-----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, M46L+91+VAve6WsCj66f824kPgiS2qWMJ9FVQVCL+aMzvn3U7PrTEmnTB5g+73MJ ybTJeGahV5L2tBIZ1gJiAA== 0000950129-97-001373.txt : 19970401 0000950129-97-001373.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950129-97-001373 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 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: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 033-91702 FILM NUMBER: 97569929 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: SUITE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: SUITE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 10-K405 1 PIONEER AMERICAS ACQUISITION CORP. - 12/31/96 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1994 (FEE REQUIRED) For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to COMMISSION FILE NUMBER 33-98828 PIONEER AMERICAS ACQUISITION CORP. (EXACT NAME OF REGISTRANT 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 700 LOUISIANA STREET HOUSTON, TEXAS 77002 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) --------------------------- Securities registered pursuant to Section 12(b) of the Act: NONE. Securities registered pursuant to Section 12(g) of the Act: 13 3/8% FIRST MORTGAGE NOTES DUE 2005 (Title of class) On March 7, 1997, there were outstanding 1,000 shares of the Registrant's Common Stock, $.01 par value. All of such shares are owned by Pioneer Companies, Inc. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X , No __. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X , No ___. Documents incorporated by reference: None. The Registrant meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K, and is therefore filing this Form with the reduced disclosure format permitted by General Instruction (I)(2) of Form 10-K. 2 PIONEER AMERICAS ACQUISITION CORP. TABLE OF CONTENTS FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1996
PART I PAGE ------ ---- Item 1. Business 3 Item 2. Properties 7 Item 3 Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 8. Financial Statements and Supplementary Data 9 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 32 PART III -------- Item 10. Directors and Executive Officers of the Registrant 32 Item 11. Executive Compensation 32 Item 12. Security Ownership of Certain Beneficial Owners and Management 32 Item 13. Certain Relationships and Related Transactions 32 PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 33
2 3 PART I Unless the context otherwise requires, (i) the term "Pioneer" refers to Pioneer Americas Acquisition Corp., (ii) the terms "Pioneer Americas" and "Predecessor Company" refer to Pioneer Americas, Inc. and its subsidiaries, (iii) the term "Company" means Pioneer and its subsidiaries and (iv) the term "PCI" refers to Pioneer Companies, Inc., the parent company of Pioneer. ITEM 1. BUSINESS. THE ACQUISITION On April 20, 1995 (the "Closing Date"), pursuant to a Stock Purchase Agreement, dated as of March 24, 1995 (the "Acquisition Agreement"), by and among PCI, Pioneer and the holders of the outstanding common stock and other common equity interests of Pioneer Americas, Inc. (the "Sellers"), Pioneer acquired all of such stock and interests (the "Acquisition") for a purchase price equal to the sum of approximately (i) $102 million, paid in cash, (ii) $11.5 million aggregate principal amount of subordinated promissory notes of PCI (the "Seller Notes") and (iii) certain amounts payable after the closing based upon earnings or proceeds attributable to certain of the Company's direct and indirect real estate holdings which are not necessary for the Company's chlor-alkali business. In addition, as further consideration for the Acquisition, Pioneer paid approximately $51.7 million to retire all outstanding indebtedness of Pioneer Americas and $5 million to redeem the outstanding preferred stock of Pioneer Americas, Inc. In connection with the consummation of the Acquisition, (i) Pioneer issued $135 million in principal amount of 13 3/8% Senior Notes due 2005 (the "Senior Notes"), (ii) PCI issued the Seller Notes in exchange for certain of the outstanding shares of Pioneer Americas, Inc., which PCI contributed to Pioneer, (iii) PCI issued to Interlaken Investment Partners, L.P., a Delaware limited partnership (the "Interlaken Partnership") Class A Common Stock of PCI for an aggregate purchase price of $15 million (the "Interlaken Partnership Purchase"), the proceeds of which were contributed to Pioneer, (iv) PCI issued to Richard C. Kellogg, Jr. and Frans G.J. Speets, directors and executive officers of Pioneer Americas, and to certain other employees of Pioneer Americas, Class A Common Stock of PCI for an aggregate purchase price of $6 million (the "Management Purchase"), the proceeds of which were contributed to Pioneer, and (v) Pioneer Americas entered into a new bank revolving credit facility (the "Bank Credit Facility") with Bank of America Illinois, providing for borrowings of up to $30 million. The net proceeds of the sale of the Senior Notes, the Interlaken Partnership Purchase, the Management Purchase and a borrowing under the Bank Credit Facility were used to pay the cash portion of the purchase price of the Acquisition, to retire the outstanding Pioneer Americas indebtedness and to redeem the outstanding preferred stock of Pioneer Americas, Inc. GENERAL Pioneer is a wholly-owned subsidiary of PCI. PCI is a publicly-traded company, which prior to the Acquisition was actively seeking acquisitions and had no operations. As of December 31, 1996, PCI had a net operating loss carryforward ("NOL") which PCI believes is approximately $35.6 million and is available to offset future taxable income. As of December 31, 1996, the Interlaken Partnership beneficially owned approximately 35.6% of the voting power of PCI, William R. Berkley (who may be deemed to beneficially own all shares of PCI common stock held by the Interlaken Partnership) beneficially owned approximately 61.0% of the voting power of PCI. 3 4 Following its formation in 1988, the Predecessor Company acquired two chlor-alkali plants previously owned and operated by Stauffer Chlor Alkali Company, Inc., and it subsequently acquired several businesses engaged in municipal, industrial and commercial water treatment. During 1996 the Company conducted its primary business through its operating subsidiaries: Pioneer Chlor Alkali Company, Inc. ("PCAC"), All-Pure Chemical Co. ("All-Pure") (including T.C. Products, Inc. following its acquisition in July 1996), and Imperial West. In 1996, PCAC accounted for 71% of the Company's total revenues, and All-Pure and Imperial West accounted for 28% and 1%, respectively, of the Company's total revenues, net of intercompany eliminations. In February 1996 PCI formed a new company, Kemwater North America Company ("Kemwater"), to continue the business activities previously conducted by its subsidiary, Imperial West Chemical Co. ("Imperial West"), and to operate the business acquired through the acquisition of KWT, Inc. ("KWT") from a subsidiary of Kemira Oy of Finland ("Kemira"). Fifty percent of the common stock of Kemwater is held by a subsidiary of Pioneer and fifty percent of the common stock of Kemwater is owned by a subsidiary of PCI. A subsidiary of Pioneer also owns all of the outstanding shares of Kemwater's preferred stock. Fifty percent of the results of Kemwater's operations are included in the Company's equity in net loss of unconsolidated subsidiary. PCAC. PCAC owns and operates two chlor-alkali production facilities, located in St. Gabriel, Louisiana and Henderson, Nevada. These facilities, which are the largest operated by the Company, 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. PCAC also has an indirect 15% equity interest in Saguaro Power Company L.P. ("Saguaro Power"), which owns and operates a 90-megawatt cogeneration facility located on approximately six acres of the Henderson property. Chlorine and caustic soda are co-products, concurrently produced in a ratio of 1 to 1.1, respectively, through electrolysis of salt water. An electrochemical unit ("ECU") consists of one ton of chlorine and 1.1 tons of caustic soda. On December 11, 1996, the Company announced that it had initiated discussions with Occidental Chemical Corporation ("OxyChem") regarding the proposed acquisition by the Company of OxyChem's Tacoma, Washington chlor-alkali facility (the "Tacoma Facility"). If agreement with OxyChem on the terms of the transaction can be reached, the Company expects that the securing of required financing and completion of the transaction could occur during the first half of 1997. The Tacoma facility would be PCAC's largest plant. All-Pure. All-Pure manufactures bleach, 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 the western United States. 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. All-Pure purchases all of its chlorine and caustic soda and a substantial portion of its hydrochloric acid from PCAC. In July 1996, All-Pure acquired T.C. Products, Inc. ("T.C. Products"), which is engaged in the manufacture and marketing of bleach and related products from its plant in Tacoma, Washington. 4 5 RESULTS OF OPERATIONS The following table sets forth certain operating data for the periods indicated:
PRO FORMA (1) ----------------------- YEAR ENDED DECEMBER 31, ----------------------------------------------- 1996 1995 ------------------- --------------------- % OF % OF $'000S REVENUES $'000S REVENUES -------- -------- --------- -------- Revenues: PCAC $129,569 71 % $ 118,298 59 % Imperial West (2) 2,439 1 32,909 16 All-Pure (3) 51,317 28 49,549 25 --------- ----- --------- ----- Total revenues 183,325 100 200,756 100 Cost of sales 126,739 69 135,575 67 --------- ----- --------- ----- Gross profit 56,586 31 65,181 33 Selling, general and administrative expense 23,528 13 26,883 14 --------- ----- --------- ----- Operating income 33,058 18 38,298 19 Equity in net loss of unconsolidated subsidiaries 2,607 1 -- -- Interest expense, net 17,290 9 14,570 7 Settlement of litigation and insurance claims, net -- -- -- -- Other income, net 1,684 -- 1,494 1 --------- ----- --------- ----- Income before income taxes and extraordinary item 14,845 8 25,222 12 Provision for income taxes 6,734 4 11,017 5 --------- ----- --------- ----- Net income before extraordinary item 8,111 4 14,205 7 Extraordinary item, net of applicable tax (4) -- -- (3,420) 2 ---------- ----- --------- ----- Net income $ 8,111 4 % $ 10,785 5% ========== ===== ========= =====
(1) The pro forma results of operations, which combine the Company's operating results for the year ended December 31, 1995 and the Predecessor Company's operating results from January 1, 1995 through April 20, 1995, are provided for comparative purposes. The Predecessor Company's operating results exclude approximately $1.0 million of transaction costs related to the Acquisition. The Company believes that this provides a meaningful basis for comparison. The Company and the Predecessor Company have different asset bases and the effects on operating results of these differences are discussed in the comparison which follows. (2) To continue the business activities previously conducted by Imperial West Kemwater was formed in connection with the acquisition of KWT in February 1996 and, accordingly, the results of operations for the year ended December 31, 1996 include the results of operations include operations of Imperial West only for the month of January 1996. Fifty percent of Kemwater's results of operations are included as equity in net loss of unconsolidated subsidiary since the acquisition. (3) T.C. Products was acquired 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. (4) 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 prior to the Acquisition. 5 6 YEAR ENDED DECEMBER 31, 1996 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31, 1995 Revenues Revenues decreased by $17.4 million or 9% to $183.3 million for 1996 compared to 1995. The business activities of Imperial West were transferred in February 1996 to Kemwater which caused a decrease in sales of approximately $19.8 million. The Company owns 50% of the common stock of Kemwater. The decrease in sales was partially offset by the acquisition of T.C. Products during 1996, which accounted for a $5.1 million increase in revenue. Revenues for the Company's chlor-alkali products during 1996 remained relatively unchanged from 1995 as an approximate 9% increase in caustic soda sales volumes was offset by a 7% decrease in ECU netback. Cost of Sales Cost of sales decreased by approximately $8.8 million from $135.5 million in 1995 to $126.7 in 1996. The decrease was a result of the aforementioned transfer of Imperial West operations to Kemwater, partially offset by a $3.1 million increase due to the acquisition of T.C. Products. 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 aforementioned transfer of Imperial West operations to Kemwater during 1996. Equity in Net Loss of Unconsolidated Subsidiaries Equity in net loss of unconsolidated subsidiaries, resulting from the KWT acquisition in 1996, arises from a 50% ownership interest in Kemwater. Interest Expense, Net Interest expense increased by $2.7 million or 19% to $17.3 million for 1996. This increase was a result of debt incurred in connection with the Acquisition as well as debt incurred in financing the T.C. Products acquisition. Provision for Income Taxes Provision for income taxes for 1996 was $6.7 million, with an effective tax rate of 45%, compared to $11.0 million, with an effective tax rate of 44%, for 1995. The decrease in the 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 $25.2 million in 1995. 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 Due to the factors described above, net income for the year ended December 31, 1996 was $8.1 million, compared to $10.8 million for 1995. 6 7 Item 2. PROPERTIES. FACILITIES The following table sets forth certain information regarding the Company's principal production and distribution facilities as of March 24, 1997. All property is leased unless otherwise indicated.
