over the - 120 - 134 consideration, if any, received therefor. Not later than the date of the making of any such Restricted Payment, the Company shall deliver to the Trustee an officers' certificate stating that such Restricted Payment is permitted, attaching a copy of the applicable resolution of the Company's Board of Directors pursuant to which the value of the Restricted Payment to be made was determined and setting forth the basis upon which the calculations required by this Section 1006 were computed. Section 1007. Limitations on Payment Restrictions Affecting Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distribution to the Company or its Restricted Subsidiaries on its Equity Interests, (ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make loans or advances to the Company or any other Restricted Subsidiary or (iv) transfer any of its property or assets to the Company or any other Restricted Subsidiary, except (A) consensual encumbrances or restrictions contained in or created pursuant to the Term Loan Agreement, the Revolving Credit Agreement, the Intercreditor Agreement, the Security Documents and other Existing Indebtedness listed on Schedule 2 hereto, (B) consensual encumbrances or restrictions in the Securities and the Indenture, (C) any restriction, with respect to a Restricted Subsidiary of the Company that is not a Subsidiary of the Company on the Closing Date, in existence at the time such entity becomes a Restricted Subsidiary of the Company; provided that such encumbrance or restriction is not created in anticipation of or in connection with such entity becoming a Subsidiary of the Company and is not applicable to any Person or the properties or assets of any Person other than a Person that becomes a Subsidiary, (D) any encumbrances or restrictions pursuant to an agreement effecting a refinancing of Indebtedness referred to in clauses (A) or (C) of this Section 1007 or contained in any amendment to any agreement creating such Indebtedness, provided that the encumbrances and restrictions contained in any such refinancing or amendment are not materially more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Company) than those provided for in such Indebtedness being refinanced or amended, (E) encumbrances or restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Closing Date pursuant to the provisions of Section 1008 hereof, provided that any such encumbrances or restrictions are not materially more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Company) than the most restrictive of - 121 - 135 those provided for in the Indebtedness referred to in clauses (A) or (C) of this Section 1007, (F) any such encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease, (G) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary in compliance with the Indenture pending the closing of such sale or disposition; or (H) any encumbrance or restriction due to applicable law. Section 1008. Limitations on Indebtedness. The Company shall not, and shall not permit its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become liable with respect to or become responsible for the payment of, contingently or otherwise ("incur"), any Indebtedness; provided, however, that the Company, or a Restricted Subsidiary of the Company, may incur Indebtedness if at the time of such incurrence and after giving pro forma effect thereto, the Company's Consolidated Cash Flow Coverage Ratio for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is incurred, calculated on a pro forma basis as if such Indebtedness was incurred on the first day of such four full fiscal quarter period, would be at least 2.0 to 1.0. For purposes of determining the Company's Consolidated Cash Flow Coverage Ratio, Cash Flow and Consolidated Interest Expense for all periods prior to the Closing Date shall be calculated on a consolidated basis including each of the Company's and its subsidiaries' predecessors. - 122 - 136 Notwithstanding the foregoing limitations, the limitations of this Section 1008 shall not apply to the incurrence of Permitted Indebtedness. Notwithstanding anything to the contrary contained herein, the Company and its Restricted Subsidiaries each may guarantee Indebtedness of the Company or any Restricted Subsidiary that is permitted to be incurred hereunder; provided, however, that in the event such Indebtedness guaranteed is subordinated in right of payment to any other Indebtedness of the obligor thereof, then such guarantee shall be subordinated to Indebtedness of such guarantor to the same extent. Section 1009. Asset Sales. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Sale (other than to the Company or other Restricted Subsidiary) unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed of, and at least 80% of the consideration received by the Company or such Restricted Subsidiary from such Asset Sale is in the form of cash and no portion thereof shall consist of inventory or accounts receivable or other property that would become subject to a Lien held by any other creditor of the Company or of any Restricted Subsidiary of the Company; provided, however, that the amount of any cash equivalent or note or other obligation received by the Company or such Restricted Subsidiary from the transferee in any such transaction that is converted within 90 days by the Company or such Restricted Subsidiary into cash shall be deemed upon such conversion to be cash for purposes of this provision; (ii) to the extent such Asset Sale involves Collateral, (x) the consent of the Majority Holders shall be obtained prior to the consummation of such sale and (y) the Company shall cause the aggregate cash proceeds received by the Company or such Restricted Subsidiary in respect of such Asset Sale which are allocated to the Collateral, net of the items set forth in clauses (i) through (vi) of the definition of Net Proceeds (the "Collateral Proceeds") to be deposited with the Collateral Agent in the Intercreditor Collateral Account as and when received by the Company or any of its Restricted Subsidiaries and shall otherwise comply with the Intercreditor Agreements and Article Fourteen hereof applicable - 123 - 137 to such sale of Collateral, provided, that no Senior Indebtedness other than the Securities and any Secured Indebtedness may be permanently repaid or prepaid out of any Collateral Proceeds; and (iii) the Net Proceeds or the Collateral Proceeds received by the Company or such Restricted Subsidiary from any Asset Sale are applied in accordance with the Intercreditor Agreement, as applicable, and with the following paragraphs. (b) (i) If all or a portion of the Net Proceeds of any Asset Sale are not required to be applied to repay permanently any Senior Indebtedness of the Company then outstanding as required by the terms thereof, or the Company determines not to apply such Net Proceeds to the permanent prepayment of any Senior Indebtedness outstanding or if no such Senior Indebtedness is then outstanding, then the Company may within 365 days of the Asset Sale, invest the Net Proceeds in the Company, or in one or more Restricted Subsidiaries in a Related Business. (Any optional prepayment of the Term Loan Notes with the Net Proceeds of an Asset Sale shall be permitted only if the amount of such prepayment is limited to the Pro Rata Share (as defined in the Intercreditor Agreement) with respect to the Term Loan Notes, and the Pro Rata Share with respect to the Securities is used to make an Asset Sale Offer (as described below), and any repayment of a revolving credit facility or similar agreement that makes credit available with the Net Proceeds of an Asset Sale shall be permitted only if the commitment thereunder is also permanently reduced by such amount.) The amount of such Net Proceeds neither used to permanently repay or prepay Senior Indebtedness nor used or invested as set forth in this paragraph constitutes "Excess Proceeds." (ii) When the aggregate amount of Excess Proceeds from one or more Asset Sales equals $10,000,000 or more, the Company shall apply 100% of such Excess Proceeds within 365 days subsequent to the consummation of the Asset Sale which resulted in the Excess Proceeds equalling $10,000,000 or more to the purchase of Securities tendered to the Company for purchase at a price (the "Asset Sale Purchase Price") equal to 100% of the principal amount thereof, plus accrued interest and Liquidated Damages, if any, to the date of purchase pursuant to an offer to purchase made by the Company (an "Asset Sale Offer") with respect to the Securities. Any Asset Sale Offer may include a pro rata offer under similar circumstances to purchase other Senior Indebtedness requiring a similar offer. - 124 - 138 (c) Until such time as the Net Proceeds from any Asset Sale are applied in accordance with this covenant, such Net Proceeds shall be segregated from the other assets of the Company and its Subsidiaries and invested in cash or Eligible Investments, except that the Company or any Restricted Subsidiary may use any Net Proceeds pending the utilization thereof in the manner (and within the time period) described above, to repay revolving loans (under the Revolving Credit Agreement or otherwise) without a permanent reduction of the commitment thereunder. (d) Any Asset Sale Offer shall be made substantially in accordance with the procedures described under Section 1109 hereof. The Company shall cause a notice of any Asset Sale Offer to be mailed to the Trustee and the Holders at their registered addresses not less than 30 days nor more than 45 days before the purchase date. Such notice shall set forth the basis of calculation used in determining the amount of Excess Proceeds to be applied to the purchase of such Securities. In the case of a sale of Collateral, the notice of Asset Sale Offer shall contain the following additional information: (i) a description of the interests to be released, (ii) the Fair Market Value of the released interests as of a date no later than 60 days before the date of such notice, and (iii) certification that the purchase price received is not less than the fair market value of such released interest as of the date of such release. Such notice to the Trustee shall be accompanied by an Officers' Certificate setting forth (i) a statement to the effect that (x) the Company has made an Asset Sale and/or (y) there has occurred a destruction or condemnation in respect of Collateral resulting in Insurance Proceeds or Net Awards which are not required to be applied to effect a Restoration of the affected Collateral under the applicable Security Document. The notice shall also be accompanied by an Opinion of Counsel as to the Asset Sale Offer, and satisfactory evidence from a title company that the Liens of the Collateral Agent or the remaining Collateral continue unimpaired as perfected first priority liens. - 125 - 139 Upon receiving notice of an Asset Sale Offer, Holders may elect to tender their Securities in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent that Holders properly tender Securities in an amount exceeding the Asset Sale Offer, Securities of tendering Holders shall be repurchased on a pro rata basis (based on amounts tendered). (e) In the event the Company is required to make an Asset Sale Offer at a time when the Company is prohibited from making such Offer, the Company shall, on or prior to the date that the Company is required to make an Asset Sale Offer, (i) seek the consent of its lenders to repurchase Securities pursuant to such Asset Sale Offer or (ii) refinance the Indebtedness that prohibits such Asset Sale Offer; provided, however, that the failure to make or consummate the Asset Sale Offer as provided herein shall constitute an Event of Default. (f) The Company shall comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act, any other tender offer rules under the Exchange Act and other securities laws or regulations in connection with any offer to repurchase and the repurchase of the Securities as described above. (g) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create or permit to exist or become effective any consensual restriction (other than restrictions not more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Company) than those in effect under Existing Indebtedness, and Indebtedness under the New Credit Facilities) that would materially impair the ability of the Company to comply with the provisions of this Section 1009. (h) If at any time any non-cash consideration (other than any such consideration consisting of inventory, accounts receivable and certain related assets securing or permitted to secure the Revolving Credit Agreement) is received by the Company or any Restricted Subsidiary, as the case may be, in connection with any Asset Sale of assets which includes Collateral, such non-cash consideration shall be made subject to the Lien of the Security Documents in the manner contemplated in the Intercreditor Agreements, as applicable, to the extent of the purchase price allocated to the Collateral. If and when any such non-cash consideration received from any Asset Sale (whether or not relating to Collateral) is converted into or sold or - 126 - 140 otherwise disposed of for cash, then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Proceeds thereof shall be applied in accordance with this Section 1009 and this Indenture. (i) All Insurance Proceeds and all Net Awards required to be delivered to the Collateral Agent pursuant to any Security Document shall constitute Trust Moneys and shall be delivered by the Company or a Restricted Subsidiary, as the case may be, to the Collateral Agent contemporaneously with receipt by the Company or such Restricted Subsidiary and be deposited into the appropriate Intercreditor Collateral Account and applied in accordance with the applicable provisions of the Intercreditor Agreements. Insurance Proceeds and Net Awards so deposited that may be applied by the Company or a Restricted Subsidiary to effect a Restoration of the affected Collateral under the applicable Security Document may be withdrawn from the Intercreditor Collateral Account only in accordance with the applicable provisions of the Intercreditor Agreement. Insurance Proceeds and Net Awards so deposited that are not applied to effect a Restoration of the affected Collateral under the applicable Security Document may only be withdrawn in accordance with applicable provisions of the Intercreditor Agreement. Section 1010. Limitation on Sale and Leaseback Transactions. The Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction unless (i) at the time of the occurrence of such transaction and after giving effect to such transaction and (x) in the case of a Sale and Leaseback Transaction which is a Capitalized Lease Obligation, giving effect to the Indebtedness in respect thereof, and (y) in the case of any other Sale and Leaseback Transaction, giving effect to the Attributable Indebtedness in respect thereof, the Company or such Restricted Subsidiary could incur $1.00 of additional Indebtedness pursuant to the initial paragraph under Section 1008 hereof, (ii) at the time of the occurrence of such transaction, the Company or such Restricted Subsidiary could incur Indebtedness secured by a Lien on property in a principal amount equal to or exceeding the Attributable Indebtedness in respect of such Sale and Leaseback Transaction pursuant to Section 1012 hereof, and (iii) the transfer of assets in such Sale and Leaseback Transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 1009 hereof. - 127 - 141 Section 1011. Limitation on Transactions With Affiliates. (a) The Company and its Restricted Subsidiaries shall not, directly or indirectly, enter into any transaction or series of related transactions with or for the benefit of any of their respective Affiliates other than with the Company or any Restricted Subsidiaries, except on an arm's-length basis and if (x)(i) in the case of any such transaction in which the aggregate rental value, remuneration or other consideration (including the value of a loan), together with the aggregate rental value, remuneration or other consideration (including the value of a loan) of all such other transactions consummated in the year during which such transaction is proposed to be consummated, exceeds $750,000, the Company delivers Board Resolutions to the Trustee evidencing that the Board of Directors and the Independent Directors that are disinterested each have (by a majority vote) determined in good faith that the aggregate rental value, remuneration or other consideration (including the value of any loan) inuring to the benefit of such Affiliate from any such transaction is not greater than that which would be charged to or extended by the Company or its Subsidiaries, as the case may be, on an arm's-length basis for similar properties, assets, rights, goods or services by or to a Person not affiliated with the Company or its Subsidiaries, as the case may be, and (ii) in the case of any such transaction in which the aggregate rental value, remuneration or other consideration (including the value of any loan), together with the aggregate rental value, remuneration or other consideration (including the value of any loan) of all such other transactions consummated in the year during which such transactions are proposed to be consummated, exceeds $7,500,000, the Company delivers to the Trustee Board Resolutions as described in clause (a)(x)(i) of this Section 1011 and an opinion of a nationally recognized investment banking firm, unaffiliated with the Company and the Affiliate which is party to such transaction, to the effect that the aggregate rental price, remuneration or other consideration (including the value of a loan) inuring to the benefit of such Affiliate from any such transaction is not greater than that which would be charged to or extended by the Company or its Subsidiaries, as the case may be, on an arm's-length basis for similar properties, assets, rights, goods or services by or to a Person not affiliated with the Company or its Subsidiaries, as the case may be, and (y) all such transactions referred to in clauses - 128 - 142 (a)(x)(i) and (a)(x)(ii) of this Section 1011 are entered into in good faith. Any transaction required to be approved by Independent Directors pursuant to the preceding paragraph must be approved by at least one such Independent Director. (b) The provisions of the preceding paragraph do not prohibit (i) any Restricted Payment permitted to be paid pursuant to the provisions of Section 1006 hereof, (ii) any Investment made in Kemwater during a period of three years following the Closing Date, provided that such Investment matures or is required to be redeemed within one year of its being made, (iii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iv) loans or advances to employees in the ordinary course of business consistent with past practices, not to exceed $500,000 aggregate principal amount outstanding at any time, (v) the payment of fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any of its Subsidiaries, as determined by the board of directors of the Company or any of its Subsidiaries in good faith and (vi) Existing Affiliate Agreements, including amendments thereto entered into after the Closing Date provided that the terms of any such amendment either (A) are not, in the aggregate, less favorable to the Company than the terms of such agreement prior to such amendment, or (B) if such terms are, in the aggregate, less favorable to the Company, such amendment satisfies the requirements of the preceding paragraph. Section 1012. Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of their respective assets or properties now owned or acquired after the Closing Date, or any income or profits therefrom, excluding, however, from the operation of the foregoing any of the following: (a) Liens existing as of the Closing Date or pursuant to an agreement in existence on the Closing Date, including the New Credit Facilities and security documents relating thereto and the Security Documents; (b) Permitted Liens; - 129 - 143 (c) Liens on assets or properties of the Company, or on assets or properties of Restricted Subsidiaries of the Company, to secure the payment of all or a part of the purchase price of assets or property acquired or constructed in the ordinary course of business after the Closing Date; provided, however, that (i) the aggregate principal amount of Indebtedness secured by such Liens shall not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, (ii) the Indebtedness secured by such Liens shall be otherwise permitted to be incurred hereunder, (iii) such Liens shall not encumber any other assets or property of the Company or any of its Restricted Subsidiaries and (iv) the Indebtedness secured by the Lien shall not be created more than 100 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to the Lien; (d) Liens on the assets or property acquired by the Company or any Restricted Subsidiary after the Closing Date; provided, however, that (i) such Liens existed on the date such asset or property was acquired and were not incurred as a result of or in anticipation of such acquisition and (ii) such Liens shall not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries other than the property or assets so acquired; (e) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under the Indenture and which shall be permitted to be refinanced under the Indenture; provided, however, that such Liens shall not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so refinanced; (f) Liens on assets or property of the Company or any Restricted Subsidiary that shall be subject to a Sale and Leaseback Transaction, provided, that the aggregate principal amount of Attributable Indebtedness in respect of all Sale and Leaseback Transactions then outstanding shall not at the time such a Lien is incurred exceed $10,000,000; (g) Liens on property or shares of Capital Stock of a Person at the time such Person becomes a Restricted - 130 - 144 Subsidiary; provided, however, that such Liens were not created, incurred or assumed in contemplation of the acquisition thereof by the Company or a Subsidiary; provided further, that such Liens shall not extend to any other property owned by the Company or a Restricted Subsidiary; (h) Liens securing Indebtedness of a Restricted Subsidiary owing to the Company or a Wholly-Owned Restricted Subsidiary; (i) Liens on inventory, accounts receivable or related general intangibles of any Restricted Subsidiary securing the obligations under clause (d) of the definition of "Permitted Indebtedness" in Section 101 hereof; (j) pari passu Liens on the Collateral securing up to $50,000,000 aggregate principal amount of Indebtedness permitted to be incurred under the initial paragraph of Section 1008 hereof, provided that (i) the proceeds of such Indebtedness are used to acquire or construct additional property, plant and equipment that will be utilized in one or more Related Businesses, (ii) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, and (iii) the assets or property acquired or constructed with such Indebtedness are pledged to the Collateral Agent in accordance with the Intercreditor Agreement to become part of the Collateral securing the Securities and the Term Loan Notes on a pari passu basis with such Indebtedness, and in connection therewith (A) the holders of such Indebtedness or any trustee or other representative thereof becomes party to the Intercreditor Agreement, as amended, and is authorized to exercise rights and remedies in accordance therewith, and (B) the Collateral Agent receives an endorsement to its title insurance policies relating to the mortgage liens constituting part of the Collateral insuring the continuing priority of such mortgage liens as set forth in the title insurance policies; and (k) Liens on assets or property of the Company, or on assets or property of Restricted Subsidiaries of the Company, acquired or constructed after the date of the - 131 - 145 Indenture other than in the ordinary course of business and other than assets or property acquired or constructed in replacement, repair or improvement of any assets or property constituting Collateral; provided, however, that (i) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, (ii) the Indebtedness secured by such Liens is otherwise permitted to be incurred under the Indenture and (iii) such Liens do not encumber the Collateral. Section 1013. Corporate Existence. Subject to Article Eight, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence and the corporate existence of each of its Subsidiaries, in accordance with their respective organizational documents (as the same may be amended from time to time) and (ii) its (and its Subsidiaries) rights (charter and statutory), licenses and franchises; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate existence of any Subsidiary, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole and that the loss thereof is not adverse in any material respect to the Holders. Section 1014. Change of Control. (a) In the event of a Change of Control (the date of such occurrence being the "Change of Control Date"), the Company shall notify the Holders in writing of such occurrence and shall make an irrevocable offer (the "Change of Control Offer") to purchase on a Business Day (the "Change of Control Payment Date") not later than 60 days following the Change of Control Date, all Securities then outstanding at a purchase price (the "Change of Control Purchase Price") equal to 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the Change of Control Payment Date. (b) Notice of a Change of Control Offer shall be mailed by the Company to the Holders at their registered addresses not less than 30 days nor more than 45 days before the - 132 - 146 Change of Control Payment Date. The Change of Control Offer shall remain open for at least 20 Business Days and until 5:00 p.m., New York City time, on the Business Day next preceding the Change of Control Payment Date. Substantially simultaneously with mailing of the notice, the Company shall cause a copy of such notice to be published in a newspaper of general circulation in the Borough of Manhattan, The City of New York. (c) The notice, which governs the terms of the Change of Control Offer, shall state: (i) that the Change of Control Offer is being made pursuant to this Section 1014 and that all Securities (or portions thereof) tendered will be accepted for payment; (ii) the Change of Control Purchase Price and the Change of Control Payment Date; (iii) that any Securities not surrendered or accepted for payment shall continue to accrue interest and Liquidated Damages, if any; (iv) that, unless the Company defaults in the payment of the Change of Control Purchase Price, any Securities accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest or Liquidated Damages, if any, after the Change of Control Payment Date; (v) that any Holder electing to have a Security purchased (in whole or in part) pursuant to a Change of Control Offer shall be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice (or otherwise make effective delivery of the Security pursuant to book-entry procedures and the related rules of the applicable Depositary) at least five Business Days before the Change of Control Payment Date; (vi) that any Holder shall be entitled to withdraw its election if the Paying Agent receives, not later than three (3) Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase, the - 133 - 147 certificate number of the Security and a statement that such Holder is withdrawing his or her election to have such Security purchased; (vii) that Holders whose Securities are purchased only in part shall be issued Securities representing the unpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 principal amount or an integral multiple thereof; (viii) the instructions that Holders must follow in order to tender their Securities; and (ix) the circumstances and relevant facts regarding such Change of Control (including but not limited to information with respect to pro forma financial information after giving effect to such Change of Control, and information regarding the Persons acquiring control). (d) On the Change of Control Payment Date, the Company shall: (i) accept for payment the Securities, or portions thereof, surrendered and properly tendered and not withdrawn, pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the Change of Control Purchase Price of all the Securities, or portions thereof, so accepted; and (iii) deliver to the Trustee the Securities so accepted together with an Officers' Certificate stating that such Securities have been accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to Holders of Securities so accepted payment in an amount equal to the Change of Control Purchase Price and the Trustee shall promptly authenticate and mail to such Holders a new Security equal in principal amount to the unpurchased portion of the Security surrendered. (e) Subject to applicable escheat laws, as provided in the Securities, the Trustee and the Paying Agent shall upon the Company's written request return to the Company any cash that remains unclaimed, together with interest or dividends, if any, - 134 - 148 thereon, held by them for the payment of the Change of Control Purchase Price; provided, however, that (x) to the extent that the aggregate amount of cash deposited by the Company pursuant to clause (ii) of paragraph (d) above exceeds the aggregate Change of Control Purchase Price of the Securities or portions thereof to be purchased, then the Trustee shall hold such excess for the Company and (y) unless otherwise directed by the Company in writing, promptly after the Business Day following the Change of Control Payment Date the Trustee shall return any such excess to the Company together with interest, if any, thereon. (f) The Company shall comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act, any other tender offer rules under the Exchange Act and other securities laws or regulations in connection with the offer to repurchase and the repurchase of the Securities as described above. (g) In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Securities, the Company shall, within thirty (30) days following a Change of Control (i) seek the consent of its lenders to the purchase of the Securities or (ii) refinance the Indebtedness that prohibits such purchase; provided, however, that the failure to make or consummate the Change of Control Offer shall constitute an Event of Default. (h) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create or permit to exist or become effective any restriction (other than restrictions not more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Company) than those in effect under Existing Indebtedness and Indebtedness under the New Credit Facilities) that would materially impair the ability of the Company to make a Change of Control Offer to purchase the Securities or, if such Change of Control Offer is made, to pay for the Securities tendered for purchase. Section 1015. Maintenance of Properties. The Company shall, and shall cause its Restricted Subsidiaries to, maintain their respective properties and assets in normal working order and condition as on the Closing Date (reasonable wear and tear excepted) and make all repairs, renewals, replacements, additions, betterments and improvements - 135 - 149 thereto, as shall be reasonably necessary for the proper conduct of the business of the Company and its Restricted Subsidiaries taken as a whole, provided that nothing herein shall prevent the Company or any of its Restricted Subsidiaries from discontinuing any maintenance of any such properties if such discontinuance is desirable in the conduct of the business of the Company and its Restricted Subsidiaries taken as a whole. Section 1016. Maintenance of Insurance. The Company shall, and shall cause its Restricted Subsidiaries to maintain liability, casualty and other insurance (subject to customary deductibles and retentions) with responsible insurance companies in such amounts and against such risks as is customarily carried by responsible companies engaged in similar businesses and owning similar assets in the general areas in which the Company and its Restricted Subsidiaries operate (which may include self-insurance in comparable form to that maintained by such responsible companies). Section 1017. Stock Pledge Agreements. (a) If (i) any Restricted Subsidiary of the Company engages in any business activity other than the holding of the Capital Stock of one or more Subsidiaries of the Company (or in the case of Imperial West, engages in any business activity other than the holding of its Investment in Kemwater) and (ii) such Restricted Subsidiary has a value equal to or greater than 5% of the Company's total assets determined on a consolidated basis as of the time of determination, then the Company shall, and shall cause the applicable Subsidiary or Subsidiaries of the Company (the "Pledgor Subsidiary" or "Pledgor Subsidiaries") to, execute and deliver to the Trustee and the Collateral Agent one or more stock pledge agreements substantially in the form of the stock pledge agreement attached as an exhibit to the Indenture providing for the pledge to the Collateral Agent for the benefit of (x) the Trustee, for itself and the Holders, and (y) the Term Loan Agent, for itself and the other lenders under the Term Loan Agreement, of all the Capital Stock of such Restricted Subsidiary held by the Company and the Pledgor Subsidiary or Pledgor Subsidiaries, together with certificates evidencing such Capital Stock, which Capital Stock shall become "Collateral" for purposes of the Intercreditor Agreement. - 136 - 150 (b) If (i) there are no Term Loan Notes outstanding, (ii) there is no Indebtedness (the "New Indebtedness") outstanding which refinanced the Term Loan Notes and requires pledges of Capital Stock of one or more Restricted Subsidiaries of the Company in connection therewith, (iii) all other amounts due and owing to the lenders under the Term Loan Agreement or the New Indebtedness lenders under the agreement providing for the issuance of the New Indebtedness, as the case may be, have been paid in full, (iv) the Term Loan Agreement or the agreement providing for the issuance of the New Indebtedness, as the case may be, has been terminated, and (v) the Company has delivered to the Trustee and the Collateral Agent an officers' certificate stating that the foregoing requirements have been satisfied (which officers' certificate must also be signed by the Term Loan Agent or the agent, trustee or other representative of the New Indebtedness, as the case may be), then (x) the Company shall be released from its obligations to comply with this Section 1017, (y) the failure to comply with this Section 1017 shall not constitute a Default or Event of Default with respect to the Notes, and (z) all stock pledge agreements entered into by the Company and one or more Subsidiaries of the Company after the Closing Date pursuant to this Section 1017 shall be terminated, and all certificates evidencing Capital Stock pledged thereunder shall be released, by the Collateral Agent. (c) If at any time after the operation of the immediately preceding paragraph the Company or any Subsidiary of the Company intends to incur any Indebtedness which requires the pledge of Capital Stock of one or more Restricted Subsidiaries of the Company in connection therewith, neither the Company nor such Subsidiary shall incur such Indebtedness without directly securing the Notes with such pledge of Capital Stock on an equal and ratable basis (or prior to in the case of Indebtedness subordinated to the Notes or the Guarantees, as the case may be) and in connection therewith the Company's obligation to comply with the provisions of this Section 1017 shall be reinstated if a covenant or agreement similar to this covenant is included in the agreement providing for the issuance of such Indebtedness. Section 1018. Money for Security Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it shall, on or before each due date of the principal of, premium, if any, interest or Liquidated Damages, if any, on any - 137 - 151 of the Securities, segregate and hold in trust for the benefit of the Holders entitled thereto a sum sufficient to pay the principal, premium, if any, interest or Liquidated Damages, if any, so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and shall promptly notify the Trustee of its action or failure so to act. If the Company is not acting as Paying Agent, the Company shall, before 10:00 a.m. New York City time on each due date of the principal of, premium, if any, interest or Liquidated Damages, if any, on any Securities, deposit with a Paying Agent a sum in same day funds sufficient to pay the principal, premium, if any, interest or Liquidated Damages, if any, so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium, interest or Liquidated Damages, if any, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of such action or any failure so to act. If the Company is not acting as Paying Agent, the Company shall cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent shall: (a) hold all sums held by it for the payment of the principal of, premium, if any, interest or Liquidated Damages, if any, on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any Default by the Company or any Subsidiary Guarantor (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, interest or Liquidated Damages, if any; (c) at any time during the continuance of any such Default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (d) acknowledge, accept and agree to comply in all aspects with the provisions of this Indenture relating to the duties, rights and disabilities of such Paying Agent. - 138 - 152 The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, interest or Liquidated Damages, if any, on any Security and remaining unclaimed for two years after such principal and premium, if any, interest or Liquidated Damages, if any, has become due and payable shall promptly be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than thirty (30) days from the date of such notification or publication, any unclaimed balance of such money then remaining shall promptly be repaid to the Company. Section 1019. Subsidiary Guarantees. (a) If (i) any Subsidiary of the Company becomes a Restricted Subsidiary after the Closing Date, (ii) the Company or any Subsidiary of the Company that is a Subsidiary Guarantor transfers or causes to be transferred, in one transaction or a series of related transactions, property or assets (including, without limitation, businesses, divisions, real property, assets or equipment) which in the aggregate have a value equal to or greater than 15% of the Company's and its Subsidiaries' total assets determined on a consolidated basis as of the time of transfer to any Subsidiary or Subsidiaries of the Company that is not a Subsidiary Guarantor or are not Subsidiary Guarantors, - 139 - 153 (iii) any Subsidiary of the Company which has a value equal to or greater than 5% of the Company's and its Subsidiaries' total assets determined on a consolidated basis as of the time of determination directly or indirectly guarantees or otherwise becomes obligated with respect to any Senior Indebtedness of the Company, or (iv) any Subsidiary of the Company becomes a guarantor of the Term Loan Notes after the Closing Date, the Company shall cause such Subsidiary or Subsidiaries to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiary or Subsidiaries shall unconditionally guarantee, in accordance with Article Thirteen hereof, all of the Company's obligations under the Indenture and the Securities on the same terms as the other Subsidiary Guarantors, which Guarantee shall rank pari passu with any Senior Indebtedness of such Subsidiary. (b) Each guarantee created pursuant to the provisions described in the foregoing paragraph is referred to as a "Guarantee" and the issuer of each such Guarantee is referred to as a "Subsidiary Guarantor." Notwithstanding the foregoing, any Guarantee by a Subsidiary of the Securities shall provide by its terms that it shall be automatically and unconditionally released and discharged upon any sale, exchange, transfer or other disposition to any Person of all of the Company's Equity Interest in (or if such Subsidiary is owned by a Restricted Subsidiary, of all of such Restricted Subsidiary's Equity Interest in), or all or substantially all the assets of, such Subsidiary, which is in compliance with this Indenture. Section 1020. Limitation on Ownership of Wholly-Owned Restricted Subsidiary Stock. The Company (a) shall not, and shall not permit any Wholly-Owned Restricted Subsidiary of the Company to, transfer, convey, sell or otherwise dispose of any Capital Stock of any Wholly-Owned Restricted Subsidiary of the Company (other than All-Pure and its subsidiaries) to any Person (other than the Company or a Wholly-Owned Restricted Subsidiary of the Company), unless (i) such transfer, conveyance, sale or other disposition is of all the Capital Stock of such Wholly-Owned Restricted Subsidiary and (ii) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 1009 hereof, and (b) shall not permit any Wholly-Owned Restricted Subsidiary of the Company (other than All-Pure and its subsidiaries) to issue any of its Equity - 140 - 154 Interests (other than, if necessary, Capital Stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, to the extent mandated by applicable law) to any Person other than to the Company or a Wholly-Owned Restricted Subsidiary of the Company. Section 1021. Impairment of Security Interest. The Company shall not, and shall not cause or permit any Restricted Subsidiaries to, take or omit to take any action which action or omission might or would have the result of affecting or impairing the Liens and security interest in favor of the Collateral Agent for the benefit of the Holders and the holders of Secured Indebtedness with respect to the Collateral and the Company shall not grant to any Person, or suffer any Person to have any interest whatsoever in the Collateral, in each case other than as otherwise permitted by the Indenture, the Term Loan Agreement or the Security Documents. The Company shall not, and shall not cause or permit any Restricted Subsidiaries to, enter into any agreement or instrument that by its terms requires that the proceeds received from any sale of Collateral be applied to repay, redeem, defease or otherwise acquire or retire any Indebtedness of any Person, other than pursuant to the Indenture, the Term Loan Agreement or any instrument governing Indebtedness permitted to be secured by a Lien on the Collateral pursuant to Section 1012 hereof. A release of any of the Collateral strictly in accordance with the terms and conditions of the Indenture and the Security Documents will not be deemed for any purpose to be an impairment of security under the Indenture. Section 1022. Amendment to Security Documents. The Company shall not amend, modify or supplement, or permit or consent to any amendment, modification or supplement of, the Security Documents in any manner or to any extent that would constitute an Event of Default hereunder or under the Security Documents; provided that the Indenture and the Security Documents may be amended, modified or supplemented in accordance with Article Nine hereof. - 141 - 155 Section 1023. Limitation on Applicability of Certain Covenants. Notwithstanding anything to the contrary herein, the covenants set forth in Sections 1006, 1007, 1008, 1009, 1011, and 1012 hereof shall not apply to transactions effected pursuant to and in accordance with the Contingent Payment Agreement and amounts related to such transactions shall not be required to be included in any calculation required by any such covenant. Such transactions include (i) any payment made by the Company or a Restricted Subsidiary, (ii) any assets or property transferred by the Company or a Restricted Subsidiary, (iii) the application of any proceeds received by the Company or any Restricted Subsidiary in connection with any transfer of assets or property made by such Person, (iv) any escrow or segregation of moneys to be paid by the Company or a Restricted Subsidiary, (v) any Investment of such escrowed or segregated moneys by the Company or a Restricted Subsidiary or any other Investment under the Contingent Payment Agreement, (vi) any obligation of the Company or a Restricted Subsidiary to make any such payments or to effect any such escrow or segregation of moneys, (vii) any Indebtedness incurred by the Company or a Restricted Subsidiary that is non-recourse to the assets of the Company, such Restricted Subsidiary or any other Restricted Subsidiary, other than the borrower's interest in Basic Investments, Inc., Victory Valley Land Company, L.P., the Excess Land and/or any other assets or funds held under the Contingent Payment Agreement, and as to which neither the Company nor any Restricted Subsidiary (other than the borrower) provides credit support or is directly or indirectly liable, or (viii) any Lien incurred by the Company or any Restricted Subsidiary in connection with Indebtedness described in clause (vii) above that does not extend to assets of the Company or any Restricted Subsidiary other than such Person's interest in Basic Investments, Inc., Victory Valley Land Company, L.P., the Excess Land and/or any other assets or funds held under the Contingent Payment Agreement. - 142 - 156 ARTICLE ELEVEN REDEMPTION OF SECURITIES Section 1101. Rights of Redemption. The Securities shall not be redeemable at the option of the Company prior to June 15, 2002. On or after that date, the Securities shall be redeemable at the option of the Company, in whole or in part from time to time, on not less than thirty (30) nor more than sixty (60) days' prior notice, mailed by first-class mail to the Holders' registered addresses, in cash, in amounts of $1,000 or an integral multiple of $1,000 at the following Redemption Prices (expressed as percentages of the principal amount), if redeemed in the 12-month period commencing June 15 in the year indicated below: Year Redemption ---- ---------- 2002 104.625% 2003 103.083% 2004 101.542% 2005 and thereafter 100.000% in each case together with accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date (subject to the right of Holders of record on relevant record dates to receive interest and Liquidated Damages, if any, due on an Interest Payment Date). If less than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata, by lot or by any other method the Trustee shall deem fair and appropriate. Notwithstanding the foregoing, at any time on or prior to June 15, 2000, the Company may redeem, in part, up to $70,000,000 in aggregate principal amount of Securities at a purchase price of 109.25% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date fixed for redemption, with the net proceeds of (i) any Equity Offering by the Company or (ii) any Equity Offering by Pioneer, but only to the extent that Pioneer contributes such net proceeds to the Company as a capital contribution; provided that at least $130,000,000 aggregate principal amount of the Securities must remain outstanding after such redemption. - 143 - 157 Securities may be redeemed or repurchased as set forth in Sections 1009, 1014 and 1109 hereof. Any redemption pursuant to this Section 1101 shall be made pursuant to the provisions of Sections 1102 through 1108 hereof. Section 1102. Applicability of Article. Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article. Section 1103. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities pursuant to Section 1101 hereof shall be evidenced by a Company Order and an Officers' Certificate. In case of any redemption at the election of the Company, the Company shall, not less than forty-five (45) nor more than sixty (60) days prior to the Redemption Date fixed by the Company (unless a shorter notice period shall be satisfactory to the Trustee), notify the Trustee in writing of such Redemption Date, the Redemption Price and of the principal amount of Securities to be redeemed. Section 1104. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities or portions hereof to be redeemed shall be selected not more than thirty (30) days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, pro rata, by lot or such other method as the Trustee shall deem fair and appropriate, and the amounts to be redeemed may be equal to $1,000 or any integral multiple thereof. The Trustee shall promptly notify the Company and the Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. - 144 - 158 Section 1105. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than thirty (30) nor more than sixty (60) days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Securities are to be redeemed, the identification of the particular Securities to be redeemed; (d) in the case of a Security to be redeemed in part, the principal amount of such Security to be redeemed and that after the Redemption Date upon surrender of such Security, new Security or Securities in the aggregate principal amount equal to the unredeemed portion thereof will be issued; (e) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (f) that on the Redemption Date the Redemption Price will become due and payable upon each such Security or portion thereof, and that (unless the Company shall default in payment of the Redemption Price) interest and Liquidated Damages, if any, thereon shall cease to accrue on and after said date; (g) the place or places where such Securities are to be surrendered for payment of the Redemption Price; (h) the paragraph of the Securities and/or Section of this Indenture pursuant to which the Securities called for redemption are being redeemed; and - 145 - 159 (i) the CUSIP number, if any, relating to such Securities (as to the accuracy of which the Trustee shall make no representation). Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name and at the expense of the Company. The notice if mailed in the manner herein provided shall be conclusively presumed to have been given, whether or not the Holder receives such notice. In any case, failure to mail such notice, or any defect in any notice so mailed, to any particular Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security. Section 1106. Deposit of Redemption Price. On or prior to 10:00 a.m. New York City time on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1018 hereof) an amount of money in same day funds sufficient to pay the Redemption Price of and (except if the Redemption Date shall be an Interest Payment Date) accrued interest and Liquidated Damages, if any, on, all the Securities or portions thereof which are to be redeemed on that date. When the Redemption Date falls on an Interest Payment Date, payments of interest and Liquidated Damages, if any, due on such date are to be paid as provided hereunder as if no such redemption were occurring. Section 1107. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest and Liquidated Damages, if any) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price together with accrued interest and Liquidated Damages, if any, to the Redemption Date; provided, - 146 - 160 however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Dates according to the terms and the provisions of Section 309 hereof. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid, bear interest from the Redemption Date at the rate borne by such Security. Section 1108. Securities Redeemed or Purchased in Part. Any Security which is to be redeemed or purchased only in part shall be surrendered to the Paying Agent at the office or agency maintained for such purpose pursuant to Section 1002 hereof (with, if the Company, the Security Registrar or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company, the Security Registrar or the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the unredeemed portion of the principal of the Security so surrendered that is not redeemed or purchased. Section 1109. Asset Sale Offers. In the event that the Company shall commence an Asset Sale Offer pursuant to Section 1009 hereof, it shall follow the procedures specified below. The Asset Sale Offer shall remain open for twenty (20) Business Days after the date on which such Asset Sale Offer is commenced (the "Commencement Date") except to the extent required to be extended pursuant to applicable law (as so extended, the "Asset Sale Offer Period"). No later than one Business Day after the termination of the Asset Sale Offer Period (the "Asset Sale Purchase Date"), the Company shall purchase the principal amount (the "Asset Sale Offer Amount") of Securities required pursuant to Section 1009 hereof to be purchased in such Asset Sale Offer and other pari passu Senior Indebtedness that is required by its - 147 - 161 terms to be purchased in such Asset Sale Offer or, if less than the Asset Sale Offer Amount has been tendered, all Securities tendered in response to the Asset Sale Offer. If the Asset Sale Purchase Date is on or after a Regular Record Date and on or before the related Interest Payment Date, any accrued interest or Liquidated Damages, if any, shall be paid to the Person in whose name a Security is registered at the close of business on such Regular Record Date, and no additional interest or Liquidated Damages, if any, shall be payable to Holders who tender Securities pursuant to the Asset Sale Offer. On the Commencement Date of any Asset Sale Offer, the Company shall send or cause to be sent, by first class mail, a notice to each of the Holders, with a copy to the Trustee. Such notice, which shall govern the terms of the Asset Sale Offer, shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Asset Sale Offer and shall state: (1) that the Asset Sale Offer is being made pursuant to Section 1009 hereof and this Section 1109 and the length of time the Asset Sale Offer shall remain open; (2) the Asset Sale Offer Amount, the Asset Sale Purchase Price and the Asset Sale Purchase Date; (3) that any Security not tendered or accepted for payment shall continue to accrue interest and Liquidated Damages, if any, in accordance with this Indenture; (4) that, unless the Company defaults in the payment of the Asset Sale Purchase Price, all Securities accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest and Liquidated Damages, if any, after the Asset Sale Purchase Date; (5) that Holders electing to have Securities purchased pursuant to any Asset Sale Offer shall be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Asset Sale Purchase Date; - 148 - 162 (6) that Holders shall be entitled to withdraw their election if the Company, Depositary or Paying Agent, as the case may be, receives not later than the close of business on the Business Day preceding the termination of the Asset Sale Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase, the certificate number on the Security and a statement that such Holder is withdrawing his election to have the Security purchased; (7) that, if the aggregate principal amount of Securities surrendered by Holders together with any other pari passu Senior Indebtedness that is required by its terms to be purchased in such Asset Sale Offer exceeds the Asset Sale Offer Amount, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased); and (8) that Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 principal amount or an integral multiples thereof. On or before 10:00 a.m. New York City time on each Asset Sale Purchase Date, the Company shall irrevocably deposit with the Trustee or Paying Agent in immediately available funds the aggregate Asset Sale Purchase Price with respect to a principal amount of Securities equal to the Asset Sale Offer Amount, together with accrued interest and Liquidated Damages, if any, thereon, to be held for payment in accordance with the terms of this Section 1109. On the Asset Sale Purchase Date, the Company shall, to the extent lawful, (i) accept for payment, on a pro rata basis to the extent necessary, an aggregate principal amount equal to the Asset Sale Offer Amount of Securities tendered pursuant to the Asset Sale Offer, or if less than the Asset Sale Offer Amount has been tendered, all Securities or portions thereof tendered, (ii) deliver, or cause the Paying Agent or depositary, as the case may be, to deliver to the - 149 - 163 Trustee Securities so accepted and (iii) deliver to the Trustee an Officers' Certificate stating that such Securities or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 1109. The Company, a depositary or Paying Agent, as the case may be, shall promptly (but in any case not later than two (2) Business Days after the Asset Sale Purchase Date) mail or deliver to each tendering Holder an amount equal to the Asset Sale Purchase Price with respect to the Securities tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Security, and the Trustee shall authenticate and mail or deliver such new Security, to such Holder, equal in principal amount to any unpurchased portion of such Holder's Securities surrendered. Any Security not accepted in the Asset Sale Offer shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce in a newspaper of general circulation the results of the Asset Sale Offer on the Asset Sale Purchase Date. The Asset Sale Offer shall be made by the Company in compliance with all applicable laws, including, without limitation, the requirements of Rule 14e-1 under the Exchange Act, any other tender offer rules under the Exchange Act and all other applicable federal and state securities laws. Subject to applicable escheat laws, as provided in the Securities, the Trustee and the Paying Agent shall return to the Company any cash that remains unclaimed, together with interest, if any, thereon, held by them for the payment of the Asset Sale Purchase Price; provided, however, that (x) to the extent that the aggregate amount of an Asset Sale Offer exceeds the aggregate Asset Sale Purchase Price of the Securities or portions thereof to be purchased, the Trustee shall hold such excess for the Company and (y) unless otherwise directed by the Company in writing, promptly after the Business Day following the Asset Sale Purchase Date the Trustee shall return any such excess to the Company together with interest or dividends, if any, thereon. Other than as specifically provided in this Section 1109, each purchase pursuant to this Section 1109 shall be made pursuant to the provisions of Sections 1101 through 1108 hereof. - 150 - 164 ARTICLE TWELVE SATISFACTION AND DISCHARGE Section 1201. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Securities herein expressly provided for) and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (a) either (1) all the Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 308 hereof or (ii) all Securities for whose payment United States dollars have theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1018 hereof) have been delivered to the Trustee for cancellation; or (2) all such Securities not theretofore delivered to the Trustee for cancellation (x) have become due and payable, (y) shall become due and payable at their Stated Maturity within one year, or (z) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company or any Subsidiary Guarantor, in the case of (2)(x), (y) or (z) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount in United States dollars sufficient to pay and discharge the entire Indebtedness on the Securities not theretofore delivered to the Trustee for cancellation, for the principal of, premium, if any, and accrued interest and Liquidated Damages, if any, at such Stated Maturity or Redemption Date; - 151 - 165 (b) the Company or any Subsidiary Guarantor has paid or caused to be paid all other sums payable hereunder by the Company or any Subsidiary Guarantor; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that (i) all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with and (ii) such satisfaction and discharge shall not result in a breach or violation of or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or any Subsidiary Guarantor is a party or by which the Company or any Subsidiary Guarantor is bound. Opinions of Counsel required to be delivered under this Section may have qualifications customary for opinions of the type required and counsel delivering such Opinions of Counsel may rely on certificates of the Company or government or other officials customary for opinions of the type required, including certificates certifying as to matters of fact, including that various financial covenants have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 606 hereof and, if United States dollars shall have been deposited with the Trustee pursuant to subclause (2) of Subsection (a) of this Section, the obligations of the Trustee under Section 1202 and the last paragraph of Section 1018 hereof shall survive. Section 1202. Application of Trust Money. Subject to the provisions of the last paragraph of Section 1018 hereof, all United States dollars deposited with the Trustee pursuant to Section 1201 hereof shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal of, premium, if any, interest and Liquidated Damages, if any, on the Securities for whose payment such United States dollars have been deposited with the Trustee. - 152 - 166 ARTICLE THIRTEEN GUARANTEE Section 1301. Subsidiary Guarantors' Guarantee. For value received, each of the Subsidiary Guarantors, in accordance with this Article Thirteen, hereby absolutely, unconditionally and irrevocably guarantees, jointly and severally, to the Trustee and the Holders, as if the Subsidiary Guarantors were the principal debtor, the punctual payment and performance when due of all Indenture Obligations (which for purposes of this Guarantee shall also be deemed to include all commissions, fees, charges, costs and other expenses (including reasonable legal fees and disbursements of one counsel) arising out of or incurred by the Trustee or the Holders in connection with the enforcement of this Guarantee). Section 1302. Continuing Guarantee; No Right of Set-Off; Independent Obligation. (a) This Guarantee shall be a continuing guarantee of the payment and performance for all Indenture Obligations and shall remain in full force and effect until the payment in full of all of the Indenture Obligations and shall apply to and secure any ultimate balance due or remaining unpaid to the Trustee or the Holders; and this Guarantee shall not be considered as wholly or partially satisfied by the payment or liquidation at any time or from time to time of any sum of money for the time being due or remaining unpaid to the Trustee or the Holders. Each Subsidiary Guarantor, jointly and severally, covenants and agrees to comply with all obligations, covenants, agreements and provisions applicable to it in this Indenture including those set forth in Article Eight. Without limiting the generality of the foregoing, each of the Subsidiary Guarantors' liability shall extend to all amounts which constitute part of the Indenture Obligations and would be owed by the Company under this Indenture and the Securities but for the fact that they are unenforceable, reduced, limited, impaired, suspended or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company. (b) Each Subsidiary Guarantor, jointly and severally, hereby guarantees that the Indenture Obligations shall be paid to - 153 - 167 the Trustee without set-off or counterclaim or other reduction whatsoever (whether for taxes, withholding or otherwise) in lawful currency of the United States of America. (c) Each Subsidiary Guarantor, jointly and severally, guarantees that the Indenture Obligations shall be paid strictly in accordance with their terms regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Holders of the Securities. (d) Each Subsidiary Guarantor's liability to pay or perform or cause the performance of the Indenture Obligations under this Guarantee shall arise forthwith after demand for payment or performance by the Trustee has been given to the Subsidiary Guarantors in the manner prescribed in Section 106 hereof. (e) Except as provided herein, the provisions of this Article Thirteen cover all agreements between the parties hereto relative to this Guarantee and none of the parties shall be bound by any representation, warranty or promise made by any Person relative thereto which is not embodied herein; and it is specifically acknowledged and agreed that this Guarantee has been delivered by each Subsidiary Guarantor free of any conditions whatsoever and that no representations, warranties or promises have been made to any Subsidiary Guarantor affecting its liabilities hereunder, and that the Trustee shall not be bound by any representations, warranties or promises now or at any time hereafter made by the Company to any Subsidiary Guarantor. Section 1303. Guarantee Absolute. The obligations of the Subsidiary Guarantors hereunder are independent of the obligations of the Company under the Securities and this Indenture and a separate action or actions may be brought and prosecuted against any Subsidiary Guarantor whether or not an action or proceeding is brought against the Company and whether or not the Company is joined in any such action or proceeding. The liability of the Subsidiary Guarantors hereunder is irrevocable, absolute and unconditional and (to the extent permitted by law) the liability and obligations of the Subsidiary Guarantors hereunder shall not be released, discharged, mitigated, waived, impaired or affected in whole or in part by: - 154 - 168 (a) any defect or lack of validity or enforceability in respect of any Indebtedness or other obligation of the Company or any other Person under this Indenture or the Securities, or any agreement or instrument relating to any of the foregoing; (b) any grants of time, renewals, extensions, indulgences, releases, discharges or modifications which the Trustee or the Holders may extend to, or make with, the Company, any Subsidiary Guarantor or any other Person, or any change in the time, manner or place of payment of, or in any other term of, all or any of the Indenture Obligations, or any other amendment or waiver of, or any consent to or departure from, this Indenture or the Securities, including any increase or decrease in the Indenture Obligations; (c) the taking of security from the Company, any Subsidiary Guarantor or any other Person, and the release, discharge or alteration of, or other dealing with, such security; (d) the occurrence of any change in the laws, rules, regulations or ordinances of any jurisdiction by any present or future action of any governmental authority or court amending, varying, reducing or otherwise affecting, or purporting to amend, vary, reduce or otherwise affect, any of the Indenture Obligations and the obligations of any Subsidiary Guarantor hereunder; (e) the abstention from taking security from the Company, any Subsidiary Guarantor or any other Person or from perfecting, continuing to keep perfected or taking advantage of any security; (f) any loss, diminution of value or lack of enforceability of any security received from the Company, any Subsidiary Guarantor or any other Person, and including any other guarantees received by the Trustee; (g) any other dealings with the Company, any Subsidiary Guarantor or any other Person, or with any security; - 155 - 169 (h) the Trustee's or the Holder's acceptance of compositions from the Company or any Subsidiary Guarantor; (i) the application by the Holders or the Trustee of all monies at any time and from time to time received from the Company, any Subsidiary Guarantor or any other Person on account of any indebtedness and liabilities owing by the Company or any Subsidiary Guarantor to the Trustee or the Holders, in such manner as the Trustee or the Holders deems best and the changing of such application in whole or in part and at any time or from time to time, or any manner of application of collateral, or proceeds thereof, to all or any of the Indenture Obligations; (j) the release or discharge of the Company or any Subsidiary Guarantor of the Securities or of any Person liable directly as surety or otherwise by operation of law or otherwise for the Securities, other than an express release in writing given by the Trustee, on behalf of the Holders, of the liability and obligations of any Subsidiary Guarantor hereunder; (k) any change in the name, business, capital structure or governing instrument of the Company or any Subsidiary Guarantor or any refinancing or restructuring of any of the Indenture Obligations; (l) the sale of the Company's or any Subsidiary Guarantor's business or any part thereof; (m) subject to Section 1314 hereof, any merger or consolidation, arrangement or reorganization of the Company, any Subsidiary Guarantor, any Person resulting from the merger or consolidation of the Company or any Subsidiary Guarantor with any other Person or any other successor to such Person or merged or consolidated Person or any other change in the corporate existence, structure or ownership of the Company or any Subsidiary Guarantor; (n) the insolvency, bankruptcy, liquidation, winding-up, dissolution, receivership or distribution of the assets of the Company or its assets or any resulting discharge of any obligations of the Company (whether voluntary or involuntary) or of any Subsidiary Guarantor or the loss of corporate existence; - 156 - 170 (o) subject to Section 1314 hereof, any arrangement or plan of reorganization affecting the Company or any Subsidiary Guarantor; (p) any other circumstance (including any statute of limitations) that might otherwise constitute a defense available to, or discharge of, the Company or any Subsidiary Guarantor; or (q) any modification, compromise, settlement or release by the Trustee, or by operation of law or otherwise, of the Indenture Obligations or the liability of the Company or any other obligor under the Securities, in whole or in part, and any refusal of payment by the Trustee, in whole or in part, from any other obligor or other guarantor in connection with any of the Indenture Obligations, whether or not with notice to, or further assent by, or any reservation of rights against, each of the Subsidiary Guarantors. Section 1304. Right to Demand Full Performance. In the event of any demand for payment or performance by the Trustee from any Subsidiary Guarantor hereunder, the Trustee or the Holders shall have the right to demand its full claim and to receive all payments in respect thereof until the Indenture Obligations have been paid in full, and the Subsidiary Guarantors shall continue to be jointly and severally liable hereunder for any balance which may be owing to the Trustee or the Holders by the Company under this Indenture and the Securities. The retention by the Trustee or the Holders of any security, prior to the realization by the Trustee or the Holders of its rights to such security upon foreclosure thereon, shall not, as between the Trustee and any Subsidiary Guarantor, be considered as a purchase of such security, or as payment, satisfaction or reduction of the Indenture Obligations due to the Trustee or the Holders by the Company or any part thereof. Section 1305. Waivers. (a) Each Subsidiary Guarantor hereby expressly waives (to the extent permitted by law) notice of the acceptance of this Guarantee and notice of the existence, renewal, extension or the non-performance, non-payment, or non-observance on the part of the Company of any of the terms, covenants, conditions and provisions of this Indenture or the Securities or any other - 157 - 171 notice whatsoever to or upon the Company or such Subsidiary Guarantor with respect to the Indenture Obligations. Each Subsidiary Guarantor hereby acknowledges communication to it of the terms of this Indenture and the Securities and all of the provisions therein contained and consents to and approves the same. Each Subsidiary Guarantor hereby expressly waives (to the extent permitted by law) diligence, presentment, protest and demand for payment. (b) Without prejudice to any of the rights or recourses which the Trustee or the Holders may have against the Company, each Subsidiary Guarantor hereby expressly waives (to the extent permitted by law) any right to require the Trustee or the Holders to: (i) initiate or exhaust any rights, remedies or recourse against the Company, any Subsidiary Guarantor or any other Person; (ii) value, realize upon, or dispose of any security of the Company or any other Person held by the Trustee or the Holders; or (iii) initiate or exhaust any other remedy which the Trustee or the Holders may have in law or equity; before requiring or becoming entitled to demand payment from such Subsidiary Guarantor under this Guarantee. Section 1306. The Subsidiary Guarantors Remain Obligated in Event the Company Is No Longer Obligated to Discharge Indenture Obligations. It is the express intention of the Trustee and the Subsidiary Guarantors that if for any reason the Company has no legal existence, is or becomes under no legal obligation to discharge the Indenture Obligations owing to the Trustee or the Holders by the Company or if any of the Indenture Obligations owing by the Company to the Trustee or the Holders become irrecoverable from the Company by operation of law or for any reason whatsoever, this Guarantee and the covenants, agreements and obligations of the Subsidiary Guarantors contained in this Article Thirteen shall nevertheless be binding upon the Subsidiary Guarantors, as principal debtor, until such time as all such Indenture Obligations have been paid in full to the - 158 - 172 Trustee and all Indenture Obligations owing to the Trustee or the Holders by the Company have been discharged, or such earlier time as Section 402 hereof shall apply to the Securities and the Subsidiary Guarantors shall be responsible for the payment thereof to the Trustee or the Holders upon demand. Section 1307. Fraudulent Conveyance; Subrogation. (a) Any term or provision of this Guarantee to the contrary notwithstanding, the aggregate amount of the Indenture Obligations guaranteed hereunder shall be reduced to the extent necessary to prevent this Guarantee from violating or becoming voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. (b) Each Subsidiary Guarantor hereby waives until repayment in full of the Indenture Obligations and except as provided in Section 1309, all rights of subrogation or contribution, whether arising by contract or operation of law (including, without limitation, any such right arising under federal bankruptcy law) or otherwise by reason of any payment by it pursuant to the provisions of this Article Thirteen. Section 1308. Guarantee Is in Addition to Other Security. This Guarantee shall be in addition to and not in substitution for any other guarantees or other security which the Trustee may now or hereafter hold in respect of the Indenture Obligations owing to the Trustee or the Holders by the Company and (except as may be required by law) the Trustee shall be under no obligation to marshal in favor of each of the Subsidiary Guarantors any other guarantees or other security or any moneys or other assets which the Trustee may be entitled to receive or upon which the Trustee or the Holders may have a claim. Section 1309. Contribution. In order to provide for just and equitable contribution among the Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the event any payment or distribution is made by any Subsidiary Guarantor (a "Funding Subsidiary Guarantor") under its Guarantee, such Funding Subsidiary Guarantor shall be entitled to a contribution from all other Subsidiary Guarantors - 159 - 173 in a pro rata amount based on the "Adjusted Net Assets" (as defined below) of each Subsidiary Guarantor (including the Funding Subsidiary Guarantor) for all payments, damages and expenses incurred by that Funding Subsidiary Guarantor in discharging the Company's obligations with respect to the Securities or any other Subsidiary Guarantor's obligation with respect to its Guarantee. "Adjusted Net Assets" means, with respect to any Subsidiary Guarantor, at any date, the lesser of the amount by which (x) the fair value of the property of such Subsidiary Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under the Guarantee, of such Subsidiary Guarantor at such date and (y) the present fair salable value of assets of such Subsidiary Guarantor at such date exceeds the amount that shall be required to pay the probable liability of such Subsidiary Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), excluding debt in respect of its Guarantee, as they become absolute and matured. Section 1310. No Bar to Further Actions. Except as provided by law, no action or proceeding brought or instituted under Article Thirteen and this Guarantee and no recovery or judgment in pursuance thereof shall be a bar or defense to any further action or proceeding which may be brought under Article Thirteen and this Guarantee by reason of any further default or defaults under Article Thirteen and this Guarantee or in the payment of any of the Indenture Obligations owing by the Company. Section 1311. Failure to Exercise Rights Shall Not Operate as a Waiver. No failure to exercise and no delay in exercising, on the part of the Trustee or the Holders, any right, power, privilege or remedy under this Article Thirteen and this Guarantee shall operate as a waiver thereof, nor shall any single or partial exercise of any rights, power, privilege or remedy preclude any other or further exercise thereof, or the exercise of any other rights, powers, privileges or remedies. The rights and remedies herein provided for are cumulative and not exclusive of any rights or remedies provided in law or equity. - 160 - 174 Section 1312. Trustee's Duties; Notice to Trustee. (a) Any provision in this Article Thirteen or elsewhere in this Indenture allowing the Trustee to request any information or to take any action authorized by, or on behalf of any Subsidiary Guarantor, shall be subject to Section 602(d) and shall be permissive and shall not be obligatory on the Trustee except as the Holders may direct in accordance with the provisions of this Indenture or where the failure of the Trustee to request any such information or to take any such action arises from the Trustee's gross negligence, bad faith or willful misconduct. (b) The Trustee shall not be required to inquire into the existence, powers or capacities of the Company, any Subsidiary Guarantor or the officers, directors or agents acting or purporting to act on their respective behalf. Section 1313. Successors and Assigns. All terms, agreements and conditions of this Article Thirteen shall extend to and be binding upon each Subsidiary Guarantor and its successors and permitted assigns and shall enure to the benefit of and may be enforced by the Trustee and its successors and assigns; provided, however, that the Subsidiary Guarantors may not assign any of their rights or obligations hereunder other than in accordance with Article Eight. Section 1314. Release of Guarantee. Concurrently with the payment in full of all of the Indenture Obligations, the Subsidiary Guarantors shall be released from and relieved of their obligations under this Article Thirteen. Upon the delivery by the Company to the Trustee of an Officers' Certificate and, if requested by the Trustee, an Opinion of Counsel to the effect that the transaction giving rise to the release of this Guarantee was made by the Company in accordance with the provisions of this Indenture and the Securities, the Trustee shall execute any documents reasonably required in order to evidence the release of the Subsidiary Guarantors from their obligations under this Guarantee. If any of the Indenture Obligations are revived and reinstated after the termination of this Guarantee, then all of - 161 - 175 the obligations of the Subsidiary Guarantors under this Guarantee shall be revived and reinstated as if this Guarantee had not been terminated until such time as the Indenture Obligations are paid in full, and each Subsidiary Guarantor shall enter into an amendment to this Guarantee, reasonably satisfactory to the Trustee, evidencing such revival and reinstatement. This Guarantee shall terminate with respect to each Subsidiary Guarantor and shall be automatically and unconditionally released and discharged as provided in Section 1019(b) hereof. Section 1315. Execution of Guarantee. To evidence the Guarantee, each Subsidiary Guarantor hereby agrees to execute the guarantee substantially in the form set forth in Section 205 hereof, to be endorsed on each Security authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of each Subsidiary Guarantor by its Chairman of the Board, its President, or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. If an officer whose signature is on this Indenture no longer holds that office at the time the Trustee authenticates a Security on which a Guarantee is endorsed, such Guarantee shall be valid nevertheless. Section 1316. Payment Permitted by Each of the Subsidiary Guarantors if No Default. Nothing contained in this Article, elsewhere in this Indenture or in any of the Securities shall affect the obligation of any Subsidiary Guarantor to make, or prevent any Subsidiary Guarantor from making at any time, payments pursuant to the Securities. Section 1317. Notice to Trustee by Each of the Subsidiary Guarantors. Each Subsidiary Guarantor shall give prompt written notice to the Trustee of any fact known to such Subsidiary Guarantor which would prohibit the making of any payment to or by the Trustee in respect of the Guarantee. Notwithstanding the provisions of this Article or any provision - 162 - 176 of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from any Subsidiary Guarantor or any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section at least three (3) Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of, premium, if any, interest or Liquidated Damages, if any, on any Security or any other Indenture Obligations), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it after such date; nor shall the Trustee be charged with knowledge of the curing of any such default or the elimination of the act or condition preventing any such payment unless and until the Trustee shall have received an Officers' Certificate to such effect. Section 1318. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting under this Indenture, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that this Section 1318 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. Section 1319. No Suspension of Remedies. Nothing contained in this Article shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to the provisions described under Article Five and as set forth in this Indenture or to pursue any rights or remedies hereunder or under applicable law. - 163 - 177 ARTICLE FOURTEEN SECURITY Section 1401. Security. (a) In order to secure the due and punctual payment of principal of and interest on the Securities when and as the same shall become due and payable, whether on an Interest Payment Date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of and interest (to the extent permitted by law) and Liquidated Damages, if any, on the Securities, and performance of all other obligations of the Company to the Holders or the Trustee under this Indenture and the Securities and of all obligations of PCAC and PAI under their respective Guarantees and under this Indenture and the Securities, the Company, PCAC and PAI have entered into the respective Security Documents to which each is a party. (b) Each Holder, by accepting a Security, consents and agrees to all of the terms and provisions of the Security Documents, as the same may be in effect from time to time or may be amended from time to time in accordance with the provisions of the Security Documents and this Indenture, and authorizes and directs the Collateral Agent to act as mortgagee or secured party with respect thereto or to act as collateral agent pursuant to the Intercreditor Agreement. (c) As set forth in and governed by the Security Documents, as among the Holders, the Collateral as now or hereafter constituted shall be held for the equal and ratable benefit of the Holders without preference, priority or distinction of any thereof over any other by reason of difference in time of issuance, sale or otherwise, as security for the Securities. Section 1402. Recording; Priority; Opinions, Etc. (a) The Company, PCAC and PAI shall at their sole cost and expense perform any and all acts and execute any and all documents (including, without limitation, the execution, - 164 - 178 amendment or supplementation of any financing statement and continuation statement or other statement) for filing under the provisions of the UCC and the rules and regulations thereunder, or any other statute, rule or regulation of any applicable federal, state or local jurisdiction, including any filings in local real estate land record offices, which are necessary or advisable and shall do such other acts and execute such other documents as may be required under any of the Security Documents, from time to time, in order to grant and maintain valid and perfected Liens on the Collateral in favor of the Collateral Agents in the priorities purported to be created by the Security Documents, subject only to Liens permitted under the Security Documents to be senior or pari passu to the Liens of the Collateral Agents, and to fully preserve and protect the rights of the Trustee and the Holders under this Indenture. The Company, PCAC, and PAI shall from time to time promptly pay and satisfy all mortgage and financing and continuation statement recording and/or filing fees, charges and taxes relating to this Indenture and the Security Documents, any amendments thereto and any other instruments of further assurance. (b) The Company, PCAC, and PAI shall, with respect to clause (i) below, on or prior to the Closing Date, and, with respect to clause (ii) below, at such times as contemplated therein, furnish to the Trustee: (i) Opinion(s) of Counsel either (a) to the effect that, in the opinion of such counsel, this Indenture and the grants of security interests in the Collateral intended to be made by the Security Documents and all other instruments of further assurance, have been properly registered, recorded and filed to the extent necessary to perfect the Lien on the Collateral created by the Security Documents and reciting the details of such action, and stating that as to the Liens created pursuant to the Security Documents, such recordings, registrations and filings are the only recordings, registrations and filings necessary to give notice thereof and that no re-recordings, re-registrations or refilings are necessary to maintain such notice (other than as stated in such opinion), or (b) to the effect that, in the opinion of such counsel, no such action is necessary to perfect such Lien; and - 165 - 179 (ii) on each anniversary of the Closing Date beginning in the year 1998, an Opinion of Counsel, dated as of such date, either (a) to the effect that, in the opinion of such counsel, such action has been taken with respect to the recordings, registerings, filings, re-recordings, re-registerings and refilings of all financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Lien of each of the Security Documents and reciting with respect to such Liens the details of such action or referencing prior Opinions of Counsel in which such details are given, and stating that all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding twelve months fully to preserve and protect the rights of the Collateral Agent, the Holders and the Trustee hereunder and under each of the Security Documents with respect to the Liens, or (b) to the effect that, in the opinion of such counsel, no such action is necessary to maintain such Liens. Section 1403. Release of Collateral. The Trustee shall not direct the Collateral Agent to release Collateral from the Lien of the Security Documents unless such release is in accordance with the provisions of the Security Documents and Trust Indenture Act Section 314(d). Section 1404. Trust Indenture Act Requirements. The release of any Collateral from any of the Security Documents or the release of, in whole or in part, the Liens created by any of the Security Documents, will not be deemed to impair the Lien of the Security Documents in contravention of the provisions hereof if and to the extent the Collateral or Liens are released pursuant to the terms of the Security Documents. The Trustee and each of the Holders acknowledge that a release of Collateral or Liens strictly in accordance with the terms of the Security Documents and the terms hereof will not be deemed for any purpose to be an impairment of the Liens created pursuant to the Security Documents in contravention of the terms of this Indenture. Without limitation, the Company and each other obligor on the Securities shall cause Trust Indenture Act - 166 - 180 Section 314(d) relating to the release of property or securities from the Liens of the Security Documents to be complied with. Any certificate or opinion required by Trust Indenture Act Section 314(d) may be made by an Officer of the Company, PCAC or PAI, as the case may be, except in cases where Trust Indenture Act Section 314(d) requires that such certificate or opinion be made by an independent person. Section 1405. Suits to Protect Collateral. Subject to the provisions of the Intercreditor Agreements, the Trustee, acting at the written direction of the Holders, shall have power to institute and to maintain, or direct each Collateral Agent to institute and maintain, such suits and proceeds as the Trustee may deem expedient to prevent any impairment of the Collateral by any acts which may be unlawful or in violation of any of the Security Documents or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the Liens of each Collateral Agent in the Collateral or be prejudicial to the interests of the Holders or the Trustee). Section 1406. Determinations Relating to Collateral. In the event (i) the Trustee shall receive any written request from the Company, PCAC or PAI under any Security Document for consent or approval with respect to any matter or thing relating to any Collateral or the Company's, PCAC's or PAI's obligations with respect thereto or (ii) there shall be due to or from the Trustee under the provisions of any Security Document any performance or the delivery of any instrument or (iii) the Trustee shall become aware of any nonperformance by the Company, PCAC or PAI of any covenant or any breach of any representation or warranty of the Company, PCAC or PAI set forth in any Security Document, then, in each such event, the Trustee shall be entitled, at the expense of the Company and subject to Sections 602(d) and (h) hereof, to hire experts, consultants, agents and attorneys to advise the Trustee on the manner in which the Trustee should respond to such request or render any requested performance or response to such nonperformance or breach. The Trustee shall be fully protected in the taking of any action recommended or approved by any such expert, consultant, agent or attorney or agreed to by the Majority Holders pursuant to Section 505 hereof. - 167 - 181 Section 1407. Trust Moneys. To the extent Trust Moneys consist of insurance proceeds or condemnation or other taking awards, any such moneys which may be used to effect a restoration of the affected Collateral shall be permitted to be withdrawn by the Company and paid by the Collateral Agent, upon a Company Order to reimburse the Company, PCAC or PAI for expenditures made or costs incurred to repair, rebuild or replace the destroyed, damaged, or taken Collateral, upon confirmation by the Trustee that it has received the appropriate documentation. The Company shall deliver (a) an Officers' Certificate certifying as to expenditures made or costs incurred, the necessity or desirability in the conduct of the Company's business of the repaired, rebuilt, or replaced property, and the fair market value of such property as of the date of the expenditures, (b) an Opinion of Counsel as to the validity and perfection of the Collateral Agent's lien on the repaired or replaced Collateral and (c) an architect's certificate as to the costs of such restoration and compliance with law, all in accordance with the Intercreditor Agreements. To the extent Trust Moneys consist of Collateral Proceeds, and the Company intends to reinvest such proceeds in the Company or in one or more Restricted Subsidiaries in a Related Business, such Trust Moneys shall be permitted to be withdrawn by the Company upon delivery to the Trustee and the Collateral Agent of (a) a Company Order regarding such withdrawal, (b) an officer's certificate certifying compliance with the Indenture, (c) instruments granting the Collateral Agent first priority liens, for the benefit of (i) the Trustee, for itself and the Holders, and the Term Loan Agent, for itself and the other Term Loan Agreement lenders on the real or personal property interests in which the Company or any Restricted Subsidiary have invested, and (d) an opinion of counsel as to the instruments governing such Liens and security interests, all in accordance with the Intercreditor Agreement. Trust Moneys shall be permitted to be applied from time to time (x) to the payment of principal, premium, if any, interest and Liquidated Damages, if any, on the Securities, or (y) to the extent otherwise permitted by the Indenture, to redeem or repurchase Securities, including without limitation pursuant - 168 - 182 to a Change of Control Offer or (to the extent such Trust Moneys constitute proceeds from Asset Sales) an Asset Sale Offer, or (z) at the direction of the Company, PCAC and PAI to pay any other Senior Indebtedness secured by liens in the Collateral (but only to the extent such Trust Moneys constitute Collateral Proceeds). In each case the Trustee and each Collateral Agent shall receive (a) resolutions of the boards of directors of the Company, PCAC and PAI directing such application, (b) an Officers' Certificate, and (c) an Opinion of Counsel, and the Collateral Agent shall receive cash equaling the accrued interest, if any, required to be paid in connection with such payment or purchase. Trust Moneys received by each Collateral Agent or the Trustee pursuant to an Asset Sale Offer remaining after the completion of such Asset Sale Offer shall be permitted to be withdrawn by the Company upon request of the Company and delivery of an Officers' Certificate and an Opinion of Counsel, all in accordance with the Intercreditor Agreements. Any release of Collateral, including Trust Moneys, will be subject to the provisions of Section 314(d) of the Trust Indenture Act relating to, among other things, the delivery of a certificate or an opinion of an engineer, appraiser or other expert as to the fair value of Collateral being released from the Liens of the Security Documents. [signature pages follow] - 169 - 183 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the day and year first above written. PIONEER AMERICAS ACQUISITION CORP. Attest /s/ Kent R. Stephenson By /s/ Philip J. Ablove ------------------------ ---------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, Title: Vice President and Chief General Counsel Financial Officer and Secretary PIONEER AMERICAS, INC. Attest /s/ Kent R. Stephenson By /s/ Philip J. Ablove ------------------------ ---------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, Title: Vice President and Chief General Counsel Financial Officer and Secretary PIONEER CHLOR ALKALI COMPANY, INC. Attest /s/ Kent R. Stephenson By /s/ Philip J. Ablove ------------------------ ---------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, Title: Vice President and Chief General Counsel Financial Officer and Secretary IMPERIAL WEST CHEMICAL CO. Attest /s/ Kent R. Stephenson By /s/ Philip J. Ablove ------------------------ ---------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, Title: Vice President and Chief General Counsel Financial Officer and Secretary ALL-PURE CHEMICAL CO. Attest /s/ Kent R. Stephenson By /s/ Philip J. Ablove ------------------------ ---------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, Title: Vice President and Chief General Counsel Financial Officer and Secretary 184 BLACK MOUNTAIN POWER COMPANY Attest /s/ Kent R. Stephenson By /s/ Philip J. Ablove ------------------------ ---------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, Title: Vice President and Chief General Counsel Financial Officer and Secretary ALL PURE CHEMICAL NORTHWEST, INC. Attest /s/ Kent R. Stephenson By /s/ Philip J. Ablove ------------------------ ---------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, Title: Vice President and Chief General Counsel Financial Officer and Secretary PIONEER CHLOR ALKALI INTERNATIONAL, INC. Attest /s/ Kent R. Stephenson By /s/ Philip J. Ablove ------------------------ ---------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President Title: Vice President G.O.W. CORPORATION Attest /s/ Kent R. Stephenson By /s/ Philip J. Ablove ------------------------ ---------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, Title: Vice President and Chief General Counsel Financial Officer and Secretary PIONEER (EAST), INC. Attest /s/ Kent R. Stephenson By /s/ Philip J. Ablove ------------------------ ---------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: President Title: Vice President T.C. HOLDINGS, INC. Attest /s/ Kent R. Stephenson By /s/ Philip J. Ablove ------------------------ ---------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, Title: Vice President and Chief General Counsel Financial Officer and Secretary 185 T.C. PRODUCTS, INC. Attest /s/ Kent R. Stephenson By /s/ Philip J. Ablove ------------------------ ---------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, Title: Vice President and Chief General Counsel Financial Officer and Secretary UNITED STATES TRUST COMPANY OF NEW YORK Attest /s/ James J. McGinley By /s/ Gerard F. Ganey ------------------------ ---------------------------- Name: James J. McGinley Name: Gerard F. Ganey Title: Vice President Title: Senior Vice President EX-4.2(A) 9 PCAC (TACOMA, WASHINGTON) 1 EXHIBIT 4.2(a) WHEN RECORDED OR FILED RETURN TO: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department Title: DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT Grantor: PIONEER CHLOR ALKALI COMPANY, INC. (Taxpayer I.D. No. 51-0302028) Grantee #1 (Trustee): Transnation Title Insurance Company Grantee #2 (Beneficiary): UNITED STATES TRUST COMPANY OF NEW YORK, as Collateral Agent (Taxpayer I.D. No. 13-3818954) Abbreviated Legal Description: Portions of Blocks 1 and 12 of Ashton's Replat Full Legal Description on: Page 51 Assessor's Tax Parcel Numbers: 227520-004-0 227520-005-0 227520-056-0 Reference Numbers of Related Documents: N/A Washington 2 BE ADVISED THAT THE TERM LOAN NOTES SECURED BY THIS DEED OF TRUST PROVIDE FOR A VARIABLE RATE OF INTEREST. THIS INSTRUMENT COVERS, AMONG OTHER PROPERTY, GOODS WHICH ARE OR MAY BECOME FIXTURES ON CERTAIN REAL PROPERTY DESCRIBED ON EXHIBIT A HERETO, AND IS TO BE FILED FOR RECORD IN THE REAL ESTATE RECORDS AS BOTH A DEED OF TRUST OF REAL PROPERTY AND A FIXTURES FINANCING STATEMENT UNDER THE UNIFORM COMMERCIAL CODE. A CARBON, PHOTOGRAPHIC, FACSIMILE OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT AS A FINANCING STATEMENT. THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, SECURES PAYMENT OF FUTURE ADVANCES AND COVERS PROCEEDS OF COLLATERAL. DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (this "Deed of Trust"), dated as of June 17, 1997, by and between PIONEER CHLOR ALKALI COMPANY, INC., a Delaware corporation, whose address for notice hereunder is 700 Louisiana Street, Suite 4200, Houston, Texas 77002 ("Trustor") to Transnation Title Insurance Company, an Arizona corporation having an address at 6111 100th Street S.W., Lakewood, Washington 98499, as trustee (the "Deed of Trust Trustee"), in favor of UNITED STATES TRUST COMPANY OF NEW YORK, with offices at 114 West 47th Street, New York, New York 10036, as Collateral Agent under the Intercreditor Agreement (as hereinafter defined) (in such capacity and together with any successors and assigns in such capacity, "Beneficiary"), for (i) itself, as Trustee under the Indenture (as hereinafter defined) (in such capacity, the "Note Trustee"), (ii) for the Term Loan Agent (as hereinafter defined) as agent under the Term Loan Agreement (as hereinafter defined), (iii) for the Note Holders (as hereinafter defined), and (iv) for the Term Loan 3 Lenders (as hereinafter defined) (the Beneficiary, the Note Trustee, the Term Loan Agent, the Note Holders and the Term Loan Lenders being hereinafter collectively referred to as the "Secured Parties"). The Note Holders, Term Loan Lenders, the Note Trustee and the Term Loan Agent shall also be deemed to be beneficiaries of this Deed of Trust. The Collateral Agent is authorized to act on behalf of the Note Holders pursuant to the Collateral Agreement. W I T N E S S E T H : WHEREAS, pursuant to that certain Indenture dated as of the date hereof among Pioneer Americas Acquisition Corp. ("PAAC"), the Subsidiary Guarantors, as defined therein, and the Note Trustee, as trustee for the holders of the Notes (as hereinafter defined) (the "Note Holders") (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Indenture") PAAC will issue its 9 1/4% Senior Secured Notes due 2007 (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor, upon the registration of such notes pursuant to the Securities Act of 1933 or otherwise, the "Notes") in the aggregate principal amount of $200 million; and WHEREAS, pursuant to that certain Term Loan Agreement dated as of the date hereof among PAAC, Bank of America Illinois, as administrative agent (the "Term Loan Agent"), DLJ Capital Funding, Inc., as syndication agent, Salomon Brothers Holding Company Inc, as documentation agent, and the lenders named therein (the "Term Loan Lenders") (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Term Loan Agreement"), the Term Loan Lenders will make certain loans to PAAC to be evidenced by notes (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor, the "Term Loan Notes") in an aggregate amount of $100 million; and WHEREAS, pursuant to Article Thirteen of the Indenture, Trustor has guaranteed (such guarantee by Trustor being hereinafter referred to as the "Note Guarantee") the payment and -2- 4 performance of the Indenture Obligation (as hereinafter defined); and WHEREAS, pursuant to the Subsidiary Guaranty dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time), Trustor has guaranteed (such guarantee by Trustor being hereinafter referred to as the "Term Loan Guarantee") the payment and performance of the Term Loan Obligation (as hereinafter defined); and WHEREAS, Beneficiary is the collateral agent under that certain Intercreditor and Collateral Agency Agreement (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Intercreditor Agreement"), dated as of the date hereof, among PAAC, Trustor, Pioneer Americas, Inc. ("PAI" and together with PAAC and Trustor sometimes referred to herein as the "Companies"), the Note Trustee, the Term Loan Agent and Beneficiary, as collateral agent. SECTION I - GRANTING CLAUSES To secure the Secured Obligations (as hereinafter defined), including, without limitation, Trustor's guarantees of payment and performance of the Indenture Obligation and the Term Loan Obligation under the Note Guarantee and the Term Loan Guarantee, respectively, and the payment and performance of the covenants and obligations herein contained and in consideration of the sum of $10.00 and other valuable consideration in hand paid by Beneficiary to Trustor and in consideration of the debts and trusts hereinafter mentioned, the receipt and sufficiency of all of which is hereby acknowledged, Trustor does by these presents GRANT, BARGAIN, SELL, ASSIGN, MORTGAGE, WARRANT, TRANSFER and CONVEY unto the Deed of Trust Trustee and its successors and substitutes in trust with power of sale hereunder for the use and benefit of Beneficiary all of Trustor's rights, titles, interests and estates in and to the real and personal property described in Subparagraphs (a) through (h) of this Section I (collectively herein called the "Mortgaged Property"); provided, however, that the term Mortgaged Property shall not -3- 5 include any Obligor Collateral, as such term is defined in the Revolving Credit Agreement (as hereinafter defined)), to- wit: (a) Trustor's undivided 100% interest in and to the lands described on Exhibit A hereto (the "Land"), together with any and all other rights, titles and interests of Trustor of whatever kind or character (whether now owned or hereafter acquired by operation of law or otherwise) in and to such Land. (b) All of Trustor's rights, titles and interests in all plants, buildings, structures, towers and other improvements now owned or hereafter acquired and located on the Land, including, without limitation, that certain chlor alkali plant and all equipment, fixtures, heating, lighting and power plants, pipelines, transmission lines, buildings, housing and improvements, together with all other machinery, equipment, appliances and apparatus of whatsoever character or description (except for any motor vehicles, licensed or registered with the Department of Motor Vehicles of the State), and all replacements, substitutions and additions to said property, owned by Trustor and located on the Land or located elsewhere and used in the operation, conduct and maintenance of that certain chlor alkali plant located thereon (collectively, the "Improvements") (the Land, together with the Improvements, being hereinafter collectively referred to as the "Chlor Alkali Plant"). (c) To the extent permitted by law, all of Trustor's rights, titles and interests in, to and under all franchises, licenses, permits and certificates, consents, approvals, authorizations, however characterized, used or held for use in connection with Trustor's ownership and operation of the Chlor Alkali Plant and issued or in any way furnished, whether now existing or hereafter entered into and whether necessary or not for the operation and use of the Chlor Alkali Plant, including, without limitation, building permits, certificates of occupancy, environmental certificates, industrial permits or licenses or certificates of operation. -4- 6 (d) All of Trustor's rights, title and interest in all absorbers, equipment, machinery, drums, engines, motors, regulators, meters, exchangers, tanks, docks, racks, heaters, above ground storage facilities, under ground storage facilities, loading facilities, fractionation facilities, absorption equipment, distillation equipment, deethanizers, depropanizers, debutanizers, olefin splitters, stills, power plants, disposal pits, warehouses, dwelling houses, cooling equipment, compressors, pipelines, piping flow lines, wiring, boilers, vessels, dehydration equipment or any of them (except for any motor vehicles, licensed or registered with the Department of Motor Vehicles of the State), whether now owned or hereafter acquired and located or to be located upon the Land or leaseholds now or hereafter owned by Trustor and used or held for use in connection with Trustor's ownership and operation of the Chlor Alkali Plant (collectively, "Equipment"). (e) All Trustor's right, title and interest, as landlord, franchisor, licensor or grantor, in all leases and subleases of space, oil, gas and mineral leases, franchise agreements, licenses, occupancy or concession agreements now existing or hereafter entered into relating in any manner to the Chlor Alkali Plant or the Equipment and any and all amendments, modifications, supplements and renewals of any thereof (each such lease, license or agreement, together with any such amendment, modification, supplement or renewal, a "Lease"), whether now in effect or hereafter coming into effect including, without limitation, all rents, additional rents, management fees payable by tenants, cash, guarantees, letters of credit, bonds, sureties or securities deposited thereunder to secure performance of the lessee's, franchisee's, licensee's or obligee's obligations thereunder, revenues, earnings, profits and income, advance rental payments, payments incident to assignment, sublease or surrender of a Lease, claims for forfeited deposits and claims for damages, now due or hereafter to become due, with respect to any Lease (collectively, "Rents"). (f) All surveys, title insurance policies, drawings, plans, specifications, construction contracts, file materials, operating and maintenance records, catalogues, -5- 7 tenant lists, correspondence, advertising materials, operating manuals, warranties, guaranties, appraisals, studies and data relating to the Chlor Alkali Plant or the Equipment or the construction of any Alteration (as hereinafter defined) or the maintenance of any Permit (as hereinafter defined). (g) All general intangibles now owned or hereafter acquired by Trustor (but not including the Obligor Collateral), including without limitation (i) all of Trustor's rights, titles and interests, whether now owned or hereafter acquired, of Trustor in, to and under the contracts, agreements or other instruments and documents relevant to Trustor's ownership and operation of the Chlor Alkali Plant (collectively, "Plant Agreements"), (ii) all contract rights relating to the Chlor Alkali Plant or the Equipment and all reserves, deferred payments, deposits, refunds and claims of every kind or character relating thereto, but not including Accounts Receivable, as defined in the Revolving Credit Agreement (collectively, "Contract Rights") and (iii) all processes, designs, methodologies and related documentation, technical information, manufacturing, engineering and technical drawings related to the ownership and operation of the Chlor Alkali Plant. (h) All proceeds of the conversion, voluntary or involuntary, of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation or other awards or payments with respect thereto and interest thereon (collectively, "Proceeds"). TO HAVE AND TO HOLD the Mortgaged Property unto the Deed of Trust Trustee and Beneficiary and to their successors and assigns forever to secure the payment and performance of the Secured Obligations. None of the Mortgaged Property is used principally or at all for agricultural or farming purposes. -6- 8 SECTION II - SECURITY INTEREST (a) With respect to all personal property (both tangible and intangible) and any fixtures constituting a part of the Mortgaged Property, this Deed of Trust shall likewise be a security agreement and a financing statement and for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and for the purpose of further securing payment of the Secured Obligations, Trustor hereby grants to Beneficiary a security interest in all of Trustor's rights, titles and interests in and to the Mortgaged Property insofar as the Mortgaged Property consists of equipment, contract rights, general intangibles, documents, instruments, chattel paper, fixtures and any and all other personal property of any kind or character defined in and subject to the provisions of the Uniform Commercial Code as in effect in the State (the "Uniform Commercial Code"), including the proceeds, profits, rents, revenues and products from any and all of such personal property. Upon the occurrence and during the continuance of any Event of Default (as hereinafter defined), Beneficiary is and shall be entitled to all of the rights, powers and remedies afforded a secured party by the Uniform Commercial Code with reference to the personal property and fixtures in which Beneficiary has been granted a security interest herein, or the Deed of Trust Trustee or Beneficiary may proceed as to both the real and personal property covered hereby in accordance with the rights and remedies granted under this Deed of Trust in respect of the real property covered hereby. Such rights, powers and remedies shall be cumulative and in addition to those granted to the Deed of Trust Trustee or Beneficiary under any other provision of this instrument or under any other instrument executed in connection with or as security for the Secured Obligations. A carbon or photographic or other reproduction of this Deed of Trust shall be sufficient as a financing statement covering the Mortgaged Property. (b) Trustor shall, forthwith after the execution and delivery of this Deed of Trust and thereafter, from time to time, cause this Deed of Trust and any financing statement, continuation statement or similar instrument relating to any thereof or to any property intended to be subject to the Lien of this Deed of Trust to be filed, registered and recorded in such -7- 9 manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the validity and priority thereof or the Lien hereof upon the Mortgaged Property and the interest and rights of the Deed of Trust Trustee and Beneficiary herein and therein. Trustor shall pay or cause to be paid all taxes and fees incident to such filing, registration and recording, all expenses incident to the preparation, execution and acknowledgment thereof, and of any instrument of further assurance, and all federal or State stamp taxes or other taxes, duties and charges arising out of or in connection with the execution and delivery of such instruments. (c) Trustor shall, at the sole cost and expense of Trustor, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, deeds of trust, mortgages, assignments, notices of assignment, transfers, financing statements, continuation statements and assurances as the Deed of Trust Trustee or Beneficiary shall from time to time reasonably request which may be necessary in the requesting party's judgment to assure, perfect, convey, assign, mortgage, transfer and confirm unto the Deed of Trust Trustee or Beneficiary the property and rights hereby conveyed or assigned, or which Trustor may be or may hereafter become bound to convey or assign to Beneficiary or which may facilitate the performance of the terms of this Deed of Trust or the filing, registering or recording of this Deed of Trust. In the event Trustor shall fail to execute any instrument required to be executed by Trustor pursuant to this subsection II(c), Beneficiary may execute the same as the attorney-in-fact for Trustor, such power of attorney being coupled with an interest and irrevocable. SECTION III - SECURED OBLIGATIONS This Deed of Trust is executed and delivered by Trustor to secure the payment and performance of the obligations (collectively, the "Secured Obligations") described below: (a) Any and all indebtedness, obligations and liabilities of Trustor now or hereafter existing under or in respect of the Note Guarantee, including, without limitation, payment of principal, premium, if any, interest and Liquidated -8- 10 Damages (as defined in the Indenture), if any, when due and payable, and all other amounts due or to become due under or in connection with the Indenture (including, without limitation, all sums due to the Note Trustee pursuant to Section 606 thereof), the Notes and the performance of all other obligations to the Note Trustee and the Note Holders under the Indenture and the Notes, according to the terms thereof (collectively, the "Indenture Obligation); (b) Any and all indebtedness, obligations and liabilities of Trustor now or hereafter existing under or in respect of the Term Loan Guarantee, including, without limitation, payment of principal, premium, if any, and interest when due and payable, and all other amounts due or to become due under or in connection with the Term Loan Agreement (including, without limitation, all sums due to the Term Loan Agent pursuant to Sections 10.3 and 10.4 thereof) and the Term Loan Notes and the performance of all other obligations to the Term Loan Agent and the Term Loan Lenders under the Term Loan Agreement and the Term Loan Notes according to the terms thereof (collectively, the "Term Loan Obligation"); (c) Any sums which may be advanced or paid by Beneficiary under the terms hereof on account of the failure of Trustor to comply with the covenants of Trustor contained herein; (d) All covenants, agreements, and obligations of Trustor herein contained; and (e) All renewals, rearrangements, increases, substitutions and extensions, and all amendments, supplements and modifications, to any of the obligations described in the preceding clauses (a) through (d). This Deed of Trust secures all future advances and obligations constituting Secured Obligations and all future advances to preserve and protect the Mortgaged Property and advances for attorneys' fees and expenses in all cases pursuant to the terms of the Deed of Trust. The maximum amount of advances of principal to be secured by this Deed of Trust may increase or decrease from time to time by amendment to this Deed of Trust. -9- 11 SECTION IV - REPRESENTATIONS, WARRANTIES AND COVENANTS Trustor hereby represents, warrants and covenants as follows: (a) Good Title; Authority and Validity. Trustor has good and marketable title to the Mortgaged Property and the landlord's interest and estate under or in respect of the Leases, subject to the Excepted Liens, and has, in all material respects, full corporate power and lawful authority to bargain, grant, sell, mortgage, assign, transfer, convey and grant a security interest in all of the Mortgaged Property all in the manner and form herein provided and without obtaining the waiver, consent or approval of any lessor, sublessor, Governmental Authority or entity or other party whomsoever or whatsoever which has not been obtained, except in the case of certain environmental permits and approvals which, by their terms, are not transferable or cannot be transferred without the prior approval of the issuing agency. The Improvements upon the Land are all within the boundary lines of the Land except as set forth on Schedule 1 attached hereto or have the benefit of valid easements, and there are no encroachments thereon that would materially impair the use thereof. The Mortgaged Property is free and clear of any and all Liens or encumbrances of any nature or kind except for the Excepted Liens and the Leases. Trustor has all necessary permits, franchises, licenses, rights-of-way, servitudes or other rights or authority needed in connection with the operation and maintenance of the Chlor Alkali Plant, except where the failure to have the same would not have a Material Adverse Effect; all of the Plant Agreements are presently in full force and effect and no default has occurred or exists thereunder, except where such default would not individually or in the aggregate have a Material Adverse Effect; except as provided in the Excepted Liens, Trustor's grant of a Lien and security interest in the Mortgaged Property in the manner herein provided does not result in the creation or imposition of any other Lien or security interest, adverse claim or option upon any of the Mortgaged Property. Trustor's chief executive -10- 12 office and chief place of business is located at the address set forth in the initial paragraph of this Deed of Trust. Trustor will not change its name, identity or corporate structure or its chief executive office or chief place of business without notifying the Deed of Trust Trustee and Beneficiary at least thirty (30) days prior to the effective date of such change. (b) Defense of Title. Trustor will warrant and defend title to the Mortgaged Property, subject to Excepted Liens, against the claims and demands of all other Persons whomsoever and will maintain and preserve the Lien created hereby so long as any of the Secured Obligations secured hereby remains unpaid. Should an adverse claim be made against the title to any material part of the Mortgaged Property, Trustor agrees it will immediately notify Beneficiary in writing thereof and defend against such adverse claim to the extent necessary to preserve the Deed of Trust Trustee's and Beneficiary's rights and benefits hereunder, subject to Excepted Liens, and Trustor further agrees that the Deed of Trust Trustee and/or Beneficiary may take such other reasonable action as they deem advisable to protect and preserve their interests in the Mortgaged Property, and in such event Trustor will indemnify the Deed of Trust Trustee and Beneficiary against any and all costs, reasonable attorney's fees and other expenses which they may incur in defending against any such adverse claim. Such obligations shall be payable on demand and shall bear interest from the date of demand therefor until paid at the Note Rate. Any proceeds of any policy of title insurance maintained by Trustor with respect to the Mortgaged Property shall, for the purposes of this Deed of Trust, be paid and applied in the same manner as Insurance Proceeds (as hereinafter defined). (c) First Lien. This Deed of Trust is, and always will be kept, a direct first Lien and security interest upon the Mortgaged Property, subject to the Excepted Liens, and Trustor will not create or suffer to be created or permit to exist any Lien, security interest or charge prior or junior to or on parity with the Lien and security interest of this Deed of Trust upon the Mortgaged Property or any part thereof or upon the rents, issues, revenues, profits or other income therefrom, except for the Excepted Liens. (d) Maintenance of Mortgaged Property. Trustor will at its own expense do or cause to be done all things necessary to preserve and keep in full repair, working order and efficiency, -11- 13 reasonable wear and tear excepted, all of the Mortgaged Property, including, without limitation, all equipment, machinery and facilities, and from time to time will make all the needful and proper repairs, renewals and replacements so that at all times the state and condition of the Mortgaged Property will be fully preserved and maintained, unless the failure to repair, renew or replace would not materially interfere with the present use or operation of the Mortgaged Property. (e) Performance of Contracts; Operation of Plant. Trustor will promptly pay and discharge all rentals, or other payments and will perform or cause to be performed each and every act, matter or thing required by, each and all of the contracts, instruments or agreements executed in connection with or incident to the ownership and operation of the Chlor Alkali Plant (including without limitation the Plant Agreements) and being a portion of the Mortgaged Property and will do all other things necessary to keep unimpaired Trustor's rights with respect thereto and to prevent any forfeiture thereof or default thereunder, unless such forfeiture or default would not individually or in the aggregate have a Material Adverse Effect. Trustor will operate the facilities comprising the Chlor Alkali Plant in a good and workmanlike manner and in accordance with the practices of the industry and in compliance in all material respects with all Governmental Requirements affecting ownership and operation of such facilities, including without limitation, Environmental Laws. (f) Payment by the Trustee and/or Beneficiary. Trustor agrees that if Trustor fails to perform any act or to take any action which Trustor is required to perform or take hereunder or pay any money which Trustor is required to pay hereunder (taking into account applicable grace or cure periods), the Deed of Trust Trustee and/or Beneficiary in Trustor's name or its own name may, but shall not be obligated to, during the continuance of an Event of Default, perform or cause to perform such act or take such action or pay such money, and any expenses so incurred by the Deed of Trust Trustee or Beneficiary and any money so paid by the Deed of Trust Trustee or Beneficiary shall be a demand obligation owing by Trustor to the Deed of Trust Trustee or Beneficiary, and the Deed of Trust Trustee or Beneficiary, upon making such payment, shall be subrogated to all -12- 14 of the rights of the Person receiving such payment. Each amount due and owing by Trustor to holders of the Secured Obligations and/or the Deed of Trust Trustee pursuant to this Deed of Trust shall bear interest from the date of such expenditure or payment or other occurrence which gives rise to such amount being owed to the Deed of Trust Trustee or Beneficiary until paid at the Note Rate, and all such amounts together with such interest thereon shall be a part of the Secured Obligations and shall be secured by this Deed of Trust. (g) Name of Trustor. Trustor does not do business with respect to the Mortgaged Property under any name other than Pioneer Chlor Alkali Company, Inc. (h) Operation by Third Parties. To the extent any of the Mortgaged Property is operated by a party or parties other than Trustor, Trustor's covenants as expressed in this Section IV are modified to require that Trustor use its best efforts (including without limitation the reasonable exercise of all rights and remedies as are available to Trustor) to obtain compliance with such covenants by the operator or operators of the Mortgaged Property. (i) Compliance with Laws. The Chlor Alkali Plant complies in all material respects with all local zoning, land use, setback and other development, use and occupancy requirements of governmental authorities except for possible nonconforming uses or violations which do not and will not materially interfere with the present use, operation or maintenance thereof as now used, operated or maintained. (j) Payment of Taxes, Insurance Premiums, Assessments; Compliance with Law and Insurance Requirements. (i) Unless contested in accordance with the provisions of subsection IV(j)(v) hereof, Trustor shall pay and discharge or cause to be paid and discharged, from time to time when the same shall become due, all real estate and other taxes, special assessments, levies, permits, inspection and license fees, all premiums for insurance, all water and sewer rents and charges, and all other public charges imposed upon or assessed against the Mortgaged Property or any part thereof or upon the revenues, rents, issues, income and profits of the Mortgaged Property, including, without -13- 15 limitation, those arising in respect of the occupancy, use or possession thereof. (ii) During the continuance of an Event of Default, Trustor shall deposit with Beneficiary, on the first day of each month, an amount reasonably estimated by Trustor to be equal to one-twelfth (1/12th) of the annual taxes, assessments and other items required to be discharged by Trustor under subsection IV(j)(i) and amounts reasonably estimated by Trustor to be necessary to maintain the insurance coverages contemplated in subsection IV(l) below, which estimates shall not be less than one-twelfth (1/12th) of the annual taxes, assessments, insurance premiums and other items required to be discharged by Trustor during the year immediately preceding the year during which such Event of Default occurred. Such amounts shall be held by Beneficiary without interest to Trustor and applied to the payment of each obligation in respect of which such amounts were deposited, in such order or priority as Beneficiary shall determine, on or before the date on which such obligation would become delinquent. If at any time the amounts so deposited by Trustor shall, in Beneficiary's judgment, be insufficient (when added to the installments anticipated to be paid thereafter) to discharge any of such obligations when due, Trustor shall, immediately upon demand, deposit with Beneficiary such additional amounts as may be requested by Beneficiary. Nothing contained in this subsection IV(j) shall affect any right or remedy of the Deed of Trust Trustee or Beneficiary under any provision of this Deed of Trust or of any statute or rule of law to pay any such amount from its own funds (provided, however, that neither the Deed of Trust Trustee nor Beneficiary shall in any event be obligated to pay any of such amounts from its own funds) and to add the amount so paid, together with interest at the Note Rate, to the Secured Obligations, or relieve Trustor of its obligations to make or provide for the payment of the annual taxes, assessments and other charges required to be discharged by Trustor under subsection IV(j)(i). Trustor hereby grants to Beneficiary a security interest in all sums held pursuant to this subsection IV(j)(ii) to secure payment and performance of the Secured Obligations. During the continuance of any Event of Default, Beneficiary may apply all or any part of the sums held pursuant to this subsection IV(j)(ii) to payment and performance of the Secured Obligations in accordance with the provisions of -14- 16 the Intercreditor Agreement. Trustor shall redeposit with Beneficiary an amount equal to all amounts so applied as a condition to the cure, if any, of such Event of Default, in addition to fulfillment of any other required conditions. (iii) Unless contested in accordance with the provisions of subsection IV(j)(v), Trustor shall timely pay (or obtain a bond in the amount of) all lawful claims and demands of mechanics, materialmen, laborers, warehousemen, employees, suppliers, government agencies administering worker's compensation insurance, old age pensions and social security benefits and all other claims, judgments, demands or amounts of any nature which, if unpaid or not bonded, could result in or permit the creation of a Lien (other than an Excepted Lien) on the Mortgaged Property or any part thereof or the Rents arising therefrom, or which might result in forfeiture of all or any part of the Mortgaged Property. (iv) Trustor shall maintain, or cause to be maintained, in full force and effect, all permits, certificates, authorizations, consents, approvals, registrations, filings, licenses, franchises or other instruments now or hereafter required by any Governmental Authority to operate or use and occupy the Chlor Alkali Plant and the Equipment for its intended uses (collectively, the "Permits"; each, a "Permit"), unless the failure to maintain such Permits would not individually or in the aggregate have a Material Adverse Effect. Trustor represents that, to its knowledge and subject to those requirements for notice, approval or reissuance set forth by applicable law, none of the Permits will be subject to cancellation, forfeiture or any limitation on the scope thereof solely by virtue of the execution of this Deed of Trust or the foreclosure of the Lien hereof. Unless contested in accordance with the provisions of subsection IV(j)(v), Trustor shall comply promptly with, or cause prompt compliance with, all requirements set forth in the Permits and all Governmental Requirements applicable to all or any part of the Mortgaged Property or the condition, use or occupancy of all or any part thereof or any recorded deed of restriction, declaration, covenant running with the land or otherwise, now or hereafter in force unless the compliance therewith would not individually or in the aggregate have a Material Adverse Effect. Trustor shall not initiate or consent to any change in the -15- 17 zoning, subdivision or any other use classification of the Land, if such action could have a material adverse effect on the Lien of this Deed of Trust or materially impair the present use and operation of the Mortgaged Property or materially impair Beneficiary's rights or benefits hereunder, without the prior written consent of Beneficiary. (v) Trustor may at its own expense contest the amount or applicability of any of the obligations described in subsections IV(j)(i), IV(j)(iii) and IV(j)(iv) by appropriate legal proceedings, prosecution of which operates to prevent the collection or enforcement thereof or the sale or forfeiture of the Mortgaged Property or any part thereof to satisfy such obligations; provided, however, that (A) any such contest shall be conducted in good faith by appropriate legal proceedings promptly instituted and diligently conducted and (B) in connection with such contest, Trustor shall have made provision for the payment or performance of such contested obligation on Trustor's books if and to the extent required by generally accepted accounting principles then utilized by Trustor in the preparation of its financial statements, or shall have deposited with Beneficiary a sum sufficient to pay and discharge such obligation and Beneficiary's estimate of all interest and penalties related thereto. Notwithstanding the foregoing provisions of this subsection IV(j)(v), (A) no contest of any such obligations may be pursued by Trustor if such contest would expose the Deed of Trust Trustee, Beneficiary, or any other Secured Party to any possible criminal liability or, unless Trustor shall have furnished an Additional Undertaking (as hereinafter defined) therefor satisfactory to the Deed of Trust Trustee, Beneficiary, or such other Secured Party, as the case may be, any civil liability for failure to comply with such obligations and (B) if at any time payment or performance of any obligation contested by Trustor pursuant to this subsection IV(j)(v) shall become necessary to prevent the delivery of a tax or similar deed conveying the Mortgaged Property or any portion thereof because of nonpayment or nonperformance, Trustor shall pay or perform the same in sufficient time to prevent the delivery of such tax or similar deed. (vi) Trustor shall not in its use and occupancy of the Chlor Alkali Plant or the Equipment (including, without -16- 18 limitation, in the making of any Alteration) take any action that would cause the termination, revocation or denial of any insurance coverage required to be maintained under this Deed of Trust or that pursuant to written notice from any applicable insurer, would be the basis for a defense to any claim under any insurance policy maintained in respect of the Chlor Alkali Plant or the Equipment and Trustor shall otherwise comply in all material respects with the requirements of any insurer that issues a policy of insurance in respect of the Chlor Alkali Plant or the Equipment. (vii) Trustor shall, promptly upon receipt of any written notice regarding any failure by Trustor to pay or discharge any of the obligations described in subsection IV(j)(i) or (vi), furnish a copy of such notice to Beneficiary. Trustor shall, promptly upon receipt of any written notice regarding any failure by Trustor to pay or discharge any of the obligations described in subsection IV(j)(iii) or (iv), furnish a copy of such notice to Beneficiary, if such failure would have a Material Adverse Effect. (k) Certain Tax Law Changes. In the event of the passage after the date of this Deed of Trust of any law deducting from the value of real property, for the purpose of taxation, amounts in respect of any Lien thereon or changing in any way the laws for the taxation of deeds of trust or debts secured by deeds of trust for state or local purposes or the manner of the collection of any such taxes, and imposing a new tax, either directly or indirectly, on this Deed of Trust or the interest of any Secured Party in any Mortgaged Property (other than income, franchise or similar taxes imposed on such Secured Party), or in the event that any regulation or regulatory amendment becoming effective after the date hereof imposes any State tax on interest income received with respect to any Secured Obligation, Trustor shall promptly pay the applicable Secured Party such amount or amounts as may be necessary from time to time to pay such tax. (l) Required Insurance Policies. (i) Trustor shall maintain, or cause to be maintained, in full force and effect the following insurance coverages in respect of the Chlor Alkali Plant and the Equipment: -17- 19 (A) Physical hazard insurance on an "all risk" basis covering hazards commonly covered by fire and extended coverage, lightning, civil commotion, hail, riot, strike, water damage, sprinkler leakage, collapse and malicious mischief, in an amount equal to the full replacement cost of the Improvements and all Equipment, with such deductibles as would be maintained by a prudent operator of property similar in use and configuration to the Chlor Alkali Plant and located in the locality where the Chlor Alkali Plant is located. "Full replacement cost" means the cost of construction to replace the Improvements and the Equipment, exclusive of depreciation, excavation, foundation and footings, as determined from time to time by a proper officer of Trustor in consultation with its insurance company or insurance agent, as appropriate; (B) Comprehensive general liability insurance against claims for bodily injury, death or property damage occurring on, in or about the Chlor Alkali Plant and any adjoining streets, sidewalks and passageways and covering any and all claims, including, without limitation, all legal liability, subject to customary exclusions, to the extent insurable, imposed upon Beneficiary or any Secured Party and all court costs and attorneys' fees, arising out of or connected with the possession, use, leasing, operation or condition of the Chlor Alkali Plant, with policy limits and deductibles in such amounts as would be maintained by a prudent operator of property similar in use and configuration to the Chlor Alkali Plant and located in the locality where the Chlor Alkali Plant is located; (C) Workers' compensation insurance as required by the laws of the State to protect Trustor against claims for injuries sustained in the course of employment at the Chlor Alkali Plant; (D) Comprehensive boiler and machinery insurance to cover sudden and accidental breakdown, including but not limited to, explosion of any boilers and machinery located on the Chlor Alkali Plant or comprising any Equipment, with policy limits and deductibles in such amounts as would be maintained by a prudent operator of property similar in use -18- 20 and configuration to the Chlor Alkali Plant and the Equipment and located in the locality where the Chlor Alkali Plant is located; (E) Comprehensive automobile liability insurance policy against claims for bodily injury, death and property damage covering all owned, leased, non-owned and hired motor vehicles, including loading and unloading in such amounts as would be maintained by a prudent operator of property similar in use and configuration to the Chlor Alkali Plant and the Equipment and located in the locality where the Chlor Alkali Plant is located; (F) Business interruption insurance on an annual basis in amounts not less than the projected gross profit of the Chlor Alkali Plant during the applicable twelve-month period but in no event less than the amount necessary to pay the fixed charges and other expenses of owning, operating and maintaining the Mortgaged Property for the same period; (G) To the extent not otherwise covered by the insurance required under clauses (A) and (B) of this subsection IV(l)(i), during the performance of any alterations, renovations, repairs, restorations or construction, broad form Builders Risk Insurance on an all-risk completed value basis; and (H) Such other insurance, against such risks and with policy limits and deductibles in such amounts as would be maintained by a prudent operator of property similar in use and configuration to the Chlor Alkali Plant and located in the locality in which the Chlor Alkali Plant is located. (ii) Trustor may maintain the coverages required by this subsection IV(l) under blanket policies covering the Chlor Alkali Plant and other locations owned or operated by Trustor if the terms of such blanket policies otherwise comply with the provisions of this subsection IV(l) and contain specific coverage allocations in respect of the Chlor Alkali Plant determined in accordance with the provisions of this subsection IV(l). All insurance policies in respect of the coverages required by subsections IV(l)(i)(A), IV(l)(i)(D), IV(l)(i)(G) and, if -19- 21 applicable, IV(l)(i)(H) shall be in amounts at least sufficient to prevent coinsurance liability and all losses thereunder shall be payable to Beneficiary, as loss payee, subject to the terms of the Intercreditor Agreement, pursuant to a standard noncontributory New York mortgage endorsement or local equivalent, and each such policy shall, to the extent obtainable at commercially reasonable costs, (A) include effective waivers (whether under the terms of such policy or otherwise) by the insurer of all claims for insurance premiums against all loss payees and named insureds other than Trustor and all rights of subrogation against any named insured, and (B) provide that any losses thereunder shall be payable notwithstanding (1) any act, failure to act, negligence of, or violation or breach of warranties, declarations or conditions contained in such policy by Trustor or Beneficiary or any other named insured or loss payee, (2) the occupation or use of the Chlor Alkali Plant or the Equipment for purposes more hazardous than permitted by the terms of the policy, (3) any foreclosure or other proceeding or notice of sale relating to the Chlor Alkali Plant or the Equipment or (4) any change in the title to or ownership or possession of the Chlor Alkali Plant or the Equipment; provided, however, that (with respect to items contemplated in clauses (3) and (4) above) any notice requirements of the applicable policies are satisfied. All insurance policies in respect of the coverages required by subsections IV(l)(i)(B), IV(l)(i)(E) and, if applicable, IV(l)(i)(H) shall name Beneficiary as an additional insured. Each policy of insurance required under this subsection IV(l) shall provide that (A) notices of any failure by Trustor to pay any insurance premium in respect thereof, be furnished to Beneficiary contemporaneously with any such notice given to Trustor and (B) it may not be cancelled or otherwise terminated without at least twenty (20) days' prior written notice to Beneficiary and shall permit Beneficiary to pay any premium therefor within twenty (20) days after receipt of any notice stating that such premium has not been paid when due. The policy or policies of such insurance or certificates of insurance evidencing the required coverages and all renewals or extensions thereof shall be delivered to Beneficiary upon receipt by Trustor. Settlement of any claim under any of the insurance policies referred to in this subsection IV(l) (other than the insurance contemplated in clause(C) of this subsection IV(l)(i)) which in Trustor's reasonable judgment involves loss of -20- 22 $1,000,000 or more, shall require the prior approval of Beneficiary (acting pursuant to the provisions of the Intercreditor Agreement) and Trustor shall use its best efforts to cause each such insurance policy to contain a provision to such effect. (iii) At least fifteen (15) days prior to the expiration of any insurance policy required by this subsection IV(l), Trustor shall deliver to Beneficiary evidence that such policy or policies shall be renewed or extended and Trustor shall deliver promptly to Beneficiary after receipt thereof the policy or policies renewing or extending such expiring policy or renewal or extension certificates or other evidence of renewal or extension, together with a receipt showing payment of the premium thereof. (iv) Trustor shall not purchase additional policies in respect of the insurance coverages required to be maintained under this subsection IV(l), unless Beneficiary is included thereon as an additional named insured and, if applicable, with loss payable to Beneficiary under an endorsement containing the provisions described in subsection IV(l)(ii) and the policy evidencing such insurance otherwise complies with the requirements of subsection IV(l)(ii). Trustor immediately shall notify Beneficiary whenever any such separate insurance policy is obtained and promptly shall deliver to Beneficiary the policy or certificate evidencing such insurance. (m) Inspection. Trustor shall permit Beneficiary, by its agents, accountants and attorneys, to visit and inspect the Mortgaged Property upon reasonable prior notice at such times as may be reasonably requested by Beneficiary. (n) Trustor To Maintain Improvements. Trustor shall not commit any waste on the Chlor Alkali Plant or with respect to any Equipment or make any change in the use of the Chlor Alkali Plant or any Equipment. Trustor represents and warrants that (i) to Trustor's knowledge, the Chlor Alkali Plant is served by all electric, gas, sewer, water facilities and any other utilities required or necessary for the current use thereof and any easements or servitudes necessary to the furnishing of such utility service by Trustor have been obtained and duly recorded, -21- 23 and (ii) Trustor has access to the Chlor Alkali Plant from public roads sufficient to allow Trustor and its tenants and invitees to conduct its and their businesses at the Chlor Alkali Plant as it is currently conducted. Trustor shall not materially alter the occupancy or use of the Chlor Alkali Plant without the prior written consent of Beneficiary. Except as otherwise permitted by the Intercreditor Agreement no Improvements comprising a portion of the Chlor Alkali Plant may be demolished nor shall any Equipment be removed without the prior written consent of Beneficiary. (o) Leases. (i) All of the Leases are valid and effective in accordance with their respective terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar law affecting or relating to enforcement of creditors' rights generally, and (ii) general equitable principles. To Trustor's knowledge, Trustor is not in material breach of or in default (and to Trustor's knowledge, no event has occurred which with due notice or lapse of time or both, may constitute such a material breach or default) under any Lease, and no party to any Lease has given Trustor written notice of or made a claim with respect to any breach or default, the consequences of which, individually or in the aggregate, would have a Material Adverse Effect on Trustor. (ii) Trustor shall manage and operate the Mortgaged Property or cause the Mortgaged Property to be managed and operated in a reasonably prudent manner and, except as otherwise permitted under subsection IV(p), will not enter into any Lease (or any amendment or modification thereof) or other agreement subsequent to the date hereof with any Person which, in the reasonable judgment of Trustor, individually or in the aggregate, would have a Material Adverse Effect on the value of the property subject thereto. (iii) Trustor shall not: (A) receive or collect, or permit the receipt or collection of, any rental or other payments under any Lease more than one (1) month in advance of the respective period in respect of which they are to accrue, except that (a) in -22- 24 connection with the execution and delivery of any Lease or of any amendment to any Lease, rental payments thereunder may be collected and received in advance in an amount not in excess of one (1) month's rent and (b) Trustor may receive and collect escalation and other charges in accordance with the terms of each Lease; (B) assign, transfer or hypothecate (other than to Beneficiary hereunder or as otherwise permitted under subsection IV(p) of this Deed of Trust) any rental or other payment under any Lease whether then due or to accrue in the future, the interest of Trustor as lessor under any Lease or the rents, issues, revenues, profits or other income of the Mortgaged Property; (C) enter into any Lease after the date hereof that does not contain terms to the effect as follows: (1) such Lease and the rights of the tenant thereunder shall be subject and subordinate to the rights of Beneficiary under and the Lien of this Deed of Trust; (2) such Lease has been assigned as collateral security by Trustor as landlord thereunder to Beneficiary under this Deed of Trust; (3) in the case of any foreclosure hereunder, the rights and remedies of the tenant in respect of any obligations of any successor landlord thereunder shall be limited to the equity interest of such successor landlord in the Chlor Alkali Plant and any successor landlord shall not (a) be liable for any act, omission or default of any prior landlord under the Lease or (b) be required to make or complete any tenant improvements or capital improvements or repair, restore, rebuild or replace the demised premises or any part thereof in the event of damage, casualty or condemnation or (c) be required to pay any amounts to tenant arising under the Lease prior to such successor landlord taking possession; -23- 25 (4) the tenant's obligation to pay rent and any additional rent shall not be subject to any abatement, deduction, counterclaim or setoff as against Beneficiary or any purchaser upon the foreclosure of any portion of the Chlor Alkali Plant or the giving or granting of a deed in lieu thereof by reason of a landlord default occurring prior to such foreclosure, and Beneficiary or such purchaser will not be bound by any advance payments of rent in excess of one month or any security deposits unless such security was actually received; and (5) the tenant agrees to attorn, at the option of Beneficiary or any purchaser of the Chlor Alkali Plant, to the successor owner upon a foreclosure of the Chlor Alkali Plant or the giving or granting of a deed in lieu thereof; and (D) terminate or permit the termination of any Lease of space, accept surrender of all or any portion of the space demised under any Lease prior to the end of the term thereof or accept assignment of any Lease to Trustor which, in the reasonable judgment of Trustor, individually or in the aggregate, would have a Material Adverse Effect or materially impair the Lien of this Deed of Trust therein unless: (1) the tenant under such Lease has not paid the equivalent of two months' rent and Trustor has made reasonable efforts to collect such rent; or (2) Trustor shall deliver to Beneficiary an Officers' Certificate to the effect that Trustor has entered into a new Lease (or Leases) for the space covered by the terminated or assigned Lease with a term (or terms) which expire(s) no earlier than the date on which the terminated or assigned Lease was to expire (excluding renewal options), and with a tenant (or tenants) having a creditworthiness (as reasonably determined by Trustor) sufficient to pay the rent and other charges due under the new Lease (or Leases), and the tenant(s) shall have commenced paying rent, -24- 26 including, without limitation, all operating expenses and other amounts payable under the new Lease (or Leases), without any abatement or concession, in an amount at least equal to the amount which would have then been payable under the terminated or assigned Lease. (iv) Trustor timely shall perform and observe all the terms, covenants and conditions required to be performed and observed by Trustor under each Lease and will not engage in any conduct in respect of any Lease which would have individually or in the aggregate a Material Adverse Effect or materially impair the Lien of this Deed of Trust or the security interest created hereby. Trustor promptly shall notify Beneficiary of the receipt of any notice from any lessee under any Lease claiming that Trustor is in material default in the performance or observance of any of the terms, covenants or conditions thereof to be performed or observed by Trustor and will cause a copy of each such notice to be delivered promptly to Beneficiary. (p) Transfer Restrictions. Except as otherwise permitted by the Intercreditor Agreement, Trustor shall not, without the prior written consent of Beneficiary, further mortgage, encumber, hypothecate, sell, convey or assign all or any part of the Mortgaged Property or suffer any of the foregoing to occur by operation of law or otherwise (each a "Transfer"); provided, however, Trustor may so encumber the Mortgaged Property to the extent such encumbrances are of the kind listed in clause (e) of the definition of "Excepted Liens". Any proceeds of such permitted Transfer shall be deemed Collateral Proceeds (as such term is defined in the Indenture) and are hereby assigned and shall be paid to Beneficiary to be held in the Collateral Account and disbursed pursuant to the Intercreditor Agreement. (q) Destruction; Condemnation. (i) Destruction; Insurance Proceeds. If there shall occur any damage to, or loss or destruction of, the Improvements and Equipment, or any part of any thereof (each, a "Destruction"), Trustor shall promptly send to Beneficiary a notice setting forth the nature and extent of such Destruction. The proceeds of any insurance payable in respect of any such -25- 27 Destruction are hereby assigned and shall be paid to Beneficiary to be held in the Collateral Account; provided, however, that so long as no Event of Default shall have occurred and be continuing, if such proceeds are in an amount less than $1,000,000, such proceeds shall be paid directly to Trustor. All insurance proceeds paid to Beneficiary pursuant to this subsection, less the amount of any expenses incurred in litigating, arbitrating, compromising or settling any claim arising out of such Destruction (the "Insurance Proceeds"), shall constitute Trust Moneys and be applied in accordance with the provisions of subsections IV(q)(iii), IV(q)(iv) and IV(q)(v). (ii) Condemnation; Assignment of Award. If there shall occur any taking of the Mortgaged Property or any part thereof, in or by condemnation or other eminent domain proceedings pursuant to any law, general or special, or by reason of the temporary requisition of the use or occupancy of the Mortgaged Property or any part thereof, by any governmental authority, civil or military (each, a "Taking"), Trustor immediately shall notify Beneficiary upon receiving notice of such Taking or commencement of proceedings therefor. Beneficiary may (but shall not be obligated to) participate in any proceedings or negotiations which might result in any Taking. Beneficiary may be represented by counsel satisfactory to it at the expense of Trustor. Trustor shall deliver or cause to be delivered to Beneficiary all instruments requested by it to permit such participation. Trustor shall in good faith and with due diligence file and prosecute what would otherwise be Trustor's claim for any such award or payment and cause the same to be collected and paid over to Beneficiary, and hereby irrevocably authorizes and empowers Beneficiary, in the name of Trustor as its true and lawful attorney-in-fact or otherwise, during the continuance of an Event of Default to collect and to receipt for any such award or payment, and, in the event Trustor fails so to act, to file and prosecute such claim. Trustor shall pay all costs, fees and expenses incurred by Beneficiary in connection with any Taking and seeking and obtaining any award or payment on account thereof. Any proceeds, award or payment in respect of any Taking are hereby assigned and shall be paid to Beneficiary to be held in the Collateral Account; provided, however, that so long as no Event of Default shall have occurred and be continuing, if such proceeds are in an amount less than -26- 28 $1,000,000, such proceeds shall be paid directly to Trustor. Trustor shall take all steps necessary to notify the condemning authority of such assignment. Such proceeds, award or payment paid to Beneficiary, less the amount of any expenses incurred in litigating, arbitrating, compromising or settling any claim arising out of such Taking ("Net Award"), shall constitute Trust Moneys and be applied in accordance with the provisions of subsections IV(q)(iii), IV(q)(iv) and IV(q)(v). (iii) Payment or Restoration. So long as no Event of Default shall have occurred and be continuing, Trustor shall have the right, at Trustor's option, to require Beneficiary to apply such Net Award or Insurance Proceeds to the payment of the Secured Obligations, in accordance with the Intercreditor Agreement or to perform a restoration (each, a "Restoration") of the affected portions of the Chlor Alkali Plant and the Equipment. In the event that Trustor elects to make such payment, such Net Award or Insurance Proceeds shall be delivered to the Beneficiary to be held as Trust Moneys subject to withdrawal and application by Beneficiary in accordance with the provisions of the Intercreditor Agreement. In the event Trustor elects to perform a Restoration, Trustor shall give written notice ("Restoration Election Notice") of such election to Beneficiary within twenty (20) business days after the date that Beneficiary receives the applicable Insurance Proceeds or Net Award, as the case may be. Trustor shall, within twenty (20) business days following the date of delivery of a Restoration Election Notice, commence and diligently continue to perform the Restoration of that portion or portions of the Chlor Alkali Plant and Equipment subject to such Destruction or affected by such Taking so that, upon the completion of the Restoration, the Mortgaged Property shall be in the same condition and shall be of at least equal utility for its intended purposes as the Mortgaged Property was immediately prior to such Destruction or Taking. Trustor shall so complete such Restoration with its own funds to the extent that the amount of any Net Award or Insurance Proceeds is insufficient for such purpose. In the event Beneficiary does not receive a Restoration Election Notice within such twenty (20) business day period, Beneficiary shall apply such Insurance Proceeds or Net Award to the payment of the Secured Obligations, in accordance with the provisions of the Intercreditor Agreement. -27- 29 (iv) Restoration. In the event a Restoration is to be performed under this subsection IV(q)(iv), Beneficiary shall not release any part of the Net Award or the Insurance Proceeds except in accordance with the provisions of subsection IV(q)(v) and Trustor shall, prior to commencing any work to effect a Restoration of the Chlor Alkali Plant and the Equipment, promptly (but in no event later than one-hundred twenty (120) days following any Destruction or Taking) furnish to Beneficiary: (A) complete plans and specifications (the "Plans and Specifications") for the Restoration; (B) an officers' certificate stating that all permits and approvals required by law to commence work in connection with the Restoration have been obtained; (C) a certificate (an "Architect's Certificate") of an independent, reputable architect or engineer acceptable to Beneficiary and licensed in the State (1) stating that the Plans and Specifications have been reviewed and approved by the signatory thereto, (2) containing such signatory's estimate (an "Estimate") of the costs of completing the Restoration, and (3) upon completion of such Restoration in accordance with the Plans and Specifications, the utility of the Chlor Alkali Plant and the Equipment will be equal to or greater than the utility thereof immediately prior to the Destruction or Taking relating to such Restoration; and (D) if the Estimate exceeds the Insurance Proceeds or the Net Award, as the case may be, by $5,000,000 or more, an Additional Undertaking in an amount equal to not less than the Estimate less the amount of the Insurance Proceeds or the Net Award, as the case may be, then held by Beneficiary for application toward the cost of such Restoration. Upon receipt by Beneficiary of each of the items required pursuant to clauses (A) through (D) above, Beneficiary shall acknowledge receipt of the Plans and Specifications. Promptly upon such acknowledgment of receipt by Beneficiary, Trustor shall commence and diligently continue to perform the Restoration substantially in accordance with such Plans and Specifications and in material compliance with all Governmental -28- 30 Requirements, free and clear of all Liens except Excepted Liens. Trustor shall so complete such Restoration with its own funds to the extent that the amount of any Net Award or Insurance Proceeds is insufficient for such purpose. (v) Restoration Advances Following Destruction or Taking of Mortgaged Property. In the event Trustor performs a Restoration of the Chlor Alkali Plant and Equipment as provided in subsection IV(q)(iv), Beneficiary shall apply any Insurance Proceeds or Net Award held by Beneficiary on account of the Destruction or Taking to the payment of the cost of performing such Restoration pursuant to the relevant provisions of the Intercreditor Agreement. In the event there shall be any surplus after application of the Net Award or the Insurance Proceeds to Restoration of the Chlor Alkali Plant and the Equipment, such surplus shall become Net Proceeds, as defined in the Indenture and shall be paid by Beneficiary to the Note Trustee for application in accordance thereunder; provided, however, that if an Event of Default shall have occurred and be continuing, such surplus shall be applied by Beneficiary to the payment of the Secured Obligations, in accordance with Article 6 of the Intercreditor Agreement. Notwithstanding anything to the contrary herein, if a Destruction or Taking of all or substantially all of the Mortgaged Property occurs on a date which is less than 12 months prior to Maturity, as such term is defined in the Indenture, all Insurance Proceeds and Net Awards shall be applied to the permanent repayment or prepayment of any Secured Obligations then outstanding in accordance with the Intercreditor Agreement. (r) Alterations. Trustor shall not make any material structural addition, modification or change (each, an "Alteration") to the Chlor Alkali Plant or the Equipment which would materially diminish the utility of the Mortgaged Property or impair the Lien of this Deed of Trust thereon. Whether or not Beneficiary has consented to the making of any Alteration, Trustor shall (i) complete each Alteration promptly, in a good and workmanlike manner and in material compliance with all applicable local laws, ordinances and requirements and (ii) pay when due all claims for labor performed and materials furnished in connection with such Alteration, unless contested in accordance with the provisions of subsection IV(j)(v). -29- 31 (s) Hazardous Material. (i) Except with respect to those matters which would not reasonably be expected to have a Material Adverse Effect, to the best knowledge of Trustor, Trustor holds all Permits required to permit Trustor to conduct its business in the manner now conducted and none of the Trustor's operations are being conducted in a manner that violates in any material respect the terms and conditions under which any such Permit was granted, including without limitation, under any Environmental Laws, except those permits that are expected to be transferred in the ordinary course after the date hereof; to the best knowledge of Trustor all such Permits are valid and in full force and effect; and to the knowledge of Trustor, no suspension, cancellation, revocation or termination of any such Permit is threatened. (ii) Except as set forth in the Term Loan Agreement, there are no material claims, actions, suits, proceedings or investigations pending or to the knowledge of Trustor, threatened, before any Governmental Authority or before any arbitrator brought by or against Trustor or with respect to any of the Mortgaged Property the basis of which is any Environmental Law. (iii) Trustor shall (or shall cause other parties obligated to do so under contract or indemnity to) (A) take all commercially reasonable actions to comply with any and all applicable present and future Environmental Laws relating to the Chlor Alkali Plant; (B) pay in a timely fashion the cost of any removal, response measure or corrective action relating to any Hazardous Materials required by any Environmental Law or any order, regulation, consent decree or similar agreement or instrument and keep the Mortgaged Property free of any Lien imposed pursuant to any Environmental Law; (C) take all commercially reasonable actions to not release, discharge or dispose of any Hazardous Materials on, under or from the Mortgaged Property in violation of any Environmental Law; (D) apply any insurance proceeds or other sums received by it in respect of the removal of any Hazardous Material or any other corrective action relating to any Hazardous Material to such removal or corrective action; and (E) not take, or fail to take any action with respect to any Environmental Laws or in connection with any Hazardous Materials that could reasonably be expected to result in the incurrence of any obligation or liability of any Secured Party. During the continuance of an Event of Default, in the event Trustor fails to comply with the covenants in the preceding sentence, Beneficiary may (upon receipt of an indemnity satisfactory to Beneficiary), in addition to any other remedies set forth herein, but shall not be obligated to, as trustee for and at Trustor's sole cost and expense cause to be taken, any remediation, removal, response or corrective action relating to Hazardous Materials that is required by Environmental Law and is not being done or contested by Trustor. Any costs or expenses incurred by Beneficiary for such purpose shall be immediately due and payable by Trustor and shall bear interest at the Note Rate. Trustor shall provide to Beneficiary and its agents and employees access to the Mortgaged Property to take any action required by Environmental Laws, or in -30- 32 connection with any Hazardous Materials, that could be expected to result in the incurrence of any obligation or liability of any Secured Party, if Trustor fails to do so and such action or removal is required under any Environmental Laws as provided above. Upon written request by Beneficiary, which shall include a reasonably specific statement of the basis thereof (which shall be specific to the condition of the Mortgaged Property and the alleged violation of Environmental Law) and which shall be made not more frequently than once in any twelve-month period or at any time that Beneficiary is exercising its remedies under this Deed of Trust, Beneficiary shall have the right (upon receipt of an indemnity satisfactory to Beneficiary), but shall not be obligated, at the sole cost and expense of Trustor, to conduct an environmental audit or review of the Mortgaged Property relating to the specific items as required in writing or relating to the remedy that Beneficiary is exercising under this Deed of Trust by persons or firms appointed by Beneficiary, and Trustor shall cooperate in all reasonable respects in the conduct of such environmental audit or review, including, without limitation, by providing reasonable access to the Mortgaged Property and to all records relating thereto. Such audit or review shall be conducted in a manner that would not reasonably be expected to impose any additional material obligation upon, or materially increase any obligation of, OCC Tacoma, Inc. or its successors ("OCC") under that certain Asset Purchase Agreement dated as of June 17, 1997 between OCC and Pioneer Companies, Inc., which -31- 33 agreement was assigned by Pioneer Companies, Inc. to Trustor pursuant to the Assignment and Assumption Agreement dated as of June 17, 1997, or any Related Agreements (as defined in said Asset Purchase Agreement), with respect to Hazardous Materials at the Mortgaged Property. Trustor shall indemnify and hold the Secured Parties harmless from and against all loss, cost, damage or expense (including, without limitation, attorneys' fees) that any Secured Party may sustain by reason of the assertion against such party of any claim relating to such Hazardous Materials or actions taken with respect thereto as authorized hereunder. Nothing contained herein shall result in any Secured Party being deemed an "owner" or "operator" under applicable Environmental Law. (iv) Trustor may at its own expense contest the amount or applicability of any of the obligations described in the first sentence of subsection IV(s)(iii) by appropriate legal proceedings, prosecution of which operates to prevent the enforcement thereof; provided, however, that (A) any such contest shall be conducted in good faith by appropriate legal proceedings promptly instituted and diligently conducted and (B) in connection with such contest, Trustor shall have made provision for the payment or performance of such contested obligation on Trustor's books if and to the extent required by generally accepted accounting principles then utilized by Trustor in the preparation of its financial statements, or shall have deposited with Beneficiary a sum sufficient to pay and discharge such obligation and Beneficiary's estimate of all interest and penalties related thereto. Notwithstanding the foregoing provisions of this subsection IV(s)(iv), no contest of any such obligations may be pursued by Trustor if such contest would expose the Deed of Trust Trustee, Beneficiary, or any other Secured Party to any possible criminal liability or, unless Trustor shall have furnished an Additional Undertaking (as hereinafter defined) therefor satisfactory to the Deed of Trust Trustee, Beneficiary or such other Secured Party, as the case may be, any civil liability for failure to comply with