-----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, AE14NJauNAuDsq7pfh7MLVWULFvd8HiuVFouTNHfpw02ubJD1m17UiX9XvYcDM/T kyZBtTJyHwtUPwAmkNl4Jw== 0000950129-97-005064.txt : 19971201 0000950129-97-005064.hdr.sgml : 19971201 ACCESSION NUMBER: 0000950129-97-005064 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 19971126 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PCI CHEMICALS CANADA INC CENTRAL INDEX KEY: 0001050385 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 760549506 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221 FILM NUMBER: 97729829 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 4300 NATIONSBANK CENTER STREET 2: 700 LOUISIANA ST CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER AMERICAS ACQUISITION CORP CENTRAL INDEX KEY: 0000944649 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 061420850 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-01 FILM NUMBER: 97729830 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: SUITE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER AMERICAS INC CENTRAL INDEX KEY: 0000944717 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 760280373 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-02 FILM NUMBER: 97729831 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER CHLOR ALKALI CO INC CENTRAL INDEX KEY: 0000944718 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 510302028 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-03 FILM NUMBER: 97729832 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMPERIAL WEST CHEMICAL CO CENTRAL INDEX KEY: 0000944719 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 952375683 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-04 FILM NUMBER: 97729833 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALL PURE CHEMICAL CO CENTRAL INDEX KEY: 0000944720 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 942314942 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-05 FILM NUMBER: 97729834 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACK MOUNTAIN POWER CO CENTRAL INDEX KEY: 0000944721 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 760291143 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-06 FILM NUMBER: 97729835 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALL PURE CHEMICAL NORTHWEST INC CENTRAL INDEX KEY: 0000944722 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 942714064 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-07 FILM NUMBER: 97729836 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER CHLOR ALKALI INTERNATIONAL INC CENTRAL INDEX KEY: 0000944723 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 980118164 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-08 FILM NUMBER: 97729837 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOW CORP CENTRAL INDEX KEY: 0000944724 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 880336831 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-09 FILM NUMBER: 97729838 BUSINESS ADDRESS: STREET 1: 4200 NATIONSBANK CENTER STREET 2: 700 LOUISIANA STREET CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TC HOLDINGS INC CENTRAL INDEX KEY: 0001041860 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 860311265 STATE OF INCORPORATION: NM FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-10 FILM NUMBER: 97729839 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TC PRODUCTS INC CENTRAL INDEX KEY: 0001041861 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 911536884 STATE OF INCORPORATION: NM FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-11 FILM NUMBER: 97729840 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER EAST INC CENTRAL INDEX KEY: 0001041862 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 510375981 STATE OF INCORPORATION: NM FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-12 FILM NUMBER: 97729841 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER LICENSING INC CENTRAL INDEX KEY: 0001050376 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-13 FILM NUMBER: 97729842 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 MAIL ADDRESS: STREET 1: 900 LOUISIANA ST STREET 2: SUITE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PCI CAROLINA INC CENTRAL INDEX KEY: 0001050383 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 760549506 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41221-14 FILM NUMBER: 97729843 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 4300 NATIONSBANK CENTER STREET 2: 700 LOUISIANA ST CITY: HOUSTON STATE: TX ZIP: 77002 S-4 1 PCI CHEMICALS CANADA INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PCI CHEMICALS CANADA INC. (Exact name of registrant as specified in its charter) NEW BRUNSWICK, CANADA 2812 NOT APPLICABLE (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 630 WEST RENE-LEVESQUE BOULEVARD, MONTREAL, QUEBEC, H3B 1S6, (514) 397-6100 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) PIONEER AMERICAS ACQUISITION CORP. DELAWARE 06-1420850 PIONEER AMERICAS, INC. DELAWARE 76-0280373 PIONEER CHLOR ALKALI COMPANY, INC. DELAWARE 51-0302028 IMPERIAL WEST CHEMICAL CO. NEVADA 95-2375683 ALL-PURE CHEMICAL CO. CALIFORNIA 94-2314942 BLACK MOUNTAIN POWER COMPANY TEXAS 76-0291143 ALL-PURE CHEMICAL NORTHWEST, INC. WASHINGTON 94-2714064 PIONEER CHLOR ALKALI INTERNATIONAL, BARBADOS 98-0118164 INC. NEVADA 88-0336831 G.O.W. CORPORATION DELAWARE 51-0375981 PIONEER (EAST), INC. NEW MEXICO 86-0311265 T.C. HOLDINGS, INC. WASHINGTON 91-1536884 T.C. PRODUCTS, INC. DELAWARE 76-0549506 PCI CAROLINA, INC. DELAWARE 52-2058031 PIONEER LICENSING, INC. (State or other jurisdiction of (I.R.S. Employer (Exact name of registrants as incorporation or organization) Identification No.) specified in their charters)
--------------- 4300 NATIONSBANK CENTER, 700 LOUISIANA STREET, HOUSTON, TEXAS 77002, (713) 225-3831 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices) --------------- KENT R. STEPHENSON, ESQ. PIONEER AMERICAS ACQUISITION CORP. 4300 NATIONSBANK CENTER 700 LOUISIANA STREET HOUSTON, TEXAS 77002 (713) 225-3831 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- with a copy to: CORNELIUS T. FINNEGAN III, ESQ. WILLKIE FARR & GALLAGHER ONE CITICORP CENTER 153 EAST 53RD STREET NEW YORK, NEW YORK 10022 (212) 821-8000 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] --------------- CALCULATION OF REGISTRATION FEE
================================================================================================================================= PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE OFFERING PRICE REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------------- 9 1/4% Series B Senior Secured Notes Due 2007........ $175,000,000 100% $175,000,000 $53,031 - --------------------------------------------------------------------------------------------------------------------------------- Guarantees(1)........................................ (2) (2) (2) (2) =================================================================================================================================
(1) Pioneer Americas Acquisition Corp. and its wholly-owned subsidiaries Pioneer Americas, Inc., Pioneer Chlor Alkali Company, Inc., Imperial West Chemical Co., All-Pure Chemical Co., Black Mountain Power Company, All-Pure Chemical Northwest, Inc., Pioneer Chlor Alkali International, Inc., G.O.W. Corporation, Pioneer (East), Inc., T.C. Holdings, Inc., T.C. Products, Inc., PCI Carolina, Inc. and Pioneer Licensing, Inc. are each registering Guarantees of the payment of the principal of, premium, if any, and interest on the Notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no registration fee is required with respect to the Guarantees. (2) Not applicable. --------------- The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1997 PROSPECTUS PCI CHEMICALS CANADA INC. OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 9 1/4% SERIES B SENIOR SECURED NOTES DUE 2007 FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 9 1/4% SERIES A SENIOR SECURED NOTES DUE 2007 --------------------- PCI Chemicals Canada Inc., a New Brunswick, Canada company ("PCI Canada" or "the Issuer"), hereby offers to exchange (the "Exchange Offer") up to $175,000,000 in aggregate principal amount of its 9 1/4% Series B Senior Secured Notes Due 2007 (the "Exchange Notes") for up to $175,000,000 in aggregate principal amount of its outstanding 9 1/4% Series A Senior Secured Notes Due 2007 issued in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Original Notes" and, together with the Exchange Notes, the "Notes"). The terms of the Exchange Notes will be substantially identical in all respects (including principal amount, interest rate, maturity and ranking) to the terms of the Original Notes for which they may be exchanged pursuant to the Exchange Offer, except that (i) the Exchange Notes will be freely transferable by holders thereof (except as provided below) and (ii) the Exchange Notes will be issued without any covenant of the Registrants (as defined) regarding registration. The Exchange Notes will be issued under the indenture governing the Original Notes. The Exchange Notes will be, and the Original Notes are, senior obligations of the Issuer and will be and are fully and unconditionally guaranteed on a senior basis by Pioneer Americas Acquisition Corp. ("PAAC" and together with its subsidiaries, the "Company"), Pioneer Americas, Inc., the direct parent of the Issuer ("PAI"), and the other subsidiaries of PAAC (collectively, the "Guarantors", and together with the Issuer, the "Registrants"). The Exchange Notes will be, and the Original Notes are, secured by pari passu first priority liens on the Collateral (as defined), consisting of certain assets acquired in the PCI Canada Acquisition (as defined). The Exchange Notes will rank pari passu with all other existing and future Senior Indebtedness (as defined) of the Issuer and senior to all subordinated Indebtedness of the Issuer. The Exchange Notes and the obligations of the Guarantors under their guarantees of the Exchange Notes will be effectively subordinated to secured Senior Indebtedness of the Issuer and the Guarantors, respectively, with respect to the assets securing such Indebtedness. As of September 30, 1997, on a pro forma basis after giving effect to the Offering, the other Financings (as defined) and the PCI Canada Acquisition, the Issuer and the Guarantors would have had $557.8 million of outstanding secured Senior Indebtedness. For a complete description of the terms of the Exchange Notes, including provisions relating to the ability of the Registrants to create indebtedness that is senior or pari passu to the Exchange Notes, see "Description of the Notes." There will be no cash proceeds to the Registrants from the Exchange Offer. The Notes will bear interest from and including their respective dates of issuance. Holders whose Original Notes are accepted for exchange will receive accrued interest thereon to, but not including, the date of issuance of the Exchange Notes, such interest to be payable with the first interest payment on the Exchange Notes, but will not receive any payment in respect of interest on the Original Notes accrued after the issuance of the Exchange Notes. The Original Notes were originally issued and sold on November 5, 1997 in a transaction not registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon the exemption provided in Section 4(2) of the Securities Act and Rule 144A of the Securities Act (the "Initial Offering"). Accordingly, the Original Notes may not be reoffered, resold or otherwise pledged, hypothecated or transferred in the United States unless so registered or unless an applicable exemption from the registration requirements of the Securities Act is available. Based upon interpretations by the Staff (the "Staff") of the Securities and Exchange Commission (the "Commission") issued to third parties, the Registrants believe that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "affiliate" of the Registrants within the meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired Original Notes directly from the Registrants or (iii) a broker-dealer who acquired Original Notes as a result of market making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Broker-dealers who acquired Original Notes as a result of market making or other trading activities may use this Prospectus, as supplemented or amended, in connection with resales of the Exchange Notes. The Registrants have agreed that, for a period not to exceed 180 days after the Exchange Date (as defined), they will make this Prospectus available to any broker-dealer for use in connection with any such resale. Any holder that cannot rely upon such interpretations must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. The Original Notes and the Exchange Notes constitute new issues of securities with no established trading market. Any Original Notes not tendered and accepted in the Exchange Offer will remain outstanding. To the extent that Original Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered, and tendered but unaccepted, Original Notes could be adversely affected. Following consummation of the Exchange Offer, the holders of Original Notes will continue to be subject to the existing restrictions on transfer thereof and the Registrants will have no further obligation to such holders to provide for the registration under the Securities Act of the Original Notes except under certain limited circumstances. (See "Original Notes Registration Rights.") No assurance can be given as to the liquidity of the trading market for either the Original Notes or the Exchange Notes. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Original Notes being tendered for exchange. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1998, unless extended (the "Expiration Date"). The date of acceptance for exchange of the Original Notes (the "Exchange Date") will be the first business day following the Expiration Date, upon surrender of the Original Notes. Original Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date; otherwise such tenders are irrevocable. --------------------- SEE "RISK FACTORS" ON PAGE 16 FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------- The date of this Prospectus is , 1997 3 AVAILABLE INFORMATION The Issuer and the Guarantors have filed with the Commission a Registration Statement on Form S-4 (the "Registration Statement," which term shall include all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the Exchange Notes being offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to in the Registration Statement are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports and other information required by the Commission. Periodic reports and other information filed by the Company with the Commission may be inspected at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding companies that file electronically with the Commission. The address of such site is http://www.sec.gov. Copies of such material can also be obtained from the Company upon request. Any such request should be directed to the Secretary of the Company at 4300 NationsBank Center, 700 Louisiana Street, Houston, Texas 77002, telephone number (713) 225-3831. The Company's obligation to file periodic reports with the Commission pursuant to the Exchange Act may be suspended if the Notes are held of record by fewer than 300 holders at the beginning of any fiscal year of the Company, other than the fiscal year in which the Exchange Offer Registration Statement (as defined) or any Shelf Registration Statement (as defined) becomes effective. The Company has agreed that, whether or not it is required to do so by the rules and regulations of the Commission, for so long as any of the Notes remain outstanding, it will furnish to the holders of the Notes and submit to the Commission (unless the Commission will not accept such materials) (i) all quarterly and annual financial information that would be required to be contained in filings with the Commission on Forms 10-Q and 10-K if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants, and (ii) all reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, for so long as any of the Notes remain outstanding, the Company has agreed to make available upon request to any prospective purchaser of, or beneficial owner of Notes in connection with any offer or sale thereof, the information required by Rule 144A(d)(4) under the Securities Act. NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUER OR THE GUARANTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE ISSUER OR THE GUARANTORS SINCE THE DATE HEREOF. ii 4 TABLE OF CONTENTS
PAGE ---- AVAILABLE INFORMATION...................... ii EXCHANGE CONTROLS.......................... iv ENFORCEABILITY OF CIVIL LIABILITIES........ iv PROSPECTUS SUMMARY......................... 1 RISK FACTORS............................... 16 Consequences of Failure to Exchange...... 16 Financial Leverage....................... 16 Industry Cyclicality..................... 17 Environmental Regulation................. 17 Operating Hazards and Uninsured Risks.... 21 Limitations on Security Interest......... 21 No Assurance of Realizable Value from Collateral............................. 21 Potential Environmental Liability of Secured Lenders........................ 22 Competition.............................. 22 Dependence on Key Customers and Key Suppliers.............................. 22 Ranking of the Notes and Guarantees...... 23 Fraudulent Conveyance Issues............. 23 Tax Matters.............................. 23 Change of Control........................ 24 Control by Certain Stockholders.......... 24 Forward-Looking Statements............... 24 Lack of Public Market for the Notes...... 25 USE OF PROCEEDS............................ 25 THE EXCHANGE OFFER......................... 26 Purpose of the Exchange Offer............ 26 Terms of the Exchange.................... 26 Expiration Date; Extensions; Termination; Amendments............................. 27 How to Tender............................ 28 Terms and Conditions of the Letter of Transmittal............................ 29 Withdrawal Rights........................ 30 Acceptance of Original Notes for Exchange; Delivery of Exchange Notes... 30 Conditions to the Exchange Offer......... 31 Exchange Agent........................... 31 Solicitation of Tenders; Expenses........ 31 Appraisal Rights......................... 32 Federal Income Tax Consequences.......... 32 Other.................................... 32 THE ACQUISITION............................ 33 The Acquisition.......................... 33 Use of Proceeds from Initial Offering.... 34 THE COMPANY AND PIONEER.................... 35 The Company.............................. 35 Pioneer.................................. 36 CAPITALIZATION............................. 37 PRO FORMA FINANCIAL INFORMATION.............................. 38 SUPPLEMENTAL ANALYSIS OF ADJUSTED EBITDA... 53 SELECTED HISTORICAL FINANCIAL DATA......... 54 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................... 57 BUSINESS................................... 64 General.................................. 64 Industry Overview........................ 64
PAGE ---- Strategy................................. 67 Operating Units.......................... 68 Facilities............................... 75 Other Investments........................ 79 Competition.............................. 80 Employees................................ 80 Environmental and Safety Regulation...... 81 Insurance................................ 90 Legal Proceedings........................ 90 MANAGEMENT................................. 91 Directors and Executive Officers of PAAC................................... 91 Executive Compensation................... 93 Pension Plan............................. 96 Employment Agreements and Severance and Change-in-Control Arrangements......... 96 Compensation of Directors................ 97 Compensation Committee Interlocks and Insider Participation.................. 98 CERTAIN TRANSACTIONS....................... 98 STOCK OWNERSHIP............................ 100 DESCRIPTION OF OTHER INDEBTEDNESS.......... 101 New Credit Facilities.................... 101 Existing Term Facility................... 102 Senior Secured Notes..................... 102 Other.................................... 103 DESCRIPTION OF THE NOTES................... 104 General.................................. 104 Payment Terms............................ 104 Ranking.................................. 104 Guarantees............................... 105 Security................................. 106 Intercreditor Agreements................. 106 Certain Bankruptcy Considerations........ 107 Additional Amounts....................... 109 Optional Redemption...................... 110 Redemption for Changes in Canadian Withholding Taxes...................... 110 Change of Control........................ 111 Certain Covenants........................ 113 Release of Collateral.................... 124 Certain Definitions...................... 124 Defaults and Remedies.................... 134 Transfer and Exchange.................... 135 Amendment, Supplement and Waiver......... 135 Legal Defeasance and Covenant Defeasance............................. 136 Enforceability of Judgements with Respect to the Notes........................... 137 Consent to Jurisdiction and Service...... 138 The Trustee.............................. 138 Governing Law............................ 138 Book-entry; Delivery; Form and Transfer............................... 139 ORIGINAL NOTES REGISTRATION RIGHTS......... 142 CERTAIN TAX CONSEQUENCES................... 144 PLAN OF DISTRIBUTION....................... 147 LEGAL MATTERS.............................. 148 EXPERTS.................................... 148 CHANGE IN INDEPENDENT PUBLIC AUDITORS...... 148 INDEX TO FINANCIAL STATEMENTS.............. F-1
iii 5 EXCHANGE CONTROLS The Issuer has been advised by Stewart McKelvey Stirling Scales and Stikeman Elliott, a general partnership, respective Canadian counsel, that there are no governmental laws, decrees or regulations in the provinces of New Brunswick, Nova Scotia, Ontario or Quebec or the laws of Canada applicable thereto which restrict the export or import of capital and that there are no limitations on the right of non-resident or foreign owners to hold or vote the Notes. ENFORCEABILITY OF CIVIL LIABILITIES The Issuer is a New Brunswick corporation. Certain of its directors, officers and experts named herein are residents of Canada. All or a substantial portion of the assets of such persons and the Issuer are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon such directors, officers and experts or to realize in the United States upon judgments of courts of the United States predicated upon civil liability under the federal securities laws of the United States. The Issuer has been advised that there is doubt as to the enforceability against such persons in Canada of a judgment of a United States court predicated solely upon civil liability under the federal securities laws of the United States. The Issuer has also been advised that an action may be brought against the Issuer or against its directors, officers and experts in a court of competent jurisdiction in New Brunswick in the first instance on the basis of civil liability predicated solely upon the federal securities laws of the United States only if their acts or evaluations would be actionable if they had occurred in New Brunswick, and if they would be liable under the federal securities laws of the United States in an action brought in the United States. iv 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless the context otherwise requires, (i) the terms PCI Canada and Issuer refer to PCI Chemicals Canada Inc., (ii) the term PAAC refers to Pioneer Americas Acquisition Corp., (iii) the terms PAI and Predecessor Company refer to Pioneer Americas, Inc. and its subsidiaries, (iv) the term Company means PAAC and its subsidiaries and (v) the term Pioneer refers to Pioneer Companies, Inc., the parent company of PAAC. "Pro forma net sales" for Pioneer Chlor Alkali Company, Inc. gives effect to the June 17, 1997 acquisition of a chlor-alkali production facility and related business (the "Tacoma Facility") located in Tacoma, Washington (the "Tacoma Acquisition"). "Pro forma net sales" for All-Pure Chemical Co. gives effect to the acquisition of T.C. Products, Inc. ("T.C. Products"), a regional producer of bleach and related products that was acquired in July 1996. "Pro forma net sales" and "pro forma EBITDA" for the PCI Canada Business (as defined) gives effect to the acquisition of substantially all of the assets and properties of the Forest Products Division of ICI Canada Inc. and ICI Americas Inc. consummated as of October 31, 1997 (the "PCI Canada Acquisition"). "Pro forma net sales" and "pro forma EBITDA" for the Company gives effect to each of these transactions. See "The Company and Pioneer." Dollar amounts are in United States dollars unless otherwise indicated. THE COMPANY The Company manufactures and markets chlorine and caustic soda and several related downstream water treatment products. The Company conducts its business primarily through its subsidiaries: Pioneer Chlor Alkali Company, Inc. ("PCAC"), with pro forma net sales of $196.5 million for the twelve months ended September 30, 1997, and All-Pure Chemical Co. ("All-Pure"), with pro forma net sales of $52.6 million for such period. The Company also owns a 50% unconsolidated joint venture interest in Kemwater North America Company ("Kemwater"). In October 1997, the Company acquired substantially all of the assets and properties of the North American chlor-alkali business of ICI Canada Inc. ("ICI Canada") and ICI Americas Inc. ("ICI Americas"), with pro forma net sales of $162.5 million for the twelve months ended September 30, 1997. For the twelve months ended September 30, 1997, the Company's pro forma net sales and pro forma EBITDA (as defined) were $411.4 million and $121.5 million, respectively. Chlorine and caustic soda are the seventh and sixth most commonly produced chemicals, respectively, in the United States, based on volume, and are used in a wide variety of applications and chemical processes. Chlorine and caustic soda are co-products, concurrently produced in a ratio of 1 to 1.1, through the electrolysis of salt water. A chlor-alkali electrochemical unit ("ECU") consists of 1 ton of chlorine and 1.1 tons of caustic soda. During the twelve months ended September 30, 1997, after giving pro forma effect to the PCI Canada Acquisition and the Tacoma Acquisition, the Company produced approximately 886,000 tons of chlorine and 1,001,000 tons of caustic soda. Chlorine is used in the manufacture of over 15,000 products, comprising approximately 60% of all commercial chemistry, 85% of all pharmaceutical chemistry and 95% of all crop protection chemistry. Products manufactured with chlorine as a raw material include water treatment chemicals, plastics, detergents, pharmaceuticals, disinfectants and agricultural chemicals. Chlorine is also used directly in water disinfection applications. In the United States and Canada, virtually all public drinking water is made safe to drink by chlorination, and a significant portion of industrial and municipal waste water is treated with chlorine or chlorine derivatives to kill water-borne pathogens and remove solids. Caustic soda is a versatile chemical alkali used in a diverse range of manufacturing processes, including metal smelting, petroleum production and refining, pulp and paper production and paint manufacturing. Caustic soda is combined with chlorine and water to produce bleach and is used as an active ingredient in a wide variety of other end use products, including detergents, rayon and cellophane. The Company has expanded into the eastern Canadian and eastern United States chlor-alkali markets with the acquisition of the North American chlor-alkali business of ICI Canada and ICI Americas. 1 7 Headquartered in Montreal, Quebec, the PCI Canada Business includes the business now conducted by PCI Canada and its affiliates (the "PCI Canada Business"), a leading eastern Canadian merchant chlor-alkali manufacturer, serving primarily the pulp and paper industry. The PCI Canada Business produces chlorine and caustic soda for sale in the merchant markets and for use as raw materials in downstream products. The PCI Canada Acquisition is consistent with the Company's strategy to strengthen its North American chlor-alkali merchant market position. The PCI Canada Business operates two chlor-alkali production facilities, at Becancour, Quebec and Dalhousie, New Brunswick, with aggregate production capacity of approximately 376,000 ECUs, as well as additional downstream production units at Cornwall, Ontario. Management believes that the production costs for the primary production facility, Becancour, are among the lowest in North America. Following the PCI Canada Acquisition, the Company owns and operates five chlor-alkali production facilities, located in St. Gabriel, Louisiana; Henderson, Nevada; Tacoma, Washington; Becancour, Quebec and Dalhousie, New Brunswick, with aggregate production capacity of approximately 950,000 ECUs. Management believes the Company's competitive position has been significantly strengthened by recent acquisitions, providing the Company with low-cost, well-maintained and world scale production capacity plants. Following the PCI Canada Acquisition, approximately 60% of the Company's sources of electricity is hydro-power based, the cheapest source in North America. In addition, over 22% of the Company's ECU capacity employs membrane cell technology, the most efficient available technology. Management believes that following the PCI Canada Acquisition, the Company is the fifth largest chlor-alkali producer in North America and the third largest North American chlor-alkali merchant manufacturer/marketer, with approximately 6% of North American production capacity. Primary markets for the Company's products include water treatment for industrial, municipal and consumer applications, polyvinyl chloride ("PVC") and other plastics, pulp and paper, detergents and agricultural chemicals. The Company believes that the chlorine and caustic soda currently produced at its Henderson and Tacoma facilities provide a significant source of supply for the West Coast region, where the Company is also the largest supplier of chlorine and bleach for water treatment purposes and where Kemwater is the largest producer of iron chlorides. The Company believes the St. Gabriel and Tacoma facilities are leading suppliers of premium, low-salt grade caustic soda in their respective regions. The Company believes the strong regional presence of the PCI Canada Business in eastern Canada and the eastern United States enhances the competitiveness of the Company's other operations. THE PCI CANADA ACQUISITION On October 31, 1997, Pioneer, and PCI Canada and PCI Carolina, Inc. ("PCI Carolina"), newly formed subsidiaries of PAAC, and Imperial Chemical Industries PLC ("ICI") and its subsidiaries, ICI Canada and ICI Americas, consummated the PCI Canada Acquisition. Pursuant to the Asset Purchase Agreement (the "Purchase Agreement"), dated as of September 22, 1997, the Company acquired substantially all of the assets and properties used by ICI Canada and ICI Americas in their North American chlor-alkali business. For the twelve months ended September 30, 1997, the PCI Canada Business generated pro forma net sales and pro forma EBITDA of $162.5 million and $51.9 million, respectively. The purchase price consisted of approximately $235.6 million, payable in cash, and the assumption of certain obligations related to the acquired chlor-alkali business. Management believes that the PCI Canada Acquisition presented an attractive opportunity to further extend and diversify the Company's geographic and product focus while helping to manage the intrinsic cyclicality of the chlor-alkali business. By acquiring a low-cost operation with complementary product offerings, the Company believes it will improve its ability to market to merchant chlor-alkali customers. Specific benefits include the following: - The acquisition substantially expands the Company's presence in the merchant market for chlorine and caustic soda, especially in markets contiguous to existing markets in the southeastern United States where the Company already conducts significant operations. 2 8 - The Company expects that the pulp and paper expertise and product offerings of the PCI Canada Business will strengthen the Company's existing market position in the pulp and paper industry in the western United States and Canada. - The PCI Canada Business will benefit from the Company's experience in marketing to industrial customers. - The experienced management team of the PCI Canada Business has historically operated the business as a stand-alone entity within ICI Canada and has demonstrated an ability to improve the operating performance and cost structure of the business. Since 1992, management has reduced fixed costs by approximately $9.6 million and initiated productivity improvements and various other restructuring initiatives that resulted in a 30% reduction in workforce over such period. As a result, the Company intends to continue to operate the PCI Canada Business with existing management. - The PCI Canada Business has been successful in developing markets for downstream products, such as bleach, hydrochloric acid and chlorinated paraffins, whose steady demand for chlorine and caustic soda has helped maintain high operating rates at its chlor-alkali facilities, which in turn has improved overall profitability. Over the last several years, the PCI Canada Business has operated at approximately full capacity. - In April 1997, the PCI Canada Business completed a $21.2 million expansion and upgrade of its Becancour facility by installing modern membrane cells, which increased Becancour's net chlor-alkali capacity by 36,000 tons, or 12%. At the closing of the PCI Canada Acquisition the Company and ICI entered into certain related agreements. Pursuant to a Noncompetition Agreement, ICI agreed not to engage in any production or sales of caustic soda until 2002 in designated areas of North America. Pursuant to a Lease Agreement, the PCI Canada Business leased certain facilities at the Cornwall site from ICI Canada. Pursuant to a License Agreement, the PCI Canada Business received a license from ICI and its affiliates for the non-exclusive use of certain intellectual property. Pursuant to a Transition Services Agreement, ICI Canada and certain of its affiliates agreed to provide transition services to the Company. The purchase price is subject to adjustment based on the difference between base working capital and actual working capital (each as defined in the Purchase Agreement) on the closing date. The Purchase Agreement also provides certain environmental indemnifications from ICI Canada and ICI Americas, subject to certain thresholds and limitations, which obligations will be guaranteed by ICI. See "Risk Factors -- Environmental Regulation" and "Business -- Environmental and Safety Regulation." See "The Acquisition" for the structure of Pioneer and its operating subsidiaries following the PCI Canada Acquisition. 3 9 BUSINESS STRATEGY The Company's management team is pursuing a business strategy designed to capitalize on its marketing, production and distribution expertise and its geographic focus. The Company seeks to manage effectively the intrinsic cyclicality of the chlor-alkali industry while continuing to grow and improve profitability by pursuing a strategy which includes the following principal elements: - Focusing on the Merchant Chlor-Alkali Market. The Company is dedicated to serving the merchant chlor-alkali market, acting as a reliable source of supply of chlorine and caustic soda. The Company is committed to being flexible and responsive in periods of volatile chlor-alkali demand, making it the preferred supplier for many of its customers. Unlike its major competitors, the Company does not compete with its PVC customers and, as a result, is viewed as a preferred, non-competing source of raw materials. - Optimizing Plant Efficiencies through High Capacity Utilization. The Company seeks to maximize profitability by achieving a constant flow of product through its plants. The Company strives to maintain a steady demand for its output through (i) programs aimed primarily at growing markets such as PVC and water treatment; (ii) renewable contracts with major customers and a Chlorine Purchase Agreement with OCC Tacoma; (iii) direct linkage with major customers via pipelines, including a seven-mile liquid chlorine pipeline from the St. Gabriel facility (the "Pipeline Project") expected to be completed in 1998; and (iv) captive demand for chlorine and caustic soda through its downstream water treatment operations. - Improving Cost Efficiency. The Company continually seeks to improve its cost competitiveness through a combination of productivity enhancements, strict operating cost controls, capital improvements and maintenance of high capacity utilization rates. Despite inflation, the Company's cash production costs per ECU decreased by 5% from 1990 through 1996, while ECU production per employee increased by 20%. In addition, the Company seeks to reduce distribution costs and improve plant operating efficiency through the efficient use of its strategic locations with deep water port facilities, direct pipeline connections to customers and opportunistic product exchanges with chlor-alkali producers in other regions. - Focusing on Geographic Diversity and Market Penetration. The Company's products are manufactured and sold in a number of markets, providing a wide base for future growth and distribution to help mitigate the effects of regional and economic fluctuations. Following the PCI Canada Acquisition, the Company has major chlor-alkali facilities in three states (Louisiana, Nevada and Washington) and two Canadian provinces (Quebec and New Brunswick) and downstream plants producing a range of products such as bleach, hydrochloric acid, iron chlorides and chlorinated paraffins. The Company is well-positioned to direct its chlor-alkali output to customers while more efficiently supplying the growth in its own downstream operations. Through recent expansion, the Company is creating substantial new regional strength in areas west of the Rocky Mountains and eastern Canada and the eastern United States, while maintaining its traditionally strong presence in the Gulf Coast region. - Expanding Product Offerings. The Company has developed water treatment chemical businesses whose steady requirements for chlorine and caustic soda help maintain high operating rates at the Company's chlor-alkali facilities which, in turn, decreases unit production costs. In addition to serving as a source of demand, these growing businesses service diverse product markets and regions and can offset industry cyclicality in the chlorine and caustic soda markets by providing a more stable downstream source of revenue. The PCI Canada Acquisition allows the Company to expand into related product offerings for the pulp and paper market, including sodium chlorate and proprietary additives such as PSR 2000(R) and IMPAQT(R). - Growing through Product Line Extensions and Strategic Acquisitions. Management believes that there are significant opportunities to continue the Company's growth both internally and through strategic acquisitions. The Company focuses its product development efforts on areas identified by its customers as being of major commercial importance. For example, in the area of water treatment, the Company 4 10 has developed or acquired rights to a number of innovative coagulant products which help provide cost effective, advanced waste water treatment solutions. In addition, the Company is constantly reviewing acquisitions in related markets and since 1990 has consummated five downstream acquisitions, which provide attractive product offerings and geographic coverage. RECENT INDUSTRY TRENDS The chlorine and caustic soda markets are cyclical markets that are sensitive to relative changes in supply and demand, which are in turn affected by general economic conditions, capacity additions and other factors. Over the last five years, the market for PVC, the largest use of chlorine in the United States, has experienced steady growth, resulting in strong demand for chlorine. However, the use of chlorine as a bleaching agent in the pulp and paper industry and as feedstock in the production of chlorofluorocarbons ("CFCs") has been reduced significantly due to regulatory pressures. As a result of these factors and a general decline in economic growth in the early 1990s, the North American chlor-alkali industry experienced declining prices, as ECU prices fell by over 52% from $389 per ECU in the fourth quarter of 1989 to $185 per ECU in the second quarter of 1993. After a significant improvement in domestic economic growth, in early 1994 chlor-alkali markets experienced increased levels of demand. Limited new capacity was added during this time, resulting in greater capacity utilization and higher domestic and export prices for chlor-alkali products. These conditions continued in 1995 and the increase in demand enabled the Company and the industry in general to increase selling prices significantly at a time when operating costs generally did not increase, with prices eventually exceeding $400 per ECU at the peak of the cycle in 1995. Toward the end of 1995 and continuing through 1996, however, ECU prices began to decrease as strengthening demand for chlorine was offset by an oversupply of caustic soda. As a result, prices decreased to approximately $335 to $345 per ECU by the end of 1996, even as chlorine prices remained strong due to steady demand growth from the PVC industry. For the third quarter of 1997, prices have ranged from $310 to $345 per ECU. Demand for chlorine has been relatively stable, while increasing demand for caustic soda has recently strengthened pricing, as evidenced by several recent announced price increases. The industry has continued to operate at full capacity and management does not anticipate a significant increase in capacity over the next several years. The Company therefore believes that the previous volatility in ECU prices should moderate over such period. RECENT DEVELOPMENTS Tacoma Acquisition On June 17, 1997, Pioneer, the Company and OCC Tacoma, Inc. ("OCC Tacoma"), a subsidiary of Occidental Chemical Corporation ("OxyChem"), consummated the acquisition by the Company of substantially all the assets and properties used by OCC Tacoma in the chlor-alkali business at Tacoma, Washington, including the Tacoma Facility. The purchase price consisted of (i) $97.0 million, paid in cash, (ii) 55,000 shares of Convertible Redeemable Preferred Stock, par value $.01 per share, of Pioneer (the "Pioneer Preferred Stock"), having a liquidation preference of $100 per share, and (iii) the assumption of certain obligations related to the acquired chlor-alkali business. The Tacoma Acquisition has provided the Company with an expanded presence in the western United States. The Tacoma Facility, with an aggregate production capacity of 225,000 ECUs, is a well-maintained chlor-alkali production facility with diaphragm and modern membrane cell technologies and a location contiguous to the Company's previous customer base. By acquiring a low-cost facility in the Pacific Northwest, the Company is well-positioned to market in outlying areas while efficiently supplying the All-Pure and Kemwater downstream operations, principally in the western and northwestern United States. During the third quarter of 1997, the Company completed the integration of the Tacoma Facility with its existing business. 5 11 THE COMPANY AND PIONEER PCI Canada is an indirect wholly-owned subsidiary of PAAC. PAAC is a direct wholly-owned subsidiary of Pioneer, a publicly-traded company that immediately prior to the acquisition of PAI in April 1995 had no operations. Pioneer has an available net operating loss carryforward for federal income tax reporting purposes which it believes was approximately $54.9 million at September 30, 1997, which includes the impact of the extraordinary loss due to early extinguishment of debt during the second quarter of 1997. Interlaken Investment Partners, L.P., a Delaware limited partnership (the "Interlaken Partnership"), beneficially owns approximately 34.9% of the voting power of Pioneer, and William R. Berkley, Chairman of Pioneer and PAAC (who may be deemed to beneficially own all shares of Pioneer common stock held by the Interlaken Partnership), may be deemed to beneficially own approximately 59.9% of the voting power of Pioneer. See "Stock Ownership." THE FINANCINGS In connection with the PCI Canada Acquisition, the Company consummated a series of related transactions (the "Financings") on November 5, 1997, comprised of (i) the Initial Offering, (ii) borrowings of $83.0 million in term loans to PAI under a new senior secured term loan facility (the "Term Facility") and (iii) the amendment of PAAC's existing senior revolving loan and letter of credit facility to increase availability to $65.0 million (the "Revolving Facility"). See "Description of Other Indebtedness -- New Credit Facilities." Term Facility The Company entered into the Term Facility, pursuant to which PAI borrowed new term loans (the "Term Loans") in an aggregate principal amount of $83.0 million. The Term Loans are guaranteed by PAAC and its subsidiaries (other than PAI) and are secured on a pari passu basis with the Collateral (as defined) securing the Notes. Revolving Facility The Company has entered into the Revolving Facility, to provide for revolving loans (the "Revolving Loans") in an aggregate principal amount up to $65.0 million, subject to borrowing base limitations, of which a portion will be available for the issuance of letters of credit, and to include a Canadian sub-facility. The Company did not incur Revolving Loans at closing but had $2.9 million in letters of credit outstanding at such time under the Revolving Facility. 6 12 THE EXCHANGE OFFER The Exchange Offer......... The Issuer and the Guarantors are offering to exchange (the "Exchange Offer") up to $175,000,000 aggregate principal amount of 9 1/4% Series B Senior Secured Notes due 2007 (the "Exchange Notes") for up to $175,000,000 aggregate principal amount of its outstanding 9 1/4% Series A Senior Secured Notes due 2007 issued in reliance upon an exemption from registration under the Securities Act (the "Original Notes"). The terms of the Exchange Notes will be substantially identical in all respects (including principal amount, interest rate, maturity and ranking) to the terms of the Original Notes for which they may be exchanged pursuant to the Exchange Offer, except that (i) the Exchange Notes will be freely transferable by holders thereof except as provided herein (see "The Exchange Offer -- Terms of the Exchange" and "-- Terms and Conditions of the Letter of Transmittal") and (ii) the Exchange Notes will be issued without any covenant regarding registration under the Securities Act. Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "affiliate" of the Registrants within the meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired Original Notes directly from a Registrant or (iii) broker-dealers who acquired Original Notes as a result of market making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes. Minimum Condition.......... The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Original Notes being tendered for exchange. Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1998 unless extended (the "Expiration Date"). Exchange Date.............. The first date of acceptance for exchange for the Original Notes will be the first business day following the Expiration Date. Conditions to the Exchange Offer...................... The obligation of the Registrants to consummate the Exchange Offer is subject to certain conditions. See "The Exchange Offer -- Conditions to the Exchange Offer." The Registrants reserve the right to terminate or amend the Exchange Offer at any time prior to the Expiration Date upon the occurrence of any such condition. Withdrawal Rights.......... Tenders may be withdrawn at any time prior to the Expiration Date. Any Original Notes not accepted for any reason will be returned without expense to the tendering holders thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Procedures for Tendering Original Notes........... See "The Exchange Offer -- How to Tender." 7 13 Federal Income Tax Consequences............. The exchange of Original Notes for Exchange Notes by holders will not be a taxable exchange for federal income tax purposes, and holders should not recognize any taxable gain or loss or any interest income as a result of such exchange. Effect on Holders of Original Notes............. As a result of the making of this Exchange Offer, and upon acceptance for exchange of all validly tendered Original Notes pursuant to the terms of this Exchange Offer, the Registrants will have fulfilled a covenant contained in the terms of the Original Notes and the Exchange and Registration Rights Agreement (the "Registration Rights Agreement") dated as of November 5, 1997 between the Issuer, the Guarantors, Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc, as initial purchasers (the "Initial Purchasers"), and, accordingly, the holders of the Original Notes will have no further registration or other rights under the Registration Rights Agreement, except under certain limited circumstances. See "Original Notes Registration Rights." Holders of the Original Notes who do not tender their Original Notes in the Exchange Offer will continue to hold such Original Notes and will be entitled to all the rights and limitations applicable thereto under the Indenture, dated as of October 30, 1997, among the Issuer, the Guarantors and United States Trust Company of New York, as Trustee and Collateral Agent (the "Trustee"), relating to the Original Notes and the Exchange Notes (the "Indenture"). All untendered, and tendered but unaccepted, Original Notes will continue to be subject to the restrictions on transfer provided for in the Original Notes and the Indenture. To the extent that Original Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Original Notes could be adversely affected. See "Risk Factors -- Consequences of Failure to Exchange." TERMS OF THE NOTES The Exchange Offer applies to $175,000,000 aggregate principal amount of the Original Notes. The form and terms of the Exchange Notes are the same as the form and terms of the Original Notes for which they may be exchanged except that the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof. The Exchange Notes will evidence the same debt as the Original Notes and will be entitled to the benefits of the Indenture. See "Description of the Notes." Notes Offered.............. $175,000,000 aggregate principal amount of 9 1/4% Series B Senior Secured Notes due 2007. Maturity................... October 15, 2007. Interest Payment Dates..... April 15 and October 15 of each year, commencing April 15, 1998. Ranking.................... The Notes are senior obligations of the Issuer, and rank pari passu with all existing and future Senior Indebtedness of the Issuer and senior to all Subordinated Indebtedness of the Issuer. The Notes and the Term Loans are effectively secured by pari passu first priority liens on and security interests in the Collateral. The Notes and the obligations of the 8 14 Guarantors under their guarantees of the Notes are effectively subordinated to secured Senior Indebtedness of the Issuer and the Guarantors, respectively, with respect to the assets securing such Indebtedness. As of September 30, 1997, after giving pro forma effect to the Offering and the other Financings, the Issuer and the Guarantors would have had outstanding approximately $557.8 million aggregate principal amount of secured Senior Indebtedness. In addition, PAAC and its Subsidiaries may incur up to $50.0 million of Senior Indebtedness which will be secured on a pari passu basis with the Senior Secured Notes and the Existing Term Facility (each as defined). As of September 30, 1997, the Company and its Subsidiaries would have had, subject to certain restrictions (including borrowing base limitations), the ability to draw up to $62.1 million of additional secured Senior Indebtedness under the Revolving Facility. See "Risk Factors -- Ranking of the Notes and Guarantees," "Description of Other Indebtedness" and "Description of the Notes -- Ranking." Security................... The Notes are effectively secured by the Collateral (as defined). Pursuant to an Intercreditor and Collateral Agency Agreement, dated as of October 30, 1997, (the "Intercreditor Agreement") by and among the Issuer, the Trustee under the Indenture, the agent under the Term Facility (the "Term Loan Agent") and the Collateral Agent, the Collateral Agent will hold the Collateral securing the Notes and the Term Loans for the equal and ratable benefit of the Trustee, the holders of the Notes, the Term Loan Agent and the holders of the Term Loans. The Collateral is generally limited to first priority liens on and security interests in the Issuer's owned and leased facilities (including real property, buildings, fixtures and certain equipment at Becancour, Quebec; Dalhousie, New Brunswick; Cornwall, Ontario; Mississauga, Ontario; and Point Tupper, Nova Scotia). The Intercreditor Agreement provides generally that the holders of a majority of the obligations secured by the Collateral may direct the Collateral Agent with respect to certain matters. The security interest in the Collateral will be a first priority lien, subject to certain exceptions. See "Risk Factors -- Limitations on Security Interest." The Indenture provides that any release of Collateral, including Trust Moneys, will be subject to the provisions of Section 314(d) of the Trust Indenture Act (as defined) relating to, among other things, the delivery of a certificate or an opinion of an engineer, appraiser or other expert as to the fair value of Collateral being released from the liens of the Security Documents. See "Description of the Notes -- Security" and "-- Intercreditor Agreement." Guarantees................. The Notes are fully and unconditionally guaranteed on a senior basis by the Guarantors (which are PAAC and its direct and indirect subsidiaries, other than the Issuer). The Guarantee of each Guarantor ranks pari passu with all existing and future Senior Indebtedness of such Guarantor and senior to all Subordinated Indebtedness, if any, of such Guarantor. The Guarantees are effectively subordinated to secured Senior Indebtedness of the Guarantors with respect to the assets securing such Indebtedness. See "Description of the Notes -- Ranking" and "Description of Other Indebtedness." The Guarantees are joint and several obligations of the Guarantors. See "Description of the Notes -- Guarantees." 9 15 Optional Redemption........ The Notes are redeemable in cash at the option of the Issuer, in whole or in part, at any time or from time to time on or after October 15, 2002, at the redemption prices set forth herein, together with accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption. In addition, the Issuer may also redeem in cash at its option at any time prior to October 15, 2000 up to 35% of the aggregate principal amount of the Notes originally issued at a purchase price of 109.25% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption, with the net proceeds of (i) an Equity Offering by the Issuer or (ii) an Equity Offering by Pioneer or PAAC, but only to the extent that Pioneer or PAAC contributes such net proceeds to the Issuer as a capital contribution; provided that at least 65% of the aggregate principal amount of the Notes originally issued remains outstanding immediately after giving effect to such redemption. See "Description of the Notes -- Optional Redemption." Additional Amounts......... All payments with respect to the Notes will be made without withholding or deduction for Canadian taxes unless required by law or the interpretation or administration thereof, in which case the Issuer will pay, subject to certain limited exceptions, such Additional Amounts (as defined) as may be necessary so that the net amount received by each holder of the Notes after such withholding or deduction will not be less than the amount that would have been received in the absence of such withholding or deduction. See "Description of the Notes -- Additional Amounts." Redemption for Changes in Canadian Withholding Taxes.................... The Notes are redeemable in cash at the option of the Issuer, in whole but not in part, at any time at 100% of the principal amount thereof together with accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption in the event the Issuer has become or would be obligated to pay, on any date on which any amount would be payable on the Notes, any Additional Amounts. See "Description of the Notes -- Redemption for Changes in Canadian Withholding Taxes." Change of Control.......... Upon a Change of Control, the Issuer will be required to make a Change of Control Offer (as defined) to purchase all of the Notes outstanding at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of repurchase. The Issuer's ability to repurchase the Notes may be limited by, among other things, the Issuer's financial resources at the time of repurchase. See "Risk Factors -- Change of Control" and "Description of the Notes -- Change of Control." Certain Covenants.......... The indenture governing the Notes (the "Indenture") contains certain covenants with respect to the Issuer, PAAC and their subsidiaries which restrict, among other things, (a) the incurrence of additional indebtedness, (b) the payment of dividends and other restricted payments, (c) the creation of certain liens, (d) the use of proceeds from sales of assets and subsidiary stock, (e) sale and leaseback transactions and (f) transactions with affiliates. The Indenture also restricts the Issuer's or any Guarantor's ability to consolidate or merge with or into, or to transfer all or substantially all of its assets to, another person. These 10 16 restrictions and requirements are subject to a number of important qualifications and exceptions. See "Description of the Notes -- Certain Covenants." Exchange Offer; Registration Rights........ Pursuant to the Registration Rights Agreement, the Issuer and the Guarantors agreed to file by the 30th day following the date of closing of the Initial Offering (the "Closing Date") a registration statement (the "Exchange Offer Registration Statement") with respect to an offer to exchange the Original Notes for the Exchange Notes, which will be registered under the Securities Act with terms (other than restrictions on transfer as set forth in "Notices to Investors") substantially identical to those of the Original Notes and to use their best efforts to cause such registration statement to become effective by the 150th day following the Closing Date and, upon becoming effective, to commence the Exchange Offer and cause the same to remain open for acceptance for not less than 20 business days after the date of commencement. If the Exchange Offer is not permitted by applicable law or if certain holders of the Original Notes are not permitted to participate in, or do not receive the benefit of, the Exchange Offer, the Issuer and the Guarantors will file and use their best efforts to cause to be declared effective a shelf registration statement with respect to resales of the Original Notes from time to time and will use their best efforts to keep such registration statement effective until two years after the effective date thereof or such shorter period ending when all of the Original Notes have been sold thereunder. If the applicable registration statement is not filed or declared effective or ceases to be effective or the Exchange Offer is not consummated within the applicable time periods related thereto (each, a "Registration Default"), the Issuer and the Guarantors will be required to pay Liquidated Damages to each holder of the Original Notes, in the amount of $.05 per week per $1,000 principal amount of Original Notes for the initial 90-day period following such Registration Default. The amount of such Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of Original Notes at the beginning of each subsequent 90-day period, up to a maximum amount of $.50 per week per $1,000 principal amount of Original Notes; provided, that the Issuer and the Guarantors shall in no event be required to pay Liquidated Damages for more than one Registration Default at any given time. If, subsequently, such Registration Default is cured, the accrual of Liquidated Damages will cease. See "Original Notes Registration Rights." Use of Proceeds............ There will be no proceeds to the Registrants from the exchange pursuant to the Exchange Offer. The net proceeds from the Initial Offering, together with borrowings under the Term Facility, were used to pay the purchase price of the PCI Canada Acquisition and for working capital and general corporate purposes. See "The Acquisition." Transfer Restrictions...... The Original Notes have not been registered under the Securities Act or under the securities laws of any state and may not be offered or sold within the United States or to, or for the benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the 11 17 registration requirements of the Securities Act or applicable state securities laws. See "Plan of Distribution." Risk Factors............... Holders of Original Notes should carefully consider the matters set forth under the caption "Risk Factors" prior to making a decision with respect to the Exchange Offer. See "Risk Factors." 12 18 SUMMARY CONSOLIDATED FINANCIAL DATA The following financial data of the Company should be read in conjunction with "Pro Forma Financial Information," "Supplemental Analysis of Adjusted EBITDA," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Selected Historical Financial Data" and the audited and unaudited historical financial statements of the Company and the PCI Canada Business and the respective notes thereto appearing elsewhere in this Prospectus.
PRO FORMA(4) ------------------------ PREDECESSOR TWELVE COMPANY COMBINED NINE MONTHS NINE MONTHS MONTHS YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, SEPT. 30, 1994(1) 1995(2) 1996(3) 1996 1997 1996 1997(5) ------------ ------------ ------------ ------------- ------------- ------------ --------- (DOLLARS IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA) INCOME STATEMENT DATA: Revenues.................. $167,217 $200,756 $183,326 $140,835 $150,073 $431,485 $411,441 Cost of sales............. 134,556 135,575 126,739 98,600 112,553 296,913 292,771 -------- -------- -------- -------- -------- -------- -------- Gross profit.............. 32,661 65,181 56,587 42,235 37,520 134,572 118,670 Selling, general and administrative expenses................ 22,529 26,883 23,528 19,142 19,580 41,126 38,098 -------- -------- -------- -------- -------- -------- -------- Operating income.......... 10,132 38,298 33,059 23,093 17,940 93,446 80,572 Equity in net income (loss) of unconsolidated subsidiary.............. 183 204 (2,607) (912) (2,552) (2,607) (4,247) Interest expense, net..... 6,407 14,570 17,290 12,766 16,189 49,882 50,347 Other income, net......... 4,480 318 1,684 507 882 3,296 1,065 -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes and extraordinary items..... 8,388 24,250 14,846 9,922 81 44,253 27,043 Income tax provision (benefit)............... 3,242 11,017 6,735 4,868 1,779 16,682 11,511 -------- -------- -------- -------- -------- -------- -------- Income (loss) before extraordinary item...... 5,146 13,233 8,111 5,054 (1,698) $ 27,571 $ 15,532 ======== ======== Extraordinary item, net of applicable tax(6)....... -- 3,420 -- -- (18,658) -------- -------- -------- -------- -------- Net income (loss)......... $ 5,146 $ 9,813 $ 8,111 $ 5,054 $(20,356) ======== ======== ======== ======== ======== OTHER FINANCIAL DATA: Depreciation and amortization............ $ 13,595 $ 16,764 $ 15,695 $ 13,558 $ 14,792 $ 41,061 $ 39,847 Capital expenditures...... 5,681 17,003 17,121 15,796 10,977 36,079 34,417 ADDITIONAL INFORMATION: Cash flow from operations.............. $ 22,419 $ 30,899 $ 32,453 $ 27,393 $ 10,803 Cash flow from investing activities.............. (4,987) (169,263) (29,225) (23,691) (110,467) Cash flow from financing activities.............. (15,891) 146,272 (757) (489) 121,046 EBITDA(7)................. 28,207 55,380 50,438 37,158 33,614 Pro forma EBITDA.......... $137,803 $121,484 Adjusted EBITDA(8)........ 145,690 125,546 Ratio of pro forma EBITDA to pro forma interest... 2.8x 2.4x Ratio of pro forma net debt to pro forma EBITDA.................. 3.8x 4.3x OPERATING DATA: Average ECU price......... $ 327 $ 414 $ 385 $ 403 $ 367 $ 370 $ 351 ECU production (in thousands).............. 321.1 327.9 345.7 258.5 306.1 888.9 885.6 Chlor-alkali operating rate.................... 101% 100% 100% 99% 94% 97% 95%
AS OF SEPTEMBER 30, 1997 ------------------------ ACTUAL PRO FORMA(4) -------- ------------ BALANCE SHEET DATA: Working capital............................................. $ 34,925 $ 55,499 Total assets................................................ 463,851 742,803 Total debt.................................................. 306,533 564,533 Common stockholder's equity................................. 59,242 59,242
(see footnotes on following page) 13 19 - --------------- (1) GPS Pool Supply, Inc. ("GPS") was acquired in May 1994 and therefore the results of operations for the year ended December 31, 1994 include the results of operations from the date of acquisition in May 1994 through December 31, 1994. GPS generated third party sales during such partial period of $9.4 million. (2) For comparative purposes the combined results of operations for the year ended December 31, 1995 include the Company's operating results for the period from March 6, 1995 ("Inception") through December 31, 1995 and the Predecessor Company's operating results from January 1, 1995 through April 20, 1995. The Company believes that this provides a meaningful basis for comparison. (3) Kemwater was formed in connection with the acquisition of Kemira Water Treatment, Inc. ("KWT") in February 1996 to continue the business activities previously conducted by Imperial West Chemical Co. ("Imperial West") and, accordingly, the results of operations for the year ended December 31, 1996 include the results of operations of Imperial West only for the month of January 1996. Since the acquisition, 50% of Kemwater's results of operations are included as equity in net income (loss) of unconsolidated subsidiary. Prior to the formation of Kemwater, the financial statements of Imperial West were consolidated with the Company's consolidated financial statements. (4) The pro forma statement of income data for the year ended December 31, 1996 gives effect to the Initial Offering, the other Financings, the PCI Canada Acquisition, the Tacoma Acquisition and related refinancings and the acquisition of T.C. Products as if they had occurred on January 1, 1996. The pro forma statement of income data for the twelve months ended September 30, 1997 gives effect to the Initial Offering, the other Financings, the PCI Canada Acquisition, the Tacoma Acquisition and related refinancings and the acquisition of T.C. Products as if they had occurred on July 1, 1996. The pro forma balance sheet data as of September 30, 1997 gives effect to the Initial Offering, the other Financings and the PCI Canada Acquisition as if they had occurred on September 30, 1997. The pro forma financial data is not necessarily indicative of either future results of operations or the results that might have occurred if the foregoing transactions had been consummated on the indicated date. (5) The pro forma financial information for the twelve months ended September 30, 1997 is calculated by subtracting the pro forma nine months ended September 30, 1996 from the pro forma year ended December 31, 1996 and adding the pro forma nine months ended September 30, 1997. (6) An extraordinary item of $3.4 million in 1995, net of an income tax benefit of $2.1 million, was due to costs incurred and previously capitalized costs written off, pertaining to debt refinanced by the Predecessor Company prior to the PAI Acquisition. An extraordinary item of $18.7 million in 1997, net of an income tax benefit of $12.4 million, was due to costs incurred and previously capitalized costs written off, pertaining to debt refinanced by the Company concurrent with the Tacoma Acquisition. (7) EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, extraordinary items and equity in net income (loss) of unconsolidated subsidiaries and is presented because the Company believes that it provides useful information regarding its ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other combined income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of the Company's profitability or liquidity. The Company's calculation of EBITDA may not be consistent with similarly captioned amounts used by other Companies. (8) The Company believes it is important to present a supplemental analysis of its Adjusted EBITDA in order to reflect a recent change in the PCI Canada Business. In April 1997, the PCI Canada Business completed a $21.2 million expansion and upgrade of its Becancour facility by installing additional modern membrane cell capacity, which increased Becancour's net chlor-alkali capacity by 36,000 tons, or 12%. The information presented reflects an analysis of operating results had this increase in capacity been available for these historical periods. Reference should be made to "Pro Forma Financial Information" and "Supplemental Analysis of Adjusted EBITDA" presented elsewhere herein. The Company believes that this information is a useful adjunct to net income, cash flows and other GAAP measurements. However, this supplemental information should not be construed as an alternative 14 20 to net income or any other GAAP measure of performance as an indicator of the Company's current or future performance or to GAAP-defined cash flows generated by operating, investing and financing activities as an indicator of cash flows or a measure of liquidity. The adjustments to obtain Adjusted EBITDA relate to increased margin as a result of using the increased capacity to meet customer demands. During the periods presented, the PCI Canada Business purchased for resale chlorine and caustic soda at market prices. Margin on the resulting resales was minimal. Had the additional Becancour capacity been available during the indicated periods, the Company believes portions of historical volumes purchased for resale would have been produced internally and sold at higher margins. Certain assumptions, including those of average sales prices, average manufacturing costs and capacity utilization rates, were made based on actual PCI Canada Business operating data for existing facilities during the periods presented. There can be no assurance that such operating results would have been achieved had such additional capacity been available. 15 21 RISK FACTORS In addition to the other information contained in this Prospectus, before tendering their Original Notes for the Exchange Notes offered hereby, holders of Original Notes should consider carefully the following factors, which may be generally applicable to the Original Notes as well as the Exchange Notes: CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Original Notes who do not exchange their Original Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Original Notes as set forth in the legend thereon as a consequence of the issuance of the Original Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Original Notes may not be offered or sold unless registered under the Securities Act and applicable state securities laws, or pursuant to an exemption therefrom. Except under certain limited circumstances, the Registrants do not intend to register the Original Notes under the Securities Act. In addition, any holder of Original Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. To the extent Original Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Original Notes not tendered could be adversely affected. See "The Exchange Offer" and "Original Notes Registration Rights." FINANCIAL LEVERAGE As of September 30, 1997, after giving pro forma effect to the Initial Offering, the other Financings and the PCI Canada Acquisition, the Company would have had approximately $564.5 million of indebtedness and $59.2 million of stockholder's equity. See "Capitalization." The degree to which the Company is leveraged could have important consequences to holders of the Notes, including the following: (i) the Company has significant cash interest expense for the Notes and other debt; (ii) the Company's significant degree of leverage could make it vulnerable to changes in industry and general economic conditions; and (iii) the Company's ability to obtain additional financings for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired. In addition, the Company's operating flexibility with respect to certain business matters is limited by covenants contained in the Company's debt instruments, including the Indenture and the New Credit Facilities. Among other things, these covenants limit the ability of the Company to incur additional indebtedness, create liens upon assets, apply the proceeds from disposal of assets, make dividend payments and other distributions on capital stock and redeem any capital stock. There can be no assurance that such covenants will not adversely affect the Company's ability to finance its future operations or capital needs or to engage in other business activities which may be in the interest of the Company. See "Description of Other Indebtedness" and "Description of the Notes -- Certain Covenants." The Company expects to generate sufficient cash flow from operations to meet its debt service obligations. However, the ability of each of PCI Canada and the Company to satisfy its obligations, including its obligations on the Notes, will be dependent upon the future performance of the Company and will be subject to financial, business and other factors affecting the business and operations of the Company, including factors beyond its control, such as prevailing economic conditions and regulatory matters. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." INDUSTRY CYCLICALITY Substantially all of the Company's revenues are attributable to the sale of chlorine, caustic soda and other chemicals that use chlorine or caustic soda as a primary raw material. The chlorine and caustic soda markets are cyclical markets that are sensitive to relative changes in supply and demand, which are in turn affected by general economic conditions, capacity additions and other factors. Over the last five years, the market for 16 22 PVC, the largest use of chlorine in the United States, has experienced steady growth, resulting in strong demand for chlorine. However, the use of chlorine as a bleaching agent in the pulp and paper industry and as a raw material for chemical intermediaries used in the production of CFCs has been reduced significantly due to regulatory pressures. As a result of these factors and a general decline in economic growth in the early 1990s, the North American chlor-alkali industry experienced declining prices, as ECU prices fell by over 52% from $389 per ECU in the fourth quarter of 1989 to $185 per ECU in the second quarter of 1993. After a significant improvement in domestic economic growth in early 1994, chlor-alkali markets experienced increased levels of demand. Limited new capacity was added during this time, resulting in greater capacity utilization and higher domestic and export prices for chlor-alkali products. These conditions continued in 1995 and the increase in demand enabled the Company and the industry in general to increase selling prices significantly at a time when operating costs generally did not increase, with prices eventually exceeding $400 per ECU at the peak of the cycle in 1995. Toward the end of 1995 and continuing through 1996, however, ECU prices began to decrease as strengthening demand for chlorine was offset by an oversupply of caustic soda. As a result, prices decreased to approximately $335 to $345 per ECU by the end of 1996, even as chlorine prices remained strong due to steady demand growth from the PVC industry. For the third quarter of 1997, prices have ranged from $310 to $345 per ECU. Demand for chlorine has been relatively stable, while increasing demand for caustic soda has recently strengthened pricing, as evidenced by several recent announced price increases. There can be no assurance that demand for the Company's products will be sustained or that the Company will keep pace with unanticipated capacity additions or that other events which may adversely affect the supply/demand balance for chlorine and caustic soda will not occur. ENVIRONMENTAL REGULATION The Company and its operations are subject to extensive United States and Canadian federal, state, provincial and local laws, regulations, rules and ordinances relating to pollution, the protection of the environment and the release or disposal of regulated materials. The operation of any chemical manufacturing plant and the distribution of chemical products entail obligations under current environmental laws, and present or future laws may affect the Company's capital and operating costs relating to compliance, impose cleanup requirements with respect to site contamination resulting from past, present or future spills and releases and affect the markets for the Company's products. The Company believes that its operations are currently in general compliance with environmental laws and regulations, the violation of which could result in a material adverse effect on the Company's business, properties or results of operations on a consolidated basis. There can be no assurance, however, that material costs will not be incurred as a result of instances of noncompliance or new regulatory requirements. The Company relies on indemnification from the previous owners in connection with certain environmental liabilities at its chlor-alkali plants and other facilities. There can be no assurance, however, that such indemnification arrangements will be adequate to protect the Company from environmental liabilities at these sites or that such third parties will perform their obligations under the respective indemnification arrangements, in which case the Company would be required to incur significant expenses for environmental liabilities, which would have a material adverse effect on the Company. See "Business -- Environmental and Safety Regulation -- Indemnities." Cleanup Costs. Environmental laws and regulations also impose liability for the cleanup of contamination, even if the contamination resulted from historical activities that were in compliance with applicable legal requirements at the time they occurred. Such costs may arise at facilities owned or operated by the Company or at off-site facilities to which the Company sent wastes for treatment, storage or disposal. As a result of historical activities, incidental spills or other releases, many of the facilities owned or operated by the Company are known to be, or could be, affected by contamination of soil or groundwater. The Company, along with other parties with an interest in the Henderson, Nevada industrial complex, has entered into a consent agreement with the State of Nevada, pursuant to which the Company has submitted a "Phase I Environmental Conditions Assessment." The Company has also executed a "Phase II Consent Agreement," which covers additional investigation of the plant site, including sampling. The Company is also aware of certain claims that have been asserted with respect to off-site facilities, which claims could lead to liability for the Company. See 17 23 "Business -- Environmental and Safety Regulation -- Superfund" and "-- Remediation Matters." Such investigation and cleanup activities have not had a material adverse effect on the operations or financial results of the Company to date. There can be no assurance, however, that the Company is aware of all such site contamination issues, that regulatory authorities will not require cleanup in the future for sites that are not currently being remediated, or that remedial standards will not become more stringent. Accordingly, no assurance can be given that such activities will not have a material adverse effect on the operations or financial results of the Company in the future. Environmental Regulation of Products. Environmental regulations can directly or indirectly affect the markets for the Company's products by regulating the uses of the Company's products or the chemicals or materials made from those products. Certain environmental groups and international commissions have urged the restriction or ban of chlorine-related processes and products, based on concerns that the products or by-products from these applications might cause damage to human health or the environment. Such pressures may stimulate regulatory initiatives which could have the effect of reducing the use of chlorine by customers in the Company's markets or could have the effect of increasing competition from other chlorine producers with respect to the Company's markets. Each such effect was experienced by the Company from 1990 to 1992 following increased regulation of the use of CFCs, although during that period demand for chlorine from other market segments more than offset the loss of demand from reduced production of CFCs. The Company is working with other industry representatives to advocate a risk-based scientific approach for evaluating the alleged health and environmental risks of chlorine and chlorinated compounds, which are used in a broad range of consumer products, including water, plastics, detergents, agricultural chemicals and pharmaceuticals. See "Business -- Environmental and Safety Regulation." Environmental Cost Summary. The Company's operating expenses relating to environmental matters totaled $1.7 million during the year ended December 31, 1996 and $1.3 million for the nine months ended September 30, 1997. Capital expenditures for environmental related matters were $4.3 million during the year ended December 31, 1996 and are expected to be approximately $5.6 million in 1997. Capital expenditures and, to a lesser extent, costs and operating expenses relating to environmental matters for years after 1997 will be subject to evolving regulatory requirements and will depend to a great degree on the types of procedures that may be approved by various federal and state governmental agencies with respect to environmental clean-up. Henderson Remediation Matters; ZENECA Indemnity; PAI Sellers' Indemnity. The Company's plant in Henderson, Nevada is located within an area known as the "Basic Complex" that was originally owned by and constructed under the direction of the United States government in the 1940s and since that time has been used for chemical manufacturing by several companies. Soil and groundwater contamination have been identified within and adjoining the land owned by the Company. See "Business -- Environmental and Safety Regulation -- Remediation Matters." Certain of the Company's environmental liabilities in connection with the Henderson facility are addressed by indemnifications provided by the previous owner of the Henderson facility, and by the sellers under the PAI Acquisition Agreement (as defined). The Henderson plant was acquired by the Company in October 1988 in connection with the purchase of Stauffer Chlor Alkali Company, Inc. from ICI Delaware Holdings, Inc. ("ICI Delaware"), a subsidiary of ICI Americas. Under the acquisition agreement relating to such acquisition, ICI Delaware indemnified the Company for certain environmental liabilities that might be incurred by the Company as a result of actions occurring prior to the closing date, including actions (other than chlor-alkali related actions) at the Henderson property and liabilities for actions at other sites in the Basic Complex and liabilities arising in connection with off-site disposal sites. See "Business -- Environmental and Safety Regulation -- Indemnities." The Company has been advised by ZENECA Delaware Holdings, Inc. and ZENECA, Inc. (collectively, the "ZENECA Companies") that the indemnity obligations of ICI Delaware and ICI Americas under the acquisition agreement have been assumed by the ZENECA Companies. As a result of the PAI Acquisition, the ZENECA Companies indemnity (the "ZENECA Indemnity") will terminate in accordance with its terms on April 20, 1999, except with respect to claims as to which PAI has satisfied the contractual requirements for extending the indemnity. See "Business -- Environmental and Safety Regulation -- Indemnities." 18 24 In April 1995, pursuant to a Stock Purchase Agreement, dated as of March 24, 1995 (the "PAI Acquisition Agreement"), PAAC acquired PAI (the "PAI Acquisition"). In the PAI Acquisition Agreement, the sellers agreed to indemnify Pioneer, PAAC and their affiliates for certain environmental liabilities that result from certain discharges of hazardous materials, or violations of environmental laws, arising prior to the PAI Acquisition. See "Business -- Other Investments." Amounts payable pursuant to such indemnification obligations (the "PAI Sellers' Indemnity") will generally be payable as follows: (i) out of certain reserves established on PAI's balance sheet at December 31, 1994; (ii) either by offset against the amounts payable under the Pioneer Seller Notes or from amounts held in an account (the "Contingent Payment Account") established under the related Contingent Payment Agreement; and (iii) in certain circumstances and subject to specified limitations, out of the personal assets of the sellers. The Company is required to reimburse the sellers with amounts recovered under the ZENECA Indemnity or from other third parties. To the extent that liabilities exceed amounts realized from sales of Contingent Payment Properties, the Company would be limited, for a ten-year period, principally to its rights of offset against the Pioneer Seller Notes (and to amounts available under the ZENECA Indemnity, to the extent then in effect) to cover such liabilities. The Company believes that the remediation costs relating to its Henderson chlor-alkali facilities will not be material and that the Company will be reimbursed by the ZENECA Companies, under the PAI Sellers' Indemnity or from other responsible parties for substantially all of the non-chlor-alkali related remediation costs it may incur in connection with the Henderson, Nevada facility. No assurance can be given, however, that the Company will not be required to incur significant expenses for remedial and other liabilities under environmental laws in connection with the Henderson facility or operations, whether at or near the Henderson facility or at off-site locations, or that such expenses will be reimbursed under the ZENECA Indemnity or the PAI Sellers' Indemnity or by other responsible parties. No assurance can be given that the sellers will have the financial resources to perform their personal obligations under the PAI Sellers' Indemnity, that the sellers will promptly pay any liability for which they are responsible or that the Company will be able to recover funds or assets from the sellers or that the Company will not be required to incur significant costs for environmental conditions not covered by the ZENECA Indemnity or the PAI Sellers' Indemnity. In addition, because the sellers may recognize certain economic benefits from the sale of real property adjoining some of the Company's facilities, there can be no assurance that conflicts will not arise between the interests of sellers who are directors or officers of the Company or its subsidiaries and the Company. Tacoma Remediation Matters; OCC Tacoma Indemnity. The Tacoma Facility is located adjacent to the Hylebos Waterway, which is connected to Commencement Bay. The Hylebos Waterway is one of the study areas included in the Commencement Bay Nearshore/Tideflats site which has been placed on the National Priorities List for remediation under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). OxyChem is a member of the Hylebos Cleanup Committee ("HCC"), which has entered into a consent agreement with the Environmental Protection Agency ("EPA") under which the HCC will prepare a pre-remedial design for cleanup of the Hylebos Waterway. OxyChem is participating in a voluntary, non-binding mediation under which an arbitrator will allocate liability for the waterway among approximately 30 participating Potentially Responsible Parties ("PRPs"). The aggregate costs of the cleanup of the Hylebos Waterway will depend upon cleanup levels established by the EPA. Cleanup levels have been selected by the EPA, and a remediation plan is being prepared but has not yet been finalized or approved by the EPA. The Company believes that a remediation plan based upon the final EPA cleanup levels may be completed within five years, and that the voluntary mediation will be completed prior to that date. However, the Company cannot presently determine the amount of cleanup costs that will ultimately be allocated to OxyChem, or the timing of such final allocation. The Tacoma Facility has a federal Resource Conservation and Recovery Act ("RCRA") treatment, storage, and disposal facility permit which requires the plant to investigate groundwater contamination at the site and to treat the groundwater to standards established in the permit. Pursuant to this requirement, the plant has installed a groundwater extraction, treatment and injection system (not included in the Tacoma Acquisition), which withdraws the groundwater, removes volatile organic compounds and returns the treated water to the subsurface through wells that are designed to control off-site migration of contamination. Certain other areas at and near the Tacoma Facility are currently being investigated by OCC Tacoma under the 19 25 oversight of the Washington Department of Ecology ("DOE") or the EPA. See "Business -- Environmental and Safety Regulation -- Indemnities." OCC Tacoma agreed to indemnify the Company for certain pre-closing environmental conditions. The OCC Tacoma indemnity is subject to limitations as to dollar amount and duration, as well as certain other conditions. After the applicable period of OCC Tacoma's indemnification, the Company will indemnify OCC Tacoma for remaining liabilities other than those from hazardous materials present as a result of pre-closing releases in the non-Hylebos area of Commencement Bay, public, private or commercial disposal facilities upland of the waterways and natural resource damages arising under state or federal statutes, for which liability will be retained by OCC Tacoma. The Company has reviewed the time frames currently estimated for remediation of the known environmental conditions associated with Commencement Bay, the Hylebos Waterway, the plant and adjacent properties and the Company presently believes that it should have no material liability upon the termination of OCC Tacoma's indemnity. There can be no assurance that such indemnity will be adequate to protect the Company, that remediation will proceed on the present schedule, that it will involve the presently anticipated remedial methods, or that unanticipated conditions will not be identified. If these or other changes occur, the Company could incur a material liability for which it is not insured or indemnified. See "Business -- Environmental and Safety Regulation -- Indemnities." PCI Canada Acquisition Indemnity. In the Purchase Agreement, ICI and its affiliates (the "ICI Indemnitors") have agreed to indemnify the Company for certain liabilities associated with environmental matters arising from pre-closing operations of the PCI Canada Business. In particular, the ICI Indemnitors will retain unlimited responsibility for environmental liabilities associated with the Cornwall site, liabilities arising out of the discharge of contaminants into rivers and marine sediments and liabilities arising out of off-site disposal sites (the "Retained Environmental Liabilities"). The ICI Indemnitors will also provide a general environmental indemnity for other pre-closing environmental matters. This indemnity will terminate ten years after the closing date, and will be subject to a limit of $25 million. The Company may not recover under the environmental indemnity until it has incurred cumulative costs of $1 million, at which point the Company may recover costs in excess of $1 million. With respect to the Becancour and Dalhousie facilities, the ICI Indemnitors will be responsible under the general environmental indemnity for 100% of the costs incurred in the first five years after the closing date and for a decreasing percentage of such costs in the following five years. Thereafter, the Company will be responsible for environmental liabilities (other than the Retained Environmental Liabilities) at such facilities. The Company will indemnify ICI for environmental liabilities arising out of post-closing operations and for liabilities arising out of pre-closing operations that are not indemnified by the ICI Indemnitors. The Company believes that the indemnities provided by the ICI Indemnitors will be adequate to address the known environmental liabilities at the acquired facilities, and that any residual liabilities incurred by the Company will not be material. However, no assurance can be given that the indemnity will be adequate in the event that new facts or conditions are identified, new or different statutory or regulatory requirements are imposed, substantial changes in remedial or disposal techniques or costs occur, or the anticipated timing of remedial requirements is changed. Further, no assurance can be given that ICI or its guarantor affiliates will promptly pay for liabilities covered by the indemnity as they arise, or that ICI and its guarantor affiliates will have the financial resources to provide such indemnity. If these or other changes occur, the Company could incur a material liability for which it is not insured or indemnified. See "Business -- Environmental and Safety Regulation -- Indemnities." OPERATING HAZARDS AND UNINSURED RISKS The Company's operations are subject to risks inherent in the chemical industry, such as explosions, fires, chemical spills or releases, pollution and other environmental risks. Any significant interruption of operations at the Company's principal facilities could have a material adverse effect on the Company. The Company has in the past experienced chlorine releases at its plants. In 1991, there was a release of approximately 42 tons of chlorine from the Henderson facility. The Company has resolved substantially all of the personal injury, property damage and regulatory claims relating to this release, and certain of the costs incurred as a result of 20 26 the accident were recovered under applicable insurance policies. See "Business -- Environmental and Safety Regulation." The Company maintains general liability insurance and property and business interruption insurance with coverage limits it believes are adequate. Because of the nature of industry hazards, it is possible that liabilities for pollution and other damages arising from a major occurrence could exceed insurance coverage or policy limits or that such insurance may not be available at reasonable rates in the future. Any such liabilities, which could arise due to injury and loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage and suspension of operations, could have a material adverse effect on the Company. See "Business -- Insurance." LIMITATIONS ON SECURITY INTEREST The Notes are effectively secured by the Collateral more fully described under "Description of the Notes -- Security." Such security interest generally is limited to first priority liens (subject to certain exceptions) on and security interests in the Issuer's owned and leased facilities (including real property, buildings, fixtures and certain equipment at Becancour, Quebec; Dalhousie, New Brunswick; Cornwall, Ontario; Mississauga, Ontario; and Point Tupper, Nova Scotia). Upon a default on indebtedness secured by the Collateral, including the Notes, and a declaration of acceleration of the Notes as a result thereof, the Trustee may, subject to the provisions of the Intercreditor Agreement, cause the Collateral Agent to take such action as it may deem advisable to protect and enforce the rights of the Trustee and the holders in the Collateral, including causing any Collateral to be sold and the proceeds to be applied to the pro rata payment of the indebtedness secured by the Collateral including the Notes, before such proceeds are applied to debts of other creditors of the Issuer, except to the extent that certain liens, including landlord's, warehousemen's and materialmen's liens and certain tax liens, may, as a matter of law, have priority over the liens and security interests granted to the Collateral Agent in the Collateral. The ability of the Collateral Agent to cause any Collateral to be sold may be delayed or otherwise subject to certain conditions or any Bankruptcy Laws (as defined) and fraudulent conveyance limitations if the Issuer is the subject of any bankruptcy or receivership proceedings. The Indenture permits the release of Collateral without substitution of Collateral of equal value under certain circumstances. See "Description of the Notes -- Release of Collateral." The Company and its subsidiaries may incur up to $50.0 million of Senior Indebtedness which will be secured on a pari passu basis with the Senior Secured Notes and the Existing Term Facility. In addition, the Indenture permits the Company and its subsidiaries, under certain circumstances, to incur additional Indebtedness, including Indebtedness secured by assets that do not constitute Collateral. See "Description of the Notes -- Certain Covenants." NO ASSURANCE OF REALIZABLE VALUE FROM COLLATERAL In connection with the granting of liens on the Collateral, the Company made no representation as to the value or sufficiency of such Collateral. Accordingly, there can be no assurance that the proceeds of sale of any Collateral pursuant to the Indenture and the Security Documents (as defined) following a declaration of acceleration of the Notes will be sufficient to satisfy any payment of principal of, or accrued and unpaid interest, if any, on, the Notes. Any deficiency claim would rank pari passu in right of payment with all other unsecured senior indebtedness of the Issuer. In addition, the ability of the Collateral Agent to realize upon the Collateral may be inhibited or impaired by applicable Bankruptcy Law. See "Description of the Notes -- Certain Bankruptcy Considerations. POTENTIAL ENVIRONMENTAL LIABILITY OF SECURED LENDERS United States Considerations. Lenders that hold a security interest in real property may, in certain specific circumstances, be held liable under certain environmental laws for the cost of remediating or preventing releases or threatened releases of hazardous substances at the real property. While lenders that neither foreclose on nor participate in the management of the mortgaged property (as interpreted under applicable law) generally have not been subject to such liability, currently, the law is unclear with respect to lenders that take possession of a property or that participate in the management of a property. In this regard, the Collateral Agent, the Trustee or the holders of the Notes would need to evaluate the impact of these 21 27 potential liabilities before determining to foreclose on the properties securing such Notes and exercising other available remedies. In addition, the Collateral Agent or the Trustee, as the case may be, may decline to foreclose upon the properties or exercise remedies available to the extent that they do not receive indemnification to their satisfaction from the holders of the Notes. See "Description of the Notes -- Security." Canadian Considerations. The Collateral may be subject to known and unforeseen environmental risks under applicable provincial and Canadian federal environmental laws and regulations, and while there are no specific provisions governing the responsibility of lenders or their agents, under the general provisions thereof, a secured lender may be held liable in certain limited circumstances either penally or for the cost of remediating or preventing releases or threatened releases of hazardous substances at a charged property. Such liability could be based on the lender having become sufficiently involved in the operations of the borrower so that the lender may be said to be partly responsible for a source of contamination, or the lender having counselled, encouraged or invited the borrower to commit a violation of an applicable environmental law or on the lender being the owner or having had the custody or control of the charged property or the offending substances. This liability would not necessarily be discharged after the sale of the charged property to a third party purchaser. In the event of insolvency or bankruptcy, Canadian case law, which is quite recent and undeveloped in this area, has generally held that a receiver, whether court-appointed or private, or a trustee is bound to comply with environmental remediation orders issued against property under its administration up to the full extent of the value of the property under administration notwithstanding the existence or ranking of any security interests in such property held by creditors. Canadian law generally protects trustees in bankruptcy statutorily from personal liability for environmental remediation orders in respect of environmental conditions arising prior to a trustee's appointment or during its administration except where the condition arises as a result of its failure to exercise due diligence. Canadian courts have tended to offer court-appointed receivers similar protection. COMPETITION The industries in which the Company operates are highly competitive. Many of the Company's competitors are larger and have greater financial resources than the Company. Among the Company's competitors are two of the world's largest chemical companies, OxyChem and The Dow Chemical Company. Because of their greater financial resources, these companies may be better able than the Company to withstand severe price competition and volatile market conditions. In addition, as a result of the reduced demand for chlorine by the pulp and paper industry and in the production of CFCs, certain competitors may rely on price competition to capture market share. See "Business -- Competition." DEPENDENCE ON KEY CUSTOMERS AND KEY SUPPLIERS Novartis Crop Protection Inc. ("Novartis") accounted for approximately 13% of the Company's net sales for the year ended December 31, 1996 and was the only customer that accounted for more than 10% of the Company's sales during such period. Novartis would have accounted for approximately 6% of the Company's pro forma net sales for the twelve months ended September 30, 1997. The loss of Novartis or a number of other significant customers would have a material adverse effect on the Company's financial condition, results of operations and cash flows. In connection with the Tacoma Acquisition, the Company, OxyChem and OCC Tacoma entered into certain agreements with respect to the sale of chlorine and caustic soda for specified periods. There can be no assurance that the Company will be able to replace chlorine sales under such agreements with sales to alternative customers in the future. There can be no assurance that the historical levels of business from these customers will be maintained in the future. The production of chlor-alkali products principally requires salt, electricity and water as raw materials, and if the supply of such materials were limited or a significant supplier were unable to meet its obligations under the current supply arrangements, the Company could be forced to incur increased costs. Additional raw materials purchased by the Company include scrap iron, aluminum oxide compounds and sulfuric acid. Any 22 28 significant interruption in supply or increase in prices for raw materials could have a material adverse effect on the Company's financial condition, results of operation or cash flows. RANKING OF THE NOTES AND GUARANTEES The Notes are senior obligations of the Issuer and rank pari passu with all existing and future Senior Indebtedness of the Issuer and senior to all Subordinated Indebtedness of the Issuer. However, the Notes and the obligations of the Guarantors under their guarantees of the Notes are effectively subordinated to secured Senior Indebtedness of the Issuer and the Guarantors, respectively, with respect to the assets securing such Indebtedness. See "Description of Other Indebtedness" and "Description of the Notes -- Ranking." As of September 30, 1997, after giving pro forma effect to the Offering, the other Financings and the PCI Canada Acquisition, the Issuer and the Guarantors would have had outstanding approximately $557.8 million aggregate principal amount of secured Senior Indebtedness (including $300.0 million of secured Senior Indebtedness in addition to the Notes and the Term Loans). At September 30, 1997, the Issuer and the Guarantors would have had, subject to certain restrictions (including borrowing base limitations), the ability to draw up to $62.1 million of additional secured Senior Indebtedness under the Revolving Facility. In addition, PAAC and its Subsidiaries may incur up to $50.0 million of Senior Indebtedness which will be secured on a pari passu basis with the Senior Secured Notes and the Existing Term Facility. Pursuant to the Indenture governing the Notes, the Issuer and the Guarantors may incur additional secured and unsecured Indebtedness, or provide guarantees of Indebtedness, in certain circumstances. See "Description of Other Indebtedness" and "Description of the Notes -- Ranking" and "-- Certain Covenants." FRAUDULENT CONVEYANCE ISSUES The Notes are obligations of the Issuer and are unconditionally guaranteed, jointly and severally, by the Guarantors. Under applicable provisions of the United States Bankruptcy Code, the Bankruptcy and Insolvency Act (Canada) and comparable provisions of state and provincial fraudulent conveyance and fraudulent preference laws, if it were found that a Guarantor had incurred the indebtedness represented by its obligations under the Guarantee with an intent to hinder, delay or defraud creditors or had received less than a reasonably equivalent value for such indebtedness and such Guarantor (i) was insolvent on the date of the execution of the Guarantee or (ii) was rendered insolvent by reason of the Guarantee, the obligations of such Guarantor under the Guarantee could be avoided. A legal defense of the Guarantee on fraudulent preference grounds could, among other things, focus on the benefits, if any, realized by such Guarantor as a result of the issuance by the Issuer of the Notes. To the extent that the Guarantee were held to be unenforceable as a fraudulent preference or for any other reason, the holder of a Note would cease to have any direct claim in respect of such Guarantor, and would be solely a creditor of the Issuer and any Guarantor whose obligations under its Guarantee were not avoided or held unenforceable. TAX MATTERS Pioneer has an available net operating loss carryforward ("NOL") for federal income tax reporting purposes which it believes was approximately $54.9 million at September 30, 1997, which includes the impact of the extraordinary loss due to early extinguishment of debt during the second quarter of 1997. The NOL would be available for offset against future federal taxable income, including income of PAI (except PAI "built-in" gain recognized during the five-year period following the acquisition of PAI as provided by section 384 of the Internal Revenue Code of 1986, as amended (the "Code")), if generated during the carryforward period, which expires between 2003 to 2012. See "The Company and Pioneer -- Pioneer." Tax benefits arising from net operating loss carryforwards are subject to challenge by the Internal Revenue Service and may not be available. In particular, the use of the NOL may be reduced or eliminated if (a) an ownership change within the meaning of Code section 382 has occurred or occurs after the Offering with respect to Pioneer, (b) a subsidiary of Pioneer that in prior years generated a significant portion of the NOL was not permitted to file a consolidated return with Pioneer or (c) Code section 269 (applicable to 23 29 certain transactions the principal purpose of which is tax avoidance) applies to PAAC's acquisition of PAI. If challenged by the Internal Revenue Service, Pioneer believes that it can present adequate proof of these facts and prevail with respect to these legal issues to the satisfaction of the Internal Revenue Service or in litigation. If Pioneer is unable to establish such facts and prevail with respect to such legal issues, its ability to use the NOL may be substantially restricted, and Pioneer's after-tax cash flow may be materially adversely affected. CHANGE OF CONTROL Upon the occurrence of a "Change of Control", as defined in the Indenture, the Issuer will be required to make a Change of Control Offer to purchase all of the Notes outstanding at a purchase price in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest. The indenture governing the Senior Secured Notes contains the same requirement with respect to PAAC. The Issuer's ability to redeem Notes may be limited by the availability of sufficient funds, restrictions imposed by any other debt obligations (including the New Credit Facilities, the Existing Term Facility and the Senior Secured Notes) that may then be in effect and compliance with applicable securities laws. The Existing Term Facility and the Term Facility require a mandatory prepayment of the loans thereunder at 100% of the principal amount thereof, plus accrued and unpaid interest, with respect to a change of control under such facility. The Revolving Facility may prohibit the Issuer from repurchasing Notes if at the time of such repurchase an event of default under the Revolving Facility exists or would be caused thereby. The occurrence of a Change of Control may cause an event of default under the New Credit Facilities, the Existing Term Facility, the Senior Secured Notes or other indebtedness of the Company, upon which event of default all amounts outstanding under such indebtedness may become due and payable. After giving effect to the Initial Offering, the other Financings and the PCI Canada Acquisition, the Issuer does not currently have, and no assurance can be given that the Issuer will have, sufficient funds available to purchase all of the outstanding Notes were they to be tendered in response to an offer made as a result of a Change of Control. Further, the provisions of the Indenture may not afford holders of Notes protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving Pioneer, PAAC or the Issuer that may adversely affect holders of Notes, if such transaction does not result in a Change of Control. See "Description of the Notes -- Change of Control." CONTROL BY CERTAIN STOCKHOLDERS William R. Berkley, Chairman of Pioneer and PAAC (who may be deemed to beneficially own all shares of Pioneer common stock held by the Interlaken Partnership), may be deemed to beneficially own approximately 59.9% of Pioneer's outstanding voting power. Pioneer, in turn, owns all of the outstanding common stock of PAAC, which owns all of the outstanding stock of PAI, which owns all of the outstanding stock of PCI Canada. As a result, Mr. Berkley is able to control the election of PAAC's Board of Directors and thereby direct the management and policies of PAAC, PAI and its subsidiaries, including PCI Canada. See "Stock Ownership." FORWARD-LOOKING STATEMENTS Certain statements contained in this Prospectus, including without limitation, statements containing the words "believes," "anticipates," "intends," "expects" and words of similar import, constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of PCI Canada or the Company or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both domestic and foreign; industry capacity; demographic changes; existing government regulations and changes in, or the failure to comply with, government regulations; legislative proposals concerning pollution, protection of the environment and the release or disposal of regulated materials; liability and other claims asserted against the Company; competition; the loss of any significant customers; changes in operating strategy or development plans; the ability to attract and retain qualified personnel; the significant indebtedness of the Company after the PCI Canada Acquisition; the 24 30 successful integration of the acquired businesses following the PCI Canada Acquisition and the Tacoma Acquisition; the availability and terms of capital to fund the expansion of the Company's business; and other factors referenced in this Prospectus. Certain of these factors are discussed in more detail elsewhere in this Prospectus, including, without limitation, under the captions "Prospectus Summary," "Risk Factors," "Supplemental Analysis of Adjusted EBITDA," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business." Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. LACK OF PUBLIC MARKET FOR THE NOTES The Notes constitute a new issue of securities with no established trading market, and there can be no assurance as to (i) the liquidity of any such market that may develop, (ii) the ability of holders of Notes to sell their Notes or (iii) the price at which the holders of Notes would be able to sell their Notes. If such a market were to exist, the Notes could trade at prices that may be higher or lower than their principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar notes and the financial performance of the Company. The Issuer has been advised by the Initial Purchasers that they presently intend to make a market in the Original Notes and the Exchange Notes. However, the Initial Purchasers are not obligated to do so, and any market-making activity with respect to the Original Notes or the Exchange Notes may be discontinued at any time without notice. In addition, such market-making activity will be subject to the limits imposed by the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and may be limited during such exchange offer or the pendency of an applicable shelf registration statement. See "Original Notes Registration Rights." There can be no assurance that even following registration of the Original Notes or the Exchange Notes, as the case may be, an active trading market will exist for the Original Notes or the Exchange Notes, as the case may be, or that any such trading market will be liquid. USE OF PROCEEDS There will be no proceeds to the Registrants from the exchange pursuant to the Exchange Offer. The net proceeds to the Issuer from the issuance of the Original Notes in the Initial Offering were approximately $170.1 million. The net proceeds received by the Company, together with borrowings under the Term Facility, were used to pay the cash portion of the purchase price of the PCI Canada Acquisition and for working capital and general corporate purposes. See "The Acquisition -- Use of Proceeds from Initial Offering." 25 31 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER The Original Notes were originally issued and sold on November 5, 1997. Such sales were not registered under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act and Rule 144A of the Securities Act. Pursuant to the Registration Rights Agreement, the Issuer and the Guarantors have agreed to file by the 30th day following the Closing Date of the Initial Offering, a registration statement (the "Exchange Offer Registration Statement") with respect to an offer to exchange the Original Notes for the Exchange Notes and to use their best efforts to cause such registration statement to become effective by the 150th day following the Closing Date and, upon becoming effective, to commence the Exchange Offer and cause the same to remain open for acceptance for not less than 20 business days after the date of commencement. If the Exchange Offer is not consummated within 30 days following the date the Exchange Offer Registration Statement is declared effective or, under certain circumstances, the Initial Purchasers so request, the Issuer and the Guarantors will file and use their best efforts to cause to be declared effective a shelf registration statement with respect to resales of the Original Notes and the Guarantees from time to time and will use their best efforts to keep such registration statement effective until three years after the effective date thereof. If the applicable registration statement is not filed or declared effective or ceases to be effective or the Exchange Offer is not consummated within the applicable time periods related thereto (each, a "Registration Default"), the Issuer will be required to pay Liquidated Damages to each holder of the Original Notes, in the amount of $.05 per week per $1,000 principal amount of Original Notes for the initial 90-day period following such Registration Default. The amount of such Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of Original Notes at the beginning of each subsequent 90-day period, up to a maximum amount of $.50 per week per $1,000 principal amount of Original Notes. If, subsequently, such Registration Default is cured, the accrual of Liquidated Damages will cease. See "Original Notes Registration Rights." The sole purpose of the Exchange Offer is to fulfill the obligations of the Issuers with respect to the Registration Rights Agreement. TERMS OF THE EXCHANGE The Registrants hereby offer to exchange, upon the terms and subject to the conditions set forth herein and in the Letter of Transmittal accompanying this Prospectus (the "Letter of Transmittal"), $1,000 in principal amount of Exchange Notes for each $1,000 in principal amount of the Original Notes. The terms of the Exchange Notes are identical in all respects to the terms of the Original Notes for which they may be exchanged pursuant to this Exchange Offer, except that the Exchange Notes will generally be freely transferable by holders thereof, and the holders of the Exchange Notes (as well as remaining holders of any Original Notes) will not be entitled to registration rights under the Registration Rights Agreement. See "Original Notes Registration Rights." The Exchange Notes will evidence the same debt as the Original Notes and will be entitled to the benefits of the Indenture. See "Description of the Notes." The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Original Notes being tendered for exchange. Based on interpretations by the Staff set forth in no-action letters issued to third parties, the Registrants believe that Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired Original Notes directly from the Issuer or (iii) broker-dealers who acquired Original Notes as a result of market making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business, and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes. Each broker-dealer that receives Exchange Notes pursuant to the Exchange Offer must acknowledge that it 26 32 will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging, and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Broker-dealers who acquired Original Notes as a result of market making or other trading activities may use this Prospectus, as supplemented or amended, in connection with resales of the Exchange Notes. The Registrants have agreed that, for a period not to exceed 180 days after the Exchange Date, they will make this Prospectus available to any broker-dealer for use in connection with any such resale. Any holder that cannot rely upon such interpretations must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Tendering holders of Original Notes will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of the Original Notes pursuant to the Exchange Offer. The Exchange Notes will bear interest from and including their respective dates of issuance. Holders whose Original Notes are accepted for exchange will receive accrued interest thereon to, but not including, the date of issuance of the Exchange Notes, such interest to be payable with the first interest payment on the Exchange Notes, but will not receive any payment in respect of interest on the Original Notes accrued after the issuance of the Exchange Notes. EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS The Exchange Offer expires on the Expiration Date. The term "Expiration Date" means 5:00 p.m., New York City time, on , 1998, unless the Registrants in their sole discretion extend the period during which the Exchange Offer is open, in which event the term "Expiration Date" means the latest time and date on which the Exchange Offer, as so extended by the Registrants, expires. The Registrants reserve the right to extend the Exchange Offer at any time and from time to time prior to the Expiration Date by giving written notice to United States Trust Company of New York (the "Exchange Agent") and by timely public announcement communicated, unless otherwise required by applicable law or regulation, by making a release to the Dow Jones News Service. During any extension of the Exchange Offer, all Original Notes previously tendered pursuant to the Exchange Offer will remain subject to the Exchange Offer. The initial Exchange Date will be the first business day following the Expiration Date. The Registrants expressly reserve the right to (i) terminate the Exchange Offer and not accept for exchange any Original Notes for any reason, including if any of the events set forth below under "-- Conditions to the Exchange Offer" shall have occurred and shall not have been waived by the Registrants and (ii) amend the terms of the Exchange Offer in any manner, whether before or after any tender of the Original Notes. If any such termination or amendment occurs, the Registrants will notify the Exchange Agent in writing and will either issue a press release or give written notice to the holders of the Original Notes as promptly as practicable. Unless the Registrants terminate the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date, the Registrants will exchange the Exchange Notes for the Original Notes on the Exchange Date. If the Registrants waive any material condition to the Exchange Offer, or amend the Exchange Offer in any other material respect, and if at the time that notice of such waiver or amendment is first published, sent or given to holders of Original Notes in the manner specified above, the Exchange Offer is scheduled to expire at any time earlier than the expiration of a period ending on the fifth business day from, and including, the date that such notice is first so published, sent or given, then the Exchange Offer will be extended until the expiration of such period of five business days. This Prospectus and the related Letter of Transmittal and other relevant materials will be mailed by the Registrants to record holders of Original Notes and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the lists of holders for subsequent transmittal to beneficial owners of Original Notes. 27 33 HOW TO TENDER The tender to the Registrants of Original Notes by a holder thereof pursuant to one of the procedures set forth below will constitute an agreement between such holder and the Registrants in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. General Procedures. A holder of an Original Note may tender the same by (i) properly completing and signing the Letter of Transmittal or a facsimile thereof (all references in this Prospectus to the Letter of Transmittal shall be deemed to include a facsimile thereof) and delivering the same, together with the certificate or certificates representing the Original Notes being tendered and any required signature guarantees (or a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") pursuant to the procedure described below), to the Exchange Agent at its address set forth on the back cover of this Prospectus on or prior to the Expiration Date or (ii) complying with the guaranteed delivery procedures described below. If tendered Original Notes are registered in the name of the signer of the Letter of Transmittal and the Exchange Notes to be issued in exchange therefor are to be issued (and any untendered Original Notes are to be reissued) in the name of the registered holder, the signature of such signer need not be guaranteed. In any other case, the tendered Original Notes must be endorsed or accompanied by written instruments of transfer in form satisfactory to the Registrants and duly executed by the registered holder and the signature on the endorsement or instrument of transfer must be guaranteed by a firm (an "Eligible Institution") that is a member of a recognized signature guarantee medallion program (an "Eligible Program") within the meaning of Rule 17Ad-15 under the Exchange Act. If the Exchange Notes and/or Original Notes not exchanged are to be delivered to an address other than that of the registered holder appearing on the note register for the Original Notes, the signature on the Letter of Transmittal must be guaranteed by an Eligible Institution. Any beneficial owner whose Original Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender Original Notes should contact such holder promptly and instruct such holder to tender Original Notes on such beneficial owner's behalf. If such beneficial owner wishes to tender such Original Notes himself, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering such Original Notes, either make appropriate arrangements to register ownership of the Original Notes in such beneficial owner's name or follow the procedures described in the immediately preceding paragraph. The transfer of record ownership may take considerable time. Each broker-dealer that receives Exchange Notes for its own account in exchange for Original Notes, where such Original Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." Book-Entry Transfer. The Exchange Agent will make a request to establish an account with respect to the Original Notes at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within two business days after receipt of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Original Notes by causing the Book-Entry Transfer Facility to transfer such Original Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Original Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address specified on the back cover page of this Prospectus on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. 28 34 Guaranteed Delivery Procedures. If a holder desires to accept the Exchange Offer and time will not permit a Letter of Transmittal or Original Notes to reach the Exchange Agent before the Expiration Date, a tender may be effected if the Exchange Agent has received at its office listed on the back cover hereof on or prior to the Expiration Date a letter, telegram or facsimile transmission from an Eligible Institution setting forth the name and address of the tendering holder, the names in which the Original Notes are registered and, if possible, the certificate numbers of the Original Notes to be tendered, and stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange trading days after the date of execution of such letter, telegram or facsimile transmission by the Eligible Institution, the Original Notes, in proper form for transfer, will be delivered by such Eligible Institution together with a properly completed and duly executed Letter of Transmittal (and any other required documents). Unless Original Notes being tendered by the above-described method (or a timely Book-Entry Confirmation) are deposited with the Exchange Agent within the time period set forth above (accompanied or preceded by a properly completed Letter of Transmittal and any other required documents), the Issuers may, at their option, reject the tender. Copies of a Notice of Guaranteed Delivery which may be used by Eligible Institutions for the purposes described in this paragraph are being delivered with this Prospectus and the related Letter of Transmittal. A tender will be deemed to have been received as of the date when the tendering holder's properly completed and duly signed Letter of Transmittal accompanied by the Original Notes (or a timely Book-Entry Confirmation) is received by the Exchange Agent. Issuances of Exchange Notes in exchange for Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to similar effect (as provided above) by an Eligible Institution will be made only against deposit of the Letter of Transmittal (and any other required documents) and the tendered Original Notes (or a timely Book-Entry Confirmation). All questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of Original Notes will be determined by the Registrants, whose determination will be final and binding. The Registrants reserve the absolute right to reject any or all tenders not in proper form or the acceptances for exchange of which may, in the opinion of counsel to the Registrants, be unlawful. The Registrants also reserve the absolute right to waive any of the conditions of the Exchange Offer or any defect or irregularities in tenders of any particular holder whether or not similar defects or irregularities are waived in the case of other holders. None of the Registrants, the Exchange Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or shall incur any liability for failure to give any such notification. The Registrants' interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL The Letter of Transmittal contains, among other things, the following terms and conditions, which are part of the Exchange Offer. The party tendering Original Notes for exchange (the "Transferor") exchanges, assigns and transfers the Original Notes to the Registrants and irrevocably constitutes and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to cause the Original Notes to be assigned, transferred and exchanged. The Transferor represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Original Notes and to acquire Exchange Notes issuable upon the exchange of such tendered Original Notes, and that, when the same are accepted for exchange, the Registrants will acquire good and unencumbered title to the tendered Original Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The Transferor also warrants that it will, upon request, execute and deliver any additional documents deemed by the Registrants to be necessary or desirable to complete the exchange, assignment and transfer of tendered Original Notes. The Transferor further agrees that acceptance of any tendered Original Notes by the Registrants and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Registrants of its obligations under the Registration Rights Agreement and that the Registrants shall have no further obligations or liabilities thereunder (except in certain limited circumstances). All authority conferred by the Transferor will survive 29 35 the death or incapacity of the Transferor and every obligation of the Transferor shall be binding upon the heirs, legal representatives, successors, assigns, executors and administrators of such Transferor. By tendering Original Notes, the Transferor certifies (a) that it is not an "affiliate" of the Registrants within the meaning of Rule 405 under the Securities Act, that it is not a broker-dealer that owns Original Notes acquired directly from the Registrants or an affiliate of the Registrants, that it is acquiring the Exchange Notes offered hereby in the ordinary course of such Transferor's business and that such Transferor has no arrangement with any person to participate in the distribution of such Exchange Notes or (b) that it is an "affiliate" (as so defined) of the Registrants or of the Initial Purchasers in the Initial Offering of the Original Notes, and that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable to it. Each broker-dealer that receives Exchange Notes for its own account in exchange for Original Notes, where such Original Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." WITHDRAWAL RIGHTS Original Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Exchange Agent at its address set forth on the back cover of this Prospectus. Any such notice of withdrawal must specify the person named in the Letter of Transmittal as having tendered Original Notes to be withdrawn, the certificate numbers of Original Notes to be withdrawn, the principal amount of Original Notes to be withdrawn (which must be an authorized denomination), a statement that such holder is withdrawing his election to have such Original Notes exchanged, and the name of the registered holder of such Original Notes, and must be signed by the holder in the same manner as the original signature on the Letter of Transmittal (including any required signature guarantees) or be accompanied by evidence satisfactory to the Registrants that the person withdrawing the tender has succeeded to the beneficial ownership of the Original Notes being withdrawn. The Exchange Agent will return the properly withdrawn Original Notes promptly following receipt of notice of withdrawal. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by the Registrants, and such determination will be final and binding on all parties. ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Upon the terms and subject to the conditions of the Exchange Offer, the acceptance for exchange of Original Notes validly tendered and not withdrawn and the issuance of the Exchange Notes will be made on the Exchange Date. For the purposes of the Exchange Offer, the Registrants shall be deemed to have accepted for exchange validly tendered Original Notes when, as and if the Registrants have given written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Original Notes for the purposes of receiving Exchange Notes from the Registrants and causing the Original Notes to be assigned, transferred and exchanged. Upon the terms and subject to the conditions of the Exchange Offer, delivery of Exchange Notes to be issued in exchange for accepted Original Notes will be made by the Exchange Agent promptly after acceptance of the tendered Original Notes. Original Notes not accepted for exchange by the Registrants will be returned without expense to the tendering holders (or in the case of Original Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the procedures described above, such non-exchanged Original Notes will be credited to an account maintained with such Book-Entry Transfer Facility) promptly following the Expiration Date or, if the Registrants terminate the Exchange Offer prior to the Expiration Date, promptly after the Exchange Offer is so terminated. 30 36 CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, or any extension of the Exchange Offer, the Issuers will not be required to issue Exchange Notes in respect of any properly tendered Original Notes not previously accepted and may terminate the Exchange Offer (by oral or written notice to the Exchange Agent and by timely public announcement communicated, unless otherwise required by applicable law or regulation, by making a release to the Dow Jones News Service) or, at its option, modify or otherwise amend the Exchange Offer, if (a) there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order or decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission, (i) seeking to restrain or prohibit the making or consummation of the Exchange Offer or any other transaction contemplated by the Exchange Offer, (ii) assessing or seeking any damages as a result thereof, or (iii) resulting in a material delay in the ability of the Issuers to accept for exchange or exchange some or all of the Original Notes pursuant to the Exchange Offer; (b) any statute, rule, regulation, order or injunction shall be sought, proposed, introduced, enacted, promulgated or deemed applicable to the Exchange Offer or any of the transactions contemplated by the Exchange Offer by any government or governmental authority, domestic or foreign, or any action shall have been taken, proposed or threatened, by any government, governmental authority, agency or court, domestic or foreign, that in the sole judgment of the Registrants might directly or indirectly result in any of the consequences referred to in clauses (a)(i) or (ii) above or, in the sole judgment of the Registrants, might result in the holders of Exchange Notes having obligations with respect to resales and transfers of Exchange Notes which are greater than those described in the interpretations of the Commission referred to on the cover page of this Prospectus, or would otherwise make it inadvisable to proceed with the Exchange Offer; or (c) a material adverse change shall have occurred in the business, condition (financial or otherwise), operations, or prospects of the Issuers. The foregoing conditions are for the sole benefit of the Registrants and may be asserted by them with respect to all or any portion of the Exchange Offer regardless of the circumstances (including any action or inaction by the Registrants) giving rise to such condition or may be waived by the Registrants in whole or in part at any time or from time to time in their sole discretion. The failure by the Registrants at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right, and each right will be deemed an ongoing right which may be asserted at any time or from time to time. In addition, the Registrants have reserved the right, notwithstanding the satisfaction of each of the foregoing conditions, to terminate or amend the Exchange Offer. Any determination by the Registrants concerning the fulfillment or non-fulfillment of any conditions will be final and binding upon all parties. In addition, the Registrants will not accept for exchange any Original Notes tendered and no Exchange Notes will be issued in exchange for any such Original Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or qualification of the Indenture under the Trust Indenture Act of 1939 (the "Trust Indenture Act"). EXCHANGE AGENT United States Trust Company of New York has been appointed as the Exchange Agent for the Exchange Offer. Letters of Transmittal must be addressed to the Exchange Agent at its address set forth on the back cover page of this Prospectus. Delivery to an address other than as set forth herein, or transmissions of instructions via a facsimile or telex number other than the ones set forth herein, will not constitute a valid delivery. SOLICITATION OF TENDERS; EXPENSES The Registrants have not retained any dealer-manager or similar agent in connection with the Exchange Offer and will not make any payments to brokers, dealers or others for soliciting acceptances of the Exchange Offer. The Registrants will, however, pay the Exchange Agent reasonable and customary fees for its services 31 37 and will reimburse it for reasonable out-of-pocket expenses in connection therewith. The Registrants will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding tenders for their customers. The expenses to be incurred in connection with the Exchange Offer, including the fees and expenses of the Exchange Agent and printing, accounting and legal fees, will be paid by the Company and are estimated at approximately $250,000. No person has been authorized to give any information or to make any representations in connection with the Exchange Offer other than those contained in this Prospectus. If given or made, such information or representations should not be relied upon as having been authorized by the Registrants. Neither the delivery of this Prospectus nor any exchange made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Registrants since the respective dates as of which information is given herein. The Exchange Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Original Notes in any jurisdiction in which the making of the Exchange Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, the Registrants may, at their discretion, take such action as it may deem necessary to make the Exchange Offer in any such jurisdiction and extend the Exchange Offer to holders of Original Notes in such jurisdiction. In any jurisdiction the securities laws or blue sky laws of which require the Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer is being made on behalf of the Registrants by one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. APPRAISAL RIGHTS HOLDERS OF ORIGINAL NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER. FEDERAL INCOME TAX CONSEQUENCES The exchange of Original Notes for Exchange Notes by holders will not be a taxable exchange for federal income tax purposes, and holders should not recognize any taxable gain or loss or any interest income as a result of such exchange. OTHER Participation in the Exchange Offer is voluntary and holders should carefully consider whether to accept. Holders of the Original Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. As a result of the making of, and upon acceptance for exchange of all validly tendered Original Notes pursuant to the terms of this Exchange Offer, the Registrants will have fulfilled a covenant contained in the terms of the Original Notes and the Registration Rights Agreement. Holders of the Original Notes who do not tender their certificates in the Exchange Offer will continue to hold such certificates and will be entitled to all the rights, and limitations applicable thereto, under the Indenture, except for any such rights under the Registration Rights Agreement, which by their terms terminate or cease to have further effect as a result of the making of this Exchange Offer. See "Description of the Notes." All untendered Original Notes will continue to be subject to the restriction on transfer set forth in the Indenture. To the extent that Original Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Original Notes could be adversely affected. See "Risk Factors -- Consequences of Failure to Exchange." The Registrants may in the future seek to acquire untendered Original Notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. The Registrants have no present plan to acquire any Original Notes which are not tendered in the Exchange Offer. 32 38 THE ACQUISITION THE ACQUISITION On October 31, 1997, Pioneer, and PCI Canada and PCI Carolina, newly-formed subsidiaries of PAAC, and ICI and its subsidiaries, ICI Canada and ICI Americas, consummated the PCI Canada Acquisition. Pursuant to the Purchase Agreement, the Company acquired substantially all of the assets and properties used by ICI Canada and ICI Americas in their North American chlor-alkali business. For the twelve months ended September 30, 1997, the PCI Canada Business generated pro forma net sales and pro forma EBITDA of $162.5 million and $51.9 million, respectively. The purchase price consisted of approximately $235.6 million, payable in cash, and the assumption of certain obligations related to the acquired chlor-alkali business. Management believes that the PCI Canada Acquisition presented an attractive opportunity to further extend and diversify the Company's geographic and product focus while helping to manage the intrinsic cyclicality of the chlor-alkali business. By acquiring a low-cost operation with a leading market share and complementary product offerings, the Company believes it will improve its ability to market to merchant chlor-alkali customers. Specific benefits include the following: - The acquisition substantially expands the Company's presence in the merchant market for chlorine and caustic soda, especially in markets contiguous to existing markets in the southeastern United States where the Company already conducts significant operations. - The Company expects that the pulp and paper expertise and product offerings of the PCI Canada Business will strengthen the Company's existing market position in the pulp and paper industry in the western United States and Canada. - The PCI Canada Business will benefit from the Company's experience in marketing to industrial customers. - The experienced management team of the PCI Canada Business has historically operated the business as a stand-alone entity within ICI Canada and has demonstrated an ability to improve the operating performance and cost structure of its business. Since 1992, management has reduced fixed costs by approximately $9.6 million and initiated productivity improvements and various other restructuring initiatives that resulted in a 30% reduction in workforce over such period. As a result, the Company intends to continue to operate the PCI Canada Business with existing management. - The PCI Canada Business has been successful in developing markets for downstream products, such as bleach, hydrochloric acid and chlorinated paraffins, whose steady demand for chlorine and caustic soda has helped maintain high operating rates at its chlor-alkali facilities which in turn improves overall profitability. Over the last several years, the PCI Canada Business has operated at approximately full capacity. - In April 1997, the PCI Canada Business completed a $21.2 million expansion and upgrade of its Becancour facility by installing modern membrane cells, which increased Becancour's net chlor-alkali capacity by 36,000 tons, or 12%. At the closing of the PCI Canada Acquisition, the Company and ICI entered into certain related agreements. Pursuant to a Noncompetition Agreement, ICI agreed not to engage in any production or sales of caustic soda until 2002 in designated areas of North America. Pursuant to a Lease Agreement, the PCI Canada Business leased certain facilities at the Cornwall site from ICI Canada. Pursuant to a License Agreement, the PCI Canada Business received a license from ICI and its affiliates for the non-exclusive use of certain intellectual property. Pursuant to a Transition Services Agreement, ICI Canada and certain of its affiliates agreed to provide transition services to the Company. The purchase price is subject to adjustment based on the difference between base working capital and the actual working capital (each as defined in the Purchase Agreement) on the closing date. The Purchase Agreement also provides certain environmental indemnifications from ICI Canada and ICI Americas, subject 33 39 to certain thresholds and limitations, which obligations will be guaranteed by ICI. See "Risk Factors -- Environmental Regulation" and "Business -- Environmental and Safety Regulation." The following chart sets forth the structure of Pioneer and its operating subsidiaries following the PCI Canada Acquisition. [ORGANIZATIONAL CHART] USE OF PROCEEDS FROM INITIAL OFFERING The net proceeds from the sale of the Original Notes, of approximately $170.1 million, together with borrowings of $83.0 million under the Term Facility, were used to pay the purchase price for the PCI Canada Business of $235.6 million and $17.5 million for working capital and general corporate purposes. 34 40 THE COMPANY AND PIONEER THE COMPANY The Predecessor Company was formed in October 1988 to acquire two existing chlor-alkali plants. Subsequently, the Company acquired several businesses engaged in municipal, industrial and commercial water treatment, and in June 1997 acquired the Tacoma Facility as its third chlor-alkali plant. The Company conducts its business primarily through PCAC and All-Pure. The Company also owns a 50% unconsolidated joint venture interest in Kemwater (which effective in February 1996 succeeded to the operations of Imperial West). Pioneer owns the remaining 50% joint venture interest in Kemwater. The Company intends to operate the PCI Canada Business as a stand-alone entity following the PCI Canada Acquisition. PCAC. PCAC owns and operates three chlor-alkali production facilities, located in St. Gabriel, Louisiana; Henderson, Nevada; and Tacoma, Washington. These facilities produce chlorine and caustic soda for sale in the merchant markets and for use as raw materials by PCAC, All-Pure and Kemwater in the manufacture of downstream products. The Henderson facility also produces hydrochloric acid, and the Tacoma Facility also produces hydrochloric acid and calcium chloride. PCAC also has an indirect 15% equity interest in Saguaro Power Company LP ("Saguaro Power"), which owns and operates a 90-megawatt cogeneration facility located on approximately six acres of the Henderson property. PCAC acquired the Tacoma Facility in June 1997. The purchase price consisted of (i) $97.0 million, paid in cash, (ii) 55,000 shares of Pioneer Preferred Stock, having a liquidation preference of $100 per share, and (iii) the assumption of certain obligations related to the acquired chlor-alkali business. PCI Canada. In October 1997, PCI Canada, the Issuer of the Notes, pursuant to the PCI Canada Acquisition, acquired substantially all of the Canadian assets and properties used by ICI Canada in its North American chlor-alkali business. PCI Canada is an indirect wholly-owned subsidiary of PAAC. PCI Canada maintains its headquarters at 630 West Rene-Levesque Boulevard, Montreal, Quebec H3B 1S6, and the telephone number is (514) 397-6100. PCI Canada was incorporated in the province of New Brunswick, Canada on September 17, 1997. All-Pure. The Company believes that All-Pure is the largest distributor of packaged chlor-alkali products in the region of the United States west of the Rocky Mountains and the only full-line marketer of bleach in the region. All-Pure manufactures bleach and repackages chlorine and hydrochloric acid and distributes these products along with caustic soda and related products to municipalities, swimming pool supply distributors and selected commercial and retail markets. In July 1996, All-Pure acquired T.C. Products, which is engaged in the manufacture and marketing of bleach and related products from its plant in Tacoma, Washington. All-Pure purchases substantially all of its chlorine and caustic soda and a substantial portion of its hydrochloric acid from PCAC. Because bleach contains a high percentage of water, freight costs and logistics are an important competitive factor. All-Pure's production plants and distribution facilities are strategically located in or near most of the largest population centers of the West Coast. PCI Carolina. In October 1997, PCI Carolina, pursuant to the PCI Canada Acquisition, acquired substantially all of the U.S. assets and properties used by ICI Americas in its North American chlor-alkali business. PCI Carolina is an indirect wholly-owned subsidiary of PAAC. PCI Carolina will purchase chlor- alkali products manufactured by PCI Canada for sale to customers in the United States. PCI Carolina was incorporated in the State of Delaware on September 19, 1997. Kemwater. Kemwater, a 50% owned joint venture, manufactures and supplies iron chlorides to the potable and waste water markets in the region of the United States west of the Rocky Mountains, supplying municipal customers such as the cities of Los Angeles, Sacramento and San Diego. Iron chlorides are used primarily to remove solids from waste water streams and to control hydrogen sulfide emissions. Kemwater also manufactures and markets polyaluminum chlorides for markets in the southeastern United States, as well as aluminum sulfate for the potable and waste water and industrial water treatment industries, sodium aluminate for the production of catalysts and paint ingredients, and bleach for municipal water disinfection. Kemwater 35 41 has exclusive licenses to use the existing and future advanced water treatment technology of Kemira Oy of Finland ("Kemira") in the development and sale of products and services for the potable water, waste water and industrial water treatment markets in the United States (other than the northeastern United States) and the Caribbean, and nonexclusive access to the use of the technology for the Canadian and Mexican markets, with an option to acquire an exclusive license for those markets in the future. For the year ended December 31, 1996, Kemwater purchased all of its chlorine and caustic soda requirements and a substantial portion of its hydrochloric acid requirements from PCAC, and it is anticipated that in the future PCAC will continue to provide Kemwater with a substantial amount of its raw materials. PIONEER PAAC is a wholly-owned subsidiary of Pioneer, a publicly-traded company that immediately prior to the acquisition of PAI had no operations. Pioneer has an available net operating loss carryforward for federal income tax reporting purposes which it believes was approximately $54.9 million at September 30, 1997, which includes the impact of the extraordinary loss due to early extinguishment of debt during the second quarter of 1997. In April 1995, PAAC acquired PAI for a purchase price, including the retirement of debt and the redemption of preferred stock, of approximately $152.3 million in cash and $11.5 million of subordinated promissory notes of Pioneer, as well as certain amounts payable after the closing based on certain of PAI's real estate holdings. The Interlaken Partnership beneficially owns approximately 34.9% of the voting power of Pioneer, and William R. Berkley, Chairman of Pioneer and PAAC (who may be deemed to beneficially own all shares of Pioneer common stock held by the Interlaken Partnership), may be deemed to beneficially own approximately 59.9% of the voting power of Pioneer. See "Stock Ownership." Each of Pioneer and PAAC maintains its headquarters at 4300 NationsBank Center, 700 Louisiana Street, Houston, Texas 77002, and the telephone number is (713) 225-3831. PAAC was incorporated in the State of Delaware in March 1995. 36 42 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1997, and as adjusted to reflect the Initial Offering, the other Financings and the PCI Canada Acquisition. See "The Acquisition." The table should be read in conjunction with the historical financial information of the Company and the PCI Canada Business and the respective notes thereto and the unaudited pro forma information of the Company and the notes thereto appearing elsewhere in this Prospectus. See also "Description of the Notes."
AS OF SEPTEMBER 30, 1997 ------------------------ ACTUAL AS ADJUSTED --------- ------------ (DOLLARS IN THOUSANDS) Cash and cash equivalents................................... $ 35,799 $ 44,173 ======== ======== Short-term debt: Current portion of long-term debt......................... $ 1,163 $ 2,163 -------- -------- Total short-term debt............................. 1,163 2,163 -------- -------- Long-term debt: New Credit Facilities(1).................................. -- 82,000 9 1/4% Senior Secured Notes due October 15, 2007.......... -- 175,000 Existing Term Loans....................................... 98,750 98,750 9 1/4% Senior Secured Notes due June 15, 2007............. 200,000 200,000 Long-term debt............................................ 6,620 6,620 -------- -------- Total long-term debt.............................. 305,370 562,370 -------- -------- Stockholder's equity: Common Stock(2)........................................... 1 1 Additional paid in capital................................ 66,624 66,624 Retained deficit(3)....................................... (7,383) (7,383) -------- -------- Total stockholder's equity........................ 59,242 59,242 -------- -------- Total capitalization.............................. $365,775 $623,775 ======== ========
- ------------ (1) Represents borrowings of $83.0 million in Term Loans by PAI. The Company did not incur Revolving Loans at closing in connection with the PCI Canada Acquisition but had $2.9 million in letters of credit outstanding and borrowing availability of $62.1 million, subject to certain borrowing base limitations, at such time under the Revolving Facility. See "Description of Other Indebtedness -- New Credit Facilities." (2) Par value $.01 per share, 1,000 shares authorized, issued and outstanding. (3) Includes the impact in June 1997 of the extraordinary loss of $18.6 million, net of an income tax benefit of $12.4 million, from the early extinguishment of debt associated with the repurchase of the $135.0 million of 13 3/8% First Mortgage Notes due 2005. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 37 43 PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma financial information (the "Pro Forma Financial Information") of the Company has been derived from and should be read in conjunction with (i) the historical consolidated financial statements of the Company and the related notes thereto included elsewhere herein (ii) the historical financial statements of the PCI Canada Business and the related notes thereto included elsewhere herein, and (iii) the historical financial statements of the Tacoma Plant and the related notes thereto included elsewhere herein. The Pro Forma Financial Information has been prepared to illustrate the effects of the Initial Offering, the other Financings, the PCI Canada Acquisition, the Tacoma Acquisition and related refinancings and the acquisition of T.C. Products. This pro forma financial information does not necessarily present the results of operations as they would have been if the companies involved had constituted one entity for the periods presented. See "Prospectus Summary -- The PCI Canada Acquisition" and "The Acquisition." The pro forma balance sheet as of September 30, 1997 gives effect to the Initial Offering, the other Financings and the PCI Canada Acquisition as if they had occurred on September 30, 1997. The pro forma statement of operations for the year ended December 31, 1996 gives effect to the Initial Offering, the other Financings, the PCI Canada Acquisition, the Tacoma Acquisition and related refinancings and the acquisition of T.C. Products as if they had occurred on January 1, 1996. The pro forma statement of operations for the nine months ended September 30, 1997 gives effect to the Initial Offering, the other Financings, the PCI Canada Acquisition, and the Tacoma Acquisition and related refinancings as if they had occurred on January 1, 1997. The pro forma statement of operations for the nine months ended September 30, 1996 gives effect to the Initial Offering, the other Financings, the PCI Canada Acquisition, the Tacoma Acquisition and related refinancings and the acquisition of T.C. Products as if they had occurred on January 1, 1996. The Tacoma Acquisition was effective June 17, 1997 and was accounted for using the purchase method. The acquisition of T.C. Products was effective July 1, 1996 and was accounted for using the purchase method. The Pro Forma Financial Information is not necessarily indicative of either future results of operations or the results that might have occurred if the foregoing transactions had been consummated on the indicated date. The PCI Canada Acquisition was effective October 31, 1997 and was accounted for using the purchase method. The total purchase price of the PCI Canada Acquisition is allocated to the assets and liabilities of the PCI Canada Business based upon the estimated fair value of the assets and liabilities being acquired. The pro forma adjustments reflected in the Pro Forma Financial Information are based upon a preliminary purchase price allocation and upon evaluations and estimates of fair values at the time of closing of the PCI Canada Acquisition. Management believes adjustments to the preliminary allocation, if any, are not expected to be material. Accordingly, there can be no assurance that the actual adjustments will not differ significantly from the pro forma adjustments reflected in the Pro Forma Financial Information. No assurance can be given that such plans will be implemented as now contemplated or that such assumptions will prove to be accurate. 38 44 PRO FORMA BALANCE SHEET AS OF SEPTEMBER 30, 1997 (UNAUDITED) ASSETS
PCI CANADA BUSINESS US GAAP CANADIAN ADJUSTMENTS, US GAAP, US GAAP, PRO FORMA GAAP, $CDN(1) $CDN(2) $CDN US$ ADJUSTMENTS(3) ------------- ------------ -------- -------- -------------- (DOLLARS IN THOUSANDS) Current assets Cash.................................... $ 8,374(d) Accounts receivable..................... $ 31,455 $31,455 $22,680 2,782(e) Due from parent......................... Inventories............................. 9,754 9,754 7,033 Prepaid expenses........................ 302 302 218 -------- -------- ------- -------- Total current assets.............. 41,511 41,511 29,931 11,156 Property, plant and equipment, net........ 88,110 88,110 63,530 83,305(f) Investments in and advances to unconsolidated subsidiary............... 674 $ 277(a) 951 686 33(f) Other assets, net......................... 2,769 1,723(b) 4,492 3,239 10,720(g) Excess cost over the fair value of net assets acquired......................... 76,352(h) -------- ------- -------- ------- -------- Total assets...................... $133,064 $ 2,000 $135,064 $97,386 $181,566 ======== ======= ======== ======= ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Accounts payable........................ $ 26,575 $26,575 $19,161 $ (2,898)(i) Accrued liabilities..................... 7,323 $ (562)(b) 6,761 4,874 (1,624)(i) Returnable deposits..................... Bank Indebtedness....................... 3,857 3,857 2,781(i) (2,781)(i) Current portion of long-term debt....... 1,000(j) -------- ------- -------- ------- -------- Total current liabilities......... 37,755 (562) 37,193 26,816 (6,303) Long-term debt, less current maturities... 2,500 2,500 1,803 (1,803)(i) Term Loans.............................. 82,000(j) 9 1/4% Senior Secured Notes............. 175,000(j) Returnable deposits....................... Accrued pension and other employee benefits................................ 6,316 (4,218)(b) 2,098 1,513 (74)(i) Other long-term liabilities............... 3,613 3,613 2,605 (2,605)(i) Equity.................................... 82,880 6,780(c) 89,660 64,649 (64,649)(k) -------- ------- -------- ------- -------- Total liabilities and stockholder's equity............ $133,064 $ 2,000 $135,064 $97,386 $181,566 ======== ======= ======== ======= ======== ADJUSTED PCI CANADA BUSINESS AND ACTUAL PRO FORMA FINANCINGS COMPANY COMPANY ------------ -------- --------- (DOLLARS IN THOUSANDS) Current assets Cash.................................... $ 8,374 $ 35,799 $ 44,173 Accounts receivable..................... 25,462 37,039 62,501 Due from parent......................... 5,003 5,003 Inventories............................. 7,033 15,341 22,374 Prepaid expenses........................ 218 2,467 2,685 -------- -------- -------- Total current assets.............. 41,087 95,649 136,736 Property, plant and equipment, net........ 146,835 171,899 318,734 Investments in and advances to unconsolidated subsidiary............... 719 30,297 31,016 Other assets, net......................... 13,959 40,902 54,861 Excess cost over the fair value of net assets acquired......................... 76,352 125,104 201,456 -------- -------- -------- Total assets...................... $278,952 $463,851 $742,803 ======== ======== ======== LIAB Current liabilities Accounts payable........................ $ 16,263 $ 28,976 $ 45,239 Accrued liabilities..................... 3,250 27,298 30,548 Returnable deposits..................... 3,287 3,287 Bank Indebtedness....................... Current portion of long-term debt....... 1,000 1,163 2,163 -------- -------- -------- Total current liabilities......... 20,513 60,724 81,237 Long-term debt, less current maturities... 6,620 6,620 Term Loans.............................. 82,000 98,750 180,750 9 1/4% Senior Secured Notes............. 175,000 200,000 375,000 Returnable deposits....................... 3,271 3,271 Accrued pension and other employee benefits................................ 1,439 18,511 19,950 Other long-term liabilities............... 16,733 16,733 Equity.................................... 59,242 59,242 -------- -------- -------- Total liabilities and stockholder's equity............ $278,952 $463,851 $742,803 ======== ======== ========
(see footnotes on following page) 39 45 NOTES TO PRO FORMA BALANCE SHEET AS OF SEPTEMBER 30, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS) (1) Reflects the actual PCI Canada Business balance sheet as of September 30, 1997 expressed in Canadian dollars, using generally accepted accounting principles followed in Canada ("Canadian GAAP"). (2) Reflects adjustments to convert to generally accepted accounting principles followed in the United States ("US GAAP"): (a) Recording of investment in joint venture under the equity method. (b) Adjustment of pension assets and other liabilities. (c) Reflects net equity adjustment due to US GAAP adjustments. (3) Reflects the adjustments to the PCI Canada Business balance sheet, including the following: (d) Excess cash after payment of purchase price and related acquisition and financing costs. (e) Receivable related to difference between base working capital and actual working capital at closing date. (f) Adjustment to fair value of acquired property, plant and equipment and investment in unconsolidated subsidiary in accordance with the purchase method of accounting. (g) Reflects the following: Capitalization of transaction and financing (i) costs............................................. $ 9,794 (ii) Capitalization of patents and trademarks.......... 1,007 Capitalization of covenant not to compete or (iii) solicit........................................... 3,158 (iv) Elimination of other assets not purchased......... (3,239) ------- $10,720 =======
(h) Addition of excess of cost over the fair value of net assets acquired. (i) Reflects elimination of liabilities not assumed. (j) Addition of debt incurred in connection with the PCI Canada Acquisition. (k) Elimination of the PCI Canada Business historical equity in accordance with the purchase method of accounting. 40 46 PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
PRO FORMA ----------------------------------------------- ACTUAL PRIOR PCI CANADA COMPANY ACQUISITIONS(1) ACQUISITION(2) AS ADJUSTED -------- --------------- --------------- ----------- (DOLLARS IN THOUSANDS) Revenues.................................... $183,326 $83,912 $164,247 $431,485 Cost of sales............................... 126,739 54,941 115,233 296,913 -------- ------- -------- -------- Gross profit................................ 56,587 28,971 49,014 134,572 Selling, general and administrative expenses.................................. 23,528 3,679 13,919 41,126 -------- ------- -------- -------- Operating income............................ 33,059 25,292 35,095 93,446 Equity in net loss of unconsolidated subsidiary................................ (2,607) -- -- (2,607) Interest expense, net....................... (17,290) (9,100) (23,492) (49,882) Other income, net........................... 1,684 18 1,594 3,296 -------- ------- -------- -------- Income before income taxes and extraordinary item...................................... 14,846 16,210 13,197 44,253 Provision for income taxes.................. 6,735 5,645 4,302 16,682 -------- ------- -------- -------- Income before extraordinary item............ $ 8,111 $10,565 $ 8,895 $ 27,571 ======== ======= ======== ========
(see footnotes on following page) 41 47 NOTES TO PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (DOLLARS IN THOUSANDS) (1) Reflects the pro forma adjusted financial results of the Company's prior acquisitions of T.C. Products and the Tacoma Facility, as shown below.
PRO FORMA ACTUAL -------------------------------------------- TACOMA T.C. PRIOR PLANT PRODUCTS(A) ADJUSTMENTS(B) ACQUISITIONS ------- ----------- -------------- ------------ Revenues........................................ $73,715 $4,255 $ 5,942(i) $83,912 Cost of sales................................... 52,420 2,550 (29)(ii) 54,941 ------- ------ ------- ------- Gross profit.................................... 21,295 1,705 5,971 28,971 Selling, general and administrative expenses.... 1,782 900 997(iii) 3,679 ------- ------ ------- ------- Operating income................................ 19,513 805 4,974 25,292 Equity in net loss of unconsolidated subsidiary.................................... -- Interest expense, net........................... (271) (8,829)(iv) (9,100) Other income (expense), net..................... (2,209) 11 2,216(v) 18 ------- ------ ------- ------- Income before income taxes and extraordinary item.......................................... 17,304 545 (1,639) 16,210 Provision for income taxes...................... 6,059 241 (655)(vi) 5,645 ------- ------ ------- ------- Income before extraordinary item................ $11,245 $ 304 $ (984) $10,565 ======= ====== ======= =======
(a) Reflects the pro forma financial results of T.C. Products for the period of January 1, 1996 to June 30, 1996, the period prior to ownership by the Company. (b) Reflects the adjustments to the operating results from the assets acquired in the Tacoma Acquisition (the "Tacoma Plant") to reflect operations as part of the Company: (i) Reflects the following: (1) Elimination of freight costs associated with the sale of 100,000 tons per year of chlorine shipped to the Gulf Coast for which OCC Tacoma will bear the cost..... $ 6,394 (2) Adjustment to sales to OCC Tacoma for the difference between historical prices and Gulf Coast prices........ 60 (3) Additional 5% commission to be paid to OxyChem on OxyChem's national accounts to be serviced by the Company................................................ (512) ------- $ 5,942 =======
(ii) Reflects the following: (1) Elimination of the impact of LIFO accounting previously used by the Tacoma Plant as the Company uses FIFO or average cost methods of accounting for inventory valuation.............................................. $ 652 (2) Additional depreciation expense with respect to the properties, plant and equipment purchased in connection with the Tacoma Acquisition using the straight-line method over an average life of 20 years................ 351 (3) Elimination of operating lease expense for equipment capitalized by the Company which was previously leased by OCC Tacoma.......................................... (1,532) (4) Incremental insurance costs............................ 500 ------- $ (29) =======
42 48 (iii) Reflects the following: (1) Elimination of OxyChem corporate allocations........... $(1,782) (2) Addition of the Company's incremental selling, general and administrative expenses............................ 750 (3) Additional amortization expense with respect to intangible assets purchased in connection with the Tacoma Acquisition using the straight-line method over periods of 5 to 25 Years............................... 2,029 ------- $ 997 =======
(iv) Incremental interest expense related to the Existing Term Loans with an assumed interest rate of 8.375% and to the Senior Secured Notes with an interest rate of 9.25%. A 0.25% change in the interest rate applicable to the Existing Term Loans would change pro forma interest expense by $250. (v) Reflects the following: (1) Elimination of environmental expense associated with the Tacoma Plant's accrual of known environmental matters................................................ $ 1,932 (2) Elimination of fees related to the Tacoma Plant's sales of Receivables......................................... 377 (3) Elimination of amortization of deferred gain on equipment capitalized by the Company, which was previously leased by the Tacoma Plant.................. (93) ------- $ 2,216 =======
(vi) Represents the tax effect of all pro forma adjustments. (2) Represents pro forma adjusted amounts for the PCI Canada Acquisition, as shown below.
PCI CANADA BUSINESS CANADIAN US GAAP GAAP, ADJUSTMENTS US GAAP, US GAAP, PRO FORMA AS $CDN(A) $CDN(B) $CDN US$ ADJUSTMENTS(C) ADJUSTED ----------- ----------- -------- -------- -------------- -------- Revenues.......................... $223,967 $ -- $223,967 $164,247 $ -- $164,247 Cost of sales..................... 149,043 -- 149,043 109,301 5,932(iii) 115,233 -------- ------- -------- -------- -------- -------- Gross profit...................... 74,924 -- 74,924 54,946 (5,932) 49,014 Selling, general and administrative Expenses......... 14,546 (1,112)(i) 13,434 9,852 4,067(iv) 13,919 -------- ------- -------- -------- -------- -------- Operating income.................. 60,378 1,112 61,490 45,094 (9,999) 35,095 Equity in net loss of unconsolidated Subsidiary....... -- -- -- -- -- -- Interest expense, net............. -- -- -- -- (23,492)(v) (23,492) Other income, net................. 2,045 128(ii) 2,173 1,594 -- 1,594 -------- ------- -------- -------- -------- -------- Income before income taxes and Extraordinary item.............. 62,423 1,240 63,663 46,688 (33,491) 13,197 Provision (benefit) for income Taxes........................... (792) -- (792) (581) 4,883(vi) 4,302 -------- ------- -------- -------- -------- -------- Income before extraordinary item............................ $ 63,215 $ 1,240 $64,455 $47,269 $(38,374) $ 8,895 ======== ======= ======== ======== ======== ========
(a) Reflects actual results for the PCI Canada Business expressed in Canadian dollars using Canadian GAAP. 43 49 (b) Reflects adjustments to reflect US GAAP: (i) Reflects selling, general and administrative expenses Adjustment including: Decrease in expenses due to computing pension expense under US GAAP..................................................... $ (462) Decrease in expenses due to reduction in restructuring expenses under US GAAP...................................... (650) ------- $(1,112) ======= (ii) Increase in income of joint venture investment accounted for under the equity method.
(c) Reflects the adjustments to the PCI Canada Business' operating results to reflect operations as a part of the Company: (iii) Additional depreciation expense with respect to the property, plant and equipment purchased in connection with the PCI Canada Acquisition using the straight-line method over an average life of twelve years. (iv) Reflects the following: Elimination of ICI corporate allocations.................... $(1,197) Addition of the Company's incremental selling, general and administrative expenses..................................... 500 Additional amortization expense with respect to intangible assets purchased in connection with the PCI Canada Acquisition using the straight-line method over periods of 5 to 25 years................................................. 4,764 ------- $ 4,067 ======= (v) Incremental interest expense related to the Term Loans with an assumed interest rate of 8.8% and to the Notes with an interest rate of 9.25%. A 0.25% change in the interest rate applicable to the Term Loans would change pro forma interest expense by $250. (vi) Represents the tax provision for the PCI Canada Business plus the tax impact of all pro forma adjustments.
44 50 PRO FORMA STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
PRO FORMA ------------------------------------------------ PRIOR PCI CANADA ACTUAL COMPANY ACQUISITION(1) ACQUISITION(2) AS ADJUSTED -------------- -------------- ----------------- ----------- (DOLLARS IN THOUSANDS) Revenues................................. $150,073 $37,021 $121,961 $309,055 Cost of sales............................ 112,553 26,170 84,220 222,943 -------- ------- -------- -------- Gross profit............................. 37,520 10,851 37,741 86,112 Selling, general and administrative expenses............................... 19,580 1,274 10,456 31,310 -------- ------- -------- -------- Operating income......................... 17,940 9,577 27,285 54,802 Equity in net loss of unconsolidated subsidiary............................. (2,552) -- -- (2,552) Interest expense, net.................... (16,189) (4,042) (17,619) (37,850) Other income (expense), net.............. 882 (39) 722 1,565 -------- ------- -------- -------- Income (loss) before income taxes and extraordinary item..................... 81 5,496 10,388 15,965 Provision (benefit) for income taxes..... 1,779 2,395 3,412 7,586 -------- ------- -------- -------- Income (loss) before extraordinary Item................................... $ (1,698) $ 3,101 $ 6,976 $ 8,379 ======== ======= ======== ========
(see footnotes on following page) 45 51 NOTES TO PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS) (1) Reflects the pro forma adjusted financial results of the Company's prior acquisition of the Tacoma Plant, as shown below.
PRO FORMA ACTUAL TACOMA -------------------------- PLANT ADJUSTMENTS AS ADJUSTED ------------- ----------- ----------- Revenues...................................... $34,491 $ 2,530(a) $37,021 Cost of sales................................. 27,141 (971)(b) 26,170 ------- ------- ------- Gross profit.................................. 7,350 3,501 10,851 Selling, general and administrative expenses.................................... 539 735(c) 1,274 ------- ------- ------- Operating income.............................. 6,811 2,766 9,577 Equity in net loss of unconsolidated subsidiary.................................. -- -- -- Interest expense, net......................... -- (4,042)(d) (4,042) Other income (expense), net................... 455 (494)(e) (39) ------- ------- ------- Income before income taxes and extraordinary item........................................ 7,266 (1,770) 5,496 Provision for income taxes.................... 2,545 (150)(f) 2,395 ------- ------- ------- Income before extraordinary item.............. $ 4,721 $(1,620) $ 3,101 ======= ======= =======
(a) Reflects the following: (1) Elimination of freight costs associated with the sale of 100,000 tons per year of chlorine shipped to the Gulf Coast for which OxyChem will bear the cost................ $2,548 (2) Reclassification of freight rebate from other income to offset freight costs included in revenues................. 586 (3) Adjustment to sales to OxyChem for the difference between historical prices and Gulf Coast prices................... (344) (4) Additional 5% commission to be paid to OxyChem on OxyChem's national accounts to be serviced by the Company........... (260) ------ $2,530 ======
(b) Reflects the following: (1) Elimination of the impact of LIFO accounting previously used by the Tacoma Plant as the Company uses FIFO or average cost methods of accounting for inventory valuation........ $ (555) (2) Additional depreciation expense with respect to the properties, plant and equipment purchased in connection with the Tacoma Acquisition using the straight-line method over an average life of 20 years.......................... 121 (3) Elimination of operating lease expense for the equipment capitalized by the Company which was previously leased by OCC Tacoma................................................ (766) (4) Incremental insurance costs................................. 229 ------ $ (971) ======
46 52 (c) Reflects the following: (1) Elimination of OxyChem corporate allocations................ $(539) (2) Addition of the Company's incremental selling, general and administrative expenses................................... 344 (3) Additional amortization expense with respect to intangible assets purchased in connection with the Tacoma Acquisition using the straight-line method over periods of 5 to 25 Years..................................................... 930 ----- $ 735 =====
(d) Incremental interest expense related to the Existing Term Loans with an assumed interest rate of 8.375% and to the Senior Secured Notes with an interest rate of 9.25%. A 0.25% change in the interest rate applicable to the Existing Term Loans would change pro forma interest expense by $125. (e) Reflects the following: (1) Elimination of fees related to the Tacoma Plant's sales of receivables............................................... $ 138 (2) Elimination of amortization of deferred gain on equipment capitalized by the Company, which was previously leased by the Tacoma Plant.......................................... (46) (3) Reclassification of freight rebate to revenues to offset freight costs............................................. (586) ----- $(494) =====
(f) Represents the tax effect of all pro forma adjustments. (2) Represents pro forma adjusted amounts for the PCI Canada Acquisition, as shown below.
PCI CANADA BUSINESS CANADIAN US GAAP GAAP, ADJUSTMENTS US GAAP, US GAAP, PRO FORMA AS $CDN(A) $CDN(B) $CDN US$ ADJUSTMENTS(C) ADJUSTED ---------- ----------- -------- -------- -------------- -------- Revenues....................... $167,879 $ -- $167,879 $121,961 $ -- $121,961 Cost of sales.................. 110,114 -- 110,114 79,996 4,224(iii) 84,220 -------- ------- -------- -------- -------- -------- Gross profit................... 57,765 -- 57,765 41,965 (4,224) 37,741 Selling, general and administrative expenses...... 11,122 (1,101)(i) 10,021 7,280 3,176(iv) 10,456 -------- ------- -------- -------- -------- -------- Operating income............... 46,643 1,101 47,744 34,685 (7,400) 27,285 Equity in net loss of unconsolidated subsidiary.... -- -- -- -- -- -- Interest expense, net.......... -- -- -- -- (17,619)(v) (17,619) Other income, net.............. 931 63(ii) 994 722 -- 722 -------- ------- -------- -------- -------- -------- Income before income taxes and extraordinary item........... 47,574 1,164 48,738 35,407 (25,019) 10,388 Provision (benefit) for income taxes........................ (594) -- (594) (432) 3,844(vi) 3,412 -------- ------- -------- -------- -------- -------- Income before extraordinary item......................... $ 48,168 $ 1,164 $49,332 $35,839 $(28,863) $ 6,976 ======== ======= ======== ======== ======== ========
(a) Reflects actual results for the PCI Canada Business expressed in Canadian dollars using Canadian GAAP 47 53 (b) Reflects adjustments to reflect US GAAP: (i) Reflects selling, general and administrative expenses adjustment to reflect: Decrease in expenses due to computing pension expense under US GAAP................................................... $(1,189) Increase in expenses due to restructuring expenses under US GAAP...................................................... 88 ------- $(1,101) ======= (ii) Increase in income of joint venture investment accounted for under the equity method.
(c) Reflects the adjustments to the PCI Canada Business' operating results to reflect operations as a part of the Company: (iii) Additional depreciation expense with respect to the property, plant And equipment purchased in connection with the PCI Canada Acquisition Using the straight-line method over an average life of twelve years. (iv) Reflects the following: Elimination of ICI corporate allocations.................... $ (772) Addition of the Company's incremental selling, general and administrative expenses................................... 375 Expenses Additional amortization expense with respect to intangible Assets purchased in connection with the PCI Canada Acquisition using the straight-line method over periods of 5 to 25 years.................................. 3,573 ------- $ 3,176 ======= (v) Incremental interest expense related to the Term Loans with an assumed interest rate of 8.8% and to the Notes with an interest rate of 9.25%. A 0.25% change in the interest rate applicable to the Term Loans would change pro forma interest expense by $125. (vi) Represents the tax provision for the PCI Canada Business plus the tax impact of all pro forma adjustments.