Type of Facility Location ---------------- --------- Chlor-alkali plants St. Gabriel, Louisiana* Henderson, Nevada* Bleach plants Santa Fe Springs, California Tracy, California Kalama, Washington City of Industry, California Marysville, California Chlorine and hydrochloric acid repackaging Santa Fe Springs, California Tracy, California Kalama, Washington City of Industry, California Marysville, California Caustic soda terminals Tampa, Florida Wilmington, California Tracy, California Distribution centers Fresno, California Spokane, Washington
- ------------- * Owned property The Company's corporate headquarters are located in leased office space in Houston, Texas under a lease terminating in 2006. In accordance with the terms of an Exchange and Registration Rights Agreement (the "Exchange Agreement") which Pioneer entered into at the time of the Acquisition, on January 23, 1996, Pioneer exchanged $135.0 million of its 13 3/8% First Mortgage Notes due 2005 (the "Mortgage Notes") for all of the outstanding Senior Notes. The Mortgage Notes and obligations outstanding under the Bank Credit Facility are secured by first mortgages on PCAC's St. Gabriel and Henderson facilities. ITEM 3. LEGAL PROCEEDINGS. From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of its business. The Company maintains insurance coverage against potential claims in amounts which it believes to be adequate. In the opinion of management, uninsured losses, if any, resulting from these matters will not have a material adverse effect on the Company's results of operations, cash flow or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. This item is omitted in accordance with General Instruction (I)(2) of Form 10-K. 7 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. All of Pioneer's outstanding Common Stock, which is Pioneer's only class of equity securities, is owned by PCI. Pursuant to the terms of the indenture with respect to the Mortgage Notes, prior to April 1, 1997, dividends on Pioneer's Common Stock cannot be paid in amounts in excess of those necessary to enable PCI to pay interest on the Seller Notes, of which there is $11.5 million in principal amount outstanding. As a result of such restriction, dividends on Pioneer's Common Stock are limited to such amounts prior to that date. ITEM 6. SELECTED FINANCIAL DATA. This item is omitted in accordance with General Instruction (I)(2) of Form 10-K. In accordance with General Instruction (I)(2)(a) of Form 10-K, management's narrative analysis of the results of operations is contained in Item 1. Business "Results of Operations." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This item is omitted in accordance with General Instruction (I)(2) of Form 10-K. In accordance with General Instruction (I)(2)(a) of Form 10-K, management's narrative analysis of the results of operations is contained in Item 1. Business "Results of Operations." 8 9 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index:
PAGE ---- (1) Consolidated financial statements, Pioneer Americas Acquisition Corp. and subsidiary companies: Report of Deloitte & Touche LLP, independent public accountants 10 Report of Ernst & Young LLP, independent auditors 11 Report of Piercy, Bowler, Taylor & Kern, independent public accountants 12 Consolidated balance sheets for the Company at December 31, 1996 and 1995 13 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 14 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. 15 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 16 Notes to consolidated financial statements 17 (2) Supplemental Schedules: Schedule II - Valuation and Qualifying Accounts - Pioneer Americas Acquisition Corp. 36 Schedule II - Valuation and Qualifying Accounts - Pioneer Americas, Inc. 37 All schedules, except the one listed above, have been omitted since the information required to be submitted has been included in the financial statements or notes or has been omitted as not applicable or not required.
9 10 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 10 11 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 4) 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 11 12 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 January 30, 1995 CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS ADVISORS A PROFESSIONAL CORPORATION 12 13 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. 13 14 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 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 ============ ============ ============ =========== Net income per share $ 8,111 $ 6,421 ============= ============ Weighted average number of shares of common stock outstanding 1 1 ============= ============
See notes to consolidated financial statements. 14 15 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. 15 16 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PREDECESSOR COMPANY -------------------------- PERIOD FROM PERIOD FROM INCEPTION JANUARY 1, YEAR ENDED THROUGH 1995 YEAR ENDED DECEMBER 31, DECEMBER 31, THROUGH DECEMBER 31, APRIL 20, 1996 1995 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. 16 17 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 and for the year ended December 31, 1994 are included under the captions "Predecessor Company, 1995" and "Predecessor Company, 1994," respectively. 17 18 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 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 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. 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 18 19 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 the fair value of the assets. Implementation of this standard did not have a significant impact on the Company's 1996 consolidated financial statements. 19 20 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. 20 21 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 investment in and 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 21 22 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 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% 22 23 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 Exceed Accumulated Benefits Exceed 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. 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 =========== ============
23 24 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 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. 24 25 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 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 Bonds 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. 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. 25 26 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. 26 27 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 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. Management has been advised by counsel that the range of any loss which may be incurred as the result of the suit will be 27 28 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 deferred 4,593 3,579 (2,086) (1,256) ------------ ------------ ----------- ---------- Total income tax provision $ 6,735 $ 6,208 $ 4,809 $ 3,242 ========== =========== =========== ==========
28 29
Predecessor Company --------------------------------- 1996 1995 1995 1994 --------------- --------------- --------------- --------------- Amount Percent Amount Percent Amount Percent Amount Percent ------- ----- ------- ----- ------- ----- ------- ----- >C> 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 (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. 29 30 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 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 recorded 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 30 31 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. 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. 31 32 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Deloitte & Touche LLP has acted as independent accountants of the Company since its inception. Following the Acquisition it was determined that Deloitte & Touche LLP would continue to act as independent accountants of the Company and its consolidated subsidiaries. Ernst & Young LLP had been the independent accountants for Pioneer Americas and its consolidated subsidiaries prior to its dismissal, effective October 16, 1995. The reports of Ernst & Young LLP on the financial statements of Pioneer Americas for the fiscal year ended December 31, 1994 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 Pioneer Americas the fiscal year 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. Ernst & Young LLP furnished a letter addressed to the Securities and Exchange Commission stating whether it agreed with the above statements. A copy of that letter, dated October 30, 1995, is filed as an exhibit to this Annual Report. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. This item is omitted in accordance with General Instruction (I)(2) of Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. This item is omitted in accordance with General Instruction (I)(2) of Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. This item is omitted in accordance with General Instruction (I)(2) of Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. This item is omitted in accordance with General Instruction (I)(2) of Form 10-K. 32 33 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) LIST OF DOCUMENTS FILED. (1) The financial statements filed as part of this report are listed in the Index to Financial Statements under Item 8 on page 7 hereof. (2) Additional financial information and schedules included pursuant to the requirements of Form 10-K are listed in the Index to Financial Statements under Item 8 on page 7 hereof. (3) Exhibits The exhibits indicated by an asterisk (*) are incorporated by reference. The exhibits indicated by a plus sign (+) each constitute a management contract or arrangement required to be filed as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K. EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2* Stock Purchase Agreement, dated as of March 24, 1995, by and among PCI, Pioneer and the Sellers parties thereto (incorporated by reference to Exhibit 2 to the Registration Statement on form S-4 filed by Pioneer on October 30, 1995). 3.1* Certificate of Incorporation of Pioneer filed with the Secretary of State of Delaware on March 6, 1995 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 3.2* By-laws of Pioneer (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.1(a)* Indenture, dated as of April 1, 1995, by and among Pioneer, the Subsidiary Guarantors parties thereto and IBJ Schroder Bank & Trust Company, as trustee, relating to $135,000,000 principal amount of 13 3/8% Senior Notes due 2005, including form of Senior Note and Guarantee (incorporated by reference to Exhibit 4.1(a) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.1(b)* First Supplemental Indenture, dated as of September 14, 1995, by and among Pioneer, the Subsidiary Guarantors parties thereto and United States Trust Company of New York, as trustee (incorporated by reference to Exhibit 4.1(b) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.1(c) Second Supplemental Indenture, dated as of December 30, 1996, by and among Pioneer, the Subsidiary Guarantors parties thereto and United States Trust Company of New York, as trustee. 4.1(d)* Mortgage, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by Pioneer Chlor Alkali Company, Inc. (St. Gabriel, Louisiana) (incorporated by reference to Exhibit 4.2(a) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 33 34 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.1(e)* Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by Pioneer Chlor Alkali Company, Inc. (Henderson, Nevada) (incorporated by reference to Exhibit 4.2(b) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.1(f)* Intercreditor and Collateral Agency Agreement, dated as of September 14, 1995, by and among United States Trust Company of New York, as Trustee and Collateral Agent, Bank of America Illinois, as Agent, Pioneer, Pioneer Americas, Inc. and Pioneer Chlor Alkali Company, Inc. (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.2(a)* Loan and Security Agreement, dated as of April 12, 1995, by and among Pioneer Americas, Inc. and certain Subsidiary Guarantors, the lenders party thereto and Bank of America Illinois, as Agent (incorporated by reference to Exhibit 4.3(a) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.2(b)* Master Corporate Guaranty, dated April 12, 1995, executed by each of the Subsidiary Guarantors 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 Bank Credit Agreement (incorporated by reference to Exhibit 4.3(b) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.2(c)* Master Security Agreement, dated April 12, 1995, executed by each of the Subsidiary Guarantors party thereto, as debtor, respectively, in favor of Bank of America Illinois, as Agent, for the ratable benefit of the lenders (incorporated by reference to Exhibit 4.3(c) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 10.1* Contingent Payment Agreement, dated as of April 20, 1995, by and among PCI, Pioneer and the Sellers party thereto (incorporated by reference to Exhibit 10.2 to PCI's Current Report on Form 8-K filed on May 5, 1995 (file no. 1-9859)). 