such obligations. (t) Asbestos. Trustor shall not install nor permit to be installed in the Mortgaged Property friable asbestos or any asbestos-containing material (collectively, "ACM") except in -32- 34 compliance with all applicable Environmental Laws respecting such material. With respect to any ACM currently present in the Mortgaged Property, except with respect to matters which would not have a Material Adverse Effect, Trustor shall comply with all federal, state or local laws, regulations or orders applicable to ACM located on the Chlor Alkali Plant, all at Trustor's sole cost and expense. If Trustor shall fail so to comply with such laws or regulations, Beneficiary may (upon receipt of an indemnity satisfactory to Beneficiary) during the continuance of an Event of Default, but shall not be obligated to, in addition to any other remedies set forth herein, take those steps reasonably necessary to comply with applicable law, regulations or orders. Any costs or expenses incurred by Beneficiary for such purpose shall be immediately due and payable by Trustor and bear interest at the Note Rate. Trustor shall provide to Beneficiary and its agents and employees reasonable access to the Mortgaged Property upon reasonable prior notice to remove such ACM if Trustor fails to do so and removal is required under any Environmental Law as provided for above; provided, however, that nothing contained herein shall obligate Beneficiary to exercise any rights under such license. Trustor shall indemnify and hold the Secured Party harmless from and against all loss, cost, damage and expense that any Secured Party may sustain as a result of the presence of any ACM and any removal thereof in compliance with any applicable Environmental Law. (u) Books and Records; Reports. Trustor shall keep proper books of record and account, which shall accurately represent the financial condition of Trustor and the business affairs of Trustor relating to the Mortgaged Property. Beneficiary and its authorized representatives shall have the right, from time to time, upon reasonable prior notice to examine the books and records of Trustor relating to the operation of the Mortgaged Property at the office of Trustor. (v) No Claims Against Beneficiary. Nothing contained in this Deed of Trust shall constitute any consent or request by Beneficiary, express or implied, for the performance of any labor or services or the furnishing -33- 35 of any materials or other property in respect of the Chlor Alkali Plant or any part thereof, nor as giving Trustor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Beneficiary in respect thereof or any claim that any Lien based on the performance of such labor or services or the furnishing of any such materials or other property is prior to the Lien of this Deed of Trust. (w) Utility Services. Trustor shall pay, or cause to be paid, when due all charges for all public or private utility services, all public or private rail and highway services, all public or private communication services, all sprinkler systems, and all protective services, any other services of whatever kind or nature at any time rendered to or in connection with the Chlor Alkali Plant or any part thereof, shall comply in all material respects with all contracts relating to any such services, and shall do all other things reasonably required for the maintenance and continuance of all such services to the extent required to fulfill the obligations set forth in subsection IV(n). (x) Notwithstanding any provisions herein to the contrary, Trustor shall retain the right, at all times prior to foreclosure (or deed-in-lieu thereof), to exercise custody and control with respect to actions to be taken at the Mortgaged Property relating to the environmental condition thereof, but only to the extent Trustor's exercise of such custody and control of the Mortgaged Property is necessary for Trustor and/or its affiliates to retain any and all benefits inuring to Trustor and/or its affiliates under the indemnification provided by OCC in Article III of the Environmental Operating Agreement dated as of June 17, 1997 between Trustor and OCC. SECTION V - ASSIGNMENT OF LEASES, RENTS, ISSUES AND PROFITS (a) Trustor absolutely, presently and irrevocably assigns, transfers and sets over to Beneficiary and grants to Beneficiary, subject to the terms and conditions hereof, all Trustor's estate, right, title and interest (the "Trustor's Interest") in the Leases including, without limitation, the following: (i) the immediate and continuing right to receive and collect Rents payable by all tenants or other parties pursuant to Leases; -34- 36 (ii) all claims, rights, powers, privileges and remedies of Trustor, whether provided for in any Lease or arising by statute or at law or in equity or otherwise, consequent on any failure on the part of any tenant to perform or comply with any term of any Lease; (iii) all rights to take all actions upon the happening of a default under any Lease as shall be permitted by such Lease or by law, including, without limitation, the commencement, conduct and consummation of proceedings at law or in equity; and (iv) the full power and authority, in the name of Trustor or otherwise, to enforce, collect, receive and receipt for any and all of the foregoing and to do any and all other acts and things whatsoever which Trustor or any landlord is or may be entitled to do under the Leases. (b) Any Rents receivable by Beneficiary hereunder, after payment of all proper costs and charges, shall be applied, in accordance with the Intercreditor Agreement, to all amounts due and owing with respect to the Secured Obligations. Beneficiary shall be accountable to Trustor only for Rents actually received by Beneficiary pursuant to this assignment. The collection of such Rents and the application thereof shall not cure or waive any Event of Default or waive, modify or affect notice of an Event of Default or invalidate any act done pursuant to such notice. (c) So long as no Event of Default shall have occurred and be continuing, Trustor shall have a license to collect and apply the Rents and to enforce the obligations of tenants under the Leases. Immediately upon the occurrence and during the continuance of any Event of Default, the license granted in the immediately preceding sentence shall cease and terminate, with or without any notice, action or proceeding. Upon such Event of Default and during the continuance thereof, Beneficiary may (but shall not be obligated to) to the fullest extent permitted by the Leases (i) exercise any of Trustor's rights under the Leases, (ii) enforce the Leases, (iii) demand, collect, sue for, attach, levy, recover, receive, compromise and adjust, and make, execute and deliver receipts and releases for all Rents or other payments -35- 37 that may then be or may thereafter become due, owing or payable with respect to the Leases and (iv) generally do, execute and perform any other act, deed, matter or thing whatsoever that ought to be done, executed and performed in and about or with respect to the Leases, as fully as allowed or authorized by the Trustor's Interest. (d) During the continuance of an Event of Default, Trustor hereby irrevocably authorizes and directs the tenant under each Lease to pay directly to, or as directed by, Beneficiary all Rents accruing or due under its Lease. Trustor hereby authorizes the tenant under each Lease to rely upon and comply with any notice or demand from Beneficiary for payment of Rents to Beneficiary and Trustor shall have no claim against any tenant for Rents paid by such tenant to Beneficiary pursuant to such notice or demand. (e) Trustor at its sole cost and expense shall enforce all material provisions of the Leases in accordance with their terms. Neither this Deed of Trust nor any action or inaction on the part of Beneficiary shall release any tenant under any Lease, any guarantor of any Lease or Trustor from any of their respective obligations under the Leases or constitute an assumption of any such obligation on the part of Beneficiary. No action or failure to act on the part of Trustor shall adversely affect or limit the rights of Beneficiary under this Deed of Trust or, through this Deed of Trust, under the Leases. (f) All rights, powers and privileges of Beneficiary herein set forth are coupled with an interest and are irrevocable, subject to the terms and conditions hereof, and Trustor shall not take any action under the Leases or otherwise which is inconsistent with this Deed of Trust or any of the terms hereof and any such action inconsistent herewith or therewith shall be void. Trustor shall, from time to time, upon request of Beneficiary, execute all instruments and further assurances and all supplemental instruments and take all such action as Beneficiary from time to time may reasonably request in order to perfect, preserve and protect the interests intended to be assigned to Beneficiary hereby. -36- 38 (g) Trustor shall not, unilaterally or by agreement, subordinate, amend, modify, extend, discharge, terminate, surrender, waive or otherwise change any term of any of the Leases in any manner which would violate this Deed of Trust. If the Leases shall be amended as permitted hereby, they shall continue to be subject to the provisions hereof without the necessity of any further act by any of the parties hereto. (h) Nothing contained herein shall operate or be construed to (i) obligate the Deed of Trust Trustee or Beneficiary to perform any of the terms, covenants or conditions contained in the Leases or otherwise to impose any obligation upon the Deed of Trust Trustee or Beneficiary with respect to the Leases (including, without limitation, any obligation arising out of any covenant of quiet enjoyment contained in the Leases in the event that any tenant under a Lease shall have been joined as a party defendant in any action by which the estate of such tenant shall be terminated) or (ii) place upon the Deed of Trust Trustee or Beneficiary any responsibility for the operation, control, care, management or repair of any portion of the Mortgaged Property. (i) Beneficiary may also, at any time after an Event of Default, apply to any court of competent jurisdiction for the appointment of a receiver and Trustor agrees that such appointment shall be made upon a prima facie showing of a claimed Event of Default without reference to any offsets or defenses against such Event of Default. Such receiver shall have all the rights and powers provided to Beneficiary pursuant to this section or otherwise provided hereunder or by law. Said receiver may borrow monies and issue certificates therefor. Said certificates shall be a lien on the Mortgaged Property subordinate only to this Deed of Trust and the Leases; provided, however, that should any of said certificates be acquired by Beneficiary the amount thereof shall constitute additional indebtedness secured hereby. Such receiver may lease all or any portion of the Mortgaged Property on such terms and for such a term (which may extend beyond the terms of such receiver's appointment and/or, if Beneficiary so consents, sale of the Mortgaged Property hereunder) as such receiver may deem appropriate in its sole and absolute discretion. The entering upon and taking possession of the Mortgaged Property pursuant to -37- 39 this section and the collection of the Rents, issues and profits therefrom shall not cure or waive any Event of Default or notice of an Event of Default hereunder or invalidate any act of Beneficiary pursuant thereto. SECTION VI - EVENTS OF DEFAULT (a) Events of Default. As used in this Deed of Trust, "Event of Default" shall mean the occurrence of an Event of Default under the Indenture or the Term Loan Agreement or a breach or violation of the terms of this Deed of Trust. (b) Remedies. Upon the occurrence and during the continuance of any Event of Default, in addition to any other rights and remedies Beneficiary may have pursuant to this Deed of Trust or as provided by law, and without limitation, Beneficiary may, subject to the terms of the Intercreditor Agreement, declare all sums secured hereby immediately due and payable in full and/or take such action, without notice or demand, as it deems advisable and is permitted by law to protect and enforce its rights against Trustor and in and to the Mortgaged Property, including, but not limited to, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such manner as Beneficiary may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Beneficiary, except to the extent otherwise provided by law: (i) (A) Beneficiary shall have the right and option to foreclose this Deed of Trust judicially, in the same manner as a mortgage, or direct the Deed of Trust Trustee to sell the Mortgaged Property pursuant to the Deed of Trust Trustee's power of sale in accordance with the Washington Deed of Trust Act (RCW Ch. 61.24) and the procedures set forth below. The procedure for exercise of the Deed of Trust Trustee's power of sale shall be as follows: Upon written request therefor by Beneficiary specifying the nature of the default, or the nature of the several defaults, and the amount or amounts due and owing, the Deed of Trust Trustee shall execute a written notice of breach -38- 40 and of its election to cause the Mortgaged Property to be sold to satisfy the obligation secured hereby, and shall cause such notice to be recorded and otherwise given according to law. Notice of sale having been given as then required by law and not less than the time then required by law having elapsed after recordation of such notice of breach, the Deed of Trust Trustee, without demand on Trustor, shall sell the Mortgaged Property at the time and place of sale specified in the notice, as provided by statute, either as a whole or in separate parcels and in such order as it may determine, at public auction to the highest and best bidder for cash in lawful money of the United States, payable at time of sale. Trustor agrees that such a sale (or a sheriff's sale pursuant to judicial foreclosure) of all the Mortgaged Property as real estate constitutes a commercially reasonable disposition thereof, but that with respect to all or any part of the Mortgaged Property which may be personal property the Deed of Trust Trustee shall have and exercise, at Beneficiary's sole election, all the rights and remedies of a secured party under the Uniform Commercial Code. Whenever notice is permitted or required hereunder or under the Uniform Commercial Code, ten (10) days shall be deemed reasonable. The Deed of Trust Trustee may postpone sale of all or any portion of the Mortgaged Property, and from time to time thereafter may postpone such sale, as provided by statute. The Deed of Trust Trustee shall deliver to the purchaser its deed and bill of sale conveying the Mortgaged Property so sold, but without any covenant or warranty, express or implied. The recital in such deed and bill of sale of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person other than the Deed of Trust Trustee, including Trustor or Beneficiary, may purchase at such sale. After deducting all costs, fees and expenses of the Deed of Trust Trustee and of this trust, including the cost of evidence of title search and reasonable counsel fees in connection with sale, the Deed of Trust Trustee shall apply the proceeds of sale to payment of: all sums expended under the terms hereof not then repaid, with accrued interest at -39- 41 the Default Rate of interest specified in the Note; all other sums then secured hereby; and the remainder, if any, to the clerk of the superior court of the county in which the sale took place, as provided in RCW 61.24.080. (B) Trustor agrees to surrender possession of the hereinabove described Mortgaged Property to the purchaser at the aforesaid sale, immediately after such sale, in the event such possession has not previously been surrendered by Trustor. Upon receipt of the sale price in the case of a third party purchase or upon the crediting of the applicable portion of the Secured Obligations to the sales price if the purchaser is Beneficiary, the Deed of Trust Trustee is hereby authorized, empowered and directed to make due conveyance to the purchaser or purchasers, with general warranty binding upon Trustor and the heirs, successors and assigns of Trustor. The right of sale hereunder shall not be exhausted by one or more such sales, and the Deed of Trust Trustee may make other and successive sales until all of the Mortgaged Property be legally sold or all of the Secured Obligations shall have been paid. Trustor hereby irrevocably appoints the Deed of Trust Trustee to be the attorney of Trustor and in the name and on behalf of Trustor to execute and deliver any deeds, transfers, conveyances, assignments, assurances and notices which Trustor ought to execute and deliver and do and perform any and all such acts and things which Trustor ought to do and perform under the covenants herein contained and generally, to use the name of Trustor in the exercise of all or any of the powers hereby conferred on the Deed -40- 42 of Trust Trustee. Recitals contained in any conveyance made by the Deed of Trust Trustee to any purchaser at any sale made pursuant hereto shall conclusively establish the truth and accuracy of the matters therein treated, including, without limiting the generality of the foregoing, nonpayment of the unpaid principal sum of, or the interest accrued on, any of the Secured Obligations after the same has become due and payable, advertisement and conduct of such sale in the manner provided herein and appointment of any successor trustee hereunder. The Deed of Trust Trustee or its successor or substitute may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by the Deed of Trust Trustee, including the posting of notices and the conduct of sale, but in the name and on behalf of the Deed of Trust Trustee, his successor or substitute. If the Deed of Trust Trustee or his successor or substitute shall have given notice of sale hereunder, any successor or substitute Deed of Trust Trustee thereafter appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute Deed of Trust Trustee conducting the sale. (ii) (A) Upon the occurrence and during the continuance of any Event of Default, the Deed of Trust Trustee or Beneficiary shall have the right and power to proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Mortgaged Property under the order of a court or courts of competent jurisdiction or under executory or other legal process, or for the enforcement of any other appropriate legal or equitable remedy. Any money advanced by the Deed of Trust Trustee and/or Beneficiary in connection with any such receivership shall be a demand obligation (which obligation Trustor hereby expressly promises to pay) owing by Trustor to the Deed of Trust Trustee and/or Beneficiary and shall bear interest from the date of making such advance by the Deed of Trust Trustee and/or Beneficiary until paid at the Note Rate. (B) Trustor agrees to the full extent that it lawfully may, that, in case one or more of the Events of Default shall have occurred and shall not have been remedied, then, and in every such case, the Deed of Trust Trustee or Beneficiary shall have the right and power to enter into and upon and take possession of all or any part of the Mortgaged Property in the possession of Trustor, its successors or assigns, or its or their agents or servants, and may exclude Trustor, its successors or assigns, and all persons claiming under Trustor, and its or their agents or servants wholly or -41- 43 partly therefrom; and, holding the same, the Deed of Trust Trustee may use, administer, manage, operate and control the Mortgaged Property and conduct the business thereof to the same extent as Trustor, its successors or assigns, might at the time do and may exercise all rights and powers of Trustor, in the name, place and stead of Trustor, or otherwise as the Deed of Trust Trustee shall deem best. All costs, expenses and liabilities of every character incurred by the Deed of Trust Trustee and/or Beneficiary in administering, managing, operating, and controlling the Mortgaged Property shall constitute a demand obligation (which obligation Trustor hereby expressly promises to pay) owing by Trustor to the Deed of Trust Trustee and/or Beneficiary and shall bear interest from date of expenditure until paid at the Note Rate, all of which shall constitute a portion of the Secured Obligations and shall be secured by this Deed of Trust and by any other instrument securing the Secured Obligations. In connection with any action taken by the Deed of Trust Trustee and/or Beneficiary pursuant to this subsection (ii), the Deed of Trust Trustee and/or Beneficiary shall not be liable for any loss sustained by Trustor resulting from any act or omission of the Deed of Trust Trustee and/or Beneficiary in administering, managing, operating or controlling the Mortgaged Property, including a loss arising from the ordinary negligence of the Deed of Trust Trustee and/or Beneficiary, unless such loss is caused by its own gross negligence or willful misconduct and bad faith, nor shall the Deed of Trust Trustee and/or Beneficiary be obligated to perform or discharge any obligation, duty or liability of Trustor. (C) Trustor shall and does hereby agree to indemnify the Deed of Trust Trustee and/or Beneficiary for, and to hold the Deed of Trust Trustee and/or Beneficiary harmless from, any and all liability, loss or damage which may or might be incurred by the Deed of Trust Trustee and/or -42- 44 Beneficiary by reason of this Deed of Trust or the exercise of rights or remedies hereunder, including a loss arising from the ordinary negligence of the Deed of Trust Trustee and/or Beneficiary, except as such liability, loss or damage is occasioned by the gross negligence or willful misconduct of such party; should the Deed of Trust Trustee and/or Beneficiary make any expenditure on account of any such liability, loss or damage, the amount thereof, including costs, expenses and reasonable attorneys' fees, shall be a demand obligation (which obligation Trustor hereby expressly promises to pay) owing by Trustor to the Deed of Trust Trustee and/or Beneficiary and shall bear interest from the date expended until paid at the Note Rate, shall be a part of the Secured Obligations and shall be secured by this Deed of Trust and any other instrument securing the Secured Obligations. (D) Trustor hereby assents to, ratifies and confirms any and all actions of the Deed of Trust Trustee and/or Beneficiary with respect to the Mortgaged Property taken under this paragraph (ii). (iii) Every right, power and remedy herein given to the Deed of Trust Trustee and Beneficiary shall be cumulative and in addition to every other right, power and remedy herein specifically given or now or hereafter existing in equity, at law or by statute; and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and so often and in such order as may be deemed expedient by the Deed of Trust Trustee and Beneficiary, and the exercise, or the beginning of the exercise, of any such right, power or remedy shall not be deemed a waiver of the right to exercise, at the same time or thereafter any other right, power or remedy. No delay or omission by the Deed of Trust Trustee or Beneficiary in the exercise of any right, power or remedy shall impair any such right, power or remedy or operate as a waiver thereof or of any other right, power or remedy then or thereafter existing. (iv) To the extent permitted under applicable law, Beneficiary shall have the right (but shall not be obligated to) to become the purchaser at any sale held by the Deed of Trust Trustee or by any receiver or public officer, whether by power of sale, judicial procedure or otherwise, and shall have the right (but shall not be obligated to) to have all or any part of the Secured Obligations then owing credited -43- 45 against the amount of the bid made by Beneficiary at such sale. (v) Upon any sale, whether under the power of sale hereby given or by virtue of judicial proceedings, it shall not be necessary for the Deed of Trust Trustee or any public officer acting under execution or order of court to have physically present or constructively in his or her possession any of the Mortgaged Property, and Trustor hereby agrees to deliver all of such personal property to the purchasers at such sale on the date of sale, and if it should be impossible or impracticable to make actual delivery of such property, then the title and right of possession to such property shall pass to the purchaser at such sale as completely as if such property had been actually present and delivered. (vi) Upon any sale, whether made under the power of sale hereby given or by virtue of judicial proceedings, the receipt of the Deed of Trust Trustee, or of the officer making a sale under judicial proceedings, shall be a sufficient discharge to the purchaser or purchasers at any sale for his or her or their purchase money, and such purchaser or purchasers, his or her or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Deed of Trust Trustee or of such officer therefor, be obliged to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or nonapplication thereof. (vii) (A) Any sale or sales of the Mortgaged Property or any part thereof, whether under the power of sale herein granted and conferred or under and by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever, either at law or in equity, of Trustor of, in and to the premises and the property sold, and shall be a perpetual bar, both at law and in equity, against Trustor, its successors and assigns, and against any and all persons claiming or who shall thereafter claim all or any of the property sold from, through or under Trustor, its successors and assigns; and Trustor, if -44- 46 requested by the Deed of Trust Trustee or Beneficiary to do so, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold. (B) The proceeds of any sale of the Mortgaged Property or any part thereof and all other moneys received by the Deed of Trust Trustee in any proceedings for the enforcement hereof, whose application has not elsewhere herein been specifically provided for, shall be applied first, to the payment of all expenses incurred by the Deed of Trust Trustee or Beneficiary incident to the enforcement of this Deed of Trust or any of the Secured Obligations (including, without limiting the generality of the foregoing, expenses of any entry or taking of possession, of any sale, of advertisement thereof, and of conveyances, and court costs, compensation of agents and employees and reasonable legal fees), and to the payment of all other charges, expenses, liabilities and advances incurred or made by the Deed of Trust Trustee or Beneficiary under this Deed of Trust or in executing any trust or power hereunder; and then to the payment of the Secured Obligations in such order and manner as is determined by Beneficiary in its sole discretion, subject to the terms of the Intercreditor Agreement. (C) Beneficiary may resort to any security given by this Deed of Trust or to any other security now existing or hereafter given to secure the payment of any of the Secured Obligations secured hereby, in whole or in part, and in such portions and in such order as may seem best to Beneficiary in its sole discretion, subject to the terms of the Intercreditor Agreement, and any such action shall not in anywise be considered as a waiver of any of the rights, benefits or liens created by this Deed of Trust. (D) Trustor agrees, to the full extent that it may lawfully so agree, that it will not at any time insist upon or plead or in any manner whatever claim or take the benefit or advantage of any appraisement, valuation, stay, extension or redemption law now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Deed of Trust or the absolute sale of the Mortgaged Property -45- 47 or the possession thereof by any purchaser at any sale made pursuant to any provision hereof, or pursuant to the decree of any court of competent jurisdiction; but Trustor, for itself and all who may claim through or under it, so far as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Trustor, for itself and all who may claim through or under it, waives to the extent that it may lawfully do so, any and all right to have the property included in the Mortgaged Property marshaled upon any foreclosure of the lien hereof, and agrees that any court having jurisdiction to foreclose such lien may sell the Mortgaged Property as an entirety. If any law referred to herein and now in force, of which Trustor or its successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to constitute any part of the contract herein contained or to preclude the operation or application of the provisions hereof. (E) If the proceeds of any sale or other lawful disposition of the Mortgaged Property by the Deed of Trust Trustee and/or Beneficiary are insufficient to pay the Secured Obligations, then Trustor shall pay or cause to be paid any deficiency. (viii) Without in any manner limiting the generality of any of the other provisions of this Deed of Trust; (A) some portions of the goods described or to which reference is made herein are or are to become fixtures on the land described or to which reference is made herein; (B) the security interests created hereby under the Uniform Commercial Code will attach to minerals including oil and gas; (C) this instrument is to be filed of record in the real estate records as a financing statement; and (D) Trustor is the record owner of the real estate or interests in the real estate comprised of the Mortgaged Property. (ix) The Mortgaged Property may be sold in one or more parcels and in such manner and order as Beneficiary, in its sole discretion, may determine. -46- 48 Beneficiary's exercise of the foregoing remedies will not be construed to constitute Beneficiary as a mortgagee in possession of the Mortgaged Property nor to obligate Beneficiary to take any action or to incur expenses or perform or discharge any obligation, duty or liability of Trustor under any lease, or for the control, care, management, or repair of the Mortgaged Property; nor will it operate to make Beneficiary responsible or liable for any waste committed on the Mortgaged Property by any Person or for any dangerous or defective condition of the Mortgaged Property, or for any act or omission relating to the management, upkeep, repair, or control of the Mortgaged Property that results in loss or injury or death to any Person. SECTION VII - THE DEED OF TRUST TRUSTEE (a) It shall be no part of the duty of the Deed of Trust Trustee to see to any recording, filing or registration of this Deed of Trust or any other instrument in addition or supplemental thereto, or to give any notice thereof, or to see to the payment of or be under any duty in respect of any tax or assessment or other governmental charge which may be levied or assessed on the Mortgaged Property, or any part thereof, or against Trustor, or to see to the performance or observance by Trustor of any of the covenants and agreements contained herein. The Deed of Trust Trustee shall not be responsible for the execution, acknowledgment or validity of this Deed of Trust or of any instrument in addition or supplemental hereto or for the sufficiency of the security purported to be created hereby, and makes no representation in respect thereof or in respect of the rights of Beneficiary. The Deed of Trust Trustee shall have the right to consult with counsel upon any matters arising hereunder and shall be fully protected in relying as to legal matters on the advice of counsel. The Deed of Trust Trustee shall not incur any personal liability hereunder except for the Deed of Trust Trustee's own gross negligence or willful misconduct; and the Deed of Trust Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by the Deed of Trust Trustee hereunder, believed by the Deed of Trust Trustee in good faith to be genuine. -47- 49 (b) The Deed of Trust Trustee may resign by written notice addressed to Beneficiary (but such resignation shall not be effective until and unless a successor trustee is appointed by Beneficiary and such successor trustee accepts the appointment) or be removed at any time with or without cause by an instrument in writing duly executed on behalf of Beneficiary. Beneficiary may, at any time, by instrument in writing, appoint a successor or successors to the Deed of Trust Trustee named herein or acting hereunder, which instrument, executed and acknowledged by Beneficiary, and recorded in the appropriate office in the State, shall be conclusive proof of the proper substitution of such successor trustee, who shall have all the estate, powers, duties and trusts in the premises vested in or conferred on the original trustee. SECTION VIII - CERTAIN DEFINITIONS As used herein, the following terms shall have the following meanings: "Additional Undertaking" shall mean (a) cash or cash equivalents or (b) a Surety Bond, an Additional Undertaking Guarantee or an Additional Undertaking Letter of Credit which is (i) provided by a Person, (ii) whose long- term unsecured debt is rated at least "AA" (or equivalent) by a nationally recognized statistical rating agency and (iii) is otherwise satisfactory to Beneficiary. Additional Undertakings shall be addressed directly to Beneficiary and shall name Beneficiary as the beneficiary thereof and the party entitled to make claims thereunder. "Additional Undertaking Guarantee" shall mean the unconditional guarantee of payment of any corporation or partnership organized and existing under the laws of the United States of America or any State or the District of Columbia or Canada or province thereof that has a long-term unsecured debt rating satisfactory to Beneficiary at the time such guarantee is delivered, given to Beneficiary, accompanied by an opinion of counsel to such guarantor to the effect that such guarantee has been duly authorized, executed and delivered by such guarantor and constitutes the legal, valid and binding obligation of such guarantor enforceable against such guarantor by Beneficiary in -48- 50 accordance with its terms, subject to customary exceptions at the time for opinions for such instruments, together with an opinion of counsel to the effect that, taking into account the purpose under this Deed of Trust for which such guarantee will be given, such guarantee and accompanying opinion are responsive to the requirements of this Deed of Trust. "Additional Undertaking Letter of Credit" shall mean a clean, irrevocable, unconditional letter of credit in favor of Beneficiary and entitling Beneficiary to draw thereon in The City of New York issued by a bank satisfactory to Beneficiary, accompanied by an opinion of counsel to such bank to the effect that such letter of credit has been duly authorized, executed and delivered by such bank and constitutes the legal, valid and binding obligation of such bank enforceable against such bank by Beneficiary in accordance with its terms subject to customary exceptions at the time for opinions for such instruments, together with an opinion of counsel to the effect that, taking into account the purpose under this Deed of Trust for which such letter of credit will be given, such letter of credit and accompanying opinion are responsive to the requirements of this Deed of Trust. "Collateral Account" shall have the meaning set forth in the Intercreditor Agreement. "Environmental Laws" shall mean any and all Governmental Requirements pertaining to occupational health or the environment in effect in the State, including without limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection laws. The term "oil" shall have the meaning specified in OPA, the terms "hazardous substance" and "release" (or "threatened release") have the meanings specified -49- 51 in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have the meanings specified in RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (ii) to the extent the laws of the State establish a meaning for "oil", "hazardous substance", "release", solid waste" or "disposal" which is broader than that specified in either OPA, CERCLA or RCRA, such broader meaning shall apply with respect to the Mortgaged Property. "Excepted Liens" shall mean (a) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action and for which appropriate reserves have been maintained; (b) operators', vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction or other like Liens arising by operation of law in the ordinary course of business or statutory landlord's liens; (c) any Liens reserved in leases for rent and for compliance with the terms of the leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause does not materially impair the use of the Mortgaged Property covered by such Lien for the purposes for which such Mortgaged Property is held by Trustor or materially impair the value of such Mortgaged Property subject thereto; (d) the Liens listed on Schedule 1 attached hereto and made a part hereof; and (e) Liens and encumbrances (other than to secure the payment of borrowed money or the deferred purchase price of Mortgaged Property or services), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any rights of way for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, and defects, irregularities, zoning restrictions and deficiencies in title to the Mortgaged Property of which in the aggregate do not prevent the use of the Mortgaged Property for the purposes of which it is currently held by Trustor or have a Material Adverse Effect on the Companies taken as a whole. -50- 52 "Governmental Authority" shall include the country, the state, county, city and political subdivisions in which any Person or such Person's Property is located or which exercises valid jurisdiction over any such Person or such Person's Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them including monetary authorities which exercises valid jurisdiction over any such Person or such Person's Property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, Trustor or any Secured Party. "Governmental Requirement" shall mean any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement, including, without limitation, Environmental Laws, energy regulations and occupational safety and health standards or controls, of any Governmental Authority. "Hazardous Materials" shall mean any pollutants, contaminants, or industrial, toxic or hazardous substances or wastes. "Lien" shall mean any interest in Mortgaged Property owed to, or a claim by a Person, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting the Mortgaged Property. "Material Adverse Effect" shall mean, as to any Person, asset or Property, a material adverse effect on the business, assets, properties, condition (financial or other), operations or results of operations of such Person, asset or Property, which effect is not adequately and effectively insured or indemnified against by a financially sound insurance company, and excepting -51- 53 effects arising solely out of general national economic conditions and/or effects arising solely out of matters affecting the industry in which such Person, asset or Property conducts business a whole. "Note Rate" shall mean the rate borne by the Notes. "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Revolving Credit Agreement" shall mean that certain Loan and Security Agreement dated as of June 17, 1997 among PAAC, as borrower, Bank of America Illinois, as agent and a lender, and the lenders named therein, as in effect on the date hereof. "State" shall mean the state where the Land is located. "Surety Bond" shall mean a clean irrevocable surety bond or credit insurance policy in favor of Beneficiary issued by an insurance company the claims paying ability rating of which at the time such surety bond or credit insurance policy is delivered is satisfactory to Beneficiary, accompanied by an opinion of counsel to such insurance company to the effect that such surety bond or credit insurance policy has been duly authorized, executed and delivered by such insurance company and constitutes the legal, valid and binding obligation of such insurance company enforceable against such insurance company by Beneficiary in accordance with its terms subject to customary exceptions at the time for opinions for such instruments, together with an opinion of counsel to the effect that, taking into account the purpose under this Deed of Trust for which such surety bond will be given, such surety bond and accompanying opinions are responsive to the requirements of this Deed of Trust. -52- 54 "Trust Money" shall mean those certain proceeds set forth in subsections IV(q)(i) and IV(q)(ii). SECTION IX - MISCELLANEOUS (a) Choice of Law. The terms and provisions of this Deed of Trust and the enforcement hereof shall be governed by and construed in accordance with the laws of the state where the Land is located. (b) Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, the other provisions hereof shall remain in full force and effect in such jurisdiction and the remaining provisions hereof shall be liberally construed in favor of the Deed of Trust Trustee and Beneficiary in order to effectuate the provisions hereof, and the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction. If any part of the Secured Obligations cannot be lawfully secured by this Deed of Trust or if any part of the Mortgaged Property cannot be lawfully subject to the Lien and security interest hereof to the full extent of such Secured Obligations, then all payments made shall be applied on said Secured Obligations first in discharge of that portion thereof which is not secured by this Deed of Trust. (c) Construction of this Instrument. This instrument may be construed as a mortgage, deed of trust, chattel mortgage, conveyance, assignment, security agreement, fixture filing, pledge, financing statement, hypothecation or contract, or any one or more of them, in order fully to effectuate the Lien hereof and the purposes and agreements herein set forth. (d) Captions; Gender and Number. The captions and section headings of this Deed of Trust are for convenience only and are not to be used to define the provisions hereof. The term "Beneficiary" as used herein shall mean and include any successor(s) to United States Trust Company of New York in its capacity as Collateral Agent under the Intercreditor Agreement. The terms used to designate the Deed of Trust Trustee, Beneficiary and Trustor shall be deemed to include the respective -53- 55 heirs, legal representatives, successors and assigns of such parties. All terms contained herein shall be construed, whenever the context of this Deed of Trust so requires, so that the singular includes the plural and so that the masculine includes the feminine. (e) Rights of Beneficiary. The Lien, security interest and other security rights of Beneficiary hereunder shall not be impaired by any indulgence, moratorium or release granted by Beneficiary, the Note Trustee or the Term Loan Agent, including, but not limited to, any renewal, extension or modification with respect to any Secured Obligation, or any surrender, compromise, release, renewal, extension, exchange or substitution which Beneficiary may grant in respect of the Mortgaged Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Obligation. (f) Waiver of an Event of Default. Beneficiary may waive any Event of Default without waiving any other prior or subsequent Event of Default. Beneficiary may remedy any Event of Default without waiving the Event of Default remedied. No single or partial exercise by Beneficiary of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time. No modification or waiver of any provision hereof nor consent to any departure by Trustor therefrom shall in any event be effective unless the same shall be in writing and signed by Beneficiary and then such waiver or consent shall be effective only in the specific instances, for the purpose for which given and to the extent therein specified. No notice to nor demand on Trustor in any case shall of itself entitle Trustor to any other or further notice of demand in similar or other circumstances. Acceptance by Beneficiary of any payment in an amount less than the amount then due on any Secured Obligations shall be deemed an acceptance on account only and shall not in any way excuse the existence of an Event of Default hereunder. (g) Successor Trustor. In the event the ownership of the Mortgaged Property or any part thereof becomes vested in a person other than Trustor, Beneficiary may, without notice to -54- 56 Trustor, deal with such successor or successors in interest with reference to this Deed of Trust and the Secured Obligations in the same manner as with Trustor, without in any way vitiating or discharging Trustor's liability hereunder or for the payment of the Secured Obligations or performance of the obligations secured hereby. No transfer of the Mortgaged Property, no forbearance on the part of Beneficiary and/or any Secured Party, and no extension of the time for the payment of the Secured Obligations, in whole or in part, shall affect the liability of Trustor or any other person hereunder or for obligations secured hereby. (h) Outstanding Lien, Security Interest, Charge or Prior Encumbrance. To the extent that proceeds of the Notes or proceeds of advances under the Term Loan Agreement are used to pay indebtedness secured by any outstanding Lien, security interest, charge or prior encumbrance against the Mortgaged Property, such proceeds have been advanced at Trustor's request, and Beneficiary shall be subrogated to any and all rights, security interests and Liens owned by any owner or holder of such outstanding Liens, security interests, charges or encumbrances, irrespective of whether said Liens, security interests, charges or encumbrances are released, and it is expressly understood that, in consideration of the payment of such indebtedness, Trustor hereby waives and releases all demands and causes of action for offsets and payments to, upon and in connection with the said indebtedness. (i) Covenants Running with the Land. The covenants and agreements herein contained shall constitute covenants running with the land and interests covered or affected hereby and shall be binding upon the heirs, legal representatives, successors and assigns of the parties hereto. (j) Notices. All notices requests, demands and other communications provided for or permitted hereunder shall be in writing (including telex and telecopy communications) and shall be sent by mail, telex, telecopier or hand delivery: -55- 57 If to Trustor, to the following address: 4200 NationsBank Center 700 Louisiana Street Suite 4200 Houston, Texas 77002 Attention: Vice President, General Counsel and Secretary If to Beneficiary, to the following address: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department If to the Deed of Trust Trustee, to the following address: Transnation Title Insurance Company 6111 100th Street S.W. Lakewood, Washington 98499 All such notices, requests, demands and communications shall be deemed to have been duly given or made, when delivered by hand or five (5) business days after being deposited in the mail, postage paid, when telexed answer back received and when telecopied, receipt acknowledged. Any party hereto may change its address set forth in this subsection (j) by notice to the other parties given in accordance with the provisions of this subsection (j). (k) Beneficiary's Consent. Except where otherwise expressly provided herein, in any instance hereunder where the approval, consent or the exercise of judgment of Beneficiary is required, the granting or denial of such approval or consent and the exercise of such judgment shall be within the sole discretion of Beneficiary, and Beneficiary shall not, for any reason or to any extent, be required to grant such approval or consent or exercise such judgment in any particular manner, regardless of the reasonableness of either the request or Beneficiary's judgment. -56- 58 (l) Foreclosure. In the event there is a foreclosure sale hereunder, and at the time of such sale Trustor or Trustor's successors or assigns or any other person claiming any interest in the Mortgaged Property by, through or under Trustor, are occupying or using the Mortgaged Property or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of either the landlord or tenant, or at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will. In the event the tenant fails to surrender possession of said property upon demand, the purchaser shall be entitled to institute and maintain a summary action for possession of the Mortgaged Property (such as an action for forcible entry and detainer) in any court having jurisdiction. The purchaser or purchasers at foreclosure shall have the right to affirm or disaffirm any lease of the Mortgaged Property or any part thereof. (m) Reimbursement. Trustor shall reimburse the Deed of Trust Trustee and Beneficiary, upon demand, for all fees, costs and expenses incurred by the Deed of Trust Trustee and Beneficiary in connection with the administration and enforcement of this Deed of Trust. If any action or proceedings, including, without limitation, bankruptcy or insolvency proceedings, is commenced to which action or proceeding the Deed of Trust Trustee or Beneficiary is made a party or in which it becomes necessary to defend or uphold the Lien or validity of this Deed of Trust, Trustor shall, upon demand, reimburse the Deed of Trust Trustee and Beneficiary for all expenses (including, without limitation, attorneys' and agents' fees and disbursement) incurred by the Deed of Trust Trustee or Beneficiary in such action or proceedings. In any action or proceeding to foreclose this Deed of Trust or to recover or collect the Secured Obligations, the provisions of law relating to the recovery of costs, disbursements and allowances shall prevail unaffected by this covenant. Trustor's obligations under this subsection IX(m) -57- 59 shall survive the satisfaction of this Deed of Trust and the discharge of Trustor's other obligations hereunder. (n) Waiver of Stay. (i) Trustor agrees that in the event that Trustor or any property or assets of Trustor shall hereafter become subject of a voluntary or involuntary proceeding under the Bankruptcy Code or Trustor shall otherwise be a party to any federal or state bankruptcy, insolvency, moratorium or similar proceeding to which the provisions relating to the automatic stay under Section 362 of the Bankruptcy Code or any similar provision in any such law is applicable, then, in any such case, whether or not Beneficiary has commenced foreclosure proceedings under this Deed of Trust, Beneficiary shall be entitled to relief from any such automatic stay as it relates to the exercise of any of the rights and remedies (including, without limitation, any foreclosure proceedings) available to Beneficiary as provided in this Deed of Trust or in any other document evidencing or securing the Secured Obligations. (ii) Beneficiary shall have the right to petition or move any court having jurisdiction over any proceeding described in subsection IX(n)(i) for the purposes provided therein, and Trustor agrees (a) not to oppose any such petition or motion and (b) at Trustor's sole cost and expense, to assist and cooperate with Beneficiary, as may be requested by Beneficiary from time to time, in obtaining any relief requested by Beneficiary, including, without limitation, by filing any such petitions, supplemental petitions, requests for relief, documents, instruments or other items from time to time requested by Beneficiary or any such court. (o) Waiver of Jury Trial. To the extent permitted by law, Trustor hereby knowingly, voluntarily and intentionally waives any rights it may have to a trial by jury in the respect of any litigation based hereon, or directly or indirectly arising out of, under or in connection with, this Deed of Trust or any course of conduct, course of dealing, statements (whether verbal or written) or actions of Trustor, the Deed of Trust Trustee or Beneficiary. (p) Counterparts. This instrument may be executed in several counterparts, all of which are identical. Each of such -58- 60 counterparts shall for all purposes be deemed to be an original and all such counterparts shall together constitute but one and the same instrument. (q) Provisions of the Intercreditor Agreement. Notwithstanding anything to the contrary contained in this Deed of Trust, it is the understanding of the parties hereto that any actions by the Deed of Trust Trustee and/or Beneficiary are subject to the provisions of the Intercreditor Agreement. [Signature page follows] -59- 61 IN WITNESS WHEREOF, this Deed of Trust has been duly executed by Trustor as of the date first written above. PLEASE BE ADVISED THAT ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE UNENFORCEABLE UNDER WASHINGTON LAW. Trustor: PIONEER CHLOR ALKALI COMPANY, INC. By: /s/ Kent R. Stephenson Name: Kent R. Stephenson Title: Vice President The name and address of Trustor is: PIONEER CHLOR ALKALI COMPANY, INC. 700 Louisiana Street, Suite 4200 Houston, Texas 77002 The name and address of Beneficiary is: UNITED STATES TRUST COMPANY OF NEW YORK 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department -60- 62 STATE OF NEW YORK ) ) ss. COUNTY OF NEW YORK ) I certify that I know or have satisfactory evidence that Kent Stephenson is the person who appeared before me, and said person acknowledged that said person signed this instrument, on oath stated that said person was authorized to execute the instrument and acknowledged it as the Vice President of Pioneer Chlor Alkali Company, Inc., a corporation, to be the free and voluntary act of such corporation for the uses and purposes mentioned in the instrument. Dated this 17th day of June, 1997. /s/ Christopher Tung ------------------------------ Notary Public in and for the state of New York, residing at ------------------------------ ------------------------------ ------------------------------ My appointment expires 9/29/98 ------- -61- EX-4.2(B) 10 PCAC (ST. GABRIEL, LOUISIANA) 1 EXHIBIT 4.2(b) LOUISIANA MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT BY PIONEER CHLOR ALKALI COMPANY, INC. (Taxpayer I.D. No. 51-0302028), as Mortgagor TO UNITED STATES TRUST COMPANY OF NEW YORK as Collateral Agent (Taxpayer I.D. No. 13-3813954), as Mortgagee Dated June 17, 1997 THIS INSTRUMENT COVERS, AMONG OTHER PROPERTY, GOODS WHICH ARE OR MAY BECOME FIXTURES ON CERTAIN REAL PROPERTY DESCRIBED ON EXHIBIT A HERETO A CARBON, PHOTOGRAPHIC, FACSIMILE OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT AS A FINANCING STATEMENT. THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, SECURES PAYMENT OF FUTURE ADVANCES AND COVERS PROCEEDS OF COLLATERAL. WHEN RECORDED OR FILED RETURN TO: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department 2 MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT BE IT KNOWN, that on this 16th day of June, 1997, but effective as of the 17th day of June, 1997, before me, the undersigned Notary Public, duly commissioned and qualified in and for the State of New York, and in the presence of the undersigned competent witnesses: PERSONALLY CAME AND APPEARED: PIONEER CHLOR ALKALI COMPANY, INC., a Delaware corporation ("Mortgagor"), represented herein by Philip Ablove, duly authorized to appear herein by resolution of Mortgagor's Board of Directors, a certified copy of which is attached hereto and made a part hereof, who being duly sworn, did declare and say as follows: W I T N E S S E T H : WHEREAS, pursuant to that certain Indenture dated as of the date hereof among Pioneer Americas Acquisition Corp. ("PAAC"), the Subsidiary Guarantors, as defined therein, and United States Trust Company of New York, as trustee (in such capacity, the "Note Trustee") for the holders of the Notes (as hereinafter defined) (the "Note Holders") (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Indenture") PAAC will issue its 9 1/4% Senior Secured Notes due 2007 (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor, upon the registration of such notes pursuant to the Securities Act of 1933 or otherwise, the "Notes") in the aggregate principal amount of $200 million; and WHEREAS, pursuant to that certain Term Loan Agreement dated as of the date hereof among PAAC, Bank of America Illinois, as administrative agent (the "Term Loan Agent"), DLJ Capital Funding, Inc., as syndication agent, Salomon Brothers Holding Company Inc, as documentation agent, and the lenders named therein (the "Term Loan Lenders") (as the same may be amended, amended and restated, supplemented or otherwise modified from 3 time to time, the "Term Loan Agreement"), the Term Loan Lenders will make certain loans to PAAC to be evidenced by notes (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor, the "Term Loan Notes") in an aggregate amount of $100 million; and WHEREAS, pursuant to Article Thirteen of the Indenture, Mortgagor has guaranteed (such guarantee by Mortgagor being hereinafter referred to as the "Note Guarantee") the payment and performance of the Indenture Obligation (as hereinafter defined); and WHEREAS, pursuant to the Subsidiary Guaranty dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time), Mortgagor has guaranteed (such guarantee by Mortgagor being hereinafter referred to as the "Term Loan Guarantee") the payment and performance of the Term Loan Obligation (as hereinafter defined); and WHEREAS, United States Trust Company of New York is the collateral agent (in such capacity and together with any successors and assigns in such capacity, "Mortgagee") under that certain Intercreditor and Collateral Agency Agreement (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Intercreditor Agreement"), dated as of the date hereof, among Pioneer, Mortgagor, Pioneer Americas, Inc. ("PAI" and together with PAAC and Mortgagor sometimes referred to herein as the "Companies"), the Note Trustee, the Term Loan Agent and Mortgagee, as collateral agent; and WHEREAS, Mortgagor is entering into this Mortgage, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement (the "Mortgage") in favor of Mortgagee for the benefit of (i) itself as the Note Trustee, (ii) the Term Loan Agent as agent under the Term Loan Agreement, (iii) the Note Holders and (iv) the Term Loan Lenders, to secure the Secured Obligations (as hereinafter defined) (the Note Trustee, Mortgagee, the Note Holders, the Term Loan Agent and the Term Loan Lenders, collectively the "Secured Parties"). -2- 4 SECTION I - GRANTING CLAUSES To secure the Secured Obligations (as hereinafter defined), including, without limitation, Mortgagor's guarantees of payment and performance of the Indenture Obligation and the Term Loan Obligation under the Note Guarantee and the Term Loan Guarantee, respectively, and the payment and performance of the covenants and obligations herein contained, Mortgagor does by these presents MORTGAGE, PLEDGE AND HYPOTHECATE unto Mortgagee all of Mortgagor's rights, titles, interests and estates in and to the real and personal property described in Subparagraphs (a) through (h) of this Section I (collectively herein called the "Mortgaged Property"); provided, however, that the term Mortgaged Property shall not include any Obligor Collateral (as hereinafter defined), to-wit: (a) Mortgagor's undivided 100% interest in and to the lands described on Exhibit A hereto (the "Land"), together with any and all other rights, titles and interests of Mortgagor of whatever kind or character (whether now owned or hereafter acquired by operation of law or otherwise) in and to such Land. (b) All of Mortgagor's rights, titles and interests in all plants, buildings, structures, towers and other improvements and component parts thereof, now owned or hereafter acquired and located on the Land, including, without limitation, that certain chlor alkali plant and all equipment, fixtures, heating, lighting and power plants, pipelines, transmission lines, buildings, housing and improvements, together with all other machinery, equipment, appliances and apparatus of whatsoever character or description (except for any motor vehicles, licensed or registered with the Department of Motor Vehicles of the State), and all replacements, substitutions and additions to said property, owned by Mortgagor and located on the Land or located elsewhere and used in the operation, conduct and maintenance of that certain chlor alkali plant located thereon (collectively, the "Improvements") (the Land, together with the Improvements, being hereinafter collectively referred to as the "Chlor Alkali Plant"). (c) To the extent permitted by law, all of Mortgagor's rights, titles and interests in, to and under all -3- 5 franchises, licenses, permits and certificates, consents, approvals, authorizations, however characterized, used or held for use in connection with Mortgagor's ownership and operation of the Chlor Alkali Plant and issued or in any way furnished, whether now existing or hereafter entered into and whether necessary or not for the operation and use of the Chlor Alkali Plant, including, without limitation, building permits, certificates of occupancy, environmental certificates, industrial permits or licenses or certificates of operation. (d) All of Mortgagor's rights, title and interest in all absorbers, equipment, machinery, drums, engines, motors, regulators, meters, exchangers, tanks, docks, racks, heaters, above ground storage facilities, under ground storage facilities, loading facilities, fractionation facilities, absorption equipment, distillation equipment, deethanizers, depropanizers, debutanizers, olefin splitters, stills, power plants, disposal pits, warehouses, dwelling houses, cooling equipment, compressors, pipelines, piping flow lines, wiring, boilers, vessels, dehydration equipment or any of them (except for any motor vehicles, licensed or registered with the Department of Motor Vehicles of the State), whether now owned or hereafter acquired and located or to be located upon the Land or leaseholds now or hereafter owned by Mortgagor and used or held for use in connection with Mortgagor's ownership and operation of the Chlor Alkali Plant (collectively, "Equipment"). (e) All Mortgagor's right, title and interest, as landlord, franchisor, licensor or grantor, in all leases and subleases of space, oil, gas and mineral leases, franchise agreements, licenses, occupancy or concession agreements now existing or hereafter entered into relating in any manner to the Chlor Alkali Plant or the Equipment and any and all amendments, modifications, supplements and renewals of any thereof (each such lease, license or agreement, together with any such amendment, modification, supplement or renewal, a "Lease"), whether now in effect or hereafter coming into effect including, without limitation, all rents, additional rents, management fees payable by tenants, cash, guarantees, letters of credit, bonds, sureties or securities deposited thereunder to secure performance of the lessee's, franchisee's, licensee's or obligee's obligations -4- 6 thereunder, revenues, earnings, profits and income, advance rental payments, payments incident to assignment, sublease or surrender of a Lease, claims for forfeited deposits and claims for damages, now due or hereafter to become due, with respect to any Lease (collectively, "Rents"). (f) All surveys, title insurance policies, drawings, plans, specifications, construction contracts, file materials, operating and maintenance records, catalogues, tenant lists, correspondence, advertising materials, operating manuals, warranties, guaranties, appraisals, studies and data relating to the Chlor Alkali Plant or the Equipment or the construction of any Alteration (as hereinafter defined) or the maintenance of any Permit (as hereinafter defined). (g) All general intangibles now owned or hereafter acquired by Mortgagor (but not including the Obligor Collateral), including without limitation (i) all of Mortgagor's rights, titles and interests, whether now owned or hereafter acquired, of Mortgagor in, to and under the contracts, agreements or other instruments and documents relevant to Mortgagor's ownership and operation of the Chlor Alkali Plant (collectively, "Plant Agreements"), (ii) all contract rights relating to the Chlor Alkali Plant or the Equipment and all reserves, deferred payments, deposits, refunds and claims of every kind or character relating thereto, but not including Accounts Receivable (as hereinafter defined) (collectively, "Contract Rights") and (iii) all processes, designs, methodologies and related documentation, technical information, manufacturing, engineering and technical drawings related to the operation of the Chlor Alkali Plant. (h) All proceeds of the conversion, voluntary or involuntary, of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation or other awards or payments with respect thereto and interest thereon (collectively, "Proceeds"). TO HAVE AND TO HOLD the Mortgaged Property unto the Mortgagee and to its successors and assigns forever to secure the payment and performance of the Secured Obligations. -5- 7 SECTION II - SECURITY INTEREST (a) With respect to all personal property (both tangible and intangible) and any fixtures constituting a part of the Mortgaged Property, this Mortgage shall likewise be a security agreement and a financing statement and for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and for the purpose of further securing payment of the Secured Obligations, Mortgagor hereby grants to Mortgagee a security interest in all of Mortgagor's rights, titles and interests in and to the Mortgaged Property insofar as the Mortgaged Property consists of equipment, contract rights, general intangibles, documents, instruments, chattel paper, fixtures and any and all other personal property of any kind or character defined in and subject to the provisions of the Louisiana Commercial Laws (La.R.S. 10:1-101 et seq.) as in effect in the State (the "Uniform Commercial Code"), including the proceeds, profits, rents, revenues and products from any and all of such personal property. Upon the occurrence and during the continuance of any Event of Default (as hereinafter defined), Mortgagee is and shall be entitled to all of the rights, powers and remedies afforded a secured party by the Uniform Commercial Code with reference to the personal property and fixtures in which Mortgagee has been granted a security interest herein, or Mortgagee may proceed as to both the real and personal property covered hereby in accordance with the rights and remedies granted under this Mortgage in respect of the real property covered hereby. Such rights, powers and remedies shall be cumulative and in addition to those granted to Mortgagee under any other provision of this Mortgage or under any other instrument executed in connection with or as security for the Secured Obligations. A carbon or photographic or other reproduction of this Mortgage shall be sufficient as a financing statement covering the Mortgaged Property. (b) Mortgagor shall, forthwith after the execution and delivery of this Mortgage and thereafter, from time to time, cause this Mortgage and any financing statement, continuation statement or similar instrument relating to any thereof or to any property intended to be subject to the Lien of this Mortgage to be filed, registered and recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the validity and priority thereof or the Lien hereof upon the Mortgaged Property -6- 8 and the interest and rights of Mortgagee herein and therein. Mortgagor shall pay or cause to be paid all taxes and fees incident to such filing, registration and recording, all expenses incident to the preparation, execution and acknowledgment thereof, and of any instrument of further assurance, and all federal or State stamp taxes or other taxes, duties and charges arising out of or in connection with the execution and delivery of such instruments. (c) Mortgagor shall, at the sole cost and expense of Mortgagor, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, deeds of trust, mortgages, assignments, notices of assignment, transfers, financing statements, continuation statements and assurances as Mortgagee shall from time to time reasonably request which may be necessary in the requesting party's judgment to assure, perfect, mortgage, transfer and confirm unto the Mortgagee the property and rights hereby mortgaged or granted or which Mortgagor may be or may hereafter become bound to mortgage or grant to Mortgagee or which may facilitate the performance of the terms of this Mortgage or the filing, registering or recording of this Mortgage. In the event Mortgagor shall fail to execute any instrument required to be executed by Mortgagor pursuant to this subsection II(c), Mortgagee may execute the same as the attorney-in-fact for Mortgagor, such power of attorney being coupled with an interest and irrevocable. SECTION III - SECURED OBLIGATIONS This Mortgage is executed and delivered by Mortgagor to secure the payment and performance of the obligations (collectively, the "Secured Obligations") described below: (a) Any and all indebtedness, obligations and liabilities of Mortgagor now or hereafter existing under or in respect of the Note Guarantee, including, without limitation, payment of principal, premium, if any, interest and Liquidated Damages (as defined in the Indenture), if any when due and payable, and all other amounts due or to become due under or in connection with the Indenture (including, without limitation, all sums due to the Note Trustee pursuant to Section 606 thereof), the Notes and the performance of all other obligations to the Note Trustee and the -7- 9 Note Holders under the Indenture and the Notes, according to the terms thereof (collectively, the "Indenture Obligation); (b) Any and all indebtedness, obligations and liabilities of Mortgagor now or hereafter existing under or in respect of the Term Loan Guarantee, including, without limitation, payment of principal, premium, if any, and interest when due and payable, and all other amounts due or to become due under or in connection with the Term Loan Agreement (including, without limitation, all sums due to the Term Loan Agent pursuant to Sections 10.3 and 10.4 thereof) and the Term Loan Notes and the performance of all other obligations to the Term Loan Agent and the Term Loan Lenders under the Term Loan Agreement and the Term Loan Notes according to the terms thereof (collectively, the "Term Loan Obligation"); (c) Any sums which may be advanced or paid by Mortgagee under the terms hereof on account of the failure of Mortgagor to comply with the covenants of Mortgagor contained herein; (d) All covenants, agreements, and obligations of Mortgagor herein contained; and (e) All renewals, rearrangements, increases, substitutions and extensions, and all amendments, supplements and modifications, to any of the obligations described in the preceding clauses (a) through (d). This Mortgage secures all future advances and obligations constituting Secured Obligations. The maximum amount of the Secured Obligations that may be outstanding at any time and from time to time that this Mortgage (including the Assignment of Leases, Rents, Issues and Profits under Section V) secures is fixed at $375,000,000, and the maximum amount which Mortgagee or the Secured Parties may claim for damages that Mortgagee or the Secured Parties may suffer from a breach of any obligation, covenant, agreement, term or condition secured by this Mortgage (other than for the payment of money) is fixed at $375,000,000. -8- 10 SECTION IV - REPRESENTATIONS, WARRANTIES AND COVENANTS Mortgagor hereby represents, warrants and covenants as follows: (a) Good Title; Authority and Validity. Mortgagor has good and marketable title to the Mortgaged Property and the landlord's interest and estate under or in respect of the Leases, subject to the Excepted Liens, and has, in all material respects, full corporate power and lawful authority to mortgage, pledge and hypothecate and to grant a security interest in all of the Mortgaged Property all in the manner and form herein provided and without obtaining the waiver, consent or approval of any lessor, sublessor, Governmental Authority or entity or other party whomsoever or whatsoever which has not been obtained, except in the case of certain environmental permits and approvals which, by their terms, are not transferable or cannot be transferred without the prior approval of the issuing agency. The Improvements upon the Land are all within the boundary lines of the Land or have the benefit of valid easements, and there are no encroachments thereon that would materially impair the use thereof. The Mortgaged Property is free and clear of any and all Liens or encumbrances of any nature or kind except for the Excepted Liens and the Leases. Mortgagor has all necessary permits, franchises, licenses, rights-of-way, servitudes or other rights or authority needed in connection with the operation and maintenance of the Chlor Alkali Plant, except where the failure to have the same would not have a Material Adverse Effect; all of the Plant Agreements are presently in full force and effect and no default has occurred or exists thereunder, except where such default would not individually or in the aggregate have a Material Adverse Effect; except as provided in the Excepted Liens, Mortgagor's grant of a Lien and security interest in the Mortgaged Property in the manner herein provided does not result in the creation or imposition of any other Lien or security interest, adverse claim or option upon any of the Mortgaged Property. Mortgagor's chief executive office and chief place of business is located at the address set forth in Section VIII(j) of this Mortgage. Mortgagor will not change its name, identity or corporate structure or its chief executive office or chief place of business without notifying Mortgagee at least thirty (30) days prior to the effective date of such change. -9- 11 (b) Defense of Title. Mortgagor will warrant and defend title to the Mortgaged Property, subject to Excepted Liens, against the claims and demands of all other Persons whomsoever and will maintain and preserve the Lien created hereby so long as any of the Secured Obligations secured hereby remains unpaid. Should an adverse claim be made against the title to any material part of the Mortgaged Property, Mortgagor agrees it will immediately notify Mortgagee in writing thereof and defend against such adverse claim to the extent necessary to preserve Mortgagee's rights and benefits hereunder, subject to Excepted Liens, and Mortgagor further agrees that Mortgagee may take such other reasonable action as it deems advisable to protect and preserve its interest in the Mortgaged Property, and in such event Mortgagor will indemnify Mortgagee against any and all costs, reasonable attorney's fees and other expenses which they may incur in defending against any such adverse claim. Such obligations shall be payable on demand and shall bear interest from the date of demand therefor until paid at the Note Rate. Any proceeds of any policy of title insurance maintained by Mortgagor with respect to the Mortgaged Property shall, for the purposes of this Mortgage, be paid and applied in the same manner as Insurance Proceeds (as hereinafter defined). (c) First Lien. This Mortgage is, and always will be kept, a direct first Lien and security interest upon the Mortgaged Property, subject to the Excepted Liens, and Mortgagor will not create or suffer to be created or permit to exist any Lien, security interest or charge prior or junior to or on parity with the Lien and security interest of this Mortgage upon the Mortgaged Property or any part thereof or upon the Rents therefrom, except for the Excepted Liens. (d) Maintenance of Mortgaged Property. Mortgagor will at its own expense do or cause to be done all things necessary to preserve and keep in full repair, working order and efficiency, reasonable wear and tear excepted, all of the Mortgaged Property, including, without limitation, all equipment, machinery and facilities, and from time to time will make all the needful and proper repairs, renewals and replacements so that at all times the state and condition of the Mortgaged Property will be fully preserved and maintained, unless the failure to repair, renew or replace would not materially interfere with the present use or operation of the Mortgaged Property. -10- 12 (e) Performance of Contracts; Operation of Plant. Mortgagor will promptly pay and discharge all rentals, or other payments and will perform or cause to be performed each and every act, matter or thing required by, each and all of the contracts, instruments or agreements executed in connection with or incident to the ownership and operation of the Chlor Alkali Plant (including without limitation the Plant Agreements) and being a portion of the Mortgaged Property and will do all other things necessary to keep unimpaired Mortgagor's rights with respect thereto and to prevent any forfeiture thereof or default thereunder, unless such forfeiture or default would not individually or in the aggregate have a Material Adverse Effect. Mortgagor will operate the facilities comprising the Chlor Alkali Plant in a good and workmanlike manner and in accordance with the practices of the industry and in compliance in all material respects with all Governmental Requirements affecting ownership and operation of such facilities, including without limitation, Environmental Laws. (f) Payment by Mortgagee. Mortgagor agrees that if Mortgagor fails to perform any act or to take any action which Mortgagor is required to perform or take hereunder or pay any money which Mortgagor is required to pay hereunder (taking into account applicable grace or cure periods), Mortgagee in Mortgagor's name or its own name may, but shall not be obligated to, during the continuance of an Event of Default, perform or cause to perform such act or take such action or pay such money, and any expenses so incurred by Mortgagee and any money so paid by Mortgagee shall be a demand obligation owing by Mortgagor to Mortgagee, and Mortgagee, upon making such payment, shall be subrogated to all of the rights of the Person receiving such payment. Each amount due and owing by Mortgagor to holders of the Secured Obligations pursuant to this Mortgage shall bear interest from the date of such expenditure or payment or other occurrence which gives rise to such amount being owed to Mortgagee until paid at the Note Rate, and all such amounts together with such interest thereon shall be a part of the Secured Obligations and shall be secured by this Mortgage. (g) Name of Mortgagor. Mortgagor does not do business with respect to the Mortgaged Property under any name other than Pioneer Chlor Alkali Company, Inc. -11- 13 (h) Operation by Third Parties. To the extent any of the Mortgaged Property is operated by a party or parties other than Mortgagor, Mortgagor's covenants as expressed in this Section IV are modified to require that Mortgagor use its best efforts (including without limitation the reasonable exercise of all rights and remedies as are available to Mortgagor) to obtain compliance with such covenants by the operator or operators of the Mortgaged Property. (i) Compliance with Laws. The Chlor Alkali Plant complies in all material respects with all local zoning, land use, setback and other development, use and occupancy requirements of governmental authorities except for possible nonconforming uses or violations which do not and will not materially interfere with the present use, operation or maintenance thereof as now used, operated or maintained. (j) Payment of Taxes, Insurance Premiums, Assessments; Compliance with Law and Insurance Requirements. (i) Unless contested in accordance with the provisions of subsection IV(j)(v) hereof, Mortgagor shall pay and discharge or cause to be paid and discharged, from time to time when the same shall become due, all real estate and other taxes, special assessments, levies, permits, inspection and license fees, all premiums for insurance, all water and sewer rents and charges, and all other public charges imposed upon or assessed against the Mortgaged Property or any part thereof or upon the revenues, rents, issues, income and profits of the Mortgaged Property, including, without limitation, those arising in respect of the occupancy, use or possession thereof. (ii) During the continuance of an Event of Default, Mortgagor shall deposit with Mortgagee, on the first day of each month, an amount reasonably estimated by Mortgagor to be equal to one-twelfth (1/12th) of the annual taxes, assessments and other items required to be discharged by Mortgagor under subsection IV(j)(i) and amounts reasonably estimated by Mortgagor to be necessary to maintain the insurance coverages contemplated in subsection IV(l) below, which estimates shall not be less than one-twelfth (1/12th) of the annual taxes, assessments, insurance premiums and other items required to be discharged by Mortgagor during the year immediately preceding the year during which such Event of Default occurred. Such amounts shall be held by Mortgagee without interest to Mortgagor and applied to the -12- 14 payment of each obligation in respect of which such amounts were deposited, in such order or priority as Mortgagee shall determine, on or before the date on which such obligation would become delinquent. If at any time the amounts so deposited by Mortgagor shall, in Mortgagee's judgment, be insufficient (when added to the installments anticipated to be paid thereafter) to discharge any of such obligations when due, Mortgagor shall, immediately upon demand, deposit with Mortgagee such additional amounts as may be requested by Mortgagee. Nothing contained in this subsection IV(j) shall affect any right or remedy of Mortgagee under any provision of this Mortgage or of any statute or rule of law to pay any such amount from its own funds (provided, however, that Mortgagee shall not in any event be obligated to pay any of such amounts from its own funds) and to add the amount so paid, together with interest at the Note Rate, to the Secured Obligations, or relieve Mortgagor of its obligations to make or provide for the payment of the annual taxes, assessments and other charges required to be discharged by Mortgagor under subsection IV(j)(i). Mortgagor hereby grants to Mortgagee a security interest in all sums held pursuant to this subsection IV(j)(ii) to secure payment and performance of the Secured Obligations. During the continuance of any Event of Default, Mortgagee may apply all or any part of the sums held pursuant to this subsection IV(j)(ii) to payment and performance of the Secured Obligations in accordance with the provisions of the Intercreditor Agreement. Mortgagor shall redeposit with Mortgagee an amount equal to all amounts so applied as a condition to the cure, if any, of such Event of Default, in addition to fulfillment of any other required conditions. (iii) Unless contested in accordance with the provisions of subsection IV(j)(v), Mortgagor shall timely pay (or obtain a bond in the amount of) all lawful claims and demands of mechanics, materialmen, laborers, warehousemen, employees, suppliers, government agencies administering worker's compensation insurance, old age pensions and social security benefits and all other claims, judgments, demands or amounts of any nature which, if unpaid or not bonded, could result in or permit the creation of a Lien (other than an Excepted Lien) on the Mortgaged Property or any part thereof or the Rents arising therefrom, or which might result in forfeiture of all or any part of the Mortgaged Property. -13- 15 (iv) Mortgagor shall maintain, or cause to be maintained, in full force and effect, all permits, certificates, authorizations, consents, approvals, registrations, filings, licenses, franchises or other instruments now or hereafter required by any Governmental Authority to operate or use and occupy the Chlor Alkali Plant and the Equipment for its intended uses (collectively, the "Permits"; each, a "Permit"), unless the failure to maintain such Permits would not individually or in the aggregate have a Material Adverse Effect. Mortgagor represents that, to its knowledge and subject to those requirements for notice, approval or reissuance set forth by applicable law, none of the Permits will be subject to cancellation, forfeiture or any limitation on the scope thereof solely by virtue of the execution of this Mortgage or the foreclosure of the Lien hereof. Unless contested in accordance with the provisions of subsection IV(j)(v), Mortgagor shall comply promptly with, or cause prompt compliance with, all requirements set forth in the Permits and all Governmental Requirements applicable to all or any part of the Mortgaged Property or the condition, use or occupancy of all or any part thereof or any recorded deed of restriction, declaration, covenant running with the land or otherwise, now or hereafter in force unless the compliance therewith would not individually or in the aggregate have a Material Adverse Effect. Mortgagor shall not initiate or consent to any change in the zoning, subdivision or any other use classification of the Land, if such action could have a material adverse effect on the Lien of this Mortgage or materially impair the present use and operation of the Mortgaged Property or materially impair Mortgagee's rights or benefits hereunder, without the prior written consent of Mortgagee. (v) Mortgagor may at its own expense contest the amount or applicability of any of the obligations described in subsections IV(j)(i), IV(j)(iii) and IV(j)(iv) by appropriate legal proceedings, prosecution of which operates to prevent the collection or enforcement thereof or the sale or forfeiture of the Mortgaged Property or any part thereof to satisfy such obligations; provided, however, that (A) any such contest shall be conducted in good faith by appropriate legal proceedings promptly instituted and diligently conducted and (B) in connection with such contest, Mortgagor shall have made provision for the payment or performance of such contested obligation on Mortgagor's books if and to the extent required by generally accepted accounting principles then utilized by Mortgagor in the -14- 16 preparation of its financial statements, or shall have deposited with Mortgagee a sum sufficient to pay and discharge such obligation and Mortgagee's estimate of all interest and penalties related thereto. Notwithstanding the foregoing provisions of this subsection IV(j)(v), (A) no contest of any such obligations may be pursued by Mortgagor if such contest would expose Mortgagee or any other Secured Party to any possible criminal liability or, unless Mortgagor shall have furnished an Additional Undertaking (as hereinafter defined) therefor satisfactory to Mortgagee or such other Secured Party, as the case may be, any civil liability for failure to comply with such obligations and (B) if at any time payment or performance of any obligation contested by Mortgagor pursuant to this subsection IV(j)(v) shall become necessary to prevent the delivery of a tax or similar deed conveying the Mortgaged Property or any portion thereof because of nonpayment or nonperformance, Mortgagor shall pay or perform the same in sufficient time to prevent the delivery of such tax or similar deed. (vi) Mortgagor shall not in its use and occupancy of the Chlor Alkali Plant or the Equipment (including, without limitation, in the making of any Alteration) take any action that would cause the termination, revocation or denial of any insurance coverage required to be maintained under this Mortgage or that pursuant to written notice from any applicable insurer, would be the basis for a defense to any claim under any insurance policy maintained in respect of the Chlor Alkali Plant or the Equipment and Mortgagor shall otherwise comply in all material respects with the requirements of any insurer that issues a policy of insurance in respect of the Chlor Alkali Plant or the Equipment. (vii) Mortgagor shall, promptly upon receipt of any written notice regarding any failure by Mortgagor to pay or discharge any of the obligations described in subsection IV(j)(i) or (vi), furnish a copy of such notice to Mortgagee. Mortgagor shall, promptly upon receipt of any written notice regarding any failure by mortgagor to pay or discharge any of the obligations described in subsection IV(j)(iii) or (iv), furnish a copy of such notice to Mortgagee, if such failure would have a Material Adverse Effect. (k) Certain Tax Law Changes. In the event of the passage after the date of this Mortgage of any law deducting from -15- 17 the value of real property, for the purpose of taxation, amounts in respect of any Lien thereon or changing in any way the laws for the taxation of deeds of trust or debts secured by deeds of trust for state or local purposes or the manner of the collection of any such taxes, and imposing a new tax, either directly or indirectly, on this Mortgage or the interest of any Secured Party in any Mortgaged Property (other than income, franchise or similar taxes imposed on such Secured Party), Mortgagor shall promptly pay such Secured Party such amount or amounts as may be necessary from time to time to pay such tax. (l) Required Insurance Policies. (i) Mortgagor shall maintain, or cause to be maintained, in full force and effect the following insurance coverages in respect of the Chlor Alkali Plant and the Equipment: (A) Physical hazard insurance on an "all risk" basis covering hazards commonly covered by fire and extended coverage, lightning, civil commotion, hail, riot, strike, water damage, sprinkler leakage, collapse and malicious mischief, in an amount equal to the full replacement cost of the Improvements and all Equipment, with such deductibles as would be maintained by a prudent operator of property similar in use and configuration to the Chlor Alkali Plant and located in the locality where the Chlor Alkali Plant is located. "Full replacement cost" means the cost of construction to replace the Improvements and the Equipment, exclusive of depreciation, excavation, foundation and footings, as determined from time to time by a proper officer of Mortgagor in consultation with its insurance company or insurance agent, as appropriate; (B) Comprehensive general liability insurance against claims for bodily injury, death or property damage occurring on, in or about the Chlor Alkali Plant and any adjoining streets, sidewalks and passageways and covering any and all claims, including, without limitation, all legal liability, subject to customary exclusions, to the extent insurable, imposed upon Mortgagee or any Secured Party and all court costs and attorneys' fees, arising out of or connected with the possession, use, leasing, operation or condition of the Chlor Alkali Plant, with policy limits and deductibles in such amounts as would be maintained by a prudent operator of property similar in use and configuration to the Chlor -16- 18 Alkali Plant and located in the locality where the Chlor Alkali Plant is located; (C) Workers' compensation insurance as required by the laws of the State to protect Mortgagor against claims for injuries sustained in the course of employment at the Chlor Alkali Plant; (D) Comprehensive boiler and machinery insurance to cover sudden and accidental breakdown, including but not limited to, explosion of any boilers and machinery located on the Chlor Alkali Plant or comprising any Equipment, with policy limits and deductibles in such amounts as would be maintained by a prudent operator of property similar in use and configuration to the Chlor Alkali Plant and the Equipment and located in the locality where the Chlor Alkali Plant is located; (E) Comprehensive automobile liability insurance policy against claims for bodily injury, death and property damage covering all owned, leased, non-owned and hired motor vehicles, including loading and unloading in such amounts as would be maintained by a prudent operator of property similar in use and configuration to the Chlor Alkali Plant and the Equipment and located in the locality where the Chlor Alkali Plant is located; (F) Business interruption insurance on an annual basis in amounts not less than the projected gross profit of the Chlor Alkali Plant during the applicable twelve-month period but in no event less than the amount necessary to pay the fixed charges and other expenses of owning, operating and maintaining the Mortgaged Property for the same period; (G) To the extent not otherwise covered by the insurance required under clauses (A) and (B) of this subsection IV(l)(i), during the performance of any alterations, renovations, repairs, restorations or construction, broad form Builders Risk Insurance on an all-risk completed value basis; and (H) Such other insurance, against such risks and with policy limits and deductibles in such amounts as would be maintained by a prudent operator of property similar in use -17- 19 and configuration to the Chlor Alkali Plant and located in the locality in which the Chlor Alkali Plant is located. (ii) Mortgagor may maintain the coverages required by this subsection IV(l) under blanket policies covering the Chlor Alkali Plant and other locations owned or operated by Mortgagor if the terms of such blanket policies otherwise comply with the provisions of this subsection IV(l) and contain specific coverage allocations in respect of the Chlor Alkali Plant determined in accordance with the provisions of this subsection IV(l). All insurance policies in respect of the coverages required by subsections IV(l)(i)(A), IV(l)(i)(D), IV(l)(i)(G) and, if applicable, IV(l)(i)(H) shall be in amounts at least sufficient to prevent coinsurance liability and all losses thereunder shall be payable to Mortgagee, as loss payee, subject to the terms of the Intercreditor Agreement, pursuant to a standard noncontributory New York mortgage endorsement or local equivalent, and each such policy shall, to the extent obtainable at commercially reasonable costs, (A) include effective waivers (whether under the terms of such policy or otherwise) by the insurer of all claims for insurance premiums against all loss payees and named insureds other than Mortgagor and all rights of subrogation against any named insured, and (B) provide that any losses thereunder shall be payable notwithstanding (1) any act, failure to act, negligence of, or violation or breach of warranties, declarations or conditions contained in such policy by Mortgagor or Mortgagee or any other named insured or loss payee, (2) the occupation or use of the Chlor Alkali Plant or the Equipment for purposes more hazardous than permitted by the terms of the policy, (3) any foreclosure or other proceeding or notice of sale relating to the Chlor Alkali Plant or the Equipment or (4) any change in the title to or ownership or possession of the Chlor Alkali Plant or the Equipment; provided, however, that (with respect to items contemplated in clauses (3) and (4) above) any notice requirements of the applicable policies are satisfied. All insurance policies in respect of the coverages required by subsections IV(l)(i)(B), IV(l)(i)(E) and, if applicable, IV(l)(i)(H) shall name Mortgagee as an additional insured. Each policy of insurance required under this subsection IV(l) shall provide that (A) notices of any failure by Mortgagor to pay any insurance premium in respect thereof, be furnished to Mortgagee contemporaneously with any such notice given to Mortgagor and (B) it may not be cancelled or otherwise terminated without at least twenty (20) days' prior written notice to Mortgagee and -18- 20 shall permit Mortgagee to pay any premium therefor within twenty (20) days after receipt of any notice stating that such premium has not been paid when due. The policy or policies of such insurance or certificates of insurance evidencing the required coverages and all renewals or extensions thereof shall be delivered to Mortgagee upon receipt by Mortgagor. Settlement of any claim under any of the insurance policies referred to in this subsection IV(l) (other than the insurance contemplated in clause(C) of this subsection IV(l)(i)) which in Mortgagor's reasonable judgment involves loss of $1,000,000 or more, shall require the prior approval of Mortgagee (acting pursuant to the provisions of the Intercreditor Agreement) and Mortgagor shall use its best efforts to cause each such insurance policy to contain a provision to such effect. (iii) At least fifteen (15) days prior to the expiration of any insurance policy required by this subsection IV(l), Mortgagor shall deliver to Mortgagee evidence that such policy or policies shall be renewed or extended and Mortgagor shall deliver promptly to Mortgagee after receipt thereof the policy or policies renewing or extending such expiring policy or renewal or extension certificates or other evidence of renewal or extension, together with a receipt showing payment of the premium thereof. (iv) Mortgagor shall not purchase additional policies in respect of the insurance coverages required to be maintained under this subsection IV(l), unless Mortgagee is included thereon as an additional named insured and, if applicable, with loss payable to Mortgagee under an endorsement containing the provisions described in subsection IV(l)(ii) and the policy evidencing such insurance otherwise complies with the requirements of subsection IV(l)(ii). Mortgagor immediately shall notify Mortgagee whenever any such separate insurance policy is obtained and promptly shall deliver to Mortgagee the policy or certificate evidencing such insurance. (m) Inspection. Mortgagor shall permit Mortgagee, by its agents, accountants and attorneys, to visit and inspect the Mortgaged Property upon reasonable prior notice at such times as may be reasonably requested by Mortgagee. (n) Mortgagor To Maintain Improvements. Mortgagor shall not commit any waste on the Chlor Alkali Plant or with -19- 21 respect to any Equipment or make any change in the use of the Chlor Alkali Plant or any Equipment. Mortgagor represents and warrants that (i) to Mortgagor's knowledge, the Chlor Alkali Plant is served by all electric, gas, sewer, water facilities and any other utilities required or necessary for the current use thereof and any easements or servitudes necessary to the furnishing of such utility service by Mortgagor have been obtained and duly recorded, and (ii) Mortgagor has access to the Chlor Alkali Plant from public roads sufficient to allow Mortgagor and its tenants and invitees to conduct its and their businesses at the Chlor Alkali Plant as it is currently conducted. Mortgagor shall not materially alter the occupancy or use of the Chlor Alkali Plant without the prior written consent of Mortgagee. Except as otherwise permitted by the Intercreditor Agreement no Improvements comprising a portion of the Chlor Alkali Plant may be demolished nor shall any Equipment be removed without the prior written consent of Mortgagee. (o) Leases. (i) All of the Leases are valid and effective in accordance with their respective terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar law affecting or relating to enforcement of creditors' rights generally, and (ii) general equitable principles. To Mortgagor's knowledge, Mortgagor is not in material breach of or in default (and to Mortgagor's knowledge, no event has occurred which with due notice or lapse of time or both, may constitute such a material breach or default) under any Lease, and no party to any Lease has given Mortgagor written notice of or made a claim with respect to any breach or default, the consequences of which, individually or in the aggregate, would have a Material Adverse Effect on Mortgagor. (ii) Mortgagor shall manage and operate the Mortgaged Property or cause the Mortgaged Property to be managed and operated in a reasonably prudent manner and, except as otherwise permitted under subsection IV(p), will not enter into any Lease (or any amendment or modification thereof) or other agreement subsequent to the date hereof with any Person which, in the reasonable judgment of Mortgagor, individually or in the aggregate, would have a Material Adverse Effect on the value of the property subject thereto. (iii) Mortgagor shall not: -20- 22 (A) receive or collect, or permit the receipt or collection of, any rental or other payments under any Lease more than one (1) month in advance of the respective period in respect of which they are to accrue, except that (a) in connection with the execution and delivery of any Lease or of any amendment to any Lease, rental payments thereunder may be collected and received in advance in an amount not in excess of one (1) month's rent and (b) Mortgagor may receive and collect escalation and other charges in accordance with the terms of each Lease; (B) assign, transfer or hypothecate (other than to Mortgagee hereunder or as otherwise permitted under subsection IV(p) of this Mortgage) any rental or other payment under any Lease whether then due or to accrue in the future, the interest of Mortgagor as lessor under any Lease or the rents, issues, revenues, profits or other income of the Mortgaged Property; (C) enter into any Lease after the date hereof that does not contain terms to the effect as follows: (1) such Lease and the rights of the tenant thereunder shall be subject and subordinate to the rights of Mortgagee under and the Lien of this Mortgage; (2) such Lease has been assigned as collateral security by Mortgagor as landlord thereunder to Mortgagee under this Mortgage; (3) in the case of any foreclosure hereunder, the rights and remedies of the tenant in respect of any obligations of any successor landlord thereunder shall be limited to the equity interest of such successor landlord in the Chlor Alkali Plant and any successor landlord shall not (a) be liable for any act, omission or default of any prior landlord under the Lease or (b) be required to make or complete any tenant improvements or capital improvements or repair, restore, rebuild or replace the demised premises or any part thereof in the event of damage, casualty or condemnation or (c) be required to pay any amounts to -21- 23 tenant arising under the Lease prior to such successor landlord taking possession; (4) the tenant's obligation to pay rent and any additional rent shall not be subject to any abatement, deduction, counterclaim or setoff as against Mortgagee or any purchaser upon the foreclosure of any portion of the Chlor Alkali Plant or the giving or granting of a deed in lieu thereof by reason of a landlord default occurring prior to such foreclosure, and Mortgagee or such purchaser will not be bound by any advance payments of rent in excess of one month or any security deposits unless such security was actually received; and (5) the tenant agrees to attorn, at the option of Mortgagee or any purchaser of the Chlor Alkali Plant, to the successor owner upon a foreclosure of the Chlor Alkali Plant or the giving or granting of a deed in lieu thereof; and (D) terminate or permit the termination of any Lease of space, accept surrender of all or any portion of the space demised under any Lease prior to the end of the term thereof or accept assignment of any Lease to Mortgagor which, in the reasonable judgment of Mortgagor, individually or in the aggregate, would have a Material Adverse Effect or materially impair the Lien of this Mortgage therein unless: (1) the tenant under such Lease has not paid the equivalent of two months' rent and Mortgagor has made reasonable efforts to collect such rent; or (2) Mortgagor shall deliver to Mortgagee an Officers' Certificate to the effect that Mortgagor has entered into a new Lease (or Leases) for the space covered by the terminated or assigned Lease with a term (or terms) which expire(s) no earlier than the date on which the terminated or assigned Lease was to expire (excluding renewal options), and with a tenant (or tenants) having a creditworthiness (as reasonably determined by Mortgagor) sufficient to pay the rent and other charges due under the new Lease (or Leases), and the tenant(s) shall have commenced paying rent, -22- 24 including, without limitation, all operating expenses and other amounts payable under the new Lease (or Leases), without any abatement or concession, in an amount at least equal to the amount which would have then been payable under the terminated or assigned Lease. (iv) Mortgagor timely shall perform and observe all the terms, covenants and conditions required to be performed and observed by Mortgagor under each Lease and will not engage in any conduct in respect of any Lease which would have individually or in the aggregate a Material Adverse Effect or materially impair the Lien of this Mortgage or the security interest created hereby. Mortgagor promptly shall notify Mortgagee of the receipt of any notice from any lessee under any Lease claiming that Mortgagor is in material default in the performance or observance of any of the terms, covenants or conditions thereof to be performed or observed by Mortgagor and will cause a copy of each such notice to be delivered promptly to Mortgagee. (p) Transfer Restrictions. Except as otherwise permitted by the Intercreditor Agreement, Mortgagor shall not, without the prior written consent of Mortgagee, further mortgage, encumber, hypothecate, sell, convey or assign all or any part of the Mortgaged Property or suffer any of the foregoing to occur by operation of law or otherwise (each a "Transfer"); provided, however, Mortgagor may so encumber the Mortgaged Property to the extent such encumbrances are of the kind listed in clause (e) of the definition of "Excepted Liens". Any proceeds of such permitted Transfer shall be deemed Collateral Proceeds (as such term is defined in the Indenture) and are hereby assigned and shall be paid to Mortgagee to be held in the Collateral Account and disbursed pursuant to the Intercreditor Agreement. (q) Destruction; Condemnation. (i) Destruction; Insurance Proceeds. If there shall occur any damage to, or loss or destruction of, the Improvements and Equipment, or any part of any thereof (each, a "Destruction"), Mortgagor shall promptly send to Mortgagee a notice setting forth the nature and extent of such Destruction. The proceeds of any insurance payable in respect of any such Destruction are hereby assigned and shall be paid to Mortgagee to be held in the Collateral Account; provided, however, that so -23- 25 long as no Event of Default shall have occurred and be continuing, if such proceeds are in an amount less than $1,000,000, such proceeds shall be paid directly to Mortgagor. All insurance proceeds paid to Mortgagee pursuant to this subsection, less the amount of any expenses incurred in litigating, arbitrating, compromising or settling any claim arising out of such Destruction (the "Insurance Proceeds"), shall constitute Trust Moneys and be applied in accordance with the provisions of subsections IV(q)(iii), IV(q)(iv) and IV(q)(v). (ii) Condemnation; Assignment of Award. If there shall occur any taking of the Mortgaged Property or any part thereof, in or by condemnation or other eminent domain proceedings pursuant to any law, general or special, or by reason of the temporary requisition of the use or occupancy of the Mortgaged Property or any part thereof, by any governmental authority, civil or military (each, a "Taking"), Mortgagor immediately shall notify Mortgagee upon receiving notice of such Taking or commencement of proceedings therefor. Mortgagee may (but shall not be obligated to) participate in any proceedings or negotiations which might result in any Taking. Mortgagee may be represented by counsel satisfactory to it at the expense of Mortgagor. Mortgagor shall deliver or cause to be delivered to Mortgagee all instruments requested by it to permit such participation. Mortgagor shall in good faith and with due diligence file and prosecute what would otherwise be Mortgagor's claim for any such award or payment and cause the same to be collected and paid over to Mortgagee, and hereby irrevocably authorizes and empowers Mortgagee, in the name of Mortgagor as its true and lawful attorney-in-fact or otherwise, during the continuance of an Event of Default to collect and to receipt for any such award or payment, and, in the event Mortgagor fails so to act, to file and prosecute such claim. Mortgagor shall pay all costs, fees and expenses incurred by Mortgagee in connection with any Taking and seeking and obtaining any award or payment on account thereof. Any proceeds, award or payment in respect of any Taking are hereby assigned and shall be paid to Mortgagee to be held in the Collateral Account; provided, however, that so long as no Event of Default shall have occurred and be continuing, if such proceeds are in an amount less than $1,000,000, such proceeds shall be paid directly to Mortgagor. Mortgagor shall take all steps necessary to notify the condemning authority of such assignment. Such proceeds, award or payment paid to Mortgagee, less the amount of any expenses incurred in -24- 26 litigating, arbitrating, compromising or settling any claim arising out of such Taking ("Net Award"), shall constitute Trust Moneys and be applied in accordance with the provisions of subsections IV(q)(iii), IV(q)(iv) and IV(q)(v). (iii) Payment or Restoration. So long as no Event of Default shall have occurred and be continuing, Mortgagor shall have the right, at Mortgagor's option, to require Mortgagee to apply such Net Award or Insurance Proceeds to the payment of the Secured Obligations, in accordance with the Intercreditor Agreement or to perform a restoration (each, a "Restoration") of the affected portions of the Chlor Alkali Plant and the Equipment. In the event that Mortgagor elects to make such payment, such Net Award or Insurance Proceeds shall be delivered to Mortgagee to be held as Trust Moneys subject to withdrawal and application by Mortgagee in accordance with the provisions of the Intercreditor Agreement. In the event Mortgagor elects to perform a Restoration, Mortgagor shall give written notice ("Restoration Election Notice") of such election to Mortgagee within twenty (20) business days after the date that Mortgagee receives the applicable Insurance Proceeds or Net Award, as the case may be. Mortgagor shall, within twenty (20) business days following the date of delivery of a Restoration Election Notice, commence and diligently continue to perform the Restoration of that portion or portions of the Chlor Alkali Plant and Equipment subject to such Destruction or affected by such Taking so that, upon the completion of the Restoration, the Mortgaged Property shall be in the same condition and shall be of at least equal utility for its intended purposes as the Mortgaged Property was immediately prior to such Destruction or Taking. Mortgagor shall so complete such Restoration with its own funds to the extent that the amount of any Net Award or Insurance Proceeds is insufficient for such purpose. In the event Mortgagee does not receive a Restoration Election Notice within such twenty (20) business day period, Mortgagee shall apply such Insurance Proceeds or Net Award to the payment of the Secured Obligations, in accordance with the provisions of the Intercreditor Agreement. (iv) Restoration. In the event a Restoration is to be performed under this subsection IV(q)(iv), Mortgagee shall not release any part of the Net Award or the Insurance Proceeds except in accordance with the provisions of subsection IV(q)(v) and Mortgagor shall, prior to commencing any work to effect a Restoration of the Chlor Alkali Plant and the Equipment, promptly -25- 27 (but in no event later than one-hundred twenty (120) days following any Destruction or Taking) furnish to Mortgagee: (A) complete plans and specifications (the "Plans and Specifications") for the Restoration; (B) an officers' certificate stating that all permits and approvals required by law to commence work in connection with the Restoration have been obtained; (C) a certificate (an "Architect's Certificate") of an independent, reputable architect or engineer acceptable to Mortgagee and licensed in the State (1) stating that the Plans and Specifications have been reviewed and approved by the signatory thereto, (2) containing such signatory's estimate (an "Estimate") of the costs of completing the Restoration, and (3) upon completion of such Restoration in accordance with the Plans and Specifications, the utility of the Chlor Alkali Plant and the Equipment will be equal to or greater than the utility thereof immediately prior to the Destruction or Taking relating to such Restoration; and (D) if the Estimate exceeds the Insurance Proceeds or the Net Award, as the case may be, by $5,000,000 or more, an Additional Undertaking in an amount equal to not less than the Estimate less the amount of the Insurance Proceeds or the Net Award, as the case may be, then held by Mortgagee for application toward the cost of such Restoration. Upon receipt by Mortgagee of each of the items required pursuant to clauses (A) through (D) above, Mortgagee shall acknowledge receipt of the Plans and Specifications. Promptly upon such acknowledgment of receipt by Mortgagee, Mortgagor shall commence and diligently continue to perform the Restoration substantially in accordance with such Plans and Specifications and in material compliance with all Governmental Requirements, free and clear of all Liens except Excepted Liens. Mortgagor shall so complete such Restoration with its own funds to the extent that the amount of any Net Award or Insurance Proceeds is insufficient for such purpose. (v) Restoration Advances Following Destruction or Taking of Mortgaged Property. In the event Mortgagor performs a Restoration of the Chlor Alkali Plant and Equipment as provided -26- 28 in subsection IV(q)(iv), Mortgagee shall apply any Insurance Proceeds or Net Award held by Mortgagee on account of the Destruction or Taking to the payment of the cost of performing such Restoration pursuant to the relevant provisions of the Intercreditor Agreement. In the event there shall be any surplus after application of the Net Award or the Insurance Proceeds to Restoration of the Chlor Alkali Plant and the Equipment, such surplus shall become Net Proceeds, as defined in the Indenture and shall be paid by Mortgagee to the Note Trustee for application in accordance thereunder; provided, however, that if an Event of Default shall have occurred and be continuing, such surplus shall be applied by Mortgagee to the payment of the Secured Obligations, in accordance with Article 6 of the Intercreditor Agreement. Notwithstanding anything to the contrary herein, if a Destruction or Taking of all or substantially all of the Mortgaged Property occurs on a date which is less than 12 months prior to Maturity, as such term is defined in the Indenture, all Insurance Proceeds and Net Awards shall be applied to the permanent repayment or prepayment of any Secured Obligations then outstanding in accordance with the Intercreditor Agreement. (r) Alterations. Mortgagor shall not make any material structural addition, modification or change (each, an "Alteration") to the Chlor Alkali Plant or the Equipment which would materially diminish the utility of the Mortgaged Property or impair the Lien of this Mortgage thereon. Whether or not Mortgagee has consented to the making of any Alteration, Mortgagor shall (i) complete each Alteration promptly, in a good and workmanlike manner and in material compliance with all applicable local laws, ordinances and requirements and (ii) pay when due all claims for labor performed and materials furnished in connection with such Alteration, unless contested in accordance with the provisions of subsection IV(j)(v). (s) Hazardous Material. (i) Except with respect to those matters which would not reasonably be expected to have a Material Adverse Effect, Mortgagor holds all Permits required to permit Mortgagor to conduct its business in the manner now conducted and none of the Mortgagor's operations are being conducted in a manner that violates in any material respect the terms and conditions under which any such Permit was granted, including without limitation, -27- 29 under any Environmental Laws; all such Permits are valid and in full force and effect; and to the knowledge of Mortgagor, no suspension, cancellation, revocation or termination of any such Permit is threatened. (ii) Except as set forth in the Term Loan Agreement, there are no material claims, actions, suits, proceedings or investigations pending or to the knowledge of Mortgagor, threatened, before any Governmental Authority or before any arbitrator brought by or against Mortgagor or with respect to any of the Mortgaged Property the basis of which is any Environmental Law. (iii) Mortgagor shall (or shall cause other parties obligated to do so under contract or indemnity to) (A) take all commercially reasonable actions to comply with any and all applicable present and future Environmental Laws relating to the Chlor Alkali Plant; (B) pay in a timely fashion the cost of any removal, response measure or corrective action relating to any Hazardous Materials required by any Environmental Law or any order, regulation, consent decree or similar agreement or instrument and keep the Mortgaged Property free of any Lien imposed pursuant to any Environmental Law; (C) take all commercially reasonable actions to not release, discharge or dispose of any Hazardous Materials on, under or from the Mortgaged Property in violation of any Environmental Law; (D) apply any insurance proceeds or other sums received by it in respect of the removal of any Hazardous Material or any other corrective action relating to any Hazardous Material to such removal or corrective action; and (E) not take, or fail to take any action with respect to any Environmental Laws or in connection with any Hazardous Materials that could reasonably be expected to result in the incurrence of any obligation or liability of any Secured Party. During the continuance of an Event of Default, in the event Mortgagor fails to comply with the covenants in the preceding sentence, Mortgagee may (upon receipt of an indemnity satisfactory to Mortgagee), in addition to any other remedies set forth herein, but shall not be obligated to, as trustee for and at Mortgagor's sole cost and expense cause to be taken, any remediation, removal, response or corrective action relating to Hazardous Materials that is required by Environmental Law and is not being done or contested by Mortgagor. Any costs or expenses incurred by Mortgagee for such purpose shall be immediately due and payable by Mortgagor and shall bear interest -28- 30 at the Note Rate. Mortgagor shall provide to Mortgagee and its agents and employees access to the Mortgaged Property to take any action required by Environmental Laws, or in connection with any Hazardous Materials, that could be expected to result in the incurrence of any obligation or liability of any Secured Party, if Mortgagor fails to do so and such action or removal is required under any Environmental Laws as provided above. Upon written request by Mortgagee, which shall include a reasonably specific statement of the basis thereof (which shall be specific to the condition of the Mortgaged Property and the alleged violation of Environmental Law) and which shall be made not more frequently than once in any twelve-month period or at any time that Mortgagee is exercising its remedies under this Mortgage, Mortgagee shall have the right (upon receipt of an indemnity satisfactory to Mortgagee), but shall not be obligated, at the sole cost and expense of Mortgagor, to conduct an environmental audit or review of the Mortgaged Property relating to the specific items as required in writing or relating to the remedy that Mortgagee is exercising under this Mortgage by persons or firms appointed by Mortgagee, and Mortgagor shall cooperate in all reasonable respects in the conduct of such environmental audit or review, including, without limitation, by providing reasonable access to the Mortgaged Property and to all records relating thereto. Such audit or review shall be conducted in a manner that would not reasonably be expected to impose any additional material obligation upon, or materially increase any obligation of, ICI Delaware Holdings, Inc. or its successors ("ICI") under that certain Purchase Agreement, dated August 29, 1988, between ICI and Pioneer Chlor Alkali Holdings, Inc., as amended October 25, 1988 (as amended, the "ICI Agreement"), with respect to Hazardous Materials at the Mortgaged Property. Mortgagor shall indemnify and hold the Secured Parties harmless from and against all loss, cost, damage or expense (including, without limitation, attorneys' fees) that any Secured Party may sustain by reason of the assertion against such party of any claim relating to such Hazardous Materials or actions taken with respect thereto as authorized hereunder. Nothing contained herein shall result in any Secured Party being deemed an "owner" or "operator" under applicable Environmental Law. (iv) Mortgagor may at its own expense contest the amount or applicability of any of the obligations described in the first sentence of subsection IV(s)(iii) by appropriate legal proceedings, prosecution of which operates to prevent the -29- 31 enforcement thereof; provided, however, that (A) any such contest shall be conducted in good faith by appropriate legal proceedings promptly instituted and diligently conducted and (B) in connection with such contest, Mortgagor shall have made provision for the payment or performance of such contested obligation on Mortgagor's books if and to the extent required by generally accepted accounting principles then utilized by Mortgagor in the preparation of its financial statements, or shall have deposited with Mortgagee a sum sufficient to pay and discharge such obligation and Mortgagee's estimate of all interest and penalties related thereto. Notwithstanding the foregoing provisions of this subsection IV(s)(iv), no contest of any such obligations may be pursued by Mortgagor if such contest would expose Mortgagee or any other Secured Party to any possible criminal liability or, unless Mortgagor shall have furnished an Additional Undertaking (as hereinafter defined) therefor satisfactory to Mortgagee or such other Secured Party, as the case may be, any civil liability for failure to comply with such obligations. (t) Asbestos. Mortgagor shall not install nor permit to be installed in the Mortgaged Property friable asbestos or any asbestos-containing material (collectively, "ACM") except in compliance with all applicable Environmental Laws respecting such material. With respect to any ACM currently present in the Mortgaged Property, except with respect to matters which would not have a Material Adverse Effect, Mortgagor shall comply with all federal, state or local laws, regulations or orders applicable to ACM located on the Chlor Alkali Plant, all at Mortgagor's sole cost and expense. If Mortgagor shall fail so to comply with such laws or regulations, Mortgagee may (upon receipt of an indemnity satisfactory to Mortgagee) during the continuance of an Event of Default, but shall not be obligated to, in addition to any other remedies set forth herein, take those steps reasonably necessary to comply with applicable law, regulations or orders. Any costs or expenses incurred by Mortgagee for such purpose shall be immediately due and payable by Mortgagor and bear interest at the Note Rate. Mortgagor shall provide to Mortgagee and its agents and employees reasonable access to the Mortgaged Property upon reasonable prior notice to remove such ACM if Mortgagor fails to do so and removal is required under any Environmental Law as provided for above; provided, however, that nothing contained herein shall obligate Mortgagee to exercise any rights under such license. Mortgagor shall indemnify and hold the Secured Party harmless from and against all loss, cost, -30- 32 damage and expense that any Secured Party may sustain as a result of the presence of any ACM and any removal thereof in compliance with any applicable Environmental Law. (u) Books and Records; Reports. Mortgagor shall keep proper books of record and account, which shall accurately represent the financial condition of Mortgagor and the business affairs of Mortgagor relating to the Mortgaged Property. Mortgagee and its authorized representatives shall have the right, from time to time, upon reasonable prior notice to examine the books and records of Mortgagor relating to the operation of the Mortgaged Property at the office of Mortgagor. (v) No Claims Against Mortgagee. Nothing contained in this Mortgage shall constitute any consent or request by Mortgagee, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Chlor Alkali Plant or any part thereof, nor as giving Mortgagor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Mortgagee in respect thereof or any claim that any Lien based on the performance of such labor or services or the furnishing of any such materials or other property is prior to the Lien of this Mortgage. (w) Utility Services. Mortgagor shall pay, or cause to be paid, when due all charges for all public or private utility services, all public or private rail and highway services, all public or private communication services, all sprinkler systems, and all protective services, any other services of whatever kind or nature at any time rendered to or in connection with the Chlor Alkali Plant or any part thereof, shall comply in all material respects with all contracts relating to any such services, and shall do all other things reasonably required for the maintenance and continuance of all such services to the extent required to fulfill the obligations set forth in subsection IV(n). (x) Notwithstanding any provisions herein to the contrary, Mortgagor shall retain the right, at all times prior to foreclosure (or deed-in-lieu thereof), to exercise custody and control with respect to actions to be taken at the Mortgaged Property relating to the environmental condition thereof, but -31- 33 only to the extent Mortgagor's exercise of such custody and control of the Mortgaged Property is necessary for Mortgagor and/or its affiliates to retain any and all benefits inuring to Mortgagor and/or its affiliates under the indemnification provided by ICI in Section 8.02 of the ICI Agreement. SECTION V - ASSIGNMENT OF LEASES, RENTS, ISSUES AND PROFITS (a) As security for the payment and performance of the Secured Obligations, Mortgagor pledges, assigns, transfers and sets over to Mortgagee and grants to Mortgagee a security interest in, subject to the terms and conditions hereof, all Mortgagor's estate, right, title and interest (the "Mortgagor's Interest") in the Leases and Rents including, without limitation, the following: (i) the immediate and continuing right to receive and collect Rents payable by all tenants or other parties pursuant to Leases; (ii) all claims, rights, powers, privileges and remedies of Mortgagor, whether provided for in any Lease or arising by statute or at law or in equity or otherwise, consequent on any failure on the part of any tenant to perform or comply with any term of any Lease; (iii) all rights to take all actions upon the happening of a default under any Lease as shall be permitted by such Lease or by law, including, without limitation, the commencement, conduct and consummation of proceedings at law or in equity; and (iv) the full power and authority, in the name of Mortgagor or otherwise, to enforce, collect, receive and receipt for any and all of the foregoing and to do any and all other acts and things whatsoever which Mortgagor or any landlord is or may be entitled to do under the Leases. (b) Any Rents receivable by Mortgagee hereunder, after payment of all proper costs and charges, shall be applied, in accordance with the Intercreditor Agreement, to all amounts due and owing with respect to the Secured Obligations. Mortgagee shall be accountable to Mortgagor only for Rents actually received by Mortgagee pursuant to this assignment. The -32- 34 collection of such Rents and the application thereof shall not cure or waive any Event of Default or waive, modify or affect notice of an Event of Default or invalidate any act done pursuant to such notice. (c) So long as no Event of Default shall have occurred and be continuing, Mortgagor shall have a license to collect and apply the Rents and to enforce the obligations of tenants under the Leases. Immediately upon the occurrence and during the continuance of any Event of Default, the license granted in the immediately preceding sentence shall cease and terminate, with or without any notice, action or proceeding. Upon such Event of Default and during the continuance thereof, Mortgagee may (but shall not be obligated to) to the fullest extent permitted by the Leases (i) exercise any of Mortgagor's rights under the Leases, (ii) enforce the Leases, (iii) demand, collect, sue for, attach, levy, recover, receive, compromise and adjust, and make, execute and deliver receipts and releases for all Rents or other payments that may then be or may thereafter become due, owing or payable with respect to the Leases and (iv) generally do, execute and perform any other act, deed, matter or thing whatsoever that ought to be done, executed and performed in and about or with respect to the Leases, as fully as allowed or authorized by the Mortgagor's Interest. (d) During the continuance of an Event of Default, Mortgagor hereby irrevocably authorizes and directs the tenant under each Lease to pay directly to, or as directed by, Mortgagee all Rents accruing or due under its Lease. Mortgagor hereby authorizes the tenant under each Lease to rely upon and comply with any notice or demand from Mortgagee for payment of Rents to Mortgagee and Mortgagor shall have no claim against any tenant for Rents paid by such tenant to Mortgagee pursuant to such notice or demand. (e) Mortgagor at its sole cost and expense shall enforce all material provisions of the Leases in accordance with their terms. Neither this Mortgage nor any action or inaction on the part of Mortgagee shall release any tenant under any Lease, any guarantor of any Lease or Mortgagor from any of their respective obligations under the Leases or constitute an assumption of any such obligation on the part of Mortgagee. No action or failure to act on the part of Mortgagor shall adversely -33- 35 affect or limit the rights of Mortgagee under this Mortgage or, through this Mortgage, under the Leases. (f) All rights, powers and privileges of Mortgagee herein set forth are coupled with an interest and are irrevocable, subject to the terms and conditions hereof, and Mortgagor shall not take any action under the Leases or otherwise which is inconsistent with this Mortgage or any of the terms hereof and any such action inconsistent herewith or therewith shall be void. Mortgagor shall, from time to time, upon request of Mortgagee, execute all instruments and further assurances and all supplemental instruments and take all such action as Mortgagee from time to time may reasonably request in order to perfect, preserve and protect the interests intended to be assigned to Mortgagee hereby. (g) Mortgagor shall not, unilaterally or by agreement, subordinate, amend, modify, extend, discharge, terminate, surrender, waive or otherwise change any term of any of the Leases in any manner which would violate this Mortgage. If the Leases shall be amended as permitted hereby, they shall continue to be subject to the provisions hereof without the necessity of any further act by any of the parties hereto. (h) Nothing contained herein shall operate or be construed to (i) obligate Mortgagee to perform any of the terms, covenants or conditions contained in the Leases or otherwise to impose any obligation upon Mortgagee with respect to the Leases (including, without limitation, any obligation arising out of any covenant of quiet enjoyment contained in the Leases in the event that any tenant under a Lease shall have been joined as a party defendant in any action by which the estate of such tenant shall be terminated) or (ii) place upon Mortgagee any responsibility for the operation, control, care, management or repair of any portion of the Mortgaged Property. (i) The assignment of Leases and Rents contained in this Section V is made pursuant to provisions of La.R.S. 9:4401 et seq. -34- 36 SECTION VI - EVENTS OF DEFAULT (a) Events of Default. As used in this Mortgage, "Event of Default" shall mean the occurrence of an Event of Default under the Indenture or the Term Loan Agreement or a breach or violation of the terms of this Mortgage. (b) Remedies. Upon the occurrence and during the continuance of any Event of Default, in addition to any other rights and remedies Mortgagee may have pursuant to this Mortgage or as provided by law, and without limitation, Mortgagee may, subject to the terms of the Intercreditor Agreement, take such action, without notice or demand, as it deems advisable and is permitted by law to protect and enforce its rights against Mortgagor and in and to the Mortgaged Property, including, but not limited to, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such manner as Mortgagee may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Mortgagee, except to the extent otherwise provided by law: (i) (A) Mortgagee shall have the right and option to proceed with foreclosure of the Mortgaged Property in such manner as permitted or required by applicable law relating to the sale of real estate or by the Uniform Commercial Code relating to the sale of collateral after default by a debtor (as such applicable laws and Uniform Commercial Code now exist or as may be hereafter amended), or by any other present or subsequent articles or enactments relating to the sale of real estate or collateral. (B) Mortgagor agrees to surrender possession of the hereinabove described Mortgaged Property to the purchaser at the aforesaid sale, immediately after such sale, in the event such possession has not previously been surrendered by Mortgagor. The right of sale hereunder shall not be exhausted by one or more such sales, and Mortgagee may cause to occur other and successive sales until all of the Mortgaged Property be legally sold or all of the Secured Obligations shall have been paid. (ii) (A) Upon the occurrence and during the continuance of any Event of Default, Mortgagee shall have -35- 37 the right and power to proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction, or for the appointment of a receiver or keeper pending any foreclosure hereunder or the sale of the Mortgaged Property under the order of a court or courts of competent jurisdiction or under executory or other legal process, or for the enforcement of any other appropriate legal or equitable remedy. Any money advanced by Mortgagee in connection with any such receivership shall be a demand obligation (which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to Mortgagee and shall bear interest from the date of making such advance by Mortgagee until paid at the Note Rate. (B) Mortgagor agrees to the full extent that it lawfully may, that, in case one or more of the Events of Default shall have occurred and shall not have been remedied, then, and in every such case, Mortgagee shall have the right and power to enter into and upon and take possession of all or any part of the Mortgaged Property in the possession of Mortgagor, its successors or assigns, or its or their agents or servants, and may exclude Mortgagor, its successors or assigns, and all persons claiming under Mortgagor, and its or their agents or servants wholly or partly therefrom; and, holding the same, Mortgagee may use, administer, manage, operate and control the Mortgaged Property and conduct the business thereof to the same extent as Mortgagor, its successors or assigns, might at the time do and may exercise all rights and powers of Mortgagor, in the name, place and stead of Mortgagor, or otherwise as Mortgagee shall deem best. All costs, expenses and liabilities of every character incurred by Mortgagee in administering, managing, operating, and controlling the Mortgaged Property shall constitute a demand obligation (which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to Mortgagee and shall bear interest from date of expenditure until paid at the Note Rate, all of which shall constitute a portion of the Secured Obligations and shall be secured by this Mortgage and by any other instrument securing the Secured Obligations. In connection -36- 38 with any action taken by Mortgagee pursuant to this subsection (ii), Mortgagee shall not be liable for any loss sustained by Mortgagor resulting from any act or omission of Mortgagee in administering, managing, operating or controlling the Mortgaged Property, including a loss arising from the ordinary negligence of Mortgagee, unless such loss is caused by its own gross negligence or willful misconduct and bad faith, nor shall Mortgagee be obligated to perform or discharge any obligation, duty or liability of Mortgagor. (C) Mortgagor shall and does hereby agree to indemnify Mortgagee for, and to hold Mortgagee harmless from, any and all liability, loss or damage which may or might be incurred by Mortgagee by reason of this Mortgage or the exercise of rights or remedies hereunder, including a loss arising from the ordinary negligence of the Mortgagee, except as such liability, loss or damage is occasioned by the gross negligence or willful misconduct of such party; should Mortgagee make any expenditure on account of any such liability, loss or damage, the amount thereof, including costs, expenses and reasonable attorneys' fees, shall be a demand obligation (which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to Mortgagee and shall bear interest from the date expended until paid at the Note Rate, shall be a part of the Secured Obligations and shall be secured by this Mortgage and any other instrument securing the Secured Obligations. (D) Mortgagor hereby assents to, ratifies and confirms any and all actions of Mortgagee with respect to the Mortgaged Property taken under this paragraph (ii). (iii) Every right, power and remedy herein given to Mortgagee shall be cumulative and in addition to every other right, power and remedy herein specifically given or now or hereafter existing in equity, at law or by statute; and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and so often and in such order as may be deemed expedient by Mortgagee, and the exercise, or the beginning of the exercise, of any such right, power or remedy shall not be deemed a waiver of the right to exercise, at the same time or thereafter any other right, power or remedy. No delay or omission by Mortgagee in the exercise of any right, -37- 39 power or remedy shall impair any such right, power or remedy or operate as a waiver thereof or of any other right, power or remedy then or thereafter existing. (iv) To the extent permitted under applicable law, Mortgagee shall have the right (but shall not be obligated to) to become the purchaser at any sale held by any receiver or public officer, whether by judicial procedure or otherwise, and shall have the right (but shall not be obligated to) to have all or any part of the Secured Obligations then owing credited against the amount of the bid made by Mortgagee at such sale. (v) Upon any sale, whether or by virtue of judicial proceedings or otherwise, it shall not be necessary for any public officer acting under execution or order of court to have physically present or constructively in his or her possession any of the Mortgaged Property, and Mortgagor hereby agrees to deliver all of such personal property to the purchasers at such sale on the date of sale, and if it should be impossible or impracticable to make actual delivery of such property, then the title and right of possession to such property shall pass to the purchaser at such sale as completely as if such property had been actually present and delivered. (vi) Upon any sale, whether made or by virtue of judicial proceedings or otherwise, the receipt of the officer making a sale under judicial proceedings, shall be a sufficient discharge to the purchaser or purchasers at any sale for his or her or their purchase money, and such purchaser or purchasers, his or her or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of such officer therefor, be obliged to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or nonapplication thereof. (vii) (A) Any sale or sales of the Mortgaged Property or any part thereof, whether under and by virtue of judicial proceedings or otherwise, shall operate to divest all right, title, interest, claim and demand whatsoever, either at law or in equity, of Mortgagor of, in and to the premises and the property sold, and shall be a perpetual bar, both at law -38- 40 and in equity, against Mortgagor, its successors and assigns, and against any and all persons claiming or who shall thereafter claim all or any of the property sold from, through or under Mortgagor, its successors and assigns; and Mortgagor, if requested by Mortgagee to do so, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold. (B) The proceeds of any sale of the Mortgaged Property or any part thereof and all other moneys received by Mortgagee in any proceedings for the enforcement hereof, whose application has not elsewhere herein been specifically provided for, shall be applied first, to the payment of all expenses incurred by Mortgagee incident to the enforcement of this Mortgage or any of the Secured Obligations (including, without limiting the generality of the foregoing, expenses of any entry or taking of possession, of any sale, of advertisement thereof, and of conveyances, and court costs, compensation of agents and employees and reasonable legal fees), and to the payment of all other charges, expenses, liabilities and advances incurred or made by Mortgagee under this Mortgage; and then to the payment of the Secured Obligations in such order and manner as is determined by Mortgagee in its sole discretion, subject to the terms of the Intercreditor Agreement. (C) Mortgagee may resort to any security given by this Mortgage or to any other security now existing or hereafter given to secure the payment of any of the Secured Obligations secured hereby, in whole or in part, and in such portions and in such order as may seem best to Mortgagee in its sole discretion, subject to the terms of the Intercreditor Agreement, and any such action shall not in anywise be considered as a waiver of any of the rights, benefits or Liens created by this Mortgage. (D) Mortgagor agrees, to the full extent that it may lawfully so agree, that it will not at any time insist upon or plead or in any manner whatever claim or take the benefit or advantage of any appraisement, valuation, stay, extension or redemption law now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or the possession thereof by any purchaser at any sale made -39- 41 pursuant to any provision hereof, or pursuant to the decree of any court of competent jurisdiction; but Mortgagor, for itself and all who may claim through or under it, so far as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Mortgagor, for itself and all who may claim through or under it, waives to the extent that it may lawfully do so, any and all right to have the property included in the Mortgaged Property marshaled upon any foreclosure of the Lien hereof, and agrees that any court having jurisdiction to foreclose such Lien may sell the Mortgaged Property as an entirety. If any law referred to herein and now in force, of which Mortgagor or its successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to constitute any part of the contract herein contained or to preclude the operation or application of the provisions hereof. (E) If the proceeds of any sale or other lawful disposition of the Mortgaged Property by Mortgagee are insufficient to pay the Secured Obligations, then Mortgagor shall pay or cause to be paid any deficiency. (viii) Without in any manner limiting the generality of any of the other provisions of this Mortgage; (A) some portions of the goods described or to which reference is made herein are or are to become fixtures on the Land described or to which reference is made herein; (B) the security interests created hereby under the Uniform Commercial Code will attach to minerals including oil and gas; (C) this Mortgage may be filed as a financing statement; and (D) Mortgagor is the record owner of the real estate or interests in the real estate comprised of the Mortgaged Property. (ix) The Mortgaged Property may be sold in one or more parcels and in such manner and order as Mortgagee, in its sole discretion, may determine. (x) For purposes of Louisiana executory process, Mortgagor acknowledges the Secured Obligations secured hereby, whether now existing or to arise hereafter, and confess judgment thereon if not paid when due. Upon the occurrence of an Event of Default hereunder and at any time -40- 42 thereafter so long as the same shall be continuing, and in addition to all other rights and remedies granted Mortgagee hereunder, it shall be lawful for and Mortgagor hereby authorizes Mortgagee without making a demand or putting Mortgagor in default, a putting in default being expressly waived, to cause all and singular the Mortgaged Property to be seized and sold after due process of law, Mortgagor waiving the benefit of any and all laws or parts of laws relative to appraisement of property seized and sold under executory process or other legal process, and consenting that the Mortgaged Property be sold without appraisement, either in its entirety or in lots or parcels, as Mortgagee may determine, to the highest bidder for cash or on such other terms as the plaintiff in such proceedings may direct. In addition, Mortgagee shall have all of the rights and remedies available to it under this Mortgage, as a mortgagee under Louisiana law or as a secured party under the Uniform Commercial Code, then in effect. (xi) Mortgagor hereby waives: (A) the benefit of appraisement provided for in Articles 2332, 2336, 2723 and 2724 of the Louisiana Code of Civil Procedure and all other laws conferring the same; (B) the demand and three (3) days notice of demand as provided in Articles 2639 and 2721 of the Louisiana Code of Civil Procedure; (C) the notice of seizure provided by Articles 2293 and 2721 of the Louisiana Code of Civil Procedure; and (C) the three (3) days delay provided for in Articles 2331 and 2722 of the Louisiana Code of Civil Procedure. (x) Mortgagor expressly authorizes and agrees that Mortgagee shall have the right to appoint a keeper of the Mortgaged Property, or any part thereof, pursuant to the terms and provisions of La.R.S. 9:5136. -41- 43 Mortgagee's exercise of the foregoing remedies will not be construed to constitute Mortgagee as a mortgagee in possession of the Mortgaged Property nor to obligate Mortgagee to take any action or to incur expenses or perform or discharge any obligation, duty or liability of Trustor under any lease, or for the control, care, management, or repair of the Mortgaged Property; nor will it operate to make Mortgagee responsible or liable for any waste committed on the Mortgaged Property by any Person or for any dangerous or defective condition of the Mortgaged Property, or for any act or omission relating to the management, upkeep, repair, or control of the Mortgaged Property that results in loss or injury or death to any Person. SECTION VII - CERTAIN DEFINITIONS As used herein, the following terms shall have the following meanings: "Accounts Receivable" means any account of Mortgagor and any other right of Mortgagor to payment for goods sold or leased or for services rendered, whether or not evidenced by an instrument or chattel paper and whether or not yet earned by performance. "Additional Undertaking" shall mean (a) cash or cash equivalents or (b) a Surety Bond, an Additional Undertaking Guarantee or an Additional Undertaking Letter of Credit which is (i) provided by a Person, (ii) whose long- term unsecured debt is rated at least "AA" (or equivalent) by a nationally recognized statistical rating agency and (iii) is otherwise satisfactory to Mortgagee. Additional Undertakings shall be addressed directly to Mortgagee and shall name Mortgagee as the beneficiary thereof and the party entitled to make claims thereunder. "Additional Undertaking Guarantee" shall mean the unconditional guarantee of payment of any corporation or partnership organized and existing under the laws of the United States of America or any State or the District of Columbia or Canada or province thereof that has a long-term unsecured debt rating satisfactory to Mortgagee at the time such guarantee is delivered, given to Mortgagee, accompanied by an opinion of counsel to such guarantor to the effect that such guarantee has been duly authorized, executed and delivered by such guarantor and constitutes the legal, valid and binding obligation of such -42- 44 guarantor enforceable against such guarantor by Mortgagee in accordance with its terms, subject to customary exceptions at the time for opinions for such instruments, together with an opinion of counsel to the effect that, taking into account the purpose under this Mortgage for which such guarantee will be given, such guarantee and accompanying opinion are responsive to the requirements of this Mortgage. "Additional Undertaking Letter of Credit" shall mean a clean, irrevocable, unconditional letter of credit in favor of Mortgagee and entitling Mortgagee to draw thereon in The City of New York issued by a bank satisfactory to Mortgagee, accompanied by an opinion of counsel to such bank to the effect that such letter of credit has been duly authorized, executed and delivered by such bank and constitutes the legal, valid and binding obligation of such bank enforceable against such bank by Mortgagee in accordance with its terms subject to customary exceptions at the time for opinions for such instruments, together with an opinion of counsel to the effect that, taking into account the purpose under this Mortgage for which such letter of credit will be given, such letter of credit and accompanying opinion are responsive to the requirements of this Mortgage. "Collateral Account" shall have the meaning set forth in the Intercreditor Agreement. "Contract Right" means any right of Mortgagor to payment under a contract for the sale or lease of goods or the rendering of services, which right is not yet earned by performance. "Environmental Laws" shall mean any and all Governmental Requirements pertaining to occupational health or the environment in effect in the State, including without limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials -43- 45 Transportation Act, as amended, and other environmental conservation or protection laws. The term "oil" shall have the meaning specified in OPA, the terms "hazardous substance" and "release" (or "threatened release") have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have the meanings specified in RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (ii) to the extent the laws of the State establish a meaning for "oil", "hazardous substance", "release", solid waste" or "disposal" which is broader than that specified in either OPA, CERCLA or RCRA, such broader meaning shall apply with respect to the Mortgaged Property. "Excepted Liens" shall mean (a) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action and for which appropriate reserves have been maintained; (b) operators', vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction or other like Liens arising by operation of law in the ordinary course of business or statutory landlord's liens; (c) any Liens reserved in leases for rent and for compliance with the terms of the leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause does not materially impair the use of the Mortgaged Property covered by such Lien for the purposes for which such Mortgaged Property is held by Mortgagor or materially impair the value of such Mortgaged Property subject thereto; (d) the Liens listed on Schedule 1 attached hereto and made a part hereof; and (e) Liens and encumbrances (other than to secure the payment of borrowed money or the deferred purchase price of Mortgaged Property or services), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any rights of way for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, and defects, irregularities, zoning restrictions and deficiencies in title to the Mortgaged Property of which in the aggregate do not prevent the use of the Mortgaged Property for the purposes of which it is currently held by Mortgagor or have a Material Adverse Effect on the Companies taken as a whole. -44- 46 "General Intangibles" means (i) all general intangibles now owned or hereafter acquired by Mortgagor, including without limitation all right, title and interest of Mortgagor in and to: (a) all tax refunds and tax refund claims; (b) registered and unregistered patents, service marks, copyrights, applications for any of the foregoing and (c) all trade secrets and other confidential information relating to the business of Mortgagor, in each case to the extent that any of the foregoing arises out of or relates to Accounts or Inventory. "Governmental Authority" shall include the country, the state, county, city and political subdivisions in which any Person or such Person's Property is located or which exercises valid jurisdiction over any such Person or such Person's Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them including monetary authorities which exercises valid jurisdiction over any such Person or such Person's Property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, Mortgagor or any Secured Party. "Governmental Requirement" shall mean any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement, including, without limitation, Environmental Laws, energy regulations and occupational safety and health standards or controls, of any Governmental Authority. "Hazardous Materials" shall mean any pollutants, contaminants, or industrial, toxic or hazardous substances or wastes. "Inventory" means any and all of Mortgagor's goods (including without limitation goods in transit) wheresoever located, which are held for sale, furnished under any contract of service, or held as raw materials, work in process, or supplies or materials used or consumed in Mortgagor's business, or which are held for use in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, and any and all goods the sale or other disposition of which has given rise to an Account Receivable, Contract Right or any other property described in clause (a) of the definition of Obligor -45- 47 Collateral which are returned to and/or repossessed and/or stopped in transit by, or at any time hereafter are in the possession or under the control of, Mortgagor or any lender under the Revolving Credit Agreement or any agent or bailee of any of them, and all documents of title or other documents representing the same. "Lien" shall mean any interest in Mortgaged Property owed to, or a claim by a Person, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting the Mortgaged Property. "Material Adverse Effect" shall mean, as to any Person, asset or Property, a material adverse effect on the business, assets, properties, condition (financial or other), operations or results of operations of such Person, asset or Property, which effect is not adequately and effectively insured or indemnified against by a financially sound insurance company, and excepting effects arising solely out of general national economic conditions and/or effects arising solely out of matters affecting the industry in which such Person, asset or Property conducts business a whole. "Note Rate" shall mean the rate borne by the Notes. "Obligor Collateral" means all of the following property of Mortgagor, whether now owned or existing, or hereafter acquired or coming into existence, wherever now or hereafter located: (a) Accounts Receivable; Contract Rights; any and all security deposits and other security held by or granted to Mortgagor to secure payments from any and all persons who are or may become obligated to Mortgagor under, with respect to, or on account of any Account Receivable or Contract Right; and all chattel paper and instruments evidencing, arising out of or relating to any obligations to Mortgagor -46- 48 for goods sold or leased or services rendered, or otherwise arising out of or relating to any Obligor Collateral; (b) Inventory; (c) General Intangibles; (d) Any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or monies of or in the name of Mortgagor now or hereafter with the Agent, any Lender or any Participant (as defined in the Revolving Credit Agreement) and any and all property of every kind or description of or in the name of Mortgagor now or hereafter, for any reason or purpose whatsoever, in the possession or control of, or in transit to, or standing to Mortgagor's credit on the books of, such Agent, any agent or bailee for such Agent, any such Lender or Participant; (e) To the extent related to the property described in clauses (a) through (d) above, all books, correspondence, credit files, records, invoices and other papers and documents, including without limitation, to the extent so related, all tapes, cards, computer runs, computer programs and other papers and documents in the possession or control of Mortgagor or any computer bureau from time to time acting for Mortgagor, and, to the extent so related, all rights in, to and under all policies of insurance, including claims of rights to payments thereunder and proceeds therefrom, including any credit insurance; and (f) All products and proceeds (including but not limited to any Accounts Receivable or other proceeds arising from the sale or other disposition of any property described above, any returns of Inventory sold by Mortgagor, and the proceeds of any insurance covering any of the property described above) of any of the foregoing. "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity. -47- 49 "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Revolving Credit Agreement" shall mean that certain Loan and Security Agreement dated as June 17, 1997 among PAAC, as borrower, Bank of America Illinois, as agent and a lender, and the lenders named therein, as in effect on the date hereof. "State" shall mean the state where the Land is located. "Surety Bond" shall mean a clean irrevocable surety bond or credit insurance policy in favor of Mortgagee issued by an insurance company the claims paying ability rating of which at the time such surety bond or credit insurance policy is delivered is satisfactory to Mortgagee, accompanied by an opinion of counsel to such insurance company to the effect that such surety bond or credit insurance policy has been duly authorized, executed and delivered by such insurance company and constitutes the legal, valid and binding obligation of such insurance company enforceable against such insurance company by Mortgagee in accordance with its terms subject to customary exceptions at the time for opinions for such instruments, together with an opinion of counsel to the effect that, taking into account the purpose under this Mortgage for which such surety bond will be given, such surety bond and accompanying opinions are responsive to the requirements of this Mortgage. "Trust Money" shall mean those certain proceeds set forth in subsections IV(q)(i) and IV(q)(ii). SECTION VIII - MISCELLANEOUS (a) Choice of Law. The terms and provisions of this Mortgage and the enforcement hereof shall be governed by and construed in accordance with the laws of the state where the Land is located. (b) Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, the other provisions hereof shall remain in full force and effect in such jurisdiction and the remaining provisions hereof shall be liberally construed in favor of Mortgagee in order to effectuate the provisions hereof, and the invalidity or unenforceability of any provision hereof in -48- 50 any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction. If any part of the Secured Obligations cannot be lawfully secured by this Mortgage or if any part of the Mortgaged Property cannot be lawfully subject to the Lien and security interest hereof to the full extent of such Secured Obligations, then all payments made shall be applied on said Secured Obligations first in discharge of that portion thereof which is not secured by this Mortgage. (c) Construction of this Instrument. This instrument may be construed as a mortgage, deed of trust, chattel mortgage, conveyance, assignment, security agreement, fixture filing, pledge, financing statement, hypothecation or contract, or any one or more of them, in order fully to effectuate the Lien hereof and the purposes and agreements herein set forth. (d) Captions; Gender and Number. The captions and section headings of this Mortgage are for convenience only and are not to be used to define the provisions hereof. The term "Mortgagee" as used herein shall mean and include any successor(s) to United States Trust Company of New York in its capacity as Collateral Agent under the Intercreditor Agreement. The terms used to designate Mortgagee and Mortgagor shall be deemed to include the respective heirs, legal representatives, successors and assigns of such parties. All terms contained herein shall be construed, whenever the context of this Mortgage so requires, so that the singular includes the plural and so that the masculine includes the feminine. (e) Rights of Mortgagee. The Lien, security interest and other security rights of Mortgagee hereunder shall not be impaired by any indulgence, moratorium or release granted by Mortgagee, the Note Trustee or the Term Loan Agent, including, but not limited to, any renewal, extension or modification with respect to any Secured Obligation, or any surrender, compromise, release, renewal, extension, exchange or substitution which Mortgagee may grant in respect of the Mortgaged Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Obligation. (f) Waiver of an Event of Default. Mortgagee may waive any Event of Default without waiving any other prior or subsequent Event of Default. Mortgagee may remedy any Event of -49- 51 Default without waiving the Event of Default remedied. No single or partial exercise by Mortgagee of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time. No modification or waiver of any provision hereof nor consent to any departure by Mortgagor therefrom shall in any event be effective unless the same shall be in writing and signed by Mortgagee and then such waiver or consent shall be effective only in the specific instances, for the purpose for which given and to the extent therein specified. No notice to nor demand on Mortgagor in any case shall of itself entitle Mortgagor to any other or further notice of demand in similar or other circumstances. Acceptance by Mortgagee of any payment in an amount less than the amount then due on any Secured Obligations shall be deemed an acceptance on account only and shall not in any way excuse the existence of an Event of Default hereunder. (g) Successor Mortgagor. In the event the ownership of the Mortgaged Property or any part thereof becomes vested in a person other than Mortgagor, Mortgagee may, without notice to Mortgagor, deal with such successor or successors in interest with reference to this Mortgage and the Secured Obligations in the same manner as with Mortgagor, without in any way vitiating or discharging Mortgagor's liability hereunder or for the payment of the Secured Obligations or performance of the obligations secured hereby. No transfer of the Mortgaged Property, no forbearance on the part of Mortgagee and/or any Secured Party, and no extension of the time for the payment of the Secured Obligations, in whole or in part, shall affect the liability of Mortgagor or any other person hereunder or for obligations secured hereby. (h) Outstanding Lien, Security Interest, Charge or Prior Encumbrance. To the extent that proceeds of the Notes or proceeds of advances under the Term Loan Agreement are used to pay indebtedness secured by any outstanding Lien, security interest, charge or prior encumbrance against the Mortgaged Property, such proceeds have been advanced at Mortgagor's request, and Mortgagee shall be subrogated to any and all rights, security interests and Liens owned by any owner or holder of such outstanding Liens, security interests, charges or encumbrances, irrespective of whether said Liens, security interests, charges or encumbrances are released, and it is expressly understood -50- 52 that, in consideration of the payment of such indebtedness, Mortgagor hereby waives and releases all demands and causes of action for offsets and payments to, upon and in connection with the said indebtedness. (i) Covenants Running with the Land. The covenants and agreements herein contained shall constitute covenants running with the land and interests covered or affected hereby and shall be binding upon the heirs, legal representatives, successors and assigns of the parties hereto. (j) Notices. All notices requests, demands and other communications provided for or permitted hereunder shall be in writing (including telex and telecopy communications) and shall be sent by mail, telex, telecopier or hand delivery: If to Mortgagor, to the following address: 4200 NationsBank Center 700 Louisiana Street Suite 4200 Houston, Texas 77002 Attention: Vice President, General Counsel and Secretary If to Mortgagee, to the following address: 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department All such notices, requests, demands and communications shall be deemed to have been duly given or made, when delivered by hand or five (5) business days after being deposited in the mail, postage paid, when telexed answer back received and when telecopied, receipt acknowledged. Any party hereto may change its address set forth in this subsection (j) by notice to the other parties given in accordance with the provisions of this subsection (j). (k) Mortgagee's Consent. Except where otherwise expressly provided herein, in any instance hereunder where the approval, consent or the exercise of judgment of Mortgagee is required, the granting or denial of such approval or consent and the exercise of such judgment shall be within the sole discretion -51- 53 of Mortgagee, and Mortgagee shall not, for any reason or to any extent, be required to grant such approval or consent or exercise such judgment in any particular manner, regardless of the reasonableness of either the request or Mortgagee's judgment. (l) Foreclosure. In the event there is a foreclosure sale hereunder, and at the time of such sale Mortgagor or Mortgagor's successors or assigns or any other person claiming any interest in the Mortgaged Property by, through or under Mortgagor, are occupying or using the Mortgaged Property or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of either the landlord or tenant, or at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will. In the event the tenant fails to surrender possession of said property upon demand, the purchaser shall be entitled to institute and maintain a summary action for possession of the Mortgaged Property (such as an action for forcible entry and detainer) in any court having jurisdiction. The purchaser or purchasers at foreclosure shall have the right to affirm or disaffirm any lease of the Mortgaged Property or any part thereof. (m) Reimbursement. Mortgagor shall reimburse Mortgagee, upon demand, for all fees, costs and expenses incurred by Mortgagee in connection with the administration and enforcement of this Mortgage. If any action or proceedings, including, without limitation, bankruptcy or insolvency proceedings, is commenced to which action or proceeding Mortgagee is made a party or in which it becomes necessary to defend or uphold the Lien or validity of this Mortgage, Mortgagor shall, upon demand, reimburse Mortgagee for all expenses (including, without limitation, attorneys' and agents' fees and disbursement) incurred by Mortgagee in such action or proceedings. In any action or proceeding to foreclose this Mortgage or to recover or collect the Secured Obligations, the provisions of law relating to the recovery of costs, disbursements and allowances shall prevail unaffected by this covenant. Mortgagor's obligations under this subsection VIII(m) shall survive the satisfaction of -52- 54 this Mortgage and the discharge of Mortgagor's other obligations hereunder. (n) Waiver of Stay. (i) Mortgagor agrees that in the event that Mortgagor or any property or assets of Mortgagor shall hereafter become subject of a voluntary or involuntary proceeding under the Bankruptcy Code or Mortgagor shall otherwise be a party to any federal or state bankruptcy, insolvency, moratorium or similar proceeding to which the provisions relating