48 54 PRO FORMA STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
PRO FORMA ------------------------------------------- ACTUAL PRIOR PCI CANADA AS COMPANY ACQUISITIONS(1) ACQUISITION(2) ADJUSTED -------- --------------- -------------- -------- (DOLLARS IN THOUSANDS) Revenues..................................... $140,835 $64,546 $123,718 $329,099 Cost of sales................................ 98,600 42,854 85,631 227,085 -------- ------- -------- -------- Gross profit................................. 42,235 21,692 38,087 102,014 Selling, general and administrative expenses................................... 19,142 4,627 10,569 34,338 -------- ------- -------- -------- Operating income............................. 23,093 17,065 27,518 67,676 Equity in net loss of unconsolidated subsidiary................................. (912) -- -- (912) Interest expense, net........................ (12,766) (7,000) (17,619) (37,385) Other income (expense), net.................. 507 1,676 1,613 3,796 -------- ------- -------- -------- Income before income taxes and extraordinary item....................................... 9,922 11,741 11,512 33,175 Provision for income taxes................... 4,868 4,064 3,826 12,758 -------- ------- -------- -------- Income before extraordinary item............. $ 5,054 $ 7,677 $ 7,686 $ 20,417 ======== ======= ======== ========
(see footnotes on following page) 49 55 NOTES TO PRO FORMA STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) (DOLLARS IN THOUSANDS) (1) Reflects the pro forma adjusted financial results of the Company's prior acquisitions of the Tacoma Plant and T.C. Products, as shown below.
PRO FORMA ---------------------------------------------- ACTUAL TACOMA T.C. PRODUCTS ADJUSTMENTS PRIOR PLANT (A) (B) ACQUISITIONS ------------- ------------- ----------- ------------ Revenues............................... $56,038 $4,255 $ 4,253(i) $64,546 Cost of sales.......................... 39,925 2,550 379(ii) 42,854 ------- ------ ------- ------- Gross profit........................... 16,113 1,705 3,874 21,692 Selling, general and administrative expenses............................. 2,977 900 750(iii) 4,627 ------- ------ ------- ------- Operating income....................... 13,136 805 3,124 17,065 Equity in net loss of unconsolidated subsidiary........................... -- -- -- -- Interest expense, net.................. -- (271) (6,729)(iv) (7,000) Other income (expense), net............ -- 11 1,665(v) 1,676 ------- ------ ------- ------- Income before income taxes and extraordinary item................... 13,136 545 (1,940) 11,741 Provision for income taxes............. 4,599 241 (776)(vi) 4,064 ------- ------ ------- ------- Income before extraordinary item....... $ 8,537 $ 304 $(1,164) $ 7,677 ======= ====== ======= =======
(a) Reflects the pro forma financial results of T.C. Products for the period of January 1, 1996 to June 30, 1996, the period prior to ownership by the Company. (b) Reflects the adjustments to the Tacoma Plant's operating results to reflect operations as part of the Company: (i) Reflects the following: (1) Elimination of freight costs associated with the sale of 100,000 tons per year of chlorine shipped to the Gulf Coast for which OCC Tacoma will bear the cost.... $ 4,850 (2) Adjustment to sales to OxyChem for the difference between historical prices and Gulf Coast prices....... (207) (3) Additional 5% commission to be paid to OxyChem on OxyChem's national accounts to be serviced by the Company............................................... (390) ------- $ 4,253 =======
50 56 (ii) Reflects the following: (1) Elimination of the impact of LIFO accounting previously used by the Tacoma Plant as the Company uses FIFO or average costs methods of accounting for inventory valuation................................... $ 756 (2) Additional depreciation expense with respect to the properties, plant and equipment purchased in connection with the Tacoma Acquisition using the straight-line method over an average life of 20 years................................................. 397 (3) Elimination of operating lease expense for the equipment capitalized by the Company which was previously leased by OCC Tacoma....................... (1,149) (4) Incremental insurance costs........................... 375 ------- $ 379 =======
(iii) Reflects the following: (1) Elimination of OxyChem corporate allocations.......... $(1,334) (2) Addition of the Company's incremental selling, general and administrative expenses........................... 563 (3) Additional amortization expense with respect to intangible assets purchased in connection with the Tacoma Acquisition using the straight-line method over periods of 5 to 25 years.............................. 1,521 ------- $ 750 =======
(iv) Incremental interest expense related to the Existing Term Loans with an assumed interest rate of 8.375% and to the Senior Secured Notes with an interest rate of 9.25%. A 0.25% change in the interest rate applicable to the Existing Term Loans would change pro forma interest expense by $125. (v) Reflects the following: (1) Elimination of environmental expense associated with the Tacoma Plant's accrual of known environmental matters............................................... $ 1,449 (2) Elimination of fees related to the Tacoma Plant's sales of receivables.................................. 285 (3) Elimination of amortization of deferred gain on equipment capitalized by the Company, which was previously leased by the Tacoma Plant................. (69) ------- $ 1,665 =======
(vi) Represents the tax effect of all pro forma adjustments. 51 57 (2) Represents to pro forma adjusted amounts for the PCI Canada Acquisition, as shown below.
PCI CANADA BUSINESS CANADIAN US GAAP GAAP, ADJUSTMENTS, US GAAP, US GAAP, PRO FORMA $CDN(A) $CDN(B) $CDN US$ ADJUSTMENTS(C) AS ADJUSTED ----------- ------------ -------- -------- -------------- ----------- Revenues.......................... $169,234 $ -- $169,234 $123,718 $ -- $123,718 Cost of sales..................... 111,011 -- 111,011 81,154 4,477 (iii 85,631 -------- ------ -------- -------- -------- -------- Gross profit...................... 58,223 -- 58,223 42,564 (4,477) 38,087 Selling, general and administrative expenses......... 11,286 (950)(i) 10,336 7,556 3,013(iv) 10,569 -------- ------ -------- -------- -------- -------- Operating income.................. 46,937 950 47,887 35,008 (7,490) 27,518 Equity in net loss of unconsolidated subsidiary....... -- -- -- -- -- -- Interest expense, net............. -- -- -- -- (17,619)(v) (17,619) Other income (expense), net....... 2,086 120(ii) 2,206 1,613 -- 1,613 -------- ------ -------- -------- -------- -------- Income before income taxes and extraordinary item.............. 49,023 1,070 50,093 36,621 (25,109) 11,512 Provision for income taxes........ (594) -- (594) (434) 4,260(vi) 3,826 -------- ------ -------- -------- -------- -------- Income before extraordinary item............................ $ 49,617 $1,070 $50,687 $37,055 $(29,369) $ 7,686 ======== ====== ======== ======== ======== ========
(a) Reflects actual results for the PCI Canada Business expressed in Canadian dollars using Canadian GAAP. (b) Reflects adjustments to reflect US GAAP: (i) Reflects selling, general and administrative expenses adjustment to reflect: Decrease in expenses due to computing pension expense under US GAAP................................................... $(300) Decrease in expenses due to reduction in restructuring expenses under US GAAP.................................... (650) ----- $(950) =====
(ii) Increase in income of joint venture investment accounted for under the equity method. (c) Reflects the adjustments to the PCI Canada Business' operating results to reflect operations as a part of the Company: (iii) Additional depreciation expense with respect to the property, plant and equipment purchased in connection with the PCI Canada Acquisition using the straight-line method over an average life of twelve years. (iv) Reflects the following: Elimination of ICI corporate allocations.................... $ (935) Addition of the Company's incremental selling, general and administrative expenses................................... 375 Additional amortization expense with respect to intangible assets purchased in connection with the PCI Canada Acquisition using the straight-line method over periods of 5 to 25 years............................................. 3,573 ------ $3,013 ======
(v) Incremental interest expense related to the Term Loans with an assumed interest rate of 8.8% and to the Notes with an interest rate of 9.25%. A 0.25% change in the interest rate applicable to the Term Loans would change pro forma interest expense by $125. (vi) Represents the tax provision for the PCI Canada Business plus the tax impact of all pro forma adjustments. 52 58 SUPPLEMENTAL ANALYSIS OF ADJUSTED EBITDA The Company believes it is important to present a supplemental analysis of its Adjusted EBITDA in order to reflect a recent change in the PCI Canada Business. In April 1997, the PCI Canada Business completed a $21.2 million expansion and upgrade of its Becancour facility by installing additional modern membrane cell capacity, which increased Becancour's net chlor-alkali capacity by 36,000 tons, or 12%. The information presented reflects an analysis of operating results had this increase in capacity been available for these historical periods. Reference should be made to "Pro Forma Financial Information" presented elsewhere herein. The Company believes that this information is a useful adjunct to net income, cash flows and other GAAP measurements. However, this supplemental information should not be construed as an alternative to net income or any other GAAP measure of performance as an indicator of the Company's current or future performance or to GAAP-defined cash flows generated by operating, investing and financing activities as an indicator of cash flows or a measure of liquidity. The following adjustments to obtain Adjusted EBITDA relate to increased margin as a result of using the increased capacity to meet customer demands. During the periods presented, the PCI Canada Business purchased for resale chlorine and caustic soda at market prices. Margin on the resulting resales was minimal. Had the additional Becancour capacity been available during the indicated periods, the Company believes portions of historical volumes purchased for resale would have been produced internally and sold at higher margins. Certain assumptions, including those of average sales prices, average manufacturing costs and capacity utilization rates, were made based on actual PCI Canada Business operating data for existing facilities during the periods presented. There can be no assurance that such operating results would have been achieved had such additional capacity been available.
TWELVE NINE MONTHS NINE MONTHS YEAR MONTHS ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 1996 1997 1996 1997 ------------- ------------- ------------ ------------- (DOLLARS IN THOUSANDS) Pro forma operating income................... $ 67,676 $54,802 $ 93,446 $ 80,572 Pro forma other income....................... 3,796 1,565 3,296 1,065 Pro forma depreciation and amortization...... 32,406 31,192 41,061 39,847 -------- ------- -------- -------- Pro forma EBITDA............................. 103,878 87,559 137,803 121,484 Supplemental margin increase due to increased capacity................................... 5,925 2,100 7,887 4,062 -------- ------- -------- -------- Adjusted EBITDA.............................. $109,803 $89,659 $145,690 $125,546 ======== ======= ======== ========
53 59 SELECTED HISTORICAL FINANCIAL DATA The following table sets forth selected historical financial data of the Predecessor Company for the years ended December 31, 1992, 1993, and 1994 and the period from January 1, 1995 through April 20, 1995. Such data were derived from the Predecessor Company's financial statements, which were audited by Ernst & Young LLP, independent auditors, except for the financial statements of certain of the Company's investments, which were audited by other independent auditors. The table also sets forth the historical financial information of the Company for the period from March 6, 1995 ("Inception") through December 31, 1995 and for the year ended December 31, 1996. Such data were derived from financial statements audited by Deloitte & Touche LLP. For comparative purposes the combined year ended December 31, 1995 has been included. The table also sets forth the historical financial information of the Company for the nine months ended September 30, 1996 and 1997. The consolidated balance sheets at September 30, 1996 and September 30, 1997 and the consolidated statements of operations for the nine months ended September 30, 1996 and September 30, 1997 are unaudited and reflect all adjustments, consisting of normal recurring items, which management considers necessary for a fair presentation. Operating results for the first nine months of 1997 are not necessarily indicative of results to be expected for the year ending December 31, 1997. The data should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Prospectus. The following table should also be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations." 54 60 SELECTED HISTORICAL FINANCIAL DATA
PREDECESSOR COMPANY -------------------------------------------------- PERIOD FROM PERIOD FROM INCEPTION COMBINED YEAR ENDED DECEMBER 31, JANUARY 1, 1995 THROUGH YEAR ENDED ------------------------------ THROUGH APRIL 20, DECEMBER 31, DECEMBER 31, 1992 1993 1994(1) 1995 1995 1995(2) -------- -------- -------- ----------------- ------------ ------------ (DOLLARS IN THOUSANDS, EXCEPT RATIOS) INCOME STATEMENT DATA: Revenues.................................... $157,401 $151,191 $167,217 $ 57,848 $142,908 $200,756 Cost of sales............................... 126,149 131,711 134,556 37,400 98,175 135,575 -------- -------- -------- -------- -------- -------- Gross profit................................ 31,252 19,480 32,661 20,448 44,733 65,181 Selling, general and administrative expenses.................................. 22,602 21,850 22,529 7,047 19,836 26,883 -------- -------- -------- -------- -------- -------- Operating income (loss)..................... 8,650 (2,370) 10,132 13,401 24,897 38,298 Equity in net income (loss) of unconsolidated subsidiary................. 26 1,149 183 204 -- 204 Interest expense, net....................... 8,189 7,551 6,407 1,665 12,905 14,570 Settlement of litigation and insurance claims, net............................... 2,755 8,360 3,326 -- -- -- Other income (expense), net................. 1,104 954 1,154 (319) 637 318 -------- -------- -------- -------- -------- -------- Income (loss) before taxes and extraordinary items..................................... 4,346 542 8,388 11,621 12,629 24,250 Income tax provision (benefit).............. 1,765 486 3,242 4,809 6,208 11,017 -------- -------- -------- -------- -------- -------- Income (loss) before extraordinary item..... 2,581 56 5,146 6,812 6,421 13,233 Extraordinary item, net of applicable tax(4).................................... -- -- -- 3,420 -- 3,420 -------- -------- -------- -------- -------- -------- Net income (loss)........................... $ 2,581 $ 56 $ 5,146 $ 3,392 $ 6,421 $ 9,813 ======== ======== ======== ======== ======== ======== BALANCE SHEET DATA (AT PERIOD END): Working capital............................. $ 7,697 $ (5,521) $ (4,351) $ 10,013 $ 10,450 $ 10,450 Total assets................................ 165,915 154,922 163,039 165,329 264,731 264,731 Total debt, redeemable preferred stock and redeemable stock put warrants............. 76,848 67,709 57,865 57,677 135,000 135,000 Common stockholder's equity................. 20,165 19,721 23,102 26,370 55,427 55,427 OTHER FINANCIAL DATA: Capital expenditures........................ 6,652 5,888 5,681 3,447 13,556 17,003 Depreciation and amortization............... 12,992 13,446 13,595 4,490 12,274 16,764 Ratio of earnings to fixed charges(5)....... 1.4x -- 1.8x 5.1x 1.8x 2.4x ADDITIONAL INFORMATION: EBITDA(6)................................... $ 25,501 $ 20,390 $ 28,207 $ 17,572 $ 37,808 $ 55,380 NINE MONTHS ENDED YEAR ENDED ----------------------------- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1996(3) 1996 1997 ------------ ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT RATIOS) INCOME STATEMENT DATA: Revenues.................................... $183,326 $140,835 $150,073 Cost of sales............................... 126,739 98,600 112,553 -------- -------- -------- Gross profit................................ 56,587 42,235 37,520 Selling, general and administrative expenses.................................. 23,528 19,142 19,580 -------- -------- -------- Operating income (loss)..................... 33,059 23,093 17,940 Equity in net income (loss) of unconsolidated subsidiary................. (2,607) (912) (2,552) Interest expense, net....................... 17,290 12,766 16,189 Settlement of litigation and insurance claims, net............................... -- -- -- Other income (expense), net................. 1,684 507 882 -------- -------- -------- Income (loss) before taxes and extraordinary items..................................... 14,846 9,922 81 Income tax provision (benefit).............. 6,735 4,868 1,779 -------- -------- -------- Income (loss) before extraordinary item..... 8,111 5,054 (1,698) Extraordinary item, net of applicable tax(4).................................... -- -- (18,658) -------- -------- -------- Net income (loss)........................... $ 8,111 $ 5,054 $(20,356) ======== ======== ======== BALANCE SHEET DATA (AT PERIOD END): Working capital............................. $ 3,334 $ 15,505 $ 34,925 Total assets................................ 291,010 283,281 463,851 Total debt, redeemable preferred stock and redeemable stock put warrants............. 141,757 141,781 306,533 Common stockholder's equity................. 74,323 63,837 59,242 OTHER FINANCIAL DATA: Capital expenditures........................ 17,121 15,796 10,977 Depreciation and amortization............... 15,695 13,558 14,792 Ratio of earnings to fixed charges(5)....... 1.7x 1.7x 1.1x ADDITIONAL INFORMATION: EBITDA(6)................................... $ 50,438 $ 37,158 $ 33,614
(see footnotes on following page) 55 61 NOTES TO SELECTED HISTORICAL FINANCIAL DATA (1) GPS was acquired in May 1994 and therefore the results of operations for the year ended December 31, 1994 include the results of operations from the date of acquisition in May 1994 through December 31, 1994. GPS generated third party sales during such partial period of $9.4 million. (2) For comparative purposes the combined results of operations for the year ended December 31, 1995 include the Company's operating results for the period from Inception through December 31, 1995 and the Predecessor Company's operating results from January 1, 1995 through April 20, 1995. The Company believes that this provides a meaningful basis for comparison. (3) Kemwater was formed in connection with the acquisition of KWT in February 1996 to continue the business activities previously conducted by Imperial West and, accordingly, the results of operations for the year ended December 31, 1996 include the results of operations of Imperial West only for the month of January 1996. Since the acquisition, 50% of Kemwater's results of operations are included as equity in net income (loss) of unconsolidated subsidiary. Prior to the formation of Kemwater, the financial statements of Imperial West were consolidated with the Company's consolidated financial statements. (4) An extraordinary item of $3.4 million in 1995, net of an income tax benefit of $2.1 million, was due to costs incurred and previously capitalized costs written off, pertaining to debt refinanced by the Predecessor Company prior to the PAI Acquisition. An extraordinary item of $18.7 million in 1997, net of an income tax benefit of $12.4 million, was due to costs incurred and previously capitalized costs written off, pertaining to debt refinanced by the Company concurrent with the Tacoma Acquisition. (5) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) before provision for income taxes, excluding equity in net income (loss) of subsidiaries owned 50% or less by the Company, plus fixed charges net of capitalized interest. Fixed charges consist of interest expense, including capitalized interest, the portion of rental expense representative of an interest factor from operating leases and the amortization of financing costs. The Company's earnings were insufficient to cover total fixed charges for the year ended December 31, 1993. The coverage deficiency was $0.6 million. (6) EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, extraordinary items and equity in net income (loss) of unconsolidated subsidiaries and is presented because the Company believes that it provides useful information regarding its ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other combined income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of the Company's profitability or liquidity. The Company's calculation of EBITDA may not be consistent with similarly captioned amounts used by other companies. 56 62 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth revenues of the Company for the periods indicated.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------------- -------------------- PREDECESSOR COMPANY COMBINED(1) ----------- ----------- 1994 1995 1996(2) 1996(2) 1997(3) ----------- ----------- -------- -------- -------- (DOLLARS IN THOUSANDS) Revenues PCAC............................ $ 88,907 $118,298 $129,570 $ 98,133 $108,487 All-Pure........................ 47,872 49,549 51,317 40,263 41,586 Kemwater/Imperial West(4)....... 30,438 32,909 2,439 2,439 -- -------- -------- -------- -------- -------- Total revenues.......... $167,217 $200,756 $183,326 $140,835 $150,073 ======== ======== ======== ======== ========
- --------------- (1) For comparative purposes the combined results of operations for the year ended December 31, 1995 include the Predecessor Company's operating results from January 1, 1995 through April 20, 1995 and the Company's operating results for the period from Inception through December 31, 1995. The Company believes that this provides a meaningful basis for comparison. (2) T.C. Products was acquired by All-Pure in July 1996 and, accordingly, the results of operations for the year ended December 31, 1996 and the nine months ended September 30, 1996 include the results of operations since the acquisition date. T.C. Products generated third party sales during such periods of $5.4 million and $3.0 million, respectively. (3) The Tacoma Facility was acquired by PCAC on June 17, 1997 and, accordingly, the results of operations for the nine months ended September 30, 1997 include the results of operations since the acquisition date. (4) Kemwater was formed in connection with the acquisition of KWT in February 1996 to continue the business activities previously conducted by Imperial West and, accordingly, the results of operations for the year ended December 31, 1996 include the results of operations of Imperial West only for the month of January 1996. Since the acquisition, 50% of Kemwater's results of operations are included as equity in net income (loss) of unconsolidated subsidiary. Prior to the formation of Kemwater, the financial statements of Imperial West were consolidated with the Company's consolidated financial statements. GENERAL The Company manufactures and markets chlorine and caustic soda in the United States and is a major manufacturer and marketer of several related downstream water treatment products. The Company generates revenues principally through PCAC and All-Pure. The Company also owns a 50% unconsolidated interest in Kemwater, which was formed in February 1996 to continue the operations previously conducted by the Company's Imperial West subsidiary and to operate the business acquired through the acquisition of KWT. Chlorine and caustic soda markets and profitability have been, and are likely to continue to be, cyclical. Periods of high demand, high capacity utilization and increasing operating margins tend to result in new plant investments and increased production until supply exceeds demand, followed by periods of declining prices and declining capacity utilization until the cycle is repeated. In addition, markets for chlorine and caustic soda are affected by general economic conditions, both in the United States and elsewhere in the world, and a downturn in the economy could have a material adverse effect on the Company's operations and its cash flows. Large quantities of chlorine are not typically stored on- or off-site. Chlor-alkali production rates are therefore typically based on short-term chlorine demand (typically one month). However, chlor-alkali plants do not achieve optimum cost efficiency if production rates are cycled. The maintaining of steady production 57 63 rates is made difficult by the cyclical nature of the chlor-alkali business, which is at times exacerbated by the fact that the price and demand curves for chlorine differ from those of caustic soda. Peak and trough demand for chlorine and caustic soda rarely coincide and caustic soda demand, in the past, has tended to trail chlorine demand into and out of economic growth cycles. In addition, in recent years the end markets for chlorine and caustic soda have increasingly diverged. Chlorine demand over the last three years has experienced steady growth, following trends in PVC, urethane and other intermediates and water treatment markets. This increased demand has been partially offset by declining chlorine use in the pulp and paper industry and as a feedstock in the production of CFCs due to regulatory pressures. Due to increased demand, published chlorine prices have risen from approximately $145 per ton during 1994 to approximately $160 per ton at the end of 1996. As chlorine demand continued to be strong in 1996, the industry's operating rate remained high. However, this resulted in an overproduction of chlorine's co-product, caustic soda, relative to demand. This oversupply led to decreasing caustic soda prices, offsetting increased chlorine prices and resulting in ECU netbacks (net selling prices) decreasing during 1996 from 1995 average levels. To achieve operating efficiencies and to help mitigate the effects of cyclicality on the Company's business, the Company has pursued a strategy of converting chlorine and caustic soda into products that are used in markets with steady demand, particularly water treatment chemicals. In pursuit of this strategy, the Predecessor Company acquired Imperial West and All-Pure in 1990 and GPS in 1994, and the Company acquired T.C. Products in July 1996, each of which is a major manufacturer and distributor of water treatment chemicals such as iron chlorides, aluminum sulfate, repackaged chlorine and bleach, primarily in the western United States. Due in part to these acquisitions and the improved chlorine market, the Predecessor Company and the Company increased ECU capacity utilization rates over the last seven years from 93% in 1990 to approximately 100% in 1996. On February 2, 1996, Imperial West participated in the acquisition of KWT from a subsidiary of Kemira. KWT produces specialty and commodity inorganic coagulants, including polyaluminum chlorides, aluminum sulfate, sodium aluminate and ferric sulfate, at its plant in Savannah, Georgia for sale to the water treatment market in the eastern United States and the Caribbean. The combined operations of Imperial West and KWT are now conducted by Kemwater, 50% of the common stock of which is held by a subsidiary of PAAC and 50% of the common stock which is owned by a subsidiary of Pioneer. A subsidiary of PAAC also owns all of the outstanding shares of Kemwater's preferred stock. The Company's investment in Kemwater is accounted for by the equity method. Effective July 1, 1996, All-Pure acquired T.C. Products through the acquisition of its parent, T.C. Holdings, Inc. from its shareholders. Consideration for the acquisition consisted of net cash payments of $5.5 million and All-Pure subordinated notes with an aggregate principal amount of $4.5 million due July 30, 2001, subject to prepayment. The Company's existing cash balances were used to fund the cash portion of the purchase price. T.C. Products continues to manufacture and package bleach and related products at its plant in Tacoma, Washington. The purchase of T.C. Products has been accounted for as a purchase transaction and, accordingly, the consolidated financial statements subsequent to July 1, 1996 reflect the purchase price, including transaction costs, allocated to tangible and intangible assets acquired and liabilities assumed, based on their fair values as of July 1, 1996, and include the results of operations of T.C. Products subsequent to such date. On June 17, 1997, Pioneer and the Company consummated the Tacoma Acquisition. Pursuant to the Asset Purchase Agreement dated as of May 14, 1997, PCAC acquired substantially all of the assets and properties used by OCC Tacoma in the chlor-alkali business at Tacoma, Washington. The purchase price consisted of (i) $97.0 million, paid in cash, (ii) 55,000 shares of Pioneer Preferred Stock, having a liquidation preference of $100 per share, and (iii) the assumption of certain obligations related to the acquired chlor-alkali business. The Tacoma Acquisition has been accounted for as a purchase transaction and, accordingly, the consolidated financial statements subsequent to June 17, 1997, reflect the purchase price, including 58 64 transaction costs, allocated to tangible and intangible assets acquired and liabilities assumed, based on their fair values as of June 17, 1997, and include the results of operations of the Tacoma Facility subsequent to such date. Concurrent with the closing of the Tacoma Acquisition on June 17, 1997, PAAC consummated a series of related transactions (the "Refinancings") comprised of (i) the repurchase of all of PAAC's existing 13 3/8% First Mortgage Notes due 2005 (the "First Mortgage Notes") at 120% of their principal amount, (ii) the issuance and sale of $200.0 million of 9 1/4% Series A Senior Secured Notes due 2007 (the "Senior Secured Notes") and (iii) borrowings of $100.0 million in term loans under a term loan facility (the "Existing Term Facility"). The proceeds of $300.0 million from these transactions were used to complete the tender offer, effect the Tacoma Acquisition and pay related expenses. Funds not so used were added to working capital. On June 17, 1997, PAAC also entered into a $35.0 million revolving loan (subject to borrowing base limitations that relate to the level of accounts receivable and inventory) and letter of credit facility. The revolving facility provides for revolving loans in an aggregate principal amount up to $35.0 million, of which up to $10.0 million will be available for the issuance of letters of credit. PAAC did not incur revolving loans at closing in connection with the Tacoma Acquisition and related refinancings but had $2.9 million in letters of credit outstanding at such time under the revolving facility. On October 31, 1997, Pioneer, PCI Canada and PCI Carolina, newly-formed subsidiaries of the Company and ICI and its subsidiaries, ICI Canada and ICI Americas, consummated the PCI Canada Acquisition. Pursuant to the Purchase Agreement, the Company acquired substantially all of the assets and properties used by ICI Canada and ICI Americas in its North American chlor-alkali business. For the twelve months ended September 30, 1997, the PCI Canada Business generated pro forma net sales and pro forma EBITDA of $162.5 million and $51.9 million, respectively. The purchase price consists of approximately $235.6 million, payable in cash, and the assumption of certain obligations related to the acquired chlor-alkali business. The purchase price is subject to adjustment based on the difference between base working capital and actual working capital (each as defined in the Purchase Agreement) on the closing date. The acquisition was accounted for using the purchase method of accounting and the results of operations are included in financial statements since the date of acquisition. NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996 Revenues Revenues increased by $9.2 million or approximately 7% to $150.1 million for the nine months ended September 30, 1997. Revenues for PCAC increased $10.4 million or approximately 11% in the first nine months of 1997 compared to the same period a year ago. The increase in revenues was attributable to the additional sales volumes from PCAC's Tacoma plant which was acquired on June 17, 1997. Partially offsetting this increase were lower ECU pricing and lower sales volumes from PCAC's Henderson and St. Gabriel plants. ECU prices decreased by approximately 5%, which reflects a $54 per ton decrease in caustic soda prices, partially offset by a $41 per ton increase in chlorine prices. Caustic soda sales volume decreased 5% mainly due to lost revenues caused by weather-related delays in Mississippi River barge shipments during the first quarter of 1997 and a reduction in exchange activity. Production at Henderson and St. Gabriel was also curtailed somewhat by the shortage of railcars currently being experienced in the United States. Revenues for All-Pure increased 3% or $1.3 million in the first nine months of 1997 compared to the same period a year ago. This increase was due to the revenues associated with the acquisition of T.C. Products, Inc., which the Company acquired in the third quarter of 1996, partially offset by lower overall sales volumes and prices due to continuing competitive pressures on All-Pure's products. Partially offsetting these increases was a reduction in revenue attributable to the transfer of the business of a subsidiary of the Company to Kemwater, a joint venture with Pioneer that is accounted for on the equity method. Cost of Sales Cost of sales increased by $14.0 million or approximately 14% to $112.6 million for the nine months ended September 30, 1997. This increase was the result of the acquisitions mentioned above, partially offset by 59 65 lower cost of sales for chlorine and caustic soda due to lower sales volumes from PCAC's Henderson and St. Gabriel plants. Gross Profit Gross profit margin decreased from 30% during the first nine months of 1996 to approximately 25% during the first nine months of 1997. This decrease was primarily a result of lower ECU prices described above. In addition, an export shipment of caustic soda during the third quarter of 1997, which had been scheduled earlier in the year at the lower prices then prevailing, reduced gross profit because it resulted in a loss. Selling, General and Administrative Expense Selling, general and administrative expense was comparable to the corresponding 1996 period. Equity in Net Loss of Unconsolidated Subsidiary Equity in net loss of unconsolidated subsidiary represents the Company's 50% ownership interest in Kemwater. Kemwater's net loss for the first nine months of 1997 increased as a result of higher raw material costs which it was unable to pass through to its customers. Interest Expense, Net Interest expense increased by approximately $3.4 million to $16.2 million in the first nine months of 1997 from $12.8 million in the first nine months of 1996. This increase was a result of the debt incurred for the Tacoma Acquisition, partially offset by lower interest expense from refinancing of $135.0 million 13 3/8% First Mortgage Notes with 9 1/4% Senior Secured Notes. Income (Loss) Before Taxes and Extraordinary Item As a result of the above, income before income taxes and extraordinary item decreased $9.8 million to $0.1 million for the nine months ended September 30, 1997 from $9.9 million for the nine months ended September 30, 1996. Extraordinary Item from Early Extinguishment of Debt During the second quarter of 1997, the Company recognized an $18.7 million extraordinary item as a result of the early extinguishment of the 13 3/8% First Mortgage Notes. The extraordinary loss consisted primarily of the 20% premium paid on the face value of the notes and the write-off of debt placement fees related to the notes (net of tax benefit of $12.4 million). YEAR ENDED DECEMBER 31, 1996 COMPARED TO COMBINED YEAR ENDED DECEMBER 31, 1995 Revenues Revenues decreased by $17.4 million or approximately 9% to $183.3 million for 1996 compared to $200.8 million in 1995. The transfer of the Imperial West business to Kemwater in February 1996 caused a decrease in Imperial West's revenues of approximately $30.5 million. This decrease was partially offset by an $8.3 million increase in revenues at PCAC related to sales to Kemwater which, as a result of this change of ownership, are no longer eliminated in consolidation. Also affecting PCAC's 1996 as compared to 1995 revenues was a 9% increase in caustic soda sales volumes of 31,000 tons ($7.4 million), a 6% increase in chlorine sales volumes of 20,000 tons ($3.0 million) and an approximate 7% decrease in ECU sales prices ($10.6 million). Revenues for All-Pure in 1996 increased by $1.7 million, which included the impact of $5.4 million of revenues from the T.C. Products acquisition in July 1996, which was partially offset by a decrease in All-Pure sales volumes in 1996 as compared with 1995. 60 66 Cost of Sales Cost of sales decreased by approximately $8.8 million, or 7%, to $126.7 in 1996 from $135.5 million in 1995. The decrease was the result of the transfer of the Imperial West operations to Kemwater ($20.5 million). Offsetting this decrease was an increase in manufacturing costs ($4.2 million), which was primarily related to increased electricity costs, and increased caustic soda and chlorine sales volume ($6.1 million). In addition, All-Pure's 1996 cost of sales were higher primarily as the result of the inclusion of T.C. Products which increased cost of sales by $3.1 million. Gross Profit Gross profit decreased by $8.6 million, or 13%, from $65.2 million in 1995 to $56.6 million in 1996. Gross margin decreased from 32% in 1995 to 31% in 1996. The decline was a result of a reduction of the factors outlined above. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased approximately $3.4 million to $23.5 million in 1996 due primarily to the transfer of Imperial West operations to Kemwater during 1996. Equity in Net Loss of Unconsolidated Subsidiaries Equity in net loss of unconsolidated subsidiaries represents the Company's 50% ownership interest in Kemwater which was formed in February 1996 as the result of the acquisition of KWT by Imperial West. Kemwater experienced a loss in 1996 as a result of increased competitive pressure in their markets. Interest Expense, Net Interest expense increased by $2.7 million or 19% to $17.3 million for 1996. This increase was a result of including a full year of interest expense for the debt incurred in connection with the PAI Acquisition in April 1995 as well as the debt incurred in financing the T.C. Products acquisition. Income Tax Provision Provision for income taxes was $6.7 million in 1996 with an effective tax rate of 45% as compared to $11.0 million in 1995, with an effective tax rate of 45%. The decrease in the income tax provision was primarily a result of the decrease in the Company's income before income tax and extraordinary item to $14.8 million for 1996 from $24.2 million in 1995. Net Income Due to the factors described above, net income for the year ended December 31, 1996 decreased to $8.1 million from $9.8 million for 1995, which includes an extraordinary expense of $3.4 million for the write-off of financing costs. COMBINED YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Revenues Revenues increased by $33.5 million or 20% to $200.7 million for the 1995 period. This increase was primarily due to a $29.4 million increase in chlor-alkali sales at PCAC, resulting from an industry-wide strengthening of ECU prices. The average ECU price during the 1995 period increased 27% over the same period in 1994. Gross Profit Gross profit increased as a percentage of revenues to 32% in 1995 from 20% in 1994 due to a combination of increased revenues and lower raw material costs which more than offset higher transportation and other expenses and an inventory step-up related to the PAI Acquisition. 61 67 Selling, General and Administrative Expense Selling, general and administrative expense increased by $4.4 million or 19% to $26.9 million for the year ended December 31, 1995. This increase was primarily the result of an acquisition by the Predecessor Company in May 1994, additional compensation pursuant to the Company's incentive compensation program, and increased amortization as a result of the PAI Acquisition. Interest Expense, Net Interest expense increased by $8.2 million or 127% to $14.6 million for the 1995 period from $6.4 million for 1994. This increase was a result of debt incurred with the PAI Acquisition. Income Before Taxes and Extraordinary Item As a result of the above, net income before taxes and extraordinary item increased by $15.9 million or 189% to $24.2 million of income for the year ended December 31, 1995 from $8.4 million for the year ended December 31, 1994. Income Tax Provision Provision for income taxes increased $7.8 million to $11.0 million for the year ended December 31, 1995 from $3.2 million for the comparable 1994 period due to higher income. Taxable income is higher than book income due to the non-deductibility of amortization of the excess cost over the fair value of the net assets acquired. A provision is recorded on the income statement; however, federal income taxes payable are reduced due to the utilization of the net operating loss carryforward. Extraordinary Item An extraordinary item of $3.4 million net of an income tax benefit of $2.1 million recorded during the 1995 period was due to costs incurred, and previously capitalized costs written off, pertaining to debt refinanced by the Predecessor Company in the 1995 period prior to the PAI Acquisition. Net Income As a result of the foregoing, net income increased 91% to $9.8 million. LIQUIDITY AND CAPITAL RESOURCES Following the Initial Offering, the other Financings and the PCI Canada Acquisition, the Company is highly leveraged. In connection with the PCI Canada Acquisition, the Company entered into the New Credit Facilities. The New Credit Facilities consist of an $83.0 million senior Term Facility and an amended Revolving Facility with availability up to $65.0 million, subject to borrowing base limitations that relate to the level of accounts receivable and inventory. The Company did not incur Revolving Loans at closing in connection with the PCI Canada Acquisition but had $2.9 million in letters of credit outstanding at such time under the Revolving Facility. As of September 30, 1997, after giving pro forma effect to the Initial Offering, the other Financings and the PCI Canada Acquisition, the Company had outstanding indebtedness of approximately $564.5 million. The Company believes that cash flow from current and anticipated future levels of operations and, to a lesser extent, the availability under the Revolving Facility, will be adequate to make required payments of interest and principal on the indebtedness that is outstanding, as well as to fund its foreseeable capital expenditures and working capital requirements. The Company estimates that annualized net cash interest of $50.4 million will be payable on the Notes, the Term Facility, the Senior Secured Notes and the Existing Term Facility. The Company anticipates that annualized capital expenditures for 1998, after giving effect to the PCI Canada Acquisition, will be approximately $33.2 million, including approximately $4.8 million for environmental compliance matters and $5.9 million for pipeline construction. The Company believes that 62 68 forecasted capital expenditures will permit it to maintain its facilities on a basis competitive within the industry through improved efficiency and throughput and continuation of high operating rates. The Company's belief that it will generate sufficient cash flow for its requirements is based upon, among other things, the assumptions that: (i) the Company's cash flow will be positive as a result of the continuing operating profitability of its business; (ii) the Company will invest in working capital in accordance with prior practices; (iii) the Company will not incur any material capital expenditures in excess of its business plan; and (iv) the Company has the benefit of a tax-sharing agreement with Pioneer which reduces the amount of taxes payable by the Company. Net Cash Provided by Operating Activities. During the year ended December 31, 1996, the Company generated $32.5 million in cash from operating activities from profitability, depreciation, the utilization of the NOL and a decrease in working capital (excluding the effects of the purchases of KWT and T. C. Products). During the nine months ended September 30, 1997, the Company generated $10.8 million in cash from operating activities primarily due to depreciation and amortization. Net Cash Used in Investing Activities. Cash used in investing activities for the year ended December 31, 1996 was $29.2 million, primarily due to capital expenditures related to property, plant and equipment and the purchases of KWT and T.C. Products by the Company. Cash used in investing activities for the nine months ended September 30, 1997 was $110.5 million, primarily due to the Tacoma Acquisition. Net Cash Provided (Used) in Financing Activities. Cash used in financing activities for the year ended December 31, 1996 was $757,000, primarily due to a payment of dividends to Pioneer. Cash provided in financing activities for the nine months ended September 30, 1997 was $121.0 million, primarily due to financing of the Tacoma Acquisition. ACCOUNTING CHANGES The Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"), on January 1, 1996. SFAS No. 121 sets forth guidance on how to measure an impairment of long-lived assets and when to recognize such an impairment. The adoption of this standard did not have a material impact on the Company's financial position or results from operations. In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income," (SFAS No. 130) and Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information," (SFAS No. 131). SFAS No. 130 and SFAS No. 131 are effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and displaying of comprehensive income and its components. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in interim and annual financial statements. These two statements have no effect on the Company's 1997 financial statements, but management is currently evaluating what, if any, additional disclosures may be required when these two statements are adopted for periods beginning with the first quarter of the year ending December 31, 1998. 63 69 BUSINESS GENERAL The Company is a manufacturer and marketer of chlorine and caustic soda in the United States and is a major manufacturer and marketer of several related downstream water treatment products. The Company conducts its business primarily through PCI Canada, PCAC and All-Pure. The Company also owns a 50% unconsolidated joint venture interest in Kemwater (which effective in February 1996 succeeded to the operations of Imperial West). Pioneer owns the remaining 50% joint venture interest in Kemwater. The Company operates the PCI Canada Business as a stand-alone entity following the PCI Canada Acquisition. INDUSTRY OVERVIEW The Company operates in chlor-alkali and chlor-alkali related industries. Chlorine and caustic soda are co-products, concurrently produced in a ratio of 1 to 1.1. An ECU consists of 1 ton of chlorine and 1.1 tons of caustic soda. Chlorine is used in the manufacture of over 15,000 products, comprising approximately 60% of all commercial chemistry, 85% of all pharmaceutical chemistry and 95% of all crop protection chemistry. Products manufactured with chlorine as a raw material include plastics, detergents, pharmaceuticals, water treatment chemicals and agricultural chemicals. Chlorine also is used directly in water disinfection applications. In the United States and Canada, virtually all public drinking water is made safe to drink by chlorination, and a significant portion of industrial and municipal waste water is treated by chlorine and chlorinated chemicals to kill water-borne pathogens and remove solids. The caustic soda market is even more diverse than that of chlorine. It is used in thousands of industrial and commercial processes (either as an essential raw material, as an intermediate or as a medium to control acidity) including metal smelting, petroleum production and refining, pulp and paper production and paint manufacturing. Caustic soda is combined with chlorine and water to produce bleach and is also used as an active ingredient in a wide variety of end use products, including detergents, rayon and cellophane. The following table sets forth certain information regarding the principal industry-wide applications for the Company's products.
PRODUCTS PRINCIPAL APPLICATIONS -------- ---------------------- Chlorine....................... Agricultural chemical and pharmaceutical manufacturing, PVC and other plastics, detergents, paints, water purification, bleach, pulp and paper products, mining, textiles Caustic soda................... Cleaners, pulp and paper products, oil production and refining, rayon, cellophane, vegetable oils, cosmetics, aluminum, food processing, bleach, water treatment, mining Hydrochloric acid.............. Cleaning, mining, dyes, ink, titanium, textiles, rocket fuel, exotic metals, water treatment, oil production Sodium chlorate................ Pulp and paper bleaching Chlorinated paraffins ("Cereclor(R)").............. PVC compounding, cosmetics, lotions PSR 2000(R).................... Pulping additive IMPAQT(R)...................... Pulping additive Hydrogen....................... Boiler and turbine fuel, chemical manufacturing, petroleum Calcium chloride............... Concrete formulation, dust control, pulp and paper products Iron chlorides................. Waste and potable water treatment, electronics Polyaluminum chlorides......... Waste and potable water treatment Sodium aluminate............... Catalyst production, paints, waste and potable water treatment Ferric sulfate................. Waste and potable water treatment Aluminum sulfate............... Waste and potable water treatment, pulp and paper products Bleach......................... Waste and potable water treatment, household and commercial cleaners, food processing, swimming pool treatment
64 70 North America represents approximately 30% of world chlor-alkali production capacity, with approximately 15.0 million tons of chlorine and 16.5 million tons of caustic soda production capacity. OxyChem and The Dow Chemical Company are the two largest chlor-alkali producers in North America, together representing approximately one half of North American capacity. The remaining capacity is held by approximately 20 companies. Approximately 65% of North American chlor-alkali capacity is located on the Gulf Coast of Texas and Louisiana. The Company believes that following the PCI Canada Acquisition it has approximately 6% of North American chlor-alkali capacity. The Company believes that the chlorine and caustic soda currently produced at its Henderson and Tacoma facilities provide a significant source of supply for the West Coast region, where the Company is also the largest supplier of chlorine and bleach for water treatment purposes and where Kemwater is the largest producer of iron chlorides. The Company believes the St. Gabriel and Tacoma facilities are leading suppliers of premium, low-salt grade caustic soda in their respective regions. The Company believes the strong regional presence of the PCI Canada Business in eastern Canada and the eastern United States enhances the competitiveness of the Company's existing operations. Since 1982, there has been a long-term downward trend in total North American chlor-alkali production capacity as industry participants have closed inefficient production facilities. Over the same time period, there has been a long-term upward trend in capacity utilization, increasing from a low of approximately 62% in 1982 to approximately 96% in 1996. This trend is a result of the combination of decreasing industry production capacity and increasing chlor-alkali demand. The Company believes that the chlor-alkali capacity increases announced for completion in late 1997 and 1998 will increase overall North American capacity by approximately 3%, keeping pace with the overall projected chlorine demand increase. The Company anticipates that the global chlorine supply/demand balance will remain relatively stable over the next few years. The following graph highlights the impact of these trends on United States capacity utilization rates. INDUSTRY CAPACITY AND UTILIZATION RATES [CAPACITY AND UTILIZATION RATES GRAPH] Source: The Chlorine Institute, Inc., industry and Company data. 65 71 Environmental pressures over the last five years have led to a substantial decline in chlorine demand in two major chlorine end-use markets -- pulp and paper and CFCs. Usage of chlorine by the pulp and paper industry declined by 36%, from 1.2 million tons in 1991 to 771,610 tons in 1996. The use of chlorine as a raw material for chemical intermediaries used in the production of CFCs has been almost completely discontinued. The Company believes that the current level of chlorine demand by the pulp and paper industry will continue to decline over the next five years. The declines in these markets have been offset by the growth in chlorine demand for PVC, polycarbonate resins and isocyanates, water treatment applications and engineering plastics. In addition, the Company believes that as the global economy continues to improve, demand for chlorine derivatives should increase. The Company believes that caustic soda demand will grow at a slower pace than chlorine demand. Industry sources estimate that world chlor-alkali demand will grow by approximately one to two percent annually. The chlorine and caustic soda markets are cyclical markets that are sensitive to relative changes in supply and demand, which are in turn affected by general economic conditions, capacity additions and other factors. Over the last five years, the market for PVC, the largest use of chlorine, has experienced steady growth, resulting in strong demand for chlorine. However, the use of chlorine as a bleaching agent in the pulp and paper industry and as feedstock in the production of CFCs has been reduced significantly due to regulatory pressures. As a result of these factors and a general decline in economic growth in the early 1990s, the North American chlor-alkali industry experienced declining prices, as ECU prices fell by over 52% from $389 per ECU in the fourth quarter of 1989 to $185 per ECU in the second quarter of 1993. After a significant improvement in domestic economic growth, in early 1994 chlor-alkali markets experienced increased levels of demand. Limited new capacity was added during this time, resulting in greater capacity utilization and higher domestic and export prices for chlor-alkali products. These conditions continued in 1995 and the increase in demand enabled the Company and the industry in general to increase selling prices significantly at a time when operating costs generally did not increase, with prices eventually exceeding $400 per ECU at the peak of the cycle in 1995. Toward the end of 1995 and continuing through 1996, however, ECU prices began to decrease as strengthening demand for chlorine was offset by an oversupply of caustic soda. As a result, prices decreased to approximately $335 to $345 per ECU by the end of 1996, even as chlorine prices remained strong due to steady demand growth from the PVC industry. For the third quarter of 1997, prices have ranged from $310 to $345 per ECU. Demand for chlorine has been relatively stable, while increasing demand for caustic soda has recently strengthened pricing, as evidenced by several recent announced price increases. The industry has continued to operate at full capacity and management does not anticipate a significant increase in capacity over the next several years. The Company therefore believes that the previous volatility in ECU prices should moderate over such period. 66 72 The following graph presents United States industry-wide average annual ECU prices since 1976. INDUSTRY AVERAGE ANNUAL ECU PRICES [INDUSTRY AVERAGE ANNUAL ECU PRICES GRAPH] Source: United States Commerce Department, industry and Company data. STRATEGY The Company's management team is pursuing a business strategy designed to capitalize on its marketing, production and distribution expertise and its geographic focus. The Company seeks to manage effectively the intrinsic cyclicality of the chlor-alkali industry while continuing to grow and improve profitability by pursuing a strategy which includes the following principal elements: - Focusing on the Merchant Chlor-Alkali Market. The Company is dedicated to serving the merchant chlor-alkali market, acting as a reliable source of supply of chlorine and caustic soda. The Company is committed to being flexible and responsive in periods of volatile chlor-alkali demand, making it the preferred supplier for many of its customers. Unlike its major competitors, the Company does not compete with its PVC customers and, as a result, is viewed as a preferred, non-competing source of raw materials. - Optimizing Plant Efficiencies through High Capacity Utilization. The Company seeks to maximize profitability by achieving a constant flow of product through its plants. The Company strives to maintain a steady demand for its output through (i) programs aimed primarily at growing markets such as PVC and water treatment; (ii) renewable contracts with major customers and a Chlorine Purchase Agreement with OCC Tacoma; (iii) direct linkage with major customers via pipelines, including the Pipeline Project, a seven-mile liquid chlorine pipeline from the St. Gabriel facility expected to be completed in 1998; and (iv) captive demand for chlorine and caustic soda through its downstream water treatment operations. - Improving Cost Efficiency. The Company continually seeks to improve its cost competitiveness through a combination of productivity enhancements, strict operating cost controls, capital improvements and maintenance of high capacity utilization rates. Despite inflation, the Company's cash production costs 67 73 per ECU decreased by 5% from 1990 through 1996, while ECU production per employee increased by 20%. In addition, the Company seeks to reduce distribution costs and improve plant operating efficiency through the efficient use of its strategic locations with deep water port facilities, direct pipeline connections to customers and opportunistic product exchanges with chlor-alkali producers in other regions. - Focusing on Geographic Diversity and Market Penetration. The Company's products are manufactured and sold in a number of markets, providing a wide base for future growth and distribution to help mitigate the effects of regional and economic fluctuations. Following the PCI Canada Acquisition, the Company has major chlor-alkali facilities in three states (Louisiana, Nevada and Washington) and two Canadian provinces (Quebec and New Brunswick) and downstream plants producing a range of products such as bleach, hydrochloric acid, iron chlorides, chlorinated paraffins. The Company is well-positioned to direct its chlor-alkali output to customers while more efficiently supplying the growth in its own downstream operations. Through recent expansion, the Company is creating substantial new regional strength in areas west of the Rocky Mountains and in eastern Canada and the eastern United States, while maintaining its traditionally strong presence in the Gulf Coast region. - Expanding Product Offerings. The Company has developed downstream water treatment chemical businesses whose steady requirements for chlorine and caustic soda help maintain high operating rates at the Company's chlor-alkali facilities which, in turn, decreases unit production costs. In addition to serving as a source of demand, these growing businesses service diverse product markets and regions and can offset industry cyclicality in the chlorine and caustic soda markets by providing a more stable downstream source of revenue. The PCI Canada Acquisition allows the Company to expand into related product offerings for the pulp and paper market, including sodium chlorate and proprietary additives such as PSR 2000(R) and IMPAQT(R). - Growing through Product Line Extensions and Strategic Acquisitions. Management believes that there are significant opportunities to continue the Company's growth both internally and through strategic acquisitions. The Company focuses its product development efforts on areas identified by its customers as being of major commercial importance. For example, in the area of water treatment, the Company has developed or acquired rights to a number of innovative coagulant products which help provide cost effective, advanced waste water treatment solutions. In addition, the Company is constantly reviewing acquisitions in related markets and since 1990 has consummated five downstream acquisitions, which provide attractive product offerings and geographic coverage. OPERATING UNITS PCI Canada Business The Company has expanded into the eastern Canadian and eastern United States chlor-alkali markets with the acquisition of the PCI Canada Business. Headquartered in Montreal, Quebec, the PCI Canada Business is a leading eastern Canadian merchant chlor-alkali manufacturer, serving primarily the pulp and paper industry. For the twelve months ended September 30, 1997, the PCI Canada Business generated pro forma net sales and pro forma EBITDA of $162.5 million and $51.9 million, respectively. On a pro forma basis, such net sales would represent approximately 39% of the Company's total net sales. The PCI Canada Business operates two chlor-alkali production facilities, at Becancour, Quebec and Dalhousie, New Brunswick with aggregate production capacity of approximately 376,000 ECUs, as well as additional downstream production units at Cornwall, Ontario. The Becancour chlor-alkali facility has an annual capacity of 340,000 tons of chlorine and 383,000 tons of caustic soda, and also manufactures hydrochloric acid and bleach. The Becancour plant uses both diaphragm cells and membrane cells. A recently completed $21.2 million expansion and upgrade increased Becancour's net chlor-alkali capacity by 36,000 tons, or 12%, by installing additional modern membrane cell capacity. The membrane cells account for approximately 18% of the plant's total caustic soda capacity, with the diaphragm cells accounting for the remaining caustic soda production capacity. The Dalhousie chlor-alkali facility has an annual capacity of 36,000 tons of chlorine and 40,000 tons of caustic soda, and also manufactures bleach and sodium chlorate. 68 74 The Cornwall facility manufactures bleach, with an annual capacity of 222,000 tons, as well as hydrochloric acid, Cereclor(R), PSR 2000(R) and IMPAQT(R). The PCI Canada Business also includes a research facility located outside Toronto, Ontario, which conducts applications research, particularly with respect to pulp and paper process technology. The principal markets for the PCI Canada Business are the North American pulping and bleaching market and the industrial chemicals market. The PCI Canada Business has pursued a strategy of maintaining profitable chlor-alkali operations while seeking further growth in value-added derivatives and high-growth opportunities in the prime pulping and bleaching and industrial chemicals markets. Sales have doubled in the last ten years to $162.5 million as a result of increasing sales into selected high-growth industrial chemical markets in the United States, diversification into new chemicals for pulping and bleaching and upgrading of chlorine into higher value-added products. Products for pulping and bleaching include chlorine and caustic soda, sodium chlorate, PSR 2000(R), bleach, IMPAQT(R) and, through resale agreements, bleaching enzymes and hydrogen peroxide. In the industrial chemicals market, the PCI Canada Business is a major regional supplier of chlorine and caustic soda, hydrochloric acid, chlorinated paraffins and commercial grade bleach. Approximately 35% of the chlorine produced is upgraded to value-added products. In 1996, the pulping and bleaching market represented approximately 55% of net sales of the PCI Canada Business and the industrial chemicals market represented approximately 45% of net sales. The geographic market served by the PCI Canada Business consists primarily of eastern Canada and eastern United States as well as the mid-Atlantic and southeastern United States. In 1996, approximately 55% of sales were to customers in Canada and 45% of sales were to customers in the United States. Product is generally transported by rail and roadway, with the Becancour facility also shipping by water throughout the year. The PCI Canada Business maintains a tank car fleet consisting of approximately 850 tank cars that are leased under long-term arrangements. Storage is provided on-site, as well as in leased off-site space. The PCI Canada Business is ISO 9002 registered at all locations for all products. Chlorine and Caustic Soda. Following the Becancour expansion, the PCI Canada Business has the capacity to produce approximately 376,000 tons of chlorine and 423,000 tons of caustic soda annually at its Becancour and Dalhousie plants. For the year ended December 31, 1996, the PCI Canada Business produced approximately 329,100 tons of chlorine and 371,300 tons of caustic soda. Bleach. Following the Becancour expansion, the PCI Canada Business has the capacity to produce approximately 238,000 tons of bleach annually at its Cornwall and Becancour plants. For the year ended December 31, 1996, the PCI Canada Business produced approximately 124,500 tons of bleach. Hydrochloric Acid. Following the Becancour expansion, the PCI Canada Business has the capacity to produce approximately 162,000 tons of hydrochloric acid annually at its Becancour and Cornwall plants. For the year ended December 31, 1996, the PCI Canada Business produced approximately 48,700 tons of hydrochloric acid. Sodium Chlorate. The PCI Canada Business has the capacity to produce approximately 22,000 tons of sodium chlorate annually at its Dalhousie plant. For the year ended December 31, 1996, the PCI Canada Business produced approximately 21,200 tons of sodium chlorate. Cereclor(R). The PCI Canada Business has the capacity to produce approximately 7,500 tons of Cereclor(R) chlorinated paraffins annually at its Cornwall plant. For the year ended December 31, 1996, the PCI Canada Business produced approximately 6,700 tons of Cereclor(R) chlorinated paraffins. PSR 2000(R) Pulping Additive. PSR 2000(R) is a proprietary pulping additive and is considered a replacement specialty product for saltcake, spent acid and sodium hydrosulphide. The PCI Canada Business has the capacity to produce approximately 31,000 tons of PSR 2000(R) annually at its Cornwall plant. For the year ended December 31, 1996, the PCI Canada Business produced approximately 4,700 tons of PSR 2000(R). IMPAQT(R) Pulping Additive. IMPAQT(R) is a proprietary aqueous dispersion used as a specialty pulping additive. The PCI Canada Business has the capacity to produce approximately 8,400 tons of IMPAQT(R) 69 75 annually at its Cornwall and Charlotte plants. For the year ended December 31, 1996, the PCI Canada Business produced approximately 3,100 tons of IMPAQT(R). Sales and Marketing. The pulp and paper market is characterized by large, long term customers seeking strategic relationships with suppliers based on applications support, breadth of product offerings, service and reliability of supply. The chemicals and water treatment markets provide a steady source of demand for chlorine and caustic soda used in the production of value-added products. The PCI Canada Business provides hydrogen peroxide and bleaching enzymes to customers pursuant to a hydrogen peroxide resale agreement for eastern Canada and a bleaching enzyme resale agreement for North America. PCAC PCAC manufactures chlorine and caustic soda for sale to third parties and to All-Pure and Kemwater as raw materials in the manufacture of chlor-alkali related products, including bleach and iron chlorides. In addition to chlorine and caustic soda, PCAC produces commercial quantities of hydrochloric acid and hydrogen. PCAC's chlor-alkali operations generated pro forma net sales representing approximately 30% of the Company's total pro forma net sales in 1996. Pro forma merchant sales of chlorine (including resales of purchased chlorine) accounted for approximately 35% of PCAC's pro forma net sales in such period. Pro forma merchant sales of caustic soda accounted for approximately 60% of PCAC's pro forma net sales in such period. Pro forma merchant sales of hydrochloric acid and hydrogen accounted for approximately 5% of PCAC's pro forma net sales in such period. On a pro forma basis, approximately 10% of PCAC's chlorine production was used by PCAC for the production of hydrochloric acid and other chemical products, while approximately 14% of chlorine production and 6% of caustic soda production was supplied to All-Pure and Kemwater for bleach and iron chloride production, repackaging and distribution. PCAC owns and operates three chlor-alkali production facilities, located in St. Gabriel, Louisiana; Henderson, Nevada; and Tacoma, Washington, with aggregate production capacity of 574,000 tons of chlorine, 631,400 tons of caustic soda, 174,000 tons of hydrochloric acid and 8,800 tons of calcium chloride. The Tacoma Facility utilizes both membrane cell and diaphragm cell technology to produce chlorine, caustic soda and hydrogen. The membrane cells account for approximately 45% of the total plant capacity and the diaphragm cells account for approximately 55% of the total plant capacity. The Henderson facility utilizes diaphragm cell technology and the St. Gabriel facility utilizes mercury cell technology. The elemental chlorine gas is dried, liquefied through compression and refrigeration and stored in pressurized tanks. The caustic soda solution is stored in tanks at the plants and off-site terminals. Hydrogen, produced as a by-product, is transported by pipeline to the point of its final consumption, used internally in the production of hydrochloric acid or vented. Production rates for chlorine and caustic soda are generally set based upon demand for chlorine, because storage capacity for chlorine is both limited and expensive. When demand is less than plant operational capacity and available storage is filled, production operations must be curtailed. PCAC currently leases a fleet of 672 rail cars for chlorine distribution, 503 rail cars for caustic soda distribution, 103 rail cars for hydrochloric acid distribution and three rail cars for calcium chloride distribution. These cars can, under certain circumstances, be used to provide additional storage capacity. Chlorine. PCAC has the capacity to produce approximately 349,000 tons of chlorine annually at its Henderson and St. Gabriel plants and approximately 225,000 tons of chlorine at the Tacoma Facility. Expansion projects between 1990 and 1996 have increased the production capacity at the Henderson plant by approximately 37,300 tons of chlorine per year. For the year ended December 31, 1996, the Company produced approximately 345,700 tons of chlorine. Directly and through exchanges, PCAC supplied the equivalent of approximately 76,100 tons of chlorine to All-Pure and Kemwater for bleach and iron chloride production and for repackaging and distribution. An additional 44,800 tons of chlorine, approximately 13% of PCAC's chlorine production, was used to produce hydrochloric acid at the Henderson plant. Chlorine was also sold to approximately 30 customers or shipped on behalf of exchange partners. 70 76 Caustic Soda. PCAC has the capacity to produce approximately 383,900 tons of caustic soda annually at its Henderson and St. Gabriel plants and approximately 247,500 tons of caustic soda at the Tacoma Facility. The St. Gabriel plant's mercury cell production process yields a higher grade of caustic soda, commonly known as low salt. This higher grade caustic soda is a niche product which is required for certain end uses and therefore receives premium pricing in the marketplace. For the year ended December 31, 1996, PCAC produced approximately 379,700 tons of caustic soda, approximately 57% of which was low salt grade. PCAC supplied all caustic soda required by All-Pure and Kemwater for bleach production and distribution. Caustic soda was also sold to approximately 75 customers or shipped on behalf of exchange partners. Hydrochloric Acid. PCAC has the capacity to produce approximately 130,000 tons of hydrochloric acid annually at its Henderson plant and approximately 44,000 tons of hydrochloric acid at the Tacoma Facility by combining hydrogen and chlorine. For the year ended December 31, 1996, PCAC produced approximately 134,300 tons of hydrochloric acid. PCAC supplied the equivalent of approximately 18% of its hydrochloric acid production to All-Pure and Kemwater for distribution and production of iron chlorides. The remainder was sold to approximately 45 customers or shipped on behalf of exchange partners. PCAC can and does vary the production of hydrochloric acid depending upon the relative prices of chlorine and hydrochloric acid. Hydrogen. Hydrogen produced at the Henderson facility is used to manufacture hydrochloric acid and is sold to a third party for use as turbine fuel. Hydrogen produced at the St. Gabriel plant is used as a boiler fuel and is sold as a feedstock to another chemical company. Hydrogen produced at the Tacoma Facility is used as boiler fuel. For the year ended December 31, 1996, PCAC produced approximately four million cubic feet of hydrogen, a portion of which was sold to Saguaro Power as fuel and a portion to Borden Chemicals and Plastics, LP ("BCP") as feedstock. Approximately 24% of the hydrogen was used internally in the production of hydrochloric acid and as boiler fuel. At each of the plants, hydrogen not used or sold is vented. Sales and Marketing. Pursuant to a Chlorine Purchase Agreement, OCC Tacoma will purchase 100,000 tons of chlorine during the year following the Tacoma Acquisition, which would have represented approximately 4% of the Company's pro forma net sales for the twelve months ended September 30, 1997. In addition, the Company has the right to require OCC Tacoma to purchase, and OCC Tacoma has the right to require the Company to sell, up to 100,000 tons of chlorine during the second year following the Tacoma Acquisition and up to 75,000 tons of chlorine during the third year following the Tacoma Acquisition. All deliveries will be from the Tacoma Facility to OxyChem's plant at Ingleside, Texas. Market prices will apply to all such transactions, with transportation costs to be borne and paid by OCC Tacoma. The Company will also have the right to require OCC Tacoma to purchase up to 50,000 tons of chlorine during the fourth year following the Tacoma Acquisition and up to 25,000 tons of chlorine during the fifth year following the Tacoma Acquisition at market prices, with each of the parties to bear 50% of the transportation costs from Tacoma to Ingleside for any purchases during such fourth and fifth years. Pursuant to a Chlorine and Caustic Soda Sales Agreement, the Company will sell to OxyChem those quantities of chlorine and caustic soda necessary for OxyChem to satisfy its obligations under contracts with certain of OxyChem's national account customers. The Company estimates that during the year following the Tacoma Acquisition the Company will sell approximately 22,400 tons of chlorine and 46,000 tons of caustic soda under the agreement, at prices set each quarter at levels equal to 95% of the average price received by OxyChem under its arm's-length customer contracts during the preceding quarter. The final deliveries of chlorine and caustic soda under the arrangement will occur in December 2000. One PCAC customer, Novartis, accounted for approximately 13% of the Company's net sales for the year ended December 31, 1996 and would have accounted for approximately 6% of the Company's pro forma net sales for such period. PCAC has a five-year contract with Novartis that expires in 1998 and requires Novartis to purchase from PCAC 100% of Novartis's annual requirement of chlorine. Product is transported directly to Novartis through pipelines from the St. Gabriel plant. Logistics play a significant role in marketing chlor-alkali and chlor-alkali related products for two primary reasons. First, many customers take shipments to fulfill requirement on an as-needed basis. PCAC must therefore manage potential short-term dislocations between sales and production due to seasonal or other factors in order to maintain the high, steady production rates at which the plants operate most efficiently. 71 77 Second, the relatively high cost of distribution tends to regionalize producers and markets. To minimize these exposures, PCAC has developed product exchange relationships with other producers for its primary products. The purpose of these exchanges is to lower freight and other distribution costs, control inventory, maintain steady operating rates and diversify sales through exchanges of different products and product grades. In addition, PCAC utilizes product exchanges in instances where it can capture more of a premium for its low-salt grade caustic soda than it might otherwise receive. The Company continually seeks improved methods of meeting the needs of its customers. As a part of that effort, the Company is currently acquiring the necessary permits and easements for the Pipeline Project, a seven-mile liquid chlorine pipeline, which will extend from the St. Gabriel facility to Geismar, Louisiana. The state-of-the-art pipeline, which will be equipped with leak and excavation detection systems, will be capable of delivering 600 tons of chlorine per day to customers in the Geismar area. It is estimated that the Pipeline Project will be completed in 1998. In order to maintain high capacity utilization rates at its chlor-alkali plants, PCAC seeks to sell more chlorine than it can produce and therefore frequently purchases chlorine for resale. In this manner, it is often able to adjust chlorine purchase levels, rather than plant production levels, in response to changes in the demand for chlorine. This strategy resulted in chlorine production of 345,700 tons for the year ended December 31, 1996, implying a capacity utilization rate of approximately 100%. PCAC's chlor-alkali operations employ 25 personnel in sales, marketing and distribution. The corporate executive offices in Houston, Texas include sales administration and distribution functions and oversight of the field sales offices. Field sales offices are located in Huntington Beach, California and St. Louis, Missouri. Unlike most of its competitors, PCAC has maintained its customer service centers at its plants. This facilitates the close synchronization of sales, production, shipping and accounting which has given PCAC the capability of filling "just-in-time" orders. The customer service centers at the Henderson and St. Gabriel plants are responsible for all order-entry and shipping and rail fleet management. Sales of chlor-alkali products are primarily on a direct basis to customers under annual or longer-term contractual arrangements. The arrangements identify delivery, product quality and other standard terms and allow PCAC to make advance determination of output requirements, although generally price provisions are flexible so that both PCAC and the customer receive the benefit of prices which bear a relationship to the current market price. In addition to direct sales, PCAC has resale agreements with approximately 20 independent distributors for caustic soda and hydrochloric acid. All-Pure All-Pure manufactures bleach and repackages chlorine and hydrochloric acid and distributes these products along with caustic soda and other related products in the western U.S. All-Pure also purchases and distributes various complementary dry and specialty products such as calcium hypochloride and sulfur dioxide, and purchases, tabletizes and repackages dry and specialty water treatment products for distribution to municipalities, swimming pool supply distributors and selected commercial and retail markets in southern California. All-Pure's products are generally sold on a delivered basis and are delivered primarily through a fleet of trucks, including equipment owned by Kemwater. In July 1996, All-Pure acquired T.C. Products, which is engaged in the manufacture and marketing of household bleach and related products from its plant in Tacoma, Washington. All-Pure generated pro forma net sales representing approximately 12% of the Company's total pro forma net sales in 1996. Pro forma sales of bleach accounted for approximately 56% of All-Pure's pro forma sales for such period. Pro forma sales of repackaged chlorine accounted for approximately 25% of All-Pure's pro forma sales for such period. Pro forma sales of specialty swimming pool and spa chemicals accounted for approximately 7% of All-Pure's pro forma sales for such period. The remaining 12% of All-Pure's pro forma sales was derived from sales of other chlor-alkali related products. While the technology for bleach-making and chlorine-repackaging is neither difficult nor capital-intensive, the local operating permits required to engage in these activities are not easily acquired. Management believes that these operating permits constitute a significant barrier to entry into the business, particularly in California. Because bleach contains a high percentage of water, freight costs and logistics are an 72 78 important consideration in product distribution. All-Pure's production plants and distribution facilities are strategically located in or near most of the largest population centers of the West Coast. For safety reasons, some municipalities have switched from chlorine gas to bleach for water disinfection purposes, and should other municipalities decide to switch from chlorine gas to bleach for this purpose, All-Pure has significant spare bleach-making capacity that can be used to supply product in bulk. Bleach. All-Pure has the capacity to produce approximately 200 million gallons of bleach annually. For the year ended December 31, 1996, All-Pure produced approximately 34.0 million gallons of bleach, which was sold in containers ranging from gallon containers to tank trucks. Chlorine Repackaging. All-Pure repackages and distributes chlorine to end users in the western U.S. As a regional distributor of chlorine, All-Pure purchases chlorine in rail cars and repackages the chlorine for sale to customers. For the year ended December 31, 1996, All-Pure repackaged and sold approximately 29,200 tons of chlorine. Product Distribution. In addition to chlorine and hydrochloric acid, All-Pure distributes caustic soda and other related products in the western U.S. For the year ended December 31, 1996, All-Pure sold approximately 4,800 tons of caustic soda to customers located primarily in northern California. Dry and Specialty Pool and Spa Chemicals. All-Pure purchases dry and specialty pool and spa products for distribution to the pool water treatment supply industry. In addition, All-Pure repackages dry pool chemicals for distribution. Sales and Marketing. All-Pure primarily repackages chlor-alkali chemicals, manufactures bleach and distributes these products as well as other products purchased for resale to approximately 2,200 customers in a variety of markets. The dynamics of each market vary significantly, requiring All-Pure to be extremely versatile in its methods of marketing. All-Pure also manufactures and distributes bleach for swimming pool water treatment in southern California. All-Pure repackages and distributes complementary products such as hydrochloric acid and specialty pool and spa products. Delivered costs of All-Pure's products are freight sensitive because the products contain water, or are packaged in steel containers that constitute approximately 40% of the gross weight of the delivered unit, and because such products provide relatively low per-volume sales revenue. All-Pure has an advantage over its competitors through its multiple plant locations, which limit freight costs through their close proximity to customers, allowing All-Pure to provide reliable supply and service. The majority of products are sold as water treatment chemicals for swimming pools, potable water and waste water. Seasonality is a variable that impacts sales of water treatment chemicals for swimming pools. In order to lessen the impact of seasonality on their business, All-Pure focuses on increasing household bleach sales during the winter months. All-Pure is divided into three regional profit centers -- southern California, northern California and the Pacific Northwest each under the direction of a general manager, who, in turn, reports to senior management of Pioneer. There are 12 sales representatives overall. The administrative support staff is at All-Pure headquarters, located in Walnut Creek, California in rented offices shared with Kemwater. The ability to share certain administrative support functions provides cost savings for both All-Pure and Kemwater. Kemwater The combined operations of Imperial West and KWT are now conducted by Kemwater, 50% of the common stock of which is held by a subsidiary of PAAC and 50% of the common stock of which is owned by a subsidiary of Pioneer. A subsidiary of PAAC also owns all of the outstanding shares of Kemwater's preferred stock. Since the Company does not own a controlling interest in Kemwater, the Company accounts for Kemwater using the equity method. In the consolidated financial statements, the Company's investment in Kemwater is presented as "Investment in and advances to unconsolidated subsidiary" and its equity in the loss of Kemwater is shown as "Equity in net loss of unconsolidated subsidiary." In the 1995 consolidated financial 73 79 statements, Imperial West is consolidated and includes total assets of $25.7 million, total revenues of $23.7 million and a net loss of $0.6 million. Kemwater manufactures six chemical products: iron chlorides (ferric and ferrous chlorides), polyaluminum chlorides, aluminum sulfate, sodium aluminate, ferric sulfate solution and bleach. Kemwater markets these products and other inorganic chemicals purchased by it to municipalities and industrial customers for use primarily in the treatment of potable water and waste water. Kemwater's products are generally sold on a delivered basis and are delivered primarily through a fleet of tank trucks, including Kemwater's own equipment. All of Kemwater's chlorine requirements for its production of iron chlorides and bleach are provided by PCAC. Kemwater is the major supplier of iron chlorides to the waste and potable water markets west of the Rocky Mountains. Iron chlorides are used primarily to remove organic solids from waste water and potable water streams and to control hydrogen sulfide emissions. Kemwater also manufactures polyaluminum chlorides in Savannah, Georgia. The majority of polyaluminum chloride sales are currently in the southeastern United States. Kemwater also uses terminals at its facilities in Mojave, California and Spokane, Washington for distribution of polyaluminum chlorides in the western U.S. and Canada. Additionally, Kemwater sells polyaluminum chlorides through exclusive distributors in Mexico, the Caribbean and western Canada. Kemwater will be adding polyaluminum chloride production capacity in one of its northwestern plants. Kemwater has exclusive licenses to use Kemira's existing and future advanced water treatment technology in the development and sale of products and services for the potable water, waste water and industrial water treatment markets in the United States (other than the northeastern United States) and the Caribbean, and nonexclusive access to the use of the technology for the Canadian and Mexican markets, with an option to acquire an exclusive license for those markets in the future. Kemwater also manufactures and markets aluminum sulfate to the water treatment and pulp and paper industries and is a manufacturer of bleach for municipal water disinfection. Kemwater markets liquid inorganic chemicals in bulk to municipalities and industry for use mainly in the treatment of municipal and industrial waste water and potable water. Kemwater differentiates itself from its competitors through emphasis on superior product quality, customer service and a private tank truck transportation fleet. Kemwater employs 16 personnel in sales, marketing and customer service. Kemwater sells its products directly to customers primarily on municipal bid contracts. The contracts typically have terms of one or more years with prices fixed on an annual basis. Sales through distributors accounted for less than 10% of product sales volume for the year ended December 31, 1996. Kemwater's headquarters is located in Walnut Creek, California, in rented offices shared with All-Pure. The ability to share certain administrative support functions provides cost savings for both Kemwater and All-Pure. 74 80 FACILITIES The following table sets forth certain information regarding the Company's principal production, distribution and storage facilities following the PCI Canada Acquisition. All property is leased unless otherwise indicated.
MANUFACTURED PRODUCTS; TYPE OF LOCATION FACILITY -------- --------------------------------------- PCI CANADA BUSINESS FACILITIES Becancour, Quebec, Canada*................... Chlorine and caustic soda Hydrochloric acid Bleach Hydrogen Dalhousie, New Brunswick, Canada*............ Chlorine and caustic soda Sodium chlorate Hydrogen Cornwall, Ontario, Canada.................... Hydrochloric acid Bleach Cereclor(R) (chlorinated paraffins) PSR 2000(R) IMPAQT(R) Mississauga, Ontario, Canada*................ Research facility Point Tupper, Nova Scotia, Canada............ Storage tanks Charlotte, North Carolina.................... IMPAQT(R) plant Bayonne, New Jersey.......................... Caustic soda storage tanks PCAC FACILITIES St. Gabriel, Louisiana*...................... Chlorine and caustic soda Hydrogen Henderson, Nevada*........................... Chlorine and caustic soda Hydrochloric acid Bleach Hydrogen Tacoma, Washington*.......................... Chlorine and caustic soda Calcium chloride Hydrochloric acid Hydrogen Tampa, Florida............................... Caustic soda storage tanks Richmond, California......................... Caustic soda storage tanks Wilmington, California....................... Caustic soda storage tanks ALL-PURE FACILITIES Tracy, California............................ Bleach Chlorine repackaging Santa Fe Springs, California................. Bleach Chlorine repackaging Kalama, Washington........................... Bleach Chlorine repackaging Tacoma, Washington*.......................... Bleach Fresno, California........................... Distribution center City of Industry, California................. Bleach Chlorine repackaging Hydrochloric acid repackaging Dry chemical repackaging
- --------------- * Owned property 75 81 PCI Canada Business Facilities Becancour, Quebec. The Becancour facility is located on a 100-acre site and consists of two major cellrooms for chlorine and caustic soda, built in 1976 and 1979, as well as four hydrochloric acid plants. The Becancour plant uses both diaphragm cells and membrane cells. A recently completed $21.2 million expansion and upgrade increased Becancour's net chlor-alkali capacity by 36,000 tons, or 12%, by installing additional modern membrane cell capacity. The membrane cells account for approximately 18% of the plant's total caustic soda capacity, with the diaphragm cells accounting for the remaining caustic soda production capacity. Annual capacity at Becancour is 340,000 tons of chlorine, 383,000 tons of caustic soda, 150,000 tons of hydrochloric acid and 16,000 tons of bleach. The production of chlor-alkali products principally requires salt, electricity and water as raw materials. Electricity is purchased from Hydro-Quebec and salt is delivered by rail and water. The site is on the deep-water St. Lawrence Seaway. Hydrogen is supplied to an adjacent hydrogen peroxide plant as well as to a merchant supplier of liquid hydrogen. In addition, all of the PCI Canada Business facilities are ISO 9002 certified. Dalhousie, New Brunswick. The Dalhousie facility is located on a 36-acre site and consists of a chlor-alkali plant built in 1963 and expanded in 1971 and a sodium chlorate plant built in 1992. Annual capacity at Dalhousie is 36,000 tons of chlorine, 40,000 tons of caustic soda and 22,000 tons of sodium chlorate. The chlor-alkali plant uses Solvay Mark V mercury-cell technology. The sodium chlorate plant uses Chemetics technology and was designed to allow debottlenecking to 24,000 tons. Electricity is supplied by New Brunswick Power and salt is provided by rail and truck. Cornwall, Ontario. The Cornwall units are located on leased portions of a 36-acre site and consist of a commercial (high stability) bleach plant, a Cereclor(R) chlorinated paraffin plant with new twin reactors installed in 1996 and 1997, a PSR 2000H pulping additive plant and an IMPAQTH pulping additive plant. Additionally, the PCI Canada Business operates a chemical packaging and compressed gas filling plant for a third party. Annual capacity at Cornwall is 222,000 tons of bleach, 11,000 tons of hydrochloric acid, 7,500 tons of Cereclor(R) chlorinated paraffins, 31,000 tons of PSR 2000H and 4,400 tons of IMPAQTH. The bleach plant uses Powell technology to produce 20% consumer grade product and is equipped with an on-line dilution system and a special filter to allow high purity production. The Cereclor(R) plant includes a glass lined reactor installed in 1996 and a new reactor installed in 1997. Mississauga Research and Technology Laboratory, Mississauga, Ontario. The Mississauga site consists of a research and technology facility including pilot plants on 1.2 acres of land in the Sheridan Park Research Center outside Toronto. Point Tupper, Nova Scotia. The Point Tupper assets consist of an 8,000 ton storage tank located on deep water at the site of a customer. Charlotte, North Carolina. The Charlotte assets consist of a small IMPAQTH plant owned by the PCI Canada Business but operated by ICI Americas and located on a larger ICI Americas site. Bayonne, New Jersey. The Bayonne site consists of 5,000 ton caustic soda storage tanks. PCAC Facilities St. Gabriel, Louisiana Plant. PCAC's St. Gabriel plant is located on a 100-acre site near Baton Rouge, Louisiana and serves the southern U.S. and Mississippi River markets and the export market. Approximately 228 acres adjoining this site are available to the Company for future industrial development. The plant was completed in 1970 and is situated on the Mississippi River with river frontage and deep water docking, loading and unloading facilities. The dock is capable of berthing ocean-going vessels of up to 36,000 DWT. Annual capacity at St. Gabriel is 197,000 tons of chlorine and 216,700 tons of caustic soda. In 1996, the plant received ISO 9002 registration. 76 82 St. Gabriel is the newest mercury-cell plant in the U.S. The mercury-cell production process yields a higher quality of caustic soda, called low-salt grade, which usually receives premium pricing in the marketplace. Caustic soda produced by mercury cells does not require evaporation to meet market concentration requirements. Accordingly, even though mercury cell technology uses more electricity than membrane cell or diaphragm cell technology, total costs of production are generally competitive. Salt is delivered under long-term supply contracts to the St. Gabriel plant by barge. Electricity is supplied to the plant under long-term contracts through regional power networks. Water is provided at the St. Gabriel plant from on-site water wells. St. Gabriel's chlorine production system includes a three-tower drying system, multi-stage centrifugal chlorine compressors and a three-stage liquefaction system. St. Gabriel has a utility section consisting of two boiler systems for steam generation used principally for heating. Each boiler, capable of producing 325,000 pounds per hour of steam, has fuel feedstock flexibility, allowing conversion from outside-sourced natural gas to internally generated hydrogen. Chlorine tank storage capacity at the St. Gabriel plant is 3,000 tons, which provides storage for approximately six days of production. The St. Gabriel plant supplies its largest customer, Novartis, which is located adjacent to the St. Gabriel facility, with chlorine directly through a dedicated pipeline. No other chlor-alkali producer has a dedicated line to such customer. Caustic soda storage capacity is 10,500 tons, which provides for approximately 18 days of production. Additional production storage capacity is available using rail cars. Hydrogen produced at the St. Gabriel plant is piped directly to BCP under a long-term contract. Henderson, Nevada Plant. PCAC's Henderson plant is located on a 374-acre site near Las Vegas, Nevada and serves customers in the western U.S. It is the closest chlor-alkali plant to the important southern California area by over 500 miles. Approximately 70 acres are developed and used for production facilities. The original plant began operation in 1942. Annual capacity at the plant is 152,000 tons of chlorine, 167,200 tons of caustic soda, 130,000 tons of hydrochloric acid and 5,100 tons of bleach. The Henderson plant is part of an industrial complex shared with three other manufacturing companies. Common facilities and property are owned and managed by subsidiaries of Basic Investments, which provide common services to the four site companies. Basic Investments' facilities include extensive water and high voltage power distribution systems and access roads. Salt is delivered under long-term supply contracts to the Henderson plant by rail car. Electricity is supplied to the plant under long-term contracts through regional power networks. The electric power is distributed within the Henderson industrial site through facilities owned and operated by a subsidiary of Basic Investments. The Henderson plant obtains water from Lake Mead pursuant to PCAC's Category IV federal water rights. The water is transported by means of a 25-mile pipeline system operated by a subsidiary of Basic Investments. The plant was upgraded and rebuilt in 1976-1977 to use diaphragm cell technology, and in 1978 quadruple-effect caustic soda evaporation units were installed. Incremental expansions during the period from 1990 to 1995 resulted in plant capacity increases of 105 ECUs per day. The evaporation plant requires 2.2 tons of steam per ton of caustic soda produced. Steam for the facility is currently provided under a favorable long-term contract with Saguaro Power, a cogeneration electricity producer in which PCAC has an indirect 15% interest. PCAC also has its own boilers at the Henderson facility that are capable of producing steam. PCAC leases two units used in the production of hydrochloric acid. Following evaporation to desired levels of concentration, caustic soda is stored in tanks and off-site terminals. Caustic soda storage capacity is 7,000 tons, which provides storage for approximately 16 days of production. Chlorine tank storage capacity at the Henderson plant is 600 tons, which provides storage for approximately two days of production. Additional production storage capacity for chlorine and caustic soda is available using rail cars, and the Company's terminals in Richmond, California and Wilmington, California provide additional caustic soda storage capacity. Hydrochloric acid storage capacity at the Henderson plant is 1,500 tons, which provides for approximately three days of production. Additional storage capacity is available using rail cars. Tacoma, Washington Plant. The Tacoma Facility is located on a 31-acre site which is part of an industrial complex on the Hylebos waterway in Tacoma, Washington. It serves customers in the Pacific 77 83 Northwest and California and, to a lesser extent, foreign caustic soda customers. The site has docks capable of handling ocean-going vessels up to 30,000 DWT size. Annual capacity is approximately 225,000 tons of chlorine, 247,500 tons of caustic soda, 44,000 tons of hydrochloric acid and 8,800 tons of calcium chloride. The plant uses both diaphragm cells installed in the late 1970s and membrane cells installed in 1988. The state-of-the-art membrane cell production process yields a higher quality of caustic soda and thus for some end uses receives premium pricing. The membrane cells account for approximately 45% of the total plant caustic soda capacity, with the diaphragm cells accounting for the remaining caustic soda production capacity. The operations of the two systems are designed to optimize the capabilities of the plant in a cost-efficient manner, resulting in a cost-competitive facility. Steam for the facility is produced on-site in two natural gas fired steam boilers. The boilers are capable of using a portion of the hydrogen generated in the cell operations as fuel. Process water for the plant is purchased from the City of Tacoma and sea water is used for cooling purposes throughout the facility. Electric power is purchased from the Tacoma Department of Public Utilities under a contract extending to September 30, 2001. Prices are fixed except for the top 27 MW portion of the load, or approximately 33% of the total electricity usage, which is purchased on a market-price basis. Steam for the facility is produced on-site in two natural gas fired steam boilers. The gas for these units is supplied under a contract effective through September 30, 1997, subject to annual renewal. The boilers are capable of utilizing a portion of the hydrogen generated in the cell operations. Process water for the plant is purchased from the City of Tacoma and sea water is used for cooling purposes throughout the facility. Chlorine tank storage capacity is 1,500 tons, which provides storage for approximately 2 1/2 days of production. Caustic soda storage capacity is 11,100 tons, providing storage for approximately 16 days of production. Additional production storage capacity is available using rail cars, and the Company's leased terminals in Richmond, California and Wilmington, California provide additional storage capacity for caustic soda. The Company also acquired a leased railroad tankcar fleet as part of the Tacoma Acquisition. The Tacoma Facility is a WISHA Star site. ISO 9002 registration was completed in December 1996. Tampa, Florida. To facilitate distribution to the southeastern region of the U.S., PCAC leases two caustic soda storage tanks at Tampa, Florida with a capacity of 5,100 tons, approximately nine days of production from the St. Gabriel facility. Richmond, California. As a part of the Tacoma Acquisition, PCAC acquired the leases to three caustic soda storage tanks at Richmond, California, which are used to facilitate distribution to customers in northern California. The tanks have a capacity of 9,100 tons, approximately 13 days of production from the Tacoma Facility. Wilmington, California. PCAC acquired the leases to four caustic soda storage tanks at Wilmington, California as a part of the Tacoma Acquisition. Those tanks and PCAC's existing leased tank at the same facility provide storage capacity of 17,400 tons, representing approximately 38 days of production from the Henderson facility or approximately 25 days of production from the Tacoma Facility. The tanks are used to facilitate distribution to the southern California region. All-Pure Facilities Tracy, California. The Tracy facility is located 60 miles east of Oakland and serves the central California and San Francisco Bay area markets. The plant includes a 262,000 ton per year bleach production facility and a chlorine repackaging facility on a 15-acre tract. The land at the facility is leased under a lease expiring in the year 2000. Santa Fe Springs, California. The Santa Fe facility is located in the Los Angeles area and serves the southern California markets. The plant includes a 262,000 ton per year bleach production facility and a chlorine repackaging facility on a 4.5-acre tract. The land at the facility is leased under a lease expiring in 1998 with a five-year renewal option. 78 84 Kalama, Washington. Located 30 miles north of Portland, Oregon, the Kalama facility serves the northern Oregon and Washington markets. The plant includes a 52,500 ton per year bleach production facility and a chlorine repackaging facility on a three-acre tract. The land at the facility is leased under a month-to-month lease; All-Pure and the lessor are engaged in discussions regarding a long-term lease extension or the lease of a new site within the same port facility. Tacoma, Washington. The T.C. Products facility in Tacoma serves the Pacific Northwest market. The plant consists of a 105,000 ton per year bleach production facility on a five-acre tract. Fresno, California. The Fresno facility consists of an approximately 10,000 square foot warehouse, excluding office space, and serves the central California market. All product shipped from the warehouse is transferred from the Tracy, California production facility for distribution to customers. The land at the facility is leased under a lease expiring in June 2001. City of Industry, California. The City of Industry facility is located in the Los Angeles area and serves the southern California, southern Nevada and western Arizona markets. The plant includes a 262,000 ton per year bleach production facility and chlorine, hydrochloric acid and dry chemical repackaging facilities on a five-acre tract. The facility includes a 96,000 square foot warehouse. The land at the facility is leased under a lease expiring in 1998 with options to extend until 2008. OTHER INVESTMENTS Saguaro Power PCAC has an indirect 15% equity interest in Saguaro Power, which owns and operates a 90-megawatt cogeneration facility located on approximately six acres of the Henderson property. The Saguaro Power facility is operated by an indirect subsidiary of S.C.E. Capital Company. The facility uses natural gas, which is supplied under a defined price long-term contract, as feedstock to produce electricity and steam. Electricity is sold to one customer under a long-term contract, and steam is sold primarily to PCAC, which has a right to resell steam to other companies in the Henderson industrial complex. PCAC leases the property to Saguaro Power under a lease that expires in 2022. The cost to the Company of purchasing steam from Saguaro Power is substantially less than the cost to the Company of producing the steam internally. Basic Investments PCAC's facility in Henderson, Nevada is located within an industrial complex operated by Basic Investments, Inc. ("Basic Investments"). Other industrial operators in the complex are Kerr-McGee Chemical Corporation ("Kerr McGee"), Titanium Metals Corporation ("Timet") and Chemical Lime Company ("Chemical Lime") which, together with PCAC, own all of the capital stock of Basic Investments. PCAC owns approximately 32% of the common stock of Basic Investments, including voting shares which entitle it to elect two members of the seven person board of directors. The Company's interests in Basic Investments and in Victory Valley Land Company, L.P. ("Victory Valley" and, together with Basic Investments, the "Basic Ownership"), together with certain real property (the "Excess Land"), constitute assets that, pursuant to the PAI Acquisition Agreement, will be held for the economic benefit of the sellers for a period of 20 years. Any proceeds from such interests are deposited into an escrow account and are available to satisfy certain obligations of the sellers under environmental and other obligations in favor of Pioneer, PAAC and their affiliates. After payment or provision for payment of such obligations, amounts received by the Company on account of the Basic Ownership will be remitted to the PAI sellers for such 20-year period. The sellers also have certain rights during such period with respect to determinations affecting the Basic Ownership, including the right (subject to certain conditions) to direct the sale or disposition of interests constituting the Basic Ownership and the sale or disposition of Excess Land and the right (with certain exceptions) to vote the interests constituting the Basic Ownership. Since the PAI Acquisition, approximately 64 acres of Excess Land have been sold, and the escrow account had a balance of approximately $4.6 million on September 30, 1997. The Company accounts for its interests in the Basic Ownership by using a right of offset. As a result, the Company's interest in the Basic Ownership is offset 79 85 against the corresponding liability, resulting in no net asset being recorded on the Company's consolidated balance sheet. Canso Each of the PCI Canada Business, Kimberly Clark Nova Scotia Inc. ("Kimberly Clark") and Stora Forest Industries Inc. ("Stora") owns a one-third equity interest in Canso Chemicals Limited, a Nova Scotia company ("Canso"). Canso operates the Point Tupper transfer facility, which consists of a caustic soda storage tank and related piping leased from the PCI Canada Business and located on land leased from Stora. Canso purchases caustic soda from the PCI Canada Business, stores it at the Point Tupper transfer facility and sells it to Stora for use in Stora's adjacent pulp and paper mills. Canso also owns a facility at Abercrombie, Nova Scotia, where chlorine and caustic soda purchased from the PCI Canada Business are stored and transshipped for sale to the adjacent Kimberly Clark pulp and paper mill. COMPETITION The chlor-alkali industry is highly competitive. Many of the Company's competitors are larger and have greater financial resources than the Company. Many of the Company's competitors are some of the world's largest chemical companies that have their own raw material resources and numerous regional companies that specialize in a smaller number of chemical products. While a significant portion of the Company's business is based upon widely available technology, the difficulty in obtaining permits for the production of chlor-alkali and chlor-alkali related products is a barrier to entry. The Company's ability to compete effectively depends on its ability to deliver quality products at competitive prices and to provide reliable and responsive service to its customers. The North American chlor-alkali industry is currently dominated by two producers, OxyChem and The Dow Chemical Company, together representing approximately one half of the total North American capacity. The remaining capacity is held by approximately 20 companies. Approximately 65% of North American chlor-alkali capacity is located on the Gulf Coast in Texas and Louisiana. Following the PCI Canada Acquisition, the Company will have approximately 6% of North American chlor-alkali capacity. The Company believes it has a strong regional presence with respect to many of its products in the markets it serves. Competitors in the chlor-alkali related industries in which the Company operates are numerous and the industry is highly fragmented. The Company believes that All-Pure is the largest supplier of chlorine and bleach for water treatment purposes in the region of the United States west of the Rocky Mountains and that Kemwater is the largest producer of iron chlorides in such region. EMPLOYEES As of October 31, 1997, the Company had 1,362 employees. Approximately 95 of the Company's employees at its Henderson, Nevada plant are covered by collective bargaining agreements with the United Steelworkers of America and the International Association of Machinists and Aerospace Workers that are in effect until March 2001. Approximately 117 employees at the Tacoma Facility are represented by the International Chemical Workers Union and International Union of Operating Engineers under collective bargaining agreements that expire in June 2000 and June 1998, respectively. Approximately 57 of the Company's employees at an All-Pure facility are covered by collective bargaining agreements with the Steel, Paper, House, Chemical Drivers and Helpers Union and the International Chemical Workers Union that are in effect until September 2002 and January 1998, respectively. An additional 29 employees are covered by a collective bargaining agreement with the Teamsters Union in Tacoma, Washington which is in effect until December 1997. The Company's employees at its other production facilities are not covered by union contracts or collective bargaining agreements. The Company considers its relationship with its employees to be good and has not experienced any strikes or work stoppages. As of October 31, 1997, 460 of the Company's 1,362 employees were employed by the PCI Canada Business in Canada and the United States. Approximately 168 employees at the Becancour facility are represented by the Communications, Energy and Paperworkers Union under a contract that expires in April 2000. Approximately 61 employees at the Cornwall facility are represented by the United Steelworkers Union 80 86 under a contract that expires in October 1999. Other PCI Canada Business employees are not covered by union contracts or collective bargaining agreements. ENVIRONMENTAL AND SAFETY REGULATION General Environmental Matters General. The manufacturing operations of the Company are subject to United States and Canadian federal, state, provincial and local laws and regulations relating to protection of the environment, including those applicable to waste management, discharge of pollutants into the air and water, cleanup liability from historical waste disposal practices and employee health and safety. Each of the United States federal environmental programs typically has a state counterpart. The state environmental programs generally must be at least as stringent as the federal requirements, and some state regulations are more onerous than the federal requirements. Both federal and state environmental programs allow the imposition of substantial civil and criminal penalties for noncompliance. By comparison, while there are certain federal laws that apply to all provinces in Canada, most Canadian environmental laws are implemented on the provincial level. Although the Company believes that its operations are in general compliance with applicable environmental laws and regulations, risks of substantial costs and liabilities are inherent in chemical manufacturing operations, and there can be no assurance that significant costs and liabilities will not be incurred. Moreover, it is possible that other developments, such as new environmental laws and regulations or stricter enforcement and cleanup policies, could result in substantial costs and liabilities to the Company. The Company has accrued $11.9 million related to expected future environmental restoration and remediation costs, computed on an undiscounted basis. In the opinion of management, there is currently no material estimable range of loss in excess of the amount recorded. However, it is possible that new information about the sites for which the reserve has been established, new technology or future developments could require the Company to reassess its potential exposure related to environmental matters. The Company relies on indemnification from the previous owners in connection with certain environmental liabilities at its chlor-alkali plants and other facilities. There can be no assurance, however, that such indemnification arrangements will be adequate to protect the Company from environmental liabilities at these sites or that such third parties will perform their obligations under the respective indemnification arrangements, in which case the Company would be required to incur significant expenses for environmental liabilities, which would have a material adverse effect on the Company. Air Quality. The Company's United States operations are subject to the Federal Clean Air Act and the amendments to that act which were enacted in 1990. The Company will be subject to some of the additional environmental regulations adopted by the federal EPA and state environmental agencies to implement the Clean Air Act Amendments of 1990. The Tacoma plant has applied for a Title V operating permit under these regulations. Among the requirements that are potentially applicable to the Company are those that require the EPA to establish hazardous air pollutant emissions requirements for chlorine production facilities. Although the Company cannot estimate the cost of complying with these requirements until the implementing regulations are proposed, at this time the Company does not believe that such requirements will have a material adverse effect on it. Most of the Company's plants manufacture or use chlorine, which is in gaseous form if released into the air. Chlorine gas in relatively low concentrations can irritate the eyes, nose and skin and in large quantities or high concentrations can cause permanent injury or death. In 1991, there was an accidental release of approximately 42 tons of chlorine from the Henderson facility. In response, local emergency authorities evacuated areas in and around the City of Henderson. The Company has resolved substantially all of the personal injury, property damage and regulatory claims relating to this release, and substantially all the costs incurred as a result of the accident have been recovered under applicable insurance policies. There was a release of about 10 tons of chlorine from the St. Gabriel facility in 1992 and another release in 1994 of less than one ton of chlorine, and from 1995 to date, there have been six releases from the Company's plants, each of which was less than 35 pounds. These releases were controlled by plant personnel, in some cases with the assistance of local emergency response personnel, and there were no material claims against the Company as a 81 87 result of these incidents. The Company maintains systems to detect emissions of chlorine at its plants, and the St. Gabriel, Tacoma and Henderson plants are members of their local industrial emergency response networks. The Company believes that its insurance coverage is adequate with respect to costs that might be incurred in connection with any future release, although there can be no assurance that the Company will not incur substantial expenditures that are not covered by insurance if a release does occur in the future. Water Quality. The Company maintains waste water discharge permits for many of its facilities pursuant to the U.S. Federal Water Pollution Control Act of 1972, as amended, and comparable state laws. Where required, the Company has also applied for permits to discharge stormwater under such laws. In order to meet the discharge requirements applicable to stormwater, it will be necessary to modify surface drainage or make other changes at certain plants. The Company plans to spend an additional $1.2 million by the end of 1997 for modifications to the stormwater system at the Henderson plant. The Company believes that the costs associated with stormwater discharge at Henderson and its other plants will not have a material adverse effect on the Company's financial condition, liquidity or operating results. The various states in which the Company operates also have water pollution control statutes and regulatory programs which include groundwater, as well as surface water, protection provisions. The requirements of these laws vary and are generally implemented through a state regulatory agency. These water protection programs typically require site discharge permits, and spill notification, prevention and corrective action plans. At several of the Company's facilities, investigations or remediations are underway and at some of these locations regulatory agencies are considering whether additional actions are necessary to protect or remediate surface or groundwater resources and the Company could be required to incur additional costs to construct and operate remediation systems in the future. In addition, at several of its facilities, the Company is in the process of replacing or closing ponds for the collection of wastewater. The Company plans to spend approximately $1.3 million during the next 15 years for closure of eight chlor-alkali waste water disposal ponds at its Henderson plant. Chlorine Regulation. Chlorine uses in two markets, pulp and paper bleaching and as a raw material for chemical intermediaries used in the production of CFCs, have declined since the late 1980s. This decline was based on concerns that the products or by-products from those applications might cause damage to human health or the environment. Certain environmental groups and international commissions have urged the restriction or ban of chlorine-related processes and products and the EPA is considering new or additional regulation of chlorine-containing substances such as the herbicide atrazine and byproducts from the treatment of drinking water. Such pressures and regulatory initiatives could have the effect of reducing the use of chlorine by customers in the Company's markets or could have the effect of increasing competition from other chlorine producers with respect to the Company's markets. The Company is working with other industry representatives to advocate a risk-based scientific approach for evaluating the alleged health and environmental risks of chlorine and chlorinated compounds which are used for a broad range of consumer products, such as plastics, water and pharmaceuticals. The Company believes that a risk-based approach will show that the risk associated with not using such compounds, or the risks of other chemicals that might be proposed to replace them, support a conclusion that there is no need for a ban or substantial new restrictions, but the necessary studies have not been completed with respect to all of such areas. OSHA and Community Right-to-Know. The Company is subject to laws and regulations concerning occupational health and safety, emergency planning and community right-to-know disclosures. These laws include the Federal Occupational Safety and Health Act ("OSHA") and the Emergency Planning and Community Right-to-Know Act of 1986 ("EPCRA"). OSHA and comparable state statutes establish workplace standards that apply generally to businesses in the manufacturing sector, including the Company's businesses. EPCRA establishes notification requirements for businesses, like the Company's, that use regulated hazardous substances. The Company is not aware of any failures to comply with OSHA or EPCRA requirements that could reasonably be expected to result in a material adverse effect on the Company's business, properties or results of operations on a consolidated basis. The Company's St. Gabriel plant uses mercury in its chlorine manufacturing process. The Company currently complies with both OSHA and industry standards for employees who could be exposed to mercury. The Federal Occupational Safety and Health Administration has previously proposed to lower the maximum permissible exposure level for mercury, and the Company believes that it will be able to comply with the new 82 88 standard if it is reproposed at the same level. It is possible, however, that even lower mercury emissions or exposure limits could be imposed in the future by the Federal Occupational Safety and Health Administration or the EPA and the cost of compliance with such new limits cannot be estimated at the present time. Hazardous and Solid Wastes. The Company's manufacturing facilities generate hazardous and non-hazardous solid wastes which are subject to the requirements of RCRA and comparable state statutes. Under the 1984 amendments to RCRA, the EPA promulgated regulations banning the land disposal of certain hazardous wastes unless the wastes meet defined treatment or disposal standards, including certain mercury-containing wastes generated by the Company's St. Gabriel plant. In response to these regulations, the St. Gabriel plant has substantially reduced the quantity of wastes that are subject to the land ban. The Company has installed an in-plant treatment system that reduces the level of mercury in its wastes below the hazardous classification. The Company's disposal costs could increase substantially if its present disposal sites become unavailable due to capacity or regulatory restrictions. The Company presently believes, however, that its current disposal arrangements, together with the new treatment system, will allow the Company to continue to dispose of land-banned wastes with no material adverse effect on it. Superfund. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons for the clean-up of releases of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that disposed or arranged for the disposal of hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources. In the ordinary course of the Company's operations, substances are generated that fall within the definition of "hazardous substances," and the Company is the owner or operator of several sites at which hazardous substances have been released into soil or groundwater. Under CERCLA, regulatory agencies or third parties may incur costs to investigate or remediate such conditions and seek reimbursement from the Company for such costs. However, no investigations or remedial activities are currently being conducted under CERCLA by third parties at any of the Company's facilities. Such activities are being carried out at certain facilities under the other statutory authorities discussed above. Canadian Environmental Laws. The PCI Canada Business facilities (other than the Charlotte, North Carolina facility) are governed by federal environmental laws adopted by the Canadian parliament and administered by Environment Canada and by provincial environmental laws adopted by the respective provincial legislatures and enforced by administrative agencies. Many of these laws are comparable to the U.S. laws described above. In particular, the Canadian environmental laws generally provide for control and/or prohibition of pollution, for the issuance of certificates of authority or certificates of authorization which permit the operation of regulated facilities and prescribe limits on the discharge of pollutants, and for penalties for the failure to comply with applicable laws. These laws include the substantive areas of air pollution, water pollution, solid and hazardous waste generation and disposal, toxic substances, petroleum storage tanks, protection of surface and subsurface waters, and protection of other natural resources. However, there is no Canadian law similar to CERCLA that would make a company liable for legal off-site disposal. The Canadian statutes and regulations which are expected to have the most significant impact on the operations of the Company are summarized below. The Canadian Environmental Protection Act ("CEPA") is the primary federal statute which governs environmental matters throughout the provinces. The Chlor-Alkali Mercury Release Regulations and the Chlor-Alkali Mercury Liquid Effluent Regulations, adopted under the CEPA, regulate the operation of the Dalhousie facility and the remediation of the Cornwall chlor-alkali facility. In particular, these regulations provide for the quantity of mercury a chlor-alkali plant may release into the ambient air and the quantity of mercury that may be released with liquid effluent. The federal Fisheries Act is the principal federal water pollution control statute. It prohibits the deposit of deleterious substances into waters frequented by fish. This law would apply in the event of a spill of caustic soda or other deleterious substance that adversely impacts marine life in a waterway. The Cornwall, Becancour, Dalhousie, Abercrombie and Point Tupper sites are all located adjacent to major waterways and are therefore subject to the requirements of this statute. 83 89 The primary provincial environmental laws include the Environmental Protection Act in the province of Ontario, the Quebec Environment Quality Act ("EQA") in Quebec, the Clean Environment Act in New Brunswick, and the Nova Scotia Environment Act in Nova Scotia. In general, each of these acts regulates the discharge of a contaminant into the natural environment if such discharge causes or is likely to cause an adverse effect. If a contaminant is discharged into the natural environmental in contravention of the general prohibition or the regulations adopted thereunder, the regulatory authority may issue an order directing the responsible party to investigate or correct a condition, or to limit or repair the source of the discharge. In Quebec, a person who is responsible, in whole or in part, for contamination which is likely to affect the life, health, safety, welfare or comfort of human beings, or to cause damage or to otherwise impair the quality of the soil, vegetation, wildlife or property, may be required to prepare an environmental study of contamination and a plan for remediation and to remove, collect or neutralize the contaminants, or to take any other measures to restore the environment. In addition, the Quebec Minister of Environment may also take any measures considered necessary to clean up contaminants and to recover the direct and indirect costs related to such measures from any person who had custody of or control over the contaminants. In the other jurisdictions, such orders may generally be issued to the owner or previous owner of the source of the contaminant, any person who is or was in occupation of the source of contaminant, or a person who has or had the charge, management or control of the source of the contaminant. The order may require a number of actions, including limiting the rate of discharge of the contaminant or requiring the repair or prevention of injury or damage from the contaminant. In certain circumstances, there is also a duty upon an owner of a pollutant and upon a person having control of a pollutant that is discharged to do everything practicable to prevent the adverse effect and to restore the natural environment. Certificates of Authority may also be issued under the various provincial environmental laws to permit construction and operation of regulated facilities. The PCI Canada Business facilities that were acquired by the Company at Becancour and Dalhousie, as well as the Canso facility, include landfills and impoundments in which brine muds and sludges have been or will be disposed. Inactive disposal areas have been closed, and the active facilities are permitted under their respective statutory requirements. Many of the active and inactive disposal sites have a system of groundwater monitoring wells which are sampled and the results reported to governmental authorities on a regular basis. Some groundwater contamination, including mercury and chlorides, has been identified as a result of this monitoring, but there are presently no requirements to remediate such conditions or to modify the disposal areas. These disposal sites will be a long-term management obligation for the Company. The Company anticipates that it will incur annual monitoring costs for such facilities for the foreseeable future. Although the Company understands that no remediation is currently required for such facilities, it is possible that such requirements could be imposed in the future. Such costs would be included in the general environmental indemnity provided by ICI if they are incurred within the next ten years. Thereafter, all monitoring, closure and post-closure for these disposal areas will be the responsibility of the Company. There can be no assurance that such costs will not be material at the time they are incurred, but the Company presently cannot predict whether, or when, any material closure or remediation requirements might be imposed. The Cornwall facility was historically used for the production of chlor-alkali products from mercury cells and for the production of carbon tetrachloride and carbon disulfide. The Company purchased equipment and leased buildings required to conduct future operations, and did not acquire the real property at Cornwall. ICI agreed to retain responsibility for pre-closing conditions, including ongoing remediation, at the Cornwall facility. Liabilities from pre-closing operations at the Cornwall site are specifically enumerated as an excluded liability that the Company did not acquire in connection with its purchase of the PCI Canada Business. The Company does not believe that it will have any material liability related to the Cornwall site. However, the Company will conduct future operations at the site and the Company could have some liability for operational improvements or, to the extent that such operations contribute additional contaminants to the soil or water, for remediation. In addition, there can be no assurance that ICI will promptly perform the obligations under its indemnity or that it will have the financial resources to complete the required remediation. 84 90 Indemnities ZENECA Indemnity. The Company's Henderson plant is located within what is known as the "Basic Complex." Soil and groundwater contamination have been identified within and adjoining the Basic Complex, including land owned by the Company. A groundwater treatment system has been installed at the facility and, pursuant to a consent agreement with the Nevada Division of Environmental Protection, a study is being conducted to further evaluate soil and groundwater contamination at the facility and other properties within the Basic Complex and to determine whether additional remediation will be necessary with respect to the Company's property. In connection with the 1988 acquisition of the Henderson and St. Gabriel properties by PAI, the sellers agreed to indemnify the Company with respect to, among other things, certain environmental liabilities associated with historical operations at the Henderson site. Zeneca Delaware Holdings, Inc. and Zeneca, Inc. (collectively, the "ZENECA Companies") have assumed the indemnity obligations. In general, PAI is indemnified against environmental costs which arise from or relate to pre-closing actions which involved disposal, discharge or release of materials resulting from the former agricultural chemical and other non-chlor-alkali manufacturing operations at the Henderson plant. The ZENECA Companies are also responsible for costs arising out of the pre-closing actions of Basic Investments and pre-closing actions at the Basic Complex and for other pre-closing environmental liabilities arising at other off-site locations. Under the ZENECA Indemnity, the Company may only recover indemnified amounts for environmental work to the extent that such work is required to comply with environmental laws or is reasonably required to prevent an interruption in the production of chlor-alkali products. The ZENECA Indemnity also covers certain claims by non-governmental third parties. The Company is responsible for environmental costs relating to the chlor-alkali manufacturing operations at the Henderson plant, both pre- and post-acquisition, for certain actions taken without ZENECA's consent and for certain operation and maintenance costs of a groundwater treatment system at the facility. Payments for environmental liabilities under the ZENECA Indemnity, together with other non-environmental liabilities for which the ZENECA Companies agreed to indemnify the Company, cannot exceed approximately $65 million. Through September 30, 1997, the Company has been reimbursed for approximately $12 million of costs covered by the ZENECA Indemnity, but the ZENECA Companies may have directly incurred additional costs that would further reduce the total amount remaining under the ZENECA Indemnity. In 1994, the Company recorded an additional $3.2 million environmental reserve related to pre-closing actions at sites that are the responsibility of ZENECA. At the same time a receivable was recorded from ZENECA for the same amount. It is the Company's policy to record such amounts when a liability can be reasonably estimated. No additional amounts were recorded in 1995, 1996 or 1997. As a result of the PAI Acquisition, the ZENECA Indemnity will terminate on April 20, 1999. The ZENECA Indemnity will continue to cover claims after the expiration of the term of the indemnity provided that, prior to the expiration of the indemnity, proper notice to the ZENECA Companies is given and either the ZENECA Companies have assumed control of such claims or the Company is contesting the legal requirements that gave rise to such claims, or has commenced removal, remedial or maintenance work with respect to such claims, or has commenced an investigation which results in the commencement of such work within ninety days. The Company believes that the ZENECA Companies will continue to honor their obligations under the ZENECA Indemnity for claims properly presented by the Company. It is possible, however, that disputes could arise between the parties concerning the effect of contractual language and that the Company would have to subject its claims for clean-up expenses, which could be substantial, to the contractually-established arbitration process. PAI Sellers' Indemnity. In the PAI Acquisition Agreement, the sellers agreed to indemnify Pioneer, PAAC and their affiliates for certain environmental liabilities that result from certain discharges of hazardous materials, or violations of environmental laws, arising prior to the closing date from or relating to the PAI plant sites or arising before or after the closing date with respect to certain environmental liabilities relating to the Contingent Payment Properties. Amounts payable pursuant to the PAI Sellers' Indemnity will generally be payable as follows: (i) out of certain reserves established on PAI balance sheet at December 31, 1994; 85 91 (ii) either by offset against the amounts payable under the Pioneer Seller Notes or from amounts held in the Contingent Payment Account; and (iii) in certain circumstances and subject to specified limitations, out of the personal assets of the sellers. See "Business -- Basic Investments." The Company is required to reimburse the sellers with amounts recovered under the ZENECA Indemnity or from other third parties. The Company and the sellers have agreed that they will cooperate in matters relating to the ZENECA Indemnity. The Company has also agreed to indemnify the sellers for certain environmental liabilities that may arise after the closing date. See "Risk Factors -- Environmental Regulation -- Henderson Remediation Matters; ZENECA Indemnity; PAI Sellers' Indemnity." OCC Tacoma Indemnity. The Tacoma Facility is located adjacent to the Hylebos Waterway, which is connected to Commencement Bay. The Hylebos Waterway is one of the study areas included in the Commencement Bay Nearshore/Tideflats site which has been placed on the National Priorities List for remediation under CERCLA. OxyChem is a member of the Hylebos Cleanup Committee ("HCC"), which has entered into a consent agreement with the EPA under which the HCC will prepare a pre-remedial design for cleanup of the Hylebos Waterway. OxyChem is participating in a voluntary, non-binding mediation under which an arbitrator will allocate liability for the waterway among approximately 30 participating PRPs. The aggregate costs of the cleanup of the Hylebos Waterway will depend upon cleanup levels established by the EPA. Cleanup levels have been selected by the EPA and a remediation plan is being prepared but has not yet been finalized or approved by the EPA. The Company believes that a remediation plan based upon the final EPA cleanup levels may be completed within five years, and that the voluntary mediation will be completed prior to that date. However, the Company cannot presently determine the amount of cleanup costs that will ultimately be allocated to OxyChem, or the timing of such final allocation. The Tacoma Facility has a RCRA treatment, storage, and disposal facility permit which requires the plant to investigate groundwater contamination at the site and to treat the groundwater to standards established in the permit. Pursuant to this requirement, the plant has installed a groundwater extraction, treatment and injection system (not included in the Tacoma Acquisition), which withdraws the groundwater, removes volatile organic compounds (including trichloroethylene and perchloroethylene) and returns the treated water to the subsurface through wells that are designed to control off-site migration of contamination. The plant has estimated that this groundwater system will operate for at least 30 years. Certain other areas at and near the Tacoma Facility are currently being voluntarily investigated under the oversight of the Washington Department of Ecology ("DOE") or the EPA. OCC Tacoma has voluntarily proposed to investigate certain substances that may exceed site-specific cleanup levels in the embankment area of the Tacoma Facility next to the Hylebos Waterway and in a subtidal and intertidal area adjacent to the northern portion of the Tacoma Facility, and to submit investigation and remediation plans for consideration by the EPA. If remediation plans are agreed upon, these areas would be remediated either in conjunction with or prior to the general remediation of Hylebos Waterway sediments. OxyChem has been named as a Potentially Liable Party ("PLP") under state law for remediation of, or it is voluntarily investigating, certain off-site, upland disposal sites used by the Tacoma Facility. OCC Tacoma has agreed to retain responsibility for these sites. Two other properties, located immediately adjacent to the Tacoma Facility, have allegedly been affected by operations at the Tacoma Facility. A groundwater contamination plume under the Tacoma Facility extends to the northwest and west. This area is being addressed by the Tacoma Facility's groundwater treatment system. In August 1997, OCC Tacoma acquired the neighboring property to the south of the Tacoma Facility. Waste from the Tacoma Facility was allegedly disposed in the past on the embankment area of this neighboring property and allegedly impacted the groundwater quality. The embankment area of this property is currently under investigation with the oversight of the DOE and the EPA. Remediation of this embankment area will be conducted, if necessary, in conjunction with the remediation of the adjacent embankment area of the Tacoma Facility. At this time, the Company is not able to determine the cost or scope of any such remediation of this neighboring property. In connection with the Tacoma Acquisition, OCC Tacoma agreed to indemnify the Company with respect to certain environmental matters, which indemnity is guaranteed by OxyChem. In general, the Company will be indemnified against damages incurred for remediation of certain environmental conditions, for certain environmental violations caused by pre-closing operations at the site and for certain common law 86 92 claims. The conditions subject to the indemnity are sites at which hazardous materials have been released prior to closing as a result of pre-closing operations at the site, including Commencement Bay (outside the Hylebos area), off-site disposal sites in areas upland of the waterways and natural resource damages (together, the "Excluded Environmental Conditions"). In addition, OCC Tacoma will indemnify the Company for certain costs relating to releases of hazardous materials from pre-closing operations at the site into Hylebos Waterway, site groundwater containing certain volatile organic compounds that must be remediated under the RCRA permit, and historical disposal areas on the embankment adjacent to the site for maximum periods of 24 or 30 years, depending upon the particular condition, after which the Company will have full responsibility for any remaining liabilities with respect to such conditions. OCC Tacoma may obtain an early expiration date for conditions other than the Excluded Environmental Conditions by obtaining a discharge of liability or an approval letter from a governmental authority. Although there can be no assurance that the presently anticipated remediation work will be completed prior to the expiration of the indemnity, or that additional remedial requirements will not be imposed thereafter, the Company believes that the residual liabilities, if any, can be managed in a manner that will not have a material adverse effect on the Company. OCC Tacoma will also indemnify the Company against certain other environmental conditions and environmental violations caused by pre-closing operations that are identified after the closing. Environmental conditions that are subject to formal agency action within five years after closing or to an administrative or court order within ten years after closing, and environmental violations that are subject to formal agency action within two years after closing or to an administrative or court order within five years after closing, will be covered by the indemnity up to certain dollar amounts and time limits. The Company will indemnify OCC Tacoma for environmental conditions and environmental violations identified after the closing if (i) an order or agency action is not imposed within the relevant time frames or (ii) applicable expiration dates or dollar limits are reached. The Company is responsible for remediation of environmental conditions and correction of environmental violations caused by post-closing actions at the site (other than post-closing actions by OCC Tacoma and its representatives) and the Company will indemnify OCC Tacoma for such conditions and violations. Moreover, if the Company takes certain actions which increase the cost of remediation or result in the identification of new environmental conditions after the closing, the Company will be liable for such costs. In particular, the Company may not, without OCC Tacoma's consent, construct new facilities within designated areas of the site that are being or will be remediated. In addition, the Company must consult with OCC Tacoma prior to construction or expansion in other areas of the site that requires the disturbance, excavation or remediation of soil, sediment or groundwater. This could limit the Company's ability to expand production capacity or to add material new capacity at the site. The indemnity obtained from OCC Tacoma for the Excluded Environmental Conditions, for expansion of or repairs to improvements at the site and for certain other matters is personal to the Company and its affiliates and may not, without OCC Tacoma's consent, be assigned to other persons. The Company has reviewed the time frames currently estimated for remediation of the known environmental conditions associated with Commencement Bay, the Hylebos Waterway, the plant and adjacent properties and the Company presently believes that it will have no material liability upon the termination of OCC Tacoma's indemnity. However, the OCC Tacoma indemnity is subject to limitations as to dollar amount and duration, as well as certain other conditions, and there can be no assurance that such indemnity will be adequate to protect the Company, that remediation will proceed on the present schedule, that it will involve the presently anticipated remedial methods, or that unanticipated conditions will not be identified. If these or other changes occur, the Company could incur a material liability for which it is not insured or indemnified. PCI Canada Acquisition Indemnity. In the Purchase Agreement, ICI and its affiliates (the "ICI Indemnitors") have agreed to indemnify the Company for certain liabilities associated with environmental matters arising from pre-closing operations of the PCI Canada Business. In particular, the ICI Indemnitors will retain unlimited responsibility for environmental liabilities associated with the Cornwall site, liabilities arising out of the discharge of contaminants into rivers and marine sediments and liabilities arising out of off-site disposal sites (the "Retained Environmental Liabilities"). The ICI Indemnitors will also provide a general 87 93 environmental indemnity for other pre-closing environmental matters. This indemnity will terminate on October 31, 2007, and is subject to a limit of $25 million. The Company may not recover under the environmental indemnity until it has incurred cumulative costs of $1 million, at which point the Company may recover costs in excess of $1 million. With respect to the Becancour and Dalhousie facilities, the ICI Indemnitors will be responsible under the general environmental indemnity for 100% of the costs incurred in the first five years after October 31, 1997 and for a decreasing percentage of such costs incurred in the following five years. Thereafter, the Company will be responsible for environmental liabilities (other than the Retained Environmental Liabilities) at such facilities. The Company will indemnify ICI for environmental liabilities arising out of post-closing operations and for liabilities arising out of pre-closing operations that are not indemnified by the ICI Indemnitors. The Company believes that the indemnity provided by ICI will be adequate to address the known environmental liabilities at the acquired facilities, and that any residual liabilities incurred by the Company will not be material. However, no assurance can be given that the indemnity will be adequate in the event that new facts or conditions are identified, new or different statutory or regulatory requirements are imposed, substantial changes in remedial or disposal techniques or costs occur, or the anticipated timing of remedial requirements is changed. Further, no assurance can be given that ICI or its affiliates will promptly pay for liabilities covered by the indemnity as they arise, or that ICI and its affiliates will have the financial resources to provide such indemnity. If these or other changes occur, the Company could incur a material liability for which it is not insured or indemnified. Remediation Matters General. Most of the plant sites on which the Company's manufacturing operations are located have been used for many years. Although the Company believes that prior operators utilized operating and disposal practices that met industry standards at the time, state and federal laws relating to remediation of historical disposal sites have become more stringent. As a result, to the extent wastes have been released or disposed of at its manufacturing sites, the Company has in the past been, and will in the future be, required to remediate contaminated property or remove previously disposed wastes and address related liabilities. In the past the Company has been subject to claims by neighboring landowners and other third parties asserting claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. However, the Company has resolved, or expects to resolve, such claims without material liability. Basic Complex. Environmental contamination, including soil and groundwater contamination, has been identified within and adjoining the Basic Complex, including land owned and occupied by the Company. The Company is cooperating with the NDEP with respect to the issues affecting such property. In 1983, Stauffer Chemical, Montrose and the NDEP entered into a Consent Order requiring Stauffer Chemical and Montrose to install a groundwater intercept system to analyze for designated organic chemicals identified in the groundwater outside Stauffer Chemical's plant site and to remove certain chemicals to levels specified in the Consent Order. At that time, the NDEP made a finding that the organic contamination that had migrated off site did not represent an imminent or substantial endangerment to human health or the environment. In consideration for the companies' implementation of the groundwater intercept system, the State of Nevada and the NDEP granted the companies a release and covenant not to sue under certain environmental statutes for any civil liabilities or claims arising out of the presence of the organics covered by the Consent Order, subject to the compliance by the companies with the Consent Order. The companies have implemented the groundwater intercept system, and it meets the treatment levels specified in the Consent Order. Although the Company is not a party to the Consent Order, the Company contractually agreed, in connection with its acquisition of the Henderson facility, to operate the system and to pay for 50% of certain operating and maintenance costs for the system. Montrose agreed to pay the other 50% of such costs, and ZENECA must pay for remaining obligations arising as a result of the Consent Order. While it is possible that these costs could increase substantially if the existing groundwater treatment system must be modified or expanded, or additional groundwater remediation is required, the Company believes that some of these costs would be borne 88 94 by Montrose and ZENECA, and the remaining costs would not have a material adverse effect on the Company. At the present time, however, the Company cannot reasonably estimate the scope of any other operating and maintenance requirements or their probable cost. PCAC, along with Stauffer Management Company ("Stauffer Management") (a ZENECA subsidiary), Montrose, Kerr McGee, Timet and Chemical Lime entered into a Consent Agreement in 1991 with the NDEP under which the parties agreed to provide reports summarizing documented information regarding historical waste disposal at each of their sites at the Basic Complex. These reports were Phase I of the "Environmental Conditions Assessment" (or "ECA") process for the Basic Complex. PCAC and Stauffer Management submitted the required report for the PCAC plant site in April 1993. The Phase I Report identified both present and former waste management areas, including disposal sites for agricultural chemicals formerly manufactured at the site and ponds used for disposal of chlor-alkali waste water. PCAC and Stauffer Management have entered into a Phase II agreement with the NDEP, which would cover additional investigation of the plant site, including additional soil and groundwater sampling. The parties have received a Letter of Understanding which identifies the areas that will be addressed in Phase II. Montrose also filed a report covering its leased portions of the Henderson property and has negotiated a Phase II agreement with the NDEP. In certain instances, PCAC, Stauffer Management and Montrose will cooperate in the preparation of information required for Phase II. PCAC and Stauffer Management also participated as members of the Henderson Industrial Site Steering Committee in the submission in April 1993 of a report regarding the Basic Complex common disposal areas. Historical waste management areas identified in the report included a landfill, waste water transmission ditches and waste water disposal ponds. These areas were used in the past for disposal of wastes manufactured in the Basic Complex. Additional investigations of the Basic Complex common area pursuant to a Phase II agreement are nearing completion. Limited remediation of asbestos contamination is ongoing, and it is likely that further remediation of soil or groundwater may follow completion of the Phase II investigations. Because the costs of future remedial obligations cannot be determined until the investigation is complete, it is not possible to determine whether, if at all, such costs will exceed amounts currently reserved with respect to such liabilities. The EPA is not a party to the various agreements with the NDEP and therefore is not bound by the terms of such agreements, nor is it bound by the release and covenant not to sue set forth in the Consent Order. The EPA is not presently pursuing any enforcement action relating to remediation of historical waste disposal at PCAC or the Basic Complex common area. There can be no assurance, however, that the EPA will not attempt to exercise its jurisdiction under federal environmental statutes, including CERCLA, with respect to the Basic Complex common areas or the individual plant sites in the future. If the EPA elects to exercise its jurisdiction over the Basic Complex or the Henderson plant and pursue an independent enforcement action, it is possible that the costs of remediation would substantially exceed those that the Company currently anticipates under the terms of the NDEP Consent Agreement. The Company believes that the remediation costs related to the Company's chlor-alkali facilities will not be material and that it will be reimbursed under the ZENECA Indemnity or the PAI Sellers' Indemnity or by other responsible parties for substantially all of the non-chlor-alkali related remediation costs that may be incurred in connection with historical waste disposal at the Henderson plant and the Basic Complex common areas. The inactive waste management areas at the Henderson facility include a drum disposal area, ponds and other waste disposal areas at which significant quantities of wastes from historical non-chlor-alkali manufacturing operations were disposed of or accumulated. Generally, these historical disposal areas have been closed by leaving the wastes in place and capping them with a clay cover to minimize the migration of any contaminants. Groundwater monitoring wells were installed downgradient to detect any significant contaminant migration. To date, the results from these wells and communications with the NDEP indicate that on-site containment will continue to be an acceptable long-term waste management solution for these historical wastes. However, if off-site disposal is required, because of more stringent disposal standards in the future or unanticipated significant groundwater impacts from these areas, the cost of such disposal could be substantial and could, together with other remediation obligations, approach or exceed the amount available under the 89 95 ZENECA Indemnity, the PAI Sellers' Indemnity or by other responsible parties. No assurance can be given that the Company will not be required to incur significant expenses for remedial and other liabilities under environmental laws in connection with the Henderson facility or operations, whether at or near the Henderson facility or at off-site locations, or that such expenses will be reimbursed under the ZENECA Indemnity or the PAI Sellers' Indemnity or by other responsible parties. See "Risk Factors -- Environmental Regulation." Antioch Plant. Kemwater's Antioch plant received a Clean-up and Abatement Order from the California Regional Water Quality Control Board (the "RWQCB") relating to contaminated groundwater. The RWQCB has requested Kemwater to prepare a work plan for additional investigation and remediation of the groundwater. Kemwater is preparing a plan for additional investigation and is reviewing the costs associated with remediation technologies that would meet the state standards. In the event that treatment of the ground water is necessary, there can be no assurance that it would not have a material adverse effect on Kemwater. INSURANCE The Company maintains general liability insurance and property and business interruption insurance, as well as worker's compensation insurance. In accordance with customary industry practice, the Company is not fully insured against all risks incident to its business. Because of the nature of industry hazards, it is possible that liabilities for pollution and other damages arising from a major occurrence could exceed insurance coverage or policy limits or that such insurance may not be available at reasonable rates in the future. Any such liabilities could have a material adverse effect on the Company. LEGAL PROCEEDINGS The Company has been named as a defendant in various legal proceedings arising in the ordinary course of its business. In the opinion of management, none of such litigation is material to the Company's financial statements. 90 96 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS OF PAAC The directors and executive officers of PAAC as of November 1, 1997 are as follows:
NAME AGE POSITION ---- --- -------- William R. Berkley................... 51 Chairman of the Board Michael J. Ferris.................... 53 President and Chief Executive Officer and Director Philip J. Ablove..................... 57 Vice President and Chief Financial Officer and Director Jerry B. Bradley..................... 51 Vice President, Human Resources Verrill M. Norwood................... 66 Vice President, Environmental and Regulatory Affairs Kent R. Stephenson................... 48 Vice President, General Counsel and Secretary Ronald E. Ciora...................... 56 President of All-Pure James E. Glattly..................... 50 President of PCAC Norman E. Thogersen.................. 50 President of PCI Canada and PCI Carolina Andrew M. Bursky..................... 41 Director Donald J. Donahue.................... 73 Director Richard C. Kellogg, Jr............... 46 Director Paul J. Kienholz..................... 66 Director Jack H. Nusbaum...................... 57 Director Thomas H. Schnitzius................. 55 Director
The Board of Directors has an Executive Committee and an Audit Committee. The current members of the Executive Committee are Messrs. Berkley, Bursky, Ferris and Donahue. The current members of the Audit Committee are Messrs. Donahue and Nusbaum. The current members of the Compensation and Stock Option Committee are Messrs. Berkley, Bursky and Donahue. William R. Berkley has been a director of PAAC since its formation in March 1995 and Chairman of the Board and a director of Pioneer since its formation in 1987. He also serves as Chairman of the Board of several companies which he controls or founded. These include W.R. Berkley Corporation, a property and casualty insurance holding company, and Interlaken Capital, Inc., a private investment and consulting firm. Mr. Berkley is also a director of Strategic Distribution, Inc., a publicly traded distributor of maintenance and safety products to industry. Michael J. Ferris has served as President and Chief Executive Officer of PAAC and Pioneer since January 5, 1997. Prior to joining PAAC and Pioneer, he was employed by Vulcan Materials Company, a company engaged in the production of industrial materials and commodities, from March 1974 to January 1997, where he served as Executive Vice President, Chemicals from 1996 to 1997. Mr. Ferris is also a director of ChemFirst, Inc., a specialty chemical company. Philip J. Ablove has served as Vice President and Chief Financial Officer of PAAC and Pioneer since March 1996, after serving as Acting Chief Financial Officer since October 1995, and has been a director of PAAC since its formation in March 1995 and a director of Pioneer and its corporate predecessor since January 1991. He was President and Chief Executive Officer of Pioneer's corporate predecessor from January 1991 to July 1992, and he served as a consultant to such entity from October 1990 to January 1991. Mr. Ablove served as a consultant to Pioneer from October 1995 to March 1996. He has served as a consultant to various companies since 1983. Jerry B. Bradley has served as Vice President of Human Resources of PAAC and of Pioneer since October 1995. From May 1993 to October 1995, Mr. Bradley was President of Tandem Partners, Inc., a human resources consulting firm. From 1978 to 1993 he was employed by Occidental Chemical Corporation, where he served as Vice President, Human Resources from 1978 to 1993. 91 97 Verrill M. Norwood has served as Vice President of Environmental and Regulatory Affairs of PAAC since the consummation of the PAI Acquisition on April 20, 1995, and as Vice President of Environmental and Regulatory Affairs of PAI since 1990. Prior to joining PAI, Mr. Norwood was employed by Olin Corporation from 1973 to 1990, where he served as Vice President, Environmental Affairs from 1978 to 1990. Kent R. Stephenson has served as Vice President, General Counsel and Secretary of PAAC since the consummation of the PAI Acquisition on April 20, 1995, as Vice President, General Counsel and Secretary of PAI since June 1995, and as Vice President, General Counsel and Secretary of PAI since 1993. Prior to joining PAI, he was employed by Zapata Corporation, a publicly traded gas services company, from 1978 to 1993. Mr. Stephenson served as Senior Vice President, General Counsel and Secretary of Zapata from 1987 to 1993. Ronald E. Ciora has served as President of All-Pure since November 1995. From March 1989 to November 1995, he was President and Chief Operating Officer of DPC Industries, Inc., DX Distribution, Inc. and DXI Industries, Inc., which are companies engaged in chemical distribution, chlorine repackaging and bleach manufacturing. James E. Glattly has served as President of PCAC since December 1996, and served as Vice President of Sales and Marketing of PAAC from April 1995 to December 1996 and as Vice President of Sales and Marketing of PAI from 1988 to December 1996. Prior to joining PAI, he was employed by Occidental Chemical Corporation from 1985 to 1988 and from 1974 to 1983, where he served in various capacities, including Western Regional Manager and various other sales positions. From 1983 to 1985 Mr. Glattly served as General Manager of HCI Chemical. Norman E. Thogersen has served as President of PCI Canada and PCI Carolina since the consummation of the PCI Canada Acquisition on October 31, 1997. Prior to the PCI Canada Acquisition, Mr. Thogersen served as the Chairman, President and Chief Executive Officer of ICI Canada since 1995, and as Vice President and General Manager of the PCI Canada Business since 1988 . He was employed by ICI Canada for 27 years. Andrew M. Bursky has been a director of PAAC since its formation in March 1995 and a director of Pioneer since January 1994. Mr. Bursky has been Managing Director of Interlaken Capital, Inc. since May 1980. He has been Chairman of the Board of Strategic Distribution, Inc. since July 1988. Mr. Bursky was an executive officer of Idle Wild Farm, Inc., a privately owned manufacturer of frozen food, and Blue Lustre Products, Inc., a privately owned company engaged in the sale and leasing of carpet cleaning equipment and other carpet cleaning products, which in October 1993 and October 1995, respectively, while he was an executive officer, filed chapter 11 petitions for reorganization under federal bankruptcy law. Donald J. Donahue has been a director of PAAC since its formation in March 1995 and a director of Pioneer since February 1988. Mr. Donahue served as Chairman of the Board of Magma Copper Company from 1987 to 1996 and as Chairman of Nacolah Holding Co., a life and health insurance company, from 1990 to 1993. From 1984 to 1985, Mr. Donahue served as Chairman and was a director of KMI Continental Group, Inc., a natural resource conglomerate. From 1975 to 1984, he was Vice Chairman and a director of Continental Group, Inc. Mr. Donahue is a director of Chase Brass Industries, Inc. and a director of Counsellors Tandem Securities Fund, Inc. and 15 other registered investment companies managed by EMW Warburg Pincus Counsellors, Inc. Richard C. Kellogg, Jr. has been a director of PAAC and Pioneer since April 1995. He is currently Chairman of the Board of Basic Investments, a utility and land development holding company, and is a director of Grupo Transmerquin SA, a chemical distribution holding company. He served as Chairman of the Board and Chief Executive Officer of PAAC and as President of Pioneer from April 1995 to January 1997. He was a founder of PAI, serving as its Chairman of the Board, Chief Executive Officer and a director from its inception in 1988 to January 1997. From 1983 to 1993, Mr. Kellogg also served as Vice President of Trans Marketing Houston, Inc. ("TMHI"), an international trading company. TMHI filed for bankruptcy in April 1993 and a liquidation plan was approved by the federal bankruptcy court in December 1993. 92 98 Paul J. Kienholz has been a director of PAAC and Pioneer since June 1996. He served as President and Chief Operating Officer of PAAC from the consummation of the PAI Acquisition on April 20, 1995 until his retirement in November 1996, and as President of PAI from 1988 until his retirement. Prior to joining PAI, Mr. Kienholz was employed by PPG Industries, Inc. from 1959 to 1988, where he served in various capacities, including Director, Chlor-Alkali Products. Jack H. Nusbaum has been a director of PAAC since its formation in March 1995 and a director of Pioneer since 1988. Mr. Nusbaum is a Senior Partner and Chairman of the New York law firm of Willkie Farr & Gallagher, where he has been a partner for more than the past twenty-five years. He is a director of W.R. Berkley Corporation, Fine Host Corporation, Strategic Distribution, Inc., The Topps Company, Inc. and Prime Hospitality Corp. Thomas H. Schnitzius has served as a director of each of Pioneer and PAAC since the consummation of the PAI Acquisition on April 20, 1995, and as a director of PAI since October 1993. He has been a principal in the Houston investment banking firm of Schnitzius & Vaughan since its formation in October 1987. Prior to 1987, he was a principal in the investment banking firm of Schnitzius & Co., Ltd. EXECUTIVE COMPENSATION Executive officers of PAAC are compensated in their capacity as executive officers of Pioneer or certain of its other subsidiaries. The following table sets forth certain information concerning compensation for service to Pioneer and its subsidiaries paid (i) during the last three fiscal years to William R. Berkley, Chairman of the Board of Pioneer, who received no compensation for acting in a capacity similar to that of a chief executive officer, (ii) during the period from April 21, 1995 to December 31, 1995 and during 1996, to Richard C. Kellogg, Jr., who acted in a capacity similar to that of a chief executive officer during such period, (iii) during the period from April 21, 1995 to December 31, 1995 and during 1996, to Pioneer's other four most highly compensated executive officers serving during 1996 and (iv) during the period from April 21, 1995 to December 31, 1995 and during 1996, to Paul J. Kienholz, who retired as President and Chief Operating Officer of PAAC on November 30, 1996: SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ANNUAL COMPENSATION AWARDS ALL OTHER NAME AND PRINCIPAL ------------------------------- OTHER ANNUAL ------------ COMPEN- POSITION YEAR(1) SALARY($) BONUS($) COMPENSATION(2)($) OPTIONS(3) SATION($) ------------------ ------- --------- -------- ------------------ ------------ --------- William R. Berkley 1996 8,000(4) 0 22,000 0 0 Chairman of the Board 1995 8,000(4) 0 22,000 0 0 1994 0 0 6,000 0 0 Richard C. Kellogg, Jr. 1996 300,000 75,000 0 0 3,750(6) President(5) 1995 206,731 135,900 0 131,691 4,590(6) James C. Glattly 1996 193,336 50,000 0 0 3,750(6) President, PCAC(7) 1995 114,327 69,675 0 53,500 2,453(6) Philip J. Ablove 1996 183,318 40,000 0 0 1,406(6) Vice President and Chief Financial Officer Verrill M. Norwood 1996 172,497 25,000 0 0 10,890(8) Vice President, Environmental, 1995 104,423 58,793 0 26,750 320,893(9) Health & Safety, PCAC Ronald E. Ciora 1996 165,000 50,000 0 0 2,062(6) President, All-Pure 1995 18,827 -- 0 16,050 45,000(10) Paul J. Kienholz 1996 250,000 50,000 0 0 16,623(12) President, PCAC(11) 1995 172,243 124,125 0 56,175 539,092(13)
- --------------- (1) Each of Messrs. Kellogg, Kienholz, Glattly and Norwood were officers of PAI on April 20, 1995, when PAI was acquired by Pioneer. After the PAI Acquisition, each served as an executive officer of Pioneer (including service as an executive officer of one or more subsidiaries of Pioneer), and information with respect to 1995 compensation is provided for each only with respect to services provided to Pioneer and its subsidiaries during the portion of the year beginning on April 21, 1995. Information with respect to Mr. Ablove, who became Vice President and Chief Financial Officer of Pioneer on March 8, 1996, and 93 99 Mr. Ciora, who became President of All-Pure on December 1, 1995, is provided for the portions of the relevant years during which each served. (2) Mr. Berkley is not an officer of Pioneer. As a director of Pioneer he receives an annual retainer, all or a portion of which has been paid through the delivery of shares under Pioneer's 1993 Non-Employee Director Stock Plan. The retainer for service as a director during each of 1995 and 1996 was $22,000 per year, with payment for 1996 in the form of 2,700 shares of Class A Common Stock and $7,994 in cash, and with payment for 1995 in the form of 3,320 shares of Class A Common Stock. The $6,000 in payment of the retainer and director's meeting fees for 1994 was paid in the form of 4,000 shares of Class A Common Stock. (3) Expressed in terms of the numbers of shares of Pioneer's Class A Common Stock underlying options granted during the year. All such options were granted under Pioneer's 1995 Stock Incentive Plan. (4) Represents director's meeting fees. (5) Mr. Kellogg resigned as President of Pioneer and PAAC on January 4, 1997 and no longer serves as an executive officer. (6) Represents amounts contributed to match a portion of the employee's contributions under a 401(k) plan. (7) Mr. Glattly served as Vice President, Sales and Marketing of PAAC and PCAC until December 1, 1996, when he was named President of PCAC. (8) Includes (a) $7,140, representing payment under a supplemental pension plan, and (b) $3,750, which was contributed to match a portion of contributions under a 401(k) plan. (9) Includes (a) $318,575, representing payment upon the termination of a salary continuation agreement in effect since 1993, together with payment for the resulting tax liability, and (b) $2,318, which was contributed to match a portion of contributions under a 401(k) plan. (10) Represents an amount paid as compensation for the loss of benefits from a previous employer. (11) Mr. Kienholz served as President of PCAC until December 1, 1996. He retired on January 1, 1997, and no longer serves as an executive officer (12) Includes (a) $12,873, representing payment under a supplemental pension plan, and (b) $3,750, which was contributed to match a portion of contributions under a 401(k) plan. (13) Includes (a) $533,206, representing payment upon the termination of a salary continuation agreement in effect since 1988, together with payment for the resulting tax liability, and (b) $5,886, which was contributed to match a portion of contributions under a 401(k) plan. Pioneer has adopted the 1995 Stock Incentive Plan (the "1995 Stock Incentive Plan"), under which 802,500 shares of Class A Common Stock of Pioneer were reserved for issuance pursuant to the grant of stock based awards to employees of Pioneer and its subsidiaries, including PAAC. Such awards may include incentive stock options, nonqualified stock options, stock appreciation rights ("SARs"), restricted stock awards, phantom stock unit awards, performance share unit awards and other forms of equity-based incentive compensation, or combinations of the foregoing. No more than 133,750 shares of Class A Common Stock may be issued to any one person pursuant to awards of options or SARs during any one year. Share numbers referred to above and in the following discussions have each been adjusted as a result of the 7% stock dividend paid on January 7, 1997. Applicable stock option exercise prices have also been adjusted as a result of the stock dividend. Similar adjustments will occur as a result of a 7% stock dividend to be paid on December 18, 1997. On April 20, 1995, options exercisable for approximately 535,000 shares of Class A Common Stock of Pioneer were granted to the employees of PAAC and its subsidiaries pursuant to the 1995 Stock Incentive Plan. Such options are exercisable at a price of $6.07 per share, the fair market value of the Class A Common Stock as of the date of grant. None of the options is exercisable prior to April 20, 1998. 94 100 In 1996 Pioneer adopted the Key Executive Stock Grant Plan, under which 535,000 shares of Class A Common Stock of Pioneer were reserved for issuance pursuant to the grant of stock based awards to senior executives of Pioneer and its subsidiaries, including PAAC. Such awards are to be made in the form of phantom stock awards under Pioneer's incentive compensation bonus plan, payable upon vesting in shares of Class A Common Stock. No awards have been made under the Key Executive Stock Grant Plan. OPTION GRANTS IN LAST FISCAL YEAR In 1996, Philip J. Ablove was the only named executive officer who received a grant of options to purchase Class A Common Stock of Pioneer. The following table provides information with respect to such grant:
INDIVIDUAL GRANTS POTENTIAL REALIZABLE ----------------------------------------------------------- VALUE AT ASSUMED NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK SHARES OPTIONS EXERCISE PRICE APPRECIATION FOR UNDERLYING GRANTED TO OR BASE OPTION TERM(2) OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------- NAME(1) GRANTED(#) 1996 (PER SHARE) DATE 5%($) 10%($) ------- ----------- ---------------- ------------- ---------- ---------- ---------- Philip J. Ablove...... 53,500 100.0 $5.61 6/04/06 $188,753 $478,378
- --------------- (1) The options were granted under Pioneer's 1995 Stock Incentive Plan at fair market value on the date of grant. The options granted are exercisable in 17,833-share increments on June 4 in the years 1999 through 2001. (2) These amounts represent assumed rates of appreciation in market value from the date of grant until the end of the option term, at the rates set by the Securities and Exchange Commission, and therefore are not intended to forecast possible future appreciation, if any, in Pioneer's stock price. Pioneer did not use an alternative formula for a grant date valuation, as it is not aware of any formula which will determine with reasonable accuracy a present value based on future unknown or volatile factors. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table shows with respect to the named executive officers the number of shares covered by both exercisable and non-exercisable stock options as of December 31, 1996, with respect to options to purchase Class A Common Stock of Pioneer. Also reported are the values for in-the-money options which represent the positive spread between the exercise price of any such existing stock options and the year-end price of the Class A Common Stock of Pioneer. No shares of Class A Common Stock of Pioneer were issued during 1996 to any individual as the result of the exercise of stock options.