10.2* Tax Sharing Agreement, dated as of April 20, 1995, by and among PCI, Pioneer and the Subsidiary Guarantors (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 10.3*+ Pioneer Companies, Inc. 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 10.4*+ Pioneer Companies, Inc. Key Executive Stock Grant Plan (incorporated by reference to Exhibit 10.2 to Pioneer's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 10.5*+ Pioneer Chlor Alkali Company, Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.5 to Pioneer's Annual Report on Form 10-K for the year ended December 31, 1995). 10.6*+ Employment Agreement, dated April 20, 1995, between PCI and Richard C. Kellogg, Jr. (incorporated by reference to Exhibit 10.1 to PCI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (file no. 1-9859)). 34 35 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 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*+ Employment Agreement, dated April 20, 1995, between Pioneer Americas, Inc. and Kent R. Stephenson (incorporated by reference to Exhibit 10.10 to Pioneer's Annual Report on Form 10-K for the year ended December 31, 1995). 10.11+ Executive Employment Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris. 10.12+ Stock Purchase Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris. 10.13+ Non-Qualified Stock Option Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris. 16* Letter from Ernst & Young LLP regarding change in independent accountants (incorporated by reference to Exhibit 16.1 to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 21 Subsidiaries of Pioneer. (B) REPORTS ON FORM 8-K. The Company did not file any reports on Form 8-K during the quarter ended December 31, 1996. (C) FINANCIAL STATEMENT SCHEDULE. Filed herewith as a financial statement schedule is Schedule II with respect to 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. 35 36 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 ----------- --------- ---------- --------- ---------- ---------- YEAR ENDED DECEMBER 31, 1996: Allowance for doubtful accounts $1,424 $-- $-- $(113)(A) $1,311 YEAR ENDED DECEMBER 31, 1995: Allowance for doubtful accounts -- 138 1,416(B) (130)(A) 1,424
- ------------ (A) Uncollectible accounts written off, net of recoveries. (B) Allowance balance established on April 20, 1995 in connection with the acquisition of Pioneer Americas, Inc. 36 37 SCHEDULE II PIONEER AMERICAS, INC. 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 JANUARY 1, 1995 THROUGH APRIL 20, 1995: Allowance for doubtful accounts $ 2,038 $ 47 $ -- $(169)(A) $1,916 YEAR ENDED DECEMBER 31, 1994: Allowance for doubtful accounts 521 1,235 300(B) (18)(A) 2,038
- ------------ (A) Uncollectible accounts written off, net of recoveries. (B) Allowance balance established in May 1994 in connection with the acquisition of GPS. 37 38 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. PIONEER AMERICAS ACQUISITION CORP. By: /s/ Michael J. Ferris --------------------------------- Michael J. Ferris, President and Chief Executive Officer March 31, 1997 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Michael J. Ferris President and Chief Executive Officer March 31, 1997 ---------------------- (Principal Executive Officer) and Director (Michael J. Ferris) /s/ Philip J. Ablove Vice President and Chief Financial Officer March 31, 1997 --------------------- and Director (Principal Financial (Philip J. Ablove) Officer) /s/ John R. Beaver Controller (Principal Accounting Officer) March 31, 1997 ------------------- (John R. Beaver) /s/ William R. Berkley Chairman of the Board March 31, 1997 ----------------------- (William R. Berkley) /s/ Andrew M. Bursky Director March 31, 1997 --------------------- (Andrew M. Bursky) /s/ Donald J. Donahue Director March 31, 1997 ---------------------- (Donald J. Donahue)
38 39
/s/ Richard C. Kellogg, Jr. Director March 31, 1997 ---------------------------- (Richard C. Kellogg, Jr.) /s/ Paul J. Kienholz Director March 31, 1997 --------------------- (Paul J. Kienholz) /s/ Jack H. Nusbaum Director March 31, 1997 -------------------- (Jack H. Nusbaum) /s/ Thomas H. Schnitzius Director March 31, 1997 ------------------------- (Thomas H. Schnitzius)
39 40 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2* Stock Purchase Agreement, dated as of March 24, 1995, by and among PCI, Pioneer and the Sellers parties thereto (incorporated by reference to Exhibit 2 to the Registration Statement on form S-4 filed by Pioneer on October 30, 1995). 3.1* Certificate of Incorporation of Pioneer filed with the Secretary of State of Delaware on March 6, 1995 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 3.2* By-laws of Pioneer (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.1(a)* Indenture, dated as of April 1, 1995, by and among Pioneer, the Subsidiary Guarantors parties thereto and IBJ Schroder Bank & Trust Company, as trustee, relating to $135,000,000 principal amount of 13 3/8% Senior Notes due 2005, including form of Senior Note and Guarantee (incorporated by reference to Exhibit 4.1(a) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.1(b)* First Supplemental Indenture, dated as of September 14, 1995, by and among Pioneer, the Subsidiary Guarantors parties thereto and United States Trust Company of New York, as trustee (incorporated by reference to Exhibit 4.1(b) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.1(c) Second Supplemental Indenture, dated as of December 30, 1996, by and among Pioneer, the Subsidiary Guarantors parties thereto and United States Trust Company of New York, as trustee. 4.1(d)* Mortgage, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by Pioneer Chlor Alkali Company, Inc. (St. Gabriel, Louisiana) (incorporated by reference to Exhibit 4.2(a) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 41 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.1(e)* Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by Pioneer Chlor Alkali Company, Inc. (Henderson, Nevada) (incorporated by reference to Exhibit 4.2(b) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.1(f)* Intercreditor and Collateral Agency Agreement, dated as of September 14, 1995, by and among United States Trust Company of New York, as Trustee and Collateral Agent, Bank of America Illinois, as Agent, Pioneer, Pioneer Americas, Inc. and Pioneer Chlor Alkali Company, Inc. (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.2(a)* Loan and Security Agreement, dated as of April 12, 1995, by and among Pioneer Americas, Inc. and certain Subsidiary Guarantors, the lenders party thereto and Bank of America Illinois, as Agent (incorporated by reference to Exhibit 4.3(a) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.2(b)* Master Corporate Guaranty, dated April 12, 1995, executed by each of the Subsidiary Guarantors 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 Bank Credit Agreement (incorporated by reference to Exhibit 4.3(b) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 4.2(c)* Master Security Agreement, dated April 12, 1995, executed by each of the Subsidiary Guarantors party thereto, as debtor, respectively, in favor of Bank of America Illinois, as Agent, for the ratable benefit of the lenders (incorporated by reference to Exhibit 4.3(c) to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 10.1* Contingent Payment Agreement, dated as of April 20, 1995, by and among PCI, Pioneer and the Sellers party thereto (incorporated by reference to Exhibit 10.2 to PCI's Current Report on Form 8-K filed on May 5, 1995 (file no. 1-9859)). 10.2* Tax Sharing Agreement, dated as of April 20, 1995, by and among PCI, Pioneer and the Subsidiary Guarantors (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 10.3*+ Pioneer Companies, Inc. 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 10.4*+ Pioneer Companies, Inc. Key Executive Stock Grant Plan (incorporated by reference to Exhibit 10.2 to Pioneer's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 10.5*+ Pioneer Chlor Alkali Company, Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.5 to Pioneer's Annual Report on Form 10-K for the year ended December 31, 1995). 10.6*+ Employment Agreement, dated April 20, 1995, between PCI and Richard C. Kellogg, Jr. (incorporated by reference to Exhibit 10.1 to PCI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (file no. 1-9859)). 42 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 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*+ Employment Agreement, dated April 20, 1995, between Pioneer Americas, Inc. and Kent R. Stephenson (incorporated by reference to Exhibit 10.10 to Pioneer's Annual Report on Form 10-K for the year ended December 31, 1995). 10.11+ Executive Employment Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris. 10.12+ Stock Purchase Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris. 10.13+ Non-Qualified Stock Option Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris. 16* Letter from Ernst & Young LLP regarding change in independent accountants (incorporated by reference to Exhibit 16.1 to the Registration Statement on Form S-4 filed by Pioneer on October 30, 1995). 21 Subsidiaries of Pioneer. 27 Financial Data Schedule EX-4.1C 2 SECOND SUPPLEMENTAL INDENTURE - U.S. TRUST CO./NY 1 EXHIBIT 4.1(c) ================================================================================ SECOND SUPPLEMENTAL INDENTURE dated as of December 30, 1996 to INDENTURE dated as of April 1, 1995 among 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, as Subsidiary Guarantors and UNITED STATES TRUST COMPANY OF NEW YORK as Trustee ================================================================================ 2 Table of Contents
Page ---- ARTICLE I DEFINITIONS.................................................................... 3 ARTICLE II GUARANTEES..................................................................... 3 ARTICLE III REPRESENTATIONS AND WARRANTIES................................................. 4 Section 301. Representations of the New Subsidiary Guarantors............................... 4 Section 302. Representations of the Company and the Subsidiary Guarantors................... 4 Section 303. Representations of the Trustee................................................. 5 ARTICLE IV CONDITIONS PRECEDENT........................................................... 5 ARTICLE V MISCELLANEOUS.................................................................. 6 Section 501. Execution of Supplemental Indenture; Ratification of Original Indenture...................................................................... 6 Section 502. Concerning the Trustee......................................................... 6 Section 503. Counterparts................................................................... 6 Section 504 GOVERNING LAW.................................................................. 7
i 3 Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of April 1, 1995