to the automatic stay under Section 362 of the Bankruptcy Code or any similar provision in any such law is applicable, then, in any such case, whether or not Mortgagee has commenced foreclosure proceedings under this Mortgage, Mortgagee shall be entitled to relief from any such automatic stay as it relates to the exercise of any of the rights and remedies (including, without limitation, any foreclosure proceedings) available to Mortgagee as provided in this Mortgage or in any other document evidencing or securing the Secured Obligations. (ii) Mortgagee shall have the right to petition or move any court having jurisdiction over any proceeding described in subsection VIII(n)(i) for the purposes provided therein, and Mortgagor agrees (a) not to oppose any such petition or motion and (b) at Mortgagor's sole cost and expense, to assist and cooperate with Mortgagee, as may be requested by Mortgagee from time to time, in obtaining any relief requested by Mortgagee, including, without limitation, by filing any such petitions, supplemental petitions, requests for relief, documents, instruments or other items from time to time requested by Mortgagee or any such court. (o) Waiver of Jury Trial. To the extent permitted by law, Mortgagor hereby knowingly, voluntarily and intentionally waives any rights it may have to a trial by jury in the respect of any litigation based hereon, or directly or indirectly arising out of, under or in connection with, this Mortgage or any course of conduct, course of dealing, statements (whether verbal or written) or actions of Mortgagor or Mortgagee. (p) No Paraph. The evidences of the Secured Obligations have not been paraphed for identification with this Mortgage. -53- 55 (q) Acceptance. The acceptance of this Mortgage by Mortgagee is presumed, and therefore this Mortgage has not been executed and need not be executed by Mortgagee. (r) Provisions of the Intercreditor Agreement. Notwithstanding anything to the contrary contained in this Mortgage, it is the understanding of the parties hereto that any actions by Mortgagee are subject to the provisions of the Intercreditor Agreement; provided that (i) the provisions of this Mortgage shall govern and control to the extent any provision of the Intercreditor Agreement would negate or adversely affect the enforceability, validity, perfection or priority of the Lien or security interest created by this Mortgage, and (ii) the provisions of Sections I, II, III and V hereof shall govern and control in the event of a conflict with the Intercreditor Agreement. [Signature page follows] -54- 56 THUS DONE AND PASSED, on the date first above written, in the presence of the undersigned competent witnesses, who hereunto sign their names with Mortgagor and me, Notary, after due reading of the whole. WITNESSES: MORTGAGOR: PIONEER CHLOR ALKALI COMPANY, INC. a Delaware corporation /s/ Kent R. Stephenson By: /s/ Philip J. Ablove - ------------------------- -------------------------------- /s/ Scott A. Arenare Name: Philip J. Ablove - ------------------------- ------------------------------ Title: Vice President and Chief Financial Officer ----------------------------- /s/ Christopher Tung ------------------------------ NOTARY PUBLIC, in and for the State of New York My Commission expires: 9/29/98 ------------------ The name and address of Mortgagor is: PIONEER CHLOR ALKALI COMPANY, INC. 700 Louisiana Street, Suite 4200 Houston, Texas 77002 The name and address of Mortgagee is: UNITED STATES TRUST COMPANY OF NEW YORK 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department -55- EX-4.2(C) 11 PCAC (HENDERSON, NEVADA) 1 EXHIBIT 4.2(c) NEVADA DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT BY PIONEER CHLOR ALKALI COMPANY, INC. (Taxpayer I.D. No. 51-0302028), as Trustor TO First American Title Insurance Company of Nevada, as Deed of Trust Trustee FOR THE BENEFIT OF UNITED STATES TRUST COMPANY OF NEW YORK, as Collateral Agent (Taxpayer I.D. No. 13-3818954), as Beneficiary Dated as of June 17, 1997 THIS INSTRUMENT COVERS, AMONG OTHER PROPERTY, GOODS WHICH ARE OR MAY BECOME FIXTURES ON CERTAIN REAL PROPERTY DESCRIBED ON EXHIBIT A HERETO, AND IS TO BE FILED FOR RECORD IN THE REAL ESTATE RECORDS AS BOTH A DEED OF TRUST OF REAL PROPERTY AND A FIXTURES FINANCING STATEMENT UNDER THE UNIFORM COMMERCIAL CODE. A CARBON, PHOTOGRAPHIC, FACSIMILE OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT AS A FINANCING STATEMENT. THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, SECURES PAYMENT OF FUTURE ADVANCES AND COVERS PROCEEDS OF COLLATERAL. THE MAXIMUM PRINCIPAL AMOUNT SECURED BY THIS DEED OF TRUST IS $300,000,000 (SEE SECTION III). WHEN RECORDED OR FILED RETURN TO: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department 2 DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (this "Deed of Trust"), dated as of June 17, 1997, by and between PIONEER CHLOR ALKALI COMPANY, INC., a Delaware corporation, whose address for notice hereunder is 700 Louisiana Street, Suite 4200, Houston, Texas 77002 ("Trustor") to First American Title Insurance Company of Nevada, a Nevada corporation having an address at 3760 Pecos- McLeod, Suite #7, Las Vegas, Nevada 89121, as trustee (the "Deed of Trust Trustee"), in favor of UNITED STATES TRUST COMPANY OF NEW YORK, with offices at 114 West 47th Street, New York, New York 10036, as Collateral Agent under the Intercreditor Agreement (as hereinafter defined) (in such capacity and together with any successors and assigns in such capacity, "Beneficiary"), for (i) itself, as Trustee under the Indenture (as hereinafter defined) (in such capacity, the "Note Trustee"), (ii) for the Term Loan Agent (as hereinafter defined) as agent under the Term Loan Agreement (as hereinafter defined), (iii) for the Note Holders (as hereinafter defined), and (iv) for the Term Loan Lenders (as hereinafter defined) (the Beneficiary, the Note Trustee, the Term Loan Agent, the Note Holders and the Term Loan Lenders being hereinafter collectively referred to as the "Secured Parties"). W I T N E S S E T H : WHEREAS, pursuant to that certain Indenture dated as of the date hereof among Pioneer Americas Acquisition Corp. ("PAAC"), the Subsidiary Guarantors, as defined therein, and the Note Trustee, as trustee for the holders of the Notes (as hereinafter defined) (the "Note Holders") (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Indenture") PAAC will issue its 9 1/4% Senior Secured Notes due 2007 (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor, upon the registration of such notes pursuant to the Securities Act of 1933 or otherwise, the "Notes") in the aggregate principal amount of $200 million; and 3 WHEREAS, pursuant to that certain Term Loan Agreement dated as of the date hereof among PAAC, Bank of America Illinois, as administrative agent (the "Term Loan Agent"), DLJ Capital Funding, Inc., as syndication agent, Salomon Brothers Holding Company Inc, as documentation agent, and the lenders named therein (the "Term Loan Lenders") (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Term Loan Agreement"), the Term Loan Lenders will make certain loans to PAAC to be evidenced by notes (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor, the "Term Loan Notes") in an aggregate amount of $100 million; and WHEREAS, pursuant to Article Thirteen of the Indenture, Trustor has guaranteed (such guarantee by Trustor being hereinafter referred to as the "Note Guarantee") the payment and performance of the Indenture Obligation (as hereinafter defined); and WHEREAS, pursuant to the Subsidiary Guaranty dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time), Trustor has guaranteed (such guarantee by Trustor being hereinafter referred to as the "Term Loan Guarantee") the payment and performance of the Term Loan Obligation (as hereinafter defined); and WHEREAS, Beneficiary is the collateral agent under that certain Intercreditor and Collateral Agency Agreement (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Intercreditor Agreement"), dated as of the date hereof, among PAAC, Trustor, Pioneer Americas, Inc. ("PAI" and together with PAAC and Trustor sometimes referred to herein as the "Companies"), the Note Trustee, the Term Loan Agent and Beneficiary, as collateral agent. -2- 4 SECTION I - GRANTING CLAUSES To secure the Secured Obligations (as hereinafter defined), including, without limitation, Trustor's guarantees of payment and performance of the Indenture Obligation and the Term Loan Obligation under the Note Guarantee and the Term Loan Guarantee, respectively, and the payment and performance of the covenants and obligations herein contained and in consideration of the sum of $10.00 and other valuable consideration in hand paid by Beneficiary to Trustor and in consideration of the debts and trusts hereinafter mentioned, the receipt and sufficiency of all of which is hereby acknowledged, Trustor does by these presents GRANT, BARGAIN, SELL, ASSIGN, MORTGAGE, WARRANT, TRANSFER and CONVEY unto the Deed of Trust Trustee and its successors and substitutes in trust with power of sale hereunder for the use and benefit of Beneficiary all of Trustor's rights, titles, interests and estates in and to the real and personal property described in Subparagraphs (a) through (h) of this Section I (collectively herein called the "Mortgaged Property"); provided, however, that the term Mortgaged Property shall not include any Obligor Collateral, as such term is defined in the Revolving Credit Agreement (as hereinafter defined)), to-wit: (a) Trustor's undivided 100% interest in and to the lands described on Exhibit A hereto (the "Land"), together with any and all other rights, titles and interests of Trustor of whatever kind or character (whether now owned or hereafter acquired by operation of law or otherwise) in and to such Land. (b) All of Trustor's rights, titles and interests in all plants, buildings, structures, towers and other improvements now owned or hereafter acquired and located on the Land, including, without limitation, that certain chlor alkali plant and all equipment, fixtures, heating, lighting and power plants, pipelines, transmission lines, buildings, housing and improvements, together with all other machinery, equipment, appliances and apparatus of whatsoever character or description (except for any motor vehicles, licensed or registered with the Department of Motor Vehicles of the State), and all replacements, substitutions and additions to said property, owned by Trustor and located on the Land or located elsewhere and used in the operation, conduct and maintenance of that certain chlor alkali plant located thereon (collectively, the "Improvements") (the Land, together with the Improvements, being hereinafter collectively referred to as the "Chlor Alkali Plant"). -3- 5 (c) To the extent permitted by law, all of Trustor's rights, titles and interests in, to and under all franchises, licenses, permits and certificates, consents, approvals, authorizations, however characterized, used or held for use in connection with Trustor's ownership and operation of the Chlor Alkali Plant and issued or in any way furnished, whether now existing or hereafter entered into and whether necessary or not for the operation and use of the Chlor Alkali Plant, including, without limitation, building permits, certificates of occupancy, environmental certificates, industrial permits or licenses or certificates of operation. (d) All of Trustor's rights, title and interest in all absorbers, equipment, machinery, drums, engines, motors, regulators, meters, exchangers, tanks, docks, racks, heaters, above ground storage facilities, under ground storage facilities, loading facilities, fractionation facilities, absorption equipment, distillation equipment, deethanizers, depropanizers, debutanizers, olefin splitters, stills, power plants, disposal pits, warehouses, dwelling houses, cooling equipment, compressors, pipelines, piping flow lines, wiring, boilers, vessels, dehydration equipment or any of them (except for any motor vehicles, licensed or registered with the Department of Motor Vehicles of the State), whether now owned or hereafter acquired and located or to be located upon the Land or leaseholds now or hereafter owned by Trustor and used or held for use in connection with Trustor's ownership and operation of the Chlor Alkali Plant (collectively, "Equipment"). (e) All Trustor's right, title and interest, as landlord, franchisor, licensor or grantor, in all leases and subleases of space, oil, gas and mineral leases, franchise agreements, licenses, occupancy or concession agreements now existing or hereafter entered into relating in any manner to the Chlor Alkali Plant or the Equipment and any and all amendments, modifications, supplements and renewals of any thereof (each such lease, license or agreement, together with any such amendment, modification, supplement or renewal, a "Lease"), whether now in effect or hereafter -4- 6 coming into effect including, without limitation, all rents, additional rents, management fees payable by tenants, cash, guarantees, letters of credit, bonds, sureties or securities deposited thereunder to secure performance of the lessee's, franchisee's, licensee's or obligee's obligations thereunder, revenues, earnings, profits and income, advance rental payments, payments incident to assignment, sublease or surrender of a Lease, claims for forfeited deposits and claims for damages, now due or hereafter to become due, with respect to any Lease (collectively, "Rents"). (f) All surveys, title insurance policies, drawings, plans, specifications, construction contracts, file materials, operating and maintenance records, catalogues, tenant lists, correspondence, advertising materials, operating manuals, warranties, guaranties, appraisals, studies and data relating to the Chlor Alkali Plant or the Equipment or the construction of any Alteration (as hereinafter defined) or the maintenance of any Permit (as hereinafter defined). (g) All general intangibles now owned or hereafter acquired by Trustor (but not including the Obligor Collateral), including without limitation (i) all of Trustor's rights, titles and interests, whether now owned or hereafter acquired, of Trustor in, to and under the contracts, agreements or other instruments and documents relevant to Trustor's ownership and operation of the Chlor Alkali Plant (collectively, "Plant Agreements"), (ii) all contract rights relating to the Chlor Alkali Plant or the Equipment and all reserves, deferred payments, deposits, refunds and claims of every kind or character relating thereto, but not including Accounts Receivable, as defined in the Revolving Credit Agreement (collectively, "Contract Rights") and (iii) all processes, designs, methodologies and related documentation, technical information, manufacturing, engineering and technical drawings related to the ownership and operation of the Chlor Alkali Plant. (h) All proceeds of the conversion, voluntary or involuntary, of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation or other awards or payments with respect thereto and interest thereon (collectively, "Proceeds"). -5- 7 TO HAVE AND TO HOLD the Mortgaged Property unto the Deed of Trust Trustee and Beneficiary and to their successors and assigns forever to secure the payment and performance of the Secured Obligations. SECTION II - SECURITY INTEREST (a) With respect to all personal property (both tangible and intangible) and any fixtures constituting a part of the Mortgaged Property, this Deed of Trust shall likewise be a security agreement and a financing statement and for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and for the purpose of further securing payment of the Secured Obligations, Trustor hereby grants to Beneficiary a security interest in all of Trustor's rights, titles and interests in and to the Mortgaged Property insofar as the Mortgaged Property consists of equipment, contract rights, general intangibles, documents, instruments, chattel paper, fixtures and any and all other personal property of any kind or character defined in and subject to the provisions of the Uniform Commercial Code as in effect in the State (the "Uniform Commercial Code"), including the proceeds, profits, rents, revenues and products from any and all of such personal property. Upon the occurrence and during the continuance of any Event of Default (as hereinafter defined), Beneficiary is and shall be entitled to all of the rights, powers and remedies afforded a secured party by the Uniform Commercial Code with reference to the personal property and fixtures in which Beneficiary has been granted a security interest herein, or the Deed of Trust Trustee or Beneficiary may proceed as to both the real and personal property covered hereby in accordance with the rights and remedies granted under this Deed of Trust in respect of the real property covered hereby. Such rights, powers and remedies shall be cumulative and in addition to those granted to the Deed of Trust Trustee or Beneficiary under any other provision of this instrument or under any other instrument executed in connection with or as security for the Secured Obligations. A carbon or photographic or other reproduction of this Deed of Trust shall be sufficient as a financing statement covering the Mortgaged Property. (b) Trustor shall, forthwith after the execution and delivery of this Deed of Trust and thereafter, from time to time, -6- 8 cause this Deed of Trust and any financing statement, continuation statement or similar instrument relating to any thereof or to any property intended to be subject to the Lien of this Deed of Trust to be filed, registered and recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the validity and priority thereof or the Lien hereof upon the Mortgaged Property and the interest and rights of the Deed of Trust Trustee and Beneficiary herein and therein. Trustor shall pay or cause to be paid all taxes and fees incident to such filing, registration and recording, all expenses incident to the preparation, execution and acknowledgment thereof, and of any instrument of further assurance, and all federal or State stamp taxes or other taxes, duties and charges arising out of or in connection with the execution and delivery of such instruments. (c) Trustor shall, at the sole cost and expense of Trustor, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, deeds of trust, mortgages, assignments, notices of assignment, transfers, financing statements, continuation statements and assurances as the Deed of Trust Trustee or Beneficiary shall from time to time reasonably request which may be necessary in the requesting party's judgment to assure, perfect, convey, assign, mortgage, transfer and confirm unto the Deed of Trust Trustee or Beneficiary the property and rights hereby conveyed or assigned, or which Trustor may be or may hereafter become bound to convey or assign to Beneficiary or which may facilitate the performance of the terms of this Deed of Trust or the filing, registering or recording of this Deed of Trust. In the event Trustor shall fail to execute any instrument required to be executed by Trustor pursuant to this subsection II(c), Beneficiary may execute the same as the attorney-in-fact for Trustor, such power of attorney being coupled with an interest and irrevocable. SECTION III - SECURED OBLIGATIONS This Deed of Trust is executed and delivered by Trustor to secure the payment and performance of the obligations (collectively, the "Secured Obligations") described below: (a) Any and all indebtedness, obligations and liabilities of Trustor now or hereafter existing under or in -7- 9 respect of the Note Guarantee, including, without limitation, payment of principal, premium, if any, interest and Liquidated Damages (as defined in the Indenture), if any, when due and payable, and all other amounts due or to become due under or in connection with the Indenture (including, without limitation, all sums due to the Note Trustee pursuant to Section 606 thereof), the Notes and the performance of all other obligations to the Note Trustee and the Note Holders under the Indenture and the Notes, according to the terms thereof (collectively, the "Indenture Obligation); (b) Any and all indebtedness, obligations and liabilities of Trustor now or hereafter existing under or in respect of the Term Loan Guarantee, including, without limitation, payment of principal, premium, if any, and interest when due and payable, and all other amounts due or to become due under or in connection with the Term Loan Agreement (including without limitation, all sums due to the Term Loan Agent pursuant to Sections 10.3 and 10.4 thereof) and the Term Loan Notes and the performance of all other obligations to the Term Loan Agent and the Term Loan Lenders under the Term Loan Agreement and the Term Loan Notes according to the terms thereof (collectively, the "Term Loan Obligation"); (c) Any sums which may be advanced or paid by Beneficiary under the terms hereof on account of the failure of Trustor to comply with the covenants of Trustor contained herein; (d) All covenants, agreements, and obligations of Trustor herein contained; and (e) All renewals, rearrangements, increases, substitutions and extensions, and all amendments, supplements and modifications, to any of the obligations described in the preceding clauses (a) through (d). This Deed of Trust secures all future advances and obligations constituting Secured Obligations. This Deed of Trust also secures future advances, as defined in NRS 106.320 and is to be governed by NRS 106.300 to 106.400, inclusive. Notwithstanding anything to the contrary contained herein, the maximum principal amount to be secured hereby is $300 million. The maximum amount of advances of principal to be secured by this Deed of Trust may increase or decrease from time to time by amendment to this Deed of Trust. -8- 10 SECTION IV - REPRESENTATIONS, WARRANTIES AND COVENANTS Trustor hereby represents, warrants and covenants as follows: (a) Good Title; Authority and Validity. Trustor has good and marketable title to the Mortgaged Property and the landlord's interest and estate under or in respect of the Leases, subject to the Excepted Liens, and has, in all material respects, full corporate power and lawful authority to bargain, grant, sell, mortgage, assign, transfer, convey and grant a security interest in all of the Mortgaged Property all in the manner and form herein provided and without obtaining the waiver, consent or approval of any lessor, sublessor, Governmental Authority or entity or other party whomsoever or whatsoever which has not been obtained, except in the case of certain environmental permits and approvals which, by their terms, are not transferable or cannot be transferred without the prior approval of the issuing agency. The Improvements upon the Land are all within the boundary lines of the Land or have the benefit of valid easements, and there are no encroachments thereon that would materially impair the use thereof. The Mortgaged Property is free and clear of any and all Liens or encumbrances of any nature or kind except for the Excepted Liens and the Leases. Trustor has all necessary permits, franchises, licenses, rights-of-way, servitudes or other rights or authority needed in connection with the operation and maintenance of the Chlor Alkali Plant, except where the failure to have the same would not have a Material Adverse Effect; all of the Plant Agreements are presently in full force and effect and no default has occurred or exists thereunder, except where such default would not individually or in the aggregate have a Material Adverse Effect; except as provided in the Excepted Liens, Trustor's grant of a Lien and security interest in the Mortgaged Property in the manner herein provided does not result in the creation or imposition of any other Lien or security interest, adverse claim or option upon any of the Mortgaged Property. Trustor's chief executive office and chief place of business is located at the address set forth in the initial paragraph of this Deed of Trust. Trustor will not change its name, identity or corporate structure or its chief executive -9- 11 office or chief place of business without notifying the Deed of Trust Trustee and Beneficiary at least thirty (30) days prior to the effective date of such change. (b) Defense of Title. Trustor will warrant and defend title to the Mortgaged Property, subject to Excepted Liens, against the claims and demands of all other Persons whomsoever and will maintain and preserve the Lien created hereby so long as any of the Secured Obligations secured hereby remains unpaid. Should an adverse claim be made against the title to any material part of the Mortgaged Property, Trustor agrees it will immediately notify Beneficiary in writing thereof and defend against such adverse claim to the extent necessary to preserve the Deed of Trust Trustee's and Beneficiary's rights and benefits hereunder, subject to Excepted Liens, and Trustor further agrees that the Deed of Trust Trustee and/or Beneficiary may take such other reasonable action as they deem advisable to protect and preserve their interests in the Mortgaged Property, and in such event Trustor will indemnify the Deed of Trust Trustee and Beneficiary against any and all costs, reasonable attorney's fees and other expenses which they may incur in defending against any such adverse claim. Such obligations shall be payable on demand and shall bear interest from the date of demand therefor until paid at the Note Rate. Any proceeds of any policy of title insurance maintained by Trustor with respect to the Mortgaged Property shall, for the purposes of this Deed of Trust, be paid and applied in the same manner as Insurance Proceeds (as hereinafter defined). (c) First Lien. This Deed of Trust is, and always will be kept, a direct first Lien and security interest upon the Mortgaged Property, subject to the Excepted Liens, and Trustor will not create or suffer to be created or permit to exist any Lien, security interest or charge prior or junior to or on parity with the Lien and security interest of this Deed of Trust upon the Mortgaged Property or any part thereof or upon the rents, issues, revenues, profits or other income therefrom, except for the Excepted Liens. (d) Maintenance of Mortgaged Property. Trustor will at its own expense do or cause to be done all things necessary to preserve and keep in full repair, working order and efficiency, reasonable wear and tear excepted, all of the Mortgaged Property, including, without limitation, all equipment, machinery and -10- 12 facilities, and from time to time will make all the needful and proper repairs, renewals and replacements so that at all times the state and condition of the Mortgaged Property will be fully preserved and maintained, unless the failure to repair, renew or replace would not materially interfere with the present use or operation of the Mortgaged Property. (e) Performance of Contracts; Operation of Plant. Trustor will promptly pay and discharge all rentals, or other payments and will perform or cause to be performed each and every act, matter or thing required by, each and all of the contracts, instruments or agreements executed in connection with or incident to the ownership and operation of the Chlor Alkali Plant (including without limitation the Plant Agreements) and being a portion of the Mortgaged Property and will do all other things necessary to keep unimpaired Trustor's rights with respect thereto and to prevent any forfeiture thereof or default thereunder, unless such forfeiture or default would not individually or in the aggregate have a Material Adverse Effect. Trustor will operate the facilities comprising the Chlor Alkali Plant in a good and workmanlike manner and in accordance with the practices of the industry and in compliance in all material respects with all Governmental Requirements affecting ownership and operation of such facilities, including without limitation, Environmental Laws. (f) Payment by the Trustee and/or Beneficiary. Trustor agrees that if Trustor fails to perform any act or to take any action which Trustor is required to perform or take hereunder or pay any money which Trustor is required to pay hereunder (taking into account applicable grace or cure periods), the Deed of Trust Trustee and/or Beneficiary in Trustor's name or its own name may, but shall not be obligated to, during the continuance of an Event of Default, perform or cause to perform such act or take such action or pay such money, and any expenses so incurred by the Deed of Trust Trustee or Beneficiary and any money so paid by the Deed of Trust Trustee or Beneficiary shall be a demand obligation owing by Trustor to the Deed of Trust Trustee or Beneficiary, and the Deed of Trust Trustee or Beneficiary, upon making such payment, shall be subrogated to all of the rights of the Person receiving such payment. Each amount due and owing by Trustor to holders of the Secured Obligations and/or the Deed of Trust Trustee pursuant to this Deed of Trust shall bear interest from the date of such expenditure or payment -11- 13 or other occurrence which gives rise to such amount being owed to the Deed of Trust Trustee or Beneficiary until paid at the Note Rate, and all such amounts together with such interest thereon shall be a part of the Secured Obligations and shall be secured by this Deed of Trust. (g) Name of Trustor. Trustor does not do business with respect to the Mortgaged Property under any name other than Pioneer Chlor Alkali Company, Inc. (h) Operation by Third Parties. To the extent any of the Mortgaged Property is operated by a party or parties other than Trustor, Trustor's covenants as expressed in this Section IV are modified to require that Trustor use its best efforts (including without limitation the reasonable exercise of all rights and remedies as are available to Trustor) to obtain compliance with such covenants by the operator or operators of the Mortgaged Property. (i) Compliance with Laws. The Chlor Alkali Plant complies in all material respects with all local zoning, land use, setback and other development, use and occupancy requirements of governmental authorities except for possible nonconforming uses or violations which do not and will not materially interfere with the present use, operation or maintenance thereof as now used, operated or maintained. (j) Payment of Taxes, Insurance Premiums, Assessments; Compliance with Law and Insurance Requirements. (i) Unless contested in accordance with the provisions of subsection IV(j)(v) hereof, Trustor shall pay and discharge or cause to be paid and discharged, from time to time when the same shall become due, all real estate and other taxes, special assessments, levies, permits, inspection and license fees, all premiums for insurance, all water and sewer rents and charges, and all other public charges imposed upon or assessed against the Mortgaged Property or any part thereof or upon the revenues, rents, issues, income and profits of the Mortgaged Property, including, without limitation, those arising in respect of the occupancy, use or possession thereof. (ii) During the continuance of an Event of Default, Trustor shall deposit with Beneficiary, on the first day of each month, an amount reasonably estimated by Trustor to be equal to -12- 14 one-twelfth (1/12th) of the annual taxes, assessments and other items required to be discharged by Trustor under subsection IV(j)(i) and amounts reasonably estimated by Trustor to be necessary to maintain the insurance coverages contemplated in subsection IV(l) below, which estimates shall not be less than one-twelfth (1/12th) of the annual taxes, assessments, insurance premiums and other items required to be discharged by Trustor during the year immediately preceding the year during which such Event of Default occurred. Such amounts shall be held by Beneficiary without interest to Trustor and applied to the payment of each obligation in respect of which such amounts were deposited, in such order or priority as Beneficiary shall determine, on or before the date on which such obligation would become delinquent. If at any time the amounts so deposited by Trustor shall, in Beneficiary's judgment, be insufficient (when added to the installments anticipated to be paid thereafter) to discharge any of such obligations when due, Trustor shall, immediately upon demand, deposit with Beneficiary such additional amounts as may be requested by Beneficiary. Nothing contained in this subsection IV(j) shall affect any right or remedy of the Deed of Trust Trustee or Beneficiary under any provision of this Deed of Trust or of any statute or rule of law to pay any such amount from its own funds (provided, however, that neither the Deed of Trust Trustee nor Beneficiary shall in any event be obligated to pay any of such amounts from its own funds) and to add the amount so paid, together with interest at the Note Rate, to the Secured Obligations, or relieve Trustor of its obligations to make or provide for the payment of the annual taxes, assessments and other charges required to be discharged by Trustor under subsection IV(j)(i). Trustor hereby grants to Beneficiary a security interest in all sums held pursuant to this subsection IV(j)(ii) to secure payment and performance of the Secured Obligations. During the continuance of any Event of Default, Beneficiary may apply all or any part of the sums held pursuant to this subsection IV(j)(ii) to payment and performance of the Secured Obligations in accordance with the provisions of the Intercreditor Agreement. Trustor shall redeposit with Beneficiary an amount equal to all amounts so applied as a condition to the cure, if any, of such Event of Default, in addition to fulfillment of any other required conditions. (iii) Unless contested in accordance with the provisions of subsection IV(j)(v), Trustor shall timely pay (or obtain a bond in the amount of) all lawful claims and demands of -13- 15 mechanics, materialmen, laborers, warehousemen, employees, suppliers, government agencies administering worker's compensation insurance, old age pensions and social security benefits and all other claims, judgments, demands or amounts of any nature which, if unpaid or not bonded, could result in or permit the creation of a Lien (other than an Excepted Lien) on the Mortgaged Property or any part thereof or the Rents arising therefrom, or which might result in forfeiture of all or any part of the Mortgaged Property. (iv) Trustor shall maintain, or cause to be maintained, in full force and effect, all permits, certificates, authorizations, consents, approvals, registrations, filings, licenses, franchises or other instruments now or hereafter required by any Governmental Authority to operate or use and occupy the Chlor Alkali Plant and the Equipment for its intended uses (collectively, the "Permits"; each, a "Permit"), unless the failure to maintain such Permits would not individually or in the aggregate have a Material Adverse Effect. Trustor represents that, to its knowledge and subject to those requirements for notice, approval or reissuance set forth by applicable law, none of the Permits will be subject to cancellation, forfeiture or any limitation on the scope thereof solely by virtue of the execution of this Deed of Trust or the foreclosure of the Lien hereof. Unless contested in accordance with the provisions of subsection IV(j)(v), Trustor shall comply promptly with, or cause prompt compliance with, all requirements set forth in the Permits and all Governmental Requirements applicable to all or any part of the Mortgaged Property or the condition, use or occupancy of all or any part thereof or any recorded deed of restriction, declaration, covenant running with the land or otherwise, now or hereafter in force unless the compliance therewith would not individually or in the aggregate have a Material Adverse Effect. Trustor shall not initiate or consent to any change in the zoning, subdivision or any other use classification of the Land, if such action could have a material adverse effect on the Lien of this Deed of Trust or materially impair the present use and operation of the Mortgaged Property or materially impair Beneficiary's rights or benefits hereunder, without the prior written consent of Beneficiary. (v) Trustor may at its own expense contest the amount or applicability of any of the obligations described in subsections IV(j)(i), IV(j)(iii) and IV(j)(iv) by appropriate -14- 16 legal proceedings, prosecution of which operates to prevent the collection or enforcement thereof or the sale or forfeiture of the Mortgaged Property or any part thereof to satisfy such obligations; provided, however, that (A) any such contest shall be conducted in good faith by appropriate legal proceedings promptly instituted and diligently conducted and (B) in connection with such contest, Trustor shall have made provision for the payment or performance of such contested obligation on Trustor's books if and to the extent required by generally accepted accounting principles then utilized by Trustor in the preparation of its financial statements, or shall have deposited with Beneficiary a sum sufficient to pay and discharge such obligation and Beneficiary's estimate of all interest and penalties related thereto. Notwithstanding the foregoing provisions of this subsection IV(j)(v), (A) no contest of any such obligations may be pursued by Trustor if such contest would expose the Deed of Trust Trustee, Beneficiary, or any other Secured Party to any possible criminal liability or, unless Trustor shall have furnished an Additional Undertaking (as hereinafter defined) therefor satisfactory to the Deed of Trust Trustee, Beneficiary, or such other Secured Party, as the case may be, any civil liability for failure to comply with such obligations and (B) if at any time payment or performance of any obligation contested by Trustor pursuant to this subsection IV(j)(v) shall become necessary to prevent the delivery of a tax or similar deed conveying the Mortgaged Property or any portion thereof because of nonpayment or nonperformance, Trustor shall pay or perform the same in sufficient time to prevent the delivery of such tax or similar deed. (vi) Trustor shall not in its use and occupancy of the Chlor Alkali Plant or the Equipment (including, without limitation, in the making of any Alteration) take any action that would cause the termination, revocation or denial of any insurance coverage required to be maintained under this Deed of Trust or that pursuant to written notice from any applicable insurer, would be the basis for a defense to any claim under any insurance policy maintained in respect of the Chlor Alkali Plant or the Equipment and Trustor shall otherwise comply in all material respects with the requirements of any insurer that issues a policy of insurance in respect of the Chlor Alkali Plant or the Equipment. -15- 17 (vii) Trustor shall, promptly upon receipt of any written notice regarding any failure by Trustor to pay or discharge any of the obligations described in subsection IV(j)(i) or (vi), furnish a copy of such notice to Beneficiary. Trustor shall, promptly upon receipt of any written notice regarding any failure by Trustor to pay or discharge any of the obligations described in subsection IV(j)(iii) or (iv), furnish a copy of such notice to Beneficiary, if such failure would have a Material Adverse Effect. (k) Certain Tax Law Changes. In the event of the passage after the date of this Deed of Trust of any law deducting from the value of real property, for the purpose of taxation, amounts in respect of any Lien thereon or changing in any way the laws for the taxation of deeds of trust or debts secured by deeds of trust for state or local purposes or the manner of the collection of any such taxes, and imposing a new tax, either directly or indirectly, on this Deed of Trust or the interest of any Secured Party in any Mortgaged Property (other than income, franchise or similar taxes imposed on such Secured Party), Trustor shall promptly pay such Secured Party such amount or amounts as may be necessary from time to time to pay such tax. (l) Required Insurance Policies. (i) Trustor shall maintain, or cause to be maintained, in full force and effect the following insurance coverages in respect of the Chlor Alkali Plant and the Equipment: (A) Physical hazard insurance on an "all risk" basis covering hazards commonly covered by fire and extended coverage, lightning, civil commotion, hail, riot, strike, water damage, sprinkler leakage, collapse and malicious mischief, in an amount equal to the full replacement cost of the Improvements and all Equipment, with such deductibles as would be maintained by a prudent operator of property similar in use and configuration to the Chlor Alkali Plant and located in the locality where the Chlor Alkali Plant is located. "Full replacement cost" means the cost of construction to replace the Improvements and the Equipment, exclusive of depreciation, excavation, foundation and footings, as determined from time to time by a proper officer of Trustor in consultation with its insurance company or insurance agent, as appropriate; -16- 18 (B) Comprehensive general liability insurance against claims for bodily injury, death or property damage occurring on, in or about the Chlor Alkali Plant and any adjoining streets, sidewalks and passageways and covering any and all claims, including, without limitation, all legal liability, subject to customary exclusions, to the extent insurable, imposed upon Beneficiary or any Secured Party and all court costs and attorneys' fees, arising out of or connected with the possession, use, leasing, operation or condition of the Chlor Alkali Plant, with policy limits and deductibles in such amounts as would be maintained by a prudent operator of property similar in use and configuration to the Chlor Alkali Plant and located in the locality where the Chlor Alkali Plant is located; (C) Workers' compensation insurance as required by the laws of the State to protect Trustor against claims for injuries sustained in the course of employment at the Chlor Alkali Plant; (D) Comprehensive boiler and machinery insurance to cover sudden and accidental breakdown, including but not limited to, explosion of any boilers and machinery located on the Chlor Alkali Plant or comprising any Equipment, with policy limits and deductibles in such amounts as would be maintained by a prudent operator of property similar in use and configuration to the Chlor Alkali Plant and the Equipment and located in the locality where the Chlor Alkali Plant is located; (E) Comprehensive automobile liability insurance policy against claims for bodily injury, death and property damage covering all owned, leased, non-owned and hired motor vehicles, including loading and unloading in such amounts as would be maintained by a prudent operator of property similar in use and configuration to the Chlor Alkali Plant and the Equipment and located in the locality where the Chlor Alkali Plant is located; (F) Business interruption insurance on an annual basis in amounts not less than the projected gross profit of the Chlor Alkali Plant during the applicable twelve-month period but in no event less than the amount necessary to pay the fixed charges and other expenses of owning, operating and maintaining the Mortgaged Property for the same period; -17- 19 (G) To the extent not otherwise covered by the insurance required under clauses (A) and (B) of this subsection IV(l)(i), during the performance of any alterations, renovations, repairs, restorations or construction, broad form Builders Risk Insurance on an all-risk completed value basis; and (H) Such other insurance, against such risks and with policy limits and deductibles in such amounts as would be maintained by a prudent operator of property similar in use and configuration to the Chlor Alkali Plant and located in the locality in which the Chlor Alkali Plant is located. (ii) Trustor may maintain the coverages required by this subsection IV(l) under blanket policies covering the Chlor Alkali Plant and other locations owned or operated by Trustor if the terms of such blanket policies otherwise comply with the provisions of this subsection IV(l) and contain specific coverage allocations in respect of the Chlor Alkali Plant determined in accordance with the provisions of this subsection IV(l). All insurance policies in respect of the coverages required by subsections IV(l)(i)(A), IV(l)(i)(D), IV(l)(i)(G) and, if applicable, IV(l)(i)(H) shall be in amounts at least sufficient to prevent coinsurance liability and all losses thereunder shall be payable to Beneficiary, as loss payee, subject to the terms of the Intercreditor Agreement, pursuant to a standard noncontributory New York mortgage endorsement or local equivalent, and each such policy shall, to the extent obtainable at commercially reasonable costs, (A) include effective waivers (whether under the terms of such policy or otherwise) by the insurer of all claims for insurance premiums against all loss payees and named insureds other than Trustor and all rights of subrogation against any named insured, and (B) provide that any losses thereunder shall be payable notwithstanding (1) any act, failure to act, negligence of, or violation or breach of warranties, declarations or conditions contained in such policy by Trustor or Beneficiary or any other named insured or loss payee, (2) the occupation or use of the Chlor Alkali Plant or the Equipment for purposes more hazardous than permitted by the terms of the policy, (3) any foreclosure or other proceeding or notice of sale relating to the Chlor Alkali Plant or the Equipment or -18- 20 (4) any change in the title to or ownership or possession of the Chlor Alkali Plant or the Equipment; provided, however, that (with respect to items contemplated in clauses (3) and (4) above) any notice requirements of the applicable policies are satisfied. All insurance policies in respect of the coverages required by subsections IV(l)(i)(B), IV(l)(i)(E) and, if applicable, IV(l)(i)(H) shall name Beneficiary as an additional insured. Each policy of insurance required under this subsection IV(l) shall provide that (A) notices of any failure by Trustor to pay any insurance premium in respect thereof, be furnished to Beneficiary contemporaneously with any such notice given to Trustor and (B) it may not be cancelled or otherwise terminated without at least twenty (20) days' prior written notice to Beneficiary and shall permit Beneficiary to pay any premium therefor within twenty (20) days after receipt of any notice stating that such premium has not been paid when due. The policy or policies of such insurance or certificates of insurance evidencing the required coverages and all renewals or extensions thereof shall be delivered to Beneficiary upon receipt by Trustor. Settlement of any claim under any of the insurance policies referred to in this subsection IV(l) (other than the insurance contemplated in clause(C) of this subsection IV(l)(i)) which in Trustor's reasonable judgment involves loss of $1,000,000 or more, shall require the prior approval of Beneficiary (acting pursuant to the provisions of the Intercreditor Agreement) and Trustor shall use its best efforts to cause each such insurance policy to contain a provision to such effect. (iii) At least fifteen (15) days prior to the expiration of any insurance policy required by this subsection IV(l), Trustor shall deliver to Beneficiary evidence that such policy or policies shall be renewed or extended and Trustor shall deliver promptly to Beneficiary after receipt thereof the policy or policies renewing or extending such expiring policy or renewal or extension certificates or other evidence of renewal or extension, together with a receipt showing payment of the premium thereof. (iv) Trustor shall not purchase additional policies in respect of the insurance coverages required to be maintained under this subsection IV(l), unless Beneficiary is included thereon as an additional named insured and, if applicable, with loss payable to Beneficiary under an endorsement containing the -19- 21 provisions described in subsection IV(l)(ii) and the policy evidencing such insurance otherwise complies with the requirements of subsection IV(l)(ii). Trustor immediately shall notify Beneficiary whenever any such separate insurance policy is obtained and promptly shall deliver to Beneficiary the policy or certificate evidencing such insurance. (m) Inspection. Trustor shall permit Beneficiary, by its agents, accountants and attorneys, to visit and inspect the Mortgaged Property upon reasonable prior notice at such times as may be reasonably requested by Beneficiary. (n) Trustor To Maintain Improvements. Trustor shall not commit any waste on the Chlor Alkali Plant or with respect to any Equipment or make any change in the use of the Chlor Alkali Plant or any Equipment. Trustor represents and warrants that (i) to Trustor's knowledge, the Chlor Alkali Plant is served by all electric, gas, sewer, water facilities and any other utilities required or necessary for the current use thereof and any easements or servitudes necessary to the furnishing of such utility service by Trustor have been obtained and duly recorded, and (ii) Trustor has access to the Chlor Alkali Plant from public roads sufficient to allow Trustor and its tenants and invitees to conduct its and their businesses at the Chlor Alkali Plant as it is currently conducted. Trustor shall not materially alter the occupancy or use of the Chlor Alkali Plant without the prior written consent of Beneficiary. Except as otherwise permitted by the Intercreditor Agreement no Improvements comprising a portion of the Chlor Alkali Plant may be demolished nor shall any Equipment be removed without the prior written consent of Beneficiary. (o) Leases. (i) All of the Leases are valid and effective in accordance with their respective terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar law affecting or relating to enforcement of creditors' rights generally, and (ii) general equitable principles. To Trustor's knowledge, Trustor is not in material breach of or in default (and to Trustor's knowledge, no event has occurred which with due notice or lapse of time or both, may constitute such a material breach or default) under any Lease, and no party to any Lease has given Trustor written notice of or made a claim with respect to any breach or default, the consequences of which, individually or in the aggregate, would have a Material Adverse Effect on Trustor. -20- 22 (ii) Trustor shall manage and operate the Mortgaged Property or cause the Mortgaged Property to be managed and operated in a reasonably prudent manner and, except as otherwise permitted under subsection IV(p), will not enter into any Lease (or any amendment or modification thereof) or other agreement subsequent to the date hereof with any Person which, in the reasonable judgment of Trustor, individually or in the aggregate, would have a Material Adverse Effect on the value of the property subject thereto. (iii) Trustor shall not: (A) receive or collect, or permit the receipt or collection of, any rental or other payments under any Lease more than one (1) month in advance of the respective period in respect of which they are to accrue, except that (a) in connection with the execution and delivery of any Lease or of any amendment to any Lease, rental payments thereunder may be collected and received in advance in an amount not in excess of one (1) month's rent and (b) Trustor may receive and collect escalation and other charges in accordance with the terms of each Lease; (B) assign, transfer or hypothecate (other than to Beneficiary hereunder or as otherwise permitted under subsection IV(p) of this Deed of Trust) any rental or other payment under any Lease whether then due or to accrue in the future, the interest of Trustor as lessor under any Lease or the rents, issues, revenues, profits or other income of the Mortgaged Property; (C) enter into any Lease after the date hereof that does not contain terms to the effect as follows: (1) such Lease and the rights of the tenant thereunder shall be subject and subordinate to the rights of Beneficiary under and the Lien of this Deed of Trust; -21- 23 (2) such Lease has been assigned as collateral security by Trustor as landlord thereunder to Beneficiary under this Deed of Trust; (3) in the case of any foreclosure hereunder, the rights and remedies of the tenant in respect of any obligations of any successor landlord thereunder shall be limited to the equity interest of such successor landlord in the Chlor Alkali Plant and any successor landlord shall not (a) be liable for any act, omission or default of any prior landlord under the Lease or (b) be required to make or complete any tenant improvements or capital improvements or repair, restore, rebuild or replace the demised premises or any part thereof in the event of damage, casualty or condemnation or (c) be required to pay any amounts to tenant arising under the Lease prior to such successor landlord taking possession; (4) the tenant's obligation to pay rent and any additional rent shall not be subject to any abatement, deduction, counterclaim or setoff as against Beneficiary or any purchaser upon the foreclosure of any portion of the Chlor Alkali Plant or the giving or granting of a deed in lieu thereof by reason of a landlord default occurring prior to such foreclosure, and Beneficiary or such purchaser will not be bound by any advance payments of rent in excess of one month or any security deposits unless such security was actually received; and (5) the tenant agrees to attorn, at the option of Beneficiary or any purchaser of the Chlor Alkali Plant, to the successor owner upon a foreclosure of the Chlor Alkali Plant or the giving or granting of a deed in lieu thereof; and (D) terminate or permit the termination of any Lease of space, accept surrender of all or any portion of the space demised under any Lease prior to the end of the term thereof or accept assignment of any Lease to Trustor which, in the reasonable judgment of Trustor, individually or in the aggregate, would have a Material Adverse Effect or materially impair the Lien of this Deed of Trust therein unless: -22- 24 (1) the tenant under such Lease has not paid the equivalent of two months' rent and Trustor has made reasonable efforts to collect such rent; or (2) Trustor shall deliver to Beneficiary an Officers' Certificate to the effect that Trustor has entered into a new Lease (or Leases) for the space covered by the terminated or assigned Lease with a term (or terms) which expire(s) no earlier than the date on which the terminated or assigned Lease was to expire (excluding renewal options), and with a tenant (or tenants) having a creditworthiness (as reasonably determined by Trustor) sufficient to pay the rent and other charges due under the new Lease (or Leases), and the tenant(s) shall have commenced paying rent, including, without limitation, all operating expenses and other amounts payable under the new Lease (or Leases), without any abatement or concession, in an amount at least equal to the amount which would have then been payable under the terminated or assigned Lease. (iv) Trustor timely shall perform and observe all the terms, covenants and conditions required to be performed and observed by Trustor under each Lease and will not engage in any conduct in respect of any Lease which would have individually or in the aggregate a Material Adverse Effect or materially impair the Lien of this Deed of Trust or the security interest created hereby. Trustor promptly shall notify Beneficiary of the receipt of any notice from any lessee under any Lease claiming that Trustor is in material default in the performance or observance of any of the terms, covenants or conditions thereof to be performed or observed by Trustor and will cause a copy of each such notice to be delivered promptly to Beneficiary. (p) Transfer Restrictions. Except as otherwise permitted by the Intercreditor Agreement, Trustor shall not, without the prior written consent of Beneficiary, further mortgage, encumber, hypothecate, sell, convey or assign all or any part of the Mortgaged Property or suffer any of the foregoing to occur by operation of law or otherwise (each a "Transfer"); -23- 25 provided, however, Trustor may so encumber the Mortgaged Property to the extent such encumbrances are of the kind listed in clause (e) of the definition of "Excepted Liens". Any proceeds of such permitted Transfer shall be deemed Collateral Proceeds (as such term is defined in the Indenture) and are hereby assigned and shall be paid to Beneficiary to be held in the Collateral Account and disbursed pursuant to the Intercreditor Agreement. (q) Destruction; Condemnation. (i) Destruction; Insurance Proceeds. If there shall occur any damage to, or loss or destruction of, the Improvements and Equipment, or any part of any thereof (each, a "Destruction"), Trustor shall promptly send to Beneficiary a notice setting forth the nature and extent of such Destruction. The proceeds of any insurance payable in respect of any such Destruction are hereby assigned and shall be paid to Beneficiary to be held in the Collateral Account; provided, however, that so long as no Event of Default shall have occurred and be continuing, if such proceeds are in an amount less than $1,000,000, such proceeds shall be paid directly to Trustor. All insurance proceeds paid to Beneficiary pursuant to this subsection, less the amount of any expenses incurred in litigating, arbitrating, compromising or settling any claim arising out of such Destruction (the "Insurance Proceeds"), shall constitute Trust Moneys and be applied in accordance with the provisions of subsections IV(q)(iii), IV(q)(iv) and IV(q)(v). (ii) Condemnation; Assignment of Award. If there shall occur any taking of the Mortgaged Property or any part thereof, in or by condemnation or other eminent domain proceedings pursuant to any law, general or special, or by reason of the temporary requisition of the use or occupancy of the Mortgaged Property or any part thereof, by any governmental authority, civil or military (each, a "Taking"), Trustor immediately shall notify Beneficiary upon receiving notice of such Taking or commencement of proceedings therefor. Beneficiary may (but shall not be obligated to) participate in any proceedings or negotiations which might result in any Taking. Beneficiary may be represented by counsel satisfactory to it at the expense of Trustor. Trustor shall deliver or cause to be delivered to Beneficiary all instruments requested by it to permit such participation. Trustor shall in good faith and with due diligence file and prosecute what would otherwise be -24- 26 Trustor's claim for any such award or payment and cause the same to be collected and paid over to Beneficiary, and hereby irrevocably authorizes and empowers Beneficiary, in the name of Trustor as its true and lawful attorney-in-fact or otherwise, during the continuance of an Event of Default to collect and to receipt for any such award or payment, and, in the event Trustor fails so to act, to file and prosecute such claim. Trustor shall pay all costs, fees and expenses incurred by Beneficiary in connection with any Taking and seeking and obtaining any award or payment on account thereof. Any proceeds, award or payment in respect of any Taking are hereby assigned and shall be paid to Beneficiary to be held in the Collateral Account; provided, however, that so long as no Event of Default shall have occurred and be continuing, if such proceeds are in an amount less than $1,000,000, such proceeds shall be paid directly to Trustor. Trustor shall take all steps necessary to notify the condemning authority of such assignment. Such proceeds, award or payment paid to Beneficiary, less the amount of any expenses incurred in litigating, arbitrating, compromising or settling any claim arising out of such Taking ("Net Award"), shall constitute Trust Moneys and be applied in accordance with the provisions of subsections IV(q)(iii), IV(q)(iv) and IV(q)(v). (iii) Payment or Restoration. So long as no Event of Default shall have occurred and be continuing, Trustor shall have the right, at Trustor's option, to require Beneficiary to apply such Net Award or Insurance Proceeds to the payment of the Secured Obligations, in accordance with the Intercreditor Agreement or to perform a restoration (each, a "Restoration") of the affected portions of the Chlor Alkali Plant and the Equipment. In the event that Trustor elects to make such payment, such Net Award or Insurance Proceeds shall be delivered to the Beneficiary to be held as Trust Moneys subject to withdrawal and application by Beneficiary in accordance with the provisions of the Intercreditor Agreement. In the event Trustor elects to perform a Restoration, Trustor shall give written notice ("Restoration Election Notice") of such election to Beneficiary within twenty (20) business days after the date that Beneficiary receives the applicable Insurance Proceeds or Net Award, as the case may be. Trustor shall, within twenty (20) business days following the date of delivery of a Restoration Election Notice, commence and diligently continue to perform the Restoration of that portion or portions of the Chlor Alkali Plant and Equipment subject to such Destruction or affected by such -25- 27 Taking so that, upon the completion of the Restoration, the Mortgaged Property shall be in the same condition and shall be of at least equal utility for its intended purposes as the Mortgaged Property was immediately prior to such Destruction or Taking. Trustor shall so complete such Restoration with its own funds to the extent that the amount of any Net Award or Insurance Proceeds is insufficient for such purpose. In the event Beneficiary does not receive a Restoration Election Notice within such twenty (20) business day period, Beneficiary shall apply such Insurance Proceeds or Net Award to the payment of the Secured Obligations, in accordance with the provisions of the Intercreditor Agreement. (iv) Restoration. In the event a Restoration is to be performed under this subsection IV(q)(iv), Beneficiary shall not release any part of the Net Award or the Insurance Proceeds except in accordance with the provisions of subsection IV(q)(v) and Trustor shall, prior to commencing any work to effect a Restoration of the Chlor Alkali Plant and the Equipment, promptly (but in no event later than one-hundred twenty (120) days following any Destruction or Taking) furnish to Beneficiary: (A) complete plans and specifications (the "Plans and Specifications") for the Restoration; (B) an officers' certificate stating that all permits and approvals required by law to commence work in connection with the Restoration have been obtained; (C) a certificate (an "Architect's Certificate") of an independent, reputable architect or engineer acceptable to Beneficiary and licensed in the State (1) stating that the Plans and Specifications have been reviewed and approved by the signatory thereto, (2) containing such signatory's estimate (an "Estimate") of the costs of completing the Restoration, and (3) upon completion of such Restoration in accordance with the Plans and Specifications, the utility of the Chlor Alkali Plant and the Equipment will be equal to or greater than the utility thereof immediately prior to the Destruction or Taking relating to such Restoration; and (D) if the Estimate exceeds the Insurance Proceeds or the Net Award, as the case may be, by $5,000,000 or more, an Additional Undertaking in an amount equal to not less than the Estimate less the amount of the Insurance Proceeds or -26- 28 the Net Award, as the case may be, then held by Beneficiary for application toward the cost of such Restoration. Upon receipt by Beneficiary of each of the items required pursuant to clauses (A) through (D) above, Beneficiary shall acknowledge receipt of the Plans and Specifications. Promptly upon such acknowledgment of receipt by Beneficiary, Trustor shall commence and diligently continue to perform the Restoration substantially in accordance with such Plans and Specifications and in material compliance with all Governmental Requirements, free and clear of all Liens except Excepted Liens. Trustor shall so complete such Restoration with its own funds to the extent that the amount of any Net Award or Insurance Proceeds is insufficient for such purpose. (v) Restoration Advances Following Destruction or Taking of Mortgaged Property. In the event Trustor performs a Restoration of the Chlor Alkali Plant and Equipment as provided in subsection IV(q)(iv), Beneficiary shall apply any Insurance Proceeds or Net Award held by Beneficiary on account of the Destruction or Taking to the payment of the cost of performing such Restoration pursuant to the relevant provisions of the Intercreditor Agreement. In the event there shall be any surplus after application of the Net Award or the Insurance Proceeds to Restoration of the Chlor Alkali Plant and the Equipment, such surplus shall become Net Proceeds, as defined in the Indenture and shall be paid by Beneficiary to the Note Trustee for application in accordance thereunder; provided, however, that if an Event of Default shall have occurred and be continuing, such surplus shall be applied by Beneficiary to the payment of the Secured Obligations, in accordance with Article 6 of the Intercreditor Agreement. Notwithstanding anything to the contrary herein, if a Destruction or Taking of all or substantially all of the Mortgaged Property occurs on a date which is less than 12 months prior to Maturity, as such term is defined in the Indenture, all Insurance Proceeds and Net Awards shall be applied to the permanent repayment or prepayment of any Secured Obligations then outstanding in accordance with the Intercreditor Agreement. (r) Alterations. Trustor shall not make any material structural addition, modification or change (each, an "Alteration") to the Chlor Alkali Plant or the Equipment which would materially diminish the utility of the Mortgaged Property -27- 29 or impair the Lien of this Deed of Trust thereon. Whether or not Beneficiary has consented to the making of any Alteration, Trustor shall (i) complete each Alteration promptly, in a good and workmanlike manner and in material compliance with all applicable local laws, ordinances and requirements and (ii) pay when due all claims for labor performed and materials furnished in connection with such Alteration, unless contested in accordance with the provisions of subsection IV(j)(v). (s) Hazardous Material. (i) Except with respect to those matters which would not reasonably be expected to have a Material Adverse Effect, Trustor holds all Permits required to permit Trustor to conduct its business in the manner now conducted and none of the Trustor's operations are being conducted in a manner that violates in any material respect the terms and conditions under which any such Permit was granted, including without limitation, under any Environmental Laws; all such Permits are valid and in full force and effect; and to the knowledge of Trustor, no suspension, cancellation, revocation or termination of any such Permit is threatened. (ii) Except as set forth in the Term Loan Agreement, there are no material claims, actions, suits, proceedings or investigations pending or to the knowledge of Trustor, threatened, before any Governmental Authority or before any arbitrator brought by or against Trustor or with respect to any of the Mortgaged Property the basis of which is any Environmental Law. (iii) Trustor shall (or shall cause other parties obligated to do so under contract or indemnity to) (A) take all commercially reasonable actions to comply with any and all applicable present and future Environmental Laws relating to the Chlor Alkali Plant; (B) pay in a timely fashion the cost of any removal, response measure or corrective action relating to any Hazardous Materials required by any Environmental Law or any order, regulation, consent decree or similar agreement or instrument and keep the Mortgaged Property free of any Lien imposed pursuant to any Environmental Law; (C) take all commercially reasonable actions to not release, discharge or dispose of any Hazardous Materials on, under or from the Mortgaged Property in violation of any Environmental Law; -28- 30 (D) apply any insurance proceeds or other sums received by it in respect of the removal of any Hazardous Material or any other corrective action relating to any Hazardous Material to such removal or corrective action; and (E) not take, or fail to take any action with respect to any Environmental Laws or in connection with any Hazardous Materials that could reasonably be expected to result in the incurrence of any obligation or liability of any Secured Party. During the continuance of an Event of Default, in the event Trustor fails to comply with the covenants in the preceding sentence, Beneficiary may (upon receipt of an indemnity satisfactory to Beneficiary), in addition to any other remedies set forth herein, but shall not be obligated to, as trustee for and at Trustor's sole cost and expense cause to be taken, any remediation, removal, response or corrective action relating to Hazardous Materials that is required by Environmental Law and is not being done or contested by Trustor. Any costs or expenses incurred by Beneficiary for such purpose shall be immediately due and payable by Trustor and shall bear interest at the Note Rate. Trustor shall provide to Beneficiary and its agents and employees access to the Mortgaged Property to take any action required by Environmental Laws, or in connection with any Hazardous Materials, that could be expected to result in the incurrence of any obligation or liability of any Secured Party, if Trustor fails to do so and such action or removal is required under any Environmental Laws as provided above. Upon written request by Beneficiary, which shall include a reasonably specific statement of the basis thereof (which shall be specific to the condition of the Mortgaged Property and the alleged violation of Environmental Law) and which shall be made not more frequently than once in any twelve-month period or at any time that Beneficiary is exercising its remedies under this Deed of Trust, Beneficiary shall have the right (upon receipt of an indemnity satisfactory to Beneficiary), but shall not be obligated, at the sole cost and expense of Trustor, to conduct an environmental audit or review of the Mortgaged Property relating to the specific items as required in writing or relating to the remedy that Beneficiary is exercising under this Deed of Trust by persons or firms appointed by Beneficiary, and Trustor shall cooperate in all reasonable respects in the conduct of such environmental audit or review, including, without limitation, by providing reasonable access to the Mortgaged Property and to all records relating thereto. Such audit or review shall be conducted in a manner that would not reasonably be expected to impose any additional material obligation upon, or materially -29- 31 increase any obligation of, ICI Delaware Holdings, Inc. or its successors ("ICI") under that certain Purchase Agreement, dated August 29, 1988, between ICI and Pioneer Chlor Alkali Holdings, Inc., as amended October 25, 1988 (as amended, the "ICI Agreement"), with respect to Hazardous Materials at the Mortgaged Property. Trustor shall indemnify and hold the Secured Parties harmless from and against all loss, cost, damage or expense (including, without limitation, attorneys' fees) that any Secured Party may sustain by reason of the assertion against such party of any claim relating to such Hazardous Materials or actions taken with respect thereto as authorized hereunder. Nothing contained herein shall result in any Secured Party being deemed an "owner" or "operator" under applicable Environmental Law. (iv) Trustor may at its own expense contest the amount or applicability of any of the obligations described in the first sentence of subsection IV(s)(iii) by appropriate legal proceedings, prosecution of which operates to prevent the enforcement thereof; provided, however, that (A) any such contest shall be conducted in good faith by appropriate legal proceedings promptly instituted and diligently conducted and (B) in connection with such contest, Trustor shall have made provision for the payment or performance of such contested obligation on Trustor's books if and to the extent required by generally accepted accounting principles then utilized by Trustor in the preparation of its financial statements, or shall have deposited with Beneficiary a sum sufficient to pay and discharge such obligation and Beneficiary's estimate of all interest and penalties related thereto. Notwithstanding the foregoing provisions of this subsection IV(s)(iv), no contest of any such obligations may be pursued by Trustor if such contest would expose the Deed of Trust Trustee, Beneficiary, or any other Secured Party to any possible criminal liability or, unless Trustor shall have furnished an Additional Undertaking (as hereinafter defined) therefor satisfactory to the Deed of Trust Trustee, Beneficiary or such other Secured Party, as the case may be, any civil liability for failure to comply with such obligations. (t) Asbestos. Trustor shall not install nor permit to be installed in the Mortgaged Property friable asbestos or any asbestos-containing material (collectively, "ACM") except in compliance with all applicable Environmental Laws respecting such material. With respect to any ACM currently present in the -30- 32 Mortgaged Property, except with respect to matters which would not have a Material Adverse Effect, Trustor shall comply with all federal, state or local laws, regulations or orders applicable to ACM located on the Chlor Alkali Plant, all at Trustor's sole cost and expense. If Trustor shall fail so to comply with such laws or regulations, Beneficiary may (upon receipt of an indemnity satisfactory to Beneficiary) during the continuance of an Event of Default, but shall not be obligated to, in addition to any other remedies set forth herein, take those steps reasonably necessary to comply with applicable law, regulations or orders. Any costs or expenses incurred by Beneficiary for such purpose shall be immediately due and payable by Trustor and bear interest at the Note Rate. Trustor shall provide to Beneficiary and its agents and employees reasonable access to the Mortgaged Property upon reasonable prior notice to remove such ACM if Trustor fails to do so and removal is required under any Environmental Law as provided for above; provided, however, that nothing contained herein shall obligate Beneficiary to exercise any rights under such license. Trustor shall indemnify and hold the Secured Party harmless from and against all loss, cost, damage and expense that any Secured Party may sustain as a result of the presence of any ACM and any removal thereof in compliance with any applicable Environmental Law. (u) Books and Records; Reports. Trustor shall keep proper books of record and account, which shall accurately represent the financial condition of Trustor and the business affairs of Trustor relating to the Mortgaged Property. Beneficiary and its authorized representatives shall have the right, from time to time, upon reasonable prior notice to examine the books and records of Trustor relating to the operation of the Mortgaged Property at the office of Trustor. (v) No Claims Against Beneficiary. Nothing contained in this Deed of Trust shall constitute any consent or request by Beneficiary, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Chlor Alkali Plant or any part thereof, nor as giving Trustor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Beneficiary in respect thereof or any claim that any Lien based on the performance of -31- 33 such labor or services or the furnishing of any such materials or other property is prior to the Lien of this Deed of Trust. (w) Utility Services. Trustor shall pay, or cause to be paid, when due all charges for all public or private utility services, all public or private rail and highway services, all public or private communication services, all sprinkler systems, and all protective services, any other services of whatever kind or nature at any time rendered to or in connection with the Chlor Alkali Plant or any part thereof, shall comply in all material respects with all contracts relating to any such services, and shall do all other things reasonably required for the maintenance and continuance of all such services to the extent required to fulfill the obligations set forth in subsection IV(n). (x) Notwithstanding any provisions herein to the contrary, Trustor shall retain the right, at all times prior to foreclosure (or deed-in-lieu thereof), to exercise custody and control with respect to actions to be taken at the Mortgaged Property relating to the environmental condition thereof, but only to the extent Trustor's exercise of such custody and control of the Mortgaged Property is necessary for Trustor and/or its affiliates to retain any and all benefits inuring to Trustor and/or its affiliates under the indemnification provided by ICI in Section 8.02 of the ICI Agreement. SECTION V - ASSIGNMENT OF LEASES, RENTS, ISSUES AND PROFITS (a) Trustor absolutely, presently and irrevocably assigns, transfers and sets over to Beneficiary and grants to Beneficiary, subject to the terms and conditions hereof, all Trustor's estate, right, title and interest (the "Trustor's Interest") in the Leases including, without limitation, the following: (i) the immediate and continuing right to receive and collect Rents payable by all tenants or other parties pursuant to Leases; (ii) all claims, rights, powers, privileges and remedies of Trustor, whether provided for in any Lease or arising by statute or at law or in equity or otherwise, consequent on any failure on the part of any tenant to perform or comply with any term of any Lease; -32- 34 (iii) all rights to take all actions upon the happening of a default under any Lease as shall be permitted by such Lease or by law, including, without limitation, the commencement, conduct and consummation of proceedings at law or in equity; and (iv) the full power and authority, in the name of Trustor or otherwise, to enforce, collect, receive and receipt for any and all of the foregoing and to do any and all other acts and things whatsoever which Trustor or any landlord is or may be entitled to do under the Leases. (b) Any Rents receivable by Beneficiary hereunder, after payment of all proper costs and charges, shall be applied, in accordance with the Intercreditor Agreement, to all amounts due and owing with respect to the Secured Obligations. Beneficiary shall be accountable to Trustor only for Rents actually received by Beneficiary pursuant to this assignment. The collection of such Rents and the application thereof shall not cure or waive any Event of Default or waive, modify or affect notice of an Event of Default or invalidate any act done pursuant to such notice. (c) So long as no Event of Default shall have occurred and be continuing, Trustor shall have a license to collect and apply the Rents and to enforce the obligations of tenants under the Leases. Immediately upon the occurrence and during the continuance of any Event of Default, the license granted in the immediately preceding sentence shall cease and terminate, with or without any notice, action or proceeding. Upon such Event of Default and during the continuance thereof, Beneficiary may (but shall not be obligated to) to the fullest extent permitted by the Leases (i) exercise any of Trustor's rights under the Leases, (ii) enforce the Leases, (iii) demand, collect, sue for, attach, levy, recover, receive, compromise and adjust, and make, execute and deliver receipts and releases for all Rents or other payments that may then be or may thereafter become due, owing or payable with respect to the Leases and (iv) generally do, execute and perform any other act, deed, matter or thing whatsoever that ought to be done, executed and performed in and about or with respect to the Leases, as fully as allowed or authorized by the Trustor's Interest. -33- 35 (d) During the continuance of an Event of Default, Trustor hereby irrevocably authorizes and directs the tenant under each Lease to pay directly to, or as directed by, Beneficiary all Rents accruing or due under its Lease. Trustor hereby authorizes the tenant under each Lease to rely upon and comply with any notice or demand from Beneficiary for payment of Rents to Beneficiary and Trustor shall have no claim against any tenant for Rents paid by such tenant to Beneficiary pursuant to such notice or demand. (e) Trustor at its sole cost and expense shall enforce all material provisions of the Leases in accordance with their terms. Neither this Deed of Trust nor any action or inaction on the part of Beneficiary shall release any tenant under any Lease, any guarantor of any Lease or Trustor from any of their respective obligations under the Leases or constitute an assumption of any such obligation on the part of Beneficiary. No action or failure to act on the part of Trustor shall adversely affect or limit the rights of Beneficiary under this Deed of Trust or, through this Deed of Trust, under the Leases. (f) All rights, powers and privileges of Beneficiary herein set forth are coupled with an interest and are irrevocable, subject to the terms and conditions hereof, and Trustor shall not take any action under the Leases or otherwise which is inconsistent with this Deed of Trust or any of the terms hereof and any such action inconsistent herewith or therewith shall be void. Trustor shall, from time to time, upon request of Beneficiary, execute all instruments and further assurances and all supplemental instruments and take all such action as Beneficiary from time to time may reasonably request in order to perfect, preserve and protect the interests intended to be assigned to Beneficiary hereby. (g) Trustor shall not, unilaterally or by agreement, subordinate, amend, modify, extend, discharge, terminate, surrender, waive or otherwise change any term of any of the Leases in any manner which would violate this Deed of Trust. If the Leases shall be amended as permitted hereby, they shall continue to be subject to the provisions hereof without the necessity of any further act by any of the parties hereto. (h) Nothing contained herein shall operate or be construed to (i) obligate the Deed of Trust Trustee or -34- 36 Beneficiary to perform any of the terms, covenants or conditions contained in the Leases or otherwise to impose any obligation upon the Deed of Trust Trustee or Beneficiary with respect to the Leases (including, without limitation, any obligation arising out of any covenant of quiet enjoyment contained in the Leases in the event that any tenant under a Lease shall have been joined as a party defendant in any action by which the estate of such tenant shall be terminated) or (ii) place upon the Deed of Trust Trustee or Beneficiary any responsibility for the operation, control, care, management or repair of any portion of the Mortgaged Property. (i) Beneficiary may also, at any time after an Event of Default, or pursuant to NRS Section 32.015, under the circumstances described in NRS Section 40.507, apply to any court of competent jurisdiction for the appointment of a receiver and Trustor agrees that such appointment shall be made upon a prima facie showing of a claimed Event of Default without reference to any offsets or defenses against such Event of Default. Such receiver shall have all the rights and powers provided to Beneficiary pursuant to this section or otherwise provided hereunder or by law. Said receiver may borrow monies and issue certificates therefor. Said certificates shall be a lien on the Mortgaged Property subordinate only to this Deed of Trust and the Leases; provided, however, that should any of said certificates be acquired by Beneficiary the amount thereof shall constitute additional indebtedness secured hereby. Such receiver may lease all or any portion of the Mortgaged Property on such terms and for such a term (which may extend beyond the terms of such receiver's appointment and/or, if Beneficiary so consents, sale of the Mortgaged Property hereunder) as such receiver may deem appropriate in its sole and absolute discretion. The entering upon and taking possession of the Mortgaged Property pursuant to this section and the collection of the Rents, issues and profits therefrom shall not cure or waive any Event of Default or notice of an Event of Default hereunder or invalidate any act of Beneficiary pursuant thereto. -35- 37 SECTION VI - EVENTS OF DEFAULT (a) Events of Default. As used in this Deed of Trust, "Event of Default" shall mean the occurrence of an Event of Default under the Indenture or the Term Loan Agreement or a breach or violation of the terms of this Deed of Trust. (b) Remedies. Upon the occurrence and during the continuance of any Event of Default, in addition to any other rights and remedies Beneficiary may have pursuant to this Deed of Trust or as provided by law, and without limitation, Beneficiary may, subject to the terms of the Intercreditor Agreement, take such action, without notice or demand, as it deems advisable and is permitted by law to protect and enforce its rights against Trustor and in and to the Mortgaged Property, including, but not limited to, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such manner as Beneficiary may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Beneficiary, except to the extent otherwise provided by law: (i) (A) Beneficiary shall have the right and option to proceed with foreclosure by directing the Deed of Trust Trustee, or its successors or substitutes in trust, to proceed with foreclosure and to sell or offer for sale the Mortgaged Property in such manner as permitted or required by applicable law relating to the sale of real estate or by the Uniform Commercial Code relating to the sale of collateral after default by a debtor (as such applicable laws and Uniform Commercial Code now exist or as may be hereafter amended), or by any other present or subsequent articles or enactments relating to the sale of real estate or collateral; provided, however, that nothing contained in this subsection VI(b)(i) shall be construed so as to limit in any way the Deed of Trust Trustee's rights to sell the Mortgaged Property, or any portion thereof, by private sale if, and to the extent that, such private sale is permitted under the laws of the State or by public or private sale after entry of a judgment by any court of competent jurisdiction so ordering. (B) Trustor agrees to surrender possession of the hereinabove described Mortgaged Property to the purchaser at the aforesaid sale, immediately after such sale, in the -36- 38 event such possession has not previously been surrendered by Trustor. Upon receipt of the sale price in the case of a third party purchase or upon the crediting of the applicable portion of the Secured Obligations to the sales price if the purchaser is Beneficiary, the Deed of Trust Trustee is hereby authorized, empowered and directed to make due conveyance to the purchaser or purchasers, with general warranty binding upon Trustor and the heirs, successors and assigns of Trustor. The right of sale hereunder shall not be exhausted by one or more such sales, and the Deed of Trust Trustee may make other and successive sales until all of the Mortgaged Property be legally sold or all of the Secured Obligations shall have been paid. Trustor hereby irrevocably appoints the Deed of Trust Trustee to be the attorney of Trustor and in the name and on behalf of Trustor to execute and deliver any deeds, transfers, conveyances, assignments, assurances and notices which Trustor ought to execute and deliver and do and perform any and all such acts and things which Trustor ought to do and perform under the covenants herein contained and generally, to use the name of Trustor in the exercise of all or any of the powers hereby conferred on the Deed of Trust Trustee. Recitals contained in any conveyance made by the Deed of Trust Trustee to any purchaser at any sale made pursuant hereto shall conclusively establish the truth and accuracy of the matters therein treated, including, without limiting the generality of the foregoing, nonpayment of the unpaid principal sum of, or the interest accrued on, any of the Secured Obligations after the same has become due and payable, advertisement and conduct of such sale in the manner provided herein and appointment of any successor trustee hereunder. The Deed of Trust Trustee or its successor or substitute may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by the Deed of Trust Trustee, including the posting of notices and the conduct of sale, but in the name and on behalf of the Deed of Trust Trustee, his successor or substitute. If the Deed of Trust Trustee or his successor or substitute shall have given notice of sale hereunder, any successor or substitute Deed of Trust Trustee thereafter appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute Deed of Trust Trustee conducting the sale. -37- 39 (C) Subject to Section 2.2(b) of the Intercreditor Agreement, without limitation on any other provision contained herein, Beneficiary may, subject to NRS 107.080, declare all sums secured hereby immediately due by delivery to the Deed of Trust Trustee of a written notice of breach and election to sell (which notice the Deed of Trust Trustee shall cause to be recorded and mailed as required by law). (D) After three (3) months shall have elapsed following recordation of any such notice of breach, the Deed of Trust Trustee shall sell the property subject hereto at such time and at such place in the State as the Deed of Trust Trustee, in its sole discretion, shall deem best to accomplish the objects of these trusts, having first given notice of such sale as then required by law. In the conduct of any such sale the Deed of Trust Trustee may act itself or through any auctioneer, agent or attorney. The place of sale may be either in the county in which the property to be sold, or any part thereof, is situated, or at an office of the Deed of Trust Trustee located in the State. (1) Upon the request of Beneficiary or if required by law the Deed of Trust Trustee shall postpone sale of all or any portion of said property or interest therein by public announcement at the time fixed by said notice of sale, and shall thereafter postpone said sale from time to time by public announcement at the time previously appointed. (2) At the time of sale so fixed, the Deed of Trust Trustee shall sell the property so advertised or any part thereof or interest therein either as a whole or in separate parcels, as Beneficiary may determine in its sole and absolute discretion, to the highest bidder for cash in lawful money of the United States, payable at time of sale, and shall deliver to such purchaser a deed or deeds or other appropriate instruments conveying the property so sold, but without covenant or warranty, express or implied. Beneficiary and the Deed of Trust Trustee may bid and purchase at such sale. To the extent of the Secured Obligations, Beneficiary need not bid for cash at any sale of all or any portion of the Mortgaged Property pursuant hereto, but the amount of any successful bid by Beneficiary shall be applied -38- 40 in reduction of the Secured Obligations. Trustor hereby agrees, if it is then still in possession, to surrender, immediately and without demand, possession of said property to any purchaser. (ii) (A) Upon the occurrence and during the continuance of any Event of Default, the Deed of Trust Trustee or Beneficiary shall have the right and power to proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Mortgaged Property under the order of a court or courts of competent jurisdiction or under executory or other legal process, or for the enforcement of any other appropriate legal or equitable remedy. Any money advanced by the Deed of Trust Trustee and/or Beneficiary in connection with any such receivership shall be a demand obligation (which obligation Trustor hereby expressly promises to pay) owing by Trustor to the Deed of Trust Trustee and/or Beneficiary and shall bear interest from the date of making such advance by the Deed of Trust Trustee and/or Beneficiary until paid at the Note Rate. (B) Trustor agrees to the full extent that it lawfully may, that, in case one or more of the Events of Default shall have occurred and shall not have been remedied, then, and in every such case, the Deed of Trust Trustee or Beneficiary shall have the right and power to enter into and upon and take possession of all or any part of the Mortgaged Property in the possession of Trustor, its successors or assigns, or its or their agents or servants, and may exclude Trustor, its successors or assigns, and all persons claiming under Trustor, and its or their agents or servants wholly or partly therefrom; and, holding the same, the Deed of Trust Trustee may use, administer, manage, operate and control the Mortgaged Property and conduct the business thereof to the same extent as Trustor, its successors or assigns, might at the time do and may exercise all rights and powers of Trustor, in the name, place and stead of Trustor, or otherwise as the Deed of Trust Trustee shall deem best. All -39- 41 costs, expenses and liabilities of every character incurred by the Deed of Trust Trustee and/or Beneficiary in administering, managing, operating, and controlling the Mortgaged Property shall constitute a demand obligation (which obligation Trustor hereby expressly promises to pay) owing by Trustor to the Deed of Trust Trustee and/or Beneficiary and shall bear interest from date of expenditure until paid at the Note Rate, all of which shall constitute a portion of the Secured Obligations and shall be secured by this Deed of Trust and by any other instrument securing the Secured Obligations. In connection with any action taken by the Deed of Trust Trustee and/or Beneficiary pursuant to this subsection (ii), the Deed of Trust Trustee and/or Beneficiary shall not be liable for any loss sustained by Trustor resulting from any act or omission of the Deed of Trust Trustee and/or Beneficiary in administering, managing, operating or controlling the Mortgaged Property, including a loss arising from the ordinary negligence of the Deed of Trust Trustee and/or Beneficiary, unless such loss is caused by its own gross negligence or willful misconduct and bad faith, nor shall the Deed of Trust Trustee and/or Beneficiary be obligated to perform or discharge any obligation, duty or liability of Trustor. (C) Trustor shall and does hereby agree to indemnify the Deed of Trust Trustee and/or Beneficiary for, and to hold the Deed of Trust Trustee and/or Beneficiary harmless from, any and all liability, loss or damage which may or might be incurred by the Deed of Trust Trustee and/or Beneficiary by reason of this Deed of Trust or the exercise of rights or remedies hereunder, including a loss arising from the ordinary negligence of the Deed of Trust Trustee and/or Beneficiary, except as such liability, loss or damage is occasioned by the gross negligence or willful misconduct of such party; should the Deed of Trust Trustee and/or Beneficiary make any expenditure on account of any such liability, loss or damage, the amount thereof, including costs, expenses and reasonable attorneys' fees, shall be a demand obligation (which obligation Trustor hereby expressly promises to pay) owing by Trustor to the Deed of Trust Trustee and/or Beneficiary and shall bear interest from the date expended until paid at the Note Rate, shall be a part of the Secured Obligations and shall be secured by this Deed of Trust and any other instrument securing the Secured Obligations. -40- 42 (D) Trustor hereby assents to, ratifies and confirms any and all actions of the Deed of Trust Trustee and/or Beneficiary with respect to the Mortgaged Property taken under this paragraph (ii). (iii) Every right, power and remedy herein given to the Deed of Trust Trustee and Beneficiary shall be cumulative and in addition to every other right, power and remedy herein specifically given or now or hereafter existing in equity, at law or by statute; and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and so often and in such order as may be deemed expedient by the Deed of Trust Trustee and Beneficiary, and the exercise, or the beginning of the exercise, of any such right, power or remedy shall not be deemed a waiver of the right to exercise, at the same time or thereafter any other right, power or remedy. No delay or omission by the Deed of Trust Trustee or Beneficiary in the exercise of any right, power or remedy shall impair any such right, power or remedy or operate as a waiver thereof or of any other right, power or remedy then or thereafter existing. (iv) To the extent permitted under applicable law, Beneficiary shall have the right (but shall not be obligated to) to become the purchaser at any sale held by the Deed of Trust Trustee or by any receiver or public officer, whether by power of sale, judicial procedure or otherwise, and shall have the right (but shall not be obligated to) to have all or any part of the Secured Obligations then owing credited against the amount of the bid made by Beneficiary at such sale. (v) Upon any sale, whether under the power of sale hereby given or by virtue of judicial proceedings, it shall not be necessary for the Deed of Trust Trustee or any public officer acting under execution or order of court to have physically present or constructively in his or her possession any of the Mortgaged Property, and Trustor hereby agrees to deliver all of such personal property to the purchasers at such sale on the date of sale, and if it -41- 43 should be impossible or impracticable to make actual delivery of such property, then the title and right of possession to such property shall pass to the purchaser at such sale as completely as if such property had been actually present and delivered. (vi) Upon any sale, whether made under the power of sale hereby given or by virtue of judicial proceedings, the receipt of the Deed of Trust Trustee, or of the officer making a sale under judicial proceedings, shall be a sufficient discharge to the purchaser or purchasers at any sale for his or her or their purchase money, and such purchaser or purchasers, his or her or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Deed of Trust Trustee or of such officer therefor, be obliged to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or nonapplication thereof. (vii) (A) Any sale or sales of the Mortgaged Property or any part thereof, whether under the power of sale herein granted and conferred or under and by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever, either at law or in equity, of Trustor of, in and to the premises and the property sold, and shall be a perpetual bar, both at law and in equity, against Trustor, its successors and assigns, and against any and all persons claiming or who shall thereafter claim all or any of the property sold from, through or under Trustor, its successors and assigns; and Trustor, if requested by the Deed of Trust Trustee or Beneficiary to do so, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold. (B) The proceeds of any sale of the Mortgaged Property or any part thereof and all other moneys received by the Deed of Trust Trustee in any proceedings for the enforcement hereof, whose application has not elsewhere herein been specifically provided for, shall be applied first, to the payment of all expenses incurred by the Deed of Trust Trustee or Beneficiary incident to the enforcement of this Deed of Trust or any of the Secured Obligations (including, -42- 44 without limiting the generality of the foregoing, expenses of any entry or taking of possession, of any sale, of advertisement thereof, and of conveyances, and court costs, compensation of agents and employees and reasonable legal fees), and to the payment of all other charges, expenses, liabilities and advances incurred or made by the Deed of Trust Trustee or Beneficiary under this Deed of Trust or in executing any trust or power hereunder; and then to the payment of the Secured Obligations in such order and manner as is determined by Beneficiary in its sole discretion, subject to the terms of the Intercreditor Agreement. (C) Beneficiary may resort to any security given by this Deed of Trust or to any other security now existing or hereafter given to secure the payment of any of the Secured Obligations secured hereby, in whole or in part, and in such portions and in such order as may seem best to Beneficiary in its sole discretion, subject to the terms of the Intercreditor Agreement, and any such action shall not in anywise be considered as a waiver of any of the rights, benefits or liens created by this Deed of Trust. (D) Trustor agrees, to the full extent that it may lawfully so agree, that it will not at any time insist upon or plead or in any manner whatever claim or take the benefit or advantage of any appraisement, valuation, stay, extension or redemption law now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Deed of Trust or the absolute sale of the Mortgaged Property or the possession thereof by any purchaser at any sale made pursuant to any provision hereof, or pursuant to the decree of any court of competent jurisdiction; but Trustor, for itself and all who may claim through or under it, so far as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Trustor, for itself and all who may claim through or under it, waives to the extent that it may lawfully do so, any and all right to have the property included in the Mortgaged Property marshaled upon any foreclosure of the lien hereof, and agrees that any court having jurisdiction to foreclose such lien may sell the Mortgaged Property as an entirety. If any law referred to herein and now in force, of which Trustor or its successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, -43- 45 such law shall not thereafter be deemed to constitute any part of the contract herein contained or to preclude the operation or application of the provisions hereof. (E) If the proceeds of any sale or other lawful disposition of the Mortgaged Property by the Deed of Trust Trustee and/or Beneficiary are insufficient to pay the Secured Obligations, then Trustor shall pay or cause to be paid any deficiency. (viii) Without in any manner limiting the generality of any of the other provisions of this Deed of Trust; (A) some portions of the goods described or to which reference is made herein are or are to become fixtures on the land described or to which reference is made herein; (B) the security interests created hereby under the Uniform Commercial Code will attach to minerals including oil and gas; (C) this instrument is to be filed of record in the real estate records as a financing statement; and (D) Trustor is the record owner of the real estate or interests in the real estate comprised of the Mortgaged Property. (ix) The Mortgaged Property may be sold in one or more parcels and in such manner and order as Beneficiary, in its sole discretion, may determine. (c) Where not inconsistent with paragraph (b) the above, the following covenants, No., 1; 2 (full replacement value); 3; 4 (20% per annum); 5; 6; 7 (a reasonable percentage); 8 and 9 of NRS 107.030 are hereby adopted and made a part of this Deed of Trust. Beneficiary's exercise of the foregoing remedies will not be construed to constitute Beneficiary as a mortgagee in possession of the Mortgaged Property nor to obligate Beneficiary to take any action or to incur expenses or perform or discharge any obligation, duty or liability of Trustor under any lease, or for the control, care, management, or repair of the Mortgaged Property; nor will it operate to make Beneficiary responsible or liable for any waste committed on the Mortgaged Property by any Person or for any dangerous or defective condition of the Mortgaged Property, or for any act or omission relating to the management, upkeep, repair, or control of the Mortgaged Property that results in loss or injury or death to any Person. -44- 46 SECTION VII - THE DEED OF TRUST TRUSTEE (a) It shall be no part of the duty of the Deed of Trust Trustee to see to any recording, filing or registration of this Deed of Trust or any other instrument in addition or supplemental thereto, or to give any notice thereof, or to see to the payment of or be under any duty in respect of any tax or assessment or other governmental charge which may be levied or assessed on the Mortgaged Property, or any part thereof, or against Trustor, or to see to the performance or observance by Trustor of any of the covenants and agreements contained herein. The Deed of Trust Trustee shall not be responsible for the execution, acknowledgment or validity of this Deed of Trust or of any instrument in addition or supplemental hereto or for the sufficiency of the security purported to be created hereby, and makes no representation in respect thereof or in respect of the rights of Beneficiary. The Deed of Trust Trustee shall have the right to consult with counsel upon any matters arising hereunder and shall be fully protected in relying as to legal matters on the advice of counsel. The Deed of Trust Trustee shall not incur any personal liability hereunder except for the Deed of Trust Trustee's own gross negligence or willful misconduct; and the Deed of Trust Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by the Deed of Trust Trustee hereunder, believed by the Deed of Trust Trustee in good faith to be genuine. (b) The Deed of Trust Trustee may resign by written notice addressed to Beneficiary (but such resignation shall not be effective until and unless a successor trustee is appointed by Beneficiary and such successor trustee accepts the appointment) or be removed at any time with or without cause by an instrument in writing duly executed on behalf of Beneficiary. Beneficiary may, at any time, by instrument in writing, appoint a successor or successors to the Deed of Trust Trustee named herein or acting hereunder, which instrument, executed and acknowledged by Beneficiary, and recorded in the appropriate office in the State, shall be conclusive proof of the proper substitution of such successor trustee, who shall have all the estate, powers, duties and trusts in the premises vested in or conferred on the original trustee. -45- 47 SECTION VIII - CERTAIN DEFINITIONS As used herein, the following terms shall have the following meanings: "Additional Undertaking" shall mean (a) cash or cash equivalents or (b) a Surety Bond, an Additional Undertaking Guarantee or an Additional Undertaking Letter of Credit which is (i) provided by a Person, (ii) whose long- term unsecured debt is rated at least "AA" (or equivalent) by a nationally recognized statistical rating agency and (iii) is otherwise satisfactory to Beneficiary. Additional Undertakings shall be addressed directly to Beneficiary and shall name Beneficiary as the beneficiary thereof and the party entitled to make claims thereunder. "Additional Undertaking Guarantee" shall mean the unconditional guarantee of payment of any corporation or partnership organized and existing under the laws of the United States of America or any State or the District of Columbia or Canada or province thereof that has a long-term unsecured debt rating satisfactory to Beneficiary at the time such guarantee is delivered, given to Beneficiary, accompanied by an opinion of counsel to such guarantor to the effect that such guarantee has been duly authorized, executed and delivered by such guarantor and constitutes the legal, valid and binding obligation of such guarantor enforceable against such guarantor by Beneficiary in accordance with its terms, subject to customary exceptions at the time for opinions for such instruments, together with an opinion of counsel to the effect that, taking into account the purpose under this Deed of Trust for which such guarantee will be given, such guarantee and accompanying opinion are responsive to the requirements of this Deed of Trust. "Additional Undertaking Letter of Credit" shall mean a clean, irrevocable, unconditional letter of credit in favor of Beneficiary and entitling Beneficiary to draw thereon in The City of New York issued by a bank satisfactory to Beneficiary, accompanied by an opinion of counsel to such bank to the effect that such letter of credit has been duly authorized, executed and delivered by such bank and constitutes the legal, valid and binding obligation of such bank enforceable against such bank by Beneficiary in accordance with its terms subject to customary exceptions at the time for opinions for such instruments, together with an opinion of counsel to the effect that, taking -46- 48 into account the purpose under this Deed of Trust for which such letter of credit will be given, such letter of credit and accompanying opinion are responsive to the requirements of this Deed of Trust. "Collateral Account" shall have the meaning set forth in the Intercreditor Agreement. "Environmental Laws" shall mean any and all Governmental Requirements pertaining to occupational health or the environment in effect in the State, including without limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection laws. The term "oil" shall have the meaning specified in OPA, the terms "hazardous substance" and "release" (or "threatened release") have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have the meanings specified in RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (ii) to the extent the laws of the State establish a meaning for "oil", "hazardous substance", "release", solid waste" or "disposal" which is broader than that specified in either OPA, CERCLA or RCRA, such broader meaning shall apply with respect to the Mortgaged Property. "Excepted Liens" shall mean (a) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action and for which appropriate reserves have been maintained; (b) operators', vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction or other like Liens arising by operation of law in the ordinary course of business or statutory landlord's liens; (c) any Liens reserved in leases for rent and for compliance with the terms of the leases -47- 49 in the case of leasehold estates, to the extent that any such Lien referred to in this clause does not materially impair the use of the Mortgaged Property covered by such Lien for the purposes for which such Mortgaged Property is held by Trustor or materially impair the value of such Mortgaged Property subject thereto; (d) the Liens listed on Schedule 1 attached hereto and made a part hereof; and (e) Liens and encumbrances (other than to secure the payment of borrowed money or the deferred purchase price of Mortgaged Property or services), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any rights of way for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, and defects, irregularities, zoning restrictions and deficiencies in title to the Mortgaged Property of which in the aggregate do not prevent the use of the Mortgaged Property for the purposes of which it is currently held by Trustor or have a Material Adverse Effect on the Companies taken as a whole. "Governmental Authority" shall include the country, the state, county, city and political subdivisions in which any Person or such Person's Property is located or which exercises valid jurisdiction over any such Person or such Person's Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them including monetary authorities which exercises valid jurisdiction over any such Person or such Person's Property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, Trustor or any Secured Party. "Governmental Requirement" shall mean any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement, including, without limitation, Environmental Laws, energy regulations and occupational safety and health standards or controls, of any Governmental Authority. "Hazardous Materials" shall mean any pollutants, contaminants, or industrial, toxic or hazardous substances or wastes. -48- 50 "Lien" shall mean any interest in Mortgaged Property owed to, or a claim by a Person, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting the Mortgaged Property. "Material Adverse Effect" shall mean, as to any Person, asset or Property, a material adverse effect on the business, assets, properties, condition (financial or other), operations or results of operations of such Person, asset or Property, which effect is not adequately and effectively insured or indemnified against by a financially sound insurance company, and excepting effects arising solely out of general national economic conditions and/or effects arising solely out of matters affecting the industry in which such Person, asset or Property conducts business a whole. "Note Rate" shall mean the rate borne by the Notes. "NRS" shall mean the Nevada Revised Statutes. "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Revolving Credit Agreement" shall mean that certain Loan and Security Agreement dated as of June 17, 1997 among PAAC, as borrower, Bank of America Illinois, as agent and a lender, and the lenders named therein, as in effect on the date hereof. "State" shall mean the state where the Land is located. -49- 51 "Surety Bond" shall mean a clean irrevocable surety bond or credit insurance policy in favor of Beneficiary issued by an insurance company the claims paying ability rating of which at the time such surety bond or credit insurance policy is delivered is satisfactory to Beneficiary, accompanied by an opinion of counsel to such insurance company to the effect that such surety bond or credit insurance policy has been duly authorized, executed and delivered by such insurance company and constitutes the legal, valid and binding obligation of such insurance company enforceable against such insurance company by Beneficiary in accordance with its terms subject to customary exceptions at the time for opinions for such instruments, together with an opinion of counsel to the effect that, taking into account the purpose under this Deed of Trust for which such surety bond will be given, such surety bond and accompanying opinions are responsive to the requirements of this Deed of Trust. "Trust Money" shall mean those certain proceeds set forth in subsections IV(q)(i) and IV(q)(ii). SECTION IX - MISCELLANEOUS (a) Choice of Law. The terms and provisions of this Deed of Trust and the enforcement hereof shall be governed by and construed in accordance with the laws of the state where the Land is located. (b) Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, the other provisions hereof shall remain in full force and effect in such jurisdiction and the remaining provisions hereof shall be liberally construed in favor of the Deed of Trust Trustee and Beneficiary in order to effectuate the provisions hereof, and the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction. If any part of the Secured Obligations cannot be lawfully secured by this Deed of Trust or if any part of the Mortgaged Property cannot be lawfully subject to the Lien and security interest hereof to the full extent of such Secured Obligations, then all payments made shall be applied on said Secured Obligations first in discharge of that portion thereof which is not secured by this Deed of Trust. -50- 52 (c) Construction of this Instrument. This instrument may be construed as a mortgage, deed of trust, chattel mortgage, conveyance, assignment, security agreement, fixture filing, pledge, financing statement, hypothecation or contract, or any one or more of them, in order fully to effectuate the Lien hereof and the purposes and agreements herein set forth. (d) Captions; Gender and Number. The captions and section headings of this Deed of Trust are for convenience only and are not to be used to define the provisions hereof. The term "Beneficiary" as used herein shall mean and include any successor(s) to United States Trust Company of New York in its capacity as Collateral Agent under the Intercreditor Agreement. The terms used to designate the Deed of Trust Trustee, Beneficiary and Trustor shall be deemed to include the respective heirs, legal representatives, successors and assigns of such parties. All terms contained herein shall be construed, whenever the context of this Deed of Trust so requires, so that the singular includes the plural and so that the masculine includes the feminine. (e) Rights of Beneficiary. The Lien, security interest and other security rights of Beneficiary hereunder shall not be impaired by any indulgence, moratorium or release granted by Beneficiary, the Note Trustee or the Term Loan Agent, including, but not limited to, any renewal, extension or modification with respect to any Secured Obligation, or any surrender, compromise, release, renewal, extension, exchange or substitution which Beneficiary may grant in respect of the Mortgaged Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Obligation. (f) Waiver of an Event of Default. Beneficiary may waive any Event of Default without waiving any other prior or subsequent Event of Default. Beneficiary may remedy any Event of Default without waiving the Event of Default remedied. No single or partial exercise by Beneficiary of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time. No modification or waiver of any provision hereof nor consent to any departure by Trustor therefrom shall in any event be effective unless the same shall be in writing and signed by Beneficiary and -51- 53 then such waiver or consent shall be effective only in the specific instances, for the purpose for which given and to the extent therein specified. No notice to nor demand on Trustor in any case shall of itself entitle Trustor to any other or further notice of demand in similar or other circumstances. Acceptance by Beneficiary of any payment in an amount less than the amount then due on any Secured Obligations shall be deemed an acceptance on account only and shall not in any way excuse the existence of an Event of Default hereunder. (g) Successor Trustor. In the event the ownership of the Mortgaged Property or any part thereof becomes vested in a person other than Trustor, Beneficiary may, without notice to Trustor, deal with such successor or successors in interest with reference to this Deed of Trust and the Secured Obligations in the same manner as with Trustor, without in any way vitiating or discharging Trustor's liability hereunder or for the payment of the Secured Obligations or performance of the obligations secured hereby. No transfer of the Mortgaged Property, no forbearance on the part of Beneficiary and/or any Secured Party, and no extension of the time for the payment of the Secured Obligations, in whole or in part, shall affect the liability of Trustor or any other person hereunder or for obligations secured hereby. (h) Outstanding Lien, Security Interest, Charge or Prior Encumbrance. To the extent that proceeds of the Notes or proceeds of advances under the Term Loan Agreement are used to pay indebtedness secured by any outstanding Lien, security interest, charge or prior encumbrance against the Mortgaged Property, such proceeds have been advanced at Trustor's request, and Beneficiary shall be subrogated to any and all rights, security interests and Liens owned by any owner or holder of such outstanding Liens, security interests, charges or encumbrances, irrespective of whether said Liens, security interests, charges or encumbrances are released, and it is expressly understood that, in consideration of the payment of such indebtedness, Trustor hereby waives and releases all demands and causes of action for offsets and payments to, upon and in connection with the said indebtedness. (i) Covenants Running with the Land. The covenants and agreements herein contained shall constitute covenants running with the land and interests covered or affected hereby -52- 54 and shall be binding upon the heirs, legal representatives, successors and assigns of the parties hereto. (j) Notices. All notices requests, demands and other communications provided for or permitted hereunder shall be in writing (including telex and telecopy communications) and shall be sent by mail, telex, telecopier or hand delivery: If to Trustor, to the following address: 4200 NationsBank Center 700 Louisiana Street Suite 4200 Houston, Texas 77002 Attention: Vice President, General Counsel and Secretary If to Beneficiary, to the following address: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department If to the Deed of Trust Trustee, to the following address: First American Title Company of Nevada 3760 Pecos-McLeod, Suite # 7 Las Vegas, Nevada 89121 All such notices, requests, demands and communications shall be deemed to have been duly given or made, when delivered by hand or five (5) business days after being deposited in the mail, postage paid, when telexed answer back received and when telecopied, receipt acknowledged. Any party hereto may change its address set forth in this subsection (j) by notice to the other parties given in accordance with the provisions of this subsection (j). (k) Beneficiary's Consent. Except where otherwise expressly provided herein, in any instance hereunder where the approval, consent or the exercise of judgment of Beneficiary is required, the granting or denial of such approval or consent and the exercise of such judgment shall be within the sole discretion -53- 55 of Beneficiary, and Beneficiary shall not, for any reason or to any extent, be required to grant such approval or consent or exercise such judgment in any particular manner, regardless of the reasonableness of either the request or Beneficiary's judgment. (l) Foreclosure. In the event there is a foreclosure sale hereunder, and at the time of such sale Trustor or Trustor's successors or assigns or any other person claiming any interest in the Mortgaged Property by, through or under Trustor, are occupying or using the Mortgaged Property or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of either the landlord or tenant, or at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will. In the event the tenant fails to surrender possession of said property upon demand, the purchaser shall be entitled to institute and maintain a summary action for possession of the Mortgaged Property (such as an action for forcible entry and detainer) in any court having jurisdiction. The purchaser or purchasers at foreclosure shall have the right to affirm or disaffirm any lease of the Mortgaged Property or any part thereof. (m) Reimbursement. Trustor shall reimburse the Deed of Trust Trustee and Beneficiary, upon demand, for all fees, costs and expenses incurred by the Deed of Trust Trustee and Beneficiary in connection with the administration and enforcement of this Deed of Trust. If any action or proceedings, including, without limitation, bankruptcy or insolvency proceedings, is commenced to which action or proceeding the Deed of Trust Trustee or Beneficiary is made a party or in which it becomes necessary to defend or uphold the Lien or validity of this Deed of Trust, Trustor shall, upon demand, reimburse the Deed of Trust Trustee and Beneficiary for all expenses (including, without limitation, attorneys' and agents' fees and disbursement) incurred by the Deed of Trust Trustee or Beneficiary in such action or proceedings. In any action or proceeding to foreclose this Deed of Trust or to recover or collect the Secured Obligations, the -54- 56 provisions of law relating to the recovery of costs, disbursements and allowances shall prevail unaffected by this covenant. Trustor's obligations under this subsection IX(m) shall survive the satisfaction of this Deed of Trust and the discharge of Trustor's other obligations hereunder. (n) Waiver of Stay. (i) Trustor agrees that in the event that Trustor or any property or assets of Trustor shall hereafter become subject of a voluntary or involuntary proceeding under the Bankruptcy Code or Trustor shall otherwise be a party to any federal or state bankruptcy, insolvency, moratorium or similar proceeding to which the provisions relating to the automatic stay under Section 362 of the Bankruptcy Code or any similar provision in any such law is applicable, then, in any such case, whether or not Beneficiary has commenced foreclosure proceedings under this Deed of Trust, Beneficiary shall be entitled to relief from any such automatic stay as it relates to the exercise of any of the rights and remedies (including, without limitation, any foreclosure proceedings) available to Beneficiary as provided in this Deed of Trust or in any other document evidencing or securing the Secured Obligations. (ii) Beneficiary shall have the right to petition or move any court having jurisdiction over any proceeding described in subsection IX(n)(i) for the purposes provided therein, and Trustor agrees (a) not to oppose any such petition or motion and (b) at Trustor's sole cost and expense, to assist and cooperate with Beneficiary, as may be requested by Beneficiary from time to time, in obtaining any relief requested by Beneficiary, including, without limitation, by filing any such petitions, supplemental petitions, requests for relief, documents, instruments or other items from time to time requested by Beneficiary or any such court. (o) Waiver of Jury Trial. To the extent permitted by law, Trustor hereby knowingly, voluntarily and intentionally waives any rights it may have to a trial by jury in the respect of any litigation based hereon, or directly or indirectly arising out of, under or in connection with, this Deed of Trust or any course of conduct, course of dealing, statements (whether verbal or written) or actions of Trustor, the Deed of Trust Trustee or Beneficiary. -55- 57 (p) Counterparts. This instrument may be executed in several counterparts, all of which are identical. Each of such counterparts shall for all purposes be deemed to be an original and all such counterparts shall together constitute but one and the same instrument. (q) Provisions of the Intercreditor Agreement. Notwithstanding anything to the contrary contained in this Deed of Trust, it is the understanding of the parties hereto that any actions by the Deed of Trust Trustee and/or Beneficiary are subject to the provisions of the Intercreditor Agreement. [Signature page follows] -56- 58 IN WITNESS WHEREOF, this Deed of Trust has been duly executed by Trustor as of the date first written above. Trustor: PIONEER CHLOR ALKALI COMPANY, INC. By: /s/ PHILIP J. ABLOVE -------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer The name and address of Trustor is: PIONEER CHLOR ALKALI COMPANY, INC. 700 Louisiana Street, Suite 4200 Houston, Texas 77002 The name and address of Beneficiary is: UNITED STATES TRUST COMPANY OF NEW YORK 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department -57- 59 THE STATE OF NEW YORK ) ) COUNTY OF NEW YORK ) This instrument was acknowledged before me on this 17th day of June 1997, by Philip J. Ablove, Vice President and Chief Financial Officer of Pioneer Chlor Alkali Company, Inc., a Delaware corporation, on behalf of such corporation. /s/ CHRISTOPHER TUNG -------------------------------- Notary Public in and for The State of New York -58- EX-4.3(A) 12 TERM LOAN AGREEMENT DATED AS OF 6/17/97 1 EXHIBIT 4.3(a) [REVISED EXECUTION COPY] U.S. $100,000,000 TERM LOAN AGREEMENT, dated as of June 17, 1997, among PIONEER AMERICAS ACQUISITION CORP., as the Borrower, VARIOUS FINANCIAL INSTITUTIONS, as the Lenders, DLJ CAPITAL FUNDING, INC., as the Syndication Agent for the Lenders, SALOMON BROTHERS HOLDING COMPANY INC, as the Documentation Agent for the Lenders, and BANK OF AMERICA ILLINOIS, as the Administrative Agent for the Lenders, ARRANGED BY DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 2 TABLE OF CONTENTS
SECTION PAGE - ------- ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2. Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . 26 1.3. Cross-References . . . . . . . . . . . . . . . . . . . . . . . . 26 1.4. Accounting and Financial Determinations . . . . . . . . . . . . 26 1.5. Use of UCC Terms . . . . . . . . . . . . . . . . . . . . . . . . 26 1.6. Officers' Certificates and Opinions . . . . . . . . . . . . . . 26 ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES 2.1. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.1.1. Term Loan Commitments . . . . . . . . . . . . . . . . . . . . . 27 2.1.2. Lenders Not Permitted or Required to Make the Term Loans . . . . 27 2.2. Borrowing Procedures and Funding Maintenance . . . . . . . . . . 27 2.3. Continuation and Conversion Elections . . . . . . . . . . . . . 28 2.4. Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.5. Term Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES 3.1. Repayments and Prepayments; Application . . . . . . . . . . . . 29 3.1.1. Repayments and Prepayments . . . . . . . . . . . . . . . . . . . 29 3.1.2. Application . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.2. Interest Provisions . . . . . . . . . . . . . . . . . . . . . . 32 3.2.1. Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.2.2. Post-Maturity Rates . . . . . . . . . . . . . . . . . . . . . . 32 3.2.3. Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.3. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 3.3.1. Arrangement, Structuring and Commitment Fees . . . . . . . . . . 33 3.3.2. Administrative Agent Fee . . . . . . . . . . . . . . . . . . . . 33
-i- 3 ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS 4.1. LIBO Rate Lending Unlawful . . . . . . . . . . . . . . . . . . . 33 4.2. Deposits Unavailable . . . . . . . . . . . . . . . . . . . . . . 33 4.3. Increased LIBO Rate Loan Costs, etc. . . . . . . . . . . . . . . 33 4.4. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . 34 4.5. Increased Capital Costs . . . . . . . . . . . . . . . . . . . . 34 4.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 4.7. Payments, Computations, etc. . . . . . . . . . . . . . . . . . . 35 4.8. Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . 36 4.9. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE V CONDITIONS TO TERM LOAN EXTENSION 5.1. Resolutions, etc. . . . . . . . . . . . . . . . . . . . . . . . 37 5.2. Delivery of Term Note. . . . . . . . . . . . . . . . . . . . . . 37 5.3. Subsidiary Guaranty. . . . . . . . . . . . . . . . . . . . . . . 37 5.4. Consummation of Acquisition . . . . . . . . . . . . . . . . . . 37 5.5. Completion of Consent Solicitation . . . . . . . . . . . . . . . 37 5.6. Completion of Tender Offer . . . . . . . . . . . . . . . . . . . 37 5.7. Issuance of the Senior Notes . . . . . . . . . . . . . . . . . . 38 5.8. Revolving Credit Agreement. . . . . . . . . . . . . . . . . . . 38 5.9. Transaction Documents . . . . . . . . . . . . . . . . . . . . . 38 5.10. Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 5.11. Additional Security Documents. . . . . . . . . . . . . . . . . . 40 5.12. Existing Intercreditor Agreement. . . . . . . . . . . . . . . . 40 5.13. Intercreditor Agreement. . . . . . . . . . . . . . . . . . . . . 40 5.14. Closing Date Certificates . . . . . . . . . . . . . . . . . . . 40 5.15. Financial Information, etc. . . . . . . . . . . . . . . . . . . 41 5.16. Solvency, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.17. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.18. Material Adverse Change . . . . . . . . . . . . . . . . . . . . 41 5.19. Consents and Approvals, etc. . . . . . . . . . . . . . . . . . . 41 5.20. Reliance Letters . . . . . . . . . . . . . . . . . . . . . . . . 41 5.21. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . 42 5.22. Closing Fees, Expenses, etc. . . . . . . . . . . . . . . . . . . 42 5.23. Satisfactory Legal Form . . . . . . . . . . . . . . . . . . . . 42 ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1. Organization, etc. . . . . . . . . . . . . . . . . . . . . . . . 43 6.2. Due Authorization, Non-Contravention, etc. . . . . . . . . . . . 43 6.3. No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-ii- 4 6.4. Validity and Binding Effect . . . . . . . . . . . . . . . . . . 43 6.5. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 6.6. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 44 6.7. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6.8. Litigation; Contingent Liabilities . . . . . . . . . . . . . . . 44 6.9. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6.10. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6.11. Partnerships; Joint Ventures . . . . . . . . . . . . . . . . . . 44 6.12. Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.13. Intellectual Property. . . . . . . . . . . . . . . . . . . . . . 45 6.14. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.15. Contracts; Labor Matters . . . . . . . . . . . . . . . . . . . . 45 6.16. Pension and Welfare Plans . . . . . . . . . . . . . . . . . . . 46 6.17. Regulations G, U and X . . . . . . . . . . . . . . . . . . . . . 46 6.18. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 6.19. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 6.20. Investment Company Act Representation . . . . . . . . . . . . . 47 6.21. Public Utility Holding Company Act Representation . . . . . . . 47 6.22. Environmental and Safety and Health Matters . . . . . . . . . . 47 6.23. Related Agreements and Transaction Documents . . . . . . . . . . 48 6.24. Holding Companies . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE VII COVENANTS 7.1. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . 49 7.1.1. Financial Information, Reports, Notices, etc. . . . . . . . . . 49 7.1.2. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . 51 7.1.3. Maintenance of Properties . . . . . . . . . . . . . . . . . . . 51 7.1.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.1.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.1.6. Books and Records . . . . . . . . . . . . . . . . . . . . . . . 51 7.1.7. Use of Proceeds, etc. . . . . . . . . . . . . . . . . . . . . . 52 7.1.8. Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . . . 52 7.1.9. Stock Pledge Agreements . . . . . . . . . . . . . . . . . . . . 52 7.1.10. Concerning the Collateral and the Loan Documents . . . . . . . . 53 7.1.11. Maintenance of Corporate Separateness . . . . . . . . . . . . . 53 7.1.12. Working Capital Line . . . . . . . . . . . . . . . . . . . . . . 54 7.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . 54 7.2.1. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 54 7.2.2. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.2.3. Restricted Payments, etc. . . . . . . . . . . . . . . . . . . . 58 7.2.4. Payment Restrictions Affecting Restricted Subsidiaries . . . . . 60 7.2.5. Consolidation, Merger, etc. . . . . . . . . . . . . . . . . . . 61 7.2.6. Asset Dispositions, etc. . . . . . . . . . . . . . . . . . . . . 63 7.2.7. Modification of Certain Agreements . . . . . . . . . . . . . . . 65 7.2.8. Transactions with Affiliates . . . . . . . . . . . . . . . . . . 65
-iii- 5 7.2.9. Impairment of Security Interest . . . . . . . . . . . . . . . . 66 7.2.10. Stock of Subsidiaries . . . . . . . . . . . . . . . . . . . . . 66 7.2.11. Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . 67 7.2.12. Limitation on Applicability of Certain Covenants . . . . . . . . 67 ARTICLE VIII EVENTS OF DEFAULT 8.1. Listing of Events of Default . . . . . . . . . . . . . . . . . . 67 8.1.1. Non-Payment of Obligations . . . . . . . . . . . . . . . . . . . 68 8.1.2. Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . 68 8.1.3. Non-Performance of Certain Covenants and Obligations . . . . . . 68 8.1.4. Non-Performance of Other Covenants and Obligations . . . . . . . 68 8.1.5. Disaffirmation of Obligations . . . . . . . . . . . . . . . . . 68 8.1.6. Effectiveness and Enforceability of Guarantees . . . . . . . . . 68 8.1.7. Default on Other Indebtedness . . . . . . . . . . . . . . . . . 68 8.1.8. Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.1.9. Bankruptcy, Insolvency, etc. . . . . . . . . . . . . . . . . . . 69 8.1.10. Impairment of Security, etc. . . . . . . . . . . . . . . . . . . 69 8.2. Action if Bankruptcy, etc. . . . . . . . . . . . . . . . . . . . 69 8.3. Action if Other Event of Default . . . . . . . . . . . . . . . . 70 ARTICLE IX THE AGENTS 9.1. Appointment of Agents . . . . . . . . . . . . . . . . . . . . . 70 9.2. Nature of Duties of the Agents. . . . . . . . . . . . . . . . . 70 9.3. General Immunity . . . . . . . . . . . . . . . . . . . . . . . . 71 9.4. Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 9.5. Agents in their Capacity as Lenders. . . . . . . . . . . . . . . 72 9.6. Actions by Each Agent . . . . . . . . . . . . . . . . . . . . . 72 9.7. Right to Indemnity . . . . . . . . . . . . . . . . . . . . . . . 73 9.8. Collateral Agent . . . . . . . . . . . . . . . . . . . . . . . . 73 9.9. Suits to Protect Collateral . . . . . . . . . . . . . . . . . . 73 9.10. Determinations Relating to Collateral . . . . . . . . . . . . . 73 9.11. Trust Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . 74 9.12. Release of Collateral . . . . . . . . . . . . . . . . . . . . . 74 9.13. Application of Proceeds of Collateral . . . . . . . . . . . . . 74 9.14. Rights and Remedies to be Exercised by Administrative Agent Only 74 9.15. Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . 75 9.16. Copies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 75 9.17. The Syndication Agent, the Documentation Agent and the Administrative Agent . . . . . . . . . . . . . . . . . . . . . . 75 9.18. Agreement to Cooperate . . . . . . . . . . . . . . . . . . . . . 75 9.19. Lenders to Act as Agents . . . . . . . . . . . . . . . . . . . . 75
-iv- 6 ARTICLE X MISCELLANEOUS PROVISIONS 10.1. Waivers, Amendments, etc. . . . . . . . . . . . . . . . . . . . 76 10.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 10.3. Payment of Costs and Expenses . . . . . . . . . . . . . . . . . 77 10.4. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 77 10.5. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 10.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 78 10.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 10.8. Execution in Counterparts, Effectiveness, etc. . . . . . . . . . 79 10.9. Governing Law; Entire Agreement . . . . . . . . . . . . . . . . 79 10.10. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 79 10.11. Sale and Transfer of Term Loans and Term Notes; Participations in Term Loans and Term Notes . . . . . . . . . . 79 10.11.1. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . 79 10.11.2. Participations . . . . . . . . . . . . . . . . . . . . . . . . . 81 10.12. Other Transactions . . . . . . . . . . . . . . . . . . . . . . . 81 10.13. Forum Selection and Consent to Jurisdiction . . . . . . . . . . 81 10.14. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . 82
-v- 7 SCHEDULE I - Disclosure Schedule SCHEDULE II - Percentages and Administrative Information EXHIBIT A - Form of Term Note EXHIBIT B - Form of Borrowing Request EXHIBIT C - Form of Continuation/Conversion Notice EXHIBIT D - Form of Subsidiary Guaranty EXHIBIT E - Form of Mortgage EXHIBIT F - Form of Security Agreement EXHIBIT G - Form of Stock Pledge Agreement EXHIBIT H - Form of Intercreditor Agreement EXHIBIT I - Form of Borrower Closing Date Certificate EXHIBIT J - Form of Parent Closing Date Certificate EXHIBIT K - Form of Lender Assignment Agreement -vi- 8 TERM LOAN AGREEMENT THIS TERM LOAN AGREEMENT, dated as of June 17, 1997, is among PIONEER AMERICAS ACQUISITION CORP., a Delaware corporation (the "Borrower"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as syndication agent (the "Syndication Agent") for the Lenders, SALOMON BROTHERS HOLDING COMPANY INC ("Salomon"), as documentation agent (the "Documentation Agent") for the Lenders, and BANK OF AMERICA ILLINOIS ("BofA"), as administrative agent (the "Administrative Agent") for the Lenders. W I T N E S S E T H: WHEREAS, Pioneer Companies, Inc. (the "Parent") has entered into an Asset Purchase Agreement dated as of May 14, 1997 (the "Purchase Agreement") with OCC Tacoma, Inc. (the "Seller"), pursuant to which it will acquire, through the Borrower and its Wholly-Owned Restricted Subsidiary, Pioneer Chlor Alkali Company, Inc., a Delaware corporation ("PCAC"), all of the assets and properties used by the Seller in its chlor-alkali business (the "Tacoma Business"), including the chlor-alkali production facility located in Tacoma, Washington, in exchange for (a) $97,000,000, in cash, (b) 55,000 shares of Convertible Preferred Stock, par value $.01 per share, of the Parent, having a liquidation preference of $100 per share and (c) the assumption of certain obligations relating to the acquired chlor-alkali business (the "Acquisition"); WHEREAS, the Borrower has commenced (a) an offer to purchase (the "Tender Offer") all of its existing 13 3/8% First Mortgage Notes due 2005 (the "First Mortgage Notes") for a cash purchase price per $1,000 principal amount of outstanding First Mortgage Notes tendered and accepted not exceeding (inclusive of any fee paid in connection with the solicitation of consents referred to below) 120% of the par value thereof plus accrued and unpaid interest thereon and (b) a solicitation of consents (the "Consent Solicitation") from the holders of the First Mortgage Notes to delete or modify certain covenants and other provisions governing the First Mortgage Notes; WHEREAS, the Borrower intends to issue senior secured notes due 2007 for gross cash proceeds of $200,000,000, which proceeds would be used, in part, to fund the Acquisition and the Tender Offer (the "Senior Note Offering", and, together with the Acquisition, the Tender Offer, the Consent Solicitation and the transactions relating thereto, the "Transaction"); WHEREAS, in connection with the Transaction, the Borrower desires to obtain from the Lenders a commitment to provide $100,000,000 in term loans, the proceeds of which will be used, in part, to fund the Acquisition and the Tender Offer, and pay certain fees and expenses arising in connection with the Transaction; and WHEREAS, the Lenders are willing, on the terms and subject to the conditions hereinafter set forth (including Article V), to extend the commitments and make the loans described herein to the Borrower; NOW, THEREFORE, the parties hereto agree as follows: 9 ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Acquisition" is defined in the first recital. "Acquisition Agreements" means the Purchase Agreement, the Chlorine Purchase Agreement dated as of June 17, 1997 between PCAC and OCC Tacoma, Inc., the Chlorine and Caustic Soda Sales Agreement date as of June 17, 1997 between PCAC and Occidental Chemical Corporation and the Environmental Operating Agreement dated as of June 17, 1997 between PCAC and OCC Tacoma, inc. "Administrative Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Administrative Agent pursuant to Section 9.4. "Affiliate" means, with respect to any party, any Person directly or indirectly controlling or controlled by or under direct or indirect common control with such party including any estate or trust under will of such party. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 5% or more of the voting securities of a Person shall be deemed to be control. "Agents" means, collectively, the Administrative Agent, the Syndication Agent and the Documentation Agent. "Agreement" means, on any date, this Term Loan Agreement as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "All-Pure" means All-Pure Chemical Co., a California corporation and direct Wholly-Owned restricted Subsidiary of PAI. "Alternate Base Rate" means, for any day and with respect to all Base Rate Loans, a fluctuating rate of interest per annum equal to the higher of: (a) 0.50% per annum above the Federal Funds Rate most recently determined by the Administrative Agent; and (b) the rate of interest in effect for such day as most recently publicly announced or established by the Administrative Agent at its Domestic Office as its "reference rate." (The "reference rate" is a rate set by the Administrative Agent based upon various factors including the Administrative -2- 10 Agent's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate.) Any change in the reference rate announced by the Administrative Agent shall take effect at the opening of business on the day of such establishment or announcement. "Applicable Margin" means (i) with respect to the unpaid principal amount of each Term Loan maintained as a Base Rate Loan, 125 basis points and (ii) with respect to the unpaid principal amount of each Term Loan maintained as a LIBO Rate Loan, 250 basis points. "Arranger" means Donaldson, Lufkin & Jenrette Securities Corporation, a Delaware corporation. "Asset Sale" means, with respect to the Borrower or any Restricted Subsidiary, the sale, lease, conveyance or other disposition (including, without limitation, by way of merger or consolidation, and whether by operation of law or otherwise) to any Person other than the Borrower or a Wholly-Owned Restricted Subsidiary of any of the Borrower's or such Restricted Subsidiary's assets (including, without limitation, (x) any sale or other disposition of Equity Interests of any Restricted Subsidiary and (y) any sale or other disposition of any noncash consideration received by the Borrower or such Restricted Subsidiary from any prior transaction or series of related transactions that constituted an Asset Sale hereunder), whether owned on the date hereof or subsequently acquired, in one transaction or a series of related transactions; provided, however, that the following will not constitute Asset Sales: (i) transactions (other than transactions described in clause (y) above) in any calendar year with aggregate cash and/or Fair Market Value of any other consideration received (including, without limitation, the unconditional assumption of Indebtedness) of less than $1,000,000; (ii) a transaction or series of related transactions that results in a Change in Control; (iii) any sale of assets of the Borrower and its Restricted Subsidiaries or merger permitted pursuant to Section 7.2.5; (iv) any sale or other disposition of inventory, property (whether real, personal or mixed) or equipment that has become worn out, obsolete or damaged or otherwise unsuitable or no longer needed for use in connection with the business of the Borrower or any Restricted Subsidiary, as the case may be, in the good faith determination of the Board of Directors; and (v) any sale of inventory to customers in the ordinary and customary course of business. "Assignee Lender" is defined in Section 10.11.1. "Assignor Lender" is defined in Section 10.11.1. "Attributable Indebtedness" means, with respect to any Sale and Leaseback Transaction, as at the time of determination, the greater of (i) the Fair Market Value of the property subject to such transaction and (ii) the present value (discounted at a rate equivalent to the Borrower's then current weighted average cost of funds for borrowed money, compounded on a semi-annual basis) of the total net obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended). As used in the preceding sentence, the "total net obligations of the lessee for rental payments" under any lease for any such period means the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. In the case of any lease which is terminable by the lessee upon payment of a penalty, such net amount of rent also includes the amount of such -3- 11 penalty, but no rent will be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Authorized Officer" means, relative to any Obligor, those of its officers whose signatures and incumbency shall have been certified to the Administrative Agent and the Lenders pursuant to Section 5.1.1. "Bankruptcy Law" means chapter 11 of Title 11 of the United States Code, as amended, or any similar United States federal or state law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "Base Rate Loan" means a Term Loan bearing interest at a fluctuating rate determined by reference to the Alternate Base Rate. "BMPC" means Black Mountain Power Company, a Texas corporation and direct Wholly-Owned Subsidiary of PCAC. "Board of Directors" means the Board of Directors of the Borrower or any committee thereof duly authorized to act on behalf of such Board of Directors. "Board Resolution" of any corporation means a copy of a resolution certified by the Secretary or an Assistant Secretary of such corporation to have been duly adopted by the board of directors of such entity and to be in full force and effect on the date of such certification and delivered to the Administrative Agent. "BofA" is defined in the preamble. "Borrower" is defined in the preamble. "Borrower Closing Date Certificate" means a certificate of an Authorized Officer of the Borrower substantially in the form of Exhibit I hereto, delivered pursuant to Section 5.1.4. "Borrowing" means Term Loans of the same type and, in the case of LIBO Rate Loans, having the same Interest Period made by all Lenders on the same Business Day. "Borrowing Base" means, as of any date, an amount equal to the sum of (a) 85% of the net book value of all accounts receivable of the Borrower and its Restricted Subsidiaries as of such date, (b) 50% of the net book value of all inventory owned by the Borrower and its Restricted Subsidiaries as of such date, and (c) the lesser of (x) $10,000,000 and (y) 85% of the net book value of all accounts receivable of Kemwater as of such date plus 50% of the net book value of all inventory as of such date owned by Kemwater, all calculated on a consolidated basis and in accordance with GAAP. To the extent that information is not available as to the amount of accounts receivable or inventory as of a specific date, the Borrower may utilize the most recent available quarterly or annual financial report for purposes of calculating the Borrowing Base. "Borrowing Request" means a loan request and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit B hereto. -4- 12 "Business Day" means any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in Chicago, Illinois or New York City and, with respect to Borrowings of, Interest Periods with respect to, payments of principal and interest in respect of, continuations or conversions of Base Rate Loans into, LIBO Rate Loans, on which dealings in Dollars are carried on in the London interbank market. "Capital Stock" means, with respect to any Person, any common stock, preferred stock and any other capital stock of such Person and shares, interest, participations or other ownership interest (however designated), of any Person and any rights (other than debt securities convertible into, or exchangeable for, capital stock), warrants or options to purchase any of the foregoing, including (without limitation) each class of common stock and preferred stock of such Person if such Person is a corporation and each general and limited partnership interest of such Person if such Person is a partnership. "Capitalized Lease Obligation" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Flow" for any period means the Consolidated Net Income of the Borrower and its Restricted Subsidiaries for such period, plus the following to the extent included in calculating such Consolidated Net Income: (i) Consolidated Interest Expense, (ii) income tax expense and (iii) depreciation, depletion and amortization expense. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List. "Change of Control" means the occurrence of any of the following: (i) a "person" or "group" (as such terms are used in Sections 14 (d) (2) and 13 (d) (3), respectively, of the Exchange Act), other than Substantial Shareholders, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of at least 50% of the outstanding voting power of the fully diluted Voting Stock of the Parent or the Borrower, (ii) the adoption of a plan relating to the liquidation or dissolution of the Parent or the Borrower, (iii) the merger or consolidation of the Parent or the Borrower with or into another corporation with the effect that the stockholders of the Parent or the Borrower immediately prior to such merger or consolidation cease to be the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act) of 50% or more of the combined voting power of the securities of the surviving corporation of such merger or the corporation resulting from such merger or consolidation ordinarily (and apart from rights arising under special circumstances) having the right to vote in the election of directors outstanding immediately after such merger or consolidation or (iv) during any period of two consecutive calendar years individuals who are at the beginning of such period (together with any new directors whose election by the board of directors of the Parent or the Borrower, or whose nomination for election by the shareholders of the Parent or the Borrower, was approved by a vote of a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors of the Parent or the -5- 13 Borrower then in office. Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred under clause (iii) above solely as a result of a merger or consolidation of the Borrower with or into the Parent provided that such merger or consolidation is permitted under Section 7.2.5. "Closing Date" means the date of the initial Borrowing, not to be later than July 31, 1997. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified. "Collateral" means (i) a first mortgage lien and security interest in PCAC's interest in real property, buildings, fixtures, and certain equipment relating to the Tacoma Facility, (ii) a first priority security interest in PCAC's interest in the Acquisition Agreements, (iii) first mortgage lien on PCAC's chlor-alkali production facilities located in Henderson, Nevada and St. Gabriel, Louisiana (including real property, buildings, fixtures and certain equipment), (iv) a pledge of PAI's interest in the Capital Stock of PCAC and All-Pure, each as further described in the respective Security Documents with respect thereto, and (v) any other property or assets which may from time to time be subject to one or more of the Liens evidenced or created by any Loan Document. "Collateral Agent" means United States Trust Company of New York, as collateral agent under the Intercreditor Agreement, and any successor thereto. "Commitment Letter" means the commitment letter, dated May 29, 1997, among the Borrower, the Arranger and the Syndication Agent including all annexes and exhibits thereto. "Commitment Termination Event" means (i) the occurrence of any Event of Default described in clause (a) or (b) of Section 8.1.9, or (ii) the occurrence and continuance of any other Event of Default and either (x) the declaration of the Term Loans to be due and payable pursuant to Section 8.3, or (y) in the absence of such declaration, the giving of notice to the Borrower by the Administrative Agent, acting at the direction of the Required Lenders, that the Term Loan Commitments have been terminated. "Consent Solicitation" is defined in the second recital. "Consolidated Cash Flow Coverage Ratio" means, as of any date of determination, the ratio of (i) the aggregate amount of Cash Flow for the period of the most recent four consecutive fiscal quarters for which internal financial statements are available prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters of the Borrower and its Restricted Subsidiaries; provided, however, that (A) if the Borrower or any Restricted Subsidiary has incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Cash Flow Coverage Ratio is an incurrence of Indebtedness, or both, Cash Flow and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been issued on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (B) if since the beginning of such period the Borrower or any Restricted Subsidiary has -6- 14 made any Asset Sale, the Cash Flow for such period will be reduced by an amount equal to the Cash Flow (if positive), directly attributable to the assets which are the subject of such Asset Sale for such period, or increased by an amount equal to the Cash Flow (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period will be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Borrower or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Borrower and its continuing Restricted Subsidiaries in connection with any such sale or other disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Borrower and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (C) if since the beginning of such period the Borrower or any Restricted Subsidiary (by merger or otherwise) has made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, Cash Flow and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto (including the incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (D) in making such computation, Consolidated Interest Expense attributable to any Indebtedness incurred under any revolving credit facility will be computed based on the average daily balance of such Indebtedness during such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, and the amount of Consolidated Interest Expense associated with any Indebtedness incurred in connection therewith, the pro forma calculations will be determined in good faith by a responsible financial or accounting officer of the Borrower. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness will be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period. "Consolidated Interest Expense" means, for any period, interest expense of the Borrower and its consolidated Restricted Subsidiaries, excluding amortization of any deferred financing fees, plus, to the extent not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) interest actually paid by the Borrower or any such Restricted Subsidiary under any guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Hedging Obligations (including amortization of fees), (viii) Preferred Stock dividends in respect of all Redeemable Stock of the Borrower held by Persons other than the Borrower or a Wholly-Owned Restricted Subsidiary of the Borrower and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Borrower) in connection with loans incurred by such plan or trust to purchase newly issued or treasury shares of the Capital Stock of the Borrower. "Consolidated Net Income" means, for any period, and as to any Person, the aggregate Net Income of such Person and its Subsidiaries (other than, in the case of the Borrower, the Unrestricted Subsidiaries of the Borrower) for such period determined in accordance with GAAP; provided that (i) the Net Income of any Person which is not a Subsidiary of such Person -7- 15 but which is consolidated with such Person or is accounted for by such Person by the equity method of accounting will be included only to the extent of the amount of cash dividends or cash distributions paid to such Person or a Wholly- Owned Restricted Subsidiary of such Person (other than, in the case of the Borrower, the Unrestricted Subsidiaries of the Borrower), (ii) the Net Income of any Person acquired by such Person or a Subsidiary of such Person in a pooling of interests transaction for any period prior to the date of such acquisition will be excluded, (iii) the Net Income of any Subsidiary of such Person that is subject to restrictions, direct or indirect, on the payment of dividends or the making of distributions to such Person will be excluded to the extent of such restrictions, (iv) the Net Income of (A) any Unrestricted Subsidiary and (B) any Subsidiary less than 80% of whose securities having the right (apart from the right under special circumstances) to vote in the election of directors are owned by the Borrower or its Wholly-Owned Restricted Subsidiaries will be included only to the extent of the amount of cash dividends or cash distributions actually paid by such Subsidiary to the Borrower or a Wholly-Owned Restricted Subsidiary of the Borrower, (v) in the case of the Borrower, the Net Income attributable to any business, properties or assets acquired (by way of merger, consolidation, purchase or otherwise) by the Borrower or any Restricted Subsidiary of the Borrower for any period prior to the date of such acquisition will be excluded, (vi) all extraordinary gains and losses, and any gain or loss realized upon the termination of any employee pension benefit plan, in respect of dispositions of assets other than in the ordinary course of business and any one-time increase or decrease to Net Income which is required to be recorded because of the adoption of new accounting policies, practices or standards required by GAAP (together, in each case, with any provision for taxes) will be excluded and (vii) all amounts of "other income, net" classified as such on one or more lines of such Person's statement of operations, in accordance with GAAP, net of applicable income taxes, will be excluded from such Person's aggregate Net Income; provided that in the case of the Borrower the foregoing exclusion will not apply to cash dividends or cash distributions paid to the Borrower in respect of its indirect equity interest in Saguaro Power Company, a Limited Partnership, to the extent included in clause (i) of this definition. "Consolidated Net Worth" means, for any Person, the total of the amounts shown on the balance sheet of such Person and its consolidated Subsidiaries (other than, in the case of the Borrower, the Unrestricted Subsidiaries of the Borrower), determined on a consolidated basis without duplication in accordance with GAAP, as of the end of the most recent fiscal quarter of such Person ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the amount of Capital Stock (other than Redeemable Stock) plus (ii) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit). "Contingent Liability" means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount of the debt, obligation or other liability guaranteed thereby. -8- 16 "Contingent Payment Agreement" means the Contingent Payment Agreement dated as of April 20, 1995 among the Borrower, the Parent and the Sellers named therein. "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit C hereto. "Credit Facility" means any revolving credit facility or similar arrangement that makes credit available entered into by and among the Borrower and/or any of its Subsidiaries that is a Subsidiary Guarantor and the lending institutions party thereto, including any credit agreement, related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would, unless cured or waived, constitute an Event of Default. "Disclosure Schedule" means the Disclosure Schedule attached hereto as Schedule I, as it may be amended, supplemented or otherwise modified from time to time by the Borrower with the written consent of the Agents and the Required Lenders. "DLJ" is defined in the preamble. "Documentation Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Documentation Agent pursuant to Section 9.4. "Dollar" and the sign "$" mean lawful money of the United States. "Domestic Office" means, relative to any Lender, the office of such Lender designated as such in Schedule II hereto or designated in the Lender Assignment Agreement or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by notice from such Lender, as the case may be, to each other Person party hereto. A Lender may have separate Domestic Offices for purposes of making, maintaining or continuing, as the case may be, Base Rate Loans. "Effective Date" means the date this Agreement becomes effective pursuant to Section 10.8. "Eligible Investments" means, (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than 90 days from the date of acquisition, (ii) time deposits and certificates of deposit with maturities of not more than 90 days from the date of acquisition of any commercial banking institution that is a member of the Federal Reserve System having capital and surplus in excess of $500,000,000, whose debt has a rating at the time of any such investment of at least "A-2" or the equivalent thereof by S&P or at least "P-2" or the equivalent thereof by Moody's, or any Lender or any bank or financial institution party to the Revolving Credit Facility, (iii) fully secured repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) entered into with any bank or financial institution meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by the parent corporation of any commercial banking institution that is a member of the Federal Reserve System having capital and surplus in excess of $500,000,000 and commercial paper or master notes of issuers, rated at the time of any such -9- 17 investment at least "A-2" or the equivalent thereof by S&P or at least "P-2" or the equivalent thereof by Moody's, or any bank or financial institution party to the Revolving Credit Facility, and in each case maturing within 270 days after the date of acquisition, and (v) any shares in an open-end mutual fund organized by a bank or financial institution having combined capital and surplus of at least $500,000,000 investing solely in investments permitted by the foregoing clauses (i), (ii) and (iv). "Environmental Laws" means all applicable federal, state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to protection and conservation of the environment concerning any hazardous, toxic or dangerous waste, substance or constituent, or any pollutant or contaminant. "Equity Interests" means shares, interests, participations or other equivalents (however designated) of Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security which is convertible into, or exchangeable for, Capital Stock). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "ERISA Affiliate" means any corporation, partnership, or other trade or business (whether or not incorporated) that is, along with the Borrower, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in Section 414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA, or a member of the same affiliated service group within the meaning of Section 414(m) of the Code. "Event of Default" is defined in Section 8.1. "Excess Land" means certain real property adjoining the sites of PCAC's Henderson, Nevada and St. Gabriel, Louisiana plants and the Mojave, California property owned by Imperial West Chemical Co., a Wholly-Owned Subsidiary of PAI that is not used in the business conducted at such sites, which real property is referred to and defined in the Contingent Payment Agreement as the "Subject Parcels". "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Affiliate Agreements" means (i) agreements between the Borrower or any of its Subsidiaries and Saguaro Power Company, a Limited Partnership, relating to the delivery of steam and other services, existing on the date hereof and listed on Item 7.2.8 ("Existing Affiliate Agreements") of the Disclosure Schedule, (ii) the Tax Sharing Agreement and (iii) agreements between the Borrower or any of its Subsidiaries and Basic Investments, Inc. relating to the -10- 18 delivery of water and power, power transmission services, and other services, existing on the date hereof and listed on Item 7.2.8 ("Existing Affiliate Agreements") of the Disclosure Schedule hereto and (iv) any other agreements with affiliates of the Borrower, existing on the date hereof and listed on Item 7.2.8 ("Existing Affiliate Agreements") of the Disclosure Schedule hereto. "Existing First Mortgage Indenture" means the Indenture dated as of April 1, 1995 among the Borrower, Pioneer Americas, Inc., Pioneer Chlor Alkali Company, Inc., Imperial West Chemical Co., All Pure Chemical Co., Black Mountain Power Company, All Pure Chemical Northwest, Inc., Pioneer Chlor Alkali International, Ltd., and G.O.W. Corporation, and IBJ Schroder Bank & Trust Company (predecessor in interest to the Existing Trustee), as modified and supplemented and in effect from time to time. "Existing Indebtedness" means all Indebtedness (other than the Senior Notes outstanding) of the Borrower or any Restricted Subsidiary existing on the date hereof and listed on Item 7.2.1(c) ("Existing Indebtedness") of the Disclosure Schedule. "Existing Intercreditor Agreement" means the Intercreditor and Collateral Agency Agreement among the Borrower, PCAC, PAI, the Trustee, the Administrative Agent, the Existing Trustee, the Collateral Agent, the bank agent under PAI's Loan and Security Agreement dated as April 12, 1995, dated as of September 14, 1995. "Existing Trustee" means United States Trust Company of New York as successor trustee under the Existing First Mortgage Indenture, and any successor thereto. "Fair Market Value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value will be determined by a majority of the members of the Board of Directors and a majority of the disinterested members of the Board of Directors, if any, acting in good faith and will be evidenced by a duly and properly adopted resolution of the Board of Directors. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (i) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or (ii) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "Fee Letter" means the confidential fee letter, dated as of May 29, 1997, among the Borrower, the Arranger and the Syndication Agent. "First Mortgage Notes" is defined in the second recital. "Fiscal Quarter" means any fiscal quarter of a Fiscal Year. -11- 19 "Fiscal Year" means any period of twelve consecutive months ending on December 31; references to a Fiscal Year with a numbering corresponding to any calendar year refer to the fiscal year ending on the 31st of December during such calender year. "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "GAAP" is defined in Section 1.4. "Hazardous Materials" means any toxic substance, hazardous substance, hazardous material, hazardous chemical or hazardous waste defined or qualifying as such in (or for the purposes of) any Environmental Law, or any pollutant or contaminant, and shall include, but not be limited to, petroleum, including crude oil, any radioactive material, including but not limited to any source, special nuclear or by-product material as defined at 42 U.S.C. Section 2011 et seq., as amended or hereafter amended, polychlorinated biphenyls and asbestos in any form or condition. "Hedging Obligations" means the obligations of any Person or entity pursuant to any swap or cap agreement, exchange agreement, collar agreement, option, futures or forward hedging contract, derivative instrument or other similar agreement or arrangement designed to protect such Person or entity against fluctuations in interest rates or foreign exchange rates or the price of raw materials and other chemical products used or produced in the Borrower's business, as the case may be. "herein", "hereof", "hereto", "hereunder" and similar terms contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph or provision of this Agreement or such other Loan Document. "Imperial" means Imperial West Chemical Co., a Nevada corporation and direct Wholly-Owned Subsidiary of PAI. "including" means including without limiting the generality of any description preceding such term, and, for purposes of this Agreement and each other Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. "incur" has the meaning ascribed in Section 7.2.1; provided that (a) with respect to any Indebtedness of any Restricted Subsidiary of the Borrower that is owing to the Borrower or another Restricted Subsidiary of the Borrower, any disposition, pledge or transfer of such Indebtedness to any Person (other than the Borrower or a Wholly-Owned Restricted Subsidiary) shall be deemed to be an incurrence of such Indebtedness and (b) with respect to any Indebtedness of the Borrower or a Restricted Subsidiary that is owing to another Restricted Subsidiary, any transaction pursuant to which a Wholly-Owned Restricted Subsidiary to which such Indebtedness is owing ceases to be a Wholly-Owned Restricted Subsidiary shall be deemed to be an incurrence of such Indebtedness; and provided, further, that any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary shall be deemed to be -12- 20 incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. The term "incurrence" has a corresponding meaning. "Indebtedness" of any Person means, without duplication, all liabilities with respect to (i) indebtedness for money borrowed or which is evidenced by a bond, debenture, note or other similar instrument or agreement, but excluding trade credit evidenced by any such instrument or agreement; (ii) reimbursement obligations, letters of credit and bankers' acceptances; (iii) indebtedness with respect to Hedging Obligations; (iv) Capitalized Lease Obligations; (v) indebtedness, secured or unsecured, created or arising in connection with the acquisition or improvement of any property or asset or the acquisition of any business; (vi) all indebtedness secured by any Lien upon property owned by such Person and all indebtedness secured in the manner specified in this clause even if such Person has not assumed or become liable for the payment thereof; (vii) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person or otherwise representing the deferred and unpaid balance of the purchase price of any such property, including all indebtedness created or arising in the manner specified in this clause even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property; (viii) guarantees, direct or indirect, of any indebtedness of other Persons referred to in clauses (i) through (vii) above, or of dividends or leases, taxes or other obligations of other Persons, excluding any guarantee arising out of the endorsement of negotiable instruments for collection in the ordinary course of business; (ix) contingent obligations in respect of, or to purchase or otherwise acquire or be responsible or liable for, through the purchase of products or services, irrespective of whether such products are delivered or such services are rendered, or otherwise, any such indebtedness referred to in clauses (i) through (vii) above; (x) any obligation, contingent or otherwise, arising under any surety, performance or maintenance bond; and (xi) Redeemable Stock of the Borrower valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends; which indebtedness, Capitalized Lease Obligation, guarantee or contingent or other obligation such Person has directly or indirectly created, incurred, assumed, guaranteed or otherwise become liable or responsible for, whether then outstanding or thereafter created in the case of clauses (i) through (x) above, to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability on the balance sheet of such Person in accordance with GAAP. For purposes of the foregoing definition, the "maximum fixed repurchase price" of any Redeemable Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Stock as if such Redeemable Stock were purchased on any date on which Indebtedness is required to be determined pursuant to the Existing First Mortgage Indenture. As used herein, Indebtedness with respect to any Hedging Obligation means, with respect to any specified Person on any date, the net amount (if any) that would be payable by such specified Person upon the liquidation, close-out or early termination on such date of such Hedging Obligation. For purposes of the foregoing, any settlement amount payable upon the liquidation, close-out or early termination of a Hedging Obligation shall be calculated by the Borrower in good faith and in a commercially reasonable manner on the basis that such liquidation, close-out or early termination results from an event of default or other similar event with respect to such specified Person. Any reference in this definition to indebtedness shall be deemed to include any renewals, extensions and refundings of any such indebtedness or any indebtedness, issued in exchange for such indebtedness. "Indemnified Liabilities" is defined in Section 10.4. -13- 21 "Indemnified Parties" is defined in Section 10.4. "Independent Director" means a director of the Borrower other than a director (i) who (apart from being a director of the Borrower or any of its Subsidiaries) is an employee, insider, associate or Affiliate of the Borrower or any of its Subsidiaries or has held any such position during the previous year or (ii) who is a director, an employee, insider, associate or Affiliate of another party to the transaction in question. "Insurance Proceeds" has the meaning specified in each Mortgage. "Intercreditor Agreement" means the Intercreditor and Collateral Agency Agreement dated as of June 17, 1997, among the Borrower, PAI, PCAC, the Trustee, the Administrative Agent and the Collateral Agent, substantially in the form of Exhibit H attached hereto. "Intercreditor Collateral Account" means the Collateral Account as defined in the Intercreditor Agreement. "Interest Expense" means, for any applicable period, the aggregate consolidated interest expense of the Borrower and its Subsidiaries for such applicable period, as determined in accordance with GAAP, including the portion of any payments made in respect of Capitalized Lease Liabilities allocable to interest expense, but excluding (to the extent included in interest expense) up-front fees and expenses and other deferred financing costs incurred in connection with the Transaction. "Interest Period" means, as to any LIBO Rate Loan, the period commencing on the Borrowing date of such Term Loan or on the date on which any Term Loan is converted into or continued as a LIBO Rate Loan, and ending on the date one, two, three, six or, if available in the Administrative Agent's reasonable determination, nine or twelve months thereafter as selected by the Borrower in its Borrowing Request or its Conversion/Continuation Notice; provided however that: (i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; (iii) no Interest Period for any Term Loan shall extend beyond the Stated Maturity Date for such Term Loan; (iv) no Interest Period applicable to a Term Loan or portion thereof shall extend beyond any date upon which is due any scheduled principal payment in respect of the Term Loans unless the aggregate principal amount of Term Loans represented by Base Rate Loans, or by LIBO Rate Loans having Interest Periods that will expire on or before such date, equals or exceeds the amount of such principal payment; and -14- 22 (v) there shall be no more than five Interest Periods in effect at any one time. "Investment" means any direct or indirect advance, loan, other extension of credit or capital contribution (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others) to, purchase or acquisition of Equity Interests, bonds, notes, debentures or other securities of, or purchase or other acquisition of all or a substantial part of the business, Equity Interests or other evidence of beneficial ownership of, or any other investment in or guarantee of any Indebtedness of, any Person or any other item that would be classified as an investment on a balance sheet prepared in accordance with GAAP. Investments do not include advances to customers and suppliers in the ordinary course of business and on commercially reasonable terms. In the event the Borrower or any Subsidiary of the Borrower sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Borrower such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Borrower, the Borrower shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Equity Interests of such Subsidiary not sold or disposed of determined as provided in the final paragraph of Section 7.2.3. "Kemwater" means Kemwater North America Company, a Delaware corporation, and any successor thereto. "Lender Assignment Agreement" means a Lender Assignment Agreement substantially in the form of Exhibit K hereto. "Lenders" is defined in the preamble. "LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans, the rate of interest per annum determined by the Administrative Agent to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the rates of interest per annum at which Dollar deposits in the approximate amount of the Term Loan to be made or continued as, or converted into, a LIBO Rate Loan by the Administrative Agent and having a maturity comparable to such Interest Period would be offered to the Administrative Agent in the London interbank market at its request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. "LIBO Rate Loan" means a Term Loan bearing interest, at all times during an Interest Period applicable to such Term Loan, at a fixed rate of interest determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO Rate (Reserve Adjusted)" means, relative to any Term Loan to be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, the rate of interest per annum (rounded upwards to the next 1/100th of 1%) determined by the Administrative Agent as follows: LIBO Rate = LIBO Rate ----------------------------------- (Reserve Adjusted) 1.00 - LIBOR Reserve Percentage -15- 23 The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans will be adjusted automatically as to all LIBO Rate Loans then outstanding as of the effective date of any change in the LIBOR Reserve Percentage. "LIBOR Office" means, relative to any Lender, the office of such Lender designated as such in Schedule II hereto or designated in the Lender Assignment Agreement or such other office of a Lender as shall be so designated from time to time by notice from such Lender to the Borrower and the Administrative Agent, whether or not outside the United States, which shall be making or maintaining LIBO Rate Loans of such Lender hereunder. "LIBOR Reserve Percentage" means, relative to any Interest Period for LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of and including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. "Lien" means any mortgage, pledge, lien, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement and any lease in the nature thereof). "Loan Document" means this Agreement, the Term Notes, the Subsidiary Guaranty, the Intercreditor Agreement, each Borrowing Request, the Fee Letter, each Stock Pledge Agreement, each Mortgage (upon execution and delivery thereof), the Security Agreement and each other agreement, document or instrument delivered in connection with this Agreement or any other Loan Document, whether or not specifically mentioned herein or therein. "Margin Stock" has the meaning ascribed to such term in Regulation U of the Federal Reserve Board or any regulation substituted therefor, as in effect from time to time. "Material Adverse Effect" means (a) a material adverse effect on the business, assets, debt service capacity, liabilities (including environmental liabilities), financial condition, operations or prospects of the Borrower and its Restricted Subsidiaries, taken as a whole, (b) a material adverse effect upon the ability of the Borrower or any other Obligor to perform its respective material obligations under the Loan Documents to which it is or will be a party, or (c) an impairment of the validity or enforceability of, or a material impairment of the rights, remedies or benefits available to the Agents, the Arranger, the Collateral Agent or the Lenders under this Agreement or any other Loan Document. "Monthly Payment Date" means the last day of each calendar month or, if any such day is not a Business Day, the next succeeding Business Day. "Moody's" means Moody's Investors Service, Inc. "Mortgage" means each mortgage, deed of trust, or similar security instrument, substantially in the form of Exhibit E attached hereto, which from time to time affects any property that secures PCAC's obligations in respect of its Contingent Liabilities under the Senior -16- 24 Note Indenture and this Agreement, as such instruments may be amended, supplemented or otherwise modified from time to time. "Mortgaged Property" has the meaning specified in each Mortgage. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, that is maintained for employees of the Borrower or any ERISA Affiliate. "Net Award" has the meaning specified in each Mortgage. "Net Cash Proceeds" means, with respect to any issuance or sale of Equity Interests or debt securities that have been converted into or exchanged for Equity Interests, as referred to in Section 7.2.3, the proceeds of such issuance or sale in the form of cash or cash equivalents, net of attorneys' fees, accountants' fees and brokerage, consultation, underwriting and other fees and expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Net Income" means, for any period, the net income of the Borrower and its Subsidiaries (other than its Unrestricted Subsidiaries) for such period on a consolidated basis, determined in accordance with GAAP. "Net Proceeds" means the aggregate cash proceeds received by the Borrower or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, the proceeds of insurance paid on account of the loss of or damage to any property, or compensation or other proceeds for any property taken by condemnation, eminent domain or similar proceedings, and any non-cash consideration received by the Borrower or any Restricted Subsidiary from any Asset Sale that is converted into or sold or otherwise disposed of for cash within 90 days after the relevant Asset Sale), net of (i) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), (ii) any taxes paid or payable as a result thereof, (iii) all amounts required to be applied to the repayment of, or representing the amount of permanent reductions in the commitments relating to, Indebtedness secured by a Lien on the asset or assets the subject of such Asset Sale which Lien is permitted pursuant hereto, (iv) any reserve for adjustment in respect of the sale price of such asset or assets required by GAAP, (v) all distributions and other payments required to be made (including any amounts held pending distribution) to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale, and (vi) all payments due under Existing Affiliate Agreements arising out of an Asset Sale. The amount of any taxes required to be accrued as a liability under GAAP as a consequence of an Asset Sale shall be the amount thereof as determined in good faith by the Board of Directors. "Net Worth" means the consolidated net worth of the Borrower and its Subsidiaries. "Non-U.S. Lender" means any Lender (including each Assignee Lender) that is not (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or any state thereof, or (iii) an estate or trust that is subject to U.S. Federal income taxation regardless of the source of its income. -17- 25 "Obligations" means all obligations (monetary or otherwise) of the Borrower and each other Obligor arising under or in connection with this Agreement, the Term Notes, and each other Loan Document. "Obligor" means the Borrower or any other Person (other than any Agent, the Arranger, or any Lender) obligated under any Loan Document. "Occupational Safety and Health Law" means the Occupational Safety and Health Act of 1970 and any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning employee health and/or safety. "Offering Memorandum" means the offering memorandum of the Borrower, dated June 11, 1997, in connection with the offer and sale of the Senior Notes. "Officers' Certificate" means a certificate executed by the Chairman of the Board, Vice Chairman, the President or a Vice President (regardless of vice presidential designation), and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Borrower or any Subsidiary Guarantor, as the case may be, and delivered to the Administrative Agent. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Borrower or any of the Subsidiary Guarantors and who shall be reasonably acceptable to the Required Lenders. "Organic Document" means, relative to any Obligor, its certificate of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements to which such Obligor is a party applicable to any of its authorized shares of Capital Stock. "Parent" is defined in the first recital. "Parent Closing Date Certificate" means a certificate of an Authorized Officer of the Parent substantially in the form of Exhibit J hereto, delivered pursuant to Section 5.1.4. "Participant" is defined in Section 10.11.2. "PAI" means Pioneer Americas, Inc., a Delaware corporation and direct Wholly-Owned Restricted Subsidiary of the Borrower, and any successor thereto. "PBGC" means the Pension Benefit Guaranty Corporation and any successor entity. "PCAC" is defined in the first recital. "Pension Plan" means a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a Multiemployer Plan), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, an ERISA Affiliate, may have any liability, including any liability by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Percentage" means, relative to any Lender, the applicable percentage relating to Term Loans, as set forth in Schedule II hereto or set forth in the Lender Assignment Agreement as -18- 26 such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 10.11. "Permitted Investment" means (i) any Eligible Investment, (ii) any Investment in the Borrower, (iii) Investments in existence on the date hereof and listed in Item 7.2.3 ("Existing Investments") of the Disclosure Schedule and any such Investment in Basic Investments, Inc., Basic Land Company, Basic Management, Inc., Basic Water Company or Victory Valley Land Company, L.P. which has been reclassified or converted into an alternate form of Investment in the same or a successor entity, (iv) intercompany notes permitted pursuant to Section 7.2.1, (v) Investments in any Wholly-Owned Restricted Subsidiary of the Borrower or any Person which, as a result of such Investment, becomes a Wholly-Owned Restricted Subsidiary of the Borrower; provided that such Wholly- Owned Restricted Subsidiary is engaged in a Related Business, and (vi) other Investments after the date hereof in joint ventures, corporations, limited liability companies, partnerships or Unrestricted Subsidiaries engaged in a Related Business that do not at any one time outstanding exceed $5,000,000; provided that the amount of Investments pursuant to clause (vi) will be included in the calculation of Restricted Payments pursuant to Section 7.2.3. "Permitted Liens" means as of any particular time, any one or more of the following: (a) Liens for taxes, rates and assessments not yet past due or, if past due, the validity of which is being contested in good faith by the Borrower or any Restricted Subsidiary by appropriate proceedings promptly instituted and diligently conducted and against which the Borrower has established appropriate reserves in accordance with GAAP; (b) the Lien of any judgment rendered which is being contested in good faith by the Borrower or any of its Restricted Subsidiaries by appropriate proceedings promptly instituted and diligently conducted and against which the Borrower has established appropriate reserves in accordance with GAAP and which does not have a material adverse effect on the ability of the Borrower and its Restricted Subsidiaries to operate their business or operations; (c) other than in connection with Indebtedness, any Lien arising in the ordinary course of business (i) to secure payments of workers' compensation, unemployment insurance, pension or other social security or retirement benefits, or to secure the performance of bids, tenders, leases, progress payments, contracts (other than for the payment of money) or to secure public or statutory obligations of the Borrower, or any Restricted Subsidiary, or to secure surety or appeal bonds to which the Borrower or any Restricted Subsidiary is a party, (ii) imposed by law dealing with materialmen's, mechanics', workmen's, repairmen's, warehousemen's, landlords', vendors' or carriers' Liens created by law, or deposits or pledges which are not yet due or, if due, the validity of which is being contested in good faith by the Borrower or any Restricted Subsidiaries by appropriate proceedings promptly instituted and diligently conducted and against which the Borrower has established appropriate reserves in accordance with GAAP, (iii) rights of financial institutions to setoff and chargeback arising by operation of law and (iv) similar Liens; -19- 27 (d) servitudes, licenses, easements, encumbrances, restrictions, rights-of-way and rights in the nature of easements or similar charges which will not in the aggregate materially adversely impair the use of the subject property by the Borrower or a Restricted Subsidiary; (e) zoning and building by-laws and ordinances, municipal bylaws and regulations, and restrictive covenants, which do not materially interfere with the use of the subject property by the Borrower or a Restricted Subsidiary as such property is used as of the date hereof; and (f) any extension, renewal, substitution or replacement (or successive extensions, renewals, substitutions or replacements), as a whole or in part, of any of the Liens referred to in clauses (a) through (e) of this definition or the Indebtedness secured thereby; provided that (i) such extension, renewal, substitution or replacement Lien is limited to that portion of the property or assets, now owned or hereafter acquired, that secured the Lien prior to such extension, renewal, substitution or replacement Lien and (ii) the Indebtedness secured by such Lien (assuming all available amounts were borrowed) at such time is not increased. "Person" means any natural person, corporation, partnership, firm, association, trust, government, governmental agency, limited liability company or any other entity, whether acting in an individual, fiduciary or other capacity. "Pioneer East" means Pioneer (East), Inc., a Delaware corporation and direct Wholly-Owned Subsidiary of PAI. "Plan" means any Pension Plan or Welfare Plan. "Preferred Stock" means, as applied to the Equity Interests of any corporation, stock of any class or classes (however designated) which is preferred over shares of stock of any other class of such corporation as to the distribution of assets on any voluntary or involuntary liquidation or dissolution of such corporation or as to dividends. "Pro Forma Balance Sheet" is defined in clause (d) of Section 5.1.15. "Purchase Agreement" is defined in the first recital. "Quarterly Payment Date" means the last Business Day of each March, June, September and December, commencing with September, 1997. "Redeemable Stock" means any Equity Interest that by its terms or otherwise (i) is required to be redeemed prior to June 30, 2007, (ii) matures or is redeemable, in whole or in part, at the option of the Borrower, any Subsidiary or the holder thereof or pursuant to a mandatory sinking fund at any time prior to June 30, 2007, or (iii) is convertible into or exchangeable for debt securities which provide for any scheduled payment of principal prior to June 30, 2007, at the option of the issuer thereof at any time prior to June 30, 2007, until the right to so convert or exchange is irrevocably relinquished. "Refinancing" is defined in clause (j) of Section 7.2.1. -20- 28 "Refinancing Indebtedness" is defined in clause (j) of Section 7.2.1. "Related Business" means any corporation or other entity engaged in, and any asset utilized in, the manufacture or distribution of chlorine, caustic soda, bleach, hydrochloric acid, iron and other chlorides and aluminum sulfate, and in lines of business reasonably related thereto. "Related Party" means, with respect to any Person, any other Person (a) that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such first Person or a subsidiary of such first Person, (b) that beneficially owns or holds ten percent (10%) or more of the equity interest of such first Person or a subsidiary of such first Person or (c) ten percent (10%) or more of the equity interest of which is beneficially owned or held by such first Person or a subsidiary of such first Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Release" means a "release", as such term is defined in CERCLA. "Reportable Event" has the meaning given to such term in ERISA. "Required Lenders" means, at any time, (i) prior to the Closing Date hereunder, Lenders having at least 51% of the sum of the Term Loan Commitments and (ii) on and after the Closing Date, Lenders holding at least 51% of the principal amount of the Term Loans. "Resource Conservation and Recovery Act" means the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect from time to time. "Restoration" has the meaning specified in each Mortgage. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Payment" is defined in Section 7.2.3. "Restricted Payment Computation Date" is defined in Section 7.2.3. "Restricted Payment Computation Period" is defined in Section 7.2.3. "Restricted Subsidiary" means (i) any Subsidiary Guarantor, (ii) any Subsidiary of the Borrower in existence on the date hereof to which any line of business or division (and the assets associated therewith) of any Subsidiary Guarantor are transferred after the date hereof, (iii) any Subsidiary of the Borrower organized or acquired after the date hereof, unless such Subsidiary has been designated as an Unrestricted Subsidiary by a resolution of the Board of Directors as provided in the definition of "Unrestricted Subsidiary" and (iv) any Unrestricted Subsidiary which is designated as a Restricted Subsidiary by the Board of Directors; provided, that immediately after giving effect to any such designation (A) no Default or Event of Default has occurred and is continuing and (B) in the case of any designation referred to in clause (iii) or (iv) hereof, the Borrower could incur at least $1.00 of Indebtedness pursuant to Section 7.2.1, on a pro forma basis taking into account such -21- 29 designation. The Borrower will evidence any such designation to the Administrative Agent by promptly filing with the Administrative Agent an Officers' Certificate certifying that such designation has been made and complies with the requirements of the immediately preceding sentence. Notwithstanding any provision herein to the contrary, each Subsidiary Guarantor will be a Restricted Subsidiary. "Revolving Credit Agreement" means the Loan and Security Agreement dated as of June 17, 1997, between the Borrower and Bank of America Illinois, as agent and a lender, and the lenders named therein, as amended, supplemented or otherwise modified from time to time in accordance with the provisions hereof and thereof. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc. "Sale and Leaseback Transaction" means, with respect to any Person, any arrangement with another Person for the leasing of any real or tangible personal property, which property has been or is to be sold or transferred by such Person to such other Person in contemplation of such leasing. "Salomon" is defined in the preamble. "Security Agreement" means the security agreement dated as of June 17, 1997 by PCAC, as debtor, to the Collateral Agent, as secured party in respect of the Acquisition Agreements, substantially in the form of Exhibit F attached hereto. "Security Documents" means (i) each Mortgage, (ii) the Security Agreement, (iii) the Stock Pledge Agreement, (iv) the Intercreditor Agreement, (v) the documentation relating to the Intercreditor Collateral Account, and (vi) all security agreements, mortgages, deeds of trust, pledges, collateral assignments or any other instrument evidencing or creating any security interest in favor of the Collateral Agent in all or any portion of the Collateral, in each case as amended, supplemented or otherwise modified from time to time. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Borrower or its Restricted Subsidiaries, whether outstanding on the date hereof or thereafter incurred as permitted herein, unless, in the case of any particular Indebtedness, the agreement or instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness is junior or subordinated in right of payment to any item of Indebtedness of the Borrower or its Restricted Subsidiaries. Without limiting the generality of the foregoing, "Senior Indebtedness" includes the principal of, premium, if any, and interest and all other obligations of every nature of the Borrower from time to time owed under the Term Facility. Notwithstanding the foregoing, "Senior Indebtedness" does not include (i) in the case of the obligation of the Borrower in respect of each Term Note, the obligation of the Borrower in respect of the other Term Notes, (ii) any liability for foreign, federal, state, local or other taxes owed or owing by the Borrower or any Restricted Subsidiary to the extent that such liability constitutes Indebtedness, (iii) Indebtedness of the Borrower to any Restricted Subsidiary or of any Restricted Subsidiary to the Borrower or another Restricted Subsidiary, (iv) that portion of any Indebtedness which at the time of issuance is issued in violation hereof and (v) Indebtedness and amounts incurred in connection with obtaining goods, materials or services in the ordinary course of business (other than such Indebtedness which is owed to banks and other financial institutions or secured by the goods or materials which were purchased with such Indebtedness). -22- 30 "Senior Note Indenture" means the Indenture dated June 17, 1997, among the Borrower, the Subsidiary Guarantors, and United States Trust Company of New York, as Trustee, as the same may be amended, restated, amended and restated or otherwise modified from time to time in accordance with the terms hereof and thereof. "Senior Note Offering" is defined in the third recital. "Senior Notes" means the 91/4% Senior Secured Notes due 2007 of the Borrower issued pursuant to the Senior Note Offering and the Senior Note Indenture, including, without limitation, any senior secured notes of the Borrower with substantially identical terms exchanged therefor pursuant to a registration statement under the Securities Act of 1933, as amended. "Stated Maturity Date" means, in the case of all Term Loans, December 5, 2006. "Stock Pledge Agreement" means the pledge agreement from PAI, as debtor, to the Collateral Agent, as secured party, in respect of all the issued and outstanding Capital Stock owned by PAI of PCAC and All-Pure, substantially in the form of Exhibit G attached hereto, and each other pledge agreement executed and delivered in connection with Section 7.1.9. "Subordinated Indebtedness" means Indebtedness of the Borrower or any Subsidiary Guarantor subordinated in right of payment to the Obligations. "Subsidiary" means, with respect to any Person, (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors, under ordinary circumstances, is at the time owned, directly or indirectly, by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries or (ii) any other Person of which at least a majority of voting interest, under ordinary circumstances, is at the time owned, directly or indirectly, by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries. "Subsidiary Guarantors" means, collectively, PAI, PCAC, All-Pure, Imperial, BMPC, All Pure Chemical Northwest, Inc., a Washington corporation, Pioneer Chlor Alkali International, Inc., a Barbados corporation, G.O.W. Corporation, a Nevada corporation, Pioneer East, TCH, T.C. Products, Inc., and each other Subsidiary of the Borrower that becomes a guarantor under the Subsidiary Guaranty. "Subsidiary Guaranty" means the Guaranty executed and delivered by an Authorized Officer of each Subsidiary Guarantor pursuant to Section 5.3, substantially in the form of Exhibit D attached hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Substantial Shareholder" means each of (i) William R. Berkley and his Affiliates and/or (ii) Interlaken Capital, Inc. and its Affiliates. "Syndication Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Syndication Agent pursuant to Section 9.4. "Tacoma Business" is defined in the first recital. -23- 31 "Tacoma Facility" means PCAC's chlor-alkali production facility in Tacoma, Washington. "Tax Sharing Agreement" means the Tax Sharing Agreement dated as of April 20, 1995 among the Parent and its subsidiaries. "Taxes" is defined in Section 4.6. "TCH" means T.C. Holdings, Inc., a New Mexico corporation and direct Wholly-Owned Subsidiary of All-Pure. "Tender Offer" is defined in the second recital. "Term Facility" is defined in the fourth recital. "Term Loan" is defined in Section 2.1.1. "Term Loan Commitment" is defined in Section 2.1.1. "Term Loan Commitment Amount" means $100,000,000. "Term Loan Commitment Termination Date" means the earliest of (i) July 31, 1997, if the Term Loans have not been made on or prior to such date, (ii) the Closing Date (immediately after the making of the Term Loans on such date), and (iii) the date on which any Commitment Termination Event occurs. "Term Note" means a promissory note of the Borrower payable to the order of any Lender, in the form of Exhibit A hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Term Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Transaction" is defined in the third recital. "Transaction Documents" means each of the Acquisition Agreements, the Senior Note Indenture, the form of Senior Note and all other agreements, documents, instruments, certificates, filings, consents, approvals, board of directors resolutions and opinions furnished pursuant to or in connection with the Acquisition, the Tender Offer, the Consent Solicitation, the Senior Note Offering and the transactions contemplated hereby or thereby, each as amended, supplemented, amended and restated or otherwise modified from time to time as permitted in accordance with the terms hereof or of any other Loan Document. "Trust Moneys" means all cash or Eligible Investments received by the Collateral Agent: (a) in exchange for the release of property from the Lien of any of the Security Documents; (b) as compensation for or proceeds of the sale of all or any part of the Collateral taken by eminent domain or purchased by, or sold pursuant to any order of, a governmental authority or otherwise disposed of; (c) as proceeds of insurance upon any, all or part of the Collateral (other than any liability insurance proceeds payable to the Collateral Agent for any loss, liability or expense incurred by it); (d) as proceeds of any other sale or other disposition of all or any part of the Collateral by or on behalf of either of the Collateral Agent or any collection, recovery, receipt, appropriation or other realization of or from all or any part of the -24- 32 Collateral pursuant to the Security Documents or otherwise; or (e) for application under this Agreement as provided in this Agreement or any other Security Document, or whose disposition is not otherwise specifically provided for in this Agreement or in any other Security Document. "Trustee" means United States Trust Company of New York, in its capacity as "trustee" under the Senior Note Indenture, and each successor trustee thereunder to become such pursuant to the applicable provisions thereof. "type" means, relative to any Term Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York. "United States" or "U.S." means the United States of America, its fifty states and the District of Columbia. "Unrestricted Subsidiary" means, until such time as it may be designated as a Restricted Subsidiary by the Board of Directors of the Borrower as provided in and in compliance with the definition of "Restricted Subsidiary," (i) any Subsidiary of the Borrower organized or acquired after the date hereof designated as an Unrestricted Subsidiary by the Board of Directors of the Borrower in which all investments by the Borrower or any Restricted Subsidiary are made only from funds available for the making of Restricted Payments pursuant to Section 7.2.3 and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Borrower may designate any Subsidiary of the Borrower (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Equity Interests of, or owns, or holds any Lien upon, any property of, any Subsidiary of the Borrower which is not a Subsidiary of such Subsidiary to be so designated; provided that (w) each Subsidiary to be so designated and each of its Subsidiaries has not, at the time of designation, and does not thereafter, directly or indirectly, incur any Indebtedness pursuant to which the lender with respect thereto has recourse to any of the assets of the Borrower or any of its Restricted Subsidiaries, (x) immediately after giving effect to such designation no Default or Event of Default shall have occurred and be continuing, (y) all outstanding Investments by the Borrower and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation equal in amount to the Fair Market Value of such Investments at the time of such designation and would be Restricted Payments permitted to be paid pursuant to the provisions of Section 7.2.3 and (z) the amount of such Restricted Payments will be included in the calculation of the amount of Restricted Payments previously made pursuant to such covenant. The Borrower will evidence any such designation by promptly filing with the Administrative Agent an Officers' Certificate certifying that such designation has been made and complies with the requirements of the immediately preceding sentence. "U.S. Subsidiary" means any Subsidiary of the Borrower that is incorporated or organized in or under the laws of the United States or any state thereof. -25- 33 "Voting Stock" of any Person means Capital Stock of such Person which ordinarily has voting power for the election of directors (or Persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Wholly-Owned Subsidiary" means, with respect to any Person, any Subsidiary of such Person all of the Capital Stock (and all rights and options to purchase such Capital Stock) of which, other than directors' qualifying shares, are owned, beneficially and of record, by such Person and/or one or more Wholly-Owned Subsidiaries of such Person. "Wholly-Owned Restricted Subsidiary" means, with respect to any Person, a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than capital stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, to the extent mandated by applicable law) are owned by such Person or by one or more Wholly-Owned Restricted Subsidiaries of such Person. SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Disclosure Schedule and in each other Loan Document, notice and other communication delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3. Cross-References. Unless otherwise specified, references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations. Unless otherwise specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance with, those generally accepted accounting principles ("GAAP"), as in effect from time to time and, unless otherwise expressly provided herein, shall be computed or determined on a consolidated basis and without duplication. SECTION 1.5. Use of UCC Terms. Unless the context otherwise requires, the terms "accounts receivable", "inventory" and "general intangibles" shall have the meanings ascribed thereto in the UCC. SECTION 1.6. Officers' Certificates and Opinions. Every Officers' Certificate or Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Agreement or any other Loan Document shall be addressed to the Administrative Agent and each of the Lenders and shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; -26- 34 (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinion contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Absent any actual knowledge to the contrary, the Administrative Agent may rely on any such certificate without further inquiry. ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES SECTION 2.1. Commitments. On the terms and subject to the conditions of this Agreement (including Article V), each Lender severally agrees to make Term Loans pursuant to the Term Loan Commitments described in this Section 2.1. SECTION 2.1.1. Term Loan Commitments. On the Closing Date, which shall be a Business Day occurring prior to the Term Loan Commitment Termination Date, each Lender will make loans (relative to such Lender, its "Term Loans") to the Borrower equal to such Lender's Percentage of the aggregate amount of the Borrowing of Term Loans requested by the Borrower to be made on such day with the commitment of each such Lender to make the Term Loans described in this Section referred to as its "Term Loan Commitment". No amounts paid or prepaid with respect to any Term Loans may be reborrowed. SECTION 2.1.2. Lenders Not Permitted or Required to Make the Term Loans. No Lender shall be permitted or required to, and the Borrower shall not request any Lender to, make any Term Loan on the Closing Date if, after giving effect thereto, the aggregate original principal amount of all the Term Loans (a) of all Lenders would exceed the Term Loan Commitment Amount, or (b) of such Lender would exceed such Lender's Percentage of the Term Loan Commitment Amount. SECTION 2.2. Borrowing Procedures and Funding Maintenance. By delivering a Borrowing Request to the Administrative Agent on or before 10:00 a.m. (Chicago time) on a Business Day, the Borrower may request, on not less than one Business Day's notice (in the case of Base Rate Loans) or three Business Days' notice (in the case of LIBO Rate Loans), that a Borrowing be made on the Closing Date. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the type of Term Loans, and shall be made on the Business Day, specified in such Borrowing Request. On or before 11:00 a.m. (Chicago time) on such Business Day each Lender shall deposit with the Administrative Agent same day funds -27- 35 in an amount equal to such Lender's Percentage of the requested Borrowing. Such deposit will be made to an account which the Administrative Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders, the Administrative Agent shall make such funds available to the Borrower by wire transfer to the accounts the Borrower shall have specified in its Borrowing Request. No Lender's obligation to make any Term Loan shall be affected by any other Lender's failure to make any Term Loan. SECTION 2.3. Continuation and Conversion Elections. By delivering a Continuation/Conversion Notice to the Administrative Agent on or before 10:00 a.m. (Chicago time) on a Business Day, the Borrower may from time to time irrevocably elect, on not less than one Business Day's notice (in the case of a conversion of LIBO Rate Loans to Base Rate Loans) or three Business Days' notice (in the case of a continuation of LIBO Rate Loans or a conversion of Base Rate Loans into LIBO Rate Loans) nor more than five Business Days' notice that all, or any portion in a minimum amount of $5,000,000 or any larger integral multiple of $250,000, be, in the case of Base Rate Loans, converted into LIBO Rate Loans or a minimum amount of $250,000 or any larger integral multiple of $250,000, in the case of LIBO Rate Loans, converted into Base Rate Loans or continued as LIBO Rate Loans (in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan); provided, however, that (x) each such conversion or continuation shall be pro rated among the applicable outstanding Term Loans of all Lenders, and (y) no portion of the outstanding principal amount of any Term Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. SECTION 2.4. Funding. Each Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, however, that such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility. In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of Section 4.1, 4.2, 4.3 or 4.4, it shall be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. SECTION 2.5. Term Notes. Each Lender's Term Loans under its Term Loan Commitment shall be evidenced by a Term Note payable to the order of such Lender in a maximum principal amount equal to such Lender's Percentage of the original Term Loan Commitment Amount. The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Term Note (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal amount of, and the interest rate and Interest Period applicable to the Term Loans evidenced thereby. Such notations shall be conclusive and binding on the Borrower absent manifest error; provided, however, that the failure of any Lender to make any such notations shall not limit or otherwise affect any Obligations of the Borrower or any other Obligor. -28- 36 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. Repayments and Prepayments; Application. SECTION 3.1.1. Repayments and Prepayments. The Borrower shall repay in full the unpaid principal amount of each Term Loan upon the Stated Maturity Date therefor. Prior thereto, the Borrower (a) may, from time to time on any Business Day, make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Term Loans; provided, however, that (i) any such prepayment shall be made pro rata among Term Loans of the same type and, if applicable, having the same Interest Period of all Lenders; (ii) the Borrower shall comply with Section 4.4 in the event that any LIBO Rate Loan is prepaid on any day other than the last day of the Interest Period for such Term Loan; (iii) all such voluntary prepayments shall require at least one Business Day's notice in the case of Base Rate Loans and three Business Days' notice in the case of LIBO Rate Loans, but no more than five Business Days' notice, in each case in writing to the Administrative Agent; and (iv) all such voluntary partial prepayments shall be, in the case of LIBO Rate Loans, in an aggregate minimum amount of $5,000,000 or any larger integral multiple of $1,000,000 and, in the case of Base Rate Loans, in an aggregate minimum amount of $1,000,000 or any larger integral multiple of $500,000 or in the aggregate principal amount of all Term Loans of the type then outstanding; and (v) any voluntary prepayment of Term Loans made on or prior to the third anniversary of the Closing Date shall be subject to the payment of a premium, as set forth below: (A) 3.0% of the principal amount of Term Loans prepaid pursuant to this clause (a) of this Section 3.1.1 on or prior to the first anniversary of the Closing Date; (B) 2.0% of the principal amount of Term Loans prepaid pursuant to this clause (a) of this Section 3.1.1 subsequent to the first anniversary and prior to or on the second anniversary of the Closing Date; and (C) 1.0% of the principal amount of Term Loans prepaid pursuant to this clause (a) of this Section 3.1.1 subsequent to the second anniversary and prior to or on the third anniversary of the Closing Date. -29- 37 (b) shall, make a mandatory prepayment of the Term Loans on account of Net Proceeds in accordance with Section 7.2.6; (c) shall, (i) on each Quarterly Payment Date occurring on or during any period set forth below, make a scheduled repayment of the aggregate outstanding principal amount, if any, of all Term Loans in an amount equal to the amount set forth below opposite such period, and (ii) on the Stated Maturity Date, make a scheduled repayment of the outstanding principal amount of all Term Loans in the amount set forth opposite such date below (in each case as such amounts may have otherwise been reduced pursuant to this Agreement):
SCHEDULED QUARTERLY PRINCIPAL PERIOD REPAYMENT Closing Date to (and including) June 30, 1998 $250,000 July 1, 1998 to (and including) June 30, 1999 $250,000 July 1, 1999 to (and including) June 30, 2000 $250,000 July 1, 2000 to (and including) June 30, 2001 $250,000 July 1, 2001 to (and including) June 30, 2002 $250,000 July 1, 2002 to (and including) June 30, 2003 $250,000 July 1, 2003 to (and including) June 30, 2004 $250,000 July 1, 2004 to (and including) June 30, 2005 $250,000 July 1, 2005 to (and including) June 30, 2006 $250,000
-30- 38
SCHEDULED QUARTERLY PRINCIPAL PERIOD REPAYMENT July 1, 2006 to (and including) September 30, 2006 $250,000 Stated Maturity Date $90,750,000
(d) shall, subject to Section 3.1.2, make a mandatory prepayment of the Term Loans upon the occurrence of a Change in Control; and (e) shall, immediately upon the acceleration of the Stated Maturity Date of any Term Loans pursuant to Section 8.2 or Section 8.3, repay all outstanding Term Loans, unless, pursuant to Section 8.3, only a portion of all Term Loans are so accelerated (in which case the portion so accelerated shall be so prepaid). Each prepayment of any Term Loans made pursuant to this Section shall be without premium or penalty, except as may be required by clause (a)(v) of this Section and/or Section 4.4. SECTION 3.1.2. Application. Amounts prepaid and repaid shall be applied as set forth in this Section. (a) Subject to clauses (b) and (c) below, each prepayment or repayment of principal of the Term Loans shall be applied, to the extent of such prepayment or repayment, first, to the principal amount thereof being maintained as Base Rate Loans, and second, to the principal amount thereof being maintained as LIBO Rate Loans. (b) Each prepayment of any Term Loans made pursuant to clause (a) of Section 3.1.1 shall be applied, to the extent of such prepayment, in the inverse order of the scheduled repayments of such Term Loans, as set forth in clause (c) of Section 3.1.1 with respect to such Term Loans. (c) Each prepayment of Term Loans made pursuant to clause (b) or clause (d) of Section 3.1.1 shall be applied to the outstanding principal amount of all Term Loans, except that, (i) with respect to the amount of any such prepayment, the Administrative Agent will as soon as is practicable (but in any event no later than the date on which the Borrower has provided such prepayment to the Administrative Agent) provide notice of such prepayment to each Lender prior to the distribution of the funds from such prepayment, and (ii) each Lender will have the right to refuse any such prepayment by giving written notice of such refusal to the Administrative Agent within three Business Days after such Lender's receipt of notice from the Administrative Agent of such prepayment. In addition, any prepayment of Term Loans shall be applied to the remaining amortization payments in the inverse order of the scheduled repayments of such Term Loans, as set forth in clause (c) of Section 3.1.1 with respect to such Term Loans. -31- 39 SECTION 3.2. Interest Provisions. Interest on the outstanding principal amount of the Term Loans shall accrue and be payable in accordance with this Section 3.2. SECTION 3.2.1. Rates. Each Base Rate Loan shall accrue interest on the unpaid principal amount thereof for each day from and including the day upon which such was made or converted to a Base Rate Loan to but excluding the date such Term Loan is repaid or converted to a LIBO Rate Loan at a rate per annum equal to the sum of the Alternate Base Rate for such day plus the Applicable Margin for such Term Loan on such day. Each LIBO Rate Loan shall accrue interest on the unpaid principal amount thereof for each day during each Interest Period applicable thereto at a rate per annum equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable Margin for such Term Loan on such day. All LIBO Rate Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan. SECTION 3.2.2. Post-Maturity Rates. Upon the occurrence and continuance of (i) any Default described in Section 8.1.1 or (ii) any Event of Default which shall remain uncured for thirty days (without giving effect to any grace period therefor), all Term Loans shall bear, and the Borrower shall pay, but only to the extent permitted by law, interest (after as well as before judgment) thereon at a rate per annum equal to the rate that would otherwise be applicable to such Term Loans pursuant to Section 3.2.1 plus 2.0% on each Monthly Payment Date in arrears. SECTION 3.2.3. Payment Dates. Interest accrued on each Term Loan shall be payable, without duplication: (a) on the Stated Maturity Date therefor; (b) on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Term Loan; (c) with respect to Base Rate Loans, on each Monthly Payment Date occurring after the Closing Date; (d) with respect to LIBO Rate Loans, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, at intervals of three months after the first day of such Interest Period); (e) with respect to the principal amount of any Base Rate Loans converted into LIBO Rate Loans on a day when interest would not otherwise have been payable pursuant to clause (c), on the date of such conversion; and (f) on that portion of any Term Loans the Stated Maturity Date of which is accelerated pursuant to Section 8.2 or Section 8.3, immediately upon such acceleration. Interest accrued on Term Loans or other monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. -32- 40 SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth in this Section 3.3. All such fees shall be non-refundable. SECTION 3.3.1. Arrangement, Structuring and Commitment Fees. In accordance with the Fee Letter, the Borrower shall pay on the Effective Date to each of the Arranger, the Syndication Agent and the Documentation Agent for its account their applicable portion of the arrangement and structuring fee referred to therein and, for the account of the Arranger, the commitment fee referred to therein. SECTION 3.3.2. Administrative Agent Fee. The Borrower agrees to pay an annual administration fee to the Administrative Agent, for its own account, in the amounts mutually agreed to between the Borrower and the Administrative Agent, payable in advance on the Closing Date and annually thereafter. ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. LIBO Rate Lending Unlawful. If any Lender shall determine (which determination shall, upon notice thereof to the Borrower and the Lenders, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to make, continue or maintain any Term Loan as, or to convert any Term Loan into, a LIBO Rate Loan of a certain type, the obligations of all Lenders to make, continue, maintain or convert any such Term Loans shall, upon such determination, forthwith be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and all LIBO Rate Loans of such type shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. SECTION 4.2. Deposits Unavailable. If the Administrative Agent shall have determined that (i) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to the Administrative Agent in its relevant market, or (ii) by reason of circumstances affecting the Administrative Agent's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans, then, upon notice from the Administrative Agent to the Borrower and the Lenders, the obligations of all Lenders under Section 2.3 and Section 2.4 to make or continue any Term Loans as, or to convert any Term Loans into, LIBO Rate Loans shall forthwith be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. SECTION 4.3. Increased LIBO Rate Loan Costs, etc. The Borrower agrees to reimburse each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Term Loans as, or of converting (or of its obligation to convert) any Term Loans into, LIBO Rate Loans. Such Lender shall promptly notify the Administrative Agent and the Borrower in writing of the occurrence of any such event, -33- 41 such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Lender for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower directly to such Lender within five days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.4. Funding Losses. In the event any Lender shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Term Loan as, or to convert any portion of the principal amount of any Term Loan into, a LIBO Rate Loan) as a result of (i) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.1 or otherwise, (ii) Borrower's failure to borrow any Term Loans as LIBO Rate Loans in accordance with the Borrowing Request therefor, or (iii) Borrower's failure to continue, or to convert Base Rate Loans into LIBO Rate Loans in accordance with the Continuation/Conversion Notice therefor, then, upon the written notice of such Lender to the Borrower (with a copy to the Administrative Agent), the Borrower shall, within five days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.5. Increased Capital Costs. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority affects or would affect the amount of capital required or expected to be maintained by any Lender or any Person controlling such Lender, and such Lender determines (in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of its Term Loan Commitment or the Term Loans made by such Lender is reduced to a level below that which such Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Lender to the Borrower, the Borrower shall immediately pay directly to such Lender additional amounts sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. In determining such amount, such Lender may use any method of averaging and attribution that it (in its sole and absolute discretion) shall deem applicable. SECTION 4.6. Taxes. All payments by the Borrower of principal of, and interest on, the Term Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender's net income or receipts (such non-excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will -34- 42 (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Administrative Agent an official receipt or other documentation satisfactory to the Administrative Agent evidencing such payment to such authority; and (c) pay to the Administrative Agent for the account of the Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Administrative Agent or any Lender with respect to any payment received by the Administrative Agent or such Lender hereunder, the Administrative Agent or such Lender may pay such Taxes and the Borrower will promptly pay such additional amounts (including any penalties, interest or expenses) as is necessary in order that the net amount received by such person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such person would have received had not such Taxes been asserted. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent, for the account of the respective Lenders, the required receipts or other required documentary evidence, the Borrower shall indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 4.6, a distribution hereunder by the Administrative Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower. Upon the request of the Borrower or the Administrative Agent, each Lender that is organized under the laws of a jurisdiction other than the United States shall, prior to the due date of any payments under the Term Notes, execute and deliver to the Borrower and the Administrative Agent, on or about the first scheduled payment date in each Fiscal Year, one or more (as the Borrower or the Administrative Agent may reasonably request) United States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or successor forms or documents), appropriately completed, as may be applicable to establish the extent, if any, to which a payment to such Lender is exempt from withholding or deduction of Taxes. SECTION 4.7. Payments, Computations, etc. Unless otherwise expressly provided, all payments by or on behalf of the Borrower pursuant to this Agreement, the Term Notes or any other Loan Document shall be made by the Borrower to the Administrative Agent for the pro rata account of the Lenders, Agents or Arranger, as applicable, entitled to receive such payment. All such payments required to be made to the Administrative Agent shall be made, without setoff, deduction or counterclaim, not later than 11:00 a.m. (Chicago time) on the date due, in same day or immediately available funds, to such account as the Administrative Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Administrative Agent on the next succeeding Business Day. The Administrative Agent shall promptly remit in same day funds to each Lender, Agent or Arranger, as the case may be, its share, if any, of such payments received by the -35- 43 Administrative Agent for the account of such Lender, Agent or Arranger, as the case may be. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan that is not calculated at the Federal Funds Rate, 365 days or, if appropriate, 366 days). Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause (i) of the definition of the term "Interest Period" with respect to LIBO Rate Loans) be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. SECTION 4.8. Sharing of Payments. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Term Loan (other than pursuant to the terms of Sections 4.3, 4.4 and 4.5) in excess of its pro rata share of payments then or therewith obtained by all Lenders entitled thereto, such Lender shall purchase from the other Lenders such participations in the Term Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (i) the amount of such selling Lender's required repayment to the purchasing Lender in respect of such recovery, to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 4.9) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 4.9. Setoff. Each Lender shall, upon the occurrence of any Event of Default described in clause (a) or (b) of Section 8.1.9 with respect to any Obligor or, with the consent of the Required Lenders, upon the occurrence of any other Event of Default, to the fullest extent permitted by law, have the right to appropriate and apply to the payment of the Obligations then owing to it (whether or not then due), and (as security for such Obligations) the Borrower hereby grants to each Lender a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter maintained with or otherwise held by such Lender; provided, however, that any such appropriation and application shall be subject to the provisions of Section 4.8. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Lender may have. -36- 44 ARTICLE V CONDITIONS TO TERM LOAN EXTENSION The obligation of each Lender to fund its Term Loans shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Article V. SECTION 5.1. Resolutions, etc. The Arranger, the Syndication Agent and the Administrative Agent shall have received from each Obligor a certificate, dated the Closing Date, of its Secretary or Assistant Secretary as to (i) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of each Loan Document to be executed by it, and (ii) the incumbency and signatures of those of its officers authorized to act with respect to each Loan Document executed by it, upon which certificate each Agent and each Lender may conclusively rely until it shall have received a further certificate of the Secretary or Assistant Secretary of such Obligor canceling or amending such prior certificate. SECTION 5.2. Delivery of Term Note. Each Lender shall have received its Term Note duly executed and delivered by the Borrower. SECTION 5.3. Subsidiary Guaranty. The Syndication Agent shall have received the Subsidiary Guaranty, dated the date hereof, duly executed by each Subsidiary Guarantor. SECTION 5.4. Consummation of Acquisition. The Arranger, the Syndication Agent and the Documentation Agent shall have received evidence satisfactory to each of them that all actions necessary to consummate the Acquisition shall have been taken in accordance with all applicable law and that the Acquisition shall have been consummated in accordance with the terms of the Purchase Agreement without amendment or waiver of any material provision thereof by the Borrower or any of its affiliates. There shall exist at and as of the Closing Date (after giving effect to the transactions contemplated by the Purchase Agreement) no conditions that would constitute a default or event of default under the Purchase Agreement. SECTION 5.5. Completion of Consent Solicitation. The Arranger, the Syndication Agent and the Documentation Agent shall have received copies of fully executed documentation (which documentation shall be satisfactory to each of them) relating to and executed in connection with the Consent Solicitation (including, without limitation, the Supplemental Indenture to the Existing First Mortgage Indenture by and among the Borrower, the Subsidiary Guarantors and the Existing Trustee). SECTION 5.6. Completion of Tender Offer. The Tender Offer shall have been completed pursuant to documentation satisfactory to the Arranger, the Syndication Agent and the Documentation Agent at a price per $1,000 principal amount of First Mortgage Notes not exceeding (inclusive of any fee paid in connection with the Consent Solicitation) 120% of the par value thereof plus accrued and unpaid interest thereon and, after giving effect to such completion, no First Mortgage Notes shall be outstanding, all Liens in respect of mortgages securing Indebtedness relating to the First Mortgage Notes shall have been terminated and the Arranger and the Syndication Agent shall have received evidence that releases and other instruments necessary to release and terminate such Liens have been delivered to the Borrower. -37- 45 SECTION 5.7. Issuance of the Senior Notes. The Arranger, the Syndication Agent and the Documentation Agent shall have received evidence satisfactory to each of them that the Borrower shall have received gross proceeds from the issuance of the Senior Notes which, when added to the aggregate principal amount of Term Loans to be borrowed hereunder, does not exceed $300,000,000, and the Arranger, the Syndication Agent and the Documentation Agent shall be satisfied with all terms and provisions of all documentation relating to such Senior Notes. SECTION 5.8. Revolving Credit Agreement. The Arranger, the Syndication Agent and the Documentation Agent shall have received copies of fully executed versions of the Revolving Credit Agreement, certified to be true and complete copies thereof by an Authorized Officer of the Borrower, and be satisfied with the terms of such Revolving Credit Agreement. The Loan and Security Agreement dated as of April 12, 1995, among PAI and Bank of America Illinois, as agent and lender, shall have been terminated (including all commitments to extend credit thereunder and all Liens securing payment of any Indebtedness thereunder), all amounts payable thereunder (if any) shall have been paid or transferred to (and payable under) the Revolving Credit Agreement and the Arranger and Syndication Agent shall have received evidence that releases, UCC-3 termination statements and other instruments necessary to release and terminate any such Liens on any Collateral have been delivered to the Borrower. As of the Closing Date, each condition to the closing contemplated by the Revolving Credit Agreement shall have been satisfied or, with appropriate consents, waived. There shall exist at and as of the Closing Date (after giving effect to the transactions contemplated by the Revolving Credit Agreement) no conditions that would constitute a default or event of default under the Revolving Credit Agreement. SECTION 5.9. Transaction Documents. The Arranger, the Syndication Agent and the Documentation Agent shall have received (with copies for each Lender that shall have expressly requested copies thereof) copies of fully executed versions of all other Transaction Documents, certified to be true and complete copies thereof by an Authorized Officer of the Borrower, and be satisfied with the terms of all such agreements and documents. The Arranger, the Syndication Agent and the Documentation Agent shall be reasonably satisfied with all other aspects of the Transaction, including the aggregate sources and uses of proceeds utilized to consummate the Transaction (including fees and expenses not to exceed $12,000,000 in the aggregate (exclusive of premium paid with respect to the First Mortgage Notes in connection with the Tender Offer and any fee paid in connection with the Consent Solicitation)). SECTION 5.10. Mortgages. PCAC shall have caused to be delivered to the Collateral Agent, with copies to each of the Agents, the following documents and instruments with regard to each Mortgaged Property located in Henderson, Nevada, St. Gabriel, Louisiana, and Tacoma, Washington, providing for first priority mortgages: (a) a Mortgage, duly executed by PCAC, together with evidence of the due recordation thereof in the appropriate recording office of the political subdivision where such Mortgaged Property is situated (or evidence reasonably satisfactory to the Arranger, the Syndication Agent and the Documentation Agent that each Mortgage, as appropriate, has been delivered to a nationally-recognized title insurance company for recording and that all fees, taxes and other expenses associated with such recording have been paid); -38- 46 (b) a mortgagee policy of title insurance (or endorsement thereto, as appropriate) in favor of the Collateral Agent, issued by such title insurance company, in such amounts, with such endorsements, affirmative coverages, and reinsurance agreements as the Syndication Agent shall reasonably require, and otherwise in form and substance reasonably satisfactory to the Arranger, the Syndication Agent and the Documentation Agent, insuring each Mortgage as a first lien on the property and interests covered thereby subject only to such other matters as are acceptable to the Arranger, the Syndication Agent and the Documentation Agent, together with evidence that all premiums in respect of such policies have been paid in full and true and complete copies of all documents referred to therein; (c) certified perimeter surveys of the real property covered by each Mortgage by registered surveyors as of a date and in form and substance acceptable to the Arranger, the Syndication Agent and the Documentation Agent, bearing legal descriptions conforming exactly to those contained in the title insurance policy referred to in the preceding clause (b); indicating the length of exterior boundary lines of the Mortgaged Property, locations of all buildings, utility or other easements, showing the location of all easements of record, encroachments, if any, and means of access to the real property from a public way; and the surveyor's original certification to the Syndication Agent, the Collateral Agent and the title insurance company issuing the policies described in the preceding clause (b) and in the case of surveys with respect to the Mortgaged Properties in Henderson, Nevada and St. Gabriel, Louisiana, such "affidavits of no change" as may be required by such title companies to omit the standard survey exception from such title insurance policies or endorsements; (d) evidence reasonably satisfactory to the Arranger, the Syndication Agent and the Documentation Agent of all filings of financing statements under the UCC necessary or desirable to perfect the lien granted by each Mortgage (or evidence reasonably satisfactory to the Arranger, the Syndication Agent and the Documentation Agent that such financing statements have been delivered to a nationally recognized title company for filing and that all fees, taxes and other expenses associated with such filings have been paid), together with such searches of UCC, judgment and tax lien records as the Arranger, the Syndication Agent and the Documentation Agent shall reasonably require; (e) policies or certificates of insurance with respect to the insurance required to be maintained in respect of the property covered by each Mortgage pursuant to the terms of this Agreement and the Senior Note Indenture, naming the Collateral Agent as loss payee or additional named insured, as appropriate; (f) a non-disturbance and attornment agreement among PCAC, Saguaro Power Company, a Limited Partnership and the Collateral Agent with respect to the first priority lien Nevada Mortgage, each in form and substance acceptable to the Arranger, the Syndication Agent and the Documentation Agent; (g) a Waiver of the Nevada "One-Action Rule" by the Subsidiary Guarantors, other than PCAC, with respect to the Agreement, each in form and substance acceptable to the Arranger, the Syndication Agent and the Documentation Agent; and -39- 47 (h) such other agreements, instruments, approvals, consents, opinions, or documents as the Trustee, the Syndication Agent, the Documentation Agent, the Administrative Agent, the Collateral Agent or their respective counsel may reasonably request. SECTION 5.11. Additional Security Documents. The Collateral Agent, the Syndication Agent, the Documentation Agent and the Administrative Agent shall have received executed versions of each of the other Security Documents (other than the Mortgages), duly executed by the appropriate Subsidiary Guarantor party thereto, together with: (a) duly executed UCC-1 financing statements or other documents under the provisions of the UCC or any other applicable state law in proper form for filing in each office where such filing is necessary or appropriate to grant to the Collateral Agent the Liens of the character and priority contemplated by the Security Documents; (b) share certificates representing all Pledged Shares (as defined in the Stock Pledge Agreement) and undated stock powers for such certificates executed and endorsed in blank; and (c) evidence that all other actions necessary to perfect and protect the Liens created by the Security Documents have been taken. SECTION 5.12. Existing Intercreditor Agreement. The Existing Intercreditor Agreement shall have been terminated pursuant to documents and instruments satisfactory to the Arranger, the Syndication Agent and the Documentation Agent. SECTION 5.13. Intercreditor Agreement. The Borrower, PAI, PCAC, the Trustee, the Administrative Agent, BofA (as agent under the Revolving Credit Agreement) and the Collateral Agent shall have entered into the Intercreditor Agreement, and the Arranger and the Syndication Agent shall have received and be satisfied with the terms of the executed versions thereof. SECTION 5.14. Closing Date Certificates. The Arranger and the Syndication Agent shall have received, with counterparts for each Lender, the Closing Date Certificates, substantially in the form of Exhibits I and J hereto, respectively, dated the date hereof and duly executed and delivered by each of: (a) the chief executive or financial (or equivalent) Authorized Officer of the Borrower, in which certificate the Borrower shall agree and acknowledge that the statements made therein shall be deemed to be true and correct representations and warranties of the Borrower made as of such date under this Agreement, and, at the time such certificate is delivered, such statements shall in fact be true and correct; and (b) the chief executive or financial (or equivalent) Authorized Officer of the Parent, in which certificate the Parent shall agree and acknowledge that the statements made therein shall be deemed to be true and correct representations and warranties of the Parent made as of such date under this Agreement, and, at the time such certificate is delivered, such statements shall in fact be true and correct. -40- 48 SECTION 5.15. Financial Information, etc. The Arranger and the Syndication Agent shall have received (a) the audited financial statements of the Borrower as of December 31, 1996 and for the period from March 6, 1995 through December 31, 1995; (b) the audited financial statements of the Borrower's predecessor, Pioneer Americas, Inc., as of December 31, 1994 and for the period from January 1, 1995 through April 20, 1995; (c) the unaudited financial statements of the Borrower for the period from January 1, 1997 through March 31, 1997; and (d) a pro forma opening balance sheet of the Borrower as of March 31, 1997, after giving effect to the contemplated Transaction and reflecting the proposed legal and capital structure as of the Closing Date, which legal and capital structure shall be satisfactory in all respects to the Arranger, the Syndication Agent and the Documentation Agent. SECTION 5.16. Pro Forma Balance Sheet Certificate. The Syndication Agent and the Administrative Agent shall have received a certificate from the chief executive or financial Authorized Officer of the Borrower, dated the date of the initial Borrowing, with respect to delivery of the pro forma balance sheet described in clause (d) of Section 5.15. SECTION 5.17. Litigation. There shall exist no pending or threatened material litigation, proceedings or investigations which (x) contest the consummation of the Transaction or (y) could reasonably be expected to have a Material Adverse Effect. SECTION 5.18. Material Adverse Change. Since December 31, 1996, there has not occurred or arisen any event or condition which has had or is reasonably likely to have a Material Adverse Effect on the Borrower, its Subsidiaries or the Tacoma Business. SECTION 5.19. Consents and Approvals, etc.. All governmental and third party approvals necessary or advisable in connection with each aspect of the Transaction and the continuing operations of the Borrower, its Subsidiaries and the Tacoma Business shall have been obtained and be in full force and effect or waived, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on any aspect of the Transaction. SECTION 5.20. Reliance Letters. The Syndication Agent and the Administrative Agent shall, unless otherwise agreed, have received reliance letters, dated the Closing Date and addressed to each Lender and each Agent, in respect of each of the legal opinions (other than "disclosure" and other similar opinions) delivered in connection with the Transaction. -41- 49 SECTION 5.21. Opinions of Counsel. The Syndication Agent and the Administrative Agent shall have received opinions, dated the Closing Date and addressed to the Agents and all Lenders from (a) Willkie, Farr & Gallagher, special New York counsel for the Borrower and the Subsidiary Guarantors, in form and substance satisfactory to the Arranger, the Syndication Agent and the Documentation Agent, (b) Kent R. Stephenson, Esq., the General Counsel of the Parent, in form and substance satisfactory to the Arranger, the Syndication Agent and the Documentation Agent, (c) Jackson & Walker, environmental counsel to the Borrower and the Subsidiary Guarantors, in form and substance satisfactory to the Arranger, the Syndication Agent and the Documentation Agent, (d) Allen, Matkins, Leck, Gamble & Mallory, special California counsel, regarding matters of California law, in form and substance satisfactory to the Arranger, the Syndication Agent and the Documentation Agent, (e) Lionel, Sawyer & Collins, special Nevada counsel, regarding the first and second mortgages on PCAC's Henderson facility and other matters of Nevada law, in form and substance satisfactory to the Arranger, the Syndication Agent and the Documentation Agent, (f) Nesser, King & LeBlanc, special Louisiana counsel, regarding the first and second mortgages on PCAC's St. Gabriel facility and other matters of Louisiana law, in form and substance satisfactory to the Arranger, the Syndication Agent and the Documentation Agent, and (g) Foster Pepper & Shefelman PLC, special Washington counsel, regarding the Purchase Agreement, the first mortgage on the Tacoma Facility and other matters of Washington law, in form and substance satisfactory to the Arranger, the Syndication Agent and the Documentation Agent. SECTION 5.22. Closing Fees, Expenses, etc. The Agents and the Arranger shall have received, each for their own respective accounts (including in their capacity as a Lender), as the case may be, all fees, costs and expenses due and payable pursuant to Sections 3.3 and 10.3 if then invoiced). SECTION 5.23. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of the Borrower or any of its Subsidiaries or any other Obligors shall be reasonably satisfactory in form and substance to the Arranger, the Syndication Agent and the Documentation Agent and their counsel; the Arranger, the Syndication Agent and the Documentation Agent and their counsel shall have received all information, approvals, opinions, documents or instruments as the Arranger, the Syndication Agent and the Documentation Agent or their counsel may reasonably request. -42- 50 ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Agents to enter into this Agreement and to make the Term Loans hereunder, the Borrower represents and warrants unto the Agents and each Lender as set forth in this Article VI. SECTION 6.1. Organization, etc. Each of the Borrower and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its respective incorporation. Each of the Borrower and its Subsidiaries is in good standing and is duly qualified to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification is required, except for those states in which its failure to qualify to do business would not be reasonably likely to have a Material Adverse Effect. SECTION 6.2. Due Authorization, Non-Contravention, etc. The Borrower is duly authorized to execute and deliver this Agreement, the Term Notes, and each other Loan Document to be executed by it and is duly authorized to borrow monies hereunder and to perform its obligations under this Agreement, the Term Notes and each other Loan Document to be executed by it. Each Subsidiary Guarantor is duly authorized to execute and deliver the Subsidiary Guaranty and each other Loan Document to be executed by it and is and will continue to be duly authorized to perform its obligations thereunder. The execution, delivery and performance by (a) the Borrower of this Agreement, the Term Notes and each other Loan Document to which it is a party and the Borrowings hereunder and (b) each Subsidiary Guarantor of the Subsidiary Guaranty and each other Loan Document to which it is a party do not and will not require any consent or approval of any governmental agency or authority. SECTION 6.3. No Conflicts. The execution, delivery and performance by (a) the Borrower of this Agreement, the Term Notes and each other Loan Document to which it is a party and (b) each Subsidiary Guarantor of the Subsidiary Guaranty and each other Loan Document to which it is a party do not and will not conflict with (i) any provision of law, (ii) the Certificate or Articles of Incorporation, as applicable, or bylaws, of the Borrower or such Subsidiary, (iii) any agreement binding upon the Borrower or such Subsidiary which conflict is reasonably likely to have a Material Adverse Effect or (iv) any court or administrative order or decree applicable to the Borrower or such Subsidiary which conflict is reasonably likely to have a Material Adverse Effect, and do not and will not require, or result in, the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary, except as provided herein. SECTION 6.4. Validity and Binding Effect. This Agreement, the Term Notes and each other Loan Document contemplated by this Agreement, when duly executed and delivered, will be legal, valid and binding obligations of the Borrower and each Subsidiary party thereto, as applicable, enforceable against the Borrower and each such Subsidiary in accordance with their respective terms. SECTION 6.5. No Default. Neither the Borrower nor any Subsidiary of the Borrower is in default under any agreement or instrument to which the Borrower or such Subsidiary is a party or by which any of their respective properties or assets is bound or affected, which default is -43- 51 reasonably likely to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION 6.6. Financial Statements. Each of financial statements of the Borrower and of the Borrower's predecessor, Pioneer Americas, Inc., referred to in clauses (a), (b) and (c) of Section 5.15 have been furnished to the Agents, have been prepared in conformity with GAAP applied on a basis consistent with that of the preceding Fiscal Year and period, and present fairly the financial condition of Borrower and its Subsidiaries as of such dates and the results of their operations for the periods then ended, subject (in the case of the interim financial statement) to year-end audit adjustments. The Pro Forma Balance Sheet includes appropriate pro forma adjustments to give pro forma effect to the Transaction (including assumptions that have been made on a reasonable basis). Since December 31, 1996, there has not occurred or arisen any event or condition which has had or is reasonably likely to have a Material Adverse Effect. SECTION 6.7. Insurance. Item 6.7 ("Insurance") of the Disclosure Schedule is a complete and accurate summary of the property and casualty insurance program carried by the Borrower and its Subsidiaries on the date hereof. Such Item 6.7 includes name(s) of insurer(s), policy number(s), expiration date(s), amount(s) of coverage, type(s) of coverage, the annual premium(s), deductibles and self-insured retention and describes any retrospective rating plan, fronting arrangement or any other self-insurance or risk assumption agreed to by the Borrower or any Subsidiary or imposed upon the Borrower or any Subsidiary by any such insurer. This summary also includes any self-insurance program that is in effect. SECTION 6.8. Litigation; Contingent Liabilities. (a) As of the date hereof, except for those referred to in Item 6.8 ("Litigation") of the Disclosure Schedule, there are no claims, litigation, arbitration proceedings or governmental proceedings pending or threatened against or affecting the Borrower, the Parent or any of their respective Subsidiaries, any Subsidiary or any Related Party, the results of which are reasonably likely to have a Material Adverse Effect. (b) As of the date hereof, other than any liability incident to the claims, litigation or proceedings disclosed in Item 6.8 or 6.19 of the Disclosure Schedule or provided for or disclosed in the financial statements referred to in Section 6.6, neither the Borrower nor any of its Subsidiaries has any contingent liabilities which are reasonably likely to have a Material Adverse Effect. SECTION 6.9. Liens. None of the Collateral or other property, revenues or assets of the Borrower or any Subsidiary is subject to any Lien except Liens permitted by clauses (a) and (b) of Section 7.2.2. SECTION 6.10. Subsidiaries. As of the date hereof, all of the Borrower's Subsidiaries are listed in Item 6.10 ("Subsidiaries") of the Disclosure Schedule. Item 6.10 of the Disclosure Schedule sets forth, for each such Subsidiary, a complete and accurate statement of (a) the Borrower's percentage ownership of each of the Subsidiaries, (b) the state or other jurisdiction of formation or incorporation of each Subsidiary and (c) each state in which each Subsidiary is qualified to do business. Each Subsidiary of the Borrower has executed and delivered the Subsidiary Guaranty. SECTION 6.11. Partnerships; Joint Ventures. As of the date hereof, neither the Borrower nor any of its Subsidiaries is a partner or joint venturer in any partnership or joint -44- 52 venture other than the partnerships and joint ventures listed in Item 6.11 ("Partnerships and Joint Ventures") of the Disclosure Schedule. Item 6.11 of the Disclosure Schedule sets forth, for each such partnership or joint venture, a complete and accurate statement of (a) the Borrower's and each Subsidiary's percentage ownership of each such partnership or joint venture, (b) the state or other jurisdiction of formation or incorporation, as appropriate, of each such partnership or joint venture and (c) each state in which each such partnership or joint venture is qualified to do business. SECTION 6.12. Senior Notes. The Senior Notes have been issued and sold to the initial Purchasers thereof on or prior to the Closing Date in accordance with and pursuant to the terms of the Offering Memorandum and in compliance with all laws, including without limitation Rule 144A of the Securities Act of 1933, as amended and all other applicable federal and state securities laws. The issuance of the Senior Notes and the execution of the Senior Note Indenture have been duly authorized by all necessary corporate action on the part of the Borrower and each of its Subsidiaries party thereto and will not require any consent or approval of any governmental agency or authority that has not been obtained prior to the date hereof. The issuance of the Senior Notes and the execution of the Senior Note Indenture do not conflict with (i) any provision of law, (ii) the Certificate or Articles of Incorporation or by-laws of the Borrower or any of its Subsidiaries, (iii) any agreement binding upon the Borrower or any of its Subsidiaries which conflict is reasonably likely to have a Material Adverse Effect, or (iv) any court or administrative order or decree applicable to the Borrower or any of its Subsidiaries which conflict is reasonably likely to have a Material Adverse Effect, and do not and will not require, or result in, the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries (other than the Liens created under the Security Documents). All representations and warranties of the Borrower and the Parent contained in the purchase agreement relating to the Senior Notes are true and correct in all material respects as of the date hereof. SECTION 6.13. Intellectual Property. The Borrower and each of its Subsidiaries possesses adequate licenses, patents, patent applications, copyrights, trademarks, trademark applications, trade styles, and tradenames to continue to conduct its respective business as heretofore conducted by it, and all such licenses, patents, patent applications, copyrights, trademarks, trademark applications, trade styles, and tradenames existing on the date hereof of the Borrower or any Subsidiary are listed in Item 6.13 ("Intellectual Property") of the Disclosure Schedule. SECTION 6.14. Solvency. Each of the Borrower and the Subsidiary Guarantors, immediately after giving effect to the Transaction on the Closing Date, will be Solvent. As used herein, the term "Solvent" means, with respect to any such entity on a particular date (i) the fair value of the property of such entity is greater than the total amount of liabilities (including contingent liabilities) of such entity, (ii) the present fair saleable value of the assets of such entity is greater than the probable liability of such entity on its total existing debts (including contingent liabilities) as they become absolute and matured, (iii) such entity will be able to pay its debts and liabilities as they mature and (iv) such entity will not have unreasonably small capital for the business in which it is engaged, as now conducted and as proposed to be conducted following the consummation of the Transaction. SECTION 6.15. Contracts; Labor Matters. Except as disclosed in Item 6.15 ("Contracts and Labor Matters") of the Disclosure Schedule: (a) neither the Borrower nor any of its -45- 53 Subsidiaries is a party to any contract or agreement, or is subject to any charge, corporate restriction, judgment, decree or order, which is reasonably likely to have a Material Adverse Effect; (b) as of the date hereof, no labor contract to which the Borrower or any of its Subsidiaries is a party or is otherwise subject is scheduled to expire prior to the Stated Maturity Date; (c) neither the Borrower nor any of its Subsidiaries has, within the two (2) year period preceding the date of this Agreement, taken any action which would have constituted or resulted in a "plant closing" or "mass layoff" within the meaning of the Federal Worker Adjustment and Retraining Notification Act of 1988 or any similar applicable federal, state or local law, and the Borrower has no reasonable expectation that any such action is or will be required any time prior to the Stated Maturity Date; and (d) on the date of this Agreement (i) neither the Borrower nor any of its Subsidiaries is a party to any labor dispute and (ii) there are no strikes or walkouts relating to any labor contracts to which the Borrower or any of its Subsidiaries is a party or is otherwise subject. SECTION 6.16. Pension and Welfare Plans. Each Pension Plan complies, and has been administered in compliance, in all material respects, with all applicable statutes and governmental rules and regulations; no Reportable Event has occurred and is continuing with respect to any Pension Plan; neither the Borrower nor any ERISA Affiliate has withdrawn from any Multiemployer Plan in a "complete withdrawal" or a "partial withdrawal" as defined in section 4203 or 4205 of ERISA, respectively, with respect to which the Borrower or any ERISA Affiliate has any unsatisfied liability; no steps have been instituted to terminate any Pension Plan; no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA; no condition exists or event or transaction has occurred in connection with any Pension Plan or Multiemployer Plan that is reasonably likely to have a Material Adverse Effect; and neither the Borrower nor any ERISA Affiliate is a "contributing sponsor" as defined in section 4001(a)(13) of ERISA of a "single- employer plan" as defined in section 4001(a)(15) of ERISA that has two or more contributing sponsors at least two of whom are not under common control. Except as listed in Item 6.16 ("Pension and Welfare Plans") of the Disclosure Schedule, neither the Borrower nor any ERISA Affiliate, to the extent there is joint and several liability with the Borrower to pay such benefits, has any liability to pay any welfare benefits under any employee welfare benefit plan within the meaning of section 3(l) of ERISA to former employees thereof or to current employees with respect to claims incurred after the termination of their employment other than as required by section 4980B of the Code or Part 6 of Subtitle B of Title 1 of ERISA. SECTION 6.17. Regulations G, U and X. Neither the Borrower nor any of its Subsidiaries is engaged in the business of purchasing or selling Margin Stock or extending credit to others for the purpose of purchasing or carrying Margin Stock, and no part of the proceeds of the Term Loans will be used to purchase or carry any Margin Stock or for any other purpose which would violate any of the margin regulations of the Federal Reserve Board. SECTION 6.18. Compliance. The Borrower and each of its Subsidiaries is in compliance with all statutes and governmental rules and regulations applicable to it, the noncompliance with which is reasonably likely to have a Material Adverse Effect. SECTION 6.19. Taxes. Each of the Borrower its Subsidiaries has filed all material tax returns which are required to have been filed and has paid, or made adequate provisions for the payment of, all of its Taxes which are due and payable, except such Taxes, if any, as are being contested in good faith and by appropriate proceedings and as to which such reserves or other -46- 54 appropriate provisions as may be required by GAAP have been maintained. The federal income tax liability of the Parent, the Borrower and each of its Subsidiaries has been audited by the Internal Revenue Service and has been finally determined and satisfied (or the time for audit has expired) for all tax years up to and including the tax year ended December 31, 1995. The Borrower is not aware of any proposed assessment against the Parent, the Borrower or any of its Subsidiaries for additional Taxes (or any basis for any such assessment). SECTION 6.20. Investment Company Act Representation. Neither the Borrower nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 6.21. Public Utility Holding Company Act Representation. Neither the Borrower nor any of its Subsidiaries is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 6.22. Environmental and Safety and Health Matters. The Borrower and its Subsidiaries and/or each property, operations and facility that the Borrower or any such Subsidiary owns, operates or controls (a) complies in all respects with (i) all applicable Environmental Laws, except for those laws the failure with which to comply is not reasonably likely to have a Material Adverse Effect and (ii) all applicable Occupational Safety and Health Laws, except for those laws the failure with which to comply is not reasonably likely to have a Material Adverse Effect; (b) is not subject to any judicial or administrative proceeding alleging the violation of any Environmental Law or Occupational Safety and Health Law which is reasonably likely to have a Material Adverse Effect; (c) has not received any notice (i) that it may be in violation of any Environmental Law or Occupational Safety and Health Law which is reasonably likely to have a Material Adverse Effect, (ii) threatening the commencement of any proceeding under any Environmental Law or Occupational Safety and Health Law, which is reasonably likely to have a Material Adverse Effect, or (iii) alleging that it is or may be responsible for any response, cleanup, or corrective action, including but not limited to any remedial investigation/feasibility studies, under any Environmental Law or Occupational Safety and Health Law, which, is reasonably likely to have a Material Adverse Effect; (d) to the knowledge of the Borrower is not the subject of federal or state investigation evaluating whether any investigation, remedial action or other response is needed to respond to (i) a Release or threatened Release into the environment of any Hazardous Material or the spillage, disposal or release or threatened release into the environment of any other hazardous, toxic or dangerous waste, substance or constituent, or other substance regulated under any Environmental Law which is reasonably likely to have a Material Adverse Effect or (ii) any allegedly unsafe or unhealthful condition regulated under any Environmental Law or Occupational Safety and Health Law which is reasonably likely to have a Material Adverse Effect; -47- 55 (e) has not filed any notice under or relating to any Environmental Law or Occupational Safety and Health Law indicating or reporting (i) any past or present Release into the environment of, or treatment, storage or disposal of, any Hazardous Material or spillage, disposal or release into the environment of any other hazardous, toxic or dangerous waste, substance or constituent, or other substance regulated under any Environmental Law or (ii) any potentially unsafe or unhealthful condition, in either case, which is reasonably likely to have a Material Adverse Effect, and to Borrower's knowledge, there exists no basis for such notice irrespective of whether such notice was actually filed; and (f) has no contingent liability in connection with any actual Release into the environment of, or otherwise with respect to, any Hazardous Material or spillage, disposal or release into the environment of any other hazardous, toxic or dangerous waste, substance or constituent, or other substance, whether on any premises owned or occupied by the Borrower or any Subsidiary or on any other premises, which is reasonably likely to have a Material Adverse Effect. There are no Hazardous Materials on, in or under any property or facilities owned, operated or controlled by the Borrower or any Subsidiary the presence of which is reasonably likely to have a Material Adverse Effect, including but not limited to such Hazardous Materials that may be contained in underground storage tanks, but excepting such Hazardous Materials used in accordance with all applicable laws and such Hazardous Materials used in the same manner as an ordinary consumer (e.g., gasoline in tanks of motor vehicles, small amounts of cosmetic cleaners, etc.). SECTION 6.23. Related Agreements and Transaction Documents. As of the date hereof, all representations and warranties of the Parent, the Borrower and each of their respective Subsidiaries contained in any Loan Document (including each of the Security Documents) and all representations and warranties of the Parent, the Borrower and each of their respective Subsidiaries contained in any Transaction Document (whether such representations and warranties were made to the Agent or any Lender or to another Person) are true and correct as if made on the date hereof (except for those representations and warranties which are expressly made as of another specified date) and the Borrower hereby adopts and affirms all such representations and warranties which the Borrower agrees shall be incorporated by reference herein and made a part hereof. SECTION 6.24. Holding Companies. Each of the Parent, the Borrower, PAI, BMPH, Pioneer East, TCH and Imperial is a holding company without material assets, operations or business, other than (i) in the case of the Parents, the ownership of all of the Capital Stock of the Borrower and Pioneer Water Technologies, Inc., (ii) in the case of the Borrower, all of the Capital Stock of PAI, (iii) in the case of PAI, all of the Capital Stock of its Subsidiaries, (iv) in the case TCH, all of the Capital Stock of T.C. Products, Inc. and (v) in the case of Imperial, 50% of the Capital Stock of Kenwater. None of the Parent, the Borrower, PAI, BMPH, Pioneer East, TCH and Imperial has any Indebtedness or other obligations other than, in the case of the Borrower, Indebtedness of the Borrower in respect of the Term Loans, the loans made to the Borrower pursuant to the Revolving Credit Agreement and the Senior Notes, and, in the case of PAI, BMPH, Pioneer East, TCH and Imperial, guaranties thereof. -48- 56 ARTICLE VII COVENANTS SECTION 7.1. Affirmative Covenants. The Borrower agrees with the Agents and each Lender that, until all Term Loan Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 7.1. SECTION 7.1.1. Financial Information, Reports, Notices, etc. The Borrower will furnish, or will cause to be furnished, to each Lender and each Agent copies of the following financial statements, reports, notices and information (except to the extent any such Lender shall have provided written notice to the Borrower and the Administrative Agent that it is not to receive any of the following statements, reports, notices and information): (a) Annual Audited Financial Statements. Within ninety (90) days after each Fiscal Year, a copy of the annual audited financial statements of the Parent, the Borrower and the Subsidiaries prepared on a consolidated and consolidating basis and in conformity with GAAP and certified by an independent certified public accountant who shall be satisfactory to the Agents, together with (i) a certificate from such accountant to the effect that, in making the examination necessary for the signing of such annual audit report, such accountant has not become aware of any Default or Event of Default that has occurred and is continuing and that relates to financial or other accounting matters or the covenants set forth in this Article VII or, if such accountant has become aware of any such event, describing it and (ii) if prepared in connection with the annual audit report, the annual operating statements of the Parent, the Borrower and the Subsidiaries prepared on a consolidating basis and in conformity with GAAP applied in a manner consistent with the audit report referred to in preceding clauses (a)(i), signed by the Borrower's chief financial officer or assistant treasurer. (b) Monthly Financial Statements. Within thirty (30) days after the end of each month of each Fiscal Year of the Borrower except (i) forty-five (45) days after the end of each month closing a fiscal quarter and (ii) ninety (90) days after the end of each month closing a Fiscal Year, a copy of the unaudited financial statement of the Parent, the Borrower and the Subsidiaries prepared on a consolidated and consolidating basis and in conformity with GAAP applied in a manner consistent with the audit report referred to in preceding clause (a)(i), signed by the Borrower's chief financial officer and consisting of at least a balance sheet as at the close of such month and an income statement and cash flow statement for such month and for the period from the beginning of such Fiscal Year to the close of such month, compared, in each case, to the actual results for the same period during the prior Fiscal Year and to the Borrower's budget (delivered pursuant to paragraph (c) below, for the current Fiscal Year). (c) Annual Budgets. Within thirty (30) days after the end of each Fiscal Year of the Borrower, a copy of an annual budget of the Parent for the current Fiscal Year, prepared on a consolidated and consolidating basis and in conformity with GAAP applied in a manner consistent with the prior Fiscal Year's budget, signed by the Borrower's chief financial officer or assistant treasurer and consisting of at least a balance sheet, an -49- 57 income statement and a cash flow statement, each calculated on a quarter by quarter basis. (d) Officer's Certificate. Together with the financial statements furnished by the Borrower under the preceding clauses (a) and (b), a certificate of the chief executive or financial officer or assistant treasurer of the Borrower stating that a review of the activities of the Borrower and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing officers with a view to determining whether each has kept, observed, performed and fulfilled its obligations under this Agreement and the other Loan Documents, and further stating, as to each such officer signing such certificate, that to the best of his or her knowledge each has kept, observed, performed and fulfilled each and every covenant contained in this Agreement and the other Loan Documents and is not in default in the performance or observance of any of the terms, provisions and conditions hereof or thereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each is taking or proposes to take with respect thereto). (e) SEC and Other Reports. Copies of each filing and report made by the Parent, the Borrower or any Restricted Subsidiary with or to any securities exchange or the Securities and Exchange Commission, including any registration statement and all amendments thereto filed with respect to the Senior Notes, or as required pursuant to the Senior Note Indenture, the Senior Note or any other document relating thereto, promptly upon the filing or making thereof. (f) Notice of Default. Notice of the occurrence of (i) a Default or an Event of Default or (ii) a default by the Parent, the Borrower, any other Obligor or any Restricted Subsidiary under any material note, indenture, loan agreement, mortgage, lease, deed or other material similar agreement to which the Parent, the Borrower, any other Obligor or any Restricted Subsidiary, as appropriate, is a party or by which it is bound (including any of the Loan Documents). (g) Notice of Judgment. Notice of the entry of any judgment or decree against the Parent, the Borrower, any other Obligor or any Restricted Subsidiary, if the amount of such judgment exceeds $500,000. (h) Notice of Other Indebtedness. Copies of any material amendments, waivers or consents, notices of breach or default, notices relating to the exercise or nonexercise of any remedy available to any Person, notices of indemnity or other claims, written materials relating to any dispute, written materials relating to the exercise of any rights derived from or arising in connection with any Indebtedness and other written communications of a material nature, including any communications by the Parent, the Borrower or any Restricted Subsidiary in connection with the Loan Documents other than any such notice or other written materials already sent to the Agents pursuant to any other Section of this Agreement. (i) Security Documents. Any statement, report, notice and/or information required to be delivered to the Collateral Agent pursuant to any of the Security Documents. -50- 58 (j) Other Reports. Any information required to be provided pursuant to other provisions of this Agreement, and such other reports or information from time to time reasonably requested by the Agents on behalf of itself or any Lender. SECTION 7.1.2. Corporate Existence. Subject to Section 7.2.5, the Borrower shall, subject to provisions herein, do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence and the corporate existence of each of its Subsidiaries, in accordance with their respective organizational documents (as the same may be amended from time to time) and (ii) its (and its Subsidiaries) rights (charter and statutory), licenses and franchises; provided, however, that the Borrower shall not be required to preserve any such right, license or franchise, or the corporate existence of any Subsidiary, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower and its Subsidiaries taken as a whole and that the loss thereof is not adverse in any material respect to the Lenders. SECTION 7.1.3. Maintenance of Properties. The Borrower shall, and shall cause its Restricted Subsidiaries to, maintain their respective properties and assets in normal working order and condition as of the date hereof (reasonable wear and tear excepted) and make all repairs, renewals, replacements, additions, betterments and improvements thereto, as shall be reasonably necessary for the proper conduct of the business of the Borrower and its Restricted Subsidiaries taken as a whole; provided that nothing herein shall prevent the Borrower or any of its Restricted Subsidiaries from discontinuing any maintenance of any such properties if such discontinuance is desirable in the conduct of the business of the Borrower and its Restricted Subsidiaries taken as a whole. SECTION 7.1.4. Insurance. The Borrower shall, and shall cause its Restricted Subsidiaries to, maintain liability, casualty and other insurance (subject to the customary deductibles and retentions) with responsible insurance companies in such amounts and against such risks as it customarily carried by responsible companies engaged in similar businesses and owning similar assets in the general areas in which the Borrower and its Restricted Subsidiaries operate (which may include self-insurance in comparable form to that maintained by such responsible companies). SECTION 7.1.5. Taxes. The Borrower shall, and shall cause each of its Subsidiaries to, pay prior to delinquency all material taxes, assessments and governmental levies except as are being contested in good faith and by appropriate proceedings diligently conducted and in respect of which appropriate reserves (in the good faith judgment of management of the Borrower) are being maintained in accordance with GAAP. SECTION 7.1.6. Books and Records. The Borrower will, and will cause each of its Subsidiaries to, keep books and records which accurately reflect in all material respects all of its business affairs and transactions and permit the Agents and each Lender or any of their respective representatives, at reasonable times and intervals, and upon reasonable notice, to visit all of its offices, to discuss its financial matters with its officers and, after notice to the Borrower and provision of an opportunity for the Borrower to participate in such discussion, its independent public accountant (and the Borrower hereby authorizes such independent public accountant to discuss the Borrower's financial matters with each Lender or its representatives whether or not any representative of the Borrower is present, so long as the Borrower has been afforded a reasonable opportunity to be present) and to examine, and photocopy extracts from, -51- 59 any of its books or other corporate records. The cost and expense of each such visit shall be borne by the applicable Agent or Lender, except that each Agent may make one such visit each Fiscal Year and the cost and expense thereof shall be borne by the Borrower. SECTION 7.1.7. Use of Proceeds, etc. The Borrower shall apply the proceeds of the Term Loans to fund the Acquisition and the Tender Offer and pay certain related fees and expenses. SECTION 7.1.8. Subsidiary Guarantees. (a) If (i) any Subsidiary of the Borrower becomes a Restricted Subsidiary after the Closing Date, (ii) the Borrower or any Subsidiary of the Borrower that is a Subsidiary Guarantor transfers or causes to be transferred, in one transaction or a series of related transactions, property or assets (including, without limitation, businesses, divisions, real property, assets or equipment) which in the aggregate have a value equal to or greater than 15% of the Borrower's and its Subsidiaries' total assets determined on a consolidated basis as of the time of transfer to any Subsidiary or Subsidiaries of the Borrower that is not a Subsidiary Guarantor or are not Subsidiary Guarantors, (iii) any Subsidiary of the Borrower which has a value equal to or greater than 5% of the Borrower's and its Subsidiaries' total assets determined on a consolidated basis as of the time of determination directly or indirectly guarantees or otherwise becomes obligated with respect to any Senior Indebtedness or (iv) any Subsidiary of the Borrower becomes a guarantor of the Senior Notes after the date hereof, the Borrower shall cause such Subsidiary or Subsidiaries to execute and deliver to the Administrative Agent a duly executed supplement to the Subsidiary Guaranty, substantially in the form attached thereto, pursuant to which such Subsidiary or Subsidiaries shall unconditionally guarantee, in accordance with the provisions of the Subsidiary Guaranty, all of the Borrower's obligations under this Agreement and the other Loan Documents on the same terms as the other Subsidiary Guarantors, which guarantee shall rank pari passu with Senior Indebtedness of such Subsidiary. (b) Each guarantee created pursuant to the provisions described in the foregoing paragraph shall be deemed to be a "Subsidiary Guaranty" and the issuer of each such Subsidiary Guaranty shall be referred to as a "Subsidiary Guarantor". Notwithstanding the foregoing, any Subsidiary Guaranty shall be automatically and unconditionally released and discharged upon any sale, exchange, transfer or other disposition to any Person of all of the Borrower's Equity Interest in (or if such Subsidiary is owned by a Restricted Subsidiary, of all of such Restricted Subsidiary's Equity Interest in), or all or substantially all the assets of, such Subsidiary, which is in compliance with this Agreement, including Section 7.2.6. SECTION 7.1.9. Stock Pledge Agreements. If (i) any Restricted Subsidiary of the Borrower engages in any business activity other than the holding of the Capital Stock of one or more Subsidiaries of the Borrower (or in the case of Imperial, engaging in any business activity other than the holding of its Investment in Kemwater) and (ii) such Restricted Subsidiary has a value equal to or greater than 5% of the Borrower's total assets determined on a consolidated basis as of the time of determination, then the Borrower will, and will cause the applicable Subsidiary or Subsidiaries of the Borrower (the "Pledgor Subsidiary" or "Pledgor Subsidiaries") to, execute and deliver to the Administrative Agent and the Collateral Agent one or more stock pledge agreements substantially in the form of the Stock Pledge Agreement providing for the pledge to the Collateral Agent for the benefit of (x) the Administrative Agent, for itself and the Lenders, and (y) the Trustee, for itself and the holders of Senior Notes, of all the Capital Stock of such Restricted Subsidiary held by the Borrower and the Pledgor Subsidiary or Pledgor -52- 60 Subsidiaries, together with delivery to the Collateral Agent of stock certificates evidencing such Capital Stock (together with undated stock powers executed in blank), which Capital Stock and stock powers will become "Collateral" for purposes of the Intercreditor Agreement. SECTION 7.1.10. Concerning the Collateral and the Loan Documents. (a) In order to secure the due and punctual payment of the Obligations, including principal of, premium (if any) and interest (including interest on overdue principal) on the Term Loans, when and as the same shall become due and payable, whether on the scheduled payment date therefor, at maturity, by acceleration or otherwise, and performance of all other obligations of the Borrower to the Agents and the Lenders under this Agreement and each other Loan Document and of all obligations of the Borrower's Restricted Subsidiaries under the Subsidiary Guaranty and each other Loan Document, the Borrower and the other Obligors have entered into each of the applicable Security Documents to which each is a party. (b) The Borrower shall, and shall cause PCAC and PAI to, perform at their sole cost and expense any and all acts and execute any and all documents (including, without limitation, the execution, amendment or supplementation of any financing statement and continuation statement or other statement) for filing under the provisions of the UCC and the rules and regulations thereunder, or any other statute, rule or regulation of any applicable federal, state or local jurisdiction, including any filings in local real estate land record offices, which are necessary or advisable and shall do such other acts and execute such other documents as may be required under any of the Security Documents, from time to time, in order to grant and maintain valid and perfected Liens on the Collateral in favor of the Collateral Agent in the priorities purported to be created by the Security Documents, subject only to Liens permitted under the Security Documents to be senior or pari passu to the Liens of the Collateral Agent, and to fully preserve and protect the rights of the Agents and the Lenders under this Agreement and the other Loan Documents. The Borrower shall, and shall cause PCAC and PAI to, pay and satisfy promptly all mortgage and financing and continuation statement recording and/or filing fees, charges and taxes relating to this Agreement, the Security Documents and the other Loan Documents, any amendments thereto and any other instruments of further assurance. (c) The Borrower shall, on each anniversary of the Closing Date beginning in the 1998 year and upon each delivery of a stock pledge agreement pursuant to Section 7.1.9, the Borrower shall furnish to the Administrative Agent an Opinion of Counsel, dated as of such date, either (a) to the effect that, in the opinion of such counsel, such action has been taken with respect to the recordings, registerings, filings, re-recordings, re- registerings and refilings of all financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Lien of each of the Security Documents and reciting with respect to such Liens the details of such action or referencing prior Opinions of Counsel in which such details are given, and stating that all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding twelve months fully to preserve and protect the rights of the Collateral Agent, the Lenders and the Administrative Agent hereunder and under each of the Security Documents with respect to the Liens, or (b) to the effect that, in the opinion of such counsel, no such action is necessary to maintain such Liens. SECTION 7.1.11. Maintenance of Corporate Separateness. The Borrower will, and will cause each of its Subsidiaries to, satisfy customary corporate formalities, including the holding of regular board of directors' and shareholders' meetings and the maintenance of corporate -53- 61 offices and records. Neither the Borrower nor any of its Restricted Subsidiaries shall make any payment to a creditor of any Unrestricted Subsidiary in respect of any liability of such Unrestricted Subsidiary, and no bank account of an Unrestricted Subsidiary shall be commingled with any bank account of the Borrower or any of its Restricted Subsidiaries. Any financial statements distributed to any creditors of an Unrestricted Subsidiary shall clearly establish the separateness of such Unrestricted Subsidiary from the Borrower and its Restricted Subsidiaries. Neither the Borrower nor any of its Subsidiaries shall take any action, or conduct its affairs in a manner, which is likely to result in the corporate existence of any Unrestricted Subsidiary or any Restricted Subsidiary being ignored by any court of competent jurisdiction, or in the assets and liabilities of the Borrower or any Restricted Subsidiary being substantively consolidated with those of any Unrestricted Subsidiary in a bankruptcy, reorganization or other insolvency proceeding. SECTION 7.1.12. Working Capital Line. The Borrower shall use its best efforts to maintain a revolving credit facility or similar arrangement to the extent it deems necessary based on its cash position and cash flows to fund the foreseeable capital expenditure and working capital requirements of its Restricted Subsidiaries. SECTION 7.2. Negative Covenants. The Borrower agrees with the Agents and each Lender that, until the Term Loan Commitments have terminated, and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 7.2. SECTION 7.2.1. Indebtedness. The Borrower will not, and will not permit its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become liable with respect to or become responsible for the payment of, contingently or otherwise ("incur"), any Indebtedness; provided, however, that the Borrower, or a Restricted Subsidiary of the Borrower, may incur Indebtedness if at the time of such incurrence and after giving pro forma effect thereto, the Borrower's Consolidated Cash Flow Coverage Ratio for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is incurred, calculated on a pro forma basis as if such Indebtedness was incurred on the first day of such four full fiscal quarter period, would be at least 2.0 to 1.0. For purposes of determining the Borrower's Consolidated Cash Flow Coverage Ratio, Cash Flow and Consolidated Interest Expense for all periods prior to the Closing Date shall be calculated on a consolidated basis including each of the Borrower's and its Subsidiaries' predecessors. Notwithstanding the foregoing limitations, the incurrence of the following will not be prohibited: (a) Indebtedness in respect of the Term Loans and the Subsidiary Guaranty and all other Obligations; (b) Indebtedness of the Borrower evidenced by the Senior Notes and Indebtedness of the Subsidiary Guarantors in respect of guarantees of such Senior Notes; (c) Indebtedness of the Borrower or any Restricted Subsidiary constituting Existing Indebtedness and any extension, deferral, renewal, refinancing or refunding thereof; -54- 62 (d) Indebtedness of the Borrower or any Restricted Subsidiary incurred under one or more Credit Facilities in an aggregate principal amount at any one time outstanding not to exceed the Borrowing Base at the time such Indebtedness was incurred, less the aggregate amount of all permanent repayments of revolving loans under such Credit Facilities made on account of the receipt by the Borrower or any of its Restricted Subsidiaries of proceeds from the sale of any of its assets (as expressly permitted pursuant to the terms of any Senior Indebtedness); (e) Capitalized Lease Obligations of the Borrower or any Restricted Subsidiary and Indebtedness of the Borrower or any Restricted Subsidiary secured by Liens that secure the payment of all or part of the purchase price of assets or property acquired or constructed in the ordinary course of business after the date hereof; provided, however, that the aggregate principal amount of such Capitalized Lease Obligations plus such Indebtedness of the Borrower and all of the Restricted Subsidiaries does not exceed $10,000,000 outstanding at any time; (f) Indebtedness of the Borrower to any Restricted Subsidiary or of any Restricted Subsidiary to the Borrower or another Restricted Subsidiary (but only so long as such Indebtedness is held by the Borrower or a Restricted Subsidiary); (g) Indebtedness under Hedging Obligations; provided, however, that, in the case of foreign currency exchange or similar agreements which relate to other Indebtedness, such agreements do not increase the Indebtedness of the Borrower or any Restricted Subsidiary outstanding other than as a result of fluctuations in foreign currency exchange rates, and in the case of interest rate protection agreements, only if the notional principal amount of such interest rate protection agreement does not exceed the principal amount of the Indebtedness to which such interest rate protection agreement relates; (h) Indebtedness in respect of performance, completion, guarantee, surety and similar bonds, banker's acceptances or letters of credit provided by the Borrower or any Restricted Subsidiary in the ordinary course of business; (i) in addition to any Indebtedness otherwise permitted to be incurred pursuant to the preceding clauses (a) through (h), up to $10,000,000 aggregate principal amount of Indebtedness at any one time outstanding; (j) any refinancing, refunding, deferral, renewal or extension (each, a "Refinancing") of any Indebtedness of the Borrower or any Restricted Subsidiary permitted by the first sentence of this Section or clause (b) above (the "Refinancing Indebtedness"); provided, however, that (i) such Refinancing Indebtedness does not exceed the aggregate principal amount of the Indebtedness so refinanced, plus the amount of any premium required to be paid in connection with such Refinancing in accordance with the terms of such Indebtedness or the amount of any premium reasonably determined by the Borrower as necessary to accomplish such Refinancing, plus the amount of reasonable and customary out-of-pocket fees and expenses payable in connection therewith, (ii) the Refinancing Indebtedness does not provide for any mandatory redemption, amortization or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in the Indebtedness being refinanced, refunded, deferred, renewed or extended and (iii) if the Indebtedness being -55- 63 refinanced, refunded, deferred, renewed or extended is subordinated to the Term Notes, the Refinancing Indebtedness incurred to refinance, refund, defer, renew or extend such Indebtedness is subordinated in right of payment to the Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being so refinanced, refunded, deferred, renewed or extended; and (k) Indebtedness in respect of any guarantee provided by the Borrower or any Restricted Subsidiary in respect of any other Indebtedness permitted to be incurred pursuant to this Section 7.2.1; provided, however, that in the event such Indebtedness guaranteed is subordinated in right of payment to any other Indebtedness of the obligor thereof, then such guarantee shall be subordinated to Indebtedness of such guarantor to the same extent. SECTION 7.2.2. Liens. The Borrower will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of their respective assets or properties now owned or acquired after the Closing Date, or any income or profits therefrom, excluding, however, from the operation of the foregoing any of the following: (a) Liens existing as of the Closing Date or pursuant to an agreement or document in existence on the Closing Date, in each case as set forth and described in Item 7.2.2(a) ("Existing Liens") of the Disclosure Schedule, (ii) securing the Obligations, (iii) on accounts receivable, inventory and related general intangibles securing obligations under the Revolving Credit Agreement and (iv) securing the Senior Notes to the extent referred to in the Intercreditor Agreement; (b) Permitted Liens; (c) Liens on assets or property of the Borrower, or on assets or property of Restricted Subsidiaries of the Borrower, to secure the payment of all or a part of the purchase price of assets or property acquired or constructed in the ordinary course of business after the Closing Date; provided, however, that (i) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, (ii) the Indebtedness secured by such Liens is otherwise permitted to be incurred hereunder, (iii) such Liens do not encumber any other assets or property of the Borrower or any of its Restricted Subsidiaries and (iv) the Indebtedness secured by such Liens may not be created more than 100 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to such Liens; (d) Liens on assets or property acquired by the Borrower or any Restricted Subsidiary after the date hereof; provided, however, that (i) such Liens existed on the date such assets or property were acquired and were not incurred as a result of or in anticipation of such acquisition and (ii) such Liens do not extend to or cover any assets or property of the Borrower or any of its Restricted Subsidiaries other than the assets or property so acquired; -56- 64 (e) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted hereunder and which is permitted to be refinanced hereunder; provided, however, that such Liens do not extend to or cover any assets or property of the Borrower or any of its Restricted Subsidiaries not securing the Indebtedness so refinanced; (f) Liens on assets or property of the Borrower or any Restricted Subsidiary that is subject to a Sale and Leaseback Transaction; provided, however, that the aggregate principal amount of Attributable Indebtedness in respect of all Sale and Leaseback Transactions then outstanding does not at the time such a Lien is incurred exceed $10,000,000; (g) Liens on property or shares of Capital Stock of a Person at the time such Person becomes a Restricted Subsidiary; provided, however, that such Liens are not created, incurred or assumed in contemplation of the acquisition thereof by the Borrower or a Subsidiary and; provided, further, that such Liens may not extend to any other property owned by the Borrower or a Restricted Subsidiary; (h) Liens securing Indebtedness of a Restricted Subsidiary owing to the Borrower or a Wholly-Owned Restricted Subsidiary of the Borrower; (i) Liens on inventory, accounts receivable or related general intangibles of any Restricted Subsidiary securing Indebtedness which may be incurred under clause (d) of Section 7.2.1; (j) pari passu Liens on the Collateral securing up to an aggregate principal amount of $50,000,000 of Indebtedness permitted to be incurred under the first sentence of Section 7.2.1; provided that (i) the proceeds of such Indebtedness are used to acquire or construct additional property, plant and equipment that will be utilized in one or more Related Businesses, (ii) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, and (iii) the assets or property acquired or constructed with such Indebtedness are pledged to the Collateral Agent in accordance with the Intercreditor Agreement to become part of the Collateral securing the Obligations and the Senior Notes on a pari passu basis with such Indebtedness, and in connection therewith (A) the holders of such Indebtedness or any trustee or other representative thereof becomes party to the Intercreditor Agreement, as amended, and is authorized to exercise rights and remedies in accordance therewith, and (B) the Collateral Agent receives an endorsement to its title insurance policies relating to the mortgage liens constituting part of the Collateral insuring the continuing priority of such mortgage liens as set forth in the title insurance policies; and (k) Liens on assets or property of the Borrower, or on assets or property of Restricted Subsidiaries of the Borrower, acquired or constructed after the date hereof other than in the ordinary course of business and other than assets or property acquired or constructed in replacement, repair or improvement of any assets or property constituting Collateral; provided, however, that (i) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or -57- 65 property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, (ii) the Indebtedness secured by such Liens is otherwise permitted to be incurred hereunder and (iii) such Liens do not encumber any Collateral. SECTION 7.2.3. Restricted Payments, etc. The Borrower will not, nor will it cause, permit or suffer any Restricted Subsidiary to, (i) declare or pay any dividends or make any other distributions (including through mergers, liquidations or other transactions commonly known as leveraged buyouts) on any class of Equity Interests of the Borrower or such Restricted Subsidiary (other than dividends or distributions payable or paid by a Wholly-Owned Restricted Subsidiary of the Borrower on account of its Equity Interests held by the Borrower or another Restricted Subsidiary or payable or paid in shares of Capital Stock of the Borrower other than Redeemable Stock), (ii) make any payment on account of, or set apart money for a sinking or other analogous fund for, the purchase, redemption or other retirement of such Equity Interests, (iii) purchase, defease, redeem or otherwise retire any Subordinated Indebtedness or (iv) make any Restricted Investment, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any Restricted Subsidiary (all of the foregoing being called "Restricted Payments"), unless, (x) in the case of a dividend, such dividend is payable not more than 60 days after the date of declaration and (y) after giving effect to such proposed Restricted Payment, all the conditions set forth in clauses (1) through (3) below are satisfied (A) at the date of declaration (in the case of any dividend), (B) at the date of such setting apart (in the case of any such fund) or (C) on the date of such other payment or distribution (in the case of any other Restricted Payment) (each such date being referred to as a "Restricted Payment Computation Date"): (1) no Default or Event of Default has occurred and is continuing or would result from the making of such Restricted Payment; (2) at the Restricted Payment Computation Date for such Restricted Payment and after giving effect to such Restricted Payment on a pro forma basis, the Borrower or such Restricted Subsidiary could incur $1.00 of additional Indebtedness pursuant to the first sentence of Section 7.2.1; and (3) the aggregate amount of Restricted Payments declared, paid or distributed subsequent to the date hereof (including the proposed Restricted Payment) will not exceed the sum of (i) 50% of the cumulative Consolidated Net Income of the Borrower for the period subsequent to July 1, 1997 to and including the last day of the Borrower's last fiscal quarter ending prior to the Restricted Payment Computation Date (each such period to constitute a "Restricted Payment Computation Period") (or, if such aggregate cumulative Consolidated Net Income is a loss, minus 100% of such loss of the Borrower during the Restricted Payment Computation Period), (ii) the aggregate Net Cash Proceeds of the issuance or sale or the exercise (other than to a Subsidiary or an employee stock ownership plan or other trust established by the Borrower or any of its Subsidiaries for the benefit of their employees) of the Borrower's Equity Interests (other than Redeemable Stock) subsequent to the Closing Date, (iii) the aggregate Net Cash Proceeds of the issuance or sale (other than to a Subsidiary) of any debt securities of the Borrower that have been converted into or exchanged for Equity Interests (other than Redeemable Stock) of the Borrower to the extent such debt securities were originally issued or sold for cash, plus the aggregate Net Cash Proceeds received by the Borrower at the time of such conversion or exchange, in each case subsequent to the Closing Date, (iv) cash -58- 66 contributions to the Borrower's capital subsequent to the Closing Date and (v) $5,000,000. If no Default or Event of Default has occurred and is continuing or would occur as a result thereof, the prohibitions set forth above are subject to the following exceptions: (A) Restricted Investments in obligations representing a portion of the proceeds of any Asset Sale consummated in accordance with Section 7.2.6; provided, however, that such Restricted Investments will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above; (B) any purchase or redemption of Equity Interests or Subordinated Indebtedness made by exchange for, or out of the proceeds of the substantially concurrent sale of, Equity Interests of the Borrower (other than Redeemable Stock and other than Equity Interests issued or sold to a Subsidiary or an employee stock ownership plan); provided, however, that (x) such purchase or redemption will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above and (y) the Net Cash Proceeds from such sale will be excluded for purposes of clause (3) above to the extent utilized for purposes of such purchase or redemption; (C) any purchase or redemption of Subordinated Indebtedness of the Borrower made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Indebtedness of the Borrower or any Restricted Subsidiary which is permitted to be issued pursuant to Section 7.2.1; provided, however, that such purchase or redemption will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above; (D) the repurchase, redemption or other acquisition or retirement for value of Capital Stock of the Borrower or the Parent held by management or other employees of the Borrower, the Parent or any Restricted Subsidiary pursuant to any shareholders agreement, management or employee stock option agreement or management or employee equity subscription agreement, in accordance with the provisions of any such arrangement, in an amount not greater than $500,000 in any calendar year plus the portion of any such amounts which remains unused at the end of the two prior calendar years, but in no event to exceed $1,500,000 in any calendar year; provided, however, that any such repurchase, redemption, acquisition or retirement for value will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above; (E) payments to the Parent pursuant to any tax sharing arrangement so long as payments thereunder do not exceed the amount of the Borrower and its consolidated subsidiaries' share of Federal and state income taxes actually paid or to be paid by the Parent; provided, however, that such payments will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above; (F) payments to the Parent to perform accounting, legal, corporate reporting and administrative functions in the ordinary course of business in an amount not greater than $500,000 in any calendar year, or to pay required fees in connection with the Acquisition and related transactions, including the registration under applicable laws and regulations of its debt or equity securities issued in connection therewith; provided, however, that such payments will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above; and (G) Investments described in clause (vi) of the definition of Permitted Investments; provided, however, that such Investments will be included in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above. For purposes of this Section, (a) the amount of any Restricted Payment declared, paid or distributed in property of the Borrower or any Restricted Subsidiary will be deemed to be the net book value of any such property that is intangible property and the Fair Market Value (as determined by and set forth in a resolution of the Board of Directors) of any such property that is -59- 67 tangible property at the Restricted Payment Computation Date, in each case, after deducting related reserves for depreciation, depletion and amortization; (b) the amount of any Restricted Payment declared, paid or distributed in obligations of the Borrower or any Restricted Subsidiary will be deemed to be the principal amount of such obligations as of the date of the adoption of a resolution by the board of directors of the Borrower or such Restricted Subsidiary authorizing such Restricted Payment; and (c) a distribution to holders of the Borrower's Equity Interests of (i) shares of Capital Stock or other Equity Interests of any Restricted Subsidiary of the Borrower or (ii) other assets of the Borrower, without, in either case, the receipt of equivalent consideration therefor will be regarded as the equivalent of a cash dividend equal to the excess of the Fair Market Value of the Equity Interests or other assets being so distributed at the time of such distribution over the consideration, if any, received therefor. Not later than the date of the making of any such Restricted Payment, the Borrower shall deliver to the Administrative Agent a certificate of an Authorized Officer certifying that such Restricted Payment is permitted, attaching a copy of the applicable resolution of the Board of Directors pursuant to which the value of the Restricted Payment to be made was determined and setting forth the basis upon which the calculations required by this Section were computed. SECTION 7.2.4. Payment Restrictions Affecting Restricted Subsidiaries. The Borrower will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distribution to the Borrower or its Restricted Subsidiaries on its Equity Interests, (ii) pay any Indebtedness owed to the Borrower or any other Restricted Subsidiary, (iii) make loans or advances to the Borrower or any other Restricted Subsidiary or (iv) transfer any of its property or assets to the Borrower or any other Restricted Subsidiary, except: (a) consensual encumbrances or restrictions contained in or created pursuant to the Revolving Credit Agreement, the Security Documents, the Intercreditor Agreement and other Existing Indebtedness; (b) consensual encumbrances or restrictions in the Senior Notes (if any) and the Senior Note Indenture; (c) any restriction, with respect to a Restricted Subsidiary of the Borrower that is not a Subsidiary of the Borrower on the Closing Date, in existence at the time such entity becomes a Restricted Subsidiary of the Borrower; provided that such encumbrance or restriction is not created in anticipation of or in connection with such entity becoming a Subsidiary of the Borrower and is not applicable to any Person or the properties or assets of any Person other than a Person that becomes a Subsidiary; (d) any encumbrances or restrictions pursuant to an agreement effecting a refinancing of Indebtedness referred to in clause (a) or (c) of this Section or contained in any amendment to any agreement creating such Indebtedness, provided that the encumbrances and restrictions contained in any such refinancing or amendment are not materially more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Borrower) than those provided for in such Indebtedness being refinanced or amended; -60- 68 (e) encumbrances or restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Closing Date pursuant to Section 7.2.1, provided that any such encumbrances or restrictions are not materially more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Borrower) than the most restrictive of those provided for in the Indebtedness referred to in clause (a) or (c) of this Section; (f) any such encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease; (g) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary in compliance with the provisions hereof pending the closing of such sale or disposition; or (h) any encumbrance or restriction due to applicable law. SECTION 7.2.5. Consolidation, Merger, etc. (a) The Borrower will not consolidate with or merge into, or sell, assign, convey, lease or transfer all or substantially all of its assets and those of its Subsidiaries taken as a whole to, any Person, unless (i) the resulting, surviving or transferee Person expressly assumes all the obligations of the Borrower under this Agreement, the Term Notes and each other Loan Document to which the Borrower is a party pursuant to amendments in form and substance reasonably satisfactory to the Administrative Agent and the Required Lenders; (ii) such Person is organized and existing under the laws of the United States of America, a state thereof or the District of Columbia; (iii) at the time of the occurrence of such transaction and after giving effect to such transaction on a pro forma basis, such Person could incur $1.00 of additional Indebtedness pursuant to the first sentence of Section 7.2.1 (assuming a market rate of interest with respect to such additional Indebtedness); (iv) at the time of the occurrence of such transaction and after giving effect to such transaction on a pro forma basis, the Consolidated Net Worth of such Person is equal to or greater than the Consolidated Net Worth of the Borrower immediately prior to such transaction; (v) each Subsidiary Guarantor, to the extent applicable, will acknowledge and confirm in writing that its Subsidiary Guaranty will apply to such Person's obligations under this Agreement, the Term Notes and each other Loan Document to which it is (or will become) a party; and (vi) immediately before and immediately after giving effect to such transaction and treating any Indebtedness which becomes an obligation of the Borrower or any of its Restricted Subsidiaries or of such Person as a result of such transaction as having been incurred by the Borrower or such Restricted Subsidiary or such Person, as the case may -61- 69 be, at the time of such transaction, no Default or Event of Default shall have occurred and be continuing. The Borrower shall deliver to the Administrative Agent prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel, covering clauses (i), (ii), (v) and (vi) above, stating that the proposed transaction and such amendments comply with this Agreement. (b) No Subsidiary Guarantor will, and the Borrower will not permit a Subsidiary Guarantor to, in a single transaction or series of related transactions merge or consolidate with or into any other Person (other than the Borrower or any other Subsidiary Guarantor), or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any Person (other than the Borrower or any other Subsidiary Guarantor) unless at the time and giving effect thereto: (i) either (1) such Subsidiary Guarantor is the continuing corporation or (2) the Person (if other than such Subsidiary Guarantor) formed by such consolidation or into which such Subsidiary Guarantor is merged or the Person which acquires by sale, assignment, conveyance, transfer, lease or disposition the properties and assets of such Subsidiary Guarantor is a corporation duly organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and expressly assumes all the obligations of such Guarantor under the Subsidiary Guaranty and each other Loan Document to which it is a party pursuant to amendments in form and substance reasonably satisfactory to the Administrative Agent and the Required Lenders; and (ii) immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. Such Subsidiary Guarantor shall deliver to the Administrative Agent prior to the consummation of the proposed transaction, in form and substance reasonably satisfactory to the Administrative Agent, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or disposition and such amendments, if required, comply with this Agreement. The provisions of this paragraph (b)will not apply to any transaction (including any Asset Sale made in accordance with Section 7.2.6) with respect to any Subsidiary Guarantor if the Guaranty of such Subsidiary Guarantor is released in connection with such transaction in accordance with the applicable provisions of this Agreement and the other Loan Documents. Upon any sale, exchange, transfer or other disposition to any Person of all of the Borrower's or a Restricted Subsidiary's Equity Interests in, or all or substantially all of the assets of, any Subsidiary Guarantor which is in compliance with this Agreement and the other Loan Documents, such Subsidiary Guarantor will be released from all its obligations under the Subsidiary Guaranty. (c) Upon any consolidation or merger, or any sale, assignment, conveyance, transfer or disposition of all or substantially all of the properties and assets of the Borrower or any Subsidiary Guarantor in accordance with the foregoing provisions of this Section 7.2.5, the successor Person formed by such consolidation or into which the Borrower or such Subsidiary Guarantor, as the case may be, is merged or the successor Person to which such sale, assignment, conveyance, transfer, lease or disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Borrower or such Subsidiary Guarantor, as the case may be, under this Agreement, the Term Notes and/or the Subsidiary Guaranty, as the case may be, with the same effect as if such successor had been named as the Borrower or such Subsidiary Guarantor, as the case may be, herein, in the Term Notes and/or in the Subsidiary Guaranty, as the case may be. When a successor assumes all the obligations of its predecessor under this Agreement, the Term Notes or the Subsidiary Guaranty, as the case may be, the predecessor -62- 70 shall be released from those obligations; provided that in the case of a transfer by lease, the predecessor shall not be released from the payment of principal and interest on, or any other Obligation relating to, this Agreement, the Term Notes or the Subsidiary Guaranty, as the case may be. SECTION 7.2.6. Asset Dispositions, etc. (a) The Borrower will not, and will not permit any Restricted Subsidiary to, make any Asset Sale (other than to the Borrower or other Restricted Subsidiary) unless (i) the Borrower or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed of, and at least 80% of the consideration received by the Borrower or such Restricted Subsidiary from such Asset Sale is in the form of cash and no portion thereof shall consist of inventory or accounts receivable or other property that would become subject to a Lien held by any other creditor of the Borrower or of any Restricted Subsidiary of the Borrower; provided, however, that the amount of any cash equivalent or note or other obligation received by the Borrower or such Restricted Subsidiary from the transferee in any such transaction that is converted within 90 days by the Borrower or such Restricted Subsidiary into cash will be deemed upon such conversion to be cash for purposes of this provision; (ii) to the extent such Asset Sale involves Collateral, (x) the consent of the Required Lenders shall be obtained prior to the consummation of such sale and (y) the Borrower shall cause the aggregate cash proceeds received by the Borrower or such Restricted Subsidiary in respect of such Asset Sale which are allocated to the Collateral, net of the items set forth in clauses (i) through (vi) of the definition of Net Proceeds (the "Collateral Proceeds") to be deposited with the Collateral Agent in the Intercreditor Collateral Account as and when received by the Borrower or any of its Restricted Subsidiaries and shall otherwise comply with the Intercreditor Agreement provided, that no Senior Indebtedness other than the Obligations, the Senior Notes or Indebtedness described in clause (j) of Section 7.2.2 may be permanently repaid or prepaid out of, or on account of, any Collateral Proceeds; and (iii) the Net Proceeds received by the Borrower or such Restricted Subsidiary from such Asset Sale are applied in accordance with the following paragraphs. (b) When the aggregate amount of Net Proceeds from all Asset Sales since the Closing Date exceeds $35,000,000, the Borrower shall apply, subject to Section 3.1.2 and the provisions, if applicable, of the Intercreditor Agreement, 100% of such Net Proceeds in excess of $35,000,000 (including, without limitations, 100% of the Net Proceeds of each Asset Sale subsequent to the Asset Sale which results in Net Proceeds from all Asset Sales since the date hereof exceeding $35,000,000) to prepay the Term Loans on or prior to the tenth Business Day following the date on which such Net Proceeds are received by the Borrower or any of its Restricted Subsidiaries at a price equal to 100% of the principal amount thereof, plus accrued interest thereon to the date of prepayment. (c) If all or a portion of the Net Proceeds of any Asset Sale are not required to be applied to prepay the Term Loans pursuant to the preceding paragraph (b), then the Borrower may, within 365 days of such Asset Sale, invest such Net Proceeds in the Borrower or in one or more Restricted Subsidiaries of the Borrower engaged in a Related Business. The amount of such Net Proceeds not used to or invested as set forth in this paragraph shall be applied by the Borrower, subject to Section 3.1.2 and the provisions, if applicable, of the Intercreditor Agreement, to the prepayment of the Term Loans on or prior to the tenth Business Day following the date such Net Proceeds are not so used or invested at a price equal to 100% of the principal amount thereof, plus accrued interest thereon to the date of prepayment; provided, however, that to the extent -63- 71 such Net Proceeds are subject to Section 1009 of the Senior Note Indenture the principal amount of Term Loans required to be prepaid on account of such Net Proceeds shall not exceed the Pro Rata Share (as defined in the Intercreditor Agreement) of such Net Proceeds applicable to the Term Loans. (d) Until such time as the Net Proceeds from any Asset Sale are applied in accordance with this Section, such Net Proceeds will be segregated from the other assets of the Borrower and its Subsidiaries and invested in cash or Eligible Investments, except that the Borrower or any Restricted Subsidiary may use any Net Proceeds pending the utilization thereof in the manner (and within the time period) described above, and (except as to Collateral Proceeds) to repay revolving loans (under the Revolving Credit Agreement or otherwise) without a permanent reduction of the commitment thereunder. (e) The Borrower will not, and will not permit any of its Restricted Subsidiaries to, create or permit to exist or become effective any consensual restriction other than restrictions not more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Borrower) than those in effect under Existing Indebtedness and the Revolving Credit Agreement that would materially impair the ability of the Borrower to comply with the provisions of this Section. (f) If at any time any non-cash consideration (other than any such consideration consisting of inventory, accounts receivable and certain related assets securing or permitted to secure the Revolving Credit Agreement) is received by the Borrower or any Restricted Subsidiary, as the case may be, in connection with any Asset Sale of assets which includes Collateral, such non- cash consideration shall be made subject to the Lien of the Security Documents in the manner contemplated in the Intercreditor Agreement to the extent of the purchase price allocated to the Collateral. If and when any such non-cash consideration received from any Asset Sale (whether or not relating to Collateral) is converted into or sold or otherwise disposed of for cash, then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Proceeds thereof shall be applied in accordance with this Section 7.2.6. (g) All Insurance Proceeds and all Net Awards required to be delivered to the Collateral Agent pursuant to any Security Document shall constitute Trust Moneys and shall be delivered by the Borrower or a Restricted Subsidiary, as the case may be, to the Collateral Agent contemporaneously with receipt by the Borrower or such Restricted Subsidiary and be deposited into the Intercreditor Collateral Account and applied in accordance with the applicable provisions of the Intercreditor Agreement. Insurance Proceeds and Net Awards so deposited that may be applied by the Borrower or a Restricted Subsidiary to effect a Restoration of the affected Collateral under the applicable Security Document may be withdrawn from the Intercreditor Collateral Account only in accordance with the applicable provisions of the Intercreditor Agreement. Insurance Proceeds and Net Awards so deposited that are not applied to effect a Restoration of the affected Collateral under the applicable Security Document may only be withdrawn in accordance with applicable provisions of the Intercreditor Agreement. -64- 72 SECTION 7.2.7. Modification of Certain Agreements. The Borrower will not, and will not permit any Restricted Subsidiary to, amend, modify or supplement, or permit or consent to any amendment, modification or supplement of, (i) the Security Documents in any manner or to any extent that would constitute an Event of Default hereunder or under the Security Documents (provided that this Agreement and the Security Documents may be amended, modified or supplemented as set forth in Section 10.1), (ii) the Purchase Agreement or any Acquisition Agreement, except to the extent such amendment, modification or supplement would not have an adverse effect on the Lenders, (iii) the Senior Notes or the Senior Note Indenture, except to the extent such amendment, modification or supplement would not have a material adverse effect on the Lenders (it being acknowledged by the Borrower that, without limitation, any increase in the interest rate on the Senior Notes, any reduction in the tenor or average life thereof and any modification of (including any addition to) the covenants, defaults and remedies set forth therein (without a corresponding modification to the covenants, defaults, defaults and remedies applicable to the Obligations) which make such provisions more burdensome as a whole to the Borrower and the Subsidiary Guarantors shall in each case be deemed to be materially adverse to the Lenders) or (iv) the Revolving Credit Agreement, except to the extent such amendment, modification or supplement would not have a material adverse effect on the Lenders (it being acknowledged by the Borrower that the extension or similar modification of any grace period set forth therein shall in each case be deemed to be materially adverse to the Lenders). SECTION 7.2.8. Transactions with Affiliates. (a) The Borrower and its Restricted Subsidiaries will not, directly or indirectly, enter into any transaction or series of related transactions with or for the benefit of any of their respective Affiliates other than with the Borrower or any Restricted Subsidiaries, except on an arm's-length basis and if (x)(i) in the case of any such transaction in which the aggregate rental value, remuneration or other consideration (including the value of a loan), together with the aggregate rental value, remuneration or other consideration (including the value of a loan) of all such other transactions consummated in the year during which such transaction is proposed to be consummated, exceeds $750,000, the Borrower delivers Board Resolutions to the Administrative Agent evidencing that the Board of Directors and the Independent Directors that are disinterested each have (by a majority vote) determined in good faith that the aggregate rental value, remuneration or other consideration (including the value of any loan) inuring to the benefit of such Affiliate from any such transaction is not greater than that which would be charged to or extended by the Borrower or its Subsidiaries, as the case may be, on an arm's-length basis for similar properties, assets, rights, goods or services by or to a Person not affiliated with the Borrower or its Subsidiaries, as the case may be, and (ii) in the case of any such transaction in which the aggregate rental value, remuneration or other consideration (including the value of any loan), together with the aggregate rental value, remuneration or other consideration (including the value of any loan) of all such other transactions consummated in the year during which such transactions are proposed to be consummated, exceeds $7,500,000, the Borrower delivers to the Administrative Agent Board Resolutions as described in clause (x)(i) above and an opinion of a nationally recognized investment banking firm, unaffiliated with the Borrower and the Affiliate which is party to such transaction, to the effect that the aggregate rental price, remuneration or other consideration (including the value of a loan) inuring to the benefit of such Affiliate from any such transaction is not greater than that which would be charged to or extended by the Borrower or its Subsidiaries, as the case may be, on an arm's-length basis for similar properties, assets, rights, goods or services by or to a Person not affiliated with the Borrower or its Subsidiaries, as the case may be, and (y) all such transactions referred to in clauses (x)(i) and (ii) above are entered -65- 73 into in good faith. Any transaction required to be approved by Independent Directors pursuant to the preceding paragraph must be approved by at least one such Independent Director. (b) The provisions of the preceding paragraph do not prohibit (i) any Restricted Payment permitted to be paid pursuant to Section 7.2.3, (ii) any Investment made in Kemwater during a period of three years following the Closing Date, provided that such Investment matures or is required to be redeemed within one year of its being made, (iii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iv) loans or advances to employees in the ordinary course of business consistent with past practices, not to exceed $500,000 aggregate principal amount outstanding at any time, (v) the payment of fees and compensation to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Borrower or any of its Subsidiaries, as determined by the board of directors of the Borrower or any of its Subsidiaries in good faith and (vi) Existing Affiliate Agreements, including amendments thereto entered into after the Closing Date provided that the terms of any such amendment either (A) are not, in the aggregate, less favorable to the Borrower than the terms of such agreement prior to such amendment, or (B) if such terms are, in the aggregate, less favorable to the Borrower, such amendment satisfies the requirements of the preceding paragraph. SECTION 7.2.9. Impairment of Security Interest. (a) The Borrower will not, and will not cause or permit any Restricted Subsidiaries to, take or omit to take any action which action or omission might or would have the result of affecting or impairing the Liens and security interest in favor of the Collateral Agent for the benefit of the Lenders with respect to the Collateral and the Borrower will not grant to any Person, or suffer any Person to have any interest whatsoever in the Collateral, in each case other than as otherwise permitted by this Agreement or the Security Documents. (b) The Borrower will not, and will not cause or permit any Restricted Subsidiaries to, enter into any agreement or instrument that by its terms requires that the proceeds received from any sale of Collateral be applied to repay, redeem, defease or otherwise acquire or retire any Indebtedness of any Person, other than pursuant to this Agreement, the Senior Note Indenture or any instrument governing Indebtedness permitted to be secured by a Lien on the Collateral pursuant to Section 7.2.2. A release of any of the Collateral strictly in accordance with the terms and conditions of this Agreement and the Security Documents will not be deemed for any purpose to be an impairment of security under this Agreement. SECTION 7.2.10. Stock of Subsidiaries. The Borrower (a) will not, and will not permit any Wholly-Owned Restricted Subsidiary of the Borrower to, transfer, convey, sell or otherwise dispose of any Capital Stock of any Wholly- Owned Restricted Subsidiary of the Borrower (other than All-Pure and its Subsidiaries) to any Person (other than the Borrower or a Wholly-Owned Restricted Subsidiary of the Borrower), unless (i) such transfer, conveyance, sale or other disposition is of all the Capital Stock of such Wholly-Owned Restricted Subsidiary and (ii) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 7.2.6, and (b) will not permit any Wholly-Owned Restricted Subsidiary of the Borrower (other than All-Pure and its Subsidiaries) to issue any of its Equity Interests (other than, if necessary, Capital Stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, to the extent mandated -66- 74 by applicable law) to any Person other than to the Borrower or a Wholly-Owned Restricted Subsidiary of the Borrower. SECTION 7.2.11. Sale and Leaseback. The Borrower will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction unless (i) at the time of the occurrence of such transaction and after giving effect to such transaction and (x) in the case of a Sale and Leaseback Transaction which is a Capitalized Lease Obligation, giving effect to the Indebtedness in respect thereof, and (y) in the case of any other Sale and Leaseback Transaction, giving effect to the Attributable Indebtedness in respect thereof, the Borrower or such Restricted Subsidiary could incur $1.00 of additional Indebtedness pursuant to the first sentence of Section 7.2.1, (ii) at the time of the occurrence of such transaction, the Borrower or such Restricted Subsidiary could incur Indebtedness secured by a Lien on property in a principal amount equal to or exceeding the Attributable Indebtedness in respect of such Sale and Leaseback Transaction pursuant to Section 7.2.2, and (iii) the transfer of assets in such Sale and Leaseback Transaction is permitted by, and the Borrower applies the proceeds of such transaction in compliance, with Section 7.2.6. SECTION 7.2.12. Limitation on Applicability of Certain Covenants. Notwithstanding anything to the contrary herein, the covenants set forth in Sections 7.2.1, 7.2.2, 7.2.3, 7.2.4, 7.2.6, and 7.2.8 hereof shall not apply to transactions effected pursuant to and in accordance with the Contingent Payment Agreement and amounts related to such transactions shall not be required to be included in any calculation required by any such covenant. Such transactions include (i) any payment made by the Borrower or a Restricted Subsidiary, (ii) any assets or property transferred by the Borrower or a Restricted Subsidiary, (iii) the application of any proceeds received by the Borrower or any Restricted Subsidiary in connection with any transfer of assets or property made by such Person, (iv) any escrow or segregation of moneys to be paid by the Borrower or a Restricted Subsidiary, (v) any Investment of such escrowed or segregated moneys by the Borrower or a Restricted Subsidiary or any other Investment under the Contingent Payment Agreement, (vi) any obligation of the Borrower or a Restricted Subsidiary to make any such payments or to effect any such escrow or segregation of moneys, (vii) any Indebtedness incurred by the Borrower or a Restricted Subsidiary that is non-recourse to the assets of the Borrower, such Restricted Subsidiary or any other Restricted Subsidiary, other than the borrower's interest in Basic Investments, Inc., Victory Valley Land Company, L.P., the Excess Land and/or any other assets or funds held under the Contingent Payment Agreement, and as to which neither the Borrower nor any Restricted Subsidiary (other than the borrower) provides credit support or is directly or indirectly liable, or (viii) any Lien incurred by the Borrower or any Restricted Subsidiary in connection with Indebtedness described in clause (vii) above that does not extend to assets of the Borrower or any Restricted Subsidiary other than such Person's interest in Basic Investments, Inc., Victory Valley Land Company, L.P., the Excess Land and/or any other assets or funds held under the Contingent Payment Agreement. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. Listing of Events of Default. Each of the following events or occurrences described in this Section 8.1 shall constitute an "Event of Default". -67- 75 SECTION 8.1.1. Non-Payment of Obligations. (a) The Borrower shall default in the payment or prepayment of any principal of, or premium with respect to, any Term Loan when due or (b) any Obligor (including the Borrower) shall default (and such default shall continue unremedied for a period of five Business Days) in the payment when due of any interest or fee with respect to any Term Loan or any other monetary Obligation. SECTION 8.1.2. Breach of Warranty. Any representation or warranty of the Borrower, any other Obligor or the Parent made or deemed to be made hereunder or in any other Loan Document executed by it or any other writing or certificate (including each Closing Date Certificate) furnished by or on behalf of the Borrower, any other Obligor or Parent to any Agent, the Arranger or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article V) is or shall be incorrect when made in any material respect. SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations. Any Obligor (including the Borrower) shall default in the due performance and observance of any of its obligations under Sections 7.1.7, 7.1.9, 7.2.1, 7.2.2, 7.2.3, 7.2.5, 7.2.6, 7.2.10 or 7.2.11. SECTION 8.1.4. Non-Performance of Other Covenants and Obligations. Any Obligor (including the Borrower) shall default in the due performance and observance of any other agreement contained herein or in any other Loan Document executed by it, and such default shall continue unremedied for a period of 30 days after written notice thereof shall have been given to the Borrower by the Administrative Agent at the direction of the Required Lenders specifying such default and demanding that it be remedied. SECTION 8.1.5. Disaffirmation of Obligations. (a) The Borrower shall either deny or disaffirm its obligations under this Agreement or any other Loan Document or (b) any Subsidiary Guarantor or other Obligor shall either deny or disaffirm its obligations under the Subsidiary Guarantor or any other Loan Document executed by it. SECTION 8.1.6. Effectiveness and Enforceability of Guarantees. The Subsidiary Guaranty for any reason ceases to be, or is asserted in writing by any Subsidiary Guarantor or the Borrower not to be, in full force and effect and enforceable in accordance with its terms, except to the extent contemplated in the Subsidiary Guaranty). SECTION 8.1.7. Default on Other Indebtedness. A default shall occur (i) in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness, other than Indebtedness described in Section 8.1.1, of the Borrower or any of its Subsidiaries having a principal amount in excess of $5,000,000 or (ii) a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity. SECTION 8.1.8. Judgments. A final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Borrower or any of its Restricted Subsidiaries and such judgment or judgments remain undischarged, unbonded or unstayed for a period of sixty days, provided that the aggregate of all such judgments (other than -68- 76 any judgment as to which, and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) equals or exceeds $5,000,000. SECTION 8.1.9. Bankruptcy, Insolvency, etc. (a) The Borrower, any Subsidiary Guarantor or any other Restricted Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case in which it is a debtor, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) admits in writing its inability to pay debts as the same become due; or (b) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Borrower, any Subsidiary Guarantor or any other Restricted Subsidiary in an involuntary case in which it is a debtor, (ii) appoints a Custodian of the Borrower, any Subsidiary Guarantor or any other Restricted Subsidiary or for all or substantially all of their property, (iii) orders the liquidation of the Borrower, any Subsidiary Guarantor or any other Restricted Subsidiary, and the order or decree remains unstayed and in effect for sixty days. SECTION 8.1.10. Impairment of Security, etc. Any of the Security Documents ceases to give the Collateral Agent a valid and perfected Lien of the priority required thereby or the rights, powers and privileges purported to be created thereby (other than in accordance with their respective terms), or any of the Security Documents is declared null and void, or the Borrower, PCAC, PAI or any other Obligor denies any of its obligations under any of the Security Documents or any Collateral becomes subject to any Lien other than the Liens created or permitted by the Security Documents or this Agreement. SECTION 8.2. Action if Bankruptcy, etc. If any Event of Default described in clause (a) or (b) of Section 8.1.9 shall occur the Term Loan Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Term Loans and all other Obligations shall automatically be and become immediately due and payable, without notice or demand. -69- 77 SECTION 8.3. Action if Other Event of Default. If any Event of Default (other than an Event of Default described in clause (a) or (b) of Section 8.1.9) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Administrative Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare all or any portion of the outstanding principal amount of the Term Loans and other Obligations to be due and payable and/or declare the Term Loan Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Term Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Term Loan Commitments shall terminate. ARTICLE IX THE AGENTS SECTION 9.1. Appointment of Agents. Each Lender hereby irrevocably appoints DLJ as Syndication Agent, Salomon as Documentation Agent and BofA as its Administrative Agent under and for purposes of this Agreement, the Term Notes and each other Loan Document. Each Lender authorizes the Administrative Agent to act on behalf of such Lender under this Agreement, the Term Notes and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by the Administrative Agent (with respect to which the Administrative Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. The provisions of this Article IX are solely for the benefit of the Agents and Lenders, and neither the Borrower nor any other Obligor shall have any rights as a third-party beneficiary of any of the provisions hereof other than with respect to an Agent's resignation. In performing their functions and duties under this Agreement and each other Loan Document, the Agents shall act solely as agents of the Lenders and do not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for the Borrower or any other Obligor. SECTION 9.2. Nature of Duties of the Agents. The Agents shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement and each other Loan Document. Neither the Agents nor any of their officers, directors, employees or agents shall be liable for any action taken or omitted by it as such hereunder or under each other Loan Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Agents shall be mechanical and administrative in nature; the Agents shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any other Loan Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agents any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. No duty to act, or refrain from acting, and no other obligation whatsoever, shall be implied on the basis of or imputed in respect of any right, power or authority granted to any Agent or shall become effective in the event of any temporary or partial exercise of such rights, power or authority. -70- 78 SECTION 9.3. General Immunity. Neither the Agents, the Arranger nor any of their directors, officers, agents, attorneys or employees shall be liable to any Lender for any action taken or omitted to be taken by it or them under this Agreement or any other Loan Document or in connection herewith or therewith except for its or their own willful misconduct or gross negligence. Without limiting the generality of the foregoing, the Agents and the Arranger: (i) shall not be responsible to the Lenders for any recitals, statements, warranties or representations under this Agreement or any other Loan Document or any agreement or document relative hereto or thereto or for the financial or other condition of any Obligor, (ii) shall not be responsible for the authenticity, accuracy, completeness, value, validity, effectiveness, due execution, legality, genuineness, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or any other agreements or any assignments, certificates, requests, financial statements, projections, notices, schedules or opinions of counsel executed and delivered pursuant hereto or thereto, (iii) shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of Obligors or of any of the terms of any such agreement by any party hereto or thereto and shall have no duty to inspect the property (including the books and records) of any Obligor, (iv) shall have no obligation whatsoever to the Lenders or to any other Person to assure that the Collateral exists or is owned by the Borrower or another Obligor or is cared for, protected or insured or that the Liens granted to the Administrative Agent herein or in any other Loan Document or pursuant hereto or thereto have been properly or sufficiently or lawfully created, perfected, protected, enforced, realized upon or are entitled to any particular priority, and (v) shall incur no liability under or in respect of this Agreement or any other Loan Document or any other document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable, telex, telecopier or similar form of facsimile transmission) believed by the Agents to be genuine and signed or sent by the proper party. The Agents may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by the Agents and shall not be liable for any action taken or omitted to be taken in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 9.4. Successor. Each of the Syndication Agent and the Documentation Agent may resign as such upon one Business Day's notice to the Borrower and the Administrative Agent. The Administrative Agent may resign as such at any time upon at least 30 days' prior notice to the Borrower and all Lenders. If the Administrative Agent at any time shall resign, the Required Lenders may, with the prior consent of the Borrower (which consent shall not be unreasonably withheld), appoint another Lender as a successor Administrative Agent which shall thereupon become the Administrative Agent hereunder. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 20 days after the retiring Administrative Agent's giving notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be one of the Lenders or a commercial banking institution organized under the laws of the United States or a United States branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall be entitled to receive from the retiring Administrative Agent such documents of transfer and assignment as such successor Administrative Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under -71- 79 this Agreement. After any retiring Administrative Agent's resignation hereunder as the Administrative Agent, the provisions of (i) this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement, and (ii) Section 10.3 and Section 10.4 shall continue to inure to its benefit. SECTION 9.5. Agents in their Capacity as Lenders. With respect to their obligation (if any) to lend under this Agreement and each other Loan Document, the Agents shall have the same rights and powers under this Agreement and each other Loan Document as any Lender and may exercise the same as though it were not an Agent. "Lender" or "Lenders" shall, unless the context otherwise indicates, include each Agent in its capacity as a Lender hereunder. The Agents, any Lender and their respective affiliates may accept deposits from, lend money to, and generally engage in any kind of banking or trust business with the Borrower or any other Obligor, as if it were not an Agent or as if it or they were not a Lender hereunder and without any duty to account therefor to the other parties to this Agreement; provided, that the obligations of the Borrower under such transactions shall not be deemed to be Obligations secured by any Collateral without the prior written agreement of the Required Lenders. In furtherance of the foregoing, each Lender acknowledges that, as of the date hereof, (i) BofA is not a Lender under this Agreement, (ii) BofA is the sole lender (and the administrative agent) under the Revolving Credit Agreement and (iii) pursuant to the Revolving Credit Agreement, BofA is the beneficiary of certain Liens on the inventory, receivables and related general intangibles of the Borrower and its Subsidiaries. SECTION 9.6. Actions by Each Agent. (a) Actual Knowledge. Each Agent may assume that no Event of Default has occurred and is continuing, unless such Agent has actual knowledge of the Event of Default, has received notice from the Borrower or the Borrower's independent certified public accountants stating the nature of the Event of Default, or has received notice from a Lender stating the nature of the Event of Default and that such Lender considers the Event of Default to have occurred and to be continuing. (b) Discretion to Act. Each Agent shall have the right to request instructions from the Required Lenders by notice to each Lender. If such Agent shall request instructions from the Required Lenders with respect to any act or action (including the failure to act) in connection with this Agreement or any other Loan Document, such Agent shall be entitled to refrain from such act or taking such action unless and until it shall have received instructions from the Required Lenders, and such Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or refraining from acting hereunder or under any other Loan Document in accordance with the instructions of the Required Lenders. Each Agent may give any notice required under Article VIII hereof without the consent of any of the Lenders unless otherwise directed by the Required Lenders in writing and will, at the direction of the Required Lenders, give any such notice required under Article VIII. Except for any obligation expressly set forth in this Agreement or any other Loan Document, each Agent may, but shall not be required to, exercise its discretion to act or not act, except that such Agent shall be required to act or not act upon the instructions of the Required Lenders (unless all of the Lenders are required to provide such instructions as provided in Section 10.1) and those instructions shall be binding upon each Agent and all Lenders; provided, however, that each Agent shall not be required to act or not act if to do so would expose such Agent to liability or would be contrary to this Agreement or any other Loan Document or to applicable law. -72- 80 SECTION 9.7. Right to Indemnity. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document or in relation hereto or thereto unless it shall first be indemnified (upon requesting such indemnification) to its satisfaction by the Lenders against any and all liability and expense which it may incur by reason of taking or continuing to take any such action. The Lenders further agree to indemnify each Agent ratably in accordance with their Percentages for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby, or the enforcement of any of the terms hereof or thereof or of any other documents, and either not indemnified by the Borrower pursuant to Section 10.4 or with respect to which the Borrower has failed to fully honor its indemnification obligations under Section 10.4; provided, however, that no such liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement results from such Agent's gross negligence or willful misconduct. Each Lender agrees to reimburse each Agent in the amount of its pro rata share of any out-of-pocket expenses for which such Agent is entitled to receive, but has not received, reimbursement pursuant to this Agreement. The agreements in this Section 9.7 shall survive the payment and fulfillment of the Obligations and termination of this Agreement. SECTION 9.8. Collateral Agent. Each Lender consents and agrees to all of the terms and provisions of the Intercreditor Agreement and the other Security Documents, as the same may be in effect from time to time or may be amended, supplemented or otherwise modified from time to time in accordance with the provisions of the Security Documents and this Agreement, and authorizes and directs the Collateral Agent to act as mortgagee or secured party with respect thereto or to act as collateral agent pursuant to the Intercreditor Agreement (including pursuant to the appointment thereof under Section 2.1 of the Intercreditor Agreement). SECTION 9.9. Suits to Protect Collateral. Subject to the provisions of the Intercreditor Agreement, the Administrative Agent, acting at the written direction of the Required Lenders, shall have power to institute and to maintain, or direct the Collateral Agent to institute and maintain, such suits and proceeds as the Administrative Agent may deem expedient to prevent any impairment of the Collateral by any acts which may be unlawful or in violation of any of the Security Documents or this Agreement, and such suits and proceedings as the Administrative Agent may deem expedient to preserve or protect its interest and the interests of the Lenders in the Collateral (including the power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the Liens of the Collateral Agent in the Collateral or be prejudicial to the interests of the Lender or the Administrative Agent). SECTION 9.10. Determinations Relating to Collateral. In the event (i) the Administrative Agent shall receive any written request from the Borrower or any other Obligor under any Security Document for consent or approval with respect to any matter relating to any Collateral or the Borrower's or such Obligor's obligations with respect thereto or (ii) there shall be due to or from the Administrative Agent under the provisions of any Security Document, any performance or the delivery of any instrument or (iii) the Administrative Agent shall become aware of any nonperformance by the Borrower or any other Obligor of any covenant or any breach of any representation or warranty for the Borrower or any other Obligor set forth in any -73- 81 Security Document, then, in each such event, the Administrative Agent shall be entitled, at the expense of the Borrower and subject to Section 9.6(b), to hire experts, consultants, agents and attorneys (including internal counsel) to advise the Administrative Agent on the manner in which the Administrative Agent should respond to such request or render any requested performance or response to such nonperformance or breach. The Administrative Agent shall be fully protected in the taking of any action recommended or approved by any such expert, consultant, agent or attorney (including internal counsel) or agreed to by the Required Lenders pursuant to Section 9.6(b). SECTION 9.11. Trust Moneys. To the extent Trust Moneys consist of insurance proceeds or condemnation or other taking awards, any such moneys which may be used to effect a restoration of the affected Collateral shall be permitted to be withdrawn by the Borrower and paid by the Collateral Agent in accordance with the Intercreditor Agreement. SECTION 9.12. Release of Collateral. Each Lender hereby irrevocably authorizes the Administrative Agent, at its option and in its discretion, to release any and all guaranties of the Obligations and any Lien granted to or held by or for the benefit of the Administrative Agent with respect to any Restricted Subsidiary or Collateral (i) upon termination of the Lenders' obligations to make Term Loans and payment and satisfaction of all Term Loans and all other Obligations and which the Administrative Agent has been notified in writing are then due and payable; (ii) constituting Collateral being sold or disposed of if the Borrower certifies to the Administrative Agent pursuant to an Officers' Certificate that the sale or disposition is made in compliance with the terms of this Agreement and the other Loan Documents (and, absent any actual knowledge of the Administrative Agent to the contrary, the Administrative Agent may rely conclusively on any such certificate, without further inquiry); (iii) as provided in Section 7.1.8(b); (iv) constituting property in which the Borrower or any other Obligor owned no interest at the time the Lien was granted and at all times thereafter; or (v) if approved, authorized or ratified in writing by the Administrative Agent at the direction of all Lenders. Upon request by the Administrative Agent at any time, each Lender will confirm in writing the Administrative Agent's authority to release particular types or items of Collateral pursuant to this Section 9.12. Section 9.13. Application of Proceeds of Collateral. The Administrative Agent shall apply the proceeds of any collection of the Collateral payable to the Administrative Agent for the benefit of it and the Lenders, first, to the payment of all costs and expenses incurred by the Administrative Agent in connection with such collection or otherwise in connection with this Agreement or any other Loan Document, including and together with any amounts then due and payable to the Administrative Agent (in its capacity as such) hereunder (including any amount then due and payable to the Administrative Agent pursuant to its rights to indemnification under Sections 10.4 and 9.7), and, second, to the payment in full of the Obligations then due and payable to the Lenders (such payment to be distributed among the Lenders pro rata in accordance with the amount of such Obligations owed to them on the date of such distribution). SECTION 9.14. Rights and Remedies to be Exercised by Administrative Agent Only. In the event any remedy may be exercised with respect to this Agreement or any other Loan Document or the Collateral, the Administrative Agent shall pursue remedies designated by the Required Lenders subject to the proviso set forth in Section 9.6(b). Each Lender agrees that no Lender shall have any right individually to realize upon the security created by this Agreement or any other Loan Document. -74- 82 SECTION 9.15. Credit Decisions. Each Lender acknowledges that it has, independently of and without reliance upon each Agent, the Arranger and each other Lender, and based on such Lender's review of the financial information of the Borrower and each other Obligor, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its . Each Lender also acknowledges that it will, independently of and without reliance upon each Agent, the Arranger and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. Except as otherwise expressly provided for herein, the Agents shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, litigation, liabilities or business of the Parent, the Borrower or any other Obligor. SECTION 9.16. Copies, etc. The Administrative Agent shall give prompt notice to each Lender of each notice or request required or permitted to be given to the Administrative Agent by the Borrower pursuant to the terms of this Agreement (unless concurrently delivered to the Lenders by the Borrower). The Administrative Agent will distribute to each Lender each document or instrument received for such Lender's account and copies of all other communications received by the Administrative Agent from the Borrower for distribution to the Lenders by the Administrative Agent in accordance with the terms of this Agreement (except to the extent any such Lender shall have provided written notice to the Administrative Agent that it is not to receive any such documents, instruments or communications). In the event such information is so furnished by any Agent, such Agent shall have no duty to confirm or verify its accuracy or completeness and shall have no liability whatsoever with respect thereto. SECTION 9.17. The Syndication Agent, the Documentation Agent and the Administrative Agent. Notwithstanding anything else to the contrary contained in this Agreement or any other Loan Document, the Agents, in their respective capacities as such, each in such capacity, shall have no duties or responsibilities under this Agreement or any other Loan Document nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Syndication Agent, the Documentation Agent or the Administrative Agent, as applicable, in such capacity except as are explicitly set forth herein or in the other Loan Documents. SECTION 9.18. Agreement to Cooperate. Each Lender agrees to cooperate to the end that the terms and provisions of this Agreement may be promptly and fully carried out. The Lenders also agree, from time to time, at the request of the Agents, to execute and deliver any and all other agreements, documents or instruments and to take such other actions, all as may be reasonably necessary or desirable to effectuate the terms, provisions and intent of this Agreement and the other Loan Documents. SECTION 9.19. Lenders to Act as Agents. If any Collateral or proceeds thereof at any time comes into the possession or under the control of any Lender, such Lender shall hold such Collateral or proceeds thereof as agent for the joint benefit of the Lenders, and will, upon receipt therefor, deliver such Collateral or proceeds thereof to the Administrative Agent. -75- 83 ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.1. Waivers, Amendments, etc. The provisions of this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no such amendment, modification or waiver which would: (a) modify any requirement hereunder that any particular action be taken by all the Lenders or by the Required Lenders shall be effective unless consented to by each Lender; (b) modify this Section 10.1, or clause (a) of Section 10.10, change the definition of "Required Lenders", increase the Term Loan Commitment Amount or the Percentage of any Lender, reduce any fees described in Section 3.3, release any Subsidiary Guarantor from its obligations under the Subsidiary Guaranty or release a substantial portion of the Collateral (except in each case as otherwise specifically provided in this Agreement, such Subsidiary Guaranty or applicable Security Document) or extend the Term Loan Commitment Termination Date shall be made without the consent of each Lender adversely affected thereby; (c) extend the due date for, or reduce the amount of, any scheduled repayment or prepayment of principal of or interest on or fees payable in respect of any Term Loan or reduce the principal amount of or rate of interest on any Term Loan shall be made without the consent of the holder of the Term Note evidencing such Term Loan; or (d) affect adversely the interests, rights or obligations of any Agent or Arranger (in its capacity as Agent or Arranger), unless consented to by such Agent or Arranger, as the case may be. No failure or delay on the part of any Agent, any Lender or the holder of any Term Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by any Agent, any Lender or the holder of any Term Note under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 10.2. Notices. All notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by facsimile and addressed, delivered or transmitted to such party at its address or facsimile number set forth in Schedule II hereto or, in the case of a Lender that becomes a party hereto after the date hereof, as set forth in the Lender Assignment Agreement pursuant to which such Lender becomes a Lender hereunder or at such other address or facsimile number as may be designated by such party in a -76- 84 notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted (and electronic confirmation of receipt thereof has been received). SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to pay on demand all expenses of each of the Agents (including the fees and out- of-pocket expenses of counsel to the Agents (including internal counsel) and of local counsel, if any, who may be retained by counsel to the Agents) in connection with (a) the syndication by the Syndication Agent and the Arranger of the Term Loans, the negotiation, preparation, execution and delivery of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated; (b) the filing, recording, refiling or rerecording of each Mortgage, each Pledge Agreement and the Security Agreement and/or any Uniform Commercial Code financing statements relating thereto and all amendments, supplements and modifications to any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms hereof or of such Mortgage, Pledge Agreement or Security Agreement; and (c) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document. The Borrower further agrees to pay, and to save the Agents and the Lenders harmless from all liability for, any stamp or other similar taxes which may be payable in connection with the execution or delivery of this Agreement, the Term Loans made hereunder or the issuance of the Term Notes or any other Loan Documents. The Borrower also agrees to reimburse each Agent and each Lender upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses (including those of internal counsel)) incurred by such Agent or such Lender in connection with (x) the negotiation of any restructuring or "work-out", whether or not consummated, of any Obligations, (y) the enforcement of any Obligations and (z) any litigation relating to the Obligations, this Agreement or any Loan Document. SECTION 10.4. Indemnification. In consideration of the execution and delivery of this Agreement by each Lender and the extension of the Term Loan Commitments, the Borrower hereby, to the fullest extent permitted under applicable law, indemnifies, exonerates and holds each Agent, the Arranger and each Lender and each of their respective Affiliates, and each of their respective partners, officers, directors, employees and agents, and each other Person controlling any of the foregoing within the meaning of either Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended (collectively, the "Indemnified Parties"), free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements -77- 85 (including those of internal counsel) (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Term Loan; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of any determination by the Required Lenders pursuant to Article V not to fund any Borrowing); (c) any investigation, litigation or proceeding related to any acquisition or proposed acquisition by the Borrower or any of its Subsidiaries of all or any portion of the stock or assets of any Person, whether or not such Agent, such Arranger or such Lender is party thereto; (d) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by the Borrower or any of its Subsidiaries of any Hazardous Material; (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the Borrower or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower or such Subsidiary; or (f) with respect to BofA, any action taken by BofA in its capacity as agent under the Revolving Credit Agreement, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or willful misconduct If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 10.5. Survival. The obligations of the Borrower under Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders under Section 9.1, shall in each case survive any termination of this Agreement, the payment in full of all Obligations and the termination of all Term Loan Commitments. The representations and warranties made by the Borrower and each other Obligor in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION 10.6. Severability. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such other Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. -78- 86 SECTION 10.7. Headings. The various headings of this Agreement and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE TERM NOTES AND, EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED THEREIN, EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement, the Term Notes and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. Upon the execution and delivery of this Agreement by the parties hereto, all obligations and liabilities of the Arranger under or relating or with respect to the Commitment Letter shall be terminated and of no further force or effect. SECTION 10.10. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that (i) the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of each of the Agents and all Lenders, and (ii) the rights of sale, assignment and transfer of the Lenders are subject to Section 10.11. SECTION 10.11. Sale and Transfer of Term Loans and Term Notes; Participations in Term Loans and Term Notes. Each Lender may assign, or sell participations in, its Term Loan and Term Loan Commitment to one or more other Persons in accordance with this Section 10.11. SECTION 10.11.1. Assignments. Any Lender (the "Assignor Lender"), (a) with written notice to the Administrative Agent and the written consents of the Borrower and the Syndication Agent (which consents shall not be (i) unreasonably delayed or withheld or (ii) required in the case of any assignments made by the Syndication Agent or any of its Affiliates and which consent in the case of the Borrower, shall be deemed to have been given in the absence of a written notice delivered by the Borrower to the Administrative Agent, on or before the fifth Business Day after receipt by the Borrower of such Assignor Lender's request for consent, stating, in reasonable detail, the reasons why the Borrower proposes to withhold such consent), may at any time assign and delegate to one or more commercial banks or other financial institutions (including funds engaged in the business of investing in loans), and (b) with notice to the Borrower, the Syndication Agent and the Administrative Agent, but without the consent of the Borrower or any Agent, may assign and delegate to any of its Affiliates or to any other Lender or to any Person whose investment manager or investment advisor is the investment manager or investment advisor of such Lender -79- 87 (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), all or any fraction of such Assignor Lender's total Term Loans and Term Loan Commitment in a minimum aggregate amount of (i) $1,000,000 or (ii) the then remaining amount of such Lender's Term Loans and Term Loan Commitment; provided, however, that any such Assignee Lender will comply, if applicable, with the provisions contained in the last sentence of Section 4.6 and provided, further, however, that, the Borrower, each other Obligor and the Agents shall be entitled to continue to deal solely and directly with such Assignor Lender in connection with the interests so assigned and delegated to an Assignee Lender until (i) written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been given to the Borrower and the Agents by such Assignor Lender and such Assignee Lender; (ii) such Assignor Lender and such Assignee Lender shall have executed and delivered to the Borrower and the Agents a Lender Assignment Agreement, accepted by the Administrative Agent; and (iii) the processing fees described below shall have been paid. From and after the date that the Administrative Agent accepts such Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (y) the Assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Within ten Business Days after its receipt of notice that the Administrative Agent has accepted an executed Lender Assignment Agreement, the Borrower shall execute and deliver to the Administrative Agent (for delivery to the relevant Assignee Lender) a new Term Note evidencing such Assignee Lender's assigned Term Loans and Term Loan Commitments and, if the Assignor Lender has retained Term Loans and Term Loan Commitments hereunder, a replacement Term Note in the principal amount of the Term Loans and Term Loan Commitments retained by the Assignor Lender hereunder (such Term Note to be in exchange for, but not in payment of, that Term Note then held by such Assignor Lender). Each such Term Note shall be dated the date of the predecessor Term Note. The Assignor Lender shall mark the predecessor Term Note "exchanged" and deliver it to the Borrower. Accrued interest on that part of the predecessor Term Note evidenced by the new Term Note, and accrued fees, shall be paid as provided in the Lender Assignment Agreement. Accrued interest on that part of the predecessor Term Note evidenced by the replacement Term Note shall be paid to the Assignor Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Term Note and in this Agreement. Such Assignor Lender or such Assignee Lender must also pay a processing fee to the Administrative Agent upon delivery of any Lender Assignment Agreement in the amount of $2,500, unless such assignment and delegation is by a Lender to its Affiliate or if such assignment and delegation is by a Lender to a Federal Reserve Bank, as provided below or is otherwise consented to by the Administrative Agent. Any attempted assignment and delegation not made in accordance with this Section 10.11.1 shall be null and void. Nothing contained in -80- 88 this Section 10.11.1 shall prevent or prohibit any Lender from pledging its rights (but not its obligations to make Loans) under this Agreement and/or its Loans and/or its Term Note hereunder to a Federal Reserve Bank in support of Borrowings made by such Lender from such Federal Reserve Bank. SECTION 10.11.2. Participations. Any Lender may at any time sell to one or more commercial banks or other Persons (each such commercial bank and other Person being herein called a "Participant") participating interests in any of the Term Loans, Term Loan Commitments or other interests of such Lender hereunder; provided, however, that (a) no participation contemplated in this Section shall relieve such Lender from its Term Loan Commitments or its other obligations hereunder or under any other Loan Document; (b) such Lender shall remain solely responsible for the performance of its Term Loan Commitments and such other obligations; (c) the Borrower and each other Obligor and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents; (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, agree to (i) any reduction in the interest rate or amount of fees that such Participant is otherwise entitled to, (ii) a decrease in the principal amount, or an extension of the final Stated Maturity Date, of any Term Loan in which such Participant has purchased a participating interest or (iii) a release of all or substantially all of the collateral security under the Loan Documents or any Subsidiary Guarantor under any Subsidiary Guaranty, in each case except as otherwise specifically provided in a Loan Document; and (e) the Borrower shall not be required to pay any amount under Section 4.6, that is greater than the amount which it would have been required to pay had no participating interest been sold. The Borrower acknowledges and agrees that each Participant, for purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4, shall be considered a Lender. SECTION 10.12. Other Transactions. Nothing contained herein shall preclude any Agent or any other Lender from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 10.13. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR -81- 89 WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS OR THE BORROWER RELATING THERETO SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) IN THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY, AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 10.14. Waiver of Jury Trial. THE AGENTS, THE LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS OR THE BORROWER RELATING THERETO. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. -82- 90 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. PIONEER AMERICAS ACQUISITION CORP. By: /s/ PHILIP J. ABLOVE -------------------------------------- Title: Vice President and Chief Financial Officer DLJ CAPITAL FUNDING, INC., as the Syndication Agent and as Lender By: /s/ HAROLD J. PHILIPS -------------------------------------- Title: Managing Director SALOMON BROTHERS HOLDING COMPANY INC, as the Documentation Agent and as Lender By: /s/ RICHARD H. IVERS -------------------------------------- Title: Managing Director BANK OF AMERICA ILLINOIS, as the Administrative Agent By: /s/ DAVID A. JOHANSON -------------------------------------- Title: Vice President EX-4.3(B) 13 SUBSIDIARY GUARANTY, DATED 6/17/97 1 EXHIBIT 4.3(b) SUBSIDIARY GUARANTY This SUBSIDIARY GUARANTY (as amended, supplemented, amended and restated or otherwise modified from time to time, this "Guaranty"), dated as of June 17, 1997, is made by each of the signatories hereto and each other Person which may from time to time hereafter become a party hereto pursuant to Section 5.5 (each, individually, an "Additional Subsidiary Guarantor", and, collectively, the "Additional Subsidiary Guarantors", and, together with each of the signatories hereto, each, individually, a "Subsidiary Guarantor", and, collectively, the "Subsidiary Guarantors"), in favor of BANK OF AMERICA ILLINOIS, as administrative agent (the "Administrative Agent") for each of the Secured Parties (as defined below). W I T N E S S E T H: WHEREAS, pursuant to a Term Loan Agreement, dated as of June 17, 1997 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Term Loan Agreement"), among Pioneer Americas Acquisition Corp., a Delaware corporation (the "Borrower"), the various financial institutions as are, or may from time to time become, parties thereto (each, individually, a "Lender", and collectively, the "Lenders"), DLJ Capital Funding, Inc., as Syndication Agent for the Lenders, Salomon Brothers Holding Company Inc, as Documentation Agent for the Lenders and Bank of America Illinois, as Administrative Agent for the Lenders, the Lenders have extended commitments to make Term Loans to the Borrower; WHEREAS, as a condition precedent to the making of the Term Loans under the Term Loan Agreement, each Subsidiary Guarantor is required to execute and deliver this Guaranty; WHEREAS, each Subsidiary Guarantor has duly authorized the execution, delivery and performance of this Guaranty; and WHEREAS, it is in the best interests of each Subsidiary Guarantor to execute this Guaranty inasmuch as each Subsidiary Guarantor will derive substantial direct and indirect benefits from the making of Term Loans to the Borrower by the Lenders pursuant to the Term Loan Agreement; NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Lenders to make the Term Loans to the Borrower pursuant to the Term Loan Agreement, each Subsidiary Guarantor agrees, for the benefit of each Secured Party, as follows: 2 ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Guaranty, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Additional Subsidiary Guarantor" and "Additional Subsidiary Guarantors" are defined in the preamble. "Administrative Agent" is defined in the preamble. "Borrower" is defined in the first recital. "Guaranteed Obligations" is defined in clause (a) of Section 2.1. "Guaranty" is defined in the preamble. "Lender" and "Lenders" are defined in the first recital. "PAI" means Pioneer Americas, Inc., a Delaware corporation and direct Wholly-Owned Restricted Subsidiary of the Borrower, and any successor thereto. "PCAC" means Pioneer Chlor Alkali Company, Inc., a Delaware corporation and direct Wholly-Owned Restricted Subsidiary of the Borrower, and any successor thereto. "Secured Parties" means, collectively, the Administrative Agent, the Lenders and each of their respective successors, transferees and assigns. "Subsidiary Guarantor" and "Subsidiary Guarantors" are defined in the preamble. "Term Loan Agreement" is defined in the first recital. SECTION 1.2. Term Loan Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Guaranty, including its preamble and recitals, have the meanings provided in the Term Loan Agreement. -2- 3 ARTICLE II GUARANTY PROVISIONS SECTION 2.1. Guaranty. Each Subsidiary Guarantor hereby absolutely, unconditionally and irrevocably (a) guarantees the full and punctual payment when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations of the Borrower and each other Obligor, now or hereafter existing, whether for principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. Section 362(a), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. Section 502(b) and Section 506(b)) (the "Guaranteed Obligations"), and (b) indemnifies and holds harmless each Secured Party and each holder of a Term Note for any and all costs and expenses (including reasonable attorneys' fees and expenses) incurred by such Secured Party or such holder, as the case may be, in enforcing any rights under this Guaranty; provided, however, that each Subsidiary Guarantor shall be liable under this Guaranty for the maximum amount of such liability that can be hereby incurred without rendering this Guaranty, as it relates to such Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount. This Guaranty constitutes a guaranty of payment when due and not of collection, and each Subsidiary Guarantor specifically agrees that it shall not be necessary or required that any Secured Party or any holder of any Term Note exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Borrower or any other Obligor (or any other Person) before or as a condition to the obligations of such Subsidiary Guarantor hereunder. SECTION 2.2. Acceleration of Guaranty. Each Subsidiary Guarantor agrees that, in the event of any Default of the nature set forth in clause (a) or (b) of Section 8.1.9 of the Term Loan Agreement, and if such event shall occur at a time when any of the Guaranteed Obligations may not then be due and payable, such Subsidiary Guarantor will pay to the Lenders forthwith the full amount which would be payable hereunder by such Subsidiary Guarantor if all such Guaranteed Obligations were then due and payable. SECTION 2.3. Guaranty Absolute, etc. This Guaranty shall in all respects be a continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full force and effect until all Guaranteed Obligations have been paid in full in cash, all obligations of each Subsidiary Guarantor hereunder shall have been paid in full in cash and all Term Loan Commitments shall have terminated. Each Subsidiary Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Term Loan Agreement, the -3- 4 Term Notes and each other Loan Document under which they arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Secured Party or any holder of any Term Note with respect thereto. The liability of each Subsidiary Guarantor under this Guaranty shall be absolute, unconditional and irrevocable irrespective of: (a) any lack of validity, legality or enforceability of the Term Loan Agreement, any Term Note or any other Loan Document; (b) the failure of any Secured Party or any holder of any Term Note (i) to assert any claim or demand or to enforce any right or remedy against the Borrower, any other Obligor or any other Person (including any other guarantor (including any Subsidiary Guarantor)) under the provisions of the Term Loan Agreement, any Term Note, any other Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor (including any Subsidiary Guarantor) of, or collateral securing, any Obligations of the Borrower or any other Obligor; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other extension, compromise or renewal of any Guaranteed Obligation; (d) any reduction, limitation, impairment or termination of any Guaranteed Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each Subsidiary Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Guaranteed Obligations or otherwise; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Term Loan Agreement, any Term Note or any other Loan Document; (f) any addition, exchange, release, surrender or non-perfection of any collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any other guaranty, held by any Secured Party or any holder of any Term Note securing any of the Guaranteed Obligations; (g) the occurrence of any change in the laws, rules, regulations or ordinances of any jurisdiction by any present or future action of any governmental authority or court amending, varying, reducing or otherwise affecting, or purporting to amend, vary, reduce -4- 5 or otherwise affect, any of the Guaranteed Obligations and the obligations of any Subsidiary Guarantor hereunder; (h) the application by the Administrative Agent or the Lenders of all monies at any time and from time to time received from the Borrower, any Subsidiary Guarantor or any other Person on account of any Indebtedness owing by the Borrower or any Subsidiary Guarantor to the Administrative Agent or the Lenders, in such manner as the Administrative Agent or the Lenders deems best and the changing of such application in whole or in part and at any time or from time to time, or any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations; (i) any change in the name, business, capital structure or governing instrument of the Borrower or any Subsidiary Guarantor or any refinancing or restructuring of any of the Guaranteed Obligations; (j) the sale of the Borrower's or any Subsidiary Guarantor's business or any part thereof; (k) subject to Section 7.2.5 of the Term Loan Agreement, any merger or consolidation, arrangement or reorganization of the Borrower, any Subsidiary Guarantor, any Person resulting from the merger or consolidation of the Borrower or any Subsidiary Guarantor with any other Person or any other successor to such Person or merged or consolidated Person or any other change in the corporate existence, structure or ownership of the Borrower or any Subsidiary Guarantor; or (l) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower, any other Obligor, any surety or any guarantor. SECTION 2.4. Reinstatement, etc. Each Subsidiary Guarantor agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Guaranteed Obligations is rescinded or must otherwise be restored by any Secured Party or any holder of any Term Note, upon the insolvency, bankruptcy or reorganization of the Borrower or any other Obligor or otherwise, all as though such payment had not been made. SECTION 2.5. Waiver, etc. Each Subsidiary Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and of this Guaranty and any requirement that the Administrative Agent, any other Secured Party or any holder of any Term Note protect, secure, perfect or insure any security interest or Lien, or any property subject thereto, or exhaust any right or take any action against the Borrower, any other Obligor or any other Person (including any other guarantor) or entity or any collateral securing the Guaranteed Obligations. -5- 6 SECTION 2.6. Postponement of Subrogation, etc. Each Subsidiary Guarantor hereby agrees that it will not exercise any rights which it may acquire by way of rights of subrogation under this Guaranty, by any payment made hereunder or otherwise, until the prior payment in full in cash of all Guaranteed Obligations, until the prior payment in full in cash of all obligations of such Subsidiary Guarantor hereunder and the termination of all Term Loan Commitments. Any amount paid to any Subsidiary Guarantor on account of any such subrogation rights prior to the payment in full in cash of all Guaranteed Obligations shall be held in trust for the benefit of the Secured Parties and each holder of a Term Note and shall immediately be paid to the Administrative Agent for the benefit of the Secured Parties and each holder of a Term Note and credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the Term Loan Agreement; provided, however, that if (a) such Subsidiary Guarantor has made payment to the Secured Parties and each holder of a Term Note of all or any part of the Guaranteed Obligations, and (b) all Guaranteed Obligations have been paid in full in cash, all obligations of such Subsidiary Guarantor hereunder shall have been paid in full in cash and all Term Loan Commitments have been permanently terminated, each Secured Party and each holder of a Term Note agrees that, at such Subsidiary Guarantor's request, the Administrative Agent, on behalf of the Secured Parties and the holders of the Term Notes, will execute and deliver to such Subsidiary Guarantor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to such Subsidiary Guarantor of an interest in the Guaranteed Obligations resulting from such payment by such Subsidiary Guarantor. In furtherance of the foregoing, for so long as any Guaranteed Obligations, obligations of any Guarantor hereunder or Term Loan Commitments remain outstanding, each Subsidiary Guarantor shall refrain from taking any action or commencing any proceeding against the Borrower or any other Obligor (or any of their respective successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amount in respect of any payment made under this Guaranty to any Secured Party or any holder of a Term Note; provided, however, that a Subsidiary Guarantor may file appropriate proofs of claim in any bankruptcy or insolvency proceeding of the Borrower or any other Subsidiary Guarantor; provided further, however, that such Subsidiary Guarantor shall not accept any payment or distribution of cash, securities or other property in respect of any such proof of claim unless and until each of the conditions referred to in clause (b) of the proviso to the preceding sentence shall have occurred and, in the event such Subsidiary Guarantor shall in any case receive or be entitled to receive any such payment or distribution in contravention of this proviso, such payment or distribution shall be received and held in trust for, and/or shall be promptly paid over or delivered to, the Secured Parties to the extent necessary to pay the Guaranteed Obligations and other obligations referred to in such clause (b) in full. SECTION 2.7. Right of Contribution. Each Subsidiary Guarantor hereby agrees that to the extent that a Subsidiary Guarantor shall have paid more than its proportionate share of any -6- 7 payment made hereunder, such Subsidiary Guarantor shall be entitled to seek and receive contribution from and against any other Subsidiary Guarantor hereunder who has not paid its proportionate share of such payment. Each Subsidiary Guarantor's right of contribution shall be subject to the terms and conditions of Section 2.6. The provisions of this Section 2.7 shall in no respect limit the obligations and liabilities of any Subsidiary Guarantor to the Administrative Agent and each other Secured Party, and each Subsidiary Guarantor shall remain liable to the Administrative Agent and each other Secured Party for the full amount guaranteed by such Subsidiary Guarantor hereunder. SECTION 2.8. Successors, Transferees and Assigns; Transfers of Term Notes, etc. This Guaranty shall: (a) be binding upon each Subsidiary Guarantor, and its successors, transferees and assigns; and (b) inure to the benefit of and be enforceable by the Administrative Agent and each other Secured Party. Without limiting the generality of clause (b), any Lender may assign or otherwise transfer (in whole or in part) any Term Note or Term Loan held by it to any other Person in accordance with the provisions of the Term Loan Agreement, and such other Person shall thereupon become vested with all rights and benefits in respect thereof granted to such Lender under any Loan Document (including this Guaranty) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of Section 10.11 and Article IX of the Term Loan Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. Each Subsidiary Guarantor hereby represents and warrants for itself unto each Secured Party as to all matters contained in Article VI of the Term Loan Agreement and this Article III, in each case insofar as applicable to such Subsidiary Guarantor or such Subsidiary Guarantor's properties, together with all related definitions and ancillary provisions, all of which are hereby incorporated into this Article III as though specifically set forth herein. SECTION 3.2. Organization, etc. Each Subsidiary Guarantor and such Subsidiary Guarantor's Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its respective incorporation. Each Subsidiary Guarantor and such Subsidiary Guarantor's Subsidiaries is in good standing and is duly qualified to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification -7- 8 is required, except for those states in which its failure to qualify to do business would not be reasonably likely to have a Material Adverse Effect. SECTION 3.3. Due Authorization, Non-Contravention, etc. Each Subsidiary Guarantor is duly authorized to execute and deliver this Guaranty and each other Loan Document to be executed by it and to perform its obligations under this Guaranty and each other Loan Document to be executed by it and is and will continue to be duly authorized to perform its obligations thereunder. The execution, delivery and performance by each Subsidiary Guarantor of this Guaranty and each other Loan Document to which it is a party do not and will not require any consent or approval of any governmental agency or authority. SECTION 3.4. No Conflicts. The execution, delivery and performance by each Subsidiary Guarantor of this Guaranty and each other Loan Document to which it is a party do not and will not conflict with (i) any provision of law, (ii) the Certificate or Articles of Incorporation, as applicable, or bylaws, of such Subsidiary Guarantor, (iii) any agreement binding upon which conflict is reasonably likely to have a Material Adverse Effect or (iv) any court or administrative order or decree applicable to such Subsidiary Guarantor which conflict is reasonably likely to have a Material Adverse Effect, and do not and will not require, or result in, the creation or imposition of any Lien on any asset of such Subsidiary Guarantor, except to the extent created pursuant to any Loan Document. SECTION 3.5. Validity and Binding Effect. This Guaranty and each other Loan Document, when duly executed and delivered, will be legal, valid and binding obligations of each Subsidiary Guarantor party thereto, as applicable, enforceable against such Subsidiary Guarantor in accordance with their respective terms. SECTION 3.6. Investment Company Act Representation. No Subsidiary Guarantor or any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 3.7. Public Utility Holding Company Act Representation. No Subsidiary Guarantor or any of its Subsidiaries is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. ARTICLE IV COVENANTS, ETC. SECTION 4.1. Affirmative Covenants. Each Subsidiary Guarantor covenants and agrees that, until all Term Loan Commitments have terminated, all Guaranteed Obligations have been paid in full in cash and all obligations of such Subsidiary Guarantor hereunder shall have -8- 9 been paid in full in cash, such Subsidiary Guarantor will perform, comply with and be bound by all the agreements, covenants and obligations contained in the Term Loan Agreement applicable to such Subsidiary Guarantor or such Subsidiary Guarantor's properties. Each such agreement, covenant and obligation contained in the Term Loan Agreement and all related definitions and ancillary provisions are hereby incorporated into this Guaranty as though specifically set forth herein. SECTION 4.2. Concerning the Collateral and the Loan Documents. (a) In order to secure the due and punctual payment of the Guaranteed Obligations, including principal of, premium (if any) and interest (including interest on overdue principal) on the Term Loans, when and as the same shall become due and payable, whether on the scheduled payment date therefor, at maturity, by acceleration or otherwise, and performance of all other obligations of the Borrower to the Agents and the Lenders under the Term Loan Agreement and each other Loan Document and all obligations of each Subsidiary Guarantor under this Guaranty and each other Loan Document, the Borrower, the Subsidiary Guarantors and the other Obligors have entered into each of the applicable Security Documents (including, without limitation, this Guaranty) to which each is a party. (b) PCAC and PAI shall perform at their sole cost and expense any and all acts and execute any and all documents (including, without limitation, the execution, amendment or supplementation of any financing statement and continuation statement or other statement) for filing under the provisions of the UCC and the rules and regulations thereunder, or any other statute, rule or regulation of any applicable federal, state or local jurisdiction, including any filings in local real estate land record offices, which are necessary or advisable and shall do such other acts and execute such other documents as may be required under any of the Security Documents, from time to time, in order to grant and maintain valid and perfected Liens on the Collateral in favor of the Collateral Agents in the priorities purported to be created by the Security Documents, subject only to Liens permitted under the Security Documents to be senior or pari passu to the Liens of the Collateral Agents, and to fully preserve and protect the rights of the Agents and the Lenders under the Term Loan Agreement and the other Loan Documents. PCAC and PAI shall pay and satisfy promptly all mortgage and financing and continuation statement recording and/or filing fees, charges and taxes relating to this Term Loan Agreement, the Security Documents and the other Loan Documents, any amendments thereto and any other instruments of further assurance. ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.1. Loan Document. This Guaranty is a Loan Document executed pursuant to the Term Loan Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. -9- 10 SECTION 5.2. Binding on Successors, Transferees and Assigns; Assignment. In addition to, and not in limitation of, Section 2.8, this Guaranty shall be binding upon each Subsidiary Guarantor and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each Secured Party and each holder of a Term Note and their respective successors, transferees and assigns (to the fullest extent provided pursuant to Section 2.8); provided, however, that no Subsidiary Guarantor may assign any of its obligations hereunder without the prior written consent of all Lenders. SECTION 5.3. Amendments, etc. No amendment to or waiver of any provision of this Guaranty, nor consent to any departure by any Subsidiary Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent (on behalf of the Lenders or the Required Lenders, as the case may be) and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 5.4. Notices. All notices and other communications provided for hereunder shall be in writing and mailed or telecopied or delivered, if to a Subsidiary Guarantor, to such Subsidiary Guarantor in care of the Borrower at the address of the Borrower specified in the Term Loan Agreement, and, if to the Administrative Agent, to the Administrative Agent at the address of the Administrative Agent specified in the Term Loan Agreement, or as to any party, at such other address as shall be designated by such party in a written notice to the Agent or the Subsidiary Guarantors (in care of the Borrower), as the case may be, complying as to delivery with the terms of this Section. All such notices and other communications, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any such notice or communication, if transmitted by facsimile, shall be deemed given when electronic confirmation thereof is received by the transmitter. SECTION 5.5. Additional Subsidiary Guarantors. Upon the execution and delivery by any other Person of an instrument in the form of Annex I hereto, such Person shall become a "Subsidiary Guarantor" hereunder with the same force and effect as if originally named as a Subsidiary Guarantor herein. The execution and delivery of any such instrument shall not require the consent of any other Subsidiary Guarantor hereunder. The rights and obligations of each Subsidiary Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Guarantor as a party to this Guaranty. SECTION 5.6. Guaranty Is in Addition to Other Security. This Guaranty shall be in addition to and not in substitution for any other guarantees or other security which the Administrative Agent may now or hereafter hold in respect of the Guaranteed Obligations owing to the Administrative Agent or the Lenders by the Borrower and (except as may be required by law) the Administrative Agent shall be under no obligation to marshal in favor of each of the Subsidiary Guarantors any other guarantees or other security or any monies or other assets which -10- 11 the Administrative Agent may be entitled to receive or upon which the Administrative Agent or the Lenders may have a claim. SECTION 5.7. No Waiver; Remedies. In addition to, and not in limitation of, Section 2.3 and Section 2.5, no failure on the part of any Secured Party or any holder of a Term Note to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 5.8. Captions. Section captions used in this Guaranty are for convenience of reference only, and shall not affect the construction of this Guaranty. SECTION 5.9. Setoff. In addition to, and not in limitation of, any rights of any Secured Party or any holder of a Term Note under applicable law, each Secured Party and each such holder shall, upon the occurrence of any Default described in any of clause (a) or (b) of Section 8.1.9 of the Term Loan Agreement or with the consent of the Required Lenders, any Event of Default, have the right to appropriate and apply to the payment of the obligations of any Subsidiary Guarantor owing to it hereunder, whether or not then due, and such Subsidiary Guarantor hereby grants to each Secured Party and each such holder a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of such Subsidiary Guarantor then or thereafter maintained with such Secured Party, or such holder or any agent or bailee for such Secured Party or such holder; provided, however, that any such appropriation and application shall be subject to the provisions of Section 4.8 of the Term Loan Agreement. SECTION 5.10. Severability. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. SECTION 5.11. Governing Law, Entire Agreement, etc. THIS GUARANTY SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 5.12. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE SECURED PARTIES OR THE SUBSIDIARY GUARANTORS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT -11- 12 AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH SUBSIDIARY GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO SUCH SUBSIDIARY GUARANTOR IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND SUCH SUBSIDIARY GUARANTOR HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF. AS AN ALTERNATIVE METHOD OF SERVICE, EACH SUBSIDIARY GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH SUBSIDIARY GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY SUBSIDIARY GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH SUBSIDIARY GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS GUARANTY AND THE OTHER LOAN DOCUMENTS. SECTION 5.13. Waiver of Jury Trial. EACH SUBSIDIARY GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE SECURED PARTIES OR ANY SUBSIDIARY GUARANTOR. EACH SUBSIDIARY GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH SUCH SUBSIDIARY GUARANTOR IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED -12- 13 PARTIES ENTERING INTO THE TERM LOAN AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. SECTION 5.14. Counterparts. This Guaranty may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. [REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK] -13- 14 IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. PIONEER AMERICAS, INC. By /s/ PHILIP J. ABLOVE -------------------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer PIONEER CHLOR ALKALI COMPANY, INC. By /s/ PHILIP J. ABLOVE -------------------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer ALL-PURE CHEMICAL CO. By /s/ PHILIP J. ABLOVE -------------------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer IMPERIAL WEST CHEMICAL CO. By /s/ PHILIP J. ABLOVE -------------------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer BLACK MOUNTAIN POWER COMPANY By /s/ PHILIP J. ABLOVE -------------------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer 15 ALL PURE CHEMICAL NORTHWEST, INC. By /s/ PHILIP J. ABLOVE -------------------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer PIONEER CHLOR ALKALI INTERNATIONAL, INC. By /s/ PHILIP J. ABLOVE -------------------------------------- Name: Philip J. Ablove Title: Vice President G.O.W. CORPORATION By /s/ PHILIP J. ABLOVE -------------------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer PIONEER (EAST), INC. By /s/ KENT R. STEPHENSON -------------------------------------- Name: Kent R. Stephenson Title: President T.C. HOLDINGS, INC. By /s/ PHILIP J. ABLOVE -------------------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer T.C. PRODUCTS, INC. By /s/ PHILIP J. ABLOVE -------------------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer 16 ANNEX I to the Subsidiary Guaranty SUPPLEMENT NO. ___ dated as of ________________, 19__ (this "Supplement"), to the Subsidiary Guaranty, dated as of June 17, 1997 (together with all amendments, supplements, restatements and other modifications, if any, from time to time thereafter made thereto, the "Guaranty"), among the initial signatories thereto and each other Person which from time to time thereafter became a party thereto pursuant to Section 5.5 thereof (each, individually, a "Subsidiary Guarantor", and, collectively, the "Subsidiary Guarantors"), in favor of the Secured Parties (as defined in the Guaranty). W I T N E S S E T H: WHEREAS, capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Guaranty; and WHEREAS, the Guaranty provides that additional parties may become Subsidiary Guarantors under the Guaranty by execution and delivery of an instrument in the form of this Supplement; and WHEREAS, pursuant to the provisions of Section 5.5 of the Guaranty, the undersigned is becoming an Additional Subsidiary Guarantor under the Guaranty; and WHEREAS, the undersigned desires to become a Subsidiary Guarantor under the Guaranty in order to induce the Secured Parties to continue to make Term Loans under the Term Loan Agreement as consideration therefor; NOW, THEREFORE, the undersigned agrees, for the benefit of each Secured Party, as follows: SECTION 1. In accordance with the Guaranty, the undersigned by its signature below becomes a Subsidiary Guarantor under the Guaranty with the same force and effect as if it were an original signatory thereto as a Subsidiary Guarantor and the undersigned hereby (a) agrees to all the terms and provisions of the Guaranty applicable to it as a Subsidiary Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Subsidiary Guarantor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, each reference to a "Subsidiary Guarantor" or an "Additional Subsidiary Guarantor" in the Guaranty shall be deemed to include the undersigned. 17 SECTION 2. The undersigned hereby represents and warrants that this Supplement has been duly authorized, executed and delivered by the undersigned and constitutes a legal, valid and binding obligation of the undersigned, enforceable against it in accordance with its terms. SECTION 3. Except as expressly supplemented hereby, the Guaranty shall remain in full force and effect in accordance with its terms. SECTION 4. In the event any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Guaranty shall not in any way be affected or impaired. SECTION 5. Without limiting the provisions of the Term Loan Agreement (or any other Loan Document, including the Guaranty), the undersigned agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including reasonable attorneys' fees and expenses of the Administrative Agent. SECTION 6. THIS SUPPLEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 7. WITHOUT LIMITING THE EFFECT ON SECTION 5.12 OF THE GUARANTY, ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS SUPPLEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE SECURED PARTIES OR THE UNDERSIGNED SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE UNDERSIGNED HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE UNDERSIGNED IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND THE UNDERSIGNED HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF. AS AN ALTERNATIVE METHOD OF SERVICE, THE UNDERSIGNED FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF -2- 18 PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE UNDERSIGNED HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE UNDERSIGNED HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS SUPPLEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 8. WITHOUT LIMITING THE EFFECT OF SECTION 5.13 OF THE GUARANTY, THE ADMINISTRATIVE AGENT AND THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS SUPPLEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE SECURED PARTIES OR THE UNDERSIGNED. THE UNDERSIGNED ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THE TERM LOAN AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT AND THE ADMINISTRATIVE AGENT ACCEPTING THIS SUPPLEMENT. SECTION 9. This Supplement hereby incorporates by reference the provisions of the Guaranty, which provisions are deemed to be a part hereof, and this Supplement shall be deemed to be a part of the Guaranty. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -3- 19 IN WITNESS WHEREOF, the undersigned has caused this Supplement to the Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the day and year first above written. [NAME OF ADDITIONAL SUBSIDIARY GUARANTOR] By -------------------------------------- Name: Title: -4- EX-4.4 14 SECURITY AGREEMENT, DATED AS OF 6/17/97 1 EXHIBIT 4.4 SECURITY AGREEMENT SECURITY AGREEMENT dated as of June 17, 1997, made by PIONEER CHLOR ALKALI COMPANY, INC., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Company") in favor of UNITED STATES TRUST COMPANY OF NEW YORK, as collateral agent (the "Collateral Agent") under the Intercreditor and Collateral Agency Agreement dated as of the date hereof (as the same may be amended, supplemented or otherwise modified from time to time, the "Intercreditor Agreement") among the Company, Pioneer Americas Acquisition Corp. ("PAAC"), Pioneer Americas, Inc., United States Trust Company of New York, as trustee, for its own benefit and for the benefit of the Holders (as hereinafter defined) under the Indenture (as hereinafter defined) and Bank of America Illinois, as Agent, for its own benefit and for the benefit of the Term Loan Lenders (as hereinafter defined) under the Term Loan Agreement (as hereinafter defined). WHEREAS, pursuant to that certain Indenture dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Indenture") among PAAC, the Subsidiary Guarantors (as defined therein) and United States Trust Company of New York, as trustee (the "Trustee") for the holders of the Notes (as hereinafter defined) (the "Holders"), PAAC will issue its 9 1/4% Senior Secured Notes due 2007 (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor upon the registration of such notes pursuant to the Securities Act of 1933 or otherwise, the "Notes") in an aggregate principal amount of $200 million; WHEREAS, pursuant to that certain Term Loan Agreement dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Term Loan Agreement") among PAAC, Bank of America Illinois, as administrative agent (the "Term Loan Agent"), DLJ Capital Funding, Inc., as syndication agent, Salomon Brothers Holding Company Inc, as documentation agent and the lenders named therein (the "Term Loan Lenders"), the Term Loan Lenders will 2 extend credit to PAAC to be evidenced by notes (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor, the "Term Loan Notes") in an aggregate principal amount of $100 million; WHEREAS, pursuant to Article Thirteen of the Indenture, the Company has guaranteed (such guarantee by the Company being hereinafter referred to as the "Note Guarantee") the payment and performance of the Indenture Obligation (as hereinafter defined); WHEREAS, pursuant to the Subsidiary Guaranty dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time), the Company has guaranteed (such guarantee by the Company being hereinafter referred to as the "Term Loan Guarantee") the payment and performance of the Term Loan Obligation (as hereinafter defined); WHEREAS, pursuant to that certain Asset Purchase Agreement dated as of May 14, 1997 (the "Purchase Agreement"), among Pioneer Companies, Inc. ("Pioneer") and OCC Tacoma, Inc., Pioneer acquired the Tacoma, Washington- based business of OCC Tacoma, Inc. (the "Tacoma Acquisition"); WHEREAS, prior to the closing of the Tacoma Acquisition, Pioneer will assign its rights and obligations under the Purchase Agreement to the Company; WHEREAS, it is a condition precedent for the Initial Purchasers (as defined in the Indenture) to purchase the Notes and for the Term Loan Lenders to extend credit under the Term Loan Agreement to PAAC that the Company shall have executed and delivered this Agreement to the Collateral Agent for the ratable benefit of the Trustee for its own benefit and for the benefit of the Holders and for the Term Loan Agent for its own benefit and for the benefit of the Term Loan Lenders. NOW, THEREFORE, to induce the Initial Purchasers to purchase the Notes and the Term Loan Lenders to extend credit under the Term Loan Agreement to PAAC, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company has agreed to pledge and grant a security interest in the Collateral (as hereinafter defined) as 2 3 security for the Secured Obligations (as hereinafter defined). Accordingly the parties hereto agree as follows: Section 1. Definitions. Terms defined in the Intercreditor Agreement are used herein as defined therein. In addition, as used herein: "Agreement" shall mean this Security Agreement, as the same may be amended, modified or otherwise supplemented from time to time. "Collateral" shall have the meaning ascribed thereto in Section 3 hereof. "Indenture Obligation" shall mean the payment of and performance of any and all indebtedness, obligations and liabilities of the Company now or hereafter existing under or in respect of the Note Guarantee, including, without limitation, payment of principal, premium, if any, and interest, and Liquidated Damages, if any, when due and payable, and all other amounts due or to become due under or in connection with the Indenture (including, without limitation, all sums due to the Trustee pursuant to Section 606 thereof) and the Notes and the performance of all other obligations to the Trustee and the Holders under the Indenture and the Notes, according to the terms thereof. "Secured Obligations" shall mean, collectively, (i) the Indenture Obligation, (ii) the Term Loan Obligation and (iii) all present and future obligations of the Company under this Agreement. "Term Loan Obligation" shall mean the payment of and performance of any and all indebtedness, obligations and liabilities of the Company now or hereafter existing under or in respect of the Term Loan Guarantee, including, without limitation, payment of principal, premium, if any, and interest when due and payable, and all other amounts due or to become due under or in connection with the Term Loan Agreement (including without limitation, all sums due to the Term Loan Agent pursuant to Sections 10.3 and 10.4 thereof) and the Term Loan Notes and the performance of all other obligations to the Term Loan Agent and the Term Loan Lenders 3 4 under the Term Loan Agreement and the Term Loan Notes according to the terms thereof. "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York. Section 2. Representations and Warranties. The Company represents and warrants to the Collateral Agent, the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders that: (a) The Company is the sole beneficial owner of the Collateral and no Lien exists or will exist upon the Collateral at any time (and no right or option to acquire the same exists in favor of any other Person), except for Permitted Liens under the Indenture and the Term Loan Agreement and except for the pledge and security interest in favor of the Collateral Agent for the ratable benefit of the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders created or provided for herein, which pledge and security interest constitute a valid, first priority perfected security interest in and to all of the Collateral (except for Permitted Liens under the Indenture and the Term Loan Agreement); and (b) Annex 1 hereto sets forth the chief executive office for the Company and the office where the Company keeps its records concerning the Collateral. Section 3. Collateral. As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, the Company hereby pledges and grants to the Collateral Agent, for the ratable benefit of the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders, as hereinafter provided, a security interest in all of the Company's right, title and interest in the following property, whether now owned by the Company or hereafter acquired and whether now existing or hereafter coming into existence (all being collectively referred to herein as "Collateral"): (a) all of the Company's right, title and interest in each agreement of the Company listed on Annex 2 hereto, as 4 5 any such agreements have been or may be amended or supplemented from time to time; including, without limitation, (i) all rights of the Company to receive monies due and to become due under or pursuant to such agreements, (ii) all rights of the Company to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to such agreements, (iii) all claims of the Company for damages arising out of or for breach of or default under such agreements and (iv) all rights of the Company to terminate, amend, supplement, modify or waive performance under such agreements, to compel performance or otherwise to exercise all remedies thereunder; and (b) all proceeds of and to any of the property of the Company described in the preceding clause (a) of this Section 3 (including, without limitation, all causes of action, claims and warranties now or hereafter held by the Company in respect of any of the items listed above) and, to the extent related to any property described in said clause (a) or such proceeds, all books, correspondence, credit files, records, invoices and other papers. The security interest in the Collateral is granted as security only and shall not subject the Collateral Agent, any Holder, any Term Loan Lender, the Trustee or the Term Loan Agent to, or in any way alter or modify, any obligation or liability of the Company with respect to or arising out of any of the Collateral. Section 4. Further Assurances; Remedies. In furtherance of the grant of the pledge and security interest pursuant to Section 3 hereof, the Company hereby agrees with the Collateral Agent, each Holder, each Term Loan Lender, the Trustee and the Term Loan Agent as follows: 4.01 Delivery and Other Perfection. The Company shall at its own expense: (a) Keep full and accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Collateral Agent may reasonably require in order to reflect the security interests granted by this Agreement; 5 6 (b) Permit representatives of the Collateral Agent, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and forward copies of any notices or communications received by the Company with respect to the Collateral, all in such manner as the Collateral Agent may require; (c) Give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the judgment of the Collateral Agent) to create, preserve, perfect or validate the security interest granted pursuant hereto or to enable the Collateral Agent to exercise and enforce its rights hereunder with respect to such security interest; and (d) Upon the occurrence and during the continuance of any Event of Default, upon request of the Collateral Agent, promptly notify (and the Company hereby authorizes the Collateral Agent so to notify) each debtor in respect of any Collateral that has been assigned to the Collateral Agent hereunder, and that any payments due or to become due in respect of such Collateral are to be made directly to the Collateral Agent. 4.02 Other Financing Statements and Liens. Except as otherwise permitted under Article 3 of the Intercreditor Agreement, without the prior written consent of the Collateral Agent, the Company shall not file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Collateral Agent is not named as the sole secured party for the ratable benefit of the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders. 4.03 Preservation of Rights. The Collateral Agent shall not be required to take steps necessary to preserve any rights against prior parties to any of the Collateral. 6 7 4.04 Events of Default, Etc. Subject to the provisions of the Indenture and the Term Loan Agreement and in addition to all other rights and remedies granted to the Collateral Agent in this Agreement, during the period during which an Event of Default shall have occurred and be continuing: (a) the Company shall, at the request of the Collateral Agent, assemble the Collateral owned by it at such place or places, reasonably convenient to both the Collateral Agent and the Company, designated in its request; (b) the Collateral Agent may make any reasonable compromise or settlement deemed desirable with respect to any of the Collateral and may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, any of the Collateral; (c) the Collateral Agent shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Collateral Agent were the sole and absolute owner thereof (and the Company agrees to take all such action as may be appropriate to give effect to such right); (d) the Collateral Agent in its discretion may, in its name or in the name of the Company otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and (e) the Collateral Agent may, upon ten Business Days' prior written notice to the Company of the time and place, with respect to the Collateral or any part thereof that shall then be or shall thereafter come into the possession, custody or control of the Collateral Agent, the Trustee, the 7 8 Holders, the Term Loan Agent or the Term Loan Lenders or any of their respective agents, sell, lease, assign or otherwise dispose of all or any part of such Collateral, at such place or places as the Collateral Agent deems best, and for cash or for credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of the time or place thereof (except such notice as is required above or by applicable statute including the Uniform Commercial Code, and cannot be waived), and the Collateral Agent, the Trustee, any Holder, the Term Loan Agent, any Term Loan Lender or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale) and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of the Company, any such demand, notice and right or equity being hereby expressly waived and released. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the sale may be so adjourned. The proceeds of each collection, sale or other disposition under this Section 4.04 shall be applied in accordance with Article 6 of the Intercreditor Agreement. 4.05 Deficiency. If the proceeds of sale, collection or other realization of or upon the Collateral pursuant to Section 4.04 hereof are insufficient to cover the costs and expenses of such realization and the payment in full of the Secured Obligations, the Company shall remain liable for any deficiency. 4.06 Removals, Etc. Without at least 30 days' prior written notice to the Collateral Agent, the Company shall not (i) maintain any of its books and records with respect to the Collateral at any office or maintain its principal place of business at any place, other than at the address of the Company specified in the Indenture or at one of the locations identified in Annex 1 hereto under its name or in transit from one of such 8 9 locations to another or (ii) change its name, or the name under which it does business, from the name shown on the signature pages hereto. 4.07 Private Sale. None of the Collateral Agent, the Trustee, the Holders, the Term Loan Agent or the Term Loan Lenders shall incur any liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 4.04 hereof conducted in a commercially reasonable manner. The Company hereby waives, to the maximum extent permitted under applicable law, any claims against the Collateral Agent, the Trustee, any Holder, the Term Loan Agent and any Term Loan Lender arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Collateral Agent accepts the first offer received and does not offer the Collateral to more than one offeree. 4.08 Application of Proceeds. The proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Collateral Agent under this Agreement, shall be applied by the Collateral Agent in the manner set forth in Article 6 of the Intercreditor Agreement. As used in this Section 4, "proceeds" of the Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, the Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of the Company or any issuer of or obligor on any of the Collateral. 4.09 Attorney-in-Fact. Without limiting any rights or powers granted by this Agreement, the Company hereby irrevocably constitutes and appoints the Collateral Agent and any officer or agent of the Collateral Agent, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Company and in the name of the Company or in the Collateral Agent's own name, from time to time in the Collateral Agent's discretion, for the purpose of carrying out the terms of this Agreement and taking any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to 9 10 accomplish the purposes of this Agreement, which appointment as attorney-in-fact is irrevocable and coupled with an interest, including, without limitation, any financing statements, endorsements, assignments or other instruments of transfer. 4.10 Perfection. Prior to or concurrently with the execution and delivery of this Agreement, the Company shall file such financing statements and other documents in such offices as the Collateral Agent may request to perfect the security interests granted by Section 3 of this Agreement. 4.11 Termination. When all the Secured Obligations and all obligations under the Intercreditor Agreement, the Indenture and the Term Loan Agreement shall have been paid in full, this Agreement shall terminate, and the Collateral Agent shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of the Company. The Collateral Agent shall also execute and deliver to the Company upon such termination or release of Collateral such Uniform Commercial Code termination statements and such other documentation as shall be reasonably requested by the Company to effect the termination and release of the Liens on the Collateral. 4.12 Further Assurances. The Company agrees that, from time to time at its own expense upon the written request of the Collateral Agent, the Company will execute and deliver such further documents and do such other acts and things as the Collateral Agent may reasonably request in order fully to effect the purposes of this Agreement. Section 5. Miscellaneous. 5.01 Authority of Collateral Agent. The Company acknowledges that the rights and responsibilities of the Collateral Agent under this Agreement with respect to any action taken by the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Collateral Agent and the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders, be governed by the Intercreditor 10 11 Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent and the Company, the Collateral Agent shall be conclusively presumed to be acting as agent with full and valid authority so to act or refrain from acting, and the Company shall be under no obligation, or entitlement, to make any inquiry respecting such authority. 5.02 No Waiver. No failure on the part of the Collateral Agent or the Trustee, any Holder, the Term Loan Agent or any Term Loan Lender to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Collateral Agent or the Trustee, any Holder, the Term Loan Agent or any Term Loan Lender of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. 5.03 Notices. All notices, requests, consents and demands hereunder shall be in writing and telecopied (or transmitted by facsimile or similar electronic transfer) and delivered to the intended recipient at its address or transmission number for notices provided in Section 11.2 of the Intercreditor Agreement. 5.04 Expenses. The Company agrees to reimburse each of the Collateral Agent, the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders for all reasonable costs and expenses of such parties (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (i) any Event of Default and any enforcement or collection proceeding resulting therefrom, including, without limitation, all manner of participation in or other involvement with (w) performance by the Collateral Agent of any obligations of the Company in respect of the Collateral that the Company has failed or refused to perform, (x) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceeding, or any actual or attempted sale, or any exchange, enforcement, collection, or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Collateral Agent in respect thereof, by 11 12 litigation or otherwise, (y) judicial or regulatory proceedings and (z) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated) and (ii) the enforcement of this Section 5.04, and all such costs and expenses shall be Secured Obligations entitled to the benefits of the collateral security provided pursuant to Section 3 hereof. 5.05 Amendments, Etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by the Company and the Collateral Agent (with the consent of the Holders and the Term Loan Lenders as specified in the Intercreditor Agreement). Any such amendment or waiver shall be binding upon the Collateral Agent, the Trustee, each Holder, the Term Loan Agent, each Term Loan Lender, each holder of any of the Secured Obligations and the Company. 5.06 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the Company, the Collateral Agent, the Trustee, the Holders, the Term Loan Agent, the Term Loan Lenders and each holder of any of the Secured Obligations (provided, however, that the Company shall not assign or transfer its rights or obligations hereunder without the prior written consent of the Collateral Agent). 5.07 Captions. The captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 5.08 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 5.09 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. 5.10 Agents and Attorneys-in-Fact. The Collateral Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. 12 13 5.11 Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Collateral Agent and the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. 5.12 Additional Agreements. Reference is made to Article 7 of the Intercreditor Agreement for additional agreements of PAAC, the Company and the other Subsidiary Guarantors with respect to the rights of the Collateral Agent, including, without limitation, rights to compensation and indemnification. 5.13 Security Interest Absolute. All rights of the Collateral Agent hereunder, the security interest and all obligations of the Company hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Indenture or the Term Loan Agreement, any agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any or any consent to any departure from the Indenture or the Term Loan Agreement or any other agreement or instrument, (c) any exchange, release or non-perfection of any lien on other collateral, or any guarantee of all or any of the Secured Obligations, or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Company in respect of the Secured Obligations or this Agreement. [Signature Page Follows] 13 14 IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed and delivered as of the day and year first above written. PIONEER CHLOR ALKALI COMPANY, INC. By /s/ PHILIP J. ABLOVE ------------------------------------ Name: Philip J. Ablove Title: Vice President UNITED STATES TRUST COMPANY OF NEW YORK, as Collateral Agent By /s/ JAMES J. McGINLEY ------------------------------------ Name: James J. McGinley Title: Vice President 14 15 ANNEX 1 CHIEF EXECUTIVE OFFICE 4200 NationsBank Center 700 Louisiana Street Houston, Texas 77002 A-1 16 ANNEX 2 THE AGREEMENTS 1. Asset Purchase Agreement, dated as of May 14, 1997, between OCC Tacoma, Inc. ("OCC Tacoma") and Pioneer Companies, Inc. ("PCI"). Pursuant to the Assignment and Assumption Agreement dated as of June 17, 1997, PCI assigned to the Company substantially all of its rights and all of its obligations under the Purchase Agreement and such rights and obligations have been assumed by the Company. 2. Environmental Operating Agreement, dated as of June 17, 1997, between OCC Tacoma and the Company. 3. Chlorine and Caustic Soda Sales Agreement, dated as of June 17, 1997 between the Company and Occidental Chemical Corporation. 4. Chlorine Purchase Agreement, dated as of June 17, 1997, between the Company and OCC Tacoma. A-2 EX-4.5 15 STOCK PLEDGE AGREEMENT, DATED 6/17/97 1 EXHIBIT 4.5 STOCK PLEDGE AGREEMENT STOCK PLEDGE AGREEMENT dated as of June 17, 1997 made by PIONEER AMERICAS, INC., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Company") in favor of UNITED STATES TRUST COMPANY OF NEW YORK, as collateral agent (the "Collateral Agent") under the Intercreditor and Collateral Agency Agreement dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Intercreditor Agreement") among Pioneer Americas Acquisition Corp. ("PAAC"), the Company, Pioneer Chlor Alkali Company, Inc., United States Trust Company of New York, as trustee, for its own benefit and for the benefit of the Holders (as hereinafter defined) under the Indenture (as hereinafter defined) and Bank of America Illinois, as Agent, for its own benefit and for the benefit of the Term Loan Lenders (as hereinafter defined) under the Term Loan Agreement (as hereinafter defined). WHEREAS, pursuant to that certain Indenture dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Indenture") among PAAC, the Subsidiary Guarantors (as defined therein) and United States Trust Company of New York, as trustee (the "Trustee") for the holders of the Notes (as hereinafter defined) (the "Holders"), PAAC will issue its 9 1/4% Senior Secured Notes due 2007 (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor upon the registration of such notes pursuant to the Securities Act of 1933 or otherwise, the "Notes") in an aggregate principal amount of $200 million; WHEREAS, pursuant to that certain Term Loan Agreement dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Term Loan Agreement") among PAAC, Bank of America Illinois, as administrative agent (the "Term Loan Agent"), DLJ Capital Funding, as syndication agent, Salomon Brothers Holding Company Inc, as documentation agent and the lenders named therein (the "Term Loan Lenders"), the Term Loan Lenders will extend credit to PAAC to be evidenced by notes (as the same may be amended, amended and restated, supplemented or otherwise modified 2 from time to time, including all notes issued in exchange or substitution therefor, the "Term Loan Notes") in an aggregate principal amount of $100 million; WHEREAS, pursuant to Article Thirteen of the Indenture, the Company has guaranteed (such guarantee by the Company being hereinafter referred to as the "Note Guarantee") the payment and performance of the Indenture Obligation (as hereinafter defined); WHEREAS, pursuant to the Subsidiary Guaranty dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time), the Company has guaranteed (such guarantee by the Company being hereinafter referred to as the "Term Loan Guarantee") the payment and performance of the Term Loan Obligation (as hereinafter defined); WHEREAS, it is a condition precedent for the Initial Purchasers (as defined in the Indenture) to purchase the Notes and for the Term Loan Lenders to extend credit under the Term Loan Agreement to PAAC that the Company shall have executed and delivered this Agreement to the Collateral Agent for the ratable benefit of the Trustee for its own benefit and for the benefit of the Holders and for the Term Loan Agent for its own benefit and for the benefit of the Term Loan Lenders. NOW, THEREFORE, to induce the Initial Purchasers to purchase the Notes and the Term Loan Lenders to extend credit under the Term Loan Agreement to PAAC, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company has agreed to pledge and grant a security interest in the Collateral (as hereinafter defined) as security for the Secured Obligations (as hereinafter defined). Accordingly the parties hereto agree as follows: Section 1. Definitions. Terms defined in the Intercreditor Agreement are used herein as defined therein. In addition, as used herein: "Agreement" shall mean this Stock Pledge Agreement, as the same may be amended, modified or otherwise supplemented from time to time. "Collateral" shall have the meaning ascribed thereto in Section 3 hereof. 2 3 "Indenture Obligation" shall mean the payment of and performance of any and all indebtedness, obligations and liabilities of the Company now or hereafter existing under or in respect of the Note Guarantee, including, without limitation, payment of principal, premium, if any, interest and Liquidated Damages, if any, when due and payable, and all other amounts due or to become due under or in connection with the Indenture (including, without limitation, all sums due to the Trustee pursuant to Section 606 thereof) and the Notes and the performance of all other obligations to the Trustee and the Holders under the Indenture and the Notes, according to the terms thereof. "Issuers" shall mean, collectively, the respective corporations identified on Annex 1 hereto under the caption "Issuer." "Pledged Stock" shall have the meaning ascribed thereto in Section 3(a) hereof. "Secured Obligations" shall mean, collectively, (a) the Indenture Obligation, (ii) the Term Loan Obligation and (iii) all present and future obligations of the Company under this Agreement. "Term Loan Obligation" shall mean the payment of and performance of any and all indebtedness, obligations and liabilities of the Company now or hereafter existing under or in respect of the Term Loan Guarantee, including, without limitation, payment of principal, premium, if any, and interest when due and payable, and all other amounts due or to become due under or in connection with the Term Loan Agreement (including, without limitation, all sums due to the Term Loan Agent pursuant to Sections 10.3 and 10.4 thereof) and the Term Loan Notes and the performance of all other obligations to the Term Loan Agent and the Term Loan Lenders under the Term Loan Agreement and the Term Loan Notes according to the terms thereof. "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York. 3 4 Section 2. Representations and Warranties. The Company represents and warrants to the Collateral Agent, the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders that: (a) The Company is the sole beneficial owner of the Collateral and no Lien exists upon the Collateral (and no right or option to acquire the same exists in favor of any other Person), except for Permitted Liens under the Indenture and the Term Loan Agreement and except for the pledge and security interest in favor of the Collateral Agent for the ratable benefit of the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders created or provided for herein, which pledge and security interest constitute a valid perfected pledge and security interest in and to all of the Collateral securing the payment of the Secured Obligations. Upon delivery to the Collateral Agent of the stock certificates evidencing the Pledged Stock, the Lien granted pursuant to this Agreement will constitute a valid, perfected first priority Lien on the Pledged Stock, enforceable as such against all creditors of the Company and any Persons purporting to purchase Collateral from the Company. (b) The Pledged Stock represented by the certificates identified in Annex 1 hereto is, and all other Pledged Stock in which the Company shall hereafter grant a security interest pursuant to Section 3 hereof will be, duly authorized, validly existing, fully paid and non-assessable and none of such Pledged Stock is or will be subject to any contractual restriction, or any restriction under the charter or by-laws of the respective Issuer of such Pledged Stock, upon the transfer of such Pledged Stock (except for any such restriction contained herein or in the Intercreditor Agreement). (c) The Pledged Stock represented by the certificates identified in Annex 1 hereto constitutes all of the issued and outstanding shares of capital stock of any class of the Issuers beneficially owned by the Company on the date hereof (whether or not registered in the name of the Company) and said Annex 1 correctly identifies, as at the date hereof, the respective Issuers of such Pledged Stock, the respective class and par value of the shares comprising such Pledged 4 5 Stock and the respective number of shares (and registered owners thereof) represented by each such certificate. Section 3. The Pledge. As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, the Company hereby pledges and grants to the Collateral Agent, for the ratable benefit of the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders, as hereinafter provided, a security interest in all of the Company's right, title and interest in the following property, whether now owned by the Company or hereafter acquired and whether now existing or hereafter coming into existence (all being collectively referred to herein as "Collateral"): (a) the shares of common stock of the Issuers represented by the certificates identified in Annex 1 hereto and all other shares of capital stock of whatever class of the Issuers, now or hereafter owned by the Company, in each case together with the certificates evidencing the same (collectively, the "Pledged Stock"); (b) all shares, securities, moneys or property representing a dividend on any of the Pledged Stock, or representing a distribution or return of capital upon or in respect of the Pledged Stock, or resulting from a split-up, revision, reclassification or other like change of the Pledged Stock or otherwise received in exchange therefor, and any subscription warrants, rights or options issued to the holders of, or otherwise in respect of, the Pledged Stock; (c) without affecting the obligations of the Company under any provision prohibiting such action hereunder or under the Intercreditor Agreement, in the event of any consolidation or merger in which an Issuer is not the surviving corporation, all shares of each class of the capital stock of the successor corporation owned by the Company (unless such successor corporation is the Company itself) formed by or resulting from such consolidation or merger; and (d) all proceeds of and to any of the property of the Company described in the preceding clauses of this Section 3 (including, without limitation, all causes of action, claims 5 6 and warranties now or hereafter held by the Company in respect of any of the items listed above) and, to the extent related to any property described in said clauses or such proceeds, all books, correspondence, credit files, records, invoices and other papers. Section 4. Further Assurances; Remedies. In furtherance of the grant of the pledge and security interest pursuant to Section 3 hereof, the Company hereby agrees with the Collateral Agent, each Holder, each Term Loan Lender, the Trustee and the Term Loan Agent as follows: 4.01 Delivery and Other Perfection. The Company shall at its own expense: (a) if any of the shares, securities, moneys or property required to be pledged by the Company under clauses (a), (b) and (c) of Section 3 hereof are received by the Company, forthwith either (x) transfer and deliver to the Collateral Agent such shares or securities so received by the Company (together with the certificates for any such shares and securities duly endorsed in blank or accompanied by undated stock powers duly executed in blank), all of which thereafter shall be held by the Collateral Agent, pursuant to the terms of this Agreement, as part of the Collateral or (y) take such other action as the Collateral Agent shall deem necessary or appropriate to duly record the Lien created hereunder in such shares, securities, moneys or property; (b) give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the judgment of the Collateral Agent) to create, preserve, perfect or validate the security interest granted pursuant hereto or to enable the Collateral Agent to exercise and enforce its rights hereunder with respect to such pledge and security interest, including, without limitation, causing any or all of the Collateral to be transferred of record into the name of the Collateral Agent or its nominee (and the Collateral Agent agrees that if any Collateral is transferred into its name or the name of its nominee, the Collateral Agent will thereafter promptly give to the Company copies of any notices and communications received by it with respect to the Collateral); 6 7 (c) keep full and accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Collateral Agent may reasonably require in order to reflect the security interests granted by this Agreement; and (d) permit representatives of the Collateral Agent, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Collateral Agent to be present at the Company's place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications received by the Company with respect to the Collateral, all in such manner as the Collateral Agent may require. 4.02 Other Financing Statements and Liens. Except as otherwise permitted under Article 3 of the Intercreditor Agreement, without the prior written consent of the Collateral Agent, the Company shall not file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Collateral Agent is not named as the sole secured party for the ratable benefit of the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders. 4.03 Preservation of Rights. The Collateral Agent shall not be required to take steps necessary to preserve any rights against prior parties to any of the Collateral. 4.04 Collateral. (1) Except as otherwise permitted by the Indenture, the Company will cause the Collateral to constitute at all times 100% of the total number of shares of each class of capital stock of each Issuer then outstanding. (2) So long as no Event of Default shall have occurred and be continuing, the Company shall have the right to exercise all voting, consensual and other powers of ownership pertaining to the Collateral for all purposes not inconsistent with the terms of this Agreement, the Intercreditor Agreement, the Indenture, the Term Loan Agreement or any other instrument or 7 8 agreement referred to herein or therein, provided that the Company agrees that it will not vote the Collateral in any manner that will have a material adverse effect on the Collateral or on the ability of the Company to perform its obligations under this Agreement, the Intercreditor Agreement, the Indenture, the Term Loan Agreement or any such other instrument or agreement; and the Collateral Agent shall execute and deliver to the Company or cause to be executed and delivered to the Company all such proxies, powers of attorney, dividend and other orders, and all such instruments, without recourse, as the Company may reasonably request for the purpose of enabling the Company to exercise the rights and powers that it is entitled to exercise pursuant to this Section 4.04(2). (3) Unless and until an Event of Default has occurred and is continuing, the Company shall be entitled to receive and retain any dividends on the Collateral paid in cash out of earned surplus. (4) If any Event of Default shall have occurred, then so long as such Event of Default shall continue, and whether or not the Collateral Agent or the Trustee, any Holder, the Term Loan Agent or any Term Loan Lender exercises any available right to declare any Secured Obligation due and payable or seeks or pursues any other relief or remedy available to it under applicable law or under this Agreement, the Intercreditor Agreement, the Indenture, the Term Loan Agreement, or any other agreement relating to such Secured Obligation, all dividends and other distributions on the Collateral shall be paid directly to the Collateral Agent and retained by it as part of the Collateral, subject to the terms of this Agreement, and, if the Collateral Agent shall so request in writing, the Company agrees to execute and deliver to the Collateral Agent appropriate additional dividend, distribution and other orders and documents to that end, provided that if such Event of Default is cured, any such dividend or distribution theretofore paid to the Collateral Agent shall (except to the extent theretofore applied to the Secured Obligations) be returned by the Collateral Agent to the Company. 4.05 Events of Default, Etc. During the period during which an Event of Default shall have occurred and be continuing: (a) the Collateral Agent shall have all of the rights and remedies with respect to the Collateral of a secured 8 9 party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Collateral Agent were the sole and absolute owner thereof (and the Company agrees to take all such action as may be appropriate to give effect to such right); (b) the Collateral Agent in its discretion may, in its name or in the name of the Company or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and (c) the Collateral Agent may, upon ten Business Days' prior written notice to the Company of the time and place, with respect to the Collateral or any part thereof that shall then be or shall thereafter come into the possession, custody or control of the Collateral Agent, the Trustee, the Holders, the Term Loan Agent, the Term Loan Lenders or any of their respective agents, sell, lease, assign or otherwise dispose of all or any part of such Collateral, at such place or places as the Collateral Agent deems best, and for cash or for credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of the time or place thereof (except such notice as is required above or by applicable statute, including the Uniform Commercial Code, and cannot be waived), and the Collateral Agent, the Trustee, any Holder, the Term Loan Agent, any Term Loan Lender or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale) and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of the Company, any such demand, notice and right or equity being hereby expressly waived and released. The Collateral Agent 9 10 may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the sale may be so adjourned. The proceeds of each collection, sale or other disposition under this Section 4.05 shall be applied in accordance with Article 6 of the Intercreditor Agreement. The Company recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof. The Company acknowledges that any such private sales may be at prices and on terms less favorable to the Collateral Agent than those obtainable through a public sale without such restrictions, and acknowledges that any such private sale shall not be deemed to have been made other than in a commercially reasonable manner solely by virtue of such circumstances and that the Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the respective Issuer thereof to register it for public sale. After any Event of Default shall have occurred and be continuing and the Collateral Agent has notified the Company of the Collateral Agent's intention to exercise its voting power under this Section 4.05, (i) the Collateral Agent may exercise (to the exclusion of the Company) the voting power and all other incidental rights of ownership with respect to any Pledged Stock or other shares of capital stock constituting Collateral and the Company hereby grants the Collateral Agent an irrevocable proxy, exercisable under such circumstances, to vote the Pledged Stock and such other Collateral; and (ii) promptly to deliver to the Collateral Agent such additional proxies and other documents as may be 10 11 necessary to allow the Collateral Agent to exercise such voting power. 4.06 Deficiency. If the proceeds of sale, collection or other realization of or upon the Collateral pursuant to Section 4.05 hereof are insufficient to cover the costs and expenses of such realization and the payment in full of the Secured Obligations, the Company shall remain liable for any deficiency. 4.07 Removals, Etc. Without at least 30 days' prior written notice to the Collateral Agent, the Company shall not (i) maintain any of its books and records with respect to the Collateral at any office or maintain its principal place of business at any place other than at the address indicated on the signature page hereto or (ii) change its name, or the name under which it does business, from the name shown on the signature page hereto. 4.08 Private Sale. None of the Collateral Agent, the Trustee, the Holders, the Term Loan Agent or the Term Loan Lenders shall incur any liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 4.05 hereof conducted in a commercially reasonable manner. The Company hereby waives, to the maximum extent permitted under applicable law, any claims against the Collateral Agent, the Trustee, any Holder, the Term Loan Agent and any Term Loan Lender arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Collateral Agent accepts the first offer received and does not offer the Collateral to more than one offeree. 4.09 Application of Proceeds. The proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Collateral Agent under this Agreement, shall be applied by the Collateral Agent in the manner set forth in Article 6 of the Intercreditor Agreement. As used in this Section 4, "proceeds" of the Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, the Collateral, including any thereof received under any reorganization, 11 12 liquidation or adjustment of debt of the Company or any issuer of or obligor on any of the Collateral. 4.10 Attorney-in-Fact. Without limiting any rights or powers granted by this Agreement, the Company hereby irrevocably constitutes and appoints the Collateral Agent and any officer or agent of the Collateral Agent, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Company and in the name of the Company or in the Collateral Agent's own name, from time to time in the Collateral Agent's discretion, for the purpose of carrying out the provisions of this Agreement and taking any and all appropriate action and executing any and all documents and instruments which may be necessary or desirable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as the Collateral Agent shall be entitled under this Section 4 to make collections in respect of the Collateral, the Collateral Agent shall have the right and power to receive, endorse and collect all checks made payable to the order of the Company representing any dividend, payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. 4.11 Perfection. Prior to or concurrently with the execution and delivery of this Agreement, the Company shall deliver to the Collateral Agent all certificates identified in Annex 1 hereto, accompanied by undated stock powers duly executed in blank. 4.12 Termination. When all the Secured Obligations and all the obligations under the Intercreditor Agreement, the Indenture and the Term Loan Agreement shall have been paid in full, this Agreement shall terminate, and the Collateral Agent shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of the Company. 4.13 Further Assurances. The Company agrees that, from time to time, at its own expense, upon the written request of the Collateral Agent, the Company will execute and deliver such further documents and do such other acts and things as the 12 13 Collateral Agent may reasonably request in order fully to effect the purposes of this Agreement. Section 5. Miscellaneous. 5.01 Authority of Collateral Agent. The Company acknowledges that the rights and responsibilities of the Collateral Agent under this Agreement with respect to any action taken by the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Collateral Agent and the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders, be governed by the Intercreditor Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent and the Company, the Collateral Agent shall be conclusively presumed to be acting as agent with full and valid authority so to act or refrain from acting, and the Company shall be under no obligation, or entitlement, to make any inquiry respecting such authority. 5.02 No Waiver. No failure on the part of the Collateral Agent or the Trustee, any Holders, the Term Loan Agent or any Term Loan Lenders to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Collateral Agent or the Trustee, any Holders, the Term Loan Agent or any Term Loan Lender of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. 5.03 Notices. All notices, requests, consents and demands hereunder shall be in writing and telecopied (or transmitted by facsimile or similar electronic transfer) and delivered to the intended recipient at its address or transmission number for notices provided in Section 11.2 of the Intercreditor Agreement. 5.04 Expenses. The Company agrees to reimburse each of the Collateral Agent, the Trustee, the Holders, the Term Loan 13 14 Agent and the Term Loan Lenders for all reasonable costs and expenses of such parties (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (i) any Event of Default and any enforcement or collection proceeding resulting therefrom, including, without limitation, all manner of participation in or other involvement with (w) performance by the Collateral Agent of any obligations of the Company in respect of the Collateral that the Company has failed or refused to perform, (x) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Collateral Agent in respect thereof, by litigation or otherwise, (y) judicial or regulatory proceedings and (z) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated) and (ii) the enforcement of this Section 5.04, and all such costs and expenses shall be Secured Obligations entitled to the benefits of the collateral security provided pursuant to Section 3 hereof. 5.05 Amendments, Etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by the Company and the Collateral Agent (with the consent of the Holders and the Term Loan Lenders as specified in the Intercreditor Agreement). Any such amendment or waiver shall be binding upon the Collateral Agent, the Trustee, each Holder, the Term Loan Agent, each Term Loan Lender, each holder of any of the Secured Obligations and the Company. 5.06 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the Company, the Collateral Agent, the Trustee, the Holders, the Term Loan Agent, the Term Loan Lenders and each holder of any of the Secured Obligations (provided, however, that the Company shall not assign or transfer its rights or obligations hereunder without the prior written consent of the Collateral Agent). 5.07 Captions. The captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 14 15 5.08 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and either of the parties hereto may execute this Agreement by signing any such counterpart. 5.09 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. 5.10 Agents and Attorneys-in-Fact. The Collateral Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. 5.11 Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Collateral Agent, the Trustee, the Holders, the Term Loan Agent and the Term Loan Lenders in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. 5.12 Additional Agreements. Reference is made to Article 7 of the Intercreditor Agreement for additional agreements of PAAC, the Company and the other Subsidiary Guarantors with respect to the rights of the Collateral Agent, including without limitation, rights to compensation and indemnification. 5.12 Security Interest Absolute. All rights of the Collateral Agent hereunder, the security interest and all obligations of the Company hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Indenture or the Term Loan Agreement, any agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from 15 16 the Indenture or the Term Loan Agreement or any other agreement or instrument, (c) any exchange, release or non-perfection of any lien on other collateral, or any guarantee of all or any of the Secured Obligations or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Company in respect of the Secured Obligations or this Agreement. [Signature Page Follows] 16 17 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered as of the day and year first above written. PIONEER AMERICAS, INC. By /s/ PHILIP J. ABLOVE ------------------------------ Name: Philip J. Ablove Title: Vice President and Chief Financial Officer Address: 4200 NationsBank Center 700 Louisiana Street Houston, Texas 77002 UNITED STATES TRUST COMPANY OF NEW YORK, as Collateral Agent By /s/ JAMES J. MCGINLEY ------------------------------ Name: James J. McGinley Title: Vice President Address: 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department 17 18 ANNEX 1 PLEDGED STOCK [See Section 2(b) and (c)]
Certificate Registered Issuer Nos. Owner Number of Shares - ------ ----------- ---------- ---------------- Pioneer Chlor 7 Pioneer 1,000 shares of Alkali Company, Inc. Americas, common stock, Inc. par value $1.00 per share All-Pure Chemical Co. 34 Pioneer 1,000 shares of Americas, common stock, no Inc. par value
EX-4.6(A) 16 LOAN AND SECURITY AGREEMENT, DATED AS OF 6/17/97 1 EXHIBIT 4.6(a) LOAN AND SECURITY AGREEMENT DATED AS OF JUNE 17, 1997 AMONG PIONEER AMERICAS ACQUISITION CORP., AS BORROWER, BANK OF AMERICA ILLINOIS, AS AGENT AND A LENDER, AND THE OTHER LENDERS PARTY HERETO 2 TABLE OF CONTENTS
Page ---- 1. DEFINITIONS AND OTHER TERMS..........................................................1 1.1. Definitions...............................................................1 1.2. Other Definitional Provisions............................................20 1.3. Interpretation of Agreement..............................................20 1.4. Compliance with Financial Restrictions...................................21 2. LOANS; LETTERS OF CREDIT; OTHER MATTERS.............................................21 2.1. Loans....................................................................21 2.2. Letters of Credit........................................................23 2.3. Loan Account; Demand Deposit Account.....................................25 2.4. Interest and Fees........................................................25 2.5. Requests for Loans; Borrowing Base Certificates; Other Information.......26 2.6. Statements...............................................................27 2.7. Overdraft Loans..........................................................27 2.8. Over Advances............................................................28 2.9. All Loans One Obligation.................................................28 2.10. Making of Payments; Application of Collections; Charging of Accounts....28 2.11. Agent's Election Not to Enforce.........................................30 2.12. Reaffirmation...........................................................30 2.13. Setoff..................................................................30 2.14. Upfront Closing Fee.....................................................31 2.15. Settlements, Distributions and Apportionment of Payments................31 3. COLLATERAL..........................................................................32 3.1. Grant of Security Interest...............................................32 3.2. Accounts Receivable......................................................33 3.3. Inventory................................................................36 3.4. Supplemental Documentation...............................................37 3.5. Collateral for the Benefit of Agent and Lenders..........................37 3.6. Certain Intellectual Property............................................37 3.7. Landlord's Agreements....................................................37 4. REPRESENTATIONS AND WARRANTIES......................................................38 4.1. Organization.............................................................38 4.2. Authorization............................................................38 4.3. No Conflicts.............................................................39 4.4. Validity and Binding Effect..............................................39 4.5. No Default...............................................................39 4.6. Financial Statements.....................................................39
-i- 3 4.7. Insurance................................................................40 4.8. Litigation; Contingent Liabilities.......................................40 4.9. Liens....................................................................40 4.10. Subsidiaries............................................................41 4.11. Partnerships; Joint Ventures............................................41 4.12. Business and Collateral Locations.......................................41 4.13. Senior Secured Notes....................................................42 4.14. Term Loans..............................................................42 4.15. Eligibility of Collateral...............................................43 4.16. Patents, Trademarks, etc................................................43 4.17. Solvency................................................................43 4.18. Contracts; Labor Matters................................................43 4.19. Pension and Welfare Plans...............................................44 4.20. Regulations G, U and X..................................................44 4.21. Compliance..............................................................44 4.22. Taxes...................................................................45 4.23. Investment Company Act Representation...................................45 4.24. Public Utility Holding Company Act Representation.......................45 4.25. Environmental and Safety and Health Matters.............................45 4.26. Related Agreements and Transaction Documents............................46 4.27. Capitalized Lease Obligations...........................................47 4.28. Other Transactions......................................................47 4.29. Holding Companies.......................................................47 5. BORROWER COVENANTS..................................................................48 5.1. Financial Statements and Other Reports...................................48 5.2. Notices..................................................................50 5.3. Existence................................................................52 5.4. Nature of Business.......................................................53 5.5. Books, Records and Access................................................53 5.6. Insurance................................................................53 5.7. Repair...................................................................54 5.8. Taxes....................................................................54 5.9. Compliance...............................................................55 5.10. Pension Plans...........................................................55 5.11. Merger, Purchase and Sale...............................................55 5.12. Restricted Payments.....................................................56 5.13. Stock...................................................................57 5.14. Indebtedness............................................................57 5.15. Liens...................................................................58 5.16. Guaranties..............................................................58 5.17. Investments.............................................................59 5.18. Designated Subsidiaries.................................................59
-ii- 4 5.19. Loans to Designated Subsidiaries.................................59 5.20. Change in Accounts Receivable....................................60 5.21. Environmental Issues.............................................60 5.22. Related Agreements...............................................60 5.23. Unconditional Purchase Options...................................60 5.24. Use of Proceeds..................................................61 5.25. Transactions with Related Parties................................61 5.26. Amendment of Documents...........................................61 5.27. Designated Subsidiary............................................62 5.28. Limitation on Applicability of Covenants.........................62 5.29. Merger...........................................................62 5.30. Holding Companies................................................62 5.31. Banking Relationships............................................62 6. DEFAULT......................................................................63 6.1. Event of Default..................................................63 6.2. Effect of Event of Default; Remedies..............................65 7. ADDITIONAL PROVISIONS REGARDING COLLATERAL AND AGENT'S RIGHTS................66 7.1. Notice of Disposition of Collateral...............................66 7.2. Application of Proceeds of Collateral.............................66 7.3. Care of Collateral................................................67 7.4. Performance of Borrower's Obligations.............................67 7.5. Agent's Rights....................................................67 8. CONDITIONS PRECEDENT; DELIVERY OF DOCUMENTS AND OTHER MATTERS................68 8.1. Conditions Precedent to Initial Loans and Letters of Credit.......68 8.2. Continuing Conditions Precedent to all Loans; Certification.......70 9. INDEMNITY....................................................................70 9.1. Environmental and Safety and Health Indemnity.....................70 9.2. General Indemnity.................................................71 9.3. Capital Adequacy..................................................72 10. AGENT.......................................................................72 10.1. Appointment of Agent.............................................72 10.2. Nature of Duties of Agent........................................73 10.3. Agent in its Capacity as Lender..................................73 10.4. Independent Credit Analysis......................................73 10.5. General Immunity.................................................74 10.6. Action by Agent..................................................75 10.7. Right to Indemnity...............................................75
-iii- 5 10.8. Rights and Remedies to be Exercised by Agent Only..................76 10.9. Agent's Resignation................................................76 10.10. Disbursement of Proceeds of Loans and Other Advances..............76 10.11. Release of Collateral.............................................77 10.12. Agreement to Cooperate............................................77 10.13. Sharing of Collateral.............................................77 10.14. Lenders to Act as Agents..........................................78 11. ADDITIONAL PROVISIONS.........................................................78 12. GENERAL.......................................................................78 12.1. Borrower Waiver....................................................78 12.2. Power of Attorney..................................................78 12.3. Expenses; Attorneys' Fees..........................................79 12.4. BAI's Fees and Charges.............................................80 12.5. Lawful Interest....................................................80 12.6. No Waiver by Agent or any Lender; Amendments.......................81 12.7. Termination of Revolving Credit....................................81 12.8. Notices............................................................82 12.9. Assignments and Participations; Information........................82 12.10. Severability......................................................84 12.11. Successors........................................................84 12.12. Construction......................................................84 12.13. Consent to Jurisdiction...........................................85 12.14. Subsidiary Reference..............................................85 12.15. Waiver of Jury Trial..............................................85
-iv- 6 LOAN AND SECURITY AGREEMENT THIS AGREEMENT ("Agreement") is made as of this 17th day of June, 1997 by and among BANK OF AMERICA ILLINOIS (in its individual capacity, "BAI"), an Illinois corporation having its principal office at 231 South LaSalle Street, Chicago, Illinois 60697, as Agent and a Lender hereunder, the other Lenders from time to time party hereto, and PIONEER AMERICAS ACQUISITION CORP. ("Borrower"), a Delaware corporation having its principal office at 4200 NationsBank Center, 700 Louisiana Street, Houston, Texas 77002. W I T N E S S E T H: WHEREAS, Borrower may, from time to time, request loans or other financial accommodations from Lenders, and the parties wish to provide for the terms and conditions upon which such loans or other financial accommodations shall be made; NOW, THEREFORE, in consideration of any loan or advance or grant of credit (including any loan or advance or grant of credit by renewal or extension) hereafter made to Borrower by, or on behalf of, Lenders, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. DEFINITIONS AND OTHER TERMS. 1.1. Definitions. In addition to terms defined elsewhere in this Agreement or any Supplement, Schedule or Exhibit hereto, when used herein, the following terms shall have the following meanings (such meanings shall be equally applicable to the singular and plural forms of the terms used, as the context requires): "Account Debtor" means any Person who is or who may become obligated to Borrower or any Designated Subsidiary under, with respect to, or on account of an Account Receivable, Contract Right or other Collateral. "Account Receivable" means any account of Borrower or any Designated Subsidiary and any other right of Borrower or any Designated Subsidiary to payment for goods sold or leased or for services rendered, whether or not evidenced by an instrument or chattel paper and whether or not yet earned by performance. "Acquisition" means, collectively, (a) the purchase by PCAC of the assets of the Tacoma, Washington chlor-alkali facility of OCC and (b) the transactions contemplated in connection therewith, including without limitation (i) the issuance by Parent to Occidental Chemical Corporation of 55,000 shares of its convertible preferred stock, par value $0.01 per share and (ii) the execution by Occidental Chemical Corporation and 7 Borrower of a certain Chlorine Purchase Agreement, in each case occurring on or before the Closing Date. "Agent" means BAI in its capacity as agent for Lenders hereunder and under the Related Agreements, or any successor agent pursuant to Section 10. "Agreement" means this Loan and Security Agreement, as the same may be amended, modified or supplemented from time to time. "Applicable Margin" means, at any time, a percentage determined with reference to Borrower's Total Debt to EBITDA Ratio for the twelve month period ending on the last day of Borrower's most recent fiscal quarter, as set forth below for the applicable interest rate or fee:
Total Debt to Applicable Margin Applicable Margin Applicable Margin EBITDA Ratio for LIBOR Rate Loans for Floating Rate Loans for Nonuse Fee ------------ -------------------- ----------------------- -------------- Equal to or greater 2.50% 0.00% 0.375% than 4.0:1.0 Less than 4.0:1.0 and 2.25% 0.50% 0.25% equal to or greater than 3.5:1.0
Less than 3.5:1.0 2.00% 0.50% 0.25% The Total Debt to EBITDA Ratio for any fiscal quarter shall be determined pursuant to Borrower's monthly financial statements for the last month in such quarter delivered pursuant to Section 5.1.1(b) or, with respect to the last fiscal quarter in any Fiscal Year, Borrower's annual audited financial statements for such Fiscal Year delivered pursuant to Section 5.1.1(a). Changes in the Applicable Margin shall become prospectively effective 5 days after receipt by Agent of the applicable financial statements, accompanied by a calculation of the Total Debt to EBITDA Ratio. The Applicable Margin for the period from the Closing Date until five (5) days after receipt by Agent of Borrower's financial statements for June, 1997, shall be set at the level that would be applicable if the Total Debt to EBITDA Ratio were equal to or greater than 4.0:1.0. "Application" means an application by Borrower, in a form and containing terms and provisions acceptable to Agent and Issuing Bank, for the issuance by Issuing Bank of a Letter of Credit. "Assignee Deposit Account" has the meaning ascribed to such term in Section 3.2(d). -2- 8 "Assignment and Acceptance Agreement" means an agreement in the form of Exhibit D pursuant to which a Lender assigns all or a portion of its rights, and delegates all or such portion of its obligations, under this Agreement and the Related Agreements, to another Person. "Attorneys' Fees" has the meaning ascribed to such term in Section 12.3. "BAI" has the meaning ascribed to such term in the Preamble. "Banking Day" means any day other than a Saturday, Sunday or legal holiday on which banks are authorized or required to be closed for the conduct of commercial banking business in Chicago, Illinois; provided, with respect to LIBOR Rate Loans, Banking Days shall not include a day on which dealings in U.S. Dollars may not be carried on by BAI in the London interbank LIBOR market. "Borrower" has the meaning ascribed to such term in the Preamble. "Borrower Collateral" has the meaning ascribed to such term in Section 3.1. "Borrowing Base" has the meaning ascribed to such term in Supplement A. "Borrowing Base Certificate" means a certificate in the form of Exhibit A attached hereto, executed and certified as accurate by an officer of Borrower designated in writing from time to time by Borrower to Agent pursuant to resolutions of the Board of Directors of Borrower. "BMPC" means Black Mountain Power Company, a Subsidiary of PCAC. "Capitalized Lease" means any lease which is or should be capitalized on the balance sheet of the lessee in accordance with GAAP. "Closing Date" means the first date on which Loans are made, or Letters of Credit are issued, under this Agreement. "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. "Collateral" means, collectively, (a) Borrower Collateral and (b) the Obligor Collateral. "Contingent Payment Agreement" shall mean that certain Contingent Payment Agreement dated on or about the Original Closing Date among Parent, Borrower and Sellers. -3- 9 "Contract Right" means any right of Borrower or any Designated Subsidiary to payment under a contract for the sale or lease of goods or the rendering of services, which right is not yet earned by performance. "Credit" means the facility established under this Agreement pursuant to which Lenders will make Revolving Loans (the "Revolving Credit") to Borrower, and/or cause Issuing Bank to issue Letters of Credit for the account of Borrower. "Default Rate" means, with respect to a Loan, the rate of interest which is applicable to such Loan after the occurrence of an Event of Default, as determined pursuant to Supplement A. "Demand Deposit Account" has the meaning ascribed to such term in Section 2.3. "Depository Accounts" has the meaning ascribed to such term in Section 3.2(d). "Designated Subsidiary" means any Subsidiary of Borrower so designated by Borrower from time to time, with Agent's written consent, which shall not be unreasonably withheld. The Designated Subsidiaries existing on the Closing Date are designated as such on Schedule 4.10. "Disproportionate Advance" has the meaning ascribed to such term in Section 2.1.1(a). "East" means Pioneer (East), Inc., a Subsidiary of PAI. "EBITDA" for any period means net earnings (excluding interest income) before interest expense, tax expense, depreciation and amortization, all determined for Borrower and its Subsidiaries on a consolidated basis and in accordance with GAAP; provided, that for purposes hereof (a) net earnings shall not include any gains or losses on the sale or other disposition of Investments or fixed assets or any other extraordinary items of income and (b) net earnings for periods that include any portion of the 1997 Fiscal Year shall exclude up to $31,000,000 related to prepayment premiums paid or incurred by Borrower in connection with the refinancing of some or all of the First Mortgage Notes on or about the Closing Date. "Eligible Account Receivable" means an Account Receivable owing to Borrower or a Designated Subsidiary which meets the following requirements: (a) it is genuine and in all respects what it purports to be; (b) it arises from either (i) the performance of services by Borrower or such Designated Subsidiary, which services have been fully performed and, if applicable, -4- 10 acknowledged and/or accepted by the Account Debtor with respect thereto or (ii) the sale or lease of goods by Borrower or such Designated Subsidiary; and if it arises from the sale or lease of goods, (A) such goods comply with such Account Debtor's specifications (if any) and have been shipped to, or delivered to and accepted by, such Account Debtor and neither Borrower nor such Designated Subsidiary has knowledge that the Account Debtor has failed to accept delivery of all or a portion of such goods, and (B) Borrower or such Designated Subsidiary has possession of shipping and delivery receipts evidencing such shipment, delivery and acceptance; (c) it (i) is evidenced by an invoice rendered to the Account Debtor with respect thereto which (A) is dated not earlier than the date of shipment or performance and (B) has payment terms which are not unacceptable to Agent in its reasonable discretion and (ii) meets the additional Eligible Account Receivable requirements set forth in Supplement A; (d) it is not subject to any assignment, claim or Lien, other than (i) a Lien in favor of Agent, for the benefit of itself and Lenders, and (ii) a Lien consented to by Agent in writing; (e) it is a valid, legally enforceable and unconditional obligation of the Account Debtor with respect thereto, and is not subject to setoff, counterclaim, credit or allowance (except any credit or allowance which has been deducted in computing the net amount of the applicable invoice as shown in the original schedule or Borrowing Base Certificate furnished to Agent identifying or including such Account Receivable) or adjustment by the Account Debtor with respect thereto, or to any claim by such Account Debtor denying liability thereunder in whole or in part, and such Account Debtor has not refused to accept any of the goods or services which are the subject of such Account Receivable or offered or attempted to return any of such goods; (f) there are no proceedings or actions which to the knowledge of Borrower are then threatened or pending against the Account Debtor with respect thereto or to which such Account Debtor is a party which are reasonably likely to materially impair its ability to pay any Account Receivable in full when due; (g) it does not arise out of a contract which, by its terms, forbids, restricts or makes void or unenforceable the assignment by Borrower or such Designated Subsidiary to Agent, for the benefit of itself and Lenders, of the Account Receivable arising with respect thereto; (h) the Account Debtor with respect thereto is not Borrower, a Subsidiary, Related Party (other than Saguaro Power Company L.P.) or Obligor, or a director, officer, employee or agent of Borrower, a Subsidiary, Related Party or Obligor; (i) the Account Debtor with respect thereto is a resident or citizen of, and is located within, the United States of America (a "Domestic Account"); -5- 11 (j) it is not a Domestic Account (a "Foreign Account"), but only to the extent that the aggregate amount of all Foreign Accounts does not exceed $3,000,000 (the "Foreign Account Limit"); (k) it is not an Account Receivable arising from a "sale on approval," "sale or return" or "consignment," or subject to any other repurchase or return agreement; (l) it is not an Account Receivable with respect to which possession and/or control of the goods sold giving rise thereto is held, maintained or retained by Borrower or such Designated Subsidiary or any Subsidiary, Related Party or other Obligor (or by any agent or custodian of Borrower or such Designated Subsidiary, any Subsidiary, Related Party or Obligor) for the account of or subject to further and/or future direction from the Account Debtor thereof; (m) it is not an Account Receivable which in any way fails to meet or violates any warranty, representation or covenant contained in this Agreement or any Related Agreement relating directly or indirectly to Accounts Receivable; (n) it arises in the ordinary course of Borrower's or such Designated Subsidiary's business; (o) if the Account Debtor is the United States of America or any state or local governmental entity, or any department, agency or instrumentality thereof, Borrower or such Designated Subsidiary has assigned its rights to payment of such Account Receivable to Agent, for the benefit of itself and Lenders, pursuant to the Assignment of Claims Act of 1940, as amended, or pursuant to any similar state or local law, regulation or requirement, but only to the extent that the aggregate amount of such government Accounts exceeds $10,000,000 or the amount of any individual government Accounts exceeds $2,000,000; (p) if Agent in its reasonable business judgment has established a credit limit for an Account Debtor, the aggregate dollar amount of Accounts Receivable due from such Account Debtor, including such Account Receivable, does not exceed such credit limit; provided, however, that Agent may not reduce any credit limit with respect to any Account Debtor except upon 45 days' prior notice to Borrower; (q) if the Account Receivable is evidenced by chattel paper or an instrument, (i) Agent shall have specifically agreed in writing to include such Account Receivable as an Eligible Account Receivable, (ii) only payments then due and payable under such chattel paper or instrument shall be included as an Eligible Account Receivable and (iii) the originals of such chattel paper or instruments have been endorsed and/or assigned and delivered to Agent, for the benefit of itself and Lenders, in a manner satisfactory to Agent; -6- 12 (r) it is an Account Receivable with respect to which Agent, for itself and Lenders, has a valid, first priority and fully perfected Lien, other than Foreign Accounts with an aggregate value less than or equal to the Foreign Account Limit; and (s) it is an Account Receivable that Agent in its reasonable business judgment deems to be acceptable. Agent further reserves the right in its reasonable business judgment, from time to time hereafter, to designate upon ten (10) Banking Days' prior notice to Borrower as ineligible specific Accounts Receivable that meet the aforementioned criteria for Eligible Accounts Receivable, including without limitation if Agent in its reasonable business judgment determines that the prospect of payment or performance of the Account Debtor with respect to such Account Receivable is or will be materially impaired for any reason whatsoever. An Account Receivable which is at any time an Eligible Account Receivable, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Account Receivable. "Eligible Inventory" means Inventory of Borrower or any Designated Subsidiary, which meets the following requirements: (a) it is owned by Borrower or a Designated Subsidiary and is not subject to any prior assignment, claim or Lien, other than (i) a Lien in favor of Agent, for the benefit of itself and Lenders, and (ii) Liens consented to by Agent in writing; (b) if it is a hard good held for sale or lease or furnishing under contracts of service, it is (except as Agent may otherwise consent in writing) new and unused; (c) except as Agent may otherwise consent, it is in the possession and control of Borrower, a Designated Subsidiary or their respective agents; (d) if it is in the possession or control of a bailee, warehouseman, processor or other Person other than Borrower or a Designated Subsidiary, Agent is in possession of such agreements, instruments and documents as Agent may require (each in form and content acceptable to Agent and duly executed, as appropriate, by the bailee, warehouseman, processor or other Person in possession or control of such Inventory, as applicable), including but not limited to warehouse receipts in Agent's name, for the benefit of itself and Lenders, covering such Inventory; (e) it is not Inventory which is dedicated to, identifiable with, or is otherwise specifically to be used in the manufacture of, goods which are to be sold or leased to the United States of America or any department, agency or instrumentality thereof and in respect of which Inventory Borrower or a Designated Subsidiary shall have received any progress or other advance payment which is or may be against any Account Receivable generated upon the sale or lease of any such goods; -7- 13 (f) it is not Inventory produced in violation of the Fair Labor Standards Act and subject to the "hot goods" provisions contained in Title 29 U.S.C. ss.215 or any successor statute or section; (g) it is not (i) packaging or shipping materials, (ii) goods used in connection with maintenance or repair of Borrower's or a Designated Subsidiary's business, properties or assets, (iii) work-in-process or (iv) general supplies; (h) it is not Inventory which in any way fails to meet or violates any warranty, representation or covenant contained in this Agreement or any Related Agreement relating directly or indirectly to Inventory; (i) Agent has not determined in its reasonable business judgment and after ten (10) Banking Days' prior notice to Borrower that it is unacceptable due to age, type, category, quality and/or quantity; (j) it is Inventory with respect to which Agent, for itself and Lenders, has a valid, first priority and fully perfected Lien; and (k) it is not Inventory the use of which by Borrower or a Designated Subsidiary or the manufacture or sale thereof by Borrower or a Designated Subsidiary, is subject to any licensing, patent, royalty, trademark, tradename or copyright agreement of any other Person, other than Inventory subject to the two certain DSA Anode Lease Agreements dated January 1, 1987 between Electrode Corporation and Stauffer Chemical Company. Notwithstanding anything to the contrary contained herein, up to $1,000,000 of Inventory located at leased locations of Borrower and the Designated Subsidiaries shall at all times deemed to be Eligible Inventory hereunder, despite the fact that the lessors of the applicable leased locations have not executed and delivered to Agent Landlord's Waivers in form and substance reasonably satisfactory to Agent, so long as such Inventory would be classified as Eligible Inventory except for the failure to deliver such Landlord's Waivers. Agent further reserves the right in its reasonable business judgment, from time to time hereafter, to designate upon ten (10) Banking Days' prior notice to Borrower as ineligible specific items of Inventory that meet the aforementioned criteria for Eligible Inventory. Inventory which is at any time Eligible Inventory but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be Eligible Inventory. "Environmental Laws" means the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act, and any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree or other requirement regulating, relating to, or imposing liability or standards of conduct (including but not limited to permit requirements, and emission or effluent restrictions) -8- 14 with respect to protection or conservation of the environment concerning any Hazardous Materials or any hazardous, toxic or dangerous waste, substance or constituent, or any pollutant or contaminant or other substance, whether solid, liquid or gas, as now or at any time hereafter in effect. "Environmental Lien" means a Lien in favor of any governmental entity for (a) any liability under any Environmental Law or (b) damages arising from or costs incurred by such governmental entity in response to a Release of any Hazardous Material or the spillage, disposal or release into the environment of any other hazardous, toxic or dangerous waste, substance or constituent, or other substance. "Equipment" means all equipment of Borrower or any Designated Subsidiary of every description, including without limitation fixtures, furniture, vehicles and trade fixtures, together with any and all accessions, parts and equipment attached thereto or used in connection therewith, and any substitutions therefor and replacements thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to also refer to any successor sections. "ERISA Affiliate" means any corporation, partnership, or other trade or business (whether or not incorporated) that is, along with Borrower, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in Sections 414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA, or a member of the same affiliated service group within the meaning of Section 414(m) of the Code. "Eurocurrency Reserve Requirement" means, with respect to any LIBOR Rate Loan for any Interest Rate Period, a percentage equal to the daily average during such Interest Rate Period of the percentages in effect on each day of such Interest Rate Period, as prescribed by the Federal Reserve Board, for determining the aggregate maximum reserve requirements (including all basic, supplemental, marginal and other reserves) applicable to "Eurocurrency liabilities" pursuant to Regulation D or any other then applicable regulation of the Federal Reserve Board which prescribes reserve requirements applicable to "Eurocurrency liabilities," as presently defined in Regulation D. Without limiting the effect of the foregoing, the Eurocurrency Reserve Requirement shall reflect any other reserves required to be maintained by BAI against (i) any category of liabilities that includes deposits by reference to which the LIBOR Rate is to be determined, or (ii) any category of extensions of credit or other assets that includes LIBOR Rate Loans. For purposes of this Agreement, any LIBOR Rate Loan hereunder shall be deemed to be "Eurocurrency liabilities," as defined in Regulation D, and, as such, shall be deemed to be subject to such reserve requirements without the benefit of, or credit for, proration, -9- 15 exceptions or offsets which may be available to BAI from time to time under Regulation D. "Event of Default" has the meaning ascribed to such term in Section 6.1. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal, for each day during such period, to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Banking Day, for the next preceding Banking Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Banking Day, the average of the quotations for such day on such transactions received by Agent from three federal funds brokers of recognized standing selected by it. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "First Mortgage Loans" means, collectively, all Indebtedness of Borrower represented by the First Mortgage Notes. "First Mortgage Note Documents" means, collectively, the agreements, instruments and documents evidencing and governing the First Mortgage Notes, including the First Mortgage Note Indenture, as each of the same may be amended, modified or supplemented from time to time in compliance with Section 5.26 hereof. "First Mortgage Note Indenture" means the Indenture dated as of April 1, 1995 among Borrower, PAI, the Designated Subsidiaries, certain other Subsidiaries of PAI and IBJ Schroder Bank and Trust Company as Trustee. "First Mortgage Notes" means, collectively, Borrower's 13 3/8% First Mortgage Notes due 2005 in the aggregate principal amount due upon maturity of not more than $__________. "Fiscal Year" means any period of twelve (12) consecutive calendar months ending on December 31. References to a Fiscal Year with a number corresponding to any calendar year (e.g. "Fiscal Year 1997") refer to the Fiscal Year ending on the thirty-first (31st) day of December occurring during such calendar year. "Floating Rate" means, at any time, the Reference Rate minus the Applicable Margin. "Floating Rate Loan" means any portion of the Revolving Loan which bears interest at a rate determined with reference to the Floating Rate. -10- 16 "GAAP" means generally accepted accounting principles as in effect from time to time (except as otherwise provided in Section 1.4), as applied in the preparation of the audited financial statements referred to in Section 4.6. "General Intangibles" means all general intangibles now owned or hereafter acquired by Borrower or any Designated Subsidiary, to the extent that any of the foregoing arises out of or relates to Accounts or Inventory, including without limitation all right, title and interest of Borrower or such Designated Subsidiary in and to: (a) all tax refunds and tax refund claims; (b) registered and unregistered patents, service marks, copyrights, applications for any of the foregoing and (c) all trade secrets and other confidential information relating to the business of Borrower or such Designated Subsidiary, in each case to the extent that any of the foregoing arises out of or relates to Accounts or Inventory. "Hazardous Materials" means any toxic substance, hazardous substance, hazardous material, hazardous chemical or hazardous waste defined or qualifying as such in any Environmental Law, and shall include, but not be limited to, petroleum, including crude oil, any radioactive material, including but not limited to any source, special nuclear or by-product material as defined at 42 U.S.C. Section 2011 et seq., as amended or hereafter amended, polychlorinated biphenyls and asbestos in any form or condition. "Imperial" means Imperial West Chemical Co., an indirect Subsidiary of Borrower. "Indebtedness" of any Person means, without duplication, (a) the principal portion of any obligation of such Person for borrowed money, including without limitation (i) any obligation of such Person evidenced by bonds, debentures, notes or other similar debt instruments and (ii) any obligation for borrowed money which is non-recourse to the credit of such Person but which is secured by a Lien on any asset of such Person, (b) the principal component of any obligation of such Person on account of deposits or advances, (c) any obligation of such Person for the deferred purchase price of any property or services, except Trade Accounts Payable, (d) any obligation of such Person as lessee under a Capitalized Lease, (e) any net obligation of such Person with respect to interest rate swaps, interest rate caps, interest rate collars or other interest hedging agreements, (f) any net obligation of such Person in respect of foreign exchange contracts, (g) any obligation of such Person with respect to letters of credit, acceptances, guarantees or similar obligations of another Person issued for the account of such Person and (h) any Indebtedness of another Person secured by a Lien on any asset of such first Person, whether or not such Indebtedness is assumed by such first Person. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or joint venturer and such Indebtedness is recourse to some or all of the assets of such Person. -11- 17 "Interest Coverage Sale Threshold" means with respect to any sale, transfer, conveyance, lease or other disposition of assets otherwise permitted under Section 5.11, that the Interest Coverage Ratio after such transaction, calculated in the manner set forth in Section 5.1 of Supplement A, but using the financial results most recently reported by Borrower to Agent, adjusted to reflect the pro forma effect of such transaction, is at least 1.1:1.0. "Interest Rate Period" means with respect to any portion of the Revolving Loans, the period commencing on the date on which the LIBOR Rate is deemed applicable to such portion of the Revolving Loans, and ending on the numerically corresponding day one (1), two (2), three (3) or six (6) months thereafter, as selected by Borrower pursuant to Section 3.1.1(c) of Supplement A; provided, however, that: (a) any Interest Rate Period which would otherwise end on a day which is not a Banking Day shall end on the next succeeding Banking Day unless such next succeeding Banking Day falls in another calendar month, in which case such Interest Rate Period shall end on the next preceding Banking Day; (b) any Interest Rate Period which begins on the last Banking Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Rate Period) shall end on the last Banking Day of the calendar month at the end of such Interest Rate Period; and (c) no Interest Rate Period shall extend beyond the Termination Date. "Inventory" means any and all of Borrower's and each Designated Subsidiary's goods (including without limitation goods in transit) wheresoever located, which are held for sale, furnished under any contract of service, or held as raw materials, work in process, or supplies or materials used or consumed in Borrower's or such Designated Subsidiary's business, or which are held for use in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, and any and all goods the sale or other disposition of which has given rise to an Account Receivable, Contract Right or any other property described in Section 3.1(a), which are returned to and/or repossessed and/or stopped in transit by, or at any time hereafter are in the possession or under the control of, Borrower, any Designated Subsidiary, Agent or any Lender or any agent or bailee of any of them, and all documents of title or other documents representing the same. "Investment" of any Person means any investment, made in cash or by delivery of any kind of property or asset, in any other Person, whether by acquisition of shares of stock or similar interest, Indebtedness or other obligation or security, or by loan, advance or capital contribution, or otherwise. -12- 18 "Issuing Bank" means BAI or any other Lender selected by Agent with Borrower's consent (which will not be unreasonably withheld) to issue Letters of Credit under this Agreement. "L/C Draft" means a draft drawn on Issuing Bank pursuant to a Letter of Credit. "Lenders" means, collectively, BAI and any other Person that becomes a Lender under this Agreement and each of their respective successors and assigns as provided in this Agreement; and "Lender" means any one of Lenders. "Letter of Credit" means a standby letter of credit issued by the Issuing Bank on the Application of Borrower. "Letter of Credit Obligations" means at any time an amount equal to the sum of (a) the aggregate outstanding face amount of all Letters of Credit plus (b) the aggregate outstanding face amount of all accepted but unpaid L/C Drafts. "Liabilities" means all of the liabilities, obligations (including obligations of performance) and indebtedness of Borrower to Agent or any Lender of any kind or nature, however created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing or due or to become due, and arising under, or in connection with, this Agreement, any Note, any Related Agreement, any Letter of Credit or any Application therefor, including without limitation all interest, charges, expenses, Attorneys' Fees and other sums chargeable to Borrower by Agent or any Lender hereunder or thereunder. "Liabilities" shall also include any and all amendments, extensions, renewals, refundings or refinancings of any of the foregoing. "LIBOR Base Rate" means, with respect to each Interest Rate Period for a LIBOR Rate Loan, the rate per annum (rounded upward, if necessary, to the nearest one hundredth of one percent (1/100%)) at which U.S. Dollar deposits in immediately available funds are offered to the LIBOR Office of BAI two (2) Banking Days prior to the beginning of such Interest Rate Period by major banks in the interbank eurodollar market as at or about the relevant local time of such LIBOR Office, for delivery on the first day of such Interest Rate Period, for the number of days comprised therein and in an amount equal to the amount of the LIBOR Rate Loan to be outstanding during such Interest Rate Period. As used herein, "relevant local time" as to any LIBOR Office means 11:00 a.m., London time, when such LIBOR Office is located in Europe or the Middle East, and 10:00 a.m., Chicago time, when such LIBOR Office is located in North America or the Caribbean. "LIBOR Office" means with respect to any Lender the office or offices of such Lender which shall be making or maintaining the LIBOR Rate Loans of such Lender hereunder or such other office or offices through which such Lender determines its LIBOR Base Rate. A LIBOR Office of any Lender may be, at the option of such Lender, either a domestic or foreign office. -13- 19 "LIBOR Rate" means, with respect to each Interest Rate Period for a LIBOR Rate Loan, a rate per annum (rounded upward, if necessary, to the nearest one hundredth of one percent (1/100th of 1%)) determined pursuant to the following formula: LIBOR Rate = LIBOR Base Rate plus the Applicable Margin ---------------------------------- 1-Eurocurrency Reserve Requirement "LIBOR Rate Loan" means any portion of the Revolving Loan which bears interest at a rate determined with reference to the LIBOR Rate. "Lien" means any security interest, mortgage, pledge, hypothecation, judgment lien or similar legal process, title retention lien, or other lien or encumbrance, including without limitation the interest of a vendor under any conditional sale or other title retention agreement and the interest of a lessor under any Capitalized Lease. "Loan" means (a) any Revolving Loan made pursuant to Section 2.1.1 and (b) any other loan or advance made to Borrower by Agent or any Lender under or pursuant to this Agreement. "Loan Account" has the meaning ascribed to such term in Section 2.3. "Margin Stock" has the meaning ascribed to such term in Regulation U of the Federal Reserve Board or any regulation substituted therefor, as in effect from time to time. "Material Adverse Change" means (a) a material adverse change in the condition (financial or otherwise), operations, performance, prospects, properties or affairs, of Borrower or in the ability of Borrower to perform its obligations under any material agreement to which Borrower is a party, (b) a material adverse change in the condition (financial or otherwise), operations, performance, prospects, properties or affairs of Borrower and the Designated Subsidiaries taken as a whole or in the ability of Borrower and the Designated Subsidiaries taken as a whole to perform their obligations under any material agreements to which they are parties, (c) a material adverse change in the condition (financial or otherwise), operations, performance, prospects, properties or affairs of Borrower and the Designated Subsidiaries taken as a whole or in the ability of Borrower and the Designated Subsidiaries taken as a whole to perform their obligations under any material agreements to which they are parties, or (d) an impairment of Agent's interest, for the benefit of itself and Lenders, in any material portion of the Collateral or the material diminution in value of the Collateral. "Material Adverse Effect" means (a) a material adverse effect upon the condition (financial or otherwise), operations, performance, prospects, properties or affairs, of Borrower or upon the ability of Borrower to perform its obligations under any material agreement to which Borrower is a party, (b) a material adverse effect upon the condition (financial or otherwise), operations, performance, prospects, properties or affairs of -14- 20 Borrower and the Designated Subsidiaries taken as a whole or upon the ability of Borrower and the Designated Subsidiaries taken as a whole to perform their obligations under any material agreements to which they are parties, (c) a material adverse effect upon the condition (financial or otherwise), operations, performance, prospects, properties or affairs of Borrower and the Designated Subsidiaries taken as a whole or upon the ability of Borrower and the Designated Subsidiaries taken as a whole to perform their obligations under any material agreements to which they are parties, or (d) an impairment of Agent's interest, for the benefit of itself and Lenders, in any material portion of the Collateral or the material diminution in value of the Collateral. "Maximum Loan Amount" means, with respect to any Lender, the maximum amount of Loans which such Lender has agreed, pursuant to the terms and conditions of this Agreement, to make available to Borrower, as set forth on the signature page hereto or in an Assignment and Acceptance Agreement executed by such Lender. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA that is maintained for employees of Borrower or any ERISA Affiliate. "Note" means any promissory note of Borrower evidencing any loan or advance made by any Lender to Borrower pursuant to this Agreement, as the same may be amended, modified or supplemented from time to time. "Obligor" means Borrower and each other Person (including without limitation each Designated Subsidiary) who is or shall become primarily or secondarily liable on any of the Liabilities, or who grants to Agent, for the benefit of itself and Lenders, a Lien on any property of such Person as security for any of the Liabilities. "Obligor Collateral" means any real or personal property of any Obligor on which a Lien has been granted to Agent, for the benefit of itself and Lenders, in order to secure the Liabilities and/or such Obligor's guaranty of the Liabilities. "OCC" means OCC Tacoma, Inc., a Delaware corporation. "Occupational Safety and Health Law" means the Occupational Safety and Health Act of 1970 and any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning employee health and/or safety. "Offering Memorandum" means that certain Offering Memorandum relating to the issuance of the Senior Secured Notes dated June 11, 1997. "Original Closing Date" means April 12, 1995. "Over Advance" has the meaning ascribed to such term in Section 2.8. -15- 21 "Overdraft Loan" has the meaning ascribed to such term in Section 2.7. "PAI" means Pioneer Americas, Inc., a Subsidiary of Borrower. "Parent" means Pioneer Companies, Inc., (formerly known as GEV Corporation), a Delaware corporation. "Participant" means any Person, now or at any time or times hereafter, participating with any Lender, pursuant to the provisions of Section 12.9, in the Loans made or Letters of Credit issued, pursuant to this Agreement or any Related Agreement. "Payment Liabilities" means all Liabilities other than contingent obligations of Borrower with respect to which neither Agent nor any Lender has asserted a claim against Borrower or against which Borrower has provided reserves or Collateral satisfactory to Agent or such Lender; provided, that Payment Liabilities shall include the Letter of Credit Obligations. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "PCAC" means Pioneer Chlor Alkali Company, Inc., an indirect Subsidiary of Borrower. "Pension Plan" means a "pension plan," as such term is defined in Section 3(2) of ERISA, that is subject to the provisions of Title IV of ERISA (other than a Multiemployer Plan) and to which Borrower or any ERISA Affiliate may have any liability, including any liability by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. "Permitted Intercompany Indebtedness" shall mean Indebtedness of a Designated Subsidiary to Borrower as permitted pursuant to Section 5.19. "Person" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, or government (whether national, federal, state, county, city, municipal or otherwise, including without limitation any instrumentality, division, agency, body or department thereof). "Pre-Settlement Determination Date" has the meaning ascribed to such term in Section 2.15. "Pro Rata Share" means, with respect to any Lender, a fraction (expressed as a percentage in nine (9) decimal places), the numerator of which shall be the Maximum Loan Amount of such Lender and the denominator of which shall be the aggregate amount of the Maximum Loan Amounts of all Lenders. -16- 22 "Reference Rate" means, at any time, the rate of interest then most recently announced by BAI at Chicago, Illinois as its reference rate. Each change in the interest rate on any Floating Rate Loan shall take effect on the effective date of the change in the Reference Rate. "Register" has the meaning ascribed to such term in Section 12.9(d). "Related Agreement" means any agreement, instrument or document (including without limitation notes, guarantees, chattel mortgages, pledges, powers of attorney, consents, assignments, contracts, notices, security agreements, leases, financing statements, subordination agreements, intercreditor agreements, trust account agreements and all other written matter) heretofore, now, or hereafter delivered to Agent or any Lender with respect to or in connection with or pursuant to this Agreement or any of the Liabilities, and executed by or on behalf of Borrower, any Designated Subsidiary or any other Obligor, as each of the same may be amended, modified or supplemented from time to time and shall specifically include any Notes. The Related Agreements shall specifically exclude the Transaction Documents. "Related Party" means, with respect to any Person, any other Person (a) that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such first Person or a subsidiary of such first Person, (b) that beneficially owns or holds ten percent (10%) or more of the equity interest of such first Person or a subsidiary of such first Person or (c) ten percent (10%) or more of the equity interest of which is beneficially owned or held by such first Person or a subsidiary of such first Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Release" means any actual or threatened spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing of Hazardous Materials into the environment. "Reportable Event" has the meaning given to such term in ERISA. "Requisite Lenders" means Lenders having, in the aggregate, Pro Rata Shares of at least fifty-one percent (51%). "Revolving Credit" has the meaning ascribed to such term in the definition of "Credit." "Revolving Credit Amount" has the meaning ascribed to such term in Supplement A. "Revolving Loan" has the meaning ascribed to such term in Section 2.1.1. -17- 23 "Revolving Loan Availability" means the lesser of (a) the Revolving Credit Amount minus the Letter of Credit Obligations and (b) the Borrowing Base minus the Letter of Credit Obligations. "Seller Notes" means, collectively, the subordinated promissory notes issued by Borrower to the Sellers in the original aggregate principal amount of $10,000,000, as adjusted. "Sellers" means the "Sellers" as defined in the Stock Purchase Agreement. "Senior Secured Loans" means, collectively, all Indebtedness of Borrower represented by the Senior Secured Notes. "Senior Secured Note Documents" means, collectively, the agreements, instruments and documents evidencing and governing the Senior Secured Notes, including the Senior Secured Note Indenture, as each of the same may be amended, modified or supplemented from time to time in compliance with Section 5.26 hereof. "Senior Secured Note Indenture" means the Indenture dated as of June 17, 1997 among Borrower, the Subsidiary Guarantors (as defined therein) and United States Trust Company of New York as Trustee (the "Trustee") for the Senior Secured Notes. "Senior Secured Notes" means, collectively, Borrower's 9 1/4% Senior Secured Notes due 2007 in the aggregate principal amount due upon maturity of not more than $200,000,000. "Settlement Date" has the meaning ascribed to such term in Section 2.15. "Stock Purchase Agreement" means that certain Stock Purchase Agreement, dated as of March 24, 1995, by and among Borrower and GEV Corporation (predecessor-in-interest to Parent), as purchasers, and Richard C. Kellogg, Jr., Frans G.J. Speets, D.A. Huckabay, and all common shareholders, warrant holders and option holders of PAI, as sellers. "Subordinated Debt" means, collectively, that portion of any liabilities, obligations or Indebtedness of Borrower or any Designated Subsidiary which is subordinated as to right and time of payment of principal and interest thereon, to all of the Liabilities. "Subordinated Debt Documents" means, collectively, the agreements, instruments and documents evidencing or otherwise pertaining to any Subordinated Debt, as each of the same may be amended, modified or supplemented from time to time in compliance with Section 5.26. -18- 24 "Subsidiary" means any Person of which or in which Borrower and its other Subsidiaries own directly or indirectly fifty percent (50%) or more of (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such Person, if it is a corporation, (b) the capital interest or profits interest of such Person, if it is a partnership, joint venture or similar entity or (c) the beneficial interest of such Person, if it is a trust, association or other unincorporated organization. "Supplemental Documentation" has the meaning ascribed to such term in Section 3.4. "Taxes" with respect to any Person means taxes, assessments or other governmental charges or levies imposed upon such Person, its income or any of its properties, franchises or assets. "TC Notes" means, collectively, the subordinated promissory notes issued by All-Pure Chemical Co. on July 31, 1996 to the sellers of the stock of T.C. Holdings, Inc., in the original aggregate principal amount of $4,500,000. "TCH" means T.C. Holdings, Inc., a Subsidiary of All Pure Chemical Co. "Term Lenders" means the lenders of the Term Loans pursuant to the Term Loan Documents. "Term Loan Agreement" means the Term Loan Agreement dated as of June 17, 1997 among Borrower, Term Lenders, DLJ Capital Funding, Inc., as Syndication Agent for the Term Lenders, Salomon Brothers Holding Company, Inc., as Documentation Agent for the Term Lenders and Bank of America Illinois, as Administrative Agent for the Term Lenders. "Term Loan Documents" means, collectively, the agreements, instruments and documents evidencing and governing the Term Loans, including the Term Loan Agreement, as each of the same may be amended, modified or supplemented from time to time in compliance with Section 5.26 hereof. "Term Loans" means, collectively, all indebtedness of Borrower under the Term Loan Documents, in the aggregate principal amount due upon maturity of not more than $100,000,000. "Termination Date" means June 17, 2002. "Total Debt to EBITDA Ratio" for any period means the ratio of (a) all Indebtedness for borrowed money as of the last day of such period to (b) EBITDA for such period, all determined for Borrower and its Subsidiaries on a consolidated basis and in accordance with GAAP. -19- 25 "Trade Accounts Payable" of any Person means trade accounts payable of such Person with a maturity of not greater than two hundred seventy (270) days incurred in the ordinary course of such Person's business. "Transaction Documents" means, collectively, the agreements, instruments and documents evidencing and governing the Transactions, as each of the same may be amended, modified or supplemented from time to time in compliance with Section 5.26 hereof. "Transactions" has the meaning ascribed to such term in Section 8.1.2. "UCC" means the Uniform Commercial Code as in effect in the State of Illinois, and any successor statute, together with any regulations thereunder, in each case as in effect from time to time. References to sections of the UCC shall be construed to also refer to any successor sections. "Unmatured Event of Default" means any event or condition which, with the lapse of time or giving of notice to Borrower or both, would constitute an Event of Default. "ZENECA Indemnity" means the indemnity in favor of Borrower by ZENECA Delaware Holdings, Inc. and ZENECA, Inc. (as successors to ICI Delaware Holdings, Inc. and ICI Americas, Inc., respectively) in respect of certain environmental matters, issued in connection with the purchase by PAI in October, 1988 of PCAC. 1.2. Other Definitional Provisions. Unless otherwise defined or the context otherwise requires, all financial and accounting terms used herein or in any certificate or other document made or delivered pursuant hereto shall be defined in accordance with GAAP. Unless otherwise defined therein, all terms defined in this Agreement shall have the defined meanings when used in any Related Agreement or Supplemental Documentation. Terms used in this Agreement which are defined in any Supplement or Exhibit hereto shall, unless the context otherwise indicates, have the meanings given them in such Supplement or Exhibit. Other terms used in this Agreement shall, unless the context indicates otherwise, have the meanings provided for by the UCC to the extent the same are used or defined therein. 1.3. Interpretation of Agreement. A Section, an Exhibit or a Schedule is, unless otherwise stated, a reference to a section hereof, an exhibit hereto or a schedule hereto, as the case may be. Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement. The words "hereof," "herein," "hereto" and "hereunder" and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Reference to "this Agreement" shall include the provisions of Supplement A. -20- 26 1.4. Compliance with Financial Restrictions. Compliance with each of the financial ratios and restrictions contained in Section 5 or Supplement A shall, except as otherwise provided herein, be determined in accordance with GAAP consistently followed. 2. LOANS; LETTERS OF CREDIT; OTHER MATTERS. 2.1. Loans. 2.1.1. Revolving Loans. (a) Subject to the terms and conditions of this Agreement and the Related Agreements, and in reliance upon the warranties and representations of Borrower set forth herein and the warranties and representations of Borrower and each other Obligor set forth in the Related Agreements, each Lender, severally and not jointly, agrees to make its Pro Rata Share of such loans or advances (individually each a "Revolving Loan" and collectively the "Revolving Loans") from time to time before the Termination Date to Borrower as Borrower may from time to time request; provided, that Agent may, but shall not be obligated to, make such Revolving Loans to Borrower on behalf of Lenders as a "Disproportionate Advance" (as defined below); provided further, that, except as provided in Section 2.8, the aggregate outstanding principal amount of the Revolving Loans made by or on behalf of Lenders shall not at any time exceed the Revolving Loan Availability. Revolving Loans made by or on behalf of Lenders may be repaid and, subject to the terms and conditions hereof, reborrowed to but not including the Termination Date unless the Credit extended under this Agreement is otherwise terminated as provided in this Agreement. No Lender shall be obligated at any time to make available to Borrower its Pro Rata Share of any requested Revolving Loan if such amount, plus its Pro Rata Share of all Revolving Loans then outstanding, would exceed such Lender's Maximum Loan Amount at such time. No Lender shall be obligated to make available its Pro Rata Share of any Revolving Loans during the occurrence of any Event of Default or Unmatured Event of Default; provided that notwithstanding the foregoing or anything contained herein to the contrary, regardless of whether an Event of Default or an Unmatured Event of Default exists, each Lender shall, at the request of Agent, continue to be obligated to make its Pro Rata Share of the Revolving Loans available to Borrower for a period of up to five (5) Banking Days, but in any event, no Lender shall be obligated at any time to make available to Borrower its Pro Rata Share of any such requested Revolving Loan if such amount, plus its Pro Rata Share of all Revolving Loans then outstanding, would exceed such Lender's Maximum Loan Amount at such time. Neither Agent nor any Lender shall be responsible for any failure by any other Lender to perform its obligations to make advances hereunder, and the failure of any Lender to make its Pro Rata Share of any advance hereunder shall not relieve any other Lender of its obligation, if any, to make its Pro Rata Share of Loans hereunder, nor require such other Lender to make more than its Pro Rata Share of any Loans hereunder. If Borrower makes a request for a Revolving Loan as provided herein, or if Agent desires to make a Revolving Loan pursuant to any other provision of this Agreement or any Related Agreement -21- 27 that permits Agent to advance Revolving Loans to Borrower, Agent, at its option and in its sole and absolute discretion, shall do either of the following: (i) Advance the amount of the proposed Revolving Loan to Borrower disproportionately (a "Disproportionate Advance") out of Agent's own funds on behalf of Lenders, and request settlement in accordance with Section 2.15, such that upon such settlement, each Lender's share of the outstanding Revolving Loans (including, without limitation, the amount of any Disproportionate Advance) equals its Pro Rata Share and such Disproportionate Advance shall be deemed to be repaid; or (ii) Notify each Lender and Borrower by telecopy or other similar form of teletransmission of the proposed advance on the same day Agent is notified by Borrower of Borrower's request for an advance hereunder or the same day Agent desires to make a Revolving Loan for the benefit of Borrower (to the extent permitted hereunder or under any Related Agreement). Each Lender shall remit, to the Demand Deposit Account, on or prior to twelve o'clock noon, Chicago time, on the business day immediately succeeding the date of such notification, immediately available funds in an amount equal to such Lender's Pro Rata Share of such proposed advance. If and to the extent that a Lender does not settle with Agent as required under clause (i), Borrower agrees to repay to Agent forthwith on demand such amount required to be paid by such Lender to Agent, together with interest thereon, for each day from the date such amount is made available to Borrower until the date such amount is repaid to Agent, at the interest rate applicable at such time for such Revolving Loans; provided, that Borrower's obligation to repay such advance to Agent shall not relieve each Lender of its liability to Agent or Borrower for failure to settle as provided in clause (i). (b) In the event the aggregate outstanding principal balance of the Revolving Loans exceeds the Revolving Loan Availability, Borrower shall, unless Agent permits such Over Advance as provided in Section 2.8 or Requisite Lenders shall otherwise consent, without notice or demand of any kind, immediately make such repayments of the Revolving Loans or take such other actions as shall be necessary to eliminate such excess. (c) All Revolving Loans hereunder shall be paid by Borrower on the Termination Date, unless payable sooner pursuant to the provisions of this Agreement, but may, at Borrower's election, be repaid in whole or in part at any time prior to such date without premium or penalty (other than as expressly provided in Section 3.4 of Supplement A with respect to LIBOR Rate Loans repaid prior to the end of the applicable Interest Rate Period). 2.1.2. Prepayment of all Liabilities; Reduction of Revolving Credit Amount. Borrower may prepay all of the Liabilities in full at any time, without premium or penalty (other than as expressly provided in Section 3.4 of Supplement A with respect to LIBOR Rate -22- 28 Loans repaid prior to the end of the applicable Interest Rate Period), by prepaying the outstanding principal balance of the Revolving Loans, together with (a) all accrued and unpaid interest on the Liabilities, (b) all other outstanding Liabilities and (c) cash in the amount of, or adequate (in Agent's determination) cash collateral for, the Letter of Credit Obligations. Borrower may permanently reduce the Revolving Credit Amount by multiples of $1,000,000, so long as after giving effect to such reduction, the Revolving Credit Amount equals or exceeds the amount of the Loans plus the Letter of Credit Obligations then outstanding. 2.1.3. Maximum Outstanding Liabilities. Notwithstanding any other provision of this Agreement, the aggregate outstanding principal balance of the Loans plus Letter of Credit Obligations shall not exceed the Revolving Credit Amount; provided, however, that the foregoing shall not limit the right of Agent to advance Revolving Loans to Borrower pursuant to any other provision of this Agreement or any Related Agreement that permits Agent to advance Revolving Loans to Borrower. Any Revolving Loan advanced by Agent to Borrower under any of the foregoing provisions shall be deemed to be a Revolving Loan made by Agent on behalf of Lenders. 2.2. Letters of Credit. (a) In addition to Loans made pursuant to Section 2.1, Agent will, upon receipt of duly executed Applications and such other documents, instruments and/or agreements as Agent may require, request, on Borrower's behalf, that Issuing Bank issue Letters of Credit on such terms as are satisfactory to Agent and Issuing Bank, provided, however that no Letter of Credit will be issued if, before or after taking such Letter of Credit into account, (i) the Letter of Credit Obligations exceed $10,000,000 or (ii) the Letter of Credit Obligations exceeds the lesser of (A) the Revolving Credit Amount minus the outstanding principal balance of the Revolving Loans and (B) the Borrowing Base minus the outstanding principal balance of the Revolving Loans. If such excess shall at any time exist, Borrower shall, unless Requisite Lenders shall otherwise consent, promptly make such payments as are necessary to eliminate such excess or shall promptly post cash collateral in the amount of such excess. No Letter of Credit shall have an expiry date after the Termination Date. Prior to the Closing Date, Issuing Bank issued letters of credit for the account of PAI under a certain Loan and Security Agreement dated the Original Closing Date (the "Existing Letters of Credit"). All Existing Letters of Credit still outstanding on the date hereof are listed on Exhibit G. Agent, Issuing Bank, Lenders and Borrower hereby agree that the Existing Letters of Credit shall be deemed to be Letters of Credit issued under this Agreement for the account of Borrower and the Letter of Credit Obligations in respect thereof shall be primary obligations of Borrower. (b) Borrower agrees to pay to Issuing Bank, on demand, Issuing Bank's standard issuance, negotiation and administrative operating fees and charges in effect from time to time for issuing and administering any Letters of Credit and if not so paid, each Lender shall, without regard to any other provision of this Agreement or any other Related Agreement, any defense that Borrower may have to its obligation to pay Issuing Bank in connection with such fees and charges or any defense that any Lender may have in connection with the participation -23- 29 described in Section 2.2(e) in connection with any Letter of Credit or L/C Draft, pay Issuing Bank for such Lender's Pro Rata Share of such fees and charges, and any payments so made by Lenders to Issuing Bank shall be deemed to be Revolving Loans. Each Lender (other than a Lender that is Issuing Bank) acknowledges and agrees that it shall not be entitled to any of the fees and charges of Issuing Bank. Borrower further agrees to pay Agent, for the benefit of itself and Lenders, a commission equal to one and one-half percent (1.5%) per annum (calculated on the basis of a year consisting of three hundred sixty (360) days and paid for actual days elapsed) of the daily average of the undrawn amount of each Letter of Credit and on each L/C Draft accepted (but not yet paid) in connection therewith. Such Letter of Credit commissions shall be paid in arrears on the last day of each month thereafter. Agent may provide for the payment of any fees, charges or commissions due hereunder by advancing the amount thereof to Borrower as a Revolving Loan. At all times that any Default Rate is being charged under this Agreement, the Letter of Credit commission shall be equal to the otherwise applicable commission plus two percent (2%) per annum. (c) Subject to the remaining sentences of this clause (c), Borrower agrees to reimburse Issuing Bank, on demand, for each payment made by Issuing Bank under or pursuant to any Letter of Credit or L/C Draft and if not so reimbursed, each Lender shall, without regard to any other provision of this Agreement or any other Related Agreement, any defense that Borrower may have to its obligation to reimburse Issuing Bank in connection with such payment or any defense that any Lender may have in connection with the participation described in Section 2.2(e) in connection with any Letter of Credit or L/C Draft, reimburse Issuing Bank for such Lender's Pro Rata Share of such payment, and any payments so made by Lenders to Issuing Bank shall be deemed to be Revolving Loans. Agent and Lenders agree that so long as there is sufficient Revolving Loan Availability and provided that no Event of Default is then in existence or would be caused thereby, Agent will provide for the payment of any reimbursement obligations and any interest accrued thereon by advancing the amount thereof to Borrower as a Revolving Loan as soon as reasonably practicable. Prior to such advance, the amount of such reimbursement obligations shall bear interest at the then applicable Floating Rate. Agent shall have the option, pursuant to Section 2.8, to so provide for such payments even if there is not sufficient Revolving Loan Availability or if an Event of Default is then in existence or would be caused thereby and such amounts will bear interest at the rate set forth in Section 2.8. In the event a Letter of Credit or L/C Draft is not reimbursed from a Revolving Loan as provided herein, Borrower agrees to pay Agent, for the benefit of itself and Lenders, on demand, interest at the Default Rate on any amounts paid by Issuing Bank in respect of a Letter of Credit or an L/C Draft until the reimbursement of Issuing Bank by Borrower of such payment. (d) Notwithstanding anything to the contrary herein or in any Application, upon the occurrence of an Event of Default, an amount equal to the aggregate amount of the outstanding Letter of Credit Obligations shall, at Agent's option and without demand upon or further notice to Borrower, be deemed (as between Lenders and Borrower) to have been paid or disbursed by Agent under the Letters of Credit and accepted L/C Drafts (notwithstanding that such amounts may not in fact have been so paid or disbursed), and a Revolving Loan to -24- 30 Borrower in the amount of such Letter of Credit Obligations to have been made and accepted, which Loan shall be immediately due and payable. In lieu of the foregoing, at the election of Agent at any time after an Event of Default, Borrower shall, upon Agent's demand, deliver to Agent cash collateral equal to the aggregate Letter of Credit Obligations. Any such cash collateral and/or any amounts received by Agent in payment of the Loan made pursuant to this paragraph (d) shall be held by Agent, for the benefit of itself and Lenders, in the Assignee Deposit Account or a separate account appropriately designated as a cash collateral account in relation to this Agreement and the Letters of Credit and shall be retained by Agent, for the benefit of itself and Lenders, as collateral security in respect of, first, the Liabilities under or in connection with the Letters of Credit and L/C Drafts and then, all other Liabilities. Such amounts shall not be used by Agent to pay any amounts drawn or paid under or pursuant to any Letter of Credit or L/C Draft, but may be applied to reimburse Issuing Bank for drawings or payments under or pursuant to Letters of Credit or L/C Drafts which Issuing Bank has paid, or if no such reimbursement is required, to payment of such other Liabilities as Agent shall determine. Any amounts remaining in any cash collateral account established pursuant to this paragraph (d) following payment in full of all Liabilities shall be returned to Borrower. (e) Immediately upon the issuance of a Letter of Credit in accordance with this Agreement, each Lender shall be deemed to have irrevocably and unconditionally purchased and received from Issuing Bank, without recourse or warranty, an undivided interest and participation therein to the extent of such Lender's Pro Rata Share (including without limitation, all obligations of Borrower with respect thereto). Borrower hereby indemnifies each of Agent and each Lender against any and all liability and expense it may incur in connection with any Letter of Credit or L/C Draft and agrees to reimburse each of Agent and each Lender for any payment made by Agent or any Lender to Issuing Bank, except for any liability incurred or payment made as a result of Agent's or such Lender's gross negligence or willful misconduct. 2.3. Loan Account; Demand Deposit Account. Agent shall establish or cause to be established on its books in Borrower's name one or more accounts (each a "Loan Account") to evidence Loans made to Borrower. Agent or Lenders, as appropriate, will credit or cause to be credited to a commercial account ("Demand Deposit Account") maintained by Borrower at BAI's 231 South LaSalle Street, Chicago, Illinois office the amount of any sums advanced as Loans hereunder, which shall be disbursed at Borrower's direction. Any amounts advanced as Loans hereunder which are credited to Borrower's Demand Deposit Account, together with any other amounts advanced to Borrower as a Loan pursuant to this Agreement, will be debited to the applicable Loan Account and result in an increase in the principal balance outstanding in such Loan Account in the amount thereof. -25- 31 2.4. Interest and Fees. 2.4.1. Interest. The unpaid principal amount of each Revolving Loan hereunder shall bear interest until maturity at the rate or rates applicable to Revolving Loans indicated in Supplement A hereto. If any Revolving Loan or portion thereof is not paid when due, whether by acceleration or otherwise, the entire unpaid principal amount of the Revolving Loans shall bear interest thereafter until such amount is paid in full at the Default Rate applicable to Revolving Loans indicated in Supplement A hereto. Until maturity, interest on the Revolving Loans shall be paid by Borrower on the date(s) indicated in Supplement A, and at such maturity. After maturity, whether by acceleration or otherwise, accrued interest shall be payable on demand. 2.4.2. Nonuse Fee. Borrower agrees to pay to Agent, for the benefit of itself and Lenders, a fee equal to the Applicable Margin per annum on the daily average amount by which the Revolving Credit Amount exceeds the outstanding principal balance of the Revolving Loans plus the Letter of Credit Obligations. The fee provided for in this Section 2.4.2 shall be payable monthly in arrears on the last day of each month commencing June 30, 1997, and on the date the Revolving Credit terminates for the period then ended. 2.4.3. Method of Calculating Interest and Fees. Interest on the unpaid principal amount of each Loan shall accrue from and including the date such Loan is made to, but not including, the date such Loan is paid. Interest determined at the Floating Rate shall be calculated on the basis of a year consisting of three hundred sixty-five (365) days and paid for actual days elapsed; and interest determined at the LIBOR Rate and any fees payable under this Agreement shall be calculated on the basis of a year consisting of three hundred sixty (360) days and paid for actual days elapsed. 2.4.4. Payment of Interest and Fees. Agent may provide for the payment of any unpaid accrued interest and any fees by charging the Demand Deposit Account or any bank account maintained by Borrower with Agent or by advancing the amount thereof to Borrower as a Revolving Loan. 2.5. Requests for Loans; Borrowing Base Certificates; Other Information. (a) Loans shall be requested in writing or by telephone, except for Overdraft Loans and Revolving Loans made pursuant to any provision of this Agreement or any Related Agreement that permits Agent to advance Revolving Loans to Borrower. (b) In the event that Borrower shall at any time, or from time to time, (i) make a request for a Loan hereunder or (ii) be deemed to have requested an Overdraft Loan, Borrower agrees to forthwith provide Agent and Lenders with such information, at such frequency and in such format, as is reasonably required by Agent, such information to be current as of the time of such request. -26- 32 (c) Borrower further agrees to provide to Agent and Lenders a current Borrowing Base Certificate on the last day of each month for the preceding month and at such other times as Agent may request. Such Borrowing Base Certificate shall be in substantially the same form as that attached hereto as Exhibit A, executed and certified as accurate by such officers or employees of Borrower as Borrower designates from time to time in writing to Agent pursuant to duly adopted resolutions of Borrower's Board of Directors authorizing such action. (d) Borrower may request, telephonically or by written authorization, the disbursement of Revolving Loans by Agent or Lenders, as appropriate. Borrower shall provide Agent with documentation satisfactory to Agent indicating the names of those employees of Borrower authorized by Borrower to sign Borrowing Base Certificates and/or to make telephonic requests for Loans and Letters of Credit, and/or to authorize disbursement of the proceeds of Loans by wire transfer or otherwise, and Agent and Lenders shall be entitled to rely upon such documentation until notified in writing by Borrower of any change(s) in the names of the employees so authorized. Agent and Lenders shall be entitled to act on the instructions of anyone identifying himself as one of the persons authorized to request Loans and Letters of Credit, or disbursements of Loan proceeds by telephone and Borrower shall be bound thereby in the same manner as if the person were actually so authorized. Borrower agrees to indemnify and hold each of Agent and each Lender harmless from any and all claims, damages, liabilities, losses, costs and expenses (including Attorneys' Fees) which may arise or be created by the acceptance of instructions for making or paying Loans in writing or by telephone. Each such request must be received by Agent no later than 10:00 a.m. (Chicago time) on the date on which such Revolving Loan is requested to be made. 2.6. Statements. All Loans and payments hereunder shall be recorded on Agent's books, which shall be rebuttably presumptive evidence of the amount of such Loans outstanding at any time hereunder. Agent will account monthly as to all Loans and payments hereunder and, absent demonstrable error, each monthly accounting will be fully binding on Borrower unless, within thirty (30) days of Borrower's receipt thereof, Borrower shall provide Agent with a specific listing of exceptions. Notwithstanding any term or condition of this Agreement to the contrary, however, the failure of Agent to record the date and amount of any Loan hereunder shall not limit or otherwise affect the obligation of Borrower to repay any such Loan. 2.7. Overdraft Loans. Agent, in its sole and absolute discretion, and subject to the terms hereof, may make a Revolving Loan to Borrower in an amount equal to the amount of any overdraft which may from time to time exist with respect to the Demand Deposit Account or any bank account which Borrower may now or hereafter have with Agent. The existence of any such overdraft shall be deemed to be a request by Borrower for such Loan. -27- 33 Borrower acknowledges that Agent is under no duty or obligation to make any Loan to Borrower to cover any overdraft. Borrower further agrees that if the making of a Loan to cover any Overdraft would result in an Over Advance, such overdraft shall constitute a separate Loan under this Agreement (an "Overdraft Loan"), which shall bear, from the date on which the overdraft occurred until paid, interest in an amount equal to the greater of one hundred thirty percent (130%) of the highest rate of interest then actually being charged for Revolving Loans (other than Overdraft Loans) made hereunder, and $50 per day. If Agent, in its sole and absolute discretion, decides not to make a Loan to cover part or all of any overdraft, Agent may return any check(s) which created such overdraft. 2.8. Over Advances. If the aggregate outstanding Revolving Loans and Letter of Credit Obligations exceed Revolving Loan Availability (such excess Liabilities are herein referred to as "Over Advances"), Agent, in its sole and absolute discretion, may, for a period of five (5) Banking Days, to the extent such Over Advance arises as a result of a reduction in the Borrowing Base, permit such Over Advance to exist without the consent of any Lender (but subject to Section 2.1.1(a)) and continue to make Revolving Loans on behalf of Lenders, and after the expiration of such five (5) Banking Day period, no such event or occurrence shall cause or constitute a waiver by any Lender of its right to refuse to make any further Revolving Loans at any time that an Over Advance exists or would result therefrom; provided, that Agent may not (i) make Revolving Loans on behalf of Lenders under this Section 2.8 to the extent such Revolving Loans would cause a Lender's Pro Rata Share of the Revolving Loans to exceed such Lender's Maximum Loan Amount or (ii) make Revolving Loans on behalf of Lenders under this Section 2.8 to the extent such Revolving Loans would cause the then outstanding Revolving Loans and Letter of Credit Obligations to exceed the sum of $1,000,000 and the amount of the outstanding Revolving Loans and Letter of Credit Obligations as of the date Agent became aware of the Over Advance. During any period in which an Over Advance exists, the amount of Over Advances shall bear interest at a rate equal to one hundred thirty percent (130%) of the highest rate of interest then actually being charged for Revolving Loans made hereunder. 2.9. All Loans One Obligation. The Revolving Loans and all other Loans under this Agreement shall constitute one Loan, and all Indebtedness and other Liabilities of Borrower under this Agreement and any of the Related Agreements shall constitute one general obligation secured by Agent's Lien, for the benefit of itself and Lenders, on all of the Collateral and by all other Liens heretofore, now, or at any time or times hereafter granted by Borrower or any other Obligor to Agent, for the benefit of itself and Lenders. Borrower agrees that all of the rights of Agent and Lenders set forth in this Agreement shall apply to any modification of or supplement to this Agreement, any Supplements or Exhibits hereto, and the Related Agreements, unless otherwise agreed in writing. -28- 34 2.10. Making of Payments; Application of Collections; Charging of Accounts. (a) All payments hereunder (including payment of Letter of Credit Obligations and payments with respect to any Notes) shall be made without set-off or counterclaim and shall be made to Agent in immediately available funds (except for payments to be made to Issuing Bank as provided in Section 2.2 and except as Agent may otherwise consent) prior to 12:30 p.m., Chicago time, on the date due at BAI's office at 231 South LaSalle Street, Chicago, Illinois 60697, or at such other place as may be designated by Agent to Borrower in writing. Any payments received after such time shall be deemed received on the next Banking Day. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a date other than a Banking Day, such payment may be made on the next succeeding Banking Day, and such extension of time shall be included in the calculation of interest and any fees. (b) (i) Borrower authorizes Agent, and Agent will, subject to the provisions of this paragraph (b), apply the whole or any part of any amounts received by Agent (whether deposited in the Assignee Deposit Account or otherwise received by Agent) from the collection of items of payment and proceeds of any Collateral (including without limitation proceeds of insurance), against the principal and/or interest of any Loans made hereunder and/or any other Liabilities, whether or not then due, in such order of application as Agent may determine; provided, however, that prior to the occurrence of an Event of Default, any such amounts received by Agent shall, at Borrower's option, (y) be transferred to Borrower's Demand Deposit Account or other operating account in accordance with written instructions provided by Borrower, or (z) be applied in the manner, if any, specifically set forth in this Agreement with respect to such payment and if no such manner is specifically set out, then as follows: first, to payment of amounts then due with respect to fees (including Attorneys' Fees), charges and expenses for which Borrower is liable pursuant to this Agreement and the Related Agreements; second, to payment of amounts then due with respect to interest on the Loans; third, to payment of the principal of the Loans. (ii) Notwithstanding anything to the contrary herein, (i) all cash, checks, instruments and other items of payment, solely for purposes of determining the occurrence of an Event of Default, shall be deemed received upon actual receipt by Agent, unless the same is subsequently dishonored for any reason whatsoever, (ii) for purposes of determining whether, under Sections 2.1 and 2.2, there is availability for Loans or Letters of Credit, all cash, checks, instruments and other items of payment shall be applied against the Liabilities when received by Agent and (iii) solely for purposes of interest calculation hereunder, all cash, checks, instruments and other items of payment shall be deemed to have been applied against the Liabilities on the first Banking Day after receipt by Agent of collected funds with respect thereto; further provided, that any amounts earned on such funds during the period after receipt thereof by Agent and prior to application thereof against the Liabilities as provided herein, shall be retained by Agent for Agent's own account. Notwithstanding the foregoing, no checks, drafts or other instruments received by Agent shall constitute final -29- 35 payment with respect to any Liabilities unless and until such item of payment has actually been collected. (c) Borrower hereby authorizes Agent, and Agent may, in its sole and absolute discretion, charge to Borrower at any time when due all or any portion of any of the Liabilities consisting of principal or interest and, after three Banking Days' prior notice, any other Liabilities including but not limited to any Attorneys' Fees and other costs and expenses of Agent and Lenders for which Borrower is liable pursuant to the terms of this Agreement or any Related Agreement, or for which any other Obligor is liable pursuant to the terms of any Related Agreement, by charging Borrower's Demand Deposit Account or any bank account of Borrower with Agent or by advancing the amount thereof to Borrower as a Revolving Loan; provided, however that the provisions of this Section 2.10(c) shall not affect Borrower's obligation to pay when due all amounts payable by Borrower under this Agreement, any Note or any Related Agreement, whether or not there are sufficient funds therefor in the Demand Deposit Account or any such other bank account of Borrower. 2.11. Agent's Election Not to Enforce. Notwithstanding any term or condition of this Agreement to the contrary, Agent, in the sole and absolute discretion of Requisite Lenders, at any time and from time to time, may suspend or refrain from enforcing any or all of the restrictions imposed in this Section 2, but no such suspension or failure to enforce shall impair any right or power of Agent or any Lender under this Agreement, including without limitation any right of each Lender to refrain from making a Loan or Issuing Bank to refrain from issuing a Letter of Credit if all conditions precedent to such Lender's obligation to make such Loan or Issuing Bank's obligation to issue such Letter of Credit have not been satisfied. 2.12. Reaffirmation. Each Loan or Letter of Credit, or designation or continuation of a LIBOR Rate Loan, in each case requested by Borrower pursuant to this Agreement, shall constitute an automatic certification by Borrower to Agent and Lenders that (a) all of the representations and warranties of Borrower in this Agreement and each of the Related Agreements are true and correct on the date of such request to the same extent as if made on such date, except for such changes as are specifically permitted hereunder (or under such Related Agreement) and except for those representations and warranties made solely as of the date hereof or the Closing Date and (b) immediately before and after making the requested Loan or issuing the requested Letter of Credit, no Event of Default or Unmatured Event of Default, then exists or would result therefrom. 2.13. Setoff. In addition to and not in limitation of all other rights and remedies (including other rights of offset or banker's lien) that Agent and Lenders may have under applicable law, each of Agent and each Lender shall, upon the occurrence of any Event of Default described in Section 6.1, or any Unmatured Event of Default -30- 36 described in Section 6.1(e), have the right to appropriate and apply to the payment of the Liabilities (whether or not then due), in such order of application as Agent may elect, any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or moneys of Borrower then or thereafter with Agent or any Lender. Agent and each Lender shall promptly advise Borrower of any such setoff and application but failure to do so shall not affect the validity of such setoff and application. 2.14. Upfront Closing Fee. Borrower agrees to pay to BAI, for its own account, in connection with the closing of this Agreement, an upfront closing fee of $87,500, which amount shall be deemed fully earned and shall be payable in full on the Closing Date. With Agent's consent, the amount of the closing fee may be advanced to Borrower as a Revolving Loan. 2.15. Settlements, Distributions and Apportionment of Payments. On a weekly basis (or more frequently if required by Agent) (a "Settlement Date"), Agent shall provide each Lender with a statement of the outstanding balance of the Liabilities as of the end of the Banking Day preceding the Settlement Date (the "Pre-Settlement Determination Date") and the current balance of the Revolving Loans funded by each Lender (whether made directly by such Lender to Borrower or constituting a settlement by such Lender of a previous Disproportionate Advance made by Agent on behalf of such Lender to Borrower). If such statement discloses that such Lender's current balance of the Revolving Loans as of the Pre-Settlement Determination Date exceeds such Lender's Pro Rata Share of the Revolving Loans outstanding as of the Pre-Settlement Determination Date, then Agent shall, one (1) Banking Day after the Settlement Date, transfer to such Lender, by wire transfer, the net amount due to such Lender in accordance with such Lender's instructions, and if such statement discloses that such Lender's current balance of the Revolving Loans as of the Pre-Settlement Determination Date is less than such Lender's Pro Rata Share of the Revolving Loans outstanding as of the Pre-Settlement Determination Date, then such Lender shall, one (1) Banking Day after the Settlement Date, transfer to Agent, by wire transfer the net amount due to Agent in accordance with Agent's instructions. In addition, payments actually received by Agent with respect to the following items shall be distributed by Agent to Lenders as follows: (a) Within one (1) Banking Day of receipt thereof by Agent, payments to be applied to interest on the Loans shall be paid to each Lender in proportion to its Pro Rata Share, subject to any adjustments for any Disproportionate Advances so that Agent shall receive interest on the Disproportionate Advances and each Lender shall only receive interest on the amount of funds actually advanced by such Lender; and -31- 37 (b) Within one (1) Banking Day of receipt thereof by Agent, payments to be applied to the unused line fee set forth in Section 2.4.2 and the Letter of Credit commission set forth in Section 2.2(b), shall each be paid to each Lender in proportion to its Pro Rata Share. Notwithstanding the foregoing, if a Lender has failed to remit its Pro Rata Share of any Loans required to be made pursuant to Section 2.1.1 or has failed to make a settlement payment to Agent pursuant to this Section 2.15, no payment shall be made to such Lender by Agent at any time such Lender's share of the outstanding Loans is less than such Lender's Pro Rata Share. If Agent or any Lender fails to pay the other any payment due under this Agreement on its due date, the party to whom such payment is due shall be entitled to recover interest from the party obligated to make such payment at a rate per annum equal to the overnight Federal Funds Rate. 3. COLLATERAL. 3.1. Grant of Security Interest. As security for the payment of all Loans now or hereafter made by, or on behalf of, Lenders to Borrower hereunder or under any Note, and as security for the payment or other satisfaction of all other Liabilities (including without limitation all reimbursement obligations under any Letters of Credit), Borrower hereby grants to Agent, for the benefit of itself and Lenders, a security interest in and to the following property of Borrower, whether now owned or existing, or hereafter acquired or coming into existence, wherever now or hereafter located (all such property is hereinafter referred to collectively as the "Borrower Collateral"): (a) Accounts Receivable (whether or not Eligible Accounts); Contract Rights; any and all security deposits and other security held by or granted to Borrower to secure payments from any and all persons who are or may become obligated to Borrower under, with respect to, or on account of any Account Receivable or Contract Right; and all chattel paper and instruments evidencing, arising out of or relating to any obligations to Borrower for goods sold or leased or services rendered, or otherwise arising out of or relating to any property described in this Section 3.1; (b) Inventory (whether or not Eligible Inventory); (c) General Intangibles; (d) Any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or monies of or in the name of Borrower now or hereafter with Agent, any Lender or any Participant and any and all property of every kind or description of or in the name of Borrower now or hereafter, for any reason or purpose whatsoever, in the possession or control of, or in transit to, or standing to Borrower's credit on the books of, Agent, any agent or bailee for Agent, any Lender, or any Participant; -32- 38 (e) To the extent related to the property described in clauses (a) through (d) above, all books, correspondence, credit files, records, invoices and other papers and documents, including without limitation, to the extent so related, all tapes, cards, computer runs, computer programs and other papers and documents in the possession or control of Borrower or any computer bureau from time to time acting for Borrower, and, to the extent so related, all rights in, to and under all policies of insurance, including claims of rights to payments thereunder and proceeds therefrom, including business interruption insurance and any credit insurance; and (f) All products and proceeds (including but not limited to any Accounts Receivable or other proceeds arising from the sale or other disposition of any property described above, any returns of Inventory sold by Borrower, and the proceeds of any insurance covering any of the property described above) of any of the foregoing. 3.2. Accounts Receivable. (a) If requested by Agent, Borrower shall notify Agent immediately of all material disputes and claims by any Account Debtor and, if reasonably requested by Agent after the occurrence and during the continuance of an Event of Default, settle or adjust them, or cause them to be settled or adjusted, at no expense to Agent or Lenders. If Agent directs after the occurrence and during the continuance of an Event of Default, no discount or credit allowance shall be granted thereafter by Borrower or any Designated Subsidiary to any Account Debtor, other than discounts and trade allowances offered in the ordinary course of Borrower's or a Designated Subsidiary's business. All Account Debtor payments and all net amounts received by Agent in settlements, adjustment or liquidation of any Account Receivable may be applied by Agent to the Liabilities or credited to the Demand Deposit Account (subject to collection) with Agent, as more fully described in Section 2.10. If requested by Agent, Borrower will, and will cause each Designated Subsidiary to, make proper entries in its books and records, disclosing the assignment of Accounts Receivable to Agent, for the benefit of itself and Lenders. (b) Borrower warrants and covenants that: (i) all of the Accounts Receivable are and will continue to be bona fide existing obligations created by the sale of goods, the rendering of services, or the furnishing of other good and sufficient consideration to Account Debtors in the regular course of business; (ii) all shipping or delivery receipts and other documents furnished or to be furnished to Agent in connection therewith are and will be genuine; and (iii) none of the Accounts Receivable identified or included on any schedule, Borrowing Base Certificate or report as Eligible Accounts Receivable fail at the time so identified or included to satisfy any of the requirements for eligibility set forth in the definition of Eligible Accounts Receivable. (c) Agent is authorized and empowered (which authorization and power, being coupled with an interest, is irrevocable until the last to occur of termination of this -33- 39 Agreement and payment and performance in full of all of the Payment Liabilities under this Agreement) at any time in its sole and absolute discretion: (i) To request, in the name of Agent, in Borrower's or a Designated Subsidiary's name or the name of a third party, confirmation from any Account Debtor or party obligated under or with respect to any Collateral of the amount shown by the Accounts Receivable or other Collateral to be payable, or any other matter stated therein; (ii) To endorse in Borrower's or a Designated Subsidiary's name and to collect any chattel paper, checks, notes, drafts, instruments or other items of payment tendered to or received by Agent in payment of any Account Receivable or other obligation owing to Borrower or such Designated Subsidiary; (iii) After the occurrence and during the continuance of an Event of Default, to notify, either in Agent's name or Borrower's or a Designated Subsidiary's name, and/or to require Borrower or such Designated Subsidiary to notify, any Account Debtor or other Person obligated under or in respect of any Collateral, of the fact of Agent's Lien thereon, for the benefit of itself and Lenders, and of the collateral assignment thereof to Agent, for the benefit of itself and Lenders; (iv) After the occurrence and during the continuance of an Event of Default, to direct, either in Borrower's or a Designated Subsidiary's name or Agent's name, and/or to require Borrower or such Designated Subsidiary to direct, any Account Debtor or other Person obligated under or in respect of any Collateral to make payment directly to Agent of any amounts due or to become due thereunder or with respect thereto; and (v) After the occurrence and during the continuance of an Event of Default, to demand, collect, surrender, release or exchange all or any part of any Collateral or any amounts due thereunder or with respect thereto, or compromise or extend or renew for any period (whether or not longer than the initial period) any and all sums which are now or may hereafter become due or owing upon or with respect to any of the Collateral, or enforce, by suit or otherwise, payment or performance of any of the Collateral either in Agent's own name or in the name of Borrower or a Designated Subsidiary. Under no circumstances shall Agent be under any duty to act in regard to any of the foregoing matters. The costs relating to any of the foregoing matters, including Attorneys' Fees and out-of-pocket expenses, and the cost of any Depository Account, Assignee Deposit Account, or other bank account or accounts which may be required hereunder, shall be borne solely by Borrower whether the same are incurred by Agent or Borrower, -34- 40 and Agent may after three Banking Days' prior to notice to Borrower advance same to Borrower as a Revolving Loan. (d) Borrower will notify its Account Debtors to make all payments in respect of Borrower's Accounts Receivable directly to one or more lockbox accounts evidenced by agreements in form and substance satisfactory to Agent. All deposits to such lockbox accounts, and all of the checks, drafts, cash and other remittances received by Borrower in payment or as proceeds of, or on account of, any of the Accounts Receivable or other Collateral, shall be deposited in special bank accounts (the "Depository Accounts") at such banks or financial institutions as Agent shall consent. Said proceeds shall be deposited in precisely the form received except for Borrower's endorsement where necessary to permit collection of items, which endorsement Borrower agrees to make. Pending such deposit, Borrower agrees not to commingle any such checks, drafts, cash and other remittances received by it with any of its funds or property, but will hold them separate and apart therefrom and upon an express trust for Agent, for the benefit of itself and Lenders, until deposit thereof is made in the Depository Accounts. All funds in the Depository Accounts at the end of each Banking Day will be wire transferred or transferred by other means acceptable to Agent to a special bank account (the "Assignee Deposit Account") at BAI, over which Agent alone has power of withdrawal. Borrower acknowledges that the maintenance of the Assignee Deposit Account is solely for the convenience of Agent in facilitating its own operations, and Borrower does not and shall not have any right, title or interest in the Assignee Deposit Account or in the amounts at any time appearing to the credit thereof, except to the extent that such amounts are transferred to Borrower's Demand Deposit Account or operating account in accordance with Section 2.10(b)(i). Borrower agrees not to maintain any depository accounts other than Depository Accounts, the Demand Deposit Account and the Assignee Deposit Account established pursuant to this Section 3.2(d). Upon the full and final liquidation of all Payment Liabilities, Agent will pay over to Borrower any excess amounts received by Agent as payment or proceeds of Collateral, whether received by Agent as a deposit in the Assignee Deposit Account, contained in a lockbox account or any Depository Account or received by Agent as a direct payment on any of the sums due hereunder. Borrower will cause each of its Designated Subsidiaries to establish accounts comparable to those set forth above for the collection of the proceeds of their Accounts Receivable, and Borrower shall cause each Designated Subsidiary to take all other actions to implement the collection mechanism set forth in this Section 3.2(d). (e) Borrower appoints Agent, or any Person whom Agent may from time to time designate, as Borrower's attorney and agent-in-fact with power: (i) after the occurrence and during the continuance of an Event of Default to notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Agent; (ii) to receive, open and dispose of all mail addressed to Borrower, but received by Agent; (iii) to send requests for verification of Accounts Receivable or other Collateral to Account Debtors; (iv) to open an Assignee Deposit Account, Depository Accounts, lockbox accounts or other accounts under Agent's sole control for the collection of Accounts Receivable or other Collateral, if not required contemporaneously with the execution hereof; and (v) to do all other things which Agent is permitted to do under this Agreement or any Related Agreement or which are -35- 41 necessary to carry out this Agreement and the Related Agreements. Neither Agent nor any of its directors, officers, employees or agents will be liable for any acts of commission or omission nor for any error in judgment or mistake of fact or law, unless the same shall have resulted from gross negligence or willful misconduct. The foregoing appointment and power, being coupled with an interest, is irrevocable until all Payment Liabilities under this Agreement are paid and performed in full and this Agreement is terminated. Borrower expressly waives presentment, demand, notice of dishonor and protest of all instruments and any other notice to which it might otherwise be entitled. (f) If any Account Receivable or Contract Right, in either case in excess of $2,000,000, and designated by Borrower as an Eligible Account, arises out of a contract with the United States or any state or local governmental entity, or any department, agency, or instrumentality of any thereof, Borrower will, and will cause each Designated Subsidiary to, immediately notify Agent in writing and execute any instruments and take any steps reasonably required by Agent in order that all monies due and to become due under such contract shall be assigned to Agent, for the benefit of itself and Lenders, and notice thereof given to the applicable government under the Federal Assignment of Claims Act of 1940, as amended, or other applicable laws or regulations. The failure of Borrower or a Designated Subsidiary to comply with this clause (f) shall not by itself constitute an Event of Default; rather, such failure will cause the applicable Account Receivable or Contract Right to be deemed not to be an Eligible Account under this Agreement. (g) If any Account Receivable or Contract Right is evidenced by chattel paper or promissory notes, trade acceptances, or other instruments for the payment of money, Borrower will, unless Agent shall otherwise agree, deliver the originals of same to Agent, appropriately endorsed to Agent's order and, regardless of the form of such endorsement, Borrower hereby expressly waives presentment, demand, notice of dishonor, protest and notice of protest and all other notices with respect thereto. 3.3. Inventory. (a) Borrower warrants and covenants that: (i) all of the Inventory is, and at all times shall be, owned by Borrower or a Designated Subsidiary free of all claims and Liens (except as set forth in Section 5.15); and (ii) neither Borrower nor any Designated Subsidiary will make any further assignment of any thereof or create or permit to exist any further Lien thereon, unless approved in writing by Requisite Lenders, nor permit any of Agent's rights therein to be affected by any attachment, levy, garnishment or other judicial process. (b) Neither Agent nor any Lender shall be liable or responsible in any way for the safekeeping of any Inventory delivered to it, to any bailee appointed by or for it, to any warehouseman, or under any other circumstances, other than for losses caused by its gross negligence or willful misconduct. Neither Agent nor any Lender shall be responsible for collection of any proceeds or for losses in collected proceeds held by Borrower or any -36- 42 Designated Subsidiary in trust for Agent. Any and all risk of loss for any or all of the foregoing shall be upon Borrower and the Designated Subsidiaries. (c) Any material change in the value, or condition of any Inventory, and any errors discovered in any monthly inventory certificate under Section 5.1.3 or any other inventory schedule delivered to Agent and Lenders, shall be reported to Agent promptly. Borrower represents and warrants that, as to each schedule of Inventory delivered to Agent or any Lender: (i) The descriptions, origins, sizes, qualities, quantities, weights, and markings of all goods stated thereon, or on any attachment thereto, are true and correct in all respects; (ii) None of the goods are defective, of second quality, used, or goods returned after shipment, except where described as such; and (iii) All Inventory not included on such schedule has been previously scheduled. 3.4. Supplemental Documentation. At Agent's request, Borrower shall execute and deliver, or cause to be executed and delivered, to Agent, at any time or times hereafter, such agreements, documents, financing statements, warehouse receipts, bills of lading, notices of assignment of Accounts Receivable, schedules of Accounts Receivable assigned, and other written matter necessary or reasonably requested by Agent to perfect and maintain perfected Agent's Lien on the Collateral, for the benefit of itself and Lenders (all the above hereinafter referred to as "Supplemental Documentation"), in form and substance acceptable to Agent, and pay all taxes, fees and other costs and expenses associated with any recording or filing of the Supplemental Documentation. Borrower hereby irrevocably makes, constitutes and appoints Agent (and all Persons designated by Agent for that purpose) as Borrower's true and lawful attorney (and agent-in-fact) (which appointment and power, being coupled with an interest, is irrevocable until the last to occur of termination of this Agreement and payment and performance in full of all of the Payment Liabilities under this Agreement) to sign the name of Borrower on any of the Supplemental Documentation and to deliver any of the Supplemental Documentation to such Persons as Agent in its sole and absolute discretion, may elect. Borrower agrees that a carbon, photographic, photostatic, or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. 3.5. Collateral for the Benefit of Agent and Lenders. All Liens granted to Agent hereunder and under the Related Agreements and all Collateral delivered to Agent hereunder and under the Related Agreements shall be -37- 43 deemed to have been granted and delivered to Agent, for the benefit of itself and Lenders, to secure the Liabilities. 3.6. Certain Intellectual Property. Borrower hereby grants Agent, for the benefit of Lenders, a world-wide irrevocable license or other right to use, without charge, Borrower's labels, rights of use of any name, tradenames, trademarks and advertising matter, or any assets and property of a similar nature (collectively, the "Intangible Rights"), as they pertain to the Collateral, in advertising for sale and selling any Collateral and Borrower's rights under all applicable licenses and license agreements related to the foregoing shall inure to Agent's benefit. Such license shall remain in full force and effect until all of the Liabilities have been repaid in full. Any transfer of or Lien on the Intangible Rights granted by Borrower to any other Person shall be subject in all respects to Agent's rights granted hereunder. 3.7. Landlord's Agreements. In the event that Borrower shall at any time, or from time to time (a) make a request for a Loan hereunder or (ii) be deemed to have requested an Overdraft Loan, Borrower shall, at Agent's request, promptly deliver to Agent such Landlord's Agreements with respect to leased locations of Borrower and the Designated Subsidiaries as Agent shall request; provided, that until such time as such Landlord's Agreements are delivered, Agent shall have the right, in its reasonable business judgment, to establish reserves against the Borrowing Base in the amount of three (3) month's rent for each leased location for which Agent has requested but not received such a Landlord's Agreement. 4. REPRESENTATIONS AND WARRANTIES. To induce Agent and Lenders to make Loans to, and issue Letters of Credit for the account of, Borrower under this Agreement, Borrower makes the following representations and warranties to Agent and Lenders, all of which shall be true and correct as of the date the initial Loan is made or the initial Letter of Credit is issued and shall survive the execution of this Agreement and the making of the initial Loan and the issuance of the initial Letter of Credit: 4.1. Organization. Borrower and each Designated Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its respective incorporation. Borrower and each Designated Subsidiary is in good standing and is duly qualified to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification is required, except for those states in which its failure to qualify to do business would not be reasonably likely to have a Material Adverse Effect. Except as set forth on Schedule 4.1 (with respect to Borrower) or Schedule 4.10 (with respect to each Designated Subsidiary), on the date hereof, Borrower and each Designated -38- 44 Subsidiary conducts business in its own name exclusively. Schedule 4.1 sets forth a complete and accurate list, as of the date of this Agreement, of (a) the state of formation of Borrower, (b) each state in which Borrower is qualified to do business and (c) all of Borrower's tradenames, trade styles or doing business forms. 4.2. Authorization. Borrower is duly authorized to execute and deliver this Agreement, any Notes, and any Related Agreements or Supplemental Documentation contemplated by this Agreement, and is and will continue to be duly authorized to borrow monies hereunder and to perform its obligations under this Agreement, any Notes and any such Related Agreements and Supplemental Documentation. Each Designated Subsidiary is duly authorized to execute and deliver any Related Agreements or Supplemental Documentation contemplated to be delivered by such Designated Subsidiary, and is and will continue to be duly authorized to perform its obligations thereunder. The execution, delivery and performance by (a) Borrower of this Agreement, any Notes, and any Related Agreements or Supplemental Documentation contemplated by this Agreement, and the borrowings hereunder and (b) each Designated Subsidiary of any Related Agreements or Supplemental Documentation to which it is a party, do not and will not require any consent or approval of any governmental agency or authority. 4.3. No Conflicts. The execution, delivery and performance by (a) Borrower of this Agreement, any Notes, and any Related Agreements or Supplemental Documentation contemplated by this Agreement and (b) each Designated Subsidiary of any Related Agreements or Supplemental Documentation to which it is a party, do not and will not conflict with (i) any provision of law, (ii) the Certificate or Articles of Incorporation, as applicable, or by-laws, of Borrower or such Designated Subsidiary, (iii) any agreement binding upon Borrower or such Designated Subsidiary which conflict is reasonably likely to have a Material Adverse Effect or (iv) any court or administrative order or decree applicable to Borrower or such Designated Subsidiary which conflict is reasonably likely to have a Material Adverse Effect, and do not and will not require, or result in, the creation or imposition of any Lien on any asset of Borrower or any Designated Subsidiary, except as provided herein. 4.4. Validity and Binding Effect. This Agreement, any Notes, and any Related Agreements or Supplemental Documentation contemplated by this Agreement, when duly executed and delivered, will be legal, valid and binding obligations of Borrower and each Designated Subsidiary party thereto, as applicable, enforceable against Borrower and each such Designated Subsidiary in accordance with their respective terms. -39- 45 4.5. No Default. Neither Borrower nor any Designated Subsidiary is in default under any agreement or instrument to which Borrower or such Designated Subsidiary is a party or by which any of their respective properties or assets is bound or affected, which default is reasonably likely to have a Material Adverse Effect. No Event of Default or Unmatured Event of Default has occurred and is continuing. 4.6. Financial Statements. Borrower's consolidated audited financial statements as of December 31, 1996 and Borrower's consolidated and consolidating unaudited financial statements as of March 31, 1997, copies of which have been furnished to Agent, have been prepared in conformity with GAAP applied on a basis consistent with that of the preceding Fiscal Year and period and present fairly the financial condition of Borrower and the Subsidiaries as of such dates and the results of their operations for the periods then ended, subject (in the case of the interim financial statement) to year-end audit adjustments. Since December 31, 1996, there has been no Material Adverse Change with respect to Borrower and the Designated Subsidiaries. OCC's audited financial statements as of December 31, 1996 and OCC's unaudited financial statements as of March 31, 1997, copies of which have been furnished to Agent, have been prepared in conformity with GAAP and present fairly the financial condition of OCC as of such dates and the results of its operations for the periods then ended, subject (in the case of the interim financial statements) to year-end audit adjustments. Since December 31, 1996, there has been no material adverse change in the condition (financial or otherwise), operations, performance, prospects, properties or affairs of OCC or in the ability of OCC to perform its obligations under any material agreement to which OCC is a party. Borrower's consolidated and consolidating unaudited pro forma balance sheets as of the Closing Date reflect pro forma changes in Borrower's financial condition since March 31, 1997, including the pro forma effects of the Transactions and the application of proceeds in respect thereof, and have been prepared in conformity with GAAP and present fairly the financial condition of Borrower and the Subsidiaries as of such date. 4.7. Insurance. Schedule 4.7 hereto is a complete and accurate summary of the property and casualty insurance program carried by Borrower and the Designated Subsidiaries on the date hereof. Schedule 4.7 includes the insurer's(s') name(s), policy number(s), expiration date(s), amount(s) of coverage, type(s) of coverage, the annual premium(s), deductibles and self-insured retention and describes any retrospective rating plan, fronting arrangement or any other self-insurance or risk assumption agreed to by Borrower or any Designated Subsidiary or imposed upon Borrower or any Designated Subsidiary by any such insurer. This summary also includes any self-insurance program that is in effect. -40- 46 4.8. Litigation; Contingent Liabilities. (a) As of the date hereof, except for those referred to in Schedule 4.8, there are no claims, litigation, arbitration proceedings or governmental proceedings pending or threatened against or affecting Borrower, any Designated Subsidiary or any Related Party, the results of which are reasonably likely to have a Material Adverse Effect. (b) As of the date hereof, other than any liability incident to the claims, litigation or proceedings disclosed in Schedule 4.8 or Schedule 4.19, or provided for or disclosed in the financial statements referred to in Section 4.6 neither Borrower nor any of the Designated Subsidiaries has any contingent liabilities which are reasonably likely to have a Material Adverse Effect. 4.9. Liens. None of the Collateral or other property, revenues or assets of Borrower or any Designated Subsidiary is subject to any Lien (including but not limited to Liens pursuant to Capitalized Leases under which Borrower or any Designated Subsidiary is a lessee) except: (a) Liens in favor of Agent, for the benefit of itself and Lenders; (b) Liens for current Taxes not delinquent or Taxes being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP are being maintained; (c) carriers', warehousemen's, mechanics', materialmen's and other like statutory Liens arising in the ordinary course of business securing obligations which are not overdue or which are being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP are being maintained; (d) Liens listed on Schedule 4.9 and Liens permitted by Section 5.15; and (e) Liens consented to in writing by Requisite Lenders. 4.10. Subsidiaries. As of the date hereof, all of Borrower's Subsidiaries are listed on Schedule 4.10. Schedule 4.10 sets forth, for each such Subsidiary, a complete and accurate statement of (a) Borrower's percentage ownership of each of the Subsidiaries, (b) the state or other jurisdiction of formation or incorporation of each Subsidiary, (c) each state in which each Subsidiary is qualified to do business and (d) all of each Subsidiary's trade names, trade styles or doing business forms. Except as otherwise noted on Schedule 4.10, all of the Subsidiaries listed on Schedule 4.10 are Restricted Subsidiaries and are Designated Subsidiaries. 4.11. Partnerships; Joint Ventures. As of the date hereof, neither Borrower nor any of the Designated Subsidiaries is a partner or joint venturer in any partnership or joint venture other than the partnerships and joint ventures listed on Schedule 4.11. Schedule 4.11 sets forth, for each -41- 47 such partnership or joint venture, a complete and accurate statement of (a) Borrower's and each Designated Subsidiary's percentage ownership of each such partnership or joint venture, (b) the state or other jurisdiction of formation or incorporation, as appropriate, of each such partnership or joint venture, (c) each state in which each such partnership or joint venture is qualified to do business and (d) all of each such partnership's or joint venture's trade names, trade styles or doing business forms on the date of this Agreement. 4.12. Business and Collateral Locations. (a) On the date hereof, the office where Borrower and keeps its books and records concerning its Accounts Receivable and other Collateral, and Borrower's chief place of business and chief executive office, is located at the address of Borrower set forth on the signature pages of this Agreement. Schedule 4.12 accurately identifies the office where each Designated Subsidiary keeps its books and records concerning its Accounts Receivable and other Collateral. Schedule 4.12 contains a complete and accurate list, as of the date of this Agreement, of all of Borrower's and each Designated Subsidiary's places of business other than that referred to in the first two sentences of this paragraph (a). (b) Schedule 4.12 contains a complete and accurate list, as of the date of this Agreement, of the locations of all Inventory and other tangible Collateral and if any Inventory or other Collateral is not in the possession or control of Borrower, a Designated Subsidiary or the owner of such Collateral, the name and mailing address of each bailee, processor, warehouseman or other Person in possession or control thereof. 4.13. Senior Secured Notes. The Senior Secured Notes have been issued on or prior to the Closing Date in accordance with and pursuant to the terms of the Offering Memorandum and in compliance with all laws, including without limitation Rule 144A of the Securities Act of 1933, as amended and all other applicable federal and state securities laws. The issuance of the Senior Secured Notes and the execution of the Senior Secured Note Documents has been duly authorized by all necessary corporate action on the part of Borrower and each Designated Subsidiary party thereto and will not require any consent or approval of any governmental agency or authority that has not been obtained prior to the date hereof. The issuance of the Senior Secured Notes and the execution of the Senior Secured Note Documents does not conflict with (i) any provision of law, (ii) the Certificate or Articles of Incorporation or by-laws of Borrower or any Designated Subsidiary party thereto, (iii) any agreement binding upon Borrower or any Designated Subsidiary party thereto which conflict is reasonably likely to have a Material Adverse Effect, or (iv) any court or administrative order or decree applicable to Borrower or any Designated Subsidiary party thereto which conflict is reasonably likely to have a Material Adverse Effect. The Senior Secured Note Documents are legal, valid and binding obligations of Borrower and each Designated Subsidiary party thereto, enforceable against Borrower and each Designated Subsidiary party thereto in accordance with their respective terms. All representations and -42- 48 warranties of Borrower or any Designated Subsidiary contained in the Senior Secured Note Documents are true and correct in all material respects as of the date hereof. 4.14. Term Loans. The Term Loans have been consummated on or prior to the Closing Date in accordance with and pursuant to the terms of the Term Loan Documents and in compliance with all laws and in connection therewith, the Term Lenders have advanced term loans to Borrower in the aggregate amount of $100,000,000. The execution of the Term Loan Documents have been duly authorized by all necessary corporate action on the part of Borrower and each Designated Subsidiary party thereto and will not require any consent or approval of any governmental agency or authority that has not been waived by the Term Lenders or obtained prior to the date hereof. The execution of the Term Loan Documents does not conflict with (i) any provision of law, (ii) the Certificate or Articles of Incorporation or by-laws of Borrower or any Designated Subsidiary party thereto, (iii) any agreement binding upon Borrower or any Designated Subsidiary party thereto which conflict is reasonably likely to have a Material Adverse Effect or (iv) any court or administrative order or decree applicable to Borrower or any Designated Subsidiary party thereto which conflict is reasonably likely to have a Material Adverse Effect. The Term Loan Documents are legal, valid and binding obligations of Borrower and each Designated Subsidiary party thereto, enforceable against Borrower and each Designated Subsidiary party thereto in accordance with their respective terms. All representations and warranties of Borrower or any Designated Subsidiary contained in the Term Loan Documents are true and correct in all material respects as of the date hereof. 4.15. Eligibility of Collateral. Each Account Receivable or item of Inventory which Borrower shall, expressly or by implication (by inclusion on a Borrowing Base Certificate or otherwise), request Agent to classify as an Eligible Account Receivable or as Eligible Inventory, respectively, will, as of the time when such request is made, conform in all respects to the requirements of such classification set forth in the respective definitions of "Eligible Account Receivable" and "Eligible Inventory" set forth herein. 4.16. Patents, Trademarks, etc. Borrower and each of the Designated Subsidiaries possesses adequate licenses, patents, patent applications, copyrights, trademarks, trademark applications, trade styles, and tradenames to continue to conduct its respective business as heretofore conducted by it, and all such licenses, patents, patent applications, copyrights, trademarks, trademark applications, trade styles, and tradenames existing on the date hereof of Borrower or any Designated Subsidiary are listed on Schedule 4.16. -43- 49 4.17. Solvency. Each of (i) Borrower and each Designated Subsidiary and (ii) Borrower and the Designated Subsidiaries, taken as a whole, now have capital sufficient to carry on their businesses and transactions and all businesses and transactions in which any of them is about to engage, and are able to pay their debts as they mature. Each of (i) Borrower and each Designated Subsidiary, and (ii) Borrower and the Designated Subsidiaries, taken as a whole, are now solvent and now own property having a value, both at fair valuation and at present fair salable value, greater than the amount required to pay its debts. 4.18. Contracts; Labor Matters. Except as disclosed on Schedule 4.18: (a) neither Borrower nor any Designated Subsidiary is a party to any contract or agreement, or is subject to any charge, corporate restriction, judgment, decree or order, which is reasonably likely to have a Material Adverse Effect; (b) as of the date hereof, no labor contract to which Borrower or any Designated Subsidiary is a party or is otherwise subject is scheduled to expire prior to the Termination Date; (c) neither Borrower nor any Designated Subsidiary has, within the two (2)-year period preceding the date of this Agreement, taken any action which would have constituted or resulted in a "plant closing" or "mass layoff" within the meaning of the Federal Worker Adjustment and Retraining Notification Act of 1988 or any similar applicable federal, state or local law, and Borrower has no reasonable expectation that any such action is or will be required at any time prior to the initial Termination Date and (d) on the date of this Agreement (i) neither Borrower nor any Designated Subsidiary is a party to any labor dispute and (ii) there are no strikes or walkouts relating to any labor contracts to which Borrower or any Designated Subsidiary is a party or is otherwise subject. 4.19. Pension and Welfare Plans. Each Pension Plan complies, and has been administered in compliance, in all material respects, with all applicable statutes and governmental rules and regulations; no Reportable Event has occurred and is continuing with respect to any Pension Plan; neither Borrower nor any ERISA Affiliate has withdrawn from any Multiemployer Plan in a "complete withdrawal" or a "partial withdrawal" as defined in Section 4203 or 4205 of ERISA, respectively, with respect to which Borrower or any ERISA Affiliate has any unsatisfied liability; no steps have been instituted to terminate any Pension Plan; no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA; no condition exists or event or transaction has occurred in connection with any Pension Plan or Multiemployer Plan that is reasonably likely to have a Material Adverse Effect; and neither Borrower nor any ERISA Affiliate is a "contributing sponsor" as defined in Section 4001(a)(13) of ERISA of a "single-employer plan" as defined in Section 4001(a)(15) of ERISA that has two or more contributing sponsors at least two of whom are not under common control. Except as listed in Schedule -44- 50 4.19, neither Borrower nor any ERISA Affiliate, to the extent there is joint and several liability with Borrower to pay such benefits, has any liability to pay any welfare benefits under any employee welfare benefit plan within the meaning of Section 3(l) of ERISA to former employees thereof or to current employees with respect to claims incurred after the termination of their employment other than as required by Section 4980B of the Code or Part 6 of Subtitle B of Title 1 of ERISA. 4.20. Regulations G, U and X. Neither Borrower nor any Designated Subsidiary is engaged in the business of purchasing or selling Margin Stock or extending credit to others for the purpose of purchasing or carrying Margin Stock, and no part of the proceeds of the Senior Secured Loans, the Term Loans or any borrowing hereunder will be used to purchase or carry any Margin Stock or for any other purpose which would violate any of the margin regulations of the Federal Reserve Board. 4.21. Compliance. Except as described on Schedule 4.21 or Schedule 4.25, each of Borrower and each Designated Subsidiary is in compliance with all statutes and governmental rules and regulations applicable to it, the noncompliance with which is reasonably likely to have a Material Adverse Effect. 4.22. Taxes. Each of Borrower and each Designated Subsidiary has filed all material tax returns which are required to have been filed and has paid, or made adequate provisions for the payment of, all of its Taxes which are due and payable, except such Taxes, if any, as are being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP have been maintained. The federal income tax liability of Borrower and each Designated Subsidiary has been audited by the Internal Revenue Service and has been finally determined and satisfied (or the time for audit has expired) for all tax years up to and including the tax year ended December 31, 1995. Except as described on Schedule 4.22, as updated from time to time, Borrower is not aware of any proposed assessment against Borrower or any of the Designated Subsidiaries for additional Taxes (or any basis for any such assessment). 4.23. Investment Company Act Representation. Neither Borrower nor any Designated Subsidiary is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. -45- 51 4.24. Public Utility Holding Company Act Representation. Neither Borrower nor any Designated Subsidiary is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 4.25. Environmental and Safety and Health Matters. Except as disclosed on Schedule 4.25, Borrower and each of the Designated Subsidiaries and/or each property, operations and facility that Borrower or any Designated Subsidiary owns, operates or controls (a) complies in all respects with (i) all applicable Environmental Laws, except for those laws the failure with which to comply is not reasonably likely to have a Material Adverse Effect and (ii) all applicable Occupational Safety and Health Laws, except for those laws the failure with which to comply is not reasonably likely to have a Material Adverse Effect; (b) is not subject to any judicial or administrative proceeding alleging the violation of any Environmental Law or Occupational Safety and Health Law which is reasonably likely to have a Material Adverse Effect; (c) has not received any notice (i) that it may be in violation of any Environmental Law or Occupational Safety and Health Law which is reasonably likely to have a Material Adverse Effect, (ii) threatening the commencement of any proceeding under Environmental Law or Occupational Safety and Health Law, which is reasonably likely to have a Material Adverse Effect, or (iii) alleging that it is or may be responsible for any response, cleanup, or corrective action, including but not limited to any remedial investigation/feasibility studies, under any Environmental Law or Occupational Safety and Health Law, which, is reasonably likely to have a Material Adverse Effect; (d) to the knowledge of Borrower is not the subject of federal or state investigation evaluating whether any investigation, remedial action or other response is needed to respond to (i) a Release or threatened Release into the environment of any Hazardous Material or the spillage, disposal or release or threatened release into the environment of any other hazardous, toxic or dangerous waste, substance or constituent, or other substance regulated under Environmental Law which is reasonably likely to have a Material Adverse Effect or (ii) any allegedly unsafe or unhealthful condition regulated under Environmental Law which is reasonably likely to have a Material Adverse Effect; (e) has not filed any notice under or relating to any Environmental Law or Occupational Safety and Health Law indicating or reporting (i) any past or present Release into the environment of, or treatment, storage or disposal of, any Hazardous Material or spillage, disposal or release into the environment of any other hazardous, toxic or dangerous waste, substance or constituent, or other substance regulated under Environmental Law or (ii) any unsafe or unhealthful condition, in either case, which is reasonably likely to have a Material Adverse Effect, and to Borrower's knowledge, there exists no basis for such notice irrespective of whether such notice was actually filed; and (f) has no contingent liability in connection with any actual Release into the environment of, or otherwise with respect to, any Hazardous Material or spillage, disposal or release into the environment of any other hazardous, toxic or dangerous waste, substance or constituent, or other substance, whether -46- 52 on any premises owned or occupied by Borrower or any Designated Subsidiary or on any other premises, which is reasonably likely to have a Material Adverse Effect. Except as disclosed on Schedule 4.25, there are no Hazardous Materials on, in or under any property or facilities owned, operated or controlled by Borrower or any Designated Subsidiary the presence of which is reasonably likely to have a Material Adverse Effect, including but not limited to such Hazardous Materials that may be contained in underground storage tanks, but excepting such Hazardous Materials used in accordance with all applicable laws and such Hazardous Materials used in the same manner as an ordinary consumer (e.g., gasoline in tanks of motor vehicles, small amounts of cosmetic cleaners, etc.). Except with respect to the termination of its term on April 12, 1999, to the best of Borrower's knowledge, the ZENECA Indemnity shall remain in full force and effect in accordance with its terms following consummation of the Transactions. 4.26. Related Agreements and Transaction Documents. As of the date hereof, all representations and warranties of Borrower and each Designated Subsidiary contained in any Related Agreements and all representations and warranties of Parent, Borrower and each Designated Subsidiary contained in any Transaction Document (whether such representations and warranties were made to Agent or any Lender or to another Person), are true and correct as if made on the date hereof (except for those representations and warranties which are expressly made as of another specified date) and Borrower hereby adopts and affirms all such representations and warranties which Borrower agrees shall be incorporated by reference herein and made a part hereof. 4.27. Capitalized Lease Obligations. As of the date hereof, the Indebtedness of Borrower and each Designated Subsidiary under Capitalized Leases is as set forth on Schedule 4.27. 4.28. Other Transactions. (a) The Final Offer to Purchase and Solicitation of Consents (the "Offer") with respect to the First Mortgage Note has become effective and pursuant thereto (a) holders of an aggregate of ___% in principal amount of the First Mortgage Notes have consented to the amendments and modifications of the First Mortgage Note Indenture described in the Offer and evidenced by the certain Third Supplemental Indenture and the Third Supplemental Indenture has become effective and (b) holders of an aggregate of ___% in principal amount of the First Mortgage Notes have tendered their First Mortgage Note pursuant to the Offer. After payment by Borrower of the tender price pursuant to the Offer, no more than $__________ in aggregate principal amount of the First Mortgage Note will be outstanding. (b) Each of the Transactions other than the issuance of the Senior Secured Notes, the consummation of the Term Loans and the tender and consent solicitation for the First Mortgage Notes, has been consummated in accordance with and pursuant to the terms of -47- 53 the applicable Transaction Documents, and in compliance with all applicable laws except where noncompliance therewith is not reasonably likely to have a Material Adverse Effect. The execution of all such Transaction Documents has been duly authorized by all necessary corporate action on the part of Borrower, the Designated Subsidiaries and Parent, as applicable, and will not require any consent or approval of any governmental agency or authority that has not been duly waived or obtained prior to the date hereof. The execution of all such Transaction Documents does not conflict with (i) any provision of law, (ii) the Certificate or Articles of Incorporation or by-laws of Borrower, any Designated Subsidiary party thereto or Parent, (iii) any agreement binding upon Borrower, any Designated Subsidiary party thereto or Parent which conflict is reasonably likely to have a Material Adverse Effect or (iv) any court or administrative order or decree applicable to Borrower, any Designated Subsidiary or Parent party thereto which conflict is reasonably likely to have a Material Adverse Effect. (c) After consummation of the Transactions, the capitalization of Borrower and each Designated Subsidiary shall be as set forth on Schedule 4.28. 4.29. Holding Companies. As of the Closing Date, each of Parent, Borrower, PAI, BMPC, East, TCH and Imperial is a holding company without material assets, operations or business, other than the ownership by (a) Parent of the common stock of Borrower and Pioneer Water Technologies, Inc., (b) Borrower of the common stock of PAI, (c) PAI of the common stock of its Subsidiaries, (d) TCH of the common stock of T.C. Products, Inc. and (e) Imperial of 50% of the common stock of Kemwater North America Company. Upon consummation of the Transactions, as of the Closing Date, none of Parent, Borrower, PAI, BMPC, East, TCH or Imperial has any Indebtedness or other obligations other than Indebtedness of each of them in respect of the First Mortgage Loans, the Senior Secured Loans, the Term Loans and under this Agreement. 5. BORROWER COVENANTS. From the date of this Agreement and thereafter until the Credit is terminated and all Payment Liabilities of Borrower hereunder are paid in full, Borrower agrees that unless Agent, at the written direction of Requisite Lenders, shall otherwise consent in writing, it will: 5.1. Financial Statements and Other Reports. Furnish to Agent and each Lender, in form satisfactory to Agent: 5.1.1. Financial Reports: (a) Annual Audited Financial Statements. Within ninety (90) days after each Fiscal Year, a copy of the annual audited financial statements of Borrower and the Subsidiaries prepared on a consolidated and consolidating basis and in conformity with GAAP and certified -48- 54 by an independent certified public accountant who shall be satisfactory to Agent, together with (i) a certificate from such accountant, (x) containing a computation of, and showing compliance with, each of the financial ratios and restrictions contained in this Section 5 or in Supplement A, and (y) to the effect that, in making the examination necessary for the signing of such annual audit report, such accountant has not become aware of any Event of Default or Unmatured Event of Default that has occurred and is continuing and that relates to financial or other accounting matters or the financial ratios and restrictions contained in this Section 5 or in Supplement A, or, if such accountant has become aware of any such event, describing it and (ii) if prepared in connection with the annual audit report, the annual operating statements of Borrower and the Subsidiaries prepared on a consolidating basis and in conformity with GAAP applied in a manner consistent with the audit report referred to in preceding clauses (a)(i), signed by Borrower's chief financial officer or assistant treasurer. (b) Monthly Financial Statement. Within thirty (30) days after the end of each month of each Fiscal Year of Borrower except (i) forty-five (45) days after the end of each month closing a fiscal quarter and (ii) ninety (90) days after the end of each month closing a Fiscal Year, a copy of the unaudited financial statement of Borrower and the Subsidiaries prepared on a consolidated and consolidating basis and in conformity with GAAP applied in a manner consistent with the audit report referred to in preceding clause (a)(i), and consisting of at least a balance sheet as at the close of such month and an income statement and cash flow statement for such month and for the period from the beginning of such Fiscal Year to the close of such month, compared, in the case of the consolidated statements only, to the actual results for the same period during the prior Fiscal Year and to Borrower's budget (delivered pursuant to Section 5.1.1(c), for the current Fiscal Year). Each such financial statement delivered with respect to a month which is not closing a fiscal quarter or Fiscal Year of Borrower shall be signed by the chief financial officer or assistant treasurer. (c) Annual Budgets. Within thirty (30) days after the end of each Fiscal Year of Borrower, a copy of an annual budget of Borrower for the current Fiscal Year, prepared on a consolidated and consolidating basis and in conformity with GAAP applied in a manner consistent with the prior Fiscal Year's budget, signed by Borrower's chief financial officer or assistant treasurer and consisting of at least a balance sheet, an income statement and a cash flow statement, each calculated on a quarter by quarter basis. (d) Officer's Certificate. Together with the financial statements furnished by Borrower under the preceding clauses (a), and (b), a certificate of Borrower's chief financial officer or assistant treasurer in the form of Exhibit C, dated the date of such annual audit report or such monthly financial statement, as the case may be, containing a statement that no Event of Default or Unmatured Event of Default has occurred and is continuing, or, if there is any such event, describing it and the steps, if any, being taken to cure it, and containing a computation of, and showing compliance with, each of the financial ratios and restrictions contained in this Section 5 or in Supplement A. -49- 55 5.1.2. Agings. If so requested by Agent, and, even if no such request has been received, within thirty (30) days after the end of each month after Borrower has requested the initial disbursement of Revolving Loans hereunder, an aging of all Accounts Receivable of Borrower and the Designated Subsidiaries as of the end of such month, in form substantially as attached hereto as Exhibit E. 5.1.3. Inventory Certification. If so requested by Agent, and, even if no such request has been received, within thirty (30) days after the end of each month after Borrower has requested the initial disbursement of Revolving Loans hereunder, an Inventory certification report as of the end of the month for all Inventory locations of Borrower and the Designated Subsidiaries as of the end of such month, in form substantially as attached hereto as Exhibit B. 5.1.4. Other Reports and Information: (a) SEC and Other Reports. Copies of each filing and report made by Parent, Borrower or any Designated Subsidiary with or to any securities exchange or the Securities and Exchange Commission, promptly upon the filing or making thereof; (b) Intercompany Loans. Upon request therefor by Agent and, even if no such request has been received, within thirty (30) days after the end of each month after Borrower has requested the initial disbursement of Revolving Loans hereunder, a list of all outstanding balances of the Permitted Intercompany Indebtedness of each Designated Subsidiary owing to Borrower as of the end of such month, together with a list of all debits and credits with respect thereto, in form and content acceptable to Agent; and (c) Other Reports. Any information required to be provided pursuant to other provisions of this Agreement, and such other reports or information from time to time reasonably requested by Agent on behalf of itself or any Lender. 5.2. Notices. Notify Agent in writing of any of the following promptly upon learning of the occurrence thereof (or, in the case of clauses (e) and (f) (other than clause (e)(iii)) of this Section 5.2, at least thirty (30) days prior to the occurrence thereof to the extent applicable to Borrower, any Designated Subsidiary or any other Obligor), describing the same and, if applicable, the steps being taken by the Person(s) affected with respect thereto: (a) Default. The occurrence of (i) an Event of Default or Unmatured Event of Default and (ii) to the extent not included in clause (i) of this Section 5.2(a), the default by Parent, Borrower, any other Obligor or any Designated Subsidiary under any material note, indenture, loan agreement, mortgage, lease, deed or other material similar agreement to which Parent, Borrower, any other Obligor or any Designated Subsidiary, as appropriate, is a party or by which it is bound (including without limitation any First Mortgage Note Documents, Senior -50- 56 Secured Note Documents, Term Loan Documents, the Seller Notes, the TC Notes or any Subordinated Debt Document); (b) Intentionally Omitted. (c) Judgment. The entry of any judgment or decree against Borrower, any other Obligor or any Designated Subsidiary, if the amount of such judgment exceeds $500,000; (d) Pension Plans and Welfare Plans. The occurrence of a Reportable Event with respect to any Pension Plan; the filing of a notice of intent to terminate a Pension Plan by Borrower, any ERISA Affiliate, or any other Obligor; the institution of proceedings to terminate a Pension Plan by the PBGC or any other Person; the withdrawal in a "complete withdrawal" or a "partial withdrawal" as defined in Sections 4203 and 4205, respectively, of ERISA by Borrower, any ERISA Affiliate or any other Obligor from any Multiemployer Plan, which complete or partial withdrawal results in a liability to such Multiemployer Plan in excess of $1,000,000; the failure of Borrower, any other Obligor or any ERISA Affiliate to make a required contribution to any Pension Plan, including but not limited to any failure to pay an amount sufficient to give rise to a Lien under Section 302(f) of ERISA; the taking of any action with respect to a Pension Plan which could result in the requirement that Borrower, any other Obligor or any ERISA Affiliate furnish a bond or other security to the PBGC or such Pension Plan; the occurrence of any other event with respect to any Pension Plan which could result in the incurrence by Borrower, any other Obligor or any ERISA Affiliate of any material liability, fine or penalty; or the establishment of a new plan subject to ERISA or an amendment to any existing plan which will result in a material increase in contributions or benefits under such plan or the incurrence of any material increase in the liability of Borrower, any other Obligor (or an ERISA Affiliate to the extent there is joint and several liability with Borrower or any other Obligor) or any Designated Subsidiary, with respect to any "employee welfare benefit plan" as defined in Section 3(l) of ERISA which covers former employees thereof or current employees and their beneficiaries with respect to claims incurred after the termination of their employment; (e) Business and Collateral Information. Any change or proposed change in any of the information set forth on Schedule 4.12, including but not limited to (i) any change in the location of any Inventory, (ii) the identity of any new bailee, processor, warehouseman or other Person in possession or control of any Inventory or other Collateral, (iii) any change in the name or address of the lessor or owner of any real property leased to Borrower, any Designated Subsidiary or any other Obligor, (iv) any proposed change in the location of Borrower's or any Designated Subsidiary's chief executive office or chief place of business, (v) any proposed opening, closing or other change in the list of offices and other places of business of Borrower or any Designated Subsidiary and (vi) any opening, closing or other change in the offices and other places of business of each other Obligor; (f) Change of Name or Status. Any change in the name or address of Borrower, any Designated Subsidiary, or any other Obligor; -51- 57 (g) Insurance Information. Any material change in the information set forth in Schedule 4.7; (h) Environmental and Safety and Health Matters. The occurrence of any event, or the acquisition of any information which, if it had occurred or was true on or before the Closing Date, would have been required to have been disclosed and included on Schedule 4.25, including but not limited to existence of any Environmental Lien and receipt of any notice from any federal, state or local government or agency alleging violation of any Environmental Law or any Occupational Safety and Health Law which violation is reasonably likely to have a Material Adverse Effect; (i) Material Adverse Change or Effect. The occurrence of a Material Adverse Change or the occurrence of any event that is reasonably likely to have a Material Adverse Effect; (j) Default by Others. Any material default by any Account Debtor or other Person obligated to Borrower, any other Obligor, or any Designated Subsidiary, under any contract, chattel paper, note or other evidence of amounts payable or due or to become due to Borrower, such Obligor or Designated Subsidiary if the amount payable under such contract, chattel paper, note or other evidence of amounts payable or due or to become due is reasonably likely to have a Material Adverse Effect; (k) Change in Management or Line(s) of Business. Any substantial change in the senior management of Borrower or any Designated Subsidiary, or any change in Borrower's or any Designated Subsidiary's line(s) of business; (l) Transaction Documents. The existence or assertion of any claim or possible claim in excess of $100,000 or that is reasonably likely to have a Material Adverse Effect by or against Borrower, any Designated Subsidiary or any Obligor under any Transaction Document. (m) Other Indebtedness Notices. Copies of any material amendments, waivers or consents, notices of breach or default, notices relating to the exercise or nonexercise of any remedy available to any Person, notices of indemnity or other claims, written materials relating to any dispute, written materials relating to the exercise of any rights derived from or arising in connection with any Indebtedness and other written communications of a material nature, including any communications by Parent, Borrower or any Designated Subsidiary in connection with the First Mortgage Loans, the Senior Secured Loans, the Term Loans, the Seller Notes or the TC Notes, other than any such notice or other written materials already sent to Agent pursuant to any other Section of this Agreement; and (n) Patents, Etc. Any change to the list of patents, trademarks, copyrights and other information set forth in Schedule 4.16; -52- 58 (o) Litigation. An update of any changes to Schedule 4.8, disclosing all newly instituted claims, litigation, arbitration proceedings or governmental proceedings against or affecting Borrower or any Designated Subsidiary or any Collateral which involves an amount in controversy in excess of $500,000 or which requests injunctive or other equitable relief, and which discloses any significant events or occurrences in any of the matters set forth on Schedule 4.8 or any updates previously provided thereto; (p) Certain Changes. Any change in the information set forth in Schedule 4.1, Schedule 4.10 or Schedule 4.11 concerning Borrower, any Designated Subsidiary or any partnership or joint venture of any of the foregoing; and (q) Other Notices. Notice of the occurrence of such other event as Agent may reasonably from time to time specify, and any notices required to be provided pursuant to any Related Agreement or the other provisions of this Agreement. 5.3. Existence. Except as permitted under Section 5.11, maintain and preserve, and cause each Designated Subsidiary to maintain and preserve, its respective existence as a corporation or other form of business organization, as the case may be, and all rights, privileges, licenses, patents, patent rights, copyrights, trademarks, trade names, trade styles, franchises and other authority to the extent material and necessary for the conduct of its respective business in the ordinary course as conducted from time to time. 5.4. Nature of Business. Engage in, and cause each Designated Subsidiary to engage in, substantially the same fields of business as it is engaged in on the date hereof or reasonably incidental thereto. 5.5. Books, Records and Access. Maintain, and cause each Designated Subsidiary to maintain, complete and accurate books and records (including but not limited to records relating to Accounts Receivable, Inventory, and other Collateral and property), in which full and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its respective business and activities. Cause the books and records of Borrower and each Designated Subsidiary as at the end of any calendar month to be posted and closed not more than thirty (30) days after the last business day of such month except (i) forty-five (45) days after the end of each month closing a fiscal quarter and (ii) ninety (90) days after the end of each month closing a fiscal year. Permit, and cause each Designated Subsidiary to permit, access by Agent and its agents and employees to the books and records of Borrower and such Designated Subsidiary at Borrower's or such Designated Subsidiary's place or places of business at intervals to be determined by Agent upon reasonable prior notice and during normal business hours and without hindrance or delay, and permit and -53- 59 cause each Designated Subsidiary to permit Agent and its agents and employees to inspect the books and records and location of such Designated Subsidiary, as applicable, and to inspect, audit, check and make copies and/or extracts from the books, records, computer data and records, computer programs, journals, orders, receipts, correspondence and other data relating to Inventory, Accounts Receivable, and, any other Collateral and property, or relating to any other transactions between the parties hereto; provided, that Borrower shall permit each Lender and its respective agents and employees to accompany Agent on each such visit; and provided further, that after the occurrence of an Event of Default, Agent and Lenders may have access to such premises at such times as they desire, without having given prior notice. Any and all such inspections, appraisals and/or audits by Agent and its agents and employees relating to Borrower's or any Designated Subsidiary's books and records and locations shall be at Borrower's expense, no matter when the same shall occur. Agent may advance such costs for which Borrower is responsible to Borrower as a Revolving Loan. 5.6. Insurance. Maintain, and cause each Designated Subsidiary to maintain, insurance to such extent and against such hazards and liabilities as is commonly maintained by companies similarly situated. Keep the Collateral properly housed and insured for its full insurable value (subject to customary deductibles) against loss or damage by fire, theft, explosion, sprinklers and such other risks as are customarily insured against by persons engaged in business similar to that of Borrower or such Designated Subsidiary, as applicable, with such companies, in such amounts and under policies in such form as shall be reasonably satisfactory to Agent. Certificates of such policies of insurance in form and substance satisfactory to Agent have been delivered to Agent prior to the date hereof together with evidence of payment of all premiums therefor then due. Borrower hereby directs all insurers under Borrower's policies of insurance to pay all proceeds payable thereunder after the occurrence and during the continuance of an Event of Default in respect of the Collateral directly to Agent, as its interest may appear. Borrower appoints Agent and any Person whom Agent may from time to time designate (and all officers, employees or agents designated by Agent or such Person) after the occurrence and during the continuance of an Event of Default as Borrower's true and lawful attorney and agent in fact with power to make, settle and adjust claims under such policies of insurance, endorse the name of Borrower on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance which are payable to Agent or any Lender hereunder and make all determinations and decisions with respect to such policies of insurance. The foregoing appointment and power, being coupled with an interest, is irrevocable until all Payment Liabilities under this Agreement are paid and performed in full and this Agreement is terminated. In the event Borrower or any Designated Subsidiary at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required herein or to pay any premium in whole or in part relating thereto when due, then Agent, without waiving or releasing any obligation of or default by Borrower hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain -54- 60 such policies of insurance and pay such premiums and take any other action with respect thereto which Agent deems advisable. All sums so disbursed by Agent, including reasonable Attorneys' Fees, court costs, expenses and other charges relating thereto, shall be payable on demand by Borrower to Agent, and Agent may, in its sole and absolute discretion, after three (3) Banking Days' prior notice to Borrower advance such sums to Borrower as a Revolving Loan. Borrower shall cause each Designated Subsidiary to grant to Agent rights identical to those granted by Borrower to Agent in respect of its insurance. 5.7. Repair. Maintain, preserve and keep, and cause each Designated Subsidiary to maintain, preserve and keep, its Equipment and other properties in good operating condition and repair, ordinary wear and tear excepted, and from time to time make, and cause each Designated Subsidiary to make, all necessary and proper repairs, renewals, replacements, additions, betterments and improvements thereto so that at all times the efficiency thereof shall be fully preserved and maintained. 5.8. Taxes. Pay, and cause each Designated Subsidiary to pay, when due, all of its Taxes, unless and only to the extent that Borrower or such Designated Subsidiary is contesting such Taxes in good faith and by appropriate proceedings and Borrower or such Designated Subsidiary has set aside on its books such reserves or other appropriate provisions therefor as may be required by GAAP; not file a consolidated tax return together with any other Person, unless consented to in writing by Agent, except that Borrower and the Designated Subsidiaries may file consolidated returns with Parent pursuant to that certain Tax Sharing Agreement dated on or about the Original Closing Date; and not change its Fiscal Year or tax year without Agent's prior written consent. 5.9. Compliance. Comply, and cause each Designated Subsidiary to comply, with all statutes and governmental rules and regulations applicable to it, except where the failure to so comply would not be reasonably likely to have a Material Adverse Effect. 5.10. Pension Plans. Not permit, and not permit any Designated Subsidiary to permit, any condition to exist in connection with any Pension Plan that would constitute grounds for the PBGC to institute proceedings to have such Pension Plan terminated or a trustee appointed to administer such Pension Plan; not fail, and not permit any Designated Subsidiary to fail, to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA; and not engage in, or permit to exist or -55- 61 occur, or permit any of the Designated Subsidiaries to engage in, or permit to exist or occur, any other condition, event or transaction with respect to any Pension Plan that is reasonably likely to result in a Material Adverse Effect. 5.11. Merger, Purchase and Sale. Not, and not permit any Designated Subsidiary to: (a) be a party to any merger, liquidation or consolidation, except, in the case of Borrower and the Designated Subsidiaries, with or into Borrower or another Designated Subsidiary; (b) except for sales of Inventory in the normal course of its business and as permitted otherwise in this Agreement, sell, transfer, convey, lease or otherwise dispose of its assets, including without limitation any Accounts Receivable, Contract Rights, notes receivable or chattel paper; provided, however, that (i) if no Event of Default has occurred and is continuing or would be caused thereby, (ii) to the extent permitted by the terms of the Senior Secured Note Indenture as it exists on the Closing Date and, if any First Mortgage Notes remain outstanding, the terms of the First Mortgage Note Indenture as it existed on the Original Closing Date, and (iii) after such transaction, the Interest Coverage Sale Threshold has been met, any or all of the assets of or capital stock in any Designated Subsidiary may be sold, transferred, conveyed, leased or otherwise disposed of, on such terms as Borrower or such Designated Subsidiary determines to be commercially reasonable, in each case as long as the cash proceeds (net of taxes, expenses of sale and repayment of any Indebtedness secured thereby) of any of the foregoing transactions are applied to (A) repay the Liabilities, (B) repay Indebtedness in respect of the First Mortgage Notes, the Senior Secured Notes and the Term Loans, on a pro rata basis, or (C) purchase replacement assets, all as provided in the Senior Secured Note Indenture as it exists on the Closing Date, and, if the assets sold, transferred, conveyed, leased or otherwise disposed of include Eligible Accounts or Eligible Inventory, Liabilities in an amount equal to the Borrowing Base generated by such assets are immediately repaid in full out of the proceeds of such transaction; (c) purchase or otherwise acquire all or substantially all of the assets of any Person, except, if no Event of Default has occurred and is continuing or would be caused thereby, (i) the purchase of the assets of or capital stock in any Designated Subsidiary by Borrower or another Designated Subsidiary and (ii) any such purchase or acquisition by Borrower or any Designated Subsidiary, so long as (A) such purchase or acquisition does not create Indebtedness or Liens not otherwise permitted by this Agreement, (B) such purchase or acquisition is permitted by the terms of the Senior Secured Note Indenture as it exists on the Closing Date and, if any First Mortgage Notes remain outstanding, the terms of the First Mortgage Note Indenture as it existed on the Original Closing Date, and (C) total consideration (including cash purchase price, liabilities assumed by Borrower or any Designated Subsidiary and deferred purchase price and related payments, including current and future payments in respect of covenants not to compete, consulting agreements and the like) (I) for any such purchase or acquisition does not exceed $15,000,000 and (II) for all such purchases and acquisitions prior to the Termination Date does not exceed $20,000,000; or (d) become a party to or participate in any joint venture, partnership or similar business organization not in existence on the Closing Date. -56- 62 5.12. Restricted Payments. Not, and not permit any Designated Subsidiary to, (a) purchase or redeem any shares of its stock or any options or warrants therefor, other than the purchase of capital stock held by employees of Borrower or any Designated Subsidiary pursuant to any employee stock ownership plan thereof upon the termination, retirement or death of any employee in accordance with the provisions of any such plan in an amount not greater than $500,000 in any calendar year, plus the portion of any such amounts that remain unused at the end of the two prior calendar years, but in no event shall the total thereof in any calendar year exceed $1,500,000; (b) except as provided below in this Section 5.12, declare or pay any dividends on any of its stock (other than dividends payable in non-redeemable capital stock) or make any distribution to stockholders as such or set aside any funds for any such purpose (collectively, "Upstream Payments"); (c) make any prepayment, purchase, defeasance or redemption of any First Mortgage Loans, Senior Secured Loans or Term Loans (including without limitation any mandatory prepayment required by the terms of the applicable First Mortgage Note Documents, Senior Secured Note Documents or Term Loan Documents upon a change of control or an asset sale, or any optional prepayment, redemption or defeasance allowed by the terms of the First Mortgage Note Documents, Senior Secured Note Documents or Term Loan Documents) at any time that an Event of Default is in existence or to the extent an Event of Default would be caused thereby; or (d) except as permitted in any applicable subordination or intercreditor agreements, or any subordination terms contained within the applicable Subordinated Debt Documents, pay any Subordinated Debt. Notwithstanding the foregoing, (x) (i) each Designated Subsidiary may make direct or indirect Upstream Payments to Borrower at any time, and (ii) Borrower may make Upstream Payments to Parent to the extent permitted under the terms of the Senior Secured Note Indenture, as its exists on the Closing Date; and (y) payments by Borrower or any Designated Subsidiary may be made at any time pursuant to the Contingent Payment Agreement as it existed on the Original Closing Date, to the extent permitted in the Senior Secured Note Indenture as it exists on the Closing Date. 5.13. Stock. Except as permitted under Section 5.11, not permit any Designated Subsidiary to purchase or otherwise acquire any shares of the stock of Borrower, and not take any action, or permit any Designated Subsidiary to take any action, which will result in a decrease in Borrower's ownership interest in any Designated Subsidiary. 5.14. Indebtedness. Not, and not permit any Designated Subsidiary to, incur or permit to exist any Indebtedness (including but not limited to Indebtedness as lessee under Capitalized Leases), except: (a) Indebtedness under the terms of this Agreement; (b) Indebtedness of Borrower and the Designated Subsidiaries in respect of the Senior Secured Notes in an aggregate principal amount of not more than $200,000,000; (c) Indebtedness of Borrower -57- 63 and the Designated Subsidiaries in respect of the Term Loans in an aggregate principal amount of not more than $100,000,000; (d) Indebtedness of Borrower and the Designated Subsidiaries in respect of the First Mortgage Notes in an aggregate principal amount of not more than $0; (e) other Indebtedness outstanding on the date hereof and listed on Schedule 5.14; (f) Indebtedness as lessee under Capitalized Leases plus Indebtedness secured by Liens securing the payment of all or part of the purchase price of assets acquired after the Closing Date, which Indebtedness does not exceed $10,000,000 in the aggregate for Borrower and the Designated Subsidiaries on a consolidated basis at any time, and any refinancing of any of the foregoing; (g) Permitted Intercompany Indebtedness and Indebtedness of Borrower to the Designated Subsidiaries; (h) Indebtedness under Hedging Obligations (as defined in the Senior Secured Note Indenture as it exists on the Closing Date), to the extent permitted in the Senior Secured Note Indenture as it exists on the Closing Date; (i) Indebtedness in respect of performance, completion, guarantee, surety and similar bonds, banker's acceptances or letters of credit provided by Borrower or any Designated Subsidiary in the ordinary course of business; (j) Indebtedness permitted pursuant to the first paragraph of Section 1008 of the Senior Secured Note Indenture as it exists on the Closing Date; (k) in addition to any other Indebtedness permitted hereunder, up to $10,000,000 aggregate principal amount of Indebtedness at any one time outstanding; and (l) other Indebtedness approved in writing by Requisite Lenders. 5.15. Liens. Not, and not permit any Designated Subsidiary to, create or permit to exist any Lien with respect to any property, revenue or assets now owned or hereafter acquired, except: (a) Liens in favor of Agent, for the benefit of itself and Lenders; (b) Liens securing Permitted Intercompany Indebtedness; (c) without duplication, Liens referred to in Section 4.9; (d) Liens permitted under clause (b) of the definition of "Permitted Liens" in the Senior Secured Note Indenture as it exists on the Closing Date, and, if any First Mortgage Notes remain outstanding, clause (b) of the definition of "Permitted Liens" in the First Mortgage Note Indenture as its existed on the Original Closing Date, in an aggregate amount of up to $5,000,000 at any one time outstanding; (e) other than in connection with Indebtedness, Liens arising in the ordinary course of business (i) to secure payments of workers' compensation, unemployment insurance, pension or other social security or retirement benefits, or to secure the performance of bids, tenders, leases, progress payments, contracts (other than for the payment of money) or to secure public or statutory obligations of Borrower or any Designated Subsidiary, or to secure surety or appeal bonds to which Borrower or any Designated Subsidiary is a party and (ii) for rights of financial institutions to setoff and chargeback arising by operation of law; (f) Liens permitted under clauses (d) and (e) of the definition of "Permitted Liens" in the Senior Secured Note Indenture as it exists on the Closing Date, and, if any First Mortgage Notes remain outstanding, clauses (d) and (e) of the definition of "Permitted Liens" in the First Mortgage Note Indenture as it existed on the Original Closing Date; (g) Liens permitted under clause (f) of the definition of "Permitted Liens" or clauses (c), (d) and (e) of Section 1012 of the -58- 64 Senior Secured Note Indenture as it exists on the Closing Date, and, if any First Mortgage Notes remain outstanding, clause (f) of the definition of "Permitted Liens" or clauses (c), (d) and (e) of Section 1012 of the First Mortgage Note Indenture as it existed on the Original Closing Date; provided, however, that with respect to Borrower and the Designated Subsidiaries, such Lien shall be permitted only to the extent it secures Indebtedness permitted under Section 5.14(f); (h) Liens permitted under clauses (f), (g), (j) and (k) of Section 1012 of the Senior Secured Note Indenture as it exists on the Closing Date, and, if any First Mortgage Notes remain outstanding, Liens permitted under clauses (f), (g), (j) and (k)of Section 1012 of the First Mortgage Note Indenture as its existed on the Original Closing Date; (i) Liens on certain equipment, real property and stock securing the obligations of the First Mortgage Loans, the Term Loans and the Senior Secured Loans; and (j) Liens consented to in writing by Requisite Lenders. 5.16. Guaranties. Not, and not permit any Designated Subsidiary to, become or be a guarantor or surety of, or otherwise become or be responsible in any manner (whether by agreement to purchase any obligations, stock, assets, goods or services, or to supply or advance any funds, assets, goods or services, or otherwise) with respect to, any undertaking of any other Person, except for (a) the endorsement, in the ordinary course of collection, of instruments payable to it or its order; (b) any guaranty of the Liabilities in favor of Agent, for the benefit of itself and Lenders; (c) any guaranty of the First Mortgage Notes, the Senior Secured Notes or the Term Loans and (d) any guaranty of any Indebtedness permitted under this Agreement. 5.17. Investments. Except as provided in Section 5.19 or Section 5.11, not, and not permit any Designated Subsidiary to, make or permit to exist any Investment in any Person, except for: (a) advances to employees of Borrower or any of the Designated Subsidiaries for travel or other ordinary business expenses provided that the aggregate amount outstanding at any one time shall not exceed $500,000 in the aggregate for all employees; (b) Eligible Investments (as defined in the Senior Secured Note Indenture as it exists on the Closing Date); (c) Investments consisting of Indebtedness permitted under Section 5.14 (g); (d) Investments (other than loans) by Borrower in any Designated Subsidiary or by any Designated Subsidiary in another Designated Subsidiary; (e) extensions of credit in the nature of Accounts Receivable or notes receivable arising from the sale of goods and services in the ordinary course of business; (f) shares of stock, obligations or other securities received in settlement of claims arising in the ordinary course of business; (g) other Investments outstanding on the date hereof and listed on Schedule 5.17 and any reclassification or conversion thereof into an alternate form of Investment in the same or a successor entity; (h) Investments consisting of bank accounts permitted under this Agreement; (i) other Investments that are permitted pursuant to clause (vi) of the definition of the term "Permitted Investment" contained in Section 101 of the Senior Secured Note -59- 65 Indenture as it exists on the Closing Date; and (j) other Investments consented to by Requisite Lenders in writing. 5.18. Designated Subsidiaries. Except as permitted in Section 5.11 or Section 5.17, not, and not permit any Designated Subsidiary to, acquire any stock or similar interest in any Person and not create, establish or acquire any Subsidiaries; not change the status of a Subsidiary to or from a Designated Subsidiary. 5.19. Loans to Designated Subsidiaries. Not make or extend any loan or advance to any Designated Subsidiary (a) not designated as such on the Closing Date, without prior written notice of such loan or advance to Agent and (b) until such time as Agent has received resolutions of such Designated Subsidiary's board of directors authorizing or ratifying the execution, delivery and performance of all Related Agreements executed by such Designated Subsidiary, in form and substance satisfactory to Agent; and not permit any Designated Subsidiary to make or extend any loan or advance to another Designated Subsidiary. Upon Agent's request, prior to any such loan or advance from Borrower to a Designated Subsidiary not designated as such on the Closing Date, such Designated Subsidiary shall execute and deliver agreements in the same form as those delivered to Agent on the Closing Date by the currently existing Designated Subsidiaries in order to evidence such loans and advances and to grant Borrower a first priority perfected Lien on such Designated Subsidiary's property of the types described in Section 3.1 as collateral therefor. Borrower shall assign the proceeds of such loans, all of the foregoing agreements, documents and instruments and its Lien related thereto to Agent, in each case in a manner, and pursuant to agreements, satisfactory to Agent. 5.20. Change in Accounts Receivable. After the occurrence and during the continuance of an Event of Default, not permit or agree to, or permit any Designated Subsidiary to permit or agree to, any extension, compromise or settlement or make any change or modification of any kind or nature with respect to any Account Receivable, including any of the terms relating thereto. 5.21. Environmental Issues. Provide such information that is or becomes available (unless subject to confidentiality restrictions in existence on the Closing Date) to Borrower or any Designated Subsidiary which Agent may reasonably request from time to time pertaining to the environmental aspects of Borrower and the Designated Subsidiaries and any property owned, operated or controlled by Borrower or any Designated Subsidiary. Nothing in this Section 5.21, and no actions taken by Agent or any Lender pursuant thereto, shall give, or be construed as controlling, or giving to Agent or any Lender the right or obligation to -60- 66 direct or control, the conduct or action or inaction of Borrower or any Designated Subsidiary with respect to any environmental matters, including but not limited to those pertaining to compliance with any Environmental Laws. Borrower shall also maintain, and cause each Designated Subsidiary to maintain, in full force and effect all third-party indemnities in favor of Borrower or any Designated Subsidiary with respect to any of the foregoing. 5.22. Related Agreements. After the date hereof, not enter into, or permit any Designated Subsidiary to enter into, any agreement containing any provision which would be violated or breached by the performance by Borrower or such Designated Subsidiary of its obligations hereunder or under any Related Agreement or any instrument or document delivered or to be delivered by Borrower or such Designated Subsidiary in connection herewith. 5.23. Unconditional Purchase Options. Except in the ordinary course of business, not enter into or be a party to, or permit any Designated Subsidiary to enter into or be a party to any contract for the purchase of materials, supplies or other property or services, if such contract requires that payment be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services. 5.24. Use of Proceeds. Not use or permit, and not permit any Designated Subsidiary to use or permit, any proceeds of the Senior Secured Loans, the Term Loans, the Loans or Letters of Credit to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying" any Margin Stock, and furnish to Agent upon request, a statement in conformity with the requirements of Federal Reserve Form U-l referred to in Regulation U of the Board of Governors of the Federal Reserve System. 5.25. Transactions with Related Parties. Except as set forth on Schedule 5.25, not, and not permit any Designated Subsidiary to, (a) pay any management, consulting or similar fees to any Related Party, whether for services rendered to Borrower or any Designated Subsidiary, or otherwise, or (b) enter into or be a party to any other transaction or arrangement, including without limitation the purchase, sale, lease or exchange of property or the rendering of any service, with any Related Party, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's or such Designated Subsidiary's business and upon fair and reasonable terms no less favorable to Borrower or such Designated Subsidiary than would obtain in a comparable arm's-length transaction with a Person not a Related Party and unless such transaction or arrangement is permitted by the terms of the Senior Secured Note Indenture, as it exists on the Closing Date. -61- 67 5.26. Amendment of Documents. Not, and not permit Parent or any Designated Subsidiary to, amend, modify or alter, or permit to be amended, modified or altered, (a) any First Mortgage Note Document, any Senior Secured Note Document or any Term Loan Document, (b) any other Transaction Document, or (c) any agreement, instrument or document evidencing any of the Indebtedness listed on Schedule 5.14 if the effect of such amendment or modification is to (i) increase the interest rate payable thereunder more than 200 basis points in excess of the highest interest rate applicable under the First Mortgage Note Documents, the Senior Secured Note Documents or the Term Loan Documents, as applicable (including application of any "default rate" thereunder), in each case as they exist on the date hereof, (ii) with respect to the First Mortgage Note Documents and the Senior Secured Note Documents, alter the timing or amount of any payment terms thereunder, if applicable, or with respect to the Term Loan Documents only, alter the timing or amount of any payment terms during the first seven (7) years after the date hereof, (iii) increase the aggregate amount of Indebtedness thereunder, if applicable, or (iv) materially adversely affect the interest of Agent or Lenders. Agent and Lenders hereby agree that their consent to any of the foregoing will not be unreasonably withheld or delayed. 5.27. Designated Subsidiary. Cause each Designated Subsidiary to execute and deliver to Agent, in form and substance satisfactory to Agent in its sole discretion, the following (a) a guaranty in favor of Agent, for the benefit of itself and Lenders, pursuant to which such Designated Subsidiary has unconditionally guarantied the Liabilities; (b) a security agreement with Agent, for the benefit of itself and Lenders, pursuant to which such Subsidiary has granted to Agent, for the benefit of itself and Lenders, a Lien on its assets of the types described in Section 3.1, as collateral for the guaranty described in clause (i) above, (c) such UCC financing statements as Agent shall reasonably require in order to perfect such Lien and (d) appropriate evidence of such Designated Subsidiary's corporate authority for the foregoing. No otherwise Eligible Inventory or Eligible Accounts Receivable of any Designated Subsidiary shall be included in the Borrowing Base unless (i) such Designated Subsidiary has complied in all respects with this Section 5.27, to Agent's reasonable satisfaction, (ii) Agent has satisfied itself that Agent's Liens on the Collateral of such Designated Subsidiary are fully perfected senior Liens thereon, (iii) Borrower has demonstrated to Agent that such Collateral is insured in compliance with Section 5.6 and (iv) Agent has received such landlord's and bailee's agreements with respect to such Collateral as Agent shall reasonably request. 5.28. Limitation on Applicability of Covenants. Notwithstanding the covenants contained in this Agreement, Borrower and any Designated Subsidiary may engage in any transactions contemplated by and effected in accordance with the terms of the Contingent Payment Agreement as it existed on the -62- 68 Original Closing Date. The consummation of any such transaction shall not constitute a breach of the otherwise applicable covenants, contained in this Agreement. 5.29. Merger. Complete the merger of Borrower and PAI, pursuant to agreements reasonably acceptable to Agent, on or before July 17, 1997. 5.30. Holding Companies. Not, and not permit any of PAI, East, TCH, BMPC or Imperial to, conduct any material business or have any material operations, assets or liabilities, other than as set forth in Section 4.29. 5.31. Banking Relationships. Maintain, and cause each of the Designated Subsidiaries to maintain, their principal bank accounts and banking relationships with BAI. 6. DEFAULT. 6.1. Event of Default. Each of the following shall constitute an Event of Default under this Agreement: (a) Non-Payment. Default in the payment of the principal of the Liabilities when due or declared due or the payment of any of the other Liabilities other than principal within five (5) Banking Days' of the date due or declared due. (b) Non-Payment of Other Indebtedness. Default in the payment when due, whether by acceleration or otherwise (subject to any applicable grace period), of any Indebtedness of, or guaranteed by, Borrower, any other Obligor or any Designated Subsidiary with a principal balance in excess of $5,000,000 (other than any Indebtedness under this Agreement and any Notes), including without limitation the First Mortgage Loans, the Senior Secured Loans and the Term Loans. (c) Acceleration of Other Indebtedness. Any event or condition shall occur which results in the acceleration of the maturity of any Indebtedness of, or guaranteed by, Borrower, any other Obligor or any Designated Subsidiary with a principal balance in excess of $5,000,000 (other than the Indebtedness under this Agreement and any Notes), including without limitation the First Mortgage Loans, the Senior Secured Loans and the Term Loans, or enables the holder or holders of such other Indebtedness or any trustee or agent for such holders to accelerate the maturity of such other Indebtedness. -63- 69 (d) Other Obligations. Default in the performance or observance (subject to any applicable grace period or waiver of such default) of (i) any obligation or agreement of Borrower, any other Obligor or any Designated Subsidiary to or with Agent or any Lender (other than any obligation or agreement of Borrower hereunder and under any Notes) or (ii) any obligation or agreement of Borrower, any other Obligor or any Designated Subsidiary to or with any other Person (other than (x) any such obligation or agreement constituting or related to Indebtedness, or (y) Trade Accounts Payable), in any case if the existence of any such default is not being contested by Borrower, such other Obligor or such Designated Subsidiary, as the case may be, in good faith and by appropriate proceedings and Borrower, such other Obligor or such Designated Subsidiary, as applicable, shall have set aside on its books such reserves or other appropriate provisions therefor as may be required by GAAP and such obligation is for an amount in excess of $5,000,000. (e) Bankruptcy. Borrower, any other Obligor or any Designated Subsidiary applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for Borrower, such other Obligor or such Designated Subsidiary, or for a substantial part of the property of Borrower, such other Obligor or such Designated Subsidiary, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for Borrower, any other Obligor or any Designated Subsidiary, or for a substantial part of the property of Borrower, any other Obligor or any Designated Subsidiary and is not discharged or dismissed within sixty (60) days; or any bankruptcy, reorganization, debt arrangement or other proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is instituted by or against Borrower, any other Obligor or any Designated Subsidiary; or any warrant of attachment or similar legal process is issued against any substantial part of the property of Borrower, any other Obligor or any Designated Subsidiary. (f) Insolvency. Borrower, any other Obligor or any Designated Subsidiary becomes insolvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they mature. (g) ERISA Liabilities. Any of the following events shall have occurred, if such event is reasonably likely to have a Material Adverse Effect: (i) the existence of a Reportable Event, (ii) the withdrawal of Borrower or any ERISA Affiliate from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (iii) the occurrence of an obligation to provide affected parties with a written notice of intent to terminate a Pension Plan in a distress termination under Section 4041 of ERISA, (iv) the institution by PBGC of proceedings to terminate any Pension Plan, (v) any event or condition that would require the appointment of a trustee to administer a Pension Plan, (vi) the withdrawal of Borrower or any ERISA Affiliate from a Multiemployer Plan, and (vii) any event that would give rise to a Lien under Section 302(f) of ERISA. (h) Non-Compliance With This Agreement. Default in the performance of any of Borrower's agreements set forth in Section 3.2, 3.3, 5.5, 5.6, 5.11 through 5.31 or in -64- 70 Section 5 of Supplement A hereto (and not constituting an Event of Default under any of the other subsections of this Section 6.1); or default in the performance of any of Borrower's agreements set forth in Section 5.1.1, 5.1.2, 5.1.3, 5.1.4 or 5.2 (and not constituting an Event of Default under any of the other subsections of this Section 6.1), and continuance of such default for five (5) days after the occurrence thereof; or default in the performance of any of Borrower's other agreements herein set forth (and not constituting an Event of Default under any of the other subsections of this Section 6.1), and continuance of such default for thirty (30) days after the occurrence thereof. (i) Non-Compliance With Related Agreements. Default in the performance by Borrower, any other Obligor or any Designated Subsidiary of any of its agreements set forth in any Related Agreement (and not constituting an Event of Default under any of the other subsections of this Section 6.1), and continuance of such default after notice from Agent and the expiration of the grace or cure period (if any) set forth therein. (j) Representations and Warranties. Any representation or warranty made by Borrower or any other Obligor herein (including without limitation any representation or warranty contained in Section 3.2 or 3.3) or in any Related Agreement is untrue or misleading in any material respect when made or deemed made; or any schedule, statement, report, notice, certificate or other writing furnished by Borrower, any Designated Subsidiary or any other Obligor to Agent or any Lender is untrue or misleading in any material respect on the date as of which the facts set forth therein are stated or certified; or any certification made or deemed made by Borrower, any Designated Subsidiary or any other Obligor to Agent or any Lender is untrue or misleading in any material respect on or as of the date made or deemed made. (k) Litigation. There shall be entered against any one of Borrower, any other Obligor or any Designated Subsidiary one or more judgments or decrees in excess of $5,000,000 in the aggregate at any one time outstanding, excluding those judgments or decrees (i) that shall have been outstanding less than thirty (30) calendar days from the entry thereof, (ii) for and to the extent which Borrower, such Obligor or such Designated Subsidiary, as applicable, is insured and with respect to which the insurer has assumed responsibility in writing or for and to the extent which Borrower, such Obligor or such Designated Subsidiary, as applicable, is otherwise indemnified if the terms of such indemnification are satisfactory to Agent or (iii) which have been stayed pending appeal and with respect to which Borrower, such Obligor or such Designated Subsidiary has posted any required bond or letter of credit. (l) Termination of Obligations. If any Obligor shall terminate any of its obligations to Agent or any Lender in respect of the Liabilities. (m) Validity. If the validity or enforceability of this Agreement or any Related Agreement shall be challenged by Borrower, any Designated Subsidiary or any other Obligor, or if this Agreement or any Related Agreement shall fail to remain in full force and effect. -65- 71 (n) Change of Control. If (i) any Person and its Related Parties (other than William R. Berkley and his Related Parties and Interlaken Capital, Inc. and its Related Parties (collectively, the "Investor Parties")) among them have record and beneficial ownership of more than 25% of the outstanding voting power of Borrower or Parent on a fully diluted basis, in any case at any time that the Investor Parties among them have record and beneficial ownership of less than 30% of the outstanding voting power of Borrower or Parent on a fully diluted basis; or (ii) if any Change of Control (as defined in the Senior Secured Note Indenture as it exists on the Closing Date) occurs or (iii) if Borrower ceases to retain record and beneficial ownership of 100% of the issued and outstanding stock of PAI. 6.2. Effect of Event of Default; Remedies. (a) In the event that one or more Events of Default described in Section 6.1(e) shall occur, then each Lender's commitment and the Credit extended under this Agreement shall terminate and all Liabilities hereunder and under any Notes shall be immediately due and payable without demand, notice or declaration of any kind whatsoever. (b) In the event an Event of Default other than one described in Section 6.1(e) shall occur, at the option of Agent or Requisite Lenders, each Lender's commitment shall terminate and all Liabilities hereunder and under any Notes shall immediately be due and payable without demand or notice of any kind whatsoever, whereupon the Credit extended under this Agreement shall terminate. Agent shall promptly advise Borrower of any such declaration, but failure to do so shall not impair the effect of such declaration. (c) In the event of the occurrence of any Event of Default, Agent may exercise any one or more or all of the following remedies, all of which are cumulative and non-exclusive: (i) Any remedy contained in this Agreement or in any of the Related Agreements or any Supplemental Documentation; (ii) Any rights and remedies available to Agent or any Lender under the UCC, and any other applicable law; (iii) To the extent permitted by applicable law, Agent may, without notice, demand or legal process of any kind, take possession of any or all of the Collateral (in addition to Collateral which it may already have in its possession), wherever it may be found, and for that purpose may pursue the same wherever it may be found, and may enter into any premises where any of the Collateral may be or is supposed to be, and search for, take possession of, remove, keep and store any of the Collateral until the same shall be sold or otherwise disposed of, and Agent shall have the right to store the same in any of Borrower's premises without cost to Agent; -66- 72 (iv) At Agent's request, Borrower will, at Borrower's expense, assemble the Collateral and make it available to Agent at a place or places to be designated by Agent which is reasonably convenient to Agent and Borrower; and (v) Agent at its option, and pursuant to notification given to Borrower as provided for below, may sell any Collateral actually or constructively in its possession at public or private sale and apply the proceeds thereof as provided below. 7. ADDITIONAL PROVISIONS REGARDING COLLATERAL AND AGENT'S RIGHTS. 7.1. Notice of Disposition of Collateral. Any notification of intended disposition of any of the Collateral required by law shall be deemed reasonably and properly given if given at least ten (10) calendar days before such disposition. 7.2. Application of Proceeds of Collateral. Any proceeds of any disposition by Agent of any of the Collateral may be applied by Agent to the payment of expenses in connection with the taking possession of, storing, preparing for sale, and disposition of Collateral, including Attorneys' Fees and legal expenses, and any balance of such proceeds may be applied by Agent toward the payment of such of the Liabilities, and in such order of application, as Agent may from time to time elect. 7.3. Care of Collateral. Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if it takes such action for that purpose as Borrower requests in writing, but failure of Agent to comply with such request shall not, of itself, be deemed a failure to exercise reasonable care, and no failure of Agent to preserve or protect any rights with respect to such Collateral against prior parties, or to do any act with respect to the preservation of such Collateral not so requested by Borrower, shall be deemed a failure to exercise reasonable care in the custody or preservation of such Collateral. 7.4. Performance of Borrower's Obligations. Agent shall have the right, but shall not be obligated, to discharge any claims or Liens against, and any Taxes at any time levied or placed upon any or all Collateral, including without limitation those arising under statute or in favor of landlords, taxing authorities, government, public and/or private warehousemen, common and/or private -67- 73 carriers, processors, finishers, draymen, coopers, dryers, mechanics, artisans, laborers, attorneys, courts, or others. Agent may also pay for maintenance and preservation of Collateral. Agent may, but is not obligated to, perform or fulfill any of Borrower's responsibilities under this Agreement which Borrower has failed to perform or fulfill. Agent may after three (3) Banking Days' notice to Borrower advance to Borrower as a Revolving Loan any payment made or expense incurred under this Section 7.4. 7.5. Agent's Rights. None of the following shall affect the obligations of Borrower or any Designated Subsidiary to Agent or any Lender under this Agreement or Agent's right with respect to the remaining Collateral (any or all of which actions may be taken by Agent at any time, whether before or after an Event of Default, at its sole and absolute discretion and without notice to Borrower): (a) acceptance or retention by Agent or any Lender of other property or interests in property as security for the Liabilities, or acceptance or retention of any Obligor(s), in addition to Borrower, with respect to any of the Liabilities; (b) release of its Lien on, or surrender or release of, or the substitution or exchange of or for, all or any part of the Collateral or any other property securing any of the Liabilities (including but not limited to any property of any Obligor other than Borrower), or any extension or renewal for one or more periods (whether or not longer than the original period), or release, compromise, alteration or exchange, of any obligations of any guarantor or other Obligor with respect to any Collateral or any such property; (c) extension or renewal for one or more periods (whether or not longer than the original period), or release, compromise, alteration or exchange of any of the Liabilities, or release or compromise of any obligation of any Obligor with respect to any of the liabilities; or (d) failure by Agent or any Lender to resort to other security or pursue any Person liable for any of the Liabilities before resorting to the Collateral. 8. CONDITIONS PRECEDENT; DELIVERY OF DOCUMENTS AND OTHER MATTERS. 8.1. Conditions Precedent to Initial Loans and Letters of Credit. The obligation of each Lender that is a party to this Agreement on the date hereof to make the initial Loans and for Issuing Bank to issue the initial Letters of Credit is subject to satisfaction of the following conditions precedent (in addition to those provided in Section 8.2): 8.1.1. Liens. The Liens on the Collateral granted under this Agreement and the Related Agreements and all other Liens granted to Agent, for the benefit of itself and Lenders, -68- 74 to secure the Liabilities, shall be senior, perfected Liens, except as otherwise agreed by Agent and Lenders, and all financing statements and other documents relating to Collateral shall have been filed or recorded, as appropriate. Agent shall have received such consents and waivers with respect to the Collateral as Agent shall request, in form and substance satisfactory to Agent. 8.1.2. Transactions. (i) Borrower shall have issued the Senior Secured Notes, the gross proceeds of such Senior Secured Notes, in an amount not less than $200,000,000, shall have been received by Borrower and the proceeds thereof shall have been used by Borrower in substantially the manner described in "The Acquisition and Use of Proceeds" section of the Offering Memorandum, (ii) the Acquisition shall have been consummated in accordance with all applicable laws, (iii) Borrower shall have consummated the Term Loans, the gross proceeds thereof, in an amount not less than $100,000,000, should have been received by Borrower and the proceeds thereof shall have been used by Borrower substantially in the manner described in "The Acquisition and Use of Proceeds" section of the Offering Memorandum and (iv) the Third Supplemental Indenture relating to the First Mortgage Notes shall have become effective and the holders of at least ___% of the aggregate principal amount of the First Mortgage Note shall have tendered their First Mortgage Notes pursuant to the Offer (the transactions referred to herein are hereinafter referred to as the "Transactions"). 8.1.3. Solvency. Each Lender shall be satisfied that, after giving effect to the Transactions, and the initial Loans and Letters of Credit, Borrower, each Designated Subsidiary and each other Obligor shall have assets (excluding goodwill and other intangible assets not capable of valuation) having a value, both at fair salable value and at fair valuation, greater than the amount of such Person's liabilities (including trade debt and Indebtedness to Agent and Lenders). Each Lender shall be satisfied that all of the assets supporting the Loans and Letters of Credit under this Agreement shall be sufficient in value to provide Borrower and each Designated Subsidiary with sufficient cash flow and working capital to enable it to thereafter profitably operate its business and to meet its obligations as they become due. Each Lender shall be satisfied that Borrower and each Designated Subsidiary has adequate capital for the business in which it is about to engage. In connection with the foregoing, each Lender shall have received such written appraisals, balance sheets, solvency certificates or other materials as Agent shall reasonably request. 8.1.4. Effect of Law. No law or regulation affecting Agent's or any Lender's entering into the secured financing transaction contemplated by this Agreement shall impose upon Agent or such Lender any material obligation, fee, liability, loss, penalty, cost, expense or damage. 8.1.5. Exhibits; Schedules. All Exhibits and Schedules to this Agreement shall have been completed and submitted to each Lender, shall be in form and substance satisfactory to such Lender and shall contain no facts or information which such Lender, in its sole judgment, determines to be unacceptable. -69- 75 8.1.6. Licenses, Permits and Consents. All licenses, permits, consents, judicial and regulatory approvals and corporate action necessary to consummate the Transactions and the making of the initial Loans and the issuance of the initial Letters of Credit shall have been obtained on terms acceptable to each Lender. 8.1.7. Fees. If not funded with the proceeds of the initial Loans, Agent shall have received the upfront closing fee referred to in Section 2.14 and any other fees due and payable by Borrower or any other Person on the funding of the initial Loans and the issuance of the initial Letters of Credit. 8.1.8. Title to Assets. Borrower and the Designated Subsidiaries shall have good, indefeasible and merchantable title to the Collateral, free and clear of all Liens, except as otherwise permitted in Section 5.15 hereof. 8.1.9. Material Adverse Change; Litigation. No Material Adverse Change, as determined by each Lender, shall have occurred from December 31, 1996 through the Closing Date and the issuance of the initial Letters of Credit and no Material Adverse Change, as determined by such Lender, shall have occurred in the facts and information disclosed to such Lender or otherwise relied upon by such Lender in making its decision to enter into this Agreement, and no Lender shall have become newly aware of any material adverse facts or information, as reasonably determined by such Lender, with respect to Parent, Borrower or any Designated Subsidiary or the business, operations or prospects thereof. In addition, there shall not have been instituted or threatened any litigation or proceedings in any court or administrative forum affecting or threatening to affect the consummation of the Transactions or which would have a Material Adverse Effect, in each case as determined by each Lender. 8.1.10. Documents. In addition to this Agreement, each Lender shall have received the agreements, documents and instruments listed in Section VIII of the Closing Checklist attached hereto as Exhibit F, each duly executed where appropriate and dated as of the Closing Date (or such other date as shall be satisfactory to Agent), in form, and containing terms and provisions, acceptable to such Lender. 8.1.11. Default. No Event of Default or Unmatured Event of Default shall have occurred and be continuing or would be caused thereby. 8.1.12. Resolutions. Agent shall have received resolutions of Borrower's board of directors authorizing or ratifying the execution, delivery and performance of this Agreement and all Related Agreements executed by Borrower, in form and substance satisfactory to Agent. 8.2. Continuing Conditions Precedent to all Loans; Certification. The obligation of each Lender to make the initial Loans and each subsequent Loan and to establish any LIBOR Rate Loans, and for Issuing Bank to issue the initial Letters of Credit and each subsequent Letter of Credit, is subject to satisfaction of the following conditions precedent in addition to those provided in Section 8.1: -70- 76 (a) No Change in Condition. No change in the condition or operations, financial or otherwise, of Borrower, any Designated Subsidiary or any other Obligor, shall have occurred which change, in the reasonable credit judgment of Requisite Lenders, is reasonably likely to have a Material Adverse Effect; (b) Default. Before and after giving effect to such Loan and/or Letter of Credit, no Event of Default or Unmatured Event of Default shall have occurred and be continuing; and (c) Representations and Warranties. Before and after giving effect to such Loan and/or Letter of Credit, the representations and warranties in Section 4 shall be true and correct in all material respects as though made on the date of such Loan and/or Letter of Credit, except for those representations and warranties which are expressly made as of the date hereof. Each request for a Loan or a Letter of Credit hereunder made or deemed to have been made by Borrower shall be deemed to be a certificate of Borrower as to the matters set out in the foregoing provisions of this Section 8.2. 9. INDEMNITY. 9.1. Environmental and Safety and Health Indemnity. Borrower hereby indemnifies Agent and each Lender and agrees to hold Agent and each Lender harmless from and against any and all losses, liabilities, damages, injuries, costs, expenses and claims of any and every kind whatsoever (including without limitation court costs and Attorneys' Fees) which at any time or from time to time may be paid, incurred or suffered by, or asserted against, Agent or any Lender for, with respect to, or as a direct or indirect result of the violation by Borrower or any of the Designated Subsidiaries of any Environmental Law or Occupational Safety and Health Law, or with respect to, or as a direct or indirect result of (a) the presence on or under, or the Release from, properties utilized by Borrower and/or any Designated Subsidiary in the conduct of its business into or upon any land, the atmosphere, or any watercourse, body of water or wetland, of any Hazardous Material or the escape, seepage, leakage, spillage, disposal, discharge, emission or release of any other hazardous or toxic waste, substance or constituent, or other substance (including without limitation any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law) or (b) the existence of any unsafe or unhealthful condition on or at any premises utilized by Borrower and/or any Designated Subsidiary in the conduct of its business except, with respect to any of the foregoing, to the extent arising out of the gross negligence or willful misconduct of Agent or any Lender. The provisions of and undertakings and indemnification set out in this Section 9.1 shall survive satisfaction and payment of the Liabilities and termination of this Agreement. -71- 77 9.2. General Indemnity. In addition to the payment of expenses pursuant to Section 12.3, whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to indemnify, pay and hold Agent and each Lender, and the officers, directors, employees, agents, and affiliates of each of Agent and each Lender (collectively, the "Indemnitees") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including without limitation the reasonable fees and disbursements of counsel for any of such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not any of such Indemnitees shall be designated a party thereto) that may be imposed on, incurred by, or asserted against any Indemnitee, in any manner relating to or arising out of this Agreement or any Related Agreement, the statements contained in any commitment letter delivered by Agent or any Lender, Agent's or any Lender's agreement to make the Loans or to issue Letters of Credit hereunder, the use or intended use of any Letters of Credit, or the use or intended use of the proceeds of any of the Loans hereunder (the "indemnified liabilities"); provided that Borrower shall have no obligation to an Indemnitee hereunder with respect to indemnified liabilities arising from the gross negligence or willful misconduct of such Indemnitee. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall contribute the maximum portion that it is permitted to pay under applicable law to the payment and satisfaction of all indemnified liabilities incurred by the Indemnitees or any of them. The provisions of the undertakings and indemnification set out in this Section 9.2 shall survive satisfaction and payment of the Liabilities and termination of this Agreement. 9.3. Capital Adequacy. If Agent or any Lender shall reasonably determine that the application or adoption of any law, rule, regulation, directive, interpretation, treaty or guideline regarding capital adequacy, or any change therein or in the interpretation or administration thereof, whether or not having the force or law (including without limitation application of changes to Regulation H and Regulation Y of the Federal Reserve Board issued by the Federal Reserve Board on January 19, 1989 and regulations of the Comptroller of the Currency, Department of the Treasury, 12 CFR Part 3, Appendix A, issued by the Comptroller of the Currency on January 27, 1989) increases the amount of capital required or expected to be maintained by Agent or such Lender or any Person controlling Agent or such Lender in excess of any such increases affecting Agent or such Lender as of the date hereof, and such increase is based upon the existence of Agent's or such Lender's obligations hereunder and other commitments of this type, then from time to time, within ten (10) days after demand from Agent or such Lender, Borrower shall pay to Agent or such Lender, as applicable, such amount or amounts as will compensate Agent or such Lender or such controlling Person, as the case may be, for such increased capital requirement. The determination of -72- 78 any amount to be paid by Borrower under this Section 9.3 shall take into consideration the policies of Agent or such Lender or any Person controlling Agent or such Lender with respect to capital adequacy and shall be based upon any reasonable averaging, attribution and allocation methods. A certificate of Agent or such Lender, as applicable, setting forth the amount or amounts as shall be necessary to compensate Agent or such Lender as specified in this Section 9.3 shall be delivered to Borrower and shall be conclusive in the absence of manifest error. Any demand to be given by a Lender under this Section 9.3 shall be effective only if given within 120 days after such Lender became aware or should have become aware of the events giving rise to such notice. 10. AGENT. 10.1. Appointment of Agent. Each Lender hereby irrevocably appoints and authorizes BAI to act as its Agent under this Agreement and the Related Agreements. Each Lender hereby irrevocably appoints and authorizes Agent to take such action on such Lender's behalf under the provisions of this Agreement and the Related Agreements and to exercise such powers and perform such duties under this Agreement and the Related Agreements as are specifically delegated to Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental hereto and thereto. Agent may perform any of its duties hereunder or under the Related Agreements by or through its agents or employees. The provisions of this Section 10 are solely for the benefit of Agent and Lenders, and neither Borrower nor any Obligor shall have any rights as a third party beneficiary of any of the provisions hereof other than Section 10.9. In performing its functions and duties under this Agreement and the Related Agreements, Agent shall act solely as agent of Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for Borrower or any Obligor. 10.2. Nature of Duties of Agent. Agent shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement and the Related Agreements. Neither Agent nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted by it as such hereunder or under the Related Agreements or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of Agent shall be mechanical and administrative in nature; Agent shall not have by reason of this Agreement or the Related Agreements a fiduciary relationship in respect of any Lender; and nothing in this Agreement or the Related Agreements, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect of this Agreement or the Related Agreements except as expressly set forth herein or therein. No duty to act, or refrain from acting, and no other obligation whatsoever, shall be implied on the basis of or imputed in respect of any right, power or authority granted to Agent or -73- 79 shall become effective in the event of any temporary or partial exercise of such rights, power or authority. 10.3. Agent in its Capacity as Lender. With respect to its obligation to lend under this Agreement and the Related Agreements, the Loans made by it and its participation in Letters of Credit, Agent shall have the same rights and powers under this Agreement and the Related Agreements as any Lender and may exercise the same as though it were not Agent, and the terms "Lender" or "Lenders" shall, unless the context otherwise indicates, include Agent in its capacity as a Lender hereunder. Agent, any Lender and their respective affiliates may accept deposits from, lend money to, and generally engage in any kind of banking or trust business with Borrower, or Related Parties of Borrower, as if it were not Agent or as if it or they were not a Lender hereunder and without any duty to account therefor to the other parties to this Agreement; provided, that the obligations of Borrower under such transactions shall not be deemed to be Liabilities or secured by any Collateral without the prior written agreement of the Requisite Lenders; provided, further that Lenders acknowledge and agree that the obligations of Borrower to BAI or any other Lender as Issuing Bank and with respect to any lockbox or bank account maintained by or for the benefit of Borrower, including the Demand Deposit Account, the Depository Accounts, and the Assignee Deposit Account, shall be deemed to be Liabilities secured by the Collateral. 10.4. Independent Credit Analysis. Each Lender agrees that it has, independently and without reliance upon Agent, any other Lender, or the directors, officers, agents, attorneys or employees of Agent or of any other Lender, and instead in reliance upon information supplied to it by or on behalf of Parent, Borrower and/or each Designated Subsidiary, made its own independent credit analysis and decision to enter into this Agreement and the Related Agreements to which it is a party, and that it shall independently and without reliance upon Agent, any other Lender, or the directors, officers, agents, attorneys or employees of Agent or of any other Lender, continue to make its own independent credit analysis and decisions in acting or not acting under this Agreement and the Related Agreements. Except as otherwise expressly provided herein, Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information concerning the affairs, financial condition, litigation, liabilities, or business of Parent, Borrower, any Designated Subsidiary or any other Obligor which may at any time come into the possession of Agent (or any of its affiliates). In the event such information is furnished to any Lender by Agent, Agent shall have no duty to confirm or verify its accuracy or completeness and shall have no liability whatsoever with respect thereto. -74- 80 10.5. General Immunity. Neither Agent nor any of its directors, officers, agents, attorneys or employees shall be liable to any Lender for any action taken or omitted to be taken by it or them under this Agreement or the Related Agreements or in connection herewith or therewith except for its or their own willful misconduct or gross negligence. Without limiting the generality of the foregoing, Agent: (i) shall not be responsible to Lenders for any recitals, statements, warranties or representations under this Agreement or the Related Agreements or any agreement or document relative hereto or thereto or for the financial or other condition of any Obligor, (ii) shall not be responsible for the authenticity, accuracy, completeness, value, validity, effectiveness, due execution, legality, genuineness, enforceability, collectibility or sufficiency of this Agreement or the Related Agreements or any other agreements or any assignments, certificates, requests, financial statements, projections, notices, schedules or opinions of counsel executed and delivered pursuant hereto or thereto, (iii) shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the Related Agreements on the part of Obligors or of any of the terms of any such agreement by any party hereto or thereto and shall have no duty to inspect the property (including the books and records) of any Obligor, (iv) shall have no obligation whatsoever to Lenders or to any other Person to assure that the Collateral exists or is owned by Borrower or another Obligor or is cared for, protected or insured or that the Liens granted to Agent herein or in Related Agreements or pursuant hereto or thereto have been properly or sufficiently or lawfully created, perfected, protected, enforced, realized upon or are entitled to any particular priority, and (v) shall incur no liability under or in respect of this Agreement or the Related Agreements or any other document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable, telex, telecopier or similar form of facsimile transmission) believed by Agent to be genuine and signed or sent by the proper party. Agent may consult with legal counsel (including counsel for Borrower), independent public accountants and other experts selected by Agent and shall not be liable for any action taken or omitted to be taken in good faith in accordance with the advice of such counsel, accountants or experts. 10.6. Action by Agent. (a) Actual Knowledge. Agent may assume that no Event of Default has occurred and is continuing, unless Agent has actual knowledge of the Event of Default, has received notice from Borrower or Borrower's independent certified public accountants stating the nature of the Event of Default, or has received notice from a Lender stating the nature of the Event of Default and that such Lender considers the Event of Default to have occurred and to be continuing. (b) Discretion to Act. Agent shall have the right to request instructions from Requisite Lenders by notice to each Lender. If Agent shall request instructions from Requisite Lenders with respect to any act or action (including the failure to act) in connection with this -75- 81 Agreement or any Related Agreement, Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from Requisite Lenders, and Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting hereunder or under any Related Agreement in accordance with the instructions of Requisite Lenders. Agent may give any notice required under Section 6 hereof without the consent of any of Lenders unless otherwise directed by Requisite Lenders in writing and will, at the direction of Requisite Lenders, give any such notice required under Section 6. Except for any obligation expressly set forth in this Agreement or the Related Agreements, Agent may, but shall not be required to, exercise its discretion to act or not act, except that Agent shall be required to act or not act upon the instructions of Requisite Lenders (unless all of Lenders are required to provide such instructions as provided in Section 12.6) and those instructions shall be binding upon Agent and all Lenders; provided that Agent shall not be required to act or not act if to do so would expose Agent to liability or would be contrary to this Agreement or any Related Agreements or to applicable law. 10.7. Right to Indemnity. Agent shall be fully justified in failing or refusing to take any action under this Agreement or the Related Agreements or in relation hereto or thereto unless it shall first be indemnified (upon requesting such indemnification) to its satisfaction by Lenders against any and all liability and expense which it may incur by reason of taking or continuing to take any such action. Lenders further agree to indemnify Agent ratably in accordance with their Pro Rata Shares for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against Agent in any way relating to or arising out of this Agreement or the other Related Agreements or the transactions contemplated hereby or thereby, or the enforcement of any of the terms hereof or thereof or of any other documents; provided no such liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement results from Agent's gross negligence or willful misconduct. Each Lender agrees to reimburse Agent in the amount of its Pro Rata Share of any out-of-pocket expenses for which Agent is entitled to receive, but has not received, reimbursement pursuant to this Agreement. The agreements in this Section 10.7 shall survive the payment and fulfillment of the Liabilities and termination of this Agreement. 10.8. Rights and Remedies to be Exercised by Agent Only. In the event any remedy may be exercised with respect to this Agreement or the Related Agreements or the Collateral, Agent shall pursue remedies designated by Requisite Lenders subject to the proviso set forth in Section 10.6(b). Each Lender agrees that no Lender shall have any right individually (a) to realize upon the security created by this Agreement or the Related Agreements, (b) enforce any provision of this Agreement or -76- 82 the Related Agreements, or (c) make demand under this Agreement or the Related Agreements; provided, that any Lender that is an Issuing Bank may make demand upon Borrower as the Issuing Bank pursuant to Sections 2.2(b) and 2.2(c) and BAI may make demand upon Borrower pursuant to Section 12.4. 10.9. Agent's Resignation. Agent may resign at any time after giving at least thirty (30) days' prior written notice of its intention to do so to each Lender and to Borrower. Upon satisfaction of the foregoing condition, Requisite Lenders shall have the right to appoint a successor Agent (such appointment to be subject to the consent of Borrower (which consent of Borrower shall not be unreasonably withheld or delayed); provided, that Borrower's consent shall not be required if a Lender is appointed Agent). If no successor Agent shall have been so appointed and shall have accepted such appointment within twenty (20) days after Agent's giving of such notice of resignation, then the resigning Agent may appoint a successor Agent. After any resigning Agent's resignation hereunder as Agent, it shall be discharged from its duties and obligations under this Agreement but the provisions of this Section 10 shall continue to bind Agent and inure to Agent's benefit as to any actions taken or omitted to be taken by it while it was Agent hereunder. Upon appointment of a successor Agent, the term "Agent" shall for all purposes of this Agreement thereafter mean such successor. 10.10. Disbursement of Proceeds of Loans and Other Advances. Agent may (and is hereby irrevocably authorized by Lenders), but shall have no duty to make such other disbursements and advances as Revolving Loans on behalf of Lenders, including without limitation the making of advances for the expenditures described in Section 7.4 of this Agreement, which Agent, in its sole discretion, deems necessary or desirable to preserve or protect the Collateral, or any portion thereof. Agent's use of its own checks upon its funds or Agent's transfer of its own funds, by wire or otherwise, to an account of Borrower or any other Obligor shall be deemed to be disbursements made by each Lender under this Agreement and pursuant to the Related Agreements. 10.11. Release of Collateral. Each Lender hereby irrevocably authorizes Agent, at its option and in its discretion, to release any and all guaranties of the Liabilities and any Lien granted to or held by Agent upon any Collateral (i) upon termination of Lenders' obligations to make Loans and payment and satisfaction of all Loans, Letter of Credit reimbursement obligations and all other Payment Liabilities and which Agent has been notified in writing are then due and payable; (ii) constituting Collateral being sold or disposed of if Borrower certifies to Agent that the sale or disposition is made in compliance with the terms of this Agreement (and, absent any actual knowledge of Agent to the contrary, Agent may rely -77- 83 conclusively on any such certificate, without further inquiry); (iii) constituting property in which Borrower or any other Obligor owned no interest at the time the Lien was granted and at all times thereafter; or (iv) if approved, authorized or ratified in writing by Agent at the direction of all Lenders. Upon request by Agent at any time, each Lender will confirm in writing Agent's authority to release particular types or items of Collateral pursuant to this Section 10.11. 10.12. Agreement to Cooperate. Each Lender agrees to cooperate to the end that the terms and provisions of this Agreement may be promptly and fully carried out. Lenders also agree, from time to time, at the request of Agent, to execute and deliver any and all other agreements, documents or instruments and to take such other actions, all as may be reasonably necessary or desirable to effectuate the terms, provisions and intent of this Agreement and the Related Agreements. 10.13. Sharing of Collateral. If any Lender shall obtain any payment (whether voluntary, involuntary, through exercise of any right of set off, or otherwise) on account of the Liabilities in excess of the amount to which it is entitled pursuant to this Agreement, such Lender shall forthwith purchase from the other Lenders such participations in such other Lenders' claims against Borrower as shall be necessary to cause such purchasing Lender to share the excess payment with the other Lenders in accordance with the provisions of this Agreement; provided, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from such other Lender shall be rescinded and such other Lenders shall repay to the purchasing Lender the purchase price to the extent of their portion of such recovery together with an amount equal to the share (according to the proportion of (i) the amount of such other Lenders' required repayment, to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by purchasing Lender in respect of the total amount recovered. 10.14. Lenders to Act as Agents. If any Collateral or proceeds thereof at any time comes into the possession or under the control of any Lender, such Lender shall hold such Collateral or proceeds thereof as agent for the joint benefit of Lenders, and will, upon receipt therefor, deliver such Collateral or proceeds thereof to Agent. 11. ADDITIONAL PROVISIONS. Additional provisions are set forth in Supplement A. -78- 84 12. GENERAL. 12.1. Borrower Waiver. Except as otherwise provided for in this Agreement, Borrower waives (a) presentment, demand and protest and notice of presentment, protest, default, non-payment, maturity, release, compromise, settlement, one or more extensions or renewals of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Agent or any Lender on which Borrower may in any way be liable and hereby ratifies and confirms whatever Agent or any Lender may do in this regard; (b) all rights to notice and a hearing prior to Agent's or any Lender's taking possession or control of, or Agent's or any Lender's replevy, attachment or levy on or of, the Collateral or any bond or security which might be required by any court prior to allowing Agent or any Lender to exercise any of Agent's or any Lender's remedies; and (c) the benefit of all valuation, appraisement and exemption laws. Borrower acknowledges that it has been advised by counsel of its choice with respect to this Agreement and the transactions evidenced by this Agreement. 12.2. Power of Attorney. Borrower appoints Agent, or any Person whom Agent may from time to time designate, as Borrower's attorney and agent-in-fact with power (which appointment and power, being coupled with an interest, is irrevocable until all Payment Liabilities under this Agreement are paid and performed in full and this Agreement is terminated), without notice to Borrower, to: (a) At such time or times hereafter as Agent or said agent, in its sole and absolute discretion, may determine in Borrower's or Agent's name (i) endorse Borrower's name on any checks, notes, drafts or any other items of payment relating to and/or proceeds of the Collateral which come into the possession of Agent or under Agent's control and apply such payment or proceeds to the Liabilities; (ii) endorse Borrower's name on any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement in Agent's possession relating to Accounts Receivable, Inventory or any other Collateral; (iii) use the information recorded on or contained in any data processing equipment and computer hardware and software to which Borrower has access relating to Accounts Receivable, Inventory and/or other Collateral; (iv) use Borrower's stationery and sign the name of Borrower to verification of Accounts Receivable and notices thereof to Account Debtors; and (v) if not done by Borrower, do all acts and things determined by Agent to be necessary, to fulfill Borrower's obligations under this Agreement; and (b) At such time or times after the occurrence and during the continuance of an Event of Default, as Agent or said agent, in its sole and absolute discretion, may determine, in Borrower's or Agent's name: (i) demand payment of the Accounts Receivable; (ii) enforce payment of the Accounts Receivable, by legal proceedings or otherwise; (iii) exercise all of -79- 85 Borrower's rights and remedies with respect to the collection of the Accounts Receivable and other Collateral; (iv) settle, adjust, compromise, extend or renew the Accounts Receivable; (v) settle, adjust or compromise any legal proceedings brought to collect the Accounts Receivable; (vi) if permitted by applicable law, sell or assign the Accounts Receivable and/or other Collateral upon such terms for such amounts and at such time or times as Agent may deem advisable; (vii) discharge and release the Accounts Receivable and/or other Collateral; (viii) prepare, file and sign Borrower's name on any proof of claim in bankruptcy or similar document against any Account Debtor; (ix) prepare, file and sign Borrower's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Accounts Receivable and/or other Collateral; and (x) do all acts and things necessary, in Agent's sole and absolute discretion, to obtain repayment of the Liabilities and to fulfill Borrower's other obligations under this Agreement. 12.3. Expenses; Attorneys' Fees. Borrower agrees, whether or not any Loan is made or Letter of Credit is issued hereunder, to pay upon demand all Attorneys' Fees and all other reasonable expenses incurred by Agent at any time, including fees, costs and expenses incurred in connection with Collateral field audits or other due diligence investigations by Agent (subject to the limits contained in Section 5.5). For purposes of this Agreement, "Attorneys' Fees" means the reasonable value of the services (and costs, charges and expenses related thereto) of the attorneys (and all paralegals and any outside consultants employed by such attorneys) employed by Agent or, to the extent specifically referred to below, any Lender (including but not limited to attorneys and paralegals who are employees of Agent or any Lender) from time to time (a) in connection with the negotiation, preparation, execution, delivery, administration and, in the case of Agent or any Lender, enforcement of this Agreement, any Related Agreement, any Supplemental Documentation and all other documents or instruments provided for herein or in any thereof or delivered or to be delivered hereunder or under any thereof or in connection herewith or with any thereof, (b) to prepare documentation related to the Loans made and other Liabilities incurred hereunder, (c) to prepare any amendment to or waiver under this Agreement or any Related Agreement and any documents or instruments related thereto, (d) to represent Agent or any Lender in any litigation, contest, dispute, suit or proceeding or to commence, defend or intervene in any litigation, contest, dispute, suit or proceeding or to file a petition, complaint, answer, motion or other pleading, or to take any other action in or with respect to, any litigation, contest, dispute, suit or proceeding (whether instituted by Agent or any Lender, Borrower or any other Person and whether in bankruptcy or otherwise) in any way or respect relating to the Collateral, this Agreement or any Related Agreement (other than any litigation, contest, dispute, suit or proceedings involving a dispute between Agent and any Lender or between any Lender and any other Lender), or Borrower's or any other Obligor's or any Designated Subsidiary's affairs, (e) to protect, collect, lease, sell, take possession of, or liquidate any of the Collateral, (f) to perfect or attempt to enforce any security interest in any of the Collateral or to give any advice with respect to such enforcement and (g) to enforce any of Agent's or any Lender's -80- 86 rights to collect any of the Liabilities. Agent may after three (3) Banking Days' notice to Borrower advance all such amounts to Borrower as a Revolving Loan. Borrower also agrees (y) to indemnify and hold Agent and each Lender harmless from any loss or expense which may arise or be created by the acceptance of telephonic or other instructions for making Loans or issuing Letters of Credit and (z) to pay, and save Agent and each Lender harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Agreement, or any Related Agreement or Supplemental Documentation, or the issuance of any Note or of any other instruments or documents provided for herein or to be delivered hereunder or in connection herewith. In addition to the foregoing, "Attorneys' Fees" shall include Agent's fees and expenses of the types described in the preceding sentence incurred in connection with the syndication, participation and assignment of this Agreement, any Related Agreement and any Supplemental Documentation. Borrower's foregoing obligations shall survive any termination of this Agreement. 12.4. BAI's Fees and Charges. To the extent not already covered by Section 12.3, Borrower agrees to pay BAI on demand by BAI the customary fees and charges of BAI for maintenance of accounts with BAI or for providing other services to Borrower and if not so paid, each Lender shall, without regard to any other provision of this Agreement or any other Related Agreement or any defense that Borrower may have to its obligation to pay BAI in connection with such fees and charges, pay BAI for such Lender's Pro Rata Share of such fees and charges, and any payments so made by Lenders to BAI shall be deemed to be Revolving Loans. Each Lender (other than BAI) acknowledges and agrees that it shall not be entitled to any of the fees and charges of BAI as provided in the immediately preceding sentence. Agent may, in its sole and absolute discretion, provide for such payment by advancing the amount thereof to Borrower as a Revolving Loan after three (3) Banking Days' notice to Borrower. 12.5. Lawful Interest. In no contingency or event whatsoever shall the interest rate charged pursuant to the terms of this Agreement exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that any Lender has received interest hereunder in excess of the highest applicable rate, such Lender shall promptly refund its Pro Rata Share of such excess interest to Borrower. 12.6. No Waiver by Agent or any Lender; Amendments. No failure or delay on the part of Agent or any Lender in the exercise of any power or right, and no course of dealing between Borrower and Agent or any Lender shall operate as a waiver of such power or right, nor shall any single or partial exercise of any -81- 87 power or right preclude other or further exercise thereof or the exercise of any other power or right. The remedies provided for herein are cumulative and not exclusive of any remedies which may be available to Agent or any Lender at law or in equity. No notice to or demand on Borrower not required hereunder shall in any event entitle Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of Agent or any Lender to any other or further action in any circumstances without notice or demand. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or any Related Agreement shall in any event be effective unless the same shall be in writing and signed and delivered by Requisite Lenders. Notwithstanding the foregoing, any amendment, modification, termination, waiver or consent with respect to any of the following provisions of this Agreement shall be effective only by a written agreement, signed by each Lender affected thereby: (a) increase in the amount of the Maximum Loan Amount of such Lender, (b) reduction of the principal of, rate or amount of interest on the Revolving Loans or any fees or charges (including, without limitation, any Letter of Credit fees or charges) payable to such Lender (other than by the payment or prepayment thereof), (c) postponement of the date fixed for any payment of principal of, or interest on, the Loans or any fees or charges) (including, without limitation, any Letter of Credit fees or charges) or other amounts payable to such Lender, (d) change in the aggregate Pro Rata Share of Lenders which shall be required for Lenders or any of them to take action hereunder or amend the definition of "Requisite Lenders," or (e) amendment of this Section 12.6. Agent may, but shall have no obligation to, with the written concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Any waiver of any provision of this Agreement, and any consent to any departure by Borrower from the terms of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which given. 12.7. Termination of Revolving Credit. Borrower may terminate the Revolving Credit at any time upon notice to Agent and payment in full of the outstanding principal balance of the Loans and all other Payment Liabilities under this Agreement and the Related Agreements, as provided in Section 2.1.2. All of Agent's and each Lender's rights and remedies, the Liens of Agent on the Collateral, for the benefit of itself and Lenders, and all of Borrower's duties and obligations under this Agreement shall survive termination of the Credit extended to Borrower hereunder until all of the Payment Liabilities hereunder have been finally paid and performed in full. The termination or cancellation of the Credit shall not affect or impair the liabilities and obligations of Borrower or any one or more of the Obligors to Agent and Lenders or Agent's and each Lender's rights with respect to any Loans and advances made and other Liabilities incurred prior to such termination or with respect to the Collateral. -82- 88 12.8. Notices. Except as otherwise expressly provided herein, any notice hereunder to Borrower, Agent or any Lender shall be in writing (including facsimile communication) and shall be given to Borrower, Agent or such Lender at its address or facsimile number set forth on the signature pages hereof or at such other address or facsimile number as Borrower, Agent or such Lender may, by written notice, designate as its address or facsimile number for purposes of notices hereunder. All such notices shall be deemed to be given when transmitted by facsimile, delivered by courier, personally delivered or, in the case of notice by mail, three (3) Banking Days following deposit in the United States mails, properly addressed as herein provided, with proper postage prepaid; provided, however, that notice to Agent of Borrower's intent to terminate the Credit shall not be effective until actually received by Agent. 12.9. Assignments and Participations; Information. (a) This Agreement may not be assigned by Borrower without the prior written consent of Agent and Lenders. Whenever in this Agreement reference is made to any of the parties hereto, such reference shall be deemed to include, wherever applicable, a reference to the successors and permitted assigns of Borrower and the successors and assigns of Agent and each Lender. (b) Borrower and each Lender hereby agree that on or after the date hereof, BAI may, in its discretion, without Borrower's or any other Lender's consent, sell one or more assignments of portions of its interest in the Credit. Each sale described in the preceding sentence shall be to a creditworthy financial institution satisfactory to BAI, in its discretion, and on such terms and conditions as BAI may determine. No other Lender may sell any portion of its interest in the Credit without the consent of Borrower and Agent, which consent will not be unreasonably withheld. (c) Each assignment of an interest hereunder shall be subject to the following conditions: (i) each assignment shall be of a constant, and not a varying, ratable percentage of all of the assigning Lender's rights and obligations under this Agreement, and the Maximum Loan Amount assigned shall be in a minimum amount of $5,000,000 and after giving effect to such assignment no Lender's Maximum Loan Amount shall be less than $5,000,000 (unless such Lender sells all of its interest in the Credit), and (ii) the parties to each such assignment shall execute and deliver to Agent, for its acceptance and recording in the Register, an Assignment and Acceptance Agreement, with a copy to Borrower. Upon such execution, delivery, acceptance and recording in the Register, from and after the effective date specified in each Assignment and Acceptance Agreement and agreed to by Agent, (x) the assignee thereunder shall, in addition to any rights and obligations hereunder held by it immediately prior to such effective date, if any, have the rights and obligations hereunder that have been assigned to it pursuant to such Assignment and Acceptance Agreement and shall, to the fullest extent permitted by law, have the same rights and benefits hereunder as if it were an original -83- 89 Lender hereunder and (y) the assigning Lender shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance Agreement, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance Agreement covering all or the remaining portion of such assigning Lender's rights and obligations under this Agreement, the assigning Lender shall cease to be a party hereto). (d) Agent shall maintain a copy of each Assignment and Acceptance Agreement delivered to and accepted by it and a register (the "Register") for the recordation of the names and addresses of Lenders and the Maximum Loan Amount and principal amount of the Loans owing to each Lender from time to time. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and Borrower, Agent and Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance Agreement executed by the assigning Lender and the assignee and a processing and recordation fee of $2,500 (payable by the assigning Lender or the assignee, as shall be agreed between them), Agent shall, if such Assignment and Acceptance Agreement has been completed and is in compliance with this Agreement and in substantially the form of Exhibit D and Agent has consented to the assignment evidenced thereby, (i) accept such Assignment and Acceptance Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to Borrower. (f) Each Lender may sell participations to one or more other financial institutions in or to all or a portion of its rights and obligations under and in respect of any and all facilities under this Agreement; provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) Borrower, Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (iv) such participant's rights to agree or to restrict such Lender's ability to agree to the modification, waiver or release of any of the terms of this Agreement or the Related Agreements or to the release of any Collateral covered by this Agreement or the Related Agreements, to consent to any action or failure to act by any party to this Agreement or any of the Related Agreements, or to exercise or refrain from exercising any powers or rights which any Lender may have under or in respect of this Agreement or the Related Agreements or any Collateral, shall be limited to the right to consent to (A) an increase in the Maximum Loan Amount of the Lender from whom such participant purchased a participation, (B) reduction of the principal of, or rate or amount of interest on the Loans subject to such participation (other than by the payment or prepayment thereof) or (C) postponement of any date fixed for any payment of principal of, or interest on, the Loans subject to such participation. -84- 90 (g) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 12.9, disclose to the assignee or participant or proposed assignee or participant, any information relating to Parent, Borrower or its Subsidiaries furnished to such Lender by or on behalf of Borrower; provided that, prior to any such disclosure, such assignee or participant, or proposed assignee or participant, shall agree to preserve the confidentiality of any confidential information described therein and such Lender shall notify Borrower of the assignee or participant, or proposed assignee or participant. (h) Anything in this Agreement to the contrary notwithstanding, in the case of any participation, all amounts payable by Borrower under this Agreement or the Related Agreements shall be calculated and made in the manner and to the parties required hereby as if no such participation had been sold. (i) Agent agrees to promptly notify Borrower of each sale of a participation or permitted assignment hereunder. Borrower agrees to use its best efforts to assist Lenders in their efforts to sell assignments and participations hereunder. In addition, Borrower agrees to execute new Notes in favor of each of the selling and purchasing Lender, upon each sale of an assignment hereunder, provided that the existing Notes in favor of the selling Lender are simultaneously therewith returned to Borrower. 12.10. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 12.11. Successors. This Agreement shall be binding upon each of Borrower, Agent and each Lender and their respective successors and permitted assigns, and shall inure to the benefit of each of Borrower, Agent and each Lender and their respective successors and permitted assigns. 12.12. Construction. BORROWER ACKNOWLEDGES THAT THIS AGREEMENT SHALL NOT BE BINDING UPON AGENT OR ANY LENDER OR BECOME EFFECTIVE UNTIL FULLY EXECUTED COUNTERPARTS HAVE BEEN EXECUTED AND DELIVERED TO AGENT AND BORROWER. ONCE EFFECTIVE, THIS AGREEMENT AND THE RELATED AGREEMENTS AND SUPPLEMENTAL DOCUMENTS SHALL, UNLESS OTHERWISE EXPRESSLY PROVIDED THEREIN, BE DEEMED TO HAVE BEEN NEGOTIATED AND ENTERED INTO IN, AND SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF, THE STATE OF ILLINOIS AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, -85- 91 CONSTRUCTION, EFFECT, CHOICE OF LAW, AND IN ALL OTHER RESPECTS, INCLUDING BUT NOT LIMITED TO THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING PERFECTION OF SECURITY INTERESTS AND LIENS WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT JURISDICTION. 12.13. Consent to Jurisdiction. To induce Agent and each Lender to accept this Agreement, Borrower irrevocably agrees that, subject to Agent's sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE RELATED AGREEMENTS, OR THE SUPPLEMENTAL DOCUMENTATION OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON BORROWER, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO BORROWER AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. 12.14. Subsidiary Reference. Any reference herein to a Subsidiary or Subsidiaries of Borrower, and any financial definition, ratio, restriction or other provision of this Agreement which is stated to be applicable to "Borrower and the Subsidiaries" or which is to be determined on a "consolidated" or "consolidating" basis, shall apply only to the extent Borrower has any Subsidiaries and, where applicable, to the extent any such Subsidiaries are consolidated with Borrower for financial reporting purposes. 12.15. Waiver of Jury Trial. BORROWER, AGENT AND EACH LENDER EACH WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (A) UNDER THIS AGREEMENT OR ANY RELATED AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (B) ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. -86- 92 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first written above. PIONEER AMERICAS ACQUISITION CORP. By /s/ PHILIP J. ABLOVE ----------------------------------- Title Vice President and Chief -------------------------------- Financial Officer -------------------------------- Address: 4200 NationsBank Center 700 Louisiana Street Houston, Texas 77002 Telecopier Number: (713) 225-4426 Attention: Chief Financial Officer and Corporate Secretary BANK OF AMERICA ILLINOIS, as a Lender By /s/ RICHARD A. BEUTEL ----------------------------------- Title Senior Vice President -------------------------------- Address: 231 South LaSalle Street Chicago, Illinois 60697 Telecopier Number: (312) 974-0761 Attention: Richard Beutel Maximum Loan Amount: $35,000,000 BANK OF AMERICA ILLINOIS, as Agent By /s/ DAVID A. JOHANSON ----------------------------------- Title Vice President -------------------------------- Address: 231 South LaSalle Street Chicago, Illinois 60697 Telecopier Number: (312) 974-9102 Attention: Agency Management Services -87- 93 LIST OF EXHIBITS AND SCHEDULES Exhibits: Exhibit A - Form of Borrowing Base Certificate Exhibit B - Form of Inventory Report Exhibit C - Form of Compliance Certificate Exhibit D - Form of Assignment and Acceptance Agreement Exhibit E - Form of Accounts Receivable Report Exhibit F - Closing Checklist Exhibit G - Existing Letters of Credit Schedules: Schedule 4.1 Schedule of Tradenames and State of Incorporation and States of Qualification Schedule 4.7 Insurance Summary Schedule 4.8 Schedule of Litigation and Contingent Liabilities Schedule 4.9 Schedule of Liens Schedule 4.10 Schedule of Subsidiaries Schedule 4.11 Schedule of Partnerships and Joint Ventures Schedule 4.12 Schedule of Business and Collateral Locations Schedule 4.16 Schedule of Patents, Trademarks and Copyrights Schedule 4.18 Schedule of Labor Matters Schedule 4.19 Schedule of Contingent Employee Benefit Plan Liabilities Schedule 4.21 Schedule of Noncompliance Schedule 4.22 Schedule of Proposed Tax Assessments Schedule 4.25 Schedule of Environmental Matters Schedule 4.27 Schedule of Capitalized Lease Obligations Schedule 4.28 Schedule of Capitalization Schedule 5.14 Schedule of Indebtedness Schedule 5.17 Schedule of Investments Schedule 5.25 Schedule of Affiliate Transactions 94 SUPPLEMENT A to LOAN AND SECURITY AGREEMENT Dated as of June 17, 1997 among Pioneer Americas Acquisition Corp., Bank of America Illinois, as Agent and as Lender, and the other Lenders Party Thereto 1. Loan Agreement Reference. This Supplement A, as it may be amended or modified from time to time, is a part of the Loan and Security Agreement dated as of June 17, 1997 among Borrower, Agent and Lenders (together with all amendments, modifications and supplements thereto, the "Loan Agreement"). Terms used herein and not otherwise defined shall have the meanings ascribed to them in the Loan Agreement. 2. Revolving Credit Amount; Borrowing Base. 2.1. Revolving Credit Amount. The maximum amount of Revolving Loans which Lenders will make available to Borrower (such amount is herein called the "Revolving Credit Amount") is $35,000,000. 2.2. Borrowing Base. The term "Borrowing Base," as used herein, shall mean: (i) an amount equal to up to 85% of the net amount (after deduction of such reserves and allowances as Agent deems proper and necessary in its reasonable business judgment) of Eligible Accounts Receivable; plus (ii) an amount equal to the least of (a) $10,000,000, subject to Section 5.1 hereof, (b) up to 50% (after deduction of such reserves and allowances as Agent deems proper and necessary in its reasonable judgment) of Eligible Inventory and (c) an amount equal to 35% of the amount in Section 2.2(i) hereof. 2.3. Agent's and Lenders' Rights. Borrower agrees that nothing contained in Supplement A (i) shall be construed as Agent's or any Lender's agreement to resort or look to a particular type or item of Collateral as security for any specific Loan or portion of the Liabilities or advance or in any way limit Agent's or any Lender's right to resort to any or all of the Collateral as security for any of the Liabilities, (ii) shall be deemed to limit or reduce any Lien upon any portion of the Collateral or other security for the Liabilities or (iii) shall supersede Section 2.9 of the Loan Agreement. 95 3. Interest. 3.1. Loans. 3.1.1. Revolving Loans. (a) Interest to Maturity. The unpaid principal balance of the Revolving Loans (other than Overdraft Loans and Over Advances) shall bear interest to maturity at a per annum rate equal to the Floating Rate; provided, that pursuant to the provisions of Section 3.1.1(c), below, from time to time Borrower may elect to have all or any portion of the Revolving Loans bear interest at the LIBOR Rate. (b) LIBOR Rate Option. Borrower shall have the right, from time to time, to designate all or any portion of the Revolving Loans as bearing interest at the then applicable LIBOR Rate, by means of a written notice to Agent specifying (i) the amount of such Revolving Loans that will bear interest at a LIBOR Rate (provided, that such LIBOR Rate Loans shall be in a minimum amount of Five Hundred Thousand Dollars ($500,000)); (ii) the date on which the applicable Interest Rate Period shall begin; and (iii) the Interest Rate Period applicable thereto. All designations of Revolving Loans as LIBOR Rate Loans must be received by Agent not later than 10:00 a.m., Chicago time, three (3) Banking Days prior to the date the applicable Interest Rate Period is to begin (or is to be continued). Notwithstanding the foregoing, (x) all undesignated portions of the Revolving Loans shall bear interest at the Floating Rate, (y) no Interest Rate Period may commence or be continued at any time that an Event of Default is in existence under Section 6.1(a), 6.1 (e) or Section 6.1(h) (solely because of a breach of Section 5 of this Supplement A) of the Loan Agreement and in each case, Agent has determined in good faith that such a commencement or continuation is not appropriate, in any case notwithstanding a contrary designation by Borrower, and (z) in no event may more than four (4) LIBOR Rate Loans having different Interest Rate Periods be outstanding at any one time. Each designation by Borrower of a LIBOR Rate Loan shall be irrevocable. (c) Default Rate. If any principal amount of the Loans is not paid when due, at the option of Requisite Lenders, the entire unpaid principal balance of the Revolving Loans shall bear interest until paid at a rate per annum equal to the greater of (i) the applicable interest rate from time to time in effect plus 2.00% and (ii) 2.00% above the applicable interest rate in effect at the time of such Event of Default. -2- 96 3.1.2. Overdraft Loans; Over Advances. Overdraft Loans and Over Advances shall bear interest at the rate(s) determined pursuant to Section 2.7 or Section 2.8 of the Loan Agreement, as applicable. 3.2. Computation. Interest shall be calculated on the basis of a year consisting of 360 days and paid for actual days elapsed; provided, that the computation of interest on LIBOR Rate Loans shall include the date on which the applicable Interest Rate Period began, but shall exclude the last day of the applicable Interest Rate Period. LIBOR Rate Loans not repaid on the last day of the Interest Rate Period applicable thereto shall be continued or converted into Revolving Loans bearing interest at the Floating Rate, as applicable, and bear interest as provided herein, from and including the last day of such Interest Rate Period. Changes in any interest rate provided for herein which are due to changes in the Reference Rate shall take effect on the date of the change in the Reference Rate. 3.3. Payment. Until maturity, interest on the Loans shall be payable on the last day of each month, commencing on June 30, 1997, and at maturity; provided, that interest on LIBOR Rate Loans shall be payable in arrears on the last day of the Interest Rate Period applicable thereto and at maturity. After maturity, whether by acceleration or otherwise, accrued interest shall be payable on demand. 3.4. Funding Indemnification. If any payment of a LIBOR Rate Loan occurs on a date which is not the last day of the applicable Interest Rate Period, whether because of acceleration, prepayment or otherwise, Borrower will indemnify each Lender and Agent for any loss or cost incurred by it resulting therefrom, including without limitation any loss or cost in liquidating or employing deposits acquired to fund or maintain such Loan. Agent shall deliver a written statement as to the amount due, if any, under this Section, after consultation with each Lender so affected. Such written statement shall set forth in reasonable detail the calculations upon which Agent and each Lender determined such amount and shall be final, conclusive and binding on Borrower in the absence of manifest error. Determination of amounts payable under this Section shall be calculated as though each Lender funded its LIBOR Rate Loans through the purchase of a deposit of the type and maturity corresponding to the LIBOR Rate Loan and applicable Interest Rate Period bearing interest at the LIBOR Rate less the Applicable Margin at such time, whether or not the Lender actually funded the Loan in that manner. The amount specified in the written statement shall be payable on demand after receipt by Borrower of the written statement. 3.5. Availability of Interest Rate Options. If any Lender determines that maintenance of any of its LIBOR Rate Loans would violate any applicable law, rule, regulation or directive, whether or not having the force of law, the Lender shall immediately notify Agent thereof and Agent shall suspend the availability of such LIBOR Rate Loans and require any LIBOR Rate Loans outstanding and so affected to be repaid; or if any Lender determines that (i) deposits of a type or maturity appropriate to match fund LIBOR Rate Loans are not available, (ii) the LIBOR Rate does not accurately reflect the cost of making -3- 97 such Loans, or (iii) the Lender's ability to make or maintain LIBOR Rate Loans has been materially adversely affected by the occurrence of any event after the date hereof, then Lender shall immediately notify Agent thereof and Agent shall suspend the availability of the LIBOR Rate Loans, as applicable, after the date of any such determination. 3.6. Lenders' Obligation to Mitigate. Agent and each Lender agrees that if it becomes aware of either (i) the occurrence of an event or the existence of a condition described in Section 9.3 of the Loan Agreement or Section 3.5 hereof that would cause Agent or such Lender to make a determination of the nature described therein, or (ii) the imposition, assessment or collection of any taxes on or in respect of any Loan or Letter of Credit, Agent or such Lender will, to the extent consistent with its internal policies, use reasonable efforts to issue, make, fund or maintain the affected Letters of Credit or Loans through another lending office of such Agent or Lender, if any, if, as a result thereof, the additional amounts that would otherwise be required to be paid to Agent or such Lender in respect thereof, would be reduced, or LIBOR Rate Loans could be maintained, as the case may be, and if, as determined by Agent or such Lender in its reasonable discretion, the issuing, making, funding or maintaining of such Letters of Credit or Loans through such other lending office would not adversely affect Agent or such Lender or such Letters of Credit or Loans. Borrower hereby agrees to pay all reasonable expenses incurred by Agent or any Lender in using another lending office pursuant to this Section 3.6. 4. Additional Eligible Account Receivable Requirements. Each Account Receivable identified by Borrower as an Eligible Account Receivable must not be unpaid on the date that is 60 days after the applicable invoice dates. If invoices representing 15% or more of the unpaid net amount of all Accounts Receivable from any one Account Debtor are unpaid more than 60 days after the applicable invoice dates, then all Accounts Receivable relating to such Account Debtor shall cease to be Eligible Accounts Receivable. 5. Additional Covenants. From the Closing Date and thereafter until all of Borrower's Liabilities under the Loan Agreement are paid in full, Borrower agrees that, unless Requisite Lenders otherwise consent in writing: 5.1. Interest Coverage Ratio. Borrower will not permit the ratio ("Interest Coverage Ratio") of (a) EBITDA for any period set forth below, to (b) interest expense (net of interest income not otherwise included in the calculation of earnings) for such period, each determined for Borrower and its Subsidiaries on a consolidated basis, and in accordance with GAAP, to be less than 1.1:1.0 at the end of each month for the preceding twelve month period. -4- 98 For purposes of Section 5.1, interest expense shall include, without limitation, implicit interest expense on Capitalized Leases. PIONEER AMERICAS ACQUISITION CORP. By /s/ PHILIP J. ABLOVE ------------------------------------------- Title Vice President and Chief ---------------------------------------- Financial Officer ---------------------------------------- Address: 4200 NationsBank Center 700 Louisiana Street Houston, Texas 77002 Telecopier Number: (713) 225-4426 Attention: Chief Financial Officer and Corporate Secretary BANK OF AMERICA ILLINOIS, as a Lender By /s/ RICHARD A. BEUTEL ------------------------------------------- Title Senior Vice President ---------------------------------------- Address: 231 South LaSalle Street Chicago, Illinois 60697 Telecopier Number: (312) 974-0761 Attention: Richard Beutel BANK OF AMERICA ILLINOIS, as Agent By /s/ DAVID A. JOHANSON ------------------------------------------- Title Vice President ---------------------------------------- Address: 231 South LaSalle Street Chicago, Illinois 60697 Telecopier Number: (312) 974-9102 Attention: Agency Management Services -5- EX-4.6(B) 17 MASTER CORPORATE GUARANTY, DATED 6/17/97 1 EXHIBIT 4.6(b) MASTER CORPORATE GUARANTY Pioneer Americas Acquisition Corp., a Delaware corporation (the "Borrower") has requested that Bank of America Illinois ("BAI") and the other Lenders now or hereafter party to the Loan Agreement (as defined below) (the "Lenders"), provide certain financial accommodations to the Borrower. As one of the conditions to providing financing to the Borrower, BAI, as agent for itself and each of the other Lenders ("Agent"), has required that each of the subsidiaries of Borrower set forth on Exhibit A attached hereto (collectively, "Guarantors", and individually a "Guarantor") guaranty the obligations of the Borrower to Agent and the Lenders. For value received and in consideration of any loan, advance, or financial accommodation of any kind whatsoever heretofore, now or hereafter made, given or granted to the Borrower by Agent and the Lenders, each Guarantor jointly and severally unconditionally guaranties the full and prompt payment when due, whether at maturity or earlier, by reason of acceleration or otherwise, and at all times thereafter, of all "Liabilities" as such term is defined in that certain Loan and Security Agreement among the Borrower, Agent and the Lenders of even date herewith (the "Loan Agreement") (all such Liabilities being hereinafter referred to as "Borrower's Obligations"). Each Guarantor further agrees to pay all costs and expenses including, without limitation, all court costs and attorneys' and paralegals' fees and expenses paid or incurred by Agent or the Lenders in endeavoring to collect all or any part of Borrower's Obligations from, or in prosecuting any action against, any Guarantor or any other guarantor of all or any part of Borrower's Obligations. Each Guarantor hereby agrees that its obligations under this Master Corporate Guaranty shall be unconditional, irrespective of (i) the validity or enforceability of Borrower's Obligations or any part thereof, or of any promissory note or other document evidencing all or any part of Borrower's Obligations, (ii) the absence of any attempt to collect Borrower's Obligations from the Borrower, any Guarantor or any other guarantor, or other action to enforce the same, (iii) the waiver or consent by Agent or the Lenders with respect to any provision of any instrument evidencing Borrower's Obligations, or any part thereof, or any other agreement now or hereafter executed by the Borrower and delivered to Agent and the Lenders, (iv) failure by Agent to take any steps to perfect and maintain its security interest in, or to preserve its rights to, any security or collateral for Borrower's Obligations, for its benefit or the ratable benefit of the Lenders, (v) Agent's election, in any proceeding instituted under Chapter 11 of Title 11 of the United States Code (11 U.S.C. Section 101 et seq.), as amended (the "Bankruptcy Code") of the application of Section 1111(b)(2) of the Bankruptcy Code, (vi) any borrowing or grant of a security interest by the Borrower as debtor-in- possession, under Section 364 of the Bankruptcy Code, (vii) the disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of Agent and the Lenders' claim(s) for repayment of Borrower's Obligations, or (viii) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Borrower or a guarantor. 2 Until the Payment Liabilities have been repaid in full and there is no further commitment to make Loans or issue Letters of Credit under the Loan Agreement, no payment made by or for the account or benefit of any Guarantor (including without limitation (i) a payment made by the Borrower in respect of Borrower's Obligations, (ii) a payment made by any Guarantor in respect of Borrower's Obligations, (iii) a payment made by any person under any other guaranty of Borrower's Obligations or (iv) a payment made by means of set-off or other application of funds by Agent or the Lenders) pursuant to this Master Corporate Guaranty shall entitle any Guarantor, by subrogation or otherwise, to any payment by the Borrower or from or out of any property of the Borrower, and no Guarantor may exercise any right or remedy against the Borrower or any property of the Borrower including, without limitation, any right of contribution or reimbursement by reason of any performance by such Guarantor under this Master Corporate Guaranty. The provisions of this paragraph shall survive the termination of this Master Corporate Guaranty or the release or discharge of any and all Guarantors from liability hereunder. Each Guarantor and Agent hereby agree that the Borrower is and shall be a third party beneficiary of the provisions of this paragraph. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of receivership or bankruptcy of the Borrower, protest or notice with respect to Borrower's Obligations and all demands whatsoever, and covenants that this Master Corporate Guaranty will not be discharged, except by complete and irrevocable payment and performance of the obligations and liabilities contained herein. No notice to any party, including any Guarantor, shall be required for Agent to make demand hereunder. Such demand shall constitute a mature and liquidated claim against each Guarantor. Upon any Event of Default (as defined in the Loan Agreement) by the Borrower as provided in any instrument or document evidencing all or any part of Borrower's Obligations, including without limitation the Loan Agreement, Agent may, at its sole election, proceed directly and at once, without notice, against any Guarantor, or all of the Guarantors, to collect and recover the full amount or any portion of Borrower's Obligations, without first proceeding against the Borrower, any other Guarantor, or any other person, firm, or corporation, or against any security or collateral for Borrower's Obligations. Agent shall have the exclusive right to determine the application of payments and credits, if any, from any Guarantor, the Borrower or from any other person, firm or corporation, on account of Borrower's Obligations or of any other liability of any Guarantor to Agent and the Lenders. Agent and the Lenders are hereby authorized, without notice or demand and without affecting the liability of any Guarantor hereunder, to, from time to time, (i) renew, extend, accelerate or otherwise change the time for payment of, or other terms relating to, Borrower's Obligations or otherwise modify, amend or change the terms of any promissory note or other agreement, document or instrument now or hereafter executed by the Borrower and delivered to Agent and the Lenders; (ii) accept partial payments on Borrower's Obligations; (iii) take and hold security or collateral for the payment of Borrower's Obligations guaranteed hereby, or for the payment of this Master Corporate Guaranty, or for the payment of any other guaranties or Borrower's Obligations or other liabilities of the Borrower, and exchange, -2- 3 enforce, waive and release any such security or collateral; (iv) apply such security or collateral and direct the order or manner of sale thereof as in its sole discretion it may determine; and (v) settle, release, compromise, collect or otherwise liquidate Borrower's Obligations and any security or collateral therefor in any manner, without affecting or impairing the obligations of any Guarantor hereunder. At any time after maturity of Borrower's Obligations, Agent may, in its sole discretion, without notice to any Guarantor and regardless of the acceptance of any security or collateral for the payment hereof, appropriate and apply toward payments of Borrower's Obligations (i) any indebtedness due or to become due from Agent or any of the Lenders to any Guarantor, and (ii) any moneys, credits or other property belonging to any Guarantor, at any time held by or coming into the possession of Agent or any of the Lenders or any affiliates thereof, whether for deposit or otherwise. Each Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of the Borrower, the other Guarantors, and any and all endorsers and/or other guarantors of any instrument or document evidencing all or any part of Borrower's Obligations and of all other circumstances bearing upon the risk of nonpayment of Borrower's Obligations or any part thereof that diligent inquiry would reveal and each Guarantor hereby agrees that Agent shall have no duty to advise any Guarantor of information known to Agent or the Lenders regarding such condition or any such circumstances. Each Guarantor hereby acknowledges familiarity with the Borrower's financial condition and has not relied on any statements by Agent or the Lenders in obtaining such information. In the event Agent, in its sole discretion, undertakes at any time or from time to time to provide any such information to any Guarantor, Agent shall be under no obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which, pursuant to accepted or reasonable commercial finance practices, Agent wishes to maintain confidential or (iii) to make any other or future disclosures of such information or any other information to such Guarantor. Notwithstanding any provision of this Master Corporate Guaranty to the contrary, it is intended that this Master Corporate Guaranty, and any liens and security interests granted by any Guarantor to secure this Master Corporate Guaranty, not constitute a "Fraudulent Conveyance" (as defined below) by any Guarantor. Consequently, each Guarantor agrees that if this Master Corporate Guaranty, or any liens or security interests securing this Master Corporate Guaranty, would, but for the application of this sentence, constitute a Fraudulent Conveyance by it, this Master Corporate Guaranty and each such lien and security interest shall be valid and enforceable only to the maximum extent that would not cause this Master Corporate Guaranty or such lien or security interest to constitute a Fraudulent Conveyance by such Guarantor, and this Master Corporate Guaranty shall automatically be deemed to have been amended accordingly at all relevant times. For purposes hereof, "Fraudulent Conveyance" means a fraudulent conveyance under Section 548 of the Bankruptcy Code or a fraudulent conveyance or fraudulent transfer under the provisions of any applicable -3- 4 fraudulent conveyance or fraudulent transfer law or similar law of any state, nation or other governmental unit, as in effect from time to time. Each Guarantor consents and agrees that Agent shall be under no obligation to marshall any assets in favor of any Guarantor or against or in payment of any or all of Borrower's Obligations. Each Guarantor further agrees that, to the extent that the Borrower makes a payment or payments to Agent, or Agent receives any proceeds of collateral, for its benefit and the ratable benefit of the Lenders, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to the Borrower, its estate, trustee, receiver or any other party, including without limitation any Guarantor, under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, Borrower's Obligations or the part thereof which has been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the date such initial payment, reduction or satisfaction occurred and this Master Corporate Guaranty shall continue to be in existence and in full force and effect, irrespective of whether any evidence of indebtedness has been surrendered or canceled. Each Guarantor also waives all setoffs and counterclaims and all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Master Corporate Guaranty. Each Guarantor further waives all notices of the existence, creation or incurring of new or additional indebtedness, arising either from additional loans extended to the Borrower or otherwise, and also waives all notices that the principal amount, or any portion thereof, and/or any interest on any instrument or document evidencing all or any part of Borrower's Obligations is due, notices of any and all proceedings to collect from the maker, any endorser or any other Guarantor or guarantor of all or any part of Borrower's Obligations, or from anyone else, and, to the extent permitted by law, notices of exchange, sale, surrender or other handling of any security or collateral given to Agent, for its benefit and the ratable benefit of the Lenders, to secure payment of Borrower's Obligations. No delay on the part of Agent in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Agent of any right or remedy shall preclude any further exercise thereof; nor shall any modification or waiver of any of the provisions of this Master Corporate Guaranty be binding upon Agent or the Lenders, except as expressly set forth in a writing duly signed and delivered on Agent's behalf by an authorized officer or agent of Agent. Agent's or the Lenders' failure at any time or times hereafter to require strict performance by the Borrower or any Guarantor of any of the provisions, warranties, terms and conditions contained in any promissory note, security agreement, agreement, guaranty, instrument or document now or at any time or times hereafter executed by the Borrower or any Guarantor and delivered to Agent and the Lenders shall not waive, affect or diminish any right of Agent and the Lenders at any time or times hereafter to demand strict performance thereof and such right shall not be deemed to have been waived by any act or -4- 5 knowledge of Agent or the Lenders, or their respective agents, officers or employees, unless such waiver is contained in an instrument in writing signed by an officer or agent of Agent, and directed to the Borrower or a Guarantor, as applicable, specifying such waiver. No waiver by Agent and the Lenders of any default shall operate as a waiver of any other default or the same default on a future occasion, and no action by Agent or the Lenders permitted hereunder shall in any way affect or impair Agent's or the Lenders' rights or the obligations of any Guarantor under this Master Corporate Guaranty. Any determination by a court of competent jurisdiction of the amount of any principal and/or interest owing by the Borrower to Agent and the Lenders shall be conclusive and binding on each Guarantor irrespective of whether such Guarantor was a party to the suit or action in which such determination was made. This Master Corporate Guaranty shall terminate upon payment of all of the Payment Liabilities (as defined in the Loan Agreement) and the termination of the Loan Agreement in connection with its terms. This Master Corporate Guaranty shall be binding upon each Guarantor and upon the successors and permitted assigns of such Guarantor and shall inure to the benefit of Agent's and the Lenders' respective successors and assigns; all references herein to the Borrower shall be deemed to include their successors and permitted assigns and all references herein to Agent or the Lenders shall be deemed to include their successors and assigns. The Borrower's successors and permitted assigns shall include, without limitation, a receiver, trustee or debtor in possession of or for the Borrower. All references to the singular shall be deemed to include the plural where the context so requires. EACH GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF STATE OR FEDERAL COURT LOCATED WITHIN COOK COUNTY, ILLINOIS AND WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND CONSENTS THAT ALL SERVICE OF PROCESS UPON IT BE MADE BY REGISTERED MAIL OR MESSENGER DIRECTED TO IT AT THE ADDRESS SET FORTH BELOW SUCH GUARANTOR'S SIGNATURE AND THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO SUCH GUARANTOR'S AGENT SET FORTH BELOW. EACH GUARANTOR HEREBY IRREVOCABLY APPOINTS CT CORPORATION SYSTEM AS ITS AGENT FOR THE PURPOSE OF ACCEPTING THE SERVICE OF ANY PROCESS WITHIN THE STATE OF ILLINOIS. THE BORROWER, EACH GUARANTOR AND AGENT EACH HEREBY WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY. BORROWER AND EACH GUARANTOR FURTHER WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF AGENT. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER -5- 6 PERMITTED BY LAW OR AFFECT THE RIGHT OF AGENT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. THIS MASTER CORPORATE GUARANTY SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF ILLINOIS. Wherever possible each provision of this Master Corporate Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Master Corporate Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Master Corporate Guaranty. Each Guarantor hereby certifies that it has all necessary corporate authority to grant and execute this Master Corporate Guaranty. The obligations of each Guarantor are secured by that certain Master Collateral Security Agreement, of even date herewith, between Agent and each Guarantor. -6- 7 IN WITNESS WHEREOF, this Master Corporate Guaranty has been duly executed by each Guarantor listed below this 17th day of June, 1997. EACH OF THE SUBSIDIARIES SET FORTH ON EXHIBIT A HERETO By /s/ PHILIP J. ABLOVE --------------------------------------- Vice President of each of such Subsidiaries -7- 8 EXHIBIT A PIONEER AMERICAS, INC. PIONEER CHLOR ALKALI COMPANY, INC. IMPERIAL WEST CHEMICAL CO. ALL-PURE CHEMICAL CO. ALL-PURE CHEMICAL NORTHWEST, INC. BLACK MOUNTAIN POWER COMPANY EX-4.6(C) 18 MASTER SECURITY AGREEMENT, DATED 6/17/97 1 EXHIBIT 4.6(c) MASTER SECURITY AGREEMENT THIS MASTER SECURITY AGREEMENT is made as of the 17th day of June, 1997 by each of the parties listed on Exhibit A attached hereto (collectively, "GUARANTORS" and individually a "GUARANTOR"), in favor of Bank of America Illinois ("AGENT"), as agent for itself and each other Lender (each, a "LENDER") party to the "Loan Agreement" (as defined herein), with an address at 231 South LaSalle Street, Chicago, Illinois 60697. 1. DEFINITIONS. As used in this Agreement: "AGREEMENT" shall mean this Security Agreement, as it may be amended, modified or supplemented from time to time. "BORROWER" shall mean Pioneer Americas Acquisition Corp., a Delaware corporation and the direct or indirect owner of one hundred percent (100%) of the issued and outstanding capital stock of each Guarantor. "COLLATERAL" shall mean all of the following property of each Guarantor, whether now owned or existing, or hereafter acquired or coming into existence, wherever now or hereafter located: (a) Accounts Receivable (whether or not Eligible Accounts Receivable); Contract Rights; any and all security deposits and other security held by or granted to such Guarantor to secure payments from any and all persons who are or may become obligated to such Guarantor under, with respect to, or on account of any Account Receivable or Contract Right; and all chattel paper and instruments evidencing, arising out of or relating to any obligations to such Guarantor for goods sold or leased or services rendered, or otherwise arising out of or relating to any Collateral; (b) Inventory (whether or not Eligible Inventory); (c) General Intangibles; (d) Any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or monies of or in the name of such Guarantor now or hereafter with Agent, any Lender or any Participant and any and all property of every kind or description of or in the name of such Guarantor now or hereafter, for any reason or purpose whatsoever, in the possession or control of, or in transit to, or standing to such Guarantor's credit on the books of, Agent, any agent or bailee for Agent, any Lender or any Participant; (e) To the extent related to the property described in clauses (a) through (d) above, all books, correspondence, credit files, records, invoices and 2 other papers and documents, including without limitation, to the extent so related, all tapes, cards, computer runs, computer programs and other papers and documents in the possession or control of such Guarantor or any computer bureau from time to time acting for such Guarantor, and, to the extent so related, all rights in, to and under all policies of insurance, including claims of rights to payments thereunder and proceeds therefrom, including any credit insurance; and (f) All products and proceeds (including but not limited to any Accounts Receivable or other proceeds arising from the sale or other disposition of any property described above, any returns of Inventory sold by such Guarantor, and the proceeds of any insurance covering any of the property described above) of any of the foregoing. "DEFAULT" shall mean the occurrence or existence of any of the events listed in Section 5 of this Agreement. "GUARANTY" shall mean the Master Corporate Guaranty of even date herewith executed by each Guarantor in favor of Agent, as it may be amended, modified or supplemented from time to time. "GUARANTY DOCUMENTS" shall mean, collectively, this Agreement, the Guaranty and all other agreements, instruments and documents now or hereafter executed and/or delivered by any Guarantor to Agent in connection with the transactions contemplated thereby, as each may be amended, modified or supplemented from time to time. "LOAN AGREEMENT" shall mean the Loan and Security Agreement of even date herewith among Borrower, Agent and each Lender, together with Supplement A thereto, as each may be amended, modified or supplemented from time to time. "OBLIGATIONS" shall mean all obligations with respect to the Guaranty and all other loans and all other advances, debts, liabilities, obligations, covenants and duties arising, due or payable from any Guarantor to Agent and each Lender of any kind or nature, present or future, and arising under the Guaranty, the Loan Agreement, the Related Agreements or any of the other Guaranty Documents, whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and any other sums chargeable to any Guarantor under the Guaranty, this Agreement, the Related Agreements or any other Guaranty Documents. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. Capitalized terms used in this Agreement without definition and defined in the Loan Agreement shall have the meanings ascribed to such terms in the Loan Agreement. Terms used in this Agreement and not defined herein or in the Loan Agreement shall have the meanings given such terms in the Uniform Commercial Code. -2- 3 2. SECURITY INTEREST. 2.1.Grant of Security Interest. To secure the payment and performance of the Obligations, each Guarantor hereby grants to Agent, for the benefit of itself and Lenders, a continuing security interest in the Collateral. 2.2.Accounts Receivable. (a) If requested by Agent, each Guarantor shall notify Agent immediately of all material disputes or claims by any Account Debtor and, if reasonably requested by Agent after the occurrence and during the continuance of a Default, settle or adjust them, or cause them to be settled or adjusted, at no expense to Agent or Lenders. If Agent directs after the occurrence and during the continuance of a Default, no discount or credit allowance shall be granted thereafter by any Guarantor to any Account Debtor, other than discounts and trade allowances offered in the ordinary course of such Guarantor's business. If requested by Agent, each Guarantor will make proper entries in its books and records, disclosing the assignment of Accounts Receivable to Agent, for the benefit of itself and Lenders. (b) Each Guarantor warrants and covenants that: (i) all of such Guarantor's Accounts Receivable are and will continue to be bona fide existing obligations created by the sale of goods, the rendering of services, or the furnishing of other good and sufficient consideration to such Guarantor's Account Debtors in the regular course of business; (ii) all shipping or delivery receipts and other documents furnished or to be furnished to Agent by such Guarantor upon Agent's request in connection therewith are and will be genuine; and (iii) none of such Guarantor's Accounts Receivable identified or included on any schedule, Borrowing Base Certificate or report as Eligible Accounts Receivable fail at the time so identified or included to satisfy any of the requirements for eligibility set forth in the definition of Eligible Accounts Receivable. (c) Agent is authorized and empowered (which authorization and power, being coupled with an interest, is irrevocable until the last to occur of termination of this Agreement and the Guaranty Documents, termination of the Loan Agreement, and payment and performance in full of all of the Obligations) at any time in its sole and absolute discretion: (i) To request, in the name of Agent, Borrower, any Guarantor or a third party, confirmation from any Account Debtor or party obligated under or with respect to any Collateral of the amount shown by the Accounts Receivable or other Collateral to be payable, or any other matter stated therein; (ii) To endorse in any Guarantor's name and to collect any chattel paper, checks, notes, drafts, instruments or other items of payment tendered to or received by Agent in payment of any Account Receivable or other obligation owing to such Guarantor; -3- 4 (iii) After the occurrence and during the continuance of a Default, to notify, either in Agent's name, Borrower's name or any Guarantor's name, and/or to require any Guarantor to notify, any Account Debtor or other Person obligated under or in respect of any Collateral, of the fact of Agent's Lien thereon, for the benefit of itself and Lenders, and of the collateral assignment thereof to Agent, for the benefit of itself and Lenders; (iv) After the occurrence and during the continuance of a Default, to direct, either in any Guarantor's name or Agent's name, and/or to require any Guarantor to direct, any Account Debtor or other Person obligated under or in respect of any Collateral to make payment directly to Agent of any amounts due or to become due thereunder or with respect thereto; and (v) After the occurrence and during the continuance of a Default, to demand, collect, surrender, release or exchange all or any part of any Collateral or any amounts due thereunder or with respect thereto, or compromise or extend or renew for any period (whether or not longer than the initial period) any and all sums which are now or may hereafter become due or owing upon or with respect to any of the Collateral, or enforce, by suit or otherwise, payment or performance of any of the Collateral either in Agent's own name or in the name of any Guarantor. Under no circumstances shall Agent be under any duty to act in regard to any of the foregoing matters. The costs relating to any of the foregoing matters, including Attorneys' Fees and out-of-pocket expenses, and the cost of any Depository Account, Assignee Deposit Account, or other bank account or accounts which may be required hereunder, shall be borne solely by Guarantors whether the same are incurred by Agent or Guarantors. (d) Each Guarantor will notify its Account Debtors to make all payments in respect of such Guarantor's Accounts Receivable directly to one or more lockbox accounts evidenced by agreements in form and substance satisfactory to Agent. All deposits to such lockbox accounts, and all checks, drafts, cash and other remittances in payment or as proceeds of, or on account of, any of the Accounts Receivable or other Collateral, shall be deposited in special bank accounts (the "Depository Accounts") at such banks or financial institutions as Agent shall consent. Said proceeds shall be deposited in precisely the form received except for such Guarantor's endorsement where necessary to permit collection of items, which endorsement such Guarantor agrees to make. Pending such deposit, each Guarantor agrees not to commingle any such checks, drafts, cash and other remittances with any of its funds or property, but will hold them separate and apart therefrom and upon an express trust for Agent, for the benefit of itself and Lenders, until deposit thereof is made in the Depository Accounts. All funds in the Depository Accounts at the end of each Banking Day will be wire transferred or transferred by other means acceptable to Agent to a special bank account (the "Assignee Deposit -4- 5 Account") at Bank of America Illinois over which Agent alone has power of withdrawal. Each Guarantor acknowledges that the maintenance of the Assignee Deposit Account is solely for the convenience of Agent in facilitating its own operations, and no Guarantor has or shall have any right, title or interest in the Assignee Deposit Account or in the amounts at any time appearing to the credit thereof, it being understood that if proceeds in the Assignee Deposit Account are subsequently transferred to the Demand Deposit Account or operating account, or a cash collateral account in accordance with Section 2.10(b)(i) of the Loan Agreement, at the direction of Borrower, one or more of the Guarantors may be entitled to such proceeds. Each Guarantor agrees not to maintain any depository accounts other than Depository Accounts, the Demand Deposit Account and the Assignee Deposit Account established pursuant to this Section 2.2(d). Upon the full and final liquidation of all Payment Liabilities, Agent will pay over to Borrower, on behalf of such Guarantor any excess amounts received by Agent as payment or proceeds of Collateral, whether received by Agent as a deposit in the Assignee Deposit Account, contained in a lockbox account or any Depository Account or received by Agent as a direct payment on any of the sums due hereunder. (e) Each Guarantor appoints Agent, or any Person whom Agent may from time to time designate, as such Guarantor's attorney and agent-in-fact with power: (i) after the occurrence and during the continuance of a Default, to notify the post office authorities to change the address for delivery of such Guarantor's mail to an address designated by Agent; (ii) to receive, open and dispose of all mail addressed to such Guarantor, but received by Agent; (iii) to send requests for verification of Accounts Receivable or other Collateral to Account Debtors; (iv) to open, under Agent's sole control (subject, where applicable, to the provisions of the Loan Agreement), an Assignee Deposit Account, Depository Accounts, Lockbox accounts or other accounts required under this Agreement for the collection of Accounts Receivable or other Collateral, if not required contemporaneously with the execution hereof and if not previously opened by such Guarantor; and (v) to do all other things which Agent is permitted to do under this Agreement or any Guaranty Documents or which are necessary to carry out this Agreement and the Guaranty Documents. Neither Agent nor any of its directors, officers, employees or agents will be liable for any acts of commission or omission nor for any error in judgment or mistake of fact or law, unless the same shall have resulted from gross negligence or willful misconduct. The foregoing appointment and power, being coupled with an interest, is irrevocable until all Obligations under this Agreement are paid and performed in full and this Agreement, the Guaranty Documents, and the Loan Agreement are each terminated. Each Guarantor expressly waives presentment, demand, notice of dishonor and protest of all instruments and any other notice to which it might otherwise be entitled. (f) If any Guarantor's Account Receivable or Contract Right, in either case in excess of $2,000,000, and designated by Borrower as an Eligible Account, arises out of a contract with the United States or any state or local governmental entity, or any department, agency, or instrumentality thereof, such Guarantor will immediately notify Agent in writing and execute any instruments and take any steps reasonably required by Agent in order that all monies due and to become due under such contract shall be assigned to Agent, for the benefit of itself and Lenders, and notice thereof given to the applicable government under the Federal Assignment of Claims Act of 1940, as amended, or other applicable laws or regulations, provided, that with respect to such Accounts Receivable and Contract Rights in existence on -5- 6 the Closing Date or within 90 days thereafter, such steps need not be completed until 90 days after the Closing Date. The failure of a Guarantor to comply with this clause (f) shall not by itself constitute a Default; rather, such failure will cause the applicable Account Receivable or Contract Right to be deemed not to be an Eligible Account under the Loan Agreement. (g) If any Guarantor's Account Receivable or Contract Right is evidenced by chattel paper or promissory notes, trade acceptances, or other instruments for the payment of money, such Guarantor will, unless Agent shall otherwise agree, deliver the originals of same to Agent, appropriately endorsed to Agent's order and, regardless of the form of such endorsement, such Guarantor hereby expressly waives presentment, demand, notice of dishonor, protest and notice of protest and all other notices with respect thereto. 2.3. Inventory. (a) Each Guarantor warrants and covenants that: (i) all of the Inventory is, and at all times shall be, owned by such Guarantor free of all claims and Liens (except as set forth in Section 5.15 of the Loan Agreement); and no Guarantor will make any further assignment of any thereof or create or permit to exist any further Lien thereon, unless approved in writing by Requisite Lenders, nor permit any of Agent's rights therein to be affected by any attachment, levy, garnishment or other judicial process. (b) Neither Agent nor any Lender shall be liable or responsible in any way for the safekeeping of any Inventory delivered to it, to any bailee appointed by or for it, to any warehouseman, or under any other circumstances, other than for losses caused by its gross negligence or willful misconduct. Neither Agent nor any Lender shall be responsible for collection of any proceeds or for losses in collected proceeds held by any Guarantor in trust for Agent. Any and all risk of loss for any or all of the foregoing shall be upon Guarantors. (c) Any material change in the value or condition of any Inventory, and any errors discovered in any monthly inventory certificate under Section 5.1.3 of the Loan Agreement or any other inventory schedule delivered to Agent and Lenders, shall be reported to Agent promptly. Each Guarantor represents and warrants that, as to each schedule of Inventory delivered by Borrower to Agent or any Lender: (i) The descriptions, origins, sizes, qualities, quantities, weights, and markings of all of such Guarantor's goods stated thereon, or on any attachment thereto, are true and correct in all respects; (ii) None of such Guarantor's goods are defective, of second quality, used, or goods returned after shipment, except where described as such; and (iii) All of such Guarantor's Inventory not included on such schedule has been previously scheduled. -6- 7 2.4. Supplemental Documentation. At Agent's request, each Guarantor shall execute and deliver, or cause to be executed and delivered, to Agent, at any time or times hereafter, such agreements, documents, financing statements, warehouse receipts, bills of lading, notices of assignment of Accounts Receivable, schedules of Accounts Receivable assigned, and other written matter necessary or reasonably requested by Agent to perfect and maintain perfected Agent's security interest in the Collateral, for the benefit of itself and Lenders (all the above hereinafter referred to as "Supplemental Documentation"), in form and substance acceptable to Agent, and pay all taxes, fees and other costs and expenses associated with any recording or filing of the Supplemental Documentation. Each Guarantor hereby irrevocably makes, constitutes and appoints Agent (and all Persons designated by Agent for that purpose) as such Guarantor's true and lawful attorney (and agent-in-fact) (which appointment and power, being coupled with an interest, is irrevocable until the last to occur of termination of this Agreement and the Guaranty Documents, termination of the Loan Agreement, and payment and performance in full of all of the Obligations under this Agreement) to sign the name of such Guarantor on any of the Supplemental Documentation and to deliver any of the Supplemental Documentation to such Persons as Agent in its sole and absolute discretion, may elect. Each Guarantor agrees that a carbon, photographic, photostatic, or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. 2.5. Collateral for the Benefit of Agent and Lenders. All Liens granted to Agent hereunder and under the Guaranty Documents and all Collateral delivered to Agent hereunder and under the Guaranty Documents shall be deemed to have been granted and delivered to Agent, for the benefit of itself and Lenders, to secure the Obligations. 2.6. Certain Intellectual Property. Each Guarantor hereby grants Agent, for the benefit of Lenders, a world-wide irrevocable license or other right to use, without charge, labels, rights of use of any name, tradenames, trademarks and advertising matter, or any assets and property of a similar nature (collectively, the "Intangible Rights"), as they pertain to the Collateral, in advertising for sale and selling any Collateral and such Guarantor's rights under all applicable licenses and license agreements related to the foregoing shall inure to Agent's benefit. Such license shall remain in full force and effect until all of the Obligations have been repaid in full. Any transfer of or Lien on the Intangible Rights granted by any Guarantor to any other Person shall be subject in all respects to Agent's rights granted hereunder. 3. REPRESENTATIONS AND WARRANTIES. Each Guarantor hereby makes with respect to itself those representations and warranties to Agent and Lenders applicable to such Guarantor as are set forth in Section 4 of the Loan Agreement. 4. COVENANTS AND CONTINUING AGREEMENTS. Each Guarantor hereby covenants and agrees that, as long as any of the Obligations remain outstanding, and even if there shall be no Obligations outstanding, as long -7- 8 as this Agreement, any Guaranty Document or the Loan Agreement remains in effect, each Guarantor shall comply, with respect to itself, with each of the covenants set forth in Section 5 of the Loan Agreement. 5. DEFAULT. 5.1. Default. Each of the following occurrences shall constitute a Default under this Agreement: (a) Breach of Loan Agreement. The occurrence of any Event of Default under the Loan Agreement. (b) Breach of Payment Obligations. Any Guarantor's failure to pay when due any Obligations of such Guarantor under the Guaranty. (c) Breach of This Agreement. The occurrence of any breach of any of the covenants contained herein. (d) Termination of Guaranty. The termination of the Guaranty by any Guarantor. (e) Bankruptcy. Any Guarantor applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for Borrower, such Guarantor or any other Guarantor, or for a substantial part of the property of Borrower, such Guarantor or any other Guarantor, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for Borrower or any Guarantor or for a substantial part of the property of Borrower or any Guarantor and is not discharged or dismissed within sixty (60) days; or any bankruptcy, reorganization, debt arrangement or other proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is instituted by or against Borrower or any Guarantor; or any warrant of attachment or similar legal process is issued against any substantial part of the property of Borrower or any Guarantor. 5.2. Effect of Event of Default; Remedies. (a) In the event that one or more Events of Default described in Section 6.1(e) of the Loan Agreement or one or more Defaults described in Section 5.1(e) of this Agreement shall occur, then all Obligations shall be immediately due and payable without demand, notice or declaration of any kind whatsoever. (b) In the event an Event of Default other than one described in Section 6.1(e) of the Loan Agreement or one or more Defaults described in Section 5.1(e) of this Agreement shall occur, then Agent may declare all Obligations immediately due and payable -8- 9 without demand or notice of any kind whatsoever. Agent shall promptly advise Guarantors of any such declaration. (c) In the event of the occurrence of any Default, Agent may exercise any one or more or all of the following remedies, all of which are cumulative and non-exclusive: (i) Any remedy contained in this Agreement or in any of the Guaranty Documents; (ii) Any rights and remedies available to Agent or any Lender under the UCC, and any other applicable law; (iii) To the extent permitted by applicable law, Agent may, without notice, demand or legal process of any kind, take possession of any or all of the Collateral (in addition to Collateral which it may already have in its possession), wherever it may be found, and for that purpose may pursue the same wherever it may be found, and may enter into any premises where any of the Collateral may be or is supposed to be, and search for, take possession of, remove, keep and store any of the Collateral until the same shall be sold or otherwise disposed of, and Agent shall have the right to store the same on any Guarantor's premises without cost to Agent; (iv) At Agent's request, each Guarantor will, at such Guarantor's expense, assemble the Collateral and make it available to Agent at a place or places to be designated by Agent which is reasonably convenient to Agent and such Guarantor; and (v) Agent at its option, and pursuant to notification given to a Guarantor as provided for below, may sell any Collateral actually or constructively in its possession at public or private sale and apply the proceeds thereof as provided below. 5.3. Notice of Disposition of Collateral. Any notification of intended disposition of any of the Collateral required by law shall be deemed reasonably and properly given if given at least ten (10) calendar days before such disposition. 5.4. Application of Proceeds of Collateral. Any proceeds of any disposition by Agent of any of the Collateral may be applied by Agent to the payment of expenses in connection with the taking possession of, storing, preparing for sale, and disposition of Collateral, including Attorneys' Fees and legal expenses, and any balance of such proceeds may be applied by Agent toward the payment of such of the Obligations, and in such order of application, as Agent may from time to time elect. 5.5. Care of Collateral. Agent shall be deemed to have exercised reasonable care in the custody and preservation of a Guarantor's Collateral in its possession if it takes such -9- 10 action for that purpose as such Guarantor requests in writing, but failure of Agent to comply with such request shall not, of itself, be deemed a failure to exercise reasonable care, and no failure of Agent to preserve or protect any rights with respect to such Collateral against prior parties, or to do any act with respect to the preservation of such Collateral not so requested by such Guarantor, shall be deemed a failure to exercise reasonable care in the custody or preservation of such Collateral. 5.6. Performance of Guarantor's Obligations. Agent shall have the right, but shall not be obligated, to discharge any claims or Liens against, and any Taxes at any time levied or placed upon any or all Collateral, including without limitation those arising under statute or in favor of landlords, taxing authorities, government, public and/or private warehousemen, common and/or private carriers, processors, finishers, draymen, coopers, dryers, mechanics, artisans, laborers, attorneys, courts, or others. Agent may also pay for maintenance and preservation of Collateral. Agent may, but is not obligated to, perform or fulfill any Guarantor's responsibilities under this Agreement which such Guarantor has failed to perform or fulfill. 5.7. Agent's Rights. None of the following shall affect the obligations of any Guarantor to Agent or any Lender under this Agreement or Agent's right with respect to the remaining Collateral (any or all of which actions may be taken by Agent at any time, whether before or after an Event of Default, at its sole and absolute discretion and without notice to any Guarantor): (a) acceptance or retention by Agent or any Lender of other property or interests in property as security for the Obligations, or acceptance or retention of any Obligor(s), in addition to Guarantors, with respect to any of the Obligations; (b) release of its Lien on, or surrender or release of, or the substitution or exchange of or for, all or any part of the Collateral or any other property securing any of the Obligations (including but not limited to any property of any Obligor other than Guarantors), or any extension or renewal for one or more periods (whether or not longer than the original period), or release, compromise, alteration or exchange, of any obligations of any guarantor or other Obligor with respect to any Collateral or any such property; (c) extension or renewal for one or more periods (whether or not longer than the original period), or release, compromise, alteration or exchange of any of the Obligations, or release or compromise of any obligation of any Obligor with respect to any of the Obligations; or (d) failure by Agent or any Lender to resort to other security or pursue any Person liable for any of the Obligations before resorting to the Collateral. -10- 11 6. GENERAL. 6.1. Guarantor Waiver. Except as otherwise provided for in this Agreement, each Guarantor waives (a) presentment, demand and protest and notice of presentment, protest, default, non-payment, maturity, release, compromise, settlement, one or more extensions or renewals of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Agent or any Lender on which any Guarantor may in any way be liable and hereby ratifies and confirms whatever Agent or any Lender may do in this regard; (b) all rights to notice and a hearing prior to Agent's or any Lender's taking possession or control of, or Agent's or any Lender's relevy, attachment or levy on or of, the Collateral or any bond or security which might be required by any court prior to allowing Agent or any Lender to exercise any of Agent's or any Lender's remedies; and (c) the benefit of all valuation, appraisement and exemption laws. Each Guarantor acknowledges that it has been advised by counsel of its choice with respect to this Agreement and the transactions evidenced by this Agreement. 6.2. Power of Attorney. Each Guarantor appoints Agent, or any Person whom Agent may from time to time designate, as such Guarantor's attorney and agent-in-fact with power (which appointment and power, being coupled with an interest, is irrevocable until all Obligations under this Agreement and the Guaranty Documents are paid and performed in full and this Agreement, the Guaranty Documents and the Loan Agreement are terminated), without notice to such Guarantor, to: (a) At such time or times hereafter as Agent or its agent, in its sole and absolute discretion, may determine in such Guarantor's or Agent's name (i) endorse such Guarantor's name on any checks, notes, drafts or any other items of payment relating to and/or proceeds of the Collateral which come into the possession of Agent or under Agent's control and apply such payment or proceeds to the Obligations; (ii) endorse such Guarantor's name on any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement in Agent's possession relating to such Guarantor's Accounts Receivable, Inventory or any other Collateral; (iii) use the information recorded on or contained in any data processing equipment and computer hardware and software to which such Guarantor has access relating to such Guarantor's Accounts Receivable, Inventory and/or other Collateral; (iv) use such Guarantor's stationery and sign the name of such Guarantor to verification of such Guarantor's Accounts Receivable and notices thereof to such Guarantor's Account Debtors; and (v) if not done by such Guarantor, do all acts and things determined by Agent to be necessary, to obtain repayment of the Obligations and to fulfill such Guarantor's other obligations under this Agreement; and (b) At such time or times after the occurrence and during the continuance of a Default, as Agent or its agent, in its sole and absolute discretion, may determine, in such Guarantor's or Agent's name: (i) demand -11- 12 payment of such Guarantor's Accounts Receivable; (ii) enforce payment of such Guarantor's Accounts Receivable, by legal proceedings or otherwise; (iii) exercise all of such Guarantor's rights and remedies with respect to the collection of such Guarantor's Accounts Receivable and other Collateral; (iv) settle, adjust, compromise, extend or renew such Guarantor's Accounts Receivable; (v) settle, adjust or compromise any legal proceedings brought to collect such Guarantor's Accounts Receivable; (vi) if permitted by applicable law, sell or assign such Guarantor's Accounts Receivable and/or other Collateral upon such terms for such amounts and at such time or times as Agent may deem advisable; (vii) discharge and release such Guarantor's Accounts Receivable and/or other Collateral; (viii) prepare, file and sign such Guarantor's name on any proof of claim in bankruptcy or similar document against any Account Debtor of such Guarantor; (ix) prepare, file and sign such Guarantor's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with such Guarantor's Accounts Receivable and/or other Collateral; and (x) do all acts and things necessary, in Agent's sole and absolute discretion, to obtain repayment of the Obligations and to fulfill such Guarantor's other obligations under this Agreement. 6.3. Expenses; Attorneys' Fees. Each Guarantor agrees to pay upon demand all Attorneys' Fees (as defined in Section 12.3 of the Loan Agreement) and all other reasonable expenses incurred by Agent at any time, including fees, costs and expenses incurred in connection with Collateral field audits or other due diligence investigations by Agent and all Attorneys' Fees (as defined in Section 12.3 of the Loan Agreement) and other Attorneys' Fees incurred by any Lender as provided in the Loan Agreement. Each Guarantor also agrees to pay, and save Agent and each Lender harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Agreement, or any Guaranty Document, or the issuance of any other instruments or documents provided for herein or to be delivered hereunder or in connection herewith. Each Guarantor's obligations described herein shall survive the termination of this Agreement. 6.4. Agent Fees and Charges. To the extent not already covered by Section 6.3, each Guarantor agrees to pay Bank of America Illinois on demand the customary fees and charges of Agent for maintenance of accounts with it or for providing other services to such Guarantor. 6.5. No Waiver by Agent or any Lender; Amendments. No failure or delay on the part of Agent or any Lender in the exercise of any power or right, and no course of dealing between any Guarantor and Agent or any Lender shall operate as a waiver of such power or right with respect to such Guarantor or any other Guarantor, nor shall any single or partial exercise of any power or right with respect to any Guarantor preclude other or further exercise thereof or the exercise of any other power or right with respect to such Guarantor or any other Guarantor. The remedies provided for herein are cumulative and not exclusive of any remedies which may be available to Agent or any Lender at law or in equity. No notice to or -12- 13 demand on any Guarantor not required hereunder shall in any event entitle such Guarantor or any other Guarantor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of Agent or any Lender to any other or further action in any circumstances without notice or demand. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or any Guaranty Document shall in any event be effective unless the same shall be in writing and signed and delivered by Requisite Lenders. Any waiver of any provision of this Agreement, and any consent to any departure by any Guarantor from the terms of any provision of this Agreement, shall be effective only with respect to such Guarantor and in the specific instance and for the specific purpose for which given. 6.6. Notices. Except as otherwise expressly provided herein, any notice hereunder to any Guarantor, Agent or any Lender shall be in writing (including facsimile communication) and shall be given to such Guarantor, Agent or such Lender at its address or facsimile number set forth on the signature pages hereof and/or Exhibit A hereto or at such other address or facsimile number as such Guarantor, Agent or such Lender may, by written notice, designate as its address or facsimile number for purposes of notices hereunder. All such notices shall be deemed to be given when transmitted by facsimile, delivered by courier, personally delivered or, in the case of notice by mail, three (3) Banking Days following deposit in the United States mails, properly addressed as herein provided, with proper postage prepaid. 6.7. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 6.8. Successors. This Agreement shall be binding upon each Guarantor, Agent and each Lender and their respective successors and permitted assigns, and shall inure to the benefit of each Guarantor, Agent and each Lender and their respective successors and permitted assigns. No Guarantor may assign its rights or duties hereunder without the consent of Agent. 6.9. Construction. Each Guarantor acknowledges that this Agreement shall not be binding upon Agent or any Lender or become effective until and unless accepted by Agent or such Lender, as applicable, in writing. If so accepted by Agent or any Lender, this Agreement and the Guaranty Documents shall, unless otherwise expressly provided therein, be deemed to have been negotiated and entered into in, and shall be governed and controlled by the laws of, the State of Illinois as to interpretation, enforcement, validity, construction, effect, choice of law, and in all other respects, including but not limited to the legality of the interest rate and other charges, but excluding perfection of security interests and liens which shall be governed and controlled by the laws of the relevant jurisdiction. 6.10. Consent to Jurisdiction. To induce Agent and each Lender to accept this Agreement, each Guarantor irrevocably agrees that, subject to Agent's sole and absolute -13- 14 election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE GUARANTY DOCUMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. EACH GUARANTOR HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON SUCH GUARANTOR, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO SUCH GUARANTOR AT THE ADDRESS STATED ON THE SIGNATURE PAGES AND/OR EXHIBIT A HERETO AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. 6.11. Waiver of Jury Trial. EACH GUARANTOR, AGENT AND EACH LENDER WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (A) UNDER THIS AGREEMENT OR ANY GUARANTY DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (B) ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 6.12. Termination. This Agreement shall terminate upon the last to occur of payment and performance in full of all Obligations and termination of all other Guaranty Documents and the Loan Agreement. -14- 15 IN WITNESS WHEREOF, this Agreement has been duly executed in Chicago, Illinois, on the day and year specified at the beginning hereof. BANK OF AMERICA ILLINOIS, as agent for itself and each other Lender By /s/ DAVID A. JOHANSON ---------------------------------------- Its Vice President ---------------------------------------- EACH OF THE SUBSIDIARIES SET FORTH ON EXHIBIT A HERETO By /s/ PHILIP J. ABLOVE ---------------------------------------- Vice President of each such Subsidiaries -------------- -15- 16 EXHIBIT A Pioneer Americas, Inc. 4200 NationsBank Center 700 Louisiana Street Houston, Texas 77002 Fax (713) 225-6475 Pioneer Chlor Alkali Company, Inc. 4200 NationsBank Center 700 Louisiana Street Houston, Texas 77002 Fax (713) 225-6475 Imperial West Chemical Co. 2185 N. California Blvd. Suite 500 Walnut Creek, California 94596 Fax (510) 280-4465 All-Pure Chemical Co. 2185 N. California Blvd. Suite 500 Walnut Creek, California 94596 Fax (510) 280-4465 All-Pure Chemical Northwest, Inc. 2185 N. California Blvd. Suite 500 Walnut Creek, California 94596 Fax (510) 280-4465 Black Mountain Power Company 4200 NationsBank Center 700 Louisiana Street Houston, Texas 77002 Fax (713) 225-6475 EX-4.7 19 INTERCREDITOR & COLLATERAL AGENCY AGRMT. 6/17/97 1 EXHIBIT 4.7 INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT dated as of this 17th day of June, 1997, by and among UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee for its own benefit and for the benefit of the Holders (as hereinafter defined) under the Indenture (as hereinafter defined) (in such capacity, the "Trustee"), BANK OF AMERICA ILLINOIS, as Administrative Agent for its own benefit and for the benefit of the lenders under the Term Loan Agreement (as hereinafter defined) (in such capacity, the "Term Loan Agent"), BANK OF AMERICA ILLINOIS, as Agent under the Bank Credit Agreement (as hereinafter defined) (in such capacity, the "Agent Bank"), UNITED STATES TRUST COMPANY OF NEW YORK, as collateral agent (the "Collateral Agent"), PIONEER AMERICAS ACQUISITION CORP. ("PAAC"), PIONEER AMERICAS, INC. ("PAI") and PIONEER CHLOR ALKALI COMPANY, INC. ("PCAC"; and together with PAAC and PAI sometimes hereinafter referred to collectively as the "Companies"). Recitals A. Pursuant to that certain Indenture dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Indenture") among PAAC, the Subsidiary Guarantors (as defined therein) and the Trustee, as trustee for the holders of the Notes (as hereinafter defined) (the "Holders"), PAAC will issue its 9 1/4% Senior Secured Notes due 2007 (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor, upon the registration of such notes pursuant to the Securities Act of 1933 or otherwise, the "Notes") in the aggregate principal amount of $200 million. B. Pursuant to that certain Loan Agreement dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Term Loan Agreement") among PAAC, the Term Loan Agent, DLJ Capital Funding, Inc., as syndication agent, Salomon Brothers Holding Company Inc, as documentation agent, and the lenders 2 2 named therein (the "Term Loan Lenders"), the Term Loan Lenders will make loans to PAAC to be evidenced by notes (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor, the "Term Loan Notes") in an aggregate principal amount of $100 million. C. PAAC has entered into a Loan and Security Agreement, dated as of the date hereof (as in effect on the date hereof, the "Bank Credit Agreement"), among PAAC, as borrower, the Agent Bank, as agent and a lender, and the other lenders party thereto, under which the Agent Bank and such other lenders (collectively, the "Bank Lenders") agreed to provide certain revolving loan and letter of credit facilities to PAI in an aggregate principal or face amount not in excess of $35 million. D. Pursuant to Article Thirteen of the Indenture, PCAC has guaranteed (such guarantee by PCAC being hereinafter referred to as the "Note Guarantee") the payment and performance of the Indenture Obligation (as hereinafter defined). E. Pursuant to the Subsidiary Guaranty dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time), PCAC has guaranteed (such guarantee by PCAC being hereinafter referred to as the "Term Loan Guarantee") the payment and performance of the Term Loan Obligation (as hereinafter defined). F. PCAC has executed and delivered the following documents (those listed in clauses (i), (ii) and (iii) of this paragraph F, collectively, and as amended, amended and restated, supplemented or otherwise modified from time to time, the "Mortgages") to the Collateral Agent to secure the payment and performance of its obligations under the Note Guarantee and the Term Loan Guarantee: (i) First Priority Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement dated as of the date hereof in respect of certain premises in Tacoma, Washington and further described on Schedule 1 hereto by PCAC, as trustor, to Transnation Title Insurance Company, as Deed of Trust Trustee, for the benefit of 3 3 the Collateral Agent, as beneficiary, for the benefit of the Trustee, the Term Loan Agent, the Holders and the Term Loan Lenders; (ii) First Priority Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement dated as of the date hereof in respect of certain premises in Henderson, Nevada and further described on Schedule 2 hereto by PCAC, as trustor, to First American Title Insurance Company of Nevada, as Deed of Trust Trustee, for the benefit of the Collateral Agent, as beneficiary, for the benefit of the Trustee, the Term Loan Agent, the Holders and the Term Loan Lenders; (iii) First Priority Mortgage, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement dated as of the date hereof in respect of certain premises in St. Gabriel, Louisiana and further described on Schedule 3 hereto by PCAC, as mortgagor, to the Collateral Agent, as mortgagee, for the benefit of the Trustee, the Term Loan Agent, the Holders and the Term Loan Lenders; (iv) Security Agreement (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Security Agreement") dated as of the date hereof by PCAC, as debtor, to the Collateral Agent, as secured party, in respect of certain agreements related to PCAC's facility in Tacoma, Washington; and (v) Stock Pledge Agreement (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Stock Pledge Agreement") from PAI, as debtor, to the Collateral Agent, as secured party, in respect of all of the issued and outstanding stock owned by PAI of PCAC and All-Pure Chemical Co. 4 4 A g r e e m e n t : The parties agree as follows: ARTICLE 1 DEFINITIONS Definitions. (a) Capitalized terms that are not otherwise defined herein are used herein with the meanings given thereto in the Mortgages as in effect on the date of execution of this Agreement. (b) The following terms shall have the respective meanings set forth below: "Collateral" means the Mortgaged Property, the Collateral (as defined in the Security Agreement), the Collateral (as defined in the Stock Pledge Agreement), the New Collateral and any other property or assets which may from time to time be subject to one or more of the Liens evidenced or created by any of the Collateral Documents. "Collateral Account" has the meaning set forth in Section 5.1. "Collateral Agent's Fees" means all fees, costs and expenses of the Collateral Agent of the type described in Sections 7.3, 7.4, 7.5 and 7.6. "Collateral Documents" means, collectively, (i) the Mortgages, (ii) the Security Agreement, (iii) the Stock Pledge Agreement, (iv) this Intercreditor and Collateral Agency Agreement, (v) the documentation relating to the Collateral Account and (vi) all security agreements, mortgages, deeds of trust, pledges, collateral assignments or any other instruments evidencing or creating any security interest in favor of the Collateral Agent for the benefit of the Secured Parties in all or any portion of any property or assets of any Obligor, in each case as amended, supplemented or otherwise modified from time to time. "Companies" has the meaning set forth in the first paragraph of this Agreement. "Debt Instrument" means each of the Notes and the Term Loan Notes. 5 5 "Default" means a Default under the Term Loan Agreement or under the Indenture, as the case may be. "Distribution Date" means the date on which any funds are distributed by the Collateral Agent in accordance with the provisions of Section 6.1. "Enforcement Notice" has the meaning set forth in Section 2.2(a). "Event of Default" means an Event of Default under the Term Loan Agreement or under the Indenture, as the case may be. "Indenture Obligation" has the meaning set forth in the Mortgages. "Majority Holders" means the holders of Debt Instruments which in principal amount constitute more than 50% of the Total Amount of Secured Obligations; provided, however, that for purposes of this definition there shall not be counted any interests in any Debt Instrument (A) for which (and to the extent that) there are at such time on deposit with the Collateral Agent, or the Trustee or the Term Loan Agent, as the case may be, amounts to be applied to the payment of principal thereof or (B) which are held by any of the Companies or any Affiliate (as defined in the Indenture as in effect on the date hereof) of any of the Companies. "New Collateral" shall mean any Collateral pledged to the Collateral Agent pursuant to stock pledge agreements executed and delivered pursuant to Section 1017 of the Indenture or Section 7.1.9 of the Term Loan Agreement. "Note Majority Holders" shall mean the holders of the Notes which in principal amount constitute more than 50% of the Indenture Obligation provided that for purposes for this definition, there shall not be counted any interest in the Notes (i) for which (and to the extent that) there are at such time on deposit with the Collateral Agent or the Trustee amounts to be applied to the payment of principal thereof or (ii) which are held by any of the Companies or any Affiliate of any of the Companies. 6 6 "Obligor" means PCAC, PAI and any other mortgagor, pledgor or assignor under a Collateral Document. "Officers' Certificate" has the meaning set forth in the Indenture as in effect on the date hereof. "Opinion of Counsel" has the meaning set forth in the Indenture as in effect on the date hereof. "Pro Rata Share" with respect to any Secured Party means, at any date of determination thereof, the percentage derived by dividing (i) the total, without duplication, of all outstanding Indenture Obligation or Term Loan Obligation, as the case may be (whether by virtue of acceleration or otherwise) under or in respect of the Debt Instruments held or administered by such Secured Party, including all fees, expenses and other amounts owing to the Trustee or the Term Loan Agent, less the amount of any cash collateral on deposit with the Trustee or the Term Loan Agent, as the case may be, with respect thereto, by (ii) the Total Amount of Secured Obligations. "Real Property" means any interest in any real property or any portion thereof, whether owned in fee or leased or otherwise owned. "Secured Obligations" means, at any time, the obligations of the Companies from time to time under or in respect of the Debt Instruments. "Secured Party" means each of the Trustee (acting for its own benefit and for the benefit of the Holders) and the Term Loan Agent (acting for its own benefit and for the benefit of the Term Loan Lenders), and their respective successors and assigns. "Survey" means a survey of any parcel of real property (and all improvements thereon): (i) prepared by a surveyor or engineer licensed to perform surveys in the state in which such property is located, (ii) dated (or redated) not earlier than six months prior to the date of delivery thereof (unless there shall have occurred within six months prior to such date of delivery any exterior construction on the site of such property, in which event such survey shall be dated (or redated) to a date after the 7 7 completion of such construction, (iii) certified by the surveyor (in a manner reasonably acceptable to the title company providing title insurance in respect of the Liens of the Collateral Documents) and (iv) complying in all respects with the minimum detail requirements of the American Land Title Association, or local equivalent, as such requirements are in effect on the date of preparation of such survey. "Term Loan Collateral Proceeds" shall have the meaning set forth in Section 3.2(b)(iv) hereof. "Term Loan Note Majority Holders" shall mean the holders of the Term Loan Notes which in principal amount constitute more than 50% of the Term Loan Obligation, provided that for purposes of this definition there shall not be counted any interest in the Term Loan Notes (i) for which (and to the extent that) there are at such time on deposit with the Collateral Agent or the Term Loan Agent amounts to be applied to the payment of principal thereof and (ii) which are held by any of the Companies or any Affiliate of any of the Companies. "Term Loan Obligation" has the meaning set forth in the Mortgages. "Title Policies" means the mortgagee policies of title insurance delivered to the Collateral Agent and insuring the lien of the Mortgages. "Total Amount of Secured Obligations" means, at any time, the total, without duplication, of all amounts then outstanding under or in respect of each of the Debt Instruments less, in each case, the amount of cash collateral on deposit with the Trustee or the Term Loan Agent, as the case may be, with respect thereto. "Trust Estate" means (i) the right, title and interest of the Collateral Agent in and to the Collateral and in, to and under each of the Collateral Documents, (ii) the right, title and interest of the Collateral Agent in, to and under each of the Title Policies and (iii) any amounts from time to time held in the Collateral Account. 8 8 (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section references are to this Agreement unless otherwise specified. ARTICLE 2 DECLARATION OF TRUST; REMEDIES 2.1 Declaration and Acceptance of Trust. The Collateral Agent hereby declares, and the Companies agree, that the Collateral Agent holds the Trust Estate as secured party or mortgagee or deed of trust beneficiary, as the case may be, in trust under this Agreement and the Collateral Documents for the equal and ratable benefit of the Secured Parties (and the Persons for whom the Secured Parties act as trustee, agent or fiduciary, as applicable), without preference, priority or distinction of any thereof over any other by reason of difference in time of issuance, sale or otherwise, as provided herein. Each Secured Party, by executing and delivering this Agreement, and each Person for whom such Secured Party acts as trustee, agent or fiduciary, as applicable, by acceptance of the benefits of this Agreement and the Collateral Documents, (i) consents to the appointment of the Collateral Agent as agent hereunder and grants to the Collateral Agent all rights and powers necessary for the Collateral Agent to perform its obligations hereunder, (ii) confirms that the Collateral Agent shall have the authority, subject to the terms of this Agreement, to act as the exclusive agent of such Secured Party (or Person, as applicable) to make claims under and otherwise act in all respects as the beneficiary of the Title Policies, to enforce any remedies under or with respect to any Collateral Document, to give or withhold any consent or approval relating to any Collateral or the Collateral Documents or any obligations with respect thereto, and otherwise to take any action on behalf of the Secured Parties (and such Persons) contemplated in the Collateral Documents (including, without limitation, receiving opinions, maintaining collateral accounts and exercising remedies) and (iii) agrees that, except as provided in this Agreement, such Secured Party (or Person, as applicable) shall not take any action to enforce any of such 9 9 remedies or give any such consents or approvals relating to any Collateral or the Collateral Documents or itself make any claim under the Title Policies. If the Companies request that the Collateral Agent or the Secured Parties (or any Person for whom such Secured Party acts as a trustee, agent or fiduciary, as applicable) elect to defer for 3 years the effective date of regulatory amendments effective July 1, 1997 with respect to Washington State Business and Occupancy Tax, the Collateral Agent or such Secured Party is hereby authorized to do so, and by accepting the benefits of this Agreement, each Person for whom a Secured Party acts as trustee, agent or fiduciary, as applicable, hereby consents to such action. 2.2 Remedies. (a) Upon the occurrence and during the continuance of an Event of Default under the Indenture, the Note Majority Holders shall have the right at any time, and, upon the occurrence and during the continuance of an Event of Default under the Term Loan Agreement, the Term Loan Note Majority Holders shall have the right at any time, to direct in one or more writings (each, an "Enforcement Notice") addressed to the Collateral Agent and the Secured Parties that any right or remedy available to the Collateral Agent and the Trustee or the Term Loan Agent, as the case may be, with respect to the Collateral be exercised by the Collateral Agent on behalf of both Secured Parties (subject to Section 6.3 hereof), which Enforcement Notice shall be effective 10 days from the date of delivery thereof, provided, however, that the Note Majority Holders or the Term Loan Note Majority Holders, as the case may be, taking such action must hold an aggregate principal amount of Notes or Term Loan Notes, as the case may be, representing at least 15% of the Total Amount of Secured Obligations. Each Enforcement Notice shall state that an Event of Default either under the Indenture or the Term Loan Agreement exists and generally describe the nature of and any relevant facts relating to such Event of Default. Following receipt of any Enforcement Notice, the Collateral Agent shall, subject to the provisions hereof relating to indemnification of the Collateral Agent by the Companies, take the actions directed therein and any other actions which it deems proper and which are not inconsistent with such direction, provided, however, the Collateral Agent is not obligated to take any actions outside the Enforcement Notice. 10 10 (b) Upon the effective date of an Enforcement Notice from the Note Majority Holders or the Term Loan Note Majority Holders, as the case may be, the Collateral Agent shall notify PCAC and/or PAI, as applicable, in writing that the Collateral Agent has received such Enforcement Notice, enclosing a copy of such Enforcement Notice. An Enforcement Notice shall be deemed to be in effect hereunder only if such notice shall have been given and not rescinded, annulled or withdrawn in writing by the Note Majority Holders or the Term Loan Note Majority Holders, as applicable, by whom such notice was given. (c) Whether or not the Collateral Agent has been directed to exercise any right or remedy with respect to the Collateral pursuant to the provisions of this Section 2.2, the Bank Lenders shall have the right, subject to all relevant provisions of the Bank Credit Agreement, to pursue remedies with respect to Obligor Collateral in accordance with the provisions of the Bank Credit Agreement, all related agreements and this Agreement. In the event that the Collateral Agent has been so instructed to pursue remedies with respect to the Collateral, the Collateral Agent shall take such steps as it deems reasonable and appropriate to avoid interfering with the Agent Bank's exercise of rights and remedies with respect to Obligor Collateral. (d) In the event that the Agent Bank shall attempt to exercise any of its remedies with respect to Obligor Collateral, the Collateral Agent (i) shall not hinder, delay or otherwise prevent the Agent Bank from taking any and all action to the extent permitted by law which the Agent Bank deems necessary to enforce its security interest in the Obligor Collateral and realize thereon and (ii) to the extent that the Collateral Agent is in possession of the Mortgaged Property, shall permit the Agent Bank to access and occupy the Mortgaged Property and to use the Equipment, in each case without rent, for a period not to exceed 90 days from the date Agent Bank receives written notice from the Collateral Agent that it has acquired possession of the Mortgaged Property, or such shorter period as is necessary for the Agent Bank to complete Obligor Collateral consisting of work-in-process, to store Obligor Collateral constituting inventory and to otherwise remove such Obligor Collateral and complete its exercise of remedies in respect thereof. Agent Bank shall indemnify the Collateral Agent for all damage to the Mortgaged 11 11 Property or the Equipment (ordinary wear and tear excepted) proximately caused by the negligence or willful misconduct of the Agent Bank or its agents or employees. The Collateral Agent further agrees that it will not enforce any statutory, possessory or other liens (including, without limitation, rights of levy) with respect to the Obligor Collateral without the prior written consent of the Agent Bank. (e) Without limiting the provisions of the preceding paragraphs (c) and (d), the Collateral Agent shall not seek to enforce any rights under or with respect to the agreements (the "Tacoma Sales Agreements") listed as items 3 and 4 on Annex 2 to the Security Agreement (as in effect of the date hereof) or any related Collateral (as defined in the Security Agreement) and shall not retain any proceeds thereof until the Agent Bank has collected all Accounts Receivable (as defined in the Bank Credit Agreement as in effect on the date hereof in existence under the Tacoma Sales Agreements and completed and sold all Inventory (as defined in the Bank Credit Agreement as in effect on the date hereof) pursuant to the terms of the Tacoma Sales Agreements to the purchasers thereunder, to the extent that such Accounts Receivable and Inventory were included in the calculation of the Borrowing Base (as defined on the Bank Credit Agreement as in effect on the date hereof) prepared by PAAC for the purpose of calculating loans made to PAAC under the Bank Credit Agreement and delivered to the Agent Bank most recently prior to the acceleration of any of the Secured Obligations (and in connection therewith the Agent Bank may enforce Contract Rights under the Tacoma Sales Agreements), provided that (i) the Agent Bank shall seek to collect such Accounts Receivable, sell such Inventory and otherwise enforce Contract Rights in respect of the Tacoma Sales Agreements reasonably promptly and otherwise in a commercially reasonable manner that will not unreasonably prejudice the remaining rights of the Collateral Agent and the Secured Parties with respect to such agreements; and (ii) upon payment in full of such Accounts Receivable and the sale of such Inventory pursuant to the Tacoma Sales Agreements, (x) the Agent Bank shall have no further lien on or other interest in the Tacoma Sales Agreements or in any Accounts Receivable or Contract Rights (as defined on the Bank Credit Agreement as in effect on the date hereof) in respect thereof and (y) the Tacoma Sales Agreements and all 12 12 Accounts Receivable and Contract Rights in respect thereof shall be deemed deleted from the definition of Obligor Collateral. 2.3 Determinations Relating to Collateral. In the event (i) the Collateral Agent shall receive any written request from any Obligor under any Collateral Document for consent or approval with respect to any matter or thing relating to any Collateral or such Obligor's obligations with respect thereto or (ii) there shall be due to or from the Collateral Agent under the provisions of any Collateral Document any material performance or the delivery of any material instrument or (iii) the Collateral Agent shall have actual knowledge of any nonperformance by any Obligor of any covenant or any breach of any representation or warranty of any Obligor set forth in any Collateral Document, then, in each such event, the Collateral Agent shall, within five Business Days (as defined in the Indenture, as in effect on the date hereof), advise the Secured Parties in writing of the matter or thing as to which consent has been requested or the performance or instrument required to be delivered or the nonperformance or breach of which the Collateral Agent has become aware. The Majority Holders shall have the exclusive authority to direct the Collateral Agent's response to any of the circumstances contemplated in clauses (i), (ii) and (iii) above, provided that the Majority Holders include the Term Loan Note Majority Holders. 2.4 Right to Make Advances. If an advance of funds shall at any time be required for the preservation or maintenance of any Collateral, then, upon three Business Days' notice to the applicable Obligor, the Collateral Agent or either Secured Party shall be entitled (but shall not be obligated) to make such advance (it being understood that the Trustee shall not be obligated to make any such advance other than in accordance with the terms of the Indenture and that the Term Loan Agent shall not be obligated to make any such advance other than in accordance with the terms of the Term Loan Agreement). Each such advance shall be reimbursed, with interest from the date such advance was made (at the rate initially borne by the Notes or the Term Loan Notes, as applicable), by the applicable Obligor, upon demand by the Collateral Agent or such Secured Party, as the case may be, and if the applicable Obligor fails to comply with any such demand, out of the proceeds of any sale of or other realization 13 13 upon any Collateral distributed pursuant to clause FIRST of Section 4.1. In the event either Secured Party shall receive any funds which, under this Section 2.4, belong to the Collateral Agent or the other Secured Party, such Secured Party shall remit such funds promptly to the Collateral Agent for distribution to the Collateral Agent or such other Secured Party, as the case may be, and prior to such remittance shall hold such funds in trust for the Collateral Agent or such other Secured Party, as the case may be. 2.5 Nature of Secured Parties' Rights. Both Secured Parties (and each Person for whom a Secured Party acts as trustee, agent or fiduciary) shall be bound by any instruction or direction properly given by the Majority Holders, the Note Majority Holders or the Term Loan Note Majority Holders, as the case may be, as required by and subject to the provisions of this Agreement. 2.6 Voting. In each case where any vote or consent of the Holders or Term Loan Lenders, as the case may be, is required or desired to be made or determined hereunder each Secured Party shall, to the extent required pursuant to and in accordance with the provisions of the Indenture or the Term Loan Agreement, respectively, advise in writing the Persons for whom it acts as trustee, agent or fiduciary of the matters or thing to which such vote or consent pertain and afford such Persons an opportunity to indicate (which may be accomplished by affirmative act or failure to act within a prescribed time period) a response to the matters or things set forth in such writing. The results of such voting or consent solicitation shall be promptly reported in writing to the Collateral Agent and shall be certified as correct to the best knowledge of such Secured Party. Any determination as to whether the requisite vote or consent has been obtained shall be made by the Collateral Agent on the basis of such written information, which information may be conclusively relied upon by the Collateral Agent. The Collateral Agent shall not be liable for errors in such determinations unless the Collateral Agent shall have been grossly negligent or shall have acted in bad faith in connection therewith. 14 14 ARTICLE 3 COLLATERAL DOCUMENTS 3.1 Recording; Priority; Opinions, Etc. (a) Each Obligor shall at their sole cost and expense perform any and all acts and execute any and all documents (including, without limitation, the execution, amendment or supplementation of any financing statement and continuation statement or other statement) for filing under the provisions of the Uniform Commercial Code and the rules and regulations thereunder, or any other statute, rule or regulation of any applicable federal, state or local jurisdiction, including any filings in local real estate land record offices, which are necessary or advisable and shall do such other acts and execute such other documents as may be required from time to time, in order to grant and maintain in favor of the Collateral Agent for the benefit of the Secured Parties a valid and perfected first priority Lien on the Collateral, subject only to Liens permitted under the Collateral Documents to be senior to the Liens of the Collateral Agent, and to fully preserve and protect the rights of the Collateral Agent under the Collateral Documents. Each Obligor shall from time to time promptly pay and satisfy all mortgage and financing and continuation statement recording and/or filing fees, charges and taxes relating to the Collateral Documents to which such Obligor is a party, any amendments thereto and any other instruments of further assurance. Without limiting the generality of the foregoing, if at any time the Trustee, the Term Loan Agent or the Collateral Agent shall determine that additional mortgage recording, transfer or similar taxes are required to be paid to perfect or continue any Lien on any Collateral, the applicable Obligor shall pay such taxes promptly upon demand by the Collateral Agent. (b) The Obligors shall, with respect to clause (i) below, on or prior to the date hereof, and, with respect to clause (ii) below, at such times as contemplated therein, furnish to the Trustee, the Term Loan Agent and the Collateral Agent: (i) Opinion(s) of Counsel either (a) to the effect that, in the opinion of such counsel, this Agreement and the 15 15 grants of security interests in the Collateral intended to be made by the Collateral Documents and all other instruments of further assurance, including, without limitation, financing statements and each of the Mortgages, the Security Agreement and the Stock Pledge Agreement have been properly registered, recorded and filed to the extent necessary to perfect the Lien on the Collateral created by the Collateral Documents and reciting the details of such action, and stating that as to the Liens created pursuant to the Collateral Documents, such recordings, registrations and filings are the only recordings, registrations and filings necessary to give notice thereof and that no re-recordings, re-registrations or refilings are necessary to maintain such notice (other than as stated in such opinion), or (b) to the effect that, in the opinion of such counsel, no such action is necessary to perfect such Lien; and (ii) on each anniversary of the Closing Date (as defined in the Indenture, as in effect on the date hereof), beginning with such anniversary in the year 1998, an Opinion of Counsel dated as of such date, either (a) to the effect that, in the opinion of such counsel, such action has been taken with respect to the recordings, registerings, filings, re-recordings, re-registerings and refilings of all financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Lien of each of the Collateral Documents and reciting with respect to such Liens the details of such action or referencing prior Opinions of Counsel in which such details are given, and stating that all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding twelve months fully to preserve and protect the rights of the Collateral Agent, the Holders, the Trustee, the Term Loan Lenders and the Term Loan Agent hereunder and under each of the Collateral Documents with respect to such Liens, or (b) to the effect that, in the opinion of such counsel, no such action is necessary to maintain such Liens. 3.2 Release of Collateral. To the extent applicable, the Obligors shall cause Trust Indenture Act Section 314(d) relating to the release of property or Liens to be complied with. 16 16 (a) Satisfaction and Discharge of Indenture Obligation and Term Loan Obligation. The Obligors shall be entitled to obtain a full release of all of the Collateral from the Lien of the Collateral Documents upon compliance with all of the conditions precedent set forth in Section 1201 of the Indenture for complete satisfaction and discharge of all of PAAC's obligations under the Indenture and in Section 9.12 of the Term Loan Agreement for complete satisfaction of all of PAAC's obligations under the Term Loan Agreement and the termination thereof. Upon delivery by PAAC to the Trustee, the Term Loan Agent and the Collateral Agent of (i) an Officers' Certificate and an Opinion of Counsel and (ii) an Officers' Certificate (as defined in the Term Loan Agreement) and an Opinion of Counsel (as defined in the Term Loan Agreement), all to the effect that such conditions precedent have been complied with, the Trustee and the Term Loan Agent shall, at the written request and expense of PAAC, promptly direct the Collateral Agent to release and reconvey to PAI or PCAC, as applicable, all of their respective Collateral, and upon receipt of such direction by the Trustee and the Term Loan Agent, the Collateral Agent shall do so and deliver any Collateral in its possession to PAI or PCAC, as applicable. (b) Sales of Collateral Permitted by Section 1009 of the Indenture and Section 7.2.6 of the Term Loan Agreement. PAAC shall be entitled to obtain a release of all or any part of the Collateral (other than Trust Moneys) (the "Released Interests") subject to an Asset Sale (as defined in the Indenture) or to an Asset Sale (as defined in the Term Loan Agreement and for purposes hereof a "Term Loan Asset Sale"), and the Trustee and the Term Loan Agent shall direct the Collateral Agent to release the Released Interests from the Liens of the Mortgages, the Security Agreement or the Stock Pledge Agreement, as the case may be, promptly upon (x) compliance with (i) the conditions precedent specified in Section 1009 of the Indenture for any Asset Sale involving Collateral, and (ii) the conditions precedent specified in Section 7.2.6 of the Term Loan Agreement for any Term Loan Asset Sale involving Collateral and (y) delivery by PAAC to the Trustee, the Term Loan Agent and the Collateral Agent of the following: (i) Release Notice. A notice (each, an "Asset Sale Release Notice"), which shall (A) refer to this Section 3.2, 17 17 (B) attach all the documents referred to below, (C) describe with particularity the Released Interests, (D) specify the fair market value of such Released Interests on a date within 60 days of the Asset Sale Release Notice (the "Valuation Date"), (E) certify that the purchase price received is not less than the fair market value of the Released Interests as of the date of such release, (F) state that the release of the Released Interests will not interfere with or impede the Collateral Agent's ability to realize the value of the remaining Collateral and will not impair the maintenance and operation of the remaining Collateral, and (G) be accompanied by a counterpart of the instruments proposed to give effect to the release fully executed and acknowledged (if applicable) by all parties thereto other than the Collateral Agent; (ii) Officers' Certificate. An Officers' Certificate certifying that (A) such Asset Sale covers only the Released Interests and complies with the terms and conditions of an Asset Sale pursuant to Section 1009 of the Indenture and Section 7.2.6 of the Term Loan Agreement, (B) all Collateral Proceeds (as defined in the Indenture) from the sale of the Released Interests will be applied pursuant to Section 1009 of the Indenture and Section 7.2.6 of the Term Loan Agreement, (C) there is no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement in effect or continuing on the date thereof, the Valuation Date or the date of such Asset Sale or Term Loan Asset Sale, (D) the release of the Released Interests will not result in a Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement and (E) all conditions precedent to such release have been complied with; (iii) Regarding Real Property. If any Released Interest is only a portion of a discrete parcel of real property, evidence that a title company shall have committed to issue an endorsement to the title insurance policy relating to the affected Mortgaged Property, confirming that after such release, the Lien of the applicable Mortgage shall continue unimpaired as a first priority perfected Lien 18 18 upon the remaining Mortgaged Property subject only to Excepted Liens (as defined in the applicable Mortgage), and that the remaining Mortgaged Property satisfies all applicable subdivision, zoning and land use requirements and is not part of a larger tax lot; (iv) Proceeds of Asset Sale. The Collateral Proceeds (as defined in the Indenture) and the Net Proceeds (as defined in the Term Loan Agreement) resulting from an Asset Sale in respect of Collateral ("Term Loan Collateral Proceeds") and other non-cash consideration received from an Asset Sale or Term Loan Asset Sale shall be required to be delivered to the Collateral Agent to be deposited in the Collateral Account to be applied pursuant to Article 4 hereof; and if any property other than cash or Cash Equivalents (as defined in the Indenture and the Term Loan Agreement) is included in such consideration, such instruments of conveyance, assignment and transfer, if any, delivered to the Collateral Agent as may be necessary, in the opinion of counsel to the Collateral Agent, to subject to the Lien of the Collateral Documents all right, title and interest of the applicable Obligor in and to such property; (v) Opinions of Counsel. One or more Opinions of Counsel which, when considered collectively, shall be substantially to the effect (A) that any obligation included in the consideration for any Released Interest and to be received by the Collateral Agent pursuant to paragraph (iv) above is a valid and binding obligation enforceable in accordance with its terms, subject to such customary exceptions regarding equitable principles and creditors' rights generally as shall be reasonably acceptable to the Collateral Agent, the Trustee and the Term Loan Agent, and the Collateral Documents are effective to create a valid and perfected security interest in such obligations, subject to customary exceptions, (B) either (1) that such instruments of conveyance, assignment and transfer as have been or are then delivered to the Collateral Agent are sufficient to subject to the Lien of the Collateral Documents all right, title and interest of the applicable Obligor in and to any property, other than cash or Cash Equivalents included in the consideration for the Released Interests and to be 19 19 received by the Collateral Agent pursuant to paragraph (iv) above, or (2) that no instruments of conveyance, assignment or transfer are necessary for such purpose, (C) that the applicable Obligor has corporate power to own all property included in the consideration for such release and (D) that all conditions precedent provided in the Indenture, the Term Loan Agreement and the Collateral Documents relating to the Asset Sale or Term Loan Asset Sale and such release of the Released Interests have been complied with; and (vi) Other Documents. All documentation required by Trust Indenture Act Section 314(d). (c) Other Release of Collateral. In the event PAI or PCAC desires to release any Collateral not otherwise permitted by Section 3.2(b) or 3.3 of this Agreement (the "Other Released Interest"), PAI or PCAC, as applicable, shall be entitled to obtain a release of such Collateral upon (x) the consent of the Majority Holders provided that such Majority Holders include Term Loan Lenders holding 100% of the aggregate outstanding principal amount of the Term Loan Notes (provided that for purposes of this Section there shall not be counted any interest in Notes or Term Loan Notes (A) for which (and to the extent that) there are at such time on deposit with the Collateral Agent, the Trustee or the Term Loan Agent amounts to be applied to the payment of principal thereof and (B) which are held by any of the Companies or any Affiliate of any of the Companies) and (y) delivery by PAAC to the Trustee, the Term Loan Agent and the Collateral Agent of the following: (i) Release Notice. A notice (each a "Release Notice" which shall (A) refer to this Section 3.2(c), (B) attach all the documents referred to below, (C) describe with particularity the Other Released Interest, (D) specify the fair market value of such Other Released Interest on a date within 60 days of the Release Notice (the "Other Valuation Date"), (E) certify that the purchase price to be received is not less than the fair market value of the Other Released Interest as of the date of the proposed release, (F) state that the release of the Other Released Interest will not interfere with or impede the Collateral Agent's ability to realize the value of the remaining Collateral and will not 20 20 impair the maintenance and operation of the remaining Collateral and (G) be accompanied by a counterpart of the instruments proposed to give effect to the release fully executed and acknowledged (if applicable) by all parties thereto other than the Collateral Agent. (ii) Officers' Certificate. An Officers' Certificate certifying that (A) such sale covers only the Other Released Interest, (B) all proceeds from the sale of the Other Released Interest will be deemed Trust Moneys (as hereinafter defined) and deposited into the Collateral Account to be applied pursuant to Article 4 hereof, (C) there is no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement in effect or continuing on the date thereof, the Other Valuation Date or the date of such sale, (D) the release of the Other Released Interests will not result in a Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement, (E) all conditions precedent to such release have been complied with, (F) requirements of Section 3.2(b)(iii) have been met with respect to the Other Released Interest, as if such Other Released Interest were a Released Interest. (iii) Proceeds of Asset Sale. The Collateral Proceeds (as defined in the Indenture) and the Term Loan Collateral Proceeds and other non-cash consideration received from the sale of the Other Released Interest shall be required to be delivered to the Collateral Agent to be deposited in the Collateral Account to be applied pursuant to Article 4 hereof; and if any property other than cash or Cash Equivalents (as defined in the Indenture and the Term Loan Agreement) is included in such consideration, such instruments of conveyance, assignment and transfer, if any, delivered to the Collateral Agent as may be necessary, in the opinion of counsel to the Collateral Agent, to subject to the Lien of the Collateral Documents all right, title and interest of the applicable Obligor in and to such property. (iv) Opinion. One or more Opinions of Counsel meeting the requirements of Section 3.2(b)(v). 21 21 At any time when an Event of Default under either the Indenture or the Term Loan Agreement shall have occurred and be continuing, no release of Collateral pursuant to the provisions of this Agreement or the other Collateral Documents shall be effective as against the Collateral Agent or the Secured Parties. (d) Release of New Collateral. The New Collateral shall be released by the Collateral Agent upon delivery by PAAC of an Officer's Certificate to the Trustee, the Term Loan Agent and the Collateral Agent that the conditions set forth in Section 1017 of the Indenture have been satisfied. 3.3 Disposition of Collateral Not Requiring Consent. (a) So long as no Event of Default under either the Indenture or the Term Loan Agreement shall have occurred and be continuing, PCAC may, without any consent by the Collateral Agent, sell or otherwise dispose of any Collateral the sale or disposition of which would not constitute an Asset Sale (as defined in the Indenture) or Term Loan Asset Sale by virtue of clauses (i) and (iv) of the definitions thereof; provided, that notwithstanding the foregoing, if any such Collateral consists of Real Property, PAAC shall deliver to the Trustee, the Term Loan Agent and the Collateral Agent an Officers' Certificate confirming that the requirements of Section 3.2(b)(iii) have been met and containing the statement set forth in Section 3.2(b)(i)(F). (b) In the event that PCAC has sold, exchanged, or otherwise disposed of or proposed to sell, exchange or otherwise dispose of any portion of the Collateral which under the provisions of this Section 3.3 may be sold, exchanged or otherwise disposed of by PCAC without any release or consent of the Collateral Agent, and PCAC requests in writing that the Collateral Agent furnish a written disclaimer, release or quit-claim of any interest in such property under any of the Collateral Documents, the Collateral Agent shall promptly execute such an instrument upon delivery to the Trustee, the Term Loan Agent and the Collateral Agent of (i) an Officers' Certificate by PCAC reciting the sale, exchange or other disposition made or proposed to be made and describing in reasonable detail the property affected thereby, and stating and demonstrating that such property is property which by the provisions of this Section 3.3 may be sold, exchanged or otherwise disposed of or dealt with 22 22 by PCAC without any release or consent of the Collateral Agent and (ii) an Opinion of Counsel stating that the sale, exchange or other disposition made or proposed to be made was duly made by PCAC in conformity with this Agreement and that the execution of such written disclaimer, release or quitclaim is appropriate to confirm the propriety of such sale, exchange or other disposition under this Section 3.3. Notwithstanding the preceding sentence, all purchasers and grantees of any property or rights purporting to be released herefrom shall be entitled to rely upon any release executed by the Collateral Agent hereunder as sufficient for the purposes hereof. 3.4 Eminent Domain and Other Governmental Takings. Subject to the provisions of the Collateral Documents, should any of the Collateral be taken by eminent domain or be sold pursuant to the exercise by the United States of America or any State, municipality or other governmental authority of any right which any of them may then have to purchase, or to designate a purchaser or to order a sale of, all or any part of the Collateral, the Collateral Agent shall release the property so taken or purchased, but only upon receipt by the Trustee, the Term Loan Agent and the Collateral Agent of the following: (a) Officers' Certificates. An Officers' Certificate stating that (i) such property has been taken by eminent domain and the amount of the award therefor, or that such property has been sold pursuant to a right vested in the United States of America or a state, municipality or other governmental authority to purchase, or to designate a purchaser or order a sale of such property and the amount of the proceeds of such sale, and (ii) that all conditions precedent herein provided for relating to such release have been complied with; (b) Proceeds of Taking. The proceeds of such taking or purchase, delivered to the Collateral Agent, to be held by the Collateral Agent and applied as provided herein; and (c) Opinion of Counsel. An Opinion of Counsel substantially to the effect: (i) that such property has been lawfully taken by exercise of the right of eminent domain, or has been sold 23 23 pursuant to the exercise of a right vested in the United States of America or a State, municipality or other governmental authority to purchase, or to designate a purchaser or order a sale of, such property; (ii) in the case of any taking by eminent domain, that the award for the property so taken has become final or that appeal from such award is not advisable in the interests of PAAC or the Secured Parties; (iii) in the case of any such sale, that the amount of the proceeds of the property so sold is not less than the amount to which PCAC is legally entitled under the terms of such right to purchase or designate a purchaser, or under the order or orders directing such sale, as the case may be; (iv) in the event that the award for such property or the proceeds of such sale, or a specified portion thereof, shall be certified to have been deposited with the trustee, mortgagee or other holder of a Lien which is permitted by the Collateral Documents to be prior to the Lien of the Collateral Documents, that the property to be released, or a specified portion thereof, is or immediately before such taking or purchase was subject to such prior Lien permitted by the Collateral Documents, and that such deposit is required by such prior Lien permitted by the Collateral Documents; and (v) that the instrument or the instruments and the award or proceeds of such sale which have been or are therewith delivered to and deposited with the Collateral Agent conform to the requirements of this Agreement and the other Collateral Documents and that, upon the basis of such application, the Collateral Agent is permitted by the terms hereof and of the other Collateral Documents to execute and deliver the release requested, and that all conditions precedent herein provided for relating to such release have been complied with. In any proceedings for the taking or purchase or sale of any part of the Collateral, by eminent domain or by virtue of any such right to purchase or designate a purchaser or to order a 24 24 sale, the Collateral Agent may be represented by counsel who may be counsel for PAAC. 3.5 Suits to Protect Collateral. Subject to the provisions hereof, the Majority Holders (provided that such Majority Holders include the Term Loan Majority Holders) shall have the right to direct the Collateral Agent, and if so directed, the Collateral Agent shall have the power, to institute and to maintain such suits and proceedings as such Majority Holders may deem expedient to prevent any impairment of the Collateral by any acts which may be unlawful or in violation of any of the Collateral Documents, and such suits and proceedings as such Majority Holders may deem expedient to preserve or protect their interests in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the Liens of the Collateral Agent in the Collateral or be prejudicial to the interests of the Secured Parties). 3.6 Purchaser Protected. In no event shall any purchaser in good faith of any property purported to be released hereunder be bound to ascertain the authority of the Collateral Agent to execute the release or to inquire as to the satisfaction of any conditions required by the provisions hereof for the exercise of such authority or to see to the application of any consideration given by such purchaser or other transferee; nor shall any purchaser or other transferee of any property or rights permitted by this Article 3 to be sold be under obligation to ascertain or inquire into the authority of PAI or PCAC to make any such sale or other transfer. 3.7 Powers Exercisable by Receiver or Trustee. In case the Collateral shall be in the possession of a receiver or trustee, lawfully appointed, the powers conferred in this Article 3 upon PAI and PCAC with respect to the release, sale or other disposition of such property may be exercised by such receiver or trustee, and an instrument signed by such receiver or trustee shall be deemed the equivalent of any similar instrument 25 25 of PAI or PCAC, as the case may be, or of any officer or officers thereof required by the provisions of this Article 3. 3.8 Determinations Relating to Collateral. In the event (i) the Collateral Agent shall receive any written request from PCAC or PAI under any Collateral Document for consent or approval with respect to any matter or thing relating to any Collateral or the obligations of any Obligor with respect thereto or (ii) there shall be due to or from the Collateral Agent under the provisions of any Collateral Document any performance or the delivery of any instrument or (iii) the Collateral Agent shall have actual knowledge of any nonperformance by any Obligor of any covenant or any breach of any representation or warranty of such Obligor set forth in any Collateral Document, then, in each such event, the Collateral Agent shall be entitled to hire experts, consultants, agents and attorneys to advise the Collateral Agent on the manner in which the Collateral Agent should respond to such request or render any requested performance or response to such nonperformance or breach. The Collateral Agent shall be fully protected in the taking of any action recommended or approved by any such expert, consultant, agent or attorney or agreed to by the Majority Holders and the Term Loan Note Majority Holders. 3.9 Form and Sufficiency of Release. In the event that PAI or PCAC has sold, exchanged, or otherwise disposed of or proposes to sell, exchange or otherwise dispose of any portion of the Collateral which under the provisions of this Article 3 may be sold, exchanged or otherwise disposed of by PAI or PCAC, and the applicable Obligor requests the Collateral Agent to furnish a written disclaimer, release or quitclaim of any interest in such property under any of the Collateral Documents, the Collateral Agent shall execute such an instrument promptly after satisfaction of the conditions set forth herein for delivery of such instrument. Notwithstanding the preceding sentence, all purchasers and grantees of any property or rights purporting to be released herefrom shall be entitled to rely upon any release executed by the Collateral Agent hereunder as sufficient for the purposes of this Indenture and as constituting a good and valid release of the property therein described from the Lien of this Indenture and the Collateral Documents. 26 26 3.10 Possession and Use of Collateral. Subject to and in accordance with the provisions of this Agreement and the other Collateral Documents, so long as no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement shall have occurred and be continuing, the Obligors shall have the right to remain in possession and retain exclusive control of the Collateral (other than Trust Moneys, as defined in Section 4.1 hereof, securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent hereunder or under the other Collateral Documents), to operate, manage, develop, use and enjoy the Collateral (other than Trust Moneys, securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent hereunder or under the other Collateral Documents) and to collect, receive, use, invest and dispose of the reversions, remainders, rates, interest, rents, issues, profits, revenues, proceeds and other income thereof (other than Trust Moneys, securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent hereunder or under the other Collateral Documents). 3.11 Additional Indebtedness and Additional Collateral. In the event that PAAC or the Subsidiary Guarantors incur additional Indebtedness (the "Additional Obligation") as permitted under Section 1008 of the Indenture and Section 7.2.2 of the Term Loan Agreement, and provided that (a) the assets or property acquired or constructed with the Additional Obligation (the "Additional Collateral") are pledged and a first priority mortgage or security interest (as applicable) therein is granted to the Collateral Agent to become a part of the Collateral securing the Secured Obligations on a pari passu basis, and the other conditions set forth in Section 1012(j) of the Indenture and clause (j) of Section 7.2.2 of the Term Loan Agreement are satisfied, and (b) the Collateral Agent shall have received an endorsement to its Title Policies insuring the continuing priority of the Mortgages as set forth in the Title Policies, then this Agreement shall be amended to add as Secured Parties the holders of the Additional Obligation or any trustee or other representative thereof (the "Additional Secured Party") and to permit the Additional Secured Party to exercise rights and remedies in accordance therewith, and the other Collateral 27 27 Documents will be amended to add the Additional Obligation to the definition of Secured Obligations therein. ARTICLE 4 APPLICATION OF TRUST MONEYS 4.1 "Trust Moneys" Defined. All cash or Cash Equivalents received by the Collateral Agent: (a) upon the release of property from the Lien of any of the Collateral Documents; or (b) as proceeds of insurance upon any, all or part of the Collateral (other than any liability insurance proceeds payable to either of the Secured Parties or to the Collateral Agent, respectively, for any loss, liability or expense incurred by it), including, without limitation, proceeds of any insurance received pursuant to subsection IV(q) of any Mortgage; or (c) as proceeds of any other sale or other disposition of all or any part of the Collateral by or on behalf of the Collateral Agent (including any proceeds received pursuant to subsection IV(q) of any Mortgage in respect of the sale or other disposition of all or any part of the Collateral taken by eminent domain or purchased by, or sold pursuant to any order of a governmental authority) or any collection, recovery, receipt, appropriation or other realization of or from all or any part of the Collateral pursuant to the Collateral Documents or otherwise; or (d) for application under this Article 4 as elsewhere provided in this Agreement or the other Collateral Documents, or whose disposition is not elsewhere otherwise specifically provided for herein or in the Collateral Documents; (all such moneys being herein sometimes called "Trust Moneys") shall be subject to a Lien and security interest in favor of the Collateral Agent and shall be held by the Collateral Agent in the Collateral Account for the benefit of the Secured Parties as a part of the Collateral. 