NUMBER OF SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISABLE OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT 1996(#) DECEMBER 31, 1996($)(1) ---------------------------- ---------------------------- NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ------- ----------- ------------- ----------- ------------- Richard C. Kellogg, Jr........... -0- 131,691 -0- -0- James E. Glattly................. -0- 53,500 -0- -0- Philip J. Ablove................. -0- 53,500 -0- -0- Verrill M. Norwood, Jr........... -0- 26,750 -0- -0- Ronald E. Ciora.................. -0- 16,050 -0- -0- Paul J. Kienholz(2).............. -0- 56,175 -0- -0-
- --------------- (1) The closing price of the Class A Common Stock of Pioneer on December 31, 1996, the last trading day of Pioneer's fiscal year, was $5.00 per share. (2) As a result of Mr. Kienholz' retirement on December 31, 1996, the options held by him expired on March 31, 1997. 95 101 PENSION PLAN PCAC's pension plan provides defined benefit retirement coverage to the executive officers of Pioneer and substantially all of PCAC's employees. At the normal retirement age of 65, participants receive benefits based on their credited service and their covered compensation for the average of their highest five complete consecutive plan years out of their last ten complete consecutive plan years. Covered compensation under the plan includes base pay, overtime and shift differential pay and certain annual performance and sales incentive programs and commissions, but excludes all other items of compensation. However, the Internal Revenue Code limits remuneration which may be taken into account (subject to certain grandfather rules) under the pension plan for 1995 to $150,000. The benefits in the table set forth below are computed as a straight life annuity at age 65. Benefits are not subject to any deduction for social security since the basic benefit formula incorporates the average social security breakpoint in calculating the benefit. Pioneer's other operating subsidiaries do not have similar plans. PENSION PLAN TABLE
YEARS OF SERVICE(1) --------------------------------------------------- REMUNERATION 15 20 25 30 35 ------------ ------- ------- ------- ------- ------- $125,000......................... $27,153 $36,204 $45,255 $54,306 $63,357 150,000......................... 32,778 43,704 54,630 65,556 76,482 175,000......................... 32,778 43,704 54,630 65,556 76,482 200,000......................... 32,778 43,704 54,630 65,556 76,482 225,000......................... 32,778 43,704 54,630 65,556 76,482 250,000......................... 32,778 43,704 54,630 65,556 76,482 300,000......................... 32,778 43,704 54,630 65,556 76,482 400,000......................... 32,778 43,704 54,630 65,556 76,482 450,000......................... 32,778 43,704 54,630 65,556 76,482 500,000......................... 32,778 43,704 54,630 65,556 76,482
- --------------- (1) The estimated years of credited service for each of the named executive officers of PAAC as of December 31, 1996, were: Mr. Kellogg -- 5 years; Mr. Kienholz -- 7 years; Mr. Glattly -- 7 years; and Mr. Norwood -- 4 years. Messrs. Kienholz and Norwood also participate in a supplemental retirement plan which was established by Pioneer in 1995 in order to fund amounts due to such individuals under agreements reached when they were hired in 1988 and 1993, respectively. Under such plan, Mr. Kienholz began receiving supplemental retirement payments in the amount of $1,073 per month after he reached age 65 in December 1995, and Mr. Norwood began receiving supplemental retirement payments in the amount of $1,428 per month after he reached age 65 in July 1996. EMPLOYMENT AGREEMENTS AND SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS On April 20, 1995, Pioneer entered into a five-year employment agreement with Richard C. Kellogg, Jr. pursuant to which Mr. Kellogg served as President of Pioneer through January 1997 and continues to serve as an employee of Pioneer. Pursuant to the terms of the agreement, Pioneer will continue to pay Mr. Kellogg's annual salary of $300,000 per year through April 20, 2000. On April 20, 1995, PCAC extended its existing employment agreement with Mr. Kienholz, pursuant to which Mr. Kienholz served as President of PCAC. The agreement provided for an annual salary of at least $200,000, and for continuing employment until October 31, 1996. Mr. Kienholz retired on December 31, 1996 and thereafter he has provided consulting services to the Company under an agreement which provides for consideration of $2,500 per month. The agreement terminates on December 31, 1997. On April 20, 1995, Pioneer entered into three-year employment agreements with Messrs. Glattly and Norwood. The employment 96 102 agreement with Mr. Glattly provides for an annual salary of at least $165,000. The employment agreement with Mr. Norwood provides for an annual salary of at least $143,100. On March 8, 1996, Philip J. Ablove, who is a director of Pioneer and PAAC, was elected Vice President and Chief Financial Officer of Pioneer, after serving as acting Chief Financial Officer and a management consultant to Pioneer since October 1995. Pioneer has agreed to pay Mr. Ablove an annual salary of $225,000. Following any change of control during his employment by Pioneer, he would be entitled to a severance payment equal to at least 12 months' salary. On January 4, 1997, Pioneer entered into a three-year employment agreement with Michael J. Ferris, pursuant to which Mr. Ferris serves as President and Chief Executive Officer of Pioneer and PAAC. The agreement provides for an annual salary of not less than $350,000, and that during 1997 Mr. Ferris will also receive a cash bonus of not less than $200,000, payable quarterly in arrears. Under each of the employment agreements currently in effect, the employee will be entitled to receive other benefits made available to executive officers and to receive bonus compensation in accordance with any management incentive plan established by the Board of Directors. Each of the employment agreements provides that if the executive's employment thereunder is terminated by the employer without "just cause" or by the employee for "good reason" (as such terms are defined in the employment agreement), the executive shall continue to receive his annual salary until the last date of the employment term or, if later, the first anniversary of the termination date, subject to certain provisions for offset, and will continue to receive certain other benefits provided for in the agreement. Termination following a change in control does not constitute "just cause" or "good reason", but "good reason" does include the failure of any successor to the employer by operation of law to assume the employment agreement. Pioneer and Mr. Ferris entered into a Stock Purchase Agreement dated January 4, 1997, in connection with Mr. Ferris' employment as President and Chief Executive Officer of Pioneer. In accordance with the terms of the agreement, on February 13, 1997, Pioneer sold 150,000 shares of Pioneer's Class A Common Stock to Mr. Ferris for $5.346 per share, or $801,900 in the aggregate. The price paid was the average of the closing sale prices of the Common Stock as reported on the NASDAQ National Market System on the days during which the Common Stock was traded during the 30 consecutive trading days immediately preceding the date of the agreement. The shares were sold to Mr. Ferris in reliance on the exemption provided by Section 4(2) of the Securities Act. On January 4, 1997, Mr. Ferris was granted an incentive stock option to purchase 133,750 shares of Class A Common Stock under Pioneer's 1995 Stock Incentive Plan, at an exercise price of $5.00 per share, the fair market value of a share of Class A Common Stock on the date of grant. The option is exercisable in 20,000-share increments on January 4 in the years 1998 through 2003, with an additional 13,750 exercisable on January 4, 2004. Mr. Ferris was also granted a non-qualified stock option to purchase 191,250 shares of Class A Common Stock at an exercise price of $5.00 per share. The option is exercisable in 38,250-share increments on January 4 in the years 1998 through 2002. As a part of his compensation package, it was also agreed that Mr. Ferris will receive a future grant of a non-qualified stock option to purchase 25,000 shares of Class A Common Stock on January 4 in each of the years 1998, 1999 and 2000. Shares subject to the options will have exercise prices of $6.00, $7.00 and $8.00, respectively. COMPENSATION OF DIRECTORS Directors of PAAC do not receive a fee for service as directors. Directors of PAAC are reimbursed for travel expenses incurred in attending board and committee meetings. All of the directors of PAAC also serve as directors of Pioneer. In 1992, the Board of Directors of Pioneer established a policy under which each director who is not also an employee of Pioneer receives an annual retainer and a fee for each meeting attended. Pursuant to Pioneer's 1993 Non-Employee Director Stock Plan, Pioneer granted each non-employee director who served throughout the year 2,700 shares of Class A Common Stock of Pioneer and $7,994 in cash in payment of the 1996 annual retainer of $22,000, and each director was paid $2,000 for each Board of Directors meeting attended in 1996. Mr. Ablove received 501 shares and $1,489 97 103 in cash in payment of the retainer as a result of his service as a non-employee director during a portion of the year. Mr. Bursky has been granted a non-qualified stock option to purchase 85,000 shares of Class A Common Stock at an exercise price of $5.56 per share. The option is exercisable in increments of 40,000 shares, 20,000 shares, 20,000 shares and 5,000 shares on May 15 in the years 1998 to 2001, respectively. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION William R. Berkley, a member of the Compensation and Stock Option Committee of PAAC and Pioneer, is a director of PAAC and the Chairman of the Board of Directors of Pioneer. Mr. Berkley (who may be deemed to beneficially own all shares of Pioneer common stock held by the Interlaken Partnership) may be deemed to beneficially own approximately 59.9% of the voting power of Pioneer. See "Stock Ownership." CERTAIN TRANSACTIONS PCAC, a wholly-owned subsidiary of PAAC, is party to an agreement with Basic Investments, an entity in which PCAC owns a minority interest (and which constitutes part of the Basic Ownership held for the benefit of the sellers in the PAI Acquisition), for the delivery of water to the Henderson production facility. The agreement provides for the delivery of a minimum of eight million gallons of water per day. The agreement expires on December 31, 2014, unless terminated earlier in accordance with the provisions thereof. Basic Investments also charges PCAC and other companies in the Basic Complex for power distribution services. For the year ended December 31, 1996, Basic Investments charged PCAC approximately $500,000 for the provision of such services. At December 31, 1996, net receivables from Basic Investments were $300,000. See "Business -- Basic Investments." PCAC sells certain services to and purchases steam from Saguaro Power. For the year ended December 31, 1996, sales to Saguaro Power totaled $1.0 million and purchases from Saguaro Power totaled $1.8 million; as of December 31, 1996, Saguaro Power owed PCAC $0.1 million and PCAC owed Saguaro Power $0.2 million. See "Business -- Saguaro Power." PCAC is also party to a development management agreement with Victory Valley, an entity controlled by Basic Investments and in which PCAC owns a minority interest (and which constitutes part of the Basic Ownership held for the benefit of the sellers in the PAI Acquisition). Pursuant to the agreement, Victory Valley manages the development of certain real property in Henderson, Nevada which is a portion of the Excess Land owned by PCAC. PCAC sells certain products to Kemwater at market prices. Sales to Kemwater totaled $8.8 million during the year ended December 31, 1996. Kemwater provides transportation services to PCAC at market prices which totaled $1.8 million for 1996. PAI sold caustic soda to TMHI for export from 1988 to 1993 and participated in certain joint insurance programs. Mr. Kellogg, who was an executive officer and director of PAI, co-founded TMHI and served as a director and executive officer of TMHI. PAI wrote off $1.3 million of receivables in 1992 and charged an additional $1.1 million against income in 1993 related to sales to TMHI that were deemed uncollectible. In April 1993, TMHI filed for bankruptcy. In connection with the consummation of the PAI Acquisition, Pioneer issued and sold (i) to the Interlaken Partnership, 3,039,772 shares of Class A Common Stock of Pioneer for an aggregate purchase price of $15 million, and (ii) to Mr. Kellogg, 515,000 shares of Class A Common Stock of Pioneer for an aggregate purchase price of approximately $2.5 million. An entity controlled by Mr. Berkley is the sole general partner of the Interlaken Partnership, and Mr. Berkley also owns approximately 32.3% of the limited partnership interests in the Interlaken Partnership. The Interlaken Partnership beneficially owns approximately 34.9% of the voting power of Pioneer, and William R. Berkley, Chairman of Pioneer and PAAC (who may be deemed to beneficially own all shares of Pioneer common stock held by the Interlaken Partnership), may be deemed to beneficially own approximately 59.9% of the voting power of Pioneer. Mr. Berkley has the right to vote and otherwise act in respect of the shares of Pioneer beneficially owned by the Interlaken Partnership in his 98 104 capacity, through controlled entities, as the sole general partner of the Interlaken Partnership. See "Stock Ownership." Upon consummation of the PAI Acquisition, Interlaken Capital, Inc., an entity controlled by Mr. Berkley, received a fee of approximately $1.6 million from PAAC in connection with financial advisory services with respect to the PAI Acquisition and related financings. The firm was also paid a fee of $300,000, plus reimbursement of reasonable out-of-pocket expenses, for services rendered in connection with the KWT transaction. The firm was paid a fee of approximately $1.3 million, plus reimbursement of reasonable out-of-pocket expenses, for services rendered in connection with the Tacoma Acquisition. The firm was paid a fee of approximately $2.36 million, plus reimbursement of reasonable out-of-pocket expenses, for services rendered in connection with the PCI Canada Acquisition. Upon consummation of the PAI Acquisition, Pioneer and PAI entered into employment agreements with the executive officers of PAI, and Pioneer granted to such executive officers options to purchase shares of Pioneer's Class A Common Stock pursuant to its 1995 Stock Incentive Plan. See "Management -- Executive Compensation." PAAC and its subsidiaries (the "PAAC Group") have entered into a tax sharing agreement (the "Tax Sharing Agreement") with Pioneer and the other members of the consolidated group (the "Pioneer Group") of which Pioneer is the common parent. Under the Tax Sharing Agreement, (i) Pioneer is obligated to pay the federal income tax liability of the Pioneer Group and (ii) the PAAC Group is required to make tax sharing payments to Pioneer in an amount equal to its share of the Pioneer Group's consolidated cash tax liability, if any. In determining the PAAC Group's share of the Pioneer Group's consolidated cash tax liability (x) available net operating loss carryforwards each year will be determined as if any prior use of those carryforwards by members of the Pioneer Group other than the PAAC Group (the "Non-PAAC Group"), except carryforwards generated by the Non-PAAC Group after the PAI Acquisition, had not occurred ("Previously Used NOLs") and (y) net operating loss carryforwards, except carryforwards generated by the Non-PAAC Group after the PAI Acquisition, will first reduce the "separate tax liability" of the PAI Group each year to the fullest extent permitted by the Code before any net operating loss use by the Non-PAAC Group except that Previously Used NOLs may only be utilized by the PAAC Group. Jack H. Nusbaum, a director of Pioneer and PAAC, is a Senior Partner and Chairman of the law firm of Willkie Farr & Gallagher, which regularly acts as counsel to Pioneer and PAAC and is acting as counsel to Pioneer and the Company in connection with the Exchange Offer. Thomas H. Schnitzius, a director of Pioneer and PAAC, is a principal of Schnitzius & Vaughan, an investment banking firm. PAI retained Schnitzius & Vaughan to provide merger and acquisition and financial advisory services to PAI. PAI paid Schnitzius & Vaughan a $250,000 fee for financial advisory services rendered in connection with PAI's March 1995 debt refinancing. In addition, as compensation for financial services rendered to it by Schnitzius & Vaughan in connection with the PAI Acquisition, PAI paid that firm a fee of approximately $1.0 million upon the consummation of the PAI Acquisition, plus reimbursement of reasonable out-of-pocket expenses relating to such services. The firm was also paid a fee of $300,000, plus reimbursement of reasonable out-of-pocket expenses, for services rendered in connection with the KWT transaction, and a fee of $150,000, plus reimbursement of reasonable out-of-pocket expenses, for services rendered in connection with the T.C. Products acquisition. Schnitzius & Vaughan provides financial advisory services on an on-going basis to the Company, for which it received fees of $476,000 for 1996. The firm is currently paid a retainer for such services of $6,000 per month. The firm was paid a fee of approximately $450,000, plus reimbursement of reasonable out-of-pocket fees and expenses, for services rendered in connection with the Tacoma Acquisition and the firm was paid a fee of approximately $1.0 million, plus reimbursement of reasonable out-of-pocket expenses, for services rendered in connection with the PCI Canada Acquisition. 99 105 STOCK OWNERSHIP PCI Canada is an indirect wholly-owned subsidiary of PAAC, which is a direct wholly-owned subsidiary of Pioneer. The following table sets forth, as of November 1, 1997, certain information regarding ownership of PAAC common stock by (i) each person known by PAAC to be the beneficial owner of more than five percent of the PAAC common stock, (ii) each of the directors of PAAC and the executive officers of PAAC named in the Summary Compensation Table and (iii) all directors and executive officers of PAAC as a group. Except as otherwise indicated, each party has sole voting and investment power over the shares beneficially owned.
AMOUNT AND TITLE OF NAME OF NATURE PERCENT CLASS BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS -------- ---------------- ----------------------- -------- Common Stock Pioneer Companies, Inc.......................... 1,000 100% 4300 NationsBank Center 700 Louisiana Street Houston, TX 77002 William R. Berkley.............................. 1,000(1) 100% c/o Pioneer Companies, Inc. 165 Mason Street Greenwich, CT 06830 All Directors and Executive Officers as a group (15 persons).................................... 1,000(1) 100%
- --------------- (1) Mr. Berkley, Chairman of the Board and principal shareholder of Pioneer, may be deemed to beneficially own the shares of PAAC and PCI Canada common stock owned by Pioneer. Mr. Berkley disclaims beneficial ownership of all such shares. The Interlaken Partnership beneficially owns approximately 34.9% of the voting power of Pioneer and William R. Berkley, Chairman of Pioneer and PAAC (who may be deemed to beneficially own all shares of Pioneer common stock held by the Interlaken Partnership), may be deemed to beneficially own approximately 59.9% of the voting power of Pioneer. As a result of Mr. Berkley's ownership of Pioneer voting stock, Mr. Berkley is able to control the election of PAAC's Board of Directors and thereby direct the management and policies of PAAC, PAI and its subsidiaries. Pioneer's authorized and outstanding common stock consists of Class A Common Stock, entitled to one vote per share, and Class B Common Stock, entitled to one-tenth of one vote per share and convertible into Class A Common Stock on a share-for-share basis. The Class B Common Stock of Pioneer was issued to Pioneer's former lending banks under the plan of reorganization of Pioneer and its subsidiaries in 1992. Information obtained from a Schedule 13G, dated July 21, 1992, filed with the Securities and Exchange Commission by Chemical Bank ("Chemical"), Barnett Bank of South Florida, N.A. ("Barnett") and The Chase Manhattan Bank ("Chase") indicates that (i) Chemical had acquired 616,768 shares of Class B Common Stock of Pioneer of which it was the beneficial owner with sole voting and dispositive power, (ii) Barnett had acquired 122,146 shares of Class B Common Stock of which it was the beneficial owner with sole voting and dispositive power and (iii) Chase had acquired 84,295 shares of Class B Common Stock of which it was the beneficial owner with sole voting and dispositive power. In September 1995, Barnett converted its Class B Common Stock into Class A Common Stock. The holdings of Chemical and Chase represent approximately 0.7% and 0.1%, respectively, of the voting power of Pioneer and, in the aggregate, approximately 7.7% of the number of shares of Pioneer common stock outstanding. Upon consummation of the Tacoma Acquisition, Pioneer issued 55,000 shares of Pioneer Preferred Stock, constituting all of the issued and outstanding shares of Pioneer Preferred Stock, to OCC Tacoma. Each share of Pioneer Preferred Stock is convertible at any time into eight shares of Class A Common Stock of Pioneer (subject to adjustment). Each share of Pioneer Preferred Stock is entitled to eight votes per share (subject to adjustment) and votes with the Pioneer common stock on all matters. The Pioneer Preferred Stock issued to OCC Tacoma upon consummation of the Tacoma Acquisition represents approximately 4.8% of the voting power of Pioneer. 100 106 DESCRIPTION OF OTHER INDEBTEDNESS NEW CREDIT FACILITIES Term Facility Concurrent with the closing of the Initial Offering and the other Financings, the Company entered into a nine and one-quarter year Term Facility provided to PAI by a syndicate of financial institutions, pursuant to which PAI borrowed $83.0 million. Quarterly amortization of the Term Loans is in an aggregate annual principal amount equal to 1% of the initial principal amount beginning December 31, 1997, with the remaining 91% of the initial principal amount maturing on December 5, 2006. Indebtedness under the Term Facility is subject to mandatory prepayment provisions including, without limitation: (i) upon the occurrence of a change of control (to be defined in a manner similar to "change of control" in the Indenture) and (ii) with 100% of the net proceeds from asset sales permitted under the Term Facility (provided that up to $35.0 million of such proceeds since the closing of the Term Facility may be re-invested within 365 days of their receipt in the Company or its subsidiaries in their current lines of business) to the extent such proceeds are not used to pay principal outstanding under the Existing Term Facility and the Senior Secured Notes. Borrowings under the Term Facility bear interest at a floating rate, based at PAI's option on LIBOR or the administrative agent's alternate base rate. Indebtedness under the Term Facility is guaranteed by PAAC, the Issuer and the Guarantors (other than PAI). The Term Facility is secured on a pari passu basis with the Collateral securing the Notes. The Term Facility contains covenants similar to the covenants contained in the Indenture, the indenture governing the Senior Secured Notes and the Existing Term Facility. Events of default with respect to the Term Facility include, among others, failure to make payment when due, defaults under certain other agreements or instruments of indebtedness and certain other events of default similar to those contained in the Indenture. Revolving Facility Concurrent with the closing of the Initial Offering and the other Financings, the Company entered into an amended Revolving Facility under which the agent bank (the "Bank") and the other lenders will provide a revolving loan and letter of credit facility to the Company, subject to the conditions set forth therein. The Bank will extend credit to the Company on a revolving basis at any time and from time to time for a period of five years following the Initial Offering in an aggregate principal amount of Revolving Loans outstanding up to $65.0 million, of which a portion will be available for the issuance of letters of credit ("Letters of Credit"), and to include an initial US$30.0 million Canadian sub-facility available to PCI Canada; provided that the aggregate amount of the Revolving Loans and the aggregate undrawn face amount of Letters of Credit may not at any time exceed the borrowing base (the "Borrowing Base"), which will be the sum of, subject to certain exceptions, (i) up to 85% of eligible accounts receivable and (ii) up to 50% of eligible inventory, not to exceed certain decreasing amounts. The obligations under the Revolving Facility are secured by a first priority lien on all accounts receivables and inventory, and certain assets related thereto, of certain operating subsidiaries, including PCI Canada, as well as Kemwater. Borrowings under the Revolving Facility bear interest at a rate determined by reference to the Bank's reference rate in effect from time to time (the "Reference Rate") or, at the Company's option, the Bank's LIBOR interest rate (the "LIBOR Rate"). The interest rate will be adjusted quarterly based upon the ratio of total debt to earnings before interest, taxes and depreciation and amortization for the preceding four quarters. If any borrowings are not repaid when due, the outstanding principal amount of such borrowings will bear interest at the then applicable rate plus 2.0%. The Company will pay the Bank, monthly in arrears, a commitment fee based on the average difference between $65.0 million and the aggregate of the Revolving Loans and the aggregate undrawn face amount of the Letters of Credit outstanding. PAAC will also pay other customary fees including a fee on Letters of 101 107 Credit based on the average aggregate undrawn face amount of Letters of Credit outstanding. The Revolving Facility is guaranteed by the subsidiaries of PAAC. The Revolving Facility contains customary covenants with respect to, among other things, (i) maintenance of a ratio of EBITDA to interest expense and (ii) restrictions on the incurrence of additional liens or indebtedness. The Company intends to use any borrowings under the Revolving Facility for its ongoing working capital needs and general corporate purposes. Letters of Credit will be used to support obligations of the Company incurred in the ordinary course of business. EXISTING TERM FACILITY Concurrent with the closing of the Tacoma Acquisition, the Company entered into a nine and one-half year $100.0 million term facility (the "Existing Term Facility") provided by a syndicate of financial institutions. Quarterly amortization of the loans under the Existing Term Facility (the "Existing Term Loans") is in an aggregate annual principal amount equal to 1% of the initial principal amount beginning September 30, 1997, with the remaining 90.75% of the initial principal amount maturing on December 5, 2006. Indebtedness under the Existing Term Facility is subject to mandatory prepayment provisions including, without limitation: (i) upon the occurrence of a change of control (defined in a manner similar to "change of control" in the indenture for the Senior Secured Notes) and (ii) with 100% of the net proceeds from asset sales permitted under the Existing Term Facility (provided that up to $35.0 million of such proceeds since the closing of the Existing Term Facility may be re-invested within 365 days of their receipt in the Company or its subsidiaries in their current lines of business). Borrowings under the Existing Term Facility bear interest at a floating rate, based at the Company's option on LIBOR or the administrative agent's alternate base rate. Indebtedness under the Existing Term Facility is guaranteed by all subsidiaries of the Company. The Existing Term Facility is secured on a pari passu basis with the Senior Secured Notes, by (a) a first mortgage lien and security interest in the real property, buildings, fixtures and equipment relating to the Tacoma Facility, (b) a first-priority, perfected security interest in certain agreements related to the Tacoma Acquisition, (c) first mortgage liens on the Henderson, Nevada and St. Gabriel, Louisiana chlor-alkali production facilities of PCAC, including real property, buildings, fixtures and equipment, and (d) a first-priority, perfected pledge of all the capital stock of PCAC, All-Pure, PCI Canada and PCI Carolina. The Existing Term Facility contains covenants similar to the covenants contained in the indenture for the Senior Secured Notes. Events of default with respect to the Existing Term Facility include, among others, failure to make payment when due, defaults under certain other agreements or instruments of indebtedness and certain other events of default similar to those contained in the indenture for the Senior Secured Notes. All of the capital stock of PCI Canada is pledged for the benefit of the Existing Term Loan lenders and holders of the Senior Secured Notes. SENIOR SECURED NOTES Concurrent with the closing of the Tacoma Acquisition, the Company issued and sold $200.0 million aggregate principal amount of 9 1/4% Senior Secured Notes due 2007 (the "Senior Secured Notes"). Interest on the Senior Secured Notes is payable semi-annually on June 15 and December 15 of each year. The Senior Secured Notes will mature on June 15, 2007, unless previously redeemed. The Senior Secured Notes are senior obligations of the Company and are fully and unconditionally guaranteed on a senior basis by all subsidiaries of the Company. In addition, the guarantee of PCAC with respect to the Senior Secured Notes is secured by (i) a first mortgage lien on the chlor-alkali production facility acquired in the Tacoma Acquisition, (ii) a first priority security interest in certain agreements related to the Tacoma Acquisition and (iii) first mortgage liens on PCAC's chlor-alkali production facilities located in Henderson, Nevada and St. Gabriel, Louisiana, and the guarantee of PAI with respect to the Senior 102 108 Secured Notes is secured by a pledge of the capital stock of PCAC, All-Pure, PCI Canada and PCI Carolina held by PAI. The Senior Secured Notes rank pari passu with all other existing and future senior indebtedness and senior to all subordinated indebtedness of the Company, except that the Senior Secured Notes are effectively subordinated to secured senior indebtedness of the Company with respect to the assets securing such indebtedness. The Senior Secured Notes are redeemable in cash at the option of the Company, in whole or in part, on or after June 15, 2002, at declining redemption prices, together with accrued and unpaid interest thereon and liquidated damages, if any, to the date of redemption. In addition, the Company may also redeem at its option at any time prior to June 15, 2000 up to 35% of the aggregate principal amount of the Senior Secured Notes originally issued at 109.25% of the principal amount thereof, plus accrued and unpaid interest thereon and liquidated damages, if any, to the date of redemption, with the net proceeds of an equity offering by the Company or an equity offering by Pioneer followed by a capital contribution from Pioneer to the Company; provided that at least 65% of the aggregate principal amount of the Senior Secured Notes originally issued must remain outstanding immediately after such redemption. Upon a Change of Control (as defined in the indenture relating to the Senior Secured Notes), the Company will be required to offer to repurchase the Senior Secured Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued interest thereon and liquidated damages, if any, to the date of repurchase. The indenture governing the Senior Secured Notes contains certain covenants with respect to the Company and its subsidiaries which will restrict, among other things, (a) the incurrence of additional indebtedness, (b) the payment of dividends and other restricted payments, (c) the creation of certain liens, (d) the use of proceeds from sales of assets and subsidiary stock, (e) sale and leaseback transactions and (f) transactions with affiliates. The indenture also restricts the Company's ability to consolidate or merge with or into, or to transfer all or substantially all of its assets to, another person. These restrictions and requirements are subject to a number of important qualifications and exceptions. All of the capital stock of PCI Canada is pledged for the benefit of the Existing Term Loan lenders and holders of the Senior Secured Notes. OTHER Other long-term debt of PAAC consists of $4.5 million of outstanding variable rate subordinated notes, with principal payments due July 31, 2001, and $2.3 million of an outstanding variable rate tax-exempt bond, financed through the Economic Development Corporation of Pierce County, Washington, with principal payments due in variable annual installments through 2014. 103 109 DESCRIPTION OF THE NOTES GENERAL The Exchange Notes will be issued, and the Original Notes were issued, under an Indenture (the "Indenture") among PCI Canada, as Issuer, PAAC and the other Guarantors and United States Trust Company of New York, as trustee (the "Trustee"). The terms and conditions of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the U.S. Trust Indenture Act of 1939 (the "Trust Indenture Act") as in effect on the date of the Indenture. The Notes are subject to all such terms and conditions, and reference is made to the Indenture and the Trust Indenture Act for a statement thereof. The following statements are summaries of the provisions of the Notes and the Indenture and do not purport to be complete. Such summaries make use of certain terms defined in the Indenture and are qualified in their entirety by express reference to the Indenture. Certain of such defined terms are set forth below under "-- Certain Definitions." For purposes of this "Description of the Notes," the "Issuer" means PCI Chemicals Canada Inc. and "PAAC" means Pioneer Americas Acquisition Corp. A copy of the Indenture will be available upon request to the Issuer. The Notes will be limited to $175.0 million aggregate principal amount and will be issued in fully registered form without coupons in denominations of $1,000 and any integral multiple of $1,000. Principal of, premium and Liquidated Damages, if any, and interest on the Notes will be payable, and the Notes will be transferable, at the corporate trust office or agency of the Trustee maintained for such purposes in New York, New York. Initially, the Trustee will act as paying agent and registrar under the Indenture. The Issuer and PAAC and its Subsidiaries may act as paying agent and registrar under the Indenture, and the Issuer may change any paying agent and registrar without notice to the Persons who are registered holders ("Holders") of the Notes. The Issuer may pay principal, premium and interest by check and may mail an interest check to a Holder's registered address. Holders must surrender the Notes to the paying agent to collect principal and premium payments. No service charge will be made for any registration of transfer or exchange of the Notes, except for any tax or other governmental charge that may be imposed in connection therewith. All of the capital stock of PCI Canada is pledged for the benefit of the Existing Term Loan lenders and holders of the Senior Secured Notes. PAYMENT TERMS Interest on the Notes will initially accrue from the respective issue date, and thereafter from the most recent date to which interest has been paid. Interest will be payable semi-annually on April 15 and October 15, of each year commencing April 15, 1998, at the rate of 9 1/4% per annum to Holders of the Notes as of the close of business on April 1 and October 1 next preceding the applicable interest payment date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Notes mature on October 15, 2007. Payment of the Notes is guaranteed by the Guarantors, jointly and severally, on a senior basis. See "-- Guarantees." RANKING The Notes are senior obligations of the Issuer and rank pari passu with all existing and future Senior Indebtedness of the Issuer and senior to all Subordinated Indebtedness of the Issuer. However, the Notes and the obligations of the Guarantors under their guarantees of the Notes are effectively subordinated to secured Senior Indebtedness of the Issuer and the Guarantors, respectively, with respect to the assets securing such Indebtedness. See "Description of Other Indebtedness." As of September 30, 1997, after giving pro forma effect to the Initial Offering and the other Financings, the Issuer and the Guarantors would have had outstanding approximately $557.8 million aggregate principal amount of secured Senior Indebtedness. As of September 30, 1997, on a pro forma basis, the Issuer and the Guarantors would have had, subject to certain restrictions (including borrowing base limitations), the ability 104 110 to draw up to $62.1 million of additional secured Senior Indebtedness under the Revolving Facility. See "Risk Factors -- Ranking of the Notes and Guarantees" and "Description of Other Indebtedness." In addition, PAAC and its Subsidiaries may incur up to $50.0 million of Senior Indebtedness which will be secured on a pari passu basis with the Senior Secured Notes and the Existing Term Facility. Holders of secured Indebtedness of the Issuer or the Guarantors have claims with respect to the assets constituting collateral for such Indebtedness that are prior to the claims of holders of the Notes and the Guarantees, respectively. In the event of a default on the Notes, or a bankruptcy, liquidation or reorganization of the Issuer or the Guarantors, such assets will be available to satisfy obligations with respect to the Indebtedness secured thereby before any payment therefrom could be made on the Notes or the Guarantees, as the case may be. To the extent that the value of such collateral is not sufficient to satisfy the Indebtedness secured thereby, amounts remaining outstanding on such Indebtedness would be entitled to share, together with the Indebtedness under the Notes and the Guarantees, as the case may be, with respect to any other assets of the Issuer and the Guarantors. GUARANTEES The Guarantors will, jointly and severally, unconditionally guarantee the due and punctual payment of principal of, premium, if any, and interest on, the Notes. Such guarantees will be senior obligations of each Guarantor, and will rank pari passu with all existing and future Senior Indebtedness of such Guarantor and senior to all Subordinated Indebtedness of such Guarantor. The Guarantors as of the Closing Date are set forth below: Pioneer Americas Acquisition Corp. Pioneer Americas, Inc. Pioneer Chlor Alkali Company, Inc. Imperial West Chemical Co. All-Pure Chemical Co. Black Mountain Power Company All-Pure Chemical Northwest, Inc. Pioneer Chlor Alkali International, Inc. G.O.W. Corporation Pioneer (East), Inc. T.C. Holdings, Inc. T.C. Products, Inc. PCI Carolina, Inc. Pioneer Licensing, Inc. Guarantors will include such other Subsidiaries of PAAC that become Guarantors as described under "-- Certain Covenants -- Certain Guarantees." The Indenture will provide that the obligations of the Guarantors under their respective Guarantees will be reduced to the extent necessary to prevent the Guarantees from violating or becoming voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Upon any sale, exchange, transfer or other disposition to any Person of all of the Issuer's, PAAC's or a Restricted Subsidiary's Equity Interests in, or all or substantially all of the assets of, any Guarantor which is in compliance with the Indenture, such Guarantor will be released from all its obligations under its Guarantee. Separate financial statements of the Guarantors are not included herein because (i) the Issuer is a wholly-owned indirect subsidiary of PAAC, which is a holding company with no independent operations, (ii) the Guarantees are full and unconditional (except to the extent necessary to comply with fraudulent conveyance laws), (iii) such Guarantors are jointly and severally liable with respect to the Guarantees, (iv) other than the Issuer, all of the consolidated Subsidiaries of PAAC currently in existence are Guarantors 105 111 and the aggregate consolidated net assets, earnings and equity of the Issuer and the Guarantors are substantially equivalent to the net assets, earnings and equity of PAAC on a consolidated basis. SECURITY The Issuer has granted to a collateral agent (the "Collateral Agent"), for the benefit of itself and (x) the Holders and the Trustee, for itself and the Holders, and (y) the Term Loan lenders and the agent under the Term Facility (the "Term Loan Agent"), first priority liens on, and security interests in, substantially all tangible and intangible property and assets used in the PCI Canada Business (other than accounts receivable and inventory). All of such property is collectively referred to herein as the "Collateral." There can be no assurance that the proceeds of any sale of the Collateral in whole or in part pursuant to the Indenture and the related security documents following an Event of Default would be sufficient to satisfy payments due on any of the Notes or the other secured Indebtedness. See "Risk Factors -- Limitations on Security Interest." In addition, the ability of the Collateral Agent, the Trustee, any of the Holders, the Term Loan Agent or the Term Loan lenders (the "Secured Parties") to realize upon the Collateral may be subject to certain bankruptcy law limitations in the event of a bankruptcy. See "-- Certain Bankruptcy Considerations." The collateral release provisions of the Indenture will permit the release of Collateral without substitution of collateral of equal value under certain circumstances. See "-- Release of Collateral." As described under "-- Certain Covenants -- Limitations on Asset Sales," the Net Proceeds of certain Asset Sales may under specified circumstances be required to be utilized to make a pro rata offer to purchase Notes. For so long as any of the Original Notes or the Exchange Notes, as the case may be, are outstanding, if an Event of Default occurs under the Indenture and a declaration of acceleration of the Original Notes or the Exchange Notes, as the case may be, occurs as a result thereof, the Trustee, on behalf of the Holders, and as directed by Holders of a majority of the total principal amount of the Notes, in addition to any rights or remedies available to it under the Indenture, may, subject to the provisions of the Intercreditor Agreement (as defined under "-- Intercreditor Agreement"), cause the Collateral Agent to take such action as it may deem advisable to protect and enforce the rights of the Trustee and the Holders in the Collateral, including the institution of foreclosure proceedings. The proceeds received by the Collateral Agent from any foreclosure with respect to the Collateral will be applied by the Collateral Agent first to pay the expenses of such foreclosure and fees and other amounts then payable to the Collateral Agent under the Intercreditor Agreement, and thereafter to pay, pro rata: (i) the obligations under the Indenture, including amounts then payable to the Trustee under the Indenture and the principal of, premium, if any, and interest on the Notes and any Exchange Notes, and (ii) the obligations under the Term Facility, including amounts then payable to the Term Loan Agent and the principal of, premium, if any, and interest on the Term Loans. Dispositions of Collateral may be subject to delay pursuant to the Intercreditor Agreement. See "-- Intercreditor Agreement." INTERCREDITOR AGREEMENT The Issuer, the Trustee, the Term Loan Agent and the Collateral Agent have entered into an Intercreditor and Collateral Agency Agreement (the "Intercreditor Agreement"). The Intercreditor Agreement provides generally that (i) with respect to administering the Collateral and amending, supplementing or waiving the provisions of the instruments relating to the security interests granted therein, the holders of a majority of the aggregate outstanding principal amount of the obligations secured by the Collateral (the "Majority Holders") may direct the Collateral Agent, provided that the Majority Holders include the holders of a majority of the aggregate outstanding principal amount of the Term Loans; (ii) with respect to releasing a substantial portion of the Collateral in circumstances not otherwise permitted by the Indenture or the Term Facility, the Majority Holders may direct the Collateral Agent, provided that the Majority Holders include the holders of 100% of the aggregate outstanding principal amount of the Term Loans; and (iii) with respect to foreclosing on or otherwise pursuing remedies with respect to the Collateral, the holders of a majority of the aggregate outstanding principal amount of either (x) the Notes or (y) the Term Loans may direct the 106 112 Collateral Agent, provided that the holders taking such action hold an aggregate principal amount of such debt representing at least 15% of the aggregate outstanding principal amount of the obligations secured by the Collateral. All cash or cash equivalents received by the Collateral Agent (x) upon the release of Collateral, (y) as proceeds of insurance or condemnation or other taking awards, or (z) as proceeds of any sale (including an Asset Sale authorized under the terms of the Indenture) or other disposition of Collateral (collectively, "Trust Moneys") shall be subject to a lien and security interest in favor of (i) the Collateral Agent for the benefit of the Secured Parties, in accordance with the terms of the Intercreditor Agreement. If an Event of Default shall have occurred and be continuing, and the obligations secured by the Collateral shall have been accelerated, then upon the instructions of the holders of the obligations secured by the Collateral, in accordance with the terms of the Intercreditor Agreement, the Collateral Agent shall, as soon as practicable, apply the Trust Moneys relating to the Collateral first to pay amounts then payable to the Collateral Agent under the Intercreditor Agreement, and thereafter to pay, pro rata; (i) the obligations under the Indenture, including amounts then payable to the Trustee under the Indenture and the principal of, premium, if any, and interest on the Original Notes and any Exchange Notes and (ii) the obligations under the Term Facility, including amounts then payable to the Term Loan Agent and the principal of premium, if any, and interest on the Term Loans. CERTAIN BANKRUPTCY CONSIDERATIONS The Collateral Agent's ability to realize on the security for the Notes is limited by the following legal and regulatory restrictions. See "Risk Factors -- Limitations on Security Interest" and "Risk Factors -- Fraudulent Conveyance Issues." Bankruptcy and Insolvency Act (Canada). In an insolvency or bankruptcy context, the ability of the Collateral Agent to realize on the security under the Security Documents will be subject to the provisions of the Bankruptcy and Insolvency Act (Canada). Under that Act the Collateral Agent will be a secured creditor. Insolvency does not in itself prevent secured creditors from realizing upon their security. A secured creditor that intends to realize upon its security on all or substantially all of the property used by an insolvent company in the carrying on of its business, must however, give to the insolvent company a written ten day notice of its intention to do so. An insolvent company may, in certain circumstances, delay realization by a secured creditor of its security by making a proposal in bankruptcy to all or some of its creditors including the secured creditors, or by filing with the official receiver a notice of intention to make such a proposal. In such circumstances, proceedings against the insolvent company are stayed, thereby delaying the rights of secured creditors to realize upon secured assets, unless they obtain from the court an exemption from the stay. If the proposal made to the secured creditors is rejected, the secured creditors may realize upon secured assets. Furthermore, if the proposal is rejected by the unsecured creditors, bankruptcy will automatically occur. Bankruptcy does not, in principle, prevent secured creditors from realizing upon their security. The trustee appointed to the bankruptcy can ask the court to postpone the right of a secured creditor to enforce its security to give the trustee the opportunity to consider whether anything can be realized on the property for the benefit of the estate. The Court may not, save for some exceptions, postpone the right of a secured creditor to enforce its security for more than six months from (i) the date the debtor becomes bankrupt, or in some instances, (ii) the date the debt became due. The trustee appointed to the bankruptcy might also delay a secured creditor from realizing on its security upon giving such creditor a notice of his intention to inspect the property of the bankrupt which is subject to the security, generally for the purpose of valuing the security. The trustee may also request that the secured creditor assess the value of its security, and the secured creditor be paid the secured value assessed at which time the trustee will have the right to redeem the security or require that the property subject to the security be sold. 107 113 Secured creditors may also make an application for the appointment of a receiver, receiver and manager or interim receiver (a "Receiver") and, where a court appoints a Receiver, there may be a general stay of proceedings against third parties, including secured creditors. The Collateral Agent's ability to realize on the security for the Notes would be governed by a court order. Companies' Creditors Arrangement Act (Canada). An insolvent company, in certain circumstances, may also obtain a stay of proceedings by placing itself under the protection of the Companies' Creditors Arrangement Act ("CCAA"). Like the proposal in bankruptcy, the CCAA allows a company to propose an arrangement to all of its creditors, including its secured creditors, and gives the court the power to stay all actions and proceedings against the assets of the company including realization on security for 30 days on the initial application and thereafter until otherwise ordered by the court. There may, in certain circumstances, also be further postponement of creditors' rights subsequent thereto. However, should a class of secured creditors reject the arrangement, such class is free to act upon its security. Civil Code of Quebec. The Civil Code of Quebec provides a limited list of hypothecary rights available to creditors. These are the taking of possession for the purposes of administration, taking in payment, sale by judicial authority or sale by the creditor. These rights may not be exercised simultaneously and in order to exercise them successively, a creditor would have to follow the applicable preliminary measures prior to the exercise of each right. A hypothecary creditor wishing to realize on its security must publish a notice indicating which remedy it wishes to invoke. In the case of security on personal (moveable) property, the notice must be given 20 days prior to exercise of the creditors' rights. In the case of security on real (immovable) property, the delay is 60 days. However, where a creditor only intends to take possession for purposes of temporary administration, the delay is 10 days. Rights which may be conferred on the Collateral Agent pursuant to the Security Documents may not be enforceable to the extent that they are inconsistent with the provisions of the Civil Code of Quebec. Personal Property Security Act (Ontario). The Personal Property Security Act (Ontario) ("Ontario PPSA") provides a secured creditor with remedies in addition to those that may be provided under the creditors' security documents. The remedies provided under the Ontario PPSA include taking possession for the purposes of administration, disposition or satisfaction of the indebtedness. The Ontario PPSA does impose certain limitations on the exercise of remedies under either the creditors' security documents or the Ontario PPSA including the requirement to give notice, to act in a commercially reasonable manner and to account for any surplus. Personal Property Security Act (New Brunswick). The Personal Property Security Act (New Brunswick) ("New Brunswick PPSA") provides a secured creditor with remedies in addition to those that may be provided under the creditors' security documents. The remedies provided under the New Brunswick PPSA include taking possession for the purposes of administration, disposition or satisfaction of the indebtedness. The New Brunswick PPSA does impose certain limitations on the exercise of remedies under either the creditors' security documents or the New Brunswick PPSA including the requirement to give notice, to act in a commercially reasonable manner and to account for any surplus. Nova Scotia and the Personal Property Security Act (Nova Scotia). On November 3, 1997 the Personal Property Security Act (Nova Scotia)("Nova Scotia PPSA") became effective. The Nova Scotia PPSA provides a secured creditor with remedies in addition to those that may be provided under the creditors' security documents. The remedies provided under the Nova Scotia PPSA include the taking of possession for the purposes of administration, disposition or satisfaction of the indebtedness. The Nova Scotia PPSA imposes certain limitations on the exercise of remedies under either the creditors' security documents or the Nova Scotia PPSA including the requirement to give notice, to act in a commercially reasonable manner and to account for any surplus. U.S. Bankruptcy Code. The right of the Collateral Agent to repossess and dispose of the Collateral upon the occurrence of an Event of Default is likely to be significantly impaired by applicable United States bankruptcy law if a bankruptcy case were to be commenced by or against the Issuer prior to the Collateral Agent's having repossessed and disposed of the Collateral. Under the United States Bankruptcy Code, a 108 114 secured creditor such as the Collateral Agent is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from such debtor, without bankruptcy court approval. Moreover, the United States Bankruptcy Code permits the debtor to continue to retain and to use collateral even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given "adequate protection." The meaning of the term "adequate protection" may vary according to circumstances, but it is intended in general to protect the value of the secured creditor's interest in the collateral and may include cash payments or the granting of additional security, if and as such times as the court, in its discretion or any use of the collateral by the debtor during the pendency of the bankruptcy case. In view of the lack of a precise definition of the term "adequate protection" and the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the Original Notes, the Exchange Notes, if any, or the other secured indebtedness could be delayed following commencement of a bankruptcy case, whether or when the Collateral Agent could repossess or dispose of the Collateral or whether or to what extent holders of such indebtedness would be compensated for any delay in payment or loss of value of the Collateral through the requirement of "adequate protection." Furthermore, in the event that the bankruptcy court determines the value of the collateral is not sufficient to repay all amounts due on such indebtedness, the holders of such indebtedness would hold "undersecured claims." Applicable U.S. federal bankruptcy laws do not permit the payment and/or accrual of interest, costs and attorney's fees for "undersecured claims" during the pendency of a debtor's bankruptcy case. ADDITIONAL AMOUNTS All payments made by the Issuer under or with respect to the Notes will be made free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and other liabilities related thereto) imposed or levied by or on behalf of the Government of Canada or of any province or territory thereof or by any authority or agency therein or thereof having power to tax (hereinafter, "Taxes"), unless the Issuer is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Issuer is required to withhold or deduct any amount for or on account of Taxes from any payment made under or with respect to the Notes, the Issuer will pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder (including Additional Amounts) after such withholding or deduction will not be less than the amount the Holder would have received if such Taxes had not been withheld or deducted; provided that no Additional Amounts will be payable with respect to a payment made to a Holder to the extent solely attributable to (i) such Holder not being treated as dealing at arm's length with the Company (within the meaning of the Income Tax Act (Canada)) at the time of making such payment, or (ii) such Holder's being connected with Canada or any province or territory thereof otherwise than solely by reason of the Holder's activity in connection with purchasing the Notes, by the mere holding of Notes or by reason of the receipt of payments thereunder. The Issuer will also (i) make such withholding or deduction and (ii) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. The Company will furnish to the Holders, within 30 calendar days after the date the payment of any Taxes is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by the Issuer. The Issuer will, upon written request of each Holder, reimburse each such Holder for the amount of (i) any Taxes so levied or imposed and paid by such Holder as a result of payments made under or with respect to the Notes, and (ii) any Taxes so levied or imposed with respect to any reimbursement under the foregoing clause (i) so that the net amount received by such Holder (net of payments made under or with respect to the Notes) after such reimbursement will not be less than the net amount the Holder would have received if Taxes on such reimbursement had not been imposed; provided, however, no reimbursement shall be made in respect of Taxes for which no Additional Amounts would be payable by reason of clause (i) or (ii) of the second preceding sentence. At least 30 calendar days prior to each date on which any payment under or with respect to the Notes is due and payable, if the Issuer will be obligated to pay Additional Amounts with respect to such payment, the Issuer will deliver to the Trustee an officers' certificate stating the fact that such Additional Amounts will be payable and the amounts so payable and will set forth such other information necessary to enable the Trustee to pay such Additional Amounts to Holders on the payment date. Whenever in the Indenture or in this 109 115 "Description of the Notes" there is mentioned, in any context, the payment of principal, interest, if any, or any other amount payable under or with respect to any Note, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. The Holders and the Issuer agree that the payment of any Additional Amounts by the Issuer shall be treated as payments of interest. OPTIONAL REDEMPTION The Notes will not be redeemable at the option of the Issuer prior to October 15, 2002. On or after that date, the Notes will be redeemable at the option of the Issuer, in whole or in part from time to time, on not less than 30 nor more than 60 days' prior notice, mailed by first-class mail to the Holders' registered addresses, in cash, at the following redemption prices (expressed as percentages of the principal amount), if redeemed in the 12-month period commencing October 15 in the year indicated below, in each case plus accrued and unpaid interest and Liquidated Damages, if any, to the date fixed for redemption:
YEAR REDEMPTION ---- ---------- 2002........................................................ 104.625% 2003........................................................ 103.084% 2004........................................................ 101.542% 2005 and thereafter......................................... 100.000%
The Notes will not be subject to, or entitled to the benefits of, any sinking fund. Notwithstanding the foregoing, at any time prior to October 15, 2000, the Issuer may redeem, in part, up to 35% of the aggregate principal amount of the Notes originally issued at a purchase price of 109.25% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date fixed for redemption, with the net proceeds of (i) any Equity Offering by the Issuer or (ii) any Equity Offering by Pioneer or PAAC, but only to the extent that Pioneer or PAAC contributes such net proceeds to the Issuer as a capital contribution; provided that at least 65% of the aggregate principal amount of the Notes originally issued remains outstanding immediately after giving effect to such redemption. In order to effect the foregoing redemption, the Issuer will be required to send the redemption notice not later than 60 days after the receipt of the proceeds of such public offering. Notes may be redeemed or repurchased as set forth below under "-- Change of Control" and "-- Certain Covenants -- Limitations on Asset Sales" in part in multiples of $1,000. If less than all the Notes issued under the Indenture are to be redeemed, the Trustee will select the Notes to be redeemed pro rata, by lot or by any other method which the Trustee deems fair and appropriate. The Indenture will provide that if any Note is to be redeemed or repurchased in part only, the notice which relates to the redemption or repurchase of such Note will state the portion of the principal amount of such Note to be redeemed or repurchased and will state that on or after the date fixed for redemption or repurchase a new Note equal to the unredeemed portion thereof will be issued. On and after the date fixed for redemption or repurchase, interest will cease to accrue on the Notes or portions thereof called for redemption or tendered for repurchase. REDEMPTION FOR CHANGES IN CANADIAN WITHHOLDING TAXES The Notes will be redeemable at the option of the Issuer, as a whole, but not in part, at any time on not less than 30 nor more than 60 days' prior notice, mailed by first-class mail to the Holders' registered addresses, in cash, at 100% of the aggregate principal amount thereof, together with accrued and unpaid interest and Liquidated Damages, if any, to the date fixed for redemption in the event the Issuer has become or would be obligated to pay, on any date on which any amount would be payable with respect to the Notes, any Additional Amounts as a result of a change in, or amendment to the laws (including any regulations promulgated thereunder) of Canada (or any political subdivision or taxing authority thereof or therein), or any change in, 110 116 or amendment to any official position regarding the application or interpretation of such laws or regulations, which change is announced or becomes effective on or after the Closing Date. CHANGE OF CONTROL The Indenture provides that in the event of a Change of Control (the date of such occurrence being the "Change of Control Date"), the Issuer will notify the Holders in writing of such occurrence and will make an irrevocable offer (the "Change of Control Offer") to purchase on a business day (the "Change of Control Payment Date") not later than 60 days following the Change of Control Date, all Notes then outstanding at a purchase price (the "Purchase Price") equal to 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the Change of Control Payment Date. Notice of a Change of Control Offer will be mailed by the Issuer to the Holders at their registered addresses not less than 30 days nor more than 45 days before the Change of Control Payment Date. The Change of Control Offer is required to remain open for at least 20 business days and until 5:00 p.m., New York City time, on the Change of Control Payment Date. The notice will contain all instructions and materials necessary to enable Holders to tender (in whole or in part in a principal amount equal to $1,000 or a whole multiple thereof) their Notes pursuant to the Change of Control Offer. Substantially simultaneously with mailing of the notice, the Issuer will cause a copy of such notice to be published in a newspaper of general circulation in the Borough of Manhattan, The City of New York. The notice, which governs the terms of the Change of Control Offer, will state, among other things: (i) that the Change of Control Offer is being made pursuant to this covenant; (ii) the Purchase Price and the Change of Control Payment Date; (iii) that any Notes not surrendered or accepted for payment will continue to accrue interest; (iv) that any Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (v) that any Holder electing to have a Note purchased (in whole or in part) pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice (or otherwise make effective delivery of the Note pursuant to book-entry procedures and the related rules of the applicable depositories) at least five business days before the Change of Control Payment Date; and (vi) that any Holder will be entitled to withdraw his election if the Paying Agent receives, not later than three business days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase, the certificate number of the Note and a statement that such Holder is withdrawing his election to have such Note purchased. On the Change of Control Payment Date, the Issuer will: (i) accept for payment the Notes, or portions thereof, surrendered and properly tendered and not withdrawn, pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the Purchase Price of all the Notes, or portions thereof, so accepted; and (iii) deliver to the Trustee the Notes so accepted together with an officer's certificate stating that such Notes have been accepted for payment by the Issuer. The Paying Agent will promptly mail or deliver to Holders of Notes so accepted payment in an amount equal to the Purchase Price. Holders whose Notes are purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. A "Change of Control" means the occurrence of any of the following: (i) a "person" or "group" (as such terms are used in Sections 14(d)(2) and 13(d)(3), respectively, of the Exchange Act), other than any of (x) William R. Berkley and his Affiliates and/or (y) Interlaken Capital, Inc. and its Affiliates (each individually a "Substantial Shareholder" and collectively the "Substantial Shareholders"), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of at least 50% of the outstanding voting power of the fully diluted Voting Stock of Pioneer or PAAC, (ii) the adoption of a plan relating to the liquidation or dissolution of Pioneer or PAAC, (iii) the merger, amalgamation or consolidation of Pioneer or PAAC with or into another corporation with the effect that the stockholders of Pioneer or PAAC immediately prior to such merger, amalgamation or consolidation cease to be the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act) of 50% or more of the combined voting power of the securities of the 111 117 surviving corporation of such merger, amalgamation or the corporation resulting from such merger, amalgamation or consolidation ordinarily (and apart from rights arising under special circumstances) having the right to vote in the election of directors outstanding immediately after such merger, amalgamation or consolidation, (iv) during any period of two consecutive calendar years individuals who at the beginning of such period constituted the Board of Directors of Pioneer or PAAC (together with any new directors whose election by the Board of Directors of Pioneer or PAAC, or whose nomination for election by the shareholders of Pioneer or PAAC, was approved by a vote of a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors of Pioneer or PAAC then in office or (v) the Issuer ceases to be a wholly-owned direct or indirect subsidiary of Pioneer or PAAC. Notwithstanding the foregoing, a Change of Control will not be deemed to have occurred under clause (v) above solely as a result of a merger, amalgamation, consolidation or similar arrangement of the Issuer with or into Pioneer or PAAC provided that such merger, amalgamation, consolidation or similar arrangement is permitted by the covenant described below under "-- Certain Covenants -- Limitations on Mergers; Sales of Assets." The Issuer will comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act, any other tender offer rules under the Exchange Act and other securities laws or regulations in connection with the offer to repurchase and the repurchase of the Notes as described above. The indenture governing the Senior Secured Notes also requires PAAC to make an offer to purchase the Senior Secured Notes upon the occurrence of a change of control pursuant to such indenture. The Issuer's ability to repurchase the Notes pursuant to a Change of Control Offer will be limited by, among other things, PAAC's and its Subsidiaries' financial resources at the time of repurchase. There can be no assurance that sufficient funds will be available at the time of any Change of Control to make any required repurchases. Furthermore, there can be no assurance that the Issuer will be able to fund the repurchase of Notes upon a Change of Control within the limitations imposed by the terms of other then-existing Senior Indebtedness. The Existing Term Facility and the Term Facility require a mandatory prepayment of the loans thereunder at 100% of the principal amount thereof, plus accrued and unpaid interest, with respect to a change of control under such facility. The Revolving Facility may prohibit the Issuer from repurchasing Notes if at the time of such repurchase an event of default under the Revolving Facility exists or would be caused thereby. The occurrence of a Change of Control may cause an event of default under the New Credit Facilities, the Existing Term Facility, the Senior Secured Notes or other Indebtedness of the Issuer or the Guarantors, upon which event of default all amounts outstanding under such Indebtedness may become due and payable. In the event a Change of Control occurs at a time when the Issuer is prohibited from purchasing Notes, the Issuer will be required under the Indenture, within 30 days following a Change of Control to (i) seek the consent of its lenders to the purchase of the Notes or (ii) refinance the Indebtedness that prohibits such purchase. If the Issuer does not obtain such a consent or refinance such borrowings, the Issuer will remain prohibited from repurchasing Notes. The Issuer's failure to purchase tendered Notes or make a Change of Control Offer following a Change of Control would constitute an Event of Default under the Indenture. An amendment of or waiver under the Indenture may not waive the Issuer's obligation to make a Change of Control Offer without the consent of the Holders of at least two-thirds in outstanding principal amount of the Notes. The existence of the requirement of the Issuer to make a Change of Control Offer to purchase Notes upon the occurrence of a Change of Control may deter a third party from acquiring Pioneer, the Issuer or PAAC in a transaction which would constitute a Change of Control. Subject to certain limitations described below in "-- Certain Covenants", including the limitation on incurrence of additional Indebtedness, Pioneer, the Issuer or PAAC could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of Senior Indebtedness (or any other Indebtedness) outstanding at such time or otherwise affect Pioneer's, the Issuer's or PAAC's capital structure or credit ratings. The Change of Control provisions will not prevent a leveraged buyout led by Pioneer, the Issuer, PAAC or the management, a recapitalization of Pioneer, the Issuer or PAAC or a change in a majority of the members of the Board of 112 118 Directors of Pioneer, the Issuer or PAAC which is approved by its then Board of Directors, as the case may be. The Indenture provides that the Issuer and PAAC will not, and will not permit any of the Restricted Subsidiaries to, create or permit to exist or become effective any restriction (other than restrictions not more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Issuer) than those in effect under Existing Indebtedness and the New Credit Facilities) that would materially impair the ability of the Issuer to make a Change of Control Offer to purchase the Notes or, if such Change of Control Offer is made, to pay for the Notes tendered for purchase. CERTAIN COVENANTS The Indenture contains, among others, the following covenants: Limitations on Indebtedness. The Indenture provides that the Issuer and PAAC will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become liable with respect to or become responsible for the payment of, contingently or otherwise ("incur"), any Indebtedness; provided, however, that the Issuer, PAAC, or a Restricted Subsidiary may incur Indebtedness if at the time of such incurrence and after giving pro forma effect thereto, the Consolidated Cash Flow Coverage Ratio for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is incurred, calculated on a pro forma basis as if such Indebtedness was incurred on the first day of such four full fiscal quarter period, would be at least 2.0 to 1.0. The Indenture further provides that notwithstanding the foregoing limitations, the incurrence of the following will not be prohibited: (a) Indebtedness of the Issuer evidenced by the Original Notes, the Exchange Notes and Indebtedness of the Guarantors evidenced by the Guarantees and the guarantees with respect to the Exchange Notes; (b) Indebtedness of PAI evidenced by the Term Loans and Indebtedness of the Issuer, PAAC or any Restricted Subsidiary evidenced by the guarantees with respect to the Term Loans; (c) Indebtedness of the Issuer, PAAC or any Restricted Subsidiary constituting Existing Indebtedness, and any extension, deferral, renewal, refinancing or refunding thereof; (d) Indebtedness of the Issuer, PAAC or any Restricted Subsidiary incurred under one or more Credit Facilities in an aggregate principal amount at any one time outstanding not to exceed the Borrowing Base at the time such Indebtedness was incurred, less the aggregate amount of all permanent repayments of revolving loans under such Credit Facilities made in accordance with the second paragraph of the covenant described under "-- Limitations on Asset Sales"; (e) Capitalized Lease Obligations of the Issuer, PAAC or any Restricted Subsidiary and Indebtedness of the Issuer, PAAC, or any Restricted Subsidiary secured by Liens that secure the payment of all or part of the purchase price of assets or property acquired or constructed in the ordinary course of business after the date of the Indenture; provided, however, that the aggregate principal amount of such Capitalized Lease Obligations plus such Indebtedness of the Issuer, PAAC and all of the Restricted Subsidiaries does not exceed $10.0 million outstanding at any time; (f) Indebtedness of the Issuer to PAAC, or of the Issuer or PAAC to any Restricted Subsidiary, or of PAAC to the Issuer or any Restricted Subsidiary or of any Restricted Subsidiary to the Issuer, PAAC or another Restricted Subsidiary (but only so long as such Indebtedness is held by the Issuer, PAAC or a Restricted Subsidiary); (g) Indebtedness under Hedging Obligations, provided, however, that, in the case of foreign currency exchange or similar agreements which relate to other Indebtedness, such agreements do not increase the Indebtedness of the Issuer, PAAC or any Restricted Subsidiary outstanding other than as a 113 119 result of fluctuations in foreign currency exchange rates, and in the case of interest rate protection agreements, only if the notional principal amount of such interest rate protection agreement does not exceed the principal amount of the Indebtedness to which such interest rate protection agreement relates; (h) Indebtedness in respect of performance, completion, guarantee, surety and similar bonds, banker's acceptances or letters of credit provided by the Issuer, PAAC or any Restricted Subsidiary in the ordinary course of business; (i) In addition to any Indebtedness otherwise permitted to be Incurred under the Indenture, up to $10.0 million aggregate principal amount of Indebtedness at any one time outstanding; and (j) Any refinancing, refunding, deferral, renewal or extension (each, a "Refinancing") of any Indebtedness of the Issuer, PAAC or any Restricted Subsidiary permitted by the initial paragraph of this covenant and clauses (a) and (b) of the second paragraph of this covenant (the "Refinancing Indebtedness"); provided, however, that (i) such Refinancing Indebtedness does not exceed the aggregate principal amount of the Indebtedness so refinanced, plus the amount of any premium required to be paid in connection with such Refinancing in accordance with the terms of such Indebtedness or the amount of any premium reasonably determined by the Board of Directors as necessary to accomplish such Refinancing, plus the amount of reasonable and customary out-of-pocket fees and expenses payable in connection therewith, (ii) the Refinancing Indebtedness does not provide for any mandatory redemption, amortization or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in the Indebtedness being refinanced, refunded, deferred, renewed or extended and (iii) if the Indebtedness being refinanced, refunded, deferred, renewed or extended is subordinated to the Notes, the Refinancing Indebtedness incurred to refinance, refund, defer, renew or extend such Indebtedness is subordinated in right of payment to the Notes on terms at least as favorable to the Holders as those contained in the documentation governing the Indebtedness being so refinanced, refunded, deferred, renewed or extended. Notwithstanding anything to the contrary contained in the Indenture, the Issuer, PAAC and the Restricted Subsidiaries each may guarantee Indebtedness of the Issuer, PAAC or any Restricted Subsidiary that is permitted to be incurred under the Indenture; provided that if such Indebtedness is subordinated in right of payment to any other Indebtedness of the obligor, then such guarantee shall be subordinated to Indebtedness of such guarantor to the same extent. Limitations on Restricted Payments. The Indenture provides that each of the Issuer and PAAC will not, nor will it cause, permit or suffer any Restricted Subsidiary to, (i) declare or pay any dividends or make any other distributions (including through mergers, liquidations or other transactions commonly known as leveraged buyouts) on any class of Equity Interests of the Issuer, PAAC or such Restricted Subsidiary (other than dividends or distributions payable by the Issuer or a Wholly-Owned Restricted Subsidiary of PAAC on account of its Equity Interests held by the Issuer, PAAC or another Restricted Subsidiary or payable in shares of Capital Stock of the Issuer or PAAC other than Redeemable Stock), (ii) make any payment on account of, or set apart money for a sinking or other analogous fund for, the purchase, redemption or other retirement of such Equity Interests, (iii) purchase, defease, redeem or otherwise retire any Subordinated Indebtedness, or (iv) make any Restricted Investment, either directly or indirectly, whether in cash or property or in obligations of the Issuer, PAAC or any Restricted Subsidiary (all of the foregoing being called "Restricted Payments"), unless, (x) in the case of a dividend, such dividend is payable not more than 60 days after the date of declaration and (y) after giving effect to such proposed Restricted Payment, all the conditions set forth in clauses (1) through (3) below are satisfied (A) at the date of declaration (in the case of any dividend), (B) at the date of such setting apart (in the case of any such fund) or (C) on the date of such other payment or distribution (in the case of any other Restricted Payment) (each such date being referred to as a "Computation Date"): (1) no Default or Event of Default has occurred and is continuing or would result from the making of such Restricted Payment; 114 120 (2) at the Computation Date for such Restricted Payment and after giving effect to such Restricted Payment on a pro forma basis, the Issuer, PAAC or such Restricted Subsidiary could incur $1.00 of additional Indebtedness pursuant to the covenant described in the initial paragraph under "-- Limitations on Indebtedness;" and (3) the aggregate amount of Restricted Payments declared, paid or distributed subsequent to the Closing Date (including the proposed Restricted Payment) does not exceed the sum of (i) 50% of the cumulative Consolidated Net Income of PAAC for the period subsequent to October 1, 1997 to and including the last day of PAAC's last fiscal quarter ending prior to the Computation Date (each such period to constitute a "Computation Period") (or, if such aggregate cumulative Consolidated Net Income is a loss, minus 100% of such loss of PAAC during the Computation Period), (ii) the aggregate Net Cash Proceeds of the issuance or sale or the exercise (other than to PAAC or a Subsidiary of PAAC or an employee stock ownership plan or other trust established by the Issuer, PAAC or any of PAAC's Subsidiaries for the benefit of their respective employees) of the Issuer's or PAAC's Equity Interests (other than Redeemable Stock) subsequent to the Closing Date, (iii) the aggregate Net Cash Proceeds of the issuance or sale (other than to PAAC or a Subsidiary of PAAC) of any debt securities of the Issuer or PAAC, respectively, that have been converted into or exchanged for Equity Interests (other than Redeemable Stock) of the Issuer or PAAC, respectively, to the extent such debt securities were originally issued or sold for cash, plus the aggregate Net Cash Proceeds received by the Issuer or PAAC, respectively, at the time of such conversion or exchange, in each case subsequent to the Closing Date, (iv) cash contributions to the Issuer's or PAAC's capital subsequent to the Closing Date and (v) $5.0 million. If no Default or Event of Default has occurred and is continuing or would occur as a result thereof, the prohibitions set forth above are subject to the following exceptions: (a) Restricted Investments in obligations representing a portion of the proceeds of any Asset Sale consummated in accordance with the covenant described under "-- Limitations on Asset Sales", provided, however, that such Restricted Investments will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (b) any purchase or redemption of Equity Interests or Subordinated Indebtedness made by exchange for, or out of the proceeds of the substantially concurrent sale of, Equity Interests of the Issuer or PAAC (other than Redeemable Stock and other than Equity Interests issued or sold to PAAC or a Subsidiary of PAAC or an employee stock ownership plan), provided, however, that (x) such purchase or redemption will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph and (y) the Net Cash Proceeds from such sale will be excluded for purposes of clause (3)(ii) of the preceding paragraph to the extent utilized for purposes of such purchase or redemption; (c) any purchase or redemption of Subordinated Indebtedness of the Issuer or PAAC made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Indebtedness of the Issuer, PAAC or any Restricted Subsidiary which is permitted to be issued pursuant to the provisions of the covenant described under "-- Limitation on Indebtedness," provided, however, that such purchase or redemption will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (d) the repurchase, redemption or other acquisition or retirement for value of Capital Stock of Pioneer, the Issuer or PAAC held by management or other employees of Pioneer, the Issuer or PAAC or any Subsidiary of PAAC pursuant to any shareholders agreement, management or employee stock option agreement or management or employee equity subscription agreement, in accordance with the provisions of any such arrangement, in an amount not greater than $500,000 in any calendar year plus the portion of any such amounts which remains unused at the end of the two prior calendar years, but in no event to exceed $1.5 million in any calendar year; provided, however, that any such purchase, redemption, acquisition or retirement for value will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (e) payments to Pioneer pursuant to any tax sharing arrangement so long as payments thereunder do not exceed the amount of PAAC and its consolidated subsidiaries' share of U.S. Federal and state and Canadian federal and provincial income taxes actually paid or to be paid by Pioneer, provided, however, that such payments will be excluded in the calculation of the amount of Restricted Payments previously made for 115 121 purposes of clause (3) of the preceding paragraph; (f) payments to Pioneer to perform accounting, legal, corporate reporting and administrative functions in the ordinary course of business in an amount not greater than $500,000 in any calendar year, or to pay required fees in connection with the PCI Canada Acquisition, provided, however, that such payments will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; and (g) Investments described in clause (vi) of the definition of Permitted Investments, provided, however, that such Investments will be included in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph. For purposes of this covenant, (a) the amount of any Restricted Payment declared, paid or distributed in property of the Issuer, PAAC or any Restricted Subsidiary will be deemed to be the net book value of any such property that is intangible property and the Fair Market Value (as determined by and set forth in a resolution of the Issuer's Board of Directors) of any such property that is tangible property at the Computation Date, in each case, after deducting related reserves for depreciation, depletion and amortization; (b) the amount of any Restricted Payment declared, paid or distributed in obligations of the Issuer, PAAC or any Restricted Subsidiary will be deemed to be the principal amount of such obligations as of the date of the adoption of a resolution by the Board of Directors of the Issuer, PAAC or such Restricted Subsidiary authorizing such Restricted Payment; and (c) a distribution to holders of the Issuer's or PAAC's Equity Interests of (i) shares of Capital Stock or other Equity Interests of any Restricted Subsidiary or (ii) other assets of the Issuer or PAAC, without, in either case, the receipt of equivalent consideration therefor will be regarded as the equivalent of a cash dividend equal to the excess of the Fair Market Value of the Equity Interests or other assets being so distributed at the time of such distribution over the consideration, if any, received therefor. The Issuer shall deliver to the Trustee an officers' certificate stating that such Restricted Payment is permitted, attaching a copy of the applicable resolution of the Board of Directors pursuant to which the value of the Restricted Payment to be made was determined and setting forth the basis upon which the calculations required by this covenant were computed. Limitations on Liens. The Indenture provides that the Issuer and PAAC will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of their respective assets or properties now owned or acquired after the Closing Date, or any income or profits therefrom, excluding, however, from the operation of the foregoing any of the following: (a) Liens existing as of the Closing Date or pursuant to an agreement or document in existence on the Closing Date, including the New Credit Facilities and security documents related thereto; (b) Permitted Liens; (c) Liens on assets or property of the Issuer, or on assets or property of PAAC or the Restricted Subsidiaries, to secure the payment of all or a part of the purchase price of assets or property acquired or constructed in the ordinary course of business after the date of the Indenture; provided, however, that (i) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, (ii) the Indebtedness secured by such Liens is otherwise permitted to be incurred under the Indenture, (iii) such Liens do not encumber any other assets or property of the Issuer, PAAC or any of the Restricted Subsidiaries and (iv) the Indebtedness secured by such Liens may not be created more than 100 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to such Liens; (d) Liens on assets or property acquired by the Issuer, PAAC or any Restricted Subsidiary after the date of the Indenture; provided, however, that (i) such Liens existed on the date such assets or property were acquired and were not incurred as a result of or in anticipation of such acquisition and (ii) such Liens do not extend to or cover any assets or property of the Issuer, PAAC or any of the Restricted Subsidiaries other than the assets or property so acquired; 116 122 (e) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under the Indenture and which is permitted to be refinanced under the Indenture; provided, however, that such Liens do not extend to or cover any assets or property of the Issuer, PAAC or any of the Restricted Subsidiaries not securing the Indebtedness so refinanced; (f) Liens on assets or property of the Issuer, PAAC or any Restricted Subsidiary that is subject to a Sale and Leaseback Transaction, provided, however, that the aggregate principal amount of Attributable Indebtedness in respect of all Sale and Leaseback Transactions then outstanding does not at the time such a Lien is incurred exceed $10.0 million; (g) Liens on property or shares of Capital Stock of a Person at the time such Person becomes a Restricted Subsidiary; provided, however, that such Liens are not created, incurred or assumed in contemplation of the acquisition thereof by the Issuer, PAAC or a Restricted Subsidiary; provided further, that such Liens may not extend to any other property owned by the Issuer, PAAC or a Restricted Subsidiary; (h) Liens securing Indebtedness of a Restricted Subsidiary owing to the Issuer, PAAC or a Wholly-Owned Restricted Subsidiary; (i) Liens on inventory, accounts receivable or related general intangibles of any Restricted Subsidiary securing the obligations under clause (d) of the covenant described under "-- Limitations on Indebtedness"; (j) pari passu Liens on the collateral which secures the Senior Secured Notes securing up to $50.0 million aggregate principal amount of Indebtedness permitted to be incurred under the initial paragraph of the covenant described under "-- Limitations on Indebtedness," provided that (i) the proceeds of such Indebtedness are used to acquire or construct additional property, plant and equipment that will be utilized in one or more Related Businesses, and (ii) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed; and (k) Liens on assets or property of the Issuer, or on assets or property of PAAC or the Restricted Subsidiaries, acquired or constructed after the date of the Indenture other than in the ordinary course of business and other than assets or properties constituting Collateral; provided, however, that (i) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, (ii) the Indebtedness secured by such Liens is otherwise permitted to be incurred under the Indenture, and (iii) such Liens do not encumber the Collateral. Limitations on Payment Restrictions Affecting Restricted Subsidiaries. The Indenture provides that the Issuer and PAAC will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of PAAC or any Restricted Subsidiary to (i) pay dividends or make any other distribution to the Issuer, PAAC or the Restricted Subsidiaries on its Equity Interests, (ii) pay any Indebtedness owed to the Issuer, PAAC or any Restricted Subsidiary, (iii) make loans or advances to the Issuer, PAAC or any other Restricted Subsidiary or (iv) transfer any of its property or assets to the Issuer, PAAC or any Restricted Subsidiary, except (A) consensual encumbrances or restrictions contained in or created pursuant to the New Credit Facilities, other Existing Indebtedness listed on a schedule to the Indenture and security and intercreditor documents related thereto in existence on the Closing Date, (B) consensual encumbrances or restrictions in the Notes, the Exchange Notes and the Indenture, (C) any restriction, with respect to a Restricted Subsidiary of the Issuer or PAAC that is not a Subsidiary of the Issuer or PAAC on the Closing Date, in existence at the time such entity becomes a Restricted Subsidiary of the Issuer or PAAC; provided that such encumbrance or restriction is not created in anticipation of or in connection with such entity becoming a Subsidiary of the Issuer or PAAC and is not applicable to any Person or the properties or assets of 117 123 any Person other than a Person that becomes a Subsidiary, (D) any encumbrances or restrictions pursuant to an agreement effecting a refinancing of Indebtedness referred to in clauses (A) or (C) of this covenant or contained in any amendment to any agreement creating such Indebtedness, provided that the encumbrances and restrictions contained in any such refinancing or amendment are not materially more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Issuer) than those provided for in such Indebtedness being refinanced or amended, (E) encumbrances or restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Closing Date pursuant to the provisions of the covenant described under "-- Limitations on Indebtedness", provided that any such encumbrances or restrictions are not materially more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Issuer) than the most restrictive of those provided for in the Indebtedness referred to in clause (A), (B) or (C) of this covenant, (F) any such encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease, (G) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary in compliance with the Indenture pending the closing of such sale or disposition; or (H) any encumbrance or restriction due to applicable law. Limitations on Asset Sales. The Indenture provides that the Issuer and PAAC will not, and will not permit any Restricted Subsidiary to, make any Asset Sale (other than to the Issuer, PAAC or any Restricted Subsidiary) unless (i) the Issuer, PAAC or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed of, and at least 80% of the consideration received by the Issuer, PAAC or such Restricted Subsidiary from such Asset Sale is in the form of cash; provided however, that the amount of any cash equivalent or note or other obligation received by the Issuer, PAAC or such Restricted Subsidiary from the transferee in any such transaction that is converted within 90 days by the Issuer, PAAC or such Restricted Subsidiary into cash will be deemed upon such conversion to be cash for purposes of this provision; and (ii) the Net Proceeds received by the Issuer, PAAC or such Restricted Subsidiary from such Asset Sale are applied in accordance with the following paragraphs. If all or a portion of the Net Proceeds of any Asset Sale are not required to be applied to repay permanently any Senior Indebtedness of the Issuer, PAAC or PAI then outstanding as required by the terms thereof, or the Issuer determines not to apply such Net Proceeds to the permanent prepayment of any Senior Indebtedness outstanding (in the case of any optional prepayment of Term Loans, only if such prepayment is effected on a pro rata basis in accordance with the Intercreditor Agreement and in the case of a revolving credit facility or similar arrangement that makes credit available, only if the commitment thereunder is also permanently reduced by such amount) or if no such Senior Indebtedness is then outstanding, then the Issuer may, within 365 days of the Asset Sale, invest the Net Proceeds in the Issuer, PAAC or in one or more Restricted Subsidiaries in a Related Business. The Existing Term Facility requires, and the Term Facility will require, that any cumulative Net Proceeds (including proceeds of Collateral in the case of the Term Facility) received in excess of $35.0 million will be used to make a mandatory prepayment of the loans thereunder. The amount of Net Proceeds neither used to permanently repay or prepay Senior Indebtedness nor used or invested as set forth in this paragraph constitutes "Excess Proceeds." When the aggregate amount of Excess Proceeds from one or more Asset Sales equals $10.0 million or more, the Issuer will apply 100% of such Excess Proceeds within 365 days subsequent to the consummation of the Asset Sale which resulted in the Excess Proceeds equalling $10.0 million or more to the purchase of Notes tendered to the Issuer for purchase at a price equal to 100% of the principal amount thereof, plus accrued interest and Liquidated Damages, if any, to the date of purchase pursuant to an offer to purchase made by the Issuer (an "Asset Sale Offer") with respect to the Notes. Any Asset Sale Offer may include a pro rata offer under similar circumstances to purchase other Senior Indebtedness requiring a similar offer. Any Asset Sale Offer will be made substantially in accordance with the procedures for a Change of Control Offer described under "-- Change of Control." Until such time as the Net Proceeds from any Asset Sale are applied in accordance with this covenant, such Net Proceeds will be segregated from the other assets of the Issuer, PAAC and the Subsidiaries of PAAC and invested in cash or Eligible Investments, except that the Issuer, 118 124 PAAC or any Restricted Subsidiary may use any Net Proceeds pending the utilization thereof in the manner (and within the time period) described above, to repay revolving loans (under the Revolving Facility or otherwise) without a permanent reduction of the commitment thereunder. The Issuer will cause a notice of any Asset Sale Offer to be mailed to the Holders at their registered addresses not less than 30 days nor more than 45 days before the purchase date. Such notice will contain all instructions and materials necessary to enable Holders to tender their Notes to the Issuer. Upon receiving notice of an Asset Sale Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent that Holders properly tender Notes in an amount exceeding the Asset Sale Offer, Notes of tendering Holders will be repurchased on a pro rata basis (based on amounts tendered). The Issuer's ability to repurchase the Notes pursuant to an Asset Sale Offer may be prohibited by the Existing Term Facility or the New Credit Facilities if at the time of such repurchase an event of default under the Existing Term Facility or the New Credit Facilities, as the case may be, exists or would be caused thereby. Any future credit agreements to which the Issuer becomes a party may restrict the Issuer's ability to repurchase the Notes pursuant to an Asset Sale Offer. In the event the Issuer is required to make an Asset Sale Offer at a time when the Issuer is prohibited from making such Offer, the Issuer will be required under the Indenture, on or prior to the date that the Issuer is required to make an Asset Sale Offer, to (i) seek the consent of its lenders to repurchase Notes pursuant to such Asset Sale Offer or (ii) refinance the Indebtedness that prohibits such Asset Sale Offer. If the Issuer does not obtain such a consent or refinance such borrowings, the Issuer will remain prohibited from making such Offer. The Issuer's failure to purchase Notes pursuant to an Asset Sale Offer or make such Asset Sale Offer would constitute an Event of Default under the Indenture. See "-- Change of Control." The Issuer will comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act, any other tender offer rules under the Exchange Act and other securities laws or regulations in connection with any offer to repurchase and the repurchase of the Notes as described above. The Issuer and PAAC will not, and will not permit any of the Restricted Subsidiaries to, create or permit to exist or become effective any consensual restriction (other than restrictions not more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Issuer) than those in effect under Existing Indebtedness and the New Credit Facilities) that would materially impair the ability of the Issuer to comply with the provisions of this "Limitations on Asset Sales" covenant. Limitations on Sale and Leaseback Transactions. The Indenture provides that the Issuer and PAAC will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction unless (i) at the time of the occurrence of such transaction and after giving effect to such transaction and (x) in the case of a Sale and Leaseback Transaction which is a Capitalized Lease Obligation, giving effect to the Indebtedness in respect thereof, and (y) in the case of any other Sale and Leaseback Transaction, giving effect to the Attributable Indebtedness in respect thereof, the Issuer, PAAC or such Restricted Subsidiary could incur $1.00 of additional Indebtedness pursuant to the covenant described in the initial paragraph under "-- Limitations on Indebtedness," (ii) at the time of the occurrence of such transaction, the Issuer, PAAC or such Restricted Subsidiary could incur Indebtedness secured by a Lien on property in a principal amount equal to or exceeding the Attributable Indebtedness in respect of such Sale and Leaseback Transaction pursuant to the covenant described under "-- Limitations on Liens", and (iii) the transfer of assets in such Sale and Leaseback Transaction is permitted by, and the Issuer applies the proceeds of such transaction in compliance with, the covenant described under "-- Limitations on Asset Sales." Limitations on Mergers; Sales of Assets. The Indenture provides that the Issuer will not amalgamate with, consolidate with or merge into, or sell, assign, convey, lease or transfer all or substantially all of its assets and those of its Subsidiaries taken as a whole to, any Person, unless (i) the resulting, surviving or transferee Person expressly assumes all the obligations of the Issuer under the Notes and the Indenture; (ii) such Person is organized and existing under the laws of Canada, any province thereof, the United States of America, any state thereof or the District of Columbia; (iii) at the time of the occurrence of such transaction and after giving effect to such transaction on a pro forma basis, such Person could incur $1.00 of additional 119 125 Indebtedness pursuant to the covenant described in the initial paragraph under "-- Limitations on Indebtedness" (assuming a market rate of interest with respect to such additional Indebtedness); (iv) at the time of the occurrence of such transaction and after giving effect to such transaction on a pro forma basis, the Consolidated Net Worth of such Person is equal to or greater than the Consolidated Net Worth of the Issuer immediately prior to such transaction; (v) each Guarantor, to the extent applicable, will by supplemental indenture confirm that its Guarantee will apply to such Person's obligations under the Notes; (vi) immediately before and immediately after giving effect to such transaction and treating any Indebtedness which becomes an obligation of the Issuer or any of its Subsidiaries or of such Person as a result of such transaction as having been incurred by the Issuer or such Subsidiary or such Person, as the case may be, at the time of such transaction, no Default or Event of Default has occurred and is continuing; and (vii) the Issuer shall have received an opinion of outside counsel in Canada to the effect that (A) any payment of interest or principal on the Notes by the Issuer to a Holder will, after the amalgamation, consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition of assets, be exempt from Canadian withholding tax if the Holder is or is deemed to be a non-resident of Canada, deals at arm's length with the resulting, surviving or transferee Person for purposes of the Income Tax Act (Canada) at the time of making the payment and (B) no other taxes on income (including taxable capital gains) will be payable under the Income Tax Act (Canada) by a Holder of the Notes who is or who is deemed to be a non-resident of Canada in respect of the acquisition, ownership or disposition of the Notes, including the receipt of interest, principal or premium thereon, provided that such Holder does not use or hold, and is not deemed to use or hold the Notes in carrying on a business in Canada for purposes of the Income Tax Act (Canada) and, in the case of a Holder of Notes who carries on an insurance business in Canada and elsewhere, the Notes are not effectively connected with its Canadian insurance business. No Guarantor will, and the Issuer and PAAC will not permit a Guarantor to, in a single transaction or series of related transactions amalgamate, merge or consolidate with or into any other corporation (other than the Issuer or any other Guarantor) or other entity, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any entity (other than the Issuer or any other Guarantor) unless at the time and giving effect thereto: (i) either (1) such Guarantor is the continuing corporation or (2) the entity (if other than such Guarantor) formed by such amalgamation, consolidation or into which such Guarantor is merged or the entity which acquires by sale, assignment, conveyance, transfer, lease or disposition the properties and assets of such Guarantor is a corporation duly organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia or of Canada or any province thereof and expressly assumes by a supplemental indenture, executed and delivered to the Trustee, in a form reasonably satisfactory to the Trustee, all the obligations of such Guarantor under the Notes and the Indenture; and (ii) immediately before and immediately after giving effect to such transaction, no Default or Event of Default has occurred and is continuing. The provisions of this paragraph will not apply to any transaction (including any Asset Sale made in accordance with "-- Limitations on Asset Sales" above) with respect to any Guarantor if the Guarantee of such Guarantor is released in connection with such transaction in accordance with the applicable provisions of the Indenture. Upon any sale, exchange, transfer or other disposition to any Person of all of the Issuer's, PAAC's or a Restricted Subsidiary's Equity Interests in, or all or substantially all of the assets of, any Guarantor which is in compliance with the Indenture, such Guarantor will be released from all its obligations under its Guarantee. In the event of any transaction (other than a lease) described in and complying with the conditions listed in the immediately preceding paragraphs in which the Issuer or any Guarantor is not the continuing corporation, the successor Person formed or remaining will succeed to, and be substituted for, and may exercise every right and power of, the Issuer or such Guarantor, as the case may be, and the Issuer or such Guarantor, as the case may be, would be discharged from its obligations under the Indenture, the Notes or its Guarantee, as the case may be. The governing law of the Indenture and the Notes is New York law. New York law offers no clear guidance as to the definition of the term "all or substantially all" in the context of the "Limitations on Mergers; Sales of Assets" covenant in an indenture such as the Indenture. To the extent that the law of other jurisdictions does offer guidance as to the definition of the term, such jurisdictions have applied a qualitative 120 126 test as well as quantitative tests to determine the meaning of "all or substantially all" on a case-by-case basis. The lack of an established meaning for the term "all or substantially all" could lead to uncertainty as to the ability of the Holders of Notes to determine whether or not a transaction governed by this "Limitations on Mergers; Sales of Assets" covenant has occurred. Certain Guarantees. The Indenture provides that if (i) any Subsidiary of PAAC becomes a Restricted Subsidiary after the Closing Date, (ii) the Issuer, PAAC or any Subsidiary of PAAC that is a Guarantor transfers or causes to be transferred, in one transaction or a series of related transactions, property or assets (including, without limitation, businesses, divisions, real property, assets or equipment) which in the aggregate have a value equal to or greater than 15% of PAAC's and its Subsidiaries' total assets determined on a consolidated basis as of the time of transfer to any Subsidiary or Subsidiaries of PAAC that is not the Issuer or a Guarantor or are not Guarantors, (iii) any Subsidiary of PAAC which has a value equal to or greater than 5% of PAAC's and its Subsidiaries' total assets determined on a consolidated basis as of the time of determination directly or indirectly guarantees or otherwise becomes obligated with respect to any Senior Indebtedness of the Issuer or PAAC, or (iv) any Subsidiary of PAAC becomes a guarantor of the Term Loans or the loans under the Existing Term Facility after the Closing Date, the Issuer and PAAC will cause such Subsidiary or Subsidiaries of PAAC to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiary or Subsidiaries of PAAC will unconditionally guarantee all of the Issuer's obligations under the Indenture and the Notes on the same terms as the other Guarantors, which Guarantee will rank pari passu with any Senior Indebtedness of such Subsidiary; provided, that clause (i) of this covenant will not apply to any newly acquired or created Subsidiary organized outside of the United States of America and conducting the majority of its business outside of the United States of America for so long as the issuance of a guarantee by such Subsidiary would result in a material increase in the aggregate amount of income tax payable by PAAC on a consolidated basis and the Issuer shall deliver to the Trustee an officers' certificate so stating. Transactions with Affiliates. The Indenture provides that the Issuer, PAAC and the Restricted Subsidiaries will not, directly or indirectly, enter into any transaction or series of related transactions with or for the benefit of any of their respective Affiliates other than with the Issuer, PAAC or any Restricted Subsidiary, except on an arm's-length basis and if (x)(i) in the case of any such transaction in which the aggregate rental value, remuneration or other consideration (including the value of a loan), together with the aggregate rental value, remuneration or other consideration (including the value of a loan) of all such other transactions consummated in the year during which such transaction is proposed to be consummated, exceeds $750,000, the Issuer delivers board resolutions to the Trustee evidencing that the Board of Directors and the Independent Directors that are disinterested each have (by a majority vote) determined in good faith that the aggregate rental value, remuneration or other consideration (including the value of any loan) inuring to the benefit of such Affiliate from any such transaction is not greater than that which would be charged to or extended by the Issuer, PAAC or its Subsidiaries, as the case may be, on an arm's-length basis for similar properties, assets, rights, goods or services by or to a Person not affiliated with the Issuer, PAAC or its Subsidiaries, as the case may be, and (ii) in the case of any such transaction in which the aggregate rental value, remuneration or other consideration (including the value of any loan), together with the aggregate rental value, remuneration or other consideration (including the value of any loan) of all such other transactions consummated in the year during which such transactions are proposed to be consummated, exceeds $7.5 million, the Issuer delivers to the Trustee board resolutions as described in clause (x)(i) of this paragraph and an opinion of an investment banking firm of national standing in the United States of America, unaffiliated with the Issuer and the Affiliate which is party to such transaction, to the effect that the aggregate rental price, remuneration or other consideration (including the value of a loan) inuring to the benefit of such Affiliate from any such transaction is not greater than that which would be charged to or extended by the Issuer, PAAC or its Subsidiaries, as the case may be, on an arm's-length basis for similar properties, assets, rights, goods or services by or to a Person not affiliated with the Issuer, PAAC or its Subsidiaries, as the case may be, and (y) all such transactions referred to in clauses (x)(i) and (ii) are entered into in good faith. Any transaction required to be approved by Independent Directors pursuant to the preceding paragraph must be approved by at least one such Independent Director. 121 127 The provisions of the preceding paragraph do not prohibit (i) any Restricted Payment permitted to be paid pursuant to the provisions of the covenant described under "-- Limitations on Restricted Payments" other than with respect to Investments described in the following clause (ii), (ii) any Investment made in Kemwater during a period of three years following the Closing Date, provided that such Investment matures or is required to be redeemed within one year of its being made, (iii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iv) loans or advances to employees in the ordinary course of business consistent with past practices, not to exceed $500,000 aggregate principal amount outstanding at any time, (v) the payment of fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Issuer, PAAC or any of their Subsidiaries, as determined by the board of directors of the Issuer, PAAC or any of their Subsidiaries in good faith and (vi) Existing Affiliate Agreements, including amendments thereto entered into after the Closing Date provided that the terms of any such amendment either (A) are not, in the aggregate, less favorable to the Issuer than the terms of such agreement prior to such amendment, or (B) if such terms are, in the aggregate, less favorable to the Issuer, such amendment satisfies the requirements of the preceding paragraph. Limitation on Ownership of Wholly-Owned Restricted Subsidiary Stock. The Indenture provides that the Issuer and PAAC (a) will not, and will not permit any Wholly-Owned Restricted Subsidiary of PAAC to, transfer, convey, sell or otherwise dispose of any Capital Stock of any Wholly-Owned Restricted Subsidiary of PAAC (other than All-Pure and its subsidiaries) to any Person (other than the Issuer, PAAC or a Wholly-Owned Restricted Subsidiary of PAAC), unless (i) such transfer, conveyance, sale or other disposition is of all the Capital Stock of such Wholly-Owned Restricted Subsidiary of PAAC and (ii) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described under the caption "-- Limitations on Asset Sales," and (b) will not permit any Wholly-Owned Restricted Subsidiary of PAAC (other than All-Pure and its subsidiaries) to issue any of its Equity Interests (other than, if necessary, Capital Stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, to the extent mandated by applicable law) to any Person other than to the Issuer, PAAC or a Wholly-Owned Restricted Subsidiary of PAAC of PAAC. Impairment of Security Interest. The Indenture provides that the Issuer and PAAC will not, and will not cause or permit any Restricted Subsidiaries to, take or omit to take any action which action or omission might or would have the result of affecting or impairing the Liens and security interest in favor of the Collateral Agent for the benefit of the Secured Parties with respect to the Collateral and the Issuer will not grant to any Person, or suffer any Person to have any interest whatsoever in the Collateral, in each case other than as otherwise permitted by the Indenture, the Term Facility or the Security Documents. The Issuer and PAAC will not, and will not cause or permit any Restricted Subsidiaries to, enter into any agreement or instrument that by its terms requires that the proceeds received from any sale of Collateral be applied to repay, redeem, defease or otherwise acquire or retire any Indebtedness of any Person, other than pursuant to the Indenture or the Term Facility. A release of any of the Collateral strictly in accordance with the terms and conditions of the Indenture and the Security Documents will not be deemed for any purpose to be an impairment of security under the Indenture. Amendment to Security Documents. The Indenture provides that the Issuer and PAAC will not amend, modify or supplement, or permit or consent to any amendment, modification or supplement of, the Security Documents in any manner or to any extent that would constitute an Event of Default under the Indenture or the Security Documents; provided that the Indenture and the Security Documents may be amended, modified or supplemented as set forth under the caption "Amendment, Supplement or Waiver." Stock Pledge Agreements. The Indenture provides that the Issuer and PAAC will, and will cause the applicable Subsidiary or Subsidiaries of PAAC to, execute and deliver to the Collateral Agent one or more stock pledge agreements substantially in the form of the Stock Pledge Agreement securing the Senior Secured Notes providing for the pledge to the Collateral Agent for the benefit of itself and the Trustee, for itself and the Holders and the Term Loan Agent, for itself and the other Term Loan Lenders, of all the Capital Stock of (i) the Issuer and each of the Restricted Subsidiaries and (ii) each other Restricted Subsidiary that (A) is 122 128 engaged in any business activity other than the holding of the Capital Stock of one or more Subsidiaries of PAAC (or in the case of Imperial West, engaging in any business activity other than the holding of its Investment in Kemwater) and (B) has assets equal to or greater than 5% of PAAC's total assets determined on a consolidated basis as of the time of determination, together with delivery to the Collateral Agent of stock certificates evidencing such Capital Stock (together with undated stock powers executed in blank), at such time as such Capital Stock is not pledged for the benefit of the lenders under the Existing Term Facility and the holders of the Senior Secured Notes. The Indenture provides in certain limited circumstances for the release of the Issuer and PAAC from compliance with, and the reinstatement of, this covenant. Provision of Financial Statements. The Indenture provides that, whether or not PAAC is subject to Section 13(a) or 15(d) of the Exchange Act, PAAC will, to the extent permitted under the Exchange Act, file with the Commission the annual reports, quarterly reports and other documents which PAAC would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) if PAAC were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which PAAC would have been required so to file such documents if PAAC were so subject. PAAC will also in any event (x) within 15 days of each Required Filing Date (i) transmit by mail to all holders of Notes, as their names and addresses appear in the security register, without cost to such holders and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents which PAAC would have been required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if PAAC were subject to such Sections and (y) if filing such documents by PAAC with the Commission is not permitted under the Exchange Act, promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective holder of Notes at PAAC's cost. Any financial statements contained in each of such reports or other documents will be prepared in accordance with GAAP consistently applied. Limitation on Applicability of Certain Covenants. The Indenture provides that notwithstanding anything to the contrary therein, the covenants described above entitled "Limitations on Indebtedness," "Limitations on Restricted Payments," "Limitations on Liens," "Limitations on Payment Restrictions Affecting Restricted Subsidiaries," "Limitations on Asset Sales" and "Transactions with Affiliates" will not apply to transactions effected pursuant to and in accordance with the Contingent Payment Agreement and amounts related to such transactions will not be required to be included in any calculation required by any such covenant. Such transactions include (i) any payment made by the Issuer, PAAC or a Restricted Subsidiary, (ii) any assets or property transferred by the Issuer, PAAC or a Restricted Subsidiary, (iii) the application of any proceeds received by the Issuer, PAAC or any Restricted Subsidiary in connection with any transfer of assets or property made by such Person, (iv) any escrow or segregation of moneys to be paid by the Issuer, PAAC or a Restricted Subsidiary, (v) any Investment of such escrowed or segregated moneys by the Issuer, PAAC or a Restricted Subsidiary or any other Investment under the Contingent Payment Agreement, (vi) any obligation of the Issuer, PAAC or a Restricted Subsidiary to make any such payments or to effect any such escrow or segregation of moneys, (vii) any Indebtedness incurred by the Issuer, PAAC or a Restricted Subsidiary that is non-recourse to the assets of the Issuer, PAAC, such Restricted Subsidiary or any other Restricted Subsidiary, other than the borrower's interest in Basic Investments, Victory Valley, the Excess Land and/or any other assets or funds held under the Contingent Payment Agreement, and as to which none of the Issuer, PAAC or any Restricted Subsidiary (other than the borrower) provides credit support or is directly or indirectly liable, or (viii) any Lien incurred by the Issuer, PAAC or any Restricted Subsidiary in connection with Indebtedness described in clause (vii) above that does not extend to assets of the Issuer, PAAC or any Restricted Subsidiary other than such Person's interest in Basic Investments, Victory Valley, the Excess Land and/or any other assets or funds held under the Contingent Payment Agreement. Additional Covenants. The Indenture also contains covenants with respect to the following matters: (i) payment of principal, premium and interest; (ii) maintenance of an office or agency in the City of New York; (iii) arrangements regarding the handling of money held in trust; (iv) maintenance of corporate existence; (v) payment of taxes and other claims; (vi) maintenance of properties; and (vii) maintenance of insurance. 123 129 RELEASE OF COLLATERAL The Issuer will be permitted to sell Collateral in an Asset Sale and obtain a release of the liens of the Security Documents in such Collateral only upon compliance with the covenant described in "-- Certain Covenants -- Limitations on Asset Sales" and only upon delivery to the Trustee and the Collateral Agent of (a) a notice that, among other things, describes the interests to be released, states the fair market value of the released interests as of a date no later than 60 days before the date of such notice, and certifies that the purchase price received is not less than the fair market value of such released interest as of the date of such release, (b) the Net Proceeds of the Asset Sale, (c) an officer's certificate certifying, among other things, the terms of the Indenture governing Asset Sales and all other applicable terms have been complied with, (d) an opinion of counsel as to the Asset Sale, and (e) satisfactory title opinions confirming that the Liens of the Collateral Agent on the remaining Collateral continue unimpaired as perfected first priority liens. To the extent Trust Moneys consist of insurance proceeds or condemnation or other taking awards, any such moneys which may be used to effect a restoration of the affected Collateral will be permitted to be withdrawn by the Issuer and paid by the Collateral Agent, at the direction of the Trustee, upon a request by the Issuer to reimburse the Issuer for expenditures made or costs incurred to repair, rebuild or replace the destroyed, damaged, or taken Collateral, and upon delivery of (a) an officer's certificate certifying, among other things, as to expenditures made or costs incurred, the necessity or desirability in the conduct of the Issuer's business of the repaired, rebuilt, replaced property, and the fair market value of such property as of the date of the expenditures, (b) an opinion of counsel as to the validity and perfection of the Collateral Agent's lien on the repaired or replaced Collateral and (c) an architect's certificate as to the costs of such restoration and compliance with law. To the extent Trust Moneys consist of proceeds of an Asset Sale involving Collateral, and the Issuer intends to reinvest such proceeds in the Issuer or in one or more Restricted Subsidiaries in a Related Business, such Trust Moneys will be permitted to be withdrawn by the Issuer upon request to the Trustee and upon receipt by the Trustee and the Collateral Agent of (a) notice of such withdrawal, (b) an officer's certificate certifying compliance with the Indenture, (c) instruments granting the Collateral Agent first priority liens, for the benefit of the Secured Parties, on the real or personal property interests in which the Issuer or Restricted Subsidiary have invested, and (d) an opinion of counsel as to the instruments governing such liens and security interests. Trust Moneys will be permitted to be applied from time to time (x) to the payment of principal and interest on the Notes, or (y) to the extent otherwise permitted by the Indenture, to redeem or repurchase Notes, including without limitation pursuant to a Change of Control Offer or (to the extent such Trust Moneys constitute proceeds from Asset Sales) an Asset Sale Offer, or (z) at the direction of the Issuer to pay any other Senior Indebtedness secured by liens in the Collateral (but only to the extent such Trust Moneys constitute proceeds from Asset Sales), in each case upon receipt by the Trustee and the Collateral Agent of (a) resolutions of the boards of directors of the Issuer directing such application, (b) cash equaling the accrued interest, if any, required to be paid in connection with such payment or purchase, (c) an officer's certificate, and (d) an opinion of counsel. Trust Moneys received by the Collateral Agent or the Trustee pursuant to an Asset Sale Offer remaining after the completion of such Asset Sale Offer will be permitted to be withdrawn by the Issuer upon request of the Issuer and delivery of an officer's certificate and an opinion of counsel. The Indenture provides that any release of Collateral, including Trust Moneys, will be subject to the provisions of Section 314(d) of the Trust Indenture Act relating to, among other things, the delivery of a certificate or an opinion of an engineer, appraiser or other expert as to the fair value of Collateral being released from the Liens of the Security Documents. CERTAIN DEFINITIONS "Affiliate" means, with respect to any party, any Person directly or indirectly controlling or controlled by or under direct or indirect common control with such party including any estate or trust under will of such party. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," 124 130 "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 5% or more of the voting securities of a Person will be deemed to be control. "Asset Sale" means, with respect to the Issuer, PAAC or any Restricted Subsidiary, the sale, lease, conveyance or other disposition (including, without limitation, by way of merger or consolidation, and whether by operation of law or otherwise) to any Person other than the Issuer, PAAC or a Wholly-Owned Restricted Subsidiary of any of the Issuer's, PAAC's or such Restricted Subsidiary's assets (including, without limitation, (x) any sale or other disposition of Equity Interests of any Restricted Subsidiary and (y) any sale or other disposition of any noncash consideration received by the Issuer, PAAC or such Restricted Subsidiary from any prior transaction or series of related transactions that constituted an Asset Sale under the Indenture), whether owned on the date of the Indenture or subsequently acquired, in one transaction or a series of related transactions: provided, however, that the following will not constitute Asset Sales: (i) transactions (other than transactions described in clause (y) above) in any calendar year with aggregate cash and/or Fair Market Value of any other consideration received (including, without limitation, the unconditional assumption of Indebtedness) of less than $1.0 million; (ii) a transaction or series of related transactions that results in a Change in Control; (iii) any sale of assets of the Issuer, PAAC and its Restricted Subsidiaries or merger permitted under the covenant described under "Certain Covenants -- Limitations on Mergers; Sales of Assets"; (iv) any sale or other disposition of inventory, property (whether real, personal or mixed) or equipment that has become worn out, obsolete or damaged or otherwise unsuitable or no longer needed for use in connection with the business of the Issuer, PAAC or any Restricted Subsidiary, as the case may be, in the good faith determination of the Board of Directors; and (v) any sale of inventory to customers in the ordinary and customary course of business. "Attributable Indebtedness" means, with respect to any Sale and Leaseback Transaction, as at the time of determination, the greater of (i) the Fair Market Value of the property subject to such transaction and (ii) the present value (discounted at a rate equivalent to the Issuer's then current weighted average cost of funds for borrowed money, compounded on a semi-annual basis) of the total net obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended). As used in the preceding sentence, the "total net obligations of the lessee for rental payments" under any lease for any such period means the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. In the case of any lease which is terminable by the lessee upon payment of a penalty, such net amount of rent also includes the amount of such penalty, but no rent will be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Bankruptcy Law" means the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada), the Winding-up Act (Canada), Chapter 11 of Title 11 of the United States Code, as amended, or any other Canadian federal, Canadian provincial, United States federal or United States state law or the law of any other jurisdiction relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "Basic Investments" means Basic Investments, Inc., a Nevada corporation. "Board of Directors" means the Board of Directors of the Issuer and/or PAAC or any committee thereof duly authorized to act on behalf of such Board. "Borrowing Base" means, as of any date, an amount equal to the sum of (a) 85% of the net book value of all accounts receivable of the Issuer, PAAC and the Restricted Subsidiaries as of such date, (b) 50% of the net book value of all inventory owned by the Issuer, PAAC and the Restricted Subsidiaries as of such date, and (c) the lesser of (x) $10.0 million and (y) 85% of the net book value of all accounts receivable of Kemwater as of such date plus 50% of the net book value of all inventory as of such date owned by Kemwater, all calculated on a consolidated basis and in accordance with GAAP. To the extent that information is not available as to the amount of accounts receivable or inventory as of a specific date, the Issuer may utilize the 125 131 most recent available quarterly or annual financial report of the Issuer, PAAC or the Restricted Subsidiaries for purposes of calculating the Borrowing Base. "Capital Stock" means, with respect to any Person, any common stock, preferred stock and any other capital stock of such Person and shares, interests, participations or other ownership interest (however designated), of any Person and any rights (other than debt securities convertible into, or exchangeable for, capital stock), warrants or options to purchase any of the foregoing, including (without limitation) each class of common stock and preferred stock of such Person if such Person is a corporation and each general and limited partnership interest of such Person if such Person is a partnership. "Capitalized Lease Obligation" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP and the amount of such Indebtedness will be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Flow" for any period means the Consolidated Net Income of PAAC, the Issuer and the Restricted Subsidiaries for such period, plus the following to the extent included in calculating such Consolidated Net Income: (i) Consolidated Interest Expense, (ii) income tax expense and (iii) depreciation, depletion and amortization expense. "Closing Date" means November 5, 1997. "Consolidated Cash Flow Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of Cash Flow for the period of the most recent four consecutive fiscal quarters for which internal financial statements are available prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters of the Issuer, PAAC and the Restricted Subsidiaries; provided, however, that (A) if the Issuer, PAAC or any Restricted Subsidiary has incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Cash Flow Coverage Ratio is an incurrence of Indebtedness, or both, Cash Flow and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been issued on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (B) if since the beginning of such period the Issuer, PAAC or any Restricted Subsidiary has made any Asset Sale, the Cash Flow for such period will be reduced by an amount equal to the Cash Flow (if positive), directly attributable to the assets which are the subject of such Asset Sale for such period, or increased by an amount equal to the Cash Flow (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period will be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Issuer, PAAC or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Issuer, PAAC and its continuing Restricted Subsidiaries in connection with any such sale or other disposition for such period (or, if the Capital Stock of any Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Subsidiary to the extent the Issuer, PAAC and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (C) if since the beginning of such period the Issuer, PAAC or any Restricted Subsidiary (by merger or otherwise) has made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made under the Indenture, which constitutes all or substantially all of an operating unit of a business, Cash Flow and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto (including the incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (D) in making such computation, Consolidated Interest Expense attributable to any Indebtedness incurred under any revolving credit facility will be computed based on the average daily balance of such Indebtedness during such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, and the amount of Consolidated Interest Expense associated with any Indebtedness incurred in connection therewith, the pro forma calculations will be determined in good faith by a responsible financial or accounting officer of the Issuer. If any Indebtedness bears a floating rate of interest and is being 126 132 given pro forma effect, the interest on such Indebtedness will be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period. "Consolidated Indebtedness" means the Indebtedness of the Issuer, PAAC and its consolidated Restricted Subsidiaries determined on a consolidated basis in conformity with GAAP. "Consolidated Interest Expense" means, for any period, interest expense of the Issuer, PAAC and its consolidated Restricted Subsidiaries, excluding amortization of any deferred financing fees, plus, to the extent not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) interest actually paid by the Issuer, PAAC or any such Restricted Subsidiary under any guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Hedging Obligations (including amortization of fees), (viii) Preferred Stock dividends in respect of all Redeemable Stock of the Issuer or PAAC held by Persons other than the Issuer, PAAC or a Wholly-Owned Restricted Subsidiary of PAAC and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Issuer or PAAC) in connection with loans incurred by such plan or trust to purchase newly issued or treasury shares of the Capital Stock of the Issuer or PAAC. "Consolidated Net Income" means, for any period, and as to any Person, the aggregate Net Income of such Person and its Subsidiaries (other than, in the case of the Issuer or PAAC, the Unrestricted Subsidiaries) for such period determined in accordance with GAAP; provided that (i) the Net Income of any Person which is not a Subsidiary of such Person but which is consolidated with such Person or is accounted for by such Person by the equity method of accounting will be included only to the extent of the amount of cash dividends or cash distributions paid to such Person or a Wholly-Owned Restricted Subsidiary of such Person (other than, in the case of the Issuer or PAAC, the Unrestricted Subsidiaries), (ii) the Net Income of any Person acquired by such Person or a Subsidiary of such Person in a pooling of interests transaction for any period prior to the date of such acquisition will be excluded, (iii) the Net Income of any Subsidiary of such Person that is subject to restrictions, direct or indirect, on the payment of dividends or the making of distributions to such Person will be excluded to the extent of such restrictions, (iv) the Net Income of (A) any Unrestricted Subsidiary and (B) any Subsidiary less than 80% of whose securities having the right (apart from the right under special circumstances) to vote in the election of directors are owned by the Issuer, PAAC or the Wholly-Owned Restricted Subsidiaries of PAAC will be included only to the extent of the amount of cash dividends or cash distributions actually paid by such Subsidiary to the Issuer, PAAC or a Wholly-Owned Restricted Subsidiary of PAAC, (v) in the case of the Issuer or PAAC, the Net Income attributable to any business, properties or assets acquired (by way of merger, consolidation, purchase or otherwise) by the Issuer, PAAC or any Restricted Subsidiary for any period prior to the date of such acquisition will be excluded, (vi) all extraordinary gains and losses, and any gain or loss realized upon the termination of any employee pension benefit plan, in respect of dispositions of assets other than in the ordinary course of business and any one-time increase or decrease to Net Income which is required to be recorded because of the adoption of new accounting policies, practices or standards required by GAAP (together, in each case, with any provision for taxes) will be excluded, and (vii) all amounts of "other income, net" classified as such on one or more lines of such Person's statement of operations, in accordance with GAAP, net of applicable income taxes, will be excluded from such Person's aggregate Net Income; provided that in the case of the Issuer or PAAC the foregoing exclusion will not apply to cash dividends or cash distributions paid to PAAC in respect of its indirect equity interest in Saguaro Power Company, a Limited Partnership, to the extent included in clause (i) of this definition. "Consolidated Net Worth" means, for any Person, the total of the amounts shown on the balance sheet of such Person and its consolidated Subsidiaries, determined on a consolidated basis without duplication in accordance with GAAP, as of the end of the most recent fiscal quarter of such Person ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the amount of Capital Stock (other than Redeemable Stock) plus (ii) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit). 127 133 "Contingent Payment Agreement" means the Contingent Payment Agreement dated as of April 20, 1995 among Pioneer, PAAC and the Sellers named therein. "Credit Facility" means any revolving credit facility or similar arrangement that makes credit available entered into by and among the Issuer, PAAC and/or any Guarantor and the lending institutions party thereto, including any credit agreement, related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Eligible Investments" means, (i) securities issued or directly and fully guaranteed or insured by Canada or the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of Canada or the United States of America is pledged in support thereof) having maturities of not more than 90 days from the date of acquisition, (ii) time deposits and certificates of deposit with maturities of not more than 90 days from the date of acquisition, of any commercial banking institution to which the Bank Act (Canada) applies or that is a member of the Federal Reserve System having capital and surplus in excess of $500.0 million, whose debt has a rating at the time of any such investment of at least "A-2" or the equivalent thereof by Standard & Poor's Ratings Group or at least "P-2" or the equivalent thereof by Moody's Investors Service, Inc., or any bank or financial institution party to the Term Facility, the Existing Term Facility or the Revolving Facility, (iii) fully secured repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) entered into with any bank or financial institution meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by any commercial banking institution to which the Bank Act (Canada) applies or that is a member of the Federal Reserve System having capital and surplus in excess of $500.0 million and commercial paper or master notes of issuers, rated at the time of any such investment at least "A-2" or the equivalent thereof by Standard & Poor's Ratings Group or at least "P-2" or the equivalent thereof by Moody's Investors Service, Inc., or any bank or financial institution party to the Term Facility, the Existing Term Facility or the Revolving Facility, and in each case maturing within 270 days after the date of acquisition, and (v) any shares in an open-end mutual fund organized by a bank or financial institution having combined capital and surplus of at least $500.0 million investing solely in investments permitted by the foregoing clauses (i), (ii) and (iv). "Equity Interests" means shares, interests, participations or other equivalents (however designated) of Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security which is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means an offering of Equity Interests (other than Redeemable Stock) of any Person made on a primary basis by such Person (including a rights offering to existing stockholders of such Person), which yields gross proceeds to such Person of $15.0 million or more. "Excess Land" means certain real property adjoining the sites of PCAC's Henderson, Nevada and St. Gabriel, Louisiana plants and the Mojave, California property owned by Imperial West that is not used in the business conducted at such sites, which real property is referred to and defined in the Contingent Payment Agreement as the "Subject Parcels." "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means notes issued pursuant to any Exchange Offer Registration Statement. "Exchange Offer Registration Statement" means the registration statement to be filed by the Issuer and the Guarantors with the Securities and Exchange Commission (the "Commission") with respect to an offer to exchange the Notes for another series of notes of the Issuer with substantially identical terms to the Notes. "Existing Affiliate Agreements" means (i) agreements between Pioneer Americas, Inc. or any of its subsidiaries and Saguaro Power Company, a Limited Partnership, relating to the delivery of steam and other services, existing on the date of the Indenture and listed on a schedule thereto, (ii) the Tax Sharing Agreement of Pioneer and its subsidiaries, (iii) agreements between Pioneer Americas, Inc. or any of its subsidiaries and Basic Investments relating to the delivery of water and power, power transmission services, and other services, existing on the date of the Indenture and listed on a schedule thereto and (iv) any other 128 134 agreements with affiliates of PAAC or the Issuer, existing on the date of the Indenture and listed on a schedule thereto. "Existing Indebtedness" means all Indebtedness (other than the Term Loans and the Revolving Loans outstanding) of the Issuer, PAAC or any Restricted Subsidiary existing on the date of the Indenture and listed on a schedule thereto. "Fair Market Value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value will be determined by a majority of the members of the Board of Directors of the Issuer, and a majority of the disinterested members of such Board of Directors, if any, acting in good faith and will be evidenced by a duly and properly adopted resolution of the Board of Directors. "GAAP" means generally accepted accounting principles in the United States of America set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, which are in effect from time to time. "Hedging Obligations" means the obligations of any Person or entity pursuant to any swap or cap agreement, exchange agreement, collar agreement, option, futures or forward hedging contract, derivative instrument or other similar agreement or arrangement designed to protect such Person or entity against fluctuations in interest rates or foreign exchange rates or the price of raw materials and other chemical products used or produced in the Issuer and PAAC's business, as the case may be. "incur" has the meaning ascribed thereto in the covenant described under "-- Certain Covenants -- Limitations on Indebtedness"; provided that (a) with respect to any Indebtedness of the Issuer, PAAC or any Restricted Subsidiary that is owing to the Issuer, PAAC or another Restricted Subsidiary, any disposition, pledge or transfer of such Indebtedness to any Person (other than the Issuer, PAAC or a Wholly-Owned Restricted Subsidiary) will be deemed to be an incurrence of such Indebtedness and (b) with respect to any Indebtedness of the Issuer, PAAC or a Restricted Subsidiary that is owing to another Restricted Subsidiary, any transaction pursuant to which a Wholly-Owned Restricted Subsidiary to which such Indebtedness is owing ceases to be a Wholly-Owned Restricted Subsidiary will be deemed to be an incurrence of such Indebtedness, and provided, further that any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary will be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. The term "incurrence" has a corresponding meaning. "Indebtedness" of any Person means, without duplication, all liabilities with respect to (i) indebtedness for money borrowed or which is evidenced by a bond, debenture, note or other similar instrument or agreement, but excluding trade credit evidenced by any such instrument or agreement; (ii) reimbursement obligations, letters of credit and bankers' acceptances; (iii) indebtedness with respect to Hedging Obligations; (iv) Capitalized Lease Obligations; (v) indebtedness, secured or unsecured, created or arising in connection with the acquisition or improvement of any property or asset or the acquisition of any business; (vi) all indebtedness secured by any Lien upon property owned by such Person and all indebtedness secured in the manner specified in this clause even if such Person has not assumed or become liable for the payment thereof; (vii) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person or otherwise representing the deferred and unpaid balance of the purchase price of any such property, including all indebtedness created or arising in the manner specified in this clause even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property; (viii) guarantees, direct or indirect, of any indebtedness of other Persons referred to in clauses (i) through (vii) above, or of dividends or leases, taxes or other obligations of other Persons, excluding any guarantee arising out of the endorsement of negotiable instruments for collection in the ordinary course of business; (ix) contingent obligations in respect of, or to purchase or otherwise acquire or be responsible or liable for, through the purchase of products or services, irrespective of whether such products are delivered or such services are rendered, or otherwise, any such 129 135 indebtedness referred to in clauses (i) through (vii) above; (x) any obligation, contingent or otherwise, arising under any surety, performance or maintenance bond; and (xi) Redeemable Stock of the Issuer or PAAC valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends; which indebtedness, Capitalized Lease Obligation, guarantee or contingent or other obligation such Person has directly or indirectly created, incurred, assumed, guaranteed or otherwise become liable or responsible for, whether then outstanding or thereafter created in the case of clauses (i) through (x) above, to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability on the balance sheet of such Person in accordance with GAAP. For purposes of the foregoing definition, the "maximum fixed repurchase price" of any Redeemable Stock which does not have a fixed repurchase price will be calculated in accordance with the terms of such Redeemable Stock as if such Redeemable Stock were purchased on any date on which Indebtedness is required to be determined pursuant to the Indenture. As used herein, Indebtedness with respect to any Hedging Obligation means, with respect to any specified Person on any date, the net amount (if any) that would be payable by such specified Person upon the liquidation, close-out or early termination on such date of such Hedging Obligation. For purposes of the foregoing, any settlement amount payable upon the liquidation, close-out or early termination of a Hedging Obligation will be calculated by the Issuer in good faith and in a commercially reasonable manner on the basis that such liquidation, close-out or early termination results from an event of default or other similar event with respect to such specified Person. Any reference in this definition to indebtedness will be deemed to include any renewals, extensions and refundings of any such indebtedness or any indebtedness issued in exchange for such indebtedness. "Independent Director" means a director of the Issuer and/or PAAC other than a director (i) who (apart from being a director of the Issuer, PAAC or any of its Subsidiaries) is an employee, insider, associate or Affiliate of the Issuer, PAAC or any of their Subsidiaries or has held any such position during the previous year or (ii) who is a director, an employee, insider, associate or Affiliate of another party to the transaction in question. "Investment" means any direct or indirect advance, loan, other extension of credit or capital contribution (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others) to, purchase or acquisition of Equity Interests, bonds, notes, debentures or other securities of, or purchase or other acquisition of all or a substantial part of the business, Equity Interests or other evidence of beneficial ownership of, or any other investment in or guarantee of any Indebtedness of, any Person or any other item that would be classified as an investment on a balance sheet prepared in accordance with GAAP. Investments do not include advances to customers and suppliers in the ordinary course of business and on commercially reasonable terms. If the Issuer, PAAC or any Subsidiary of either sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of either such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of either, the Issuer, PAAC or such Subsidiary shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Equity Interests of such Subsidiary not sold or disposed of determined as provided in the final paragraph of the covenant described under "-- Certain Covenants -- Limitations on Restricted Payments." "Lien" means any mortgage, pledge, lien, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement and any lease in the nature thereof). "Net Cash Proceeds" means, with respect to any issuance or sale of Equity Interests or debt securities that have been converted into or exchanged for Equity Interests, as referred to under "-- Certain Covenants -- Limitations on Restricted Payments," the proceeds of such issuance or sale in the form of cash or cash equivalents, net of attorneys' fees, accountants' fees and brokerage, consultation, underwriting and other fees and expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Net Income" of any Person, for any period, means the net income (loss) of such Person and its subsidiaries (other than, in the case of the Issuer or PAAC, the Unrestricted Subsidiaries) determined in accordance with GAAP. 130 136 "Net Proceeds" means the aggregate cash proceeds received by the Issuer, PAAC or any of the Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, the proceeds of insurance paid on account of the loss of or damage to any property, or compensation or other proceeds for any property taken by condemnation, eminent domain or similar proceedings, and any non-cash consideration received by the Issuer, PAAC or any Restricted Subsidiary from any Asset Sale that is converted into or sold or otherwise disposed of for cash within 90 days after the relevant Asset Sale), net of (i) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), (ii) any taxes paid or payable as a result thereof, (iii) all amounts required to be applied to the repayment of, or representing the amount of permanent reductions in the commitments relating to, Indebtedness secured by a Lien on the asset or assets the subject of such Asset Sale which Lien is permitted pursuant to the terms of the Indenture, (iv) any reserve for adjustment in respect of the sale price of such asset or assets required by GAAP, (v) all distributions and other payments required to be made (including any amounts held pending distribution) to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale, and (vi) all payments due under Existing Affiliate Agreements arising out of an Asset Sale. The amount of any taxes required to be accrued as a liability under GAAP as a consequence of an Asset Sale will be the amount thereof as determined in good faith by the Board of Directors of the Issuer. "Permitted Investment" means (i) any Eligible Investment, (ii) any Investment in the Issuer, (iii) Investments in existence on the Closing Date, and any such Investment in Basic Investments, Basic Land Company, Basic Management, Inc., Basic Water Company or Victory Valley which has been reclassified or converted into an alternate form of Investment in the same or a successor entity, (iv) intercompany notes permitted under clause (f) of the covenant described under "-- Certain Covenants -- Limitations on Indebtedness," (v) Investments in any Wholly-Owned Restricted Subsidiary or any Person which, as a result of such Investment, becomes a Wholly-Owned Restricted Subsidiary; provided that such Wholly-Owned Restricted Subsidiary is engaged in a Related Business, and (vi) other Investments after the Closing Date in joint ventures, corporations, limited liability companies, partnerships or Unrestricted Subsidiaries engaged in a Related Business that do not at any one time outstanding exceed $5.0 million; provided that the amount of Investments pursuant to clause (vi) will be included in the calculation of Restricted Payments pursuant to the covenant described under "-- Certain Covenants -- Limitations on Restricted Payments." "Permitted Liens" means as of any particular time, any one or more of the following: (a) Liens for taxes, rates and assessments not yet past due or, if past due, the validity of which is being contested in good faith by the Issuer, PAAC or any Restricted Subsidiary by appropriate proceedings promptly instituted and diligently conducted and against which the Issuer or PAAC has established appropriate reserves in accordance with GAAP; (b) the Lien of any judgment rendered which is being contested in good faith by the Issuer, PAAC or any of the Restricted Subsidiaries by appropriate proceedings promptly instituted and diligently conducted and against which the Issuer or PAAC has established appropriate reserves in accordance with GAAP and which does not have a material adverse effect on the ability of the Issuer, PAAC and the Restricted Subsidiaries to operate their business or operations; (c) other than in connection with Indebtedness, any Lien arising in the ordinary course of business (i) to secure payments of workers' compensation, unemployment insurance, pension or other social security or retirement benefits, or to secure the performance of bids, tenders, leases, progress payments, contracts (other than for the payment of money) or to secure public or statutory obligations of the Issuer, PAAC, or any Restricted Subsidiary, or to secure surety or appeal bonds to which the Issuer, PAAC or any Restricted Subsidiary is a party, (ii) imposed by law dealing with materialmen's, mechanics', workmen's, repairmen's, warehousemen's, landlords', vendors' or carriers' Liens created by law, or deposits or pledges which are not yet due or, if due, the validity of which is being contested in good faith by the Issuer, PAAC or any Restricted Subsidiaries by appropriate proceedings promptly instituted and diligently conducted and against which the Issuer or PAAC has established appropriate reserves in accordance with GAAP, (iii) rights of financial institutions to set off and chargeback arising by operation of law and (iv) similar Liens; 131 137 (d) servitudes, licenses, easements, encumbrances, restrictions, rights-of-way and rights in the nature of easements or similar charges which will not in the aggregate materially adversely impair the use of the subject property by the Issuer, PAAC or a Restricted Subsidiary; (e) zoning and building by-laws and ordinances, municipal bylaws and regulations, and restrictive covenants, which do not materially interfere with the use of the subject property by the Issuer, PAAC or a Restricted Subsidiary as such property is used as of the date of the Indenture; and (f) any extension, renewal, substitution or replacement (or successive extensions, renewals, substitutions or replacements), as a whole or in part, of any of the Liens referred to in clauses (a) through (e) of this definition or the Indebtedness secured thereby; provided that (i) such extension, renewal, substitution or replacement Lien is limited to that portion of the property or assets, now owned or hereafter acquired, that secured the Lien prior to such extension, renewal, substitution or replacement Lien and (ii) the Indebtedness secured by such Lien (assuming all available amounts were borrowed) at such time is not increased. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock," as applied to the Equity Interests of any corporation, means stock of any class or classes (however designated) which is preferred over shares of stock of any other class of such corporation as to the distribution of assets on any voluntary or involuntary liquidation or dissolution of such corporation or as to dividends. "Redeemable Stock" means any Equity Interest that by its terms or otherwise (i) is required to be redeemed prior to the maturity of the Notes, (ii) matures or is redeemable, in whole or in part, at the option of the Issuer, PAAC, any Subsidiary or the holder thereof or pursuant to a mandatory sinking fund at any time prior to the maturity of the Notes, or (iii) is convertible into or exchangeable for debt securities which provide for any scheduled payment of principal prior to the maturity of the Notes at the option of the issuer at any time prior to the maturity of the Notes, until the right to so convert or exchange is irrevocably relinquished. "Related Business" means any corporation or other entity engaged in, and any asset utilized in, the manufacture or distribution of chlorine, caustic soda, bleach, hydrochloric acid, iron and other chlorides and aluminum sulfate, and in lines of business reasonably related thereto. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Subsidiary" means (i) any Guarantor which is a Subsidiary of PAAC (other than the Issuer), (ii) any Subsidiary of PAAC in existence on the date hereof to which any line of business or division (and the assets associated therewith) of any Guarantor are transferred after the date of the Indenture, (iii) any Subsidiary of the Issuer or of PAAC organized or acquired after the date of the Indenture, unless such Subsidiary has been designated as an Unrestricted Subsidiary by a resolution of the Board of Directors as provided in the definition of "Unrestricted Subsidiary" and (iv) any Unrestricted Subsidiary which is designated as a Restricted Subsidiary by the Board of Directors; provided, that immediately after giving effect to any such designation (A) no Default or Event of Default has occurred and is continuing and (B) in the case of any designation referred to in clause (iii) or (iv) hereof, the Issuer could incur at least $1.00 of Indebtedness pursuant to the covenant described in the initial paragraph under "-- Certain Covenants -- Limitations on Indebtedness," on a pro forma basis taking into account such designation. The Issuer will evidence any such designation to the Trustee by promptly filing with the Trustee an officers' certificate certifying that such designation has been made and complies with the requirements of the immediately preceding sentence. Notwithstanding any provision of the Indenture to the contrary, each Guarantor will be a Restricted Subsidiary. "Sale and Leaseback Transaction" with respect to any Person, means any arrangement with another Person for the leasing of any real or tangible personal property, which property has been or is to be sold or transferred by such Person to such other Person in contemplation of such leasing. 132 138 "Security Documents" means the Intercreditor Agreement and all security agreements, deeds of trust, pledges, hypothecs, debentures, debenture pledges, bonds, bond pledges, pledge agreements, collateral assignments or any other instrument evidencing or creating any security interest or lien in favor of the Collateral Agent in all or any portion of the Collateral, in each case as amended, supplemented or otherwise modified from time to time. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Issuer, PAAC or the Restricted Subsidiaries, whether outstanding on the date of the Indenture or thereafter incurred as permitted by the Indenture, unless, in the case of any particular Indebtedness, the agreement or instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness is junior or subordinated in right of payment to any item of Indebtedness of the Issuer, PAAC or the Restricted Subsidiaries. Without limiting the generality of the foregoing, "Senior Indebtedness" includes the principal of, premium, if any, and interest and all other obligations of every nature of the Issuer, PAAC or any Restricted Subsidiary from time to time owed under the New Credit Facilities, the Existing Term Facility and the Senior Secured Notes, as the case may be. Notwithstanding the foregoing, "Senior Indebtedness" does not include (i) in the case of the obligation of the Issuer in respect of each Note, the obligation of PAAC in respect of the other Notes, (ii) any liability for foreign, federal, state, provincial, local or other taxes owed or owing by the Issuer, PAAC or any Restricted Subsidiary to the extent that such liability constitutes Indebtedness, (iii) Indebtedness of the Issuer to PAAC, or of the Issuer or PAAC to any Restricted Subsidiary or of PAAC to the Issuer or any Restricted Subsidiary or of any Restricted Subsidiary to the Issuer, PAAC or another Restricted Subsidiary, (iv) that portion of any Indebtedness which at the time of issuance is issued in violation of the Indenture and (v) Indebtedness and amounts incurred in connection with obtaining goods, materials or services in the ordinary course of business (other than such Indebtedness which is owed to banks and other financial institutions or secured by the goods or materials which were purchased with such Indebtedness). "Subordinated Indebtedness" means Indebtedness of the Issuer, PAAC or any Guarantor subordinated in right of payment to the Notes or any Guarantee, as the case may be. "Subsidiary" means, with respect to any Person, (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors, under ordinary circumstances, is at the time owned, directly or indirectly, by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries or (ii) any other Person or entity of which at least a majority of voting interest, under ordinary circumstances, is at the time owned, directly or indirectly, by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries. "Trust Moneys" means all cash or Eligible Investments received by the Collateral Agent: (a) in exchange for the release of property from the Lien of any of the Security Documents; or (b) as compensation for or proceeds of the sale of all or any part of the Collateral taken by eminent domain or purchased by, or sold pursuant to any order of, a governmental authority or otherwise disposed of or (c) as proceeds of insurance upon any, all or part of the Collateral (other than any liability insurance proceeds payable to the Collateral Agent for any loss, liability or expense incurred by it), or (d) as proceeds of any other sale or other disposition of all or any part of the Collateral by or on behalf of the Collateral Agent or any collection, recovery, receipt, appropriation or other realization of or from all or any part of the Collateral pursuant to the Security Documents or otherwise or (e) for application under the Indenture as provided in the Indenture or any Security Document, or whose disposition is not otherwise specifically provided for in the Indenture or in any Security Document. "Unrestricted Subsidiary" means, until such time as it may be designated as a Restricted Subsidiary by the Board of Directors as provided in and in compliance with the definition of "Restricted Subsidiary," (i) any Subsidiary of the Issuer or PAAC organized or acquired after the date of the Indenture designated as an Unrestricted Subsidiary by the Board of Directors in which all investments by the Issuer, PAAC or any Restricted Subsidiary are made only from funds available for the making of Restricted Payments as described under "-- Certain Covenants -- Limitations on Restricted Payments" and (ii) any Subsidiary of an 133 139 Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Issuer or PAAC (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Equity Interests of, or owns, or holds any Lien upon, any property of, any Subsidiary of the Issuer or PAAC which is not a Subsidiary of such Subsidiary to be so designated; provided that (w) each Subsidiary to be so designated and each of its Subsidiaries has not, at the time of designation, and does not thereafter, directly or indirectly, incur any Indebtedness pursuant to which the lender has recourse to any of the assets of the Issuer, PAAC or any of the Restricted Subsidiaries, (x) immediately after giving effect to such designation no Default or Event of Default has occurred and is continuing, (y) all outstanding Investments by the Issuer, PAAC and Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation equal in amount to the Fair Market Value of such Investments at the time of such designation and would be Restricted Payments permitted to be paid pursuant to the provisions of the covenant described under "-- Certain Covenants -- Limitations on Restricted Payments" and (z) the amount of such Restricted Payments will be included in the calculation of the amount of Restricted Payments previously made pursuant to such covenant. The Issuer will evidence any such designation by promptly filing with the Trustee an officers' certificate certifying that such designation has been made and complies with the requirements of the immediately preceding sentence. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case under clause (i) or (ii) above, are not callable or redeemable at the option of the issuer thereof. "Victory Valley" means Victory Valley Land Company, L.P., a Delaware limited partnership. "Voting Stock" of any Person means Capital Stock of such Person which ordinarily has voting power for the election of directors (or Persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Wholly-Owned Restricted Subsidiary" means, with respect to any Person, a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than capital stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, to the extent mandated by applicable law) are owned by such Person or by one or more Wholly-Owned Restricted Subsidiaries of such Person and one or more Wholly-Owned Restricted Subsidiaries of such Person. DEFAULTS AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in payment of interest or Additional Amounts on the Notes; (ii) default in payment of principal of, or premium with respect to, the Notes; (iii) failure by the Issuer or a Guarantor, if applicable, to comply with the covenants entitled "Limitations on Restricted Payments," "Limitations on Indebtedness," "Certain Guarantees," "Limitations on Liens," "Limitations on Asset Sales," "Limitations on Sale and Leaseback Transactions," "Limitations on Ownership of Restricted Subsidiary Stock," "Change of Control," and "Limitation on Mergers; Sales of Assets;" (iv) failure by the Issuer or a Guarantor, if applicable, to comply with any of its other agreements in the Indenture, the Security Documents, the Notes or the Guarantees for a period that continues for 60 days after receipt of written notice from the Trustee or from the Holders of at least 25% of the aggregate principal amount of the Notes then outstanding, specifying such default; (v) the Issuer denies or disaffirms in writing its obligations under the Indenture or the Notes; (vi) a Guarantor denies or disaffirms in writing its obligations under its Guarantee, or any Guarantee for any reason ceases to be, or is asserted in writing by any Guarantor or the Company not to be, in full force and effect and enforceable in accordance with its terms, except to the extent contemplated by the Indenture and any such Guarantee; (vii) a default under any Indebtedness of the Issuer, PAAC or any of the Restricted Subsidiaries, which default (A) is caused by a failure to pay the final scheduled principal installment on such Indebtedness on the stated maturity date 134 140 thereof (which failure continues beyond any applicable grace period) or (B) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness with respect to which the principal amount remains unpaid at its final maturity or the maturity of which has been so accelerated, aggregates $5.0 million or more; (viii) final judgments rendered against the Issuer, PAAC or any of the Restricted Subsidiaries (other than any judgment as to which and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) of $5.0 million or more which remain undischarged or unstayed for a period of 60 days; (ix) any of the Security Documents ceases to be in full force and effect (other than in accordance with their respective terms), or any of the Security Documents ceases to give the Collateral Agent the Liens, rights, power and privileges purported to be created thereby, or any Security Document or any Collateral becomes subject to any Lien other than the Liens created permitted by the Indenture or the Security Documents; and (x) certain events of bankruptcy or insolvency of the Issuer, PAAC, any Guarantor or any other Restricted Subsidiary pursuant to or under or within the meaning of any Bankruptcy Law. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes may declare the Notes due and payable immediately. However, if an Event of Default resulting from bankruptcy or insolvency occurs, such amount will be due and payable without any declaration or any act on the part of the Trustee or the Holders. Such declaration or acceleration may be rescinded and past defaults may be waived by the Holders of a majority in principal amount of the Notes upon conditions provided in the Indenture. Holders may not enforce the Indenture, the Security Documents, the Notes or the Guarantees, except as provided therein. The Trustee may require an indemnity satisfactory to it before enforcing the Indenture, the Security Documents, the Notes or the Guarantees. Subject to certain limitations, Holders of a majority in principal amount of the Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture, that is unduly prejudicial to the rights of any Holder or that would subject the Trustee to personal liability. The Trustee may withhold from the Holders of the Notes notice of any continuing default (except a default in payment of principal, premium, if any, or interest) if it determines in good faith that withholding notice is in their interest. The Issuer is required to file periodic reports with the Trustee as to the absence of Default. If a Default exists, the Issuer is required to describe the Default and efforts undertaken to remedy the Default. Directors, officers, employees or stockholders, as such, of the Issuer, the Guarantors and any Subsidiaries of the Issuer or any of the Guarantors will not have any liability for any obligations of the Issuer or any Guarantors under the Notes, any Guarantee or the Indenture or for any claim based on, in respect of, or by reason of, such obligations. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. Such waiver may not be effective to waive liabilities under U.S. federal securities laws and it is the view of the Commission that such a waiver is against public policy. TRANSFER AND EXCHANGE A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law. The Registrar need not transfer or exchange any Note previously selected for redemption. A registered Holder of a Note will be treated as the owner thereof for all purposes. No Note will be valid until the Trustee or an authenticating agent manually signs the certificate of authentication on the Note. Each Note will become effective on the date upon which it is so signed. AMENDMENT, SUPPLEMENT AND WAIVER Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented, and any past default or compliance with any provision may be waived, with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Without the consent of any Holder, the Issuer and the 135 141 Guarantors will be permitted to amend or supplement the Indenture, the Security Documents, the Notes or the Guarantees to comply with the provisions of the Indenture in the case of a consolidation, amalgamation, merger or sale of all or substantially all of the assets of the Issuer and its Subsidiaries taken as a whole, to provide for uncertificated Notes in addition to or in place of certificated Notes, to cure any ambiguity, defect or inconsistency, to comply with any requirement of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act, to comply with any requirement of the Commission or applicable law to effectuate the Exchange Offer, to add additional guarantees with respect to the Notes, to secure the Notes or the Guarantees, to add to the covenants of the Issuer, PAAC or any Subsidiary for the benefit of the holders of the Notes, to surrender any right or power conferred upon the Company, Issuer, PAAC or any Subsidiary or to make any other change that does not adversely affect the rights of any Holder. Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder) (i) reduce the principal amount of Notes whose holders must consent to an amendment or waiver of the Indenture, the Security Documents, the Notes or the Guarantees; (ii) reduce the rate of, or change the time for payment of, interest, including default interest, on any Note; (iii) reduce the principal of or change the fixed maturity of any Note, or alter the optional redemption provision or the provisions relating to redemption for changes in Canadian withholding or other taxes that would result in the payment of Additional Amounts, or alter the price at which the Issuer will offer to purchase such Note pursuant to an Asset Sale Offer or a Change of Control Offer; (iv) make any Note payable in money other than that stated in such Note; (v) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of the Notes to receive payments of principal of or interest on the Notes; (vi) waive a Default or Event of Default in the payment of principal of, premium if any, or interest on the Notes, including any such obligation arising pursuant to an Asset Sale Offer, a Change of Control Offer or a Guarantee (except a rescission of acceleration of the Notes by the Holders of at least a majority (or, in the case of the failure to make a Change of Control Offer, two-thirds) in principal amount of the Notes then outstanding and a waiver of the payment default that resulted from such acceleration); (vii) waive the obligation to make an Asset Sale Offer or any payment required to be made pursuant to an Asset Sale Offer, a Change of Control Offer or a Guarantee; (viii) affect the ranking of the Notes; (ix) release all or substantially all of the Collateral other than pursuant to the terms of the Indenture or the Security Documents; (x) make any change in the provisions of the Indenture described under "-- Additional Amounts" that adversely affects the rights of any Holder, or amend the terms of the Notes or the Indenture in a way that would result in the loss of an exemption from any of the Taxes; or (xi) make any change in the foregoing amendment and waiver provisions. An amendment or waiver may not waive the Company's obligation to make a Change of Control Offer without the consent of the Holders of at least two-thirds in outstanding principal amount of the Notes. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Issuer may, at its option and at any time, elect to have all of the obligations of the Issuer and each Guarantor discharged with respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due but only from assets deposited by the Issuer pursuant to clause (i) of the following paragraph, (ii) the Issuer's obligations with respect to the Notes concerning issuing temporary Notes, registration or transfer of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuer's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Issuer may, at its option and at any time, elect to have the obligations of the Issuer and any Guarantor released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations will not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes. 136 142 In order to effect either a Legal Defeasance or a Covenant Defeasance, (i) the Issuer must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, of such principal or installment of principal of, premium, if any, or interest on the outstanding Notes; (ii) in the case of Legal Defeasance, the Issuer will deliver to the Trustee an opinion of counsel reasonably acceptable to the Trustee confirming that (A) the Issuer has received from the Internal Revenue Service a ruling and from Revenue Canada a ruling, or (B) since the date of the Indenture, there has been a change in the applicable U.S. federal income tax law, including by means of a Revenue Ruling published by the Internal Revenue Service, and a ruling from Revenue Canada has been published, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the holders of the outstanding Notes will not recognize income, gain or loss for U.S. federal income tax, Canadian federal or provincial income tax or certain other tax purposes as a result of such Legal Defeasance and will be subject to U.S. federal income tax and Canadian federal and provincial income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Issuer will deliver to the Trustee an opinion of counsel reasonably acceptable to the Trustee confirming that the holders of the outstanding Notes will not recognize income, gain or loss for U.S. federal income tax, Canadian federal or provincial income tax or certain other tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax and Canadian federal and provincial income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default has occurred and is continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Issuer or any Guarantor is a party or by which the Issuer or any Guarantor is bound; (vi) the Issuer will deliver to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and that the Trustee has a perfected security interest in such trust funds for the ratable benefit of the Holders of the outstanding Notes; (vii) the Issuer will deliver to the Trustee an officers' certificate stating that the deposit was not made by the Issuer with the intent of preferring the Holders of the Notes or any Guarantee over the other creditors of the Issuer or any Guarantor or with the intent of defeating, hindering, delaying or defrauding creditors of the Issuer or any Guarantor or others; and (viii) the Issuer will deliver to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. ENFORCEABILITY OF JUDGMENTS WITH RESPECT TO THE NOTES Since all of the assets of the Issuer are outside the United States, any judgment obtained in the United States against the Issuer, including judgments with respect to the payment of amounts owing with respect to the Notes, may not be collectible within the United States. The Issuer has been informed by its Canadian counsel, Stikeman, Elliott, a general partnership, and Stewart McKelvey Stirling Scales, that the laws of each of the provinces of Ontario, Quebec, New Brunswick and Nova Scotia of Canada (each, a "Province") permit an action (or, in the province of Quebec, a motion) to be brought in a court of competent jurisdiction in any Province on any final and enforceable judgment in personam of any federal or state court located in the Borough of Manhattan in The City of New York, State of New York ("New York Court") that is not impeachable as void or voidable under the internal laws of the State of New York for a sum certain if (i) the New York Court rendering such judgment had jurisdiction over the judgment debtor, as recognized by the courts of such Province (and submission by the Issuer in the Indenture and the Security Documents to the jurisdiction of the New York Court will be sufficient for the purpose); (ii) such judgment was not obtained by fraud or in a manner contrary to natural justice or in 137 143 contravention of the fundamental principles of procedure and, in each Province other than Quebec, the enforcement thereof would not be inconsistent with public policy as such term is applied by a court of competent jurisdiction in such Province or, in Quebec, the outcome of the judgment is not manifestly inconsistent with public order as understood in international relations; (iii) the enforcement of such judgment in any Province other than Quebec does not constitute, directly or indirectly, the enforcement of foreign revenue, expropriatory or penal laws and, in Quebec, does not constitute the enforcement of obligations arising from the taxation laws of New York unless the laws or tribunals of New York recognize and enforce the taxation laws of Quebec; (iv) the action to enforce such judgment must be commenced, in each Province other than Quebec, within six years and, in Quebec within three years, of the date of such judgment; (v) in Quebec, there has been no dispute between the same parties, based on the same facts and having the same object, which has given rise to a decision by a court of competent jurisdiction in Quebec, whether it has acquired the authority of a final judgment (res judicata) or not, or is pending before a competent authority in first instance, or has been decided in a third country and the decision meets the necessary conditions for recognition by such a court in Quebec; (vi) the enforcement of such judgment would not be contrary to any order made by the Attorney General of Canada under the Foreign Extra Territorial Measures Act (Canada) or the Competition Tribunal under the Competition Act (Canada) in respect of certain judgments, laws and directives having effects on competition in Canada; and (vii) in New Brunswick, the requirements of the Foreign Judgements Act (New Brunswick) have been satisfied. To the knowledge of such counsel, there are no reasons under present laws of any province of Canada for avoiding the recognition of such judgment of a New York Court under the Indenture or the Notes based on public policy or public order. CONSENT TO JURISDICTION AND SERVICE The Indenture provides that the Issuer will appoint CT Corporation, currently located at 1633 Broadway, New York, New York 10019, as its agent for service of process in any suit, action or proceeding with respect to the Indenture, the Security Documents or the Notes and for actions brought under federal or state securities laws brought in any Federal or state court located in The City of New York and submit to such jurisdiction. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise under the circumstances in the conduct of such Person's own affairs. The Indenture and provisions of the Trust Indenture Act incorporated by reference therein contain limitations on the rights of the Trustee, should it become a creditor of the Issuer or any Guarantor, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest, it must eliminate such conflict or resign. The Issuer or any Guarantor may have customary banking relationships with the Trustee in the ordinary course of business. The Trustee acts as trustee under the indenture with respect to the Senior Secured Notes. GOVERNING LAW The Indenture, the Notes, the Guarantees and the Intercreditor Agreement will be governed by, and construed in accordance with, the laws of the State of New York. The Security Documents will be governed by, and construed in accordance with, the laws of the province of Canada in which the particular Collateral secured thereby is situated and the federal laws of Canada applicable therein. 138 144 BOOK-ENTRY; DELIVERY; FORM AND TRANSFER The Notes sold to Qualified Institutional Buyers initially were in the form of one or more registered global notes without interest coupons (collectively, the "U.S. Global Notes"). Upon issuance, the U.S. Global Notes were deposited with the Trustee, as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to the accounts of DTC's Direct and Indirect Participants (as defined below). Transfer of beneficial interests in any Global Notes will be subject to the applicable rules and procedures of DTC and its Direct or Indirect Participants, which may change from time to time. The Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee in certain limited circumstances. Beneficial interests in the Global Notes may be exchanged for Notes in certificated form in certain limited circumstances. See "-- Transfers of Interests in Global Notes for Certificated Notes." Initially, the Trustee will act as Paying Agent and Registrar. The Notes may be presented for registration of transfer and exchange at the offices of the Registrar. Depositary Procedures DTC has advised the Issuer that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Direct Participants") and to facilitate the clearance and settlement of transactions in those securities between Direct Participants through electronic book-entry changes in accounts of Participants. The Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities that clear through or maintain a direct or indirect, custodial relationship with a Direct Participant (collectively, the "Indirect Participants"). DTC may hold securities beneficially owned by other persons only through the Direct Participants or Indirect Participants and such other persons' ownership interest and transfer of ownership interest will be recorded only on the records of the Direct Participant and/or Indirect Participant, and not on the records maintained by DTC. DTC has also advised the Issuer that, pursuant to DTC's procedures, (i) upon deposit of the Global Notes, DTC will credit the accounts of the Direct Participants designated by the Initial Purchasers with portions of the principal amount of the Global Notes allocated by the Initial Purchasers to such Direct Participants, and (ii) DTC will maintain records of the ownership interests of such Direct Participants in the Global Notes and the transfer of ownership interests by and between Direct Participants. DTC will not maintain records of the ownership interests of, or the transfer of ownership interests by and between, Indirect Participants or other owners of beneficial interests in the Global Notes. Direct Participants and Indirect Participants must maintain their own records of the ownership interests of, and the transfer of ownership interests by and between, Indirect Participants and other owners of beneficial interests in the Global Notes. Investors in the U.S. Global Notes may hold their interests therein directly through DTC if they are Direct Participants in DTC or indirectly through organizations that are Direct Participants in DTC. The laws of some states require that certain persons take physical delivery in definitive, certificated form, of securities that they own. This may limit or curtail the ability to transfer beneficial interests in a Global Note to such persons. Because DTC can act only on behalf of Direct Participants, which in turn act on behalf of Indirect Participants and others, the ability of a person having a beneficial interest in a Global Note to pledge such interest to persons or entities that are not Direct Participants in DTC, or to otherwise take actions in respect of such interests, may be affected by the lack of physical certificates evidencing such interests. For certain other restrictions on the transferability of the Notes, see "-- Transfers of Interests in Global Notes for Certificated Notes." EXCEPT AS DESCRIBED IN "-- TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL 139 145 DELIVERY OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE. Under the terms of the Indenture, the Issuer, PAAC, the Guarantors and the Trustee will treat the persons in whose names the Notes are registered (including Notes represented by Global Notes) as the owners thereof for the purpose of receiving payments and for any and all other purposes whatsoever. Payments in respect of the principal, premium, Liquidated Damages, if any, and interest on Global Notes registered in the name of DTC or its nominee will be payable by the Trustee to DTC or its nominee as the registered holder under the Indenture. Consequently, neither the Issuer, the Trustee nor any agent of the Issuer or the Trustee has or will have any responsibility or liability for (i) any aspect of DTC's records or any Direct Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any of DTC's records or any Direct Participant's or Indirect Participant's records relating to the beneficial ownership interests in any Global Note or (ii) any other matter relating to the actions and practices of DTC or any of its Direct Participants or Indirect Participants. DTC has advised the Issuer that its current payment practice (for payments of principal, interest and the like) with respect to securities such as the Notes is to credit the accounts of the relevant Direct Participants with such payment on the payment date in amounts proportionate to such Direct Participant's respective ownership interests in the Global Notes as shown on DTC's records. Payments by Direct Participants and Indirect Participants to the beneficial owners of the Notes will be governed by standing instructions and customary practices between them and will not be the responsibility of DTC, the Trustee, the Issuer, PAAC or the Guarantors. Neither the Issuer, PAAC, the Guarantors nor the Trustee will be liable for any delay by DTC or its Direct Participants or Indirect Participants in identifying the beneficial owners of the Notes, and the Issuer and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee as the registered owner of the Notes for all purposes. The Global Notes will trade in DTC's Same-Day Funds Settlement System and, therefore, transfers between Direct Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in immediately available funds. Transfers between Indirect Participants who hold an interest through a Direct Participant will be effected in accordance with the procedures of such Direct Participant but generally will settle in immediately available funds. DTC has advised the Issuer that it will take any action permitted to be taken by a holder of Notes only at the direction of one or more Direct Participants to whose account interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of the Notes as to which such Direct Participant or Direct Participants has or have given direction. However, if there is an Event of Default under the Notes, DTC reserves the right to exchange Global Notes (without the direction of one or more of its Direct Participants) for legended Notes in certificated form, and to distribute such certificated forms of Notes to its Direct Participants. See "-- Transfers of Interests in Global Notes for Certificated Notes." Although DTC has agreed to the foregoing procedures to facilitate transfers of interests in the U.S. Global Notes among Direct Participants, it is under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. None of the Issuer, PAAC, the Guarantors, the Initial Purchasers or the Trustee will have any responsibility for the performance by DTC or its respective Direct and Indirect Participants of their respective obligations under the rules and procedures governing any of their operations. The information in this section concerning DTC and its book-entry system has been obtained from sources that the Issuer believes to be reliable, but the Issuer takes no responsibility for the accuracy thereof. Transfers of Interests in Global Notes for Certificated Notes An entire Global Note may be exchanged for definitive Notes in registered, certificated form without interest coupons ("Certified Notes") if (i) DTC (x) notifies the Issuer that it is unwilling or unable to continue as depositary for the Global Notes and the Issuer thereupon fails to appoint a successor depositary within 90 days or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Issuer, at 140 146 its option, notifies the Trustee in writing that it elects to cause the issuance of Certificated Notes or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes. In any such case, the Issuer will notify the Trustee in writing that, upon surrender by the Direct and Indirect Participants of their interest in such Global Note, Certificated Notes will be issued to each person that such Direct and Indirect Participants and the DTC identify as being the beneficial owner of the related Notes. Beneficial interests in Global Notes held by any Direct or Indirect Participant may be exchanged for Certificated Notes upon request to DTC, by such Direct Participant (for itself or on behalf of an Indirect Participant), to the Trustee in accordance with customary DTC procedures. Certificated Notes delivered in exchange for any beneficial interest in any Global Note will be registered in the names, and issued in any approved denominations, requested by DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's customary procedures). Neither the Issuer, the Guarantors nor the Trustee will be liable for any delay by the holder of the Global Notes or the DTC in identifying the beneficial owners of Notes, and the Issuer and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the holder of the Global Note or the DTC for all purposes. Transfers of Certificated Notes for Interests in Global Notes Certificated Notes may only be transferred if the transferor first delivers to the Trustee a written certificate (and in certain circumstances, an opinion of counsel) confirming that, in connection with such transfer, it has complied with the restrictions on transfer described under "Notice to Investors." Same Day Settlement and Payment The Indenture requires that payments in respect of the Notes represented by the Global Notes (including principal, premium, if any, interest and Liquidated Damages, if any) be made by wire transfer of immediately available same day funds to the accounts specified by the holder of interests in such Global Note. With respect to Certificated Notes, the Issuer will make all payments of principal, premium, if any, interest and Liquidated Damages, if any, by wire transfer of immediately available same day funds to the accounts specified by the holders thereof or, if no such account is specified, by mailing a check to each such holder's registered address. The Issuer expects that secondary trading in the Certificated Notes will also be settled in immediately available funds. 141 147 ORIGINAL NOTES REGISTRATION RIGHTS The Issuer, the Guarantors and the Initial Purchasers entered into the Registration Rights Agreement on the Closing Date pursuant to which the Issuer and the Guarantors agreed, for the benefit of holders of the Original Notes, to, at their expense (i) on or prior to the 30th day following the Closing Date (provided that if the 30th day is not a business day, the first business day thereafter), file the Exchange Offer Registration Statement with the Commission with respect to the Exchange Offer pursuant to which the Original Notes will be exchanged for the Exchange Notes, which will have terms identical to the Original Notes and will be guaranteed by the Guarantors on the same terms as the Guarantees (except that the Exchange Notes will not contain terms with respect to transfer restrictions or any provision relating to this paragraph) and (ii) use their best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act by the 150th day after the Closing Date (provided that if the 150th day is not a business day, the first business day thereafter). Upon effectiveness of the Exchange Offer Registration Statement, the Issuer and the Guarantors agreed to offer to all holders of the Notes an opportunity to exchange their securities for a like principal amount of the Exchange Notes. The Issuer and the Guarantors agreed to keep the Exchange Offer open for acceptance for not less than 20 business days after the date the Exchange Offer Registration Statement is declared effective, and to comply with Regulation 14E and Rule 13e-4 under the Exchange Act (other than the filing requirements of Rule 13e-4). For each Original Note surrendered to the Issuer and the Guarantors for exchange pursuant to the Exchange Offer, the holder of such Original Note will receive an Exchange Note having a principal amount at maturity equal to that of the surrendered Original Note. Interest on each Exchange Note will accrue from the last interest payment date on which interest was paid on the Original Note surrendered in exchange therefor or, if no interest has been paid on such Original Note, from the date of original issuance. Under existing interpretations of the staff of the Commission's Division of Corporation Finance (the "Staff"), the Exchange Notes will generally be freely transferable after the Exchange Offer without further registration under the Securities Act; provided that broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer will be subject to a prospectus delivery requirement with respect to resales of such Exchange Notes. To date, the Staff has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to transactions involving an exchange of securities such as the exchange pursuant to the Exchange Offer (other than a resale of an unsold allotment from the sale of the Notes to the Initial Purchasers) with the prospectus contained in the Exchange Offer Registration Statement. Pursuant to the Registration Rights Agreement, the Issuer and the Guarantors will agree to permit Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use the prospectus contained in the Exchange Offer Registration Statement in connection with the resale of such Exchange Notes for a period of 180 days. Each holder of the Original Notes who wishes to exchange its Original Notes for Exchange Notes in the Exchange Offer will be required to make certain representations to the Issuer and the Guarantors, including that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in a public distribution (within the meaning of the Securities Act) of the Exchange Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Issuer or the Guarantors, or if it is such an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable to it. In addition, each holder who is not a broker-dealer will be required to represent that it is not engaged in, and does not intend to engage in, a public distribution of the Exchange Notes. Each holder who is a broker-dealer and who receives Exchange Notes for its own account in exchange for Original Notes that were acquired by it as a result of market-making activities or other trading activities, will be required to acknowledge that it will deliver a prospectus in connection with any resale by it of such Exchange Notes. If (i) the Exchange Offer is not permitted by applicable law or (ii) any holder of Transfer Restricted Securities notifies the Issuer and the Guarantors prior to the 20th business day following consummation of the Exchange Offer that (A) it is prohibited by law or Commission policy from participating in the Exchange Offer or (B) that it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public 142 148 without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales or (C) that it is a broker-dealer and owns Notes acquired directly from the Issuer or an affiliate of the Issuer, the Issuer and the Guarantors will, at their expense, (a) promptly file a shelf registration statement (a "Shelf Registration Statement" and together with the Exchange Offer Registration Statement, the "Registration Statements") permitting resales from time to time of the Notes, (b) use their best efforts to cause such registration statement to become effective and (d) use their best efforts to keep such registration statement current and effective until two years from the date it becomes effective or such shorter period that will terminate when all the Notes covered by such registration statement have been sold pursuant thereto. For purposes of the foregoing, "Transfer Restricted Securities" means each Original Note until (i) the date on which such Original Note has been exchanged by a person other than a broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of an Original Note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Note is distributed to the public pursuant to Rule 144 under the Securities Act. The Issuer and the Guarantors, at their expense, will provide to each holder of the Original Notes copies of the prospectus, which is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the Original Notes from time to time. A holder of Original Notes who sells such Original Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such holder (including certain indemnification obligations). In the event that (i) the Exchange Offer Registration Statement is not filed with the Commission on or prior to the 30th day after the Closing Date or declared effective on or prior to the 150th day after the Closing Date, (ii) the Exchange Offer is not consummated on or prior to the 30th business day following the date the Exchange Offer Registration Statement is declared effective, (iii) the Shelf Registration Statement is not filed or declared effective within the required time periods or (iv) any of the Registration Statements required by the Registration Rights Agreement is declared effective but thereafter ceases to be effective (except as specifically permitted therein) for a period of 15 consecutive days without being succeeded immediately by any additional Registration Statement filed and declared effective (each such event, a "Registration Default"), then the Issuer and the Guarantors will pay liquidated damages ("Liquidated Damages") to each holder of Original Notes, with respect to the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to $.05 per week per $1,000 principal amount of Original Notes held by such holder. The amount of the Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of Original Notes at the beginning of each subsequent 90-day period, up to a maximum amount of $.50 per week per $1,000 principal amount of Original Notes; provided, that the Issuer and the Guarantors shall in no event be required to pay Liquidated Damages for more than one Registration Default at any given time. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. 143 149 CERTAIN TAX CONSEQUENCES CANADA The Issuer has received the opinion of Stikeman, Elliott, a general partnership, with respect to Canadian federal law regarding certain tax consequences of an investment in the Notes. This summary is general in nature and is not exhaustive of all possible Canadian tax consequences. Accordingly, prospective investors should consult with their own tax advisors for advice with respect to their particular circumstances, including any consequences of an investment in the Notes arising under tax laws of any province or territory of Canada or tax laws of any jurisdiction other than Canada. INCOME TAX The following is a summary of the principal Canadian federal income tax considerations under the Income Tax Act (Canada) (the "Income Tax Act") generally applicable to purchasers of Notes who, for the purpose of the Income Tax Act, are not resident or deemed to be resident in Canada, hold their Notes as capital property, deal at arm's length with the Issuer, do not use or hold and are not deemed to use or hold the Notes in carrying on business in Canada and are not insurers that carry on an insurance business in Canada and elsewhere. The summary is based on the current provisions of the Income Tax Act, the regulations thereunder, specific proposals to amend the Income Tax Act or the regulations publicly announced by the Minister of Finance before the date of this Prospectus, counsel's understanding of the current administrative practice of Revenue Canada, and the current provisions of the international tax convention entered into by Canada with the United States, but does not otherwise take into account or anticipate changes in the law, whether by judicial, governmental or legislative decisions or action, nor is it exhaustive of all possible Canadian federal tax consequences. It furthermore does not take into account or consideration tax legislation of any province or territory of Canada or any jurisdiction other than Canada. This summary is of a general nature only and is not intended to be, and should not be interpreted as, legal or tax advice to any particular holder of an Original Note or Exchange Note. The Issuer is not required to withhold tax from interest paid by it on the Notes to any non-resident of Canada with whom it is dealing at arm's length within the meaning of the Income Tax Act. Under the Income Tax Act, related persons (as defined therein) are deemed not to deal at arm's length and it is a question of fact whether persons not related to each other deal at arm's length. No other tax on income (including taxable capital gains) is payable in respect of the purchase, holding, redemption or disposition of the Notes or the receipt of interest or any premium thereon by holders with whom the Issuer deals at arm's length, except that in certain circumstances holders who are non-resident insurers carrying on an insurance business in Canada and elsewhere may be subject to such taxes. ESTATE AND GIFT TAX Neither Canada nor the province of New Brunswick currently imposes any estate or gift tax in connection with an interest in the Notes. UNITED STATES The following summary describes certain United States federal income tax consequences of the ownership and disposition of the Notes as of the date hereof and represents the opinion of Willkie Farr & Gallagher, United States counsel to the Company, insofar as it relates to matters of law or legal conclusions. Except where noted, it deals only with Notes held as capital assets by United States Holders (as defined) and does not deal with special situations, such as those of dealers in securities or currencies, financial institutions, life insurance companies, persons holding Notes as a part of a hedging or conversion transaction or a straddle or United States Holders whose "functional currency" is not the U.S. dollar. Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and 144 150 regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result in federal income tax consequences different from those discussed below. Persons considering the purchase, ownership or disposition of Notes should consult their own tax advisors concerning the federal income tax consequences in light of their particular situations as well as any consequences existing under the laws of any other existing jurisdiction. As used herein, a "United States Holder" of a Note means a holder that is a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. PAYMENT OF INTEREST Interest (including Additional Amounts) on a Note will generally be taxable to a United States Holder as ordinary income at the time it is paid or accrued in accordance with the United State Holder's method of accounting for tax purposes. Interest will be from sources outside the United States. MARKET DISCOUNT; ACQUISITION PREMIUM If a United States Holder purchases Notes for an amount that is less than the stated redemption price at maturity of such Notes, the amount of the difference will be treated as "market discount" for federal income tax purposes, unless such difference is less than a specified de minimis amount. Under the market discount rules, a United States Holder will be required to treat any principal payment on, or any gain on the sale, exchange, retirement or other disposition of Notes as ordinary income to the extent of the market discount which has not previously been included in income and is treated as having accrued on such Notes at the time of such payment or disposition. In addition, the United States Holder may be required to defer, until the maturity of the Notes or the earlier disposition of the Notes in a taxable transaction, the deduction for a portion of the interest expense on any indebtedness incurred or continued to purchase or carry such Notes. Any market discount will be considered to accrue on a straight-line basis during the period from the date of acquisition to the maturity date of the Notes, unless the United States Holder elects to accrue on a constant yield method. A United States Holder of Notes may elect to include market discount in income currently as it accrues (on either a straight-line basis or constant yield method), in which case the rule described above regarding deferral of interest deductions will not apply. This election to include market discount in income currently, once made, applies to all market discount obligations acquired on or after the first taxable year to which the election applies and may not be revoked without the consent of the Internal Revenue Service ("IRS"). A United States Holder that purchases Notes for an amount that is greater than the sum of all amounts payable on the Notes after the purchase date other than stated interest will be considered to have purchased such Notes at a "premium." A United States Holder generally may elect to amortize the premium over the remaining term of the Notes on a constant yield method. The amount amortized in any year will be treated as a reduction of the United States Holder's interest income from the Note. Premiums on Notes held by a United States Holder that does not make such an election will decrease the gain or increase the loss otherwise recognized on disposition of the Notes. The election to amortize premium on a constant yield method once made applies to all debt obligations held or subsequently acquired by the electing United States Holder on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS. Because the Notes may be redeemed at the option of the Issuer at a price in excess of their principal amount, a United States Holder may be required to amortize any bond premium based on the earlier call date and the call price payable at that time. 145 151 SALE, EXCHANGE AND RETIREMENT OF NOTES A United States Holder's tax basis in a Note will, in general, be the United States Holder's cost therefor increased by any market discount included in income by such United States Holder and reduced by any amortized premium. Upon the sale, exchange or retirement of a Note, a United States Holder will recognize gain or loss equal to the difference between the amount realized upon the sale, exchange or retirement (less any accrued stated interest, which will be taxable as such) and the adjusted tax basis of a Note. Except with respect to market discount, such gain or loss will be a capital gain or loss. Under current law, net capital gain of individuals are, under certain circumstances, taxed at lower rates than items of ordinary income. The deductibility of capital losses is subject to limitations. EXCHANGE OFFER The exchange of Original Notes for Exchange Notes by holders will not be a taxable event for United States federal income tax purposes, and holders should not recognize any taxable gain or loss or any interest income as a result of such exchange. 146 152 PLAN OF DISTRIBUTION Based on interpretations by the Staff set forth in no-action letters issued to third parties, the Registrants believe that Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "affiliate" of the Registrants within the meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired Original Notes directly from the Registrants or (iii) broker-dealers who acquired Original Notes as a result of market-making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business, and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes; provided that broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer will be subject to a prospectus delivery requirement with respect to resales of such Exchange Notes. To date, the Staff has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to transactions involving an exchange of securities such as the exchange pursuant to the Exchange Offer (other than a resale of an unsold allotment from the sale of the Original Notes to the Initial Purchasers) with the prospectus contained in the Exchange Offer Registration Statement. Pursuant to the Registration Rights Agreement, the Registrants have agreed to permit Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use this Prospectus in connection with the resale of such Exchange Notes. The Registrants have agreed that, for a period not to exceed 180 days after the Exchange Date, they will make this Prospectus, and any amendment or supplement to this Prospectus, available to any broker-dealer that requests such documents in the Letter of Transmittal. Each holder of the Original Notes who wishes to exchange its Original Notes for Exchange Notes in the Exchange Offer will be required to make certain representations to the Company as set forth in "The Exchange Offer -- Terms and Conditions of the Letter of Transmittal." In addition, each holder who is a broker-dealer and who receives Exchange Notes for its own account in exchange for Original Notes that were acquired by it as a result of market-making activities or other trading activities, will be required to acknowledge that it will deliver a prospectus in connection with any resale by it of such Exchange Notes. The Registrants will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Issuer has agreed to pay all expenses incidental to the Exchange Offer other than commissions and concessions of any brokers or dealers and will indemnify holders of the Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act, as set forth in the Registration Rights Agreement. 147 153 LEGAL MATTERS Certain legal matters with respect to the Exchange Notes will be passed upon for PCI Canada by Stikeman, Elliott, Montreal, Quebec, a general partnership, and Stewart McKelvey Stirling Scales, Saint John, New Brunswick, with respect to matters of Canadian law, and by Willkie Farr & Gallagher, New York, New York with respect to matters of United States law. Jack H. Nusbaum, a Senior Partner and Chairman of Willkie Farr & Gallagher, is a director of Pioneer and PAAC and beneficially owns 13,652 shares of Pioneer's Class A Common Stock. EXPERTS The consolidated financial statements of Pioneer Americas Acquisition Corp. as of December 31, 1996 and 1995 and for the year ended December 31, 1996 and for the period from March 6, 1995 through December 31, 1995, included in this prospectus, and the related financial statement schedule included elsewhere in the registration statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and elsewhere in the registration statement, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements and schedule 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, included in this Prospectus, have been audited by Ernst & Young LLP, independent auditors, as stated in their reports, which are included herein, which are based in part on the reports of Piercy, Bowler, Taylor & Kern, independent auditors of Basic Investments, Inc. The consolidated financial statements and schedule of Pioneer Americas, Inc. (the Predecessor Company) are included in reliance upon such reports given upon the authority of such firms and experts in accounting and auditing. The financial statements of the PCI Canada Business as of December 31, 1996 and December 31, 1995 and for each of the three years in the period ended December 31, 1996, included in this Prospectus, have been audited by KPMG, independent auditors, as stated in their reports, which are included herein. The financial statements of the Tacoma Plant as of December 31, 1996 and December 31, 1995 and for each of the three years in the period ended December 31, 1996, included in this Prospectus, have been audited by Arthur Andersen LLP, independent auditors, as stated in their reports, which are included herein. CHANGE IN INDEPENDENT PUBLIC AUDITORS Effective October 16, 1995, each of the Guarantors that are subsidiaries of PAAC, by action of its board of directors, engaged Deloitte & Touche LLP as its independent auditors. Deloitte & Touche LLP has acted as independent auditors of PAAC since the inception of PAAC and it was determined that, following the acquisition of the Subsidiary Guarantors by PAAC, Deloitte & Touche LLP should act as independent auditors of the Subsidiary Guarantors as well. Ernst & Young LLP had been the independent auditors for PAI prior to their dismissal, effective October 16, 1995. The reports of Ernst & Young LLP on the financial statements of PAI for the fiscal years 1993 and 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 PAI for each of the two fiscal years ended December 31, 1994, and in the subsequent interim period, there were no disagreements with Ernst & Young LLP on any matters of accounting principles or practices, financial statement disclosure or auditing scope and procedures which, if not resolved to the satisfaction of Ernst & Young LLP, would have caused Ernst & Young LLP to make reference to the matter in their report. 148 154 INDEX TO FINANCIAL STATEMENTS