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) . . . . . . . . . . . . . 703 (b)(2) . . . . . . . . . . . . . 703 (c) . . . . . . . . . . . . . 703 (d) . . . . . . . . . . . . . 703 Section 314(a) . . . . . . . . . . . . . 704, 1003 (b) . . . . . . . . . . . . . 1402 (c)(1) . . . . . . . . . . . . . 103 (c)(2) . . . . . . . . . . . . . 103 (c)(3) . . . . . . . . . . . . . 103 (d) . . . . . . . . . . . . . 1403, 1404 (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) (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 a part of this Indenture. 4 SECOND SUPPLEMENTAL INDENTURE, dated as of December 30, 1996 (this "Second Supplemental Indenture"), to the Indenture dated as of April 1, 1995 (the "Original Indenture") among PIONEER AMERICAS ACQUISITION CORP., a Delaware corporation (together with its successors and assigns, the "Company"), PIONEER AMERICAS, INC. ("PAI"), PIONEER CHLOR ALKALI COMPANY, INC. ("PCAC"), each a Delaware corporation, IMPERIAL WEST CHEMICAL CO., a Nevada corporation, ALL-PURE CHEMICAL CO. ("APC"), 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, and G.O.W. CORPORATION, a Nevada corporation (collectively, the "Original Subsidiary Guarantors"), and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee (the "Trustee"), as amended and supplemented by the First Supplemental Indenture, dated as of September 14, 1995 (the "First Supplemental Indenture") among the Company, the Original Subsidiary Guarantors and the Trustee (the Original Indenture, as so supplemented and amended, the "Indenture"). WHEREAS, the Company, the Original Subsidiary Guarantors and IBJ Schroder Bank & Trust Company ("IBJ"), as trustee, have heretofore executed and delivered the Original Indenture to provide for the issuance of Securities (as defined in the Original Indenture) of the Company, and the issuance of Guarantees (as defined in the Original Indenture) with respect thereto by the Original Subsidiary Guarantors; WHEREAS, by an Instrument of Resignation, Appointment and Acceptance dated as of September 14, 1995, IBJ resigned as trustee under the Original Indenture, the Company appointed the Trustee as successor trustee under the Original Indenture, and the Trustee accepted such appointment, all in accordance with the terms of the Original Indenture; WHEREAS, the Company, the Original Subsidiary Guarantors and the Trustee have heretofore executed and delivered the First Supplemental Indenture to secure PCAC's Guarantee with liens on PCAC's St. Gabriel, Louisiana and Henderson, Nevada plants (including real property, buildings, fixtures and equipment), and in connection therewith, to modify covenants, to provide additional indemnity to the Trustee, and to modify other provisions of the Original Indenture, the Securities or the Guarantees that relate to such collateral or that were or may be impacted by the providing of such collateral, and entered into certain agreements, documents and other instruments to effect the foregoing, including, without limitation, an intercreditor agreement relating to liens on such collateral on a pari passu basis in favor of the Trustee for the benefit of itself and the Holders (as defined in the Original Indenture) and the Agent Bank (as defined in the First Supplemental Indenture) for the benefit of itself and the other lenders under the Bank Credit Facility (as defined in the Original Indenture); WHEREAS, on June 5, 1996, Pioneer (East), Inc. ("Pioneer (East)") was incorporated in Delaware and all of Pioneer (East)'s outstanding Capital Stock (as defined in the Original -1- 5 Indenture) was issued to PAI, as a result of which Pioneer (East) is a Subsidiary (as defined in the Original Indenture) of the Company and is a Restricted Subsidiary (as defined in the Original Indenture); WHEREAS, on July 31, 1996, APC acquired all of the issued and outstanding Capital Stock of T.C. Holdings, Inc. ("Holdings"), a New Mexico corporation, which owns all of the issued and outstanding Capital Stock of T.C. Products, Inc. ("Products"), a Washington corporation, and as a result of such acquisition each of Holdings and Products is a Subsidiary of the Company and is a Restricted Subsidiary; WHEREAS, Section 1019 of the Indenture provides that if any Subsidiary of the Company becomes a Restricted Subsidiary after the Closing Date (as defined in the Original Indenture), the Company shall cause such Subsidiary to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiary shall unconditionally guarantee, in accordance with Article Thirteen of the Original Indenture, all of the Company's obligations under the Original Indenture and the Securities on the same terms as the other Subsidiary Guarantors (as defined in the Original Indenture), which Guarantee shall rank pari passu with any Senior Indebtedness (as defined in the Original Indenture) of such Subsidiary; WHEREAS, Section 901 of the Original Indenture provides that the Company, the Subsidiary Guarantors and the Trustee may, without the consent of the Holders, enter into indentures supplemental to the Original Indenture to add a Subsidiary Guarantor pursuant to the requirements of Section 1019 thereof; WHEREAS, the Company has requested the Trustee, the Original Subsidiary Guarantors, Pioneer (East), Holdings and Products to enter into this Second Supplemental Indenture for the purpose of adding Pioneer (East), Holdings and Products (collectively, the "New Subsidiary Guarantors") as Subsidiary Guarantors under the Original Indenture, and to provide for each such New Subsidiary Guarantor's unconditional guarantee, in accordance with Article Thirteen of the Original Indenture, of all of the Company's obligations under the Original Indenture and the Securities on the same terms as the Original Subsidiary Guarantors; and WHEREAS, all acts and things necessary to constitute these presents a valid and binding supplemental indenture according to its terms, have been done and performed, and the execution of this Second Supplemental Indenture (the Original Indenture, as supplemented by the First Supplemental Indenture and this Second Supplemental Indenture, being hereinafter called the "Indenture") has in all respects been duly authorized, and the Company, the Original Subsidiary Guarantors and the New Subsidiary Guarantors, in the exercise of the legal rights and powers vested in them, each executes this Second Supplemental Indenture; NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH: - 2 - 6 That, for and in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I DEFINITIONS (a) Capitalized terms used herein and not otherwise defined herein shall have the respective meanings assigned thereto in the Original Indenture. (b) For all purposes of the Indenture, except as otherwise expressly provided or unless the context otherwise requires, the following terms shall have the following respective meanings (such meanings shall apply equally to both the singular and plural forms of the respective terms): "Effective Date" means, subject to the satisfaction of the conditions precedent specified in Article IV hereof, the date of execution and delivery of this Second Supplemental Indenture. "First Supplemental Indenture" has the meaning specified in the recitals hereto. "Indenture" means the Original Indenture as amended and supplemented by the First Supplemental Indenture and this Second Supplemental Indenture, and as otherwise amended or supplemented from time to time in accordance with its terms. "New Subsidiary Guarantors" means Pioneer (East), Holdings and Products. "Original Indenture" has the meaning specified in the recitals hereto. (c) For all purposes of this Indenture, the words "herein", "hereof" and "hereunder" and other words of similar import refer to the Indenture as a whole and not to this Second Supplemental Indenture or to any particular Article, Section or other subdivision. ARTICLE II GUARANTEES For value received, each of the New Subsidiary Guarantors hereby unconditionally guarantees, jointly and severally, to the Holders of the Securities the payment of principal of, premium, if any, and interest on the Securities in the amounts and at the time when due and interest on the overdue principal and interest, if any, of the Securities, if lawful, and the payment - 3 - 7 or performance of all other obligations of the Company under the Indenture or the Securities, to the Holders of the Securities and the Trustee, all in accordance with and subject to the terms and limitations of the Securities and Article Thirteen of the Indenture. ARTICLE III REPRESENTATIONS AND WARRANTIES Section 301. Representations of the New Subsidiary Guarantors. The New Subsidiary Guarantors, jointly and severally, represent and warrant that the Guarantees have been duly and validly authorized and, when executed and authenticated in accordance with the terms of the Indenture, (i) will be legal, valid and binding obligations of the New Subsidiary Guarantors enforceable against the New Subsidiary Guarantors in accordance with their terms, except as (A) the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting creditors' rights generally and (B) the availability of equitable remedies may be limited by equitable principles of general applicability (regardless of whether in a proceeding in equity or at law) and as may be limited by the discretion of the court before which any proceeding therefor may be brought, and (ii) will be entitled to the benefits of the Indenture. Section 302. Representations of the Company and the Subsidiary Guarantors. The Company and the Subsidiary Guarantors, jointly and severally, represent and warrant that: (a) This Second Supplemental Indenture has been duly authorized by each of the Company and the Subsidiary Guarantors, and, when executed and delivered by the Company and the Subsidiary Guarantors on the Effective Date and, assuming due authorization, execution and delivery by the Trustee, will be a legal, valid and binding agreement of the Company and the Subsidiary Guarantors enforceable against the Company and the Subsidiary Guarantors in accordance with its terms, except as (i) the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting creditors' rights generally, (ii) the availability of equitable remedies may be limited by equitable principles of general applicability (regardless of whether in a proceeding in equity or at law) and as may be limited by the discretion of the court before which any proceeding therefor may be brought and (iii) rights to indemnity and contribution may be limited by state or Federal laws relating to securities or by policies underlying such laws; and (b) The execution, delivery and performance by the Company and the Subsidiary Guarantors of this Second Supplemental Indenture and the consummation of the transactions contemplated hereby will not (1) conflict with or result in a breach or violation of any of the - 4 - 8 terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, bank loan or credit agreement, lease or other agreement or instrument to which the Company or any of the Subsidiary Guarantors is a party or by which the Company or any of the Subsidiary Guarantors is bound or to which any of the property or assets of the Company or any of the Subsidiary Guarantors is subject, (2) result in any violation of the provisions of the Certificate of Incorporation or the By-laws, in each case as amended, of the Company or any of the Subsidiary Guarantors or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiary Guarantors or any or their properties, (3) result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Company or any of the Subsidiary Guarantors, except pursuant to or as contemplated by the terms of the Indenture, or (4) constitute a default under any ordinance, license or permit, except, in the case of the events specified in clauses (1), (3) and (4) above, for such conflicts, violations or defaults which would not have a material adverse effect upon the business, assets, condition (financial or otherwise), results of operations or prospects of the Company and the Subsidiary Guarantors, taken as a whole, or on the ability of the Company and the Subsidiary Guarantors to perform their respective obligations under the Indenture. Section 303. Representations of the Trustee. The Trustee represents that it is duly authorized to execute and deliver this Second Supplemental 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. ARTICLE IV CONDITIONS PRECEDENT This Second Supplemental Indenture shall become effective as of the Effective Date upon the satisfaction of the following conditions precedent: (a) The Trustee shall have received a true and complete original, except where stated otherwise, of: (i) this Second Supplemental Indenture, duly executed and delivered by the Company and the Subsidiary Guarantors; (ii) an opinion of Kent R. Stephenson, Esq., the General Counsel of the Company, with respect to the due authorization, execution and delivery of this Second Supplemental Indenture and such other matters as the Trustee and its counsel shall reasonably require, and meeting the requirements of Section 903 of the Indenture; and - 5 - 9 (iii) such other approvals, consents, opinions, or documents as the Trustee or its counsel may reasonably request. (b) On the Effective Date, each of the Company and the Subsidiary Guarantors shall be in compliance with all the terms and provisions on its respective part to be observed or performed as set forth in the Indenture; any representations and warranties of the Company and the Subsidiary Guarantors or the Trustee set forth in this Second Supplemental Indenture shall be true and correct in all material respects on and as of the Effective Date as if made on and as of the Effective Date; and no Event of Default shall have occurred and be continuing on such date, and no event shall have occurred which, with notice or lapse of time, or both, would constitute an Event of Default under the Indenture. ARTICLE V MISCELLANEOUS Section 501. Execution of Supplemental Indenture; Ratification of Original Indenture. This Second Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this Second Supplemental Indenture forms a part thereof. Except as otherwise expressly provided for in this Second Supplemental Indenture, all of the terms and conditions of the Original Indenture, as heretofore supplemented and amended by the First Supplemental Indenture, are hereby ratified and shall remain unchanged and continue in full force and effect. Section 502. Concerning the Trustee. The recitals contained herein and in the Securities, except with respect to the Trustee's certificates of authentication, shall be taken as the statements of the Company and the Subsidiary Guarantors and the Trustee assumes no responsibility for the correctness of same. The Trustee makes no representations as to the validity or sufficiency of this Second Supplemental Indenture or of the Securities. Section 503. Counterparts. This Second Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one of the same instrument. - 6 - 10 SECTION 504. GOVERNING LAW. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties have caused this Second Supplemental Indenture to be duly executed by their respective officers thereunto duly authorized 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: Secretary Title: Vice President PIONEER AMERICAS, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ----------------------- ------------------------ Name: Kent R. Stephenson Name: Philip J. Ablove Title: Secretary Title: Vice President PIONEER CHLOR ALKALI COMPANY, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ----------------------- ------------------------ Name: Kent R. Stephenson Name: Philip J. Ablove Title: Secretary Title: Vice President IMPERIAL WEST CHEMICAL CO. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ----------------------- ------------------------ Name: Kent R. Stephenson Name: Philip J. Ablove Title: Secretary Title: Vice President - 7 - 11 ALL-PURE CHEMICAL CO. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ----------------------- ------------------------ Name: Kent R. Stephenson Name: Philip J. Ablove Title: Secretary Title: Vice President BLACK MOUNTAIN POWER COMPANY Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ----------------------- ------------------------ Name: Kent R. Stephenson Name: Philip J. Ablove Title: Secretary Title: Vice President ALL-PURE CHEMICAL NORTHWEST, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ----------------------- ------------------------ Name: Kent R. Stephenson Name: Philip J. Ablove Title: Secretary Title: Vice President PIONEER CHLOR ALKALI INTERNATIONAL, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ----------------------- ------------------------ Name: Kent R. Stephenson Name: Philip J. Ablove Title: Secretary 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: Secretary Title: Vice President - 8 - 12 PIONEER (EAST), INC. Attest /s/ DAVID A. LESLIE BY /s/ KENT R. STEPHENSON -------------------- -------------------------- Name: David A. Leslie Name: Kent R. Stephenson Title: Assistant Secretary Title: President T.C. HOLDINGS, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ----------------------- ----------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Secretary Title: Vice President T.C. PRODUCTS, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ----------------------- --------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Secretary Title: Vice President UNITED STATES TRUST COMPANY OF NEW YORK Attest /s/ ROBERT F. LEE By /s/ PATRICIA STERMER -------------------------- ------------------------ Name: Robert F. Lee Name: Patricia Stermer Title: Assistant Secretary Title: Assistant Vice President - 9 - EX-10.11 3 EXECUTIVE EMPLOYMENT AGREEMENT - MICHAEL J. FERRIS 1 EXHIBIT 10.11 EXECUTIVE EMPLOYMENT AGREEMENT This EXECUTIVE EMPLOYMENT AGREEMENT is made and entered into between Pioneer Companies, Inc., a Delaware corporation (the "Company"), and Michael J. Ferris, (the "Executive") as of January 4, 1997. W I T N E S S E T H: WHEREAS, the Company desires to employ the Executive, and the Executive desires to accept employment with the Company, on the terms and conditions set forth herein; NOW, THEREFORE, on the basis of the foregoing premises and in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: SECTION 1. Employment. The Company hereby agrees to employ the Executive and the Executive hereby accepts employment with the Company, on the terms and subject to the conditions hereinafter set forth. Subject to such terms and conditions, the Executive shall serve as President and Chief Executive Officer of the Company and, in such capacity, shall report directly to the Board of Directors of the Company (the "Board of Directors") and shall have such duties, functions, responsibilities and authority as are consistent with the Executive's position as the senior executive officer in charge of the general management, business and affairs of the Company and subsidiaries of the Company including, but not limited to, the development and implementation of strategies and goals and internal policies and program designed to achieve the profit, market share and product mix goals of the Company and its subsidiaries, together with such additional duties, functions, responsibilities and authority including, without limitation, serving as an officer and/or director of any subsidiary of the Company, commensurate with the Executive's position as set forth in this Agreement, as may be assigned to the Executive from time to time by the Board of Directors. The Company shall use best efforts to have the Executive nominated to the Board of Directors. SECTION 2. Term. Subject to the provisions and conditions of this Agreement (including Section 6), the Executive's employment hereunder shall commence on the date hereof and shall continue during the period ending on the third anniversary of the date hereof (the "Employment Term"). SECTION 3. Compensation. (a) Salary. As compensation for the performance of the Executive's services hereunder, the Company shall pay to the Executive a base salary (the "Salary") of Three Hundred Fifty Thousand Dollars ($350,000) per annum with increases, if any, as may be approved in writing by the Board of Directors. The Salary shall be payable in accordance with payroll 2 practices of the Company as the same shall exist from time to time. In no event shall the Salary be decreased during the Employment Term. (b) Bonus Plan. The Executive shall be entitled to receive bonus compensation consisting of cash, securities or property ("Bonus") in accordance with any management incentive plan or plans (including, without limitation, any shared earnings plan) which may be established by the Board of Directors of the Company for its executive officers and management. Notwithstanding the foregoing, the Executive shall be entitled to receive a cash bonus of not less than Two Hundred Thousand Dollars ($200,000) in consideration of services to be rendered to the Company in 1997, such bonus to be paid quarterly in arrears during 1997. (c) Benefits. In addition to the Salary and Bonus, the Executive shall be entitled to participate in or to receive the same health, insurance, pension, automobile, severance, vacation, holiday, sick leave, disability, profit sharing, 401(k) savings and other benefits as shall be provided to executive officers of the Company generally. (d) Paying Entity. The Company may cause any one or more of its subsidiaries to provide the salary and benefits to the Executive as are required by this Agreement. SECTION 4. Exclusivity. During the Employment Term, the Executive shall devote substantially all of his time to the business of the Company, shall faithfully serve the Company, shall in all respects conform to and comply with the lawful directions and instructions given to him by the Board of Directors or its designee in accordance with the terms of this Agreement, shall use his best efforts to promote and serve the interests of the Company and shall not engage in any other business activity, whether or not such activity shall be engaged in for pecuniary profit, except that the Executive may engage in personal investing and charitable activities that do not interfere in any material respect with the services to be provided by the Executive hereunder. SECTION 5. Reimbursement for Expenses. The Company shall promptly reimburse the Executive for all reasonable out-of-pocket travel, entertainment and other business expenses incurred by the Executive during the term of this Agreement and in the performance of his duties hereunder in accordance with the Company's reimbursement policies in effect from time to time. SECTION 6. Termination. (a) Death. This Agreement shall automatically terminate upon the death of the Executive and upon such event, the Executive's estate shall be entitled to receive the amounts specified in Section 6(f) below. (b) Disability. If the Executive is unable to perform the duties required of him under this Agreement because of physical or mental disability, this Agreement shall remain in full force and effect and the Company shall pay all compensation required to be paid to the Executive hereunder, unless the Executive is unable to perform the duties required of him under -2- 3 this Agreement for an aggregate of ninety (90) days (whether or not consecutive) during any twelve (12) month period during the term of this Agreement, in which event this Agreement (other than Sections 7, 8, 9 and 12 hereof), including, but not limited to, the Company's obligations to pay any Salary or to provide any privileges under this Agreement, shall, upon written notice by the Company to the Executive to such effect, terminate; provided, however, that the foregoing shall not prejudice the Executive's rights to continuing, existing insurance benefits for which he is otherwise eligible, including disability benefits. In case of any dispute as to whether the Executive is disabled within the meaning of this Section 6(b), the determination of such disability for the period specified shall be certified by a physician reasonably acceptable to both the Company and the Executive, which physician's determination shall be final and binding on the parties hereto. The Company shall be permitted to hire a replacement of the Executive, so long as this Agreement shall remain in effect, to serve in the event and for so long as the Executive shall be unable to perform the duties required of him hereunder due to his disability for an aggregate of thirty (30) days during any 12-month period during the term of this Agreement. (c) Cause. The Company may terminate this Agreement (other than Sections 7, 8, 9 and 12 hereof) for "Cause." For purposes of this Agreement, "Cause" shall mean: (i) the Executive's failure, neglect or refusal to perform his duties hereunder which failure, neglect or refusal shall not have been corrected by the Executive within thirty (30) days of receipt by the Executive of written notice from the Company of such failure, neglect or refusal, which notice shall set forth the nature of said failure, neglect or refusal; (ii) any engagement by the Executive in misconduct that is materially injurious to the reputation or business of the Company or its affiliates or that materially impairs the ability of the Executive to perform his duties and responsibilities hereunder; (iii) conviction of the Executive for the commission of a felony; or (iv) the commission by the Executive of an act of fraud or embezzlement against the Company. If the Executive's employment is terminated for Cause, the Executive shall be entitled to receive the amounts specified in Section 6(f) hereof. In the event of any termination pursuant to this Section 6(c),the Company shall deliver to the Executive written notice setting forth the basis for such termination, which notice shall set forth the nature of the Cause, and the facts and circumstances in connection therewith, which is the reason for such termination. (d) Good Reason. The Executive may terminate this Agreement for "Good Reason" following a Substantial Breach (as defined below) if such Substantial Breach shall not have been corrected by the Company within thirty (30) days of receipt by the Company of written notice from the Executive of the occurrence of such Substantial Breach, which notice shall specifically set forth the nature of the Substantial Breach which, if not corrected, will entitle the Executive at any time after such thirty (30) day notice period and by subsequent written notice to terminate this Agreement. In the event of resignation by the Executive following a Substantial Breach, the Executive shall be entitled to receive the amounts specified in Section 6(f) hereof. An election by the Executive to terminate his employment under this paragraph shall not be a breach of this Agreement. The term "Substantial Breach" means any material breach by the Company of its obligations hereunder consisting of: (i) the failure of the Company to pay the Executive the Salary or Bonus, if any, in accordance with Section 3(a) and (b) hereof; (ii) the failure by the Company to substantially maintain and continue the Executive's participation in -3- 4 benefit plans as provided in Section 3(c) hereof; or (iii) any material diminishment in the duties or responsibilities of the Executive described in Section 1; provided, however, that the term "Substantial Breach" shall not include a termination of the Executive's employment hereunder pursuant to Section 6(b) or (c) hereof. The date of termination of the Executive's employment under this Section 6(d) shall be the effective date of any resignation specified in writing by the Executive, which shall not be less than sixty (60) days after receipt by the Company of written notice of such resignation, provided that any resignation by the Executive shall not be effective pursuant to this Section 6(d) if such Substantial Breach shall have been corrected by