28 28 The Collateral Agent shall apply such amount or proceeds as soon as practicable after receipt as follows: FIRST: To the Collateral Agent in an amount equal to the Collateral Agent's Fees which are unpaid as of the applicable Distribution Date and to any Secured Party which has theretofore advanced or paid any such Collateral Agent's Fees in an amount equal to the amount thereof so advanced or paid by such Secured Party and to reimburse to the Collateral Agent and any Secured Party the amount of any advance made pursuant to Section 2.4 (with interest thereon at the rate initially borne by the Notes or the Term Loan Notes, as applicable); SECOND: Provided that no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement shall have occurred and be continuing, (i) any such Trust Moneys constituting Insurance Proceeds or Net Awards may be withdrawn by PAAC or PCAC pursuant to Section 4.2 hereof to be applied to effect a Restoration in accordance with the applicable Mortgage; (ii) in accordance with the terms of Section 1009 of the Indenture governing Net Proceeds and Section 7.2.6 of the Term Loan Agreement governing Net Proceeds (as defined in the Term Loan Agreement as in effect on the date hereof), any such Trust Moneys constituting Collateral Proceeds (as defined in the Indenture) or Term Loan Collateral Proceeds, Insurance Proceeds or Net Awards may be withdrawn by PAAC pursuant to Sections 4.3 or 4.4 hereof to be applied to a reinvestment in PAAC or in one of its Subsidiaries that is a Restricted Subsidiary for purposes of both the Indenture and the Term Loan Agreement in a Related Business (as defined in the Indenture as in effect on the date hereof) or to the permanent repayment or prepayment of any Senior Indebtedness (as defined in the Indenture as in effect on the date hereof) then outstanding; and (iii) any such Trust Moneys not so withdrawn and applied shall be transferred by the Collateral Agent to the Trustee and shall thereupon become Excess Proceeds which shall be used to make an Asset Sale Offer pursuant to Section 1009 of the Indenture. 29 29 4.2 Withdrawals of Insurance Proceeds and Net Awards for Restoration. To the extent that any Trust Moneys consist of either Insurance Proceeds or Net Awards received by the Collateral Agent pursuant to subsection IV(q) of any Mortgage and such Insurance Proceeds or Net Awards may be applied by PAAC to effect a Restoration of the affected Collateral, such Trust Moneys may be withdrawn by PAAC and shall be paid by the Collateral Agent, upon a request by a Company Order (as defined in the Indenture as in effect on the date hereof) to reimburse the applicable Obligor for expenditures made, or to pay costs incurred, by such Obligor to repair, rebuild or replace the Collateral destroyed, damaged or taken, upon receipt by the Trustee, the Term Loan Agent and the Collateral Agent of the following: (a) Officers' Certificate. An Officers' Certificate of PAAC, dated not more than 30 days prior to the date of the application for the withdrawal and payment of such Trust Moneys: (i) that expenditures have been made, or costs incurred, by the Obligor in a specified amount for the purpose of making certain repairs, rebuildings and replacements of the Collateral, which shall be briefly described, and stating the fair market value thereof at the date of the expenditure or incurrence thereof by PAAC or PCAC; (ii) that no part of such expenditures or costs has been or is being made the basis for the withdrawal of any Trust Moneys in any previous or then pending application pursuant to this Agreement; (iii) that there is no outstanding Indebtedness (as defined in the Indenture as in effect on the date hereof) other than costs for which payment is being requested, for the purchase price or construction of such repairs, rebuildings or replacements, or for labor, wages, materials or supplies in connection with the making thereof, which, if unpaid, might become the basis of a vendor's, mechanic's, laborer's, materialman's statutory or other similar Lien upon any Collateral; 30 30 (iv) that the property to be repaired, rebuilt or replaced is necessary or desirable in the conduct of PAAC's business; (v) whether any part of such repairs, rebuildings or replacements within six months before the date of acquisition thereof by the Obligor has been used or operated by any person other than such Obligor in a business similar to that in which such property has been or is to be used or operated by such Obligor, and whether the fair value to such Obligor, at the date of such acquisition, of such part of such repairs, rebuildings or replacement is more than $25,000; (vi) that no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement shall have occurred and be continuing; and (vii) that all conditions precedent provided for herein and in the Indenture and the Term Loan Agreement (if any) relating to such withdrawal and payment have been complied with; (b) Opinion of Counsel. An Opinion of Counsel substantially stating: (i) that the instruments that have been or are therewith delivered to the Collateral Agent, the Trustee and the Term Loan Agent conform to the requirements of this Agreement and the other Collateral Documents, and that, upon the basis of such request of PAAC and the accompanying documents specified in this Section 4.2, all conditions precedent provided for herein and in the Indenture and the Term Loan Agreement (if any) relating to such withdrawal and payment have been complied with, and the Trust Moneys whose withdrawal is then requested may be lawfully paid over under this Section 4.2; (ii) that the Collateral Agent has a valid and perfected lien on such repairs, rebuildings and replacements, that the same and every part thereof are 31 31 subject to no Liens prior to the Lien of the Collateral Documents, except Liens permitted under the Collateral Documents to which the property so destroyed or damaged shall have been subject at the time of such destruction or damage; and (iii) that all of the Obligor's right, title and interest in and to said repairs, rebuildings or replacements, or combination thereof, are then subject to the Lien of the Collateral Documents; (c) Architect's Certificate. An Architect's Certificate (as defined in the applicable Mortgage) stating: (i) that all Restoration work to which such request relates has been done in compliance with the approved Plans and Specifications (as defined in the applicable Mortgage) and in accordance with all provisions of law; (ii) the sums requested are required to reimburse the Obligor for payments by such Obligor to, or are due to, the contractors, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services or materials for the Restoration, and that, when added to the sums, if any, previously paid out by the Collateral Agent, such sums do not exceed the cost of the Restoration to the date of such Architect's Certificate; (iii) whether or not the Estimate (as defined in the applicable Mortgage) continues to be accurate, and if not, what the entire cost of such Restoration is then estimated to be; and (iv) that the amount of the Insurance Proceeds or Net Awards, as the case may be, plus any amount received by the Collateral Agent under an Additional Undertaking (as defined in the applicable Mortgage) remaining after giving effect to such payment, will be sufficient on completion of the Restoration to pay for the same in full (including, in detail, an estimate by trade of the remaining costs of completion); 32 32 (d) Final Request Documentation. If such request is the final request for any payment, in addition to the documentation required by (a), (b) and (c) above, such request shall be accompanied by: (i) an Opinion of Counsel or a title insurance policy, binder or endorsement satisfactory to the Collateral Agent confirming that there has not been filed with respect to all or any part of the applicable Mortgaged Property any Lien which is not either discharged of record or bonded and which could have priority over the Lien of the applicable Mortgage; and (ii) an Officers' Certificate stating that all occupancy certificates, operating and other permits, licenses, waivers, other documents, or any combination of the foregoing required by law in connection with or as a result of such Restoration have been obtained; and (e) Other Documents. All documentation required under Trust Indenture Act Section 314(d). Upon compliance with the foregoing provisions of this Section 4.2, the Collateral Agent shall pay on the written request of the applicable Obligor, as the case may be, an amount of Trust Moneys of the character aforesaid equal to the amount of the expenditures or costs stated in the Officers' Certificate required by clause (i) of subsection (a) of this Section 4.2, or the fair value to such Obligor, as the case may be, of such repairs, rebuildings and replacements covered by such Officers' Certificate, whichever is less. 4.3 Withdrawal of Trust Moneys on Basis of Retirement of Securities or other Senior Indebtedness. (a) Except with respect to Trust Moneys subject to release pursuant to Section 4.3(b) and Section 4.4 hereof, and as otherwise permitted by the Collateral Documents, (x) the Collateral Agent shall transfer to the Term Loan Agent, at the written direction of PAAC, and the Term Loan Agent shall apply, Trust Moneys from time to time to the payment of the principal of and interest on any Term Loan Notes then due and payable or to the prepayment thereof, including, without limitation, pursuant to a Change of Control 33 33 (as defined in the Term Loan Agreement) or a Term Loan Asset Sale, or (y) the Collateral Agent shall apply, at the direction of the Obligors, Trust Moneys from time to time to the permanent repayment or prepayment of Senior Indebtedness (as defined in the Indenture as in effect on the date hereof) in accordance with its terms and pursuant to Section 7.2.6 of the Term Loan Agreement and Section 1009 of the Indenture, in each case as the Obligors shall request in writing, upon receipt by the Trustee, the Term Loan Agent and the Collateral Agent of the following: (i) Board Resolution. Board Resolutions of each of the Obligors directing the application pursuant to this Section 4.3 of a specified amount of Trust Moneys and (A) if any such moneys are to be applied to the payment of Term Loan Notes and/or Securities, designating the Term Loan Notes and/or Securities so to be paid and, in case any such moneys are to be applied to the prepayment or purchase of Term Loan Notes and/or Securities, prescribing the method of prepayment or purchase, the price or prices to be paid and the maximum principal amount of Term Loan Notes and/or Securities to be prepaid or purchased and any other provisions of this Agreement, the Term Loan Agreement or the Indenture governing such prepayment or purchase, and (B) in case any such moneys are to be applied to the payment of other Senior Indebtedness, specifying such other Senior Indebtedness and the principal amount thereof to be paid, together with payment instructions therefor; (ii) Purchase Price. Cash in the maximum amount of the accrued interest, if any, required to be paid in connection with any such payment, prepayment or purchase, which cash shall be held by the Collateral Agent, in trust for such purpose; (iii) Officers' Certificate. An Officers' Certificate, dated not more than five Business Days prior to the date of the relevant application, stating (A) that no Default under either this Indenture or the Term Loan Agreement or Event of Default under either this Indenture or the Term Loan Agreement exists unless such Default or Event of Default would be cured thereby and that no such Default or Event of Default would result from such application, and 34 34 (B) that all conditions precedent and covenants provided for herein and in the Indenture and the Term Loan Agreement (if any) relating to such application of Trust Moneys have been complied with; and (iv) Opinion of Counsel. An Opinion of Counsel stating that the documents and the cash or Cash Equivalents (as defined in the Indenture as in effect on the date hereof), if any, which have been or are therewith delivered to and deposited with the Collateral Agent, the Term Loan Agent or the Trustee conform to the requirements of the Indenture and that all conditions precedent provided for herein and in the Term Loan Agreement and the Indenture relating to such application of Trust Moneys have been complied with. Upon compliance with the foregoing provisions of this Section 4.3(a), the Collateral Agent shall apply Trust Moneys as directed and specified by such Board Resolution, up to, but not exceeding, the principal amount of the Term Loan Notes, Securities or other Senior Indebtedness so paid, prepaid or purchased, using the cash deposited pursuant to paragraph (ii) of this Section 4.3(a), to the extent necessary, to pay any accrued interest required in connection with such payment, prepayment or purchase. (b) To the extent that any Trust Moneys consist of (i) Term Loan Collateral Proceeds received by the Collateral Agent that result in the requirement to prepay principal in respect of the Term Loan Notes pursuant to Section 7.2.6 of the Term Loan Agreement and a Term Loan Lender refuses any such prepayment or (ii) Collateral Proceeds received by the Collateral Agent that result in the requirement pursuant to Section 1009 of the Indenture to make an Asset Sale Offer (as defined in the Indenture) and PAAC has made such Asset Sale Offer which is not fully subscribed to by the Holders (as defined in the Indenture), the Trust Moneys remaining after completion of such prepayment or Asset Sale Offer may be withdrawn by PAAC and shall be paid by the Collateral Agent to PCAC (or as otherwise directed by the Obligors) upon a Company Order to the Collateral Agent and upon receipt by the Secured Parties and the Collateral Agent of the following: 35 35 (i) Notice. A notice which shall (A) refer to this Section 4.3(b) and (B) describe with particularity the Asset Sale or Term Loan Asset Sale or the destruction or condemnation in respect of which such Trust Moneys were held as Collateral, the amount of Trust Moneys applied to the prepayment of principal in respect of Term Loan Notes or the purchase of Securities pursuant to the Asset Sale Offer and the remaining amount of Trust Moneys to be released to PAAC; (ii) Officers' Certificate. An Officer's Certificate certifying that (A) the release of the Trust Moneys complies with the terms and conditions of Section 1009 of the Indenture and Section 7.2.6 of the Term Loan Agreement, (B) there is no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement in effect or continuing on the date thereof, (C) the release of the Trust Moneys will not result in a Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement, and (D) all conditions precedent and covenants provided for herein and in the Indenture and the Term Loan Agreement (if any) relating to such release have been complied with; (iii) Opinion of Counsel. An Opinion of Counsel stating that the documents that have been or are therewith delivered to the Collateral Agent or the Secured Parties conform to the requirements of this Agreement and that all conditions precedent provided for herein and in the Indenture and the Term Loan Agreement (if any) relating to such application of Trust Moneys have been complied with; and (iv) Other Documents. All documentation required under Trust Indenture Act Section 314(d). 4.4 Withdrawal of Trust Moneys for Reinvestment. To the extent that any Trust Moneys consist of Term Loan Collateral Proceeds received by the Collateral Agent pursuant to the provisions hereof and to the extent the aggregate amount of such Term Loan Collateral Proceeds since the date hereof (when added to the aggregate amount of other Net Proceeds of Term Loan Asset 36 36 Sales since the date hereof) does not exceed $35,000,000, or to the extent that any Trust Moneys consist of Collateral Proceeds received by the Collateral Agent pursuant to the provisions of Section 1009 of the Indenture, and PAAC intends to reinvest such Term Loan Collateral Proceeds in PAAC or in one or more Restricted Subsidiaries in a Related Business (the "Released Trust Moneys"), such Trust Moneys may be withdrawn by PAAC and shall be paid by the Collateral Agent to PAAC (or as otherwise directed by PAAC) upon a Company Order to the Trustee and the Collateral Agent and upon receipt by the Trustee, the Agent Bank and the Collateral Agent of the following: (a) Notice. A notice which shall (i) refer to this Section 4.4, (ii) contain all documents referred to below, (iii) describe with particularity the Released Trust Moneys and the Term Loan Asset Sale from which such Released Trust Moneys were held as Collateral, (iv) describe with particularity the investment to be made with respect to the Released Trust Moneys and (v) be accompanied by a counterpart of the instruments proposed to give effect to the release fully executed and acknowledged (if applicable) by all parties thereto other than the Collateral Agent; (b) Officers' Certificate. An Officer's Certificate certifying that (i) the release of the Released Trust Moneys complies with the terms and conditions of Section 7.2.6 of the Term Loan Agreement and Section 1009 of the Indenture, (ii) there is no Default either under the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement in effect or continuing on the date thereof, (iii) the release of the Released Trust Moneys will not result in a Default either under the Indenture or the Term Loan Agreement or Event of Default either under the Indenture or the Term Loan Agreement, (iv) the parties executing any and all documents required under this Section 4.4 were duly authorized to do so, and (v) all conditions precedent and covenants provided for herein and in the Indenture and Term Loan Agreement (if any) relating to such release and application of the Released Trust Moneys have been complied with; (c) Real Property Investment Documentation. If the Released Trust Moneys are to be invested in Real Property: 37 37 (i) a Mortgage or other instrument or instruments in recordable form sufficient to grant to the Collateral Agent for the benefit of the Secured Parties (A) substantially the same rights and remedies in respect of such Real Property as granted thereto under the Mortgages executed and delivered on the date hereof and (B) a valid first priority mortgage Lien on such Real Property subject to no Liens other than Excepted Liens permitted under the Mortgages delivered on the date hereof and, if the Real Property is a leasehold or easement interest, such Mortgage or other instrument or instruments shall include normal and customary provisions with respect thereto, in each case together with evidence of the filing of all such financing statements and other instruments as may be necessary to perfect such Lien; (ii) a policy of title insurance (or a paid commitment to issue title insurance) insuring that the Lien of the instruments delivered pursuant to clause (i) above constitutes a valid and perfected first priority mortgage Lien on such Real Property in an aggregate amount equal to the lesser of the fair market value of the Real Property and the then outstanding principal amount of the Secured Obligations, together with an Officers' Certificate stating that any specific exceptions to such title insurance are Excepted Liens, together with such endorsements and other opinions of the type included in the title insurance policy or otherwise delivered to the Collateral Agent on the date hereof with respect to the Mortgaged Property; (iii) in the event such Real Property has a fair market value in excess of $250,000, a Survey with respect thereto; (iv) evidence of payment or a closing statement indicating payments to be made by the applicable Obligor of all title premiums, recording charges, transfer taxes and other costs and expenses, including reasonable legal fees and disbursements of counsel for the Collateral Agent (and any local counsel), that may be incurred to validly and effectively subject the Real Property to the Lien of any applicable Collateral Document to perfect such Lien; 38 38 (v) an Officers' Certificate stating that PAAC has caused there to be conducted by a reputable expert a review and analysis of the environmental conditions relating to such Real Property and that, in the reasonable and good faith judgment of the issuer thereof such Real Property does not contain any conditions which would cause a prudent institutional lender to decline to fund loans secured by such Real Property, together with a copy of the written report of such expert; and (vi) such further documents, opinions, certificates or instruments (including, without limitation (A) policies or certificates of insurance, (B) Uniform Commercial Code, judgment and tax lien searches, (C) consents, approvals, estoppels and tenant subordination agreements and (D) Officers' Certificates in respect of compliance with local codes or ordinances relating to building or fire safety or structural soundness and the adequacy of utility services) as are customarily provided to institutional mortgage lenders and as the Collateral Agent, the Trustee or Term Loan Agent may require; (d) Personal Property Investment Documentation. If the Released Trust Moneys are not invested in Real Property: (i) an instrument sufficient to grant to the Collateral Agent, for the benefit of the Secured Parties (A) substantially the same rights and remedies in respect of such personal property interest as granted thereto under the Collateral Documents executed and delivered on the date hereof and (B) a valid first priority Lien on such personal property interest subject to no Liens other than Liens permitted under such instrument, together with evidence of the filing of such financing statements and other instruments as may be necessary to perfect such Liens, provided that in no event shall the Collateral Agent be granted any security interests in any Obligor Collateral; and (ii) evidence of payment or a closing statement indicating payments to be made by the applicable Obligor of all filing fees, recording charges, transfer taxes and other 39 39 costs and expenses, including reasonable legal fees and disbursements of counsel for the Collateral Agent (and any local counsel), that may be incurred to validly and effectively subject such personal property to the Lien of any Collateral Document; (e) Opinion of Counsel. An Opinion of Counsel stating that the documents that have been or are therewith delivered to the Collateral Agent or the Secured Parties are enforceable (subject to customary exceptions), create the Liens purported to be created thereby, have been duly authorized, executed and delivered and do not conflict with any other agreements, conform to the requirements of this Agreement and that all conditions precedent provided for herein and in the Indenture and Term Loan Agreement (if any) relating to such application of Trust Moneys have been complied with; and (f) Other Documentation. All documentation required under Trust Indenture Act Section 314(d). Upon compliance with the foregoing provisions of this Section, the Collateral Agent, at the direction of the Trustee, shall apply or cause to be applied the Released Trust Moneys as directed and specified by PAAC. 4.5 Powers Exercisable Notwithstanding Default or Event of Default. In case a Default either under the Indenture or the Term Loan Agreement or an Event of Default either under the Indenture or the Term Loan Agreement shall have occurred and shall be continuing, the Obligors, while in possession of the Collateral (other than cash, Cash Equivalents (as defined in the Indenture as in effect on the date hereof), securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent hereunder or under the Collateral Documents), may do any of the things enumerated in Sections 4.2, 4.3 and 4.4 hereof if the Majority Holders and Term Loan Note Majority Holders shall consent to such action, in which event any certificate filed under any of such Sections shall omit the statement to the effect that no Default either under the Indenture or the Term Loan Agreement or Event of Default either under the Indenture or the Term Loan Agreement has occurred and is continuing. This Section 4.5 shall not apply, however, during 40 40 the continuance of an Event of Default (as defined in the Indenture) of the type specified in Section 501(1) or (2) of the Indenture or an Event of Default (as defined in the Term Loan Agreement) of the type specified in Section 8.1.1 of the Term Loan Agreement. 4.6 Powers Exercisable by Trustee or Receiver. In case the Collateral (other than any cash, Cash Equivalents, securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent hereunder or under the Collateral Documents) shall be in the possession of a receiver or trustee lawfully appointed, the powers hereinbefore in this Article 4 conferred upon the Obligors with respect to the withdrawal or application of Trust Moneys may be exercised by such receiver or trustee, in which case a certificate signed by such receiver or trustee shall be deemed the equivalent of any Officers' Certificate required by this Article. If the Collateral Agent shall be in possession of any of the Collateral hereunder or under any of the Collateral Documents, such powers may be exercised by the Collateral Agent in its discretion, provided, however, that the Collateral Agent shall not be required to exercise any such powers. ARTICLE 5 COLLATERAL ACCOUNT 5.1 Collateral Account. The Collateral Agent shall establish and maintain until all amounts due to all Secured Parties have been paid to such Secured Parties, at the office of its corporate trust division, a separate collateral trust account (the "Collateral Account"), which may be a notional account, for the benefit of the Secured Parties. All funds on deposit in the Collateral Account shall be held, applied and disbursed by the Collateral Agent as part of the Trust Estate in accordance with the terms of this Agreement. 5.2 Investment of Funds. The Collateral Agent shall invest and reinvest moneys on deposit in the Collateral Account at any time in Eligible Investments (as defined in the Indenture as in effect on the date hereof) as directed in a writing from 41 41 the Companies. The Companies shall bear the risk of loss on any such investment (including loss of principal) made hereunder and shall, upon demand of the Collateral Agent, deliver immediately available funds to the Collateral Agent in an amount equal to such loss or losses. ARTICLE 6 APPLICATION OF CERTAIN AMOUNTS UPON DEFAULT 6.1 Application of Trust Moneys upon Default. (a) If a Default either under the Indenture or the Term Loan Agreement or an Event of Default either under the Indenture or the Term Loan Agreement has occurred and is continuing, and either the Indenture Obligation or the Term Loan Obligation has been accelerated, then upon the instructions of either the Note Majority Holders or the Term Loan Note Majority Holders, the Collateral Agent shall, as soon as practicable, apply the Trust Moneys and any Insurance Proceeds, Net Awards, Rents (as defined in the Mortgages) or other amounts or proceeds from the sale or other disposition of or realization upon any Collateral (including proceeds of any claim under the Title Policies) as follows: first to the Collateral Agent's Fees and thereafter (i) to the Trustee in an amount equal to the product of (x) the total amount available for distribution on such Distribution Date under this Section 6.1 (such amount, "Total Net Proceeds") and (y) the Trustee's Pro Rata Share as of such Distribution Date and (ii) to the Term Loan Agent in an amount equal to the product of (x) Total Net Proceeds and (y) the Term Loan Agent's Pro Rata Share as of such Distribution Date. (b) Upon payment in full of all Collateral Agent's Fees and all Secured Obligations, any balance shall be paid by the Collateral Agent to PAAC or the successors or assigns of PAAC, as their interests may appear, or to such Person who may be lawfully entitled to receive the same. 6.2 Payment Provisions. For the purposes of Section 6.1, all interest accrued and unpaid on any of the Secured Obligations pursuant to the terms of any Debt Instrument shall, as between the Secured Parties and irrespective of whether 42 42 recognized or allowed by any bankruptcy proceeding, be treated as due and owing on the Secured Obligations. 6.3 Foreclosure of Less than the Total Secured Obligations. In the event that the Collateral Agent is not authorized pursuant to Section 2.2(b) to accelerate the Secured Obligations as a whole in connection with an exercise of remedies with respect to the Collateral, and the Trustee or the Term Loan Agent, as the case may be, does not otherwise accelerate its respective obligation prior to the exercise of remedies by the Collateral Agent under the applicable Mortgage, the proceeds of such exercise of remedies shall be applied, notwithstanding Section 6.1, solely to the obligation being accelerated. ARTICLE 7 AGREEMENTS WITH COLLATERAL AGENT 7.1 Delivery of Debt Instruments. On the date hereof, each of the Companies shall deliver to the Collateral Agent a true and complete copy of each document evidencing or securing the Term Loan Obligation and the Indenture Obligation to which it is a party as in effect on the date hereof. Promptly upon the execution thereof, each of the Companies shall deliver to the Collateral Agent a true and complete copy of any and all amendments, modifications or supplements of or to any of the foregoing to which it is a party and copies of any such document or agreement it hereafter delivers. 7.2 Information as to Holders. The Companies shall deliver to the Collateral Agent on or before each anniversary of the date of this Agreement, and from time to time upon request of the Collateral Agent, a list setting forth, for the Term Loan Agreement and for the Indenture, (i) the aggregate principal amount outstanding thereunder, (ii) the interest rate or rates then in effect thereunder, and (iii) to the extent known to the Companies, the names of the Term Loan Lenders and Holders and the unpaid principal amount owing to each. The Companies shall furnish to the Collateral Agent within 30 days after the date hereof a list setting forth the name and address of each party to whom notices must be sent under the Term Loan Agreement and the 43 43 Indenture, respectively, and the Companies shall furnish promptly to the Collateral Agent any changes or additions to such list. 7.3 Compensation and Expenses. The Companies shall pay to the Collateral Agent, from time to time upon demand, (i) compensation (which shall be reasonable and not in excess of the Collateral Agent's customary compensation for similar services and shall not be limited by any provision of law in regard to compensation of a trustee of an express trust) for its services hereunder and for administering the Trust Estate and (ii) all of the fees, costs and expenses of the Collateral Agent (including, without limitation, the reasonable fees and disbursements of its counsel) (a) arising in connection with the preparation, execution, delivery, modification and termination of this Agreement, and the enforcement of any provisions hereof, or (b) incurred or required to be advanced in connection with the administration of the Trust Estate, and the preservation, protection or defense of the Collateral Agent's rights under this Agreement under the Collateral Documents and in and to the Collateral and the Trust Estate. The obligations of the Companies under this Section 7.3 shall survive the termination of the other provisions of this Agreement. 7.4 Stamp and Other Similar Taxes. The Companies shall indemnify and hold harmless the Collateral Agent and each Secured Party (and each Person for whom any Secured Party acts as trustee, agent or fiduciary) from any present or future claim for liability for any mortgage, stamp, recording, intangibles or other similar tax and any penalties or interest with respect thereto, which may be assessed, levied or collected by any jurisdiction in connection with this Agreement, any Collateral Document or any Secured Obligation. The obligations of the Companies under this Section 7.4 shall survive the termination of the other provisions of this Agreement. 7.5 Filing Fees, Excise Taxes, etc. The Companies shall pay or reimburse the Collateral Agent for any and all amounts in respect of all search, filing, intangibles, transfer, recording and registration fees, taxes, excise taxes and other similar imposts which may be payable or determined to be payable in respect of the execution, delivery, performance and enforcement of this Agreement, any Collateral Document or any 44 44 Secured Obligation to the extent the same may be paid or reimbursed by the Companies without subjecting the Collateral Agent or any Secured Party to any civil or criminal liability. The obligations of the Companies under this Section 7.5 shall survive the termination of the other provisions of this Agreement. 7.6 Indemnification. (a) The Companies agree to pay, indemnify, and hold the Collateral Agent harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and the Collateral Documents unless arising from the gross negligence or willful misconduct of the Collateral Agent. (b) In any suit, proceeding or action brought by the Collateral Agent with respect to the Collateral or for any sum owing in respect of Secured Obligations, or to enforce the provisions of any Collateral Document, the Companies shall save, indemnify and keep the Collateral Agent harmless from and against all expenses, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction of liability whatsoever incurred or suffered by the Collateral Agent arising out of a breach by the Companies of any obligation set forth in this Agreement, and all such obligations of the Companies shall be and remain enforceable against and only against the Companies. The provisions of this Section 7.6 shall survive the termination of the other provisions of this Agreement. 7.7 Further Assurances. At any time and from time to time, upon the written request of the Collateral Agent, and at the expense of the Companies, the Companies shall promptly execute and deliver any and all such further instruments and documents and take such further action as the Collateral Agent reasonably deems necessary or desirable in obtaining the full benefits intended to be provided by this Agreement. 45 45 ARTICLE 8 COLLATERAL AGENT 8.1 Acceptance of Trust. The Collateral Agent, for itself and its successors, hereby accepts the trust created by this Agreement upon the terms and conditions hereof. The Collateral Agent's duties in respect of the Trust Estate shall include, without limitation, the review of applications of PCAC, PAI or others for consents, waivers, releases or other matters relating to the Trust Estate or the Collateral and the prosecution following any Event of Default under either the Indenture or the Term Loan Agreement of any action or proceeding or the taking of any nonjudicial remedial action as shall be determined to be required pursuant to Sections 2.2 and 2.3. The Collateral Agent shall forward copies of any written communication it receives from the Companies to the Secured Parties. 8.2 Exculpatory Provisions. (a) The Collateral Agent shall not be responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties made by the Companies herein or in any other Collateral Document. The Collateral Agent makes no representations as to the value or condition of the Trust Estate or any part thereof, or as to the title of PCAC or PAI, as applicable, thereto or as to the security afforded by the Collateral Documents or this Agreement or as to the validity, execution (except its own execution thereof), enforceability, legality or sufficiency of the Collateral Documents or this Agreement or of the Secured Obligations, and the Collateral Agent shall incur no liability or responsibility in respect of any such matters. The Collateral Agent shall not be responsible for insuring the Trust Estate or for the payment of taxes, charges, assessments or Liens upon the Trust Estate, except that, subject to the provisions of Section 8.4(c), in the event the Collateral Agent enters into possession of a part or all of the Collateral, the Collateral Agent shall use reasonable efforts to preserve the part in its possession. (b) The Collateral Agent shall not be required to ascertain or inquire as to the performance by any Obligor of any of the covenants or agreements contained herein, in any Collateral Document or in any Debt Instrument or other document 46 46 evidencing or securing the Secured Obligations. Whenever it is necessary, or in the opinion of the Collateral Agent advisable, for the Collateral Agent to ascertain the amount of Secured Obligations then held by a Secured Party (or any Person for whom a Secured Part acts as trustee, agent or fiduciary), the Collateral Agent may rely on a certificate as to such amount from any trustee, agent or fiduciary constituting or representing such Secured Party and if any such Secured Party shall not provide such information to the Collateral Agent, such Secured Party shall not be entitled to receive payments hereunder (in which case the amounts otherwise payable to such Secured Party shall be held in trust for such Secured Party in the Collateral Account) until such Secured Party has provided such information to the Collateral Agent. (c) The Collateral Agent shall not be personally liable for any action taken or omitted to be taken by it in accordance with this Agreement or any Collateral Document or any Debt Instrument or other document evidencing or securing the Secured Obligations except for its own gross negligence or willful misconduct. 8.3 Delegation of Duties. The Collateral Agent may execute any of the trusts or powers hereof and perform any duty hereunder either directly or by or through agents or attorneys-in-fact. The Collateral Agent shall be entitled to advice of counsel concerning all matters pertaining to such trusts, powers and duties. The Collateral Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it without gross negligence of willful misconduct in the employment of such agents or attorneys-in-fact. 8.4 Reliance by the Collateral Agent. (a) The Collateral Agent may consult with counsel, and any opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in accordance therewith. The Collateral Agent shall have the right at any time to seek instructions concerning the administration of the Trust Estate from any court of competent jurisdiction. 47 47 (b) The Collateral Agent may rely, and shall be fully protected in acting, upon any resolution, statement, certificate, instrument, opinion, direction, instruction, report, notice, request, consent, order, bond or other paper or document which it has no reason to believe to be other than genuine and to have been signed or presented by the proper party or parties or, in the case of cables, telecopies and telexes, to have been sent by the proper party or parties. In the absence of its gross negligence or willful misconduct, the Collateral Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Collateral Agent and conforming to the requirements of this Agreement or any Collateral Document. (c) The Collateral Agent shall not be under any obligation to exercise any of the rights or powers vested in the Collateral Agent by this Agreement unless the Collateral Agent shall have been provided adequate security and indemnity against the costs, expenses and liabilities that may be incurred by it in compliance with such request or direction, including, without limitation, such reasonable advances as may be requested by the Collateral Agent. Nothing in this Agreement shall obligate any Secured Party or any Person for whom a Secured Party acts as trustee, agent or fiduciary, as applicable to provide any such security or indemnity or to make any such advance unless such Secured Party or Person agrees to do so, in its sole discretion. 8.5 Resignation or Removal of the Collateral Agent. (a) The Collateral Agent may at any time, (i) by giving 60 days' prior written notice to the Secured Parties and the Companies, resign and be discharged of the responsibilities hereby created, such resignation to become effective upon the appointment of a successor collateral agent or collateral agents by the Majority Holders and the acceptance of such appointment by such successor collateral agent or collateral agents or (ii) be removed from its capacity as the Collateral Agent with or without cause by the Majority Holders. If no successor collateral agent or collateral agents shall be appointed and approved within 60 days from the date of the giving of the aforesaid notice of resignation or within 60 days from the date of such removal, the Collateral Agent (notwithstanding the termination of all of its other duties 48 48 and obligations hereunder by reason of such resignation or such removal) shall, or any Secured Party may, apply to any court of competent jurisdiction to appoint a successor collateral agent or collateral agents to act hereunder. Any successor collateral agent or collateral agents so appointed by such court shall immediately and without further act be superseded by any successor collateral agent or collateral agents appointed by the Majority Holders upon the acceptance of such appointment by such successor collateral agent or collateral agents. (b) If at any time the Collateral Agent shall resign or otherwise become incapable of acting, or if at any time a vacancy shall occur in the office of the Collateral Agent by virtue of the removal of the Collateral Agent pursuant to clause (ii) of Section 8.5(a) or for any other cause, a successor collateral agent or collateral agents may be appointed by the Majority Holders, and the powers, duties, authority and title of the predecessor collateral agent or collateral agents shall be terminated and cancelled without procuring the resignation of such predecessor collateral agent or collateral agents, and without any other formality (except as may be required by applicable law). (c) The appointment and designation referred to in subsection 8.5(b) shall, after any required filing, be full evidence of the right and authority to make the same and of all the facts therein recited, and this Agreement shall vest in such successor collateral agent or collateral agents, without any further act, deed or conveyance, all of the estate and title of its predecessor or their predecessors, and upon such filing for record the successor collateral agent or collateral agents shall become fully vested with all the estates, properties, rights, powers, trusts, duties, authority and title of its predecessor or their predecessors; but such predecessor or predecessors shall, nevertheless, on the written request of the Majority Holders, the Companies or its or their successor collateral agent or collateral agents, execute and deliver an instrument transferring to such successor or successors all the estates, properties, rights, powers, trusts, duties, authority and title of such predecessor or predecessors hereunder. Each such predecessor or predecessors shall deliver all securities and moneys held by it or them to such successor collateral agent or collateral agents. 49 49 (d) Any required filing for record of the instrument appointing a successor collateral agent or collateral agents as hereinabove provided shall be at the expense of the Companies. The resignation of any collateral agent or collateral agents and the instrument or instruments removing any collateral agent or collateral agents, together with all other instruments, deeds and conveyances provided for in this Article 8 shall, if required by law, be forthwith recorded, registered and filed by and at the expense of the Companies, wherever this Agreement is recorded, registered and filed. 8.6 Status of Successors to the Collateral Agent. Every successor to the Collateral Agent appointed pursuant to Section 8.5 shall be a bank or trust company in good standing and having power so to act, incorporated under the laws of the United States or any State thereof or the District of Columbia, and having its principal corporate trust office within the 48 contiguous States, and shall also have capital, surplus and undivided profits of not less than $100,000,000, if there be such an institution with such capital, surplus and undivided profits willing, qualified and able to accept the trust upon reasonable or customary terms. 8.7 Merger of the Collateral Agent. Any corporation into which the Collateral Agent may be merged, or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Collateral Agent shall be a party, shall be the Collateral Agent under this Agreement without the execution or filing of any paper or any further act on the part of the parties hereto. 8.8 Appointment of Additional and Separate Collateral Agent. Whenever (i) the Collateral Agent shall deem it necessary or prudent (in accordance with the advice or opinion of its counsel) in order to conform to any law of any jurisdiction in which all or any part of the Collateral shall be situated or to make any claim or bring any suit with respect to or in connection with the Collateral, or (ii) the Collateral Agent shall be advised by counsel satisfactory to it that it is so necessary or prudent in the interest of the Secured Parties, then, in any such case, the Collateral Agent shall execute and deliver from time to time all instruments and agreements necessary or proper to 50 50 constitute another bank or trust company or one or more Persons approved by the Collateral Agent either to act as additional trustee or trustees of all or any part of the Trust Estate, jointly with the Collateral Agent, or to act as separate trustee or trustees of all or any part of the Trust Estate, in any such case with such powers as may be provided in such instruments or agreements, and to vest in such bank, trust company or Person as such additional trustee or separate trustee, as the case may be, any property, title, right or power of the Collateral Agent deemed necessary or advisable by the Collateral Agent. The Companies and the Secured Parties hereby consent to all actions taken by the Collateral Agent under the foregoing provisions of this Section 8.8. ARTICLE 9 CERTAIN INTERCREDITOR PROVISIONS 9.1 Contesting Liens or Security Interest. The Collateral Agent, each Secured Party and, by acceptance of the benefits of this Agreement and the Collateral Documents, each Person for whom a Secured Party acts as trustee, agent or fiduciary, as applicable, hereby agree that (a) the liens and security interests granted to the Collateral Agent under the Collateral Documents shall be treated, as among the Secured Parties and each of such Persons, as having equal priority and shall at all times be shared by the Secured Parties as provided herein, regardless of any claim or defense (including, without limitation, any claims under the fraudulent transfer, preference or similar avoidance provisions of applicable bankruptcy, insolvency or other laws affecting the rights of creditors generally) to which the Collateral Agent or any Secured Party or any of such Persons may be entitled or subject and (b) none of them shall contest the validity, perfection, priority or enforceability of any lien or security interest granted to the Collateral Agent. 9.2 No Additional Rights for Companies Hereunder. If a Secured Party shall enforce its rights or remedies in violation of the terms of this Agreement, the Companies agree that they shall not raise such violation as a defense to collection or 51 51 enforcement by the other Secured Party with respect to the Indenture Obligation or the Term Loan Obligation, as the case may be, or assert such violation as a counterclaim or basis for setoff or recoupment against either Secured Party. 9.3 Concerning Collateral Agent. Notwithstanding anything to the contrary set forth herein, no provision of this Agreement shall require the Collateral Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of any of its powers if it shall have reasonable grounds for believing repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. 9.4 Authority. Each of the parties hereto represents and warrants to all other parties hereto that the execution, delivery and performance by or on behalf of such party of this Agreement has been duly authorized by all necessary action, corporate or otherwise, does not violate any provision of law, governmental regulation, or any agreement or instrument by which such party is bound, and requires no governmental or other consent that has not been obtained and is not in full force and effect. ARTICLE 10 TERMINATION; EXPIRATION OF CERTAIN RIGHTS 10.1 Termination. This Agreement shall terminate when all amounts owing in respect of all the Secured Obligations shall have been paid in full in cash. 10.2 Amendment of Collateral Documents. Subject to the requirements of Sections 2.2, 3.2(c) and 4.5 hereof, the Majority Holders (provided that the Majority Holders include the Term Loan Note Majority Holders) shall have the exclusive authority to direct the Collateral Agent to amend, supplement or waive any provision of any Collateral Document or to direct the Collateral Agent to forebear from enforcing any provision of any Collateral Document; provided, however, that no such amendment, supplement or waiver shall affect the right of any Secured Party 52 52 (or any Person for whom a Secured Part acts as trustee, agent or fiduciary) not consenting thereto in writing to equal and ratable security under the Collateral Documents. In addition, no amendment or modification to any of the Collateral Documents shall impose any additional obligations or responsibilities upon any Secured Party or otherwise adversely effect its rights hereunder without the consent of each of the Secured Parties affected thereby. ARTICLE 11 MISCELLANEOUS 11.1 Amendments to Financing Arrangements or to This Agreement. The Collateral Agent, the Term Loan Agent and the Trustee shall each use its best efforts to notify the other or others of any amendment, modification or waiver to any document evidencing or securing the Secured Obligations, but the failure to do so shall not create a cause of action against the party failing to give such notice or create any claim or right on behalf of any third party. Each of the parties shall, upon request of the other or others, provide copies of all such modifications, amendments and waivers and copies of all other documentation relevant to the Collateral. All modifications, amendments and waivers of this Agreement must be in writing and duly executed by an authorized officer of the Collateral Agent and each Secured Party to be binding and enforceable, and the written consent of the Companies shall be required only if the amendment, modification or waiver would impose, or have the effect of imposing, on the Companies, more restrictive covenants or greater obligations than those applicable to the Companies under this Agreement, which consent shall not be unreasonably withheld, provided, however, the written consent of the Companies shall not be required with respect to an amendment of this Agreement pursuant to clause (b) of Section 3.11. 11.2 Notices, Distributions and Payments. (a) In each case herein or in any Collateral Document where any payment or distribution is to be made or notice is to be given to Secured Parties, (i) such payments, distributions and notices in respect of the Indenture Obligation shall be made to the Trustee for the 53 53 benefit of the Holders and (ii) such payments, distributions and notices in respect of the Term Loan Obligation shall be made to the Term Loan Agent for the benefit of the Term Loan Lenders. (b) All notices requests, demands and other communications provided for or permitted hereunder shall be in writing (including telex and telecopy communications) and shall be sent by mail, telex, telecopier or hand delivery: (i) If to any of the Companies, to such Company at the following address: 4200 NationsBank Center 700 Louisiana Street Houston, Texas 77002 Attention: Vice President, General Counsel and Secretary (ii) If to the Collateral Agent, to the following address: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department (iii) If to the Trustee, to the following address: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department (iv) If to the Term Loan Agent, to the following address: Bank of America Illinois 231 South LaSalle Street 8th Floor Chicago, Illinois 60697 Attention: Agency Management Services 54 54 (v) If to the Agent Bank, to the following address: Bank of America Illinois 231 South LaSalle Street 8th Floor Chicago, Illinois 60697 Attention: Agency Management Services All such notices, requests, demands and communications shall be deemed to have been duly given or made, when delivered by hand or five business days after being deposited in the mail, postage paid, when telexed answer back received and when telecopied, receipt acknowledged. Any party hereto may change its address set forth in this Section 11.2(b) by notice to the other parties given in accordance with the provisions of this Section 11.2(b). 11.3 Headings. Headings used in this Agreement are for convenience only and shall not affect the construction of this Agreement. 11.4 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11.5 Dealings with the Companies. Upon any application or demand by the Companies to the Collateral Agent to take or permit any action under any of the provisions of this Agreement or under any Collateral Document, the Companies shall furnish to the Collateral Agent an officers' certificate and opinion of counsel stating that all conditions precedent, if any, provided for in this Agreement or such Collateral Document, as the case may be, relating to the proposed action have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Agreement or any Collateral Document relating to such particular application or demand, no additional certificate or opinion need be furnished. 55 55 11.6 Binding Effect. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and shall inure to the benefit of the Secured Parties (and the Persons for whom the Secured Parties act as trustee, agent or fiduciary, as applicable) and their respective successors and assigns and nothing herein or in any Collateral Document is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Agreement, the Collateral or the Trust Estate. 11.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 11.8 Counterparts. This Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. 11.9 Execution by Agent Bank. The Agent Bank has executed and delivered this Agreement solely for purposes of agreeing to, and receiving the benefits of, the provisions of Section 2.2(c), (d) and (e) hereof. 11.10 FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) IN THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE OBLIGORS HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY, AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE 56 56 OBLIGORS IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH OBLIGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY OBLIGOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH OBLIGOR HEREBY IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT. 11.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO. EACH OBLIGOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION HEREOF AND OF EACH OTHER DOCUMENT DESCRIBED HEREIN TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE COLLATERAL AGENT AND SECURED PARTIES ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER DOCUMENT. [Signature page follows.] 57 57 IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By /s/ JAMES J. MCGINLEY ---------------------------- Name: James J. McGinley Title: Vice President BANK OF AMERICA ILLINOIS, as Term Loan Agent By /s/ DAVID A. JOHANSON ---------------------------- Name: David A. Johanson Title: Vice President UNITED STATES TRUST COMPANY OF NEW YORK, as Collateral Agent By /s/ JAMES J. MCGINLEY ---------------------------- Name: James J. McGinley Title: Vice President PIONEER AMERICAS ACQUISITION CORP. By /s/ PHILIP J. ABLOVE ---------------------------- Name: Philip J. Ablove Title: Vice President 58 58 PIONEER CHLOR ALKALI COMPANY, INC. By /s/ PHILIP J. ABLOVE ---------------------------- Name: Philip J. Ablove Title: Vice President PIONEER AMERICAS, INC. By /s/ PHILIP J. ABLOVE ---------------------------- Name: Philip J. Ablove Title: Vice President BANK OF AMERICA ILLINOIS, as Agent Bank By /s/ DAVID A. JOHANSON ---------------------------- Name: David A. Johanson Title: Vice President EX-4.8 20 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT 6/17/97 1 EXHIBIT 4.8 PIONEER AMERICAS ACQUISITION CORP. $200,000,000 AGGREGATE PRINCIPAL AMOUNT OF 9 1/4% SENIOR SECURED NOTES DUE 2007 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is dated as of June 17, 1997, by and among Pioneer Americas Acquisition Corp., a Delaware corporation (the "Company"), the companies listed on Schedule 1 hereto (collectively, the "Subsidiary Guarantors" and together with the Company, the "Registrants") and Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc (the "Initial Purchasers"). This Agreement is entered into in connection with the Purchase Agreement, dated June 11, 1997, among the Company, the Subsidiary Guarantors and the Initial Purchasers (the "Purchase Agreement") relating to the sale by the Company to the Initial Purchasers of $200,000,000 aggregate principal amount of the Company's 9 1/4% Senior Secured Notes due 2007 (the "Series A Notes") and the guarantees thereon of the Subsidiary Guarantors (the "Guarantees" and together with the Series A Notes, the "Securities"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company and the Subsidiary Guarantors have agreed to provide the registration rights set forth in this Agreement for the equal benefit of the Initial Purchasers and their respective direct and indirect transferees. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Securities under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions As used in this Agreement, the following terms shall have the following meanings: Advice: See Section 5. 2 Affiliate: An "affiliate" as defined in Rule 405 under the Securities Act (as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission). Applicable Period: See Section 2. Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York or The New York Stock Exchange are authorized or obligated by law or executive order to close. Closing Date: The Closing Date as defined in the Purchase Agreement. Commission: The Securities and Exchange Commission. Company: See the introductory paragraph to this Agreement. Depositary: The Depository Trust Company, or any other depositary appointed by the Company, provided that such depositary must have an address in the Borough of Manhattan, The City of New York. Effectiveness Date: The 150th day after the Closing Date. Effectiveness Period: See Section 3. Exchange Act: The Securities Exchange Act of 1934, as amended. Exchange Offer: See Section 2. Exchange Offer Registration Statement: See Section 2. Exchange Securities: See Section 2. Filing Date: The 30th day after the Closing Date. Holder: Any holder of Registrable Securities. 2 3 Indenture: The Indenture, dated as of June 17, 1997 among the Company, the Subsidiary Guarantors and United States Trust Company of New York, as trustee, pursuant to which the Securities are being issued, as amended or supplemented from time to time in accordance with the terms thereof. Initial Purchasers: See the introductory paragraph to this Agreement. Initial Shelf Registration: See Section 3. Majority: At least a majority of the then Outstanding (within the meaning of the Indenture) aggregate principal amount of the securities described. Managing Underwriters: The investment banker or investment bankers and manager or managers that shall administer an underwritten offering. Liquidated Damages: See Section 4. NASD: National Association of Securities Dealers, Inc. Participating Broker-Dealer: See Section 2. Person: An individual, trustee, corporation, partnership, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act (as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission)), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. 3 4 Registrable Securities: The Securities upon original issuance thereof and at all times subsequent thereto, until (i) a Registration Statement covering such Securities or the Exchange Securities to be exchanged for such Securities (and in the case of any Resale Securities, any resale thereof) has been declared effective by the Commission and such Securities have been disposed of or exchanged (or, in the case where such Registration Statement covers the resale of Resale Securities, such Securities have been exchanged and the Resale Securities received therefor have been resold), as the case may be, in accordance with such effective Registration Statement, (ii) such Securities are sold in compliance with Rule 144, (iii) any such Securities shall have been otherwise transferred and new certificate(s) evidencing such Securities not bearing any legend restricting further transfer shall have been delivered by or on behalf of the Company and such Securities shall be tradable by each Holder thereof without restriction under the Securities Act or the Exchange Act and without material restriction under the applicable state securities or "Blue Sky" laws or (iv) any such Securities cease to be outstanding. Registrants: See the introductory paragraph to this Agreement. Registration Default: See Section 4. Registration Statement: Any registration statement of the Registrants, including, but not limited to, the Exchange Offer Registration Statement, that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus contained therein, amendments and supplements to such registration statement, including post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Resale Securities: Any Exchange Securities received by a Restricted Person pursuant to the Exchange Offer, and at all times subsequent thereto, until such Exchange Securities have been resold by such Restricted Person. Restricted Person: (i) Any Affiliate of any of the Registrants, (ii) the Initial Purchasers or (iii) any Affiliate of the Initial Purchasers (other than Affiliates of the Initial Purchasers that (x) are acquiring the Exchange Securities in the 4 5 ordinary course of business and do not have an arrangement with any Person to distribute the Exchange Securities and (y) may trade such Exchange Securities without restriction under the Securities Act). Rule 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the Commission. Rule 144A: Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the Commission. Rule 158: Rule 158 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. Rule 415: Rule 415 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. Securities: See the introductory paragraphs to this Agreement. Securities Act: The Securities Act of 1933, as amended. Series A Notes: See the introductory paragraphs to this Agreement. Series B Notes: See Section 2. Shelf Filing Date: The 30th day after the date the Shelf Notice is delivered. Shelf Notice: See Section 2. Shelf Registration: See Section 3. Staff: See Section 2. Subsidiary Guarantors: See the introductory paragraph to this Agreement. 5 6 Subsequent Shelf Registration: See Section 3. Trust Indenture Act: The Trust Indenture Act of 1939, as amended. Trustee: The trustee under the Indenture and, if existent, the trustee under any indenture governing the Exchange Securities. Underwritten registration or underwritten offering: A registration in which securities of the Registrants are sold to one or more underwriters for reoffering to the public. 2. Exchange Offer; Shelf Notice (a) The Company and the Subsidiary Guarantors agree to use their best efforts, to file with the Commission as soon as practicable after the Closing Date, but in no event later than the Filing Date, a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to a proposed offer by the Registrants (the "Exchange Offer") to the Holders of Registrable Securities to issue and deliver to such Holders, in exchange for the Registrable Securities, a corresponding principal amount of debt securities of the Company (the "Series B Notes"), guaranteed by the Subsidiary Guarantors (the Series B Notes together with such guarantees, the "Exchange Securities"), which are substantially identical to the Series A Notes and the Guarantees (except that the Exchange Securities shall have been registered pursuant to an effective Registration Statement under the Securities Act), and are entitled to the benefits of the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with any requirements of the Commission to effect or maintain the qualification thereof under the Trust Indenture Act, and which, in either case, has been qualified under the Trust Indenture Act). The Company and the Subsidiary Guarantors agree to use their best efforts to (x) cause the Exchange Offer Registration Statement to become effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for acceptance for at least 20 Business Days (or longer if required by applicable law) after the date that notice of the 6 7 Exchange Offer is mailed to Holders and to conduct the Exchange Offer in accordance with such procedures as may be required by applicable provisions of the Exchange Act, including, without limitation, the requirements of Rule 13e-4 (other than the filing requirements of such Rule) and Regulation 14E under the Exchange Act (in each case, as such Rule or Regulation may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission); and (z) consummate the Exchange Offer on or prior to the 30th Business Day following the date the Exchange Offer Registration Statement is declared effective; it being the objective of such Exchange Offer to enable each Holder of Registrable Securities so electing to exchange its Registrable Securities for Exchange Securities (assuming that such Holder is not an Affiliate of the Company or any Subsidiary Guarantor, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements with any person to participate in a public distribution of the Exchange Securities within the meaning of the Securities Act) and to trade in such Exchange Securities from and after their receipt without any limitations or restrictions on transfer under the Securities Act or the Exchange Act and without restrictions on transfer under the securities or Blue Sky laws of a substantial portion of the several states of the United States. The Initial Purchasers acknowledge and agree that the foregoing statement of the objective of the Exchange Offer is based upon existing interpretations of the staff of the Commission's Division of Corporation Finance (the "Staff"), which interpretations are subject to change without notice. Each Holder who participates in the Exchange Offer will be required to represent to the Registrants that any Exchange Securities received by it will be acquired in the ordinary course of its business, that at the time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities, and that such Holder is not an Affiliate of any of the Registrants (within the meaning of the Securities Act). The Company shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to (i) Resale 7 8 Securities and (ii) Exchange Securities held by Participating Broker-Dealers, to the extent set forth in Section 2(b), and the Registrants shall have no further obligation to register Registrable Securities (other than Resale Securities) pursuant to Section 3. (b) The Registrants shall include within each Prospectus distributed to any Holders of Registrable Securities contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the Staff with respect to the potential "underwriter" status of any broker-dealer that holds Registrable Securities acquired for its own account as a result of market-making or other trading activities and will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission) of Exchange Securities received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the Staff or such positions or policies, in the reasonable judgment of the Initial Purchasers, represent the prevailing views of the Staff, including a statement that any such broker-dealer who receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer may be deemed to be an "underwriter" within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Securities, which prospectus delivery requirement may be satisfied by the delivery of the final Prospectus contained in the Exchange Offer Registration Statement. Such "Plan of Distribution" section shall also state that the delivery by a Participating Broker-Dealer of the final Prospectus relating to the Exchange Offer in connection with resales of Exchange Securities shall not be deemed to be an admission by such Participating Broker-Dealer that it is an "underwriter" within the meaning of the Securities Act, and shall contain all other information with respect to resales of the Exchange Securities by Participating Broker-Dealers that the Commission may require in connection therewith, but such "Plan of Distribution" shall not name any such Participating Broker-Dealer or disclose the principal amount of Exchange Securities held by any such Participating Broker-Dealer, except to the extent required by the Staff. Such "Plan of Distribution" section shall also state that the Registrants agree to allow the use of each 8 9 Prospectus distributed to any Holders of Registrable Securities by all persons subject to the prospectus delivery requirements of the Securities Act, including all Participating Broker-Dealers, to the extent set forth in the next paragraph. The Company and the Subsidiary Guarantors shall use their best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein as required by Section 5 hereof, to ensure that it is available for delivery by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities, provided that such period shall not exceed 180 days (or such longer period if extended pursuant to the last paragraph of Section 5) (the "Applicable Period"). In connection with the Exchange Offer, the Company shall: (i) mail or otherwise deliver to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) utilize the services of the Depositary for the Exchange Offer; (iii) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last Business Day on which the Exchange Offer shall remain open, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Securities delivered for exchange, and a statement that such Holder is withdrawing his election to have such Securities or a portion thereof exchanged; (iv) notify each Holder that any Security not tendered will remain outstanding and continue to accrue interest, but will not retain any rights under this Agreement (except in the case of the Initial Purchasers and Participating Broker-Dealers as provided herein); and 9 10 (v) otherwise comply in all respects with all applicable laws relating to the Exchange Offer. As soon as practicable after the close of the Exchange Offer, the Company shall: (A) accept for exchange all Securities or portions thereof tendered and not validly withdrawn pursuant to the Exchange Offer; (B) deliver to the Trustee for cancellation all Securities or portions thereof so accepted for exchange; and (C) issue, and cause the Trustee to authenticate and deliver promptly to each Holder of Securities, Exchange Securities or Resale Securities equal in principal amount to the Securities of such Holder so accepted for exchange. The Exchange Securities may be issued under (i) the Indenture or (ii) an indenture substantially identical to the Indenture, in either case with such changes to the Indenture or any such identical trust indenture as are necessary to comply with any requirements of the Commission to effect or maintain the qualification thereof under the Trust Indenture Act, which furthermore will provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture and that the Series B Notes and the Series A Notes will vote and consent together on all matters as one class and that neither the Series B Notes nor the Series A Notes will have the right to vote or consent as a separate class on any matter. (c) If (1) prior to the consummation of the Exchange Offer, the Company reasonably determines in good faith that (i) the Exchange Securities would not, upon receipt, be tradeable by the Holders of the Registrable Securities which are not Affiliates of any of the Registrants without restriction under the Securities Act and without restrictions under applicable state securities or Blue Sky laws or (ii) after conferring with counsel, the Commission is unlikely to permit the consummation of the Exchange Offer prior to the 30th Business Day following the Effectiveness Date, (2) either of the Initial Purchasers advises the Company that it continues to hold any portion of the Registrable Securities purchased by it pursuant to the Purchase Agreement and requests that a Shelf Registration be filed with respect to such Registrable Securities, (3) the Exchange Offer is 10 11 commenced and not consummated within 30 Business Days after the Effectiveness Date for any reason or (4) any Holder of Securities determines that it is not eligible to participate in the Exchange Offer or does not receive Exchange Securities in the Exchange Offer which are tradeable without restriction under the Securities Act and without restrictions under applicable state securities or Blue Sky laws (other than the prospectus delivery requirements of Participating Broker-Dealers) and so advises the Company within 10 Business Days following consummation of the Exchange Offer, then the Company shall promptly (and in any event within three Business Days) deliver to the Holders and the Trustee written notice thereof (the "Shelf Notice") and shall file an Initial Shelf Registration pursuant to Section 3. Following the delivery of a Shelf Notice to the Holders of Registrable Securities (in the circumstances contemplated by clauses (1) and (3) of the preceding sentence), the Company and the Subsidiary Guarantors shall not have any further obligation to conduct the Exchange Offer under this Section 2. (d) In the event that the Company reasonably determines in good faith and after conferring with counsel that (i) (A) the Exchange Securities would not, upon consummation of any resale thereof by a Restricted Person to any Person other than another Restricted Person, be tradeable by each Holder thereof without restriction under the Securities Act and the Exchange Act and without restriction under applicable state securities or Blue Sky laws, or (B) the Commission is unlikely to permit the Registration Statement covering the Exchange Offer to become effective prior to the Effectiveness Date solely because such Registration Statement covers resales of the Exchange Securities by Restricted Persons, then the Company shall promptly deliver a Shelf Notice to the Restricted Persons who are Holders of Registrable Securities, and the Registrants shall thereafter file an Initial Shelf Registration pursuant to, and otherwise comply with, the provisions of Section 3; provided that, if a Shelf Notice is not then otherwise required to be delivered pursuant to Section 2(c), such Initial Shelf Registration shall only cover resales of Registrable Securities by Restricted Persons. Following the delivery of a Shelf Notice in accordance with this Section 2(d) and compliance with the provisions of Section 3, the Registrants shall not have any further obligation under this Section 2 with respect to the filing of an offer to exchange the Registrable Securities held by the Restricted Persons (including, without limitation, any obligation to provide that a Registration Statement filed pursuant to Section 2(a) 11 12 cover resales of Exchange Securities by Restricted Persons); provided that, the provisions of this Section 2 shall otherwise remain in full force and effect with respect to Registrable Securities held by any Person other than a Restricted Person. 3. Shelf Registration If a Shelf Notice is delivered as contemplated by Section 2(c) or 2(d), then: (a) Initial Shelf Registration. The Company and the Subsidiary Guarantors shall as promptly as practicable after delivery of such Shelf Notice prepare and file with the Commission a Registration Statement, on an appropriate form under the Securities Act, for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities (or, if a Shelf Notice is delivered solely pursuant to Section 2(d), all of the Registrable Securities held by Restricted Persons) (the "Initial Shelf Registration"). If the Company and the Subsidiary Guarantors shall have not yet filed the Exchange Offer Registration Statement, the Company and the Subsidiary Guarantors shall use their best efforts to file with the Commission the Initial Shelf Registration on or prior to the Filing Date. Otherwise, the Company and the Subsidiary Guarantors shall use their best efforts to file with the Commission the Initial Shelf Registration on or prior to the Shelf Filing Date. The Company and the Subsidiary Guarantors shall not permit any securities other than the Registrable Securities to be included in the Initial Shelf Registration or any Subsequent Shelf Registration. No Holder of Registrable Securities may include any of its Registrable Securities in any Shelf Registration pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 15 Business Days after receipt of a request therefor, such information as the Company may, after conferring with counsel with regard to information relating to Holders that would be required by the Staff to be included in such Shelf Registration or Prospectus included therein, reasonably request for inclusion in any Shelf Registration or Prospectus included therein. No Holder of Registrable Securities that are to be included in a Shelf Registration Statement shall be entitled to Liquidated Damages pursuant to Section 4 unless and until such Holder shall have provided all such reasonably requested information. Each Holder as to which any Shelf Registration is being effected agrees to furnish promptly to the Company all information to be disclosed 12 13 in the applicable Shelf Registration or Prospectus included therein in order to make the information previously furnished to the Company by such Holder not materially misleading. The Company and the Subsidiary Guarantors shall use their best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act on or prior to the 150th day following delivery of the Shelf Notice and to keep the Initial Shelf Registration continuously effective under the Securities Act until the date which is two years from the effective date thereof (subject to extension pursuant to the last paragraph of Section 5) (the "Effectiveness Period"), or such shorter period ending when (i) all Registrable Securities covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration, (ii) a Subsequent Shelf Registration covering all of the Registrable Securities has been declared effective under the Securities Act or (iii) all Registrable Securities may be sold pursuant to subsection (k) of Rule 144; provided that the Registrants shall not be required to keep such Initial Shelf Registration effective where the only Registrable Securities which have not been sold pursuant to the Initial Shelf Registration are Registrable Securities held by Holders who would not have been able to trigger the Registrants' Initial Shelf Registration filing obligations pursuant to Section 2(c)(2), (3) or (4) hereof. (b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than in accordance with subparagraph (a)), the Company and the Subsidiary Guarantors shall use their best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 15 days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Registration Statement pursuant to Rule 415 covering all of the Registrable Securities covered by such suspended Shelf Registration (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company and the Subsidiary Guarantors shall use their best efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to keep such Registration Statement continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any 13 14 Subsequent Shelf Registration was previously continuously effective. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. (c) Supplements and Amendments. The Registrants shall promptly supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if otherwise required by the Securities Act, or if requested by the Holders of a Majority of the Registrable Securities covered by such Registration Statement or by the Managing Underwriters of such Registrable Securities if such Registrable Securities are being sold in connection with an underwritten offering (except to the extent any supplement or amendment shall, in the reasonable judgment of counsel to the Registrants, make the statements therein misleading), and the Company agrees to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the Commission. (d) Selection of Underwriters. If at any time or from time to time any of the Holders of the Registrable Securities included in any Shelf Registration Statement desire to sell Registrable Securities in an underwritten offering, Managing Underwriters shall be selected by the Holders of a Majority of all Registrable Securities included in such offering. (e) Amendment of Indenture. On or prior to the filing of the Initial Shelf Registration, the Registrants and the Trustee shall amend or supplement the Indenture or enter into an indenture substantially identical to the Indenture, in either case, such document to be in form and substance reasonably satisfactory to the Trustee, to provide for the Trustee to add to the covenants therein and to provide additional indemnity to the Trustee and such other terms as the Trustee and the Company may deem necessary to comply with any requirements of the Commission to effect or maintain the qualification thereof under the Trust Indenture Act, which amendment or supplement to the Indenture or other indenture shall automatically become effective upon the effectiveness of the Initial Shelf Registration. 14 15 4. Liquidated Damages (a) The Registrants and the Initial Purchasers agree that the Holders of Registrable Securities will suffer damages if the Company and the Subsidiary Guarantors fail to fulfill their obligations under Section 2 or Section 3. Accordingly, the Company and the Subsidiary Guarantors jointly and severally agree to pay liquidated damages ("Liquidated Damages") on the Registrable Securities subject to a Registration Default (as defined below) under the circumstances and to the extent set forth below: (i) if the Exchange Offer Registration Statement has not been filed on or prior to the Filing Date; (ii) if the Exchange Offer Registration Statement has not been declared effective on or prior to the Effectiveness Date; (iii) if the Exchange Offer has not been consummated on or prior to the 30th Business Day following the date the Exchange Offer Registration Statement is declared effective; (iv) if the Initial Shelf Registration has not been filed on or prior to the Shelf Filing Date or declared effective within 150 days following the delivery of the Shelf Notice, as the case may be; or (v) if (A) the Exchange Offer Registration Statement has been declared effective but ceases to be effective for a period of 15 consecutive days without being succeeded immediately by any additional Registration Statement filed with the Commission and declared effective at any time prior to the time that the Exchange Offer is consummated or (B) the Initial Shelf Registration or any Subsequent Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period for a period of 15 consecutive days without being succeeded immediately by any additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (v), a "Registration Default"), then the Company and the Subsidiary Guarantors shall pay Liquidated Damages to each applicable Holder of Registrable Securities with respect to the first 90-day period immediately following the occurrence of such Registration Default in an 15 16 amount equal to $.05 per week per $1,000 principal amount of Registrable Securities held by such Holder. The amount of Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of Registrable Securities at the beginning of each subsequent 90-day period, up to a maximum amount of $.50 per week per $1,000 principal amount of Registrable Securities. Notwithstanding anything to the contrary set forth herein, (1) upon the filing of the Exchange Offer Registration Statement (in the case of (i) above), (2) upon the effectiveness of the Exchange Offer Registration Statement (in the case of (ii) above), (3) upon the consummation of the Exchange Offer (in the case of (iii) above), (4) upon the filing of the Initial Shelf Registration or upon the effectiveness of a Shelf Registration, as applicable (in the case of (iv) above), or (5) upon the effectiveness of the Exchange Offer Registration Statement which had ceased to remain effective (in the case of (v)(A) above), or upon the effectiveness of the Shelf Registration which had ceased to remain effective (in the case of (v)(B) above), the accrual of Liquidated Damages payable with respect to the applicable Registrable Securities shall cease. Notwithstanding the foregoing, the Registrants shall not be required to pay such Liquidated Damages with respect to Registrable Securities held by a Holder if the applicable Registration Default arises from the failure of the Registrants to file, or cause to become effective, a Shelf Registration Statement within the time periods specified in this Section 4 by reason of the failure of such Holder to provide such information as (i) the Company may reasonably request, with reasonable prior written notice, for use in the Shelf Registration Statement or any Prospectus included therein to the extent the Company reasonably determines that such information is required to be included therein by applicable law, (ii) the NASD or the Commission may request in connection with such Shelf Registration Statement or (iii) is required to comply with the agreements of such Holder contained in the penultimate paragraph of Section 5 to the extent compliance thereof is necessary for the Shelf Registration Statement to be declared effective. (b) The Company shall notify the Trustee in writing within three Business Days after each and every date on which a Registration Default commences. Liquidated Damages shall be paid by depositing with the Trustee, in trust, for the benefit of the Holders thereof, on or before the next semi- annual interest payment date following a Registration Default, immediately 16 17 available funds in sums sufficient to pay the Liquidated Damages then due to Holders of Registrable Securities. The Liquidated Damages due shall be payable on each interest payment date to the record Holder of Registrable Securities entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Liquidated Damages as a result of the occurrence of a Registration Default shall be deemed to accrue from and including the date of such Registration Default to but excluding the date such Registration Default is no longer continuing. 5. Registration Procedures In connection with the registration of any Registrable Securities or Exchange Securities pursuant to Section 2 or 3, the Company and the Subsidiary Guarantors shall use their best efforts to effect such registrations to permit the sale of such Registrable Securities or Exchange Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company and the Subsidiary Guarantors shall: (a) Prepare and file with the Commission, as soon as practicable after the Closing Date but in any event prior to the Filing Date (in the case of an Exchange Offer Registration Statement) or the Shelf Filing Date (in the case of a Shelf Registration), a Registration Statement or Registration Statements as prescribed by Section 2 or 3, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein, provided that, if (1) such filing is pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to and afford the Holders of the Registrable Securities covered by such Registration Statement (the "Selling Holders"), and each such Participating Broker-Dealer, as the case may be, one special counsel for the Selling Holders or Participating Broker-Dealers, as the case may be (the "Holders Counsel") and the Managing Underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (at least 10 Business Days prior to such 17 18 filing) and use their best efforts to reflect in each such document, when filed with the Commission, such comments as the Holders of a Majority of the Registrable Securities covered by such Registration Statement, or such Participating Broker-Dealers, as the case may be, the Holders Counsel, or the Managing Underwriters, if any, may reasonably propose. The Registrants shall not file any Registration Statement or Prospectus or any amendments or supplements thereto in respect of which the Holders must be afforded an opportunity to review prior to the filing of such document if the Holders of a Majority of the Registrable Securities covered by such Registration Statement, or such Participating Broker-Dealers, as the case may be, the Holders Counsel, or the Managing Underwriters, if any, shall reasonably object. (b) Prepare and file with the Commission such amendments and post-effective amendments to each Shelf Registration or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act (as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission); and comply with the provisions of the Securities Act, the Exchange Act and the rules and regulations of the Commission promulgated thereunder applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus. The Company and the Subsidiary Guarantors shall be deemed not to have used their best efforts to cause a Registration Statement to become effective or to keep a Registration Statement effective during the Applicable Period if any of them voluntarily takes any action that would result in Selling Holders seeking to sell Registrable Securities covered thereby or Participating Broker-Dealers seeking to sell Exchange Securities not being able to sell such Registrable Securities or such Exchange Securities during that period unless such action is required by applicable law. 18 19 (c) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, notify the Selling Holders, or each Participating Broker-Dealer, as the case may be, the Holders Counsel and the Managing Underwriters, if any, promptly, and confirm such notice in writing, (i) when a Prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective (including in such notice a written statement that any Holder may, upon request, obtain, without charge, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference therein and exhibits thereto), (ii) of the issuance by the Commission or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary Prospectus or the initiation of any proceedings for that purpose, (iii) of the receipt by any of the Company or any Subsidiary Guarantor of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Securities or the Exchange Securities for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (iv) of the happening of any event or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (v) of any request by the Commission or any state securities authority for amendments or supplements to the Registration Statement or Prospectus (including schedules and exhibits thereto). 19 20 (d) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, use their best efforts to obtain the prompt withdrawal of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Securities or the Exchange Securities to be sold by any Participating Broker-Dealer, for sale in any jurisdiction at the earliest possible time. (e) If a Shelf Registration is filed pursuant to Section 3 and if requested by the Managing Underwriters, if any, or the Holders of a Majority of the Registrable Securities being sold in connection with an underwritten offering, (i) promptly incorporate in a prospectus supplement or post-effective amendment such information as the Managing Underwriters, if any, or such Holders or counsel request to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) promptly supplement or make amendments to such Registration Statement (except in the case of (i), (ii) and (iii) to the extent any supplement or amendment shall, in the reasonable judgment of counsel to the Registrants, make the statements therein misleading). (f) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, furnish to each of the Selling Holders and to each such Participating Broker-Dealer who so requests and to the Holders Counsel and each Managing Underwriter, if any, without charge, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits thereto. 20 21 (g) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, deliver to each of the Selling Holders or each such Participating Broker-Dealer, as the case may be, their counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of preliminary Prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, each of the Company and the Subsidiary Guarantors hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Selling Holders or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Securities covered by or the sale by Participating Broker-Dealers of the Exchange Securities pursuant to such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Securities or any delivery of a Prospectus contained in the Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, to use their best efforts to register or qualify, and to cooperate with the Selling Holders or each such Participating Broker-Dealer, as the case may be, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any of the Selling Holders, Participating Broker-Dealers, or the Managing Underwriters, if any, request in writing as are necessary to permit the offer and sale of such Securities in such jurisdictions; and to use their best efforts to keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective, provided that neither the Company nor any Subsidiary Guarantor shall be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then 21 22 so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction. (i) Cooperate with the Trustee and, in the case of a Shelf Registration, the Selling Holders and the Managing Underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Exchange Securities or Registrable Securities, as the case may be, to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with the Depositary; and enable such Exchange Securities or Registrable Securities to be in such denominations and registered in such names as the Holders of Registrable Securities or the Managing Underwriters, if any, may request. (j) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(iv) above, as promptly as practicable prepare and (subject to Section 5(a) above) file with the Commission, at the expense of the Company and the Subsidiary Guarantors, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder or to the purchasers of the Exchange Securities to whom such Prospectus will be delivered by a Participating Broker-Dealer any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (k) Use its best efforts to cause the Registrable Securities covered by a Registration Statement or the Exchange Securities, as the case may be, to continue to be rated by the rating agencies which initially rated the Series A Notes, during the period the Registration Statement is required to remain effective hereunder. 22 23 (l) Not later than the effective date of the first Registration Statement relating to the Registrable Securities or the Exchange Securities, as the case may be, obtain a CUSIP number for the Registrable Securities. (m) If a Shelf Registration is filed pursuant to Section 3 with respect to an underwritten offering, enter into such agreements (including an underwriting agreement, if requested) and take all other actions in order to expedite or facilitate the registration or disposition of such Registrable Securities and in connection therewith, (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, with respect to the business of the Company and its subsidiaries (including without limitation the Subsidiary Guarantors) and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and the Subsidiary Guarantors and updates thereof in form and substance reasonably satisfactory to the Managing Underwriters, addressed to each selling Holder of such Registrable Securities and the underwriters covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by underwriters; (iii) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the Managing Underwriters from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any parent or subsidiary of the Company (including without limitation the Subsidiary Guarantors) or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each selling Holder of such Registrable Securities and the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings and such other matters as reasonably requested by underwriters; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 7 (or such other provisions and procedures acceptable to Holders of a Majority of Registrable Securities covered by such Registration Statement and the Managing Underwriters or agents) with respect to all parties to 23 24 be indemnified pursuant to said Section 7; and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a Majority of all of the Registrable Securities being sold and the Managing Underwriters, if any, to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Registrants. The foregoing actions set forth in this Section 5(m) shall be performed at (A) the effectiveness of such Registration Statement and each post-effective amendment thereto and (B) each closing under any underwriting or similar agreement, as and to the extent required thereunder. (n) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, make available for inspection by any Selling Holder of such Registrable Securities being sold, or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, accountant or other agent retained by any of such Selling Holders or such Participating Broker-Dealers, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during business hours, all financial and other records, pertinent corporate documents and properties of the issuers and their respective subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Company and its Subsidiaries to supply all information in each case reasonably requested by any such Inspector in connection with such due diligence responsibilities. Records which the Company or any Subsidiary Guarantor determines, in good faith, to be confidential and any Records which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary, in the reasonable judgment of counsel to each Selling Holder and each such Participating Broker-Dealer, to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) the information in such Records has been made generally available to the public, other than by such Selling Holders and Participating Broker-Dealers. Each of the Selling Holders and each such Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company unless and until such is made generally available to the public. Each of the 24 25 Selling Holders and each such Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such Records may be required pursuant to clauses (i) or (ii) above, give notice to the Company and allow the Company at its expense to undertake appropriate action to prevent disclosure of the Records deemed confidential. (o) Provide an indenture trustee for the Registrable Securities or the Exchange Securities, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a), as the case may be, to be qualified under the Trust Indenture Act not later than the effective date of the Exchange Offer or the first Registration Statement relating to the Registrable Securities; and in connection therewith, cooperate with the Trustee under any such indenture and the Holders of the Registrable Securities, to effect such changes to such indenture as may be (i) necessary or desirable to provide for the Trustee to add to the covenants, and to provide additional indemnity to the Trustee, and (ii) necessary to comply with any requirements of the Commission to effect or maintain the qualification thereof under the Trust Indenture Act; and execute, and use its best efforts to cause the Trustee to execute, all documents, including the Intercreditor Agreement, as may be required to effect such changes, and all other forms and documents required to be filed with the Commission to enable such indenture to be so qualified in a timely manner. (p) The Company shall use its best efforts to comply with all applicable rules and regulations of the Commission and shall make generally available to its securityholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, 25 26 which statements shall cover said 12-month periods. The Company may, at its option, satisfy such requirement by complying with Rule 158. (q) If an Exchange Offer is to be consummated, upon delivery of the Registrable Securities by Holders to the Company (or to such other Person as directed by the issuers) in exchange for the Exchange Securities, the Company shall mark, or cause to be marked, on such Registrable Securities that such Registrable Securities are being canceled in exchange for the Exchange Securities; in no event shall such Registrable Securities be marked as paid or otherwise satisfied. (r) In the case of a Shelf Registration, a reasonable time prior to the filing of any document which is to be incorporated by reference into a Registration Statement or Prospectus after the initial filing of a Shelf Registration, provide a reasonable number of copies of such document to the Initial Purchasers on behalf of the Holders of Registrable Securities covered thereby, and make available such of the representatives of the Company and the Subsidiary Guarantors as shall be reasonably requested by such Holders or the Initial Purchasers on behalf of such Holders for discussion of such document. (s) Cooperate with each Holder of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD. (t) Use its best efforts to take all other steps necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby. The Company may require each seller of Registrable Securities or Participating Broker-Dealer as to which any registration is being effected to furnish to the Company such information regarding such seller or Participating Broker-Dealer and the distribution of such Registrable Securities or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, as the Company may, from time to time, reasonably request in writing, including, without limitation, a written representation to the Registrants (which may be contained in the 26 27 letter of transmittal contemplated by the Exchange Offer Registration Statement or Shelf Registration, as applicable) stating that (A) it is not an Affiliate of any of the Registrants, (B) the amount of Registrable Securities held by such Holder prior to the Exchange Offer, (C) the amount of Registrable Securities owned by such Holder to be exchanged in the Exchange Offer and representing that such Holder is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any Person to participate in, a distribution of the Exchange Securities to be issued and (D) it is acquiring the Exchange Securities in its ordinary course of business. The Company may exclude from such registration the Registrable Securities of any seller or Participating Broker-Dealer who fails to furnish such information within a reasonable time after receiving such request. No Holder may participate in any registration in which Securities or Exchange Securities are sold to an underwriter for reoffering to the public unless such Holder completes and executes all reasonable questionnaires, powers of attorneys, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of the applicable underwriting arrangements. Each Holder of Registrable Securities and each Participating Broker- Dealer agrees by acquisition of such Registrable Securities or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv), or 5(c)(v), such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(j), or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event the Company shall give any such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement or Exchange Securities to be sold by such Participating 27 28 Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(j) or (y) the Advice. 6. Registration Expenses The Registrants shall jointly and severally bear all expenses incurred in connection with the performance of their respective obligations under Sections 2, 3 and 5 and in the event of a Shelf Registration Statement, shall bear or reimburse the Holders for the reasonable fees and disbursements of one firm of counsel designated by the Holders of a Majority of the Registrable Securities to act as counsel for all Holders of the Registrable Securities in connection therewith; provided, however, that in an underwritten offering, the Company shall not be responsible for any fees and expenses of any underwriter including any underwriting discounts and commissions or any legal fees and expenses of counsel to the underwriters (except for the reasonable fees and disbursements of counsel in connection with state securities or Blue Sky qualification of any of the Registrable Securities or the Exchange Securities). 7. Indemnification (a) The Company and the Subsidiary Guarantors, jointly and severally, agree to indemnify and hold harmless (i) each Holder (including each of the Initial Purchasers, if such Initial Purchaser holds Registrable Securities, including Resale Securities, for its own account) and (ii) each person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) any Holder (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person"), and (iii) the respective officers, directors, partners, employees, representatives and agents of any Holder or any controlling person (any person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an "Indemnified Person") to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including without limitation and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Person) directly or indirectly caused by, related to, based upon, arising out of 28 29 or in connection with any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment or supplement thereto), or any preliminary Prospectus or Prospectus relating to any Registration Statement (or any amendment or supplement thereto), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities, judgments, actions or expenses are caused by an untrue statement or omission or alleged untrue statement or omission that is made in reliance upon and in conformity with information relating to any Holder furnished in writing to the Company and the Subsidiary Guarantors by such Holder expressly for use therein, provided, however, that the indemnity obligations arising under this Section 7(a) with respect to a specific untrue statement or omission or alleged untrue statement or omission of a material fact in any preliminary Prospectus shall not inure to the benefit of a Holder or its related Indemnified Persons if the person asserting any losses, claims, damages, liabilities, judgments, actions and expenses with respect to such untrue statement or omission purchased the Securities from such Holder and if it is established in the related proceeding that a copy (provided, that the Registrants have furnished to such Holder as many copies of a final Prospectus and any amendments or supplements thereto as such Holder has reasonably requested) of the final Prospectus was not sent or given by or on behalf of such Holder to such person at or prior to the written confirmation of the sale of the Securities to such person if required by applicable law, and if the final Prospectus would have cured the untrue statement or omission giving rise to such losses, claims, damages, liabilities, judgments, actions and expenses provided, further, that the Company and the Subsidiary Guarantors shall not be relieved thereby of their indemnity obligation with respect to any other untrue statement or omission or alleged untrue statement or omission of a material fact. The Company and the Subsidiary Guarantors shall notify the Initial Purchasers promptly of the institution, threat or assertion of any claim, proceeding (including any governmental investigation) or litigation in connection with the matters addressed by this Agreement which involve the Company or the Subsidiary Guarantors or an Indemnified Person. (b) In case any action or proceeding (including any governmental investigation) shall be brought or asserted against 29 30 any of the Indemnified Persons with respect to which indemnity may be sought against the Company or the Subsidiary Guarantors, such Indemnified Person shall promptly notify the Company and the Subsidiary Guarantors in writing (provided, that the failure to give such notice shall not relieve the Company or the Subsidiary Guarantors of its obligations pursuant to this Agreement unless the Company or the Subsidiary Guarantors were otherwise unaware of such obligations and only to the extent they were actually and materially prejudiced by such failure). In case any such action shall be brought against any Indemnified Person and it shall notify Pioneer, the Company and the Subsidiary Guarantors of the commencement thereof, Pioneer, the Company and the Subsidiary Guarantors shall be entitled to participate therein and, to the extent that any of Pioneer, the Company and the Subsidiary Guarantors shall wish, jointly with any of Pioneer, the Company or the Subsidiary Guarantors similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Person, and after notice from Pioneer, the Company and the Subsidiary Guarantors to such Indemnified Person of its election so to assume the defense thereof, Pioneer, the Company and the Subsidiary Guarantors shall not be liable to such Indemnified Person under such subsection for any legal or other expense subsequently incurred by such Indemnified Person in connection with the defense thereof other than reasonable costs of investigation. If, however, (i) the Indemnifying Person has authorized the employment of counsel for the Indemnified Person at the expense of Pioneer, the Company or the Subsidiary Guarantors, or (ii) an Indemnified Person shall have reasonably concluded that representation of such Indemnified Person and Pioneer, the Company and the Subsidiary Guarantors by the same counsel would be inappropriate under applicable standards of professional conduct due to actual or potential differing interests between them and the Indemnified Person so notifies the Indemnifying Person, such Indemnified Person shall have the right to employ its own counsel in any such action and the fees and expenses of such counsel shall be paid, as incurred, by the Company and the Subsidiary Guarantors (regardless of whether it is ultimately determined that an Indemnified Person is not entitled to indemnification hereunder); provided, however, that such Indemnified Person undertakes to repay to the Company all such fees and expenses in the event of a determination by a court of competent jurisdiction which is no longer subject to appeal or further review that such Indemnified Person was not entitled to have such payment made. The Company and the Subsidiary Guarantors shall not, in connection with any one such action or 30 31 proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more then one separate firm of attorneys (in addition to any local counsel) at any time for the Indemnified Persons, which firm shall be designated by the Holders of a Majority of the Series A Notes and the Series B Notes which are the subject of such action or proceeding. The Company and the Subsidiary Guarantors shall be liable for any settlement of any such action or proceeding effected with the Company's prior written consent, which consent will not be unreasonably withheld, and the Company and the Subsidiary Guarantors agree to indemnify and hold harmless any Indemnified Person from and against any loss, claim, damage, liability or expense by reason of any settlement of any action effected with the written consent of the Company. Notwithstanding the immediately preceding sentence, if at any time an Indemnified Person shall have requested an indemnifying party to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the second sentence of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than twenty business days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. The Company and the Subsidiary Guarantors shall not, without the prior written consent of an Indemnified Person, settle or compromise or consent to the entry of judgment in or otherwise seek to terminate any pending or threatened action, claim, litigation or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not any Indemnified Person is a party thereto), unless such settlement, compromise, consent or termination includes an unconditional release of such Indemnified Person from all liability arising out of such action, claim, litigation or proceeding. (c) Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company and the Subsidiary Guarantors, their directors and officers and any person controlling (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) the Company or the Subsidiary Guarantors, to the same extent as the foregoing indemnity from the Company and the Subsidiary Guarantors to each 31 32 of the Indemnified Persons, but only with respect to claims and actions based on information relating to such Holder furnished in writing by such Holder to the Company and the Subsidiary Guarantors expressly for use in any Registration Statement. In case any action or proceeding shall be brought against the Company, any Subsidiary Guarantor or their directors or officers or any such controlling person in respect of which indemnity may be sought against a Holder, such Holder shall have the rights and duties given the Company and the Subsidiary Guarantors, and the Company, such Subsidiary Guarantor, such directors or officers or such controlling person shall have the rights and duties given to each Holder by the immediately preceding paragraph. In no event shall any Holder be liable or responsible for any amount in excess of the amount by which the total received by such Holder with respect to its sale of Registrable Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Registrable Securities and (ii) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (d) If the indemnification provided for in this Section 7 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities, judgments, actions or expenses referred to herein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other hand from their sale of Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party and the indemnified party, as well as any other relevant equitable considerations. The relative fault of the Company and the Subsidiary Guarantors, on the one hand, and the Indemnified Person, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact related to information supplied by the Company or any Subsidiary Guarantor, on the one hand, and the Indemnified Person, on the other hand, and the parties' relative intent, knowledge, access to 32 33 information and opportunity to correct or prevent such statement or omission. The indemnity set forth herein shall be in addition to any liability or obligation the Company and the Subsidiary Guarantors may otherwise have to any Indemnified Person. The Company, the Subsidiary Guarantors and each Holder agree that it would not be just and equitable if contribution to this Section 7(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, no Holder nor related Indemnified Persons shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total received by such Holder with respect to the sale of its Registrable Securities, exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 7(d) are several in proportion to the respective principal amount of Registrable Securities held by each of them and not joint. 8. Rules 144 and 144A The Registrants covenant that they will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder in a timely manner and, if at any time the Registrants are not required to file such reports, they will, upon the request of any Holder of Registrable Securities, make publicly available other information so long as necessary to permit sales pursuant to Rule 144 and Rule 144A. The Registrants further covenant that they will take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to 33 34 sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 and Rule 144A. 9. Underwritten Registrations If any of the Registrable Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a Majority of such Registrable Securities included in such offering; provided that such investment bankers or managers shall be reasonably acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous (a) No Inconsistent Agreements. The Registrants have not, as of the date hereof, and the Registrants shall not, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The Registrants have not entered or will not enter into any agreement with respect to any of its securities which will grant to any Person piggy-back rights with respect to a Registration Statement. (b) Adjustments Affecting Registrable Securities. The Registrants shall not, directly or indirectly, take any action with respect to the Registrable Securities as a class that would adversely affect the ability of the Holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be 34 35 amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Registrants have obtained the written consent of Holders of at least a Majority of the Registrable Securities; provided that no amendment, modification or supplement or waiver or consent to the departure from the provisions of Section 7 shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities, may be given by Holders of at least a Majority of the Registrable Securities being sold by such Holders pursuant to such Registration Statement, provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. (d) Notices. All notices and other communications (including without limitation any notices or other communications to the trustee under the applicable indenture) provided for or permitted hereunder shall be made in writing by hand delivery, registered first-class mail, next-day air courier or telecopier: (i) if to a Holder of Registrable Securities, at the most current address given by the Trustee to the Company; and (ii) if to the Company or any Subsidiary Guarantor, at: Pioneer Americas Acquisition Corp. 4200 NationsBank Center 700 Louisiana Street Houston, Texas 770002 Attn: General Counsel All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five Business Days after being deposited and the postage prepaid, if mailed; one Business Day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if telecopied. 35 36 Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the trustee under the applicable indenture at the address specified in such indenture. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Registrable Securities; provided that, with respect to the indemnity and contribution agreements in Section 7, each Holder of Registrable Securities subsequent to the Initial Purchasers shall be bound by the terms thereof if (i) such Holder elects to include Registrable Securities in a Shelf Registration and (ii) such Holder is advised expressly by the Company of the provisions contained in Section 7 and that such Holder's election to include Registrable Securities in a Shelf Registration shall be deemed such Holder's agreement to be bound by such provisions. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the 36 37 intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. (k) Registrable Securities Held by the Registrants or Their Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Registrants or their Affiliates shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. [signature pages follow] 37 38 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. PIONEER AMERICAS ACQUISITION CORP. By: /s/ PHILIP J. ABLOVE -------------------------------- Name: Philip J. Ablove Title: Vice President PIONEER AMERICAS, INC. By: /s/ PHILIP J. ABLOVE -------------------------------- Name: Philip J. Ablove Title: Vice President PIONEER CHLOR ALKALI COMPANY, INC. By: /s/ PHILIP J. ABLOVE -------------------------------- Name: Philip J. Ablove Title: Vice President IMPERIAL WEST CHEMICAL CO. By: /s/ PHILIP J. ABLOVE -------------------------------- Name: Philip J. Ablove Title: Vice President ALL-PURE CHEMICAL CO. By: /s/ PHILIP J. ABLOVE -------------------------------- Name: Philip J. Ablove Title: Vice President 38 39 BLACK MOUNTAIN POWER COMPANY By: /s/ PHILIP J. ABLOVE -------------------------------- Name: Philip J. Ablove Title: Vice President ALL PURE CHEMICAL NORTHWEST, INC. By: /s/ PHILIP J. ABLOVE -------------------------------- Name: Philip J. Ablove Title: Vice President PIONEER CHLOR ALKALI INTERNATIONAL, LTD. By: /s/ PHILIP J. ABLOVE -------------------------------- Name: Philip J. Ablove Title: Vice President G.O.W. CORPORATION By: /s/ PHILIP J. ABLOVE -------------------------------- Name: Philip J. Ablove Title: Vice President PIONEER (EAST), INC. By: /s/ KENT R. STEPHENSON -------------------------------- Name: Kent R. Stephenson Title: President 39 40 T.C. HOLDINGS, INC. By: /s/ PHILIP J. ABLOVE -------------------------------- Name: Philip J. Ablove Title: Vice President T.C. PRODUCTS, INC. By: /s/ PHILIP J. ABLOVE -------------------------------- Name: Philip J. Ablove Title: Vice President Accepted as of the date hereof: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION SALOMON BROTHERS INC By: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ PETER BACON -------------------------------- Name: Peter Bacon Title: Managing Director 40 41 SCHEDULE 1 Subsidiary Guarantors Pioneer Americas, Inc. Pioneer Chlor Alkali Company, Inc. Imperial West Chemical Co. All-Pure Chemical Co. Black Mountain Power Company All Pure Chemical Northwest, Inc. Pioneer Chlor Alkali International, Ltd. G.O.W. Corporation Pioneer (East), Inc. T.C. Holdings, Inc. T.C. Products, Inc. EX-12.1 21 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES. 1 EXHIBIT 12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
PREDECESSOR COMPANY --------------------------------------------- PERIOD FROM YEAR ENDED DECEMBER 31, JANUARY 1, 1995 --------------------------- THROUGH 1992 1993 1994 APRIL 20, 1995 ------- ------- ------- --------------- (DOLLARS IN THOUSANDS, EXCEPT RATIOS) Ratio of earnings to fixed charges Consolidated pretax income from continuing operations....................................... $ 4,346 $ 542 $ 8,388 $11,621 Equity pickup of less than 50% owned affiliates.... (26) (1,149) (183) (204) Interest........................................... 8,189 7,551 6,407 1,665 Interest portion of rental expense................. 2,467 2,753 2,814 692 Amortization of debt financing costs............... 920 933 944 453 ------- ------- ------- ------- Earnings........................................... $15,896 $10,630 $18,370 $14,227 ------- ------- ------- ------- Interest........................................... $ 8,189 $ 7,551 $ 6,407 $ 1,665 Interest portion of rental expense................. 2,467 2,753 2,814 692 Amortization of debt financing costs............... 920 933 944 453 ------- ------- ------- ------- Fixed charges...................................... $11,576 $11,237 $10,165 $ 2,810 ------- ------- ------- ------- Ratio of earnings to fixed charges................. 1.37 -- 1.81 5.1 ------- ------- ------- ------- Deficiency......................................... $ (607)
PERIOD FROM INCEPTION THROUGH YEAR ENDED THREE MONTHS DECEMBER 31, DECEMBER 31, ENDED 1995 1996 MARCH 31, 1997 ------------ ------------ -------------- (DOLLARS IN THOUSANDS, EXCEPT RATIOS) Ratio of earnings to fixed charges Consolidated pretax income (loss) from continuing operations ......................................... $12,629 $14,846 $(1,712) Equity pickup of less than 50% owned affiliates....... -- (713) (270) Interest.............................................. 12,905 17,290 4,458 Interest portion of rental expense.................... 1,572 3,694 777 Amortization of debt financing costs.................. 465 636 159 ------- ------- ------- Earnings.............................................. $27,571 $35,753 $ 3,412 ------- ------- ------- Interest.............................................. $12,905 $17,290 $ 4,458 Interest portion of rental expense.................... 1,572 3,694 777 Amortization of debt financing costs.................. 465 636 159 ------- ------- ------- Fixed charges......................................... $14,942 $21,620 $ 5,394 ------- ------- ------- Ratio of earnings to fixed charges.................... 1.8 1.7 0.6 ------- ------- -------
EX-21.1 22 SUBSIDIARIES OF THE REGISTRANTS. 1 EXHIBIT 21.1 SUBSIDIARIES OF PIONEER AMERICAS ACQUISITION CORP.: Pioneer Americas, Inc. Pioneer Chlor Alkali Company, Inc. Imperial West Chemical Co. All-Pure Chemical Co. Black Mountain Power Company All-Pure Chemical Northwest, Inc. Pioneer Chlor Alkali International, Inc. G.O.W. Corporation Pioneer (East), Inc. T.C. Holdings, Inc. T.C. Products, Inc. EX-23.1 23 INDEPENDENT AUDITORS' CONSENT OF DELOITTE & TOUCHE 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 7, 1997 in the Registration Statement (Form S-4) and related Prospectus of Pioneer Americas Acquisition Corp. for the registration of $200,000,000 9 1/4% Series B Senior Secured Notes due 2007. Deloitte & Touche LLP Houston, Texas July 2, 1997 EX-23.2 24 INDEPENDENT AUDITORS' CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the reference to our firm under the captions "Selected Historical Financial Data," "Experts" and "Change in Independent Public Auditors" and to the use of our report dated June 26, 1995 in the Registration Statement (Form S-4) and related Prospectus of Pioneer Americas Acquisition Corp. for the registration of $200,000,000 9 1/4% Series B Senior Secured Notes due 2007. Ernst & Young LLP Houston, Texas July 1, 1997 EX-23.3 25 AUDITOR'S CONSENT OF PIERCY, BOWLER, TAYLOR & KERN 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 30, 1995 on the combined financial statements of Basic Investments, Inc. and affiliates in the Registration Statement (Form S-4) and related Prospectus of Pioneer Americas Acquisition Corp. for the registration of $200,000,000 9 1/4% Series B Senior Secured Notes due 2007. PIERCY, BOWLER, TAYLOR & KERN CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS ADVISORS A PROFESSIONAL CORPORATION Las Vegas, Nevada June 26, 1997 EX-23.4 26 INDEPENDENT AUDITORS' CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.4 INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT As independent public accountants, we hereby consent to the use of our report (and to all references to our firm) dated February 28, 1997 on the financial statements of the Tacoma Plant in the Registration Statement (Form S-4) and related Prospectus of Pioneer Americas Acquisition Corp. for the registration of $200,000,000 9 1/4% Series B Senior Secured Notes due 2007. Arthur Andersen LLP Dallas, Texas June 27, 1997 EX-25.1 27 STATEMENT OF FORM T-1 OF ELIGIBILITY OF TRUSTEE. 1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------------ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ------------------------------ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ------- ------------------------------ UNITED STATES TRUST COMPANY OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-3818954 (Jurisdiction of incorporation (I. R. S. Employer if not a U. S. national bank) Identification No.) 114 West 47th Street 10036 New York, New York (Zip Code) (Address of principal executive offices) ------------------------------ PIONEER AMERICAS ACQUISITION CORP. (Exact name of OBLIGOR as specified in its charter) Delaware 06-1420850 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 4200 NationsBank Center 77002 700 Louisiana Street (Zip code) Houston, Texas (Address of principal executive offices) ------------------------------ PIONEER AMERICAS, INC. (Exact name of REGISTRANT as specified in its charter) Delaware 76-0280373 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 2 - 2 - ------------------------------ PIONEER CHLOR ALKALI COMPANY, INC. (Exact name of REGISTRANT as specified in its charter) Delaware 51-0302028 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) ------------------------------ IMPERIAL WEST CHEMICAL CO. (Exact name of REGISTRANT as specified in its charter) Nevada 95-2375683 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) ------------------------------ ALL-PURE CHEMICAL CO. (Exact name of REGISTRANT as specified in its charter) California 94-2314942 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) ------------------------------ BLACK MOUNTAIN POWER COMPANY (Exact name of REGISTRANT as specified in its charter) Texas 76-0291143 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) ------------------------------ ALL-PURE CHEMICAL NORTHWEST, INC. (Exact name of REGISTRANT as specified in its charter) Washington 94-2714064 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 3 - 3- ------------------------------ PIONEER CHLOR ALKALI INTERNATIONAL, INC. (Exact name of REGISTRANT as specified in its charter) Barbados 98-0118164 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) ------------------------------ G.O.W. CORPORATION (Exact name of REGISTRANT as specified in its charter) Nevada 88-0336831 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) ------------------------------ PIONEER (EAST), INC. (Exact name of REGISTRANT as specified in its charter) Delaware 51-0375981 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) ------------------------------ T.C. HOLDINGS, INC. (Exact name of REGISTRANT as specified in its charter) New Mexico 86-0311265 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) ------------------------------ T.C. PRODUCTS, INC. (Exact name of REGISTRANT as specified in its charter) Washington 91-1536884 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) ------------------------------ 9 1/4% Series B Senior Secured Notes due 2007 (Title of the indenture securities) 4 - 4 - GENERAL 1. General Information Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York (2nd District), New York, New York (Board of Governors of the Federal Reserve System). Federal Deposit Insurance Corporation, Washington, D. C. New York State Banking Department, Albany, New York (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. 2. Affiliations with the Obligor If the obligor is an affiliate of the trustee, describe each such affiliation. None. 3,4,5,6,7,8,9,10,11,12,13,14 and 15. Pioneer Americas Acquisition Corp., Pioneer Americas, Inc., Pioneer Chlor Alkali Company, Inc., Imperial West Chemical Co., All-Pure Chemical Co., Black Mountain Power Company, All-Pure Chemical Northwest, Inc., Pioneer Chlor Alkali International, Inc., G.O.W. Corporation, Pioneer (East), Inc., T.C. Holdings, Inc., T.C. Products, Inc. is currently not in default under any of its outstanding securities for which United States Trust Company of New York is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1 are not required under General Instruction B. 16. List of Exhibits T-1.1 -- Organization Certificate, as amended, issued by the State of New York Banking Department to transact business as a Trust Company, is incorporated by reference to Exhibit T-1.1 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). 5 - 5 - 16. List of Exhibits (cont'd) T-1.2 -- Included in Exhibit T-1.1. T-1.3 -- Included in Exhibit T-1.1. T-1.4 -- The By-Laws of United States Trust Company of New York, as amended, is incorporated by reference to Exhibit T-1.4 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.6 -- The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990. T-1.7 -- A copy of the latest report of condition of the trustee pursuant to law or the requirements of its supervising or examining authority. NOTE As of June 24, 1997, the trustee had 2,999,020 shares of Common Stock outstanding, all of which are owned by its parent company, U. S. Trust Corporation. The term "trustee" in Item 2, refers to each of United States Trust Company of New York and its parent company, U. S. Trust Corporation. In answering Item 2 in this statement of eligibility, as to matters peculiarly within the knowledge of the obligor or its directors, the trustee has relied upon information furnished to it by the obligor and will rely on information to be furnished by the obligor and the trustee disclaims responsibility for the accuracy or completeness of such information. ------------------------- 6 - 6 - Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, United States Trust Company of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 24th day of June, 1997. UNITED STATES TRUST COMPANY OF NEW YORK, Trustee By: ------------------------------ /S/Gerard F. Ganey Senior Vice President 7 EXHIBIT T-1.6 The consent of the trustee required by Section 321(b) of the Act. United States Trust Company of New York 114 West 47th Street New York, NY 10036 September 1, 1995 Securities and Exchange Commission 450 5th Street, N.W. Washington, DC 20549 Gentlemen: Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the limitations set forth therein, United States Trust Company of New York ("U.S. Trust") hereby consents that reports of examinations of U.S. Trust by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Very truly yours, UNITED STATES TRUST COMPANY OF NEW YORK By: ----------------------- /S/Gerard F. Ganey Senior Vice President 8 EXHIBIT T-1.7 UNITED STATES TRUST COMPANY OF NEW YORK CONSOLIDATED STATEMENT OF CONDITION MARCH 31, 1997 (IN THOUSANDS) ASSETS - ------ Cash and Due from Banks $ 59,856 Short-Term Investments 213,333 Securities, Available for Sale 968,413 Loans 1,370,272 Less: Allowance for Credit Losses 13,614 ------------- Net Loans 1,356,658 Premises and Equipment 61,183 Other Assets 125,938 ------------- TOTAL ASSETS $ 2,785,381 ============= LIABILITIES - ----------- Deposits: Non-Interest Bearing $ 480,539 Interest Bearing 1,738,130 ------------- Total Deposits 2,218,669 Short-Term Credit Facilities 271,567 Accounts Payable and Accrued Liabilities 131,642 ------------- TOTAL LIABILITIES $ 2,621,878 ============= STOCKHOLDER'S EQUITY - -------------------- Common Stock 14,995 Capital Surplus 42,541 Retained Earnings 101,577 Unrealized Gains (Losses) on Securities Available for Sale, Net of Taxes (2,610) ------------- TOTAL STOCKHOLDER'S EQUITY 163,503 ------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,785,381 =============
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank do hereby declare that this Statement of Condition has been prepared in conformance with the instructions issued by the appropriate regulatory authority and is true to the best of my knowledge and belief. Richard E. Brinkmann, SVP & Controller June 22, 1997 EX-99.1 28 FORM OF LETTER OF TRANSMITTAL. 1 EXHIBIT 99.1 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON _______, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE. PIONEER AMERICAS ACQUISITION CORPORATION 4200 NationsBank Center 700 Louisiana Street Houston, Texas 77002 LETTER OF TRANSMITTAL For 9 1/4% Series A Senior Secured Notes due 2007 EXCHANGE AGENT: UNITED STATES TRUST COMPANY OF NEW YORK By Facsimile: (212) 420-6152 Attention: Customer Service Confirm by telephone: (800) 548-6565 By Registered or Certified Mail: United States Trust Company of New York P.O. Box 844 Cooper Station New York, New York 10276 By Hand: United States Trust Company of New York 111 Broadway New York, New York 10006 Attention: Corporate Trust Operations By Overnight Courier: United States Trust Company of New York 770 Broadway New York, New York 10003 Attention: Corporate Trust Operations DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. The undersigned acknowledges receipt of the Prospectus dated _______ , 1997 (the "Prospectus") of Pioneer Americas Acquisition Corp., a Delaware corporation (the "Company"), and all of the subsidiaries of the Company (together with the Company, the "Issuers") and this Letter of Transmittal for 9 1/4% Series A Senior Secured Notes due 2007 which may be amended from time to time (this "Letter"), which together constitute the Issuers' offer (the "Exchange Offer") to exchange, for each $1,000 in principal amount of its outstanding 9 1/4% Series A Senior Secured Notes due 2007 issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"), $1,000 in principal amount of 9 1/4% Series B Senior Secured Notes due 2007 (the "Exchange Notes"). The undersigned has completed, executed and delivered this Letter to indicate the action he or she desires to take with respect to the Exchange Offer. All holders of Original Notes who wish to tender their Original Notes must, prior to the Expiration Date: (1) complete, sign, date and mail or otherwise deliver this Letter to the Exchange Agent, in person or to the address set forth above; and (2) tender his or her Original Notes or, if a tender of Original Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer Facility"), confirm such book-entry transfer (a "Book-Entry Confirmation"), in each case in accordance with the procedures for tendering described in the Instructions to this Letter. Holders of Original Notes whose certificates are not immediately available, or who are unable to deliver their certificates or Book-Entry Confirmation and all other documents required by this Letter to be delivered to the Exchange Agent on or prior to the Expiration Date, must tender their Original Notes 2 according to the guaranteed delivery procedures set forth under the caption "The Exchange Offer -- How to Tender" in the Prospectus. (See Instruction 1). The Instructions included with this Letter must be followed in their entirety. Questions and requests for assistance or for additional copies of the Prospectus or this Letter may be directed to the Exchange Agent, at the address listed above, or Kent R. Stephenson, Esq., General Counsel and Secretary of the Company, at (713) 225-3831, 4200 NationsBank Center, 700 Louisiana Street, Houston, TX 77002. 2 3 PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS TO THIS LETTER, CAREFULLY BEFORE CHECKING ANY BOX BELOW Capitalized terms used in this Letter and not defined herein shall have the respective meanings ascribed to them in the Prospectus. List in Box 1 below the Original Notes of which you are the holder. If the space provided in Box 1 is inadequate, list the certificate numbers and principal amount of Original Notes on a separate SIGNED schedule and affix that schedule to this Letter. BOX 1 TO BE COMPLETED BY ALL TENDERING HOLDERS
- ---------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED CERTIFICATE PRINCIPAL AMOUNT PRINCIPAL HOLDER(S) NUMBER(S)(1) OF ORIGINAL NOTES AMOUNT OF (PLEASE FILL IN IF BLANK) ORIGINAL NOTES TENDERED(2) - ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------- TOTALS: - ---------------------------------------------------------------------------------------------------------- (1) Need not be completed if Original Notes are being tendered by book-entry transfer. (2) Unless otherwise indicated, the entire principal amount of Original Notes represented by a certificate or Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered. - ----------------------------------------------------------------------------------------------------------
3 4 Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned tenders to the Issuers the principal amount of Original Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Original Notes tendered with this Letter, the undersigned exchanges, assigns and transfers to, or upon the order of, the Issuers all right, title and interest in and to the Original Notes tendered. The undersigned constitutes and appoints the Exchange Agent as his or her agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Issuers) with respect to the tendered Original Notes, with full power of substitution, to: (a) deliver certificates for such Original Notes; (b) deliver Original Notes and all accompanying evidence of transfer and authenticity to or upon the order of the Issuers upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon the acceptance by the Issuers of the Original Notes tendered under the Exchange Offer; and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of the Original Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed irrevocable and coupled with an interest. The undersigned hereby represents and warrants that he or she has full power and authority to tender, exchange, assign and transfer the Original Notes tendered hereby and that the Issuers will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Issuers to be necessary or desirable to complete the assignment and transfer of the Original Notes tendered. The undersigned agrees that acceptance of any tendered Original Notes by the Issuers and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Issuers of their obligations under the Registration Rights Agreement (as defined in the Prospectus) and that, upon the issuance of the Exchange Notes, the Issuers will have no further obligations or liabilities thereunder (except in certain limited circumstances). By tendering Original Notes, the undersigned certifies (a) that it is not an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act, that it is not a broker-dealer that owns Original Notes acquired directly from the Issuers or an affiliate of the Issuers, that it is acquiring the Exchange Notes in the ordinary course of the undersigned's business and that the undersigned has no arrangement with any person to participate in the distribution of the Exchange Notes or (b) that it is an "affiliate" (as so defined) of the Issuers or of the initial purchasers in the original offering of the Original Notes, and that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable to it. The undersigned acknowledges that, if it is a broker-dealer that will receive Exchange Notes for its own account, it will deliver a prospectus in connection with any resale of such Exchange Notes. By so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned understands that the Issuers may accept the undersigned's tender by delivering written notice of acceptance to the Exchange Agent, at which time the undersigned's right to withdraw such tender will terminate. All authority conferred or agreed to be conferred by this Letter shall survive the death or incapacity of the undersigned, and every obligation of the undersigned under this Letter shall be binding upon the undersigned's heirs, personal representatives, successors and assigns. Tenders may be withdrawn only in accordance with the procedures set forth in the Instructions contained in this Letter. 4 5 Unless otherwise indicated under "Special Delivery Instructions" below, the Exchange Agent will deliver Exchange Notes (and, if applicable, a certificate for any Original Notes not tendered but represented by a certificate also encompassing Original Notes which are tendered) to the undersigned at the address set forth in Box 1. The undersigned acknowledges that the Exchange Offer is subject to the more detailed terms set forth in the Prospectus and, in case of any conflict between the terms of the Prospectus and this Letter, the Prospectus shall prevail. [ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: Account Number: Transaction Code Number: [ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s):__________________________________ Date of Execution of Notice of Guaranteed Delivery: Window Ticket Number (if available): Name of Institution which Guaranteed Delivery: 5 6 PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BOX 2 - -------------------------------------------------------------------------------- PLEASE SIGN HERE WHETHER OR NOT ORIGINAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY X _________________________________________ ____________ X _________________________________________ ____________ SIGNATURE(S) OF OWNER(S) DATE OR AUTHORIZED SIGNATORY Area Code and Telephone Number: ____________________________________ This box must be signed by registered holder(s) of Original Notes as their name(s) appear(s) on certificate(s) for Original Notes, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Letter. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. (See Instruction 3) Name(s)_______________________________________________________________________ ______________________________________________________________________________ (PLEASE PRINT) Capacity______________________________________________________________________ Address_______________________________________________________________________ ______________________________________________________________________________ (INCLUDE ZIP CODE) Signature(s) Guaranteed ______________________________________________________ by an Eligible Institution: (AUTHORIZED SIGNATURE) (If required by ______________________________________________________ Instruction 3) (TITLE) ______________________________________________________ (NAME OF FIRM) - -------------------------------------------------------------------------------- 6 7 BOX 3 - ------------------------------------------------------------------------------------------------------------------- TO BE COMPLETED BY ALL TENDERING HOLDERS - ------------------------------------------------------------------------------------------------------------------- PAYOR'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK - ------------------------------------------------------------------------------------------------------------------- Part 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING ------------------------------------- BELOW. SOCIAL SECURITY NUMBER OR EMPLOYER IDENTIFICATION NUMBER - ------------------------------------------------------------------------------------------------------------------- SUBSTITUTE FORM W-9 PART 2--CHECK THE BOX IF YOU ARE NOT SUBJECT TO BACK-UP WITHHOLDING UNDER THE DEPARTMENT OF THE PROVISIONS OF SECTION 2406(a)(1)(C) OF THE INTERNAL REVENUE CODE BECAUSE (1) YOU TREASURY INTERNAL HAVE NOT BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACK-UP WITHHOLDING AS A RESULT REVENUE SERVICE OF FAILURE TO REPORT ALL INTEREST OR DIVIDENDS OR (2) THE INTERNAL REVENUE SERVICE HAS NOTIFIED YOU THAT YOU ARE NO LONGER SUBJECT TO BACK-UP WITHHOLDING._[ ] PAYOR'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) ------------------------------------------------------------------------------------- CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT PART 3 THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND CHECK IF COMPLETE. AWAITING TIN [ ] SIGNATURE DATE ------------------------- ---------------------- - ------------------------------------------------------------------------------------------------------------------- --------------------------------------------------- --------------------------------------------------- BOX 4 BOX 5 SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 and 4) To be completed ONLY if certificates for Original To be completed ONLY if certificates for Original Notes in a principal amount not exchanged, or Notes in a principal amount not exchanged, or Exchange Notes, are to be issued in the name of Exchange Notes, are to be sent to someone other someone other than the person whose signature than the person whose signature appears in Box 2 or appears in Box 2, or if Original Notes delivered by to an address other than that shown in Box 1. book-entry transfer which are not accepted for exchange are to be returned by credit to an account Deliver: maintained at the Book-Entry Transfer Facility other than the account indicated above. (check appropriate boxes) [ ] Original Notes not tendered Issue and deliver: [ ] Exchange Notes, to: (check appropriate boxes) Name [ ] Original Notes not tendered ------------------------------------------------ (PLEASE PRINT) [ ] Exchange Notes, to: Address Name -------------------------------------------- ----------------------------------------------- (PLEASE PRINT) ---------------------------------------------------- Address Please complete the Substitute Form W-9 at Box 3 Tax I.D. or Social Security Number: --------------- --------------------------------------------------- ---------------------------------------------------
7 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Original Notes or a Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed copy of this Letter and any other documents required by this Letter, must be received by the Exchange Agent at one of its addresses set forth herein on or before the Expiration Date. The method of delivery of this Letter, certificates for Original Notes or a Book-Entry Confirmation, as the case may be, and any other required documents is at the election and risk of the tendering holder, but except as otherwise provided below, the delivery will be deemed made when actually received by the Exchange Agent. If delivery is by mail, the use of registered mail with return receipt requested, properly insured, is suggested. Holders whose Original Notes are not immediately available or who cannot deliver their Original Notes or a Book- Entry Confirmation, as the case may be, and all other required documents to the Exchange Agent on or before the Expiration Date may tender their Original Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such procedure: (i) tender must be made by or through an Eligible Institution (as defined in the Prospectus under the caption "The Exchange Offer"); (ii) prior to the Expiration Date, the Exchange Agent must have received from the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission, mail or hand delivery) (x) setting forth the name and address of the holder, the description of the Original Notes and the principal amount of Original Notes tendered, (y) stating that the tender is being made thereby and (z) guaranteeing that, within five New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, this Letter together with the certificates representing the Original Notes or a Book-Entry Confirmation, as the case may be, and any other documents required by this Letter will be deposited by the Eligible Institution with the Exchange Agent; and (iii) the certificates for all tendered Original Notes or a Book-Entry Confirmation, as the case may be, as well as all other documents required by this Letter, must be received by the Exchange Agent within five New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in the Prospectus under the caption "The Exchange Offer -- How to Tender." All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Original Notes will be determined by the Issuers, whose determination will be final and binding. The Issuers reserve the absolute right to reject any or all tenders that are not in proper form or the acceptance of which, in the opinion of the Issuers' counsel, would be unlawful. The Issuers also reserve the right to waive any irregularities or conditions of tender as to particular Original Notes. All tendering holders, by execution of this Letter, waive any right to receive notice of acceptance of their Original Notes. Neither the Issuers, the Exchange Agent nor any other person shall be obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount of any Senior Note evidenced by a submitted certificate or by a Book-Entry Confirmation is tendered, the tendering holder must fill in the principal amount tendered in the fourth column of Box 1 above. All of the Original Notes represented by a certificate or by a Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. A certificate for Original Notes not tendered will be sent to the holder, unless otherwise provided in Box 5, as soon as practicable after the Expiration Date, in the event that less than the entire principal amount of Original Notes represented by a submitted certificate is 8 9 tendered (or, in the case of Original Notes tendered by book-entry transfer, such non-exchanged Original Notes will be credited to an account maintained by the holder with the Book-Entry Transfer Facility). If not yet accepted, a tender pursuant to the Exchange Offer may be withdrawn prior to the Expiration Date. To be effective with respect to the tender of Original Notes, a notice of withdrawal must: (i) be received by the Exchange Agent before the Company notifies the Exchange Agent that it has accepted the tender of Original Notes pursuant to the Exchange Offer; (ii) specify the name of the person who tendered the Original Notes; (iii) contain a description of the Original Notes to be withdrawn, the certificate numbers shown on the particular certificates evidencing such Original Notes and the principal amount of Original Notes represented by such certificates; and (iv) be signed by the holder in the same manner as the original signature on this Letter (including any required signature guarantee). 3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the holder(s) of Original Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the certificate(s) for such Original Notes, without alteration, enlargement or any change whatsoever. If any of the Original Notes tendered hereby are owned by two or more joint owners, all owners must sign this Letter. If any tendered Original Notes are held in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are names in which certificates are held. If this Letter is signed by the holder of record and (i) the entire principal amount of the holder's Original Notes are tendered; and/or (ii) untendered Original Notes, if any, are to be issued to the holder of record, then the holder of record need not endorse any certificates for tendered Original Notes, nor provide a separate bond power. If any other case, the holder of record must transmit a separate bond power with this Letter. If this Letter or any certificate or assignment is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and proper evidence satisfactory to the Issuer of their authority to so act must be submitted, unless waived by the Issuers. Signatures on this Letter must be guaranteed by an Eligible Institution, unless Original Notes are tendered: (i) by a holder who has not completed the Box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter; or (ii) for the account of an Eligible Institution. In the event that the signatures in this Letter or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by an eligible guarantor institution which is a member of The Securities Transfer Agents Medallion Program (STAMP), The New York Stock Exchanges Medallion Signature Program (MSP) or The Stock Exchanges Medallion Program (SEMP) (collectively, "Eligible Institutions"). If Original Notes are registered in the name of a person other than the signer of this Letter, the Original Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Issuers, in their sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in Box 4 or 5, as applicable, the name and address to which the Exchange Notes or certificates for Original Notes not exchanged are to be issued or sent, if different from the name and address of the person signing this Letter. In the case of issuance in a different name, the tax identification number of the person named must also be indicated. Holders tendering Original Notes by book-entry transfer may request that Original Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such holder may designate. 9 10 5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder whose tendered Original Notes are accepted for exchange must provide the Exchange Agent (as payor) with his or her correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number. If the Exchange Agent is not provided with the correct TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery to the holder of the Exchange Notes pursuant to the Exchange Offer may be subject to back-up withholding. (If withholding results in overpayment of taxes, a refund may be obtained.) Exempt holders (including, among others, all corporations and certain foreign individuals) are not subject to these back-up withholding and reporting requirements. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. Under federal income tax laws, payments that may be made by the Issuers on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to back-up withholding at a rate of 31%. In order to prevent back-up withholding, each tendering holder must provide his or her correct TIN by completing the "Substitute Form W-9" referred to above, certifying that the TIN provided is correct (or that the holder is awaiting a TIN) and that: (i) the holder has not been notified by the Internal Revenue Service that he or she is subject to back-up withholding as a result of failure to report all interest or dividends; or (ii) the Internal Revenue Service has notified the holder that he or she is no longer subject to back-up withholding; or (iii) certify in accordance with the Guidelines that such holder is exempt from back-up withholding. If the Original Notes are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for information on which TIN to report. 6. TRANSFER TAXES. The Issuers will pay all transfer taxes, if any, applicable to the transfer of Original Notes to it or its order pursuant to the Exchange Offer. If, however, the Exchange Notes or certificates for Original Notes not exchanged are to be delivered to, or are to be issued in the name of, any person other than the record holder, or if tendered certificates are recorded in the name of any person other than the person signing this Letter, or if a transfer tax is imposed by any reason other than the transfer of Original Notes to the Company or its order pursuant to the Exchange Offer, then the amount of such transfer taxes (whether imposed on the record holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of taxes or exemption from taxes is not submitted with this Letter, the amount of transfer taxes will be billed directly to the tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter. 7. WAIVER OF CONDITIONS. The Issuers reserve the absolute right to amend or waive any of the specified conditions in the Exchange Offer in the case of any Original Notes tendered. 8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose certificates for Original Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above, for further instructions. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus or this Letter, may be directed to the Exchange Agent. IMPORTANT: This Letter (together with certificates representing tendered Original Notes or a Book-Entry Confirmation and all other required documents) must be received by the Exchange Agent on or before the Expiration Date (as defined in the Prospectus). 10 EX-99.2 29 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 PIONEER AMERICAS ACQUISITION CORPORATION EXCHANGE OFFER TO HOLDERS OF ITS 9 1/4% SERIES A SENIOR SECURED NOTES DUE 2007 NOTICE OF GUARANTEED DELIVERY As set forth in the Prospectus dated ________ , 1997 (the "Prospectus") of Pioneer Americas Acquisition Corporation ("Company") and all of the subsidiaries of the Company (together with the Company, the "Issuers") under "The Exchange Offer -- How to Tender" and in the Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by the Issuers to exchange up to $200,000,000 in principal amount of its 9 1/4% Series A Senior Secured Notes due 2007 issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"), for $200,000,000 in principal amount of its 9 1/4% Series B Senior Secured Notes due 2007 (the "Exchange Notes"), this form or one substantially equivalent hereto must be used to accept the Exchange Offer of the Issuers if: (i) certificates for the Original Notes are not immediately available; or (ii) time will not permit all required documents to reach the Exchange Agent (as defined below) on or prior to the Expiration Date (as defined in the Prospectus) of the Exchange Offer. Such form may be delivered by hand or transmitted by telegram, telex, facsimile transmission or letter to the Exchange Agent. TO: UNITED STATES TRUST COMPANY OF NEW YORK (the "Exchange Agent") By Facsimile: (212) 420-6152 Attention: Customer Service Confirm by telephone: (800) 548-6565 By Registered or Certified Mail: United States Trust Company of New York P.O. Box 844 Cooper Station New York, New York 10276 By Hand: United States Trust Company of New York 111 Broadway New York, New York 10006 Attention: Corporate Trust Operations By Overnight Courier: United States Trust Company of New York 770 Broadway New York, New York 10003 Attention: Corporate Trust Operations DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMITTAL OF THIS INSTRUMENT TO A FACSIMILE OR TELEX NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. 2 Ladies and Gentlemen: The undersigned hereby tenders to the Issuers, upon the terms and conditions set forth in the Prospectus and the Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which are hereby acknowledged, the principal amount of Original Notes set forth below pursuant to the guaranteed delivery procedure described in the Prospectus and the Letter of Transmittal. - ------------------------------------------------------------------------------ Sign Here Principal Amount of Original Notes Tendered Signature(s) ------------------------- ---------------------------- ---------------------------------------- Certificate Nos. Please Print the Following Information (if available) ------------------- Name(s) --------------------------------- ---------------------------------------- Total Principal Amount Address Represented by Original Notes -------------------------------- Certificate(s) ----------------- ---------------------------------------- Area Code and Tel. No(s). --------------- ---------------------------------------- Account Number ------------------ Dated: , 1997 ---------------- - ------------------------------------------------------------------------------ 3 GUARANTEE The undersigned, a member of a recognized signature guarantee medallion program within the meaning of Rule 17A(d)-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees that delivery to the Exchange Agent of certificates tendered hereby, in proper form for transfer, or delivery of such certificates pursuant to the procedure for book-entry transfer, in either case with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other required documents, is being made within five trading days after the date of execution of a Notice of Guaranteed Delivery of the above-named person. Name of Firm Authorized Signature Number and Street or P.O. Box City State Zip Code Area Code and Tel. No. Dated: _____________, 1997 EX-99.3 30 FORM OF LETTER TO CLIENTS 1 EXHIBIT 99.3 PIONEER AMERICAS ACQUISITION CORPORATION OFFER TO EXCHANGE UP TO $200,000,000 IN PRINCIPAL AMOUNT OF 9 1/4% SERIES A SENIOR SECURED NOTES DUE 2007 ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED FOR $200,000,000 IN PRINCIPAL AMOUNT OF 9 1/4% SERIES B SENIOR SECURED NOTES DUE 2007 To Our Clients: Enclosed for your consideration is a Prospectus dated ________ , 1997 (as the same may be amended or supplemented from time to time, the "Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by Pioneer Americas Acquisition Corporation (the "Company") and all of the subsidiaries of the Company (together with the Company, the "Issuers") to exchange up to $200,000,000 in principal amount of its 9 1/4% Series A Senior Secured Notes due 2007 issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"), for $200,000,000 in principal amount of its 9 1/4% Series B Senior Secured Notes due 2007 (the "Exchange Notes"). The material is being forwarded to you as the beneficial owner of Original Notes carried by us for your account or benefit but not registered in your name. A tender of any Original Notes may be made only by us as the registered holder and pursuant to your instructions. Therefore, the Issuers urge beneficial owners of Original Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee to contact such registered holder promptly if they wish to tender Original Notes in the Exchange Offer. Accordingly, we request instructions as to whether you wish us to tender any or all Original Notes, pursuant to the terms and conditions set forth in the Prospectus and Letter of Transmittal. We urge you to read carefully the Prospectus and Letter of Transmittal before instructing us to tender your Original Notes. YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN ORDER TO PERMIT US TO TENDER ORIGINAL NOTES ON YOUR BEHALF IN ACCORDANCE WITH THE PROVISIONS OF THE EXCHANGE OFFER. The Exchange Offer will expire at 5:00 p.m., Eastern Standard Time, on _______, ________ __, 1997, unless extended (the "Expiration Date"). Original Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. If you wish to have us tender any or all of your Original Notes held by us for your account or benefit, please so instruct us by completing, executing and returning to us the instruction form that appears below. The accompanying Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to tender Original Notes held by us and registered in our name for your account or benefit. 2 INSTRUCTIONS The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer of Pioneer Americas Acquisition Corp. THIS WILL INSTRUCT YOU TO TENDER THE PRINCIPAL AMOUNT OF ORIGINAL NOTES INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED, PURSUANT TO THE TERMS OF AND CONDITIONS SET FORTH IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL. Box 1 |_| Please tender my Original Notes held by you for my account or benefit. I have identified on a signed schedule attached hereto the principal mount of Original Notes to be tendered if I wish to tender less than all of my Original Notes. Box 2 |_| Please do not tender any Original Notes held by you for my account or benefit. Date: , 1997 ---------------------------------------- ---------------------------------------- Signature(s) ---------------------------------------- ---------------------------------------- Please print name(s) here Unless a specific contrary instruction is given in a signed Schedule attached hereto, your signature(s) hereon shall constitute an instruction to us to tender all of your Original Notes. EX-99.4 31 FORM OF LETTER TO NOMINEES. 1 EXHIBIT 99.4 PIONEER AMERICAS ACQUISITION CORPORATION OFFER TO EXCHANGE UP TO $200,000,000 IN PRINCIPAL AMOUNT OF 9 1/4% SERIES A SENIOR SECURED NOTES DUE 2007 ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED FOR $200,000,000 IN PRINCIPAL AMOUNT OF 9 1/4% SERIES B SENIOR SECURED NOTES DUE 2007 To Securities Dealers, Commercial Banks Trust Companies and Other Nominees: Enclosed for your consideration is a Prospectus dated _______ , 1997 (as the same may be amended or supplemented from time to time, the "Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by Pioneer Americas Acquisition Corporation (the "Company") and all of the subsidiaries of the Company (together with the Company, the "Issuers") to exchange up to $200,000,000 in principal amount of its 9 1/4% Series A Senior Secured Notes due 2007 issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"), for $200,000,000 in principal amount of its 9 1/4% Series B Senior Secured Notes due 2007 (the "Exchange Notes"). We are asking you to contact your clients for whom you hold Original Notes registered in your name or in the name of your nominee. In addition, we ask you to contact your clients who, to your knowledge, hold Original Notes registered in their own name. The Issuers will not pay any fees or commissions to any broker, dealer or other person in connection with the solicitation of tenders pursuant to the Exchange Offer. You will, however, be reimbursed by the Issuers for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Issuers will pay all transfer taxes, if any, applicable to the tender of Original Notes to it or its order, except as otherwise provided in the Prospectus and the Letter of Transmittal. Enclosed are copies of the following documents: 1. The Prospectus; 2. A Letter of Transmittal for your use in connection with the tender of Original Notes and for the Information of your clients; 3. A form of letter that may be sent to your clients for whose accounts you hold Original Notes registered in your name or the name of your nominee, with space provided for obtaining the clients' instructions with regard to the Exchange Offer; 4. A form of Notice of Guaranteed Delivery; and 5. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Your prompt action is requested. The Exchange Offer will expire at 5:00 p.m., Eastern Standard Time, on _________, ________ __, 1997, unless extended (the "Expiration Date"). Original Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. To tender Original Notes, certificates for Original Notes or a Book-Entry Confirmation, a duly executed and properly completed Letter of Transmittal or a facsimile thereof, and any other required documents, must be received by the Exchange Agent as provided in the Prospectus and the Letter of Transmittal. 2 Additional copies of the enclosed material may be obtained from United States Trust Company of New York, the Exchange Agent, by calling (800) 548-6565. NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE ISSUERS OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL. -----END PRIVACY-ENHANCED MESSAGE-----