PAGE ----- (1) Pioneer Americas Acquisition Corp. and subsidiary companies: Report of Deloitte & Touche LLP, independent auditors.......................................... F-2 Report of Ernst & Young LLP, independent auditors.......................................... F-3 Report of Piercy, Bowler, Taylor & Kern, independent public accountants.................... F-4 Consolidated balance sheets of the Company as of December 31, 1996 and 1995........................ F-5 Consolidated statements of operations of the Company for the year ended December 31, 1996 and the period from March 6, 1995 ("Inception") through December 31, 1995 and of the Predecessor Company for the period from January 1, 1995 through April 20, 1995 and for the year ended December 31, 1994................................. F-6 Consolidated statements of stockholders' equity of the Company for the period from Inception through December 31, 1995 and for the year ended December 31, 1996 and of the Predecessor Company for the year ended December 31, 1994 and for the period from January 1, 1995 through April 20, 1995....... F-7 Consolidated statements of cash flows of the Company for the year ended December 31, 1996 and the period from Inception through December 31, 1995 and of the Predecessor Company for the period from January 1, 1995 through April 20, 1995 and for the year ended December 31, 1994.............. F-8 Notes to consolidated financial statements........ F-9 Consolidated balance sheets of the Company as of September 30, 1997 (unaudited) and December 31, 1996.............................................. F-25 Unaudited consolidated statements of operations of the Company for the three months and nine months ended September 30, 1997 and September 30, 1996... F-26 Unaudited consolidated statements of cash flows of the Company for the nine months ended September 30, 1997 and September 30, 1996................... F-27 Notes to unaudited consolidated financial statements........................................ F-28 (2) PCI Canada Business: Report of KPMG, Chartered Accountants............. F-32 Combined Balance Sheets of the PCI Canada Business as of December 31, 1996, 1995 and 1994 and September 30, 1997 and 1996 (unaudited)........... F-33 Combined Statements of Operations of the PCI Canada Business for the years ended December 31, 1996, 1995 and 1994 and for the nine months ended September 30, 1997 and 1996 (unaudited)........... F-34 Combined Statements of Head Office Account of the PCI Canada Business for the years ended December 31, 1996, 1995 and 1994 and for the nine months ended September 30, 1997 and 1996 (unaudited)..... F-35 Combined Statements of Change in Financial Position of the PCI Canada Business for the years ended December 31, 1996, 1995 and 1994 and for the nine months ended September 30, 1997 and 1996 (unaudited)....................................... F-36 Notes to combined financial statements............ F-37 (3) Tacoma Plant: Report of Arthur Andersen LLP, independent public accountants....................................... F-46 Balance sheets for the Tacoma Plant at December 31, 1996 and 1995................................. F-47 Statements of operations and changes in owner's investment for the Tacoma Plant for the years ended December 31, 1996, 1995 and 1994............ F-48 Statements of cash flows of the Tacoma Plant for the years ended December 31, 1996, 1995 and 1994.............................................. F-49 Notes to financial statements..................... F-50 Balance sheets for the Tacoma Plant at June 16, 1997 (unaudited) and December 31, 1996............ F-60 Unaudited statements of operations and changes in owner's investment for the Tacoma Plant for the year-to-date periods ended June 16, 1997 and June 30, 1996.......................................... F-61 Unaudited statements of cash flows of the Tacoma Plant for the year-to-date periods ended June 16, 1997 and June 30, 1996............................ F-62 Notes to unaudited financial statements........... F-63
F-1 155 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Pioneer Americas Acquisition Corp. We have audited the accompanying consolidated balance sheets of Pioneer Americas Acquisition Corp. and its subsidiaries (the "Company"), as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year ended December 31, 1996 and for the period from March 6, 1995 (Inception) through December 31, 1995. Our audit also includes the consolidated financial statement schedule II. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1996 and 1995, and the results of their operations and their cash flows for the year ended December 31, 1996 and the period from Inception through December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Houston, Texas March 7, 1997 F-2 156 INDEPENDENT AUDITORS' REPORT The Board of Directors Pioneer Americas, Inc. We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of Pioneer Americas, Inc. (the "Predecessor Company") for the period from January 1, 1995 through April 20, 1995 and for the year ended December 31, 1994. Our audits also included the related financial statement schedule II. These financial statements and schedule are the responsibility of the Predecessor Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. The financial statements of certain of the Predecessor Company's investments (as described in Note 5) have been audited by other auditors whose report has been furnished to us; insofar as our opinion on the consolidated financial statements relates to data included for these investments, it is based solely on their report. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of the Predecessor Company for the period from January 1, 1995 through April 20, 1995 and for the year ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. ERNST & YOUNG LLP Houston, Texas June 26, 1995 F-3 157 INDEPENDENT AUDITORS' REPORT Board of Directors Basic Investments, Inc. Henderson, Nevada We have audited the combined statements of income, equity and cash flows of Basic Investments, Inc. and affiliates (the Company) for the year ended December 31, 1994. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the results of combined operations and cash flows of Basic Investments, Inc. and affiliates for the year ended December 31, 1994 in conformity with generally accepted accounting principles. Piercy, Bowler, Taylor & Kern Certified Public Accountants and Business Advisors A Professional Corporation Las Vegas, Nevada January 30, 1995 F-4 158 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, -------------------- 1996 1995 -------- -------- ASSETS Current assets: Cash...................................................... $ 14,417 $ 11,218 Accounts receivable, less allowance for doubtful accounts: 1996, $1,311; 1995, $1,424............................. 18,830 27,825 Due from parent........................................... 2,547 574 Inventories............................................... 6,247 11,347 Prepaid expenses.......................................... 1,156 3,766 -------- -------- Total current assets.............................. 43,197 54,730 Property, plant, and equipment, at cost: Land................................................... 3,735 1,711 Buildings and improvements............................. 17,062 13,997 Machinery and equipment................................ 71,704 67,587 Cylinders and tanks.................................... 4,540 4,503 Construction in progress............................... 11,871 9,394 -------- -------- 108,912 97,192 Less accumulated depreciation.......................... (16,429) (7,795) -------- -------- 92,483 89,397 Investment in and advances to unconsolidated subsidiary..... 28,586 -- Other assets, net of accumulated amortization: 1996, $2,458; 1995, $1,068.............................................. 19,621 11,664 Excess cost over the fair value of net assets acquired, net of accumulated amortization: 1996, $7,556; 1995, $3,311... 107,123 108,940 -------- -------- Total assets...................................... $291,010 $264,731 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable.......................................... $ 17,221 $ 20,183 Accrued liabilities....................................... 19,276 20,660 Returnable deposits....................................... 3,238 3,437 Current portion of long-term debt......................... 128 -- -------- -------- Total current liabilities......................... 39,863 44,280 Long-term debt, less current maturities..................... 141,629 135,000 Returnable deposits......................................... 3,272 3,281 Accrued pension and other employee benefits................. 14,100 13,573 Other long-term liabilities................................. 17,823 13,170 Commitments and contingencies (Note 10) Stockholder's equity: Common stock, $.01 par value, authorized 1,000 shares, issued and outstanding 1,000 shares.................... 1 1 Additional paid-in capital................................ 61,124 49,652 Retained earnings......................................... 13,198 5,774 -------- -------- Total stockholder's equity........................ 74,323 55,427 -------- -------- Total liabilities and stockholder's equity........ $291,010 $264,731 ======== ========
See notes to consolidated financial statements. F-5 159 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
PREDECESSOR COMPANY ------------------------------- PERIOD FROM PERIOD FROM INCEPTION JANUARY 1, 1995 YEAR ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, APRIL 20, DECEMBER 31, 1996 1995 1995 1994 ------------ ------------ --------------- ------------ Revenues................................ $183,326 $142,908 $57,848 $167,217 Cost of sales........................... 126,739 98,175 37,400 134,556 -------- -------- ------- -------- Gross profit............................ 56,587 44,733 20,448 32,661 Selling, general and administrative expenses.............................. 23,528 19,836 7,047 22,529 -------- -------- ------- -------- Operating income........................ 33,059 24,897 13,401 10,132 Equity in net loss of unconsolidated subsidiary............................ (2,607) -- -- -- Interest expense, net................... (17,290) (12,905) (1,665) (6,407) Settlement of litigation and insurance claims, net........................... -- -- -- 3,326 Other income (expense), net............. 1,684 637 (115) 1,337 -------- -------- ------- -------- Income before taxes and extraordinary item.................................. 14,846 12,629 11,621 8,388 Income tax provision.................... 6,735 6,208 4,809 3,242 -------- -------- ------- -------- Income before extraordinary item........ 8,111 6,421 6,812 5,146 Extraordinary item, early extinguishment of debt (net of income tax benefit of $2,140)............................... -- -- 3,420 -- -------- -------- ------- -------- Net income.............................. 8,111 6,421 3,392 5,146 Accretion of dividends on preferred stock and adjustment to redeemable stock put warrants.................... -- -- -- (1,824) -------- -------- ------- -------- Net income applicable to common stock... $ 8,111 $ 6,421 $ 3,392 $ 3,322 ======== ======== ======= ========
See notes to consolidated financial statements. F-6 160 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
NUMBER OF COMMON ADDITIONAL SHARES COMMON PAID-IN RETAINED OUTSTANDING STOCK CAPITAL EARNINGS TOTAL ----------- ------ ---------- --------- ------- Post Acquisition Balance at Acquisition.................. 1 $ 1 $46,062 $ -- $46,063 Recognition of the NOL benefit........ -- -- 3,590 -- 3,590 Dividend paid to parent............... -- -- -- (647) (647) Net income............................ -- -- -- 6,421 6,421 ----- --- ------- ------- ------- Balance at December 31, 1995............ 1 1 49,652 5,774 55,427 Recognition of the NOL benefit........ -- -- 11,472 -- 11,472 Dividend paid to parent............... -- -- -- (687) (687) Net income............................ -- -- -- 8,111 8,111 ----- --- ------- ------- ------- Balance at December 31, 1996............ 1 $ 1 $61,124 $13,198 $74,323 ===== === ======= ======= ======= Predecessor Company Balance at December 31, 1993............ 1,453 $14 $ 4,028 $15,679 $19,721 Common Stock issuance................. 56 1 158 -- 159 Adjust carrying value of stock warrants........................... -- -- -- (1,424) (1,424) Accretion of excess redemption value of redeemable preferred stock over carrying value and amount of dividends not declared or paid..... -- -- -- (500) (500) Net income............................ -- -- -- 5,146 5,146 ----- --- ------- ------- ------- Balance at December 31, 1994............ 1,509 15 4,186 18,901 23,102 Accretion of excess redemption value of redeemable preferred stock over carrying value and amount of dividends not declared or paid..... -- -- -- (124) (124) Net income............................ -- -- -- 3,392 3,392 ----- --- ------- ------- ------- Balance at April 20, 1995............... 1,509 $15 $ 4,186 $22,169 $26,370 ===== === ======= ======= =======
See notes to consolidated financial statements. F-7 161 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PREDECESSOR COMPANY PERIOD FROM ------------------------------- INCEPTION PERIOD FROM YEAR ENDED THROUGH JANUARY 1, 1995 YEAR ENDED DECEMBER 31, DECEMBER 31, THROUGH DECEMBER 31, 1996 1995 APRIL 20, 1995 1994 ------------ ------------ --------------- ------------ OPERATING ACTIVITIES: Net income............................. $ 8,111 $ 6,421 $ 3,392 $ 5,146 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........ 15,695 12,274 4,490 13,595 Provision for bad debts.............. -- 138 47 1,235 Write-off of previous finance costs............................. -- -- 1,282 -- Gain on disposal of property, plant and equipment..................... -- -- 13 (4) Provision for SAR's.................. -- -- -- 968 Equity in net loss (earnings) of unconsolidated subsidiaries....... 2,607 -- (204) (183) Net change in deferred taxes......... 4,339 3,590 (2,086) (1,256) Net effect of changes in operating assets and liabilities (net of acquisitions)..................... 1,701 5,865 (4,323) 2,918 -------- --------- --------- -------- Net cash flows from operating activities........................... 32,453 28,288 2,611 22,419 -------- --------- --------- -------- INVESTING ACTIVITIES: Acquisitions of businesses........... (5,459) (152,318) -- -- Investment in and advances to unconsolidated subsidiaries....... (6,645) -- -- -- Capital expenditures................. (17,121) (13,556) (3,447) (5,681) Proceeds from sale of property, plant and equipment..................... -- -- 58 694 -------- --------- --------- -------- Net cash flows from investing activities........................... (29,225) (165,874) (3,389) (4,987) -------- --------- --------- -------- FINANCING ACTIVITIES: Borrowings: Proceeds.......................... -- 153,500 106,000 83,900 Repayments........................ (70) (27,500) (103,971) (99,961) Dividends paid to parent............. (687) (416) -- -- Dividends paid on preferred stock and purchase of stock put warrant..... -- -- (2,341) -- Proceeds from issuance of common stock............................. -- 21,000 -- 170 -------- --------- --------- -------- Net cash flows from financing activities........................... (757) 146,584 (312) (15,891) -------- --------- --------- -------- Net increase (decrease) in cash........ 2,471 8,998 (1,090) 1,541 Cash at beginning of period............ 11,218 -- 3,310 1,769 Cash acquired in acquisition........... 728 2,220 -- -- -------- --------- --------- -------- Cash at end of period.................. $ 14,417 $ 11,218 $ 2,220 $ 3,310 ======== ========= ========= ========
See notes to consolidated financial statements. F-8 162 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Pioneer Americas Acquisition Corp. (Pioneer) is a Delaware corporation formed on March 6, 1995 (Inception). Pioneer is 100% owned by Pioneer Companies, Inc. (PCI). On April 20, 1995, Pioneer acquired Pioneer Americas, Inc. (Pioneer Americas or the Predecessor Company) for approximately $177 million (the Acquisition). Pioneer Americas manufactured chlorine, caustic soda and related products used in a variety of applications including water treatment, plastics, detergents, and agricultural chemicals. Consideration for the Acquisition included cash, assumption of certain liabilities and repayment of debt of the Predecessor Company, redemption of preferred stock of the Predecessor Company and fees and expenses related to the Acquisition. In connection with the Acquisition, PCI sold common stock, issued long-term debt and entered into a new bank revolving credit facility. The Acquisition was accounted for as a purchase; accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their fair market value and the operations of the Predecessor Company were included in the consolidated financial statements from the date acquired. The Acquisition resulted in $112 million of excess cost over the fair value of the net assets acquired, which is being amortized on a straight line basis over 25 years. In February 1996, Pioneer acquired an interest in Kemwater North America Company (Kemwater) for $0.3 million of cash and a contribution of the assets and liabilities of its subsidiary Imperial West Chemical Co. (Imperial West). Kemwater was formed to conduct the operations of Imperial West and KWT, Inc. (acquired by PCI in February 1996). Kemwater, which manufactures and supplies iron chlorides that are used to remove solids from water streams and to control hydrogen sulfide emissions by the potable and waste water markets, is owned 50% by Pioneer and 50% by PCI. Since it does not own a controlling interest in Kemwater, Pioneer accounts for Kemwater using the equity method. In the 1996 consolidated financial statements, Pioneer's investment in Kemwater is presented as Investment in and advances to unconsolidated subsidiary and its equity in the loss of Kemwater is shown as Equity in net loss of unconsolidated subsidiary. In the 1995 consolidated financial statements of Pioneer, Imperial West is consolidated and includes the following: total assets of $25.7 million, total revenues of $23.7 million and net loss of $0.6 million. Had the acquisition been made as of January 1, 1996 and 1995, it would not have had a significant impact on the consolidated financial statements for 1996 and 1995. The acquisition did not have a material impact on Pioneer s financial statements, and therefore pro forma information is not presented. Pioneer acquired T.C. Products in July 1996 for $10.0 million. T.C. Products manufactures bleach and related products. The acquisitions was accounted for as a purchase; accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their fair market value and the operations for the acquired company was included in the consolidated financial statements from the date acquired. The acquisition resulted in $7.0 million of excess cost over the fair value of the net assets acquired, which is being amortized on a straight line basis over 25 years. Had the acquisition been made as of January 1, 1996 and 1995, it would not have had a significant impact upon the consolidated financial statements for 1996 and 1995. The acquisition did not have a material impact on Pioneer's financial statements, and therefore pro forma information is not presented. The consolidated financial statements include the accounts of Pioneer and its consolidated subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated in consolidation. All dollar amounts in tabulations in the notes to the consolidated financial statements are stated in thousands of dollars unless otherwise indicated. Amounts presented in the notes to the consolidated financial statements for the Predecessor Company are based upon its historical accounting basis for the periods presented. Such amounts do not include effects of the purchase of the Predecessor Company by Pioneer. Amounts presented in the notes to the consolidated financial statements for the Predecessor Company for the period from January 1, 1995 through April 20, 1995 F-9 163 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and for the year ended December 31, 1994 are included under the captions Predecessor Company, 1995 and Predecessor Company, 1994, respectively. The Company operates in one industry segment and one geographic area. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Interest income is netted against interest expense for the periods presented. The Company had interest income for the year ended December 31, 1996 and the period from Inception through December 31, 1995 of $0.7 million and $0.3 million, respectively. The Predecessor Company had interest income of $0.1 million for each of the period from January 1, 1995 through April 20, 1995 and the year ended December 31, 1994. Inventories Inventories are valued at the lower of cost or market. Finished goods and work-in-process costs are calculated under the average cost method, which includes appropriate elements of material, labor, and manufacturing overhead costs, while the first-in, first-out method is utilized for raw materials, supplies, and parts. The Company enters into agreements with other companies to exchange chemical inventories in order to minimize working capital requirements and to facilitate distribution logistics. Balances related to quantities due to or payable by the Company are included in inventory. The results of operations for the period from Inception through December 31, 1995 include the effects of an increase of $1.7 million to cost of sales due to the step-up in value of inventory in connection with the Acquisition. Property, Plant, and Equipment Depreciation for financial reporting purposes is computed primarily under the straight-line method over the estimated remaining useful lives of the assets. Asset lives range from 5 years to 15 years with a predominant life of 10 years. Other Assets Other assets include amounts for deferred financing costs which are being amortized on a straightline basis over the term of the related debt. Amortization of such costs using the interest method would not result in material differences in the amounts amortized during the periods presented. Amortization expense for other assets for the year ended December 31, 1996 was $1.3 million and for the period from Inception through December 31, 1995 was approximately $1.1 million. Other assets of the Predecessor Company included amounts for organization costs, deferred financing costs, non-compete agreements, permits, licenses, and customer lists obtained in conjunction with the acquisitions of All-Pure Chemical Co. ("All-Pure"), GPS Pool Supply, Inc. ("GPS") and Imperial West, which were being amortized on a straight-line basis over their estimated useful lives. The Predecessor Company's deferred financing costs were being amortized on a straight-line basis over the term of the related debt. Amortization of such costs using the interest method would not result in material differences in the amounts amortized during the periods presented. Amortization expense for other assets was approximately $0.8 million for the period from January 1, 1995 through April 20, 1995 and $1.7 million for the year ending December 31, 1994. F-10 164 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Excess Cost Over the Fair Value of Net Assets Acquired Excess cost over the fair value of net assets acquired of approximately $115 million is amortized on a straight-line basis over periods of up to 25 years. The carrying value of excess cost over the fair value of net assets acquired is reviewed annually and if this review indicates that such excess cost will not be recoverable, as determined based on the estimated future undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying value of excess cost over the fair value of net assets acquired will be reduced by the estimated shortfall of discounted cash flows or the fair value of the related entity. No such reductions were made in 1996 or 1995. Amortization expense for excess cost over the fair value of net assets acquired was approximately $4.7 million for the year ended December 31, 1996 and $3.3 million for the period from Inception through December 31, 1995. The Predecessor Company's excess cost over the fair value of net assets acquired of approximately $12.8 million and is amortized on a straight-line basis over 20 years. Amortization expense was approximately $0.2 million for the period from January 1, 1995 through April 20, 1995 and $0.6 million for 1994. Environmental Expenditures Remediation costs are accrued based on estimates of known environmental remediation exposure. Such accruals are based upon management's best estimate of the ultimate cost and are recorded even if significant uncertainties exist over the ultimate cost of the remediation. Ongoing environmental compliance cost, including maintenance and monitoring costs, are charged to operations as incurred. Returnable Deposits Customers are required to pay a security deposit on cylinders, tanks, and containers. These deposits are refunded to the customer upon the termination of service and return of cylinders, tanks, and containers. Income Taxes The Company files a consolidated tax return with PCI. Pioneer has entered into a tax sharing agreement with PCI whereby the Company will make tax sharing payments to PCI with respect to federal cash income taxes reflecting the consolidated cash tax liability of PCI. The tax sharing agreement has the effect of presenting the income tax provision on a separate return basis. For financial reporting purposes, deferred income taxes are determined utilizing an asset and liability approach. This method gives consideration to the future tax consequences associated with differences between the financial accounting basis and tax basis of the assets and liabilities, and the ultimate realization of any deferred tax asset resulting from such differences. State income taxes are included in income taxes payable. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Impairment of Long-Lived Assets During 1996, the Company adopted a new accounting standard for the impairment of long-lived assets. This standard requires that certain assets be reviewed for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recovered. If it is determined that the asset's carrying amount is not recoverable, the new accounting standard requires that the carrying value be reduced to F-11 165 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the fair value of the assets. Implementation of this standard did not have a significant impact on the Company's 1996 consolidated financial statements. Reclassification Certain amounts have been reclassified in prior years to conform to the current year presentation. All reclassifications have been applied consistently for the periods presented. 3. SUPPLEMENTAL CASH FLOW INFORMATION Net effect of changes in operating assets and liabilities (net of acquisitions) are as follows:
PREDECESSOR COMPANY ------------------- 1996 1995 1995 1994 ------- ------- -------- -------- Accounts receivable............................ $ 5,228 $ 802 $(3,617) $(4,889) Due from parent................................ (1,973) 111 -- 535 Receivable from insurance carriers and agents....................................... -- -- -- (102) Income taxes receivable........................ -- -- -- 2,738 Inventories.................................... 3,151 1,541 (638) (876) Prepaid expenses............................... 76 (1,404) 722 (371) Other assets................................... (1,254) (3,104) (1,342) (305) Accounts payable............................... (4,168) (1,030) 4,899 862 Accrued liabilities............................ (4,457) 8,777 (3,784) 3,783 Returnable deposits............................ (199) (234) (259) (323) Other long-term liabilities.................... 4,770 (71) (726) 1,079 Accrued pension and other employee benefits.... 527 477 422 787 ------- ------- ------- ------- Net change in operating accounts............... $ 1,701 $ 5,865 $(4,323) $ 2,918 ======= ======= ======= =======
Following is supplemental cash information:
PREDECESSOR COMPANY --------------- 1996 1995 1995 1994 ------- -------- ------ ------ Cash paid during the period for: Interest...................................... $18,297 $ 8,288 $3,067 $4,482 ------- -------- ------ ------ Income taxes.................................. $ 3,556 $ 1,707 $1,852 $3,730 ======= ======== ====== ====== Investing activities of acquisitions during the period: Cash paid for acquisition..................... $ 5,459 $152,318 $ -- $ 238 Long-term debt issued......................... 4,500 11,463 -- 3,254 Liabilities assumed........................... 3,994 90,596 -- -- NOL benefit recognized........................ -- 13,600 -- -- ------- -------- ------ ------ Fair value of assets acquired................. $13,953 $267,977 $ -- $3,492 ======= ======== ====== ======
Included in the above table are the acquisitions of T.C. Products in 1996; Pioneer Americas, Inc. in 1995; and GPS in 1994 by the Predecessor Company. Other non-cash items included in the consolidated financial statements include: increase in stockholders' equity of $11.5 million and $3.6 million in 1996 and 1995, respectively, due to recognizing the benefit of the net operating loss carryforward; and exchange of $135 million of 13 3/8% First Mortgage Notes for $135 million of 13 3/8% First Mortgage Notes in 1996. F-12 166 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INVENTORIES Inventories consisted of the following at December 31:
1996 1995 ------- ------- Raw materials, supplies and parts........................... $ 7,512 $ 9,849 Finished goods and work-in-process.......................... 2,668 3,155 Inventories under exchange agreements....................... (3,933) (1,657) ------- ------- $ 6,247 $11,347 ======= =======
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES Kemwater Pioneer and PCI each own a 50% interest in Kemwater which was formed in February 1996 to continue the business activities previously conducted by Pioneer's subsidiary, Imperial West and to operate the business acquired by PCI through the acquisition of KWT, Inc. At December 31, 1996, Pioneer's investment in and advances to Kemwater aggregated $28.6 million. Advances to Kemwater are primarily for purchase of product and to fund Kemwater's current operations and capital requirements. Pioneer and PCI have funded, and intend to continue funding in the foreseeable future, Kemwater's operations and capital requirements; accordingly, Pioneer has reduced its investment at December 31, 1996 to a deficit of $0.3 million. Following is a summary of selected items from Kemwater's balance sheet at December 31, 1996 and operations for the year ended December 31, 1996 (in thousands): Current assets............................................. $13,004 Non-current assets......................................... 32,224 Current liabilities........................................ 7,294 Non-current liabilities.................................... 40,498 Revenues................................................... 36,142 Gross profit............................................... 1,865 Net loss................................................... (5,214)
BII and VVLC The Company, through its subsidiary Pioneer Chlor Alkali Company, Inc. ("PCAC"), owns approximately 32% of the common stock of Basic Investments, Inc. ( BII ), which owns and maintains the water and power distribution network within the Henderson, Nevada industrial complex and which is a large landowner in Clark County, Nevada. The remainder of the common stock of BII is owned by other companies located in the industrial complex. Prior to the Acquisition, the investment in BII was accounted for by the Predecessor Company under the equity method after adjustment to reflect PCAC's basis. PCAC has an approximate 21% limited partnership interest in Victory Valley Land Company ("VVLC"). The purpose of the business is to receive, hold and develop the lands, water rights, and other assets contributed by the partners for investment. A wholly owned subsidiary of BII, acting as general partner with a 50% interest in VVLC, contributed all rights, title, and interest in and to certain land to VVLC. PCAC assigned certain water rights to VVLC. Prior to the Acquisition, the investment in VVLC was accounted for by the Predecessor Company under the equity method. The Company's interests in BII and in VVLC (referred to as the Basic Ownership) constitute assets that, pursuant to the Acquisition Agreement and a related Contingent Payment Agreement, will be held for the economic benefit of the Sellers for a period of 20 years. Dividends and distributions received by the Company on account of the Basic Ownership (including amounts payable as a result of sales of land or other assets F-13 167 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) owned by BII or VVLC) are deposited into a Contingent Payment Account and used to satisfy certain obligations of the Sellers under environmental and other indemnities in favor of the Company. After payment or provision for payment of such obligations in accordance with the provisions of the Contingent Payment Agreement, amounts received by the Company subsequent to April 20, 1995 on account of the Basic Ownership will be remitted to the Sellers under the Contingent Payment Agreement for such 20-year period. The Sellers also have certain rights during such period with respect to determinations affecting the Basic Ownership, including the right (subject to certain limited conditions) to direct the sales or disposition of interests constituting the Basic Ownership and the right (with certain limited exceptions) to vote the interests constituting the Basic Ownership, notwithstanding the ownership of such interests by the Company. Since the Sellers maintain the economic benefit of the Basic Ownership, and the Company has not received, nor expects to receive in the future, any economic benefit from BII or VVLC, the Company has not maintained these balances in its consolidated financial statements since the Acquisition. The BII financial information includes the accounts of VVLC. The following is a summary of financial information pertaining to BII and VVLC for the Predecessor Company for the year ended December 31, 1994: Revenues.................................................... $5,659 Costs and expenses.......................................... 4,834 ------ Income before taxes......................................... 825 Income tax expenses......................................... (274) ------ Net income........................................ $ 551 ====== Equity in earnings (included in other income)..... $ 183 ======
6. ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31:
1996 1995 ------- ------- Payroll, benefits, and pension.............................. $ 2,371 $ 5,371 Interest and bank fees...................................... 4,595 4,941 Future tax effects.......................................... 2,237 2,293 Miscellaneous accrued liabilities........................... 10,073 8,055 ------- ------- Accrued liabilities....................................... $19,276 $20,660 ======= =======
7. PENSION AND OTHER EMPLOYEE BENEFITS Annual pension costs and liabilities for the Company under its two defined-benefit plans covering all of its employees are determined by actuaries using various methods and assumptions. The Company has agreed to voluntarily contribute such amounts as are necessary to provide assets sufficient to meet the benefits to be paid to its employees. The Company's present intent is to make annual contributions, which are actuarially computed, in amounts not more than the maximum nor less than the minimum allowable under the Internal Revenue Code. For purposes of determining annual expenses and funding contributions, the following assumptions were used for the years ended December 31:
1996 1995 1994 ---- ---- ---- Rate of return of plan assets............................... 8.0% 8.0% 8.0% Discount rate............................................... 7.5% 7.5% 7.5% Annual compensation increase................................ 4.0% 4.0% 5.0%
F-14 168 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pension expense for the periods presented was comprised of:
PREDECESSOR COMPANY --------------- 1996 1995 1995 1994 ------- ----- ----- ------ Service cost.................................... $ 597 $ 410 $ 178 $ 571 Interest cost................................... 892 566 260 770 Return on plan assets........................... (1,132) (394) (149) (537) Amortization of prior service and other......... 462 56 (7) 225 ------- ----- ----- ------ Total pension expense................. $ 819 $ 638 $ 282 $1,029 ======= ===== ===== ======
The funded status of the pension plans for which assets exceed accumulated benefits and the plan for which accumulated benefits exceed assets as of the actuarial valuation dates of December 31, 1996 and 1995 were as follows:
1996 1995 -------------------------------- --------------- ACCUMULATED ASSETS EXCEED ACCUMULATED BENEFITS EARNED ACCUMULATED BENEFITS EARNED ASSETS BENEFITS ASSETS --------------- ------------- --------------- Actuarial present value of benefits based on service to date and present pay levels: Vested benefit obligation............... $ 3,823 $ 6,122 $ 8,488 Non-vested benefit obligation........... 212 389 1,513 ------- ------- ------- Accumulated benefit obligation.......... 4,035 6,511 10,001 Plan assets at fair value............... 3,318 6,963 7,293 ------- ------- ------- Plan assets in excess (less than) accumulated benefit obligation....... 717 (452) (2,708) Additional amounts related to projected salary increases..................... 2,171 911 2,199 ------- ------- ------- Plan assets less than total projected benefit obligation................... (1,454) (1,363) (4,907) Unrecognized gain....................... 236 1,254 185 Unrecognized prior service cost......... (372) 220 (202) ------- ------- ------- Pension obligation...................... $ 1,318 $ 2,837 $ 4,890 ======= ======= =======
Plan assets at December 31, 1996 and 1995 consist primarily of fixed income investments and equity investments. The Company offers defined-contribution plans for its employees with the employees generally contributing from 1% to 15% of their compensation. Aggregate contributions by the Company to such plans were $0.4 million and $0.2 million in 1996 and 1995, respectively. Aggregate contributions by the Predecessor Company for such plans were $0.1 million for the period from January 1, 1995 through April 20, 1995 and none for 1994. F-15 169 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In addition to providing pension benefits, PCAC provides certain health care and life insurance benefits for retired employees. Substantially all of PCAC's employees may become eligible for those benefits if they reach normal retirement age while working for the Company. The following table presents the plan's funded status reconciled with amounts recognized in the Company's balance sheet at December 31:
1996 1995 ------- ------ Accumulated post-retirement benefit obligation: Retirees.................................................. $ 3,737 $3,669 Fully eligible active plan participants................... 1,483 1,380 Other active plan participants............................ 4,986 4,169 ------- ------ 10,206 9,218 Unrecognized net loss....................................... (125) -- ------- ------ Accrued post retirement benefit cost...................... $10,081 $9,218 ======= ======
Net periodic post-retirement benefit cost for the periods presented includes the following components:
PREDECESSOR COMPANY ----------- 1996 1995 1995 1994 ------ ---- ---- ---- Service cost........................................... $ 369 $243 $109 $324 Interest cost.......................................... 693 449 176 519 Amortization of transition obligation over 20 years.... -- 15 8 32 Other components....................................... -- 48 -- -- ------ ---- ---- ---- Net periodic post-retirement benefit cost.... $1,062 $755 $293 $875 ====== ==== ==== ====
The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is 10.0% for 1996 (the same as the rate previously assumed for 1995 and 1994) and is assumed to decrease gradually to 6% for 2010 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated post-retirement benefit obligation as of December 31, 1996, 1995 and 1994 by $0.8 million, $0.7 million, and $0.6 million, respectively, and the aggregate of the service and interest cost components of the net periodic post-retirement benefit cost for each of 1996, 1995 and 1994 by $0.1 million. The weighted-average discount rate used in determining the accumulated post-retirement benefit obligation was 7.5% at December 31, 1996, 1995, and 1994. As a result of the Acquisition, the unrecognized net loss and unrecognized transition obligation amounts as of that date were recognized. 8. BANK CREDIT FACILITY In April 1995, the Company entered into a credit agreement which provides for the three-year Bank Credit Facility with Bank of America, Illinois ("BAI"). The Company may borrow up to $30.0 million, subject to certain borrowing base limitations. At December 31, 1996, no amounts were outstanding under the Bank Credit Facility. The revolving loans bear interest at a rate equal to, at the Company's option, (i) the reference rate set by BAI or (ii) the LIBOR Base Rate. The Bank Credit Facility requires the Company to pay a fee equal to one half of one percent per annum on the total unused balance. Indebtedness outstanding under the Bank Credit Facility is collateralized by a security interest in all of the inventory, accounts receivable and certain other assets of PCAC and All-Pure. Up to $10.0 million of the Borrowing Base, as F-16 170 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. 9. LONG-TERM DEBT Long-term debt consisted of the following at December 31:
1996 1995 ---- ---- 13 3/8% First Mortgage Notes, due 2005.................................. $135,000 $135,000 Subordinated notes payable to sellers of T.C. Products, principal payments due July 31, 2001, with a variable interest rate based on a bank's prime rate plus 1%, interest is paid monthly............................... 4,500 -- Tax-exempt bond financed through the Economic Development Corporation of Pierce County, Washington, principal payments due in variable annual installments through 2014, with a variable interest rate based on current market values of comparable securities, interest is paid monthly............................... 2,257 -- -------- -------- Total................................... 141,757 135,000 Current maturities of long-term debt.... (128) -- -------- -------- Long-term debt.......................... $141,629 $135,000 ======== ========
Long-term debt matures as follows: $0.1 million in 1997; $0.1 million in 1998; $0.1 million in 1999; $0.1 million in 2000; $4.6 million in 2001; and $136.6 million thereafter. As part of the Acquisition in April 1995, the Company issued and sold $135 million of 13 3/8% Senior Notes due in 2005. In January 1996, the Company exchanged, as part of a public offering, the $135 million of Notes for $135 Million of 13 3/8% First Mortgage Notes due in 2005. Like the Senior Notes, the Mortgage Notes are senior secured obligations of the Company, ranking senior in right of payment to all subordinated indebtedness. The Mortgage Notes are fully and unconditionally guaranteed on a joint and several basis by all of the Company's direct and indirect wholly-owned subsidiaries and are secured by the first mortgage liens on certain manufacturing facilities. The Company is a holding company with no operating assets or operations. Financial statements of the Company's direct and indirect wholly-owned subsidiaries are not separately included as the Company's management does not believe this information would be material to investors. The Mortgage Notes are redeemable at the Company's option starting in 2000. Before 1998, the Company may redeem a maximum of $35 million of the Mortgage Notes at 113% of the principal amount due with funds from a public offering of common stock of the Company or PCI (to the extent such funds are contributed to the Company). Upon a change of control, as defined in the agreement, the Company is required to offer to purchase the Mortgage Notes for 101% of the principal due. The Mortgage Notes and other long-term debt contain various restrictions on the Company, which, among other things, limit the ability of the Company to incur additional indebtedness, to acquire or dispose of assets or operations and to pay dividends or redeem shares of stock. F-17 171 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. FINANCIAL INSTRUMENTS Concentration of Credit Risk The Company manufactures and sells chlorine and caustic-based products to companies in diverse industries. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. The Company's sales are primarily to customers in the western and southeastern regions of the United States. Credit losses relating to these customers have been within management's expectations. The Company maintains cash deposits with major banks, which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institutions and believes that any possible loss is minimal. Net sales of the Company included sales to a major customer of approximately $23.5 million for the year ended December 31, 1996. Net sales of the Predecessor Company included sales to a major customer of approximately $7.5 million for the period from January 1, 1995 through April 20, 1995 and $18.7 million in 1994. Investments It is the policy of the Company to invest its excess cash in investment instruments or securities whose value is not subject to market fluctuations such as master notes of issuers rated at the time of such investment of at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's or any bank or financial institution party to the Company's Bank Credit Facility with Bank of America. Fair Value of Financial Instruments In preparing disclosures about the fair value of financial instruments, the Company has assumed that the carrying amount approximates fair value for cash and cash equivalents, receivables, short-term borrowings, accounts payable and certain accrued expenses because of the short maturities of those instruments. The fair values of long-term debt instruments are estimated based upon quoted market values (if applicable), or on the current interest rates available to the Company for debt with similar terms and remaining maturities. Considerable judgment is required in developing these estimates and, accordingly, no assurance can be given that the estimated values presented herein are indicative of the amounts that would be realized in a free market exchange. The Company held no derivative financial instruments as of December 31, 1996 and 1995. At December 31, 1996, the fair market value of all of the Company's financial instruments approximated the book value, except its 13 3/8% First Mortgage Notes Due 2005, which had a book value of $135 million and a fair value based upon its current quoted market price of $153 million. 11. COMMITMENTS AND CONTINGENCIES Letters of Credit At December 31, 1996 the Company had letters of credit and performance bonds outstanding of approximately $5.2 million and $2.5 million, respectively. These letters of credit and performance bonds were issued for the benefit of: customers under sales agreements securing delivery of products sold, a power company as a deposit for the supply of electricity, and a state environmental agency as required for manufacturers in the state. The letters of credit expire at various dates in 1997 and 1998. No amounts were drawn on the letters of credit at December 31, 1996. F-18 172 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Purchase Commitments The Company has committed to purchase salt used in the production process under contracts which continue through December 31, 2003. Based on the contract terms, a minimum of 563,111 tons of salt are to be purchased in 1997, 280,000 tons in 1998 and 225,000 tons in each of the years 1999 through 2003. The future minimum salt commitments are as follows (in thousands): 1997....................................................... $ 4,402 1998....................................................... 2,480 1999....................................................... 1,903 2000....................................................... 1,960 2001....................................................... 2,019 Thereafter................................................. 4,221 ------- Total purchase commitments....................... $16,985 =======
Operating Leases The Company leases certain manufacturing and distribution facilities, computer equipment, and administrative offices under noncancelable leases. Minimum future rental payments on such leases with terms in excess of one year in effect at December 31, 1996 are as follows (in thousands): 1997.................................... $ 8,318 1998.................................... 7,960 1999.................................... 7,916 2000.................................... 6,267 2001.................................... 5,786 Thereafter.............................. 4,685 ------- Total minimum obligations..... $40,932 =======
Lease expense charged to operations for the year ended December 31, 1996 and for the period from Inception through December 31, 1995 was approximately $7.8 million and $6.3 million, respectively. Lease expense charged to the Predecessor Company's operations for the period from January 1, 1995 through April 20, 1995 and the year ended December 31, 1994 was approximately $3.3 million and $8.4 million, respectively. Litigation During 1993, Imperial West was awarded $1.4 million as the result of a breach of contract claim it had asserted against the lessor of one of the Imperial West plants. Appeals of the judgment were upheld and the award together with interest was paid in January 1996. The consolidated financial statements at December 31, 1995 included a receivable for the award. The lessor also filed suit alleging that Imperial West was required to remediate alleged contamination prior to the termination of the lease in July 1995. The parties settled that action under terms pursuant to which (i) Imperial West paid the lessor $900,000 upon the termination of the lease in July 1995, and (ii) the lessor transferred title to the property to Imperial West. In addition, Imperial West agreed to indemnify the lessor against any future environmental liability with respect to the property. Certain insurers paid a portion of Imperial West's defense costs in connection with the lawsuit by the lessor. In 1994, the trustee in the bankruptcy of a company which was a customer of the Predecessor Company filed suit against the Predecessor Company, seeking the recovery of up to $2.2 million in payments made to the Predecessor Company on a basis which the trustee alleges was preferential to other creditors' claims. F-19 173 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Management has been advised by counsel that the range of any loss which may be incurred as the result of the suit will be substantially below the amount claimed, and the Company is vigorously contesting the action. The Company does not believe this action will have a significant effect on its financial position or results of operations. The Company is party to other legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defenses and/or insurance coverage with respect to these matters and management does not believe that they will materially affect the Company's operations or financial position. 12. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax liabilities and assets are as follows at December 31:
1996 1995 ------- -------- Deferred tax liabilities: Tax over book basis -- property, plant and equipment...................... $20,006 $ 22,063 Other -- net.......................... 399 1,435 ------- -------- Total deferred tax liabilities................. 20,405 23,498 ------- -------- Deferred tax assets: Post employment benefits.............. 5,552 5,791 Alternative minimum tax credit carryforward....................... 671 -- Allowance for doubtful accounts....... 511 569 Other accrued liabilities............. 6,165 6,530 Net operating loss carry forward of PCI................................ 14,391 22,091 ------- -------- Total deferred tax assets..... 27,290 34,981 Valuation allowance for deferred tax assets................................ -- (11,433) ------- -------- Net deferred tax assets................. 27,290 23,498 ------- -------- Net deferred taxes...................... $ 6,885 $ -- ======= ========
Significant components of the provision for income taxes for the periods presented are as follows:
PREDECESSOR COMPANY -------------------- 1996 1995 1995 1994 ------ ------ -------- -------- Current: Federal............................... $ 614 $ 799 $ 5,938 $ 3,930 State................................. 1,528 1,830 957 568 ------ ------ ------- ------- Total current................. 2,142 2,629 6,895 4,498 ------ ------ ------- ------- Deferred: Federal............................... 5,032 4,180 (1,816) (1,010) State................................. (439) (601) (270) (246) ------ ------ ------- ------- Total current................. 4,593 3,579 (2,086) (1,256) ------ ------ ------- ------- Total income tax provision.... $6,735 $6,208 $ 4,809 $ 3,242 ====== ====== ======= =======
F-20 174 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREDECESSOR COMPANY ----------------------------------- 1996 1995 1995 1994 ---------------- ---------------- ---------------- ---------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- ------ ------- ------ ------- Tax at U.S. statutory rates............. $4,390 35% $4,420 35% $4,068 35% $2,936 35% State income taxes, net of federal tax benefits.............................. 708 6 799 6 407 3 321 4 Amortization of excess cost over the fair value of net assets acquired..... 1,591 14 1,159 9 69 1 221 2 Adjustment of previously provided taxes................................. -- -- -- -- -- -- (285) (3) Other, net.............................. 46 -- (170) (1) 265 2 49 1 ------ -- ------ -- ------ -- ------ -- $6,735 55% $6,208 49% $4,809 41% $3,242 39% ====== == ====== == ====== == ====== ==
At December 31, 1996, PCI had available to it on a consolidated tax return basis approximately $35.6 million of net operating loss carryforward ("NOL") for income tax purposes (expiring 2003 to 2010). The NOL is available for offset against future taxable income if generated during the carryforward period. A tax sharing agreement provides that the Company will be liable to PCI for its separate tax liability only to the extent the consolidated group has a tax liability. However as long as PCI's NOL is available to the consolidated group to reduce taxable income, the Company's tax liability to PCI will be substantially reduced. As a result of the tax sharing agreement, the NOL is reflected by the Company for financial reporting purposes. For the year ended December 31, 1996 and the period from Inception through December 31, 1995, the benefit of the utilization of the NOL of $11.5 million and $3.6 million, respectively was recognized as an increase to additional paid-in capital. Approximately $13.6 million was recognized as an increase to additional paid-in capital as part of the purchase price allocation of the Acquisition. 13. OTHER LONG-TERM LIABILITIES -- ENVIRONMENTAL The Company's operations are subject to extensive environmental laws and regulations related to protection of the environment, including those applicable to waste management, discharge of pollutants into the air and water, clean-up liability from historical waste disposal practices, and employee health and safety. At several of the Company's facilities, investigations or remediations are underway and at some of these locations regulatory agencies are considering whether additional actions are necessary to protect or remediate surface or groundwater resources, and the Company could be required to incur additional costs to construct and operate remediation systems in the future. In addition, at several of its facilities, the Company is in the process of replacing or closing ponds for the collection of wastewater. The Company plans to spend approximately $1.3 million during the next fifteen years for closure of eight chlor-alkali waste water disposal ponds at the Henderson plant. The Company believes that it is in substantial compliance with existing governmental regulations. PCAC's Henderson plant is located within what is known as the "Basic Complex." Soil and groundwater contamination have been identified within and adjoining the Basic Complex, including land owned by PCAC. A groundwater treatment system was installed at the facility in 1983 and, pursuant to a Consent Agreement with the Nevada Division of Environmental Protection, a study is being conducted to further evaluate soil and groundwater contamination at the facility and other properties within the Basic Complex and to determine whether additional remediation will be necessary with respect to PCAC's property. In connection with the October 1988 acquisition of the chlor-alkali business by the Predecessor Company, ICI Delaware Holdings, Inc. and ICI Americas, Inc. (such companies or their successors, the F-21 175 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) "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. 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. F-22 176 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 reflected in the Company's consolidated balance sheets at December 31, 1996 and 1995. Other assets include an account receivable of the same amount from the ZENECA Companies. The Company believes it will be reimbursed by the ZENECA Companies for substantially all of such costs that are incurred at the Henderson Plant and other properties within the same industrial complex. Additionally, certain other environmental matters exist which have been assumed directly by the ZENECA Companies. No assurance can be given that actual costs will not exceed accrued amounts or the amounts currently estimated. The imposition of more stringent standards or requirements under environmental laws or regulations, new developments or changes respecting site cleanup costs, or a determination that the Company is potentially responsible for the release of hazardous substances at other sites could result in expenditures in excess of amounts currently estimated by the Company to be required for such matters. Further, there can be no assurance that additional environmental matters will not arise in the future. 14. RELATED PARTY TRANSACTIONS The Company has a 15% partnership interest in Saguaro Power Company ("Saguaro"), which owns a cogeneration plant located in Henderson, Nevada. The Company's interest in Saguaro is accounted for using the cost method of accounting. The Company sells certain products and services to and purchases steam from Saguaro at market prices. Transactions with Saguaro are as follows:
PREDECESSOR COMPANY -------------- 1996 1995 1995 1994 ------ ------ ---- ------ Sales to Saguaro................................. $1,005 $ 754 $353 $1,286 Purchases from Saguaro........................... 1,840 1,388 616 2,096 Partnership distribution from Saguaro (included in other income).................................. 735 637 -- 1,290
Accounts receivable from and accounts payable to Saguaro are at the Company's normal terms and are generally not significant to the Company's consolidated balance sheet. The Company is a party to an agreement negotiated on an arms-length basis with BII for the delivery of the Company's water to the Henderson production facility. The agreement provides for the delivery of a minimum of eight million gallons of water per day. The agreement expires on December 31, 2014, unless terminated earlier in accordance with the provisions of the agreement. For the year ended December 31, 1996 and the period from Inception through December 31, 1995, BII charged expenses to the Company of approximately $0.2 million and $0.2 million, respectively. For the period from January 1, 1995 through F-23 177 PIONEER AMERICAS ACQUISITION CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. F-24 178 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ASSETS
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ (UNAUDITED) Current assets: Cash and cash equivalents................................. $ 35,799 $ 14,417 Accounts receivable, less allowance for doubtful accounts of $1,357 at September 30, 1997 and $1,311 at December 31, 1996............................................... 37,039 18,830 Due from parent........................................... 5,003 2,547 Inventories............................................... 15,341 6,247 Prepaid expenses.......................................... 2,467 1,156 -------- -------- Total current assets.............................. 95,649 43,197 Property, plant and equipment: Land...................................................... 4,885 3,735 Buildings and improvements................................ 26,523 17,062 Machinery and equipment................................... 137,154 71,704 Cylinders and tanks....................................... 4,541 4,540 Construction in progress.................................. 25,135 11,871 -------- -------- 198,238 108,912 Less accumulated depreciation............................. (26,339) (16,429) -------- -------- 171,899 92,483 Investment in and advances to unconsolidated subsidiary..... 30,297 28,586 Other assets, net of accumulated amortization of $2,288 at September 30, 1997 and $2,458 at December 31, 1996........ 40,902 19,621 Excess cost over fair value of net assets acquired, net of accumulated amortization of $11,408 at September 30, 1997 and $7,556 at December 31, 1996........................... 125,104 107,123 -------- -------- Total assets...................................... $463,851 $291,010 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable.......................................... $ 28,976 $ 17,221 Accrued liabilities....................................... 27,298 19,276 Returnable deposits....................................... 3,287 3,238 Current portion of long-term debt......................... 1,163 128 -------- -------- Total current liabilities......................... 60,724 39,863 Long-term debt.............................................. 305,370 141,629 Returnable deposits......................................... 3,271 3,272 Accrued pension and other employee benefits................. 18,511 14,100 Other long-term liabilities................................. 16,733 17,823 Commitments and contingencies Stockholder's equity: Common stock, $.01 par value, authorized 1,000 shares, issued and outstanding 1,000 shares.................... 1 1 Additional paid-in capital................................ 66,624 61,124 Retained earnings (deficit)............................... (7,383) 13,198 -------- -------- Total stockholder's equity........................ 59,242 74,323 -------- -------- Total liabilities and stockholder's equity........ $463,851 $291,010 ======== ========
See notes to consolidated financial statements. F-25 179 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Revenues................................................ $65,242 $48,872 $150,073 $140,835 Cost of sales........................................... 46,894 34,257 112,553 98,600 ------- ------- -------- -------- Gross profit............................................ 18,348 14,615 37,520 42,235 Selling, general and administrative expenses............ 7,300 6,767 19,580 19,142 ------- ------- -------- -------- Operating income........................................ 11,048 7,848 17,940 23,093 Equity in net loss of unconsolidated subsidiary......... (779) (689) (2,552) (912) Interest expense, net................................... 6,750 4,417 16,189 12,766 Other income, net....................................... 446 403 882 507 ------- ------- -------- -------- Income before taxes and extraordinary item.............. 3,965 3,145 81 9,922 Income tax provision.................................... 2,090 981 1,779 4,868 ------- ------- -------- -------- Income (loss) before extraordinary item................. 1,875 2,164 (1,698) 5,054 Extraordinary item from early extinguishment of debt (net of income tax benefit of $12,439)........... -- -- (18,658) -- ------- ------- -------- -------- Net income (loss)....................................... $ 1,875 $ 2,164 $(20,356) $ 5,054 ======= ======= ======== ========
See notes to consolidated financial statements. F-26 180 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1997 1996 --------- -------- Operating activities: Net income (loss)......................................... $ (20,356) $ 5,054 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary item (net of tax)........................ 18,658 -- Depreciation and amortization.......................... 14,792 13,558 Equity in net loss of unconsolidated subsidiaries...... 2,552 912 Net change in deferred taxes........................... 1,486 2,882 Net effect of changes in operating assets and liabilities (net of acquisitions) (Note 2)............ (6,329) 4,987 --------- -------- Net cash flows from operating activities.................. 10,803 27,393 Investing activities: Acquisition of businesses.............................. (97,000) (5,459) Investment in and advances to unconsolidated subsidiary............................................ (2,490) (2,436) Capital expenditures................................... (10,977) (15,796) --------- -------- Net cash flows used in investing activities............... (110,467) (23,691) Financing activities: Payments on long-term debt............................. (162,342) (33) Proceeds from long-term debt........................... 300,000 Debt issuance and related costs........................ (16,362) Dividends paid to parent............................... (250) (456) --------- -------- Net cash flows from (used in) financing activities........ 121,046 (489) Net increase in cash...................................... 21,382 3,213 Cash acquired in purchase................................. -- 728 Cash at beginning of period............................... 14,417 11,218 --------- -------- Cash at end of period..................................... $ 35,799 $ 15,159 ========= ========
See notes to consolidated financial statements. F-27 181 PIONEER AMERICAS ACQUISITION CORP., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION The consolidated balance sheet as of September 30, 1997 and the statements of operations and cash flows for all periods presented are unaudited and reflect all adjustments, consisting of normal recurring items, which in the opinion of management are necessary for a fair presentation. Operating results for the first nine months of 1997 are not necessarily indicative of results to be expected for the year ended December 31, 1997. The consolidated financial statements include the accounts of Pioneer Americas Acquisition Corp. and its consolidated subsidiaries (collectively referred to as the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. All dollar amounts in the notes to the financial statements are stated in thousands of dollars unless otherwise indicated. The consolidated balance sheet at December 31, 1996 is derived from the December 31, 1996 audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles, since certain information and disclosures normally included in the notes to the financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited financial statements should be read in conjunction with the financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 1996. Accounting Changes In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income," (SFAS No. 130) and Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information," (SFAS No. 131). SFAS No. 130 and SFAS No. 131 are effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and displaying of comprehensive income and its components. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in interim and annual financial statements. These two statements have no effect on the Company's 1997 financial statements, but management is currently evaluating what, if any, additional disclosures may be required when these two statements are adopted for periods beginning with the first quarter of the year ending December 31, 1998. Acquisition On June 17, 1997, Pioneer Companies, Inc. ("PCI") and the Company consummated the acquisition of a chlor-alkali production facility and related business located in Tacoma, Washington (the "Tacoma Acquisition") from OCC Tacoma, Inc. ("OCC Tacoma"), a subsidiary of Occidental Chemical Corporation. Pursuant to the Asset Purchase Agreement dated as of May 14, 1997, the Company acquired substantially all of the assets and properties used by OCC Tacoma in the chlor-alkali business at Tacoma, Washington. The purchase price consisted of (i) $97,000, payable in cash; (ii) 55,000 shares of Convertible Redeemable Preferred Stock, par value $.01 per share, of PCI, having a liquidation preference of $100 per share, and (iii) the assumption of certain obligations related to the acquired chlor-alkali business. The Tacoma acquisition was accounted for in accordance under the purchase method of accounting. The acquired goodwill of approximately $15,000 is being amortized straight-line over 25 years. Results of operations of the acquired business have been reflected in the Company's financial statements since June 17, 1997. F-28 182 PIONEER AMERICAS ACQUISITION CORP., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Pro Forma Financial Data The following pro forma financial data presents the consolidated financial results of operations as if the Tacoma Acquisition had occurred at the beginning of the period presented and does not purport to be indicative of either further results of operations or results that would have occurred had the Tacoma Acquisition actually been made as of such date. PRO FORMA COMBINED SUMMARY FINANCIAL DATA (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1997 1996 -------- -------- Revenues.................................................... $187,094 $210,364 Income before extraordinary item............................ 193 5,675 Extraordinary item, early extinguishment of debt (net of income tax benefit of $12,439).................... 18,658 -- -------- -------- Net income (loss)........................................... $(18,465) $ 5,675 ======== ========
Earnings per share has not been presented as the Company is a wholly-owned subsidiary of PCI and per share data would not provide any additional useful information. 2. SUPPLEMENTAL CASH FLOW INFORMATION Net effect of changes in operating assets and liabilities (net of acquisitions) are as follows:
NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1997 1996 -------- ------- Accounts receivable......................................... $(17,818) $ 4,447 Due from parent............................................. (2,456) (1,628) Inventories................................................. (1,873) 1,865 Prepaid expenses............................................ (3,249) (208) Other assets................................................ (187) 1,005 Accounts payable............................................ 11,755 (1,784) Accrued liabilities......................................... 8,022 3,342 Returnable deposits......................................... 48 45 Other long-term liabilities................................. (571) (2,097) -------- ------- Net change in operating accounts.................. $ (6,329) $ 4,987 ======== =======
F-29 183 PIONEER AMERICAS ACQUISITION CORP., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Following is supplemental cash flow information:
NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1997 1996 -------- ------- Cash payments for: Interest.................................................. $ 15,791 $ 9,269 Income taxes.............................................. 543 3,664 Acquisition of OCC Tacoma facility: Cash paid for acquisition................................. $ 97,000 Equity contribution by parent............................. 5,500 Liabilities assumed....................................... 2,955 -------- Fair value of assets acquired............................. $105,455 ======== Acquisition of T.C. Products, Inc.: Cash paid for acquisition................................. $ 5,459 Long-term debt issued..................................... 4,500 Liabilities assumed....................................... 3,994 ------- Fair value of assets acquired............................. $13,953 =======
Other non-cash items included in the consolidated financial statements include an increase in stockholder's equity of $3,805 for the nine months ended September 30, 1996 due to the recognition of the net operating loss carryforward. 3. INVENTORIES Inventories consist of the following:
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ Raw materials, supplies and parts........................ $ 7,562 $7,512 Finished goods and work-in process....................... 12,047 2,668 Inventories under exchange agreements.................... (4,268) (3,933) ------- ------ $15,341 $6,247 ======= ======
4. COMMITMENTS AND CONTINGENCIES The manufacturing operations of the Company are subject to United States federal, state and local laws and regulations relating to protection of the environment, including those applicable to waste management, discharge of pollutants into the air and water, cleanup liability from historical waste disposal practices and employee health and safety. Each of the United States federal environmental programs typically has a state counterpart. The state environmental programs generally must be at least as stringent as the federal requirements, and some state regulations are more onerous than the federal requirements. Both federal and state environmental programs allow the imposition of substantial civil and criminal penalties for noncompliance. Although the company believes that its operations are in general compliance with applicable environmental laws and regulations, risks of substantial costs and liabilities are inherent in chemical manufacturing operations, and there can be no assurance that significant costs and liabilities will not be incurred. Moreover, it is possible that other developments, such as new environmental laws and regulations or stricter enforcement and cleanup policies, could result in substantial costs and liabilities to the Company. The F-30 184 PIONEER AMERICAS ACQUISITION CORP., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Company has accrued $11.9 million related to expected future environmental restoration and remediation costs, computed on an undiscounted basis. In the opinion of management, there is currently no material estimable range of loss in excess of the amount recorded. However, it is possible that new information about the sites for which the reserve has been established, new technology or future developments could require the Company to reassess its potential exposure related to environmental matters. The Company relies on indemnification from the previous owners in connection with certain environmental liabilities at its chlor-alkali plants and other facilities. There can be no assurance, however, that such indemnification arrangements will be adequate to protect the Company from environmental liabilities at these sites or that such third parties will perform their obligations under the respective indemnification arrangements, in which case the Company would be required to incur significant expenses for environmental liabilities, which would have a material adverse effect on the Company. The Company is subject to various legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defenses and/or insurance coverage with respect to these matters and management does not believe that they will materially affect the Company's operations or financial position. F-31 185 PIONEER AMERICAS ACQUISITION CORP., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) AUDITORS' REPORT TO THE BOARD OF DIRECTORS We have audited the combined balance sheets of ICI Forest Products -- North America (the "Division") as at December 31, 1996, 1995 and 1994 and the combined statements of operations, head office account and changes in financial position for each of the years in the three-year period ended December 31, 1996. These combined financial statements are the responsibility of the Division's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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 financial statement presentation. In our opinion, these combined financial statements present fairly, in all material respects, the financial position of the Division as at December 31, 1996, 1995 and 1994 and the results of its operations and the changes in its financial position for each of the years in the three-year period ended December 31, 1996 in accordance with Canadian generally accepted accounting principles. KPMG Chartered Accountants Montreal, Canada September 5, 1997 F-32 186 ICI FOREST PRODUCTS - NORTH AMERICA COMBINED BALANCE SHEETS (IN THOUSANDS OF CANADIAN DOLLARS) ASSETS
SEPTEMBER 30, DECEMBER 31, ------------------- ------------------------------ 1997 1996 1996 1995 1994 -------- -------- -------- -------- -------- (UNAUDITED) Current assets: Cash.................................... $ -- $ 19,026 $ 16,210 $ -- $ 771 Accounts receivable (note 3).......... 31,455 31,271 29,573 31,382 35,272 Inventories (note 4).................. 9,754 10,738 8,856 16,397 12,855 Prepaid expenses...................... 302 761 604 555 709 -------- -------- -------- -------- -------- 41,511 61,796 55,243 48,334 49,607 Property, plant and equipment (note 5).................................... 88,110 69,822 78,407 67,053 72,610 Other assets (note 6)................... 3,443 5,079 7,505 5,856 6,879 -------- -------- -------- -------- -------- $133,064 $136,697 $141,155 $121,243 $129,096 ======== ======== ======== ======== ======== LIABILITIES AND HEAD OFFICE ACCOUNT Current liabilities: Bank indebtedness..................... $ 3,857 $ -- $ -- $ -- $ -- Accounts payable...................... 26,575 22,129 23,321 20,228 25,478 Other current liabilities............. 7,323 6,136 7,097 10,727 14,902 -------- -------- -------- -------- -------- 37,755 28,265 30,418 30,955 40,380 Long-term debt (note 7)................. 2,500 2,500 2,500 2,500 2,500 Other non-current liabilities (note 8).................................... 9,929 13,249 12,641 16,323 15,461 -------- -------- -------- -------- -------- 50,184 44,014 45,559 49,778 58,341 Head office account..................... 82,745 92,670 95,531 71,439 70,576 Cumulative translation adjustment (note 9).................................... 135 13 65 26 179 -------- -------- -------- -------- -------- Commitments and contingent liabilities (note 13) $133,064 $136,697 $141,155 $121,243 $129,096 ======== ======== ======== ======== ========
See accompanying notes to combined financial statements. F-33 187 ICI FOREST PRODUCTS -- NORTH AMERICA COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS OF CANADIAN DOLLARS)
NINE MONTHS ENDED SEPTEMBER 30 YEARS ENDED DECEMBER 31 ------------------- ------------------------------ 1997 1996 1996 1995 1994 -------- -------- -------- -------- -------- (UNAUDITED) Sales................................... $203,428 $203,210 $268,877 $271,338 $225,714 Less freight............................ 35,549 33,976 44,910 44,878 46,564 -------- -------- -------- -------- -------- Net sales............................... 167,879 169,234 223,967 226,460 179,150 Cost of sales........................... 110,114 111,011 149,043 149,409 137,614 -------- -------- -------- -------- -------- Gross profit............................ 57,765 58,223 74,924 77,051 41,536 Other expenses (income): Selling, general and administrative expenses........................... 9,690 9,558 12,213 15,092 13,241 Amortization of deferred investment tax credits........................ (594) (594) (792) (792) (792) Research expenditures (note 11)....... 1,070 1,278 1,683 1,753 1,503 Restructuring (note 12)............... 362 450 650 910 16,310 -------- -------- -------- -------- -------- 10,528 10,692 13,754 16,963 30,262 -------- -------- -------- -------- -------- Income before the undernoted item....... 47,237 47,531 61,170 60,088 11,274 Other income, net....................... 931 2,086 2,045 1,546 875 -------- -------- -------- -------- -------- Income before interest and income taxes................................. $ 48,168 $ 49,617 $ 63,215 $ 61,634 $ 12,149 ======== ======== ======== ======== ========
See accompanying notes to combined financial statements. F-34 188 PIONEER AMERICAS ACQUISITION CORP., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) ICI FOREST PRODUCTS -- NORTH AMERICA COMBINED STATEMENTS OF HEAD OFFICE ACCOUNT (IN THOUSANDS OF CANADIAN DOLLARS)
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, -------------------- -------------------------------- 1997 1996 1996 1995 1994 -------- -------- -------- -------- -------- (UNAUDITED) Head office account, beginning of period............................ $ 95,531 $ 71,439 $ 71,439 $ 70,576 $ 99,744 Income before interest and income taxes............................. 48,168 49,617 63,215 61,634 12,149 Transfer to head office............. (60,954) (28,386) (39,123) (60,771) (41,317) -------- -------- -------- -------- -------- Head office account, end of period............................ $ 82,745 $ 92,670 $ 95,531 $ 71,439 $ 70,576 ======== ======== ======== ======== ========
See accompanying notes to combined financial statements. F-35 189 PIONEER AMERICAS ACQUISITION CORP., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) ICI FOREST PRODUCTS -- NORTH AMERICA COMBINED STATEMENTS OF CHANGES IN FINANCIAL POSITION (IN THOUSANDS OF CANADIAN DOLLARS)
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, -------------------- ------------------------------ 1997 1996 1996 1995 1994 --------- ------- ------- ------- -------- )(UNAUDITED Cash provided by (used in): Operations: Income before interest and income taxes.......................... $ 48,168 $49,617 $63,215 $61,634 $ 12,149 Add (deduct) items not affecting cash: Loss (gain) on disposal of property, plant and equipment.................... 45 126 259 2,682 30 Depreciation and amortization................. 6,141 5,756 7,701 7,712 8,514 Amortization of deferred investment tax credits....... (594) (594) (792) (792) (792) Net change in non-cash working capital balances............... 2,946 1,171 4,225 (6,246) 8,511 Cumulative translation adjustment..................... 70 (13) 39 (153) 179 --------- ------- ------- ------- -------- 56,776 56,063 74,647 64,837 28,591 Financing: Transfer to head office........... (60,954) (28,386) (39,123) (60,771) (41,317) Investments: Investments in property, plant and equipment...................... (15,889) (8,672) (19,335) (4,837) (5,567) Proceeds on disposal of property, plant and equipment............ -- 21 21 -- -- --------- ------- ------- ------- -------- (15,889) (8,651) (19,314) (4,837) (5,567) --------- ------- ------- ------- -------- Increase (decrease) in cash......... (20,067) 19,026 16,210 (771) (18,293) Cash, beginning of period........... 16,210 -- -- 771 19,064 --------- ------- ------- ------- -------- Cash (bank indebtedness), end of period............................ $ (3,857) $19,026 $16,210 $ -- $ 771 ========= ======= ======= ======= ========
See accompanying notes to combined financial statements. F-36 190 PIONEER AMERICAS ACQUISITION CORP., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) ICI FOREST PRODUCTS -- NORTH AMERICA NOTES TO COMBINED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS) 1. BASIS OF PRESENTATION: The financial statements of ICI Forest Products -- North America (the "Division") represent the combined financial position and results of operations of the Forest Products divisions of ICI Canada Inc. and ICI Americas Inc. Both of these companies are indirectly wholly-owned subsidiaries of Imperial Chemical Industries PLC (a UK corporation) ("ICI"). The combined statements of operations disclose income before interest and income taxes. Management has not attempted to record interest income or expense arising from intercompany balances, nor has a provision for income taxes been recorded for the Division. Further, remediation costs for the Cornwall plant cellroom, which has been shut down, and the related below ground environmental restoration costs have been recorded by ICI Canada Inc. and not the Division. In all other respects, these combined financial statements are in accordance with Canadian generally accepted accounting principles expressed in Canadian dollars. Unaudited combined financial statements of the Division for the nine months ended September 30, 1997 and 1996 have been presented for information purposes only. 2. SIGNIFICANT ACCOUNTING POLICIES: (a) Principles of combination: The balance sheet and results of operations of the two divisions have been combined to present the financial position and results of operations of the ICI North American Forest Products business. All significant intercompany balances and transactions have been eliminated on combination. Because the Division does not represent a separate legal entity with issued share capital, the equivalent of shareholders' equity is represented by a "Head office account". (b) Foreign exchange: Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange at the balance sheet dates. Other balance sheet items are translated at the rates prevailing at the respective transaction dates. Income and expenses are translated at average rates prevailing during the period. Gains or losses on foreign exchange are recorded in the statements of operations. The Forest Products division of ICI Americas Inc. is considered to be a self-sustaining foreign operation and its assets and liabilities have been translated into Canadian dollars at the rate of exchange in effect at the balance sheet dates. Revenue and expense items (including depreciation) have been translated at the average rate of exchange prevailing during the period. Exchange gains and losses arising from the translation of the financial statements are accumulated in the cumulative translation adjustment account. The balance in this account will be recognized in earnings in proportion to any reduction in the net investment in the US division. (c) Inventories: Inventories are valued at the lower of average actual cost and net realizable value. Manufactured goods include the cost of raw materials, variable labor and manufacturing overheads, including depreciation. (d) Property, plant and equipment: Property, plant and equipment are recorded at cost. Depreciation on plant and equipment and buildings is provided on a straight-line basis over the estimated useful lives of the assets. Annual reviews are made of the F-37 191 ICI FOREST PRODUCTS -- NORTH AMERICA NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS) 2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) residual lives of all productive assets, taking into account commercial and technological obsolescence as well as physical condition. Depreciation is not provided for on construction in progress. (e) Research expenditures: All expenditures for research, except property, plant and equipment used for this purpose, are charged to earnings as incurred, net of investment tax credits earned. (f) Provision for environmental liabilities: Provision is made for environmental expenditures that are required to comply with governmental regulations, to meet contractual obligations, or to improve the health and welfare of employees on a best estimate basis. (g) Pensions: The estimated present value of accrued pension benefits is based on actuarial valuations and the net assets available to provide for these benefits are at market related values. The pension expense is determined by ICI Canada Inc. and ICI Americas Inc. for the respective divisions and allocated to the Division based on its proportionate number of active employees and retirees. This allocation might differ from the calculation that would be obtained if performed on the population of the Division alone. (h) Post-retirement benefits other than pensions: The Division accrues the estimated present value of retirement benefits which include medical, dental, and life insurance provided to qualifying employees upon retirement over the employees' periods of service to their dates of full entitlement. The expense is determined by ICI Canada Inc. and ICI Americas Inc. for the respective divisions and allocated to the Division based on its proportionate number of active employees and retirees. This allocation might differ from the calculation that would be obtained if performed on the population of the Division alone. (i) 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 liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (j) Investment in joint venture: The Division's investment in a joint venture has been accounted for using the cost method under which the investment is recorded at cost and the net earnings of the joint venture are recognized as income only to the extent of dividends received from the joint venture. (k) Financial instruments: The Division uses derivative financial instruments, principally forward foreign exchange contracts, to manage risks from fluctuations in exchange rates related to sales and purchases in foreign currencies. Derivative financial instruments are not used for trading purposes. Gains and losses on forward foreign exchange contracts, which have been designated as hedges of anticipated future transactions, are deferred and recognized upon completion of the underlying hedged transaction. F-38 192 ICI FOREST PRODUCTS -- NORTH AMERICA NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS) 3. ACCOUNTS RECEIVABLE:
SEPTEMBER 30, DECEMBER 31, ----------------- --------------------------- 1997 1996 1996 1995 1994 ------- ------- ------- ------- ------- (UNAUDITED) Accounts receivable.......................... $32,188 $32,011 $30,386 $32,008 $34,989 Amounts receivable from related entities..... 119 107 36 221 1,140 Less allowance for doubtful accounts......... (852) (847) (849) (847) (857) ------- ------- ------- ------- ------- $31,455 $31,271 $29,573 $31,382 $35,272 ======= ======= ======= ======= =======
4. INVENTORIES:
SEPTEMBER 30, DECEMBER 31, ---------------- -------------------------- 1997 1996 1996 1995 1994 ------ ------- ------ ------- ------- (UNAUDITED) Raw materials.................................. $3,245 $ 3,734 $2,656 $ 7,744 $ 1,496 Finished goods................................. 3,458 3,957 3,452 5,403 5,734 Stores and supplies............................ 3,051 3,047 2,748 3,250 5,625 ------ ------- ------ ------- ------- $9,754 $10,738 $8,856 $16,397 $12,855 ====== ======= ====== ======= =======
5. PROPERTY, PLANT AND EQUIPMENT:
SEPTEMBER 30, ------------------- 1997 1996 -------- -------- ACCUMULATED NET BOOK NET BOOK COST DEPRECIATION VALUE VALUE -------- ------------ -------- -------- (UNAUDITED) Plant and equipment................................ $269,527 $186,971 $82,556 $60,973 Construction in progress........................... 4,562 -- 4,562 7,782 Buildings.......................................... 874 634 240 270 Land............................................... 752 -- 752 797 -------- -------- ------- ------- $275,715 $187,605 $88,110 $69,822 ======== ======== ======= =======
DECEMBER 31, ------------------------------ 1996 1995 1994 ACCUMULATED NET BOOK NET BOOK NET BOOK COST DEPRECIATION VALUE VALUE VALUE -------- ------------ -------- -------- -------- Plant and equipment....................... $240,932 $181,059 $59,873 $61,840 $67,830 Construction in progress.................. 17,476 -- 17,476 4,161 3,665 Buildings................................. 873 612 261 292 389 Land...................................... 797 -- 797 760 726 -------- -------- ------- ------- ------- $260,078 $181,671 $78,407 $67,053 $72,610 ======== ======== ======= ======= =======
F-39 193 ICI FOREST PRODUCTS -- NORTH AMERICA NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS) 6. OTHER ASSETS:
SEPTEMBER 30, DECEMBER 31, --------------- ------------------------ 1997 1996 1996 1995 1994 ------ ------ ------ ------ ------ (UNAUDITED) Investment in joint venture (note 10)............. $ 674 $ 674 $ 674 $ 674 $ 674 Deferred pension asset............................ 2,769 4,405 4,456 5,182 6,205 Deposit........................................... -- -- 2,375 -- -- ------ ------ ------ ------ ------ $3,443 $5,079 $7,505 $5,856 $6,879 ====== ====== ====== ====== ======
As at December 31, 1996, the Division made $2.375 million in advance payments towards the acquisition of plant and equipment. 7. LONG-TERM DEBT:
SEPTEMBER 30, DECEMBER 31, --------------- ------------------------ 1997 1996 1996 1995 1994 ------ ------ ------ ------ ------ (UNAUDITED) Province of New Brunswick, non-interest bearing loan, due December 31, 2000..................... $2,500 $2,500 $2,500 $2,500 $2,500 ====== ====== ====== ====== ======
8. OTHER NON-CURRENT LIABILITIES:
SEPTEMBER 30, DECEMBER 31, ---------------- --------------------------- 1997 1996 1996 1995 1994 ------ ------- ------- ------- ------- (UNAUDITED) Post-retirement benefits...................... $6,120 $ 5,769 $ 5,906 $ 5,644 $ 5,499 Unfunded pension liability.................... 196 150 168 189 220 Restructuring provisions...................... 49 2,974 2,409 5,540 4,000 Deferred investment tax credits............... 3,564 4,356 4,158 4,950 5,742 ------ ------- ------- ------- ------- $9,929 $13,249 $12,641 $16,323 $15,461 ====== ======= ======= ======= =======
9. CUMULATIVE TRANSLATION ADJUSTMENT:
SEPTEMBER 30, DECEMBER 31, ------------- ------------------- 1997 1996 1996 1995 1994 ----- ----- ---- ----- ---- (UNAUDITED) Balance, beginning of period............................. $ 65 $ 26 $26 $ 179 $ 0 Effect of changes in exchange rates during the period on the net assets of the US division...................... 70 (13) 39 (153) 179 ---- ---- --- ----- ---- $135 $ 13 $65 $ 26 $179 ==== ==== === ===== ====
F-40 194 ICI FOREST PRODUCTS -- NORTH AMERICA NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS) 10. INVESTMENT IN JOINT VENTURE: The Division owns 33 1/3% of the issued common shares of Canso Chemicals Limited. The following information is submitted with respect to the Division's investment in Canso Chemicals Limited:
SEPTEMBER 30, DECEMBER 31, ------------- ------------------- 1997 1996 1996 1995 1994 ----- ----- ---- ---- ----- (UNAUDITED) Division's equity in earnings (losses) of the joint venture for the period................... $ 63 $120 $128 $ 90 $(147) Division's equity in the net assets of the joint venture........................................ 951 880 888 760 670 ==== ==== ==== ==== =====
11. RESEARCH EXPENDITURES: Research expenditures are net of the following tax credits:
SEPTEMBER 30, DECEMBER 31, - ------------- ------------------ 1997 1996 1996 1995 1994 - ----- ----- ---- ---- ---- (UNAUDITED) $260 $180 $199 $207 $251 ==== ==== ==== ==== ====
12. RESTRUCTURING: During 1994, a decision was made to restructure the operations of the Division. The restructuring charge of $16,310,000 related primarily to severance, demolition and decommissioning costs, and a write-down of fixed assets. During 1995, the Division recorded a provision of $910,000 representing future minimum lease payments and related expenses attributed to excess office space which arose from restructuring of the operations. During 1996, an additional $650,000 was recorded for restructuring activities primarily affecting the research center. During 1997, a reserve of $362,000 was recorded for restructuring activities at the Becancour plant. 13. COMMITMENTS AND CONTINGENT LIABILITIES: (a) Environmental liabilities: It is the Division's policy to provide, on a best estimate basis, for environmental site clean-up costs when actions are required to comply with government environmental regulations, to meet contractual obligations, or to improve the health and welfare of employees. Given the uncertainties inherent in estimating total costs involved because of the expenses and effectiveness of alternate remedial technologies, the extent of pollution, the interpretation of complex regulations and the degree to which the Division itself is involved, it is reasonably possible that actual costs will differ from amounts accrued and the differences could be material to the Division. Remediation costs associated with the Cornwall plant cellroom as well as below ground environmental restoration costs for the site have not been accrued for by the Division. These costs have been provided for by ICI Canada Inc. F-41 195 ICI FOREST PRODUCTS -- NORTH AMERICA NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS) 13. COMMITMENTS AND CONTINGENT LIABILITIES: (CONTINUED) (b) Lease commitments: The future minimum lease payments under operating leases, primarily for premises and transportation equipment, are as follows: 1997............................................... $ 6,768 1998............................................... 4,755 1999............................................... 4,143 2000............................................... 3,207 2001............................................... 2,398 Thereafter......................................... 1,860 ------- $23,131 =======
14. PENSIONS: ICI Canada Inc. and ICI Americas Inc. have various non-contributory defined benefit pension plans which cover virtually all employees including those of the Division. The plans provide pensions based on length of service and final average earnings. The estimated present value of accrued pension benefits based on actuarial valuations and the net assets available to provide for these benefits at market related values for the entire plans, without allocation for that portion relating solely to the Division's employees, are shown below:
DECEMBER 31, -------------------------------- 1996 1995 1994 -------- -------- -------- ICI Canada Inc.: Accrued pension benefits......................... $264,000 $257,000 $224,000 Pension fund assets.............................. 265,000 246,000 233,000 ICI Americas Inc.: Accrued pension benefits......................... 287,000 287,000 235,000 Pension fund assets.............................. 294,000 251,000 207,000 ======== ======== ========
15. RELATED PARTY TRANSACTIONS: Related party transactions occurred in the normal course of business with the Division's affiliated companies. These transactions were entered into at normal market-related terms and prices.
SEPTEMBER 30, DECEMBER 31, --------------- ------------------------ 1997 1996 1996 1995 1994 ------ ------ ------ ------ ------ (UNAUDITED) Transactions: Sales................................... $ 658 $ 491 $ 659 $1,102 $ 694 Purchases............................... 8,428 3,666 6,215 8,368 5,105 Charges from head office................ 1,062 1,279 1,632 1,823 2,881 Purchases of plant and equipment........ 4,400 2,099 4,500 -- -- Research fee income..................... 162 169 217 250 82 Insurance expense....................... 448 480 620 742 716 Balances: Accounts receivable..................... 119 107 36 221 1,140 Accounts payable........................ 1,430 1,634 3,110 951 537 ====== ====== ====== ====== ======
F-42 196 ICI FOREST PRODUCTS -- NORTH AMERICA NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS) 15. RELATED PARTY TRANSACTIONS: (CONTINUED) The Division is charged for corporate administrative costs incurred by the head office. These expenses are allocated to the Division based on a combination of negotiated rates and allocation formulas using sales and the number of employees as a base. 16. FINANCIAL INSTRUMENTS: (a) Foreign currency risk management: A portion of the Division's sales and purchases are transacted in foreign currencies. The Division uses various forward foreign exchange contracts to manage its foreign exchange risk. The following table summarizes the Division's commitments to buy and sell foreign currency at December 31:
NOTIONAL FAIR NOTIONAL EXCHANGE CANADIAN MARKET AMOUNT RATE MATURITY EQUIVALENT VALUE ------------- -------------- -------------------- ---------- ----------- Sell contracts: December 1996........ US$18,000 average 1.3584 up to June 1997 $24,552 $24,509 December 1995........ US$27,000 average 1.3804 up to September 1996 37,270 36,857 December 1994........ US$36,000 average 1.3503 up to December 1995 48,610 50,644 Purchase contracts: December 1996........ (pound)1,000 average 2.0204 up to March 1997 2,091 2,427
The forward foreign exchange contracts represent an obligation to exchange principal amounts between the Division and counterparties. Credit risk exists in the event of failure by counterparties to meet their obligations. The Division reduces this risk by dealing with only highly-rated counterparties, normally major Canadian financial institutions. (b) Fair value disclosure: Fair value estimates are made as of a specific point in time, using available information about the financial instrument. These estimates are subjective in nature and often cannot be determined with precision. The Division has determined that the carrying value of its short-term financial assets and liabilities approximates fair values at the balance sheet dates because of the short-term maturity of those instruments. The fair value of pension assets is considered to approximate the carrying value. The fair value of the Division's long-term debt with the government could not be determined because an independently verifiable market value for a similar debt instrument is not available. (c) Credit and concentration of credit risk: The Division sells to the Canadian and US market in approximately the same proportions. Six of its customers represent 30% (1995 - 20%; 1994 - 27%) of the combined total sales for fiscal 1996 and 28% (1995 - 27%; 1994 - 20%) of the accounts receivable as at the December 31 balance sheet dates. The Division regularly monitors the credit risk exposures and takes steps to mitigate the likelihood of these exposures resulting in actual loss. The Division's extension of credit is based on an evaluation of each customer's financial condition. Credit losses are provided for in the financial statements and actual losses in each of the three years ended December 31, 1996 have been nominal. F-43 197 ICI FOREST PRODUCTS -- NORTH AMERICA NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS) 17. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: The combined financial statements of ICI Forest Products -- North America, presented before accounting for interest and income taxes, are expressed in Canadian dollars and are prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), which conform, in all material respects, with those generally accepted in the United States except as described below: (a) Reconciliation of income before interest and income taxes: (i) Pension costs and post retirement benefits other than pensions: Canadian GAAP requires that the discount rate used should represent management's best estimate of the long-term rate of return on the pension fund assets. Under US GAAP, the discount rate to be used should reflect the rate at which the pension benefits can be effectively settled at the date of the financial statements. For US GAAP purposes, the expenses relating to pensions and post retirement benefits other than pensions have been determined using the actual demographics of the employees of the Division itself. (ii) Joint venture: The investment in joint venture is recognized using the cost method. Under US GAAP, the investment in joint venture is accounted for using the equity method. (iii) Restructuring costs: Included in restructuring costs are estimates of severance payments to be paid to employees. Under US GAAP, the liability and expense related to these costs are only recognized when the benefit arrangement has been communicated to employees. (iv) Investment and other tax credits: Under Canadian GAAP, investment and other tax credits are recorded as a reduction of the cost of the expenses incurred or as a reduction of the assets acquired either as a direct reduction or recorded as a deferred credit and amortized on the same basis as the related assets. Under US GAAP, tax credits are recorded as a reduction of the provision for income taxes. As these combined financial statements present income before interest and income taxes, no adjustment has been made for this difference. (v) Foreign exchange contracts: Under Canadian GAAP, where foreign exchange contracts are identified as a hedge against an anticipated revenue stream denominated in a foreign currency, any exchange gain or loss is deferred. Under US GAAP, anticipated revenue streams do not qualify for hedge accounting and any exchange gain or loss is recorded in income for the period. F-44 198 ICI FOREST PRODUCTS -- NORTH AMERICA NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS) 17. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (a) Reconciliation of income before interest and income taxes: (Continued) (vi) The application of US GAAP would have the following effect on the income before interest and income taxes as reported:
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ----------------- --------------------------- 1997 1996 1996 1995 1994 ------- ------- ------- ------- ------- (UNAUDITED) Income before interest and income taxes -- Canadian GAAP............. $48,168 $49,617 $63,215 $61,634 $12,149 Adjustments in respect of: Pension and post retirement costs........................... 1,189 300 462 1,687 586 Equity in joint venture............ 63 120 128 90 (147) Restructuring costs................ (88) 650 650 (3,800) 3,800 Foreign exchange................... -- -- -- 2,034 (2,034) ------- ------- ------- ------- ------- 1,164 1,070 1,240 11 2,205 ------- ------- ------- ------- ------- Income before interest and income taxes -- US GAAP................... $49,332 $50,687 $64,455 $61,645 $14,354 ======= ======= ======= ======= =======
(b) Reconciliation of significant balance sheet items: (i) The application of US GAAP would have a significant effect on the following balance sheet item as reported:
SEPTEMBER 30, DECEMBER 31, ----------------- ---------------------------- 1997 1996 1996 1995 1994 ------- ------- -------- ------- ------- (UNAUDITED) Head office account -- Canadian GAAP.............................. $82,745 $92,670 $ 95,531 $71,439 $70,576 Adjustments: Pension and post retirement costs.......................... 5,941 4,590 4,752 4,290 2,603* Equity in joint venture........... 277 206 214 86 (4)** Restructuring costs............... 562 650 650 -- 3,800 Foreign exchange.................. -- -- -- -- (2,034) ------- ------- -------- ------- ------- 6,780 5,446 5,616 4,376 4,365 ------- ------- -------- ------- ------- Head office account -- US GAAP...... $89,525 $98,116 $101,147 $75,815 $74,941 ======= ======= ======== ======= =======
- --------------- * includes cumulative adjustment for pension and post retirement costs of $2,017,000 ** includes cumulative adjustment of equity in opening retained earnings in joint venture of $143,000 (c) The combined statements of changes in financial position reconcile the changes in cash and bank indebtedness. Under US GAAP, bank indebtedness of $3,857,000 would have been disclosed as financing activities. F-45 199 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors, OCCIDENTAL CHEMICAL CORPORATION: We have audited the accompanying balance sheets of the Tacoma Plant (as defined in Note 1) of Occidental Chemical Corporation, an indirect wholly-owned subsidiary of Occidental Petroleum Corporation, as of December 31, 1996 and 1995, and the related statements of operations and changes in owner's investment and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of Occidental Chemical Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Tacoma Plant of Occidental Chemical Corporation as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Dallas, Texas February 28, 1997 F-46 200 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (AMOUNTS IN THOUSANDS)
1996 1995 ------- ------- CURRENT ASSETS Cash........................................................ $ 6 $ 6 Inventories................................................. 4,818 4,790 Deferred income taxes....................................... 1,287 2,389 Other current assets........................................ 1,009 95 ------- ------- Total current assets.............................. 7,120 7,280 PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation of $80,650 in 1996 and $74,768 in 1995....... 61,512 62,857 OTHER ASSETS, net........................................... 795 973 ------- ------- TOTAL ASSETS...................................... $69,427 $71,110 ======= ======= CURRENT LIABILITIES Accounts payable............................................ $ 2,720 $ 2,919 Accrued liabilities......................................... 4,510 8,248 ------- ------- Total current liabilities......................... 7,230 11,167 DEFERRED INCOME TAXES....................................... 1,961 2,727 ACCRUED ENVIRONMENTAL LIABILITIES........................... 20,481 21,242 OTHER LIABILITIES........................................... 7,791 8,244 ------- ------- Total liabilities................................. 37,463 43,380 COMMITMENTS AND CONTINGENT LIABILITIES (Note 6) OWNER'S INVESTMENT.......................................... 31,964 27,730 ------- ------- TOTAL LIABILITIES AND OWNER'S INVESTMENT.......... $69,427 $71,110 ======= =======
The accompanying notes are an integral part of these statements. F-47 201 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT STATEMENTS OF OPERATIONS AND CHANGES IN OWNER'S INVESTMENT FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (AMOUNTS IN THOUSANDS)
1996 1995 1994 ------- ------- ------- EXTERNAL SALES, net......................................... $61,848 $60,871 $40,588 SALES TO OWNER AT MARKET VALUE.............................. 11,867 9,270 10,069 ------- ------- ------- TOTAL SALES, net............................................ 73,715 70,141 50,657 OPERATING COSTS AND EXPENSES: Cost of Sales............................................. 52,420 53,252 53,420 Selling, general and administrative expenses.............. 1,782 1,995 1,782 Other operating expense................................... 2,209 2,607 2,254 ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES........................... 17,304 12,287 (6,799) Income tax expense (benefit).............................. 6,059 4,301 (2,377) ------- ------- ------- NET INCOME (LOSS)........................................... 11,245 7,986 (4,422) PENSION LIABILITY ADJUSTMENT................................ 439 643 (105) INCREASE (DECREASE) IN OWNER'S INVESTMENT................... (7,450) (4,567) 8,646 OWNER'S INVESTMENT, beginning of year....................... 27,730 23,668 19,549 ------- ------- ------- OWNER'S INVESTMENT, end of year............................. $31,964 $27,730 $23,668 ======= ======= =======
The accompanying notes are an integral part of these statements. F-48 202 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (AMOUNTS IN THOUSANDS)
1996 1995 1994 ------- ------- ------- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss)......................................... $11,245 $ 7,986 $(4,422) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization of assets................ 6,247 5,928 5,587 Deferred income taxes.................................. 99 1,088 1,073 Other noncash charges to income........................ 1,941 2,039 1,630 Changes in operating assets and liabilities: Increase in inventories................................ (28) (851) (193) Decrease (increase) in other current assets............ (914) (93) 3 Decrease in accounts payable and accrued liabilities... (3,937) (204) (3,588) Other, net................................................ (2,589) (4,794) (3,723) ------- ------- ------- Net cash provided (used) by operating activities............ 12,064 11,099 (3,633) ------- ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures...................................... (4,614) (6,532) (5,011) ------- ------- ------- Net cash used by investing activities....................... (4,614) (6,532) (5,011) ------- ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Increase (decrease) in owner's investment................. (7,450) (4,567) 8,646 ------- ------- ------- Net cash provided (used) by financing activities............ (7,450) (4,567) 8,646 ------- ------- ------- Change in cash.............................................. -- -- 2 Cash -- beginning of year................................... 6 6 4 ------- ------- ------- Cash -- end of year......................................... $ 6 $ 6 $ 6 ======= ======= =======
The accompanying notes are an integral part of these statements. F-49 203 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Organization, business and basis of presentation -- The accompanying financial statements present the financial position, results of operations and cash flows of the Tacoma plant (the Tacoma Plant) of Occidental Chemical Corporation (OCC), a New York corporation. The financial statements are prepared for a proposed acquisition by Pioneer Companies, Inc. (Pioneer) of the Tacoma Plant (see Note 11). All of the outstanding common shares of OCC are owned indirectly by Occidental Petroleum Corporation (Occidental). Certain amounts in the accompanying financial statements have been allocated in a reasonable and consistent manner in order to depict the financial position, results of operations and cash flows of the Tacoma Plant on a stand-alone basis. The Tacoma Plant, located in Tacoma, Washington, consists of a chlor-alkali process which manufactures chlorine, sodium hydroxide and related products, and a discontinued ammonia process that has not operated since 1992. The Tacoma Plant's products are sold to national and international markets as well as to other plants and affiliates of OCC. The accompanying financial statements exclude the previously discontinued manufacturing processes associated with unrelated product lines, including chlorinated organic compounds. Additionally, the Tacoma Plant does business as OCC and enters into operating and sales contracts administered by OCC. These include national sales agreements as well as purchase and energy agreements. Occidental utilizes a centralized cash management system for its operations, including the Tacoma Plant. Cash distributed to or advanced from Occidental has been reflected in Owner's investment in the accompanying balance sheets. In addition, settlements of transactions with OCC and other Occidental affiliates are recorded through Owner's investment. Supplemental cash flow information -- For the years ended December 31, 1996, 1995 and 1994, all cash payments for income taxes were made by Occidental. For the same periods, there were no cash payments for interest. As of December 31, 1996 and 1995, net trade receivables of $7,604,000 and $8,952,000, respectively, were transferred to an affiliate (see Note 2). Property, plant and equipment -- Property, plant and equipment additions, major renewals and improvements are capitalized at cost. Maintenance and repair costs are charged to expense as incurred. The cost and related accumulated depreciation, depletion and amortization of property, plant and equipment sold or retired are removed from the property, plant and equipment accounts and any resulting gain or loss is recorded. Depreciation of plant and equipment is primarily provided using the units-of-production method. Costs incurred during the construction period of major projects are capitalized and accumulated in Construction in progress (see Note 5). Upon completion, the costs are transferred to the appropriate Property, plant and equipment accounts. Interest costs incurred during the construction period of major projects which extend longer than one year are capitalized and amortized over the lives of the related assets. There were no such major projects during 1996, 1995 or 1994. F-50 204 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Income taxes -- The Tacoma Plant is included in the consolidated U.S. federal income tax return of Occidental. The Tacoma Plant uses the asset and liability method required by Statement of Financial Accounting Standards (SFAS) No. 109 -- "Accounting for Income Taxes." Deferred income taxes are recorded at enacted rates to recognize the future effects of temporary differences which arise between financial statement assets and liabilities and their basis for income tax reporting purposes. A portion of the income tax provision for this return is allocated to the Tacoma Plant on the basis of a tax sharing arrangement between OCC and Occidental Chemical Holding Corporation (OCHC), an indirect parent of OCC. Current and deferred income tax provisions allocated by OCC are based on taxable income determined as though the Tacoma Plant filed as an independent company, making the same tax return elections used in Occidental's consolidated return. However, this arrangement also permits the Tacoma Plant to recognize income tax benefits for current year operating losses and deductible temporary differences without limiting such benefits. Amounts due to Occidental for current income tax provisions are netted in Owner's investment in the accompanying balance sheets. Risks and uncertainties -- The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts, generally not by material amounts. Management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the Tacoma Plant's financial position and results of operations. Included in the accompanying balance sheets are deferred income tax assets of $11,061,000 and $12,555,000 as of December 31, 1996 and 1995, respectively, consisting of the current portion of $1,287,000 and $2,389,000, shown as current deferred income tax assets and the noncurrent portion which is netted against deferred income tax liabilities (see Note 7). Realization of that asset is dependent upon the generation of sufficient future taxable income. It is expected that the recorded deferred income tax asset will be realized through future operating income and reversal of taxable temporary differences. Since the Tacoma Plant's two principal products are commodities, significant changes in the prices of chlorine and sodium hydroxide could have a significant impact on the Tacoma Plant's results of operations for any particular year. Fair value of financial instruments -- The Tacoma Plant values financial instruments as required by SFAS No. 107 -- "Disclosures About Fair Value of Financial Instruments." The carrying value of on-balance sheet financial instruments approximates fair value. (2) RECEIVABLES -- As of December 31, 1996 and 1995, OCC transferred, with limited recourse, to an Occidental affiliate net trade receivables of the Tacoma Plant under a revolving sale program, in connection with the ultimate sale for cash of such receivables. The net trade receivables transferred amounted to $7,604,000 and $8,952,000 as of December 31, 1996 and 1995, respectively. OCC transferred the receivables to the affiliate in a noncash transaction that was reflected as a reduction in the Tacoma Plant's Owner's investment. OCC has retained the F-51 205 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (2) RECEIVABLES -- (CONTINUED) collection responsibility with respect to the receivables sold. An interest in newly created receivables is transferred monthly, net of collections made from customers. Fees related to the sales of receivables under this program, which are allocated from OCC, were $377,000, $425,000 and $333,000 for the years ended December 31, 1996, 1995 and 1994, respectively, and are included in Other operating expense. (3) INVENTORIES -- Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) cost method was used in determining the costs of raw materials and finished goods. Materials and supplies inventories were determined using the weighted-average cost method. Inventories consisted of the following as of December 31, 1996 and 1995 (in thousands):
1996 1995 ------- ------- Raw materials............................................... $ 1,291 $ 1,653 Materials and supplies...................................... 3,338 3,152 Finished goods.............................................. 2,071 2,519 ------- ------- 6,700 7,324 LIFO reserve................................................ (1,882) (2,534) ------- ------- Inventory at lower of cost or market........................ $ 4,818 $ 4,790 ======= =======
During the years ended December 31, 1996 and 1994, certain inventory quantities carried at LIFO were reduced. These reductions resulted in a liquidation of LIFO inventory quantities, the effect of which did not have a material impact on Cost of sales. (4) CHANGE IN ACCOUNTING PRINCIPLE -- In December 1992, the Financial Accounting Standards Board issued SFAS No. 112 -- "Employers' Accounting for Postemployment Benefits," which substantially changed the existing method of accounting for employer benefits provided to inactive or former employees after active employment but before retirement. This statement requires that the cost of postemployment benefits (principally medical benefits for inactive employees) be recognized in the financial statements during employees' active working careers. OCC adopted SFAS No. 112 effective January 1, 1994, but the adoption did not have a material impact on the Tacoma Plant's financial position or results of operations. (5) PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment at December 31, 1996 and 1995 consisted of the following (in thousands):
1996 1995 -------- -------- Land and land improvements.................................. $ 2,951 $ 2,875 Buildings................................................... 9,173 8,915 Machinery and equipment..................................... 118,212 114,530 Construction in progress.................................... 11,826 11,305 -------- -------- 142,162 137,625 Accumulated depreciation.................................... (80,650) (74,768) -------- -------- $ 61,512 $ 62,857 ======== ========
F-52 206 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (6) COMMITMENTS AND CONTINGENT LIABILITIES -- Commitments -- The Tacoma Plant leases railcars as well as certain machinery and equipment under noncancelable operating leases. The operating lease for machinery and equipment expires in 2001, at which time the property can be purchased for the then fair market value or the lease can be renewed at the then fair rental value for two years. At December 31, 1996, future minimum lease payments under noncancelable operating leases were as follows (in thousands): 1997........................................................ $ 3,784 1998........................................................ 3,561 1999........................................................ 3,412 2000........................................................ 3,560 2001........................................................ 3,178 Thereafter.................................................. 16,582 ------- Total minimum lease payments.............................. $34,077 =======
Rental expense totaled approximately $4,156,000, $4,164,000 and $4,262,000 for the years ended December 31, 1996, 1995 and 1994, respectively. OCC purchases the entire requirement of salt for the Tacoma Plant from Mitsubishi International Corporation (MIC) under the terms of a contract ending on December 31, 1996. The contract requires OCC to purchase a predetermined annual quantity of salt at an established price. Payments are made to MIC each month in the amount of one-twelfth of the annual quantity at the established price for that year. Total purchases under this contract were $8,202,000, $7,712,000 and $6,339,000 for the years ended December 31, 1996, 1995 and 1994, respectively. In May 1996, OCC entered into a new contract with MIC to purchase salt for the Tacoma Plant under similar terms for 1997 through 1999. OCC purchases electric power for the Tacoma Plant from the City of Tacoma, Department of Public Utilities, Light Division (the City) under the terms of a contract expiring in September 2001. The contract has three monthly levels of commitment. The first two take-or-pay levels are for fixed quantities of power at predetermined prices. The third level is for power consumed above the take-or-pay quantities at market prices. Under the terms of the contract, any power committed to but not consumed by the Tacoma Plant can be resold by the City, the proceeds of which will be applied against the Tacoma Plant's commitment. Total purchases under this contract were $13,621,000, $13,894,000 and $13,643,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Lawsuits -- An individual brought a lawsuit in 1995 against OCC alleging personal injury from exposure to chlorine gas released from the Tacoma Plant in 1994. Although a release did occur, the alleged causation and damages are denied. It is impossible at this time to determine the ultimate legal liabilities that may arise from this lawsuit. However, in management's opinion, the lawsuit should not have a material adverse effect upon the financial position or results of operations of the Tacoma Plant. F-53 207 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (7) INCOME TAXES -- Income tax expense (benefit) for the years ended December 31, 1996, 1995 and 1994 consisted of the following (in thousands):
1996 1995 1994 ------ ------ ------- Current U.S. federal.................................... $5,960 $3,213 $(3,450) Deferred U.S. federal................................... 99 1,088 1,073 ------ ------ ------- $6,059 $4,301 $(2,377) ====== ====== =======
The following table reconciles the maximum statutory U.S. federal income tax rate multiplied by the Tacoma Plant's income (loss) before income taxes to the recorded income tax expense (benefit) (in thousands):
1996 1995 1994 ------ ------ ------- U.S. federal income tax at 35%.......................... $6,056 $4,300 $(2,380) Nondeductible expenses and other........................ 3 1 3 ------ ------ ------- $6,059 $4,301 $(2,377) ====== ====== =======
Pension liability adjustments charged directly to Owner's investment in 1996, 1995 and 1994 were net of tax charges (benefits) of $237,000, $347,000 and ($23,000), respectively. Deferred income taxes reflect the future tax consequences of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts. Temporary differences are associated with the financial statement assets and liabilities shown in the table below. Deferred income tax assets and liabilities have been recorded in the following amounts as of December 31, 1996 and 1995 (in thousands):
1996 1995 ---------------------- ---------------------- DEFERRED TAX DEFERRED TAX ASSETS LIABILITIES ASSETS LIABILITIES ------- ----------- ------- ----------- Inventories................................ $ 371 $ -- $ 340 $ -- Property, plant and equipment, net......... -- 11,565 -- 12,592 Other assets............................... -- 170 -- 301 Accrued liabilities........................ 916 -- 2,049 -- Other liabilities.......................... 9,774 -- 10,166 -- ------- ------- ------- ------- $11,061 $11,735 $12,555 $12,893 ======= ======= ======= =======
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- The Tacoma Plant participates in various defined contribution retirement plans sponsored by Occidental for its salaried, union and nonunion hourly employees that provide for periodic contributions by OCC based on plan-specific criteria, such as base pay, age level, and employee contributions. OCC contributed and the Tacoma Plant expensed $250,000, $255,000 and $240,000 under the provisions of these plans during the years ended December 31, 1996, 1995 and 1994, respectively. Also, the Tacoma Plant's retirement and postretirement defined benefit plans for union hourly employees are accrued based on various assumptions and discount rates, as described below. The actuarial assumptions F-54 208 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- (CONTINUED) used could change in the near term as a result of changes in expected future trends and other factors which, depending on the nature of the changes, could cause increases or decreases in the liabilities accrued. Pension costs for the Tacoma Plant defined benefit pension plan, for union hourly employees determined by independent actuarial valuations, are funded by payments to trust funds that are administered by independent trustees. The components of the net pension cost for the years ended December 31, 1996, 1995 and 1994 were as follows (in thousands):
1996 1995 1994 ------- ------- ----- Service cost -- benefits earned during the period........ $ 374 $ 389 $ 347 Interest cost on projected benefit obligation............ 660 676 674 Estimated return on plan assets.......................... (1,492) (1,699) (252) Net amortization and deferral............................ 891 1,348 (133) ------- ------- ----- Net pension cost............................... $ 433 $ 714 $ 636 ======= ======= =====
The Tacoma Plant recorded adjustments to Owner's investment of an increase of $439,000 in 1996 and $643,000 in 1995 and a decrease of $105,000 in 1994 to reflect the net-of-tax difference between the additional liability required under pension accounting provisions and the corresponding intangible asset. The following table sets forth the defined benefit plan's funded status and amounts recognized in the Tacoma Plant balance sheets at December 31, 1996 and 1995 (in thousands):
ACCUMULATED BENEFITS EXCEED ASSETS --------------------- 1996 1995 -------- --------- Present value of the estimated pension benefits to be paid in the future: Vested benefits........................................... $9,043 $ 8,473 Nonvested benefits........................................ 437 410 ------ ------- Accumulated benefit obligation.............................. 9,480 8,883 Excess of projected benefit obligation over accumulated benefit obligation..................................... 426 399 ------ ------- Total projected benefit obligations......................... 9,906 9,282 Plan assets at fair value................................... 9,701 8,085 ------ ------- Projected benefit obligation in excess of plan assets....... $ 205 $ 1,197 ====== ======= Projected benefit obligation in excess of plan assets....... $ 205 $ 1,197 Unrecognized net asset...................................... 160 192 Unrecognized prior service cost............................. (195) (215) Unrecognized net loss....................................... (363) (1,266) Additional minimum liability(a)............................. -- 891 ------ ------- Pension liability (prepaid pension)......................... $ (193) $ 799 ====== =======
(a) A related amount up to the limit allowable under SFAS No. 87 -- "Employers' Accounting for Pensions" has been included in Other assets. Amounts exceeding such limits have been charged to Owner's investment. F-55 209 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- (CONTINUED) In 1996 and 1995, the discount rate used in determining the actuarial present value of the projected benefit obligations was 7.5 percent. The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations was 4.5 percent in 1996 and 1995. The expected long-term rate of return on assets was 8 percent in 1996 and 1995. OCC provides medical, dental and life insurance for certain active, retired, and disabled employees of the Tacoma Plant and their eligible dependents. Beginning in 1993, certain salaried participants pay for all medical cost increases in excess of increases in the Consumer Price Index (CPI). The benefits generally are funded by OCC as the benefits are paid during the year. The cost of providing these benefits is based on claims filed and insurance premiums paid for the period. To reflect the Tacoma Plant's participation in the OCC plan, the net periodic postretirement benefit costs and the postretirement benefit obligations are based on an allocation of the OCC actuarial study using participant counts at the Tacoma Plant for each of the years presented in the tables below. This allocation excludes amounts attributable to salaried retirees and surviving spouses because nonunion retiree information is not maintained for such participants by plant location. The OCC postretirement benefit obligation as of December 31, 1996 and 1995 was determined by application of the terms of medical, dental, and life insurance plans, including the effect of established maximums on covered costs, together with relevant actuarial assumptions and health care cost trend rates projected at a CPI increase of 3 percent and 4 percent in 1996 and 1995, respectively (except for union employees). For union employees, the health care cost trend rates were projected at annual rates ranging ratably from 9 percent in 1996 to 6 percent through the year 2002 and level thereafter. The effect of a one percent annual increase in these assumed cost trend rates would increase the allocated accumulated postretirement benefit obligation by approximately $660,000 and the allocated annual service and interest costs by approximately $95,000 in 1996. The weighted average discount rate used in determining the accumulated postretirement benefit obligation as of December 31, 1996 and 1995 was 7.5 percent. The plans are unfunded. The following table sets forth the allocation of OCC postretirement plans' combined status, reconciled with the amounts included in the accompanying balance sheets at December 31, 1996 and 1995 (in thousands):
1996 1995 ------ ------ Accumulated postretirement benefit obligation: Retirees.................................................. $3,924 $3,820 Fully eligible active plan participants................... 642 630 Other active plan participants............................ 3,573 3,310 ------ ------ Total accumulated postretirement benefit obligation......... 8,139 7,760 Unrecognized prior service cost............................. (109) (156) Unrecognized net loss....................................... (586) (691) ------ ------ Allocated accrued postretirement benefit cost............... $7,444 $6,913 ====== ======
F-56 210 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- (CONTINUED) The allocated net periodic postretirement benefit cost included the following components for the years ended December 31, 1996, 1995 and 1994 (in thousands):
1996 1995 1994 ---- ---- ---- Service cost -- benefits attributed to service during the period.................................................... $202 $194 $190 Interest cost on accumulated postretirement benefit obligation................................................ 582 572 570 Net amortization and deferral............................... 47 47 47 ---- ---- ---- Allocated net periodic postretirement benefit cost.......... $831 $813 $807 ==== ==== ====
(9) RELATED PARTY TRANSACTIONS -- The Tacoma Plant has been charged for certain financial and operational support services provided by OCC, such as marketing, sales and customer service, transportation and distribution, and technical services. Charges for such support services included in the accompanying statements of operations totaled $8,759,000, $8,806,000 and $10,151,000 for the years ended December 31, 1996, 1995 and 1994, respectively. These charges were allocated based on ratios including such factors as revenues, operating income, fixed assets, and working capital in a reasonable and consistent manner. Included in the above allocations are research and development costs, which are charged to operations by OCC as incurred, and were $70,000, $96,000 and $143,000 for the years ended December 31, 1996, 1995 and 1994, respectively. These charges are included in Selling, general and administrative expenses in the accompanying statements of operations. See Note 1 regarding the centralized cash management system of Occidental. See Note 2 regarding the transfer of receivables to an affiliate. (10) ENVIRONMENTAL COSTS -- General -- Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to existing conditions caused by past operations, and that do not contribute to current or future revenue generation, are expensed. Reserves for estimated costs are recorded when environmental remedial efforts are probable and the costs can be reasonably estimated. In determining the reserves, the Tacoma Plant uses the most current information available, including similar past experiences, available technology, regulations in effect, the timing of remediation and cost-sharing arrangements. The environmental reserves are based on management's estimate of the most likely costs to be incurred and are reviewed periodically and adjusted as additional or new information becomes available. In October 1996, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 96-1 "Environmental Remediation Liabilities," which provides authoritative guidance on specific accounting issues that are present in the recognition, measurement, display, and disclosure of environmental remediation liabilities. The provisions of this SOP are effective for fiscal years beginning after December 15, 1996. OCC plans to adopt the provisions of this SOP in 1997. The impact of adopting this SOP, if any, on the financial statements of the Tacoma Plant has not been determined. F-57 211 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (10) ENVIRONMENTAL COSTS -- (CONTINUED) Tacoma Plant site -- Historic operations of various discontinued processes and equipment at the Tacoma Plant site, including past activities of other owners or operators of all or a portion of the Tacoma Plant site, have resulted in releases of certain hazardous and nonhazardous substances and materials into the soil, surface water, groundwater and intertidal and subtidal sediments at and in the vicinity of the Tacoma Plant site. The Tacoma Plant is permitted under the Resource Conservation and Recovery Act (RCRA). Although permitted waste management units at the Tacoma Plant site have been closed in accordance with RCRA, the current RCRA permit requires the owner and operator of the Tacoma Plant to take corrective action to address the presence of certain substances in groundwater associated with past practices at the Tacoma Plant site. The Tacoma Plant is controlling migration of and remediating substances in groundwater through extraction, treatment and reinjection (see Reserves and expenditures for the Tacoma Plant site section of Note 10 below). In addition, governmental authorities have identified OCC as a "potentially responsible party" for the Commencement Bay Nearshore/Tideflats Superfund Site (the CB/NT site), which includes the Hylebos Waterway, pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act. The CB/NT site covers in excess of ten square miles and includes the Tacoma Plant site and other properties along the Hylebos Waterway and in the vicinity of Commencement Bay. More than 100 potentially responsible parties have been identified with respect to the Hylebos Waterway area of the CB/NT site. OCC is participating with a group of entities in performing a pre-remedial design investigation to evaluate potential alternatives for remediation of sediments in the Hylebos Waterway. It is reasonably possible that the activities of the Tacoma plant chlor-alkali process and discontinued processes have contributed to the presence of hazardous and nonhazardous substances and materials at and in the vicinity of the Tacoma Plant site. It is impossible at this time to determine the quantity of such substances and materials, if any, attributable to these processes, and OCC does not have sufficient information available to determine a range of potential liability. Reserves and expenditures for the Tacoma Plant site -- At December 31, 1996 and 1995, the current portion of the reserve for groundwater remediation at the Tacoma Plant site included in Accrued liabilities was $2,550,000 and $5,200,000, respectively. The reserve for remediation was originally established in 1990. Additions to the remediation reserve of $1,932,000, $2,030,000 and $1,530,000 for the years ended December 31, 1996, 1995 and 1994, respectively, are included in Other operating expense. The Tacoma Plant's estimated operating expenses relating to compliance with environmental laws and regulations governing ongoing operations on the Tacoma Plant site were approximately $901,000, $983,000 and $958,000 for the years ended December 31, 1996, 1995 and 1994, respectively. In addition, estimated capital expenditures for environmental compliance on the Tacoma Plant site for the years ended December 31, 1996, 1995 and 1994 were approximately $1,175,000, $693,000 and $82,000, respectively. F-58 212 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (11) SALE OF TACOMA PLANT -- Pioneer is currently negotiating to purchase selected assets, liabilities and operations of the Tacoma Plant primarily including, but not limited to, property, plant and equipment and inventories. As of February 1, 1997, OCC transferred substantially all of the Tacoma Plant's assets and liabilities into OCC Tacoma, Inc., a newly created, wholly-owned subsidiary of OCC. The assets, liabilities and operations included in these financial statements are those required to present the Tacoma Plant as a stand-alone entity and include certain assets, liabilities and operations that are not included in the proposed sale to Pioneer, such as certain railcar and equipment leases. Excluded operations include, among other things, support services such as marketing, sales and customer service, transportation and distribution, and technical services. In addition, OCC will retain various chlorine and caustic soda account contracts which will be supplied in part by a proposed arrangement between Pioneer and OCC. Negotiations are ongoing concerning a mutually acceptable method of acquisition by Pioneer. As currently contemplated, in addition to the primary asset conveyance instrument, related agreements would allocate responsibility, as between OCC and Pioneer, for environmental costs and obligations associated with the Tacoma Plant site arising from pre-closing events or occurrences, including any investigation, monitoring, treatment or remediation of substances and materials in water, soils and sediments at and in the vicinity of the Tacoma Plant site, the Hylebos Waterway and the CB/NT site. This allocation of responsibility is expected to include cost and time limitations, above or after which OCC's responsibility for environmental costs and obligations associated with the Tacoma Plant site between the parties would terminate. F-59 213 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT BALANCE SHEETS (AMOUNTS IN THOUSANDS)
JUNE 16, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) CURRENT ASSETS: Cash...................................................... $ 6 $ 6 Inventories............................................... 5,018 4,818 Deferred income taxes..................................... 1,256 1,287 Other current assets...................................... 1,408 1,009 ------- ------- Total current assets.............................. 7,688 7,120 PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation of $83,551 in 1997 and $80,650 in 1996....... 80,406 61,512 OTHER ASSETS, net........................................... 784 795 ------- ------- TOTAL ASSETS...................................... $88,878 $69,427 ======= ======= CURRENT LIABILITIES: Accounts payable.......................................... $ 2,384 $ 2,720 Accrued liabilities....................................... 3,121 4,510 ------- ------- Total current liabilities......................... 5,505 7,230 DEFERRED INCOME TAXES....................................... 2,485 1,961 ACCRUED ENVIRONMENTAL LIABILITIES........................... 20,078 20,481 OTHER LIABILITIES........................................... 7,961 7,791 ------- ------- Total liabilities................................. 36,029 37,463 COMMITMENTS AND CONTINGENT LIABILITIES (Note 5) OWNER'S INVESTMENT.......................................... 52,849 31,964 ------- ------- TOTAL LIABILITIES AND OWNER'S INVESTMENT.......... $88,878 $69,427 ======= =======
The accompanying notes are an integral part of these statements. F-60 214 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT STATEMENTS OF OPERATIONS AND CHANGES IN OWNER'S INVESTMENT (AMOUNTS IN THOUSANDS) (UNAUDITED)
PERIOD FROM PERIOD FROM APRIL 1, 1997 THREE MONTHS JANUARY 1, 1997 SIX MONTHS TO ENDED TO ENDED JUNE 16, 1997 JUNE 30, 1996 JUNE 16, 1997 JUNE 30, 1996 ------------- ------------- --------------- ------------- EXTERNAL SALES, net...................... $10,757 $16,632 $24,527 $31,691 SALES TO OWNER AT MARKET VALUE........... 4,996 2,400 9,964 4,845 ------- ------- ------- ------- TOTAL SALES, net............... 15,753 19,032 34,491 36,536 OPERATING COSTS AND EXPENSES: Cost of sales.......................... 13,551 14,702 27,141 27,767 Selling, general and administrative expenses............................ 270 429 539 875 Other operating (income) expense....... 87 579 (455) 1,178 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES............... 1,845 3,322 7,266 6,716 Income tax expense..................... 647 1,163 2,545 2,352 ------- ------- ------- ------- NET INCOME............................... 1,198 2,159 4,721 4,364 PENSION LIABILITY ADJUSTMENT............. -- -- -- 8 INCREASE (DECREASE) IN OWNER'S INVESTMENT............................. 18,434 (2,475) 16,164 (1,954) OWNER'S INVESTMENT, beginning of period................................. 33,217 30,464 31,964 27,730 ------- ------- ------- ------- OWNER'S INVESTMENT, end of period........ $52,849 $30,148 $52,849 $30,148 ======= ======= ======= =======
The accompanying notes are an integral part of these statements. F-61 215 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) UNAUDITED
PERIOD FROM SIX MONTHS JANUARY 1, 1997 ENDED TO JUNE 16, JUNE 30, 1997 1996 --------------- ---------- CASH FLOW FROM OPERATING ACTIVITIES: Net income................................................ $ 4,721 $ 4,364 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of assets................ 3,091 3,032 Deferred income taxes.................................. 555 610 Other noncash charges to income........................ 43 1,010 Changes in operating assets and liabilities: Decrease (increase) in inventories..................... (200) 56 Increase in other current assets....................... (399) (548) Decrease in accounts payable and accrued liabilities... (1,725) (3,506) Other, net................................................ (139) (1,000) -------- ------- Net cash provided by operating activities................... 5,947 4,018 -------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures...................................... (1,577) (2,064) Buyout of operating lease................................. (20,534) -- -------- ------- Net cash provided by investing activities................... (22,111) (2,064) -------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Increase (decrease) in owner's investment................. 16,164 (1,954) -------- ------- Net cash provided by financing activities................... 16,164 (1,954) -------- ------- Change in cash.............................................. -- -- Cash -- beginning of period................................. 6 6 -------- ------- Cash -- end of period....................................... $ 6 $ 6 ======== =======
The accompanying notes are an integral part of these statements. F-62 216 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS UNAUDITED JUNE 16, 1997 AND JUNE 30, 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Organization and sale of Tacoma plant -- The accompanying unaudited interim financial statements present the financial position, results of operations and changes in owner's investment and cash flows of the Tacoma plant (the Tacoma Plant) of Occidental Chemical Corporation (OCC-NY), a New York corporation, and of OCC Tacoma Inc., a Delaware corporation (OCC-NY alone or together with its subsidiary, OCC Tacoma, Inc. herein referred to as OCC). As of February 1, 1997, OCC-NY transferred substantially all of the Tacoma Plant's assets and liabilities into OCC Tacoma Inc., a newly created, wholly-owned subsidiary of OCC-NY. On June 17, 1997 Pioneer Companies, Inc. (Pioneer) purchased selected assets, liabilities and operations of the Tacoma Plant primarily including, but not limited to, property, plant and equipment and inventories for $97 million plus 55,000 shares of convertible Series A Preferred Stock of Pioneer with a liquidation value of $5.5 million. The assets, liabilities and operations included in these financial statements are those required to present the Tacoma Plant as a stand-alone entity and include certain assets, liabilities and operations that were not included in the sale to Pioneer, such as certain railcar leases. Excluded operations include, among other things, support services such as marketing, sales and customer service, transportation and distribution, and technical services. In addition, OCC-NY retained various chlorine and sodium hydroxide account contracts which will be supplied in part by an arrangement between Pioneer and OCC-NY. In addition to the primary asset conveyance instrument, related agreements allocate responsibility, between OCC Tacoma, Inc. and Pioneer, for environmental costs and obligations associated with the Tacoma Plant site, including any investigation, monitoring, treatment or remediation of substances and materials in water, soils and sediments at and in the vicinity of the Tacoma Plant site, the Hylebos Waterway and the Commencement Bay Nearshore/Tideflats Superfund site (the CB/NT site). This allocation of responsibility includes cost and time limitations, above or after which OCC's responsibility for environmental costs and obligations associated with the Tacoma Plant site would terminate between OCC and Pioneer. In connection with the sale to Pioneer, on June 12, 1997, OCC terminated a machinery and equipment lease by purchasing the equity of the owner trust which owned the leased machinery and equipment and prepaying the related debt for an aggregate expenditure of approximately $20.5 million. Business and basis of presentation Certain information and disclosures normally included in the notes to financial statements have been condensed or omitted pursuant to such rules and regulations, but resultant disclosures are in accordance with generally accepted accounting principles as they apply to interim reporting. These interim financial statements should be read in conjunction with the Tacoma Plant's audited financial statements for the year ended December 31, 1996 (1996 Financial Statements). The Tacoma Plant, located in Tacoma, Washington, consists of a chlor-alkali process which manufactures chlorine, sodium hydroxide and related products, and a discontinued ammonia process that has not operated since 1992. The Tacoma Plant's products are sold to national and international markets as well as to other plants and affiliates of OCC. The accompanying financial statements exclude the previously discontinued manufacturing processes associated with unrelated product lines, including chlorinated organic compounds. Additionally, prior to the sale to Pioneer, the Tacoma Plant did business as OCC and entered into F-63 217 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS UNAUDITED JUNE 16, 1997 AND JUNE 30, 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) operating and sales contracts administered by OCC. These included national sales agreements as well as purchase and energy agreements. In the opinion of OCC's management, the accompanying interim financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the Tacoma Plant's financial position as of June 16, 1997 and June 30, 1996 and the results of operations and changes in owner's investment and cash flows for the periods then ended. The results of operations and cash flows for the period ended June 16, 1997 are not necessarily indicative of the results of operations or cash flows to be expected for the full year. Reference is made to Note 1 to the 1996 Financial Statements for a summary of significant accounting policies. Supplemental cash flow information -- For the periods ended June 16, 1997 and June 30 1996, all cash payments for income taxes were made by Occidental Petroleum Corporation (Occidental). For the same periods, there were no cash payments for interest. As of June 16, 1997 and June 30 1996, net trade receivables of $4,621,000 and $10,217,000, respectively, were transferred to an affiliate (see Note 2). Risks and uncertainties -- The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts, generally not by material amounts. Management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the Tacoma Plant's financial position and results of operations. Included in the accompanying balance sheets are deferred income tax assets of $10,791,000 and $11,689,000 as of June 16, 1997 and June 30, 1996, respectively, consisting of a current portion of $1,256,000 and $1,470,000, shown as current deferred income tax assets and the noncurrent portion which is netted against deferred income tax liabilities. Realization of that asset is dependent upon the generation of sufficient future taxable income. It is expected that the recorded deferred income tax asset will be realized through future operating income and reversal of taxable temporary differences. Since the Tacoma Plant's two principal products are commodities, significant changes in the prices of chlorine and sodium hydroxide could have a significant impact on the Tacoma Plant's results of operations for any particular period. (2) RECEIVABLES -- As of June 16, 1997 and June 30, 1996, OCC transferred, with limited recourse, to an Occidental affiliate net trade receivables of the Tacoma Plant under a revolving sale program, in connection with the ultimate sale for cash of such receivables. The net trade receivables transferred amounted to $4,621,000 and $10,217,000 as of June 16, 1997 and June 30, 1996, respectively. OCC transferred the receivables to the affiliate in a noncash transaction that was reflected as a reduction in the Tacoma Plant's Owner's investment. OCC has retained the F-64 218 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS UNAUDITED JUNE 16, 1997 AND JUNE 30, 1996 (2) RECEIVABLES -- (CONTINUED) collection responsibility with respect to the receivables sold. An interest in newly created receivables is transferred monthly, net of collections made from customers. Fees related to the sales of receivables under this program, which are allocated from OCC, were $138,000 and $191,000 for the year-to-date periods ended June 16, 1997 and June 30, 1996, respectively, and are included in Other operating expense. (3) INVENTORIES -- Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) cost method was used in determining the costs of raw materials and finished goods. Materials and supplies inventories were determined using the weighted-average cost method. Inventories consisted of the following as of June 16, 1997 and June 30, 1996 (in thousands):
1997 1996 ------- ------- Raw materials............................................... $ 1,443 $ 1,155 Materials and supplies...................................... 3,336 3,090 Finished goods.............................................. 2,676 3,352 ------- ------- 7,455 7,597 LIFO reserve................................................ (2,437) (2,863) ------- ------- Inventory at lower of cost or market........................ $ 5,018 $ 4,734 ======= =======
During the year-to-date periods ended June 16, 1997 and June 30, 1996, certain inventory quantities carried at LIFO were reduced. These reductions resulted in a liquidation of LIFO inventory quantities, the effect of which did not have a material impact on Cost of sales. (4) PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment at June 16, 1997 and June 30, 1996 consisted of the following (in thousands):
1997 1996 -------- -------- Land and land improvements.................................. $ 3,017 $ 2,875 Buildings................................................... 9,733 8,915 Machinery and equipment..................................... 139,164 114,518 Construction in progress.................................... 12,043 13,376 -------- -------- 163,957 139,684 Accumulated depreciation.................................... (83,551) (77,582) -------- -------- $ 80,406 $ 62,102 ======== ========
(5) COMMITMENTS AND CONTINGENT LIABILITIES -- Commitments -- The Tacoma Plant leases railcars under noncancelable operating leases. F-65 219 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS UNAUDITED JUNE 16, 1997 AND JUNE 30, 1996 (5) COMMITMENTS AND CONTINGENT LIABILITIES -- (CONTINUED) At June 16, 1997, future minimum lease payments under noncancelable operating leases were as follows (in thousands): 1997........................................................ $ 1,042 1998........................................................ 1,905 1999........................................................ 1,756 2000........................................................ 1,872 2001........................................................ 1,491 Thereafter.................................................. 14,190 Total minimum lease payments................................ $22,256
Rental expense totaled approximately $1,947,000 and $2,086,000 for the year-to-date periods ended June 16, 1997 and June 30, 1996, respectively. Reference is made to Note 6 to the 1996 Financial Statements for a description of salt and electric power purchase commitments. Total purchases under the salt contract were $3,447,000 and $4,101,000 for the year-to-date periods ended June 16, 1997 and June 30, 1996, respectively. Total purchases under the electric power contract were $5,688,000 and $6,475,000 for the year-to-date periods ended June 16, 1997 and June 30, 1996, respectively. Lawsuits -- Reference is made to Note 6 to the 1996 Financial Statements for a description of lawsuits. (6) INCOME TAXES -- Income tax expense for the year-to-date periods ended June 16, 1997 and June 30, 1996 consisted of the following (in thousands):
1997 1996 ------ ------ Current U.S. federal........................................ $1,990 $1,742 Deferred U.S. federal....................................... 555 610 ------ ------ $2,545 $2,352 ====== ======
Reference is made to Note 7 to the 1996 Financial Statements for a description of income taxes. (7) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- Reference is made to Note 8 to the 1996 Financial Statements for a description of retirement plans and postretirement benefits. (8) RELATED PARTY TRANSACTIONS -- The Tacoma Plant has been charged for certain financial and operational support services provided by OCC-NY, such as marketing, sales and customer service, transportation and distribution, and technical services. Charges for such support services included in the accompanying statements of operations totaled F-66 220 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS UNAUDITED JUNE 16, 1997 AND JUNE 30, 1996 (8) RELATED PARTY TRANSACTIONS -- (CONTINUED) $5,035,000 and $4,749,000 for the year-to-date periods ended June 16, 1997 and June 30, 1996, respectively. These charges were allocated based on ratios including such factors as revenues, operating income, fixed assets, and working capital in a reasonable and consistent manner. Included in the above allocations are research and development costs, which are charged to operations by OCC-NY as incurred, and were $6,000 and $12,000 for the year-to-date periods ended June 16, 1997 and June 30, 1996, respectively. These charges are included in Selling, general and administrative expenses in the accompanying statements of operations. Reference is made to Note 1 to the 1996 Financial Statements regarding the centralized cash management system of Occidental. See Note 2 regarding the transfer of receivables to an affiliate. (9) ENVIRONMENTAL COSTS -- General -- Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to existing conditions caused by past operations, and that do not contribute to current or future revenue generation, are expensed. Reserves for estimated costs are recorded when environmental remedial efforts are probable and the costs can be reasonably estimated. In determining the reserves, the Tacoma Plant uses the most current information available, including similar past experiences, available technology, regulations in effect, the timing of remediation and cost-sharing arrangements. The environmental reserves are based on management's estimate of the most likely costs to be incurred and are reviewed periodically and adjusted as additional or new information becomes available. Tacoma Plant site Historic operations of various discontinued processes and equipment at the Tacoma Plant site, including past activities of other owners or operators of all or a portion of the Tacoma Plant site, have resulted in releases of certain hazardous and nonhazardous substances and materials into the soil, surface water, groundwater and intertidal and subtidal sediments at and in the vicinity of the Tacoma Plant site. The Tacoma Plant is permitted under the Resource Conservation and Recovery Act (RCRA). Although permitted waste management units at the Tacoma Plant site have been closed in accordance with RCRA, the current RCRA permit requires the owner and operator of the Tacoma Plant to take corrective action to address the presence of certain substances in groundwater associated with past practices at the Tacoma Plant site. The Tacoma Plant is controlling migration of and remediating substances in groundwater through extraction, treatment and reinjection (see Reserves and expenditures for the Tacoma Plant site section of Note 9 below). In addition, governmental authorities have identified OCC as a "potentially responsible party" for the CB/NT site, which includes the Hylebos Waterway, pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act. The CB/NT site covers in excess of ten square miles and includes the Tacoma Plant site and other properties along the Hylebos Waterway and in the vicinity of Commencement Bay. More than 100 potentially responsible parties have been identified with respect to the Hylebos Waterway area of the CB/NT site. OCC is participating with a group of entities in performing a pre- F-67 221 OCCIDENTAL CHEMICAL CORPORATION TACOMA PLANT NOTES TO FINANCIAL STATEMENTS UNAUDITED JUNE 16, 1997 AND JUNE 30, 1996 (9) ENVIRONMENTAL COSTS -- (CONTINUED) remedial design investigation to evaluate potential alternatives for remediation of sediments in the Hylebos Waterway. It is reasonably possible that the activities of the Tacoma plant chlor-alkali process and discontinued processes have contributed to the presence of hazardous and nonhazardous substances and materials at and in the vicinity of the Tacoma Plant site. It is impossible at this time to determine the quantity of such substances and materials, if any, attributable to these processes, and OCC does not have sufficient information available to determine a range of potential liability. Reserves and expenditures for the Tacoma Plant site -- At June 16, 1997 and June 30, 1996, the current portion of the reserve for groundwater remediation at the Tacoma Plant site included in Accrued liabilities was $2,055,000 and $2,570,000, respectively. The reserve for remediation was originally established in 1990. An addition to the remediation reserve of $966,000 for the year-to-date period ended June 30, 1996 is included in Other operating expense. In October 1996, the American Institute of Certified Public Accountants issued Statement of Position No. 96-1 "Environmental Remediation Liabilities" (SOP 96-1), which provides authoritative guidance on specific accounting issues that are present in the recognition, measurement, display and disclosure of environmental remediation liabilities. OCC implemented SOP 96-1 effective January 1, 1997. The implementation of SOP 96-1 resulted in a $672,000 increase in Income before taxes for the Tacoma Plant for the year-to-date period ended June 16, 1997. F-68 222 PCI CHEMICALS CANADA INC. All tendered Original Notes, executed Letters of Transmittal, and other related documents should be directed to the Exchange Agent. Requests for assistance and for additional copies of the Prospectus, the Letter of Transmittal and other related documents should be directed to the Exchange Agent. The Exchange Agent for the Exchange Offer is UNITED STATES TRUST COMPANY OF NEW YORK By Facsimile: (212) 780-0592 ATTENTION: CUSTOMER SERVICE Confirm by telephone: (800) 548-6565 By Registered or Certified Mail: UNITED STATES TRUST COMPANY OF NEW YORK P.O. BOX 844 COOPER STATION NEW YORK, NEW YORK 10276 By Hand: UNITED STATES TRUST COMPANY OF NEW YORK 111 BROADWAY NEW YORK, NEW YORK 10006 ATTENTION: CORPORATE TRUST OPERATIONS By Overnight Courier: UNITED STATES TRUST COMPANY OF NEW YORK 770 BROADWAY NEW YORK, NEW YORK 10003 ATTENTION: CORPORATE TRUST OPERATIONS 223 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. PCI Canada is a wholly-owned subsidiary of PAAC. PAAC, which is a Delaware corporation, is empowered by the Delaware General Corporation Law, subject to the procedures and limitations stated therein, to indemnify any person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding in which such person is made a party by reason of his being or having been a director, officer, employee or agent of PAAC. The statute provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise. The Certificate of Incorporation and by-laws of PAAC provide for indemnification of the directors and officers of such entities to the full extent permitted by the Delaware General Corporation Law. PAAC maintains an insurance policy providing for indemnification of its officers, directors and certain other persons against liabilities and expenses incurred by any of them in certain stated proceedings and under certain stated conditions. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits
2.1 -- Asset Purchase Agreement, dated as of September 22, 1997, by and among PCI Canada, PCI Carolina, Pioneer, ICI, ICI Canada and ICI Americas (incorporated by reference to Exhibit 2 to the Company's Report on Form 10-Q, for the quarter ended September 30, 1997). 2.2 -- First Amendment to Asset Purchase Agreement, dated as of October 31, 1997, among PCI Canada, PCI Carolina, Pioneer, ICI, ICI Canada and ICI Americas (incorporated by reference to Exhibit 2(b) to the Company's Current Report on Form 8-K, dated November 5, 1997). 3.1 -- Certificate of Incorporation of PCI Canada. 3.2 -- By-laws of PCI Canada. 3.3 -- Certificate of Incorporation of PAAC (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.4 -- By-laws of PAAC (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.5 -- Certificate of Incorporation of PAI (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.6 -- By-laws of PAI (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.7 -- Certificate of Incorporation of PCAC (incorporated by reference to Exhibit 3.5 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.8 -- By-laws of PCAC (Incorporated by reference to Exhibit 3.6 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.9 -- Certificate of Incorporation of Imperial West (incorporated by reference to Exhibit 3.7 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995).