the Company during the thirty (30) day period following notice by the Executive of the existence thereof or if corrected thereafter prior to the date of resignation by the Executive. (e) Without Cause. The Company, by action of its Board of Directors, may terminate this Agreement (other than Sections 7, 8, 9 and 12 hereof) without Cause upon the giving to the Executive of thirty (30) days' prior written notice of such termination. If the Executive's employment is terminated by the Company without Cause, the Executive shall be entitled to receive the amounts specified in Section 6(f) hereof. (f) Payments. In the event that the Executive's employment hereunder terminates for any reason, the Company shall promptly pay to the Executive all amounts accrued but unpaid hereunder through the date of termination in respect of the Salary and for reimbursement of any expenses pursuant to Section 5 hereof, and, in the case of any termination by reason of death or physical or mental disability of the Executive pursuant to Section 6(a) or 6(b) hereof, a pro rated portion of the Bonus, if any, which the Executive would have been otherwise entitled to receive under Section 3(b) for the calendar year in which such termination occurs, such pro rated portion being the portion of such Bonus corresponding to the period commencing on January 1 of such year and ending on the date of termination. In the event that the Executive's employment has been terminated by the Company for Cause, the Company shall have no obligations to the Executive for Salary, Bonus or other benefits herein provided accruing on or after the date of termination except as set forth in the preceding sentence or as may be otherwise provided by law. In the event that the Executive's employment hereunder is terminated by the Company without Cause or by the Executive with Good Reason, in addition to the amounts specified in the first sentence of this Section 6(f), the Executive shall continue to receive the Salary at the rate in effect hereunder on the date of such termination periodically, in accordance with the Company's prevailing payroll practices, until the last date of the Employment Term or until the first anniversary of the termination date, if longer, plus (i) the cost of the Executive's premiums for health care benefits under COBRA or the cost of the Executive's premiums under any replacement health insurance coverage obtained by the Executive containing substantially the same coverage as provided to the Executive at such time, which premiums shall be payable as and when the Salary would otherwise have been payable as provided in this Agreement; and (ii) a pro rated portion of the Bonus, if any, which the Executive would have otherwise been entitled to receive under Section 3(b) for the calendar year in which the Executive is terminated pro rated in the same manner as set forth in the first sentence of this Section 6(f). Without intending to limit the generality of Section 7, in the event that the Executive accepts other employment or engages in his own business prior to the last date of the Employment Term, the Executive shall forthwith notify the Company and the Company shall be -4- 5 entitled to set off from amounts due the Executive under this Section 6(f) the amounts paid to the Executive in respect of such other employment or business activity. Upon any termination of this Agreement, all of the rights, privileges and duties of the Executive hereunder shall cease except for any rights under this Section 6(f) and any obligations under Sections 7, 8, 9 and 12 hereunder. SECTION 7. Secrecy and Non-competition. (a) No Competing Employment. The Executive acknowledges that the agreements and covenants contained in this Section 7 are essential to protect the value of the Company's business and assets and that by virtue of his employment with the Company, the Executive will obtain Confidential Information and there is a substantial probability that such Confidential Information could be used to the substantial advantage of a competitor of the Company or its subsidiaries and to the Company's or its subsidiaries' substantial detriment. Therefore, the Executive agrees that except in connection with his employment hereunder or as required by legal process, he shall not disclose to any person or entity or use, during the Employment Term or at any time thereafter, any information not in the public domain or generally known in the industry, in any form acquired by the Executive while employed by the Company or, if acquired following the Employment Term, such information which, to the Executive's knowledge, has been acquired, directly, or indirectly, from any person or entity owing a duty of confidentiality to the Company or any of its subsidiaries or affiliates, relating to the Company, its subsidiaries or affiliates, including but not limited to information regarding customers, vendors, suppliers, trade secrets, training programs, manuals or materials, technical information, contracts, systems, procedures, mailing lists, know-how, trade names, improvements, price lists, financial or other data (including the revenues, costs or profits associated with any of the Company's products or services), business plans, code books, invoices and other financial statements, computer programs, software systems, databases, discs and printouts, plans (business, technical or otherwise), customer and industry lists, correspondence, internal reports, personnel files, sales and advertising material, telephone numbers, names, addresses or any other compilation of information, written or unwritten, which is or was used in the business of the Company or any of its subsidiaries or affiliates (collectively, "Confidential Information"). The Executive agrees and acknowledges that all Confidential Information, in any form, and copies and extracts thereof, are and shall remain the sole and exclusive property of the Company and upon termination of his employment with the Company, the Executive shall return to the Company the originals and all copies of any Confidential Information provided to or acquired by the Executive in connection with the performance of his duties for the Company, and shall return to the Company all files, correspondence and/or other communications received, maintained and/or originated by the Executive during the course of his employment. (b) No Interference. During the term of this Agreement and for a period of two (2) years following the date of the termination of the Executive's employment with the Company (the "Restricted Period"), the Executive shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), directly or indirectly, solicit, endeavor to entice away from the Company, its affiliates or subsidiaries, or otherwise directly interfere with the relationship of the Company, its affiliates or subsidiaries with any person who, to the knowledge of the Executive, -5- 6 is employed by or otherwise engaged to perform services for the Company, its affiliates or subsidiaries (including, but not limited to, any independent distributor or sales representative or organization). (c) Inventions. The Executive hereby sells, transfers and assigns to the Company, or to any person or entity designated in writing by the Company, all of the right, title and interest of the Executive in and to all inventions, sales materials, software, training materials, disclosures and improvements, whether patented or unpatented, and copyrightable material, made or conceived by the Executive, solely or jointly, in whole or in part, during his employment with the Company which are not generally known to the public or the industry or recognized as standard practice and which (i) relate to services, trade names, methods, ideas, apparatus, designs, products, processes or devices which may be sold, leased, used or under construction or development by the Company, or any franchise affiliated with the Company and (ii) arise (wholly or partly) from the efforts of the Executive during and in the course of his employment with the Company (an "Invention"). The Executive shall communicate promptly and disclose to the Company, in such form as the Company reasonably requests, all information, details and data pertaining to any such Invention. With respect to all Inventions which are to be assigned pursuant to this Section 7, the Executive will assist the Company in any reasonable manner to obtain for the Company's benefit patents thereon, including, but not limited to, executing patent applications, transfers or assignments thereof to the Company and any and all other documents reasonably deemed necessary by the Company. The Company shall pay all costs incident to the preparation, execution and delivery of such patent applications, transfers, assignments and other documents. Any Invention by the Executive within six (6) months following the termination of his employment hereunder shall be presumed to fall within the provisions of this Section 7(c) unless the Executive bears the burden of proof of showing that the Invention was first conceived and made following such termination. SECTION 8. Injunctive Relief. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in Section 7 hereof may result in material irreparable injury to the Company or it subsidiaries or affiliates for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to seek a temporary restraining order and/or a preliminary or permanent injunction, restraining the Executive from engaging in activities prohibited by Section 7 hereof or such other relief as may be required specifically to enforce any of the covenants in Section hereof. SECTION 9. Extension of Restricted Period. In addition to the remedies the Company may seek and obtain pursuant to Section 8 of this Agreement, the Restricted Period shall be extended by any and all periods during which the Executive shall be found by a court to have been in violation of the covenants contained in Section 7 hereof. SECTION 10. Successors and Assigns; No Third-Party Beneficiaries. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns, including, but not limited to, the Executive's heirs and -6- 7 personal representatives of the Executive's estate; provided, however, that neither party shall assign or delegate any of the obligations created under this Agreement without the prior written consent of the other party. Notwithstanding the foregoing, the Company shall have the unrestricted right to assign this Agreement and to delegate all or any part of its obligations hereunder to any of its subsidiaries, so long as such assignment does not diminish the duties, function, responsibility or authority of the Executive or result in any assignment of duties or responsibilities materially inconsistent with those set forth in this Agreement (unless consented to by the Executive) but in such event such assignee shall expressly assume all obligations of the Company hereunder and the Company shall remain fully liable for the performance of all such obligations in the manner prescribed in this Agreement. Nothing in this Agreement shall confer upon any person or entity not a party to this Agreement, or (unless otherwise expressly provided herein) the legal representatives of such person or entity, any rights or remedies of any nature or kind whatsoever under or by reason of Agreement. SECTION 11. Waiver and Amendments. Any waiver, alteration, amendment or modification of any of the terms of this Agreement shall be valid only if made in writing and signed by the parties hereto. No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver. SECTION 12. Severability and Governing Law. The Executive acknowledges and agrees that the covenants set forth in Section 7 hereof are reasonable and valid in all respects. Each party hereto acknowledges and agrees that if any of such covenants or other provisions of this Agreement are found to be invalid or unenforceable by a final determination of a court of competent jurisdiction (a) the remaining terms and provisions hereof shall be unimpaired and (b) the invalid and unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PROVISIONS THEREOF. SECTION 13. Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made if delivered personally or sent by registered or certified mail (postage prepaid, return receipt requested), or sent by facsimile transmission or overnight courier service, addressed in the case of the Company, to Pioneer Companies, Inc., 4200 NationsBank Center, 700 Louisiana Street, Houston, Texas 77002, Attention: President, fax: (713) 225-4426 with a copy to Interlaken Capital, Inc., 165 Mason Street, Greenwich, Connecticut 06830, Attention: Chairman of the Board, fax: (203) 629-8554 and, in the case of the Executive, to Michael J. Ferris, 1273 Branchwater Lane, Birmingham, Alabama 35216 or, in each case, to such other address as may be designated to the other party from time to time as provided above. All notices so given shall be effective when received at the designated address. -7- 8 SECTION 14. Captions and Section Headings. Captions and section headings herein are solely for convenience of reference and shall not affect the meaning or interpretation of this Agreement or of any term or provision hereof. SECTION 15. Entire Agreement. This Agreement constitutes the entire understanding and agreement of the parties hereto regarding the employment of the Executive. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement, all of which are merged into this Agreement. SECTION 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. PIONEER COMPANIES, INC. By: /s/ PHILIP J. ABLOVE ------------------------------------ Name: Philip J. Ablove Title: Vice President EXECUTIVE /s/ MICHAEL J. FERRIS -------------------------------------- -8- EX-10.12 4 STOCK PURCHASE AGREEMENT - MICHAEL J. FERRIS 1 EXHIBIT 10.12 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT, dated as of January 4, 1997 (the "Agreement"), between Pioneer Companies, Inc., a Delaware corporation (the "Company"), and Michael J. Ferris (the "Purchaser"). WHEREAS, pursuant to the Executive Employment Agreement (the "Employment Agreement"), dated as of the date hereof, between the Company and the Purchaser, the Company has agreed to employ the Purchaser, and the Purchaser has agreed to be employed by the Company upon and subject to the terms therein; WHEREAS, the Company desires to sell 150,000 shares (the "Shares") of the Class A common stock, par value $.01 per share of the Company (the "Common Stock") to the Purchaser; and WHEREAS, the Purchaser desires to purchase the Shares upon the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual terms, conditions and other agreements set forth herein, the parties hereto hereby agree as follows: Section 1. Sale and Purchase of Securities. (a) Subject to the terms and conditions set forth herein, on the Closing Date (as defined herein), the Company shall sell to the Purchaser and the Purchaser shall purchase from the Company the Shares for a cash payment per share equal to 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 thirty (30) consecutive trading days immediately preceding the date hereof (the "Purchase Price"). (b) The sale and purchase of the Shares shall be effected by the Company's execution and delivery to the Purchaser of a duly executed stock certificate evidencing the Shares registered in his name, and by the delivery by the Purchaser to the Company of the Purchaser's check in the amount of the purchase price of the Shares. (c) The closing of the transactions hereunder (the "Closing") shall take place on such day on or prior to the forty-fifth day (or if not a business day the next succeeding business day) after the date hereof as specified in a notice from the Company to the Purchaser (the "Closing Date"). Section 2. Representations and Warranties of the Company. The Company represents and warrants to the Purchaser as follows: (a) Organization and Corporate Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has 2 all requisite power and authority to execute, deliver and perform this Agreement and to issue, sell and deliver the Shares hereunder. (b) Authorization, Enforceability. All corporate action on the part of the Company necessary for the authorization, execution and delivery of this Agreement and the issuance, sale and delivery of the Shares hereunder has been taken. This Agreement has been duly authorized, executed and delivered by the Company and constitutes the valid and legally binding obligation of the Company, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity. Section 3. Representations of the Purchaser. The Purchaser hereby represents and warrants as follows: (a) Validity of Agreement. This Agreement has been duly executed by the Purchaser and constitutes the valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms, except that such enforcement may be subject to applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors' rights generally and general principles of equity. (b) No Consents. The execution, delivery and performance by the Purchaser of this Agreement does not require any consent or approval of any person or entity. (c) Investment Representations. (i) The Purchaser is acquiring the Shares solely for his own account as principal, for investment purposes only, and not with a view to, or for, subdivision, resale, distribution or fractionalization thereof, in whole or in part, or for the account, in whole or in part, of others, and no other person or entity has a direct or indirect beneficial interest in the Shares; further, the Purchaser intends to hold the Shares as an investment and does not presently anticipate any change in circumstances or other particular occasion or event that would cause him to attempt to sell any of the Shares; (ii) the Purchaser understands that no federal or state agency has made any finding or determination as to the fairness of this investment and that the sale of the Shares is intended to be exempt from registration both under the Securities Act of 1933, as amended (the "Securities Act"), and any applicable state securities law, and, in furtherance thereof, the Purchaser represents and warrants to, and agrees with, the Company that he has the financial ability to bear the economic risk of his investment, and has adequate means for providing for his current needs and personal contingencies and has no need for liquidity with respect to his investment in the Shares; (iii) the Purchaser has been given the opportunity to ask questions of, and receive information and answers from, the Company concerning matters pertaining to the Company and its business and affairs and this investment, and all such questions have -2- 3 been answered, and all such information has been provided, to his satisfaction and he has determined that the Shares are a suitable investment for him and that at this time he could bear the complete loss of his investment; (iv) the Purchaser is not relying on the Company in regard to the tax and other personal financial considerations related to this investment, and the Purchaser has, to the extent he deems it necessary, relied on the advice of, or has consulted with, only his own advisors; (v) the Purchaser will not sell or otherwise transfer the Shares without registration under the Securities Act, and applicable state securities laws or unless the Company has received an appropriate opinion of counsel reasonably acceptable to it that registration thereunder is not required, and fully understands and agrees that he must bear the economic risk of his purchase for an indefinite period of time because, among other reasons, the Shares have not been registered under the Securities Act or under any applicable state securities laws and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and any applicable state securities laws or an exemption from such registration is available. The Purchaser understands that the Company is under no obligation to register the Shares on his behalf or to assist him in complying with any exemption from registration under the Securities Act or any state securities laws; and (vi) the Purchaser is a resident of the state specified for the Purchaser in Section 6 hereof. Section 4. Legend. Any certificates evidencing the Shares shall bear the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be transferred or sold except pursuant to an effective registration statement under the Act or in a transaction which, in the opinion of counsel reasonably satisfactory to Pioneer Companies, Inc., qualifies as an exempt transaction under the Act and the rules and regulations promulgated thereunder." Section 5. Condition to Obligations of the Parties. The obligations of the Company and the Purchaser to consummate the transactions contemplated by this Agreement are subject to the continued effectiveness of the transactions contemplated by the Employment Agreement as of the Closing Date. Section 6. Notices. All communications under this Agreement shall be in writing and shall be delivered by hand, by facsimile or by overnight courier or by registered or certified mail, postage prepaid: (i) if to the Company, at 165 Mason Street, Greenwich, Connecticut -3- 4 06830, Attention: William L. Mahone, facsimile number 203-629-8554; and (ii) if to the Purchaser at 1273 Branchwater Lane, Birmingham, Alabama 35216. Section 7. Fees and Expenses. All costs, fees and expenses incurred in connection with this Agreement ("Costs") shall be paid by the party incurring such Costs. Section 8. Entire Agreement. This Agreement represents the entire agreement and understanding of the parties with reference to the transactions set forth herein and no representations or warranties have been made in connection with this Agreement other than those expressly set forth herein. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement, all of which are merged into this Agreement. Section 9. Amendments. This Agreement may be amended, modified or supplemented only by a written instrument executed by the parties hereto. Section 10. Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. Section 11. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW PROVISIONS THEREOF. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. PIONEER COMPANIES, INC. By: /s/ PHILIP J. ABLOVE ------------------------------------ Name: Philip J. Ablove Title: Vice President /s/ MICHAEL J. FERRIS ----------------------------------- Michael J. Ferris -4- EX-10.13 5 NON-QUALIFIED STOCK OPTION AGREEMENT - FERRIS 1 EXHIBIT 10.13 INCENTIVE STOCK OPTION AGREEMENT UNDER THE PIONEER COMPANIES, INC. 1995 STOCK INCENTIVE PLAN THIS AGREEMENT, made as of the 4th day of January, 1997, by and between Pioneer Companies, Inc., a Delaware corporation (the "Company") and Michael J. Ferris (the "Optionee"). W I T N E S S E T H : WHEREAS, the Optionee is now employed by the Company or a "parent" or "subsidiary" of the Company (such terms, as used herein, shall be as defined in 424(e) and (f) of the Internal Revenue Code of 1986, as amended (the "Code")), and the Company desires to have him remain in such employment and to afford him the opportunity to acquire, or enlarge, his ownership of the Company's Class A Common Stock, par value $.01 per share ("Stock"), so that he may have a direct proprietary interest in the Company's success; NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows: 1. Grant of Option. Subject to the terms and conditions set forth herein and in the Company's 1995 Stock Incentive Plan (the "Plan"), the Company hereby grants to the Optionee, during the period commencing on the date of this Agreement and ending on January 4, 2007 (the "Termination Date"), the right and option (the right to purchase any one share of Stock hereunder being an "Option") to purchase from the Company, at a price of $5.00 per share, an aggregate of 133,750 shares of Stock. The Options granted hereunder shall be "incentive stock options" within the meaning of Section 422 of the Code. 2. Limitations on Exercise of Option. (a) Subject to the terms and conditions set forth herein, the Optionee may exercise 20,000 of the Options on January 4, 1998, with none being exercisable prior to such date, an additional 20,000 on January 4, 1999, an additional 20,000 on January 4, 2000, an additional 20,000 on January 4, 2001, an additional 20,000 on January 4, 2002, an additional 20,000 on January 4, 2003, and an additional 13,750 on January 4, 2004. (b) Notwithstanding the limitations set forth in paragraph 2(a), 100% of the Options shall become immediately exercisable (i) in the event of a change in control of the 2 Company, or (ii) if Optionee's employment with the Company or a subsidiary thereof, as the case may be, is terminated by the Company or a subsidiary thereof, as the case may be, without Cause (as defined in paragraph 3 hereof). For purposes of the preceding sentence, a "change of control" shall, unless the Board of Directors of the Company (the "Board") otherwise directs by resolution adopted prior thereto, be deemed to occur if (i) any "person" (as that term is used in Sections 13 and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")) other than William R. Berkley or his "affiliates" (as that term is defined in Rule 144 promulgated pursuant to the Securities Act of 1933 (the "Securities Act")) is or becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of 30% or more of either the outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Company's shareholders of each new director was approved by a vote of at least three-quarters of the directors then still in office who were directors at the beginning of the period, or (iii) the Company undergoes a liquidation or dissolution or a sale of all or substantially all of the assets of the Company. Any merger, consolidation or corporate reorganization in which the owners of the combined voting power of the Company's then outstanding securities entitled to vote generally prior to said combination, own 50% or more of the resulting entity's outstanding securities entitled to vote generally shall not, by itself, be considered a change in control. 