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3.10 -- By-laws of Imperial West (incorporated by reference to Exhibit 3.8 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.11 -- Certificate of Incorporation of All-Pure (incorporated by reference to Exhibit 3.9 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.12 -- By-laws of All-Pure (incorporated by reference to Exhibit 3.10 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.13 -- Certificate of Incorporation of Black Mountain Power Company (incorporated by reference to Exhibit 3.11 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.14 -- By-laws of Black Mountain Power Company (incorporated by reference to Exhibit 3.12 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.15 -- Certificate of Incorporation of All-Pure Chemical Northwest, Inc. (incorporated by reference to Exhibit 3.13 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.16 -- By-laws of All-Pure Chemical Northwest, Inc. (incorporated by reference to Exhibit 3.14 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.17 -- Certificate of Incorporation of Pioneer Chlor Alkali International, Inc. (incorporated by reference to Exhibit 3.15 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.18 -- By-laws of Pioneer Chlor Alkali International, Inc. (incorporated by reference to Exhibit 3.16 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.19 -- Certificate of Incorporation of G.O.W. Corporation (incorporated by reference to Exhibit 3.17 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.20 -- By-laws of G.O.W. Corporation (incorporated by reference to Exhibit 3.18 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.21 -- Certificate of Incorporation of Pioneer (East), Inc. (incorporated by reference to Exhibit 3.19 to the Company's Registration Statement on Form S-4 (File No. 333-30683) declared effective by the Commission on October 17, 1997). 3.22 -- By-laws of Pioneer (East), Inc. (incorporated by reference to Exhibit 3.20 to the Company's Registration Statement on Form S-4 (File No. 333-30683) declared effective by the Commission on October 17, 1997). 3.23 -- Certificate of Incorporation of T.C. Holdings, Inc. (incorporated by reference to Exhibit 3.21 to the Company's Registration Statement on Form S-4 (File No. 333-30683) declared effective by the Commission on October 17, 1997). 3.24 -- By-laws of T.C. Holdings, Inc. (incorporated by reference to Exhibit 3.22 to the Company's Registration Statement on Form S-4 (File No. 333-30683) declared effective by the Commission on October 17, 1997). 3.25 -- Certificate of Incorporation of T.C. Products, Inc. (incorporated by reference to Exhibit 3.23 to the Company's Registration Statement on Form S-4 (File No. 333-30683) declared effective by the Commission on October 17, 1997). 3.26 -- By-laws of T.C. Products, Inc. (incorporated by reference to Exhibit 3.24 to the Company's Registration Statement on Form S-4 (File No. 333-30683) declared effective by the Commission on October 17, 1997). 3.27 -- Certificate of Incorporation of PCI Carolina, Inc.
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3.28 -- By-laws of PCI Carolina, Inc. 3.29 -- Certificate of Incorporation of Pioneer Licensing, Inc. 3.30 -- By-laws of Pioneer Licensing, Inc. 4.1 -- Indenture, dated as of October 30, 1997, by and among PCI Canada, the Guarantors and United States Trust Company of New York, as Trustee, relating to $175,000,000 principal amount of 9 1/4% Series A Senior Notes due 2007, including form of Note and Guarantees. *4.2 -- Deed of Hypothec, dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. *4.3 -- Affiliate Security Agreement, dated as of October 30, 1997, among PCI Carolina, Inc., Pioneer Licensing, Inc. and United States Trust Company of New York, as Collateral Agent. *4.4 -- Borrower (Canadian) Security Agreement, dated as of October 30, 1997, between PCI Canada and United States Trust Company of New York, as Collateral Agent. *4.5(a) -- Demand Debenture (Ontario), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. *4.5(b) -- Bond (Quebec), dated October 30, 1997, issued by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. *4.5(c) -- Demand Debenture (New Brunswick), dated October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. *4.6(a) -- Debenture Pledge Agreement (Ontario), dated October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. *4.6(b) -- Bond Pledge Agreement (Quebec), dated October 30, 1997, between PCI Canada and United States Trust Company of New York, as Collateral Agent. *4.6(c) -- Debenture Pledge Agreement (New Brunswick), dated October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. *4.7 -- Subsidiary Security Agreement, dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. 4.8(a) -- Term Loan Agreement, dated as of October 30, 1997, among PAI, PAAC, Various Financial Institutions, as Lenders, DLJ Capital Funding, Inc. as the Syndication Agent, Salomon Brothers Holding Company Inc, as the Documentation Agent, Bank of America National Trust and Savings Association, as the Administrative Agent and United States Trust Company of New York, as Collateral Agent. 4.8(b) -- Affiliate Guaranty, dated as of October 30, 1997, among the Affiliate Guarantors named therein. 4.9 -- Consent and Amendment No. 1, dated November 5, 1997, to Loan and Security Agreement, dated June 17, 1997, among PAAC, Bank of America National Trust and Savings Association, as Agent and Lender and the other Lenders Party thereto. 4.10 -- Intercreditor and Collateral Agency Agreement, dated as of October 30, 1997 by and among United States Trust Company of New York, as Trustee and Collateral Agent, Bank of America National Trust and Savings Association, as Agent, PCI Canada, PAAC and PAI. 4.11 -- Exchange and Registration Rights Agreement, dated as of October 30, 1997, by and among PCI Canada, the Guarantors and the Initial Purchasers. *5.1 -- Opinion of Willkie Farr & Gallagher. *5.2 -- Opinion of Kent R. Stephenson, Esq. *5.3 -- Opinion of Stewart McKelvey Stirling Scales, St. John, New Brunswick. *8.1 -- Opinion of Willkie Farr & Gallagher with respect to certain tax matters. *8.2 -- Opinion of Stikeman, Elliot, Montreal, Quebec with respect to certain tax matters.
II-3 226 10.1 -- Contingent Payment Agreement, dated as of April 20, 1995, by and among Pioneer (formerly, GEV corporation), PAAC and the Sellers defined therein (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Pioneer, dated April 20, 1995). 10.2 -- Tax Sharing Agreement, dated as of April 20, 1995, by and among Pioneer, PAAC and the Subsidiary Guarantors defined therein (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 10.3 -- Pioneer Companies, Inc. 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 10.4 -- Pioneer Companies, Inc. Key Executive Stock Grant Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Pioneer for the quarterly period ended June 30, 1996). 10.5 -- Pioneer Chlor Alkali Company, Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K of Pioneer for the fiscal year ended December 31, 1995). 10.6 -- Employment Agreement, dated as of April 20, 1995, between Pioneer and Richard C. Kellogg, Jr. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Pioneer for the quarterly period ended June 30, 1995). 10.7 -- Employment Agreement, dated 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). 10.8 -- 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). 10.9 -- Executive Employment Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996). 10.10 -- Stock Purchase Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996). 10.11 -- Non-Qualified Stock Option Agreement, dated May 15, 1997, between Pioneer Companies, Inc. and Andrew M. Bursky. 10.12 -- Noncompetition Agreement, dated as of October 31, 1997, between ICI, ICI Canada, ICI Americas, PCI Canada and PCI Carolina. 12.1 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges. 16.1 -- Letter from Ernst & Young LLP regarding change in independent accountants (incorporated by reference to Exhibit 16.1 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 21.1 -- Subsidiaries of the Registrants. 23.1 -- Independent Auditors' Consent of Deloitte & Touche LLP. 23.2 -- Independent Auditors' Consent of Ernst & Young LLP. 23.3 -- Independent Auditors' Consent of Piercy, Bowler, Taylor & Kern. 23.4 -- Independent Public Accountants' Consent of Arthur Andersen LLP. 23.5 -- Independent Auditor's Consent of KPMG. *23.6 -- Consents of Willkie Farr & Gallagher (included in their opinions filed as Exhibits 5.1 and 8.1). *23.7 -- Consent of Kent R. Stephenson, Esq. (included in his opinion filed as Exhibit 5.2).
II-4 227 *23.8 -- Consent of Stewart McKelvey Stirling Scales, St. John, New Brunswick (included in their opinion filed as Exhibit 5.3). *23.9 -- Consent of Stikeman, Elliot, Montreal, Quebec (included in their opinion filed as Exhibit 8.2). 24.1 -- Powers of Attorney (included in the signature pages hereto). 25.1 -- Statement on Form T-1 of Eligibility of Trustee. *99.1 -- Form of Letter of Transmittal. *99.2 -- Form of Notice of Guaranteed Delivery. *99.3 -- Form of Letter to Clients. *99.4 -- Form of Letter to Nominees.
- --------------- * To be filed by amendment. (b) Financial Statement Schedules: SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS. All other schedules have been omitted because they are not applicable or not required or the required information is included in the financial statements or notes thereto. ITEM 22. UNDERTAKINGS. The undersigned Registrants hereby undertake that, for purposes of determining any liability under the Securities Act, each filing of PAAC's annual report pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Registrants pursuant to the provisions, described under Item 20 above, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrants of expenses incurred or paid by a director, officer or controlling person of the Registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrants hereby undertake that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and II-5 228 contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned Registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this Registration Statement when it became effective. II-6 229 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. PCI CHEMICALS CANADA INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ NORMAN E. THOGERSEN President and Director (principal November 26, 1997 - --------------------------------------------------- executive officer) Norman E. Thogersen /s/ PHILIP J. ABLOVE Vice President, Chief Financial November 26, 1997 - --------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ PIERRE PRUD'HOMME Vice President and Controller November 26, 1997 - --------------------------------------------------- (principal accounting officer) Pierre Prud'homme /s/ MICHAEL J. FERRIS Chairman of the Board November 26, 1997 - --------------------------------------------------- Michael J. Ferris /s/ RAYMOND E. BOUCHER Director November 26, 1997 - --------------------------------------------------- Raymond E. Boucher /s/ G.P. DONNINI Director November 26, 1997 - --------------------------------------------------- G.P. Donnini
II-7 230 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. PIONEER AMERICAS ACQUISITION CORP. By: /s/ PHILIP J. ABLOVE ---------------------------------- Name: Philip J. Ablove Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ MICHAEL J. FERRIS President, Chief Executive Officer November 26, 1997 - ----------------------------------------------------- and Director (principal executive Michael J. Ferris officer) /s/ PHILIP J. ABLOVE Vice President, Chief Financial November 26, 1997 - ----------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting November 26, 1997 - ----------------------------------------------------- officer) John R. Beaver /s/ WILLIAM R. BERKLEY Director November 26, 1997 - ----------------------------------------------------- William R. Berkley /s/ ANDREW M. BURSKY Director November 26, 1997 - ----------------------------------------------------- Andrew M. Bursky /s/ DONALD J. DONAHUE Director November 26, 1997 - ----------------------------------------------------- Donald J. Donahue
II-8 231
SIGNATURE TITLE DATE --------- ----- ---- /s/ RICHARD C. KELLOGG, JR. Director November 26, 1997 - ----------------------------------------------------- Richard C. Kellogg, Jr. /s/ PAUL J. KIENHOLZ Director November 26, 1997 - ----------------------------------------------------- Paul J. Kienholz /s/ JACK H. NUSBAUM Director November 26, 1997 - ----------------------------------------------------- Jack H. Nusbaum /s/ THOMAS H. SCHNITZIUS Director November 26, 1997 - ----------------------------------------------------- Thomas H. Schnitzius
II-9 232 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. PIONEER AMERICAS, INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ MICHAEL J. FERRIS Chairman of the Board and President November 26, 1997 - --------------------------------------------------- (principal executive officer) Michael J. Ferris /s/ PHILIP J. ABLOVE Vice President, Chief Financial November 26, 1997 - --------------------------------------------------- Officer, Treasurer and Director Philip J. Ablove (principal financial officer) /s/ JOHN R. BEAVER Controller (principal accounting November 26, 1997 - --------------------------------------------------- officer) John R. Beaver /s/ WILLIAM L. MAHONE Title Director November 26, 1997 - --------------------------------------------------- William L. Mahone
II-10 233 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. PIONEER CHLOR ALKALI COMPANY, INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES E. GLATTLY President and Director (principal November 26, 1997 - --------------------------------------------------- executive officer) James E. Glattly /s/ PHILIP J. ABLOVE Vice President and Chief Financial November 26, 1997 - --------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting November 26, 1997 - --------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board November 26, 1997 - --------------------------------------------------- Michael J. Ferris /s/ WILLIAM L. MAHONE Director November 26, 1997 - --------------------------------------------------- William L. Mahone
II-11 234 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. IMPERIAL WEST CHEMICAL CO. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES M. WINGARD President and Director (principal November 26, 1997 - --------------------------------------------------- executive officer) James M. Wingard /s/ PHILIP J. ABLOVE Vice President and Chief Financial November 26, 1997 - --------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting November 26, 1997 - --------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board November 26, 1997 - --------------------------------------------------- Michael J. Ferris /s/ WILLIAM L. MAHONE Director November 26, 1997 - --------------------------------------------------- William L. Mahone
II-12 235 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. ALL-PURE CHEMICAL CO. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD E. CIORA President and Director (principal , 1997 - --------------------------------------------------- executive officer) Ronald E. Ciora /s/ PHILIP J. ABLOVE Vice President and Chief Financial , 1997 - --------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting , 1997 - --------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board , 1997 - --------------------------------------------------- Michael J. Ferris /s/ WILLIAM L. MAHONE Director , 1997 - --------------------------------------------------- William L. Mahone
II-13 236 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. BLACK MOUNTAIN POWER COMPANY By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ TERRY K. GRAVES President and Director (principal November 26, 1997 - --------------------------------------------------- executive officer) Terry K. Graves /s/ PHILIP J. ABLOVE Vice President and Chief Financial November 26, 1997 - --------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting November 26, 1997 - --------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board November 26, 1997 - --------------------------------------------------- Michael J. Ferris /s/ JAMES E. GLATTLY Director November 26, 1997 - --------------------------------------------------- James E. Glattly
II-14 237 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. ALL-PURE CHEMICAL NORTHWEST, INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD E. CIORA President and Director (principal November 26, 1997 - --------------------------------------------------- executive officer) Ronald E. Ciora /s/ PHILIP J. ABLOVE Vice President and Chief Financial November 26, 1997 - --------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting November 26, 1997 - --------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board November 26, 1997 - --------------------------------------------------- Michael J. Ferris
II-15 238 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. PIONEER CHLOR ALKALI INTERNATIONAL, INC. By: /s/ KENT R. STEPHENSON ---------------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ MICHAEL J. FERRIS Chairman of the Board (principal November 26, 1997 - --------------------------------------------------- executive officer) Michael J. Ferris /s/ PHILIP J. ABLOVE Vice President (principal financial November 26, 1997 - --------------------------------------------------- officer) Philip J. Ablove /s/ JOHN R. BEAVER Controller (principal accounting November 26, 1997 - --------------------------------------------------- officer) John R. Beaver /s/ DAVID F. CALLAGHAN Director November 26, 1997 - --------------------------------------------------- David F. Callaghan /s/ JAMES A. FIELDS Director November 26, 1997 - --------------------------------------------------- James A. Fields /s/ DAVID A. LESLIE Director November 26, 1997 - --------------------------------------------------- David A. Leslie
II-16 239 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. G. O. W. CORPORATION By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- <->Y /s/ TERRY K. GRAVES President and Director (principal November 26, 1997 - --------------------------------------------------- executive officer) Terry K. Graves /s/ PHILIP J. ABLOVE Vice President and Chief Financial November 26, 1997 - --------------------------------------------------- Officer (principal financial Philip J. Ablove officer) /s/ JOHN R. BEAVER Controller (principal accounting November 26, 1997 - --------------------------------------------------- officer) John R. Beaver
II-17 240 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. PIONEER (EAST), INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ KENT R. STEPHENSON President, Secretary and Chairman of November 26, 1997 - --------------------------------------------------- the Board (principal executive Kent R. Stephenson officer) /s/ ROBERT C. WILLIAMS Treasurer and Director (principal November 26, 1997 - --------------------------------------------------- financial and accounting officer) Robert C. Williams /s/ VICTORIA L. GARRETT Director November 26, 1997 - --------------------------------------------------- Victoria L. Garrett
II-18 241 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. T.C. HOLDINGS, INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD E. CIORA President and Director (principal November 26, 1997 - --------------------------------------------------- executive officer) Ronald E. Ciora /s/ PHILIP J. ABLOVE Vice President and Chief Financial November 26, 1997 - --------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting November 26, 1997 - --------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board November 26, 1997 - --------------------------------------------------- Michael J. Ferris /s/ WILLIAM L. MAHONE Director November 26, 1997 - --------------------------------------------------- William L. Mahone
II-19 242 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. T.C. PRODUCTS, INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD E. CIORA President and Director (principal November 26, 1997 - --------------------------------------------------- executive officer) Ronald E. Ciora /s/ PHILIP J. ABLOVE Vice President and Chief Financial November 26, 1997 - --------------------------------------------------- Officer and Director (principal Philip J. Ablove financial officer) /s/ JOHN R. BEAVER Controller (principal accounting November 26, 1997 - --------------------------------------------------- officer) John R. Beaver /s/ MICHAEL J. FERRIS Chairman of the Board November 26, 1997 - --------------------------------------------------- Michael J. Ferris /s/ WILLIAM L. MAHONE Director November 26, 1997 - --------------------------------------------------- William L. Mahone
II-20 243 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. PCI CAROLINA, INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ NORMAN E. THOGERSEN President and Director November 26, 1997 - --------------------------------------------------- (principal executive officer) Norman E. Thogersen /s/ PHILIP J. ABLOVE Vice President, Chief Financial November 26, 1997 - --------------------------------------------------- Officer and Director Philip J. Ablove (principle financial and accounting Officer) /s/ MICHAEL J. FERRIS Chairman of the Board November 26, 1997 - --------------------------------------------------- Michael J. Ferris /s/ G. P. DONNINI Director November 26, 1997 - --------------------------------------------------- G. P. Donnini
II-21 244 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 26th day of November, 1997. PIONEER LICENSING, INC. By: /s/ KENT R. STEPHENSON ---------------------------------- Name: Kent R. Stephenson Title: President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip J. Ablove and Kent R. Stephenson, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ KENT R. STEPHENSON President, Secretary and Chairman of November 26, 1997 - --------------------------------------------------- the Board (principal executive Kent R. Stephenson officer) /s/ ROBERT C. WILLIAMS Treasurer and Director (principal November 26, 1997 - --------------------------------------------------- financial and accounting officer) Robert C. Williams /s/ VICTORIA L. GARRETT Director November 26, 1997 - --------------------------------------------------- Victoria L. Garrett
II-22 245 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. 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. 246 EXHIBIT INDEX
EXHIBIT DESCRIPTION ------- ----------- 2.1 -- Asset Purchase Agreement, dated as of September 22, 1997, by and among PCI Canada, PCI Carolina, Pioneer, ICI, ICI Canada and ICI Americas (incorporated by reference to Exhibit 2 to the Company's Report on Form 10-Q, for the quarter ended September 30, 1997). 2.2 -- First Amendment to Asset Purchase Agreement, dated as of October 31, 1997, among PCI Canada, PCI Carolina, Pioneer, ICI, ICI Canada and ICI Americas (incorporated by reference to Exhibit 2(b) to the Company's Current Report on Form 8-K, dated November 5, 1997). 3.1 -- Certificate of Incorporation of PCI Canada. 3.2 -- By-laws of PCI Canada. 3.3 -- Certificate of Incorporation of PAAC (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.4 -- By-laws of PAAC (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.5 -- Certificate of Incorporation of PAI (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.6 -- By-laws of PAI (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.7 -- Certificate of Incorporation of PCAC (incorporated by reference to Exhibit 3.5 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.8 -- By-laws of PCAC (Incorporated by reference to Exhibit 3.6 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.9 -- Certificate of Incorporation of Imperial West (incorporated by reference to Exhibit 3.7 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.10 -- By-laws of Imperial West (incorporated by reference to Exhibit 3.8 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.11 -- Certificate of Incorporation of All-Pure (incorporated by reference to Exhibit 3.9 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.12 -- By-laws of All-Pure (incorporated by reference to Exhibit 3.10 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.13 -- Certificate of Incorporation of Black Mountain Power Company (incorporated by reference to Exhibit 3.11 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.14 -- By-laws of Black Mountain Power Company (incorporated by reference to Exhibit 3.12 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995).
247
EXHIBIT DESCRIPTION ------- ----------- 3.15 -- Certificate of Incorporation of All-Pure Chemical Northwest, Inc. (incorporated by reference to Exhibit 3.13 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.16 -- By-laws of All-Pure Chemical Northwest, Inc. (incorporated by reference to Exhibit 3.14 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.17 -- Certificate of Incorporation of Pioneer Chlor Alkali International, Inc. (incorporated by reference to Exhibit 3.15 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.18 -- By-laws of Pioneer Chlor Alkali International, Inc. (incorporated by reference to Exhibit 3.16 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.19 -- Certificate of Incorporation of G.O.W. Corporation (incorporated by reference to Exhibit 3.17 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.20 -- By-laws of G.O.W. Corporation (incorporated by reference to Exhibit 3.18 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 3.21 -- Certificate of Incorporation of Pioneer (East), Inc. (incorporated by reference to Exhibit 3.19 to the Company's Registration Statement on Form S-4 (File No. 333-30683) declared effective by the Commission on October 17, 1997). 3.22 -- By-laws of Pioneer (East), Inc. (incorporated by reference to Exhibit 3.20 to the Company's Registration Statement on Form S-4 (File No. 333-30683) declared effective by the Commission on October 17, 1997). 3.23 -- Certificate of Incorporation of T.C. Holdings, Inc. (incorporated by reference to Exhibit 3.21 to the Company's Registration Statement on Form S-4 (File No. 333-30683) declared effective by the Commission on October 17, 1997). 3.24 -- By-laws of T.C. Holdings, Inc. (incorporated by reference to Exhibit 3.22 to the Company's Registration Statement on Form S-4 (File No. 333-30683) declared effective by the Commission on October 17, 1997). 3.25 -- Certificate of Incorporation of T.C. Products, Inc. (incorporated by reference to Exhibit 3.23 to the Company's Registration Statement on Form S-4 (File No. 333-30683) declared effective by the Commission on October 17, 1997). 3.26 -- By-laws of T.C. Products, Inc. (incorporated by reference to Exhibit 3.24 to the Company's Registration Statement on Form S-4 (File No. 333-30683) declared effective by the Commission on October 17, 1997). 3.27 -- Certificate of Incorporation of PCI Carolina, Inc. 3.28 -- By-laws of PCI Carolina, Inc. 3.29 -- Certificate of Incorporation of Pioneer Licensing, Inc. 3.30 -- By-laws of Pioneer Licensing, Inc. 4.1 -- Indenture, dated as of October 30, 1997, by and among PCI Canada, the Guarantors and United States Trust Company of New York, as Trustee, relating to $175,000,000 principal amount of 9 1/4% Series A Senior Notes due 2007, including form of Note and Guarantees. *4.2 -- Deed of Hypothec, dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent.
248
EXHIBIT DESCRIPTION ------- ----------- *4.3 -- Affiliate Security Agreement, dated as of October 30, 1997, among PCI Carolina, Inc., Pioneer Licensing, Inc. and United States Trust Company of New York, as Collateral Agent. *4.4 -- Borrower (Canadian) Security Agreement, dated as of October 30, 1997, between PCI Canada and United States Trust Company of New York, as Collateral Agent. *4.5(a) -- Demand Debenture (Ontario), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. *4.5(b) -- Bond (Quebec), dated October 30, 1997, issued by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. *4.5(c) -- Demand Debenture (New Brunswick), dated October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. *4.6(a) -- Debenture Pledge Agreement (Ontario), dated October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. *4.6(b) -- Bond Pledge Agreement (Quebec), dated October 30, 1997, between PCI Canada and United States Trust Company of New York, as Collateral Agent. *4.6(c) -- Debenture Pledge Agreement (New Brunswick), dated October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. *4.7 -- Subsidiary Security Agreement, dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent. 4.8(a) -- Term Loan Agreement, dated as of October 30, 1997, among PAI, PAAC, Various Financial Institutions, as Lenders, DLJ Capital Funding, Inc. as the Syndication Agent, Salomon Brothers Holding Company Inc, as the Documentation Agent, Bank of America National Trust and Savings Association, as the Administrative Agent and United States Trust Company of New York, as Collateral Agent. 4.8(b) -- Affiliate Guaranty, dated as of October 30, 1997, among the Affiliate Guarantors named therein. 4.9 -- Consent and Amendment No. 1, dated November 5, 1997, to Loan and Security Agreement, dated June 17, 1997, among PAAC, Bank of America National Trust and Savings Association, as Agent and Lender and the other Lenders Party thereto. 4.10 -- Intercreditor and Collateral Agency Agreement, dated as of October 30, 1997 by and among United States Trust Company of New York, as Trustee and Collateral Agent, Bank of America National Trust and Savings Association, as Agent, PCI Canada, PAAC and PAI. 4.11 -- Exchange and Registration Rights Agreement, dated as of October 30, 1997, by and among PCI Canada, the Guarantors and the Initial Purchasers. *5.1 -- Opinion of Willkie Farr & Gallagher. *5.2 -- Opinion of Kent R. Stephenson, Esq. *5.3 -- Opinion of Stewart McKelvey Stirling Scales, St. John, New Brunswick. *8.1 -- Opinion of Willkie Farr & Gallagher with respect to certain tax matters. *8.2 -- Opinion of Stikeman, Elliot, Montreal, Quebec with respect to certain tax matters. 10.1 -- Contingent Payment Agreement, dated as of April 20, 1995, by and among Pioneer (formerly, GEV corporation), PAAC and the Sellers defined therein (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Pioneer, dated April 20, 1995).
249
EXHIBIT DESCRIPTION ------- ----------- 10.2 -- Tax Sharing Agreement, dated as of April 20, 1995, by and among Pioneer, PAAC and the Subsidiary Guarantors defined therein (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 10.3 -- Pioneer Companies, Inc. 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 10.4 -- Pioneer Companies, Inc. Key Executive Stock Grant Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Pioneer for the quarterly period ended June 30, 1996). 10.5 -- Pioneer Chlor Alkali Company, Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K of Pioneer for the fiscal year ended December 31, 1995). 10.6 -- Employment Agreement, dated as of April 20, 1995, between Pioneer and Richard C. Kellogg, Jr. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Pioneer for the quarterly period ended June 30, 1995). 10.7 -- Employment Agreement, dated 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). 10.8 -- 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). 10.9 -- Executive Employment Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996). 10.10 -- Stock Purchase Agreement, dated January 4, 1997, between Pioneer Companies, Inc. and Michael J. Ferris (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996). 10.11 -- Non-Qualified Stock Option Agreement, dated May 15, 1997, between Pioneer Companies, Inc. and Andrew M. Bursky. 10.12 -- Noncompetition Agreement, dated as of October 31, 1997, between ICI, ICI Canada, ICI Americas, PCI Canada and PCI Carolina. 12.1 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges. 16.1 -- Letter from Ernst & Young LLP regarding change in independent accountants (incorporated by reference to Exhibit 16.1 to the Company's Registration Statement on Form S-4 (File No. 33-98828) declared effective by the Commission on December 22, 1995). 21.1 -- Subsidiaries of the Registrants. 23.1 -- Independent Auditors' Consent of Deloitte & Touche LLP. 23.2 -- Independent Auditors' Consent of Ernst & Young LLP. 23.3 -- Independent Auditors' Consent of Piercy, Bowler, Taylor & Kern. 23.4 -- Independent Public Accountants' Consent of Arthur Andersen LLP. 23.5 -- Independent Auditor's Consent of KPMG. *23.6 -- Consents of Willkie Farr & Gallagher (included in their opinions filed as Exhibits 5.1 and 8.1).
250
EXHIBIT DESCRIPTION ------- ----------- *23.7 -- Consent of Kent R. Stephenson, Esq. (included in his opinion filed as Exhibit 5.2). *23.8 -- Consent of Stewart McKelvey Stirling Scales, St. John, New Brunswick (included in their opinion filed as Exhibit 5.3). *23.9 -- Consent of Stikeman, Elliot, Montreal, Quebec (included in their opinion filed as Exhibit 8.2). 24.1 -- Powers of Attorney (included in the signature pages hereto). 25.1 -- Statement on Form T-1 of Eligibility of Trustee. *99.1 -- Form of Letter of Transmittal. *99.2 -- Form of Notice of Guaranteed Delivery. *99.3 -- Form of Letter to Clients. *99.4 -- Form of Letter to Nominees.
- --------------- * To be filed by amendment. EX-3.1 2 CERTIFICATE OF INCORPORATION OF PCI CANADA 1 EXHIBIT 3.1
NEW BRUNSWICK NOUVEAU BRUNSWICK BUSINESS CORPORATIONS ACT LOI SUR LES CORPORATIONS COMMERCIALES FORM 1 FORMULA 1 ARTICLES OF INCORPORATION STATUTS CONSTITUTIVS (SECTION 4) (ARTICLE 4) - ----------------------------------------------------------------------------------------------------- 1-Name of Corporation Raison sociale de la corporation PCI Chemicals Canada, Inc./Produits Chimiques PCI Canada Inc. - ----------------------------------------------------------------------------------------------------- 2-The classes and any maximum number of Les categories et le nombre maximal shares that the corporation is authorized d'actions que la corporation peut emettre to issue and any maximum aggregate amount ainsi que le montant maximal global pour for which shares may be issued including lequel les actions pauvent etre amises y shares without par value and/or with par compris les actions sans valeur au pair ou value and the amount of the par value. avec valeur au pair ou les deux et le montant de la valeur au pair. One class of shares without nominal or par value, unlimited as to number. - ----------------------------------------------------------------------------------------------------- 3-Restrictions if any on share transfers Restrictions, s'il y en a, au transfert d'actions The shares of the Corporation shall not be transferred without the consent of either (i) the directors evidenced by a resolution passed or signed by them and recorded in the books of the Corporation or (ii) the holders of a majority in number of the outstanding voting shares of the Corporation. - ----------------------------------------------------------------------------------------------------- 4-Number (or minimum and maximum number) Nombre (ou nombre minimum et of directors maximum) d'administrateurs Minimum of one and a maximum of ten as determined from time to time by resolution of the board of directors. - ----------------------------------------------------------------------------------------------------- 5-Restrictions if any on business the Restricions, s'il y en a, a corporation may carry on l'activite que peut exacer la corporation None - ----------------------------------------------------------------------------------------------------- 6-Other provisions if any D'autres dispositions, le cas echeant The annexed Schedule "I" is incorporated in this form. - ----------------------------------------------------------------------------------------------------- 7-Incorporators Fondateurs - -----------------------------------------------------------------------------------------------------
Date Name-Noms Address (include postal code) Signature Adresses (y compris la code postal) - ----------------------------------------------------------------------------------------------------- Sept. Darrell J. P.O. Box 7389, Stn. "A", 44 Chipman /s/ Darrell J. Stephenson 6th 1997 Stephenson Hill, Saint John, N.B., E2L 4S6 - -----------------------------------------------------------------------------------------------------
FOR DEPARTMENT USE ONLY RESERVE A L'URAGE DU MINSTERE - ----------------------------------------------------------------------------------------------------- Corporation No.-Corporation No. Filed-Depose 505548 Filed/Depose Sep 17 1997 - -----------------------------------------------------------------------------------------------------
2 PCI CHEMICALS CANADA INC./PRODUCTS CHIMIOUES PCI CANADA INC. (the "Corporation") Schedule "I" to the Foregoing Form 1 Under the Business Corporations Act (New Brunswick) (the "Act") Other provisions applicable to the Corporation and incorporated into the Articles of Incorporation are as set forth below. 1. The number of shareholders of the Corporation is limited to fifty (50), not including persons who are in the employment of the Corporation and persons, who, having been formerly in the employment of the Corporation, were, while in that employment, and have continued after the termination of that employment to be, shareholders of the Corporation, two or more persons holding one or more shares jointly being counted as a single shareholder. 2. Any distribution of securities of the Corporation to the public or any invitation to the public to subscribe for securities of the Corporation is prohibited. 3. The directors of the Corporation may, without authorization of the shareholders: (a) borrow money upon the credit of the Corporation; (b) issue, re-issue, sell or pledge any bonds, debentures, debenture stock or other debt obligations of the Corporation; (c) subject to the Act, give a guarantee on behalf of the Corporation to secure the performance of an obligation of any person; and (d) mortgage, hypothecate, pledge or otherwise create a security interest in all or any moveable or personal, immoveable or real, or other property of the Corporation including book debts, rights, powers, franchises, goodwill and undertaking, owned or subsequently acquired, present or future, to secure any debt or obligation, including contingent obligations, of the Corporation, in such amounts and on such terms and conditions as they deem expedient. The directors may, by resolution or by-law for the delegation of such powers by the directors to such officer or officers or director or directors of the Corporation, to such extent and in such a manner as may be set out in the resolution or by-law, as the case may be. 4. Notwithstanding subsection 87(1) of the Act (as from time to time in force) notice of the time and place of a meeting of shareholders of the Corporation shall be deemed to be properly given if sent not less than (5) days before the meeting: 3 -2- (a) to each shareholder entitled to vote at the meeting; (b) to each director; and (c) to the auditor, if any. 5. Notwithstanding subsections 84(1) and (2) of the Act (as from time to time in force), meetings of shareholders of the Corporation may be held at any place outside of the Province of New Brunswick including, without limitation, the Cities of Montreal and Toronto, Canada and in any location in the United States of America. 6. Meetings of the board of directors of the Corporation may be held at any place within or outside the Province of New Brunswick. 7. Notwithstanding any provision in the Act (as from time to time in force), the Corporation or any corporation with which it is affiliated may, directly or indirectly, give financial assistance by means of a loan, guarantee or otherwise; (a) to any shareholder, director, officer or employee of the Corporation or of an affiliated corporation; or (b) to any associate of a shareholder, director, officer or employee of the Corporation or of an affiliated corporation; even if there are reasonable grounds for believing that (c) the Corporation is, or after giving the financial assistance would be, unable to pay its liabilities as they become due; or (d) the realizable value of the corporation's assets, excluding the amount of any financial assistance in the form of a loan or in the form of assets pledged or encumbered to secure a guarantee, after giving the financial assistance in the form of a loan or in the form of assets pledged or encumbered to secure a guarantee, after giving the financial assistance, would be less than the aggregate of the Corporation's liabilities and stated capital of all classes. 8. (a) Notwithstanding Section 2 of Section 27 of the BUSINESS CORPORATIONS ACT as from time to time in force, the holders of equity shares of any class, in the case of the proposed issuance by the Corporation of, or the proposed granting by the Corporation of rights or options to purchase, its equity shares of any class or any shares or other securities convertible into or carrying rights or options to purchase its equity shares of any class, shall not as such, even if the issuance of the equity shares proposed to be issued or issuable upon exercise of such 4 rights or options or upon conversion of such other securities would adversely affect the unlimited dividend rights of such holders, have the right to purchase such shares or other securities. (b) Notwithstanding Sections 3 of Section 27 of the Business Corporations Act as from time to time in force, the holders of voting shares of any class in the case of the proposed issuance by the Corporation of, or the proposed granting by the Corporation of rights or options to purchase, its voting shares of any class or any shares or other securities convertible into or carrying rights or options to purchase its voting shares of any class, shall not as such, even if the issuance of the voting shares proposed to be issued or issuable upon exercise of such rights or options or upon conversion of such other securities would adversely affect the voting rights of such holders, have the right to purchase such shares or other securities. 5
NEW BRUNSWICK NOUVEAU BRUNSWICK BUSINESS CORPORATION ACT LOI SUR LES CORPORATIONS COMMERCIALES FORM 2 FORMULE 2 NOTICE OF REGISTERED OFFICE AVIS DE DESIGNATION OU NOTICE OF CHANGE OF REGISTERED OFFICE AVIS DE CHANGEMENT DU DUREAD ENREGISTRE (SECTION 17) (ARTICLE 17) - -------------------------------------------------------------------------------------------------------- 1-Name of Corporation/Raison sociale de la 2-Corporation No./No. de corporation corporation PCI Chemicals Canada Inc./Produits Chimiques PCI Canada Inc. 505548 - -------------------------------------------------------------------------------------------------------- 3-Place and address of the registered office/Lieu et adresse du bureau enregistre 44 Chipman Hill Suite 1000 P.O. Box 7289, Stn. "A" Saint John, NB E2L 4S6 - -------------------------------------------------------------------------------------------------------- 4-Effective date of change Date d'entree en vigueur du changement N/A - -------------------------------------------------------------------------------------------------------- 5-Previous place and address of the Derniers lieu et adresse du bureau registered office N/A enregistre - -------------------------------------------------------------------------------------------------------- Date Signature Description of office - Function - -------------------------------------------------------------------------------------------------------- September [ ] /s/ Illegible Incorporator 1997 - -------------------------------------------------------------------------------------------------------- BUSINESS CORPORATION ACT LOI SUR LES CORPORATIONS COMMERCIALES FORM 4 FORMULE 4 NOTICE OF DIRECTORS OR NOTICE OF LISTE DES ADMINISTRATEURS OU CHANGE OF DIRECTORS AVIS DE CHANGEMENT D'ADMINISTRATEURS (SECTION 64, 71) (ARTICLE 64, 71) - -------------------------------------------------------------------------------------------------------- 1-Name of Corporation - Raison sociale de la corporation PCI Chemicals Canada Inc./Produits Chimiques PCI Canada Inc. - -------------------------------------------------------------------------------------------------------- 2-The following persons became directors Liste des personnes devenues administrateurs of this corporation de la corporation Effective Date Date d'entree en vigueur Upon the issuance of the Certificate of Incorporation - --------------------------------------------------------------------------------------------------------
Name/Nom Residential Address or Address for Service Occupation Telephone Adresse residentelle ou adresse pour fin de Telephone signification - -------------------------------------------------------------------------------------------------------- See attached Schedule "A" - -------------------------------------------------------------------------------------------------------- 3-The following persons ceased to be directors Liste des personnes qui ont cesse of the corporation d'etre administrateure de la corporation Effective Date / Date d'entree en vigueur Upon the Issuance of the Certificate of Incorporation - -------------------------------------------------------------------------------------------------------- Name/Nom Residential Address or Address for Service Addresse residentialle ou adresse pour fin de signification - -------------------------------------------------------------------------------------------------------- N/A N/A - -------------------------------------------------------------------------------------------------------- 4-The directors of the corporation now are Administrateurs actuale de la corporation - -------------------------------------------------------------------------------------------------------- Name/Nom Residential Address or address for service Occupation Telephone Adresse residentielle ou adresse pour fin de Telephone signification - -------------------------------------------------------------------------------------------------------- See attached Schedule "A" - -------------------------------------------------------------------------------------------------------- Date Signature Description of Office / Function - -------------------------------------------------------------------------------------------------------- September 16th /s/ Illegible Incorporator 1997 - -------------------------------------------------------------------------------------------------------- For Department Use Only/Reserve a l'usage du Forms 2 and 4/Formules 2 et 4 ministers Filed/Depose Filed [Illegible], 1997 - -------------------------------------------------------------------------------------------------------- NOTE: TO BE USED FOR NEW INCORPORATIONS ONLY REM: A N'UTILISER QUE POUR UNE NOUVELLE CONSTITUTION EN CORPORATION
6 SCHEDULE "A" DIRECTORS Michael J. Ferris 700 Louisiana Street Suite 4300 Houston, Texas U.S.A. 77002 Tel: (713) 225-3831 Philip J. Ablove 700 Louisiana Street Suite 4300 Houston, Texas U.S.A. 77002 Tel: (713) 225-3831 Kent R. Stephenson 700 Louisiana Street Suite 4300 Houston, Texas U.S.A. 77002 Tel: (713) 225-3831 EX-3.2 3 BY-LAWS OF PCI CANADA 1 EXHIBIT 3.2 PCI CHEMICALS CANADA INC. PRODUITS CHIMIQUES PCI CANADA INC. BY-LAW NO. ONE A by-law relating generally to the regulation of the affairs of PCI CHEMICALS CANADA INC. - PRODUITS CHIMIQUES PCI CANADA INC. BE IT ENACTED AND IT IS HEREBY ENACTED as By-Law No. One of CHEMICALS CANADA INC. - PRODUITS CHIMIQUES PCI CANADA INC. (hereinafter called the "CORPORATION") as follows: DEFINITIONS 1. In this by-law and all other by-laws of the Corporation, unless the context otherwise specifies or requires: (a) "ACT" means the Business Corporations Act, Statutes of New Brunswick, 1981, c. B-9.1, as from time to time amended, and every statute that may be substituted therefor and, in the case of such amendment or substitution, any reference in the by-laws of the Corporation shall be read as referring to the amended or substituted provisions therefor; (b) "ARTICLES" means the articles, as from time to time amended, of the Corporation; (c) "BY-LAW" means any by-law of the Corporation from time to time in force and effect; (d) "DIRECTOR" means an individual occupying the position of director of the Corporation and "directors", "board of directors" and "board" includes a single director; (a) "UNANIMOUS SHAREHOLDER AGREEMENT" means an agreement as described in subsection 99(2) of the Act or a declaration of a shareholder described in subsection 99(3) of the Act; (f) words importing the singular number only shall include the plural and vice versa; words importing the masculine gender shall include the feminine and neuter genders and vice versa; words importing persons shall include bodies corporate, corporations, companies, partnerships, syndicates, trusts and any number or aggregate of individuals; 2 -2- (g) the headings used in any by-law are inserted for reference purposes only and are not to be considered or taken into account in construing the terms or provisions thereof or to be deemed in any way to clarify, modify or explain the effect of any such terms or provisions; and (h) any term contained in any by-law which is defined in the Act shall have the meaning given to such term in the Act. REGISTERED OFFICE 2. The Corporation may from time to time by resolution of the board of directors change the location of the registered office of the Corporation to another place within New Brunswick. 3. The Corporation may have one or more corporate seals which shall be such as the board of directors may adopt by resolution from time to time, DIRECTORS 4. Number and Powers. There shall be a board of directors consisting of such fixed number, or minimum and maximum number, of directors as may be set out in the articles or as may be determined as prescribed by the articles, or failing that, as specified by by-law. Subject to any unanimous shareholder agreement, the directors shall manage the business and affairs of the Corporation and may exercise all such powers and do all such acts and things as may be exercised or done by the Corporation and are not by the Act, the articles, the by-laws, any special resolution of the Corporation, any unanimous shareholder agreement or by statute expressly directed or required to be done in some other manner. 5. Vacancies. If the number of directors is increased, the resulting vacancies shall be filled at a meeting of shareholders duly called for that purpose. Notwithstanding the provisions of paragraph 7 of this by-law and subject to the provisions of the Act, if a vacancy should otherwise occur in the board, the remaining directors, if constituting a quorum, may appoint a qualified person to fill the vacancy for the remainder of the term. In the absence of a quorum the remaining directors shall forthwith call a meeting of shareholders to fill the vacancy pursuant to subsection 69(2) of the Act. Where a 3 -3- vacancy or vacancies exist in the board, the remaining directors may exercise all of the powers of the board so long as a quorum remains in office. 6. Duties. Every director and officer of the Corporation in exercising his powers and discharging his duties shall (a) act honestly and in good faith; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances, in the best interests of the Corporation. 7. Qualification. Every director shall be an individual nineteen (19) or more years of age and no one who is of unsound mind and has been so found by a court in Canada or elsewhere or who has the status of a bankrupt or who has been convicted of an offence under the Criminal Code, chapter C-34 of the Revised Statutes of Canada, 1970, as amended from time to time, or the criminal law of any jurisdiction outside of Canada, in connection with the promotion, formation or management of a corporation or involving fraud (unless three (3) years have elapsed since the expiration of the period fixed for suspension of the passing of sentence without sentencing or since a fine was imposed, or unless the term of imprisonment and probation imposed, if any, was concluded, whichever is the latest, but the disability imposed hereby ceases upon a pardon being granted) shall be a director. 8. Term of Office. A director's term of office shall be from the meeting at which he is elected or appointed until the annual meeting next following or until his successor is elected or appointed, or until, if earlier, he dies or resigns, or is removed or disqualified pursuant to the provisions of the Act. 9. Vacation of Office. The office of a director shall ipso facto be vacated if (a) he dies; (b) by notice in writing to the Corporation he resigns his office and such resignation, if not effective immediately, becomes effective in accordance with its terms; (c) he is removed from office in accordance with section 67 of the Act; or (d) he ceases to be qualified to be a director. 4 -4- 10. Election and Removal. (1) Directors shall be elected by the shareholders by ordinary resolution in general meeting on a show of hands unless a poll is demanded and if a poll is demanded such election shall be by ballot. All the directors then in office shall cease to hold office at the close of the meeting of shareholders at which directors are to be elected. A director if qualified, is eligible for re-election. (2) Subject to sections 65 and 67 of the Act, the shareholders of the Corporation may by ordinary resolution at a special meeting remove any director before the expiration of his term of office and may, by a majority of the votes cast at the meeting, elect any person in his stead for the remainder of his term. (3) Each shareholder entitled to vote at an election of directors has the right to cast a number of votes equal to the number of votes attached to the shares held by him multiplied by the number of directors to be elected, and he may cast all such votes in favour of one candidate or distribute them among the candidates in any manner. (4) A separate vote of shareholders shall be taken with respect to each candidate nominated for director unless a resolution is passed unanimously permitting two (2) or more persons to be elected by a single resolution. (5) If a shareholder has voted for more than one candidate without specifying the distribution of his votes among the candidates, he shall be deemed to have distributed his votes equally among the candidates for whom he voted. (6) If the number of candidates nominated for director exceeds the number of positions to be filled, the candidates who receive the least number of votes shall be eliminated until the number of candidates remaining equals the number of positions to be filled. (7) A retiring director shall retain office until the adjournment or termination of the meeting at which his successor is elected unless such meeting was called for the purpose of removing him from office as a director in which case the director so removed shall vacate office forthwith upon the passing of the resolution for his removal. 11. Validity of Acts. An act by a director or officer is valid notwithstanding an irregularity in his election or appointment or a defect in his qualification. MEETINGS OF DIRECTORS 12. Place of Meeting. Subject to the articles, meetings of directors may be held at any place within or outside New Brunswick as the directors may from time to time 5 -5- determine or as the person convening the meeting may give notice. A meeting of the directors may be convened by the chairman of the board (if any), the president or any director at any time. The secretary shall upon direction of any of the foregoing officers or director convene a meeting of the directors. 13. Notice. (1) Notice of the time and place for the holding of any such meeting shall be delivered, mailed, telegraphed, cabled, telexed or transmitted by facsimile to each director at his latest address as shown on the records of the Corporation not less than two (2) days (exclusive of the day on which the notice is delivered, mailed, telegraphed, cabled, telexed or transmitted by facsimile but inclusive of the day for which notice is given) before the date of the meeting, provided that meetings of the directors may be held at any time without notice if all the directors have waived notice. (2) For the first meeting of the board of directors to be held immediately following the election of directors at an annual or special meeting of the shareholders, no notice of such meeting need be given to the newly elected or appointed director or directors in order for the meeting to be duly constituted, provided a quorum of the directors is present. (3) A notice of a meeting of directors shall specify any matter referred to in subsection 73(2) of the Act that is to be dealt with at the meeting but, unless a by-law otherwise provides, need not otherwise specify the purpose of or the business to be transacted at the meeting. 14. Waiver of Notice. Notice of any meeting of the directors or any irregularity in any meeting or in the notice thereof may be waived by any director in writing or by telegram, cable, telex or facsimile transmission addressed to the Corporation or in any other manner, and such waiver may be validly given either before or after the meeting to which such waiver relates. The attendance of a director at a meeting of directors is a waiver of notice of the meeting except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called. 15. Telephone Participation. A director may participate in a meeting of directors or of a committee of directors by means of such telephone or other communication facilities that permit all persons participating in the meeting to hear each other, and a director participating in such a meeting by such means shall be deemed to be present at that meeting. 16. Adjournment. Any meeting of the directors may be adjourned from time to time by the chairman of the meeting, with the consent of the meeting, to a fixed time and place and no notice of the time and place for the continuance of the adjourned meeting 6 -6- need be given to any director if the time and place of the adjourned meeting is announced at the original meeting. Any adjourned meeting shall be duly constituted if held in accordance with the terms of the adjournment and a quorum is present thereat. The directors who formed a quorum at the original meeting are not required to form the quorum at the adjourned meeting. If there is no quorum present at the adjourned meeting, the original meeting shall be deemed to have terminated forthwith after its adjournment. 17. Quorum and Voting. Subject to the articles, a majority of directors shall constitute a quorum for the transaction of business at any meeting of directors. No business shall be transacted by the directors except at a meeting of directors at which a quorum of the board is present. Questions arising at any meeting of the directors shall be decided by a majority of votes cast. Where the Corporation has only one director, that director may constitute a meeting. 18. Resolution in lieu of meeting. A resolution in writing, signed by all the directors or signed counterparts of such resolution by all the directors entitled to vote on that resolution at a meeting of directors or a committee of directors, is as valid as if it had been passed at a meeting of directors or committee of directors duly called, constituted and held. A copy of every such resolution or counterpart thereof shall be kept with the minutes of the proceedings of the directors or such committee of directors. REMUNERATION OF DIRECTORS 19. Subject to the articles or any unanimous shareholder agreement, the remuneration to be paid to the directors shall be such as the board of directors shall from time to time determine and such remuneration shall be in addition to the salary paid to any officer of the Corporation who is also a member of the board of directors. The directors may also by resolution award special remuneration to any director undertaking any special services on the Corporation's behalf other than the routine work ordinarily required of a director by the Corporation. The confirmation of any such resolution or resolutions by the shareholders shall not be required. The directors shall also be entitled to be paid their travelling and other expenses properly incurred by them in connection with the affairs of the Corporation. SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS FOR APPROVAL 20. The directors in their discretion may submit any contract, act or transaction for approval, ratification or confirmation at any annual meeting of the shareholders or at any 7 -7- special meeting of the shareholders called for the purpose of considering the same and any contract, act or transaction that shall be approved, ratified or confirmed by resolution passed by a majority of the votes cast at any such meeting (unless any different or additional requirement is imposed by the Act or by the articles or any other by-law) shall be as valid and as binding upon the Corporation and upon all the shareholders as though it had been approved, ratified and/or confirmed by every shareholder of the Corporation. FOR THE PROTECTION OF DIRECTORS AND OFFICERS 21. No director or officer for the time being of the Corporation shall be liable for the acts, receipts, neglects or defaults of any other director or officer or employee of the Corporation or for joining in any receipt or act for conformity or for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired by order of the board of directors for or on behalf of the Corporation or for the insufficiency or deficiency of any security in or upon which any of the moneys of or belonging to the Corporation shall be placed out or invested or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any person, firm or corporation including any person, firm or corporation with whom or which any moneys, securities or effects of the Corporation shall be lodged or deposited or for any loss, conversion, misapplication or misappropriation of or any damage resulting from any dealings with any moneys, securities or other assets belonging to the Corporation or for any other loss, damage or misfortune whatever which may happen to the Corporation in the execution of the duties of his respective office of trust or in relation thereto, unless the same shall happen by or through his failure to exercise the powers and to discharge the duties of his office honestly, in good faith with a view to the best interests of the Corporation, and in connection therewith to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances, provided that nothing herein contained shall relieve a director or officer from the duty to act in accordance with the Act or regulations made thereunder or relieve him from liability for a breach thereof. The directors for the time being of the Corporation shall not be under any duty or responsibility in respect of any contract, act or transaction whether or not made, done or entered into in the name or on behalf of the Corporation, except such as shall have been submitted to and authorized or approved by the board of directors. If any director or officer of the Corporation shall be employed by or shall perform services for the Corporation, the fact of his being a shareholder, director or officer of the Corporation shall not disentitle such director or officer or such firm or body corporate, as the case may be, from receiving proper remuneration for such services. 8 -8- INDEMNITIES TO DIRECTORS AND OTHERS 22. Subject to section 81 of the Act, except in respect of an action by or on behalf of the Corporation or Another Body Corporate (as hereinafter defined) to procure a judgement in its favor, the Corporation shall indemnify each director and officer of the Corporation and each former director and officer of the Corporation and each person who acts or acted at the Corporation's request as a director or officer of Another Body Corporate, and his heirs and legal representatives, against all costs, charges and expenses, including any amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of the Corporation or Another Body Corporate, as the case may be, if (a) he acted honestly and in good faith with a view to the best interests of the Corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. "Another Body Corporate" as used herein means a body corporate of which the Corporation is or was a shareholder or creditor. OFFICERS 23. Appointment of Officers. Subject to the articles or any unanimous shareholder agreement, the directors may appoint a chairman of the board, a president and a secretary and, if deemed advisable, may also appoint one or more vice-presidents, a treasurer and one or more assistant secretaries and/or one or more assistant treasurers. None of such officers, except the chairman of the board, need be a director of the Corporation. Any two or more of such offices may be held by the same person. In case and whenever the same person holds the offices of secretary and treasurer he may, but need not, be known as the secretary-treasurer. The directors may from time to time designate such other offices and appoint such other officers, employees and agents as it shall deem necessary who shall have such authority and shall perform such functions and duties as may from time to time be prescribed by resolution of the directors. 24. Remuneration and Removal of Officers. Subject to the articles or any unanimous shareholder agreement, the remuneration of all officers, employees and agents appointed by the directors may be determined from time to time by resolution of the directors. The fact that any officer, employee or agent is a director or shareholder of 9 -9- the Corporation shall not disqualify him from receiving such remuneration as may be so determined. The directors may by resolution remove any officer, employee or agent at any time, with or without cause. 25. Duties of Officers may be Delegated. In case of the absence or inability or refusal to act of any officer of the Corporation or for any other reason that the directors may deem sufficient, the directors may delegate all or any of the powers of such officer to any other officer or to any director for the time being. 26. Chairman of the Board. The chairman of the board (if any) shall, if present, preside at all meetings of the director. He shall sign such contracts, documents or instruments in writing as require his signature and shall have such other powers and duties as may from time to time be assigned to him by resolution of the directors. 27. President. The president shall be the chief executive officer of the Corporation and shall exercise general supervision over the business and affairs of the Corporation. The president, in the absence of the chairman of the board, or if a chairman of the board be not appointed, shall preside at all meetings of the directors, and he shall act as chairman at all meetings of the shareholders of the Corporation; he shall sign such contracts, documents or instruments in writing as require his signature and he shall have such other powers and shall perform such other duties as may from time to time be assigned to him by resolution of the directors or as are incident to his office. 28. Vice-President. The vice-president (if any) or, if more than one, the vice-presidents in order of seniority, shall be vested with all the powers and shall perform all the duties of the president in the absence or inability or refusal to act of the president. The vice-president or, if more than one, the vice-presidents in order of seniority, shall sign such contracts, documents or instruments in writing as require his or their signatures and shall also have such other powers and duties as may from time to time be assigned to him or them by resolution of the directors. 29. Secretary. The secretary shall give or cause to be given notices for all meetings of the directors or committees thereof (if any) and of shareholders when directed to do so, and shall have charge, subject to the provisions of paragraphs 30 and 50 hereof, of the records referred to in section 18 of the Act and of the corporate seal or seals (if any). He shall sign such contracts, documents or instruments in writing as require his signature and shall have such other powers and duties as may from time to time be assigned to him by resolution of the directors or as are incident to his office. 10 -10- 30. Treasurer. Subject to the provisions of any resolution of the directors, the treasurer (if any) shall have the care and custody of all the funds and securities of the Corporation and shall deposit the same in the name of the Corporation in such bank or banks or with such other depositary or depositaries as the directors may by resolution direct. He shall prepare, maintain and keep or cause to be kept adequate books of accounts and accounting records. He shall sign such contracts, documents or instruments in writing as require his signature and shall have such other powers and duties as may from time to time be assigned to him by resolution of the directors or as are incident to his office. He may be required to give such bond for the faithful performance of his duties as the directors in their uncontrolled discretion may require, but no director shall be liable for failure to require any such bond or for the insufficiency of any such bond or for any loss by reason of the failure of the Corporation to receive any indemnity thereby provided. 31. Assistant Secretary and Assistant Treasurer. The assistant secretary or, if more than one, the assistant secretaries in order of seniority, and the assistant treasurer or, if more than one, the assistant treasurers in order of seniority (if any), shall respectively perform all the duties of the secretary and treasurer, respectively, in the absence or inability to act of the secretary or treasurer as the case may be. The assistant secretary or assistant secretaries, if more than one, and the assistant treasurer or assistant treasurers, if more than one, shall sign such contracts, documents or instruments in writing as require his or their signatures respectively and shall have such other powers and duties as may from time to time be assigned to them by resolution of the directors. 32. Managing Director. The directors may from time to time appoint from their number a managing director and may delegate to him any of the powers of the directors except as provided in subsection 73(2) of the Act. The managing director shall conform to all lawful orders given to him by the directors and shall at all reasonable times give to the directors or any of them all information they may require regarding the affairs of the Corporation. Any agent or employee appointed by the managing director shall be subject to discharge by the directors. 33. Vacancies. If the office of chairman of the board, president, vice-president, secretary, assistant secretary, treasurer, assistant treasurer, or any other office created by the directors pursuant to paragraph 23 hereof, shall be or become vacant by reason of death, resignation, removal or in any other manner whatsoever, the directors may, subject to paragraph 23 hereof, appoint another person to fill such vacancy. 11 -11- COMMITTEES OF DIRECTORS 34. The directors may from time to time appoint from their number one or more committees of directors consisting of one or more individuals and delegate to such committee or committees any of the powers of the directors except as provided in subsection 73(2) of the Act. Unless otherwise ordered by the directors, a committee of directors shall have power to fix its quorum, elect its chairman and regulate its proceedings. All such committees shall report to the directors as required by them. SHAREHOLDERS' MEETING 35. Annual Meeting. Subject to compliance with section 85 of the Act, the annual meeting of the shareholders shall be convened on such day in each year and at such time as the directors may by resolution determine. 36. Special Meetings. (1) Special meetings of the shareholders may be convened by order of the chairman of the board, the president or a vice-president or by the directors, to be held at such time and place as may be specified in such order. (2) Shareholders holding between them not less then ten percent (10%) of the issued shares of the Corporation that carry the right to vote at a meeting sought to be held may requisition the directors to call a meeting of shareholders. Such requisition shall state the business to be transacted at the meeting and shall be sent to each director and the registered office of the Corporation. (3) Except as otherwise provided in subsection 96(3) of the Act, it shall be the duty of the directors on receipt of such requisition, to cause such meeting to be called by the secretary of the Corporation. (4) If the directors do not, within twenty-one (21) days after receiving such requisition call such meeting, any shareholder who signed the requisition may call the meeting. 37. Place of Meetings. Meetings of shareholders of the Corporation shall be held at the registered office of the Corporation or at such other place within New Brunswick as the directors by resolution may determine. Notwithstanding the foregoing, a meeting of shareholders of the Corporation may be held outside New Brunswick if all the shareholders entitled to vote at that meeting so agree, and a shareholder who attends a meeting of shareholders held outside New Brunswick is deemed to have so agreed except when he attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully held. Notwithstanding either of the foregoing sentences, meetings of shareholders may be held outside New Brunswick at one or more places as specified in the articles. 12 -12- 38. Notice. (1) Subject to the articles or a unanimous shareholder agreement, a printed, written or typewritten notice stating the day, hour, place of meeting, the general nature of the business to be transacted and, if special business is to be transacted thereat, stating (a) the nature of that business in sufficient detail to permit the shareholder to form a reasoned judgment thereon; and (b) the text, of any special resolution to be submitted to the meeting, shall be sent to each person who is entitled to notice of such meeting and who on the record date for notice appears on the records of the Corporation or its transfer agent as a shareholder and to each director of the Corporation and the auditor of the Corporation, if any, personally, by sending such notice by prepaid mail or in such other manner as provided by-law for the giving of notice, not less than twenty-one (21) days nor more than fifty (50) days before the meeting. If such notice is sent by mail it shall be addressed to the latest address of each such person as shown in the records of the Corporation or its transfer agent, or if no address is shown therein, then to the last address of each such person known to the secretary. (2) The auditor of the Corporation, if any, is entitled to attend any meeting of shareholders of the Corporation and to receive all notices and other communications relating to any such meeting that a shareholder is entitled to receive. 39. Waiver of Notice. A meeting of shareholders may be held for any purpose at any time and, subject to section 84 of the Act, at any place without notice if all the shareholders entitled to notice of such meeting are present in person or represented by proxy at the meeting (except where the shareholder attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called) or if all the shareholders entitled to notice of such meeting and not present in person nor represented by proxy thereat waive notice of the meeting. Notice of any meeting of shareholders or any irregularity in any such meeting or in the notice thereof may be waived by any shareholder, the duly appointed proxy of any shareholder, any directors or the auditor of the Corporation in writing, by telegram, cable, telex or facsimile addressed to the Corporation or by any other manner, and any such waiver may be validly given either before or after the meeting to which such waiver relates. 40. Omission of Notice. The accidental omission to give notice of any meeting to or the non-receipt of any notice by any person shall not invalidate any resolution passed or any proceeding taken at any meeting of shareholders. 13 -13- 41. Record Date. (1) The directors may by resolution fix in advance a date as the record date for the determination of shareholders (a) entitled to receive payment of a dividend; (b) entitled to participate in a liquidation distribution; or (c) for any other purpose except the right to receive notice of or to vote at a meeting of shareholders, but such record date shall not precede by more than fifty (50) days the particular action to be taken. (2) The directors may by resolution also fix in advance the date as the record date for the determination of shareholders entitled to receive notice of a meeting of shareholders, but such record date shall not precede by more than fifty (50) days or by less than twenty-one (21) days the date on which the meeting is to be held. (3) If no record date is fixed, (a) the record date for the determination of shareholders entitled to receive notice of a meeting of shareholders shall be (i) at the close of business on the day immediately preceding the day on which the notice is given; or (ii) if no notice is given, the day on which the meeting is held; and (b) the record date for the determination of shareholders for any purpose, other than that specified in subparagraph (a) above or to vote, shall be at the close of business on the day on which the directors pass the resolution relating thereto. 42. Voting. (1) Votes at meetings of the shareholders may be given either personally or by proxy. At every meeting at which he is entitled to vote, every shareholder present in person and every proxyholder shall have one (1) vote on a show of hands. Upon a poll at which he is entitled to vote, every shareholder present in person or by proxy shall (subject to the provisions, if any, of the articles) have one (1) vote for every share registered in his name. (2) Voting at a meeting of shareholders shall be by show of hands except where a ballot is demanded by a shareholder or proxyholder entitled to vote at the meeting. A shareholder or proxyholder may demand a ballot either before or after any vote by show of hands. 14 -14- (3) At any meeting, unless a ballot is demanded, a declaration by the chairman of the meeting that a resolution has been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority shall be conclusive evidence of the fact without proof of the number or proportion of votes recorded in favour of or against the motion. (4) In the absence of the chairman of the board, the president and every vice-president, the shareholders present entitled to vote shall choose another director as chairman of the meeting and if no director is present or if all the directors present decline to take the chair then the shareholders or proxyholders present shall choose one of their number to be chairman. (5) If at any meeting a ballot is demanded on the election of a chairman or on the question of adjournment or termination it shall be taken forthwith without adjournment. If a ballot is demanded on any other question or as to the election of directors it shall be taken in such manner and either at once or later at the meeting or at an adjourned meeting as the chairman of the meeting directs. The result of a ballot shall be deemed to be the resolution of the meeting at which the ballot was demanded. A demand for a ballot may be withdrawn. (6) Where a person holds shares as a personal representative, such person or his proxy is the person entitled to vote at all meetings of shareholders in respect of the shares so held by him. (7) Where a person mortgages or hypothecates his shares, such person or his proxy is the person entitled to vote at all meetings of shareholders in respect of such shares unless, in the instrument creating the mortgage or hypothec, he has expressly empowered the person holding the mortgage or hypothec to vote in respect of such shares, in which case, and subject to the articles, such holder or his proxy is the person entitled to vote in respect of the shares. (8) Where two or more persons hold the same share or shares jointly, any one of such persons present at a meeting of shareholders has the right, in the absence of the other or others, to vote in respect of such share or shares, but if more then one of such persons are present or represented by proxy and vote, they shall vote together as one on the share or shares jointly held by them. 43. Proxies. (1) A shareholder, including a shareholder that is a body corporate, entitled to vote at a meeting of shareholders may by means of a proxy appoint a proxyholder or one or more alternate proxyholders, none of whom are required to be a shareholder of the Corporation, which proxyholders shall have all the rights of the shareholder to attend and act at the meeting in the place and stead of the shareholder except to the extent limited by the proxy. 15 -15- (2) An instrument appointing a proxy shall be in writing and shall be executed by the shareholder or by his attorney authorized in writing or, if the shareholder is a body corporate, either under its seal or by an officer or attorney thereof, duly authorized. A proxy is valid only at the meeting in respect of which it is given or any adjournment thereof. (3) Unless the Act requires another form, an instrument appointing a proxyholder may be in the following form: "The undersigned shareholder of hereby appoints of or failing him, of as the proxy of the undersigned to attend and act for and on behalf of the undersigned at the meeting of the shareholders of the said corporation to be held on the day of , 19 , and at any adjournment thereof to the same extent and with the same power and authority as if the undersigned were personally present at the said meeting or such adjournment thereof. Dated the day of , 19 . Signature of Shareholder NOTE: This form of proxy must be signed by a shareholder or his attorney authorized in writing or, if the shareholder is a body corporate, either under its seal or by an officer or attorney thereof duly authorized." 44. Adjournment. (1) The chairman of the meeting may with the consent of the meeting adjourn any meeting of shareholders from time to time to a fixed time and place. If a meeting of shareholders is adjourned for less than sixty (60) days, it is not necessary to give notice of the adjourned meeting other than by announcement at the earlier meeting that is adjourned. If a meeting of shareholders is adjourned by one or more adjournments for an aggregate of sixty (60) days or more, notice of the adjourned meeting shall be given as for an original meeting. (2) Any adjourned meeting shall be duly constituted if held in accordance with the terms of the adjournment and a quorum is present at the opening thereat. The persons who formed a quorum at the original meeting are not required to form the quorum at the adjourned meeting. If there is no quorum present at the opening of the adjourned meeting, the original meeting shall be deemed to have terminated forthwith after its adjournment. Any business may be brought before or dealt with at any 16 -16- adjourned meeting which might have been brought before or dealt with at the original meeting in accordance with the notice calling the same. 45. Quorum. (1) Except as hereinafter provided, a quorum for any meeting of shareholders shall be two (2) or more shareholders or proxyholders holding or representing not less than a majority of the shares entitled to be voted at such meeting. (2) If a quorum is present at the opening of a meeting of shareholders, the shareholders present in person or represented by proxy may proceed with the business of the meeting notwithstanding that a quorum is not present throughout the meeting. (3) If a quorum is not present at the opening of a meeting of shareholders, the shareholders present in person or represented by proxy may adjourn the meeting to a fixed time and place but not transact any other business. (4) Where the Corporation has only one shareholder or only one holder of any class or series of shares, or if only one person is present at a meeting holding or representing sufficient shares to constitute a quorum, the shareholder present in person or by proxy constitutes a meeting. 46. Resolution in Lieu of meeting. A resolution in writing signed by all the shareholders or signed counterparts of such resolution by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders duly called, constituted and held. A copy of every such resolution or counterpart thereof shall be kept with the minutes of the meetings of shareholders. 47. Telephone Participation. A shareholder may participate in a meeting of shareholders or of a committee of shareholders by means of such telephone or other communication facilities that permit all persons participating in the meeting to hear each other, and a shareholder participating in such a meeting by such means shall be deemed to be present at that meeting. SHARES AND TRANSFERS 48. Issuance. Subject to the articles, any unanimous shareholder agreement and to section 27 of the Act, shares in the Corporation may be issued at such times and to such persons or classes of persons and, subject to sections 23 and 24 of the Act, for such consideration as the directors may determine. 17 -17- 49. Certificates. Share certificates (and the form of stock transfer power on the reverse side thereof shall (subject to compliance with section 47 of the Act) be in such form and be signed by such director(s) or officer(s) as the directors may from time to time by resolution determine. Such certificates shall be signed manually by at least one director or officer of the Corporation or by or on behalf of a registrar, transfer agent or branch transfer agent of the Corporation, and any additional signatures required on a share certificate may be printed or otherwise mechanically reproduced thereon. If a share certificate contains a printed or mechanically reproduced signature of a person, the Corporation may issue the share certificate notwithstanding that the person has ceased to be a director or an officer of the Corporation, and the share certificate is as valid as if he were a director or an officer at the date of its issue. 50. Registrar and Transfer Agent. The directors may from time to time by resolution appoint or remove one or more registrars and/or branch registrars (which may but need not be the same person) to keep the share register and/or one or more transfer agents and/or branch transfer agents (which may but need not be the same person) to keep the register of transfers, and (subject to section 48 of the Act) may provide for the registration of issues and the registration of transfers of the shares of the Corporation in one or more places and such registrars and/or branch registrars and/or transfer agents and/or branch transfer agents shall keep all necessary books and registers of the Corporation for the registration of the issuance and the registration of transfers of the shares of the Corporation for which they are so appointed. All certificates issued after any such appointment representing shares issued by the Corporation shall be countersigned by or on behalf of one of the said registrars and/or branch registrars and/or transfer agents and/or branch transfer agents, as the case may be. 51. Surrender of Share Certificates. No transfer of a share issued by the Corporation shall be recorded or registered unless or until the certificate representing the share to be transferred has been surrendered and cancelled or, if no certificate has been issued by the Corporation in respect of such share, unless or until a duly executed share transfer power in respect thereof has been presented for registration. 52. Defaced, Destroyed, Stolen or Lost Certificates. If the defacement, destruction or apparent destruction, theft, or, other wrongful taking or loss of a share certificate is reported by the owner thereof to the Corporation or to a registrar, branch registrar, transfer agent or branch transfer agent of the Corporation (hereinafter, in this paragraph, called the "Corporation's transfer agent") and such owner gives to the Corporation or the Corporation's transfer agent a written statement verified by oath or statutory declaration as to the defacement, destruction or apparent destruction, theft, or other wrongful taking or loss and the circumstances concerning the same, a request for the issuance of a new certificate to replace the one so defaced, destroyed, wrongfully taken or lost and a bond of a surety company (or other security approved by the directors) in such form as is approved by the directors or by the chairman of the board, 18 -18- the president, a vice-president, the secretary or the treasurer of the Corporation, indemnifying the Corporation (and the Corporation's transfer agent, if any), against all loss, damage or expense, which the Corporation and/or the Corporation's transfer agent may suffer or be liable for by reason of the issuance of a new certificate to such shareholder, a new certificate may be issued in replacement of the one defaced, destroyed or apparently destroyed, stolen or otherwise wrongfully taken or lost, if such issuance is ordered and authorized by any one of the chairman of the board, the president, a vice-president, the secretary or the treasurer of the Corporation or by resolution of the directors. DIVIDENDS 53. Declaration and Payment of Dividends. (1) Subject to the following subparagraph (2), the directors may from time to time by resolution declare and the Corporation may pay dividends on its issued shares, subject to the provisions (if any) of the articles. (2) The directors shall not declare and the Corporation shall not pay a dividend if there are reasonable grounds for believing that: (a) the Corporation is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realizable value of the Corporation's assets would thereby be less than the aggregate of its liabilities and stated capital of all classes. (3) Subject to section 41 of the Act, the Corporation may pay a dividend in money or property or by issuing fully paid shares of the Corporation. 54. Receipt of Dividends by Joint Holders. In case two or more persons are registered as the joint holders of any securities of the Corporation, any one of such persons may give effectual receipts for all dividends and payments on account of dividends, principal, interest and/or redemption payments on redemption of securities (if any) subject to redemption in respect of such securities. VOTING SECURITIES IN OTHER BODIES CORPORATE 55. All securities of any other body corporate carrying voting rights held from time to time by the Corporation may be voted at all meetings of shareholders, bondholders debenture holders or holders of such securities, as the case may be, of such other body corporate in such manner and by such person or persons as the directors of the 19 -19- Corporation shall from time to time determine and authorize by resolution. The duly authorized signing officers of the Corporation may also from time to time execute and deliver for and on behalf of the Corporation proxies and/or arrange for the issuance of voting certificates and/or other evidence of the right to vote in such names as they may determine without the necessity of a resolution or other action by the directors. NOTICE 56. Service. (1) Any notice or other document required to be given or sent by the Corporation to any shareholder, director or auditor of the Corporation shall be delivered personally or sent by prepaid mail or by telegram, telex, cablegram or facsimile addressed to: (a) the shareholder at his latest address as shown on the records of the Corporation or its transfer agent; and (b) the director at his latest address as shown in the records of the Corporation or in the last notice filed under section 64 or 71 of the Act. With respect to every notice or other document sent by prepaid mail it shall be sufficient to prove that the envelope or wrapper containing the notice or other document was properly addressed and put into a post office letter box. (2) If the Corporation sends a notice or document to a shareholder in accordance with the provisions of the foregoing subparagraph (2) and the notice or document is returned on three (3) consecutive occasions because the shareholder cannot be found, the Corporation is not required to send any further notices or documents to the shareholder until he informs the Corporation in writing of his now address. 57. Shares registered in more than one name. All notices or other documents required to be sent to a shareholder by the Act, the regulations under the Act, the articles or the by-laws of the Corporation shall, with respect to any shares in the capital of the Corporation registered in more then one name, be given to whichever of such persons is named first in the records of the Corporation and any notice or other document so given shall be sufficient notice or delivery of such document to all the holders of such shares. 58. Persons becoming entitled by operation of law. Every person who by operation of law, transfer or by any other means whatsoever shall become entitled to any shares in the capital of the Corporation shall be bound by every notice or other document in respect of such shares which prior to his name and address being entered on the 20 -20- records of the Corporation shall have been duly given to the person or persons from whom he derives his title to such shares. 59. Deceased Shareholder. Any notice or other document delivered or sent by post or left at the address of any shareholder as the same appears in the records of the Corporation shall, notwithstanding that such shareholder be then deceased and whether or not the Corporation has notice of his decease, be deemed to have been duly served in respect of the shares held by such shareholder (whether held solely or with other persons) until some other person be entered in his stead in the records of the Corporation as the holder or one of the holders thereof and such service shall for all purposes be deemed a sufficient service of such notice or other document on his heirs, executors or administrators and all persons (if any) interested with him in such shares. 60. Signatures to Notices. The signature of any director or officer of the Corporation to any notice may be written, stamped, typewritten or printed or partly written, stamped, typewritten or printed. 61. Computation of Time. Where a given number of days' notice or notice extending over any period is required to be given under any provisions of the articles or by-laws of the Corporation, the day of service or posting of the notice shall, unless it is otherwise provided, be counted in such number of days or other period and such notice shall be deemed to have been given or sent on the day of service or posting. 62. Proof of Service. A certificate of any officer of the Corporation in office at the time of the making of the certificate or of a transfer officer of any transfer agent or branch transfer agent of shares of any class of the Corporation as to facts in relation to the mailing or delivery or service of any notice or other documents to any shareholder, director, officer or auditor or publication of any notice or other document shall be conclusive evidence thereof and shall be binding on every shareholder, director, officer or auditor of the Corporation, as the case may be. CHEQUES, DRAFTS NOTES, ETC 63. All cheques, drafts or orders for the payment of money and all notes, acceptances and bills of exchange shall be signed by such officer or officers or other person or persons, whether or not officers of the Corporation, and in such manner as the directors may from time to time designate by resolution. 21 -21- CUSTODY OF SECURITIES 64. (1) All securities (including warrants) owned by the Corporation shall be lodged (in the name of the Corporation) with a chartered bank or a trust company or in a safety deposit box or, if so authorized by resolution of the directors, with such other depositaries or in such other manner as may be determined from time to time by the directors. (2) All securities (including warrants) belonging to the Corporation may be issued and held in the name of a nominee or nominees of the Corporation (and if issued or held in the names of more than one nominee shall be held in the names of the nominees jointly with right of survivorship) and shall be endorsed in blank with endorsement guaranteed in order to enable transfer thereof to be completed and registration thereof to be effected. EXECUTION OF CONTRACTS, ETC, 65. (1) Contracts, documents or instruments in writing requiring the signature of the Corporation may be signed by any one of the directors or officers. All contracts, documents or instruments in writing so signed shall be binding upon the Corporation without any further authorization or formality, The directors are authorized from time to time by resolution to appoint any officer or officers or any other person or persons on behalf of the Corporation either to sign contracts, documents or instruments in writing generally or to sign specific contracts, documents or instruments in writing. Where the Corporation has only one director and officer, being the same person, that person may sign all such contracts, documents or other written instruments. (2) The corporate seal (if any) may, when required, be affixed to contracts, documents or instruments in writing signed as aforesaid by an officer or officers, person or persons appointed as aforesaid by resolution of the directors. (3) The term "contracts, documents or instruments in writing" as used in this by-law shall include deeds, mortgages, hypothecs, charges, conveyances, transfers and assignments of property, real or personal, immoveable or moveable, agreements, releases, receipts and discharges for the payment of money or other obligations, conveyances, transfers and assignments of shares, warrants, bonds, debentures or other securities and all paper writings. (4) In particular, without limiting the generality of the foregoing, any one of the directors or officers of the Corporation are hereby authorized to sell, assign, transfer, exchange, convert or convey all shares, bonds, debentures, rights, warrants or other securities owned by or registered in the name of the Corporation and to sign and execute (under the seal of the Corporation or otherwise) all assignments, transfers, conveyances, powers of attorney and other instruments that may be necessary for the 22 -22- purpose of selling, assigning, transferring, exchanging, converting or conveying or enforcing or exercising any voting rights in respect of any such shares, bonds, debentures, rights, warrants or other securities. Where the Corporation has only one director and officer, being the same person, that person may perform the functions and exercise the powers herein contemplated. AUDITOR 66. At each annual meeting of the shareholders of the Corporation an auditor may be appointed for the purpose of auditing and verifying the accounts of the Corporation for the then current year and his report shall be submitted at the next annual meeting of the shareholders. The auditor shall not be a director or an officer of the Corporation, Unless fixed by the meeting of shareholders at which he is appointed, the remuneration of the auditor shall be determined from time to time by the directors. FISCAL YEAR 67. The fiscal period of the Corporation shall terminate on such day in each year as the directors may from time to time by resolution determine. BORROWING 68. General Borrowing. The directors may from time to time: (a) borrow money upon the credit of the Corporation; (b) issue, reissue, sell or pledge debt obligations of the Corporation; (c) give a guarantee on behalf of the Corporation to secure performance of an obligation of any person; and (d) mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Corporation, owned or subsequently acquired, to secure any obligation of the Corporation. The directors may from time to time authorize any director or directors, or officer or officers, of the Corporation, to make arrangements with reference to the money borrowed or to be borrowed as aforesaid, and as to the terms and conditions of the loan thereof, and as to the securities to be given therefor, with power to vary or modify such arrangements, terms and conditions and to give such additional securities 23 -23- for any moneys borrowed or remaining due by the Corporation as the directors of the Corporation may authorize, and generally to manage, transact and settle the borrowing of money by the Corporation. EX-3.27 4 CERTIFICATE OF INCORPORAITON OF PCI CAROLINA, INC. 1 EXHIBIT 3.27 CERTIFICATE OF INCORPORATION OF PCI CAROLINA, INC. * * * * * 1. The name of the corporation is PCI Carolina, Inc., 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware 4. The total number of shares of stock which the corporation shall have authority to issue is: One Thousand (1,000) and the par value of such shares is one cent ($0.01) amounting in the aggregate to Ten Dollars ($10.00). 5. The board of directors is authorized to make, alter or repeal the by-laws of the corporation. Election of directors need not be by written ballot. 6. The name and mailing address of the sole incorporator is as follows: NAME MAILING ADDRESS S.A. Seraj 811 Dallas Avenue, Houston, Texas 77002 7. The corporation shall indemnify its officers, directors, employees and agents to the extent permitted by the General Corporation Law of Delaware. I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 15th day of September, 1997. /s/ S.A. Seraj ------------------- S.A. Seraj -1- EX-3.28 5 BY-LAWS OF PCI CAROLINA, INC. 1 EXHIBIT 3.28 BYLAWS OF PCI CAROLINA, INC. Dated Effective as of: September 15, 1997 2 INDEX
Page ARTICLE I OFFICES Section 1.1 Principal office 1 Section 1.2 Registered Office 1 Section 1.3 Other Offices 1 ARTICLE II STOCKHOLDERS' MEETINGS Section 2.1 Annual Meeting 1 Section 2.2 Special Meetings 1 Section 2.3 Notice of Meetings and Adjourned Meetings 2 Section 2.4 Voting Lists 2 Section 2.5 Quorum 3 section 2.6 Organization 3 Section 2.7 Voting 3 Section 2.8 Stockholders Entitled to Vote 4 Section 2.9 Order of Business 4 Section 2.10 Action by Written Consent 4 Section 2.11 Authorization of Proxies 5 ARTICLE III DIRECTORS Section 3.1 Management 5 Section 3.2 Number and Term 6 Section 3.3 Quorum and Manner of Action 6 Section 3.4 Vacancies 6 Section 3.5 Resignations 7 Section 3.6 Removals 7 Section 3.7 Annual Meetings 7 Section 3.8 Regular Meetings 7 Section 3.9 Special Meetings 7 Section 3.10 Organization of Meetings 8 Section 3.11 Place of Meetings 8 Section 3.12 Compensation of Directors 8 Section 3.13 Action by Unanimous Written Consent 8 Section 3.14 Participation in Meetings by Telephone 8
3 ARTICLE IV COMMITTEES OF THE BOARD Section 4.1 Membership and Authorities 9 Section 4.2 Minutes 9 Section 4.3 Vacancies 9 Section 4.4 Telephone Meetings 10 Section 4.5 Action Without Meeting 10 ARTICLE V OFFICERS Section 5.1 Number and Title 10 Section 5.2 Term of Office; Vacancies 10 Section 5.3 Removal of Elected Officers 11 Section 5.4 Resignations 11 Section 5.5 The Chairman of the Board 11 Section 5.6 President 11 Section 5.7 Vice Presidents 11 Section 5.8 Secretary 12 Section 5.9 Assistant Secretaries 12 Section 5.10 Treasurer 12 Section 5.11 Assistant Treasurers 13 Section 5.12 Subordinate Officers 13 Section 5.13 Salaries and Compensation 13 ARTICLE VI INDEMNIFICATION Section 6.1 Indemnification of Directors and Officers 13 ARTICLE VII CAPITAL STOCK Section 7.1 Certificates of Stock 17 Section 7.2 Lost Certificates 17 Section 7.3 Fixing Date for Determination of Stockholders of Record for Certain Purposes 18 Section 7.4 Dividends 18 Section 7.5 Registered Stockholders 19 Section 7.6 Transfer of Stock 19 ARTICLE VIII MISCELLANEOUS PROVISIONS Section 8.1 Corporate Seal 19 Section 8.2 Fiscal Year 19 Section 8.3 Checks, Drafts, Notes 19 Section 8.4 Notice and Waiver of Notice 20 Section 8.5 Examination of Books and Records 20 Section 8.6 Voting Upon Shares Held by the Corporation 20 ARTICLE IX AMENDMENTS Section 9.1 Amendment 21
4 PCI CAROLINA, INC. BYLAWS ARTICLE I OFFICES SECTION 1.1 PRINCIPAL OFFICE. The principal office of the Corporation shall be in the City of Houston, Texas. SECTION 1.2 REGISTERED OFFICE. The registered office of the Corporation required to be maintained in the State of Delaware by the General Corporation Laws of the State of Delaware, may be, but need not be, identical with the Corporation's principal office, and the address of the registered office may be changed from time to time by the Board of Directors. SECTION 1.3 OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware, as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE II STOCKHOLDERS' MEETINGS SECTION 2.1 ANNUAL MEETING. The annual meeting of the holders of shares of each class or series of stock as are entitled to notice thereof and to vote thereat pursuant to applicable law and the Corporation's Certificate of Incorporation for the purpose of electing directors and transacting such other proper business as may come before it shall be held in each year, at such time, on such day and at such place, within or without the State of Delaware, as may be designated by the Board of Directors. SECTION 2.2 SPECIAL MEETINGS. In addition to such special meetings as are provided by law or the Corporation's Certificate of incorporation, special meetings of the holders of any class or series or of all classes or series of the Corporation's stock for any purpose or purposes, may be called at any time by the Board of Directors and may be held on such day, at such time 5 and at such place, within or without the State of Delaware, as shall be designated by the Board of Directors. SECTION 2.3 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Except as otherwise provided by law, written notice of any meeting of Stockholders (i) shall be given either by personal delivery or by mail to each Stockholder of record entitled to vote thereat, (ii) shall be in such form as is approved by the Board of Directors, and (iii) shall state the date, place and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, such written notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting. Except when a Stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened, presence in person or by proxy of a Stockholder shall constitute a waiver of notice of such meeting. Further, a written waiver of any notice required by law or by these Bylaws, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Except as otherwise provided by law, the business that may be transacted at any such meeting shall be limited to and consist of the purpose or purposes stated in such notice. If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting. SECTION 2.4 VOTING LISTS. The officer or agent having charge of the stock transfer books for shares of the Corporation shall keep a complete list of Stockholders entitled to vote at meetings or any adjournments thereof, arranged in alphabetical order, in accordance with applicable law and shall make same available prior to and during each Stockholders' meeting for inspection by the Corporation's Stockholders as required by law. The Corporation's original stock transfer books shall be prima-facie evidence as to who are the Stockholders entitled to examine such list or transfer books or to vote at any meeting of Stockholders. 6 SECTION 2.5 QUORUM. Except as otherwise provided by law or by the Corporation's Certificate of Incorporation, the holders of a majority of the Corporation's stock issued and outstanding and entitled to vote at a meeting, present in person or represented by proxy, without regard to class or series, shall constitute a quorum at all meetings of the Stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the Stockholders, the holders of a majority of such shares of stock, present in person or represented by proxy, may adjourn any meeting from time to time without notice other than announcement at the meeting, except as otherwise required by these Bylaws, until a quorum shall be present or represented. At any such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 2.6 ORGANIZATION. Meetings of the Stockholders shall be presided over by the Chairman of the Board of Directors, if one shall be elected, or in his absence, by the President or by any Vice President, or, in the absence of any of such officers, by a chairman to be chosen by a majority of the Stockholders entitled to vote at the meeting who are present in person or by proxy. The Secretary, or, in his absence, my Assistant Secretary or any person appointed by the individual presiding over the meeting, shall act as secretary at meetings of the Stockholders. SECTION 2.7 VOTING. Each Stockholder of record, as determined pursuant to Section 2.8, who is entitled to vote in accordance with the terms of the Corporation's Certificate of Incorporation and in accordance with the provisions of these Bylaws, shall be entitled to one vote, in person or by proxy, for each share of stock registered in his name on the books of the Corporation. Every Stockholder entitled to vote at any Stockholders' meeting may authorize another person or persons to act for him by proxy pursuant to Section 2.11, provided that no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only so long as, it is coupled with an interest sufficient in law to support an irrevocable power. A Stockholder's attendance at any meeting shall not have the effect of revoking a previously granted proxy unless such Stockholder shall in writing so notify the Secretary of the meeting prior to voting of the proxy. Unless otherwise provided by law, no 7 vote on the election of directors or any question brought before the meeting need be by ballot unless the chairman of shall determine that it shall be by ballot or the holders of a majority of the shares of stock present in person or by proxy and entitled to participate in such vote shall so demand. In a vote by ballot, each ballot shall state the number of shares voted and the name of the Stockholder or proxy voting, Except as otherwise provided by law, by the Corporation's Certificate of Incorporation or these Bylaws, all elections of directors and all other matters before the Stockholders shall be decided by the vote of the holders of a majority of the shares of stock present in person or by proxy at the meeting and entitled to vote in the election or on the question. In the election of directors, votes may not be cumulated. SECTION 2.8 STOCKHOLDERS ENTITLED TO VOTE. The Board of Directors may fix a date not more than sixty (60) days nor less than ten (10) days prior to the date of any meeting of Stockholders, or, in the case of corporate action by written consent in accordance with the terms of Section 2.10, not more than sixty (60) days prior to such action, as a record date for the determination of the Stockholders entitled to notice of and to vote at such meeting and any adjournment thereof, or to act by written consent, and in such case such Stockholders and only such Stockholders as shall be Stockholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting and any adjournment thereof, or to act by written consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after such record date is fixed as aforesaid. SECTION 2.9 ORDER OF BUSINESS. The order of business at all meetings of Stockholders shall be as determined by the chairman of the meeting or as is otherwise determined by the vote of the holders of a majority of the shares of stock present in person or by proxy and entitled to vote without regard to class or series at the meeting. SECTION 2.10 ACTION BY WRITTEN CONSENT. Unless otherwise provided by law or the Corporation's Certificate of Incorporation, any action required or permitted to be taken by the Stockholders of the Corporation may be taken without prior notice and an actual meeting if a consent in writing setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Except as provided above, no action shall be taken by the Stockholders by written 8 consent. Prompt notice of the taking of any corporate action without a meeting by less than unanimous written consent shall be given to those Stockholders who have not consented in writing. SECTION 2.11 AUTHORIZATION OF PROXIES. Without limiting the manner in which a Stockholder may authorize another person or persons to act for him as proxy, the following are valid means of granting such authority. A Stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the Stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. A Stockholder may also authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telecopy, telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telecopy, telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telecopy, telegram, cablegram or other electronic transmission was authorized by the Stockholder. If it is determined that such telecopies, telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. ARTICLE III DIRECTORS SECTION 3.1 MANAGEMENT. The property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all 9 powers of the Corporation and do all lawful acts and things as are not by law, by the Corporation's Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the Stockholders. SECTION 3.2 NUMBER AND TERM. The number of directors may be fixed from time to time by resolution of the Board of Directors adopted by the affirmative vote of a majority of the members of the entire Board of Directors, but shall consist of not less than one (1) member who shall be elected annually by the Stockholders except as provided in Section 3.4. Directors need not be Stockholders. No decrease in the number of directors shall have the effect of shortening the term of office of any incumbent director. SECTION 3.3 QUORUM AND MANNER OF ACTION. At all meetings of the Board of Directors a majority of the total number of directors holding office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law, by the Certificate of Incorporation or by these Bylaws. When the Board of Directors consists of one director, the one director shall constitute a majority and a quorum. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at such adjourned meeting. Attendance by a director at a meeting shall constitute a waiver of notice of such meeting except where a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. SECTION 3.4 VACANCIES. Except as otherwise provided by law and the Certificate of Incorporation, in the case of any increase in the authorized number of directors or of any vacancy in the Board of Directors, however created, the additional director or directors may be elected, or, as the case may be, the vacancy or vacancies may be filled by majority vote of the directors remaining on the whole Board of Directors although less than a quorum, or by a sole remaining director. In the event one or more directors shall resign, effective at a future date, such vacancy or vacancies shall be filled by a majority of the directors who will remain on the whole Board of Directors, although less than a quorum, or by a sole remaining director. Any 10 director elected or chosen as provided herein shall serve until the sooner of (i) the unexpired term of the directorship to which he is appointed; or (ii) until his successor is elected and qualified; or (iii) until his earlier resignation or removal. SECTION 3.5 RESIGNATIONS. A director may resign at any time upon written notice of resignation to the Corporation, delivered to the Secretary. Any resignation shall be effective immediately unless a certain effective date is specified therein, in which event it will be effective upon such date and acceptance of any resignation shall not be necessary to make it effective. SECTION 3.6 REMOVALS. Any director or the entire Board of Directors may be removed only for cause, and another person or persons may be elected to serve for the remainder of his or their term, by the holders of a majority of the shares of the Corporation entitled to vote in the election of directors, Stockholders may not remove any director without cause. In case any vacancy so created shall not be filled by the Stockholders at such meeting, such vacancy may be filled by the directors as provided in Section 3.4. SECTION 3.7 ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be held, if a quorum be present, immediately following each annual meeting of the Stockholders at the place such meeting of Stockholders took place, for the purpose of organization and transaction of any other business that might be transacted at a regular meeting thereof, and no notice of such meeting shall be necessary. If a quorum is not present, such annual meeting may be held at any other time or place that may be specified in a notice given in the manner provided in Section 3.9 for special meetings of the Board of Directors or in a waiver of notice thereof. SECTION 3.8 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such places and times as shall be determined from time to time by resolution of the Board of Directors. Except as otherwise provided by law, any business may be transacted at any regular meeting of the Board of Directors. SECTION 3.9 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the President or by the Secretary on the written request of one-third of the members of the whole Board of Directors stating the purpose or purposes of such meeting. Notices of special meetings, if mailed, shall be mailed to each director not later than two days before the 11 day the meeting is to be held or if otherwise given in the manner permitted by the Bylaws, not later than the day before such meeting. Neither the business to be transacted at, nor the purpose of, any special meeting need be specified in any notice or written waiver of notice unless so required by the Certificate of Incorporation or by the Bylaws and, unless limited by law, the Certificate of Incorporation or by these Bylaws, any and all business may be transacted at a special meeting. SECTION 3.10 ORGANIZATION OF MEETINGS. At any meeting of the Board of Directors, business shall be transacted in such order and manner as such Board of Directors may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present at any meeting at which there is a quorum, except as otherwise provided by these Bylaws or required by law. SECTION 3.11 PLACE OF MEETINGS. The Board of Directors may hold their meetings and have one or more offices, and keep the books of the Corporation, outside the State of Delaware, at any office or offices of the Corporation, or at any other place as they may from time to time by resolution determine. SECTION 3.12 COMPENSATION OF DIRECTORS. Directors shall not receive any stated salary for their services as directors, but by resolution of the Board of Directors a fixed honorarium or fees and expenses, if any, of attendance may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor, Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 3.13 ACTION BY UNANIMOUS WRITTEN CONSENT. Unless otherwise restricted by law, the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if prior to such action all members of the Board of Directors or of such committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or the committee. SECTION 3.14 PARTICIPATION IN MEETINGS BY TELEPHONE. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors or of any committee thereof may participate in a meeting of such Board of Directors or committee by 12 means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting in such manner shall constitute presence in person at such meeting. ARTICLE IV COMMITTEES OF THE BOARD SECTION 4.1 MEMBERSHIP AND AUTHORITIES. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board of Directors, designate one or more Directors to constitute an Executive Committee and such other committees as the Board of Directors may determine, each of which committees to the extent provided in said resolution or resolutions or in these Bylaws, shall have and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Corporation, except in those cases where the authority of the Board of Directors is specifically denied to the Executive Committee or such other committee or committees by law, the Certificate of Incorporation or these Bylaws, and may authorize the seal of the Corporation to be affixed to all papers that may require it. The designation of an Executive Committee or other committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law. SECTION 4.2 MINUTES. Each committee designated by the Board of Directors shall keep regular minutes of its proceedings and shall provide a report of its proceedings to the Board of Directors when required or requested by the Board of Directors. SECTION 4.3 VACANCIES. The Board of Directors may designate one or more of its members as alternate members of any committee who may replace any absent or disqualified member at any meeting of such committee, If no alternate members have been appointed, the committee member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of, and to dissolve, any committee. 13 SECTION 4.4 TELEPHONE MEETINGS. Members of any committee designated by the Board of Directors may participate in or hold a meeting by use of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section 4.4 shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. SECTION 4.5 ACTION WITHOUT MEETING. Any action required or permitted to be taken at a meeting of any committee designated by the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the committee and filed with the minutes of the committee proceedings. Such consent shall have the same force and effect as a unanimous vote at a meeting. ARTICLE V OFFICERS SECTION 5.1 NUMBER AND TITLE. The elected officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors may also choose a Chairman of the Board, who must be a member of the Board of Directors, and one or more Vice Presidents (including one or more Senior Vice Presidents), Assistant Secretaries and/or Assistant Treasurers, One person may hold any two or more of these offices. SECTION 5.2 TERM OF OFFICE; VACANCIES. So far as is practicable, all elected officers shall be elected by the Board of Directors at the annual meeting of the Board of Directors in each year, and except as otherwise provided in this Article V, shall hold office until the next such meeting of the Board of Directors in the subsequent year and until their respective successors are elected and qualified or until their earlier resignation or removal. All appointed officers shall hold office at the pleasure of the Board of Directors. If any vacancy shall occur in any office, the Board of Directors may elect or appoint a successor to fill such vacancy for the remainder of the term. 14 SECTION 5.3 REMOVAL OF ELECTED OFFICERS. Any elected officer may be removed at any time, with or without cause, by affirmative vote of a majority of the whole Board of Directors, at any regular meeting or at any special meeting called for such purpose. SECTION 5.4 RESIGNATIONS. Any officer may resign at any time upon written notice of resignation to the President, Secretary or Board of Directors of the Corporation. Any resignation shall be effective immediately unless a date certain is specified for it to take effect, in which event it shall be effective upon such date, and acceptance of any resignation shall not be necessary to make it effective, irrespective of whether the resignation is tendered subject to such acceptance. SECTION 5.5 THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall be elected, shall preside at all meetings of the Stockholders and Board of Directors. In addition, the Chairman of the Board shall perform whatever duties and shall exercise all powers that are given to him by the Board of Directors. SECTION 5.6 PRESIDENT. The President shall be the chief executive officer of the Corporation shall (in the absence of the Chairman of the Board, if one be elected) preside at meetings of the Stockholders and Board of Directors, shall be ex officio a member of all standing committees; shall have general and active management of business of the corporation; shall implement the general directives, plans and policies formulated by the Board of Directors; and shall further have such duties, responsibilities and authorities as may be assigned to him by the Board of Directors. The President may sign, with any other proper officer, certificates for shares of the Corporation and any deeds, bonds, mortgages, contracts and other documents which the Board of Directors has authorized to be executed, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors or these Bylaws, to some other officer or agent of the Corporation. In the absence of the President, his duties shall be performed and his authority may be exercised by a Vice President of the Corporation as may have been designated by the President with the right reserved to the Board of Directors to designate or supersede any designation so made. SECTION 5.7 VICE PRESIDENTS. The several Vice Presidents, which may include one or more persons designated as Senior Vice Presidents, shall have such powers and duties as may 15 be assigned to them by these Bylaws and as may from time to time be assigned to them by the Board of Directors or President and may sign, with any other proper officer, certificates for shares of the Corporation. SECTION 5.8 SECRETARY. The Secretary, if available, shall attend all meetings of the Board of Directors and all meetings of the Stockholders and record the proceedings of the meetings in a book to be kept for that purpose and shall perform like duties for any committee of the Board of Directors as the Board of Directors or such committee shall designate him to serve. The Secretary shall give, or cause to be given, notice of all meetings of the Stockholders and meetings of the Board of Directors and committees thereof and shall perform such other duties incident to the office of secretary or as may be prescribed by the Board of Directors or the President, under whose supervision he shall be. The Secretary shall have custody of the corporate seal of the Corporation and he, or any Assistant Secretary, or any other person whom the Board of Directors may designate, shall have authority to affix the same to any instrument requiring it, and when so affixed it may be attested by his signature or by the signature of any Assistant Secretary or by the signature of such other person so affixing such seal. SECTION 5.9 ASSISTANT SECRETARIES. Each Assistant Secretary shall have the usual powers and duties pertaining to his office, together with such other powers and duties as may be assigned to him by the Board of Directors, the President or the Secretary. The Assistant Secretary or such other person as may be designated by the President shall exercise the powers of the Secretary during that officer's absence or inability to act. SECTION 5.10 TREASURER. The Treasurer shall have the custody of and be responsible for the corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements in the books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation and he shall perform all other duties incident to the position of Treasurer, or as may be prescribed by the Board of Directors or the President. If required by 16 the Board of Directors, he shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. SECTION 5.11 ASSISTANT TREASURERS. Each Assistant Treasurer shall have the usual powers and duties pertaining to his office, together with such other powers and duties as may be assigned to him by the Board of Directors, the President or the Treasurer. The Assistant Treasurer or such other person designated by the President shall exercise the power of the Treasurer during that officer's absence or inability to act. SECTION 5.12 SUBORDINATE OFFICERS. The Board of Directors may (a) appoint such other subordinate officers and agents as it shall deem necessary who shall hold the offices for such terms, have such authority and perform such duties as the Board of Directors may from time to time determine, or (b) delegate to any committee or officer the power to appoint any such subordinate officers or agents. SECTION 5.13 SALARIES AND COMPENSATION. The salary or other compensation of officers shall be fixed from time to time by the Board of Directors. The Board of Directors may delegate to any committee or officer the power to fix from time to time the salary or other compensation of subordinate officers and agents appointed in accordance with the provisions of Section 5.12. ARTICLE VI INDEMNIFICATION SECTION 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. (a) The Corporation (i) shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was, at any time prior to or during which this Article VI is in effect, a director or officer of the Corporation, or is or was, at any time prior to or during which this Article VI is in effect, serving at the request of the Corporation as a director or 17 officer of another corporation, partnership, joint venture, trust, other enterprise or employee benefit plan and (11) upon a determination by the Board of Directors that indemnification is appropriate, the Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was, at any time prior to or during which this Article VI is in effect, an employee or agent of the Corporation or at the request of the Corporation was serving as an employee or agent of another corporation, partnership, joint venture, trust, other enterprise or employee benefit plan, in the case of (i) and (ii) against reasonable expenses (including attorneys' fees), judgments, fines, penalties, amounts paid in settlement and other liabilities actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner he reasonably believed to be 'in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceed', had no reasonable cause to believe that his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The Corporation (i) shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was, at any time prior to or during which this Article VI is in effect, a director or officer of the Corporation, or is or was, at any time prior to or during which this Article VI is in effect, serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise and (ii) upon a determination by the Board of Directors that indemnification is appropriate, the Corporation may indemnify any person who was or is a party I or is threatened to be made a party to any threatened, pending or completed action or suit - by or in the right of the Corporation to procure a judgment in its favor by reason 18 of the fact that such person is or was, at any time prior to or during which this Article VI is in effect, an employee or agent of the Corporation or at the request of the Corporation was serving as an employee or agent of another corporation, partnership, joint venture, trust, other enterprise or employee benefit plan, in the case of (i) and (ii) against expenses (including attorneys' fees), actually and reasonably incur-red by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; provided, that no indemnification shall be made under this sub-section (b) in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery, or other court of appropriate jurisdiction, shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity of such expenses which the Delaware Court of Chancery, or other court of appropriate Jurisdiction, shall deem proper. (c) Any indemnification under sub-sections (a) or (b) (unless ordered by the Delaware Court of Chancery or other court of appropriate jurisdiction) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of such person is proper in the circumstances because he has met the applicable standard of conduct set forth in sub-sections (a) and (b). Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors not parties to such action, suit or proceeding-, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel, in written opinion, selected by the Board of Directors; or (3) by the Stockholders. In the event a determination is made under this sub-section (c) that the director, officer, employee or agent has met the applicable standard of conduct as to some matters but not as to others, amounts to be indemnified may be reasonably prorated. (d) Expenses incurred by a person who is or was a director or officer of the Corporation in appearing at, participating in or defending any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, shall be paid by the Corporation at reasonable intervals in advance of the final disposition of such action, suit 19 or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized by this Article VI. In addition, the Corporation shall pay or reimburse expenses incurred by any person who is or was a director or officer of the Corporation in connection with such person's appearance as a witness or other participant in a proceeding in which such person or the Corporation is not a named party to such proceeding, provided that such appearance or participation is on behalf of the Corporation or by reason of his capacity as a director or officer, or former director or officer of the Corporation. (e) If, in a suit or proceeding for indemnification required under this Article VI of a director or officer, or former director or officer, of the Corporation or any of its affiliates, a court of competent jurisdiction determines that such person is entitled to indemnification under this Article VI, the court shall award, and the Corporation shall pay, to such person the expenses incurred in securing such judicial determination. (f) It is the intention of the Corporation to indemnify the persons referred to in this Article VI to the fullest extent permitted by law and with respect to any action, suit or proceeding arising from events which occur at any time prior to or during which this Article VI is in effect. The indemnification and advancement of expenses by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be or become entitled under any law, the Certificate of Incorporation, these Bylaws, agreement, the vote of Stockholders or disinterested directors or otherwise, or under any policy or policies of insurance purchased and maintained by the Corporation on behalf of any such person, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. (g) The indemnification provided by this Article VI shall be subject to all valid and applicable laws, and, in the event this Article VI or any of the provisions hereof or the indemnification contemplated hereby are found to be inconsistent with or contrary to any such valid laws, the latter shall be deemed to control and this Article VI shall be regarded as modified accordingly, and, as so modified, to continue in full force and effect. 20 ARTICLE VII CAPITAL STOCK SECTION 7.1 CERTIFICATES OF STOCK. Certificates of stock shall be issued to each Stockholder certifying the number of shares owned by him in the Corporation and shall be in a form not inconsistent with the Certificate of Incorporation and as approved by the Board of Directors. The certificates shall be signed by the Chairman of the Board, the President or a Vice President and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. If the Corporation shall be authorized to issue more than one (1) class of stock or more than one (1) series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided by statute, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each Stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 7.2 LOST CERTIFICATES. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the owner of such certificate, or his legal representative. When authorizing the issuance of a new certificate, the 21 Board of Directors may in its discretion, as a condition precedent to the issuance thereof, require the owner, or his legal representative, to give a bond in such form and substance with such surety as it may direct, to indemnify the Corporation against any claim that may be made on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate. SECTION 7.3 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD FOR CERTAIN PURPOSES. (a) In order that the Corporation may determine the Stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of capital stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 days prior to the date of payment of such dividend or other distribution or allotment of such rights or the date when any such rights in respect of any change, conversion or exchange of stock may be exercised or the date of such other action. In such a case, only Stockholders of record on the date so fixed shall be entitled to receive any such dividend or other distribution or allotment of rights or to exercise such rights or for any other purpose, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. (b) If no record date is fixed, the record date for determining Stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. SECTION 7.4 DIVIDENDS. Subject to the provisions of the Certificate of Incorporation, if any, and except as otherwise provided by law, the directors may declare dividends upon the capital stock of the Corporation as and when they deem it to be expedient, Such dividends may be paid in cash, in property or in shares of the Corporation's capital stock. Before declaring any dividend the directors may set apart out of the funds of the Corporation available for dividends such sum or sums as the directors from time to time in their discretion think proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends, or for such other purposes as the directors shall determine to be conducive to the interests of the 22 Corporation and the directors may modify or abolish any such reserve in the manner in which it was created. SECTION 7.5 REGISTERED STOCKHOLDERS. Except as expressly provided by law, the Certificate of Incorporation and these Bylaws, the Corporation shall be entitled to treat registered Stockholders as the only holders and owners in fact of the shares standing in their respective names and the Corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, regardless of whether it shall have express or other notice thereof. SECTION 7.6 TRANSFER OF STOCK. Transfers of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the registered owners thereof, or by their legal representatives or their duty authorized attorneys. Upon any such transfers the old certificates shall be surrendered to the Corporation by the delivery thereof to the person in charge of the stock transfer books and ledgers, by whom they shall be cancelled and new certificates shall thereupon be issued. ARTICLE VIII MISCELLANEOUS PROVISIONS SECTION 8.1 CORPORATE SEAL. If one be adopted, the corporate seal shall have inscribed thereon the name of the Corporation and shall be in such form as may be approved by the Board of Directors. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. SECTION 8.2 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 8.3 CHECKS, DRAFTS, NOTES. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner as shall from time to time be determined by resolution (whether general or special) of the Board of Directors or may be prescribed by any officer or officers, or any officer and agent jointly, thereunto duly authorized by the Board of Directors. 23 SECTION 8.4 NOTICE AND WAIVER OF NOTICE. Whenever notice is required to be given to any director or Stockholder under the provisions of applicable law, the Certificate of Incorporation or of these Bylaws it shall not be construed to only mean personal notice, rather, such notice may also be given in writing, by mail, addressed to such director or Stockholder at his address as it appears on the records of the Corporation, with postage thereon prepaid (unless prior to the mailing of such notice he shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address in which case, such notice shall be mailed to the address designated in the request), and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram, cable or other form of recorded communication, by personal delivery or by telephone, Whenever notice is required to be given under any provision of law, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing, by telegraph, cable or other form of recorded communication, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. SECTION 8.5 EXAMINATION OF BOOKS AND RECORDS. The Board of Directors shall determine from time to time whether, and if allowed, when and under what conditions and regulations the accounts and books of the Corporation (except such as may by statute be specifically opened to inspection) or any of them shall be open to inspection by the Stockholders, and the Stock-holders' rights in this respect are and shall be restricted and limited accordingly. SECTION 8.6 VOTING UPON SHARES HELD BY THE CORPORATION. Unless otherwise provided by law or by the Board of Directors, the Chairman of the Board of Directors, if one shall be elected, or the President, if a Chairman of the Board of Directors shall not be elected, 24 acting on behalf of the Corporation, shall have full power and authority to attend and to act and to vote at any meeting of Stockholders of any corporation in which the Corporation may hold stock and, at any such meeting, shall possess and may exercise any and all of the rights and powers incident to the ownership of such stock which, as the owner thereof, the Corporation might have possessed and exercised, if present. The Board of Directors by resolution from time to time may confer like powers upon any person or persons. ARTICLE IX AMENDMENTS SECTION 9.1 AMENDMENT. Except as otherwise expressly provided in the Certificate of Incorporation, the directors, by the affirmative vote of a majority of the entire Board of Directors and without the assent or vote of the Stockholders, may at any meeting, provided the substance of the proposed amendment shall have been stated in the notice of the meeting, make, repeal, alter, amend or rescind any of these Bylaws. The Stockholders shall not make, repeal, alter, amend or rescind any of the provisions of these Bylaws except by the holders of not less than 80% of the total voting power of all shares of stock of the Corporation entitled to vote in the election of directors, considered for purposes of this Article IX as one class. EX-3.29 6 CERTIFICATE OF INCORPORATION OF PIONEER LICENSING 1 EXHIBIT 3.29 CERTIFICATE OF INCORPORATION OF PIONEER LICENSING, INC. * * * * * 1. The name of the corporation is Pioneer Licensing, Inc. 2. The address of its registered office in the State of Delaware is 900 Market, 2nd Floor, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is Delaware Trust Company. 3. The nature of the business or purposes to be conducted or promoted is to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. The total number of shares of stock which the corporation shall have authority to issue is: One Thousand (1,000) and the par value of such shares one cent ($0.01) amounting in the aggregate to Ten Dollars ($10.00). 5. The board of directors is authorized to make, alter or repeal the by-laws of the corporation. Election of directors need not be by written ballot. 6. The name and mailing address of each incorporator is as follows: NAME MAILING ADDRESS S.A. Seraj 811 Dallas Avenue, Houston, Texas 7. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director expect for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts of or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. 8. The corporation shall indemnify its officers, directors, employees and agents to the extent permitted by the General Corporation Law of Delaware. I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware do make this certificate, hereby declaring certifying that this my act and deed and the facts herein states are true, and according have hereunto set my hand this 15th day of September, 1997. /s/ S.A. Seraj ----------------- S.A. Seraj Sole Incorporator EX-3.30 7 BY-LAWS OF PIONEER LICENSING, INC. 1 EXHIBIT 3.30 BY-LAWS OF Pioneer Licensing, Inc. -------------------------------------- A Delaware Corporation ARTICLE I - OFFICES The registered office of the Corporation in the State of Delaware shall be located in the City and State designated in the Certificate of Incorporation. The Corporation may also maintain offices at such other places within or without the State of Delaware as the Board of Directors may, from time to time determine. Article II - MEETING OF SHAREHOLDERS Section 1 - Annual Meetings: (Section 211) The annual meeting of the shareholders of the Corporation shall be held at the time fixed, from time to time, by the Directors, at the time fixed from time to time by the Directors. Section 2 - Special Meetings: (Section 211) Special meetings of the shareholders may be called by the Board of Directors or such person or persons authorized by the Board of Directors shall be held within or without the State of Delaware. Section 3 - Court-ordered meeting: (Section 211) The Court of Chancery in this State where the Corporation's principal office is located, or where the Corporation's registered office is located if its principal office is not located in this state, may after notice to the Corporation, order a meeting to be held on application of any Director or shareholder of the Corporation entitled to vote in an annual meeting if an annual meeting has not been held within any thirteen month period if there is a failure by the Corporation to hold an annual meeting for a period of thirty days after the date designated therefor, or if no date has been designated, for a period of thirteen months after the organization of the Corporation or after its last annual meeting. The court may fix the time and place of the meeting, determine the shares entitled to participate in the meeting, specify a record date for determining shareholders entitled to notice of and to vote at the meeting, prescribe the form and content of the meeting notice, and enter other orders a may be appropriate. - ----------------- * All references to Sections in these By Laws refer to those sections contained in the Delaware General Corporation Law. DE By-Laws 1 2 Section 4 - Place of Meetings: (Section 211) Meetings of shareholders shall be held at the registered office of the Corporation, or at such other places, within or without the State of Delaware as the Directors may from time to time fix. If no designation is made, the meeting shall be held at the Corporation's registered office in the state of Delaware. Section 5 - Notice of Meetings: (Section 222) (a) Written or printed notice of each meeting of shareholders, whether annual or special, stating the time when and place where it is to be held, shall be served either personally or by first class mail, by or at the direction of the president, the secretary, or the officer or the person calling the meeting, not less than ten or more than sixty days before the date of the meeting unless the lapse of the prescribed time shall have been waived before or after the taking of such action, upon each shareholder of record entitled to vote at such meeting, and to any other shareholder to whom the giving of notice may be required by law. Notice of a special meeting shall also state the business to be transacted or the purpose or purposes for which the meeting is called, and shall indicate that it is being issued by, or at the direction of, the person or persons calling the meeting. If, at any meeting, action is proposed to be taken that would, if taken, entitle shareholders to dissent and receive payment for their shares pursuant to the Delaware General Corporation Law, the notice of such meeting shall include a statement of that purpose and to that effect. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder as it appears on the share transfer records of the Corporation. Section 6 - Shareholders' List: (Section 219) (a) After fixing a record date for a meeting, the officer who has charge of the stock ledger of the Corporation, shall prepare an alphabetical list of the names of all its shareholders entitled to notice of the meeting, arranged by voting group with the address of, and the number, class, and series, if any, of shares held by, each shareholder. The shareholders' list must be available for inspection by any shareholder for a period of ten days before the meeting or such shorter time as exists between the record date and the meeting and continuing through the meeting at the Corporation's principal office, at a place identified in the meeting notice in the city where the meeting will be held, or at the office of the Corporation's transfer agent or registrar. Any shareholder of the Corporation or the shareholder's agent or attorney is entitled on written demand to inspect the shareholders' list during regular business hours and at the shareholder's expense, during the period it is available for inspection. (b) The Corporation shall make the shareholder's list available at the meeting of shareholders, and any shareholder or the shareholder's agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment. (c) Upon the willful neglect or refusal of the Directors to produce such a list at any meeting for the election of Directors, such Directors shall be ineligible for election for any office at such DE By-Laws 2 3 meeting. (d) The stock ledger shall be the only evidence as to who are the shareholders entitled to examine the stock ledger, the list required by Section 219 of the Delaware General Corporation Law or the books of the Corporation, or to vote in person or by proxy at any shareholders' meeting. Section 7 - Quorum: (Section 216) (a) Except as otherwise provided herein, or by law, or in the Certificate of Incorporation (such Articles and any amendments thereof being hereinafter collectively referred to as the "Certificate of Incorporation"), or for meetings ordered by the Court of Chancery called pursuant to Section 211 of the Delaware General Corporations Law, a quorum shall be present at all meetings of shareholders of the Corporation, if the holders of a majority of the shares entitled to vote on that matter are represented at the meeting in person or by proxy. (b) The subsequent withdrawal of any shareholder from the meeting, after the commencement of a meeting, or the refusal of any shareholder represented in person or by proxy to vote, shall have no effect on the existence of a quorum, after a quorum has been established at such meeting. (c) Despite the absence of a quorum at any meeting of shareholders, the shareholders present may adjourn the meeting. Section 8 - Voting: (Section 212 & 216) (a) Except as otherwise provided by law, the Certificate of Incorporation, or these Bylaws, any corporate action, other than the election of Directors, the affirmative vote of the majority of shares entitled to vote on that matter and represented either in person or by proxy at a meeting of shareholders at which a quorum is present shall be the act of the shareholders of the Corporation. (b) Unless otherwise provided for in the Articles of Incorporation of this Corporation, directors will be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present and each shareholder entitled to vote has the right to vote the number of shares owned by him for as many persons as there are Directors to be elected. Unless otherwise provided for in the Certificate of Incorporation of this Corporation, Directors will be elected by a plurality of the votes by the shares, present in person or by proxy, entitled to vote in the election at a meeting at which a quorum is present and each shareholder entitled to vote has the right to vote the number of shares owned by him/her for as may persons as there are Directors to be elected. (c) Except as otherwise provided by statute, the Certificate of Incorporation, or these bylaws, at each meeting of shareholders, each shareholder of the Corporation entitled to vote thereat, shall be entitled to one vote for each share registered in his name on the books of the Corporation. DE By-Laws 3 4 Section 9 - Proxies: (Section 212) Each shareholder entitled to vote or to express consent or dissent without a meeting, may do so either in person or by proxy, so long as such proxy is executed in writing by the shareholder himself, or by his attorney-in-fact thereunto duly authorized in writing. Every proxy shall be revocable at will unless the proxy conspicuously states that it is irrevocable and the proxy is coupled with an interest. A telegram, telex, cablegram, or similar transmission by the shareholder, or as a photographic, photostatic, facsimile, shall be treated as a valid proxy, and treated as a substitution of the original proxy, so long as such transmission is a complete reproduction executed by the shareholder. No proxy shall be valid after the expiration of three years from the date of its execution, unless otherwise provided in the proxy. Such instrument shall be exhibited to the Secretary at the meeting and shall be filed with the records of the Corporation. Section 10 - Action Without a Meeting: (Section 228) Unless otherwise provided for in the Certificate of Incorporation of the Corporation, any action to be taken at any annual or special shareholders' meeting, may be taken without a meeting, without prior notice and without a vote if a written consent or consents is/are signed by the shareholders of the Corporation having not less than the minimum number of votes necessary to authorize or take such action at a meeting at which all shares entitled to vote thereat were present and voted is delivered by hand or by certified or registered mail, return receipt requested, to the Corporation to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of shareholders' meetings are recorded. Section 11 - Inspectors: (Section 231) (a) The Corporation shall appoint one or more inspectors, and one or more alternate inspectors, to act at any shareholder meeting and make a written report thereof, so long a such inspectors sign an oath to faithfully execute their duties with impartiality and to the best of their ability before such meeting. if no inspector or alternate is able to act a shareholder meeting, the presiding officer shall appoint one or more inspectors to act at the meeting. *(b) The inspector shall: (I) ascertain the number of shares entitled to vote and the voting power of each such shareholder; (II) determine the shares represented at a meeting and the validity of proxies and ballots; (III) count all votes and ballots; (IV) determine and retain for a reasonable time a disposition record of any challenges made to any of the inspectors' determinations; and (V) certify the inspectors' determinations of the number of shares represented at the meeting and their count of all votes and ballots. DE By-Laws 4 5 ARTICLE III - BOARD OF DIRECTORS Section 1 - Number, Term, Election and Qualifications: (Section 141) (a) The first Board of Directors and all subsequent Boards of the Corporation shall consist of _____________, unless and until otherwise determined by vote of a majority of the entire Board of Directors. The Board of Directors or shareholders all have the power, in the interim between annual and special meetings of the shareholders, to increase or decrease the number of Directors of the Corporation. A Director need not be a shareholder of the Corporation unless the Certificate of Incorporation of the Corporation or these Bylaws require. (b) Except as may otherwise be provided herein or in the Certificate of Incorporation, the members of the Board of Directors of the Corporation shall be elected at the first annual shareholders' meeting and at each annual meeting thereafter. unless their terms are staggered in the Certificate of Incorporation of the Corporation or these Bylaws, by a majority of the votes cast at a meeting of shareholders, by the holders of shares entitled to vote in the election. (c) The first Board of Directors shall hold office until the first annual meeting of shareholders and until their successors have been duly elected and qualified or until there is a decrease in the number of Directors. Thereinafter, Directors will be elected at the annual meeting of shareholders and shall hold office until the annual meeting of the shareholders next succeeding his election, or until his prior death, resignation or removal. Any Director may resign at any time upon written notice of such resignation to the Corporation. *NOTE: Article II Section 1 Subsection (b) of these Bylaws shall not be used in the Corporation's Bylaws unless the Corporation has one or more classes of voting stock that are: (i) listed on a national exchange; (ii) authorized for quotation on an interdealer quotation system of a registered national securities association; or (iii) held by more than two thousand shareholder of record of the Corporation. Section 2 - Duties and Powers: (Section 141) The Board of Directors shall be responsible for the control and management of the business and affairs, property and interests of the Corporation, and may exercise all powers of the Corporation, except such as those stated under Delaware state law, are in the Certificate of Incorporation or by these Bylaws, expressly conferred upon or reserved to the shareholders or any other person or persons named therein. Section 3 - Regular Meetings; Notice: (a) A regular meeting of the Board of Directors shall be held either within or without the State of Delaware at such time and at such place as the Board shall fix. (b) No notice shall be required of any regular meeting of the Board of Directors and, if given, need not specify the purpose of the meeting; provided, however, that in case the Board of Directors shall fix or change the time or place of any regular meeting when such time and place was fixed before such change, notice of such action shall be given to each director who shall not have been present at the meeting at which such action was taken within the time limited, and in the DE By-Laws 5 6 manner set forth in these Bylaws with respect to special meetings, unless such notice shall be waived in the manner set forth in these Bylaws. Section 4 - Special Meetings; Notice: (a) Special meetings of the Board of Directors shall be held at such time and place as may be specified in the respective notices or waivers of notice thereof. (b) Except as otherwise required statute, written notice of special meetings shall be mailed directly to each Director, addressed to him at his residence or usual place of business, or delivered orally, with sufficient time for the convenient assembly of Directors thereat, or shall be sent to him at such place by telegram, radio or cable, or shall be delivered to him personally or given to him orally, not later than the day before the day on which the meeting is to be held. If mailed, the notice of any special meeting shall be deemed to be delivered on the second day after it is deposited in the United States mails, so addressed, with postage prepaid. If notice is given by telegram, it shall be deemed to be delivered when the telegram is delivered to the telegraph company. A notice, or waiver of notice, except as required by these Bylaws, need not specify the business to be transacted at or the purposes or purposes of the meeting. (c) Notice of any special meeting shall not be required to be given to any Director who shall attend such meeting without protesting prior thereto or at its commencement, the lack of notice to him, or who submits a signed waiver of notice, whether before or after the meeting. Notice of any adjourned meeting shall not be required to be given. (d) Unless otherwise stated in the Articles of Incorporation of the Corporation, the Chairperson, President, Treasurer, Secretary or any two or more Directors of the Corporation may call any special meeting of the Board of Directors. Section 5 - Chairperson: The Chairperson of the Board, if any and if present, shall preside at all meetings of the Board of Directors. If there shall be no Chairperson, or he or she shall be absent, then the President shall preside, and in his absence, any other director chosen by the Board of Directors shall preside. Section 6 - Quorum and Adjournments: (Section 141) (a) At all meetings of the Board of Directors, or any committee thereof, the presence of a majority of the entire Board, or such committee thereof, shall constitute a quorum for the transaction of business, except as otherwise provided by law, by the Certificate of Incorporation, or these Bylaws. (Note: If the Certificate of Incorporation authorize a quorum to consist of less than a majority, but no fewer than one-third of the prescribed number of Directors as permitted by law except that when a card of one Director is authorized under Section 141 of the Delaware General Corporation Law, then one Director shall constitute a quorum or if the Certificate of Incorporation and/or Bylaws require a greater number than a majority as constituting a quorum then these Bylaws would state that this lesser or greater amount, instead of a majority, will constitute a quorum.) DE By-Laws 6 7 (b) A majority of the directors present at the time and place of any regular or special meeting, although less than a quorum, may adjourn the same from time to time without notice, whether or not a quorum exists. Notice of such adjourned meeting shall be given to Directors not present at time of the adjournment and, unless the time and place of the adjourned meeting are announced at the time of the adjournment, to the other Directors who were present at the adjourned meeting. Section 7 - Manner of Acting: (Section 141) (a) At all meetings of the Board of Directors, each director present shall have one vote, irrespective of the number of shares of stock, if any, which he may hold. (b) Except as otherwise provided by law, by the Certificate of Incorporation, or these By Laws, action approved by a majority of the votes of the Directors present at any meeting of the Board or any committee thereof, at which a quorum is present shall be the act of the Board of Directors or any committee thereof. (c) Any action authorized in writing made prior or subsequent to such action, by all of the directors entitled to vote thereon and filed with the minutes of the Corporation shall be the act of the Board of Directors, or any committee thereof, and have the same force and effect as if the same had been passed by unanimous vote at a duly called meeting of the Board or for all purposes and may be stated as such in any certificate or document filed with the Secretary of the State of Delaware. (d) Where appropriate communications facilities are reasonably available, any or all directors shall have the right to participate in any Board of Directors meeting, or a committee of the Board of Directors meeting, by means of conference telephone or any means of communications by which all persons participating in the meeting are able to hear each other. Section 8 - Vacancies: (Section 223) (a) Any vacancy in the Board of Directors occurring by reason of an increase in the number of directors, or by reason of the death, resignation, disqualification, removal or inability to act of any director, or other cause, shall be filled by an affirmative vote of a majority of the remaining directors, though less than a quorum of the Board or by a sole remaining Director, at any regular meeting or special meeting of the Board of Directors called for that purpose except whenever the shareholders of any class or classes or series thereof are entitled to elect one or more Directors by the Certificate of Incorporation of the Corporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the Directors elected by such class or classes or series thereof then in office, or by a sole remaining Director so elected. (b) If at any time, by reason of death or resignation or other cause, the Corporation shall have no Directors in office, then an officer or any shareholder or an executor, administrator, trustee, or guardian of a shareholder, or other fiduciary entrusted with like responsibility for the person or estate of a shareholder, may call a special meeting of shareholders to fill such vacancies or may apply to the Court of Chancery for a decree summarily ordering an election. (c) If the Directors of the Corporation constitute less than a majority of the whole Board, the DE By-Laws 7 8 Court of Chancery may, upon application of any shareholder or shareholders holding at least ten percent of the total number of shares entitled to vote for Directors, order an election to be held to fill any such vacancies or newly created directorships. (d) Unless otherwise provided for by statute, the Certificate of Incorporation or these Bylaws, when one or more directors shall resign from the board and such resignation is effective at a future date, a majority of the directors, then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote otherwise to take effect when such resignation or resignations shall become effective. Section 9 - Resignation: The shareholders may, at any meeting, vote to accept the resignation of any Director. Section 10 - Removal: (Section 141) One or more or all the Directors of the Corporation may be removed with or without cause at any time by the shareholders, at a special meeting of the shareholders called for that purpose, unless the Certificate of Incorporation provide that Directors may only be removed for cause, provided however, such Director shall not be removed if the Corporation's states in its Certificate of Incorporation that its Directors shall be elected by cumulative voting and there are a sufficient number of shares cast against his or her removal, which if cumulatively voted at an election of Directors would be sufficient to elect him or her. If a Director was elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove that Director. Section 11 - Compensation: (Section 141) The Board of Directors may authorize and establish reasonable compensation of the Directors for services to the Corporation as Directors, including, but not limited to attendance at any annual or special meeting of the Board. Section 12 - Committees: (Section 141) The Board of Directors, by resolution adopted by a majority of the entire Board, may from time to time designate from among its members one or more committees, and alternate members thereof, as they deem desirable, each consisting of one or more members, with such powers and authority (to the extent permitted by law and these Bylaws) as may be provided in such resolution. Each such committee shall serve at the pleasure of the Board and, unless otherwise stated by law, the Certificate of Incorporation of the Corporation or these Bylaws, shall be governed by the rules and regulations stated herein regarding the Board of Directors. DE By-Laws 8 9 ARTICLE IV - OFFICERS Section 1 - Number, Qualifications, Election and Term of Office: (Section 142) (a) The Corporation's officers shall have such titles and duties as shall be stated in these Bylaws or in a resolution of the Board of Directors which is not inconsistent with these Bylaws. The officers of the Corporation shall consist an officer whose duty is to record proceedings of shareholders' and Directors' meetings and such other officers as the Board of Directors may from time to time deem advisable. Any officer other than the Chairman of the Board of Directors may be, but is not required to be, a Director of the Corporation, Any two or more offices may be held by the same person. (b) The officers of the Corporation shall be elected by the Board of Directors at the regular annual meeting of the Board following the annual meeting of shareholders. (c) Each officer shall hold office until the annual meeting of the Board of Directors next succeeding his election, and until his successor shall have been duly elected and qualified, subject to earlier termination by his or her death, resignation or removal. Section 2 - Resignation: (Section 142) Any officer may resign at any time by giving written notice of such resignation to the Corporation. Section 3 - Removal: (Section 142) Any officer elected by the Board of Directors may be removed, either with or without cause, and a successor elected by the Board at any time, and any officer or assistant officer, if appointed by another officer, may likewise be removed by such officer. Section 4 - Vacancies: (Section 142) (a) A vacancy, however caused, occurring in the Board and any newly created Directorships resulting from an increase in the authorized number of Directors may be filled by the Board of Directors. Section 5 - Bonds: (Section 142) The Corporation may require any or all of its officers or Agents to post a bond, or otherwise, to the Corporation for the faithful performance of their positions or duties. Section 6 - Compensation The compensation of the officers of the Corporation shall be fixed from time to time by the Board of Directors. DE By-Laws 9 10 ARTICLE V - SHARES OF STOCK Section 1 - Certificate of Stock: (a) The shares of the Corporation shall be represented by certificates or shall be uncertificated shares. (b) Certificated shares of the Corporation shall be signed, (either manually or by facsimile), by the Chairperson, Vice-Chairperson, President or Vice-President and Secretary or an Assistant Secretary or the Treasurer or Assistant Treasurer, or any other Officer designated by the Board of Directors, certifying that the number of shares owned by him or her in the Corporation, provided however that where such certificate is signed by a transfer agent or an assistant transfer agent or by a transfer clerk acting on behalf of the Corporation and a registrar, any such signature may be a facsimile thereof. In case any officer who has signed or whose facsimile signature has been placed upon such certificate, shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue. (c) Certificates shall be issued in such form not inconsistent with the Certificate of Incorporation and as shall be approved by the Board of Directors. Such certificates shall be numbered and registered on the books of the Corporation, in the order in which they were issued. (d) Except as otherwise provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing shares of the same class and series shall be identical. Section 2 - Lost or Destroyed Certificates: The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed if the owner: (a) so requests before the Corporation has notice that the shares have been acquired by a bona fide purchaser, (b) files with the Corporation a sufficient indemnity bond; and (c) satisfies such other requirements, including evidence of such loss, theft or destruction, as may be imposed by the Corporation. Section 3 - Transfers of Shares: (Section 201) (a) Transfers or registration of transfers of shares of the Corporation shall be made on the stock transfer books of the Corporation by the registered holder thereof, or by his attorney duly authorized by a written power of attorney; and in the case of shares represented by certificates, only after the surrender to the Corporation of the certificates representing such shares with such shares properly endorsed, with such evidence of the authenticity of such endorsement, transfer, authorization and other matters as the Corporation may reasonably require, and the payment of all stock transfer taxes due thereon. (b) The Corporation shall be entitled to treat the holder of record of any share or shares as the DE By-Laws 10 11 absolute owner thereof for all purposes and, accordingly, shall not be bound to recognize any legal, equitable or other claim to, or interest in, such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law. Section 4 - Record Date: (Section 213) (a) The Board of Directors may fix, in advance, which shall not be more than sixty, nor less than ten days before the meeting or action requiring a determination of shareholders, as the record date for the determination of shareholders entitled to receive notice of, or to vote at, any meeting of shareholders, or to consent to any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividends, or allotment of any rights, or for the purpose of any other action. If no record date is fixed, the record date for a shareholders entitled to notice of meeting shall be at the close of business on the day preceding the day on which notice is given, or, if no notice is given, the day on which the meeting is held, or if notice is waived, at the close of business on the day before the day on which the meeting is held. (b) The Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted for shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights of shareholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, provided that such record date shall not be more than sixty days before such action. (c) The Board of Directors may fix, in advance, a date which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date is fixed and no prior action is required by the Board, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery by hand or by certified or registered mail, return receipt requested, to its registered office in this State, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of shareholders are recorded. If no record date is fixed by the Board of Directors and prior action is required by law, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (d) A determination of shareholders entitled to notice of or to vote at a shareholders' meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting. DE By-Laws 11 12 ARTICLE VI - DIVIDENDS (Section 173) Subject to applicable law, dividends may be declared and paid out of any funds available therefor, as often, in such amounts, and at such time or times as the Board of Directors may determine. ARTICLE VII - FISCAL YEAR The fiscal year of the Corporation shall be fixed, and shall be subject to changed by the Board of Directors from time to time, subject to applicable law. ARTICLE VIII - CORPORATE SEAL [Section 607.0302(2)] The corporate seal, if any, shall be in such form as shall be prescribed and altered, from time to time, by the Board of Directors. ARTICLE IX - AMENDMENTS Section 1 - Initial Bylaws: The initial Bylaws of the Corporation shall be adopted by the Board of Directors at its organizational meeting. Section 2 - By Shareholders: All by-laws of the Corporation shall be subject to alteration or repeal, and new by-laws may be made, by a majority vote of the shareholders at the time entitled to vote in the election of directors even though these Bylaws may also be altered, amended or repealed by the Board of Directors. Section 3 - By Directors: The Board of Directors shall have power to make, adopt, alter, amend and repeal, from time to time, by-laws of the Corporation; however, Bylaws made by the Board may be altered or repealed, and new Bylaws made by the shareholders. ARTICLE X - WAIVER Of NOTICE: (Section 229) Whenever any notice is required to be given by law, the Certificate of Incorporation or these Bylaws of any these Bylaws, meeting of shareholders, Board of Directors, or committee thereof, or attendance at the meeting by any person, shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of shareholders, Directors or committee thereof need by specified in any written waiver of notice. DE By-Laws 12 13 ARTICLE XI - INTERESTED DIRECTORS: (Section 144) No contract or transaction shall be void or voidable if such contract or transaction is between the corporation and one or more of its Directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its Directors or officers, are directors or officers, or have a financial interest, when such Director or officer is present at or participates in the meeting of the Board of committee which authorizes the contract or transaction or his, her or their votes are counted for such purpose, if: (a) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum; or (b) the material facts as to his, her or their relationship or relationships or interest or interests and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee or the shareholders. Such interested Directors may be counted when determining the presence of a quorum at the Board of Directors' or committee meeting authorizing the contract or transaction. ARTICLE XII - FORM OF RECORDS: (Section 224) Any records maintained by the Corporation in its regular course of business, including, but not limited to, its stock ledger, books of account and minute book, may be kept on, or be in the form of punch cards, magnetic tape, photographs, micro-photographs or any other information storage device, provided that the records so kept may be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any of such records so kept upon the request of any person entitled to inspect the same. DE By-Laws 13 EX-4.1 8 INDENTURE, DATED AS OF 10/31/97 1 EXHIBIT 4.1 PCI CHEMICALS CANADA INC. as Issuer, PIONEER AMERICAS ACQUISITION CORP., PIONEER AMERICAS, INC., PIONEER CHLOR ALKALI COMPANY, INC., IMPERIAL WEST CHEMICAL CO., ALL-PURE CHEMICAL CO., BLACK MOUNTAIN POWER COMPANY, ALL PURE CHEMICAL NORTHWEST, INC., PIONEER CHLOR ALKALI INTERNATIONAL, INC., G.O.W. CORPORATION, PIONEER (EAST), INC., T.C. HOLDINGS, INC., T.C. PRODUCTS, INC., PCI CAROLINA, INC., PIONEER LICENSING, INC., as Guarantors and UNITED STATES TRUST COMPANY OF NEW YORK as Trustee and UNITED STATES TRUST COMPANY OF NEW YORK as Collateral Agent INDENTURE Dated as of October 30, 1997 ---------------------------- $175,000,000 9 1/4% Senior Secured Notes due 2007 2 TABLE OF CONTENTS
Page ---- PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 All-Pure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Asset Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Asset Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Attributable Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Bankruptcy Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Black Mountain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Board Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Canadian Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Capitalized Lease Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Collateral Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Collateral Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Company Request" or "Company Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Consolidated Cash Flow Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Consolidated Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Consolidated Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Contingent Payment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Corporate Trust Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Equity Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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Page ---- Equity Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Excess Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Exchange Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Exchange Offer Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Execution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Existing Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Existing Senior Secured Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Existing Senior Secured Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Existing Term Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Hedging Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ICI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ICI Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ICI Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Imperial West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 incur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Indenture Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Independent Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Initial Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Initial Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Intercreditor Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Intercreditor Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Interest Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Kemwater . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Majority Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Mortgaged Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Net Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Net Cash Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Net Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 New Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Offering Memorandum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Opinion of Independent Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Page ---- Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 PAAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 PAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 PCAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 PCI Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Permitted Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Permitted Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Pioneer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Predecessor Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Private Placement Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 QIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Quebec Mortgage and Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Redeemable Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Regular Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Related Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Resale Restriction Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Restoration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Restricted Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Restricted Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Revolving Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Rule 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 St. Gabriel Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 St. Gabriel Pipeline Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Sale and Leaseback Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Secured Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Security Register" and "Security Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Seller Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Shelf Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Special Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Substantial Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Tax Sharing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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Page ---- Term Loan Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Term Loan Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Term Loan Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Trust Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Unrestricted Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Voting Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Wholly-Owned Restricted Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 102. Other Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 103. Compliance Certificates and Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 104. Form of Documents Delivered to Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 105. Acts of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 106. Notices, etc., to Trustee, the Company and any Guarantor. . . . . . . . . . . . . . . . . . 36 Section 107. Notice to Holders; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 108. Conflict with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 109. Effect of Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 110. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 111. Separability Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 112. Benefits of Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 113. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 114. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 115. Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 116. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 117. Communication by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 118. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE TWO SECURITY FORMS Section 201. Forms Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 202. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 203. Form of Face of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 204. Form of Reverse of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 205. Form of Trustee's Certificate of Authentication. . . . . . . . . . . . . . . . . . . . . . 51 Section 206. Form of Guarantee of Each of the Guarantors. . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE THREE THE SECURITIES Section 301. Title and Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 302. Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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Page ---- Section 303. Execution, Authentication, Delivery and Dating. . . . . . . . . . . . . . . . . . . . . . . 56 Section 304. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 305. Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 306. Book-Entry Provisions for U.S. Global Security . . . . . . . . . . . . . . . . . . . . . . 59 Section 307. Special Transfer Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 308. Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . . . . . . . . . . . . . 63 Section 309. Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . . . . . 64 Section 310. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 311. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 312. Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 313. Deposit of Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 314. CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 315. Interest Under Criminal Code (Canada) . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 ARTICLE FOUR DEFEASANCE AND COVENANT DEFEASANCE Section 401. Company's Option to Effect Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . 67 Section 402. Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 403. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 404. Conditions to Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . 69 Section 405. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 406. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Section 407. Repayment of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 ARTICLE FIVE REMEDIES Section 501. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Section 502. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 503. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Section 504. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Section 505. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 506. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 507. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 508. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 509. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 510. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Section 511. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 512. Waiver of Stay, Extension or Usury Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 81
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ARTICLE SIX THE TRUSTE Page ---- Section 601. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Section 602. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Section 603. Trustee Not Responsible for Recitals, Dispositions of Securities or Application of Proceeds Thereof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Section 604. Trustee and Agents May Hold Securities; Collections; etc. . . . . . . . . . . . . . . . . . 84 Section 605. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Section 606. Compensation and Indemnification of Trustee and Its Prior Claim . . . . . . . . . . . . . . 85 Section 607. Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 608. Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 609. Resignation and Removal; Appointment of Successor Trustee . . . . . . . . . . . . . . . . . 86 Section 610. Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Section 611. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . 89 Section 612. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . 90 Section 613. Certain Duties and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 701. Company to Furnish Trustee Names and Addresses of Holders . . . . . . . . . . . . . . . . . 90 Section 702. Disclosure of Names and Addresses of Holders . . . . . . . . . . . . . . . . . . . . . . . 91 Section 703. Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Section 704. Reports by Company and Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE Section 801. When the Company May Merge, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Section 802. Successor Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 ARTICLE NINE SUPPLEMENTAL INDENTURES Section 901. Supplemental Indentures and Agreements without Consent of Holders . . . . . . . . . . . . . 95
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Page ---- Section 902. Supplemental Indentures and Agreements with Consent of Holders . . . . . . . . . . . . . . 96 Section 903. Execution of Supplemental Indentures and Agreements . . . . . . . . . . . . . . . . . . . . 98 Section 904. Revocation Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . 98 Section 905. Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Section 906. Reference in Securities to Supplemental Indentures . . . . . . . . . . . . . . . . . . . . 99 ARTICLE TEN COVENANTS Section 1001. Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . 99 Section 1002. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Section 1003. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Section 1004. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Section 1005. Jurisdiction, Service of Process and Venue; Immunity; Judgement Currency. . . . . . . . . . 101 Section 1006. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Section 1007. Limitations on Payment Restrictions Affecting Restricted Subsidiaries . . . . . . . . . . . 107 Section 1008. Limitations on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Section 1009. Limitations on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Section 1010. Limitation on Sale and Leaseback Transactions . . . . . . . . . . . . . . . . . . . . . . . 112 Section 1011. Limitation on Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 113 Section 1012. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Section 1013. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Section 1014. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Section 1015. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Section 1016. Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Section 1017. Stock Pledge Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Section 1018. Money for Security Payments to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . . 121 Section 1019. Certain Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Section 1020. Limitation on Ownership of Wholly-Owned Restricted Subsidiary Stock . . . . . . . . . . . . 124 Section 1021. Impairment of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Section 1022. Amendment to Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Section 1023. Limitation on Applicability of Certain Covenants. . . . . . . . . . . . . . . . . . . . . . 125 Section 1024. Additional Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Section 1025. Pension Transfer Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
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ARTICLE ELEVEN REDEMPTION OF SECURITIES Page ---- Section 1101. Rights of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Section 1102. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 Section 1103. Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 Section 1104. Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . . 129 Section 1105. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 Section 1106. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Section 1107. Securities Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Section 1108. Securities Redeemed or Purchased in Part . . . . . . . . . . . . . . . . . . . . . . . . . 131 Section 1109. Asset Sale Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 ARTICLE TWELVE SATISFACTION AND DISCHARGE Section 1201. Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Section 1202. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 ARTICLE THIRTEEN GUARANTEE Section 1301. Guarantors' Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Section 1302. Continuing Guarantee; No Right of Set-Off; Independent Obligation . . . . . . . . . . . . . 137 Section 1303. Guarantee Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Section 1304. Right to Demand Full Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Section 1305. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Section 1306. The Guarantors Remain Obligated in Event the Company Is No Longer Obligated to Discharge Indenture Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Section 1307. Fraudulent Conveyance; Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Section 1308. Guarantee Is in Addition to Other Security . . . . . . . . . . . . . . . . . . . . . . . . 142 Section 1309. Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Section 1310. No Bar to Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Section 1311. Failure to Exercise Rights Shall Not Operate as a Waiver . . . . . . . . . . . . . . . . . 143 Section 1312. Trustee's Duties; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Section 1313. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Section 1314. Release of Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Section 1315. Execution of Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Section 1316. Payment Permitted by Each of the Guarantors if No Default . . . . . . . . . . . . . . . . . 144
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Page ---- Section 1317. Notice to Trustee by Each of the Guarantors . . . . . . . . . . . . . . . . . . . . . . . . 144 Section 1318. Article Applicable to Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Section 1319. No Suspension of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 ARTICLE FOURTEEN SECURITY Section 1401. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 Section 1402. Recording; Priority; Opinions, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Section 1403. Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 Section 1404. Trust Indenture Act Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 Section 1405. Suits to Protect Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 Section 1406. Determinations Relating to Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Section 1407. Trust Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Section 1408. Power of Attorney for Collateral in Quebec . . . . . . . . . . . . . . . . . . . . . . . . 151
SCHEDULE 1 Existing Affiliate Agreements SCHEDULE 2 Existing Indebtedness (ix) 11 Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of October 30, 1997
Trust Indenture Indenture Act Section Section Section 310(a)(1) . . . . . . . . . . . . . . . . . . 608 (a)(2) . . . . . . . . . . . . . . . . . . 608 (a)(3) . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . 607, 609 (c) . . . . . . . . . . . . . . . . . . N.A. Section 311(a) . . . . . . . . . . . . . . . . . . 612 (b) . . . . . . . . . . . . . . . . . . 612 (c) . . . . . . . . . . . . . . . . . . N.A. Section 312(a) . . . . . . . . . . . . . . . . . . 701 (b) . . . . . . . . . . . . . . . . . . 117 (c) . . . . . . . . . . . . . . . . . . 117 Section 313(a) . . . . . . . . . . . . . . . . . . 703 (b)(1) . . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . . 703 (c) . . . . . . . . . . . . . . . . . . 703 (d) . . . . . . . . . . . . . . . . . . 703 Section 314(a) . . . . . . . . . . . . . . . . . . 704, 1003 (b) . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . 103 (c)(2) . . . . . . . . . . . . . . . . . . 103 (c)(3) . . . . . . . . . . . . . . . . . . 103 (d) . . . . . . . . . . . . . . . . . . 103 (e) . . . . . . . . . . . . . . . . . . 103 (f) . . . . . . . . . . . . . . . . . . N.A. Section 315(a) . . . . . . . . . . . . . . . . . . 602, 613, 903 (b) . . . . . . . . . . . . . . . . . . 601, 602, 903 (c) . . . . . . . . . . . . . . . . . . 602, 903 (d) . . . . . . . . . . . . . . . . . . 602, 903 (e) . . . . . . . . . . . . . . . . . . 512 Section 316(a)(last sentence) . . . . . . . . . . . . . . . . . . 101 ("Outstanding") (a)(1)(A) . . . . . . . . . . . . . . . . . . 502, 505 (a)(1)(B) . . . . . . . . . . . . . . . . . . 504 (a)(2) . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . 507 (c) . . . . . . . . . . . . . . . . . . 105 Section 317(a)(1) . . . . . . . . . . . . . . . . . . 508 (a)(2) . . . . . . . . . . . . . . . . . . 509 (b) . . . . . . . . . . . . . . . . . . N.A. Section 318(a) . . . . . . . . . . . . . . . . . . 310
N.A. means not applicable. - ------------------------------------ Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture. 12 INDENTURE, dated as of October 30, 1997, (the "Indenture") among PCI CHEMICALS CANADA INC., a New Brunswick, Canada corporation (the "Company"), PIONEER AMERICAS ACQUISITION CORP. ("PAAC"), PIONEER AMERICAS, INC., PIONEER CHLOR ALKALI COMPANY, INC., each a Delaware corporation, IMPERIAL WEST CHEMICAL CO., a Nevada corporation, ALL-PURE CHEMICAL CO., a California corporation, BLACK MOUNTAIN POWER COMPANY, a Texas corporation, ALL PURE CHEMICAL NORTHWEST, INC., a Washington corporation, PIONEER CHLOR ALKALI INTERNATIONAL, INC., a Barbados corporation, G.O.W. CORPORATION, a Nevada corporation, PIONEER (EAST), INC., a Delaware corporation, T.C. HOLDINGS, INC., a New Mexico corporation, T.C. PRODUCTS, INC., a Washington corporation, PCI CAROLINA, INC., a Delaware corporation, PIONEER LICENSING, INC., a Delaware corporation (collectively, the "Guarantors"), and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee (the "Trustee") and as collateral agent (the "Collateral Agent"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of 9 1/4% Senior Secured Notes due 2007, Series A (the "Initial Securities") and 9 1/4% Senior Secured Notes due 2007, Series B (the "Exchange Notes" and together with the Initial Securities, the "Securities"), of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture and the Securities. Each Guarantor has duly authorized the issuance of a guarantee (the "Guarantees") of the Securities, of substantially the tenor hereinafter set forth, and to provide therefor, each Guarantor has duly authorized the execution and delivery of this Indenture and the Guarantee. This Indenture is subject to, and shall be governed by, the provisions of the Trust Indenture Act that are required to be part of and to govern indentures qualified under the Trust Indenture Act. All things necessary have been done to make (i) the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, (ii) the Guarantees, when executed by each of the Guarantors and authenticated and delivered hereunder, the valid obligation of each of the Guarantors and (iii) this Indenture a valid agreement of the Company and each of the Guarantors in accordance with the terms of this Indenture. 13 NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is covenanted and agreed, for the benefit of each other and for the equal and proportionate benefit of the Holders of the Securities issued under this Indenture, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (e) all references to $, US$, dollars or United States dollars shall refer to the lawful currency of the United States of America. "Acquisition" means the acquisition by Pioneer and its subsidiaries of substantially all the assets and properties used by ICI Canada and ICI Americas, subsidiaries of ICI, in their North American chlor-alkali business pursuant to the Asset Purchase Agreement. "Affiliate" means, with respect to any party, any Person directly or indirectly controlling or controlled by or under direct or indirect common control with such party including any estate or trust under will of such party. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the - 2 - 14 possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 5% or more of the voting securities of a Person shall be deemed to be control. "All-Pure" means All-Pure Chemical Co., a California corporation, and any successor thereto. "Asset Purchase Agreement" means the Asset Purchase Agreement dated as of September 22, 1997, as amended, among the Company, PCI Carolina, Pioneer, ICI Canada, ICI Americas and ICI, and their successors and assigns. "Asset Sale" means, with respect to the Company, PAAC or any Restricted Subsidiary, the sale, lease, conveyance or other disposition (including, without limitation, by way of merger or consolidation, and whether by operation of law or otherwise) to any Person other than the Company, PAAC or a Wholly-Owned Restricted Subsidiary of PAAC of any of the Company's or PAAC's or such Restricted Subsidiary's assets (including, without limitation, (x) any sale or other disposition of Equity Interests of any Restricted Subsidiary and (y) any sale or other disposition of any noncash consideration received by the Company, PAAC or such Restricted Subsidiary from any prior transaction or series of related transactions that constituted an Asset Sale hereunder), whether owned on the Closing Date or subsequently acquired, in one transaction or a series of related transactions: provided, however, that the following shall not constitute Asset Sales: (i) transactions (other than transactions described in clause (y) above and transactions involving the Collateral as defined in the Stock Pledge Agreement) in any calendar year with aggregate cash and/or Fair Market Value of any other consideration received (including, without limitation, the unconditional assumption of Indebtedness) of less than $1,000,000; (ii) a transaction or series of related transactions that results in a Change in Control; (iii) any sale of assets of the Company, PAAC and the Restricted Subsidiaries or merger permitted under Article Eight; (iv) any sale or other disposition of inventory, property (whether real, personal or mixed) or equipment that has become worn out, obsolete or damaged or otherwise unsuitable or no longer needed for use in connection with the business of the Company, PAAC or any Restricted Subsidiary, as the case may be, in the good faith determination of the Board of Directors; and (v) any sale of inventory to customers in the ordinary and customary course of business. "Attributable Indebtedness" means, with respect to any Sale and Leaseback Transaction, as at the time of determination, the greater of (i) the Fair Market Value of the property subject - 3 - 15 to such transaction and (ii) the present value (discounted at a rate equivalent to the Company's then current weighted average cost of funds for borrowed money, compounded on a semi-annual basis) of the total net obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended). As used in the preceding sentence, the "total net obligations of the lessee for rental payments" under any lease for any such period means the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. In the case of any lease which is terminable by the lessee upon payment of a penalty, such net amount of rent also includes the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Bankruptcy Law" means the Bankruptcy and Insolvency Act (Canada), the Companies Creditors Arrangement Act (Canada), the Winding-Up and Restructuring Act (Canada), Chapter 11 of Title 11 of the United States Code, as amended, or any other Canadian federal, Canadian provincial, United States Federal or United States state law or the law of any other jurisdiction relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "Black Mountain" means Black Mountain Power Company, a Texas corporation, and any successor thereto. "Board of Directors" means the Board of Directors of the Company and/or PAAC or any committee thereof duly authorized to act on behalf of such Board. "Board Resolution" of any corporation means a copy of a resolution certified by the Secretary or an Assistant Secretary of such corporation to have been duly adopted by the board of directors of such entity and to be in full force and effect on the date of such certification and delivered to the Trustee. "Borrowing Base" means, as of any date, an amount equal to the sum of (a) 85% of the net book value of all accounts receivable of the Company, PAAC and the Restricted Subsidiaries as of such date, (b) 50% of the net book value of all inventory owned by the Company, PAAC and the Restricted Subsidiaries as of such date, and (c) the lesser of (x) $10,000,000 and (y) 85% of the net book value of all accounts receivable of Kemwater as of such date plus 50% of the net book value of all inventory as of such date owned by Kemwater, all calculated on a consolidated - 4 - 16 basis and in accordance with GAAP. To the extent that information is not available as to the amount of accounts receivable or inventory as of a specific date, the Company may utilize the most recent available quarterly or annual financial report of the Company, PAAC or the Restricted Subsidiaries for purposes of calculating the Borrowing Base. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in Montreal, Quebec, The City of New York or the city in which the Corporate Trust Office is located are authorized or obligated by law or executive order to close. "Canadian Pension Plan" means a pension plan that is required to be registered under any Canadian federal laws, regulations, rules or other requirements of any Canadian province. "Capital Stock" means, with respect to any Person, any common stock, preferred stock and any other capital stock of such Person and shares, interest, participations or other ownership interest (however designated), of any Person and any rights (other than debt securities convertible into, or exchangeable for, capital stock), warrants or options to purchase any of the foregoing, including (without limitation) each class of common stock and preferred stock of such Person if such Person is a corporation and each general and limited partnership interest of such Person if such Person is a partnership. "Capitalized Lease Obligation" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means, (i) any evidence of Indebtedness with a maturity of one year or less from the date of acquisition issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit or acceptances with a maturity of one year or less from the date of acquisition of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $250,000,000; (iii) commercial paper with a maturity of one year or less from the date of acquisition issued by a corporation that is not an Affiliate of the Company organized under the laws of any state of the United States of America or the District of Columbia and rated at least A-1 by S&P or at least P-1 by Moody's or at least an equivalent rating category of another nationally - 5 - 17 recognized securities rating agency; (iv) any money market deposit accounts issued or offered by a domestic commercial bank having capital and surplus in excess of $250,000,000; and (v) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the government of the United States of America or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition; provided that the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions With Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985. "Cash Flow" for any period means the Consolidated Net Income of PAAC, the Company and the Restricted Subsidiaries for such period, plus the following to the extent included in calculating such Consolidated Net Income: (i) Consolidated Interest Expense, (ii) income tax expense and (iii) depreciation, depletion and amortization expense. "Change of Control" means the occurrence of any of the following: (i) a "person" or "group" (as such terms are used in Sections 14(d)(2) and 13(d)(3), respectively, of the Exchange Act), other than Substantial Shareholders, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of at least 50% of the outstanding voting power of the fully diluted Voting Stock of Pioneer or PAAC, (ii) the adoption of a plan relating to the liquidation or dissolution of Pioneer or PAAC, (iii) the merger, amalgamation or consolidation of Pioneer or PAAC with or into another corporation with the effect that the stockholders of Pioneer or PAAC immediately prior to such merger, amalgamation or consolidation cease to be the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act) of 50% or more of the combined voting power of the securities of the surviving corporation of such merger, amalgamation or consolidation or the corporation resulting from such merger, amalgamation or consolidation ordinarily (and apart from rights arising under special circumstances) having the right to vote in the election of directors outstanding immediately after such merger, amalgamation or consolidation, (iv) during any period of two consecutive calendar years individuals who at the beginning of such period constituted the board of directors of Pioneer or PAAC (together with any new directors whose election by the board of directors of Pioneer or PAAC, or whose nomination for election by the shareholders of Pioneer or PAAC, was approved by a vote of a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors of Pioneer or PAAC then in office or (v) the Company ceases to be a wholly-owned - 6 - 18 direct or indirect subsidiary of Pioneer or PAAC. Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred under clause (v) above solely as a result of a merger, amalgamation, consolidation or similar arrangement of the Company with or into Pioneer or PAAC provided that such merger, amalgamation, consolidation or similar arrangement is permitted by Article Eight of this Indenture. "Closing Date" means November 5, 1997, the date of consummation of the offering and sale of the Initial Securities. "Code" means the Internal Revenue Code of 1986, as amended. "Collateral" means, collectively, (a) first priority liens on and security interests in substantially all tangible and intangible property and assets used in the North American chlor-alkali business of the Company, PCI Carolina and Pioneer Licensing (other than interests in "Obligor Collateral" as defined in the Revolving Credit Agreement (which for purposes of this definition, shall mean the Revolving Credit Agreement as in effect on the date hereof)) including, but not limited to the Company's interest in owned and leased facilities (including real property, buildings, fixtures and certain equipment) at Becancour, Quebec; Dalhousie, New Brunswick; Cornwall, Ontario; Mississauga, Ontario and Point Tupper, Nova Scotia and any Collateral as defined in the Intercreditor Agreement and (b) upon the granting thereof by PCAC to the Collateral Agent in accordance with the provisions of Section 1401(b) hereof, the St. Gabriel Pipeline Lien. "Collateral Agent" means United States Trust Company of New York, as collateral agent under this Indenture, the Term Loan Agreement and the Intercreditor Agreement, and any successor thereto. "Collateral Proceeds" has the meaning specified in Section 1009 of this Indenture. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Company" means PCI Chemicals Canada Inc., a corporation incorporated under the laws of New Brunswick, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. - 7 - 19 "Company Common Stock" means the common shares, par value $.01 share, of the Company. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by any one of its Chairman of the Board of Directors, its President or a Vice President (regardless of vice presidential designation), and by any one of its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Consolidated Cash Flow Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of Cash Flow for the period of the most recent four consecutive fiscal quarters for which internal financial statements are available prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters of the Company, PAAC and the Restricted Subsidiaries; provided, however, that (A) if the Company, PAAC or any Restricted Subsidiary has incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Cash Flow Coverage Ratio is an incurrence of Indebtedness, or both, Cash Flow and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been issued on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (B) if since the beginning of such period the Company, PAAC or any Restricted Subsidiary has made any Asset Sale, the Cash Flow for such period shall be reduced by an amount equal to the Cash Flow (if positive), directly attributable to the assets which are the subject of such Asset Sale for such period, or increased by an amount equal to the Cash Flow (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company, PAAC or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company, PAAC and the continuing Restricted Subsidiaries in connection with any such sale or other disposition for such period (or, if the Capital Stock of any Subsidiary of the Company or PAAC is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Subsidiary of the Company or PAAC to the extent the Company, PAAC and the continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (C) if since the beginning of such period the Company, PAAC or any Restricted Subsidiary (by merger or otherwise) has made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an - 8 - 20 acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made under this Indenture, which constitutes all or substantially all of an operating unit of a business, Cash Flow and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (D) in making such computation, Consolidated Interest Expense attributable to any Indebtedness incurred under any revolving credit facility shall be computed based on the average daily balance of such Indebtedness during such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, and the amount of Consolidated Interest Expense associated with any Indebtedness incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period. "Consolidated Interest Expense" means, for any period, interest expense of the Company, PAAC and the consolidated Restricted Subsidiaries, excluding amortization of any deferred financing fees, plus, to the extent not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) interest actually paid by the Company, PAAC or any such Restricted Subsidiary under any guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Hedging Obligations (including amortization of fees), (viii) Preferred Stock dividends in respect of all Redeemable Stock of the Company or PAAC held by Persons other than the Company, PAAC or a Wholly-Owned Restricted Subsidiary of PAAC and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company or PAAC) in connection with loans incurred by such plan or trust to purchase newly issued or treasury shares of the Capital Stock of the Company or PAAC. "Consolidated Net Income" means, for any period, and as to any Person, the aggregate Net Income of such Person and its Subsidiaries (other than, in the case of the Company or PAAC, the Unrestricted Subsidiaries) for such period determined in - 9 - 21 accordance with GAAP; provided that (i) the Net Income of any Person which is not a Subsidiary of such Person but which is consolidated with such Person or is accounted for by such Person by the equity method of accounting shall be included only to the extent of the amount of cash dividends or cash distributions paid to such Person or a wholly-owned Restricted Subsidiary of such Person (other than, in the case of the Company or PAAC, the Unrestricted Subsidiaries), (ii) the Net Income of any Person acquired by such Person or a Subsidiary of such Person in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iii) the Net Income of any Subsidiary of such Person that is subject to restrictions, direct or indirect, on the payment of dividends or the making of distributions to such Person shall be excluded to the extent of such restrictions, (iv) the Net Income of (A) any Unrestricted Subsidiary and (B) any Subsidiary of the Company or PAAC less than 80% of whose securities having the right (apart from the right under special circumstances) to vote in the election of directors are owned by the Company, PAAC or the Wholly-Owned Restricted Subsidiaries of PAAC shall be included only to the extent of the amount of cash dividends or cash distributions actually paid by such Subsidiary to the Company, PAAC or a Wholly-Owned Restricted Subsidiary of PAAC, (v) in the case of the Company or PAAC, the Net Income attributable to any business, properties or assets acquired (by way of merger, consolidation, purchase or otherwise) by the Company, PAAC or any Restricted Subsidiary for any period prior to the date of such acquisition shall be excluded, (vi) all extraordinary gains and losses, and any gain or loss realized upon the termination of any employee pension benefit plan, in respect of dispositions of assets other than in the ordinary course of business and any one-time increase or decrease to Net Income which is required to be recorded because of the adoption of new accounting policies, practices or standards required by GAAP (together, in each case, with any provision for taxes) shall be excluded, and (vii) all amounts of "other income, net" classified as such on one or more lines of such Person's statement of operations, in accordance with GAAP, net of applicable income taxes, shall be excluded from such Person's aggregate Net Income; provided that in the case of the Company or PAAC the foregoing exclusion shall not apply to cash dividends or cash distributions paid to PAAC in respect of PAAC's indirect equity interest in Saguaro Power Company, a Limited Partnership, to the extent included in clause (i) of this definition. "Consolidated Net Worth" means, for any Person, the total of the amounts shown on the balance sheet of such Person and its consolidated Subsidiaries (other than, in the case of the Company or PAAC, the Unrestricted Subsidiaries), determined on a consolidated basis without duplication in accordance with GAAP, as of the end of the most recent fiscal quarter of such Person - 10 - 22 ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the amount of Capital Stock (other than Redeemable Stock) plus (ii) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit). "Contingent Payment Agreement" means the Contingent Payment Agreement dated as of April 20, 1995 among Pioneer, PAAC and the Sellers named therein. "Corporate Trust Office" means the office of the Trustee or an affiliate or agent thereof at which at any particular time the corporate trust business for the purposes of this Indenture shall be principally administered, which office at the date of execution of this Indenture is located at 114 West 47th Street, New York, New York 10036-1532, Attention: Corporate Trust Division. "Credit Facility" means any revolving credit facility or similar arrangement that makes credit available entered into by and among the Company, PAAC and/or any Guarantor and the lending institutions party thereto, including any credit agreement, related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Default" means any event which is, or after notice or passage of any time or both would be, an Event of Default. "Depositary" means The Depository Trust Company, its nominees and their respective successors. "Eligible Investments" means, (i) securities issued or directly and fully guaranteed or insured by Canada or the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of Canada or the United States of America is pledged in support thereof) having maturities of not more than 90 days from the date of acquisition, (ii) time deposits and certificates of deposit with maturities of not more than 90 days from the date of acquisition, of any commercial banking institution to which the Bank Act (Canada) applies that is a member of the Federal Reserve System having capital and surplus in excess of $500,000,000, whose debt has a rating at the time of any such investment of at least "A-2" or the equivalent thereof by S&P or at least "P-2" or the equivalent thereof by Moody's or any bank or financial institution party to the Term Loan Agreement, the Existing Term Facility or the Revolving Credit Agreement, (iii) fully secured repurchase obligations with a term of not more than seven days for - 11 - 23 underlying securities of the types described in clause (i) entered into with any bank or financial institution meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by any commercial banking institution to which the Bank Act (Canada) applies or that is a member of the Federal Reserve System having capital and surplus in excess of $500,000,000 and commercial paper or master notes of issuers, rated at the time of any such investment at least "A-2" or the equivalent thereof by S&P or at least "P-2" or the equivalent thereof by Moody's or any bank or financial institution party to the Term Loan Agreement, the Existing Term Facility or the Revolving Credit Agreement, and in each case maturing within 270 days after the date of acquisition, and (v) any shares in an open-end mutual fund organized by a bank or financial institution having combined capital and surplus of at least $500,000,000 investing solely in investments permitted by the foregoing clauses (i), (ii) and (iv). "Equity Interests" means shares, interests, participations or other equivalents (however designated) of Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security which is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means an offering of Equity Interests (other than Redeemable Stock) of any Person made on a primary basis by such Person (including a rights offering to existing stockholders of such Person), which yields gross proceeds to such Person of $15,000,000 or more. "Event of Default" has the meaning specified in Article Five of this Indenture. "Excess Land" means certain real property adjoining the sites of PCAC's Henderson, Nevada and St. Gabriel, Louisiana plants and the Mojave, California property owned by Imperial West that is not used in the business conducted at such sites, which real property is referred to and defined in the Contingent Payment Agreement as the "Subject Parcels." "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means Securities issued pursuant to any Exchange Offer Registration Statement and guaranteed by the Guarantors. "Exchange Offer" means the offer which may be made by the Company pursuant to the Registration Rights Agreement to exchange the Initial Securities for the Exchange Notes. - 12 - 24 "Exchange Offer Registration Statement" means the registration statement to be filed by the Company and the Guarantors with the Commission with respect to an offer to exchange the Securities for another series of senior secured notes of the Company and guarantees by the Guarantors registered under the Securities Act with substantially identical terms to the Initial Securities. "Execution Date" means October 30, 1997, the date of the execution of this Indenture, the Intercreditor Agreement and certain of the Security Documents. "Existing Affiliate Agreements" means (i) agreements between PAI or any of its subsidiaries and Saguaro Power Company, a Limited Partnership, relating to the delivery of steam and other services, existing on the Execution Date and listed on Schedule 1 hereto, (ii) the Tax Sharing Agreement and (iii) agreements between PAI or any of its subsidiaries and Basic Investments, Inc. relating to the delivery of water and power, power transmission services, and other services, existing on the Execution Date and listed on Schedule 1 hereto and (iv) any other agreements with affiliates of the Company or PAAC, existing on the Execution Date and listed on Schedule 1 hereto. "Existing Indebtedness" means all Indebtedness (other than Indebtedness outstanding under the Term Loan Agreement and the Revolving Credit Agreement) of the Company, PAAC or any Restricted Subsidiary existing on the Execution Date and listed on Schedule 2 hereto. "Existing Senior Secured Indenture" means the indenture dated as of June 17, 1997, among PAAC, PAI, PCAC, Imperial West, All-Pure, Black Mountain, All Pure Chemical Northwest, Inc., Pioneer Chlor Alkali International, Inc., G.O.W. Corporation, Pioneer (East), Inc., T.C. Holdings, Inc., T.C. Products, Inc. and United States Trust Company of New York, as trustee, including and together with any and all related notes, guarantees, instruments and agreements executed in connection therewith, as such indenture and/or related documents may be amended, restated, supplemented, renewed, replaced or otherwise modified from time to time. "Existing Senior Secured Notes" means PAAC's 9 1/4% Senior Secured Notes due 2007, representing an aggregate principal amount of up to $200,000,000 issued pursuant to the Existing Senior Secured Indenture, as such Existing Senior Secured Notes may be exchanged, replaced, amended, restated, supplemented or otherwise modified from time to time. "Existing Term Facility" means the loan agreement dated as of June 17, 1997, among PAAC, the Term Loan Agent and the - 13 - 25 lenders named therein, including and together with any and all related notes, guarantees, instruments and agreements executed in connection therewith, as such loan agreement and/or related documents may be amended, restated, supplemented, renewed, replaced or otherwise modified from time to time. "Fair Market Value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value shall be determined by a majority of the members of the Board of Directors, and a majority of the disinterested members of such Board of Directors, if any, acting in good faith and shall be evidenced by a duly and properly adopted resolution of the Board of Directors. "GAAP" means generally accepted accounting principles in the United States of America set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, which are in effect from time to time. "Guarantee" means the guarantee by any Guarantor of the Company's Indenture Obligations pursuant to a guarantee given in accordance with this Indenture, including, without limitation, the Guarantees by the Guarantors included in Article Thirteen of this Indenture and any Guarantee delivered pursuant to Section 1019 hereof. "Guarantor" means the entities listed as Guarantors in this Indenture or any other guarantor of the Indenture Obligations. "Hedging Obligations" means the obligations of any Person or entity pursuant to any swap or cap agreement, exchange agreement, collar agreement, option, futures or forward hedging contract, derivative instrument or other similar agreement or arrangement designed to protect such Person or entity against fluctuations in interest rates or foreign exchange rates or the price of raw materials and other chemical products used or produced in the Company's or PAAC's business, as the case may be. "Holder" means a Person in whose name a Security is registered in the Security Register. "ICI" means Imperial Chemical Industries PLC, a United Kingdom corporation, and any successor thereto. - 14 - 26 "ICI Americas" means ICI Americas Inc., a Delaware corporation, and any successor thereto. "ICI Canada" means ICI Canada, Inc., a Canadian corporation, and any successor thereto. "Imperial West" means Imperial West Chemical Co., a Nevada corporation, and any successor thereto. "incur" has the meaning ascribed in Section 1008 hereof; provided that (a) with respect to any Indebtedness of the Company, PAAC or any Restricted Subsidiary that is owing to the Company, PAAC or another Restricted Subsidiary, any disposition, pledge or transfer of such Indebtedness to any Person (other than the Company, PAAC or a Wholly-Owned Restricted Subsidiary of PAAC) shall be deemed to be an incurrence of such Indebtedness and (b) with respect to any Indebtedness of the Company, PAAC or a Restricted Subsidiary that is owing to another Restricted Subsidiary, any transaction pursuant to which a Wholly-Owned Restricted Subsidiary of PAAC to which such Indebtedness is owing ceases to be a Wholly-Owned Restricted Subsidiary of PAAC shall be deemed to be an incurrence of such Indebtedness, and provided, further that any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary shall be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. The term "incurrence" has a corresponding meaning. "Indebtedness" of any Person means, without duplication, all liabilities with respect to (i) indebtedness for money borrowed or which is evidenced by a bond, debenture, note or other similar instrument or agreement, but excluding trade credit evidenced by any such instrument or agreement; (ii) reimbursement obligations, letters of credit and bankers' acceptances; (iii) indebtedness with respect to Hedging Obligations; (iv) Capitalized Lease Obligations; (v) indebtedness, secured or unsecured, created or arising in connection with the acquisition or improvement of any property or asset or the acquisition of any business; (vi) all indebtedness secured by any Lien upon property owned by such Person and all indebtedness secured in the manner specified in this clause even if such Person has not assumed or become liable for the payment thereof; (vii) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person or otherwise representing the deferred and unpaid balance of the purchase price of any such property, including all indebtedness created or arising in the manner specified in this clause even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property; (viii) guarantees, direct or indirect, of any indebtedness of other Persons referred - 15 - 27 to in clauses (i) through (vii) above, or of dividends or leases, taxes or other obligations of other Persons, excluding any guarantee arising out of the endorsement of negotiable instruments for collection in the ordinary course of business; (ix) contingent obligations in respect of, or to purchase or otherwise acquire or be responsible or liable for, through the purchase of products or services, irrespective of whether such products are delivered or such services are rendered, or otherwise, any such indebtedness referred to in clauses (i) through (vii) above; (x) any obligation, contingent or otherwise, arising under any surety, performance or maintenance bond; and (xi) Redeemable Stock of the Company or PAAC valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends; which indebtedness, Capitalized Lease Obligation, guarantee or contingent or other obligation such Person has directly or indirectly created, incurred, assumed, guaranteed or otherwise become liable or responsible for, whether then outstanding or thereafter created in the case of clauses (i) through (x) above, to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability on the balance sheet of such Person in accordance with GAAP. For purposes of the foregoing definition, the "maximum fixed repurchase price" of any Redeemable Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Stock as if such Redeemable Stock were purchased on any date on which Indebtedness is required to be determined pursuant to this Indenture. As used herein, Indebtedness with respect to any Hedging Obligation means, with respect to any specified Person on any date, the net amount (if any) that would be payable by such specified Person upon the liquidation, close-out or early termination on such date of such Hedging Obligation. For purposes of the foregoing, any settlement amount payable upon the liquidation, close-out or early termination of a Hedging Obligation shall be calculated by the Company in good faith and in a commercially reasonable manner on the basis that such liquidation, close-out or early termination results from an event of default or other similar event with respect to such specified Person. Any reference in this definition to indebtedness shall be deemed to include any renewals, extensions and refundings of any such indebtedness or any indebtedness issued in exchange for such indebtedness. "Indenture Obligations" means the obligations of the Company and any other obligor under this Indenture or under the Securities, including any Guarantor, to pay principal, premium, if any, interest and Liquidated Damages, if any, when due and payable, and all other amounts due or to become due under or in connection with this Indenture (including, without limitation, all sums due to the Trustee pursuant to Section 606 hereof), the Securities and the performance of all other obligations to the - 16 - 28 Trustee and the Holders under this Indenture and the Securities, according to the terms hereof and thereof. "Independent Director" means a director of the Company and/or PAAC other than a director (i) who (apart from being a director of the Company, PAAC or any of its Subsidiaries) is an employee, insider, associate or Affiliate of the Company, PAAC or any of their Subsidiaries or has held any such position during the previous year or (ii) who is a director, an employee, insider, associate or Affiliate of another party to the transaction in question. "Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc. "Initial Securities" means the Securities issued on the Closing Date and guaranteed by the Guarantors. "Insurance Proceeds" has the meaning specified in each Mortgage. "Intercreditor Agreement" means the Intercreditor and Collateral Agency Agreement dated as of October 30, 1997 among the Company, PAAC, PAI, the Trustee, the Term Loan Agent, the Bank of America Trust and Savings Association, as agent under the Revolving Credit Agreement and the Collateral Agent. "Intercreditor Collateral Account" means the Collateral Account as defined in the Intercreditor Agreement. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Investment" means any direct or indirect advance, loan, other extension of credit or capital contribution (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others) to, purchase or acquisition of Equity Interests, bonds, notes, debentures or other securities of, or purchase or other acquisition of all or a substantial part of the business, Equity Interests or other evidence of beneficial ownership of, or any other investment in or guarantee of any Indebtedness of, any Person or any other item that would be classified as an investment on a balance sheet prepared in accordance with GAAP. Investments do not include advances to customers and suppliers in the ordinary course of business and on commercially reasonable terms. In the event the Company, PAAC or any Subsidiary of either sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of either such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of either, the Company, PAAC or such Subsidiary - 17 - 29 shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Equity Interests of such Subsidiary not sold or disposed of determined as provided in the final paragraph of Section 1006 hereof. "Kemwater" means Kemwater North America Company, a Delaware corporation, and any successor thereto. "Lien" means any mortgage, pledge, lien, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement and any lease in the nature thereof). "Liquidated Damages" means all liquidated damages owing to the Holders pursuant to the Registration Rights Agreement. "Majority Holders" has the meaning specified in the Intercreditor Agreement. "Maturity" when used with respect to any Security means the date on which the principal of such Security becomes due and payable as therein provided or as provided in this Indenture, whether at Stated Maturity, the Asset Sale Purchase Date, the Change of Control Payment Date, or the Redemption Date and whether by declaration of acceleration, Change of Control, call for redemption or otherwise. "Moody's" means Moody's Investors Service, Inc. or any successor rating agency. "Mortgage" means each mortgage, deed of trust, pledge, debenture, debenture pledge, hypothec or similar security instrument which from time to time affects any property that secures the Company's obligations in respect of this Indenture and its guarantee under the Term Loan Agreement, the obligations of any Guarantor in respect of its Guarantee under this Indenture, or the obligations of PAI or any other Guarantor under the Term Loan Agreement and Term Loan Notes and guarantees thereof issued under or in connection with the Term Loan Agreement, as such instruments may be amended, supplemented or otherwise modified from time to time. "Mortgaged Property" means the Collateral specified in each Mortgage. "Net Award" has the meaning specified in each Mortgage. "Net Cash Proceeds" means, with respect to any issuance or sale of Equity Interests or debt securities that have been converted into or exchanged for Equity Interests, as referred to - 18 - 30 under Section 1006 hereof, the proceeds of such issuance or sale in the form of cash or cash equivalents, net of attorneys' fees, accountants' fees and brokerage, consultation, underwriting and other fees and expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Net Income" of any Person, for any period, means the net income (loss) of such Person and its subsidiaries (other than, in the case of the Company or PAAC, the Unrestricted Subsidiaries) determined in accordance with GAAP. "Net Proceeds" means the aggregate cash proceeds received by the Company, PAAC or any of the Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, the proceeds of insurance paid on account of the loss of or damage to any property, or compensation or other proceeds for any property taken by condemnation, eminent domain or similar proceedings, and any non-cash consideration received by the Company, PAAC or any Restricted Subsidiary from any Asset Sale that is converted into or sold or otherwise disposed of for cash within 90 days after the relevant Asset Sale), net of (i) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), (ii) any taxes paid or payable as a result thereof, (iii) all amounts required to be applied to the repayment of, or representing the amount of permanent reductions in the commitments relating to, Indebtedness secured by a Lien on the asset or assets the subject of such Asset Sale which Lien is permitted pursuant to the terms of this Indenture, (iv) any reserve for adjustment in respect of the sale price of such asset or assets required by GAAP, (v) all distributions and other payments required to be made (including any amounts held pending distribution) to minority interest holders in Subsidiaries of the Company or PAAC or joint ventures as a result of such Asset Sale, and (vi) all payments due under Existing Affiliate Agreements arising out of an Asset Sale. The amount of any taxes required to be accrued as a liability under GAAP as a consequence of an Asset Sale shall be the amount thereof as determined in good faith by the Board of Directors. "New Credit Facilities" means the Term Loan Agreement and the Revolving Credit Agreement. "Offering Memorandum" means the offering memorandum of the Company, dated October 22, 1997, in connection with the offer and sale of the Initial Securities. "Officers' Certificate" means a certificate signed by the Chairman of the Board, Vice Chairman, the President or a Vice President (regardless of vice presidential designation), and by - 19 - 31 the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company or any Guarantor, as the case may be, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, any of the Guarantors or the Trustee, unless an Opinion of Independent Counsel is required pursuant to the terms of this Indenture, and who shall be reasonably acceptable to the Trustee. "Opinion of Independent Counsel" means a written opinion of counsel issued by someone who is not an employee or consultant of the Company or any Guarantor and who shall be reasonably acceptable to the Trustee. "Outstanding" when used with respect to Securities means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (a) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Securities, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders; provided that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor reasonably satisfactory to the Trustee has been made; (c) Securities, except to the extent provided in Sections 402 and 403 hereof, with respect to which the Company has effected defeasance or covenant defeasance as provided in Article Four; and (d) Securities in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof reasonably satisfactory to it that such Securities are held by a bona fide purchaser in whose hands the Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company, any Guarantor, - 20 - 32 or any other obligor upon the Securities or any Affiliate of the Company, any Guarantor, or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the reasonable satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company, any guarantor or any other obligor upon the Securities or any Affiliate of the Company, any Guarantor or such other obligor. "PAAC" means Pioneer Americas Acquisition Corp., a Delaware corporation, and any successor thereto. "PAI" means Pioneer Americas, Inc., a Delaware corporation, and any successor thereto. "Paying Agent" means any person authorized by the Company to pay the principal of, premium, if any, interest or Liquidated Damages, if any, on any Securities on behalf of the Company. "PCAC" means Pioneer Chlor Alkali Company, Inc., a Delaware corporation, and any successor thereto. "PCI Carolina" means PCI Carolina, Inc., a Delaware corporation, and any successor thereto. "Permitted Indebtedness" means, collectively, the following: (a) Indebtedness of the Company evidenced by the Initial Securities, the Exchange Notes and Indebtedness of any Guarantor evidenced by the Guarantees with respect thereto; (b) Indebtedness of PAI evidenced by the Term Loan Notes and Indebtedness of the Company, PAAC or any Restricted Subsidiary evidenced by the guarantees with respect to the Term Loan Notes. (c) Indebtedness of the Company, PAAC or any Restricted Subsidiary constituting Existing Indebtedness and any extension, deferral, renewal, refinancing or refunding thereof; (d) Indebtedness of the Company, PAAC or any Restricted Subsidiary incurred under one or more Credit Facilities in - 21 - 33 an aggregate principal amount at any one time outstanding not to exceed the Borrowing Base at the time such Indebtedness was incurred, less the aggregate amount of all permanent repayments of revolving loans under such Credit Facilities made in accordance with Section 1009(b)(i) hereof. (e) Capitalized Lease Obligations of the Company, PAAC or any Restricted Subsidiary and Indebtedness of the Company, PAAC or any Restricted Subsidiary secured by Liens that secure the payment of all or part of the purchase price of assets or property acquired or constructed in the ordinary course of business after the Closing Date; provided, however, that the aggregate principal amount of such Capitalized Lease Obligations plus such Indebtedness of the Company, PAAC and all of the Restricted Subsidiaries does not exceed $10,000,000 outstanding at any time; (f) Indebtedness of the Company to PAAC, or of the Company or PAAC to any Restricted Subsidiary, or of PAAC to the Company or any Restricted Subsidiary or of any Restricted Subsidiary to the Company, PAAC or another Restricted Subsidiary (but only so long as such Indebtedness is held by the Company, PAAC or a Restricted Subsidiary); (g) Indebtedness under Hedging Obligations, provided, however, that, in the case of foreign currency exchange or similar agreements which relate to other Indebtedness, such agreements do not increase the Indebtedness of the Company, PAAC or any Restricted Subsidiary outstanding other than as a result of fluctuations in foreign currency exchange rates, and in the case of interest rate protection agreements, only if the notional principal amount of such interest rate protection agreement does not exceed the principal amount of the Indebtedness to which such interest rate protection agreement relates; (h) Indebtedness in respect of performance, completion, guarantee, surety and similar bonds, banker's acceptances or letters of credit provided by the Company, PAAC or any Restricted Subsidiary in the ordinary course of business; (i) In addition to any Indebtedness otherwise permitted to be Incurred under this Indenture, up to $10,000,000 aggregate principal amount of Indebtedness at any one time outstanding; and (j) Any refinancing, refunding, deferral, renewal or extension (each, a "Refinancing") of any Indebtedness of the Company, PAAC or any Restricted Subsidiary permitted by the initial paragraph of Section 1008 hereof or described in - 22 - 34 clauses (a) and (b) of this definition (the "Refinancing Indebtedness"); provided, however, that (i) such Refinancing Indebtedness does not exceed the aggregate principal amount of Indebtedness so refinanced, plus the amount of any premium required to be paid in connection with such Refinancing in accordance with the terms of such Indebtedness or the amount of any premium reasonably determined by the Board of Directors as necessary to accomplish such Refinancing, plus the amount of reasonable and customary out-of-pocket fees and expenses payable in connection therewith, (ii) the Refinancing Indebtedness does not provide for any mandatory redemption, amortization or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in the Indebtedness being refinanced, refunded, deferred, renewed or extended and (iii) if the Indebtedness being refinanced, refunded, deferred, renewed or extended is subordinated to the Securities, the Refinancing Indebtedness incurred to refinance, refund, defer, renew or extend such Indebtedness is subordinated in right of payment to the Securities on terms at least as favorable to the Holders as those contained in the documentation governing the Indebtedness being so refinanced, refunded, deferred, renewed or extended. "Permitted Investment" means (i) any Eligible Investment, (ii) any Investment in the Company, (iii) Investments in existence on the Closing Date, and any such Investment in Basic Investments, Inc., Basic Land Company, Basic Management, Inc., Basic Water Company or Victory Valley Land Company, L.P. which has been reclassified or converted into an alternate form of Investment in the same or a successor entity, (iv) intercompany notes permitted under clause (f) of the definition of "Permitted Indebtedness" herein, (v) Investments in any Wholly-Owned Restricted Subsidiary of PAAC or any Person which, as a result of such Investment, becomes a Wholly-Owned Restricted Subsidiary of PAAC; provided that such Wholly-Owned Restricted Subsidiary of PAAC is engaged in a Related Business, and (vi) other Investments after the Closing Date in joint ventures, corporations, limited liability companies, partnerships or Unrestricted Subsidiaries engaged in a Related Business that do not at any one time outstanding exceed $5,000,000 ; provided that the amount of Investments pursuant to this clause (vi) shall be included in the calculation of Restricted Payments pursuant to Section 1006 hereof. "Permitted Liens" means as of any particular time, any one or more of the following: (a) Liens for taxes, rates and assessments not yet past due or, if past due, the validity of which is being contested in good faith by the Company, PAAC or any - 23 - 35 Restricted Subsidiary by appropriate proceedings promptly instituted and diligently conducted and against which the Company or PAAC has established appropriate reserves in accordance with GAAP; (b) the Lien of any judgment rendered which is being contested in good faith by the Company, PAAC or any of the Restricted Subsidiaries by appropriate proceedings promptly instituted and diligently conducted and against which the Company or PAAC has established appropriate reserves in accordance with GAAP and which does not have a material adverse effect on the ability of the Company, PAAC and the Restricted Subsidiaries to operate their business or operations; (c) other than in connection with Indebtedness, any Lien arising in the ordinary course of business (i) to secure payments of workers' compensation, unemployment insurance, pension or other social security or retirement benefits, or to secure the performance of bids, tenders, leases, progress payments, contracts (other than for the payment of money) or to secure public or statutory obligations of the Company, PAAC or any Restricted Subsidiary, or to secure surety or appeal bonds to which the Company, PAAC or any Restricted Subsidiary is a party, (ii) imposed by law dealing with materialmen's, supplier's, mechanics', workmen's, repairmen's, warehousemen's, landlords', vendors' or carriers' Liens created by law, or deposits or pledges which are not yet due or, if due, the validity of which is being contested in good faith by the Company, PAAC or any Restricted Subsidiary by appropriate proceedings promptly instituted and diligently conducted and against which the Company or PAAC has established appropriate reserves in accordance with GAAP, (iii) rights of financial institutions to setoff and chargeback arising by operation of law, and (iv) similar Liens; (d) servitudes, licenses, easements, encumbrances, restrictions, rights-of-way and rights in the nature of easements or similar charges which shall not in the aggregate materially adversely impair the use of the subject property by the Company, PAAC or a Restricted Subsidiary; (e) zoning and building by-laws and ordinances, municipal bylaws and regulations, and restrictive covenants, which do not materially interfere with the use of the subject property by the Company, PAAC or a Restricted Subsidiary as such property is used as of the Closing Date; and (f) any extension, renewal, substitution or replacement (or successive extensions, renewals, substitutions or - 24 - 36 replacements), as a whole or in part, of any of the Liens referred to in clauses (a) through (e) of this definition or the Indebtedness secured thereby; provided that (i) such extension, renewal, substitution or replacement Lien is limited to that portion of the property or assets, now owned or hereafter acquired, that secured the Lien prior to such extension, renewal, substitution or replacement Lien and (ii) the Indebtedness secured by such Lien (assuming all available amounts were borrowed) at such time is not increased; and (g) provisos, restrictions, limitations and reservations contained in any original grants from the Government of Canada, and any statutory limitations, exceptions, reservations and qualifications which will not in the aggregate materially adversely impair the use of the subject property by the Company, PAAC or a Restricted Subsidiary. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Pioneer" means Pioneer Companies, Inc., a Delaware corporation, and any successor thereto. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 308 hereof in exchange for a mutilated Security or in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Security. "Preferred Stock," as applied to the Equity Interests of any corporation, means stock of any class or classes (however designated) which is preferred over shares of stock of any other class of such corporation as to the distribution of assets on any voluntary or involuntary liquidation or dissolution of such corporation or as to dividends. "Private Placement Legend" means the legend initially set forth on the Securities in the form set forth in the first paragraph of Section 202 hereof. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. - 25 - 37 "Quebec Mortgage and Security Agreement" means a deed of hypothec executed by an authorized representative of the Company in respect of the Collateral located in Quebec, as amended, supplemented, amended and restated or otherwise modified from time to time. "Real Property" means any interest in any real property or any portion thereof, whether owned in fee or leased or otherwise owned. "Redeemable Stock" means any Equity Interest that by its terms or otherwise (i) is required to be redeemed prior to the maturity of the Securities, (ii) matures or is redeemable, in whole or in part, at the option of the Company, PAAC, any Subsidiary of either the Company or PAAC or the holder thereof or pursuant to a mandatory sinking fund at any time prior to the maturity of the Securities, or (iii) is convertible into or exchangeable for debt securities which provide for any scheduled payment of principal prior to the maturity of the Securities at the option of the issuer at any time prior to the maturity of the Securities, until the right to so convert or exchange is irrevocably relinquished. "Redemption Date" when used with respect to any Security to be redeemed pursuant to any provision in this Indenture means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price" when used with respect to any Security to be redeemed pursuant to any provision in this Indenture means the price at which it is to be redeemed pursuant to this Indenture. "Registration Rights Agreement" means the Exchange and Registration Rights Agreement dated as of November 5, 1997, by and among the Company, the Guarantors and the Initial Purchasers, as the same may be modified and supplemented and in effect from time to time. "Registration Statement" means a Registration Statement as defined and described in the Registration Rights Agreement. "Regular Record Date" for the interest payable on any Interest Payment Date means the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Related Business" means any corporation or other entity engaged in, and any asset utilized in, the manufacture or distribution of chlorine, caustic soda, bleach, hydrochloric - 26 - 38 acid, iron and other chlorides and aluminum sulfate, and in lines of business reasonably related thereto. "Resale Restriction Termination Date" means the date which is two years after the later of the date of original issue of the Securities and the last date on which the Company or any Affiliate of the Company was the owner of such Securities (or any predecessor thereto). "Responsible Officer" when used with respect to the Trustee means any officer assigned to the Corporate Trust Office or the agent of the Trustee appointed hereunder, including any vice president, assistant vice president, assistant secretary, or any other officer or assistant officer of the Trustee or the agent of the Trustee appointed hereunder to whom any corporate trust matter is referred because of his or her knowledge of and familiarity with the particular subject. "Restoration" has the meaning set forth in each Mortgage. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Subsidiary" means (i) any Guarantor which is a Subsidiary of PAAC, (ii) any Subsidiary of PAAC in existence on the Closing Date to which any line of business or division (and the assets associated therewith) of the Company or any Guarantor are transferred after the Closing Date, (iii) any Subsidiary of the Company or PAAC organized or acquired after the Closing Date, unless such Subsidiary has been designated as an Unrestricted Subsidiary by a resolution of the Board of Directors as provided in the definition of "Unrestricted Subsidiary" and (iv) any Unrestricted Subsidiary which is designated as a Restricted Subsidiary by the Board of Directors; provided, that immediately after giving effect to any such designation (A) no Default or Event of Default has occurred and is continuing and (B) in the case of any designation referred to in clause (iii) or (iv) hereof, the Company could incur at least $1.00 of Indebtedness pursuant to the initial paragraph under Section 1008 hereof, on a pro forma basis taking into account such designation. The Company shall evidence any such designation to the Trustee by promptly filing with the Trustee an Officers' Certificate certifying that such designation has been made and complies with the requirements of the immediately preceding sentence. Notwithstanding any provision of this Indenture to the contrary, each Guarantor shall be a Restricted Subsidiary. "Revolving Credit Agreement" means the Loan and Security Agreement dated as of June 17, 1997, among PAAC and Bank of America Trust and Savings Association, as agent and a lender, - 27 - 39 and the other lenders named therein, as amended, supplemented or amended and restated from time to time. "Rule 144A" means Rule 144A under the Securities Act. "St. Gabriel Pipeline" means the approximately seven-mile liquid chlorine pipeline which PCAC intends to construct from its plant in St. Gabriel, Louisiana to Geismar, Louisiana, including all leak and excavation detection systems and all other equipment, fixtures, improvements, licenses, permits, approvals, warranties, contract rights, leases, access agreements and other real property interests owned or acquired by PCAC in connection therewith (not including any "Mortgaged Property" as such term is defined in the Existing Senior Secured Indenture), together with all insurance proceeds and condemnation awards related thereto and all rents, issues, profits and proceeds thereof. "St. Gabriel Pipeline Lien" has the meaning specified in Section 1401(b) of this Indenture. "S&P" means Standard & Poor's Ratings Group or any successor rating agency. "Sale and Leaseback Transaction" with respect to any Person, means any arrangement with another Person for the leasing of any real or tangible personal property, which property has been or is to be sold or transferred by such Person to such other Person in contemplation of such leasing. "Secured Indebtedness" means any Senior Indebtedness (other than the Securities) which by its terms is secured, and by the terms of this Indenture is permitted to be secured, by Liens on the Collateral. "Securities" means any of the securities, as defined in the first paragraph of the recitals hereof, that are authenticated and delivered under this Indenture. For all purposes of this Indenture, the term "Securities" shall include any Exchange Notes to be issued and exchanged for any Initial Securities pursuant to the Registration Rights Agreement and this Indenture and, for purposes of this Indenture, all Initial Securities and Exchange Notes shall vote together as one series of securities under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Security Documents" means (i) each Mortgage, (ii) the Intercreditor Agreement, (iii) the documentation relating to the Intercreditor Collateral Account, and (iv) all security agreements, mortgages, deeds of trust, hypothecs, debentures, - 28 - 40 debenture pledges, bonds, bond pledges, pledge agreements, collateral assignments or any other instrument, including without limitation, the Pipeline Security Documents, evidencing or creating any security interest or lien in favor of the Collateral Agent for its own account and for the account of the Trustee and Holders in all or any portion of the Collateral, as the case may be, in each case as amended, supplemented or otherwise modified from time to time. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305 hereof. "Seller Notes" means the subordinated installment notes of Pioneer issued in connection with the acquisition by Pioneer of PAI. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Company, PAAC or the Restricted Subsidiaries, whether outstanding on the Closing Date or thereafter incurred as permitted herein, unless, in the case of any particular Indebtedness, the agreement or instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness is junior or subordinated in right of payment to any item of Indebtedness of the Company, PAAC or the Restricted Subsidiaries. Without limiting the generality of the foregoing, "Senior Indebtedness" includes the principal of, premium, if any, and interest and all other obligations of every nature of the Company, PAAC or any Restricted Subsidiary from time to time owed to the lenders (or their agents) under the New Credit Facilities, the Existing Term Facility and the Existing Senior Secured Indenture, as the case may be. Notwithstanding the foregoing, "Senior Indebtedness" does not include (i) in the case of the obligation of the Company in respect of each Security, the obligation of the Company in respect of the other Securities, (ii) any liability for foreign United States Federal, state or local, Canadian federal, provincial or local or other taxes owed or owing by the Company, PAAC or any Restricted Subsidiary to the extent that such liability constitutes Indebtedness, (iii) Indebtedness of the Company to PAAC or any Restricted Subsidiary or of any Restricted Subsidiary to the Company, PAAC or another Restricted Subsidiary, (iv) that portion of any Indebtedness which at the time of issuance is issued in violation of this Indenture and (v) Indebtedness and amounts incurred in connection with obtaining goods, materials or services in the ordinary course of business (other than such Indebtedness which is owed to banks and other financial institutions or secured by the goods or materials which were purchased with such Indebtedness). "Shelf Registration Statement" means any registration statement filed by the Company and the Guarantors with the - 29 - 41 Commission pursuant to the Registration Rights Agreement, other than an Exchange Offer Registration Statement. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 309 hereof. "Stated Maturity" when used with respect to any Indebtedness or any installment of interest thereon, means the date specified in such Indebtedness as the fixed date on which the principal of such Indebtedness or such installment of interest is due and payable. "Subordinated Indebtedness" means Indebtedness of the Company, PAAC or any Guarantor subordinated in right of payment to the Securities or any Guarantee, as the case may be. "Subsidiary" means, with respect to any Person, (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors, under ordinary circumstances, is at the time owned, directly or indirectly, by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries or (ii) any other Person or entity of which at least a majority of voting interest, under ordinary circumstances, is at the time owned, directly or indirectly, by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries. "Substantial Shareholder" means each of (i) William R. Berkley and his Affiliates and/or (ii) Interlaken Capital, Inc. and its Affiliates. "Survey" has the meaning specified in the Intercreditor Agreement. "Tax Sharing Agreement" means the Tax Sharing Agreement dated as of April 20, 1995 among Pioneer and its subsidiaries. "Taxes" means any present or future tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and other liabilities related thereto) imposed or levied by or on behalf of the government of Canada or of any province or territory thereof or by any authority or agency therein or thereof having power to tax. "Term Loan Agent" means Bank of America National Trust and Savings Association as administrative agent for the lenders under the Term Loan Agreement and any successor thereto. - 30 - 42 "Term Loan Agreement" means the loan agreement dated as of October 30, 1997, among PAI, PAAC, the Term Loan Agent, DLJ Capital Funding, Inc., Salomon Brothers Holding Company Inc and the lenders named therein, including and together with any and all related notes, bonds, guarantees, instruments and agreements executed in connection therewith, as such loan agreement and/or related documents may be amended, restated, supplemented, renewed, replaced or otherwise modified from time to time. "Term Loan Notes" means the notes representing loans in an initial aggregate principal amount of $100,000,000 made to PAI pursuant to the Term Loan Agreement, as such notes may be exchanged, replaced, amended, restated, supplemented or otherwise modified from time to time. "Trust Indenture Act" means the U.S. Trust Indenture Act of 1939, as amended. "Trust Moneys" means all cash or Eligible Investments received by the Collateral Agent: (a) in exchange for the release of property from the Lien of any of the Security Documents; or (b) as compensation for or proceeds of the sale of all or any part of the Collateral taken by eminent domain or purchased by, or sold pursuant to any order of, a governmental authority or otherwise disposed of; or (c) as proceeds of insurance upon any, all or part of the Collateral (other than any liability insurance proceeds payable to the Collateral Agent for any loss, liability or expense incurred by it); or (d) as proceeds of any other sale or other disposition of all or any part of the Collateral by or on behalf of the Collateral Agent or any collection, recovery, receipt, appropriation or other realization of or from all or any part of the Collateral pursuant to the Security Documents or otherwise; or (e) for application under this Indenture as provided in this Indenture or any Security Document, or whose disposition is not otherwise specifically provided for in this Indenture or in any Security Document. "Trustee" means the Person named as the "trustee" in the first paragraph of this instrument, until a successor trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor trustee. "Unrestricted Subsidiary" means, until such time as it may be designated as a Restricted Subsidiary by the Board of Directors as provided in and in compliance with the definition of "Restricted Subsidiary," (i) any Subsidiary of the Company or PAAC organized or acquired after the Closing Date designated as an Unrestricted Subsidiary by the Board of Directors in which all investments by the Company, PAAC or any Restricted Subsidiary are made only from funds available for the making of Restricted - 31 - 43 Payments as described under Section 1006 hereof and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company or PAAC (including any newly acquired or newly formed Subsidiary of the Company or PAAC) to be an Unrestricted Subsidiary unless such Subsidiary owns any Equity Interests of, or owns, or holds any Lien upon, any property of, any Subsidiary of the Company or PAAC which is not a Subsidiary of such Subsidiary to be so designated; provided that (w) each Subsidiary of the Company or PAAC to be so designated and each of its Subsidiaries has not, at the time of designation, and does not thereafter, directly or indirectly, incur any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company, PAAC or any of the Restricted Subsidiaries, (x) immediately after giving effect to such designation no Default or Event of Default has occurred and is continuing, (y) all outstanding Investments by the Company, PAAC and the Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary of the Company or PAAC so designated shall be deemed to be Restricted Payments at the time of such designation equal in amount to the Fair Market Value of such Investments at the time of such designation and would be Restricted Payments permitted to be paid pursuant to the provisions of Section 1006 hereof and (z) the amount of such Restricted Payments shall be included in the calculation of the amount of Restricted Payments previously made pursuant to Section 1006 hereof. The Company shall evidence any such designation by promptly filing with the Trustee an Officers' Certificate certifying that such designation has been made and complies with the requirements of the immediately preceding sentence. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case under clause (i) or (ii) above, are not callable or redeemable at the option of the issuer thereof. "Voting Stock" of any Person means Capital Stock of such Person which ordinarily has voting power for the election of directors (or Persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Wholly-Owned Restricted Subsidiary" means, with respect to any Person, a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than capital stock constituting directors' qualifying shares or interests held by directors or shares or - 32 - 44 interests required to be held by foreign nationals, to the extent mandated by applicable law) are owned by such Person or by one or more Wholly-Owned Restricted Subsidiaries of such Person. Section 102. Other Definitions.
Defined in Term Section ---- ------- "Act" 105 "Additional Amounts" 1024 "Adjusted Net Assets" 1309 "Agent Members" 306 "Asset Sale Offer" 1009 "Asset Sale Offer Amount" 1109 "Asset Sale Offer Period" 1109 "Asset Sale Purchase Date" 1109 "Asset Sale Purchase Price" 1009 "Change of Control Date" 1014 "Change of Control Offer" 1014 "Change of Control Payment Date" 1014 "Change of Control Purchase Price" 1014 "Collateral Proceeds" 1009 "Commencement Date" 1109 "Computation Date" 1006 "Computation Period" 1006 "covenant defeasance" 403 "Custodian" 501 "Defaulted Interest" 309 "defeasance" 402 "Defeasance Redemption Date" 404 "Defeased Securities" 401 "Excess Proceeds" 1009 "Funding Guarantor" 1309 "judgment currency" 1005 "New Indebtedness" 1017 "Physical Securities" 201 "Pipeline Security Documents" 1401 "Pledgor Subsidiary" or "Pledgor Subsidiaries" 1017 "Power of Attorney" 1408 "Refinancing" 101* "Refinancing Indebtedness" 101* "Required Filing Date" 704 "Restricted Payment" 1006 "Stock Pledge Agreements" 1017 "U.S. Global Security" 201 "U.S. Process Agent" 1005
- ----------------- * See "Permitted Indebtedness", paragraph (j) of Section 101 - 33 - 45 Section 103. Compliance Certificates and Opinions. Upon any application or request by the Company or any Guarantor to the Trustee to take any action under any provision of this Indenture, the Company, any Guarantor and any other obligor on the Securities shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenants compliance with which constitutes a condition precedent) relating to the proposed action have been complied with, an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that, in the case of any such application or request as to which the furnishing of such documents, certificates and/or opinions is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinion contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 104. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such - 34 - 46 Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company, any Guarantor or other obligor of the Securities may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company, any Guarantor or other obligor of the Securities stating that the information with respect to such factual matters is in the possession of the Company, any Guarantor or other obligor of the Securities, unless such counsel knows that the certificate or opinion or representations with respect to such matters are erroneous. Opinions of Counsel required to be delivered to the Trustee may have qualifications customary for opinions of the type required and counsel delivering such Opinions of Counsel may rely on certificates of the Company or government or other officials customary for opinions of the type required, including certificates certifying as to matters of fact, including that various financial covenants have been complied with. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 105. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems - 35 - 47 sufficient in accordance with such reasonable rules as the Trustee may determine. (b) The ownership of Securities shall be proved by the Security Register. (c) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind every future Holder of the same Security or the Holder of every Security issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done, suffered or omitted to be done by the Trustee, any Paying Agent or the Company or any Guarantor in reliance thereon, whether or not notation of such action is made upon such Security. (d) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of such Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding Trust Indenture Act Section 316(c), any such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not more than 30 days prior to the first solicitation of Holders generally in connection therewith and no later than the date such solicitation is completed. In the absence of any such record date fixed by the Company, regardless as to whether a solicitation of the Holders is occurring on behalf of the Company or any Holder, the Trustee may, at its option, fix in advance a record date for the determination of such Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Trustee shall have no obligation to do so. Any such record date shall be a date not more than 30 days prior to the first solicitation of Holders generally in connection therewith and no later than a date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for purposes of determining whether Holders of the requisite proportion of Securities then outstanding have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for this purpose the Securities then - 36 - 48 Outstanding shall be computed as of such record date; provided that no such request, demand, authorization, direction, notice, consent, waiver or other Act by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. (e) If at any time a request, demand, authorization, direction, notice, consent, waiver or other action to be given or taken by the Majority Holders is required pursuant to the terms of the Intercreditor Agreement, the Trustee shall solicit the direction of the Holders as to such request, demand, authorization, direction, notice, consent, waiver or other action. The Holders of a majority in principal amount of the Securities then Outstanding may direct the Trustee's response to such request, demand, authorization, direction, notice, consent, waiver or other action. Section 106. Notices, etc., to Trustee, the Company and any Guarantor. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (a) the Trustee by any Holder or by the Company or any Guarantor or any other obligor of the Securities shall be sufficient for every purpose hereunder if in writing (including telecopy, with respect to the Company or any Guarantor only) and mailed, first-class postage prepaid, telecopied, hand delivered, or delivered by recognized overnight courier, to or with the Trustee at 114 West 47th Street, New York, New York, 10036-1532, Attention: Corporate Trust Division, telecopy: 212-852-1625 or at any other address previously furnished in writing to the Holders, the Company, any Guarantor or any other obligor of the Securities by the Trustee; or (b) the Company or any Guarantor shall be sufficient for every purpose hereunder if in writing (including telecopy) and mailed, first-class postage prepaid, telecopied, hand delivered, or delivered by recognized overnight courier, to the Company or such Guarantor addressed to it at 4300 NationsBank Center, 700 Louisiana Street, Houston, TX 77002, Attention: Vice President, General Counsel and Secretary, telecopy: 713-225-4426 or at any other address previously furnished in writing to the Trustee. - 37 - 49 Section 107. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, or delivered by recognized overnight courier, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice when mailed to a Holder in the aforesaid manner shall be conclusively deemed to have been received by such Holder whether or not actually received by such Holder. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event as required by any provision of this Indenture, then any method of giving such notice as shall be reasonably satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. Section 108. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with any provision of the Trust Indenture Act or another provision which is required or deemed to be included in this Indenture by any of the provisions of the Trust Indenture Act, the provision or requirement of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Section 109. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. - 38 - 50 Section 110. Successors and Assigns. All covenants and agreements in this Indenture by the Company and the Guarantors shall bind their successors and assigns, whether so expressed or not. Section 111. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 112. Benefits of Indenture. Nothing in this Indenture or in the Securities or the Guarantees, express or implied, shall give to any Person (other than the parties hereto and their successors hereunder, any Paying Agent and the Holders) any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 113. Governing Law. This Indenture, the Securities, the Guarantees and the Intercreditor Agreement will be governed by, and construed in accordance with, the laws of the State of New York. The Security Documents will be governed by, and construed in accordance with, the laws of the province in Canada in which the particular Collateral secured thereby is situated and the federal laws of Canada applicable therein. Section 114. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest, principal, premium, if any, or Liquidated Damages, if any, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity and no interest or Liquidated Damages, if any, shall accrue with respect to such payment for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, to the next succeeding Business Day. Section 115. Schedules and Exhibits. All schedules and exhibits attached hereto are by this reference made a part hereof with the same effect as if herein set forth in full. - 39 - 51 Section 116. Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. Section 117. Communication by Holders with Other Holders. Holders may communicate pursuant to Trust Indenture Act Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of Trust Indenture Act Section 312(c). Section 118. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company, the Guarantors and any Subsidiaries of the Company or any of the Guarantors, shall not have any liability for any obligations of the Company under the Securities or this Indenture for any obligation of the Guarantors under the Guarantees or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Holder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. ARTICLE TWO SECURITY FORMS Section 201. Forms Generally. The Securities, the Guarantees and the Trustee's certificate of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange, any organizational document or governing instrument or applicable law or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security. - 40 - 52 Securities offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent global Securities substantially in the form set forth in this Article (the "U.S. Global Security") deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the U.S. Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Securities offered and sold other than as described in the preceding paragraph shall be issued in the form of permanent certificated Securities in registered form in substantially the form set forth in this Article (the "Physical Securities"). The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. Section 202. Restrictive Legends. Each U.S. Global Security and Physical Security shall bear the following legend on the face thereof until after the Resale Restriction Termination Date, unless and until a Security is exchanged for an Exchange Note in connection with an effective registration pursuant to the Registration Rights Agreement or another effective registration and resale of the Securities occurs pursuant to the Registration Rights Agreement: THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF THE GUARANTORS, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (D) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE - 41 - 53 REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING. Each U.S. Global Security, whether or not an Exchange Note, shall also bear the following legend on the face thereof: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFER OF THIS U.S. GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO., OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS U.S. GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 307 OF THE INDENTURE. Section 203. Form of Face of Security. (a) The form of the face of the Securities shall be substantially as follows: - 42 - 54 PCI CHEMICALS CANADA INC. --------------------------- 9 1/4% SENIOR SECURED NOTES DUE 2007 CUSIP No: No.__________ $___________ PCI CHEMICALS CANADA INC., a New Brunswick, Canada corporation (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ___________ or registered assigns, the principal sum of __________ United States dollars on October 15, 2007, at the office or agency of the Company referred to below, and to pay interest thereon from the date of original issuance, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually on April 15, and October 15, in each year, commencing April 15, 1998 at the rate of 9 1/4% per annum (subject to adjustment as provided below), in United States dollars, until the principal hereof is paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date shall, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be April 1, or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid, or duly provided for, and interest on such defaulted interest at the interest rate borne by the Securities, to the extent lawful, shall forthwith cease to be payable to the Holder on such Regular Record Date, and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of, premium, if any, interest and Liquidated Damages, if any, on this Security shall be made at the office or agency of the Company maintained for that purpose, in such coin or currency of the United States of America as at - 43 - 55 the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. This Security is entitled to the benefits of Guarantees by each of the Guarantors of the punctual payment when due of the Indenture Obligations made in favor of the Trustee for the benefit of the Holders. Such Guarantees shall be senior obligations of each Guarantor, and shall rank pari passu with all existing and future Senior Indebtedness of such Guarantor and senior to all Subordinated Indebtedness of such Guarantor. Reference is hereby made to Article Thirteen of the Indenture for a statement of the respective rights, limitations of rights, duties and obligations under the Guarantees of each of the Guarantors. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof or by the authenticating agent appointed as provided in the Indenture by manual signature, this Security shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the manual or facsimile signature of its authorized officers and its corporate seal to be affixed or reproduced hereon. Dated: PCI CHEMICALS CANADA INC. By -------------------------- Attest: [SEAL] - -------------------------------- Secretary - 44 - 56 Section 204. Form of Reverse of Securities. (a) The form of the reverse of the Securities shall be substantially as follows: The Holder, by becoming holder of this Security, shall be bound by the terms and conditions of the Indenture and shall be automatically deemed to have ratified and consented to the granting by the Trustee and the Holders to the Collateral Agent of the irrevocable Power of Attorney constituted in the Indenture. The Holder agrees (i) with the Trustee and the other Holders that it will not, without the prior consent of the Trustee and the other Holders, take or obtain any Lien on any property of the Company to secure the obligations of the Company hereunder, except for the benefit of the Collateral Agent or as may otherwise be required by law; and (ii) that, notwithstanding the provisions of Section 32 of the Special Corporate Powers Act (Quebec), the Collateral Agent may, as the person holding the Power of Attorney of the Trustee and the Holders, acquire any title to indebtedness secured by any hypothec in its favor related to this Security or the Indenture or any other document contemplated thereunder. This Security is one of a duly authorized issue of Securities of the Company designated as its 9 1/4% Senior Secured Notes due 2007 (herein called the "Securities"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount up to $175,000,000, which may be issued under an indenture (herein called the "Indenture") dated as of October 30, 1997, among the Company, the Guarantors and United States Trust Company of New York, as trustee and as collateral agent (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Guarantors, the Trustee and the Holders of the Securities, and of the terms upon which the Securities and the Guarantees are, and are to be, authenticated and delivered. The Indenture contains provisions for defeasance at any time of (a) the entire Indebtedness on the Securities and (b) certain restrictive covenants and related Defaults and Events of Default, in each case upon compliance or noncompliance with certain conditions set forth therein. The Securities shall be senior secured obligations of the Company, and shall rank pari passu with all existing and - 45 - 57 future Senior Indebtedness of the Company and senior to all Subordinated Indebtedness of the Company. The Securities shall not be redeemable at the option of the Company prior to October 15, 2002. On or after that date, the Securities shall be redeemable at the option of the Company, in whole or in part from time to time, on not less than thirty (30) nor more than sixty (60) days' prior notice, mailed by first-class mail to the Holders' registered addresses, in cash, in amounts of $1,000 or an integral multiple of $1,000 at the following Redemption Prices (expressed as percentages of the principal amount), if redeemed in the 12-month period commencing October 15 in the year indicated below:
Year Redemption ---- ---------- 2002 104.625% 2003 103.084% 2004 101.542% 2005 and thereafter 100.000%
in each case together with accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date (subject to the right of Holders of record on relevant record dates to receive interest and Liquidated Damages, if any, due on an Interest Payment Date). If less than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata, by lot or by any other method the Trustee shall deem fair and appropriate. Notwithstanding the foregoing, at any time on or prior to October 15, 2000, the Company may redeem, in part, up to $61,250,000 in aggregate principal amount of the Securities at a purchase price of 109.25% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date fixed for redemption, with the net proceeds of (i) any Equity Offering by the Company or (ii) any Equity Offering by Pioneer or PAAC, but only to the extent that Pioneer or PAAC contributes such net proceeds to the Company as a capital contribution; provided that at least $113,750,000 aggregate principal amount of the Securities must remain outstanding after such redemption. Upon the occurrence of a Change of Control, each Holder may require the Company to repurchase all or a portion of such Holder's Securities in an amount of $1,000 or integral multiples of $1,000, at a purchase price in cash equal to 101% of the principal amount thereof, together with accrued and unpaid interest and Liquidated Damages, if any, to the date of repurchase. - 46 - 58 Under certain circumstances, in the event the Net Proceeds received by the Company from one or more Asset Sales, which proceeds are not applied within 365 days subsequent to the consummation of the Asset Sale to repay permanently any Senior Indebtedness of the Company, PAAC or PAI then outstanding or to an investment in the Company, PAAC or in one or more Restricted Subsidiaries in a Related Business, exceed $10,000,000 the Company shall be required to apply such proceeds to repurchase the Securities tendered to the Company for purchase at a price equal to at least 100% of the principal amount thereof, plus accrued interest and Liquidated Damages, if any, to the date of purchase pursuant to an offer to purchase made by the Company with respect to the Securities. In the case of any redemption of Securities, interest installments whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities of record as of the close of business on the relevant record date referred to on the face hereof. Securities (or portions thereof) for whose redemption and payment provision is made in accordance with the Indenture shall cease to bear interest from and after the date of redemption. In the event of redemption of this Security in part only, a new Security or Securities for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default shall occur and be continuing, the principal amount of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions (including certain amendments permitted without the consent of any Holders) as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the Guarantors and the rights of the Holders under the Indenture and the Guarantees at any time by the Company, the Guarantors and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company and the Guarantors with certain provisions of the Indenture and the Guarantees and certain past Defaults under the Indenture and the Guarantees and their consequences. Any such consent or waiver by or on behalf of the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon - 47 - 59 the registration of transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, any Guarantor or any other obligor upon the Securities (in the event such other obligor is obligated to make payments in respect of the Securities), which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Security at the times, place, and rate, and in the coin or currency, herein prescribed. The Securities are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to and at the time of due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security is overdue, and neither the Company, the Trustee nor any agent shall be affected by notice to the contrary. [The Company and the Guarantors have entered into an Exchange and Registration Rights Agreement dated as of November 5, 1997 (the "Registration Rights Agreement") with the Initial Purchasers described therein. Pursuant to the Registration Rights Agreement, the Company and the Guarantors have agreed, among other things, for the benefit of the Holders that they shall, at their expense, (i) file with the Commission on or prior to 30 days from the Closing Date an Exchange Offer Registration Statement with the Commission with respect to a registered offer to exchange this Security for an Exchange Note, and (ii) use their best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act on or prior to 150 days after the Closing Date. The Holders of the Initial Securities shall be entitled to receive Liquidated Damages in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the Registration Rights Agreement. - 48 - 60 Reference is hereby made to the Registration Rights Agreement for a statement of the respective rights, duties and obligations thereunder of the Company, the Guarantors and the Holders of the Securities.1] In order to secure the due and punctual payment of principal of and interest and Liquidated Damages, if any, on the Securities when and as the same shall become due and payable, whether on an Interest Payment Date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of and interest (to the extent permitted by law), if any, on the Securities, and performance of all other obligations of the Company to the Holders or the Trustee under the Indenture and the Securities, the Company has entered into the Security Documents with the Collateral Agent. The Securities shall be secured by Liens on and security interests in the Collateral subject to pari passu Liens and security interests and other permitted encumbrances as described further in the Security Documents. Each Holder, by accepting a Security, agrees to all of the terms and provisions of the Security Documents as the same may be amended from time to time pursuant to the respective provisions thereof and of the Indenture. Each Holder acknowledges that a release of any of the Collateral or any Lien strictly in accordance with the terms and provisions of the Security Documents and the terms and provisions of the Indenture will not be deemed for any purpose to be an impairment of the security under the Indenture. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and the Security Documents. All terms used in this Security which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. - ---------------------------- 1 To be included in each Security prior to expiration of the obligations of the Company and the Guarantors under the Registration Rights Agreement. - 49 - 61 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Please print or typewrite name and address including zip code of assignee - ------------------------------------------------------------------------------ the within Security and all rights thereunder, hereby irrevocably constituting and appointing - ------------------------------------------------------------------------------ attorney to transfer said Security on the books of the Company with full power of substitution in the premises. In connection with any transfer of this Security occurring prior to the date which is the earlier of the date of an effective Registration or the Resale Restriction Termination Date, the undersigned confirms that without utilizing any general solicitation or general advertising: [Check One] [ ] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder, or [ ] (b) this Security is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless and until - 50 - 62 the conditions to any such transfer of registration set forth herein and in Section 307 of the Indenture shall have been satisfied. Date: ------------------------- ----------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: -------------------------- -------------------------- NOTICE: To be executed by an executive officer OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Security purchased by the Company pursuant to Section 1014 or 1109 of the Indenture, check the Box: [ ]. - 51 - 63 If you wish to have a portion of this Security purchased by the Company pursuant to Section 1014 or 1109 of the Indenture, state the amount (in authorized denominations): $ . ---------- Date: ----------------- Your Signature: ------------------------ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ------------------ Section 205. Form of Trustee's Certificate of Authentication. TRUSTEE'S CERTIFICATE OF AUTHENTICATION. This is one of the Securities referred to in the within-mentioned Indenture. UNITED STATES TRUST COMPANY OF NEW YORK As Trustee By ------------------------------ Authorized Signatory Section 206. Form of Guarantee of Each of the Guarantors. The form of Guarantee shall be set forth on the Securities substantially as follows: GUARANTEES For value received, each of the undersigned hereby unconditionally guarantees, jointly and severally, to the Holder of this Security the payment of principal of, premium, if any, interest and Liquidated Damages, if any, on this Security in the amounts and at the time when due and interest on the overdue principal and interest, if any, of this Security, if lawful, and the payment or performance of all other obligations of the Company under the Indenture or the Securities, to the Holder of this Security and the Trustee, all in accordance with and subject to the terms and limitations of this Security and Article Thirteen of the Indenture. This Guarantee shall not become - 52 - 64 effective until the Trustee duly manually executes the certificate of authentication on this Security. PIONEER AMERICAS ACQUISITION CORP. Attest By --------------------------- -------------------------------- Name: Name: Title: Title: PIONEER AMERICAS, INC. Attest By --------------------------- -------------------------------- Name: Name: Title: Title: PIONEER CHLOR ALKALI COMPANY, INC. Attest By --------------------------- -------------------------------- Name: Name: Title: Title: IMPERIAL WEST CHEMICAL CO. Attest By --------------------------- -------------------------------- Name: Name: Title: Title: ALL-PURE CHEMICAL CO. Attest By --------------------------- -------------------------------- Name: Name: Title: Title: BLACK MOUNTAIN POWER COMPANY Attest By --------------------------- -------------------------------- Name: Name: Title: Title: - 53 - 65 ALL PURE CHEMICAL NORTHWEST, INC. Attest By --------------------------- -------------------------------- Name: Name: Title: Title: PIONEER CHLOR ALKALI INTERNATIONAL, INC. Attest By --------------------------- -------------------------------- Name: Name: Title: Title: G.O.W. CORPORATION Attest By --------------------------- -------------------------------- Name: Name: Title: Title: PIONEER (EAST), INC. Attest By --------------------------- -------------------------------- Name: Name: Title: Title: T.C. HOLDINGS, INC. Attest By --------------------------- -------------------------------- Name: Name: Title: Title: T.C. PRODUCTS, INC. Attest By --------------------------- -------------------------------- Name: Name: Title: Title: - 54 - 66 PCI CAROLINA, INC. Attest By --------------------------- -------------------------------- Name: Name: Title: Title: PIONEER LICENSING, INC. Attest By --------------------------- -------------------------------- Name: Name: Title: Title: - 55 - 67 ARTICLE THREE THE SECURITIES Section 301. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $175,000,000 in principal amount of Securities plus any Exchange Notes which may be issued upon consummation of an Exchange Offer, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 303, 304, 305, 306, 307, 308, 906, 1009, 1014 or 1108 hereof. The Securities shall be known and designated as the "9 1/4% Senior Secured Notes due 2007" of the Company. The Stated Maturity of the principal amount of the Securities shall be October 15, 2007, and the Securities shall each bear interest at the rate of 9 1/4% per annum from the Closing Date or from the most recent Interest Payment Date to which interest has been paid, as the case may be, payable on April 15, 1998 and semiannually thereafter on October 15, and April 15, in each year, until the principal thereof is paid or duly provided for. The principal of, premium, if any, interest and Liquidated Damages, if any, on the U.S. Global Security shall be payable to the Depositary or its nominee, as the case may be, as the sole registered owner and the sole Holder of the U.S. Global Security represented thereby. The principal of, premium, if any, interest and Liquidated Damages, if any, on the Securities shall be payable at the office or agency of the Company maintained for such purpose; provided, however, that at the option of the Company interest may be paid by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Security Register. The Securities shall be redeemable as provided in Article Eleven. At the election of the Company, the entire Indebtedness on the Securities or certain of the Company's obligations and covenants and certain Events of Default thereunder may be defeased as provided in Article Four. Section 302. Denominations. The Securities shall be issuable only in fully registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. - 56 - 68 Section 303. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by one of its Chairman of the Board, its President or one of its Vice Presidents under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices on the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as provided in this Indenture and not otherwise. Upon a Company Order, the Trustee shall authenticate and deliver an additional series of notes in an aggregate principal amount not to exceed $175,000,000 for issuance in exchange for all or a portion of the Initial Securities previously issued and surrendered for cancellation pursuant to an exchange offer registered under the Securities Act, in accordance with the Registration Rights Agreement. The Exchange Notes may have such distinctive series designation and such changes in the form thereof as are specified in the Company Order referred to in the preceding sentence, and shall be guaranteed by the Guarantors on substantially identical terms as the Initial Securities. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. In case the Company or any Guarantor, pursuant to Article Eight, shall be consolidated, merged with or into any other Person or shall sell, assign, convey, transfer or lease - 57 - 69 substantially all of its properties and assets to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company or such Guarantor shall have been merged, or the Person which shall have received a sale, assignment, conveyance, transfer or lease as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Securities authenticated or delivered prior to such consolidation, merger, sale, assignment, conveyance, transfer or lease may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Securities as specified in such request for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time Outstanding for Securities authenticated and delivered in such new name. The Trustee (at the expense of the Company) may appoint an authenticating agent acceptable to the Company to authenticate Securities on behalf of the Trustee. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Security Registrar or Paying Agent to deal with the Company and its Affiliates. Section 304. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the - 58 - 70 office or agency of the Company designated for such purpose pursuant to Section 1002 hereof, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. Section 305. Registration of Transfer and Exchange. All provisions of this Section 305 shall be subject to Section 307 hereof. The Company shall cause to be kept at the Corporate Trust Office of the Trustee, or such other office as the Trustee may designate, a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 hereof being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as the Security Registrar may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee or an agent thereof or of the Company shall initially be the "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated pursuant to Section 1002 hereof, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series of any authorized denomination or denominations, of a like aggregate principal amount. Any Holder of the U.S. Global Security shall, by acceptance of such U.S. Global Security, agree that transfers of beneficial interests in such U.S. Global Security, may be effected only through a book-entry system maintained by the Holder of such U.S. Global Security (or its agent), and that ownership of a beneficial interest in the Security shall be required to be reflected in a book entry. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination or denominations (including an exchange of Initial Securities for Exchange Notes), of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and - 59 - 71 deliver, the Securities of the same series which the Holder making the exchange is entitled to receive; provided that no exchanges of Initial Securities for Exchange Notes shall occur until a Registration Statement shall have been declared effective by the Commission and that any Initial Securities that are exchanged for Exchange Notes shall be canceled by the Trustee. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same Indebtedness, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer, or for exchange or redemption shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to a Holder for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to pay all documentary, stamp or similar issue or transfer taxes or other governmental charges that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges of Initial Securities for Exchange Notes and exchanges pursuant to Section 303, 304, 305, 306, 307, 308, 906, 1009, 1014 or 1108 hereof not involving any transfer. The Company shall not be required (a) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business (i) 15 days before the date of selection of Securities for redemption under Section 1104 hereof and ending at the close of business on the day of such mailing or (ii) 15 days before an Interest Payment Date and ending on the close of business on the Interest Payment Date, or (b) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of Securities being redeemed in part. Section 306. Book-Entry Provisions for U.S. Global Security. All provisions of this Section 306 shall be subject to Section 307 hereof. (a) The U.S. Global Security initially shall (i) be registered in the name of the Depositary for such U.S. Global Security or the nominee of such Depositary, (ii) be delivered to - 60 - 72 the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 202 hereof. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any U.S. Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under the U.S. Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such U.S. Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Security. (b) Transfers of the U.S. Global Security shall be limited to transfers of such U.S. Global Security in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in the U.S. Global Security may be transferred in accordance with the rules and procedures of the Depositary and the provisions of Section 307 hereof. Beneficial owners may obtain Physical Securities in exchange for their beneficial interests in the U.S. Global Security upon request in accordance with the Depositary's and the Registrar's procedures. In addition, Physical Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in the U.S. Global Security if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the U.S. Global Security and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Security Registrar has received a request from the Depositary. (c) In connection with any transfer of a portion of the beneficial interest in the U.S. Global Security to beneficial owners pursuant to Subsection (b) of this Section, the Security Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Security in an amount equal to the principal amount of the beneficial interest in the U.S. Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Securities of like tenor and amount. (d) In connection with the transfer of the entire U.S. Global Security to beneficial owners pursuant to Subsection (b) of this Section, the U.S. Global Security shall be surrendered to - 61 - 73 the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the U.S. Global Security, an equal aggregate principal amount of Physical Securities of authorized denominations. (e) Any Physical Security delivered in exchange for an interest in the U.S. Global Security pursuant to Subsection (b) or Subsection (c) of this Section shall, except as otherwise provided by paragraph (d) of Section 307 hereof, bear the applicable legend regarding transfer restrictions applicable to the Physical Security set forth in Section 202 hereof. (f) The registered Holder of the U.S. Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. Section 307. Special Transfer Provisions. Unless and until an Initial Security is exchanged for an Exchange Note in connection with an effective Exchange Offer Registration Statement or a Shelf Registration Statement is declared effective with respect to such Initial Securities and an Initial Security is sold pursuant to the plan of distribution thereunder, the following provisions shall apply: (a) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Security to a QIB: (i) If the Security to be transferred consists of Physical Securities, the Security Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested - 62 - 74 pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A. (ii) If the proposed transferee is an Agent Member, and the Security to be transferred consists of Physical Securities, upon receipt by the Security Registrar of instructions given in accordance with the Depositary's and the Security Registrar's procedures, the Security Registrar shall reflect on its books and records the date and an increase in the principal amount of the U.S. Global Security in an amount equal to the principal amount of the Physical Securities to be transferred, and the Trustee shall cancel the Physical Security so transferred. (b) Private Placement Legend. Any Security authenticated and issued hereunder shall not be required to bear the legend set forth in Section 202 hereof, if such Security shall be issued upon: (i) the transfer or exchange of a Security and contemporaneously therewith the Company shall have received an Opinion of Counsel, at its expense, in form and substance reasonably satisfactory to the Company, to the effect that such Security to be issued upon such transfer or exchange may be so issued without such legend because (A) such Security is being exchanged for an Exchange Note or (B) such Security shall have been registered under the Securities Act, the registration statement in connection therewith shall have been declared effective and such Security shall have been disposed of pursuant to such effective registration statement, and the Company shall have delivered to the Trustee and the Security Registrar a copy of such Opinion of Counsel together with an Officers' Certificate directing the Trustee and the Security Registrar to deliver an unlegended Security in connection with such transfer or exchange; such Officers' Certificate and Opinion of Counsel shall be delivered by the Company as soon as practicable after its receipt of a written request by a Holder for such a transfer or exchange; or (ii) the transfer or exchange of a Security not bearing such legend. - 63 - 75 (c) General. (i) By its acceptance of any Security bearing the Private Placement Legend, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it shall transfer such Security only as provided in this Indenture. (ii) Prior to any transfer or exchange of a legended Security for another legended Security, the Company shall have received an opinion of counsel of the Holder (which may include in-house counsel of such Holder experienced in matters of Federal securities law), at its expense, in form and substance reasonably satisfactory to the Company to the effect that such transfer does not require registration under the Securities Act and the Company shall have delivered to the Trustee and the Security Registrar a copy of such opinion of counsel of the Holder together with an Officers' Certificate directing the Trustee and the Security Registrar to transfer or exchange the legended Security for another legended Security. The Trustee and the Security Registrar shall forward copies of all letters, notices and other written communications received pursuant to Section 306 hereof or this Section 307 to the Company for approval prior to any transfer or exchange. Notwithstanding anything to the contrary set forth herein, the Trustee and the Security Registrar shall have no duty to monitor compliance with any Federal, state or other securities laws. Section 308. Mutilated, Destroyed, Lost and Stolen Securities. If (a) any mutilated Security is surrendered to the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company, each Guarantor and the Trustee, such security or indemnity, in each case, as may be required by them to save each of them harmless, then, in the absence of notice to the Company, any Guarantor or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a replacement Security of like tenor and - 64 - 76 principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a replacement Security, pay such Security. Upon the issuance of any replacement Securities under this Section, the Company may require the payment of a sum sufficient to pay all documentary, stamp or similar issue or transfer taxes or other governmental charges that may be imposed in relation thereof and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every replacement Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company and the Guarantors, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 309. Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date and interest on such defaulted interest at the then applicable interest rate borne by the Securities, to the extent lawful (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the Regular Record Date; and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Subsection (a) or (b) below: (a) the Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities are registered at the close of business on a - 65 - 77 Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date (not less than 30 days after such notice) of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Subsection provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company in writing of such Special Record Date. In the name and at the expense of the Company, the Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities are registered on such Special Record Date and shall no longer be payable pursuant to the following Subsection (b). (b) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this Subsection, such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security (including any Exchange Security issued in exchange for an Initial Security) shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. - 66 - 78 Section 310. Persons Deemed Owners. The Company, any Guarantor, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 309 hereof) interest and Liquidated Damages, if any, on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Company, any Guarantor, the Trustee nor any agent of the Company, any Guarantor or the Trustee shall be affected by notice to the contrary. Section 311. Cancellation. All Securities surrendered for payment, purchase, redemption, registration of transfer or exchange shall be delivered to the Trustee and, if not already canceled, shall be promptly canceled by it. The Company and any Guarantor may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company or such Guarantor may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be destroyed and certification of their destruction delivered to the Company. The Trustee shall provide the Company a list of all Securities that have been canceled from time to time as requested by the Company. Section 312. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. For purposes of the Interest Act (Canada), (i) the rate of interest on the Securities expressed as an annual rate will be the yearly rate of interest which would otherwise be applicable on the basis of a 360 day year multiplied by a fraction, the numerator of which is the number of days in the applicable calendar year (being the calendar year in which the period for which such interest is calculated ends) and the denominator of which is 360; (ii) the principle of deemed reinvestment of interest shall not apply to any interest calculation under the Securities; and (iii) the rates of interest stipulated in the Securities are intended to be nominal rates and not effective rates or yields. - 67 - 79 Section 313. Deposit of Moneys. Prior to 10:00 a.m., New York City time, on each Interest Payment Date and at Maturity, the Company shall have deposited with the Trustee or a Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date or at Maturity, as the case may be, in a timely manner which permits the Trustee or such Paying Agent to remit payment to the Holders on such Interest Payment Date or at Maturity, as the case may be. Section 314. CUSIP Number. The Company in issuing the Securities may use a "CUSIP" number(s), and if so, the Trustee shall use the CUSIP number(s) in notices of redemption or exchange as a convenience to Holders, provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number(s) printed in the notice or on the Securities and that reliance may be placed on the other identification numbers printed on the Securities. Section 315. Interest Under Criminal Code (Canada). Notwithstanding any provision to the contrary contained in this Indenture or the Securities, in no event shall the aggregate "interest" (as defined in Section 347 of the Criminal Code (Canada), as the same may be amended, replaced or re-enacted from time to time) payable under this Indenture or the Securities exceed the maximum amount of interest on the "credit advanced" (as defined in that section) under this Indenture and the Securities lawfully permitted under that section and, if any payment, collection or demand pursuant to this Indenture and the Securities in respect of "interest" (as defined in that section) is determined to be contrary to the provisions of that section, such payment, collection or demand shall be deemed to have been made by mutual mistake, and the amount of such payment or collection shall be refunded to the Company. For purposes of this Indenture and the Securities, the effective annual rate of interest shall be determined in accordance with generally accepted actuarial practices and principles over the term that the Securities are outstanding on the basis of annual compounding of the lawfully permitted rate of interest and, in the event of dispute, a certificate of a Fellow of the Canadian Institute of Actuaries appointed by the Trustee will be conclusive for the purposes of such determination. - 68 - 80 ARTICLE FOUR DEFEASANCE AND COVENANT DEFEASANCE Section 401. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may, at its option by Board Resolution, at any time, with respect to the Securities, elect to have either Section 402 or Section 403 hereof be applied to all of the Outstanding Securities (the "Defeased Securities"), upon compliance with the conditions set forth below in this Article Four. Section 402. Defeasance and Discharge. Upon the Company's exercise under Section 401 hereof of the option applicable to this Section 402, the Company, each of the Guarantors and any other obligor upon the Securities, if any, shall be deemed to have been discharged from its obligations with respect to the Defeased Securities on the date the conditions set forth below are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the Defeased Securities, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 405 hereof and the other Section of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Securities and this Indenture, including obligations to the Trustee, if any (and the Trustee, at the expense of the Company, and, upon written request, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of Defeased Securities to receive, solely from the trust fund described in Section 404 hereof and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, interest and Liquidated Damages, if any, on such Securities when such payments are due, (b) the Company's obligations with respect to such Defeased Securities under Sections 304, 305, 308, 1002 and 1018 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder including, without limitation, the Trustee's rights under Section 606 hereof and the Company's obligations in connection therewith, and (d) this Article Four. Subject to compliance with this Article Four, the Company may exercise its option under this Section 402 notwithstanding the prior exercise of its option under Section 403 hereof with respect to the Securities. - 69 - 81 Section 403. Covenant Defeasance. Upon the Company's exercise under Section 401 hereof of the option applicable to this Section 403, the Company and each Guarantor shall be released from its obligations under any covenant or provision contained or referred to in Sections 1003, 1004, 1006, 1007, 1008, 1009, 1010, 1011, 1012, 1014, 1015, 1016, 1019, 1020, 1021, 1022 and 1025 hereof with respect to the Defeased Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Defeased Securities shall thereafter be deemed to be not "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the Defeased Securities, the Company and each Guarantor may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or Article, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or Article or by reason of any reference in any such Section or Article to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 501(3) or (4) hereof but, except as specified above, the remainder of this Indenture and such Defeased Securities shall be unaffected thereby. Section 404. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 402 or Section 403 hereof to the Defeased Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 608 hereof who shall agree to comply with the provisions of this Article Four applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (a) United States dollars in an amount, or (b) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms shall provide, not later than one day before the due date of any payment, money in an amount, or (c) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants or a nationally recognized investment banking firm expressed in a written certification thereof - 70 - 82 delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge the principal of, premium, if any, interest and Liquidated Damages, if any, on the Defeased Securities on the Stated Maturity of such principal or installment of principal or interest (such date being referred to as the "Defeasance Redemption Date"), if when exercising under Section 401 hereof either its option applicable to Section 402 hereof or its option applicable to Section 403 hereof, the Company shall have delivered to the Trustee an irrevocable notice to redeem all of the Outstanding Securities on the Defeasance Redemption Date); provided that the Trustee shall have been irrevocably instructed to apply such United States dollars or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities. (2) In the case of an election under Section 402 hereof, the Company shall have delivered to the Trustee an Opinion of Independent Counsel in the United States of America stating that (A) the Company has received from the Internal Revenue Service a ruling and from Revenue Canada a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, including by means of a Revenue Ruling published by the Internal Revenue Service and a ruling from Revenue Canada has been published, in either case to the effect that, and based thereon such Opinion of Independent Counsel in the United States of America shall confirm that, the Holders of the Outstanding Securities will not recognize income, gain or loss for U.S. Federal income tax and Canadian federal or provincial income tax as a result of such defeasance and will be subject to U.S. Federal income tax and Canadian federal or provincial income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (3) In the case of an election under Section 403 hereof, the Company shall have delivered to the Trustee an Opinion of Independent Counsel in the United States of America to the effect that the Holders of the Outstanding Securities will not recognize income, gain or loss for U.S. Federal income tax, Canadian federal or provincial income tax or certain other tax purposes as a result of such covenant defeasance and will be subject to U.S. Federal income tax, Canadian federal or provincial income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. - 71 - 83 (4) No Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Subsections 501(10) or (11) hereof are concerned, at any time during the period ending on the 91st day after the date of deposit. (5) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default under, any material agreement or instrument (other than this Indenture) to which the Company or any Guarantor is a party or by which it is bound. (6) The Company shall have delivered to the Trustee an Opinion of Independent Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. (7) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Securities or any Guarantee over the other creditors of the Company or any Guarantor with the intent of defeating, hindering, delaying or defrauding creditors of the Company, any Guarantor or others. (8) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Independent Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 402 hereof or the covenant defeasance under Section 403 hereof (as the case may be) have been complied with as contemplated by this Section 404. Opinions of Counsel or Opinions of Independent Counsel required to be delivered under this Section may have qualifications customary for opinions of the type required and counsel delivering such opinions may rely on certificates of the Company or government or other officials customary for opinions of the type required, including certificates certifying as to matters of fact, including that various financial covenants have been complied with. Section 405. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 1018 hereof, all United States dollars and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee--collectively for - 72 - 84 purposes of this Section 405, the "Trustee") pursuant to Section 404 hereof in respect of the Defeased Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, interest and Liquidated Damages, if any, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 404 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Defeased Securities. Anything in this Article Four to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any United States dollars or U.S. Government Obligations held by it as provided in Section 404 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect defeasance or covenant defeasance. Section 406. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Obligations in accordance with Section 402 or 403 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and each Guarantor's obligations under this Indenture and the Securities (including, without limitation, the provisions of Article Thirteen hereof) shall be revived and reinstated as though no deposit had occurred pursuant to Section 402 or 403 hereof, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such United States dollars or U.S. Government Obligations in accordance with Section 402 or 403 hereof, as the case may be; provided, however, that if the Company makes any payment to the Trustee or Paying Agent of principal of, premium, if any, interest or Liquidated Damages, if any, on any Security following the reinstatement of its obligations, the Trustee or Paying Agent shall promptly pay any such amount to the Holders of the Securities and the Company shall be subrogated to the rights of - 73 - 85 the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. Section 407. Repayment of the Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, interest or Liquidated Damages, if any, on any Security and remaining unclaimed for two years after such principal, and premium, if any, interest or Liquidated Damages, if any, has become due and payable shall be paid to the Company on its written request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease, provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than thirty (30) days from the date of such notification or publication, any unclaimed balance of such money then remaining shall promptly be repaid to the Company. ARTICLE FIVE REMEDIES Section 501. Events of Default. An "Event of Default" shall occur if: (1) there shall be a default in the payment of interest or Additional Amounts on any Security when the same becomes due and payable and the Default continues for a period of thirty (30) days; (2) there shall be a default in the payment of the principal of, or premium with respect to, any Security when the same becomes due and payable, at maturity, upon redemption, in connection with a Change of Control, an Asset Sale or otherwise; (3) the Company or any Guarantor fails to observe or perform any covenant, condition or agreement on the part of the Company or such Guarantor to be observed or performed - 74 - 86 pursuant to Section 1006, 1008, 1009, 1010, 1012, 1014, 1019, 1020 or Article Eight hereof; (4) the Company or any Guarantor fails to observe or perform any other covenant or agreement in this Indenture, the Securities, the Guarantees or the Security Documents and such failure continues for the period and after the notice specified below; (5) the Company denies or disaffirms its obligations under this Indenture or the Securities; (6) a Guarantor denies or disaffirms its obligations under its Guarantee, or any Guarantee for any reason ceases to be, or is asserted in writing by any Guarantor or the Company not to be, in full force and effect and enforceable in accordance with its terms, except to the extent contemplated by this Indenture and any such Guarantee; (7) a default occurs under any Indebtedness of the Company, PAAC or any of the Restricted Subsidiaries (other than the Securities or the Guarantees), whether such Indebtedness now exists or is created after the Closing Date if either (A) such default results from the failure to pay the final scheduled principal installment in respect of any such Indebtedness on the stated maturity date thereof (after giving effect to any grace period) or (B) as a result of such default, the maturity of such Indebtedness has been accelerated prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of all other Indebtedness with respect to which the principal amount remains unpaid at its final maturity (after giving effect to any grace period in respect of such final scheduled principal installment) or the maturity of which has been so accelerated, aggregates $5,000,000 or more; (8) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company, PAAC or any of the Restricted Subsidiaries and such judgment or judgments remain undischarged, unbonded or unstayed for a period of sixty (60) days, provided that the aggregate of all such judgments (other than any judgment as to which and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) equals or exceeds $5,000,000; (9) any of the Security Documents ceases to be in full force and effect (other than in accordance with their respective terms), or any of the Security Documents ceases - 75 - 87 to give the Collateral Agent the Liens, rights, powers and privileges purported to be created thereby (other than in accordance with their respective terms), or any Security Document or any Collateral becomes subject to any Lien other than the Liens created or permitted by this Indenture or the Security Documents; (10) the Company, PAAC, any Guarantor or any other Restricted Subsidiary pursuant to or under or within the meaning of any Bankruptcy Law: (a) commences a voluntary case, (b) consents to the entry of an order for relief against it in an involuntary case in which it is a debtor, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, (d) makes a general assignment for the benefit of its creditors, (e) admits in writing its inability to pay debts as the same become due, (f) becomes insolvent or generally does not pay its debts as such debts become due, (g) admits in writing its inability to pay its debts generally or makes a general assignment for the benefit of creditors, (h) files a notice of intention to file a proposal under any Bankruptcy Law, (i) institutes or has instituted against it any proceeding seeking: (A) to adjudicate it a bankrupt or insolvent, (B) any liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any Bankruptcy Law, or (C) the entry of an order for relief or appointment of a receiver, interim receiver, receiver and manager, assignee, liquidator, sequestrator, trustee or other similar official - 76 - 88 for it or for any substantial part of its property, and in the case of any such proceeding instituted against it (but not instituted by it), it shall not be actively and diligently contesting such proceeding in good faith by appropriate legal proceedings or any of the actions sought in such proceeding (including the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its Real Property) shall occur, or (j) takes any corporate action to authorize any of the foregoing actions; or (11) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company, any Guarantor or any other Restricted Subsidiary in an involuntary case in which it is a debtor, (b) appoints a Custodian of the Company, any Guarantor or any other Restricted Subsidiary or for all or substantially all of their property, (c) orders the liquidation of the Company, any Guarantor or any other Restricted Subsidiary, and the order or decree remains unstayed and in effect for sixty (60) days. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. A Default under clause (4) is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in principal amount of the Securities then Outstanding notify the Company and the Trustee, of the Default and the Company does not cure the Default within sixty (60) days after receipt of such notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." The failure to make any payment on the Securities when due shall, after the expiration date of any applicable grace period, constitute an Event of Default under this Indenture. - 77 - 89 Section 502. Acceleration. If an Event of Default (other than an Event of Default specified in clauses (10) and (11) of Section 501 hereof) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the Securities then Outstanding by written notice to the Company and the Trustee, may declare the unpaid principal of and any accrued interest and Liquidated Damages, if any, on all the Securities to be due and payable. Upon such declaration the principal and interest and Liquidated Damages, if any, shall be due and payable immediately. If an Event of Default specified in clause (10) or (11) of Section 501 hereof occurs, such an amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of a majority (or, in the case of the failure to make a Change of Control Offer pursuant to Section 1014 hereof, two-thirds) in principal amount of Securities then Outstanding by written notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if: (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Securities, (iii) the principal of and premium, if any, and Liquidated Damages, if any, on any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at a rate borne by the Securities, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Securities; and (b) all Events of Default, other than the non-payment of principal of the Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 504 hereof. No such rescission shall affect any subsequent Default or impair any right consequent thereon provided in Section 504 hereof. - 78 - 90 Section 503. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy (under this Indenture or otherwise) to collect the payment of principal, premium, if any, interest or Liquidated Damages, if any, on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 504. Waiver of Past Defaults. Holders of a majority (or, in the case of the failure by the Company to make a Change of Control Offer pursuant to Section 1014 hereof, two-thirds) in aggregate principal amount of the Securities then Outstanding by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a continuing Default or Event of Default in the payment of the principal of or interest on any Security held by a non-consenting Holder. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 505. Control by Majority. The Holders of a majority in principal amount of the Securities then Outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders, or that may involve the Trustee in personal liability. - 79 - 91 Section 506. Limitation on Suits. A Holder may pursue a remedy with respect to this Indenture or the Securities only if: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in principal amount of the Securities then Outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within sixty (60) days after receipt of the request and the offer and, if requested, the provision of the indemnity; and (5) during such sixty (60) day period the Holders of a majority in principal amount of the Securities then Outstanding do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. Section 507. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, but subject to Article Thirteen the right of any Holder of a Security to receive payment of principal, premium, if any, and interest on the Security, on or after the respective due dates expressed in the Security (or, in the case of redemption or repurchase, on the Redemption Date or repurchase date), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder, subject to Article Thirteen. Section 508. Collection Suit by Trustee. If an Event of Default specified in Section 501(1) or (2) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any Guarantor for the whole amount of principal, premium, if any, interest and Liquidated Damages, if any, remaining unpaid on the Securities and interest on overdue principal and, to the extent lawful, premium and interest and such further amount as shall be sufficient to cover the costs - 80 - 92 and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, subject to Article Thirteen. If the Company or any Guarantor, as the case may be, fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any Guarantor or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any Guarantor or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders under this Indenture or the Guarantees by such appropriate private or judicial proceedings as the Trustee shall deem most effectual to protect and enforce such rights, including, seeking recourse against any Guarantor pursuant to the terms of any Guarantee, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy, including, without limitation, seeking recourse against any Guarantor pursuant to the terms of a Guarantee, or to enforce any other proper remedy, subject however to Section 505 hereof. Section 509. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company or any Guarantor or any other obligor upon the Securities, their creditors or their property and shall be entitled and empowered, subject to Article Thirteen, to collect, receive and distribute any money or other property payable or deliverable on any such claims and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 606 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under - 81 - 93 Section 606 hereof out of the estate in any such proceeding shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties which the Holders of the Securities may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 510. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to (i) the Trustee, its agents and attorneys for amounts due under Section 606 hereof, including payment of all compensation, expenses and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection and (ii) the Collateral Agent, pursuant to the terms of the Intercreditor Agreement; Second: subject to Article Thirteen, to (i) Holders for amounts due and unpaid on the Securities for principal, premium, if any, interest and Liquidated Damages, if any, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, premium, if any, interest and Liquidated Damages, if any, respectively, and (ii) subject to the Intercreditor Agreement, to the Term Loan Agent for obligations under the Term Loan Agreement, including amounts of principal of, premium, if any, and interest on such obligations; Third: subject to Article Thirteen, without duplication, to Holders for any other Indenture Obligations owing to the Holders under this Indenture or the Securities; and Fourth: subject to Article Thirteen, to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders. - 82 - 94 Section 511. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 507 hereof or a suit by Holders of more than 10% in principal amount of the Securities then Outstanding or to any suit instituted by any Holder for the enforcement of the payment of the principal of, premium, if any, interest or Liquidated Damages, if any, on any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption or repurchase, on or after the Redemption Date or repurchase date). Section 512. Waiver of Stay, Extension or Usury Laws. Each of the Company and any Guarantor covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive the Company or any Guarantor from paying all or any portion of the principal of, premium, if any, interest or Liquidated Damages, if any, on the Securities contemplated herein or in the Securities or which may affect the covenants or the performance of this Indenture; and each of the Company and any Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX THE TRUSTEE Section 601. Notice of Defaults. Within ninety (90) days after the occurrence of any Default, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, notice of such Default hereunder known to the Trustee, unless such - 83 - 95 Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of, premium, if any, or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as a trust committee of Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders. Section 602. Certain Rights of Trustee. Subject to the provisions of Trust Indenture Act Sections 315(a) through 315(d): (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of Indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) the Trustee may consult with counsel and any written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder or under any Security Document in good faith and in reliance thereon in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or any Security Document at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred therein or thereby in compliance with such request or direction; (e) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Indenture or any Security Document other than any liabilities arising out of the gross negligence of the Trustee; - 84 - 96 (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval, appraisal, bond, debenture, note, coupon, security or other paper or document unless requested in writing to do so by the Holders of not less than a majority in aggregate principal amount of the Securities then Outstanding; provided that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expenses or liabilities as a condition to proceeding; the reasonable expenses of every such investigation shall be paid by the Company or, if paid by the Trustee or any predecessor Trustee, shall be repaid by the Company upon demand; provided, further, that the Trustee in its discretion may make such further inquiry or investigation into such facts or matters as it may deem fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder or under any Security Document either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) no provision of this Indenture or any Security Document shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers; (i) notwithstanding anything to the contrary set forth herein or in any Security Document, under no circumstances shall the Trustee be required to take possession of or maintain an action to foreclose upon any Mortgaged Property; and (j) no implied covenants or obligations shall be read into this Indenture or any other Security Document against the Trustee. - 85 - 97 Section 603. Trustee Not Responsible for Recitals, Dispositions of Securities or Application of Proceeds Thereof. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility on Form T-1, if any, supplied to the Company are true and accurate subject to the qualifications set forth therein. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. Section 604. Trustee and Agents May Hold Securities; Collections; etc. The Trustee, any Paying Agent, Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities, with the same rights it would have if it were not the Trustee, Paying Agent, Security Registrar or such other agent and, subject to Trust Indenture Act Sections 310 and 311, may otherwise deal with the Company and receive, collect, hold and retain collections from the Company with the same rights it would have if it were not the Trustee, Paying Agent, Security Registrar or such other agent. Section 605. Money Held in Trust. All moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by mandatory provisions of law. Except for funds or securities deposited with the Trustee pursuant to Article Four, the Trustee may invest all moneys received by the Trustee, until used or applied as herein provided, in Cash Equivalents in accordance with the written directions of the Company. The Trustee shall not be liable for any losses incurred in connection with any investments made in accordance with Section 605 hereof, unless the Trustee acted with gross negligence or in bad faith. With respect to any losses on investments made under this Section 605, the Company is liable for the full extent of any such loss. - 86 - 98 Section 606. Compensation and Indemnification of Trustee and Its Prior Claim. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation for all services rendered by it hereunder (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) and the Company covenants and agrees to pay or reimburse the Trustee and each predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ), except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee and each predecessor Trustee for, and to hold it harmless against, any loss, liability, tax, assessment or other governmental charge (other than taxes applicable to the Trustee's compensation hereunder) or expense incurred without gross negligence or bad faith on such Trustee's part, arising out of or in connection with the acceptance or administration of this Indenture or any Security Document or the trusts hereunder and such Trustee's duties hereunder, including enforcement of this Section 606 and also including any liability which the Trustee may incur as a result of failure to withhold, pay or report any tax, assessment or other governmental charge, and the costs and expenses of defending itself against or investigating any claim of liability in the premises. The obligations of the Company under this Section to compensate and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for expenses, disbursements and advances shall constitute an additional obligation hereunder and shall survive the satisfaction and discharge of this Indenture, or the resignation or removal of any Trustee. To secure the Company's payment obligations in this Section 606, the Trustee shall have a Lien prior to the Securities on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of or interest or Liquidated Damages, if any, on particular Securities. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(9) or (10), the expenses and the compensation for the services shall be preferred over the status of Holders in any proceeding under any Bankruptcy Law and are intended to constitute expenses of administration under any Bankruptcy Law. - 87 - 99 Section 607. Conflicting Interests. The Trustee shall comply with the provisions of Section 310(b) of the Trust Indenture Act. Section 608. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be eligible to act as trustee under Trust Indenture Act Section 310(a)(1) and which shall have a combined capital and surplus of at least $50,000,000 or which shall be a wholly owned subsidiary of a company that has a combined capital and surplus of at least $50,000,000, to the extent there is an institution eligible and willing to serve. If the Trustee does not have an office in The City of New York, the Trustee may appoint an agent in The City of New York reasonably acceptable to the Company to conduct any activities which the Trustee may be required under this Indenture to conduct in The City of New York. If the Trustee does not have an office in The City of New York or has not appointed an agent in The City of New York, the Trustee shall be a participant in the Depository Trust Company and FAST distribution systems. If such corporation published reports of condition at least annually, pursuant to law or to the requirements of Federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect hereinafter specified in this Article Six. Section 609. Resignation and Removal; Appointment of Successor Trustee. (a) No resignation or removal of the Trustee and no appointment of a successor trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor trustee under Section 610 hereof. (b) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign by giving written notice thereof to the Company. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument executed by authority of the Board of Directors, a copy of which shall be delivered to the resigning Trustee and a copy to the successor trustee. If an instrument of acceptance by a successor trustee shall not have been delivered to the Trustee within thirty (30) days after the giving of such notice of resignation, the resigning Trustee may, or any Holder - 88 - 100 who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper, appoint a successor trustee. (c) The Trustee may be removed at any time by an Act of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of Trust Indenture Act Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 608 hereof and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 511 hereof, the Holder of any Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding - 89 - 101 Securities delivered to the Company and the retiring Trustee, the successor trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor trustee and supersede the successor trustee appointed by the Company. If no successor trustee shall have been so appointed by the Company or the Holders of the Securities and accepted appointment in the manner hereinafter provided, the Holder of any Security who has been a bona fide Holder for at least six months may, subject to Section 511 hereof, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities as their names and addresses appear in the Security Register. Each notice shall include the name of the successor trustee and the address of its Corporate Trust Office or agent hereunder. Section 610. Acceptance of Appointment by Successor. Every successor trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee as if originally named as Trustee hereunder; but, nevertheless, on the written request of the Company or the successor trustee, upon payment of its charges then unpaid, such retiring Trustee shall, pay over to the successor trustee all moneys at the time held by it hereunder and shall execute and deliver an instrument transferring to such successor trustee all such rights, powers, duties and obligations. Upon request of any such successor trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a prior claim upon all property or funds held or collected by such Trustee or such successor trustee to secure any amounts then due such Trustee pursuant to the provisions of Section 606 hereof. No successor trustee with respect to the Securities shall accept appointment as provided in this Section 610 unless at the time of such acceptance such successor trustee shall be eligible to act as trustee under the provisions of Trust Indenture Act Section 310(a) and this Article Six and shall have a combined capital and surplus of at least $50,000,000 or which shall be a wholly owned subsidiary of a company that has a - 90 - 102 combined capital and surplus of at least $50,000,000 and have a Corporate Trust Office or an agent selected in accordance with Section 608 hereof. Upon acceptance of appointment by any successor trustee as provided in this Section 610, the Company shall give notice thereof to the Holders of the Securities, by mailing such notice to such Holders at their addresses as they shall appear on the Security Register. If the acceptance of appointment is substantially contemporaneous with the resignation, then the notice called for by the preceding sentence may be combined with the notice called for by Section 609 hereof. If the Company fails to give such notice within ten (10) days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be given at the expense of the Company. Section 611. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under Trust Indenture Act Section 310(a) and this Article Six and shall have a combined capital and surplus of at least $50,000,000 or which shall be a wholly owned subsidiary of a company that has a combined capital and surplus of at least $50,000,000 and have a Corporate Trust Office or an agent selected in accordance with Section 608 hereof without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee and deliver such Securities so authenticated; and, in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor trustee; and in all such cases such certificate shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have; provided that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. - 91 - 103 Section 612. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or other obligor under the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). A Trustee who has resigned or been removed shall be subject to the Trust Indenture Act Section 311(a) to the extent indicated therein. Section 613. Certain Duties and Responsibilities. (1) Except during the continuance of an Event of Default, (a) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (b) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture, but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture but shall not be required to verify the contents thereof. (2) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 701. Company to Furnish Trustee Names and Addresses of Holders. The Company shall furnish or cause to be furnished to the Trustee - 92 - 104 (a) semiannually, not more than ten (10) days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date; and (b) at such other times as the Trustee may request in writing, within thirty (30) days after receipt by the Company of any such request, a list of similar form and content as of a date not more than fifteen (15) days prior to the time such list is furnished; provided, however, that if and so long as the Trustee shall be the Security Registrar, no such list need be furnished. Section 702. Disclosure of Names and Addresses of Holders. Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Holders in accordance with Trust Indenture Act Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Trust Indenture Act Section 312. Section 703. Reports by Trustee. Within sixty (60) days after May 15 of each year commencing with the first May 15 after the Closing Date, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, as provided in Trust Indenture Act Section 313(c), a brief report dated as of such May 15 in accordance with and to the extent required by Trust Indenture Act Section 313(a). The Trustee shall also comply with Trust Indenture Act Section 313(b). Commencing at the time this Indenture is qualified under the Trust Indenture Act, a copy of each report at the time of its mailing to Holders shall be filed with the Commission and each stock exchange on which the Securities are listed of which the Company has notified the Trustee in writing. The Company shall notify the Trustee when Securities are listed on any stock exchange. Section 704. Reports by Company and Guarantors. (a) Whether or not PAAC is subject to Section 13(a) or 15(d) of the Exchange Act, PAAC shall, to the extent permitted under the Exchange Act, file with the Commission the annual - 93 - 105 reports, quarterly reports and other documents which PAAC would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) if PAAC were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which PAAC would have been required so to file such documents if PAAC were so subject. PAAC shall also in any event (x) within 15 days of each Required Filing Date (i) transmit by mail to all Holders of Securities, as their names and addresses appear in the security register, without cost to such Holders and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents which PAAC would have been required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if PAAC were subject to such Sections and (y) if filing such documents by PAAC with the Commission is not permitted under the Exchange Act, promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective Holder of Securities at PAAC's cost. Any financial statements contained in each of such reports or other documents will be prepared in accordance with GAAP. (b) For so long as any of the Securities remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, the Company covenants and agrees that it shall, during any period in which it is not subject to Section 13(a), 13(c) or 15(d) under the Exchange Act, make available to any Holder of the Securities in connection with any sale thereof and any prospective purchaser of the Securities from such Holder, in each case upon request, the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Securities Act. (c) The Trustee has no duty to review any financial or other reports for purposes of determining compliance with this or any other provisions of this Indenture. ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE Section 801. When the Company May Merge, Etc. (a) The Company shall not amalgamate with, consolidate with or merge into, or sell, assign, convey, lease or transfer - 94 - 106 all or substantially all of its assets and those of its Subsidiaries taken as a whole to, any Person, unless (i) the resulting, surviving or transferee Person expressly assumes all the obligations of the Company under the Securities and this Indenture; (ii) such Person shall be organized and existing under the laws of Canada, any province thereof, the United States of America, a state thereof or the District of Columbia; (iii) at the time of the occurrence of such transaction and after giving effect to such transaction on a pro forma basis, such Person could incur $1.00 of additional Indebtedness pursuant to the covenant described in the initial paragraph under Section 1008 (assuming a market rate of interest with respect to such additional Indebtedness); (iv) at the time of the occurrence of such transaction and after giving effect to such transaction on a pro forma basis, the Consolidated Net Worth of such Person shall be equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; (v) each Guarantor, to the extent applicable, shall by supplemental indenture confirm that its Guarantee shall apply to such Person's obligations under the Securities; (vi) immediately before and immediately after giving effect to such transaction and treating any Indebtedness which becomes an obligation of the Company or any of its Subsidiaries or of such Person as a result of such transaction as having been incurred by the Company or such Subsidiary or such Person, as the case may be, at the time of such transaction, no Default or Event of Default shall have occurred and be continuing; and (vii) the Company shall have received an Opinion of Independent Counsel in Canada to the effect that (A) any payment of interest or principal on the Securities by the Company to a Holder will, after the amalgamation, consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition of assets, be exempt from Canadian withholding tax if the Holder is or is deemed to be a non-resident of Canada, deals at arm's length with the resulting, surviving or transferee Person for purposes of the Income Tax Act (Canada) at the time of making the payment and (B) no other taxes on income (including taxable capital gains) will be payable under the Income Tax Act (Canada) by a Holder of the Securities who is or who is deemed to be a non-resident of Canada in respect of the - 95 - 107 acquisition, ownership or disposition of the Securities, including the receipt of interest, principal or premium thereon, provided that such Holder does not use or hold, and is not deemed to use or hold, the Securities in carrying on a business in Canada for purposes of the Income Tax Act (Canada) and, in the case of a Holder of Securities who carries on an insurance business in Canada and elsewhere, the Securities are not effectively connected with its Canadian insurance business. The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel, covering clauses (i), (ii), (v) and (vi) above, stating that the proposed transaction and such supplemental indentures comply with this Indenture and with Section 903 hereof and the Opinion of Independent Counsel referred to in clause (vii) above. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinions of Counsel which opinions shall also comply with Section 903 hereof. (b) No Guarantor shall, and the Company and PAAC shall not permit a Guarantor to, in a single transaction or series of related transactions, amalgamate, merge or consolidate with or into any other corporation (other than the Company or any other Guarantor) or other entity, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any entity (other than the Company or any other Guarantor) unless at the time and giving effect thereto: (i) either (1) such Guarantor shall be the continuing corporation or (2) the entity (if other than such Guarantor) formed by such amalgamation, consolidation or into which such Guarantor is merged or the entity which acquires by sale, assignment, conveyance, transfer, lease or disposition the properties and assets of such Guarantor shall be a corporation duly organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia or of Canada or any province thereof and expressly assumes by a supplemental indenture, executed and delivered to the Trustee, in a form reasonably satisfactory to the Trustee, all the obligations of such Guarantor under the Securities and this Indenture; and (ii) immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. Such Guarantor shall deliver to the Trustee prior to the consummation of the proposed transaction, in form and - 96 - 108 substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or disposition and such supplemental indenture, if required, comply with this Indenture. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel, which opinion shall also comply with Section 903 hereof. The provisions of this Section 801(b) shall not apply to any transaction (including any Asset Sale made in accordance with Section 1009) with respect to any Guarantor if the Guarantee of such Guarantor is released in connection with such transaction in accordance with Section 1019(b). Section 802. Successor Substituted. Upon any consolidation or merger, or any sale, assignment, conveyance, transfer or disposition of all or substantially all of the properties and assets of the Company or any Guarantor in accordance with Section 801 hereof, the successor Person formed by such consolidation or into which the Company or such Guarantor, as the case may be, is merged or the successor Person to which such sale, assignment, conveyance, transfer, lease or disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Guarantor, as the case may be, under this Indenture, the Securities and/or such Guarantee, as the case may be, with the same effect as if such successor had been named as the Company or such Guarantor, as the case may be, herein, in the Securities and/or in such Guarantee, as the case may be. When a successor assumes all the obligations of its predecessor under this Indenture, the Securities or a Guarantee, as the case may be, the predecessor shall be released from those obligations; provided that in the case of a transfer by lease, the predecessor shall not be released from the payment of principal and interest on the Securities or a Guarantee, as the case may be. ARTICLE NINE SUPPLEMENTAL INDENTURES Section 901. Supplemental Indentures and Agreements without Consent of Holders. Without the consent of any Holders, the Company and the Guarantors, when authorized by a Board Resolution, and the - 97 - 109 Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto or agreements or other instruments with respect to any Guarantee, in form and substance satisfactory to the Trustee, for any of the following purposes: (i) to cure any ambiguity, defect or inconsistency; (ii) to provide for the assumption pursuant to Article Eight of the Company's or a Guarantor's obligations to the Holders in the case of a merger, consolidation or sale of assets; (iii) to provide for uncertificated Securities in addition to or in place of certificated Securities; (iv) to make any change that does not adversely affect the rights hereunder or thereunder of any Holder; (v) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act; (vi) to add a Guarantor pursuant to the requirements of Section 1019 hereof; (vii) to evidence and provide the acceptance of the appointment of a successor trustee hereunder; (viii) to provide additional collateral for the Securities or the Guarantees or other Indebtedness permitted to be secured by the Collateral, and in connection therewith, to modify covenants, to provide additional indemnity to the Trustee, and to modify other provisions of this Indenture, the Securities or the Guarantees that relate to such collateral or that will or may be impacted by the providing of such collateral, and to enter into agreements, documents or other instruments to effect the foregoing, including, without limitation, intercreditor and collateral agency agreements relating to Liens on such collateral on a pari passu basis in favor of the Trustee for the benefit of the Holders; (ix) to comply with any requirement of the Commission or applicable law to effectuate the Exchange Offer; or (x) to add to the covenants of the Company, PAAC, any other Guarantor or any other obligor upon the Securities for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company, PAAC, any other Guarantor or any other obligor upon the Securities, as applicable, herein, in the Securities or in any Guarantee. - 98 - 110 Section 902. Supplemental Indentures and Agreements with Consent of Holders. With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company, each Guarantor and the Trustee, the Company and each Guarantor (if a party thereto) when authorized by a Board Resolution and the Trustee may enter into an indenture or indentures supplemental hereto or agreements or other instruments with respect to any Guarantee in form and substance satisfactory to the Trustee for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture, the Security Documents, the Securities or any Guarantee; provided, however, that no such supplemental indenture, agreement or instrument shall, without the consent of the Holder of each Outstanding Security affected thereby: (i) reduce the principal amount of Securities whose Holders must consent to an amendment or waiver of this Indenture, the Security Documents, the Securities or the Guarantees; (ii) reduce the rate of, or change the time for payment of, interest, including default interest, on any Security; (iii) reduce the principal of or change the fixed maturity of any Security, or alter the optional redemption provisions, or the provisions relating to redemption for changes in Canadian withholding or other taxes that would result in the payment of Additional Amounts or alter the price at which the Company shall offer to purchase such Securities pursuant to Sections 1014 or 1109 hereof; (iv) make any Security payable in money other than that stated in the Security; (v) make any change in Sections 504 or 507 hereof; (vi) waive a Default or Event of Default in the payment of principal of, premium, if any, or interest on the Securities, including any such obligation arising under Sections 1009 and 1109 or Section 1014 hereof (except a rescission of acceleration of the Securities pursuant to Section 502 hereof by the Holders of at least a majority (or in the case of the failure to make a Change of Control Offer, two-thirds) in aggregate principal amount of the Securities then Outstanding and a waiver of the payment default that resulted from such acceleration); - 99 - 111 (vii) waive a purchase payment required to be made under Section 1009 and 1109 or Section 1014 or a payment under Article Thirteen hereof with respect to any Security; (viii) affect the ranking of the Securities; (ix) release all or substantially all of the Collateral other than pursuant to the terms of this Indenture or the Security Documents; (x) make any change in Section 1024 hereof that adversely affects the rights of any Holder, or amend the terms of the Securities or this Indenture in a way that would result in the loss of an exemption from any of the Taxes; or (xi) make any change in the provisions of this Section 902. Upon the written request of the Company and each Guarantor, accompanied by a copy of a Board Resolution authorizing the execution of any such supplemental indenture or Guarantee, and upon the filing with the Trustee of evidence of the consent of Holders as aforesaid, the Trustee shall, subject to Section 903 hereof, join with the Company and each Guarantor in the execution of such supplemental indenture or Guarantee. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture or Guarantee or agreement or instrument relating to any Guarantee, but it shall be sufficient if such Act shall approve the substance thereof. Section 903. Execution of Supplemental Indentures and Agreements. In executing, or accepting the additional trusts created by, any supplemental indenture, agreement or instrument permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Trust Indenture Act Section 315(a) through 315(d) and Section 602 hereof) shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate stating that the execution of such supplemental indenture, agreement or instrument is authorized or permitted by this Indenture, that no consent is required or that all requisite consents have been received and that such supplemental indenture constitutes the legal, valid and binding obligation of the Company, such Guarantor or successor, as the case may be, enforceable against such entity in accordance with its terms, subject to customary exceptions. The Trustee may, but shall not - 100 - 112 be obligated to, enter into any such supplemental indenture, agreement or instrument which affects the Trustee's own rights, duties or immunities under this Indenture, any Guarantee or otherwise. Section 904. Revocation Effect of Supplemental Indentures. Until a supplemental indenture, amendment or waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of consent is not made on any Security. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. Section 906. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may bear a notation in form satisfactory to the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform to any such supplemental indenture may be prepared and executed by the Company and each Guarantor and authenticated and delivered by the Trustee in exchange for Outstanding Securities. ARTICLE TEN COVENANTS Section 1001. Payment of Principal, Premium and Interest. The Company shall duly and punctually pay the principal of, premium, if any, and interest on the Securities in accordance with the terms of the Securities and this Indenture. - 101 - 113 Section 1002. Maintenance of Office or Agency. The Company shall maintain (or cause to be maintained) an office or agency where Securities may be presented or surrendered for payment. The Company also shall maintain (or cause to be maintained) in The City of New York an office or agency where Securities may be surrendered for registration or transfer, redemption or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location and any change in the location of any such offices or agencies. If at any time the Company shall fail to maintain (or cause to be maintained) any such required offices or agencies or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the office of the agent of the Trustee described above and the Company hereby appoints such agent as its agent to receive all such presentations, surrenders, notices and demands. The Company may from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Securities may be presented or surrendered for any or all such purposes, and may from time to time rescind such designation. The Company shall give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such office or agency. Section 1003. Compliance Certificate. (i) The Company shall deliver to the Trustee, within one hundred and twenty (120) days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each has kept, observed, performed and fulfilled its Indenture Obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge each has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof or thereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each is taking or proposes to take with respect thereto). (ii) The Company shall deliver to the Trustee, within sixty (60) days after the end of the first three quarters of each fiscal year, an Officers' Certificate stating that a review of - 102 - 114 the activities of the Company and its Subsidiaries during the preceding fiscal quarter has been made under the supervision of the signing Officers with a view to determining whether each has kept, observed, performed and fulfilled its Indenture Obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge each has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof or thereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each is taking or proposes to take with respect thereto). (iii) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered to the Trustee pursuant to Section 704(a) shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation reasonably satisfactory to the Trustee) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that the Company or any of its Subsidiaries has violated any provisions of Article Eight or Article Ten hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (iv) The Company shall, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default, Event of Default or other event of default and what action the Company is taking or propose to take with respect thereto. Section 1004. Taxes. Each of the Company and PAAC shall, and shall cause each of its Subsidiaries to, pay prior to delinquency all material taxes, assessments and governmental levies except as are being contested in good faith and by appropriate proceedings diligently conducted and in respect of which appropriate reserves (in the good faith judgment of management of the Company) are being maintained in accordance with GAAP. - 103 - 115 Section 1005. Jurisdiction, Service of Process and Venue; Immunity; Judgement Currency. (a) Each of the Company and the Guarantors agrees that any suit, action or proceeding with respect to this Indenture, the Securities, the Guarantees, the Registration Rights Agreement or the Security Documents or any judgment entered by any court in respect thereof may be brought in the United States District Court for the Southern District of New York, in the Supreme Court of the State of New York sitting in New York County (including its Appellate Division), or in any other appellate court in the State of New York, as the party commencing such suit, action or proceeding may elect in its sole discretion; and each of the Company and the Guarantors hereby irrevocably submits to the non-exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment. Each of the Company and the Guarantors further submits, for the purpose of any suit, action, proceeding or judgment brought or rendered against it, to the appropriate courts of the jurisdiction of its domicile, and for the purpose of any such suit, action, proceeding or judgment brought or rendered against any Collateral or other property, to the appropriate courts of the jurisdiction where such Collateral or other property may be found. (b) Each of the Company and the Guarantors agrees that service of all writs, process and summonses in any such suit, action or proceeding brought in any Federal or state court located in The City of New York may be made upon CT Corporation, presently located at 1633 Broadway, New York, New York 10019, U.S.A. (the "U.S. Process Agent"), and each of the Company and the Guarantors hereby confirms and agrees that the U.S. Process Agent has been duly and irrevocably appointed as its agent and true and lawful attorney-in-fact in its name, place and stead to accept such service of any and all such writs, process and summonses, and agrees that the failure of the U.S. Process Agent to give any notice of any such service of process to the Company or the applicable Guarantor shall not impair or affect the validity of such service or of any judgment based thereon. Each of the Company and the Guarantors hereby further irrevocably consents to the service of process in any suit, action or proceeding in such courts by the mailing thereof by registered or certified mail, postage prepaid, at its address set forth in Section 106 hereof or by personal service within or without the jurisdiction of its domicile. (c) Nothing herein shall in any way be deemed to limit the ability of the Trustee or the Holders to serve any such writs, process or summonses in any other manner permitted by applicable law or to obtain jurisdiction over the Company or any Guarantor in such other jurisdictions, and in such manner, as may be permitted by applicable law. - 104 - 116 (d) Each of the Company and the Guarantors hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Indenture, the Securities, the Guarantees, the Registration Rights Agreement or the Security Documents brought in the Supreme Court of the State of New York, County of New York, in the United States District Court for the Southern District of New York or in the courts of the jurisdiction of its domicile or in the courts of the jurisdiction where any Collateral or other property of such Person may be found, and hereby further irrevocably waives, to the fullest extent permitted by applicable law, any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. (e) To the extent that the Company or any Guarantor may be or become entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Indenture, the Securities, the Guarantees, the Registration Rights Agreement or the Security Documents, to claim for itself or the Collateral or its other property or revenues any immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, execution of a judgment or from any other legal process or remedy relating to its obligations under this Indenture, the Securities, the Guarantees, the Registration Rights Agreement or the Security Documents, and to the extent that in any such jurisdiction there may be attributed such an immunity (whether or not claimed), the Company or such Guarantor, as the case may be, hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity to the fullest extent permitted by the laws of such jurisdiction. (f) This is an international debt transaction in which the specification of United States dollars and payment in New York City is of the essence, and the obligations of the Company and the Guarantors under this Indenture, the Securities and the Guarantees to make payment to (or for the account of) the Trustee and the Holders in dollars shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any other currency or in another place except to the extent that such tender or recovery results in the effective receipt by the Trustee and the Holders in New York City of the full amount of dollars payable to the Trustee and the Holders under this Indenture, the Securities and the Guarantees. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in dollars into another currency (in this Section 1005 called the "judgment currency"), the rate of exchange that shall be applied shall be that at which in accordance with normal banking procedures dollars could be purchased in New York City with the judgment currency on the - 105 - 117 Business Day next preceding the day on which such judgment is rendered. The obligation of each of the Company and the Guarantors in respect of any such sum due from it to the Trustee and the Holders under this Indenture, the Securities or any Guarantee shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by the Trustee or the Holders, as the case may be, of any sum adjudged to be due under this Indenture, the Securities or any Guarantee, as the case may be, in the judgment currency the Trustee or the Holders, as the case may be, may in accordance with normal banking procedures purchase and transfer dollars to New York City with the amount of the judgment currency so adjudged to be due; and each of the Company and the Guarantors hereby, as a separate obligation and notwithstanding any such judgment, agrees to indemnify the Trustee and the Holders against, and to pay the Trustee and the Holders on demand, in dollars, the amount (if any) by which the sum originally due to the Trustee or the Holders, as the case may be, in dollars under this Indenture, the Securities or any Guarantee exceeds the amount of the dollars so purchased and transferred. Section 1006. Limitation on Restricted Payments. Subject to the other provisions of this Section 1006, each of the Company and PAAC shall not, nor shall either cause, permit or suffer any Restricted Subsidiary to, (i) declare or pay any dividends or make any other distributions (including through mergers, liquidations or other transactions commonly known as leveraged buyouts) on any class of Equity Interests of the Company, PAAC or such Restricted Subsidiary (other than dividends or distributions payable or paid by PAAC or a Wholly-Owned Restricted Subsidiary of PAAC on account of its Equity Interests held by the Company, PAAC or another Restricted Subsidiary or payable or paid in shares of Capital Stock of the Company or PAAC other than Redeemable Stock), (ii) make any payment on account of, or set apart money for a sinking or other analogous fund for, the purchase, redemption or other retirement of such Equity Interests, (iii) purchase, defease, redeem or otherwise retire any Subordinated Indebtedness, or (iv) make any Restricted Investment, either directly or indirectly, whether in cash or property or in obligations of the Company, PAAC or any Restricted Subsidiary (all of the foregoing being called "Restricted Payments"), unless, (x) in the case of a dividend, such dividend is payable not more than 60 days after the date of declaration and (y) after giving effect to such proposed Restricted Payment, all the conditions set forth in clauses (1) through (3) below are satisfied (A) at the date of declaration (in the case of any dividend), (B) at the date of such setting apart (in the case of any such fund) or (C) on the date of such other payment or - 106 - 118 distribution (in the case of any other Restricted Payment) (each such date being referred to as a "Computation Date"): (1) no Default or Event of Default shall have occurred and be continuing or would result from the making of such Restricted Payment; (2) at the Computation Date for such Restricted Payment and after giving effect to such Restricted Payment on a pro forma basis, the Company, PAAC or such Restricted Subsidiary could incur $1.00 of additional Indebtedness pursuant to the covenant described in the initial paragraph under Section 1008 hereof; and (3) the aggregate amount of Restricted Payments declared, paid or distributed subsequent to the Closing Date (including the proposed Restricted Payment) shall not exceed the sum of (i) 50% of the cumulative Consolidated Net Income of PAAC for the period subsequent to October 1, 1997 to and including the last day of PAAC's last fiscal quarter ending prior to the Computation Date (each such period to constitute a "Computation Period") (or, if such aggregate cumulative Consolidated Net Income is a loss, minus 100% of such loss of PAAC during the Computation Period), (ii) the aggregate Net Cash Proceeds of the issuance or sale or the exercise (other than to PAAC or a Subsidiary of PAAC or an employee stock ownership plan or other trust established by the Company, PAAC or any of PAAC's Subsidiaries for the benefit of their respective employees) of the Company's or PAAC's Equity Interests (other than Redeemable Stock) subsequent to the Closing Date, (iii) the aggregate Net Cash Proceeds of the issuance or sale (other than to PAAC or a Subsidiary of PAAC) of any debt securities of the Company or PAAC, respectively, that have been converted into or exchanged for Equity Interests (other than Redeemable Stock) of the Company or PAAC, respectively, to the extent such debt securities were originally issued or sold for cash, plus the aggregate Net Cash Proceeds received by the Company or PAAC, respectively, at the time of such conversion or exchange, in each case subsequent to the Closing Date, (iv) cash contributions to the Company's or PAAC's capital subsequent to the Closing Date and (v) $5,000,000. If no Default or Event of Default has occurred and is continuing or would occur as a result thereof, the prohibitions set forth above are subject to the following exceptions: (a) Restricted Investments in obligations representing a portion of the proceeds of any Asset Sale consummated in accordance with Section 1009 hereof, provided, however, that such Restricted Investments shall be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of - 107 - 119 the preceding paragraph; (b) any purchase or redemption of Equity Interests or Subordinated Indebtedness made by exchange for, or out of the proceeds of the substantially concurrent sale of, Equity Interests of the Company or PAAC (other than Redeemable Stock and other than Equity Interests issued or sold to PAAC or a Subsidiary of PAAC or an employee stock ownership plan), provided, however, that (x) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph and (y) the Net Cash Proceeds from such sale shall be excluded for purposes of clause 3(ii) of the preceding paragraph to the extent utilized for purposes of such purchase or redemption; (c) any purchase or redemption of Subordinated Indebtedness of the Company or PAAC made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Indebtedness of the Company, PAAC or any Restricted Subsidiary which is permitted to be issued pursuant to the provisions of Section 1008 hereof, provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (d) the repurchase, redemption or other acquisition or retirement for value of Capital Stock of the Company, PAAC or Pioneer held by management or other employees of the Company, PAAC, Pioneer or any Subsidiary of PAAC pursuant to any shareholders agreement, management or employee stock option agreement or management or employee equity subscription agreement in accordance with the provisions of any such arrangement, in an amount not greater than $500,000 in any calendar year plus the portion of any such amounts which remains unused at the end of the two prior calendar years, but in no event to exceed $1,500,000 in any calendar year, provided, however, that any such repurchase, redemption, acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (e) payments to Pioneer pursuant to any tax sharing arrangement so long as payments thereunder do not exceed the amount of PAAC and its consolidated subsidiaries' share of U.S. Federal and state and Canadian federal and provincial income taxes actually paid or to be paid by Pioneer, provided, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph; (f) payments to Pioneer to perform accounting, legal, corporate reporting and administrative functions in the ordinary course of business in an amount not greater than $500,000 in any calendar year, or to pay required fees in connection with the Acquisition and related transactions, including the registration under applicable laws and regulations of its debt or equity securities issued in connection therewith, provided, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments previously made - 108 - 120 for purposes of clause (3) of the preceding paragraph; and (g) Investments described in clause (vi) of the definition of Permitted Investments, provided, however, that such Investments shall be included in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) of the preceding paragraph. For purposes of this Section 1006, (a) the amount of any Restricted Payment declared, paid or distributed in property of the Company, PAAC or any Restricted Subsidiary shall be deemed to be the net book value of any such property that is intangible property and the Fair Market Value (as determined by and set forth in a resolution of the Board of Directors) of any such property that is tangible property at the Computation Date, in each case, after deducting related reserves for depreciation, depletion and amortization; (b) the amount of any Restricted Payment declared, paid or distributed in obligations of the Company, PAAC or any Restricted Subsidiary shall be deemed to be the principal amount of such obligations as of the date of the adoption of a resolution by the board of directors of the Company, PAAC or such Restricted Subsidiary authorizing such Restricted Payment; and (c) a distribution to holders of the Company's or PAAC's Equity Interests of (i) shares of Capital Stock or other Equity Interests of any Restricted Subsidiary or (ii) other assets of the Company or PAAC, without, in either case, the receipt of equivalent consideration therefor shall be regarded as the equivalent of a cash dividend equal to the excess of the Fair Market Value of the Equity Interests or other assets being so distributed at the time of such distribution over the consideration, if any, received therefor. Not later than the date of the making of any such Restricted Payment, the Company shall deliver to the Trustee an officers' certificate stating that such Restricted Payment is permitted, attaching a copy of the applicable resolution of the Board of Directors pursuant to which the value of the Restricted Payment to be made was determined and setting forth the basis upon which the calculations required by this Section 1006 were computed. Section 1007. Limitations on Payment Restrictions Affecting Restricted Subsidiaries. The Company and PAAC shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of PAAC or any Restricted Subsidiary to (i) pay dividends or make any other distribution to the Company, PAAC or the Restricted Subsidiaries on its Equity Interests, (ii) pay any Indebtedness owed to the Company, PAAC or any other Restricted Subsidiary, (iii) make loans or advances to the Company, PAAC or any other Restricted Subsidiary or (iv) transfer any of its property or - 109 - 121 assets to the Company, PAAC or any other Restricted Subsidiary, except (A) consensual encumbrances or restrictions contained in or created pursuant to the Term Loan Agreement, the Revolving Credit Agreement, the Intercreditor Agreement, the Security Documents and other Existing Indebtedness listed on Schedule 2 hereto, (B) consensual encumbrances or restrictions in the Securities and this Indenture, (C) any restriction, with respect to a Restricted Subsidiary of the Company or PAAC that is not a Subsidiary of the Company or PAAC on the Closing Date, in existence at the time such entity becomes a Restricted Subsidiary of the Company or PAAC; provided that such encumbrance or restriction is not created in anticipation of or in connection with such entity becoming a Subsidiary of the Company or PAAC and is not applicable to any Person or the properties or assets of any Person other than a Person that becomes a Subsidiary of the Company or PAAC, (D) any encumbrances or restrictions pursuant to an agreement effecting a refinancing of Indebtedness referred to in clauses (A) or (C) of this Section 1007 or contained in any amendment to any agreement creating such Indebtedness, provided that the encumbrances and restrictions contained in any such refinancing or amendment are not materially more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Company) than those provided for in such Indebtedness being refinanced or amended, (E) encumbrances or restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Closing Date pursuant to the provisions of Section 1008 hereof, provided that any such encumbrances or restrictions are not materially more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Company) than the most restrictive of those provided for in the Indebtedness referred to in clauses (A), (B) or (C) of this Section 1007, (F) any such encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease, (G) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary in compliance with this Indenture pending the closing of such sale or disposition; or (H) any encumbrance or restriction due to applicable law. Section 1008. Limitations on Indebtedness. The Company and PAAC shall not, and shall not permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become liable with respect to or become responsible for the payment of, contingently or otherwise ("incur"), any Indebtedness; provided, however, that the Company, PAAC or a Restricted Subsidiary may incur Indebtedness if at the time of such incurrence and after - 110 - 122 giving pro forma effect thereto, the Consolidated Cash Flow Coverage Ratio for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is incurred, calculated on a pro forma basis as if such Indebtedness was incurred on the first day of such four full fiscal quarter period, would be at least 2.0 to 1.0. For purposes of determining the Consolidated Cash Flow Coverage Ratio, Cash Flow and Consolidated Interest Expense for all periods prior to the Closing Date shall be calculated on a consolidated basis including each of the Company's, PAAC's and its subsidiaries' predecessors. Notwithstanding the foregoing limitations, the limitations of this Section 1008 shall not apply to the incurrence of Permitted Indebtedness. Notwithstanding anything to the contrary contained herein, the Company, PAAC and the Restricted Subsidiaries each may guarantee Indebtedness of the Company, PAAC or any Restricted Subsidiary that is permitted to be incurred hereunder; provided, however, that in the event such Indebtedness guaranteed is subordinated in right of payment to any other Indebtedness of the obligor thereof, then such guarantee shall be subordinated to Indebtedness of such guarantor to the same extent. Section 1009. Limitations on Asset Sales. (a) The Company and PAAC shall not, and shall not permit any Restricted Subsidiary to, make any Asset Sale (other than to the Company, PAAC or any Restricted Subsidiary) unless (i) the Company, PAAC or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed of, and at least 80% of the consideration received by the Company, PAAC or such Restricted Subsidiary from such Asset Sale is in the form of cash and no portion thereof shall consist of inventory or accounts receivable or other property that would become subject to a Lien held by any other creditor of the Company, PAAC or of any Restricted Subsidiary; provided, however, that the amount of any cash equivalent or note or other obligation received by the Company, PAAC or such Restricted Subsidiary from the transferee in any such transaction that is converted within 90 days by the Company, PAAC or such Restricted Subsidiary into cash shall be deemed upon such conversion to be cash for purposes of this provision; (ii) to the extent such Asset Sale involves Collateral, (x) the consent of the Majority Holders shall be obtained prior to the consummation of such sale and (y) the Company shall cause the aggregate cash proceeds received by the Company, PAAC or such Restricted Subsidiary in respect of such Asset Sale which are allocated to the Collateral, - 111 - 123 net of the items set forth in clauses (i) through (vi) of the definition of Net Proceeds (the "Collateral Proceeds") to be deposited with the Collateral Agent in the Intercreditor Collateral Account as and when received by the Company, PAAC or any of the Restricted Subsidiaries and shall otherwise comply with the Intercreditor Agreement and Article Fourteen hereof applicable to such sale of Collateral, provided, that no Senior Indebtedness other than the Securities and any Secured Indebtedness may be permanently repaid or prepaid out of any Collateral Proceeds; and (iii) the Net Proceeds or the Collateral Proceeds received by the Company, PAAC or such Restricted Subsidiary from any Asset Sale are applied in accordance with the Intercreditor Agreement, as applicable, and with the following paragraphs. (b) (i) If all or a portion of the Net Proceeds of any Asset Sale are not required to be applied to repay permanently any Senior Indebtedness of the Company, PAAC or PAI then outstanding as required by the terms thereof, or the Company determines not to apply such Net Proceeds to the permanent prepayment of any Senior Indebtedness outstanding or if no such Senior Indebtedness is then outstanding, then the Company may within 365 days of the Asset Sale (or in the case of Insurance Proceeds or Net Awards, 365 days after receipt by the Collateral Agent of such Insurance Proceeds or Net Awards), invest the Net Proceeds in the Company, PAAC or in one or more Restricted Subsidiaries in a Related Business. (Any optional prepayment of the Term Loan Notes with the Net Proceeds of an Asset Sale shall be permitted only if the amount of such prepayment is limited to the Pro Rata Share (as defined in the Intercreditor Agreement) with respect to the Term Loan Notes, and the Pro Rata Share with respect to the Securities is used to make an Asset Sale Offer (as described below), and any repayment of a revolving credit facility or similar agreement that makes credit available with the Net Proceeds of an Asset Sale shall be permitted only if the commitment thereunder is also permanently reduced by such amount.) The amount of such Net Proceeds neither used to permanently repay or prepay Senior Indebtedness nor used or invested as set forth in this paragraph constitutes "Excess Proceeds." (ii) When the aggregate amount of Excess Proceeds from one or more Asset Sales equals $10,000,000 or more, the Company shall apply 100% of such Excess Proceeds within 365 days subsequent to the consummation of the Asset Sale which resulted in the Excess Proceeds equalling $10,000,000 or more to the purchase of Securities tendered to the Company for purchase at a price (the "Asset Sale Purchase Price") equal to 100% of the principal amount thereof, plus accrued interest and Liquidated Damages, if any, to the date of purchase pursuant to an offer to purchase made by the Company (an "Asset Sale Offer") with respect - 112 - 124 to the Securities. Any Asset Sale Offer may include a pro rata offer under similar circumstances to purchase other Senior Indebtedness requiring a similar offer. (c) Until such time as the Net Proceeds from any Asset Sale are applied in accordance with this covenant, such Net Proceeds shall be segregated from the other assets of the Company, PAAC and the Subsidiaries of PAAC and invested in cash or Eligible Investments, except that the Company, PAAC or any Restricted Subsidiary may use any Net Proceeds pending the utilization thereof in the manner (and within the time period) described above, to repay revolving loans (under the Revolving Credit Agreement or otherwise) without a permanent reduction of the commitment thereunder. (d) Any Asset Sale Offer shall be made substantially in accordance with the procedures described under Sections 1109 and 1014 hereof. The Company shall cause a notice of any Asset Sale Offer to be mailed to the Trustee and the Holders at their registered addresses not less than 30 days nor more than 45 days before the purchase date. Such notice shall set forth the basis of calculation used in determining the amount of Excess Proceeds to be applied to the purchase of such Securities. In the case of a sale of Collateral in an Asset Sale, the notice of Asset Sale Offer shall contain the following additional information: (i) a description of the interests to be released, (ii) the Fair Market Value of the released interests as of a date no later than 60 days before the date of such notice, and (iii) certification that the purchase price received is not less than the fair market value of such released interest as of the date of such release. Such notice to the Trustee shall be accompanied by an Officers' Certificate setting forth (i) a statement to the effect that (x) the Company has made an Asset Sale and/or (y) there has occurred a destruction or condemnation in respect of Collateral resulting in Insurance Proceeds or Net Awards which are not required to be applied to effect a Restoration of the affected Collateral under the applicable Security Document. The notice shall also be accompanied by an Opinion of Counsel as to the Asset Sale Offer, and satisfactory title opinions confirming that the Liens of the Collateral Agent or the remaining Collateral continue unimpaired as perfected first priority liens. Upon receiving notice of an Asset Sale Offer, Holders may elect to tender their Securities in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent that Holders properly tender Securities in an amount exceeding the Asset Sale Offer, Securities of tendering Holders shall be repurchased on a pro rata basis (based on amounts tendered). - 113 - 125 (e) In the event the Company is required to make an Asset Sale Offer at a time when the Company is prohibited from making such Offer, the Company shall, on or prior to the date that the Company is required to make an Asset Sale Offer, (i) seek the consent of its lenders to repurchase Securities pursuant to such Asset Sale Offer or (ii) refinance the Indebtedness that prohibits such Asset Sale Offer; provided, however, that the failure to make or consummate the Asset Sale Offer as provided herein shall constitute an Event of Default. (f) The Company shall comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act, any other tender offer rules under the Exchange Act and other securities laws or regulations in connection with any offer to repurchase and the repurchase of the Securities as described above. (g) The Company and PAAC shall not, and shall not permit any of the Restricted Subsidiaries to, create or permit to exist or become effective any consensual restriction (other than restrictions not more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Company) than those in effect under Existing Indebtedness, and Indebtedness under the New Credit Facilities) that would materially impair the ability of the Company to comply with the provisions of this Section 1009. (h) If at any time any non-cash consideration (other than any such consideration consisting of inventory, accounts receivable and certain related assets securing or permitted to secure the Revolving Credit Agreement) is received by the Company, PAAC or any Restricted Subsidiary, as the case may be, in connection with any Asset Sale of assets which includes Collateral, such non-cash consideration shall be made subject to the Lien of the Security Documents in the manner contemplated in the Intercreditor Agreement, to the extent of the purchase price allocated to the Collateral. If and when any such non-cash consideration received from any Asset Sale (whether or not relating to Collateral) is converted into or sold or otherwise disposed of for cash, then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Proceeds thereof shall be applied in accordance with this Section 1009 and this Indenture. (i) All Insurance Proceeds and all Net Awards required to be delivered to the Collateral Agent pursuant to any Security Document shall constitute Trust Moneys and shall be delivered by the Company, PAAC or a Restricted Subsidiary, as the case may be, to the Collateral Agent contemporaneously with receipt by the Company, PAAC or such Restricted Subsidiary and be deposited into the Intercreditor Collateral Account and applied in accordance - 114 - 126 with the applicable provisions of the Intercreditor Agreement. Insurance Proceeds and Net Awards so deposited that may be applied by the Company, PAAC or a Restricted Subsidiary to effect a Restoration of the affected Collateral under the applicable Security Document may be withdrawn from the Intercreditor Collateral Account only in accordance with the applicable provisions of the Intercreditor Agreement. Insurance Proceeds and Net Awards so deposited that are not applied to effect a Restoration of the affected Collateral under the applicable Security Document may only be withdrawn in accordance with applicable provisions of the Intercreditor Agreement. Section 1010. Limitation on Sale and Leaseback Transactions. The Company and PAAC shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction unless (i) at the time of the occurrence of such transaction and after giving effect to such transaction and (x) in the case of a Sale and Leaseback Transaction which is a Capitalized Lease Obligation, giving effect to the Indebtedness in respect thereof, and (y) in the case of any other Sale and Leaseback Transaction, giving effect to the Attributable Indebtedness in respect thereof, the Company, PAAC or such Restricted Subsidiary could incur $1.00 of additional Indebtedness pursuant to the initial paragraph under Section 1008 hereof, (ii) at the time of the occurrence of such transaction, the Company, PAAC or such Restricted Subsidiary could incur Indebtedness secured by a Lien on property in a principal amount equal to or exceeding the Attributable Indebtedness in respect of such Sale and Leaseback Transaction pursuant to Section 1012 hereof, and (iii) the transfer of assets in such Sale and Leaseback Transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 1009 hereof. Section 1011. Limitation on Transactions With Affiliates. (a) The Company, PAAC and the Restricted Subsidiaries shall not, directly or indirectly, enter into any transaction or series of related transactions with or for the benefit of any of their respective Affiliates other than with the Company, PAAC or any Restricted Subsidiary, except on an arm's-length basis and if (x)(i) in the case of any such transaction in which the aggregate rental value, remuneration or other consideration (including the value of a loan), together with the aggregate rental value, remuneration or other consideration (including the value of a loan) of all such other transactions consummated in the year during which such transaction is proposed to be consummated, exceeds $750,000, the Company delivers Board Resolutions to the - 115 - 127 Trustee evidencing that the Board of Directors and the Independent Directors that are disinterested each have (by a majority vote) determined in good faith that the aggregate rental value, remuneration or other consideration (including the value of any loan) inuring to the benefit of such Affiliate from any such transaction is not greater than that which would be charged to or extended by the Company, PAAC or its Subsidiaries, as the case may be, on an arm's-length basis for similar properties, assets, rights, goods or services by or to a Person not affiliated with the Company, PAAC or its Subsidiaries, as the case may be, and (ii) in the case of any such transaction in which the aggregate rental value, remuneration or other consideration (including the value of any loan), together with the aggregate rental value, remuneration or other consideration (including the value of any loan) of all such other transactions consummated in the year during which such transactions are proposed to be consummated, exceeds $7,500,000, the Company delivers to the Trustee Board Resolutions as described in clause (a)(x)(i) of this Section 1011 and an opinion of an investment banking firm of national standing in the United States of America, unaffiliated with the Company and the Affiliate which is party to such transaction, to the effect that the aggregate rental price, remuneration or other consideration (including the value of a loan) inuring to the benefit of such Affiliate from any such transaction is not greater than that which would be charged to or extended by the Company, PAAC or its Subsidiaries, as the case may be, on an arm's-length basis for similar properties, assets, rights, goods or services by or to a Person not affiliated with the Company, PAAC or its Subsidiaries, as the case may be, and (y) all such transactions referred to in clauses (a)(x)(i) and (a)(x)(ii) of this Section 1011 are entered into in good faith. Any transaction required to be approved by Independent Directors pursuant to the preceding paragraph must be approved by at least one such Independent Director. (b) The provisions of the preceding paragraph do not prohibit (i) any Restricted Payment permitted to be paid pursuant to the provisions of Section 1006 hereof, (ii) any Investment made in Kemwater during a period of three years following the Closing Date, provided that such Investment matures or is required to be redeemed within one year of its being made, (iii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iv) loans or advances to employees in the ordinary course of business consistent with past practices, not to exceed $500,000 aggregate principal amount outstanding at any time, (v) the payment of fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company, PAAC or any of their Subsidiaries, as determined by the board of - 116 - 128 directors of the Company, PAAC or any of their Subsidiaries in good faith and (vi) Existing Affiliate Agreements, including amendments thereto entered into after the Closing Date provided that the terms of any such amendment either (A) are not, in the aggregate, less favorable to the Company than the terms of such agreement prior to such amendment, or (B) if such terms are, in the aggregate, less favorable to the Company, such amendment satisfies the requirements of the preceding paragraph. Section 1012. Limitation on Liens. The Company and PAAC shall not, and shall not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of their respective assets or properties now owned or acquired after the Closing Date, or any income or profits therefrom, excluding, however, from the operation of the foregoing any of the following: (a) Liens existing as of the Closing Date or pursuant to an agreement in existence on the Closing Date, including the New Credit Facilities and security documents relating thereto and the Security Documents; (b) Permitted Liens; (c) Liens on assets or properties of the Company, or on assets or properties of PAAC or the Restricted Subsidiaries, to secure the payment of all or a part of the purchase price of assets or property acquired or constructed in the ordinary course of business after the Closing Date; provided, however, that (i) the aggregate principal amount of Indebtedness secured by such Liens shall not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, (ii) the Indebtedness secured by such Liens shall be otherwise permitted to be incurred hereunder, (iii) such Liens shall not encumber any other assets or property of the Company, PAAC or any of the Restricted Subsidiaries and (iv) the Indebtedness secured by the Lien shall not be created more than 100 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to such Liens; (d) Liens on the assets or property acquired by the Company, PAAC or any Restricted Subsidiary after the Closing Date; provided, however, that (i) such Liens existed on the date such assets or property were acquired and were not incurred as a result of or in anticipation of such acquisition and (ii) such Liens shall not extend to or cover - 117 - 129 any assets or property of the Company, PAAC or any of the Restricted Subsidiaries other than the assets or property so acquired; (e) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under this Indenture and which shall be permitted to be refinanced under this Indenture; provided, however, that such Liens shall not extend to or cover any property or assets of the Company, PAAC or any of the Restricted Subsidiaries not securing the Indebtedness so refinanced; (f) Liens on assets or property of the Company, PAAC or any Restricted Subsidiary that shall be subject to a Sale and Leaseback Transaction, provided, however, that the aggregate principal amount of Attributable Indebtedness in respect of all Sale and Leaseback Transactions then outstanding shall not at the time such a Lien is incurred exceed $10,000,000; (g) Liens on property or shares of Capital Stock of a Person at the time such Person becomes a Restricted Subsidiary; provided, however, that such Liens were not created, incurred or assumed in contemplation of the acquisition thereof by the Company, PAAC or a Restricted Subsidiary; provided further, that such Liens shall not extend to any other property owned by the Company, PAAC or a Restricted Subsidiary; (h) Liens securing Indebtedness of a Restricted Subsidiary owing to the Company, PAAC or a Wholly-Owned Restricted Subsidiary of PAAC; (i) Liens on inventory, accounts receivable or related general intangibles of any Restricted Subsidiary securing the obligations under clause (d) of the definition of "Permitted Indebtedness" in Section 101 hereof; (j) pari passu Liens on the "collateral" as defined in the Existing Senior Secured Indenture and the Existing Term Facility securing up to $50,000,000 aggregate principal amount of Indebtedness permitted to be incurred under the initial paragraph of Section 1008 hereof, provided that (i) the proceeds of such Indebtedness are used to acquire or construct additional property, plant and equipment that will be utilized in one or more Related Businesses, and (ii) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed; and - 118 - 130 (k) Liens on assets or property of the Company, or on assets or property of PAAC or the Restricted Subsidiaries, acquired or constructed after the date of this Indenture other than in the ordinary course of business and other than assets or properties constituting Collateral; provided, however, that (i) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, (ii) the Indebtedness secured by such Liens is otherwise permitted to be incurred under this Indenture, and (iii) such Liens do not encumber the Collateral. Section 1013. Corporate Existence. Subject to Article Eight, each of the Company and PAAC shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence and the corporate existence of each of its Subsidiaries, in accordance with their respective organizational documents (as the same may be amended from time to time) and (ii) its (and its Subsidiaries) rights (charter and statutory), licenses and franchises; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate existence of any Subsidiary of the Company and PAAC, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole and that the loss thereof is not adverse in any material respect to the Holders. Section 1014. Change of Control. (a) In the event of a Change of Control (the date of such occurrence being the "Change of Control Date"), the Company shall notify the Holders in writing of such occurrence and shall make an irrevocable offer (the "Change of Control Offer") to purchase on a Business Day (the "Change of Control Payment Date") not later than 60 days following the Change of Control Date, all Securities then outstanding at a purchase price (the "Change of Control Purchase Price") equal to 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the Change of Control Payment Date. (b) Notice of a Change of Control Offer shall be mailed by the Company to the Holders at their registered addresses not less than 30 days nor more than 45 days before the Change of Control Payment Date. The Change of Control Offer shall remain open for at least 20 Business Days and until 5:00 p.m., New York City time, on the Change of Control Payment Date. Substantially simultaneously with mailing of the notice, the - 119 - 131 Company shall cause a copy of such notice to be published in a newspaper of general circulation in the Borough of Manhattan, The City of New York. (c) The notice, which governs the terms of the Change of Control Offer, shall state: (i) that the Change of Control Offer is being made pursuant to this Section 1014 and that all Securities (or portions thereof) tendered will be accepted for payment; (ii) the Change of Control Purchase Price and the Change of Control Payment Date; (iii) that any Securities not surrendered or accepted for payment shall continue to accrue interest and Liquidated Damages, if any; (iv) that, unless the Company defaults in the payment of the Change of Control Purchase Price, any Securities accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest or Liquidated Damages, if any, after the Change of Control Payment Date; (v) that any Holder electing to have a Security purchased (in whole or in part) pursuant to a Change of Control Offer shall be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice (or otherwise make effective delivery of the Security pursuant to book-entry procedures and the related rules of the applicable Depositary) at least five (5) Business Days before the Change of Control Payment Date; (vi) that any Holder shall be entitled to withdraw its election if the Paying Agent receives, not later than three (3) Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase, the certificate number of the Security and a statement that such Holder is withdrawing his or her election to have such Security purchased; (vii) that Holders whose Securities are purchased only in part shall be issued Securities representing the unpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 principal amount or an integral multiple thereof; - 120 - 132 (viii) the instructions that Holders must follow in order to tender their Securities; and (ix) the circumstances and relevant facts regarding such Change of Control (including but not limited to information with respect to pro forma financial information after giving effect to such Change of Control, and information regarding the Persons acquiring control). (d) On the Change of Control Payment Date, the Company shall: (i) accept for payment the Securities, or portions thereof, surrendered and properly tendered and not withdrawn, pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the Change of Control Purchase Price of all the Securities, or portions thereof, so accepted; and (iii) deliver to the Trustee the Securities so accepted together with an Officers' Certificate stating that such Securities have been accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to Holders of Securities so accepted payment in an amount equal to the Change of Control Purchase Price and the Trustee shall promptly authenticate and mail to such Holders a new Security equal in principal amount to the unpurchased portion of the Security surrendered. (e) Subject to applicable escheat laws, as provided in the Securities, the Trustee and the Paying Agent shall upon the Company's written request return to the Company any cash that remains unclaimed, together with interest or dividends, if any, thereon, held by them for the payment of the Change of Control Purchase Price; provided, however, that (x) to the extent that the aggregate amount of cash deposited by the Company pursuant to clause (ii) of paragraph (d) above exceeds the aggregate Change of Control Purchase Price of the Securities or portions thereof to be purchased, then the Trustee shall hold such excess for the Company and (y) unless otherwise directed by the Company in writing, promptly after the Business Day following the Change of Control Payment Date the Trustee shall return any such excess to the Company together with interest, if any, thereon. (f) The Company shall comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act, any other tender offer rules under the Exchange Act and all other applicable U.S. Federal and state and Canadian federal and provincial securities laws and regulations in - 121 - 133 connection with the offer to repurchase and the repurchase of the Securities as described above. (g) In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Securities, the Company shall, within thirty (30) days following a Change of Control (i) seek the consent of its lenders to the purchase of the Securities or (ii) refinance the Indebtedness that prohibits such purchase; provided, however, that the failure to make or consummate the Change of Control Offer shall constitute an Event of Default. (h) The Company and PAAC shall not, and shall not permit any of the Restricted Subsidiaries to, create or permit to exist or become effective any restriction (other than restrictions not more restrictive taken as a whole (as determined in good faith by the chief financial officer of the Company) than those in effect under Existing Indebtedness and Indebtedness under the New Credit Facilities) that would materially impair the ability of the Company to make a Change of Control Offer to purchase the Securities or, if such Change of Control Offer is made, to pay for the Securities tendered for purchase. Section 1015. Maintenance of Properties. The Company and PAAC shall, and shall cause the Restricted Subsidiaries to, maintain their respective (a) existing properties and assets in normal working order and condition as on the Execution Date and (b) properties and assets acquired after the date hereof in normal working order and condition as of the date of such acquisition (in each case, reasonable wear and tear excepted) and make all repairs, renewals, replacements, additions, betterments and improvements thereto, as shall be reasonably necessary for the proper conduct of the business of the Company, PAAC and the Restricted Subsidiaries taken as a whole, provided that nothing herein shall prevent the Company, PAAC or any of the Restricted Subsidiaries from discontinuing any maintenance of any such properties if such discontinuance is desirable in the conduct of the business of the Company, PAAC and the Restricted Subsidiaries taken as a whole. Section 1016. Maintenance of Insurance. The Company and PAAC shall, and shall cause the Restricted Subsidiaries to maintain liability, casualty and other insurance (subject to customary deductibles and retentions) with responsible insurance companies in such amounts and against such risks as is customarily carried by responsible companies engaged in similar businesses and owning similar assets in the general areas in which the Company, PAAC and the Restricted Subsidiaries - 122 - 134 operate (which may include self-insurance in comparable form to that maintained by such responsible companies). Section 1017. Stock Pledge Agreements. (a) The Company and PAAC shall, and shall cause the applicable Subsidiary or Subsidiaries of PAAC (the "Pledgor Subsidiary" or "Pledgor Subsidiaries") to execute and deliver to the Collateral Agent one or more stock pledge agreements substantially in the form of the stock pledge agreement attached as an exhibit to the Existing Senior Secured Indenture ("Stock Pledge Agreements") providing for the pledge to the Collateral Agent for the benefit of itself and the Trustee, for itself and the Holders, and the Term Loan Agent, for itself and the other lenders under the Term Loan Agreement, of all the Capital Stock of the Company and each of the Restricted Subsidiaries that (A) is engaged in any business activity other than the holding of the Capital Stock of one or more Subsidiaries of PAAC (or in the case of Imperial West, engaging in any business activity other than the holding of its Investment in Kemwater) and (B) has assets equal to or greater than 5% of PAAC's total assets determined on a consolidated basis as of the time of determination, together with delivery to the Collateral Agent of stock certificates evidencing such Capital Stock (together with undated stock powers executed in blank), in each case at such time as (i) such Capital Stock is not pledged for the benefit of the lenders under the Existing Term Facility and subject to the rights therein of the holders of the Existing Senior Secured Notes and (ii) such pledge shall not constitute a default or breach under the Existing Term Facility or the Existing Senior Secured Indenture. Upon any such pledge, such Capital Stock shall become "Collateral" for purposes of the Intercreditor Agreement. (b) If (i) there are no Term Loan Notes outstanding, (ii) there is no Indebtedness (the "New Indebtedness") outstanding which refinanced the Term Loan Notes and requires pledges of Capital Stock of one or more Restricted Subsidiaries in connection therewith, (iii) all other amounts due and owing to the lenders under the Term Loan Agreement or the New Indebtedness lenders under the agreement providing for the issuance of the New Indebtedness, as the case may be, have been paid in full, (iv) the Term Loan Agreement or the agreement providing for the issuance of the New Indebtedness, as the case may be, has been terminated, and (v) the Company has delivered to the Trustee and the Collateral Agent an officers' certificate stating that the foregoing requirements have been satisfied (which officers' certificate must also be signed by the Term Loan Agent or the agent, trustee or other representative of the New Indebtedness, as the case may be), then (x) the Company shall be released from its obligations to comply with this Section 1017, (y) the failure - 123 - 135 to comply with this Section 1017 shall not constitute a Default or Event of Default with respect to the Securities, and (z) all stock pledge agreements entered into by the Company and one or more Subsidiaries of the Company after the Closing Date pursuant to this Section 1017 shall be terminated, and all certificates evidencing Capital Stock pledged thereunder shall be released, by the Collateral Agent. (c) If at any time after the operation of the immediately preceding paragraph the Company or any Subsidiary of the Company intends to incur any Indebtedness which requires the pledge of Capital Stock of one or more Restricted Subsidiaries of the Company in connection therewith, neither the Company nor such Subsidiary of the Company shall incur such Indebtedness without directly securing the Securities with such pledge of Capital Stock on an equal and ratable basis (or prior to in the case of Indebtedness subordinated to the Securities or the Guarantees, as the case may be) and in connection therewith the Company's obligation to comply with the provisions of this Section 1017 shall be reinstated if a covenant or agreement similar to this covenant is included in the agreement providing for the issuance of such Indebtedness. Section 1018. Money for Security Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it shall, on or before each due date of the principal of, premium, if any, interest or Liquidated Damages, if any, on any of the Securities, segregate and hold in trust for the benefit of the Holders entitled thereto a sum sufficient to pay the principal, premium, if any, interest or Liquidated Damages, if any, so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and shall promptly notify the Trustee of its action or failure so to act. If the Company is not acting as Paying Agent, the Company shall, before 10:00 a.m. New York City time on each due date of the principal of, premium, if any, interest or Liquidated Damages, if any, on any Securities, deposit with a Paying Agent a sum in same day funds sufficient to pay the principal, premium, if any, interest or Liquidated Damages, if any, so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium, interest or Liquidated Damages, if any, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of such action or any failure so to act. If the Company is not acting as Paying Agent, the Company shall cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such - 124 - 136 Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent shall: (a) hold all sums held by it for the payment of the principal of, premium, if any, interest or Liquidated Damages, if any, on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any Default by the Company or any Guarantor (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, interest or Liquidated Damages, if any; (c) at any time during the continuance of any such Default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (d) acknowledge, accept and agree to comply in all aspects with the provisions of this Indenture relating to the duties, rights and disabilities of such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, interest or Liquidated Damages, if any, on any Security and remaining unclaimed for two years after such principal and premium, if any, interest or Liquidated Damages, if any, has become due and payable shall promptly be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less - 125 - 137 than thirty (30) days from the date of such notification or publication, any unclaimed balance of such money then remaining shall promptly be repaid to the Company. Section 1019. Certain Guarantees. (a) If (i) any Subsidiary of PAAC becomes a Restricted Subsidiary after the Closing Date, (ii) the Company, PAAC or any Subsidiary of PAAC that is a Guarantor transfers or causes to be transferred, in one transaction or a series of related transactions, property or assets (including, without limitation, businesses, divisions, real property, assets or equipment) which in the aggregate have a value equal to or greater than 15% of PAAC's and its Subsidiaries' total assets determined on a consolidated basis as of the time of transfer to any Subsidiary or Subsidiaries of PAAC that is not the Company or a Guarantor or are not Guarantors, (iii) any Subsidiary of PAAC which has a value equal to or greater than 5% of PAAC's and its Subsidiaries' total assets determined on a consolidated basis as of the time of determination directly or indirectly guarantees or otherwise becomes obligated with respect to any Senior Indebtedness of the Company or PAAC, or (iv) any Subsidiary of PAAC becomes a guarantor of the Existing Senior Secured Notes, the Term Loan Notes or the loans under the Existing Term Facility after the Closing Date, the Company shall cause such Subsidiary or Subsidiaries of PAAC to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiary or Subsidiaries or PAAC shall unconditionally guarantee, in accordance with Article Thirteen hereof, all of the Company's obligations under this Indenture and the Securities on the same terms as the other Guarantors, which Guarantee shall rank pari passu with any Senior Indebtedness of such Subsidiary; provided, that clause (i) of this Section 1019(a) shall not apply to any newly acquired or created Subsidiary of PAAC organized outside of the United States of America and conducting the majority of its business outside of the United States of America for so long as the issuance of a guarantee by such Subsidiary would result in a material increase in the aggregate amount of income tax payable by PAAC on a consolidated basis and the Company shall deliver to the Trustee an Officers' Certificate so stating. (b) Each guarantee created pursuant to the provisions described in the foregoing paragraph is referred to as a "Guarantee" and the issuer of each such Guarantee is referred to as a "Guarantor." Notwithstanding the foregoing, any Guarantee by a Subsidiary of PAAC of the Securities shall provide by its terms that it shall be automatically and unconditionally released and discharged upon any sale, exchange, transfer or other disposition to any Person of all of the Company's, PAAC's or a Restricted Subsidiary's Equity Interest in (or if such Subsidiary is owned by a Restricted Subsidiary, of all of such Restricted - 126 - 138 Subsidiary's Equity Interest in), or all or substantially all the assets of, such Subsidiary, which is in compliance with this Indenture. Section 1020. Limitation on Ownership of Wholly-Owned Restricted Subsidiary Stock. The Company and PAAC (a) shall not, and shall not permit any Wholly-Owned Restricted Subsidiary of PAAC to, transfer, convey, sell or otherwise dispose of any Capital Stock of any Wholly-Owned Restricted Subsidiary of PAAC (other than All-Pure and its subsidiaries) to any Person (other than the Company, PAAC or a Wholly-Owned Restricted Subsidiary of PAAC), unless (i) such transfer, conveyance, sale or other disposition is of all the Capital Stock of such Wholly-Owned Restricted Subsidiary of PAAC and (ii) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 1009 hereof, and (b) shall not permit any Wholly-Owned Restricted Subsidiary of PAAC (other than All-Pure and its subsidiaries) to issue any of its Equity Interests (other than, if necessary, Capital Stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, to the extent mandated by applicable law) to any Person other than to the Company, PAAC or a Wholly-Owned Restricted Subsidiary of PAAC. Section 1021. Impairment of Security Interest. The Company and PAAC shall not, and shall not cause or permit any Restricted Subsidiary to, take or omit to take any action which action or omission might or would have the result of affecting or impairing the Liens and security interest in favor of the Collateral Agent for its own account and for the benefit of the Trustee and the Holders and the holders of Secured Indebtedness with respect to the Collateral and the Company shall not grant to any Person, or suffer any Person to have any interest whatsoever in the Collateral, in each case other than as otherwise permitted by this Indenture, the Term Loan Agreement or the Security Documents. The Company and PAAC shall not, and shall not permit PCAC to, grant a security interest in, or permit any Lien to exist on, the St. Gabriel Pipeline other than Permitted Liens or a Lien in favor of the Collateral Agent pursuant to a Security Document. The Company and PAAC shall not, and shall not cause or permit any Restricted Subsidiary to, enter into any agreement or instrument that by its terms requires that the proceeds received from any sale of Collateral be applied to repay, redeem, defease or otherwise acquire or retire any Indebtedness of any Person, other than pursuant to this Indenture or the Term Loan Agreement. A release of any of the Collateral strictly in accordance with the terms and conditions of this - 127 - 139 Indenture and the Security Documents will not be deemed for any purpose to be an impairment of security under this Indenture. Subject to the provisions of this Indenture, the Existing Term Facility, the Existing Senior Secured Indenture and the Intercreditor Agreement, the Company and PAAC will not, and will not cause or permit any of the Restricted Subsidiaries to, enter into any agreement or instrument that by its terms requires that the Company, PAAC or any such Restricted Subsidiary pledge the Capital Stock of (i) the Company and (ii) any Restricted Subsidiary that (A) is engaged in any business activity other than the holding of the Capital Stock of one or more Subsidiaries of PAAC (or in the case of Imperial West, engaging in any business activity other than the holding of its Investment in Kemwater) and (B) has assets equal to or greater than 5% of PAAC's total assets determined on a consolidated basis as of the time of determination. Section 1022. Amendment to Security Documents. The Company and PAAC shall not amend, modify or supplement, or permit or consent to any amendment, modification or supplement of, the Security Documents in any manner or to any extent that would constitute an Event of Default hereunder or under the Security Documents; provided that this Indenture and the Security Documents may be amended, modified or supplemented in accordance with Article Nine hereof. Section 1023. Limitation on Applicability of Certain Covenants. Notwithstanding anything to the contrary herein, the covenants set forth in Sections 1006, 1007, 1008, 1009, 1011, and 1012 hereof shall not apply to transactions effected pursuant to and in accordance with the Contingent Payment Agreement and amounts related to such transactions shall not be required to be included in any calculation required by any such covenant. Such transactions include (i) any payment made by the Company, PAAC or a Restricted Subsidiary, (ii) any assets or property transferred by the Company, PAAC or a Restricted Subsidiary, (iii) the application of any proceeds received by the Company, PAAC or any Restricted Subsidiary in connection with any transfer of assets or property made by such Person, (iv) any escrow or segregation of moneys to be paid by the Company, PAAC or a Restricted Subsidiary, (v) any Investment of such escrowed or segregated moneys by the Company, PAAC or a Restricted Subsidiary or any other Investment under the Contingent Payment Agreement, (vi) any obligation of the Company, PAAC or a Restricted Subsidiary to make any such payments or to effect any such escrow or segregation of moneys, (vii) any Indebtedness incurred by the Company, PAAC or a Restricted Subsidiary that is non-recourse to - 128 - 140 the assets of the Company, PAAC or such Restricted Subsidiary or any other Restricted Subsidiary, other than the borrower's interest in Basic Investments, Inc., Victory Valley Land Company, L.P., the Excess Land and/or any other assets or funds held under the Contingent Payment Agreement, and as to which none of the Company, PAAC nor any Restricted Subsidiary (other than the borrower) provides credit support or is directly or indirectly liable, or (viii) any Lien incurred by the Company, PAAC or any Restricted Subsidiary in connection with Indebtedness described in clause (vii) above that does not extend to assets of the Company, PAAC or any Restricted Subsidiary other than such Person's interest in Basic Investments, Inc., Victory Valley Land Company, L.P., the Excess Land and/or any other assets or funds held under the Contingent Payment Agreement. Section 1024. Additional Amounts. If the Company is required to withhold or deduct any amount for or on account of Taxes from any payment made under or with respect to the Securities, the Company shall pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder (including Additional Amounts) after such withholding or deduction will not be less than the amount the Holder would have received if such Taxes had not been withheld or deducted; provided that no Additional Amounts shall be payable with respect to a payment made to a Holder to the extent solely attributable to (i) such Holder not being treated as dealing at arm's length with the Company within the meaning of the Income Tax Act (Canada) at the time of making such payment, or (ii) such Holder's being connected with Canada or any province or territory thereof otherwise than solely by reason of the Holder's activity in connection with purchasing the Securities, by the mere holding of Securities or by reason of the receipt of payments thereunder. The Company will also (i) make such withholding or deduction and (ii) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. The Company shall furnish to the Holders, within 30 calendar days after the date the payment of any Taxes is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by the Company. The Company shall upon written request of each Holder (other than an Excluded Holder), reimburse each such Holder for the amount of (i) any Taxes so levied or imposed and paid by such Holder as a result of payments made under or with respect to the Securities, and (ii) any Taxes so levied or imposed with respect to any reimbursement under the foregoing clause (i) so that the net amount received by such Holder (net of payments made under or with respect to the Securities) after such reimbursement will not be less than the net amount the Holder would have received if Taxes on such reimbursement had not been imposed; provided, however, no reimbursement shall be made in respect of Taxes for which no - 129 - 141 Additional Amounts would be payable by reason of clause (i) or (ii) of the second preceding sentence. At least 30 calendar days prior to each date on which any payment under or with respect to the Securities is due and payable, if the Company will be obligated to pay Additional Amounts with respect to such payment, the Company will deliver to the Trustee an Officers' Certificate stating the fact that such Additional Amounts will be payable and the amounts so payable and will set forth such other information necessary to enable the Trustee to pay such Additional Amounts to Holders on the payment date. Whenever in this Indenture there is mentioned, in any context, the payment of principal, interest, if any, or any other amount payable under or with respect to any Securities, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. The Holders, by acceptance of a Note, and the Company agree that the payment of any Additional Amounts by the Company shall be treated as payments of interest. Section 1025. Pension Transfer Agreement. The Company shall fulfill all of its obligations under the Pension Transfer Agreement dated October 31, 1997 between the Company and ICI Canada, in accordance with the terms thereof that relate to the establishment, funding, maintenance and operation of each Canadian Pension Plan to be established in connection therewith. ARTICLE ELEVEN REDEMPTION OF SECURITIES Section 1101. Rights of Redemption. The Securities shall not be redeemable at the option of the Company prior to October 15, 2002. On or after that date, the Securities shall be redeemable at the option of the Company, in whole or in part from time to time, on not less than thirty (30) nor more than sixty (60) days' prior notice, mailed by first-class mail to the Holders' registered addresses, in cash, in amounts of $1,000 or an integral multiple of $1,000 at the following Redemption Prices (expressed as percentages of the principal amount), if redeemed in the 12-month period commencing October 15 in the year indicated below:
Year Redemption ---- ---------- 2002 104.625% 2003 103.084% 2004 101.542% 2005 100.000%
- 130 - 142 in each case together with accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date (subject to the right of Holders of record on relevant record dates to receive interest and Liquidated Damages, if any, due on an Interest Payment Date). If less than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata, by lot or by any other method the Trustee shall deem fair and appropriate. Notwithstanding the foregoing, at any time on or prior to October 15, 2000, the Company may redeem, in part, up to $61,250,000 in aggregate principal amount of the Securities at a purchase price of 109.25% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date fixed for redemption, with the net proceeds of (i) any Equity Offering by the Company or (ii) any Equity Offering by Pioneer or PAAC, but only to the extent that Pioneer or PAAC contributes such net proceeds to the Company as a capital contribution; provided that at least $113,750,000 aggregate principal amount of the Securities must remain outstanding after such redemption. If, as a result of any change in, or amendment to, the laws (including any regulations promulgated thereunder) of Canada (or any political subdivision or taxing authority thereof or therein) or any change in, or amendment to, any official position regarding the application or interpretation of such laws or regulations, which change is announced or becomes effective on or after the Closing Date, the Company has become or would be obligated to pay, on any date on which any amount would be payable with respect to the Securities, any Additional Amounts to a U.S. Holder in accordance with Section 1025 hereof, then the Company may, at its option, redeem the Securities, as a whole but not in part, at a redemption price equal to 100% of their aggregate principal amount on the date of such redemption, together with accrued and unpaid interest and Liquidated Damages, if any, to the date fixed for redemption. Securities may be redeemed or repurchased as set forth in Sections 1009, 1014 and 1109 hereof. Any redemption pursuant to this Section 1101 shall be made pursuant to the provisions of Sections 1102 through 1108 hereof. Section 1102. Applicability of Article. Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of this - 131 - 143 Indenture, shall be made in accordance with such provision and this Article. Section 1103. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities pursuant to Section 1101 hereof shall be evidenced by a Company Order and an Officers' Certificate. In case of any redemption at the election of the Company, the Company shall, not less than forty-five (45) nor more than sixty (60) days prior to the Redemption Date fixed by the Company (unless a shorter notice period shall be satisfactory to the Trustee), notify the Trustee in writing of such Redemption Date, the Redemption Price and of the principal amount of Securities to be redeemed. Section 1104. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities or portions hereof to be redeemed shall be selected not more than thirty (30) days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, pro rata, by lot or such other method as the Trustee shall deem fair and appropriate, and the amounts to be redeemed may be equal to $1,000 or any integral multiple thereof. The Trustee shall promptly notify the Company and the Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. Section 1105. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than thirty (30) nor more than sixty (60) days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (a) the Redemption Date; (b) the Redemption Price; - 132 - 144 (c) if less than all Outstanding Securities are to be redeemed, the identification of the particular Securities to be redeemed; (d) in the case of a Security to be redeemed in part, the principal amount of such Security to be redeemed and that after the Redemption Date upon surrender of such Security, new Security or Securities in the aggregate principal amount equal to the unredeemed portion thereof will be issued; (e) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (f) that on the Redemption Date the Redemption Price will become due and payable upon each such Security or portion thereof, and that (unless the Company shall default in payment of the Redemption Price) interest and Liquidated Damages, if any, thereon shall cease to accrue on and after said date; (g) the place or places where such Securities are to be surrendered for payment of the Redemption Price; (h) the paragraph of the Securities and/or Section of this Indenture pursuant to which the Securities called for redemption are being redeemed; and (i) the CUSIP number, if any, relating to such Securities (as to the accuracy of which the Trustee shall make no representation). Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name and at the expense of the Company. The notice if mailed in the manner herein provided shall be conclusively presumed to have been given, whether or not the Holder receives such notice. In any case, failure to mail such notice, or any defect in any notice so mailed, to any particular Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security. Section 1106. Deposit of Redemption Price. On or prior to 10:00 a.m. New York City time on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or if the Company is acting as its own - 133 - 145 Paying Agent, segregate and hold in trust as provided in Section 1018 hereof) an amount of money in same day funds sufficient to pay the Redemption Price of and (except if the Redemption Date shall be an Interest Payment Date) accrued interest and Liquidated Damages, if any, on, all the Securities or portions thereof which are to be redeemed on that date. When the Redemption Date falls on an Interest Payment Date, payments of interest and Liquidated Damages, if any, due on such date are to be paid as provided hereunder as if no such redemption were occurring. Section 1107. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest and Liquidated Damages, if any) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price together with accrued interest and Liquidated Damages, if any, to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Dates according to the terms and the provisions of Section 309 hereof. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid, bear interest from the Redemption Date at the rate borne by such Security. Section 1108. Securities Redeemed or Purchased in Part . Any Security which is to be redeemed or purchased only in part shall be surrendered to the Paying Agent at the office or agency maintained for such purpose pursuant to Section 1002 hereof (with, if the Company, the Security Registrar or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company, the Security Registrar or the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the unredeemed portion of the principal of the Security so surrendered that is not redeemed or purchased. - 134 - 146 Section 1109. Asset Sale Offers. In the event that the Company shall commence an Asset Sale Offer pursuant to Section 1009 hereof, it shall follow the procedures specified below. The Asset Sale Offer shall remain open for twenty (20) Business Days after the date on which such Asset Sale Offer is commenced (the "Commencement Date") except to the extent required to be extended pursuant to applicable law (as so extended, the "Asset Sale Offer Period"). No later than one Business Day after the termination of the Asset Sale Offer Period (the "Asset Sale Purchase Date"), the Company shall purchase the principal amount (the "Asset Sale Offer Amount") of Securities required pursuant to Section 1009 hereof to be purchased in such Asset Sale Offer and other pari passu Senior Indebtedness that is required by its terms to be purchased in such Asset Sale Offer or, if less than the Asset Sale Offer Amount has been tendered, all Securities tendered in response to the Asset Sale Offer. If the Asset Sale Purchase Date is on or after a Regular Record Date and on or before the related Interest Payment Date, any accrued interest or Liquidated Damages, if any, shall be paid to the Person in whose name a Security is registered at the close of business on such Regular Record Date, and no additional interest or Liquidated Damages, if any, shall be payable to Holders who tender Securities pursuant to the Asset Sale Offer. On the Commencement Date of any Asset Sale Offer, the Company shall send or cause to be sent, by first class mail, a notice to each of the Holders, with a copy to the Trustee. Such notice, which shall govern the terms of the Asset Sale Offer, shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Asset Sale Offer and shall state: (1) that the Asset Sale Offer is being made pursuant to Section 1009 hereof and this Section 1109 and the length of time the Asset Sale Offer shall remain open; (2) the Asset Sale Offer Amount, the Asset Sale Purchase Price and the Asset Sale Purchase Date; (3) that any Security not tendered or accepted for payment shall continue to accrue interest and Liquidated Damages, if any, in accordance with this Indenture; (4) that, unless the Company defaults in the payment of the Asset Sale Purchase Price, all Securities accepted for payment pursuant to the Asset Sale Offer shall cease to - 135 - 147 accrue interest and Liquidated Damages, if any, after the Asset Sale Purchase Date; (5) that Holders electing to have Securities purchased pursuant to any Asset Sale Offer shall be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Asset Sale Purchase Date; (6) that Holders shall be entitled to withdraw their election if the Company, Depositary or Paying Agent, as the case may be, receives not later than the close of business on the Business Day preceding the termination of the Asset Sale Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase, the certificate number on the Security and a statement that such Holder is withdrawing his election to have the Security purchased; (7) that, if the aggregate principal amount of Securities surrendered by Holders together with any other pari passu Senior Indebtedness that is required by its terms to be purchased in such Asset Sale Offer exceeds the Asset Sale Offer Amount, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased); and (8) that Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 principal amount or an integral multiples thereof. On or before 10:00 a.m. New York City time on each Asset Sale Purchase Date, the Company shall irrevocably deposit with the Trustee or Paying Agent in immediately available funds the aggregate Asset Sale Purchase Price with respect to a principal amount of Securities equal to the Asset Sale Offer Amount, together with accrued interest and Liquidated Damages, if any, thereon, to be held for payment in accordance with the terms of this Section 1109. On the Asset Sale Purchase Date, the Company shall, to the extent lawful, (i) accept for payment, on a pro rata basis to the extent necessary, an aggregate principal amount equal to the Asset Sale Offer Amount of Securities tendered pursuant to the Asset Sale Offer, or if less than the - 136 - 148 Asset Sale Offer Amount has been tendered, all Securities or portions thereof tendered, (ii) deliver, or cause the Paying Agent or depositary, as the case may be, to deliver to the Trustee Securities so accepted and (iii) deliver to the Trustee an Officers' Certificate stating that such Securities or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 1109. The Company, a depositary or Paying Agent, as the case may be, shall promptly (but in any case not later than two (2) Business Days after the Asset Sale Purchase Date) mail or deliver to each tendering Holder an amount equal to the Asset Sale Purchase Price with respect to the Securities tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Security, and the Trustee shall authenticate and mail or deliver such new Security, to such Holder, equal in principal amount to any unpurchased portion of such Holder's Securities surrendered. Any Security not accepted in the Asset Sale Offer shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce in a newspaper of general circulation the results of the Asset Sale Offer on the Asset Sale Purchase Date. The Asset Sale Offer shall be made by the Company in compliance with all applicable laws, including, without limitation, the requirements of Rule 14e-1 under the Exchange Act, any other tender offer rules under the Exchange Act and all other applicable U.S. Federal and state and Canadian federal and provincial securities laws and regulations. Subject to applicable escheat laws, as provided in the Securities, the Trustee and the Paying Agent shall return to the Company any cash that remains unclaimed, together with interest, if any, thereon, held by them for the payment of the Asset Sale Purchase Price; provided, however, that (x) to the extent that the aggregate amount of an Asset Sale Offer exceeds the aggregate Asset Sale Purchase Price of the Securities or portions thereof to be purchased, the Trustee shall hold such excess for the Company and (y) unless otherwise directed by the Company in writing, promptly after the Business Day following the Asset Sale Purchase Date the Trustee shall return any such excess to the Company together with interest or dividends, if any, thereon. Other than as specifically provided in this Section 1109, each purchase pursuant to this Section 1109 shall be made pursuant to the provisions of Sections 1101 through 1108 hereof. - 137 - 149 ARTICLE TWELVE SATISFACTION AND DISCHARGE Section 1201. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Securities herein expressly provided for) and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (a) either (1) all the Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 308 hereof or (ii) all Securities for whose payment United States dollars have theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1018 hereof) have been delivered to the Trustee for cancellation; or (2) all such Securities not theretofore delivered to the Trustee for cancellation (x) have become due and payable, (y) shall become due and payable at their Stated Maturity within one year, or (z) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company or any Guarantor, in the case of (2)(x), (y) or (z) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount in United States dollars sufficient to pay and discharge the entire Indebtedness on the Securities not theretofore delivered to the Trustee for cancellation, for the principal of, premium, if any, and accrued interest and Liquidated Damages, if any, at such Stated Maturity or Redemption Date; (b) the Company or any Guarantor has paid or caused to be paid all other sums payable hereunder by the Company or any Guarantor; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that (i) all conditions precedent herein provided for relating to - 138 - 150 the satisfaction and discharge of this Indenture have been complied with and (ii) such satisfaction and discharge shall not result in a breach or violation of or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound. Opinions of Counsel required to be delivered under this Section may have qualifications customary for opinions of the type required and counsel delivering such Opinions of Counsel may rely on certificates of the Company or government or other officials customary for opinions of the type required, including certificates certifying as to matters of fact, including that various financial covenants have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 606 hereof and, if United States dollars shall have been deposited with the Trustee pursuant to subclause (2) of Subsection (a) of this Section, the obligations of the Trustee under Section 1202 and the last paragraph of Section 1018 hereof shall survive. Section 1202. Application of Trust Money. Subject to the provisions of the last paragraph of Section 1018 hereof, all United States dollars deposited with the Trustee pursuant to Section 1201 hereof shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal of, premium, if any, interest and Liquidated Damages, if any, on the Securities for whose payment such United States dollars have been deposited with the Trustee. ARTICLE THIRTEEN GUARANTEE Section 1301. Guarantors' Guarantee. For value received, each of the Guarantors, in accordance with this Article Thirteen, hereby absolutely, unconditionally and irrevocably guarantees, jointly and severally, to the Trustee and the Holders, as if the Guarantors were the principal debtor, the punctual payment and performance when due of all Indenture Obligations (which for purposes of this Guarantee shall also be deemed to include all commissions, fees, charges, - 139 - 151 costs and other expenses (including reasonable legal fees and disbursements of one counsel) arising out of or incurred by the Trustee or the Holders in connection with the enforcement of this Guarantee). Section 1302. Continuing Guarantee; No Right of Set-Off; Independent Obligation. (a) This Guarantee shall be a continuing guarantee of the payment and performance for all Indenture Obligations and shall remain in full force and effect until the payment in full of all of the Indenture Obligations and shall apply to and secure any ultimate balance due or remaining unpaid to the Trustee or the Holders; and this Guarantee shall not be considered as wholly or partially satisfied by the payment or liquidation at any time or from time to time of any sum of money for the time being due or remaining unpaid to the Trustee or the Holders. Each Guarantor, jointly and severally, covenants and agrees to comply with all obligations, covenants, agreements and provisions applicable to it in this Indenture including those set forth in Article Eight. Without limiting the generality of the foregoing, each of the Guarantors' liability shall extend to all amounts which constitute part of the Indenture Obligations and would be owed by the Company under this Indenture and the Securities but for the fact that they are unenforceable, reduced, limited, impaired, suspended or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company. (b) Each Guarantor, jointly and severally, hereby guarantees that the Indenture Obligations shall be paid to the Trustee without set-off or counterclaim or other reduction whatsoever (whether for taxes, withholding or otherwise) in lawful currency of the United States of America. (c) Each Guarantor, jointly and severally, guarantees that the Indenture Obligations shall be paid strictly in accordance with their terms regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Holders of the Securities. (d) Each Guarantor's liability to pay or perform or cause the performance of the Indenture Obligations under this Guarantee shall arise forthwith after demand for payment or performance by the Trustee has been given to the Guarantors in the manner prescribed in Section 106 hereof. (e) Except as provided herein, the provisions of this Article Thirteen cover all agreements between the parties hereto relative to this Guarantee and none of the parties shall be bound by any representation, warranty or promise made by any Person - 140 - 152 relative thereto which is not embodied herein; and it is specifically acknowledged and agreed that this Guarantee has been delivered by each Guarantor free of any conditions whatsoever and that no representations, warranties or promises have been made to any Guarantor affecting its liabilities hereunder, and that the Trustee shall not be bound by any representations, warranties or promises now or at any time hereafter made by the Company to any Guarantor. Section 1303. Guarantee Absolute. The obligations of the Guarantors hereunder are independent of the obligations of the Company under the Securities and this Indenture and a separate action or actions may be brought and prosecuted against any Guarantor whether or not an action or proceeding is brought against the Company and whether or not the Company is joined in any such action or proceeding. The liability of the Guarantors hereunder is irrevocable, absolute and unconditional and (to the extent permitted by law) the liability and obligations of the Guarantors hereunder shall not be released, discharged, mitigated, waived, impaired or affected in whole or in part by: (a) any defect or lack of validity or enforceability in respect of any Indebtedness or other obligation of the Company or any other Person under this Indenture or the Securities, or any agreement or instrument relating to any of the foregoing; (b) any grants of time, renewals, extensions, indulgences, releases, discharges or modifications which the Trustee or the Holders may extend to, or make with, the Company, any Guarantor or any other Person, or any change in the time, manner or place of payment of, or in any other term of, all or any of the Indenture Obligations, or any other amendment or waiver of, or any consent to or departure from, this Indenture or the Securities, including any increase or decrease in the Indenture Obligations; (c) the taking of security from the Company, any Guarantor or any other Person, and the release, discharge or alteration of, or other dealing with, such security; (d) the occurrence of any change in the laws, rules, regulations or ordinances of any jurisdiction by any present or future action of any governmental authority or court amending, varying, reducing or otherwise affecting, or purporting to amend, vary, reduce or otherwise affect, any of the Indenture Obligations and the obligations of any Guarantor hereunder; - 141 - 153 (e) the abstention from taking security from the Company, any Guarantor or any other Person or from perfecting, continuing to keep perfected or taking advantage of any security; (f) any loss, diminution of value or lack of enforceability of any security received from the Company, any Guarantor or any other Person, and including any other guarantees received by the Trustee; (g) any other dealings with the Company, any Guarantor or any other Person, or with any security; (h) the Trustee's or the Holder's acceptance of compositions from the Company or any Guarantor; (i) the application by the Holders or the Trustee of all monies at any time and from time to time received from the Company, any Guarantor or any other Person on account of any indebtedness and liabilities owing by the Company or any Guarantor to the Trustee or the Holders, in such manner as the Trustee or the Holders deems best and the changing of such application in whole or in part and at any time or from time to time, or any manner of application of collateral, or proceeds thereof, to all or any of the Indenture Obligations; (j) the release or discharge of the Company or any Guarantor of the Securities or of any Person liable directly as surety or otherwise by operation of law or otherwise for the Securities, other than an express release in writing given by the Trustee, on behalf of the Holders, of the liability and obligations of any Guarantor hereunder; (k) any change in the name, business, capital structure or governing instrument of the Company or any Guarantor or any refinancing or restructuring of any of the Indenture Obligations; (l) the sale of the Company's or any Guarantor's business or any part thereof; (m) subject to Section 1314 hereof, any merger or consolidation, arrangement or reorganization of the Company, any Guarantor, any Person resulting from the merger or consolidation of the Company or any Guarantor with any other Person or any other successor to such Person or merged or consolidated Person or any other change in the corporate existence, structure or ownership of the Company or any Guarantor; - 142 - 154 (n) the insolvency, bankruptcy, liquidation, winding-up, dissolution, receivership or distribution of the assets of the Company or its assets or any resulting discharge of any obligations of the Company (whether voluntary or involuntary) or of any Guarantor or the loss of corporate existence; (o) subject to Section 1314 hereof, any arrangement or plan of reorganization affecting the Company or any Guarantor; (p) any other circumstance (including any statute of limitations) that might otherwise constitute a defense available to, or discharge of, the Company or any Guarantor; or (q) any modification, compromise, settlement or release by the Trustee, or by operation of law or otherwise, of the Indenture Obligations or the liability of the Company or any other obligor under the Securities, in whole or in part, and any refusal of payment by the Trustee, in whole or in part, from any other obligor or other guarantor in connection with any of the Indenture Obligations, whether or not with notice to, or further assent by, or any reservation of rights against, each of the Guarantors. Section 1304. Right to Demand Full Performance. In the event of any demand for payment or performance by the Trustee from any Guarantor hereunder, the Trustee or the Holders shall have the right to demand its full claim and to receive all payments in respect thereof until the Indenture Obligations have been paid in full, and the Guarantors shall continue to be jointly and severally liable hereunder for any balance which may be owing to the Trustee or the Holders by the Company under this Indenture and the Securities. The retention by the Trustee or the Holders of any security, prior to the realization by the Trustee or the Holders of its rights to such security upon foreclosure thereon, shall not, as between the Trustee and any Guarantor, be considered as a purchase of such security, or as payment, satisfaction or reduction of the Indenture Obligations due to the Trustee or the Holders by the Company or any part thereof. Section 1305. Waivers. (a) Each Guarantor hereby expressly waives (to the extent permitted by law) notice of the acceptance of this Guarantee and notice of the existence, renewal, extension or the non-performance, non-payment, or non-observance on the part of the Company of any of the terms, covenants, conditions and - 143 - 155 provisions of this Indenture or the Securities or any other notice whatsoever to or upon the Company or such Guarantor with respect to the Indenture Obligations. Each Guarantor hereby acknowledges communication to it of the terms of this Indenture and the Securities and all of the provisions therein contained and consents to and approves the same. Each Guarantor hereby expressly waives (to the extent permitted by law) diligence, presentment, protest and demand for payment. (b) Without prejudice to any of the rights or recourses which the Trustee or the Holders may have against the Company, each Guarantor hereby expressly waives (to the extent permitted by law) any right to require the Trustee or the Holders to: (i) initiate or exhaust any rights, remedies or recourse against the Company, any Guarantor or any other Person; (ii) value, realize upon, or dispose of any security of the Company or any other Person held by the Trustee or the Holders; or (iii) initiate or exhaust any other remedy which the Trustee or the Holders may have in law or equity; before requiring or becoming entitled to demand payment from such Guarantor under this Guarantee. Section 1306. The Guarantors Remain Obligated in Event the Company Is No Longer Obligated to Discharge Indenture Obligations. It is the express intention of the Trustee and the Guarantors that if for any reason the Company has no legal existence, is or becomes under no legal obligation to discharge the Indenture Obligations owing to the Trustee or the Holders by the Company or if any of the Indenture Obligations owing by the Company to the Trustee or the Holders become irrecoverable from the Company by operation of law or for any reason whatsoever, this Guarantee and the covenants, agreements and obligations of the Guarantors contained in this Article Thirteen shall nevertheless be binding upon the Guarantors, as principal debtor, until such time as all such Indenture Obligations have been paid in full to the Trustee and all Indenture Obligations owing to the Trustee or the Holders by the Company have been discharged, or such earlier time as Section 402 hereof shall apply to the Securities and the Guarantors shall be responsible for the payment thereof to the Trustee or the Holders upon demand. - 144 - 156 Section 1307. Fraudulent Conveyance; Subrogation. (a) Any term or provision of this Guarantee to the contrary notwithstanding, the aggregate amount of the Indenture Obligations guaranteed hereunder shall be reduced to the extent necessary to prevent this Guarantee from violating or becoming voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. (b) Each Guarantor hereby waives until repayment in full of the Indenture Obligations and except as provided in Section 1309, all rights of subrogation or contribution, whether arising by contract or operation of law (including, without limitation, any such right arising under U.S. Federal bankruptcy law) or otherwise by reason of any payment by it pursuant to the provisions of this Article Thirteen. Section 1308. Guarantee Is in Addition to Other Security. This Guarantee shall be in addition to and not in substitution for any other guarantees or other security which the Trustee may now or hereafter hold in respect of the Indenture Obligations owing to the Trustee or the Holders by the Company and (except as may be required by law) the Trustee shall be under no obligation to marshal in favor of each of the Guarantors any other guarantees or other security or any moneys or other assets which the Trustee may be entitled to receive or upon which the Trustee or the Holders may have a claim. Section 1309. Contribution. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under its Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a pro rata amount based on the "Adjusted Net Assets" (as defined below) of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Securities or any other Guarantor's obligation with respect to its Guarantee. "Adjusted Net Assets" means, with respect to any Guarantor, at any date, the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under the Guarantee, of such Guarantor at such date and (y) the present fair salable - 145 - 157 value of assets of such Guarantor at such date exceeds the amount that shall be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), excluding debt in respect of its Guarantee, as they become absolute and matured. Section 1310. No Bar to Further Actions. Except as provided by law, no action or proceeding brought or instituted under Article Thirteen and this Guarantee and no recovery or judgment in pursuance thereof shall be a bar or defense to any further action or proceeding which may be brought under Article Thirteen and this Guarantee by reason of any further default or defaults under Article Thirteen and this Guarantee or in the payment of any of the Indenture Obligations owing by the Company. Section 1311. Failure to Exercise Rights Shall Not Operate as a Waiver. No failure to exercise and no delay in exercising, on the part of the Trustee or the Holders, any right, power, privilege or remedy under this Article Thirteen and this Guarantee shall operate as a waiver thereof, nor shall any single or partial exercise of any rights, power, privilege or remedy preclude any other or further exercise thereof, or the exercise of any other rights, powers, privileges or remedies. The rights and remedies herein provided for are cumulative and not exclusive of any rights or remedies provided in law or equity. Section 1312. Trustee's Duties; Notice to Trustee. (a) Any provision in this Article Thirteen or elsewhere in this Indenture allowing the Trustee to request any information or to take any action authorized by, or on behalf of any Guarantor, shall be subject to Section 602(d) and shall be permissive and shall not be obligatory on the Trustee except as the Holders may direct in accordance with the provisions of this Indenture or where the failure of the Trustee to request any such information or to take any such action arises from the Trustee's gross negligence, bad faith or willful misconduct. (b) The Trustee shall not be required to inquire into the existence, powers or capacities of the Company, any Guarantor or the officers, directors or agents acting or purporting to act on their respective behalf. - 146 - 158 Section 1313. Successors and Assigns. All terms, agreements and conditions of this Article Thirteen shall extend to and be binding upon each Guarantor and its successors and permitted assigns and shall enure to the benefit of and may be enforced by the Trustee and its successors and assigns; provided, however, that the Guarantors may not assign any of their rights or obligations hereunder other than in accordance with Article Eight. Section 1314. Release of Guarantee. Concurrently with the payment in full of all of the Indenture Obligations, the Guarantors shall be released from and relieved of their obligations under this Article Thirteen. Upon the delivery by the Company to the Trustee of an Officers' Certificate and, if requested by the Trustee, an Opinion of Counsel to the effect that the transaction giving rise to the release of this Guarantee was made by the Company in accordance with the provisions of this Indenture and the Securities, the Trustee shall execute any documents reasonably required in order to evidence the release of the Guarantors from their obligations under this Guarantee. If any of the Indenture Obligations are revived and reinstated after the termination of this Guarantee, then all of the obligations of the Guarantors under this Guarantee shall be revived and reinstated as if this Guarantee had not been terminated until such time as the Indenture Obligations are paid in full, and each Guarantor shall enter into an amendment to this Guarantee, reasonably satisfactory to the Trustee, evidencing such revival and reinstatement. This Guarantee shall terminate with respect to each Guarantor and shall be automatically and unconditionally released and discharged as provided in Section 1019(b) hereof. Section 1315. Execution of Guarantee. To evidence the Guarantee, each Guarantor hereby agrees to execute the guarantee substantially in the form set forth in Section 205 hereof, to be endorsed on each Security authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of each Guarantor by its Chairman of the Board, its President, or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. If an officer whose signature is on this Indenture no longer holds that office at the time the Trustee authenticates a - 147 - 159 Security on which a Guarantee is endorsed, such Guarantee shall be valid nevertheless. Section 1316. Payment Permitted by Each of the Guarantors if No Default. Nothing contained in this Article, elsewhere in this Indenture or in any of the Securities shall affect the obligation of any Guarantor to make, or prevent any Guarantor from making at any time, payments pursuant to the Securities. Section 1317. Notice to Trustee by Each of the Guarantors. Each Guarantor shall give prompt written notice to the Trustee of any fact known to such Guarantor which would prohibit the making of any payment to or by the Trustee in respect of the Guarantee. Notwithstanding the provisions of this Article or any provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from any Guarantor or any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section at least three (3) Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of, premium, if any, interest or Liquidated Damages, if any, on any Security or any other Indenture Obligations), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it after such date; nor shall the Trustee be charged with knowledge of the curing of any such default or the elimination of the act or condition preventing any such payment unless and until the Trustee shall have received an Officers' Certificate to such effect. Section 1318. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting under this Indenture, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that this Section - 148 - 160 1318 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. Section 1319. No Suspension of Remedies. Nothing contained in this Article shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to the provisions described under Article Five and as set forth in this Indenture or to pursue any rights or remedies hereunder or under applicable law. ARTICLE FOURTEEN SECURITY Section 1401. Security. (a) In order to secure the due and punctual payment of principal of and interest on the Securities when and as the same shall become due and payable, whether on an Interest Payment Date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of and interest (to the extent permitted by law) and Liquidated Damages, if any, on the Securities, and performance of all other obligations of the Company to the Holders or the Trustee under this Indenture and the Securities, the Company has entered into the respective Security Documents to which it is a party. (b) Each Holder, by accepting a Security, consents and agrees to all of the terms and provisions of the Security Documents, as the same may be in effect from time to time or may be amended from time to time in accordance with the provisions of the Security Documents and this Indenture, and authorizes and directs the Collateral Agent to act as mortgagee or secured party with respect thereto or to act as collateral agent pursuant to the Intercreditor Agreement. (c) As set forth in and governed by the Security Documents, as among the Holders, the Collateral as now or hereafter constituted shall be held for the equal and ratable benefit of the Holders without preference, priority or distinction of any thereof over any other by reason of difference in time of issuance, sale or otherwise, as security for the Securities. - 149 - 161 (d) Within 90 days after substantial completion thereof by PCAC, the Company and PAAC shall cause PCAC to use all commercially reasonable efforts (x) to grant to the Collateral Agent, for the pari passu benefit of the Secured Parties (as defined in the Intercreditor Agreement) and as additional security for the Indenture Obligations and the Term Loan Obligations (as defined in the Intercreditor Agreement) a perfected first priority Lien (the "St. Gabriel Pipeline Lien") on the St. Gabriel Pipeline and (y) to deliver the following to the Collateral Agent: (i) mortgages, security agreements, fixture filings and financing statements (collectively, the "Pipeline Security Documents") executed by PCAC and in form and substance acceptable to the Trustee and the Collateral Agent, sufficient to create the St. Gabriel Pipeline Lien, together with evidence satisfactory to the Trustee and the Collateral Agent that all of such documents have been recorded and filed, as necessary, to perfect such Lien and that all fees, taxes and other expenses associated therewith have been paid; (ii) lien, title and Uniform Commercial Code financing statement searches showing no Liens on the St. Gabriel Pipeline prior to the St. Gabriel Pipeline Lien, other than Permitted Liens and any other Liens that are acceptable to the Trustee and the Collateral Agent; (iii) a complete set of as-built site plans, surveys or engineering drawings, certified as true and correct by PCAC, and showing all material components of the St. Gabriel Pipeline and the respective locations thereof; (iv) an opinion of local counsel to PCAC in Louisiana with respect to the form and enforceability of the Pipeline Security Documents and such other matters as the Trustee, the Collateral Agent and their respective counsel may reasonably require; (v) an opinion of counsel to PCAC with respect to the due authorization, execution and delivery of the Pipeline Security Documents and such other matters as the Trustee, the Collateral Agent and their respective counsel may reasonably require; (vi) certificates of insurance with respect to the insurance coverages required to be maintained by PCAC with respect to the St. Gabriel Pipeline, - 150 - 162 naming the Collateral Agent as loss payee and naming the Collateral Agent and the Trustee as additional insureds, as applicable; (vii) such other approvals, consents, opinions or documents as the Collateral Agent, the Trustee or their respective counsel may reasonably request in connection with the Pipeline Security Documents and any matter related thereto. (e) Each of the Company and PAAC shall cause PCAC to use all commercially reasonable efforts to complete the St. Gabriel Pipeline in a timely manner. Section 1402. Recording; Priority; Opinions, Etc. (a) The Company shall at its sole cost and expense perform any and all acts and execute any and all documents (including, without limitation, the execution, amendment or supplementation of any financing statement, application for registration and continuation statement or other statement) for filing under the provisions of the UCC and the rules and regulations thereunder, the Civil Code of Quebec and any rules or regulations thereunder, or any other statute, rule or regulation of any applicable federal, state, provincial or local jurisdiction, including any filings in local real estate land record or registry offices, which are necessary or advisable and shall do such other acts and execute such other documents as may be required under any of the Security Documents, from time to time, in order to grant, maintain, register, record, renew, file, perfect, protect and preserve valid and perfected Liens on the Collateral in favor of the Collateral Agent for its own account and for the account of the Trustee and the Holders in the priorities purported to be created by the Security Documents, subject only to Liens permitted under the Security Documents to be senior or pari passu to the Liens of the Collateral Agent, and to fully preserve and protect the rights of the Trustee and the Holders under this Indenture. The Company shall from time to time promptly pay and satisfy all mortgage and financing and continuation statement recording, registration and/or filing fees, charges and taxes relating to this Indenture and the Security Documents, any amendments thereto and any other instruments of further assurance. (b) The Company shall, with respect to clause (i) below, on or prior to the Closing Date, and, with respect to clause (ii) below, at such times as contemplated therein, furnish to the Trustee: - 151 - 163 (i) Opinions of Counsel either (a) to the effect that, in the opinion of such counsel, this Indenture and the grants of security interests in the Collateral intended to be made by the Security Documents and all other instruments of further assurance, have been properly registered, recorded and filed to the extent necessary to perfect the Lien on the Collateral created by the Security Documents and reciting the details of such action, and stating that as to the Liens created pursuant to the Security Documents, such recordings, renewals, registrations and filings are the only recordings, renewals, registrations and filings necessary to give notice thereof and that no re-recordings, re-registrations or refilings or other renewals are necessary to maintain such notice (other than as stated in such opinion), or (b) to the effect that, in the opinion of such counsel, no such action is necessary to perfect such Lien; and (ii) on each anniversary of the Closing Date beginning in the year 1998, an Opinion of Counsel or Opinions of Counsel, dated as of such date, either (a) to the effect that, in the opinion of such counsel, such action has been taken with respect to the recordings, registerings, filings, renewals, re-recordings, re-registerings and refilings of all financing statements, continuation statements, applications for registration or other instruments of further assurance as is necessary to maintain the Lien of each of the Security Documents and reciting with respect to such Liens the details of such action or referencing prior Opinions of Counsel in which such details are given, and stating that all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding twelve months fully to preserve and protect the rights of the Collateral Agent, the Holders and the Trustee hereunder and under each of the Security Documents with respect to the Liens, or (b) to the effect that, in the opinion of such counsel, no such action is necessary to maintain such Liens. Section 1403. Release of Collateral. The Trustee shall not direct the Collateral Agent to release Collateral from the Lien of the Security Documents unless such release is in accordance with the provisions of the Security Documents and Trust Indenture Act Section 314(d). Section 1404. Trust Indenture Act Requirements. The release of any Collateral from any of the Security Documents or the release of, in whole or in part, the Liens created by any of the Security Documents, will not be deemed to - 152 - 164 impair the Lien of the Security Documents in contravention of the provisions hereof if and to the extent the Collateral or Liens are released pursuant to the terms of the Security Documents. The Trustee and each of the Holders acknowledge that a release of Collateral or Liens strictly in accordance with the terms of the Security Documents and the terms hereof will not be deemed for any purpose to be an impairment of the Liens created pursuant to the Security Documents in contravention of the terms of this Indenture. Without limitation, the Company and each other obligor on the Securities shall cause Trust Indenture Act Section 314(d) relating to the release of property or securities from the Liens of the Security Documents to be complied with. Any certificate or opinion required by Trust Indenture Act Section 314(d) may be made by an Officer of the Company, except in cases where Trust Indenture Act Section 314(d) requires that such certificate or opinion be made by an independent person. Section 1405. Suits to Protect Collateral. Subject to the provisions of the Intercreditor Agreement, the Trustee or the Collateral Agent, acting at the written direction of the Holders, shall have power to institute and to maintain, or the Trustee, acting at the written direction of the Holders, shall have the power to direct each Collateral Agent to institute and maintain, such suits and proceeds as the Trustee may deem expedient to prevent any impairment of the Collateral by any acts which may be unlawful or in violation of any of the Security Documents or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the Liens of each Collateral Agent in the Collateral or be prejudicial to the interests of the Holders or the Trustee). Section 1406. Determinations Relating to Collateral. In the event (i) the Trustee shall receive any written request from the Company under any Security Document for consent or approval with respect to any matter or thing relating to any Collateral or the Company's obligations with respect thereto or (ii) there shall be due to or from the Trustee under the provisions of any Security Document any performance or the delivery of any instrument or (iii) the Trustee shall become aware of any nonperformance by the Company of any covenant or any breach of any representation or warranty of the Company set forth in any Security Document, then, in each such event, the Trustee shall be entitled, at the expense of the Company and subject to - 153 - 165 Sections 602(d) and (h) hereof, to hire experts, consultants, agents and attorneys to advise the Trustee on the manner in which the Trustee should respond to such request or render any requested performance or response to such nonperformance or breach. The Trustee shall be fully protected in the taking of any action recommended or approved by any such expert, consultant, agent or attorney or agreed to by the Majority Holders pursuant to Section 505 hereof. Section 1407. Trust Moneys. To the extent Trust Moneys consist of insurance proceeds or condemnation or other taking awards, any such moneys which may be used to effect a restoration of the affected Collateral shall be permitted to be withdrawn by the Company and paid by the Collateral Agent, at the direction of the Trustee, upon a Company Order to reimburse the Company for expenditures made or costs incurred to repair, rebuild or replace the destroyed, damaged, or taken Collateral, upon confirmation by the Trustee that it has received the appropriate documentation. The Company shall deliver (a) an Officers' Certificate certifying as to expenditures made or costs incurred, the necessity or desirability in the conduct of the Company's business of the repaired, rebuilt, or replaced property, and the fair market value of such property as of the date of the expenditures, (b) an Opinion of Counsel as to the validity and perfection of the Collateral Agent's lien on the repaired or replaced Collateral and (c) an architect's certificate as to the costs of such restoration and compliance with law, all in accordance with the Intercreditor Agreement. To the extent Trust Moneys consist of Collateral Proceeds, and the Company intends to reinvest such proceeds in the Company or in one or more Restricted Subsidiaries in a Related Business, such Trust Moneys shall be permitted to be withdrawn by the Company upon delivery to the Trustee and the Collateral Agent of (a) a Company Order regarding such withdrawal, (b) an Officers' Certificate certifying compliance with this Indenture, (c) instruments granting the Collateral Agent, first priority liens, for the benefit of (i) the Trustee, for itself and the Holders, and (ii) the Term Loan Agent, for itself and the other Term Loan Agreement lenders on the real or personal property interests in which the Company or any Restricted Subsidiary have invested, and (d) an opinion of counsel as to the instruments governing such Liens and security interests, all in accordance with the Intercreditor Agreement. Trust Moneys shall be permitted to be applied from time to time (x) to the payment of principal, premium, if any, interest and Liquidated Damages, if any, on the Securities, or (y) to the extent otherwise permitted by this Indenture, to - 154 - 166 redeem or repurchase Securities, including without limitation pursuant to a Change of Control Offer or (to the extent such Trust Moneys constitute proceeds from Asset Sales involving Collateral) an Asset Sale Offer, or (z) at the direction of the Company to pay any other Senior Indebtedness secured by liens in the Collateral (but only to the extent such Trust Moneys constitute Collateral Proceeds). In each case the Trustee and the Collateral Agent shall receive (a) resolutions of the boards of directors of the Company directing such application, (b) an Officers' Certificate, and (c) an Opinion of Counsel, and the Collateral Agent shall receive cash equaling the accrued interest, if any, required to be paid in connection with such payment or purchase. Trust Moneys received by the Collateral Agent or the Trustee pursuant to an Asset Sale Offer remaining after the completion of such Asset Sale Offer shall be permitted to be withdrawn by the Company upon request of the Company and delivery of an Officers' Certificate and an Opinion of Counsel, all in accordance with the Intercreditor Agreement. Any release of Collateral, including Trust Moneys, will be subject to the provisions of Section 314(d) of the Trust Indenture Act relating to, among other things, the delivery of a certificate or an opinion of an engineer, appraiser or other expert as to the fair value of Collateral being released from the Liens of the Security Documents. Section 1408. Power of Attorney for Collateral in Quebec. For the purposes of constituting security on the Collateral located in Quebec as security for the due and punctual payment of and interest on the Securities when and as same shall become due and payable, whether on an Interest Payment Date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of and interest (to the extent permitted by law) and Liquidated Damages, if any, on the Securities, and performance of all other obligations of the Company to the Holders or the Trustee under this Indenture and the Securities, each of the Trustee and the Holders hereby irrevocably grants to the Collateral Agent, for the purposes of holding, on behalf of and for the benefit of all present and future Trustees and Holders, the security constituted by the Company under the Quebec Mortgage and Security Agreement, a power of attorney within the meaning of the Civil Code of Quebec ("Power of Attorney") for all present and future Trustees and Holders. The Collateral Agent hereby accepts such Power of Attorney for the purposes of holding security created under the Quebec Mortgage and Security Agreement on behalf of and for the benefit of all present and future Trustees and Holders. To the extent that any Person becomes a Trustee under this Indenture or a Holder by accepting, purchasing or acquiring a Security becomes bound by the terms and conditions of this Indenture, whether by assignment or otherwise, such Person shall be automatically - 155 - 167 deemed to have ratified and consented to the irrevocable granting by the Trustee and the Holders to the Collateral Agent of the Power of Attorney constituted hereunder. Each Holder agrees (i) with the other Holders that it will not, without the prior consent of the Trustee and the other Holders, take or obtain any Lien on any property of the Company to secure the Indenture Obligations of the Company hereunder or under the Securities, except for the benefit of the Collateral Agent for and on behalf of, the Trustee and the Holders, or as may otherwise be required by law; and (ii) that, notwithstanding the provisions of Section 32 of the Special Corporate Powers Act (Quebec), the Collateral Agent may, as a Person holding the Power of Attorney of the Trustee and the Holders, acquire any title to indebtedness secured by any hypothec in its favor related to this Indenture or the Securities or any other document contemplated hereunder. [signature pages follow] - 156 - 168 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the day and year first above written. PCI CHEMICALS CANADA INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------ ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer PIONEER AMERICAS ACQUISITION CORP. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------ ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer PIONEER AMERICAS, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------ ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer PIONEER CHLOR ALKALI COMPANY, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------ ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer IMPERIAL WEST CHEMICAL CO. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------ ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer ALL-PURE CHEMICAL CO. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------ ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer - 157 - 169 BLACK MOUNTAIN POWER COMPANY Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------ ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer ALL PURE CHEMICAL NORTHWEST, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------ ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer PIONEER CHLOR ALKALI INTERNATIONAL, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------ ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer G.O.W. CORPORATION Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------ ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer PIONEER (EAST), INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------ ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: President and Secretary Title: Vice President T.C. HOLDINGS, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------ ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer - 158 - 170 T.C. PRODUCTS, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------- ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer PCI CAROLINA, INC. INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------- ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: Vice President, General Title: Vice President and Counsel and Secretary Chief Financial Officer PIONEER LICENSING, INC. Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE ------------------------------- ------------------------------- Name: Kent R. Stephenson Name: Philip J. Ablove Title: President and Secretary Title: Vice President UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee Attest /s/ MARGARET M. CIESMELEWSKI By /s/ PATRICIA STERMER ------------------------------- ------------------------------- Name: Margaret M. Ciesmelewski Name: Patricia Stermer Title: Asst. Vice President Title: Asst. Vice President UNITED STATES TRUST COMPANY OF NEW YORK, as Collateral Agent Attest /s/ MARGARET M. CIESMELEWSKI By /s/ PATRICIA STERMER ------------------------------- ------------------------------- Name: Margaret M. Ciesmelewski Name: Patricia Stermer Title: Asst. Vice President Title: Asst. Vice President -159- EX-4.8(A) 9 TERM LOAN AGREEMENT DATED 10/30/97 1 EXHIBIT 4.8(a) [EXECUTION COPY] U.S. $100,000,000 TERM LOAN AGREEMENT, dated as of October 30, 1997, among PIONEER AMERICAS, INC., as the Borrower PIONEER AMERICAS ACQUISITION CORP., as the Parent Guarantor, VARIOUS FINANCIAL INSTITUTIONS, as the Lenders, DLJ CAPITAL FUNDING, INC., as the Syndication Agent for the Lenders, SALOMON BROTHERS HOLDING COMPANY INC, as the Documentation Agent for the Lenders, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as the Administrative Agent for the Lenders, and UNITED STATES TRUST COMPANY OF NEW YORK, as the Collateral Agent for the Lenders, ARRANGED BY DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 2 TABLE OF CONTENTS
SECTION PAGE - ------- ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2. Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1.3. Cross-References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1.4. Accounting and Financial Determinations . . . . . . . . . . . . . . . . . . . . . . . . . 29 1.5. Use of UCC Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.6. Officers' Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES 2.1. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.1.1. Term Loan Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.1.2. Lenders Not Permitted or Required to Make the Term Loans . . . . . . . . . . . . . . . . 30 2.2. Borrowing Procedures and Funding Maintenance . . . . . . . . . . . . . . . . . . . . . . 31 2.3. Continuation and Conversion Elections . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.4. Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.5. Term Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES 3.1. Repayments and Prepayments; Application . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.1.1. Repayments and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.1.2. Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.2. Interest Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.2.1. Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.2.2. Post-Maturity Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.2.3. Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.3. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.3.1. Arrangement, Structuring and Commitment Fees . . . . . . . . . . . . . . . . . . . . . . 35 3.3.2. Administrative Agent Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-i- 3 ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS 4.1. LIBO Rate Lending Unlawful . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.2. Deposits Unavailable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.3. Increased LIBO Rate Loan Costs, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.4. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.5. Increased Capital Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.7. Payments, Computations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 4.8. Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 4.9. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE V CONDITIONS TO TERM LOAN EXTENSION 5.1. Resolutions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 5.2. Delivery of Term Notes and the Bond. . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.3. Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.4. Consummation of Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.5. Issuance of the Senior Secured Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.6. Revolving Credit Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.7. Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.8. Canadian Demand Debenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.9. Security Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.10. Quebec Mortgage and Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.11. Closing Date Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.12. Financial Information, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.13. Pro Forma Balance Sheet Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.14. Target Business Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.15. Indebtedness Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 5.16. Intercreditor Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 5.17. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 5.18. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 5.19. Consents and Approvals, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 5.20. Reliance Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 5.21. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 5.22. Closing Fees, Expenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.23. Satisfactory Legal Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.24. Compliance with Warranties, No Default, etc. . . . . . . . . . . . . . . . . . . . . . . 46
-ii- 4 ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1. Organization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 6.2. Due Authorization, Non-Contravention, etc. . . . . . . . . . . . . . . . . . . . . . . . 47 6.3. No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 6.4. Validity and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 6.5. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 6.6. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 6.7. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.8. Litigation; Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.9. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.10. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.11. Partnerships; Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.12. Senior Secured Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 6.13. Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 6.14. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 6.15. Contracts; Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 6.16. Pension and Welfare Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 6.17. Regulations G, U and X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 6.18. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 6.19. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 6.20. Investment Company Act Representation . . . . . . . . . . . . . . . . . . . . . . . . . . 51 6.21. Public Utility Holding Company Act Representation . . . . . . . . . . . . . . . . . . . . 51 6.22. Environmental and Safety and Health Matters . . . . . . . . . . . . . . . . . . . . . . . 51 6.23. Related Agreements and Transaction Documents . . . . . . . . . . . . . . . . . . . . . . 52 6.24. Holding Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 6.25. PCICC, PCI Carolina and Pioneer Licensing . . . . . . . . . . . . . . . . . . . . . . . . 53 ARTICLE VII COVENANTS 7.1. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7.1.1. Financial Information, Reports, Notices, etc. . . . . . . . . . . . . . . . . . . . . . . 53 7.1.2. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 7.1.3. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 7.1.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.1.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.1.6. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.1.7. Use of Proceeds, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.1.8. Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.1.9. Stock Pledge Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 7.1.10. Concerning the Collateral and the Loan Documents . . . . . . . . . . . . . . . . . . . . 57 7.1.11. Maintenance of Corporate Separateness . . . . . . . . . . . . . . . . . . . . . . . . . . 58 7.1.12. Working Capital Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 7.1.13. St. Gabriel Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
-iii- 5 7.1.14. Pension Transfer Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.2.1. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.2.2. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 7.2.3. Restricted Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 7.2.4. Payment Restrictions Affecting Guarantors . . . . . . . . . . . . . . . . . . . . . . . . 66 7.2.5. Consolidation, Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 7.2.6. Asset Dispositions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 7.2.7. Modification of Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 7.2.8. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 7.2.9. Impairment of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 7.2.10. Stock of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 7.2.11. Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 7.2.12. Limitation on Applicability of Certain Covenants . . . . . . . . . . . . . . . . . . . . 74 ARTICLE VIII EVENTS OF DEFAULT 8.1. Listing of Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 8.1.1. Non-Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 8.1.2. Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 8.1.3. Non-Performance of Certain Covenants and Obligations . . . . . . . . . . . . . . . . . . 75 8.1.4. Non-Performance of Other Covenants and Obligations . . . . . . . . . . . . . . . . . . . 75 8.1.5. Disaffirmation of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 8.1.6. Effectiveness and Enforceability of Guarantees . . . . . . . . . . . . . . . . . . . . . 76 8.1.7. Default on Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 8.1.8. Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 8.1.9. Bankruptcy, Insolvency, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 8.1.10. Impairment of Security, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 8.2. Action if Bankruptcy, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 8.3. Action if Other Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 ARTICLE IX GUARANTY 9.1. Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 9.2. Acceleration of Parent Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 9.3. Guaranty Absolute, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 9.4. Reinstatement, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 9.5. Waiver, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 9.6. Postponement of Subrogation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 9.7. Successors, Transferees and Assigns; Transfers of Term Notes, etc. . . . . . . . . . . . 81
-iv- 6 ARTICLE X THE AGENTS 10.1. Appointment of Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 10.2. Intercreditor Agreement and Collateral Agent; Power of Attorney . . . . . . . . . . . . . 82 10.3. Nature of Duties of the Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 10.4. General Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 10.5. Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 10.6. Agents in their Capacity as Lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . 84 10.7. Actions by Each Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 10.8. Right to Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.9. Suits to Protect Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.10. Determinations Relating to Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.11. Trust Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 10.12. Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 10.13. Holding of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 10.14. Application of Proceeds of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 87 10.15. Rights and Remedies to be Exercised by Administrative Agent Only . . . . . . . . . . . . 87 10.16. Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 10.17. Copies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 10.18. The Syndication Agent, the Documentation Agent and the Administrative Agent . . . . . . . 88 10.19. Agreement to Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 10.20. Lenders to Act as Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 ARTICLE XI MISCELLANEOUS PROVISIONS 11.1. Waivers, Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 11.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 11.3. Payment of Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 11.4. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 11.5. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 11.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 11.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 11.8. Execution in Counterparts, Effectiveness, etc. . . . . . . . . . . . . . . . . . . . . . 91 11.9. Governing Law; Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 11.10. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 11.11. Sale and Transfer of Term Loans and Term Notes; Participations in Term Loans and Term Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 11.11.1. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 11.11.2. Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 11.12. Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 11.13. Forum Selection and Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . 94 11.14. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 11.15. Judgment Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
-v- 7 SCHEDULE I - Disclosure Schedule SCHEDULE II - Percentages and Administrative Information EXHIBIT A-1 - Form of Term Note EXHIBIT A-2(a) - Form of Bond EXHIBIT A-2(b) - Form of Bond Pledge Agreement EXHIBIT B - Form of Borrowing Request EXHIBIT C - Form of Continuation/Conversion Notice EXHIBIT D-1 - Form of Affiliate Guaranty EXHIBIT D-2 - Form of Canadian Subsidiary Guaranty EXHIBIT E-1(a) - Form of Canadian Demand Debenture EXHIBIT E-1(b) - Form of Canadian Demand Debenture Pledge Agreement EXHIBIT E-2 - Form of Quebec Mortgage and Security Agreement EXHIBIT F-1 - Form of Canadian Subsidiary Security Agreement EXHIBIT F-2 - Form of Affiliate Security Agreement EXHIBIT G-1 - Form of Borrower Closing Date Certificate EXHIBIT G-2 - Form of Parent Guarantor Closing Date Certificate EXHIBIT G-3 - Form of PCI Closing Date Certificate EXHIBIT H - Form of Lender Assignment Agreement EXHIBIT I - Form of Intercreditor Agreement -vi- 8 TERM LOAN AGREEMENT THIS TERM LOAN AGREEMENT, dated as of October 30, 1997, is among PIONEER AMERICAS, INC., a corporation organized under the laws of Delaware (the "Borrower"), PIONEER AMERICAS ACQUISITION CORP., a corporation organized under the laws of Delaware ("PAAC"or the "Parent Guarantor"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as syndication agent (the "Syndication Agent") for the Lenders, SALOMON BROTHERS HOLDING COMPANY INC ("Salomon"), as documentation agent (the "Documentation Agent") for the Lenders, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA"), as administrative agent (the "Administrative Agent") for the Lenders, and UNITED STATES TRUST COMPANY OF NEW YORK, as collateral agent ("Collateral Agent") for the Secured Parties (as defined below). W I T N E S S E T H: WHEREAS, PCI Chemicals Canada Inc., a corporation organized under the laws of the Province of New Brunswick ("PCICC"), PCI Carolina, Inc., a corporation organized under the laws of Delaware ("PCI Carolina"), and Pioneer Companies, Inc., a corporation organized under the laws of Delaware and the parent of PAAC ("PCI") entered into an Asset Purchase Agreement dated as of September 22, 1997 (the "Purchase Agreement") with ICI Canada Inc. ("the Canadian Seller"), ICI Americas Inc. (the "U.S. Seller") and Imperial Chemical Industries PLC (the "ICI Parent") (and, together with the Canadian Seller and the U.S. Seller, the "Sellers"), pursuant to which PCICC, PCI Carolina and Pioneer Licensing, Inc., a corporation organized under the laws of Delaware ("Pioneer Licensing") will acquire all of the assets and properties used by the Sellers in their North American chlor-alkali business (the "Target Business") for an aggregate purchase price of approximately $235,600,000 (the "Acquisition"); WHEREAS, PCICC intends to issue senior secured notes due 2007 for gross cash proceeds of $175,000,000, which proceeds would be used, in part, to fund the Acquisition (the "Senior Secured Note Offering", and, together with the Acquisition and the transactions relating thereto, the "Transaction"); WHEREAS, in connection with the Transaction, the Borrower desires to obtain from the Lenders a commitment to provide $100,000,000 in term loans, the proceeds of which will be used, in part, to fund the Acquisition, and pay certain fees and expenses arising in connection with the Transaction not exceeding $14,400,000 in the aggregate; and WHEREAS, the Lenders are willing, on the terms and subject to the conditions hereinafter set forth (including Article V), to extend the commitments and make the loans described herein to the Borrower; NOW, THEREFORE, the parties hereto agree as follows: 9 ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Acquisition" is defined in the first recital. "Acquisition Agreements" means the Purchase Agreement and each agreement delivered pursuant to the terms thereof, including the Pension Transfer Agreement between PCICC and the Canadian Seller, Non-Competition Agreement among the ICI Parent, the Canadian Seller, the U.S. Seller, PCICC and PCI Carolina, the Transition Services Agreement between the Canadian Seller and PCICC, the License Agreement between ICI Chemicals & Polymers Limited and PCICC, the License Agreement among ICI Parent, ICI Chemicals & Polymers, the Canadian Seller and PCICC and the Lease with respect to the facility in Cornwall, Ontario between the Canadian Seller and PCICC. "Administrative Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Administrative Agent pursuant to Section 10.5. "Affiliate" means, with respect to any party, any Person directly or indirectly controlling or controlled by or under direct or indirect common control with such party including any estate or trust under will of such party. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 5% or more of the voting securities of a Person shall be deemed to be control. "Affiliate Guarantors" means, collectively, PCI Carolina, Pioneer Licensing, PCAC, All-Pure, Imperial, BMPC, All Pure Chemical Northwest, Inc., a Washington corporation, Pioneer Chlor Alkali International, Inc., a Barbados corporation, G.O.W. Corporation, a Nevada corporation, Pioneer East, TCH, T.C. Products, Inc. and each other Person that becomes a guarantor under the Affiliate Guaranty. "Affiliate Guaranty" means the Guaranty executed and delivered by an Authorized Officer of each Affiliate Guarantor pursuant to Section 5.3, substantially in the form of Exhibit D-1 attached hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Affiliate Security Agreement" means the Security Agreement executed and delivered by an Authorized Officer of each of PCI Carolina and Pioneer Licensing pursuant to Section 5.9, substantially in the form of Exhibit F-2 hereto, together with each Patent Security Agreement, Trademark Security Agreement and Copyright Security Agreement, if any, relating thereto and 2 10 substantially in the form of Exhibits A, B and C, respectively attached thereto, in each case as amended, supplemented, amended and restated, or otherwise modified from time to time. "Agents" means, collectively, the Administrative Agent, the Syndication Agent and the Documentation Agent. "Agreement" means, on any date, this Term Loan Agreement as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "All-Pure" means All-Pure Chemical Co., a California corporation and direct Wholly-Owned Restricted Subsidiary of PAI. "Alternate Base Rate" means, for any day and with respect to all Base Rate Loans, a fluctuating rate of interest per annum equal to the higher of: (a) 0.50% per annum above the Federal Funds Rate most recently determined by the Administrative Agent; and (b) the rate of interest in effect for such day as most recently publicly announced or established by the Administrative Agent at its Domestic Office as its "reference rate". (The "reference rate" is a rate set by the Administrative Agent based upon various factors including the Administrative Agent's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate.) Any change in the reference rate announced by the Administrative Agent shall take effect at the opening of business on the day of such establishment or announcement. "Applicable Margin" means (i) with respect to the unpaid principal amount of each Term Loan maintained as a Base Rate Loan, 162.5 basis points and (ii) with respect to the unpaid principal amount of each Term Loan maintained as a LIBO Rate Loan, 287.5 basis points. "Arranger" means Donaldson, Lufkin & Jenrette Securities Corporation, a Delaware corporation. "Asset Sale" means a PAAC Asset Sale or a PCIFP Asset Sale. "Assignee Lender" is defined in Section 11.11.1. "Assignor Lender" is defined in Section 11.11.1. "Attributable Indebtedness" means, with respect to any Sale and Leaseback Transaction, as at the time of determination, the greater of (i) the Fair Market Value of the property subject to such transaction and (ii) the present value (discounted at a rate equivalent to the Borrower's then current weighted average cost of funds for borrowed money, compounded on a semi-annual basis) of the total net obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended). As used in the preceding sentence, the "total net obligations of the lessee for rental payments" under any lease for any such period means the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. In the case of any lease which is terminable by the lessee upon payment of a penalty, such net amount of rent also includes the amount of such 3 11 penalty, but no rent will be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Authorized Officer" means, relative to any Obligor, those of its officers whose signatures and incumbency shall have been certified to the Administrative Agent and the Lenders pursuant to Section 5.1. "Bankruptcy Law" means, as the context may require, Canadian Bankruptcy Law and/or U.S. Bankruptcy Law. "Base Rate Loan" means a Term Loan bearing interest at a fluctuating rate determined by reference to the Alternate Base Rate. "BMPC" means Black Mountain Power Company, a Texas corporation and direct Wholly-Owned Subsidiary of PCAC. "Board of Directors" means, with respect to any Person, the board of directors of such Person or any committee thereof duly authorized to act on behalf of such Board of Directors. "Board Resolution" of any corporation means a copy of a resolution certified by the Secretary or an Assistant Secretary of such corporation to have been duly adopted by the board of directors of such entity and to be in full force and effect on the date of such certification and delivered to the Administrative Agent. "BofA" is defined in the preamble. "Bond" means the Bond executed and delivered by an Authorized Officer of the Borrower pursuant to Section 5.2, substantially in the form of Exhibit A-2(a) attached hereto, as amended, supplemented, amended and restated, or otherwise modified from time to time. "Bond Pledge Agreement" means the Bond Pledge Agreement executed and delivered by an Authorized Officer of the Borrower pursuant to Section 5.2, substantially in the form of Exhibit A-2(b) attached hereto, as amended, supplemented, amended and restated, or otherwise modified from time to time. "Borrower" is defined in the preamble. "Borrower Closing Date Certificate" means a certificate of an Authorized Officer of the Borrower substantially in the form of Exhibit G-1 hereto, delivered pursuant to Section 5.11. "Borrowing" means Term Loans of the same type and, in the case of LIBO Rate Loans, having the same Interest Period made by all Lenders on the same Business Day. "Borrowing Base" means, as of any date, an amount equal to the sum of (a) 85% of the net book value of all accounts receivable of PAAC and its Restricted Subsidiaries as of such date, (b) 50% of the net book value of all inventory owned by PAAC and its Restricted Subsidiaries as of such date, and (c) the lesser of (x) $10,000,000 and (y) 85% of the net book value of all accounts receivable of Kemwater as of such date plus 50% of the net book value of all inventory as of such date owned by Kemwater, all calculated on a consolidated basis and in 4 12 accordance with GAAP. To the extent that information is not available as to the amount of accounts receivable or inventory as of a specific date, PAAC may utilize the most recent available quarterly or annual financial report for purposes of calculating the Borrowing Base. "Borrowing Request" means a loan request and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit B hereto. "Business Day" means (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in Chicago, Illinois or New York City and (b) with respect to Borrowings of, Interest Periods with respect to, payments of principal and interest in respect of, continuations or conversions of Base Rate Loans into, LIBO Rate Loans, any day on which dealings in Dollars are carried on in the London interbank market. "Canadian Bankruptcy Law" means the Bankruptcy and Insolvency Act (Canada), as amended, the Companies' Creditors Arrangement Act (Canada), as amended, the Winding-Up and Restructuring Act (Canada), as amended, or any similar Canadian federal or provincial law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "Canadian Demand Debenture" means each demand debenture executed and delivered by an Authorized Officer of PCICC pursuant to Section 5.8, substantially in the form of Exhibit E-1(a) attached hereto, as amended, supplemented, amended and restated, or otherwise modified from time to time. "Canadian Demand Debenture Pledge Agreement" means each debenture pledge agreement executed and delivered by an Authorized Officer of PCICC pursuant to Section 5.8, substantially in the form of Exhibit E-1(b) attached hereto, as amended, supplemented, amended and restated, or otherwise modified from time to time. "Canadian Environmental Laws" means all applicable Canadian federal, provincial or local statutes, laws, ordinances, codes, rules, regulations and guidelines having legally binding effect (including consent decrees and administrative orders) relating to the protection and conservation of the environment concerning any hazardous, toxic or dangerous waste, substance or constituent, or any pollutant or contaminant. "Canadian Hazardous Materials" means any toxic substance, hazardous substance, hazardous material, hazardous chemical, hazardous waste, pollutant or contaminant, defined or qualifying as such in (or for the purposes of) any Canadian Environmental Law, and shall include, but not be limited to, petroleum, including crude oil, any radioactive material, polychlorinated biphenyls and asbestos in any form or condition. "Canadian Pension Plan" means a pension plan that is required to be registered under any Canadian federal laws, regulations, rules or other requirements of any Canadian province. "Canadian Seller" is defined in the first recital. "Canadian Subsidiary Guaranty" means the Guaranty executed and delivered by an Authorized Officer of PCICC pursuant to Section 5.3, substantially in the form of Exhibit D-2 5 13 attached hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Canadian Subsidiary Security Agreement" means the Security Agreement executed and delivered by an Authorized Officer of PCICC pursuant to Section 5.9, substantially in the form of Exhibit F-1 hereto, as amended, supplemented, amended and restated, or otherwise modified from time to time, together with each Patent Security Agreement, Trademark Security Agreement and Copyright Security Agreement, if any, relating thereto and substantially in the form of Exhibits A, B and C, respectively attached thereto, in each case as amended, supplemented, amended and restated, or otherwise modified from time to time. "Capital Stock" means, with respect to any Person, any common stock, preferred stock and any other capital stock of such Person and shares, interest, participations or other ownership interest (however designated), of any Person and any rights (other than debt securities convertible into, or exchangeable for, capital stock), warrants or options to purchase any of the foregoing, including each class of common stock and preferred stock of such Person if such Person is a corporation and each general and limited partnership interest of such Person if such Person is a partnership. "Capitalized Lease Obligation" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Flow" for any period means the Consolidated Net Income of PAAC and its Restricted Subsidiaries for such period, plus the following to the extent included in calculating such Consolidated Net Income: (i) Consolidated Interest Expense, (ii) income tax expense and (iii) depreciation, depletion and amortization expense. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List. "Change of Control" means the occurrence of any of the following: (i) a "person" or "group" (as such terms are used in Sections 14(d)(2) and 13(d)(3), respectively, of the Exchange Act), other than Substantial Shareholders, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of at least 50% of the outstanding voting power of the fully diluted Voting Stock of PAAC or PCI, (ii) the adoption of a plan relating to the liquidation or dissolution of PAAC, PCI or the Borrower, (iii) the merger or consolidation of PAAC or PCI with or into another corporation with the effect that the stockholders of PAAC or PCI immediately prior to such merger or consolidation cease to be the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act) of 50% or more of the combined voting power of the securities of the surviving corporation of such merger or the corporation resulting from such merger or consolidation ordinarily (and apart from rights arising under special circumstances) having the right to vote in the election of directors outstanding immediately after such merger or consolidation, (iv) during any period of two consecutive calendar years individuals who are at the beginning of such period (together with any new directors whose election by the board of 6 14 directors of PAAC or PCI, or whose nomination for election by the shareholders of PAAC or PCI, was approved by a vote of a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors of PAAC or PCI then in office or (v) the Borrower or any PCIFP Company ceases to be a Wholly-Owned Subsidiary of PAAC. Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred under clause (iii) above solely as a result of a merger or consolidation of PAAC with or into PCI provided that such merger or consolidation is permitted under Section 7.2.5. "Closing Date" means the date of the initial Borrowing, not to be later than December 31, 1997. "Closing Date Certificate" means, as the context may require, the Borrower Closing Date Certificate, the Parent Guarantor Closing Date Certificate and/or the PCI Closing Date Certificate. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified. "Collateral" means any property or assets subject to one or more of the Liens evidenced or created by any Loan Document. "Collateral Agent" is defined in the preamble. "Collateral Proceeds" is defined in clause (a) of Section 7.2.6. "Commitment Letter" means the commitment letter, dated August 18, 1997, among the Borrower, the Arranger, the Syndication Agent and the Documentation Agent, including all annexes and exhibits thereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Commitment Termination Event" means (i) the occurrence of any Event of Default described in clause (a), (b) or (c) of Section 8.1.9, or (ii) the occurrence and continuance of any other Event of Default and either (x) the declaration of the Term Loans to be due and payable pursuant to Section 8.3, or (y) in the absence of such declaration, the giving of notice to the Borrower by the Administrative Agent, acting at the direction of the Required Lenders, that the Term Loan Commitments have been terminated. "Consolidated Cash Flow Coverage Ratio" means, as of any date of determination, the ratio of (i) the aggregate amount of Cash Flow for the period of the most recent four consecutive fiscal quarters for which internal financial statements are available prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters of PAAC and its Restricted Subsidiaries; provided, however, that (A) if PAAC or any of its Restricted Subsidiaries has incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Cash Flow Coverage Ratio is an incurrence of Indebtedness, or both, Cash Flow and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been issued on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with 7 15 the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (B) if since the beginning of such period PAAC or any of its Restricted Subsidiaries has made any Asset Sale, the Cash Flow for such period will be reduced by an amount equal to the Cash Flow (if positive), directly attributable to the assets which are the subject of such Asset Sale for such period, or increased by an amount equal to the Cash Flow (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period will be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of PAAC or any of its Restricted Subsidiaries repaid, repurchased, defeased or otherwise discharged with respect to PAAC and its continuing Restricted Subsidiaries in connection with any such sale or other disposition for such period (or, if the Capital Stock of any such Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent PAAC and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (C) if since the beginning of such period PAAC or any Restricted Subsidiary (by merger or otherwise) has made an Investment in any Restricted Subsidiary of PAAC (or any Person which becomes a Restricted Subsidiary of PAAC) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, Cash Flow and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto (including the incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (D) in making such computation, Consolidated Interest Expense attributable to any Indebtedness incurred under any revolving credit facility will be computed based on the average daily balance of such Indebtedness during such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, and the amount of Consolidated Interest Expense associated with any Indebtedness incurred in connection therewith, the pro forma calculations will be determined in good faith by a responsible financial or accounting officer of PAAC. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness will be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period. "Consolidated Interest Expense" means, for any period, interest expense of PAAC and its consolidated Restricted Subsidiaries, excluding amortization of any deferred financing fees, plus, to the extent not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) interest actually paid by PAAC or any such Restricted Subsidiary under any guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Hedging Obligations (including amortization of fees), (viii) Preferred Stock dividends in respect of all Redeemable Stock of PAAC held by Persons other than PAAC or a Wholly-Owned Restricted Subsidiary of PAAC and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than PAAC) in connection with loans incurred by such plan or trust to purchase newly issued or treasury shares of the Capital Stock of PAAC. "Consolidated Net Income" means, for any period, and as to any Person, the aggregate Net Income of such Person and its Subsidiaries (other than, in the case of the Borrower or PAAC, its Unrestricted Subsidiaries) for such period determined in accordance with GAAP; 8 16 provided that (i) the Net Income of any Person which is not a Subsidiary of such Person but which is consolidated with such Person or is accounted for by such Person by the equity method of accounting will be included only to the extent of the amount of cash dividends or cash distributions paid to such Person or a Wholly-Owned Restricted Subsidiary of such Person (other than, in the case of the Borrower or PAAC, its Unrestricted Subsidiaries), (ii) the Net Income of any Person acquired by such Person or a Subsidiary of such Person in a pooling of interests transaction for any period prior to the date of such acquisition will be excluded, (iii) the Net Income of any Subsidiary of such Person that is subject to restrictions, direct or indirect, on the payment of dividends or the making of distributions to such Person will be excluded to the extent of such restrictions, (iv) the Net Income of (A) any Unrestricted Subsidiary and (B) any Subsidiary less than 80% of whose securities having the right (apart from the right under special circumstances) to vote in the election of directors are owned by the Borrower or PAAC, as the case may be, or its Wholly-Owned Restricted Subsidiaries will be included only to the extent of the amount of cash dividends or cash distributions actually paid by such Subsidiary to the Borrower or PAAC, as the case may be, or one of its Wholly-Owned Restricted Subsidiaries (v) in the case of the Borrower or PAAC, the Net Income attributable to any business, properties or assets acquired (by way of merger, consolidation, purchase or otherwise) by the Borrower or any Restricted Subsidiary of the Borrower or PAAC or any Restricted Subsidiary of PAAC, as the case may be, for any period prior to the date of such acquisition will be excluded, (vi) all extraordinary gains and losses, and any gain or loss realized upon the termination of any employee pension benefit plan, in respect of dispositions of assets other than in the ordinary course of business and any one- time increase or decrease to Net Income which is required to be recorded because of the adoption of new accounting policies, practices or standards required by GAAP (together, in each case, with any provision for taxes) will be excluded and (vii) all amounts of "other income, net" classified as such on one or more lines of such Person's statement of operations, in accordance with GAAP, net of applicable income taxes, will be excluded from such Person's aggregate Net Income; provided that the foregoing exclusion will not apply to cash dividends or cash distributions paid in respect of indirect equity interests in Saguaro Power Company, a Limited Partnership, and Canso Chemicals Limited to the extent included in clause (i) of this definition. "Consolidated Net Worth" means, for any Person, the total of the amounts shown on the balance sheet of such Person and its consolidated Subsidiaries (other than, in the case of the Borrower or PAAC, its Unrestricted Subsidiaries), determined on a consolidated basis without duplication in accordance with GAAP, as of the end of the most recent fiscal quarter of such Person ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the amount of Capital Stock (other than Redeemable Stock) plus (ii) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit). "Contingent Liability" means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount of the debt, obligation or other liability guaranteed thereby. 9 17 "Contingent Payment Agreement" means the Contingent Payment Agreement dated as of April 20, 1995 among PAAC, PCI and the sellers named therein. "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit C hereto. "Credit Facility" means any revolving credit facility or similar arrangement that makes credit available entered into by and among PAAC, the Borrower and/or any PAI Guarantor and the lending institutions party thereto, including any credit agreement, related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would, unless cured or waived, constitute an Event of Default. "Disclosure Schedule" means the Disclosure Schedule attached hereto as Schedule I, as it may be amended, supplemented or otherwise modified from time to time by the Borrower with the written consent of the Agents and the Required Lenders. "DLJ" is defined in the preamble. "Documentation Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Documentation Agent pursuant to Section 10.5. "Dollar" and the sign "$" mean lawful money of the United States. "Domestic Office" means, relative to any Lender, the office of such Lender designated as such in Schedule II hereto or designated in the Lender Assignment Agreement or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by notice from such Lender, as the case may be, to each other Person party hereto. A Lender may have separate Domestic Offices for purposes of making or maintaining, as the case may be, Base Rate Loans. "Effective Date" means the date this Agreement becomes effective pursuant to Section 11.8. "Eligible Investments" means, (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than 90 days from the date of acquisition, (ii) time deposits and certificates of deposit with maturities of not more than 90 days from the date of acquisition of any commercial banking institution that is a member of the Federal Reserve System having capital and surplus in excess of $500,000,000, whose debt has a rating at the time of any such investment of at least "A-2" or the equivalent thereof by S&P or at least "P-2" or the equivalent 10 18 thereof by Moody's, or any Lender or any bank or financial institution party to the Revolving Credit Facility, (iii) fully secured repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) entered into with any bank or financial institution meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by the parent corporation of any commercial banking institution that is a member of the Federal Reserve System having capital and surplus in excess of $500,000,000 and commercial paper or master notes of issuers, rated at the time of any such investment at least "A-2" or the equivalent thereof by S&P or at least "P-2" or the equivalent thereof by Moody's, or any bank or financial institution party to the Revolving Credit Facility, and in each case maturing within 270 days after the date of acquisition, and (v) any shares in an open-end mutual fund organized by a bank or financial institution having combined capital and surplus of at least $500,000,000 investing solely in investments permitted by the foregoing clauses (i), (ii) and (iv). "Environmental Laws" means, as the context may require, Canadian Environmental Laws and/or U.S. Environmental Laws. "Equity Interests" means shares, interests, participations or other equivalents (however designated) of Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security which is convertible into, or exchangeable for, Capital Stock). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "ERISA Affiliate" means any corporation, partnership, or other trade or business (whether or not incorporated) that is, along with PAAC, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in Section 414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA, or a member of the same affiliated service group within the meaning of Section 414(m) of the Code. "Event of Default" is defined in Section 8.1. "Excess Land" means certain real property adjoining the sites of PCAC's Henderson, Nevada and St. Gabriel, Louisiana plants and the Mojave, California property owned by Imperial that is not used in the business conducted at such sites, which real property is referred to and defined in the Contingent Payment Agreement as the "Subject Parcels". "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exempt Properties" means (i) the real property located at Cornwall, Ontario, Canada which is to be leased by PCICC from the Canadian Seller pursuant to the Lease referred to in the definition of "Acquisition Agreements" and (ii) the real property located at Point Tupper, Nova Scotia, Canada upon which storage tanks to be acquired by PCICC from the Canadian Seller under the Purchase Agreement are situated. "Existing Affiliate Agreements" means (i) agreements between PAAC or any of its Subsidiaries and Saguaro Power Company, a Limited Partnership, relating to the delivery of steam and other services, existing on the date hereof and listed on Item 7.2.8 ("Existing Affiliate 11 19 Agreements") of the Disclosure Schedule, (ii) the Tax Sharing Agreement and (iii) agreements between PAAC or any of its Subsidiaries and Basic Investments, Inc. relating to the delivery of water and power, power transmission services, and other services, existing on the date hereof and listed on Item 7.2.8 ("Existing Affiliate Agreements") of the Disclosure Schedule hereto and (iv) any other agreements with affiliates of the Borrower, existing on the date hereof and listed on Item 7.2.8 ("Existing Affiliate Agreements") of the Disclosure Schedule hereto. "Existing Indebtedness" means all Indebtedness (other than the Senior Secured Notes and Existing Senior Secured Notes outstanding and the loans outstanding under the Existing Term Loan Agreement) of PAAC or any of its Restricted Subsidiaries existing on the date hereof and listed on Item 7.2.1(c) ("Existing Indebtedness") of the Disclosure Schedule. "Existing Senior Secured Note Indenture" means the Indenture dated as of June 17, 1997, among PAAC, the guarantors party thereto, and United States Trust Company of New York, as trustee, as the same may be amended, restated, amended and restated or otherwise modified from time to time in accordance with the terms hereof and thereof. "Existing Senior Secured Notes" means the 91/4% Senior Secured Notes due 2007 of PAAC issued pursuant to the Existing Senior Secured Note Indenture, including any senior secured notes of PAAC with substantially identical terms exchanged therefor pursuant to a registration statement under the Securities Act of 1933, as amended. "Existing Term Loan Agreement" means the Term Loan Agreement dated as of June 17, 1997, among PAAC, the financial institutions from time to time party thereto, DLJ, as syndication agent, BofA, as administrative agent and Salomon, as documentation agent for such financial institutions, as the same may be amended, restated, amended and restated or otherwise modified from time to time in accordance with the terms hereof and thereof. "Fair Market Value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value will be determined by a majority of the members of the Board of Directors of the Person the asset or property of which is being sold or transferred and a majority of the disinterested members of such Board of Directors, if any, acting in good faith and will be evidenced by a duly and properly adopted resolution of such Board of Directors. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (i) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or (ii) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "Fee Letter" means the confidential fee letter, dated as of August 18, 1997, among the Borrower, the Arranger, the Syndication Agent and the Documentation Agent, as amended, supplemented, amended and restated or otherwise modified from time to time. 12 20 "Fiscal Quarter" means any fiscal quarter of a Fiscal Year. "Fiscal Year" means any period of twelve consecutive months ending on December 31; references to a Fiscal Year with a numbering corresponding to any calendar year refer to the fiscal year ending on the 31st of December during such calender year. "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "GAAP" is defined in Section 1.4. "Guarantors" means, collectively, the Parent Guarantor and the PAI Guarantors. "Guaranty" means, as the context may require, any PAI Guaranty and/or the provisions of Article IX. "Hazardous Materials" means, as the context may require, any Canadian Hazardous Materials and/or any U.S. Hazardous Materials. "Hedging Obligations" means the obligations of any Person or entity pursuant to any swap or cap agreement, exchange agreement, collar agreement, option, futures or forward hedging contract, derivative instrument or other similar agreement or arrangement designed to protect such Person or entity against fluctuations in interest rates or foreign exchange rates or the price of raw materials and other chemical products used or produced in the Borrower's business, as the case may be. "herein", "hereof", "hereto", "hereunder" and similar terms contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph or provision of this Agreement or such other Loan Document. "ICI Parent" is defined in the first recital. "Imperial" means Imperial West Chemical Co., a Nevada corporation and direct Wholly-Owned Subsidiary of PAI. "including" means including without limiting the generality of any description preceding such term, and, for purposes of this Agreement and each other Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. "incur" has the meaning ascribed in Section 7.2.1; provided that (a) with respect to any Indebtedness of any Restricted Subsidiary of PAAC (including the Borrower and its Restricted Subsidiaries) that is owing to PAAC or another Restricted Subsidiary of PAAC (including the Borrower and its Restricted Subsidiaries) any disposition, pledge or transfer of such Indebtedness to any Person (other than PAAC or a Wholly-Owned Restricted Subsidiary of PAAC) shall be deemed to be an incurrence of such Indebtedness and (b) with respect to any Indebtedness of PAAC or a Restricted Subsidiary of PAAC (including the Borrower and its Restricted Subsidiaries) that is owing to another Restricted Subsidiary of PAAC (including the Borrower and its 13 21 Restricted Subsidiaries), any transaction pursuant to which a Wholly-Owned Restricted Subsidiary of PAAC to which such Indebtedness is owing ceases to be a Wholly-Owned Restricted Subsidiary of PAAC shall be deemed to be an incurrence of such Indebtedness; and provided, further, that any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary of PAAC shall be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary of PAAC. The term "incurrence" has a corresponding meaning. "Indebtedness" of any Person means, without duplication, all liabilities with respect to (i) indebtedness for money borrowed or which is evidenced by a bond, debenture, note or other similar instrument or agreement, but excluding trade credit evidenced by any such instrument or agreement; (ii) reimbursement obligations, letters of credit and bankers' acceptances; (iii) indebtedness with respect to Hedging Obligations; (iv) Capitalized Lease Obligations; (v) indebtedness, secured or unsecured, created or arising in connection with the acquisition or improvement of any property or asset or the acquisition of any business; (vi) all indebtedness secured by any Lien upon property owned by such Person and all indebtedness secured in the manner specified in this clause even if such Person has not assumed or become liable for the payment thereof; (vii) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person or otherwise representing the deferred and unpaid balance of the purchase price of any such property, including all indebtedness created or arising in the manner specified in this clause even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property; (viii) guarantees, direct or indirect, of any indebtedness of other Persons referred to in clauses (i) through (vii) above, or of dividends or leases, taxes or other obligations of other Persons, excluding any guarantee arising out of the endorsement of negotiable instruments for collection in the ordinary course of business; (ix) contingent obligations in respect of, or to purchase or otherwise acquire or be responsible or liable for, through the purchase of products or services, irrespective of whether such products are delivered or such services are rendered, or otherwise, any such indebtedness referred to in clauses (i) through (vii) above; (x) any obligation, contingent or otherwise, arising under any surety, performance or maintenance bond; and (xi) Redeemable Stock of PAAC valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends; which indebtedness, Capitalized Lease Obligation, guarantee or contingent or other obligation such Person has directly or indirectly created, incurred, assumed, guaranteed or otherwise become liable or responsible for, whether then outstanding or thereafter created in the case of clauses (i) through (x) above, to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability on the balance sheet of such Person in accordance with GAAP. For purposes of the foregoing definition, the "maximum fixed repurchase price" of any Redeemable Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Stock as if such Redeemable Stock were purchased on any date on which Indebtedness is required to be determined pursuant to the Senior Secured Note Indenture. As used herein, Indebtedness with respect to any Hedging Obligation means, with respect to any specified Person on any date, the net amount (if any) that would be payable by such specified Person upon the liquidation, close-out or early termination on such date of such Hedging Obligation. For purposes of the foregoing, any settlement amount payable upon the liquidation, close-out or early termination of a Hedging Obligation shall be calculated by the Borrower in good faith and in a commercially reasonable manner on the basis that such liquidation, close-out or early termination results from 14 22 an event of default or other similar event with respect to such specified Person. Any reference in this definition to indebtedness shall be deemed to include any renewals, extensions and refundings of any such indebtedness or any indebtedness, issued in exchange for such indebtedness. "Indemnified Liabilities" is defined in Section 11.4. "Indemnified Parties" is defined in Section 11.4. "Independent Director" means, with respect to any Person, a director of such Person other than a director (i) who (apart from being a director of such Person or any of its Subsidiaries) is an employee, insider, associate or Affiliate of such Person or any of its Subsidiaries or has held any such position during the previous year or (ii) who is a director, an employee, insider, associate or Affiliate of another party to the transaction in question. "Insurance Proceeds" has the meaning specified in the applicable Mortgage. "Intercreditor Agreement" means the Intercreditor and Collateral Agency Agreement, dated as of October 30, 1997, among the Borrower, PCICC, PAAC, the Trustee, the Administrative Agent and the Collateral Agent, substantially in the form of Exhibit I attached hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Intercreditor Collateral Account" means the Collateral Account as defined in the Intercreditor Agreement. "Interest Expense" means, for any applicable period, the aggregate consolidated interest expense of PAAC and its Subsidiaries for such applicable period, as determined in accordance with GAAP, including the portion of any payments made in respect of Capitalized Lease Liabilities allocable to interest expense, but excluding (to the extent included in interest expense) up-front fees and expenses and other deferred financing costs incurred in connection with the Transaction. "Interest Period" means, as to any LIBO Rate Loan, the period commencing on the Borrowing date of such Term Loan or on the date on which any Term Loan is converted into or continued as a LIBO Rate Loan, and ending on the date one, two, three, six or, if available in the Administrative Agent's reasonable determination, nine or twelve months thereafter as selected by the Borrower in its Borrowing Request or its Conversion/Continuation Notice; provided however that: (i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; 15 23 (iii) no Interest Period for any Term Loan shall extend beyond the Stated Maturity Date for such Term Loan; (iv) no Interest Period applicable to a Term Loan or portion thereof shall extend beyond any date upon which is due any scheduled principal payment in respect of the Term Loans unless the aggregate principal amount of Term Loans represented by Base Rate Loans, or by LIBO Rate Loans having Interest Periods that will expire on or before such date, equals or exceeds the amount of such principal payment; and (v) there shall be no more than five Interest Periods in effect at any one time. "Investment" means any direct or indirect advance, loan, other extension of credit or capital contribution (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others) to, purchase or acquisition of Equity Interests, bonds, notes, debentures or other securities of, or purchase or other acquisition of all or a substantial part of the business, Equity Interests or other evidence of beneficial ownership of, or any other investment in or guarantee of any Indebtedness of, any Person or any other item that would be classified as an investment on a balance sheet prepared in accordance with GAAP. Investments do not include advances to customers and suppliers in the ordinary course of business and on commercially reasonable terms. In the event PAAC or any Subsidiary of PAAC (including the Borrower and its Subsidiaries) sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of PAAC such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of PAAC, PAAC shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Equity Interests of such Subsidiary not sold or disposed of determined as provided in the final paragraph of Section 7.2.3. "Kemwater" means Kemwater North America Company, a Delaware corporation, and any successor thereto. "Lender Assignment Agreement" means a Lender Assignment Agreement substantially in the form of Exhibit H hereto. "Lender Parties" means the Lenders, the Agents and their respective successors, transferees and assigns. "Lenders" is defined in the preamble. "LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans, the rate of interest per annum determined by the Administrative Agent to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the rates of interest per annum at which Dollar deposits in the approximate amount of the Term Loan to be made or continued as, or converted into, a LIBO Rate Loan by the Administrative Agent and having a maturity comparable to such Interest Period would be offered to the Administrative Agent in the London interbank market at its request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. 