3. Termination of Employment. (a) If the Optionee shall cease to be employed by reason of Normal Termination, the Options shall remain exercisable until the earlier of the Termination Date or the date that is three months after the date of such Normal Termination to the extent the Options were exercisable at the time of such Normal Termination. For purposes of this Agreement, the term "Normal Termination" shall mean termination of Optionee's employment with the Company or a subsidiary thereof, as the case may be, (i) because of retirement pursuant to the qualified retirement plan of the Company or a parent or subsidiary thereof, as the case may be; (ii) on account of Disability; (iii) with the written approval of the committee administering the Plan in accordance therewith (the "Committee"); or (iv) by the Company or a parent or subsidiary thereof, as the case may be, without Cause. For purposes of the preceding sentence, (I) "Disability" shall mean disability as defined in the Company's or a subsidiary's or parent's, as the case may be, long term disability plan then in effect, or, in the absence of such plan, the complete and permanent inability by reason of illness or accident to perform the duties of the occupation at which the Optionee was employed when such disability commenced or, if the Optionee was retired when such disability commenced, the inability to engage in any substantial gainful activity, as determined by the Committee based upon medical evidence acceptable to it, and (II) "Cause" shall mean the Company or a parent or subsidiary thereof, as the case may be, having cause to terminate an Optionee's employment under any existing employment agreement between the Optionee and the Company or such parent or subsidiary or, in the absence of such an employment agreement, upon (A) the determination by 2 3 the Committee that the Optionee has ceased to perform his duties to the Company or a parent or subsidiary thereof, as the case may be (other than as a result of his incapacity due to physical or mental illness or injury), which failure amounts to an intentional and extended neglect of his duties to such party, (B) the Committee's determination that the Optionee has engaged or is about to engage in conduct materially injurious to the Company or a parent or subsidiary thereof, or (C) the Optionee having been convicted of a felony. (b) If the Optionee shall die on or prior to the Termination Date or within three months of Normal Termination, the executor or administrator of the estate of the Optionee or the person or persons to whom the Options shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution shall have the right, until the earlier of the Termination Date or the date that is 12 months after the date of the Optionee's death, to exercise the Options to the extent that the Options were exercisable at the date of death, subject to any other limitation contained herein on the exercise of the Options in effect on the date of exercise. (c) If the Optionee terminates employment for reasons other than death or Normal Termination, the Options, to the extent not exercised prior to such termination, shall lapse and be cancelled; provided, however, that a transfer of employment directly from the Company or a parent or subsidiary thereof directly to another of any such entities shall not be deemed a termination of employment for purposes of this Agreement. (d) Any provision of paragraphs 3(a), 3(b) or 3(c) hereof to the contrary notwithstanding, the Options may not be exercised beyond the Termination Date. (e) Whether employment has been or could have been terminated for the purposes of this Agreement, and the reasons therefor, shall be determined by the Committee, whose determination shall be final, binding and conclusive. (f) After the expiration of any exercise period described in either of paragraphs 3(a), 3(b) or 3(c) hereof, the Options shall terminate together with all of the Optionee's rights hereunder, to the extent not previously exercised. 4. Method of Exercising Option. The Optionee may exercise any or all of the Options by delivering to the Committee a written notice signed by the Optionee stating the number of Options that the Optionee has elected to exercise at that time and full payment of the purchase price of the shares to be thereby purchased from the Company. Payment of the purchase price of the shares may be made (a) by certified or bank cashier's check payable to the order of the Company, (b) by surrender or delivery to the Company of shares of Stock having an aggregate fair market value equal to the exercise price, or (c) in the discretion of the Committee, by surrender or delivery to the Company of, (X) other property having a fair market value on the date of exercise equal to the purchase price or (Y) a copy of irrevocable instructions to a 3 4 stockbroker to deliver promptly to the Company an amount of sale or loan proceeds sufficient to pay the purchase price. 5. Issuance of Shares. As promptly as practical after receipt of such written notification and full payment of such purchase price, the Company shall issue or transfer to the Optionee the number of shares with respect to which Options have been so exercised, and shall deliver to the Optionee a certificate or certificates therefor, registered in the Optionee's name. 6. Optionee. Whenever the word "Optionee" is used in any provision of this Agreement under circumstances where the provision should logically be construed to apply to the executors, the administrators, or the person or persons to whom the Options may be transferred by will or by the laws of descent and distribution, the word "Optionee" shall be deemed to include such person or persons. 7. Non-Transferability. The Options are not transferable by the Optionee otherwise than by will or the laws of descent and distribution and are exercisable during the Optionee's lifetime only by him. No assignment or transfer of the Options, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise (except by will or the laws of descent and distribution), shall vest in the assignee or transferee any interest or right herein whatsoever, but immediately upon such assignment or transfer the Options shall terminate and become of no further effect. 8. Rights as Stockholder. The Optionee or a transferee of the Options shall have no rights as a stockholder with respect to any share covered by the Options until he shall have become the holder of record of such share, and no adjustment shall be made for dividends or distributions or other rights in respect of such share for which the record date is prior to the date upon which he shall become the holder of record thereof. 9. Recapitalizations, Reorganizations, etc. (a) The existence of the Options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Stock or the rights thereof or convertible into or exchangeable for Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) The shares with respect to which the Options are granted are shares of Stock of the Company as presently constituted, but if, and whenever, prior to the delivery by the Company of all of the shares of the Stock with respect to which the Options are granted, the Company shall effect a subdivision or consolidation of shares of the Stock outstanding, without 4 5 receiving compensation therefor in money, services or property, the number and price of shares remaining under the Options shall be appropriately adjusted. Such adjustment shall be made by the Committee, whose determination as to what adjustment shall be made, and the extent thereof, shall be final, binding and conclusive. Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to the Options. (c) In the event of any change in the outstanding shares of Stock by reason of any recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other corporate change, or any distributions to common shareholders other than cash dividends, the Committee shall make such substitution or adjustment, if any, as it deems to be equitable, as to the number or kind or shares of Stock or other securities covered by the Options and the option price thereof. (d) Except as expressly provided, the issue by the Company of shares of stock of any class, or securities convertible into or exchangeable for shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of options, rights or warrants to subscribe therefor, or to purchase the same, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Stock subject to the Options. 10. Compliance with Law. (a) Notwithstanding any of the provisions hereof, the Optionee hereby agrees that he will not exercise the Options, and that the Company will not be obligated to issue or transfer any shares to the Optionee hereunder, if the exercise hereof or the issuance or transfer of such shares shall constitute a violation by the Optionee or the Company of any provisions of any law or regulation of any governmental authority. Any determination in this connection by the Committee shall be final, binding and conclusive. The Company shall in no event be obliged to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other affirmative action in order to cause the exercise of the Options or the issuance or transfer of shares pursuant thereto to comply with any law or regulation of any governmental authority. (b) Upon demand by the Committee, the Optionee shall deliver to the Committee at the time of any exercise of an Option hereunder a written representation that the shares to be acquired upon such exercise are to be acquired for investment and not for resale or with a view to the distribution thereof. Upon such demand, delivery of such representation prior to the delivery of any shares issued upon exercise of an Option shall be a condition precedent to the right of the Optionee or such other person to purchase any shares. In the event certificates for Stock are delivered under this Agreement with respect to which such investment representation has been obtained, the Committee may cause a legend or legends to be placed on such certificates to make appropriate reference to such representation and to restrict transfer in the absence of compliance with applicable federal or state securities laws. 5 6 11. Notice. Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein provided; provided that, unless and until some other address be so designated, all notices or communications by the Optionee to the Company shall be mailed or delivered to the Company at its principal executive office, and all notices or communications by the Company to the Optionee may be given to the Optionee personally or may be mailed to him at the Optionee's last known address as reflected in the Company's records. 12. Disposition of Stock. The Optionee agrees to notify the Company in writing, within 30 days of any disposition (whether by sale, exchange, gift or otherwise) of shares of Stock purchased under this Option, within two years from the date of the granting of the Option or within one year of the transfer of such shares of Stock to the Optionee. 13. Binding Effect. Subject to Section 7 hereof, this Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto. 14. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Texas without reference to the principles of conflicts of law thereof. 15. Plan. The terms and provisions of the Plan are incorporated herein by reference. In the event of a conflict or inconsistency between discretionary terms and provisions of the Plan and the express provisions of this Agreement, this Agreement shall govern and control. In all other instances of conflicts or inconsistencies or omissions, the terms and provisions of the Plan shall govern and control. 16. Restrictions in Certificate of Incorporation. The Options and any shares acquired upon exercise thereof may be subject to certain restrictions on transfer contained in the Certificate of Incorporation of the Company, a copy of which may be obtained by the Optionee upon written request to the Secretary of the Company. 6 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PIONEER COMPANIES, INC. By: /s/ PHILIP J. ABLOVE ------------------------------------- Philip J. Ablove Vice President /s/ MICHAEL J. FERRIS -------------------------------------- Michael J. Ferris, Optionee 7 EX-21 6 SUBSIDIARIES 1 Exhibit 21 PIONEER AMERICAS ACQUISITION CORP. SUBSIDIARIES
Name of Company Jurisdiction - --------------- ------------ Pioneer Americas Acquisition Corp. Delaware Pioneer Americas, Inc. Delaware All-Pure Chemical Co. California All-Pure Chemical Northwest, Inc. Washington T.C. Holdings, Inc. New Mexico T.C. Products, Inc. Washington Imperial West Chemical Co. Nevada Pioneer Chlor Alkali Company, Inc. Delaware Black Mountain Power Company Texas G.O.W. Corporation Nevada Pioneer Chlor Alkali International, Inc. Barbados Pioneer (East), Inc. Delaware
EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 14,417 0 20,141 1,311 6,247 43,197 108,912 (16,429) 291,010 39,863 141,629 1 0 0 74,322 291,010 183,326 183,326 126,739 126,739 0 0 17,290 14,846 6,735 8,111 0 0 0 8,111 8,111 8,111
-----END PRIVACY-ENHANCED MESSAGE-----