16 24 "LIBO Rate Loan" means a Term Loan bearing interest, at all times during an Interest Period applicable to such Term Loan, at a fixed rate of interest determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO Rate (Reserve Adjusted)" means, relative to any Term Loan to be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, the rate of interest per annum (rounded upwards to the next 1/100th of 1%) determined by the Administrative Agent as follows: LIBO Rate = LIBO Rate ------------------------------- (Reserve Adjusted) 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans will be adjusted automatically as to all LIBO Rate Loans then outstanding as of the effective date of any change in the LIBOR Reserve Percentage. "LIBOR Office" means, relative to any Lender, the office of such Lender designated as such in Schedule II hereto or designated in the Lender Assignment Agreement pursuant to which such Lender became a Lender hereunder or such other office of a Lender as shall be so designated from time to time by notice from such Lender to the Borrower and the Administrative Agent, whether or not outside the United States, which shall be making, maintaining or continuing LIBO Rate Loans of such Lender hereunder. "LIBOR Reserve Percentage" means, relative to any Interest Period for LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of and including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. "Lien" means any mortgage, pledge, prior claim (within the meaning of the Civil Code of Quebec), hypothec, lien, security interest, charge, servitude, assignment, adverse claim, defect of title, restriction, trust, right of set off or encumbrance of any kind (including any conditional sale or other title retention agreement and any lease in the nature thereof). "Loan Document" means this Agreement, the Term Notes, each PAI Guaranty, each Security Document, the Bond, each Borrowing Request, the Fee Letter and each other agreement, document or instrument delivered in connection with this Agreement or any other Loan Document, whether or not specifically mentioned herein or therein. "Margin Stock" has the meaning ascribed to such term in Regulation U of the Federal Reserve Board or any regulation substituted therefor, as in effect from time to time. "Material Adverse Effect" means (a) a material adverse effect on the business, assets, debt service capacity, liabilities (including environmental liabilities), financial condition, operations or prospects of PAAC and its Restricted Subsidiaries, taken as a whole, (b) a material adverse effect upon the ability of the Borrower, PAAC or any other Obligor to perform its 17 25 respective material obligations under the Loan Documents to which it is or will be a party, or (c) an impairment of the validity or enforceability of, or a material impairment of the rights, remedies or benefits available to the Agents, the Arranger, the Collateral Agent or the Lenders under this Agreement or any other Loan Document. "Mississauga Property" means the real property located in the city of Mississauga, regional municipality of Peel; legally described as Part Block D Plan 718, designated as Parts 1, 2, 3, 4 and 9, Plan 43R-7079. "Moody's" means Moody's Investors Service, Inc. "Mortgage" means, as the context may require, each Canadian Demand Debenture and/or the Quebec Mortgage and Security Agreement. "Mortgaged Property" means, collectively, "Immovable Property", "Real Property" and "Leasehold Property" as defined in each applicable Mortgage. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, that is maintained for employees of PAAC or any ERISA Affiliate. "Net Award" has the meaning specified in each applicable Mortgage. "Net Cash Proceeds" means, with respect to any issuance or sale of Equity Interests or debt securities that have been converted into or exchanged for Equity Interests, as referred to in Section 7.2.3, the proceeds of such issuance or sale in the form of cash or cash equivalents, net of attorneys' fees, accountants' fees and brokerage, consultation, underwriting and other fees and expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Net Income" means, for any period, the net income of PAAC and its Subsidiaries (other than its Unrestricted Subsidiaries) for such period on a consolidated basis, determined in accordance with GAAP. "Net Proceeds" means the aggregate cash proceeds received by PAAC or any of its Restricted Subsidiaries (including the Borrower and its Restricted Subsidiaries) in respect of any Asset Sale (including the proceeds of insurance paid on account of the loss of or damage to any property, or compensation or other proceeds for any property taken by condemnation, eminent domain or similar proceedings, and any non-cash consideration received by PAAC or any of its Restricted Subsidiaries from any Asset Sale that is converted into or sold or otherwise disposed of for cash within 90 days after the relevant Asset Sale), net of (i) the direct costs relating to such Asset Sale (including legal, accounting and investment banking fees and sales commissions), (ii) any taxes paid or payable as a result thereof, (iii) all amounts required to be applied to the repayment of, or representing the amount of permanent reductions in the commitments relating to, Indebtedness secured by a Lien on the asset or assets the subject of such Asset Sale which Lien is permitted pursuant hereto, (iv) any reserve for adjustment in respect of the sale price of such asset or assets required by GAAP, (v) all distributions and other payments required to be made (including any amounts held pending distribution) to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale, and (vi) all payments due under Existing Affiliate Agreements arising out of an Asset Sale. The amount of any taxes required to 18 26 be accrued as a liability under GAAP as a consequence of an Asset Sale shall be the amount thereof as determined in good faith by the Board of Directors of the Person making such Asset Sale. "Obligations" means all obligations (monetary or otherwise) of the Borrower and each other Obligor arising under or in connection with this Agreement, the Term Notes, and each other Loan Document. "Obligor" means the Borrower, PAAC or any other Person (other than any Agent, the Arranger, or any Lender) obligated under any Loan Document. "Occupational Safety and Health Law" means the Occupational Safety and Health Act of 1970 and any other U.S. or Canadian federal, state, provincial or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning employee health and/or safety. "Offering Memorandum" means the offering memorandum of PCICC, dated October 22, 1997, in connection with the offer and sale of the Senior Secured Notes. "Officers' Certificate" means a certificate executed by the Chairman of the Board, Vice Chairman, the President or a Vice President (regardless of vice presidential designation), and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of PAAC, the Borrower, or any PAI Guarantor, as the case may be, and delivered to the Administrative Agent. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for PAAC, the Borrower, or any of the PAI Guarantors and who shall be reasonably acceptable to the Required Lenders. "Organic Document" means, relative to any Obligor, its certificate of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements to which such Obligor is a party applicable to any of its authorized shares of Capital Stock. "Original Currency" is defined in clause (a) of Section 8.4. "Other Currency" is defined in clause (a) of Section 8.4. "PAAC" is defined in the preamble. "PAAC Asset Sale" means, with respect to PAAC or any of its Restricted Subsidiaries (other than a PCIFP Company), the sale, lease, conveyance or other disposition (including by way of merger or consolidation, and whether by operation of law or otherwise) to any Person other than PAAC or any of its Wholly-Owned Restricted Subsidiaries (other than a PCIFP Company) of any of PAAC's or such Restricted Subsidiary's assets (including (x) any sale or other disposition of Equity Interests of any such Restricted Subsidiary and (y) any sale or other disposition of any noncash consideration received by PAAC or such Restricted Subsidiary from any prior transaction or series of related transactions that constituted a PAAC Asset Sale hereunder), whether owned on the date hereof or subsequently acquired, in one transaction or a series of related transactions; provided, however, that the following will not constitute PAAC Asset Sales: (i) transactions (other than transactions described in clause (y) above) in any 19 27 calendar year with aggregate cash and/or Fair Market Value of any other consideration received (including the unconditional assumption of Indebtedness) of less than $1,000,000; (ii) a transaction or series of related transactions that results in a Change of Control; (iii) any sale of assets of PAAC and its Restricted Subsidiaries or merger permitted pursuant to Section 7.2.5; (iv) any sale or other disposition of inventory, property (whether real, personal, movable, immovable or mixed) or equipment that has become worn out, obsolete or damaged or otherwise unsuitable or no longer needed for use in connection with the business of PAAC or any of its Restricted Subsidiaries, as the case may be, in the good faith determination of the Board of Directors of PAAC; and (v) any sale of inventory to customers in the ordinary and customary course of business. "PAI Guarantor" means any guarantor under a PAI Guaranty. "PAI Guaranty" means, as the context may require, the Affiliate Guaranty, the Canadian Subsidiary Guaranty, and/or any other guaranty, substantially in form and substance of any existing PAI Guaranty, together with such other modifications acceptable to the Agents and their counsel which are necessary to permit the guarantee (whether direct or pass-through in nature) by the guarantor thereunder of the Obligations of the Borrower. "Parent Guarantor" is defined in the preamble. "Parent Guarantor Closing Date Certificate" means a certificate of an Authorized Officer of the Parent Guarantor substantially in the form of Exhibit G-2 hereto, delivered pursuant to Section 5.11. "Participant" is defined in Section 11.11.2. "PBGC" means the Pension Benefit Guaranty Corporation and any successor entity. "PCAC" means Pioneer Chlor Alkali Company, Inc., a Delaware corporation and indirect Wholly-Owned Restricted Subsidiary of PAAC, and any successor thereto. "PCI" is defined in the first recital. "PCICC" is defined in the first recital. "PCIFP Asset Sale" means, with respect to any PCIFP Company or any of its Restricted Subsidiaries, the sale, lease, conveyance or other disposition (including by way of merger or consolidation, and whether by operation of law or otherwise) to any Person other than such PCIFP Company or a Wholly-Owned Restricted Subsidiary of such PCIFP Company of any assets of such PCIFP Company or such Restricted Subsidiary (including (x) any sale or other disposition of Equity Interests of any such Restricted Subsidiary and (y) any sale or other disposition of any noncash consideration received by such PCIFP Company or such Restricted Subsidiary from any prior transaction or series of related transactions that constituted a PCIFP Asset Sale hereunder), whether owned on the date hereof or subsequently acquired, in one transaction or a series of related transactions; provided, however, that the following will not constitute PCIFP Asset Sales: (i) transactions (other than transactions described in clause (y) above) in any calendar year with aggregate cash and/or Fair Market Value of any other consideration received (including the unconditional assumption of Indebtedness) of less than 20 28 $1,000,000; (ii) a transaction or series of related transactions that results in a Change of Control; (iii) any sale of assets of a PCIFP Company and its Restricted Subsidiaries or merger permitted pursuant to Section 7.2.5; (iv) any sale or other disposition of inventory, property (whether real, personal or mixed) or equipment that has become worn out, obsolete or damaged or otherwise unsuitable or no longer needed for use in connection with the business of a PCIFP Company or any of its Restricted Subsidiaries, as the case may be, in the good faith determination of the Board of Directors of such PCIFP Company; and (v) any sale of inventory to customers in the ordinary and customary course of business. "PCI Carolina" is defined in the first recital. "PCI Closing Date Certificate" means a certificate of an Authorized Officer of PCI, substantially in the form of Exhibit G-3 hereto, delivered pursuant to Section 5.11. "PCIFP Company" means PCICC, PCI Carolina or Pioneer Licensing. "Pension Plan" means a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a Multiemployer Plan), and to which PAAC or any corporation, trade or business that is, along with PAAC, an ERISA Affiliate, may have any liability, including any liability by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Percentage" means, relative to any Lender, the applicable percentage relating to Term Loans, as set forth in Schedule II hereto or set forth in the Lender Assignment Agreement as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 11.11. "Permitted Investment" means (i) any Eligible Investment, (ii) any Investment in PAAC, (iii) Investments in existence on the date hereof and listed in Item 7.2.3 ("Existing Investments") of the Disclosure Schedule and any such Investment in Basic Investments, Inc., Basic Land Company, Basic Management, Inc., Basic Water Company or Victory Valley Land Company, L.P. which has been reclassified or converted into an alternate form of Investment in the same or a successor entity, (iv) intercompany notes permitted pursuant to Section 7.2.1, (v) Investments in any Wholly-Owned Restricted Subsidiary of PAAC or any Person which, as a result of such Investment, becomes a Wholly-Owned Restricted Subsidiary of PAAC; provided that such Wholly-Owned Restricted Subsidiary is engaged in a Related Business, and (vi) other Investments after the date hereof in joint ventures, corporations, limited liability companies, partnerships or Unrestricted Subsidiaries engaged in a Related Business that do not at any one time outstanding exceed $5,000,000; provided that the amount of Investments pursuant to clause (vi) will be included in the calculation of Restricted Payments pursuant to Section 7.2.3. "Permitted Liens" means as of any particular time, any one or more of the following: (a) Liens for taxes, rates and assessments or for prior claims within the meaning of the Civil Code of Quebec not yet past due or, if past due, the validity of which is being contested in good faith by PAAC or any of its Restricted Subsidiaries by appropriate proceedings promptly instituted and diligently conducted and against which PAAC or such Restricted Subsidiary has established appropriate reserves in accordance with GAAP; 21 29 (b) the Lien of any judgment rendered which is being contested in good faith by PAAC or any of its Restricted Subsidiaries by appropriate proceedings promptly instituted and diligently conducted and against which PAAC or such Restricted Subsidiary has established appropriate reserves in accordance with GAAP and which does not have a material adverse effect on the ability of PAAC and its Restricted Subsidiaries to operate their business or conduct their operations; (c) other than in connection with Indebtedness, any Lien arising in the ordinary course of business (i) to secure payments of workers' compensation, unemployment insurance, pension or other social security or retirement benefits, or to secure the performance of bids, tenders, leases, progress payments, contracts (other than for the payment of money) or to secure public or statutory obligations of PAAC or any of its Restricted Subsidiaries, or to secure surety or appeal bonds to which PAAC or any of its Restricted Subsidiaries is a party, (ii) imposed by law dealing with materialmen's, suppliers', mechanics', workmen's, repairmen's, warehousemen's, landlords', vendors' or carriers' Liens created by law, or deposits or pledges which are not yet due or, if due, the validity of which is being contested in good faith by PAAC or any of its Restricted Subsidiaries by appropriate proceedings promptly instituted and diligently conducted and against which PAAC or such Restricted Subsidiary has established appropriate reserves in accordance with GAAP, (iii) rights of financial institutions to setoff, effect compensation, and chargeback arising by operation of law and (iv) similar Liens; (d) servitudes, licenses, easements, encumbrances, restrictions, rights-of-way and rights in the nature of easements or similar charges as well as encroachments or minor title defects which will not in the aggregate materially adversely impair the use of the subject property by PAAC or a Restricted Subsidiary of PAAC; (e) zoning and building by-laws and ordinances, municipal bylaws and regulations, and restrictive covenants, which do not materially interfere with the use of the subject property by PAAC or a Restricted Subsidiary of PAAC as such property is used as of the date hereof; (f) any extension, renewal, substitution or replacement (or successive extensions, renewals, substitutions or replacements), as a whole or in part, of any of the Liens referred to in clauses (a) through (e) of this definition or the Indebtedness secured thereby; provided that (i) such extension, renewal, substitution or replacement Lien is limited to that portion of the property or assets, now owned or hereafter acquired, that secured the Lien prior to such extension, renewal, substitution or replacement Lien and (ii) the Indebtedness secured by such Lien (assuming all available amounts were borrowed) at such time is not increased; and (g) provisos, restrictions, limitations and reservations contained in any original grants from the Crown, and any statutory limitations, exceptions, reservations and qualifications which will not in the aggregate materially adversely impair the use of the subject property by the Borrower, PAAC or any of their respective Restricted Subsidiaries. 22 30 "Person" means any natural person, corporation, partnership, firm, association, trust, government, governmental agency, limited liability company or any other entity, whether acting in an individual, fiduciary or other capacity. "Pioneer East" means Pioneer (East), Inc., a Delaware corporation and direct Wholly-Owned Subsidiary of PAI. "Pioneer Licensing" is defined in the first recital. "Plan" means any Pension Plan or Welfare Plan. "PPSA" means, as the context may require, the Personal Property Security Act (Ontario), the Personal Property Security Act (New Brunswick) and/or Personal Property Security Act (Nova Scotia). "Preferred Stock" means, as applied to the Equity Interests of any corporation, stock of any class or classes (however designated) which is preferred over shares of stock of any other class of such corporation as to the distribution of assets on any voluntary or involuntary liquidation or dissolution of such corporation or as to dividends. "Pro Forma Balance Sheets" is defined in clause (d) of Section 5.12. "Purchase Agreement" is defined in the first recital. "Quarterly Payment Date" means the last Business Day of each March, June, September and December, commencing with December, 1997. "Quebec Mortgage and Security Agreement" means the deed of hypothec executed and delivered by an Authorized Officer of PCICC pursuant to Section 5.10, substantially in the form of Exhibit E-2 attached hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Redeemable Stock" means any Equity Interest that by its terms or otherwise (i) is required to be redeemed prior to June 30, 2007, (ii) matures or is redeemable, in whole or in part, at the option of PAAC or any Subsidiary of PAAC or the holder thereof or pursuant to a mandatory sinking fund at any time prior to June 30, 2007, or (iii) is convertible into or exchangeable for debt securities which provide for any scheduled payment of principal prior to June 30, 2007, at the option of the issuer thereof at any time prior to June 30, 2007, until the right to so convert or exchange is irrevocably relinquished. "Refinancing" is defined in clause (j) of Section 7.2.1. "Refinancing Indebtedness" is defined in clause (j) of Section 7.2.1. "Related Business" means any corporation or other entity engaged in, and any asset utilized in, the manufacture or distribution of chlorine, caustic soda, bleach, hydrochloric acid, iron and other chlorides and aluminum sulfate, and in lines of business reasonably related thereto. 23 31 "Related Party" means, with respect to any Person, any other Person (a) that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such first Person or a subsidiary of such first Person, (b) that beneficially owns or holds ten percent (10%) or more of the equity interest of such first Person or a subsidiary of such first Person or (c) ten percent (10%) or more of the equity interest of which is beneficially owned or held by such first Person or a subsidiary of such first Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing of any Hazardous Material into the environment (including the abandonment or discarding of barrels, containers, and other closed receptacles containing any Hazardous Material), including with respect to any event, occurrence or incident subject to the jurisdiction of any U.S. federal, state or local regulatory, enforcement or judicial institution, body or department, any release as such term is defined in CERCLA. "Reportable Event" has the meaning given to such term in ERISA. "Required Lenders" means, at any time, (i) prior to the Closing Date hereunder, Lenders having at least 51% of the sum of the Term Loan Commitments and (ii) on and after the Closing Date, Lenders holding at least 51% of the principal amount of the Term Loans. "Resource Conservation and Recovery Act" means the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect from time to time. "Restoration" has the meaning specified in each applicable Mortgage. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Payment" is defined in Section 7.2.3. "Restricted Payment Computation Date" is defined in Section 7.2.3. "Restricted Payment Computation Period" is defined in Section 7.2.3. "Restricted Subsidiary" means (a) with respect to PAAC, (i) the Borrower and any PAI Guarantor, (ii) any Subsidiary of PAAC in existence on the date hereof to which any line of business or division (and the assets associated therewith) of any PAI Guarantor are transferred after the date hereof, (iii) any Subsidiary of PAAC organized or acquired after the date hereof, unless such Subsidiary has been designated as an Unrestricted Subsidiary by a resolution of the Board of Directors of PAAC as provided in the definition of "Unrestricted Subsidiary" and (iv) any Unrestricted Subsidiary which is designated as a Restricted Subsidiary of PAAC by the Board of Directors of PAAC; provided, that immediately after giving effect to any such designation (A) no Default or Event of Default has occurred and is continuing and (B) in the case of any designation referred to in clause (iii) or (iv) hereof, PAAC could incur at least $1.00 of Indebtedness pursuant to Section 7.2.1, on a pro forma basis taking into account such designation, and (b) with respect to the Borrower, any Subsidiary of the Borrower that is a 24 32 Restricted Subsidiary of PAAC. PAAC will evidence any such designation to the Administrative Agent by promptly filing with the Administrative Agent an Officers' Certificate certifying that such designation has been made and complies with the requirements of the immediately preceding sentence. Notwithstanding any provision herein to the contrary, from and after the Effective Date, each of the Borrower, and each PAI Guarantor will be, and shall at all times thereafter be, a Restricted Subsidiary of PAAC. "Revolving Credit Agreement" means the Loan and Security Agreement dated as of June 17, 1997, between PAAC and BofA, as agent and lender, and the lenders named therein, as amended, supplemented, amended and restated or otherwise modified from time to time in accordance with the provisions hereof and thereof. "S&P" means Standard & Poor's Ratings Group, division of McGraw Hill, Inc. "Sale and Leaseback Transaction" means, with respect to any Person, any arrangement with another Person for the leasing of any real or tangible personal property, which property has been or is to be sold or transferred by such Person to such other Person in contemplation of such leasing. "Salomon" is defined in the preamble. "Secured Parties" means the Collateral Agent, the Lenders, the Agents, the Trustee, the holders of the Senior Secured Notes and their respective successors, transferees and assigns. "Security Agreement" means, as the context may require, the Canadian Subsidiary Security Agreement and/or the Affiliate Security Agreement. "Security Documents" means (i) each Mortgage, (ii) each Security Agreement, (iii) the Intercreditor Agreement, (iv) the documentation relating to the Intercreditor Collateral Account, and (v) each pledge agreement delivered pursuant to Section 7.1.9 and each other security agreement, mortgage, hypothec, deed of trust, pledge, collateral assignment and other document evidencing or creating any security interest in favor of the Collateral Agent in all or any portion of the Collateral or delivered in connection with any of the foregoing, in each case as amended, supplemented, amended and restated or otherwise modified from time to time. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of PAAC or its Restricted Subsidiaries (including the Borrower and its Restricted Subsidiaries), whether outstanding on the date hereof or thereafter incurred as permitted herein, unless, in the case of any particular Indebtedness, the agreement or instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness is junior or subordinated in right of payment to any item of Indebtedness of PAAC or its Restricted Subsidiaries. Without limiting the generality of the foregoing, "Senior Indebtedness" includes the principal of, premium, if any, and interest and all other obligations of every nature of the Borrower (or any other Obligor) from time to time owed under the Term Facility. Notwithstanding the foregoing, "Senior Indebtedness" does not include (i) in the case of the obligation of the Borrower in respect of each Term Note, the obligation of the Borrower in respect of the other Term Notes, (ii) any liability for foreign, federal, state, provincial, local or other taxes owed or owing by PAAC or any of its Restricted Subsidiaries to the extent that such liability constitutes Indebtedness, (iii) Indebtedness of the Borrower (or any other Obligor) to 25 33 PAAC or any Restricted Subsidiary of PAAC, (iv) that portion of any Indebtedness which at the time of issuance is issued in violation hereof and (v) Indebtedness and amounts incurred in connection with obtaining goods, materials or services in the ordinary course of business (other than such Indebtedness which is owed to banks and other financial institutions or secured by the goods or materials which were purchased with such Indebtedness). "Senior Secured Note Indenture" means the Indenture dated as of October 30, 1997, among PCICC, the guarantors party thereto and United States Trust Company of New York, as Trustee, as the same may be amended, restated, amended and restated or otherwise modified from time to time in accordance with the terms hereof and thereof. "Senior Secured Note Offering" is defined in the second recital. "Senior Secured Notes" means the 9 1/4% Senior Secured Notes due 2007 of PCICC issued pursuant to the Senior Secured Note Offering and the Senior Secured Note Indenture, including any senior secured notes of PCICC with substantially identical terms exchanged therefor pursuant to a registration statement under the Securities Act of 1933, as amended. "St. Gabriel Pipeline" means the approximately seven-mile liquid chlorine pipeline to be constructed by PCAC from its plant in St. Gabriel, Louisiana to Geismar, Louisiana, including all leak and excavation detection systems and all other equipment, fixtures, improvements, licenses, permits, approvals, warranties, contract rights, leases, access agreements and other real property interests owned or acquired by PCAC in connection therewith (not including any "Mortgaged Property" as such term is defined in the Existing Term Loan Agreement), together with all insurance proceeds and condemnation awards related thereto and all rents, issues, profits and proceeds thereof. "Stated Maturity Date" means, in the case of all Term Loans, December 5, 2006. "Subordinated Indebtedness" means Indebtedness of the Borrower or any PAI Guarantor subordinated in right of payment to the Obligations. "Subsidiary" means, with respect to any Person, (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors, under ordinary circumstances, is at the time owned, directly or indirectly, by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries or (ii) any other Person of which at least a majority of voting interest, under ordinary circumstances, is at the time owned, directly or indirectly, by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries. "Substantial Shareholder" means each of (i) William R. Berkley and his Affiliates and/or (ii) Interlaken Capital, Inc. and its Affiliates. "Syndication Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Syndication Agent pursuant to Section 10.5. "Target Business" is defined in the first recital. 26 34 "Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of April 20, 1995, among PCI and its Subsidiaries. "Taxes" is defined in Section 4.6. "TCH" means T.C. Holdings, Inc., a New Mexico corporation and direct Wholly-Owned Subsidiary of All-Pure. "Term Facility" is defined in the third recital. "Term Loan" is defined in Section 2.1.1. "Term Loan Commitment" is defined in Section 2.1.1. "Term Loan Commitment Amount" means $100,000,000. "Term Loan Commitment Termination Date" means the earliest of (i) December 31, 1997, if the Term Loans have not been made on or prior to such date, (ii) the Closing Date (immediately after the making of the Term Loans on such date), and (iii) the date on which any Commitment Termination Event occurs. "Term Note" means a promissory note of the Borrower payable to the order of any Lender, in the form of Exhibit A hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Term Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Transaction" is defined in the second recital. "Transaction Documents" means each of the Acquisition Agreements, the Senior Secured Note Indenture, the form of Senior Secured Note and all other agreements, documents, instruments, certificates, filings, consents, approvals, board of directors resolutions and opinions furnished pursuant to or in connection with the Acquisition, the Senior Secured Note Offering and the transactions contemplated hereby or thereby, each as amended, supplemented, amended and restated or otherwise modified from time to time as permitted in accordance with the terms hereof, of any other Loan Document and thereof. "Trust Moneys" means all cash or Eligible Investments received by the Collateral Agent: (a) in exchange for the release of property from the Lien of any of the Security Documents; (b) as compensation for or proceeds of the sale of all or any part of the Collateral taken by eminent domain or purchased by, or sold pursuant to any order of, a governmental authority or otherwise disposed of; (c) as proceeds of insurance upon any, all or part of the Collateral (other than any liability insurance proceeds payable to the Collateral Agent for any loss, liability or expense incurred by it); (d) as proceeds of any other sale or other disposition of all or any part of the Collateral by or on behalf of either of the Collateral Agent or any collection, recovery, receipt, appropriation or other realization of or from all or any part of the Collateral pursuant to the Security Documents or otherwise; or (e) for application under this Agreement as provided in this Agreement or any other Security Document, or whose disposition is not otherwise specifically provided for in this Agreement or in any other Security Document. 27 35 "Trustee" means United States Trust Company of New York, in its capacity as "trustee" under the Senior Secured Note Indenture, and each successor trustee thereunder to become such pursuant to the applicable provisions thereof. "type" means, relative to any Term Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York. "United States" or "U.S." means the United States of America, its fifty states and the District of Columbia. "Unrestricted Subsidiary" means, until such time as it may be designated as a Restricted Subsidiary by the Board of Directors of PAAC as provided in and in compliance with the definition of "Restricted Subsidiary," (i) any Subsidiary of PAAC organized or acquired after the date hereof designated as an Unrestricted Subsidiary by the Board of Directors of PAAC in which all investments by PAAC or any Restricted Subsidiary of PAAC are made only from funds available for the making of Restricted Payments pursuant to Section 7.2.3 and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of PAAC may designate any Subsidiary of PAAC (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Equity Interests of, or owns, or holds any Lien upon, any property of, any Subsidiary of PAAC which is not a Subsidiary of such Subsidiary to be so designated; provided that (w) each Subsidiary to be so designated and each of its Subsidiaries has not, at the time of designation, and does not thereafter, directly or indirectly, incur any Indebtedness pursuant to which the lender with respect thereto has recourse to any of the assets of PAAC or any of its Restricted Subsidiaries, (x) immediately after giving effect to such designation no Default or Event of Default shall have occurred and be continuing, (y) all outstanding Investments by PAAC and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation equal in amount to the Fair Market Value of such Investments at the time of such designation and would be Restricted Payments permitted to be paid pursuant to the provisions of Section 7.2.3 and (z) the amount of such Restricted Payments will be included in the calculation of the amount of Restricted Payments previously made pursuant to such covenant. PAAC will evidence any such designation by promptly filing with the Administrative Agent an Officers' Certificate certifying that such designation has been made and complies with the requirements of the immediately preceding sentence. Each Unrestricted Subsidiary that is a Subsidiary of the Borrower shall be deemed to be an Unrestricted Subsidiary of the Borrower. "U.S. Bankruptcy Law" means chapter 11 of Title 11 of the United States Code, as amended, or any similar United States federal or state law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "U.S. Environmental Laws" means all applicable U.S. federal, state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to the protection and conservation of the environment concerning any hazardous, toxic or dangerous waste, substance or constituent, or any pollutant or contaminant. 28 36 "U.S. Hazardous Materials" means any toxic substance, hazardous substance, hazardous material, hazardous chemical or hazardous waste defined or qualifying as such in (or for the purposes of) any U.S. Environmental Law, or any pollutant or contaminant, and shall include, but not be limited to, petroleum, including crude oil, any radioactive material, including any source, special nuclear or by-product material as defined at 42 U.S.C. Section 2011 et seq., as amended or hereafter amended, polychlorinated biphenyls and asbestos in any form or condition. "U.S. Seller" is defined in the first recital. "U.S. Subsidiary" means any Subsidiary of the Borrower that is incorporated or organized in or under the laws of the United States or any state thereof. "Voting Stock" of any Person means Capital Stock of such Person which ordinarily has voting power for the election of directors (or Persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Wholly-Owned Subsidiary" means, with respect to any Person, any Subsidiary of such Person all of the Capital Stock (and all rights and options to purchase such Capital Stock) of which, other than directors' qualifying shares, are owned, beneficially and of record, by such Person and/or one or more Wholly-Owned Subsidiaries of such Person. "Wholly-Owned Restricted Subsidiary" means, with respect to any Person, a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than capital stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, to the extent mandated by applicable law) are owned by such Person or by one or more Wholly-Owned Restricted Subsidiaries of such Person. SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Disclosure Schedule and in each other Loan Document, notice and other communication delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3. Cross-References. Unless otherwise specified, references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations. Unless otherwise specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance with, those generally accepted accounting principles ("GAAP"), as in effect from time to time in the United States and, unless otherwise expressly provided herein, shall be computed or determined on a consolidated basis and without duplication. 29 37 SECTION 1.5. Use of UCC Terms. Unless the context otherwise requires, the terms "accounts receivable", "inventory" and "general intangibles" shall have the meanings ascribed thereto in the UCC. SECTION 1.6. Officers' Certificates and Opinions. Every Officers' Certificate or Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Agreement or any other Loan Document shall be addressed to the Administrative Agent and each of the Lenders and shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinion contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Absent any actual knowledge to the contrary, the Administrative Agent may rely on any such certificate without further inquiry. ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES SECTION 2.1. Commitments. On the terms and subject to the conditions of this Agreement (including Article V), each Lender severally agrees to make Term Loans pursuant to the Term Loan Commitments described in this Section 2.1. SECTION 2.1.1. Term Loan Commitments. On the Closing Date, which shall be a Business Day occurring prior to the Term Loan Commitment Termination Date, each Lender will make loans (relative to such Lender, its "Term Loans") to the Borrower equal to such Lender's Percentage of the aggregate amount of the Borrowing of Term Loans requested by the Borrower to be made on such day with the commitment of each such Lender to make the Term Loans described in this Section referred to as its "Term Loan Commitment". No amounts paid or prepaid with respect to any Term Loans may be reborrowed. SECTION 2.1.2. Lenders Not Permitted or Required to Make the Term Loans. No Lender shall be permitted or required to, and the Borrower shall not request any Lender to, make any Term Loan on the Closing Date if, after giving effect thereto, the aggregate original principal amount of all the Term Loans (a) of all Lenders would exceed the Term Loan Commitment Amount, or 30 38 (b) of such Lender would exceed such Lender's Percentage of the Term Loan Commitment Amount. SECTION 2.2. Borrowing Procedures and Funding Maintenance. By delivering a Borrowing Request to the Administrative Agent on or before 10:00 a.m. (Chicago time) on a Business Day, the Borrower may request, on not less than one Business Day's notice (in the case of Base Rate Loans) or three Business Days' notice (in the case of LIBO Rate Loans), that a Borrowing be made on the Closing Date. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the type of Term Loans, and shall be made on the Business Day, specified in such Borrowing Request. On or before 11:00 a.m. (Chicago time) on such Business Day each Lender shall deposit with the Administrative Agent same day funds in an amount equal to such Lender's Percentage of the requested Borrowing. Such deposit will be made to an account which the Administrative Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders, the Administrative Agent shall make such funds available to the Borrower by wire transfer to the accounts the Borrower shall have specified in its Borrowing Request. No Lender's obligation to make any Term Loan shall be affected by any other Lender's failure to make any Term Loan. SECTION 2.3. Continuation and Conversion Elections. By delivering a Continuation/Conversion Notice to the Administrative Agent on or before 10:00 a.m. (Chicago time) on a Business Day, the Borrower may from time to time irrevocably elect, on not less than one Business Day's notice (in the case of a conversion of LIBO Rate Loans to Base Rate Loans) or three Business Days' notice (in the case of a continuation of LIBO Rate Loans or a conversion of Base Rate Loans into LIBO Rate Loans) nor more than five Business Days' notice that all, or any portion in a minimum amount of $5,000,000 or any larger integral multiple of $250,000, be, in the case of Base Rate Loans, converted into LIBO Rate Loans or a minimum amount of $250,000 or any larger integral multiple of $250,000, in the case of LIBO Rate Loans, converted into Base Rate Loans or continued as LIBO Rate Loans (in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan); provided, however, that (x) each such conversion or continuation shall be pro rated among the applicable outstanding Term Loans of all Lenders, and (y) no portion of the outstanding principal amount of any Term Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. SECTION 2.4. Funding. Each Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, however, that such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility. In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of Section 4.1, 4.2, 4.3 or 4.4, it shall be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. SECTION 2.5. Term Notes. Each Lender's Term Loans under its Term Loan Commitment shall be evidenced by a Term Note payable to the order of such Lender in a 31 39 maximum principal amount equal to such Lender's Percentage of the original Term Loan Commitment Amount. The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Term Note (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal amount of, and the interest rate and Interest Period applicable to the Term Loans evidenced thereby. Such notations shall be conclusive and binding on the Borrower absent manifest error; provided, however, that the failure of any Lender to make any such notations shall not limit or otherwise affect any Obligations of the Borrower or any other Obligor. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. Repayments and Prepayments; Application. SECTION 3.1.1. Repayments and Prepayments. The Borrower shall repay in full the unpaid principal amount of each Term Loan upon the Stated Maturity Date therefor. Prior thereto, the Borrower (a) may, from time to time on any Business Day, make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Term Loans; provided, however, that (i) any such prepayment shall be made pro rata among Term Loans of the same type and, if applicable, having the same Interest Period of all Lenders; (ii) the Borrower shall comply with Section 4.4 in the event that any LIBO Rate Loan is prepaid on any day other than the last day of the Interest Period for such Term Loan; (iii) all such voluntary prepayments shall require at least one Business Day's notice in the case of Base Rate Loans and three Business Days' notice in the case of LIBO Rate Loans, but no more than five Business Days' notice, in each case in writing to the Administrative Agent; and (iv) all such voluntary partial prepayments shall be, in the case of LIBO Rate Loans, in an aggregate minimum amount of $5,000,000 or any larger integral multiple of $1,000,000 and, in the case of Base Rate Loans, in an aggregate minimum amount of $1,000,000 or any larger integral multiple of $500,000 or in the aggregate principal amount of all Term Loans of the type then outstanding; and (v) any voluntary prepayment of Term Loans made on or prior to the third anniversary of the Closing Date shall be subject to the payment of a premium, as set forth below: 32 40 (A) 3.0% of the principal amount of Term Loans prepaid pursuant to this clause (a) of this Section 3.1.1 on or prior to the first anniversary of the Closing Date; (B) 2.0% of the principal amount of Term Loans prepaid pursuant to this clause (a) of this Section 3.1.1 subsequent to the first anniversary and prior to or on the second anniversary of the Closing Date; and (C) 1.0% of the principal amount of Term Loans prepaid pursuant to this clause (a) of this Section 3.1.1 subsequent to the second anniversary and prior to or on the third anniversary of the Closing Date. (b) shall, make a mandatory prepayment of the Term Loans on account of Net Proceeds in accordance with Section 7.2.6; (c) shall, (i) on each Quarterly Payment Date occurring on or during any period set forth below, make a scheduled repayment of the aggregate outstanding principal amount, if any, of all Term Loans in an amount equal to the amount set forth below opposite such period, and (ii) on the Stated Maturity Date, make a scheduled repayment of the outstanding principal amount of all Term Loans in the amount set forth opposite such date below (in each case as such amounts may have otherwise been reduced pursuant to this Agreement): SCHEDULED QUARTERLY PRINCIPAL PERIOD REPAYMENT ------------------ --------- Closing Date to (and including) December 31, 1997 $250,000 January 1, 1998 to (and including) December 31, 2005 $250,000 January 1, 2006 to (and including) September 30, 2006 $250,000 Stated Maturity Date $91,000,000 (d) shall, subject to Section 3.1.2, make a mandatory prepayment of the Term Loans upon the occurrence of a Change of Control; and (e) shall, immediately upon the acceleration of the Stated Maturity Date of any Term Loans pursuant to Section 8.2 or Section 8.3, repay all outstanding Term Loans, unless, pursuant to Section 8.3, only a portion of all Term Loans are so accelerated (in which case the portion so accelerated shall be so prepaid). 33 41 Each prepayment of any Term Loans made pursuant to this Section shall be without premium or penalty, except as may be required by clause (a)(v) of this Section and/or Section 4.4. SECTION 3.1.2. Application. Amounts prepaid and repaid shall be applied as set forth in this Section. (a) Subject to clauses (b) and (c) below, each prepayment or repayment of principal of the Term Loans shall be applied, to the extent of such prepayment or repayment, first, to the principal amount thereof being maintained as Base Rate Loans, and second, to the principal amount thereof being maintained as LIBO Rate Loans. (b) Each prepayment of any Term Loans made pursuant to clause (a) of Section 3.1.1 shall be applied, to the extent of such prepayment, in the inverse order of the scheduled repayments of such Term Loans, as set forth in clause (c) of Section 3.1.1 with respect to such Term Loans. (c) Each prepayment of Term Loans made pursuant to clause (b) or clause (d) of Section 3.1.1 shall be applied to the outstanding principal amount of all Term Loans, except that, (i) with respect to the amount of any such prepayment, the Administrative Agent will as soon as is practicable (but in any event no later than the date on which the Borrower has provided such prepayment to the Administrative Agent) provide notice of such prepayment to each Lender prior to the distribution of the funds from such prepayment, and (ii) each Lender will have the right to refuse any such prepayment by giving written notice of such refusal to the Administrative Agent within three Business Days after such Lender's receipt of notice from the Administrative Agent of such prepayment. In addition, any prepayment of Term Loans shall be applied to the remaining amortization payments in the inverse order of the scheduled repayments of such Term Loans, as set forth in clause (c) of Section 3.1.1 with respect to such Term Loans. SECTION 3.2. Interest Provisions. Interest on the outstanding principal amount of the Term Loans shall accrue and be payable in accordance with this Section 3.2. SECTION 3.2.1. Rates. Each Base Rate Loan shall accrue interest on the unpaid principal amount thereof for each day from and including the day upon which such was made or converted to a Base Rate Loan to but excluding the date such Term Loan is repaid or converted to a LIBO Rate Loan at a rate per annum equal to the sum of the Alternate Base Rate for such day plus the Applicable Margin for such Term Loan on such day. Each LIBO Rate Loan shall accrue interest on the unpaid principal amount thereof for each day during each Interest Period applicable thereto at a rate per annum equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable Margin for such Term Loan on such day. All LIBO Rate Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan. SECTION 3.2.2. Post-Maturity Rates. Upon the occurrence and continuance of (i) any Default described in Section 8.1.1 or (ii) any Event of Default which shall remain uncured for thirty days (without giving effect to any grace period therefor), all Term Loans shall bear, and the Borrower shall pay, but only to the extent permitted by law, interest (after as well as before 34 42 judgment) thereon at a rate per annum equal to the rate that would otherwise be applicable to such Term Loans pursuant to Section 3.2.1 plus 2.0%. SECTION 3.2.3. Payment Dates. Interest accrued on each Term Loan shall be payable, without duplication: (a) on the Stated Maturity Date therefor; (b) on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Term Loan; (c) with respect to Base Rate Loans, on each Quarterly Payment Date occurring after the Closing Date; (d) with respect to LIBO Rate Loans, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, at intervals of three months after the first day of such Interest Period); (e) with respect to the principal amount of any Base Rate Loans converted into LIBO Rate Loans on a day when interest would not otherwise have been payable pursuant to clause (c), on the date of such conversion; and (f) on that portion of any Term Loans the Stated Maturity Date of which is accelerated pursuant to Section 8.2 or Section 8.3, immediately upon such acceleration. Interest accrued on Term Loans or other monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth in this Section 3.3. All such fees shall be non-refundable. SECTION 3.3.1. Arrangement, Structuring and Commitment Fees. In accordance with the Fee Letter, PAAC shall, or shall cause the Borrower to, pay on the Effective Date to each of the Arranger, the Syndication Agent and the Documentation Agent for its account their applicable portion of the arrangement and structuring fee referred to therein and, for the account of the Arranger, the commitment fee referred to therein. SECTION 3.3.2. Administrative Agent Fee. The Borrower agrees to pay an annual administration fee to the Administrative Agent, for its own account, in the amounts mutually agreed to between the Borrower and the Administrative Agent, payable in advance on the Closing Date and annually thereafter. 35 43 ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. LIBO Rate Lending Unlawful. If any Lender shall determine (which determination shall, upon notice thereof to the Borrower and the Lenders, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to make, continue or maintain any Term Loan as, or to convert any Term Loan into, a LIBO Rate Loan of a certain type, the obligations of all Lenders to make, continue, maintain or convert any such Term Loans shall, upon such determination, forthwith be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and all LIBO Rate Loans of such type shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. SECTION 4.2. Deposits Unavailable. If the Administrative Agent shall have determined that (i) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to the Administrative Agent in its relevant market, or (ii) by reason of circumstances affecting the Administrative Agent's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans, then, upon notice from the Administrative Agent to the Borrower and the Lenders, the obligations of all Lenders under Section 2.3 and Section 2.4 to make or continue any Term Loans as, or to convert any Term Loans into, LIBO Rate Loans shall forthwith be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. SECTION 4.3. Increased LIBO Rate Loan Costs, etc. The Borrower agrees to reimburse each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Term Loans as, or of converting (or of its obligation to convert) any Term Loans into, LIBO Rate Loans. Such Lender shall promptly notify the Administrative Agent and the Borrower in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Lender for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower directly to such Lender within five days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.4. Funding Losses. In the event any Lender shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Term Loan as, or to convert any portion of the principal amount of any Term Loan into, a LIBO Rate Loan) as a result of (i) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.1 or otherwise, (ii) Borrower's failure to borrow any Term Loans as LIBO Rate Loans in accordance with the Borrowing Request therefor, or (iii) Borrower's failure to continue, or to convert Base Rate Loans into LIBO Rate Loans in accordance with the Continuation/Conversion Notice therefor, 36 44 then, upon the written notice of such Lender to the Borrower (with a copy to the Administrative Agent), the Borrower shall, within five days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.5. Increased Capital Costs. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority affects or would affect the amount of capital required or expected to be maintained by any Lender or any Person controlling such Lender, and such Lender determines (in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of its Term Loan Commitment or the Term Loans made by such Lender is reduced to a level below that which such Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Lender to the Borrower, the Borrower shall immediately pay directly to such Lender additional amounts sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. In determining such amount, such Lender may use any method of averaging and attribution that it (in its sole and absolute discretion) shall deem applicable. SECTION 4.6. Taxes. All payments by the Borrower of principal of, and interest on, the Term Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender's net income or receipts (such non-excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Administrative Agent an official receipt or other documentation satisfactory to the Administrative Agent evidencing such payment to such authority; and (c) pay to the Administrative Agent for the account of the Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Administrative Agent or any Lender with respect to any payment received by the Administrative Agent or such Lender hereunder, the Administrative Agent or such Lender may pay such Taxes and the Borrower will promptly pay such additional amounts (including any penalties, interest or expenses) as is necessary in order that the net amount received by such person after the payment of such Taxes (including any 37 45 Taxes on such additional amount) shall equal the amount such person would have received had not such Taxes been asserted. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent, for the account of the respective Lenders, the required receipts or other required documentary evidence, the Borrower shall indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 4.6, a distribution hereunder by the Administrative Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower. Upon the request of the Borrower or the Administrative Agent, each Lender that is organized under the laws of a jurisdiction other than the United States shall, prior to the due date of any payments under the Term Notes, execute and deliver to the Borrower and the Administrative Agent, on or before the first scheduled payment date in each Fiscal Year, one or more (as the Borrower or the Administrative Agent may reasonably request) United States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or successor forms or documents), appropriately completed, as may be applicable to establish the extent, if any, to which a payment to such Lender is exempt from withholding or deduction of Taxes. SECTION 4.7. Payments, Computations, etc. Unless otherwise expressly provided, all payments by or on behalf of the Borrower pursuant to this Agreement, the Term Notes or any other Loan Document shall be made by the Borrower to the Administrative Agent for the pro rata account of the Lenders, Agents or Arranger, as applicable, entitled to receive such payment. All such payments required to be made to the Administrative Agent shall be made, without setoff, deduction or counterclaim, not later than 11:00 a.m. (Chicago time) on the date due, in same day or immediately available funds, to such account as the Administrative Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Administrative Agent on the next succeeding Business Day. The Administrative Agent shall promptly remit in same day funds to each Lender, Agent or Arranger, as the case may be, its share, if any, of such payments received by the Administrative Agent for the account of such Lender, Agent or Arranger, as the case may be. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan that is not calculated at the Federal Funds Rate, 365 days or, if appropriate, 366 days). Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause (i) of the definition of the term "Interest Period" with respect to LIBO Rate Loans) be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. SECTION 4.8. Sharing of Payments. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Term Loan (other than pursuant to the terms of Sections 4.3, 4.4 and 4.5) in excess of its pro rata share of payments then or therewith obtained by all Lenders entitled thereto, such Lender shall purchase from the other Lenders such participations in the Term Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other 38 46 recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (i) the amount of such selling Lender's required repayment to the purchasing Lender in respect of such recovery, to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 4.9) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 4.9. Setoff. Each Lender shall, upon the occurrence of any Event of Default described in clause (a), (b) or (c) of Section 8.1.9 with respect to any Obligor or, with the consent of the Required Lenders, upon the occurrence of any other Event of Default, to the fullest extent permitted by law, have the right to appropriate and apply to the payment of the Obligations then owing to it (whether or not then due), and (as security for such Obligations) the Borrower hereby grants to each Lender a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter maintained with or otherwise held by such Lender; provided, however, that any such appropriation and application shall be subject to the provisions of Section 4.8. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Lender may have. ARTICLE V CONDITIONS TO TERM LOAN EXTENSION The obligation of each Lender to fund its Term Loans shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Article V. SECTION 5.1. Resolutions, etc. The Arranger, the Syndication Agent and the Administrative Agent shall have received from each Obligor a certificate, dated the Closing Date, of its Secretary or Assistant Secretary as to (i) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of each Loan Document to be executed by it, and (ii) the incumbency and signatures of those of its officers authorized to act with respect to each Loan Document executed by it, upon which certificate each Agent and each Lender may conclusively rely until it shall have received a further 39 47 certificate of the Secretary or Assistant Secretary of such Obligor canceling or amending such prior certificate. SECTION 5.2. Delivery of Term Notes and the Bond. (a) Each Lender shall have received its Term Note duly executed and delivered by the Borrower. (b) The Collateral Agent shall have received the Bond and the Bond Pledge Agreement related thereto, each duly executed and delivered by the Borrower. SECTION 5.3. Guarantees. The Agents shall have received executed counterparts of (a) the Affiliate Guaranty, dated the date hereof and duly executed and delivered by an Authorized Officer of each of the Affiliate Guarantors and (b) the Canadian Subsidiary Guaranty, dated the date hereof and duly executed and delivered by an Authorized Officer of PCICC. SECTION 5.4. Consummation of Acquisition. The Agents shall have received evidence satisfactory to each of them that all actions necessary to consummate the Acquisition shall have been taken in accordance with all applicable law and that the Acquisition shall have been consummated in accordance with the terms of the Purchase Agreement without amendment or waiver of any material provision thereof by PCI, PCICC, PCI Carolina or any of their Affiliates. There shall exist at and as of the Closing Date (after giving effect to the transactions contemplated by the Purchase Agreement) no conditions that would constitute a default or an event of default under the Purchase Agreement. SECTION 5.5. Issuance of the Senior Secured Notes. The Agents shall have received evidence satisfactory to each of them that PCICC shall have received gross proceeds from the issuance of the Senior Secured Notes in a principal amount not to exceed $175,000,000, which proceeds (net of underwriting and other fees and expenses incurred in connection with the Senior Secured Note Offering) shall have been applied to the purchase price in connection with the Acquisition. The Agents shall be reasonably satisfied with all terms and provisions of all documentation relating to such Senior Secured Notes (including the Senior Secured Note Indenture). SECTION 5.6. Revolving Credit Agreement. The Agents shall have received copies of fully executed versions of the Revolving Credit Agreement, certified to be true and complete copies thereof by an Authorized Officer of PAAC, and be satisfied with the terms of such Revolving Credit Agreement. As of the Closing Date, each condition to the amendment thereof contemplated by the Revolving Credit Agreement shall have been satisfied or, with appropriate consents, waived. There shall exist at and as of the Closing Date (after giving effect to the transactions contemplated by the Revolving Credit Agreement) no conditions that would constitute a default or event of default under the Revolving Credit Agreement. SECTION 5.7. Transaction Documents. The Agents shall have received (with copies for each Lender that shall have expressly requested in writing copies thereof) copies of fully executed versions of all other Transaction Documents, certified to be true and complete copies thereof by an Authorized Officer of the Borrower, and be satisfied with the terms of all such agreements and documents. The Arranger, the Syndication Agent and the Documentation Agent shall be reasonably satisfied with all other aspects of the Transaction, including the aggregate 40 48 sources and uses of proceeds utilized to consummate the Transaction (including fees and expenses not to exceed $14,400,000 in the aggregate). SECTION 5.8. Canadian Demand Debenture. PCICC shall have caused to be delivered to the Collateral Agent, with copies to the Agents, the following documents and instruments with regard to each Mortgaged Property of PCICC, providing for first priority mortgages: (a) each Canadian Demand Debenture and each Canadian Demand Debenture Pledge Agreement related thereto, each duly executed by PCICC, together with evidence of the due recordation thereof in the appropriate recording office of the political subdivision where such Mortgaged Property is situated (or evidence reasonably satisfactory to the Arranger, the Syndication Agent and the Documentation Agent that such Canadian Demand Debenture has been delivered to the appropriate recording office for recording and that all fees, taxes and other expenses associated with such recording have been paid); (b) Other than in respect of the Exempt Properties, opinions of Counsel confirming that PCICC is the owner, in fee simple, of the Mortgaged Properties with a good and marketable title thereto, free and clear of all encumbrances except Permitted Liens and that such Canadian Demand Debenture is a good and valid first mortgage of PCICC's interest in the Mortgaged Properties, in form and substance reasonably satisfactory to the Arranger, the Syndication Agent and the Documentation Agent, subject only to such other matters as are acceptable to the Arranger, the Syndication Agent and the Documentation Agent; (c) Other than in respect of the Exempt Properties, certified perimeter surveys or certificates of location of the real property covered by such Canadian Demand Debenture by registered surveyors as of a date and in form and substance acceptable to the Arranger, the Syndication Agent and the Documentation Agent, bearing legal descriptions indicating the length of exterior boundary lines of such Mortgaged Property, locations of all buildings, utility or other easements or servitudes, showing the location of all servitudes, easements of record, encroachments, if any, and means of access to the real property from a public way; and the surveyor's original certification to the Syndication Agent and the Collateral Agent, together with a statutory declaration of the senior officer of PCICC confirming that all buildings, fencing, erections, enclosures and other structures or improvements presently situated on the Mortgaged Properties are in the locations wholly within the limits of the Mortgaged Properties and that there are no additions or changes to the locations of the buildings as shown on such surveys since the date of such surveys; it being acknowledged and agreed by the parties hereto that any such certified perimeter survey in respect of the Missassauga Property shall be delivered to the Arranger, the Syndication Agent, the Documentation Agent and the Collateral Agent within 45 days of the Closing Date; (d) evidence reasonably satisfactory to the Arranger, the Syndication Agent and the Documentation Agent of all filings of registrations or applications for registrations necessary or desirable to perfect the Lien created pursuant to such Canadian Demand Debenture (or evidence reasonably satisfactory to the Arranger, the Syndication Agent and the Documentation Agent that such registrations or applications for registrations have been delivered to the appropriate registry office(s) and that all fees, taxes and other 41 49 expenses associated with such filings have been paid), together with such searches of Liens, judgment and tax lien records (other than in respect of the property located in Point Tupper, Nova Scotia, Canada) as the Arranger, the Syndication Agent and the Documentation Agent shall reasonably require; (e) policies or certificates of insurance with respect to the insurance required to be maintained in respect of the property covered by such Canadian Demand Debenture pursuant to the terms of this Agreement, naming the Collateral Agent as loss payee or additional named insured, as appropriate; and (f) such other agreements, instruments, approvals, consents, opinions, or documents as the Syndication Agent, the Documentation Agent, the Administrative Agent, the Collateral Agent or their respective counsel may reasonably request. SECTION 5.9. Security Agreements. The Collateral Agent and each of the Agents shall have received executed counterparts of each of the Canadian Subsidiary Security Agreement and the Affiliate Security Agreement, each dated as of the date hereof and duly executed and delivered by an Authorized Officer of, in the case of the Canadian Subsidiary Security Agreement, PCICC, and in the case of the Affiliate Security Agreement, each of PCI Carolina and Pioneer Licensing, together with (a) in the case of PCI Carolina and Pioneer Licensing (i) executed Uniform Commercial Code financing statements (Form UCC-1) naming each of PCI Carolina and Pioneer Licensing, as the debtor and the Collateral Agent as the secured party, or other similar instruments or documents, to be filed under the Uniform Commercial Code or other similar laws for all jurisdictions as may be necessary or, in the opinion of the Collateral Agent, desirable to perfect the security interest of the Collateral Agent pursuant to the Security Agreements; and (ii) certified copies of Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or a similar search report certified by a party acceptable to the Collateral Agent and the Agents, dated a date reasonably near to the Closing Date, listing all effective financing statements which name PCI Carolina, Pioneer Licensing or the U.S. Seller (under its present name and any previous names), as the debtor and which are filed in the jurisdiction in which filings were made pursuant to clause (a)(i) above, together with copies of such financing statements; and (b) in the case of PCICC, (i) evidence reasonably satisfactory to the Arranger, the Syndication Agent and the Documentation Agent of all financing statements under the applicable PPSA and all other filings and registrations necessary or desirable to perfect the Lien created pursuant to such Canadian Subsidiary Security Agreement (or evidence reasonably satisfactory to the Arranger, the Syndication Agent and the Documentation Agent that such financing statements have been delivered to the applicable filing office(s) and that all fees, taxes and other expenses associated with such filings have been paid), together with such searches of Liens, judgment and tax lien records as the Arranger, the Syndication Agent and the Documentation Agent shall reasonably require, and (ii) lien 42 50 searches in the names of PCICC and each Subsidiary of PCICC (and in all names under which it has done business within the last five years) in each Canadian Province where each such Person maintains an office or has property, showing no financing statements or other lien instruments of record except for Permitted Liens (and Liens released in accordance with this Agreement). SECTION 5.10. Quebec Mortgage and Security Agreement. The Collateral Agent and each of the Agents shall have received executed counterparts of the Quebec Mortgage and Security Agreement, dated as of the date hereof and duly executed and delivered by an Authorized Officer of PCICC, together with evidence of the registration, filing and recording of the Liens (both moveable and immoveable hypothecs) including: (a) an executed application for registration of those Liens constituting moveable hypothecs under the Quebec Mortgage and Security Agreement, naming PCICC as the grantor and the Collateral Agent as the holder, to be published in the Register of Personal and Moveable Real Rights in the Province of Quebec; (b) a statement of all the rights registered in the Register of Personal and Moveable Real Rights in the Province of Quebec against the moveable property, both tangible and intangible, of PCICC, certified by the Registrar and dated a date reasonably near to the date hereof, together with copies of the documents forming part of the records of the Registry Office; (c) certified perimeter surveys or certificates of location of the real immovable property covered by the Quebec Mortgage and Security Agreement by registered surveyors as of a date and in form and substance acceptable to the Arranger, the Syndication Agent and the Documentation Agent, bearing legal descriptions; indicating the length of exterior boundary lines of the Mortgaged Property, locations of all buildings, utility or other easements or servitudes, showing the location of all servitudes, easements of record, encroachments, if any, and means of access to the real property from a public way; and the surveyor's original certification to the Syndication Agent and the Collateral Agent; (d) policies or certificates of insurance with respect to the insurance required to be maintained in respect of the property covered by the Quebec Mortgage and Security Agreement pursuant to the terms of this Agreement, naming the Collateral Agent as loss payee or additional named insured, as appropriate; and (e) such other agreements, instruments, approvals, consents, opinions, or documents as the Syndication Agent, the Documentation Agent, the Administrative Agent, or their respective counsel may reasonably request. SECTION 5.11. Closing Date Certificates. The Agents shall have received, with counterparts for each Lender, the Closing Date Certificates, substantially in the form of Exhibits G-1, G-2 and G-3 hereto, respectively, dated the Closing Date and duly executed and delivered by each of: (a) the chief executive or financial (or equivalent) Authorized Officer of the Borrower, in which certificate the Borrower shall agree and acknowledge that the 43 51 statements made therein shall be deemed to be true and correct representations and warranties of the Borrower made as of such date under this Agreement, and, at the time such certificate is delivered, such statements shall in fact be true and correct; (b) the chief executive or financial (or equivalent) Authorized Officer of PAAC, in which certificate PAAC shall agree and acknowledge that the statements made therein shall be deemed to be true and correct representations and warranties of PAAC made as of such date under this Agreement, and, at the time such certificate is delivered, such statements shall in fact be true and correct; and (c) the chief executive or financial (or equivalent) Authorized Officer of PCI, in which certificate PCI shall agree and acknowledge that the statements made therein shall be deemed to be true and correct representations and warranties of PCI made as of such date under this Agreement, and, at the time such certificate is delivered, such statements shall in fact be true and correct. SECTION 5.12. Financial Information, etc. The Agents shall have received (a) the audited financial statements of PAAC as of December 31, 1996 and for the period from March 6, 1995 through December 31, 1995; (b) the audited financial statements of PAAC's predecessor, the Borrower, as of December 31, 1994 and for the period from January 1, 1995 through April 20, 1995; (c) the unaudited financial statements of PAAC for the period from April 1, 1997 through June 30, 1997 and for the cumulative period from January 1, 1997 through June 30, 1997; and (d) a pro forma opening balance sheet of each of the Borrower and of PAAC, in each case as of June 30, 1997, giving effect to the contemplated Transaction and reflecting the proposed legal and capital structure of the Borrower as of the Closing Date (the "Pro Form Balance Sheets"), which legal and capital structure shall be satisfactory in all respects to Agents. SECTION 5.13. Pro Forma Balance Sheet Certificate. The Agents shall have received a certificate from the chief executive or financial Authorized Officer of each of the Borrower and PAAC, dated the date of the initial Borrowing, with respect to delivery of the Pro Forma Balance Sheets described in clause (d) of Section 5.12. SECTION 5.14. Target Business Financial Information. The Agents shall have received (a) consolidated financial statements of the Target Business including balance sheets as at December 31, 1996, and December 31, 1995, and statements of operations and changes in financial position as of December 31, 1996, December 31, 1995 and December 31, 1994, audited by independent public accountants of recognized international standing and prepared in accordance with generally accepted accounting principles as then in effect in Canada (with a reconciliation to GAAP), together with the report thereon; and 44 52 (b) unaudited interim financial statements of the Target Business, prepared in the same manner as the historical audited statements, for the six-month period, ended June 30, 1997 and June 30, 1996. SECTION 5.15. Indebtedness Certificate. The Agents shall have received, with copies for each Lender, a certificate from the chief financial Authorized Officer of PAAC, dated the Closing Date, certifying that, immediately after the making of the Term Loans hereunder and the issuance of the Senior Secured Notes, PAAC's Consolidated Cash Flow Coverage Ratio is at least 2.0 to 1.0 as required pursuant to Section 7.2.1 of the Existing Term Loan Agreement and Section 1008 of the Existing Senior Secured Note Indenture, together with detailed supporting calculations satisfactory in form and scope to the Agents. SECTION 5.16. Intercreditor Agreement. The Borrower, PCICC, the Trustee, the Administrative Agent, BofA (as agent under the Revolving Credit Agreement) and the Collateral Agent shall have entered into the Intercreditor Agreement, and the Arranger and the Syndication Agent shall have received and be satisfied with the terms of the executed versions thereof. SECTION 5.17. Litigation. There shall exist no pending or threatened material litigation, proceedings or investigations which (x) contests the consummation of the Transaction or (y) could reasonably be expected to have a Material Adverse Effect. SECTION 5.18. Material Adverse Change. Since December 31, 1996, there shall have occurred no material adverse change in the business, assets, debt service capacity, liabilities (including environmental liabilities), financial condition, operations or prospects of PAAC and its Subsidiaries or the Target Business. SECTION 5.19. Consents and Approvals, etc. All governmental and third party approvals necessary or advisable in connection with each aspect of the Transaction and the continuing operations of the Borrower, its Subsidiaries and the Target shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on any aspect of the Transaction. SECTION 5.20. Reliance Letters. The Syndication Agent and the Administrative Agent shall, unless otherwise agreed, have received reliance letters, dated the Closing Date and addressed to each Lender and each Agent, in respect of each of the legal opinions (other than "disclosure" and other similar opinions) delivered in connection with the Transaction. SECTION 5.21. Opinions of Counsel. The Syndication Agent and the Administrative Agent shall have received opinions, dated the Closing Date and addressed to the Agents and all Lenders from (a) Willkie Farr & Gallagher, special New York counsel for the Borrower and the Guarantors, in form and substance satisfactory to the Agents, (b) Stikeman, Elliott (Montreal), special Quebec counsel for PCICC and the Guarantors, in form and substance satisfactory to the Agents, 45 53 (c) Stikeman, Elliott (Toronto), special Ontario counsel for the Borrower and the Guarantors, in form and substance satisfactory to the Agents, (d) Kent R. Stephenson, Esq., the General Counsel of PAAC, in form and substance satisfactory to the Agents, and (e) Stewart, McKelvey, Stirling & Scales, special New Brunswick and Nova Scotia counsel to the Borrower and the Guarantors, in form and substance satisfactory to the Agents. SECTION 5.22. Closing Fees, Expenses, etc. The Lenders, the Agents and the Arranger shall have received, each for their own respective accounts (including in their capacity as a Lender), as the case may be, all fees, costs and expenses due and payable pursuant to Sections 3.3 and 10.4 if then invoiced). SECTION 5.23. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of the Borrower or any of its Subsidiaries or any other Obligors shall be reasonably satisfactory in form and substance to the Agents and their counsel; the Agents and their counsel shall have received all information, approvals, opinions, documents or instruments as the Agents or their counsel may reasonably request. SECTION 5.24. Compliance with Warranties, No Default, etc. Both before and after giving effect to the making of any Term Loan hereunder, the following statements shall be true and correct: (a) the representations and warranties set forth in Article VI and each other Loan Document shall, in each case, be true and correct with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date); and (b) no Default shall have then occurred and be continuing, and neither PAAC, the Borrower, nor any of their respective Subsidiaries are in material violation of any law or governmental regulation or court order or decree. ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Agents to enter into this Agreement and to make the Term Loans hereunder, each of the Borrower and PAAC represents and warrants unto the Agents and each Lender as set forth in this Article VI. SECTION 6.1. Organization, etc. Each of the Borrower and PAAC and their respective Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its respective incorporation or organization. Each of the Borrower and PAAC and their respective Subsidiaries is in good standing and is duly qualified to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification 46 54 is required, except for those states in which its failure to qualify to do business would not be reasonably likely to have a Material Adverse Effect. SECTION 6.2. Due Authorization, Non-Contravention, etc. The Borrower is duly authorized to execute and deliver this Agreement, the Term Notes, and each other Loan Document to be executed by it and is duly authorized to borrow monies hereunder and to perform its obligations under this Agreement, the Term Notes and each other Loan Document to be executed by it. PAAC is duly authorized to execute and deliver this Agreement and each other Loan Document to be executed by it and is and will continue to be duly authorized to perform its obligations under this Agreement and each other Loan Document to be executed by it. Each other Obligor is duly authorized to execute and deliver each Loan Document to be executed by it and is and will continue to be duly authorized to perform its obligations thereunder. The execution, delivery and performance by (a) the Borrower of this Agreement, the Term Notes and each other Loan Document to which it is a party and the Borrowings hereunder, (b) PAAC of this Agreement and each other Loan Document to which it is a party and (c) each other Obligor of each Loan Document to which it is a party do not and will not require any consent or approval of any governmental agency or authority. SECTION 6.3. No Conflicts. The execution, delivery and performance by (a) the Borrower of this Agreement, the Term Notes and each other Loan Document to which it is a party, (b) PAAC of this Agreement and each other Loan Document to which it is a party and (c) each other Obligor of each Loan Document to which it is a party do not and will not conflict with (i) any provision of law, (ii) the Certificate or Articles of Incorporation, as applicable, or bylaws, of the Borrower, PAAC or such other Obligor, (iii) any agreement binding upon the Borrower, PAAC or such other Obligor which conflict is reasonably likely to have a Material Adverse Effect or (iv) any court or administrative order or decree applicable to the Borrower, PAAC or such other Obligor which conflict is reasonably likely to have a Material Adverse Effect, and do not and will not require, or result in, the creation or imposition of any Lien on any asset of the Borrower, PAAC or any other Obligor, except as provided herein. SECTION 6.4. Validity and Binding Effect. This Agreement, the Term Notes and each other Loan Document contemplated by this Agreement, when duly executed and delivered, will be legal, valid and binding obligations of the Borrower, PAAC and each other Obligor party thereto, as applicable, enforceable against the Borrower, PAAC and each such Obligor in accordance with their respective terms. SECTION 6.5. No Default. Neither the Borrower, PAAC nor any Subsidiary of the Borrower or PAAC is in default under any agreement or instrument to which the Borrower, PAAC or such Subsidiary is a party or by which any of their respective properties or assets is bound or affected, which default is reasonably likely to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION 6.6. Financial Statements. Each of the financial statements of PAAC and of PAAC's predecessor, the Borrower, referred to in clauses (a), (b) and (c) of Section 5.12 have been furnished to the Agents, have been prepared in conformity with GAAP applied on a basis consistent with that of the preceding Fiscal Year and period, and present fairly the financial condition of PAAC and its Subsidiaries as of such dates and the results of their operations for the periods then ended, subject (in the case of the interim financial statement) to year-end audit adjustments. The Pro Forma Balance Sheets include appropriate pro forma adjustments to give 47 55 pro forma effect to the Transaction (including assumptions that have been made on a reasonable basis). Since December 31, 1996, there has not occurred or arisen any event or condition which has had or is reasonably likely to have a Material Adverse Effect. SECTION 6.7. Insurance. Item 6.7 ("Insurance") of the Disclosure Schedule is a complete and accurate summary of the property and casualty insurance program that is or will be carried by each of the Borrower, PAAC and their Subsidiaries on the Closing Date. Such Item 6.7 includes name(s) of insurer(s), policy number(s), expiration date(s), amount(s) of coverage, type(s) of coverage, the annual premium(s), deductibles and self-insured retention and describes any retrospective rating plan, fronting arrangement or any other self-insurance or risk assumption agreed to by the Borrower, PAAC or any of their Subsidiaries or imposed upon the Borrower, PAAC or any such Subsidiary by any such insurer. This summary also includes any self-insurance program that is in effect. SECTION 6.8. Litigation; Contingent Liabilities. (a) As of the date hereof and the Closing Date, except for those referred to in Item 6.8 ("Litigation") of the Disclosure Schedule, there are no claims, litigation, arbitration proceedings or governmental proceedings pending or threatened against or affecting the Borrower, PAAC, any of their respective Subsidiaries or any Related Party, the results of which are reasonably likely to have a Material Adverse Effect. (b) As of the date hereof and the Closing Date, other than any liability incident to the claims, litigation or proceedings disclosed in Item 6.8 of the Disclosure Schedule or provided for or disclosed in the financial statements referred to in Section 6.6, neither the Borrower or PAAC nor any of their Subsidiaries has any contingent liabilities which are reasonably likely to have a Material Adverse Effect. SECTION 6.9. Liens. None of the Collateral or other property, revenues or assets of the Borrower, PAAC or any of their Restricted Subsidiaries is subject to any Lien except Liens permitted by clauses (a) and (b) of Section 7.2.2. SECTION 6.10. Subsidiaries. As of the date hereof and the Closing Date, all of PAAC's Subsidiaries are listed in Item 6.10 ("Subsidiaries") of the Disclosure Schedule. Item 6.10 of the Disclosure Schedule sets forth, for each such Subsidiary, a complete and accurate statement of (a) PAAC's percentage ownership of each of Subsidiaries, (b) the state or other jurisdiction of formation or incorporation of each such Subsidiary and (c) each state in which each such Subsidiary is qualified to do business. As of the date hereof and the Closing Date, no PCIFP Company has any Subsidiaries. SECTION 6.11. Partnerships; Joint Ventures. As of the date hereof and the Closing Date, neither the Borrower or PAAC nor any of their Subsidiaries is a partner or joint venturer in any partnership or joint venture other than the partnerships and joint ventures listed in Item 6.11 ("Partnerships and Joint Ventures") of the Disclosure Schedule. Item 6.11 of the Disclosure Schedule sets forth, for each such partnership or joint venture, a complete and accurate statement of (a) PAAC's and each Subsidiary's percentage ownership of each such partnership or joint venture, (b) the state or other jurisdiction of formation or incorporation, as appropriate, of each such partnership or joint venture and (c) each state in which each such partnership or joint venture is qualified to do business. 48 56 SECTION 6.12. Senior Secured Notes. The Senior Secured Notes have been issued and sold to the initial purchasers thereof on or prior to the Closing Date in accordance with and pursuant to the terms of the Offering Memorandum and in compliance with all laws, including Rule 144A of the Securities Act of 1933, as amended and all other applicable federal and state securities laws. The issuance of the Senior Secured Notes and the execution of the Senior Secured Note Indenture have been duly authorized by all necessary corporate action on the part of PCICC and each of its Affiliates party thereto and will not require any consent or approval of any governmental agency or authority that has not been obtained prior to the date hereof. The issuance of the Senior Secured Notes and the execution of the Senior Secured Note Indenture do not conflict with (i) any provision of law, (ii) the Certificate or Articles of Incorporation or by- laws of PCICC or any of its Affiliates, (iii) any agreement binding upon PCICC or any of its Affiliates which conflict is reasonably likely to have a Material Adverse Effect, or (iv) any court or administrative order or decree applicable to PCICC or any of its Affiliates which conflict is reasonably likely to have a Material Adverse Effect, and do not and will not require, or result in, the creation or imposition of any Lien on any asset of PCICC or any of its Affiliates. All representations and warranties of PCICC and each of its Affiliates contained in the purchase agreement relating to the Senior Secured Notes are true and correct in all material respects as of the date hereof and the Closing Date. SECTION 6.13. Intellectual Property. Each of the Borrower, PAAC and their respective Subsidiaries possesses adequate licenses, patents, patent applications, copyrights, trademarks, trademark applications, trade styles, and trade names to continue to conduct its respective business as heretofore conducted by it or, in the case of the Target Business, its predecessors, and all such licenses, patents, patent applications, copyrights, trademarks, trademark applications, trade styles, and trade names that will be existing on the Closing Date of the Borrower, PAAC or any such Subsidiary are listed in Item 6.13 ("Intellectual Property") of the Disclosure Schedule. SECTION 6.14. Solvency. Each of the Borrower and the Guarantors, immediately after giving effect to the Transaction on the Closing Date, will be Solvent. As used herein, the term "Solvent" means, with respect to any such entity on a particular date (i) the fair value of the property of such entity is greater than the total amount of liabilities (including contingent liabilities) of such entity, (ii) the present fair saleable value of the assets of such entity is greater than the probable liability of such entity on its total existing debts (including contingent liabilities) as they become absolute and matured, (iii) such entity will be able to pay its debts and liabilities as they mature and (iv) such entity will not have unreasonably small capital for the business in which it is engaged, as now conducted and as proposed to be conducted following the consummation of the Transaction. SECTION 6.15. Contracts; Labor Matters. Except as disclosed in Item 6.15 ("Contracts and Labor Matters") of the Disclosure Schedule: (a) neither the Borrower or PAAC nor any of their Subsidiaries is a party to any contract or agreement, or is subject to any charge, corporate restriction, judgment, decree or order, which is reasonably likely to have a Material Adverse Effect; (b) as of the date hereof and the Closing Date, no labor contract to which the Borrower, PAAC or any of their Subsidiaries is a party or is otherwise subject is scheduled to expire prior to the Stated Maturity Date; (c) neither the Borrower or PAAC nor any of their Subsidiaries (or any of their respective predecessors or, with respect to the Target Business, predecessors in interest) has, within the two (2) year period preceding the date of this Agreement, taken any action which would have constituted or resulted in a "plant closing" or "mass layoff" within the 49 57 meaning of the Federal Worker Adjustment and Retraining Notification Act of 1988 or any similar applicable U.S. federal, state or local law or any Canadian federal, provincial or local law that sets out requirements respecting plant closings or layoffs, and neither the Borrower nor PAAC has any reasonable expectation that any such action is or will be required any time prior to the Stated Maturity Date; and (d) on the date of this Agreement and the Closing Date (i) neither the Borrower or PAAC nor any of their Subsidiaries (or any of their respective predecessors) is a party to, or subject to, any labor dispute and (ii) there are no strikes or walkouts relating to any labor contracts to which the Borrower or PAAC or any of its Subsidiaries (or any of their respective predecessors) is a party or is otherwise subject. SECTION 6.16. Pension and Welfare Plans. (a) Each Pension Plan complies, and has been administered in compliance, in all material respects, with all applicable statutes and governmental rules and regulations; no Reportable Event has occurred and is continuing with respect to any Pension Plan; neither the Borrower nor PAAC nor any ERISA Affiliate of either has withdrawn from any Multiemployer Plan in a "complete withdrawal" or a "partial withdrawal" as defined in section 4203 or 4205 of ERISA, respectively, with respect to which the Borrower, PAAC or any ERISA Affiliate of either has any unsatisfied liability; no steps have been instituted to terminate any Pension Plan; no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA; no condition exists or event or transaction has occurred in connection with any Pension Plan or Multiemployer Plan that is reasonably likely to have a Material Adverse Effect; and neither the Borrower nor PAAC nor any ERISA Affiliate of either is a "contributing sponsor" as defined in section 4001(a)(13) of ERISA of a "single-employer plan" as defined in section 4001(a)(15) of ERISA that has two or more contributing sponsors at least two of whom are not under common control. Except as listed in Item 6.16 ("Pension and Welfare Plans") of the Disclosure Schedule, neither the Borrower nor PAAC nor any ERISA Affiliate of either, to the extent there is joint and several liability with the Borrower or PAAC to pay such benefits, has any liability to pay any welfare benefits under any employee welfare benefit plan within the meaning of section 3(l) of ERISA to former employees thereof or to current employees with respect to claims incurred after the termination of their employment other than as required by section 4980B of the Code or Part 6 of Subtitle B of Title 1 of ERISA. (b) PCICC has entered into the Pension Transfer Agreement referred to in the definition of "Acquisition Agreements" based (i) on a review to its satisfaction of actuarial information requested by, and provided to, it by the Canadian Seller, together with such other material as is referred to in Section 3.1(12) of the Purchase Agreement and (ii) on the representations of the Canadian Seller set forth in Sections 3.1(12) and (13) of the Purchase Agreement, pursuant to which PCICC will establish a Canadian Pension Plan, to become effective October 31, 1997, which Canadian Pension Plan will receive assets from prior pension plans for which the Canadian Seller was liable equal to the greater of the going concern liabilities and the solvency liabilities in respect of the initial participants as of October 31, 1997, such assets to be computed (A) on the basis of the actuarial assumptions and methods specified in the applicable legislation and the most recent actuarial valuations for the prior pension plans and (B) subject to the approval of the relevant authorities. SECTION 6.17. Regulations G, U and X. Neither the Borrower nor PAAC nor any of their Subsidiaries is engaged in the business of purchasing or selling Margin Stock or extending credit to others for the purpose of purchasing or carrying Margin Stock, and no part of the 50 58 proceeds of the Term Loans will be used to purchase or carry any Margin Stock or for any other purpose which would violate any of the margin regulations of the Federal Reserve Board. SECTION 6.18. Compliance. The Borrower, PAAC and their respective Subsidiaries are each in compliance with all statutes and governmental rules and regulations applicable to it, the noncompliance with which is reasonably likely to have a Material Adverse Effect. SECTION 6.19. Taxes. The Borrower, PAAC and their respective Subsidiaries have each filed all material tax returns which are required to have been filed and has paid, or made adequate provisions for the payment of, all of its Taxes which are due and payable, except such Taxes, if any, as are being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP have been maintained. The federal income tax liability of PAAC and its Subsidiaries has been audited by the Internal Revenue Service and has been finally determined and satisfied (or the time for audit has expired) for all tax years up to and including the tax year ended December 31, 1993. Neither the Borrower nor PAAC is aware of any proposed assessment against the Borrower, PAAC or any of their Subsidiaries for additional Taxes (or any basis for any such assessment). SECTION 6.20. Investment Company Act Representation. Neither the Borrower or PAAC nor any of their Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 6.21. Public Utility Holding Company Act Representation. Neither the Borrower or PAAC nor any of their Subsidiaries is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 6.22. Environmental and Safety and Health Matters. Each of the Borrower, PAAC and their Subsidiaries and/or each property, operations and facility that the Borrower, PAAC or any such Subsidiary owns, operates or controls (a) complies in all respects with (i) all applicable Environmental Laws, the noncompliance with which is reasonably likely to have a Material Adverse Effect and (ii) all applicable Occupational Safety and Health Laws, the noncompliance with which is reasonably likely to have a Material Adverse Effect; (b) has not received any notice (i) that it may be in violation of any Environmental Law or Occupational Safety and Health Law which is reasonably likely to have a Material Adverse Effect, (ii) threatening the commencement of any proceeding under any Environmental Law or Occupational Safety and Health Law, which is reasonably likely to have a Material Adverse Effect, or (iii) alleging that it is or may be responsible for any response, cleanup, or corrective action, including but not limited to any remedial investigation/feasibility studies, under any Environmental Law or Occupational Safety and Health Law, which, is reasonably likely to have a Material Adverse Effect; (c) to PAAC's and the Borrower's knowledge, neither PAAC nor any of its Subsidiaries (including the Borrower and its Subsidiaries (including the Target 51 59 Business)) is the subject of any Canadian or U.S. federal, state or provincial investigation evaluating whether any investigation, remedial action or other response is needed to respond to (i) a Release or threatened Release into the environment of any Hazardous Material or the spillage, disposal or release or threatened release into the environment of any other hazardous, toxic or dangerous waste, substance or constituent, or other substance regulated under any Environmental Law which is reasonably likely to have a Material Adverse Effect or (ii) any allegedly unsafe or unhealthful condition regulated under any Environmental Law or Occupational Safety and Health Law which is reasonably likely to have a Material Adverse Effect; (d) has not filed any notice under or relating to any Environmental Law or Occupational Safety and Health Law indicating or reporting (i) any past or present Release into the environment of, or treatment, storage or disposal of, any Hazardous Material or spillage, disposal or release into the environment of any other hazardous, toxic or dangerous waste, substance or constituent, or other substance regulated under any Environmental Law or (ii) any potentially unsafe or unhealthful condition, in either case, which is reasonably likely to have a Material Adverse Effect, and to PAAC's and the Borrower's knowledge, there exists no basis for such notice irrespective of whether such notice was actually filed; and (e) has no contingent liability in connection with any actual Release into the environment of, or otherwise with respect to, any Hazardous Material or spillage, disposal or release into the environment of any other hazardous, toxic or dangerous waste, substance or constituent, or other substance, whether on any premises owned or occupied by the Borrower, PAAC or any or their respective Subsidiaries or on any other premises, which is reasonably likely to have a Material Adverse Effect. There are no Hazardous Materials on, in or under any property or facilities owned, operated or controlled by the Borrower, PAAC or any of their respective Subsidiaries the presence of which is reasonably likely to have a Material Adverse Effect, including but not limited to such Hazardous Materials that may be contained in underground storage tanks, but excepting such Hazardous Materials used in accordance with all applicable laws and such Hazardous Materials used in the same manner as an ordinary consumer (e.g., gasoline in tanks of motor vehicles, small amounts of cosmetic cleaners, etc.). SECTION 6.23. Related Agreements and Transaction Documents. As of the date hereof and the Closing Date, all representations and warranties of PCI, the Borrower, PAAC and each of their respective Subsidiaries contained in any Loan Document and all representations and warranties of PCI, the Borrower, PCICC, PCI Carolina, Pioneer Licensing, PAAC and each of their respective Subsidiaries contained in any Transaction Document (whether such representations and warranties were made to the Agents or any Lender or to another Person) are true and correct as if made on the date hereof and the Closing Date (except for those representations and warranties which are expressly made as of another specified date) and each of the Borrower and PAAC hereby adopts and affirms all such representations and warranties which the Borrower and PAAC agree shall be incorporated by reference herein and made a part hereof. SECTION 6.24. Holding Companies. Each of PCI, PAAC, the Borrower, BMPC, Pioneer East, TCH and Imperial is a holding company without material assets, operations or 52 60 business, other than the direct ownership of (i) in the case of PCI, all of the Capital Stock of PAAC and Pioneer Water Technologies, Inc., (ii) in the case of PAAC, all of the Capital Stock of PAI, (iii) in the case of the Borrower, all of the Capital Stock of PCICC, PCI Carolina, Pioneer Licensing, PCAC and its other Subsidiaries, (iv) in the case TCH, all of the Capital Stock of T.C. Products, Inc. and (v) in the case of Imperial, 50% of the Capital Stock of Kemwater. None of PCI, PAAC, the Borrower, BMPC, Pioneer East, TCH and Imperial has any Indebtedness or other obligations other than, in the case of PAAC, Indebtedness of PAAC in respect of the Existing Term Loans, the loans made to PAAC pursuant to the Revolving Credit Agreement and the Existing Senior Secured Notes and guaranties of the Indebtedness of the Borrower and PCICC, in each case described below, in the case of the Borrower, the Obligations and guaranties of the Indebtedness of PAAC described above and the Indebtedness of PCICC under the Senior Secured Notes, and, in the case of BMPC, Pioneer East, TCH and Imperial, guaranties of the Indebtedness of PAAC, the Borrower and PCICC, in each case described above. SECTION 6.25. PCICC, PCI Carolina and Pioneer Licensing. PCICC, PCI Carolina and Pioneer Licensing were formed for the purpose of acquiring the assets of the Target Business and have not conducted any operations or incurred any Indebtedness or obligations other than in connection with the Senior Secured Notes, Acquisition Agreements and the other aspects of the Transaction. ARTICLE VII COVENANTS SECTION 7.1. Affirmative Covenants. The Borrower and PAAC agree with the Agents and each Lender that, until all Term Loan Commitments have terminated and all Obligations have been paid and performed in full, the Borrower and PAAC will perform the obligations set forth in this Section 7.1. SECTION 7.1.1. Financial Information, Reports, Notices, etc. The Borrower and PAAC will furnish, or will cause to be furnished, to each Lender and each Agent copies of the following financial statements, reports, notices and information (except to the extent any such Lender shall have provided written notice to each of the Borrower and PAAC and the Administrative Agent that it is not to receive any of the following statements, reports, notices and information): (a) Annual Audited Financial Statements. Within ninety (90) days after each Fiscal Year, a copy of the annual audited financial statements of PAAC and its Subsidiaries, in each case prepared on a consolidated and consolidating basis and in conformity with GAAP and certified by an independent certified public accountant who shall be satisfactory to the Agents, together with (i) a certificate from such accountant to the effect that, in making the examination necessary for the signing of such annual audit report, such accountant has not become aware of any Default or Event of Default that has occurred and is continuing and that relates to financial or other accounting matters or the covenants set forth in this Article VII or, if such accountant has become aware of any such event, describing it and (ii) if prepared in connection with the annual audit report, the annual operating statements of PAAC and its Subsidiaries prepared on a consolidated and consolidating basis and in conformity with GAAP applied in a manner consistent 53 61 with the audit report referred to in preceding clauses (a)(i), signed by PAAC's chief financial officer or assistant treasurer. (b) Quarterly Financial Statements. Within forty-five (45) days after the end of each Fiscal Quarter of PAAC except ninety (90) days after the end of the Fiscal Quarter closing a Fiscal Year, a copy of the unaudited financial statements of PAAC and its Subsidiaries prepared on a consolidated and consolidating basis and in conformity with GAAP applied in a manner consistent with the audit report referred to in preceding clause (a)(i), signed by PAAC's chief financial officer and consisting of at least a balance sheet as at the close of such Fiscal Quarter and an income statement and cash flow statement for such Fiscal Quarter and for the period from the beginning of such Fiscal Year to the close of such Fiscal Quarter, compared, in each case, to the actual results for the same period during the prior Fiscal Year and to PAAC's budget (delivered pursuant to paragraph (c) below, for the current Fiscal Year). (c) Annual Budgets. Within thirty (30) days after the end of each Fiscal Year of each of PAAC, a copy of an annual budget for PAAC for the current Fiscal Year, in each case prepared on a consolidated and consolidating basis and in conformity with GAAP applied in a manner consistent with the prior Fiscal Year's budget, signed by PAAC's chief financial officer or assistant treasurer and consisting of at least a balance sheet, an income statement and a cash flow statement, each calculated on a quarter by quarter basis. (d) Officer's Certificate. Together with the financial statements furnished by PAAC under the preceding clauses (a) and (b), a certificate of the chief executive or financial officer or assistant treasurer of PAAC stating that a review of the activities of PAAC and its Subsidiaries (including the Borrower) during the preceding Fiscal Year has been made under the supervision of the signing officers with a view to determining whether each has kept, observed, performed and fulfilled its obligations under this Agreement and the other Loan Documents, and further stating, as to each such officer signing such certificate, that to the best of his or her knowledge each has kept, observed, performed and fulfilled each and every covenant contained in this Agreement and the other Loan Documents and is not in default in the performance or observance of any of the terms, provisions and conditions hereof or thereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each is taking or proposes to take with respect thereto). (e) SEC and Other Reports. Copies of each filing and report made by PCI, PAAC or any of their respective Restricted Subsidiaries (including PCICC) with or to any securities exchange or the Securities and Exchange Commission, including any registration statement and all amendments thereto filed with respect to the Senior Secured Notes, or as required pursuant to the Senior Secured Note Indenture, the Senior Secured Notes or any other document relating thereto, promptly upon the filing or making thereof. (f) Notice of Default. Notice of the occurrence of (i) a Default or an Event of Default or (ii) a default by PCI, the Borrower, PAAC, any other Obligor or any Restricted Subsidiary of PAAC (including PCICC) under any material note, indenture, loan agreement, mortgage, lease, deed or other material similar agreement to which PCI, 54 62 the Borrower, PAAC, any other Obligor or any such Restricted Subsidiary, as appropriate, is a party or by which it is bound (including any of the Loan Documents and the Senior Secured Notes). (g) Notice of Judgment. Notice of the entry of any judgment or decree against PCI, the Borrower, PAAC, any other Obligor or any Restricted Subsidiary of PAAC if the amount of such judgment exceeds $500,000. (h) Notice of Other Indebtedness. Copies of any material amendments, waivers or consents, notices of breach or default, notices relating to the exercise or nonexercise of any remedy available to any Person, notices of indemnity or other claims, written materials relating to any dispute, written materials relating to the exercise of any rights derived from or arising in connection with any Indebtedness and other written communications of a material nature, including any communications by PCI, the Borrower, PAAC or any Restricted Subsidiary of PAAC in connection with the Loan Documents other than any such notice or other written materials already sent to the Agents pursuant to any other Section of this Agreement. (i) Loan Documents. Any statement, report, notice and/or information required to be delivered to the Collateral Agent pursuant to any of the Security Documents. (j) Other Reports. Any information required to be provided pursuant to other provisions of this Agreement, and such other reports or information from time to time reasonably requested by any Agent on behalf of itself or any Lender. SECTION 7.1.2. Corporate Existence. Subject to Section 7.2.5, each of the Borrower and PAAC shall, subject to provisions herein, do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence and the corporate existence of each of its Subsidiaries, in accordance with their respective organizational documents (as the same may be amended from time to time) and (ii) its (and its Subsidiaries) rights (charter and statutory), licenses and franchises; provided, however, that neither the Borrower nor PAAC shall be required to preserve any such right, license or franchise, or the corporate existence of any of its Subsidiaries, if its Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower and its Subsidiaries or PAAC and its Subsidiaries, as the case may be, taken as a whole, and that the loss thereof is not adverse in any material respect to the Lenders. SECTION 7.1.3. Maintenance of Properties. Each of the Borrower and PAAC shall, and shall cause their respective Restricted Subsidiaries to, maintain their respective (a) existing properties and assets in normal working order and condition as of the date hereof and (b) properties and assets acquired after the date hereof in normal working order and condition as of the date of such acquisition (in each case, reasonable wear and tear excepted) and make all repairs, renewals, replacements, additions, betterments and improvements thereto, as shall be reasonably necessary for the proper conduct of the business of the Borrower and its Restricted Subsidiaries taken as a whole and of PAAC and its Restricted Subsidiaries taken as a whole, respectively; provided that nothing herein shall prevent the Borrower, PAAC or any of their respective Restricted Subsidiaries from discontinuing any maintenance of any such properties if such discontinuance is desirable in the conduct of the business of the Borrower and its Restricted Subsidiaries taken as a whole or of PAAC and its Restricted Subsidiaries taken as a whole. 55 63 SECTION 7.1.4. Insurance. Each of the Borrower and PAAC shall and shall cause their respective Restricted Subsidiaries to, maintain liability, casualty and other insurance (subject to the customary deductibles and retentions) with responsible insurance companies in such amounts and against such risks as is customarily carried by responsible companies engaged in similar businesses and owning similar assets in the general areas in which the Borrower, PAAC and their respective Restricted Subsidiaries operate (which may include self-insurance in comparable form to that maintained by such responsible companies). SECTION 7.1.5. Taxes. Each of the Borrower and PAAC shall, and shall cause each of their respective Subsidiaries to, pay prior to delinquency all material taxes, assessments and governmental levies except as are being contested in good faith and by appropriate proceedings diligently conducted and in respect of which appropriate reserves (in the good faith judgment of management of each of the Borrower and PAAC) are being maintained in accordance with GAAP. SECTION 7.1.6. Books and Records. Each of the Borrower and PAAC will, and will cause each of their respective Subsidiaries to, keep books and records which accurately reflect in all material respects all of its business affairs and transactions and permit the Agents and each Lender or any of their respective representatives, at reasonable times and intervals, and upon reasonable notice, to visit all of its offices, to discuss its financial matters with its officers and, after notice to PAAC and provision of an opportunity for PAAC to participate in such discussion, its independent public accountant (and each of the Borrower and PAAC hereby authorizes such independent public accountant to discuss the Borrower's and PAAC's financial matters with each Lender or its representatives whether or not any representative of either of the Borrower or PAAC is present, so long as PAAC has been afforded a reasonable opportunity to be present) and to examine, and photocopy extracts from, any of its books or other corporate records. The cost and expense of each such visit shall be borne by the applicable Agent or Lender, except that each Agent may make one such visit each Fiscal Year and the cost and expense thereof shall be borne, jointly and severally, by the Borrower and PAAC. SECTION 7.1.7. Use of Proceeds, etc. The Borrower shall apply the proceeds of the Term Loans to fund the Acquisition and pay certain fees and expenses, which fees and expenses shall not exceed $14,400,000 in the aggregate. SECTION 7.1.8. Guarantees. (a) If (i) any Subsidiary of PAAC becomes a Restricted Subsidiary after the Closing Date, (ii) any PCIFP Company or any of their Restricted Subsidiaries transfers or causes to be transferred, in one transaction or a series of related transactions, property or assets (including businesses, divisions, real property, assets or equipment) to any Subsidiary or Subsidiaries of PAAC that is not a PAI Guarantor or are not PAI Guarantors, (iii) PAAC or any Subsidiary of PAAC (other than any PCIFP Company or any of their Restricted Subsidiaries) that is a PAI Guarantor transfers or causes to be transferred, in one transaction or a series of related transactions, property or assets (including businesses, divisions, real property, assets or equipment) which in the aggregate have a value equal to or greater than 15% of PAAC's and its Subsidiaries' total assets determined on a consolidated basis as of the time of transfer to any Subsidiary or Subsidiaries of PAAC that is not a PAI Guarantor or are not PAI Guarantors, (iv) any Subsidiary of PAAC which has a value equal to or greater than 5% of PAAC's and its Subsidiaries' total assets determined on a consolidated basis as of the time of determination directly or indirectly guarantees or otherwise becomes obligated with respect to any Senior Indebtedness or (v) any Subsidiary of PAAC becomes a guarantor of the 56 64 Senior Secured Notes, the Existing Senior Secured Notes or the Indebtedness under the Existing Term Loan Agreement after the date hereof, PAAC shall cause such Subsidiary or Subsidiaries to execute and deliver to the Administrative Agent a duly executed PAI Guaranty or a supplement to an existing PAI Guaranty, substantially in the form attached thereto, pursuant to which such Subsidiary or Subsidiaries shall unconditionally guarantee, in accordance with the provisions of such PAI Guaranty, all of the Borrower's Obligations under this Agreement and the other Loan Documents on the same terms as the other PAI Guarantors, which guarantee shall rank pari passu with Senior Indebtedness of such Subsidiary; provided, that clause (a)(i) of this Section 7.1.8 will not apply to any newly acquired or created Subsidiary organized outside the United States of America for so long as the issuance of a guarantee by such Subsidiary would result in a material increase in the aggregate amount of income tax payable by PAAC on a consolidated basis, and PAAC shall deliver to the Administrative Agent an Officers' Certificate so stating. (b) Each guarantee created pursuant to the provisions described in the foregoing paragraph shall be deemed to be a "PAI Guaranty" and the issuer of each such PAI Guaranty shall be referred to as a "PAI Guarantor". Notwithstanding the foregoing (but subject to Section 7.2.6), any PAI Guaranty shall be automatically and unconditionally released and discharged upon any sale, exchange, transfer or other disposition to any Person of all of PAAC's Equity Interest in (or if such Subsidiary is owned by a Restricted Subsidiary of PAAC, of all of such Restricted Subsidiary's Equity Interest in), or all or substantially all the assets of, such Subsidiary, which is in compliance with this Agreement, including Section 7.2.6. SECTION 7.1.9. Stock Pledge Agreements. The Borrower and PAAC shall, and shall cause the applicable Subsidiary or Subsidiaries of the Borrower or PAAC (the "Pledgor Subsidiary" or "Pledgor Subsidiaries") to, execute and deliver to the Administrative Agent and the Collateral Agent one or more stock pledge agreements substantially in the form of the Stock Pledge Agreement (as defined in the Existing Term Loan Agreement) providing for the pledge to the Collateral Agent for the benefit of (x) the Administrative Agent and the Lenders, and (y) the Trustee, for itself and the holders of Senior Secured Notes, of all the Capital Stock of each Restricted Subsidiary of PAAC (including each PCIFP Company) that (a) is engaged in any business activity other than the holding of the Capital Stock of one or more Subsidiaries of PAAC (or in the case of Imperial, engaging in any business activity other than the holding of its Investment in Kemwater) and (b) has assets equal to or greater than 5% of PAAC's total assets determined on a consolidated basis as of the time of determination, together with delivery to the Collateral Agent of stock certificates evidencing such Capital Stock (together with undated stock powers executed in blank; which Capital Stock and stock powers will become "Collateral" for purposes of the Intercreditor Agreement), in each case at such time as (i) such Capital Stock is not pledged for the benefit of the lenders under the Existing Term Loan Agreement and subject to the rights therein of the holders of the Existing Senior Secured Notes and (ii) such pledge shall not constitute a default or breach under the Existing Term Loan Agreement or the Existing Senior Secured Notes. SECTION 7.1.10. Concerning the Collateral and the Loan Documents. (a) In order to secure the due and punctual payment of the Obligations, including principal of, premium (if any) and interest (including interest on overdue principal) on the Term Loans, when and as the same shall become due and payable, whether on the scheduled payment date therefor, at maturity, by acceleration or otherwise, and performance of all other obligations of each of the Borrower and PAAC to the Agents and the Lenders under this Agreement and each other Loan Document and 57 65 of all obligations of the PAI Guarantors under the PAI Guarantees and each other Loan Document, each of the Borrower, PAAC and the other Obligors have entered into each of the applicable Loan Documents to which each is a party. (b) Each of the Borrower and PAAC shall, and shall cause the other Obligors to, perform at their sole cost and expense any and all acts and execute any and all documents (including the execution, amendment or supplementation of any application for registration, financing statement and continuation statement or other statement) for filing under the provisions of the UCC and the rules and regulations thereunder, the applicable PPSA and the rules and regulations thereunder, the Civil Code of Quebec and any rules or regulations thereunder or any other statute, rule or regulation of any applicable Canadian or U.S. federal, state, provincial or local jurisdiction, including any filings in local real estate land record or registry offices, which are necessary or advisable and shall do such other acts and execute such other documents as may be required under any of the Loan Documents, from time to time, in order to create, grant, maintain, register, record, file, perfect, protect or preserve valid and perfected Liens on the Collateral in favor of the Collateral Agent in the priorities purported to be created by the Security Documents, subject only to Liens permitted under the Security Documents to be senior or pari passu to the Liens of the Collateral Agent, and to fully preserve and protect the rights of the Agents and the Lenders under this Agreement and the other Loan Documents. Each of the Borrower and PAAC shall, and shall cause the other Obligors to, pay and satisfy promptly all mortgage and financing and continuation statement recording and/or filing fees, charges and taxes relating to this Agreement, the Security Documents and the other Loan Documents, any amendments thereto and any other instruments of further assurance. (c) Each of the Borrower and PAAC shall, on each anniversary of the Closing Date beginning in the 1998 year, furnish to the Administrative Agent an Opinion of Counsel, dated as of such date, either (a) to the effect that, in the opinion of such counsel, such action has been taken with respect to the recordings, registerings, filings, re-recordings, re-registerings and refilings of all applications for registration, financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Lien of each of the Security Documents and reciting with respect to such Liens the details of such action or referencing prior Opinions of Counsel in which such details are given, and stating that all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding twelve months fully to preserve and protect the rights of the Collateral Agent, the Lenders and the Administrative Agent hereunder and under each of the Security Documents with respect to the Liens, or (b) to the effect that, in the opinion of such counsel, no such action is necessary to maintain such Liens. SECTION 7.1.11. Maintenance of Corporate Separateness. Each of the Borrower and PAAC will, and will cause each of their respective Subsidiaries to, satisfy customary corporate formalities, including the holding of regular board of directors' and shareholders' meetings and the maintenance of corporate offices and records. Neither the Borrower nor PAAC nor any of their respective Restricted Subsidiaries shall make any payment to a creditor of any Unrestricted Subsidiary in respect of any liability of such Unrestricted Subsidiary, and no bank account of an Unrestricted Subsidiary shall be commingled with any bank account of the Borrower, PAAC or any of their respective Restricted Subsidiaries. Any financial statements distributed to any creditors of an Unrestricted Subsidiary shall clearly establish the separateness of such Unrestricted Subsidiary from the Borrower, PAAC and their respective Restricted Subsidiaries. Neither the Borrower nor PAAC nor any of their Subsidiaries shall take any action, or conduct 58 66 its affairs in a manner, which is likely to result in the corporate existence of any Unrestricted Subsidiary or any Restricted Subsidiary being ignored by any court of competent jurisdiction, or in the assets and liabilities of the Borrower, PAAC or any of their respective Restricted Subsidiaries being substantively consolidated with those of any Unrestricted Subsidiary in a bankruptcy, reorganization or other insolvency proceeding. SECTION 7.1.12. Working Capital Line. The Borrower shall use its best efforts to maintain a revolving credit facility or similar arrangement to the extent it deems necessary based on its cash position and cash flows to fund the foreseeable capital expenditure and working capital requirements of its Restricted Subsidiaries. SECTION 7.1.13. St. Gabriel Pipeline. (a) Within 90 days after the Arranger, the Syndication Agent and the Documentation Agent have notified the Borrower in writing that they have reasonably determined in good faith that the St. Gabriel Pipeline has been substantially completed, each of PAAC and the Borrower shall cause PCAC to use commercially reasonable efforts (i) to grant to the Collateral Agent, for the pari passu benefit of the Secured Parties (as defined in the Intercreditor Agreement) and as additional security for the Indenture Obligations and the Term Loan Obligations (as each such term is defined in the Intercreditor Agreement) a perfected first-priority Lien (the "St. Gabriel Lien") and (ii) to deliver the following to the Collateral Agent: (A) mortgages, security agreements, fixture filings and financing statements (collectively, the "Pipeline Security Documents") executed by PCAC and in form and substance acceptable to the Arranger, the Syndication Agent, the Documentation Agent and the Collateral Agent, sufficient to create the St. Gabriel Lien, together with evidence satisfactory to the Arranger, the Syndication Agent, the Documentation Agent and the Collateral Agent that all of such Pipeline Security Documents have been recorded and filed, as necessary, to perfect such Lien and that all fees, taxes and other expenses associated therewith have been paid; (B) lien, title and Uniform Commercial Code financing statement searches showing no Liens (other than Permitted Liens and any other Liens acceptable to the Arranger, the Syndication Agent, the Documentation Agent and the Collateral Agent) on the St. Gabriel Pipeline prior to the St. Gabriel Lien; (C) a complete set of as-built site plans, surveys or engineering drawings, certified as true and correct by PCAC, and showing all material components of the St. Gabriel Pipeline and the respective locations thereof; (D) an opinion of local counsel to PCAC in Louisiana with respect to the form and enforceability of the Pipeline Security Documents and such other matters as the Arranger, the Syndication Agent, the Documentation Agent, the Collateral Agent and their respective counsel may reasonably require; 59 67 (E) an opinion of counsel to PCAC with respect to the due authorization, execution and delivery of the Pipeline Security Documents and such other matters as the Arranger, the Syndication Agent, the Documentation Agent, the Collateral Agent and their respective counsel may reasonably require; (F) certificates of insurance with respect to the insurance coverage required to be maintained by PCAC in compliance with Section 8.1.4 with respect to the St. Gabriel Pipeline, naming the Collateral Agent as loss payee and naming the Collateral Agent as an additional insured, as applicable; and (G) such other approvals, consents, opinions or documents as the Arranger, the Syndication Agent, the Documentation Agent, the Collateral Agent or their respective counsel may reasonably request in connection with the Pipeline Security Documents and any matter related thereto; (b) Each of PAAC and the Borrower shall cause PCAC to use its commercially reasonable efforts to complete the St. Gabriel Pipeline in a timely manner. SECTION 7.1.14. Pension Transfer Agreement. Each of PAAC and the Borrower shall cause PCICC to fulfill all of its obligations under the Pension Transfer Agreement referred to in the definition of "Acquisition Agreements" in accordance with the terms thereof that relate to the establishment, funding, maintenance and operation of the Canadian Pension Plan to be established in connection therewith. SECTION 7.2. Negative Covenants. The Borrower and PAAC agree with the Agents and each Lender that, until the Term Loan Commitments have terminated, and all Obligations have been paid and performed in full, the Borrower and PAAC will perform the obligations set forth in this Section 7.2. SECTION 7.2.1. Indebtedness. The Borrower and PAAC will not, and will not permit any of their Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become liable with respect to or become responsible for the payment of, contingently or otherwise ("incur"), any Indebtedness; provided, however, that the Borrower, PAAC or any of their respective Restricted Subsidiaries may incur Indebtedness if at the time of such incurrence and after giving pro forma effect thereto, PAAC's Consolidated Cash Flow Coverage Ratio for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is incurred, calculated on a pro forma basis as if such Indebtedness was incurred on the first day of such four full fiscal quarter period, would be at least 2.0 to 1.0. For purposes of determining PAAC's Consolidated Cash Flow Coverage Ratio, Cash Flow and Consolidated Interest Expense for all periods prior to the Closing Date shall be calculated on a consolidated basis including each of PAAC's and its Subsidiaries' predecessors. Notwithstanding the foregoing limitations, the incurrence of the following will not be prohibited: (a) Indebtedness in respect of the Term Loans, the Guarantees and all other Obligations; (b) Indebtedness of PAAC evidenced by the Senior Secured Notes, the Existing Senior Secured Notes and loans outstanding under the Existing Term Loan Agreement 60 68 and Indebtedness of the Borrower and the PAI Guarantors in respect of guarantees of such Senior Secured Notes, Existing Senior Secured Notes and loans outstanding under the Existing Term Loan Agreement; (c) Indebtedness of PAAC or any of its Restricted Subsidiaries constituting Existing Indebtedness and any extension, deferral, renewal, refinancing or refunding thereof; (d) Indebtedness of the Borrower, PAAC or any of their respective Restricted Subsidiaries incurred under one or more Credit Facilities in an aggregate principal amount at any one time outstanding not to exceed the Borrowing Base at the time such Indebtedness was incurred, less the aggregate amount of all permanent repayments of revolving loans under such Credit Facilities made on account of the receipt by the Borrower, PAAC or any such Restricted Subsidiary of proceeds from the sale of any of its assets (as expressly permitted pursuant to the terms of any Senior Indebtedness); (e) Capitalized Lease Obligations of the Borrower, PAAC or any of their respective Restricted Subsidiaries and Indebtedness of the Borrower, PAAC or any of their respective Restricted Subsidiaries secured by Liens that secure the payment of all or part of the purchase price of assets or property acquired or constructed in the ordinary course of business after the date hereof; provided, however, that the aggregate principal amount of such Capitalized Lease Obligations plus such Indebtedness of the Borrower, PAAC and all of their respective Restricted Subsidiaries does not exceed $10,000,000 outstanding at any time; (f) Indebtedness of PAAC to any Restricted Subsidiary of PAAC (including to the Borrower or any Restricted Subsidiary of the Borrower) or of any Restricted Subsidiary of PAAC (including the Borrower or any Restricted Subsidiary of the Borrower) to PAAC or another Restricted Subsidiary of PAAC (including the Borrower or any Restricted Subsidiary of the Borrower); (g) Indebtedness under Hedging Obligations; provided, however, that, in the case of foreign currency exchange or similar agreements which relate to other Indebtedness, such agreements do not increase the Indebtedness of the Borrower, PAAC or any of their respective Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates, and in the case of interest rate protection agreements, only if the notional principal amount of such interest rate protection agreement does not exceed the principal amount of the Indebtedness to which such interest rate protection agreement relates; (h) Indebtedness in respect of performance, completion, guarantee, surety and similar bonds, banker's acceptances or letters of credit provided by the Borrower, PAAC or any of their respective Restricted Subsidiaries in the ordinary course of business; (i) in addition to any Indebtedness otherwise permitted to be incurred pursuant to the preceding clauses (a) through (h), up to $10,000,000 aggregate principal amount of Indebtedness at any one time outstanding; 61 69 (j) any refinancing, refunding, deferral, renewal or extension (each, a "Refinancing") of any Indebtedness of the Borrower, PAAC or any of their respective Restricted Subsidiaries permitted by the first sentence of this Section or clause (b) above (the "Refinancing Indebtedness"); provided, however, that (i) such Refinancing Indebtedness does not exceed the aggregate principal amount of the Indebtedness so refinanced, plus the amount of any premium required to be paid in connection with such Refinancing in accordance with the terms of such Indebtedness or the amount of any premium reasonably determined by the Borrower or PAAC as necessary to accomplish such Refinancing, plus the amount of reasonable and customary out-of-pocket fees and expenses payable in connection therewith, (ii) the Refinancing Indebtedness does not provide for any mandatory redemption, amortization or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in the Indebtedness being refinanced, refunded, deferred, renewed or extended and (iii) if the Indebtedness being refinanced, refunded, deferred, renewed or extended is subordinated to the Obligations, the Refinancing Indebtedness incurred to refinance, refund, defer, renew or extend such Indebtedness is subordinated in right of payment to the Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being so refinanced, refunded, deferred, renewed or extended; and (k) Indebtedness in respect of any guarantee provided by the Borrower, PAAC or any of their respective Restricted Subsidiaries in respect of any other Indebtedness permitted to be incurred pursuant to this Section 7.2.1; provided, however, that in the event such Indebtedness guaranteed is subordinated in right of payment to any other Indebtedness of the obligor thereof, then such guarantee shall be subordinated to Indebtedness of such guarantor to the same extent. SECTION 7.2.2. Liens. The Borrower and PAAC will not, and will not permit any of their respective Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of their respective assets or properties now owned or acquired after the date hereof, or any income or profits therefrom, excluding, however, from the operation of the foregoing any of the following: (a) (i) Liens securing the Obligations, (ii) Liens on accounts receivable, inventory and related general intangibles securing obligations under the Revolving Credit Agreement, (iii) Liens securing the Senior Secured Notes, the Existing Senior Secured Notes and the obligations under the Existing Term Loan Agreement, and (iv) other Liens existing as of the Closing Date or pursuant to an agreement or document in existence on the Closing Date, in each case as set forth and described in Item 7.2.2(a) ("Existing Liens") of the Disclosure Schedule; (b) Permitted Liens; (c) Liens on assets or property of the Borrower or PAAC, or on assets or property of any of their respective Restricted Subsidiaries, to secure the payment of all or a part of the purchase price of assets or property acquired or constructed in the ordinary course of business after the Closing Date; provided, however, that (i) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and 62 70 customary costs of installation of such acquired assets) or constructed, (ii) the Indebtedness secured by such Liens is otherwise permitted to be incurred hereunder, (iii) such Liens do not encumber any other assets or property of the Borrower, PAAC or any of their respective Restricted Subsidiaries and (iv) the Indebtedness secured by such Liens may not be created more than 100 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to such Liens; (d) Liens on assets or property acquired by the Borrower, PAAC or any of their respective Restricted Subsidiaries after the Closing Date; provided, however, that (i) such Liens existed on the date such assets or property were acquired and were not incurred as a result of or in anticipation of such acquisition and (ii) such Liens do not extend to or cover any assets or property of the Borrower, PAAC or any of their respective Restricted Subsidiaries other than the assets or property so acquired; (e) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted hereunder and which is permitted to be refinanced hereunder; provided, however, that such Liens do not extend to or cover any assets or property of the Borrower, PAAC or any of their respective Restricted Subsidiaries not securing the Indebtedness so refinanced; (f) Liens on assets or property of the Borrower, PAAC or any of their respective Restricted Subsidiaries that is subject to a Sale and Leaseback Transaction; provided, however, that the aggregate principal amount of Attributable Indebtedness in respect of all Sale and Leaseback Transactions then outstanding does not at the time such a Lien is incurred exceed $10,000,000; (g) Liens on property or shares of Capital Stock of a Person at the time such Person becomes a Restricted Subsidiary of the Borrower or PAAC; provided, however, that such Liens are not created, incurred or assumed in contemplation of the acquisition thereof by the Borrower, PAAC or a Subsidiary of the Borrower or PAAC; provided, further, that such Liens may not extend to any other property owned by the Borrower, PAAC or any of their respective Restricted Subsidiaries; (h) (i) Liens securing Indebtedness of a Restricted Subsidiary of any PCIFP Company owing such PCIFP Company or any other PCIFP Company or a Wholly-Owned Restricted Subsidiary of such PCIFP Company or such other PCIFP Company and (ii) Liens securing Indebtedness of a Restricted Subsidiary of PAAC (other than a PCIFP Company or any of its Restricted Subsidiaries) owing to PAAC or a Wholly-Owned Restricted Subsidiary of PAAC (other than a PCIFP Company or any of its Restricted Subsidiaries); (i) Liens on inventory, accounts receivable or related general intangibles of any Restricted Subsidiary securing Indebtedness which may be incurred under clause (d) of Section 7.2.1; (j) Liens on collateral securing Indebtedness under the Existing Senior Secured Notes and the Existing Term Loan Agreement up to an aggregate principal amount of $50,000,000 of Indebtedness permitted to be incurred under the first sentence of 63 71 Section 7.2.1; provided that (i) the proceeds of such Indebtedness are used to acquire or construct additional property, plant and equipment that will be utilized in one or more Related Businesses and (ii) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed; and (k) Liens on assets or property of the Borrower or PAAC, or on assets or property of any of their respective Restricted Subsidiaries, acquired or constructed after the Closing Date other than in the ordinary course of business and other than assets or property acquired or constructed in replacement, repair or improvement of any assets or property constituting Collateral; provided, however, that (i) the aggregate principal amount of Indebtedness secured by such Liens does not exceed the original cost or purchase price of the assets or property so acquired (including the reasonable and customary costs of installation of such acquired assets) or constructed, (ii) the Indebtedness secured by such Liens is otherwise permitted to be incurred hereunder and (iii) such Liens do not encumber any Collateral. SECTION 7.2.3. Restricted Payments, etc. PAAC will not, nor will it cause, permit or suffer any of its Restricted Subsidiaries (including the Borrower and its Restricted Subsidiaries) to, (i) declare or pay any dividends or make any other distributions (including through mergers, amalgamations, liquidations or other transactions commonly known as leveraged buyouts) on any class of Equity Interests of PAAC or such Restricted Subsidiary (other than dividends or distributions payable or paid by a Wholly-Owned Restricted Subsidiary of PAAC on account of its Equity Interests held by PAAC or another Restricted Subsidiary or payable or paid in shares of Capital Stock of PAAC other than Redeemable Stock), (ii) make any payment on account of, or set apart money for a sinking or other analogous fund for, the purchase, redemption or other retirement of such Equity Interests, (iii) purchase, defease, redeem or otherwise retire any Subordinated Indebtedness or (iv) make any Restricted Investment, either directly or indirectly, whether in cash or property or in obligations of the Borrower, PAAC or any of their respective Restricted Subsidiaries (all of the foregoing being called "Restricted Payments"), unless, (x) in the case of a dividend, such dividend is payable not more than 60 days after the date of declaration and (y) after giving effect to such proposed Restricted Payment, all the conditions set forth in clauses (1) through (3) below are satisfied (A) at the date of declaration (in the case of any dividend), (B) at the date of such setting apart (in the case of any such fund) or (C) on the date of such other payment or distribution (in the case of any other Restricted Payment) (each such date being referred to as a "Restricted Payment Computation Date"): (1) no Default or Event of Default has occurred and is continuing or would result from the making of such Restricted Payment; (2) at the Restricted Payment Computation Date for such Restricted Payment and after giving effect to such Restricted Payment on a pro forma basis, PAAC or such Restricted Subsidiary could incur $1.00 of additional Indebtedness pursuant to the first sentence of Section 7.2.1; and (3) the aggregate amount of Restricted Payments declared, paid or distributed subsequent to the date hereof (including the proposed Restricted Payment) will not exceed the sum of (i) 50% of the cumulative Consolidated Net Income of PAAC for the 64 72 period subsequent to October 1, 1997 to and including the last day of PAAC's last fiscal quarter ending prior to the Restricted Payment Computation Date (each such period to constitute a "Restricted Payment Computation Period") (or, if such aggregate cumulative Consolidated Net Income is a loss, minus 100% of such loss of PAAC during the Restricted Payment Computation Period), (ii) the aggregate Net Cash Proceeds of the issuance or sale or the exercise (other than to a Subsidiary or an employee stock ownership plan or other trust established by the Borrower, PAAC or any of their respective Subsidiaries for the benefit of their employees) of PAAC's Equity Interests (other than Redeemable Stock) subsequent to the Closing Date, (iii) the aggregate Net Cash Proceeds of the issuance or sale (other than to a Subsidiary) of any debt securities of PAAC that have been converted into or exchanged for Equity Interests (other than Redeemable Stock) of PAAC to the extent such debt securities were originally issued or sold for cash, plus the aggregate Net Cash Proceeds received by PAAC at the time of such conversion or exchange, in each case subsequent to the Closing Date, (iv) cash contributions to PAAC's capital subsequent to the Closing Date and (v) $5,000,000. If no Default or Event of Default has occurred and is continuing or would occur as a result thereof, the prohibitions set forth above are subject to the following exceptions: (A) Restricted Investments in obligations representing a portion of the proceeds of any Asset Sale consummated in accordance with Section 7.2.6; provided, however, that such Restricted Investments will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above; (B) any purchase or redemption of Equity Interests or Subordinated Indebtedness made by exchange for, or out of the proceeds of the substantially concurrent sale of, Equity Interests of PAAC (other than Redeemable Stock and other than Equity Interests issued or sold to a Subsidiary or an employee stock ownership plan); provided, however, that (x) such purchase or redemption will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above and (y) the Net Cash Proceeds from such sale will be excluded for purposes of clause (3) above to the extent utilized for purposes of such purchase or redemption; (C) any purchase or redemption of Subordinated Indebtedness of PAAC made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Indebtedness of PAAC or any Restricted Subsidiary of PAAC which is permitted to be issued pursuant to Section 7.2.1; provided, however, that such purchase or redemption will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above; (D) the repurchase, redemption or other acquisition or retirement for value of Capital Stock of PAAC or PCI held by management or other employees of the PCI, PAAC or any Restricted Subsidiary of PAAC pursuant to any shareholders agreement, management or employee stock option agreement or management or employee equity subscription agreement, in accordance with the provisions of any such arrangement, in an amount not greater than $500,000 in any calendar year plus the portion of any such amounts which remains unused at the end of the two prior calendar years, but in no event to exceed $1,500,000 in any calendar year; provided, however, that any such repurchase, redemption, acquisition or retirement for value will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above; (E) payments to PCI pursuant to any tax sharing arrangement so long as payments thereunder do not exceed the amount of PAAC and its consolidated Subsidiaries' share of Federal and state income taxes actually paid or to be paid by PAAC; provided, however, that such payments will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above; (F) payments to PCI to perform accounting, legal, corporate reporting and administrative functions in the ordinary course of business in an amount not greater than $500,000 in any calendar year, or to 65 73 pay required fees in connection with the Acquisition and related transactions, including the registration under applicable laws and regulations of its debt or equity securities issued in connection therewith; provided, however, that such payments will be excluded in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above; and (G) Investments described in clause (vi) of the definition of Permitted Investments; provided, however, that such Investments will be included in the calculation of the amount of Restricted Payments previously made for purposes of clause (3) above. For purposes of this Section, (a) the amount of any Restricted Payment declared, paid or distributed in property of PAAC or any of its Restricted Subsidiaries will be deemed to be the net book value of any such property that is intangible property and the Fair Market Value (as determined by and set forth in a resolution of the Board of Directors of PAAC) of any such property that is tangible property at the Restricted Payment Computation Date, in each case, after deducting related reserves for depreciation, depletion and amortization; (b) the amount of any Restricted Payment declared, paid or distributed in obligations of PAAC or any of its Restricted Subsidiaries will be deemed to be the principal amount of such obligations as of the date of the adoption of a resolution by the Board of Directors of PAAC or such Restricted Subsidiary authorizing such Restricted Payment; and (c) a distribution to holders of PAAC's Equity Interests of (i) shares of Capital Stock or other Equity Interests of any Restricted Subsidiary of PAAC or (ii) other assets of PAAC, without, in either case, the receipt of equivalent consideration therefor will be regarded as the equivalent of a cash dividend equal to the excess of the Fair Market Value of the Equity Interests or other assets being so distributed at the time of such distribution over the consideration, if any, received therefor. Not later than the date of the making of any such Restricted Payment, PAAC shall deliver to the Administrative Agent a certificate of an Authorized Officer certifying that such Restricted Payment is permitted, attaching a copy of the applicable resolution of the Board of Directors pursuant to which the value of the Restricted Payment to be made was determined and setting forth the basis upon which the calculations required by this Section were computed. SECTION 7.2.4. Payment Restrictions Affecting Guarantors. The Borrower and PAAC will not, and will not permit any of their respective Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Restricted Subsidiary to (i) pay dividends or make any other distribution to PAAC or any of its Restricted Subsidiaries on its Equity Interests, (ii) pay any Indebtedness owed to PAAC or any other such Restricted Subsidiary, (iii) make loans or advances to PAAC or any other such Restricted Subsidiary or (iv) transfer any of its property or assets to PAAC or any other such Restricted Subsidiary except: (a) consensual encumbrances or restrictions contained in or created pursuant to the Revolving Credit Agreement, the Security Documents, the Intercreditor Agreement, Senior Secured Notes, the Senior Secured Note Indenture, Existing Senior Secured Notes (if any), the Existing Senior Secured Note Indenture and the Existing Term Loan Agreement (including the security documents relating thereto); (b) consensual encumbrances or restrictions in the Senior Secured Notes (if any) and the Senior Secured Note Indenture; (c) any restriction, with respect to a Restricted Subsidiary of PAAC that is not a Restricted Subsidiary of PAAC on the Closing Date, in existence at the time such entity 66 74 becomes a Restricted Subsidiary of PAAC; provided that such encumbrance or restriction is not created in anticipation of or in connection with such entity becoming a Restricted Subsidiary of PAAC and is not applicable to any Person or the properties or assets of any Person other than a Person that becomes a Restricted Subsidiary of PAAC; (d) any encumbrances or restrictions pursuant to an agreement effecting a refinancing of Indebtedness referred to in clause (a) or (c) of this Section or contained in any amendment to any agreement creating such Indebtedness, provided that the encumbrances and restrictions contained in any such refinancing or amendment are not materially more restrictive taken as a whole (as determined in good faith by the chief financial officer of PAAC) than those provided for in such Indebtedness being refinanced or amended; (e) encumbrances or restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Closing Date pursuant to Section 7.2.1, provided that any such encumbrances or restrictions are not materially more restrictive taken as a whole (as determined in good faith by the chief financial officer of PAAC) than the most restrictive of those provided for in the Indebtedness referred to in clause (a), (b) or (c) of this Section; (f) any such encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease; (g) any restriction with respect to a Restricted Subsidiary of PAAC imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary in compliance with the provisions hereof pending the closing of such sale or disposition; or (h) any encumbrance or restriction due to applicable law. SECTION 7.2.5. Consolidation, Merger, etc. (a) Neither the Borrower nor PAAC will consolidate with, merge into or amalgamate with, or sell, assign, convey, lease or transfer all or substantially all of its assets and those of its Subsidiaries taken as a whole to, any Person, unless (i) the resulting, surviving or transferee Person expressly assumes all the obligations of the Borrower or PAAC, as the case may be, under this Agreement, the Term Notes and each other Loan Document to which the Borrower or PAAC, as the case may be, is a party pursuant to amendments in form and substance reasonably satisfactory to the Administrative Agent and the Required Lenders; (ii) such Person is organized and existing under the laws of the United States of America, a state thereof or the District of Columbia, or, in the case of PCICC, Canada or a province thereof; (iii) at the time of the occurrence of such transaction and after giving effect to such transaction on a pro forma basis, such Person could incur $1.00 of additional Indebtedness pursuant to the first sentence of Section 7.2.1 (assuming a market rate of interest with respect to such additional Indebtedness); 67 75 (iv) at the time of the occurrence of such transaction and after giving effect to such transaction on a pro forma basis, the Consolidated Net Worth of such Person is equal to or greater than the Consolidated Net Worth of the Borrower or PAAC, as the case may be, immediately prior to such transaction; (v) each Guarantor, to the extent applicable, will acknowledge and confirm in writing that its Guaranty will apply to such Person's obligations under this Agreement, the Term Notes and each other Loan Document to which it is (or will become) a party; and (vi) immediately before and immediately after giving effect to such transaction and treating any Indebtedness which becomes an obligation of the Borrower, PAAC or any of their respective Restricted Subsidiaries or of such Person as a result of such transaction as having been incurred by the Borrower, PAAC or such Restricted Subsidiary or such Person, as the case may be, at the time of such transaction, no Default or Event of Default shall have occurred and be continuing. The Borrower or PAAC, as the case may be, shall deliver to the Administrative Agent prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel, covering clauses (i), (ii), (v) and (vi) above, stating that the proposed transaction and such amendments comply with this Agreement. (b) No PAI Guarantor will, and the Borrower and PAAC will not permit any PAI Guarantor to, in a single transaction or series of related transactions merge, amalgamate or consolidate with or into any other Person (other than, in the case of a Restricted Subsidiary of a PCIFP Company, such PCIFP Company), in the case of a PCIFP Company, another PCIFP Company, or in the case of any other PAI Guarantor, the Borrower or PAAC (provided that the Borrower or PAAC, as the case may be, would be in compliance with the other terms of this Agreement, including the preceding paragraph (a)), or any other PAI Guarantor), or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any Person (other than, in the case of a Restricted Subsidiary of a PCIFP Company, such PCIFP Company), in the case of a PCIFP Company, another PCIFP Company, or in the case any other PAI Guarantor, the Borrower or PAAC (provided that the Borrower or PAAC, as the case my be, would be in compliance with the other terms of this Agreement, including the preceding paragraph (a)), or any other PAI Guarantor) unless at the time and giving effect thereto: (i) either (1) such PAI Guarantor is the continuing corporation or (2) the Person (if other than such PAI Guarantor) formed by such consolidation or into which such PAI Guarantor is merged or the Person which acquires by sale, assignment, conveyance, transfer, lease or disposition the properties and assets of such PAI Guarantor is a corporation duly organized and validly existing under the laws of the United States of America, any state thereof, the District of Columbia or Canada or a province thereof and expressly assumes all the obligations of such PAI Guarantor under the applicable PAI Guaranty and each other Loan Document to which it is a party pursuant to amendments in form and substance reasonably satisfactory to the Administrative Agent and the Required Lenders; and (ii) immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. Such PAI Guarantor shall deliver to the Administrative Agent prior to the consummation of the proposed transaction, in form and substance reasonably satisfactory to the Administrative Agent, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, amalgamation, sale, assignment, conveyance, transfer, lease or disposition and such 68 76 amendments, if required, comply with this Agreement. The provisions of this paragraph (b) will not apply to any transaction (including any Asset Sale made in accordance with Section 7.2.6) with respect to any PAI Guarantor if the applicable PAI Guaranty of such PAI Guarantor is released in connection with such transaction in accordance with the applicable provisions of this Agreement and the other Loan Documents. Upon any sale, exchange, transfer or other disposition to any Person of all of the Borrower's, PAAC's or their respective Restricted Subsidiaries' Equity Interests in, or all or substantially all of the assets of, any PAI Guarantor which is in compliance with this Agreement and the other Loan Documents, such PAI Guarantor will be released from all its obligations under the PAI Guaranty to which it is party. (c) Upon any consolidation, merger or amalgamation, or any sale, assignment, conveyance, transfer or disposition of all or substantially all of the properties and assets of the Borrower, PAAC or any PAI Guarantor in accordance with the foregoing provisions of this Section 7.2.5, the successor Person formed by such consolidation or into which the Borrower, PAAC or such PAI Guarantor, as the case may be, is merged or the successor Person to which such sale, assignment, conveyance, transfer, lease or disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Borrower, PAAC or such PAI Guarantor, as the case may be, under this Agreement, the Term Notes and/or the applicable PAI Guaranty, as the case may be, with the same effect as if such successor had been named as the Borrower, PAAC or such PAI Guarantor, as the case may be, herein, in the Term Notes and/or in such PAI Guaranty, as the case may be. When a successor assumes all the obligations of its predecessor under this Agreement, the Term Notes or the applicable PAI Guaranty, as the case may be, the predecessor shall be released from those obligations; provided, that in the case of a transfer by lease, the predecessor shall not be released from the payment of principal and interest on, or any other Obligation relating to, this Agreement, the Term Notes or such PAI Guaranty, as the case may be. SECTION 7.2.6. Asset Dispositions, etc. (a) The Borrower and PAAC will not, and will not permit any of their Restricted Subsidiaries to, make any Asset Sale (other than, in the case of a PCIFP Company or a Restricted Subsidiary of such PCIFP Company, to such PCIFP Company or another Restricted Subsidiary of such PCIFP Company, and, in the case of PAAC or a Restricted Subsidiary of PAAC (other than a PCIFP Company and its Restricted Subsidiaries), to PAAC or another Restricted Subsidiary of PAAC (other than a PCIFP Company and its Restricted Subsidiaries)) unless (i) the Borrower, PAAC or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed of, and at least 80% of the consideration received by the Borrower, PAAC or such Restricted Subsidiary from such Asset Sale is in the form of cash and no portion thereof shall consist of inventory or accounts receivable or other property that would become subject to a Lien held by any other creditor of the Borrower, PAAC or of their respective Restricted Subsidiaries; provided, however, that the amount of any cash equivalent or note or other obligation received by the Borrower, PAAC or such Restricted Subsidiary from the transferee in any such transaction that is converted within 90 days by the Borrower, PAAC or such Restricted Subsidiary into cash will be deemed upon such conversion to be cash for purposes of this provision; (ii) to the extent such Asset Sale involves Collateral, (x) the consent of the Required Lenders shall be obtained prior to the consummation of such sale and (y) the Borrower and PAAC shall cause the aggregate cash proceeds received by any PCIFP Company or any of its Restricted Subsidiaries, in respect of such Asset Sale which are allocated to the Collateral, net of the items set forth in clauses (i) through (vi) of the definition of Net Proceeds (the "Collateral Proceeds") to be deposited with the Collateral Agent in the Intercreditor 69 77 Collateral Account as and when received by any PCIFP Company or any of its Restricted Subsidiaries and shall otherwise comply with the Intercreditor Agreement; and (iii) the Net Proceeds received by the Borrower, PAAC or such Restricted Subsidiary from such Asset Sale are applied in accordance with the following paragraphs. (b) (i) When the aggregate amount of Net Proceeds from all PAAC Asset Sales since June 17, 1997 exceeds $35,000,000, the Borrower and PAAC shall apply, subject to Section 3.1.2 and the provisions, if applicable, of the Intercreditor Agreement, 100% of such Net Proceeds in excess of $35,000,000 (including 100% of the Net Proceeds of each PAAC Asset Sale subsequent to the PAAC Asset Sale which results in Net Proceeds from all PAAC Asset Sales since June 17, 1997 exceeding $35,000,000) that are not required pursuant to the terms of the Existing Term Loan Agreement or the Existing Senior Secured Notes, in each case as in effect on the date hereof, to prepay or purchase Indebtedness outstanding under the Existing Term Loan Agreement or the Existing Senior Secured Notes, respectively, to prepay the Term Loans on or prior to the tenth Business Day following the date on which such Net Proceeds are received by PAAC or its applicable Restricted Subsidiary at a price equal to 100% of the principal amount thereof, plus accrued interest thereon to the date of prepayment. (ii) When the aggregate amount of Net Proceeds from all PCIFP Asset Sales since the Closing Date exceeds $35,000,000, the Borrower and PAAC shall apply, subject to Section 3.1.2 and the provisions, if applicable, of the Intercreditor Agreement, 100% of such Net Proceeds in excess of $35,000,000 (including 100% of the Net Proceeds of each PCIFP Asset Sale subsequent to the PCIFP Asset Sale which results in Net Proceeds from all PCIFP Asset Sales since the date hereof exceeding $35,000,000) to prepay the Term Loans on or prior to the tenth Business Day following the date on which such Net Proceeds are received by any PCIFP Company or any of their Restricted Subsidiaries at a price equal to 100% of the principal amount thereof, plus accrued interest thereon to the date of prepayment. (c) If all or a portion of the Net Proceeds of any Asset Sale are not required to be applied to prepay the Term Loans pursuant to the preceding paragraph (b), then the Borrower or PAAC may, within 365 days of such Asset Sale, invest Net Proceeds resulting from a PAAC Asset Sale in PAAC or in one or more of its Restricted Subsidiaries (other than a PCIFP Company or one of its Restricted Subsidiaries) engaged in a Related Business and invest Net Proceeds resulting from a PCIFP Asset Sale in the PCIFP Company whose assets were sold or in one or more of such PCIFP Company's Restricted Subsidiaries engaged in a Related Business. The amount of such Net Proceeds not used to or invested as set forth in this paragraph shall be applied by the Borrower or PAAC, subject to Section 3.1.2 and the provisions, if applicable, of the Intercreditor Agreement, to the prepayment of the Term Loans on or prior to the tenth Business Day following the date such Net Proceeds are not so used or invested at a price equal to 100% of the principal amount thereof, plus accrued interest thereon to the date of prepayment; provided, however, that to the extent such Net Proceeds are subject to Section 1009 of the Senior Secured Note Indenture, the principal amount of Term Loans required to be prepaid on account of such Net Proceeds shall not exceed the Pro Rata Share (as defined in the Intercreditor Agreement) of such Net Proceeds applicable to the Term Loans. (d) Until such time as the Net Proceeds from any Asset Sale are applied in accordance with this Section, such Net Proceeds will be segregated from the other assets of the Borrower, PAAC and their respective Subsidiaries and invested in cash or Eligible Investments, except that the Borrower, PAAC or their relevant Restricted Subsidiary may use any Net Proceeds pending 70 78 the utilization thereof in the manner (and within the time period) described above, and (except as to Collateral Proceeds) to repay revolving loans (under the Revolving Credit Agreement or otherwise) without a permanent reduction of the commitment thereunder. (e) The Borrower and PAAC will not, and will not permit any of their Restricted Subsidiaries to, create or permit to exist or become effective any consensual restriction other than restrictions not more restrictive taken as a whole (as determined in good faith by the chief financial officer of PAAC) than those in effect under Existing Indebtedness and the Revolving Credit Agreement that would materially impair the ability of the Borrower or PAAC to comply with the provisions of this Section. (f) If at any time any non-cash consideration (other than any such consideration consisting of inventory, accounts receivable and certain related assets securing or permitting to secure the Revolving Credit Agreement) is received by the Borrower, PAAC or any of their Restricted Subsidiaries, as the case may be, in connection with any Asset Sale of assets which includes Collateral, such non-cash consideration shall be made subject to the Lien of the applicable Security Document in the manner contemplated in the Intercreditor Agreement to the extent of the purchase price allocated to such Collateral. If and when any such non-cash consideration received from any Asset Sale (whether or not relating to Collateral) is converted into or sold or otherwise disposed of for cash, then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Proceeds thereof shall be applied in accordance with this Section 7.2.6. (g) All Insurance Proceeds and all Net Awards required to be delivered to the Collateral Agent pursuant to any Security Document shall constitute Trust Moneys and shall be delivered by the Borrower, PAAC or the applicable Restricted Subsidiary of PAAC, as the case may be, to the Collateral Agent contemporaneously with receipt by the Borrower, PAAC or such Restricted Subsidiary and be deposited into the Intercreditor Collateral Account and applied in accordance with the applicable provisions of the Intercreditor Agreement. Insurance Proceeds and Net Awards so deposited that may be applied by the Borrower, PAAC or such Restricted Subsidiary to effect a Restoration of the affected Collateral under the applicable Security Agreement may be withdrawn from the Intercreditor Collateral Account only in accordance with the applicable provisions of the Intercreditor Agreement. Insurance Proceeds and Net Awards so deposited that are not applied to effect a Restoration of the affected Collateral under such Security Document may only be withdrawn in accordance with applicable provisions of the Intercreditor Agreement. SECTION 7.2.7. Modification of Certain Agreements. The Borrower and PAAC will not, and will not permit any of their Restricted Subsidiaries to, amend, modify or supplement, or permit or consent to any amendment, modification or supplement of, (i) the Security Documents in any manner or to any extent that would constitute an Event of Default hereunder or under the Security Documents (provided that this Agreement and the Security Documents may be amended, modified or supplemented as set forth in Section 10.1), (ii) the Purchase Agreement or any other Acquisition Agreement, except to the extent such amendment, modification or supplement would not have an adverse effect on the Lenders, (iii) the Senior Secured Notes, the Senior Secured Note Indenture, the Existing Senior Secured Notes, the Existing Senior Secured Note Indenture and the Existing Term Loan Agreement, except to the extent such amendment, modification or supplement would not have a material adverse effect on the Lenders (it being acknowledged by each of the Borrower and PAAC that, without limitation, any increase in the interest rate on the Senior Secured Notes, the Existing Senior Secured Notes or the loans under 71 79 the Existing Term Loan Agreement, any reduction in the tenor or average life thereof and any modification of (including any addition to) the covenants, defaults and remedies set forth therein or applicable thereto (without a corresponding modification to the covenants, defaults, defaults and remedies applicable to the Obligations) which make such provisions more burdensome as a whole to the Borrower, PAAC and their respective Restricted Subsidiaries shall in each case be deemed to be materially adverse to the Lenders) or (iv) the Revolving Credit Agreement, except to the extent such amendment, modification or supplement would not have a material adverse effect on the Lenders (it being acknowledged by each of the Borrower and PAAC that the extension or similar modification of any grace period set forth therein shall in each case be deemed to be materially adverse to the Lenders). SECTION 7.2.8. Transactions with Affiliates. (a) The Borrower, PAAC and their respective Restricted Subsidiaries will not, directly or indirectly, enter into any transaction or series of related transactions with or for the benefit of any of their respective Affiliates (other than, in the case of a PCIFP Company or one of its Restricted Subsidiaries, with such PCIFP Company or one of its other Restricted Subsidiaries, or, in the case of PAAC or one of its Restricted Subsidiaries (other than a PCIFP Company or one of its Restricted Subsidiaries), with PAAC or one of its other Restricted Subsidiaries (other than a PCIFP Company or one of its Restricted Subsidiaries)), except on an arm's-length basis and if (x)(i) in the case of any such transaction in which the aggregate rental value, remuneration or other consideration (including the value of a loan), together with the aggregate rental value, remuneration or other consideration (including the value of a loan) of all such other transactions consummated in the year during which such transaction is proposed to be consummated, exceeds $750,000, the Borrower or PAAC, as applicable, delivers Board Resolutions to the Administrative Agent evidencing that the Board of Directors and the Independent Directors that are disinterested each have (by a majority vote) determined in good faith that the aggregate rental value, remuneration or other consideration (including the value of any loan) inuring to the benefit of such Affiliate from any such transaction is not greater than that which would be charged to or extended by the Borrower, PAAC or any of their Subsidiaries, as the case may be, on an arm's-length basis for similar properties, assets, rights, goods or services by or to a Person not affiliated with the Borrower, PAAC or any of their Subsidiaries, as the case may be, and (ii) in the case of any such transaction in which the aggregate rental value, remuneration or other consideration (including the value of any loan), together with the aggregate rental value, remuneration or other consideration (including the value of any loan) of all such other transactions consummated in the year during which such transactions are proposed to be consummated, exceeds $7,500,000, the Borrower or PAAC, as applicable, delivers to the Administrative Agent Board Resolutions as described in clause (x)(i) above and an opinion of a nationally recognized investment banking firm, unaffiliated with the Borrower or PAAC, as applicable, and the Affiliate which is party to such transaction, to the effect that the aggregate rental price, remuneration or other consideration (including the value of a loan) inuring to the benefit of such Affiliate from any such transaction is not greater than that which would be charged to or extended by the Borrower, PAAC or any of their Subsidiaries, as the case may be, on an arm's-length basis for similar properties, assets, rights, goods or services by or to a Person not affiliated with the Borrower, PAAC or any of their Subsidiaries, as the case may be, and (y) all such transactions referred to in clauses (x)(i) and (ii) above are entered into in good faith. Any transaction required to be approved by Independent Directors pursuant to the preceding paragraph must be approved by at least one such Independent Director. 72 80 (b) The provisions of the preceding paragraph do not prohibit (i) any Restricted Payment permitted to be paid pursuant to Section 7.2.3, (ii) any Investment made in Kemwater during a period of three years following the Closing Date, provided that such Investment matures or is required to be redeemed within one year of its being made, (iii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iv) loans or advances to employees in the ordinary course of business consistent with past practices, not to exceed $500,000 aggregate principal amount outstanding at any time, (v) the payment of fees and compensation to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Borrower, PAAC or any of their Subsidiaries, as determined by the board of directors of the Borrower, PAAC or any of their Subsidiaries in good faith and (vi) Existing Affiliate Agreements, including amendments thereto entered into after the Closing Date provided that the terms of any such amendment either (A) are not, in the aggregate, less favorable to PAAC than the terms of such agreement prior to such amendment, or (B) if such terms are, in the aggregate, less favorable to PAAC such amendment satisfies the requirements of the preceding paragraph. SECTION 7.2.9. Impairment of Security Interest. (a) The Borrower and PAAC will not, and will not cause or permit any of their Restricted Subsidiaries to, take or omit to take any action which action or omission might or would have the result of affecting or impairing the Liens and security interest in favor of the Administrative Agent for the benefit of the Lenders with respect to the Collateral and the Borrower and PAAC will not grant to any Person, or suffer any Person to have any interest whatsoever in the Collateral, in each case other than as otherwise permitted by this Agreement, the Senior Secured Note Indenture or the Security Documents. The Borrower and PAAC will not, and will not permit PCAC to, grant a security interest in, or permit any Lien to exist on, the St. Gabriel Pipeline other than Permitted Liens and Liens in favor of the Collateral Agent pursuant to a Security Document. (b) The Borrower and PAAC will not, and will not cause or permit any of their Restricted Subsidiaries to, enter into any agreement or instrument that by its terms requires that the proceeds received from any sale of Collateral be applied to repay, redeem, defease or otherwise acquire or retire any Indebtedness of any Person, other than pursuant to this Agreement or the Senior Secured Indenture. A release of any of the Collateral strictly in accordance with the terms and conditions of this Agreement and the Security Documents will not be deemed for any purpose to be an impairment of security under this Agreement. (c) Subject to the provisions of this Agreement, the Existing Term Loan Agreement and the Intercreditor Agreement, the Borrower and PAAC will not, and will not cause or permit any of their Restricted Subsidiaries to, enter into any agreement or instrument that by its terms requires that the Borrower, PAAC or any such Restricted Subsidiary pledge the Capital Stock of (i) any PCIFP Company and any of its Restricted Subsidiaries and (ii) any other Restricted Subsidiary of PAAC that (A) is engaged in any business activity other than the holding of the Capital Stock of one or more Subsidiaries of PAAC (or in the case of Imperial, engaging in any business activity other than the holding of its Investment in Kemwater) and (B) has assets equal to or greater than 5% of PAAC's total assets determined on a consolidated basis as of the time of determination. SECTION 7.2.10. Stock of Subsidiaries. (a) PAAC (i) will not, and will not permit any of its Wholly-Owned Restricted Subsidiaries (other than a PCIFP Company and its Subsidiaries) 73 81 to, transfer, convey, sell or otherwise dispose of any Capital Stock of any such Wholly-Owned Restricted Subsidiary (other than All-Pure and its Subsidiaries) to any Person (other than PAAC or a Wholly-Owned Restricted Subsidiary of PAAC), unless (A) such transfer, conveyance, sale or other disposition is of all the Capital Stock of such Wholly-Owned Restricted Subsidiary and (B) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 7.2.6, and (ii) will not permit any such Wholly-Owned Restricted Subsidiary (other than a PCIFP Company and its Subsidiaries and All-Pure and its Subsidiaries) to issue any of its Equity Interests (other than, if necessary, Capital Stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, to the extent mandated by applicable law) to any Person other than to PAAC or a Wholly-Owned Restricted Subsidiary of PAAC. (b) The Borrower and PAAC (i) will not, and will not permit any Wholly-Owned Restricted Subsidiary of a PCIFP Company to, transfer, convey, sell or otherwise dispose of any Capital Stock of any Wholly-Owned Restricted Subsidiary of a PCIFP Company to any Person (other than such PCIFP Company or a Wholly-Owned Restricted Subsidiary of such PCIFP Company), and (ii) will not permit any Wholly-Owned Restricted Subsidiary of any PCIFP Company to issue any of its Equity Interests (other than, if necessary, Capital Stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, to the extent mandated by applicable law) to any Person other than to the Borrower or such PCIFP Company, respectively, or any of their respective Wholly-Owned Restricted Subsidiaries. SECTION 7.2.11. Sale and Leaseback. The Borrower and PAAC will not, and will not permit any of their respective Restricted Subsidiaries to, enter into any Sale and Leaseback Transaction unless (i) at the time of the occurrence of such transaction and after giving effect to such transaction and (x) in the case of a Sale and Leaseback Transaction which is a Capitalized Lease Obligation, giving effect to the Indebtedness in respect thereof, and (y) in the case of any other Sale and Leaseback Transaction, giving effect to the Attributable Indebtedness in respect thereof, the Borrower, PAAC or such Restricted Subsidiary could incur $1.00 of additional Indebtedness pursuant to the first sentence of Section 7.2.1, (ii) at the time of the occurrence of such transaction, the Borrower, PAAC or such Restricted Subsidiary could incur Indebtedness secured by a Lien on property in a principal amount equal to or exceeding the Attributable Indebtedness in respect of such Sale and Leaseback Transaction pursuant to Section 7.2.2, and (iii) the transfer of assets in such Sale and Leaseback Transaction is permitted by, and the Borrower or PAAC, whichever applicable, applies the proceeds of such transaction in compliance, with Section 7.2.6. SECTION 7.2.12. Limitation on Applicability of Certain Covenants. Notwithstanding anything to the contrary herein, the covenants set forth in Sections 7.2.1, 7.2.2, 7.2.3, 7.2.4, 7.2.6, and 7.2.8 hereof with respect to PAAC and its Restricted Subsidiaries (other than a PCIFP Company and its Restricted Subsidiaries) shall not apply to transactions effected pursuant to and in accordance with the Contingent Payment Agreement and amounts related to such transactions shall not be required to be included in any calculation required by any such covenant. Such transactions include (i) any payment made by PAAC or any of its Restricted Subsidiaries (other than a PCIFP Company and its Restricted Subsidiaries), (ii) any assets or property transferred by PAAC or any of its Restricted Subsidiaries (other than a PCIFP Company and its Restricted Subsidiaries), (iii) the application of any proceeds received by PAAC or any of its Restricted Subsidiaries (other than a PCIFP Company and its Restricted Subsidiaries) in connection with 74 82 any transfer of assets or property made by such Person, (iv) any escrow or segregation of moneys to be paid by PAAC or any of its Restricted Subsidiaries (other than a PCIFP Company and its Restricted Subsidiaries), (v) any Investment of such escrowed or segregated moneys by PAAC or any of its Restricted Subsidiaries (other than a PCIFP Company and its Restricted Subsidiaries) or any other Investment under the Contingent Payment Agreement, (vi) any obligation of PAAC or any of its Restricted Subsidiaries (other than a PCIFP Company and its Restricted Subsidiaries) to make any such payments or to effect any such escrow or segregation of moneys, (vii) any Indebtedness incurred by PAAC or any of its Restricted Subsidiaries (other than a PCIFP Company and its Restricted Subsidiaries) that is non-recourse to the assets of PAAC, such Restricted Subsidiary or any other such Restricted Subsidiary, other than the borrower's interest in Basic Investments, Inc., Victory Valley Land Company, L.P., the Excess Land and/or any other assets or funds held under the Contingent Payment Agreement, and as to which neither PAAC nor any Restricted Subsidiary (other than the borrower) provides credit support or is directly or indirectly liable, or (viii) any Lien incurred by PAAC or any of its Restricted Subsidiaries (other than a PCIFP Company and its Restricted Subsidiaries) in connection with Indebtedness described in clause (vii) above that does not extend to assets of PAAC or any of its Restricted Subsidiaries other than such Person's interest in Basic Investments, Inc., Victory Valley Land Company, L.P., the Excess Land and/or any other assets or funds held under the Contingent Payment Agreement. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. Listing of Events of Default. Each of the following events or occurrences described in this Section 8.1 shall constitute an "Event of Default". SECTION 8.1.1. Non-Payment of Obligations. (a) The Borrower shall default in the payment or prepayment of any principal of, or premium with respect to, any Term Loan when due or (b) any Obligor (including the Borrower) shall default (and such default shall continue unremedied for a period of five Business Days) in the payment when due of any interest or fee with respect to any Term Loan or any other monetary Obligation. SECTION 8.1.2. Breach of Warranty. Any representation or warranty of the Borrower, PAAC or any other Obligor made or deemed to be made hereunder or in any other Loan Document executed by it or any other writing or certificate (including each Closing Date Certificate) furnished by or on behalf of PCI, the Borrower, PAAC or any other Obligor to any Agent, the Arranger or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article V) is or shall be incorrect when made in any material respect. SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations. Any Obligor (including the Borrower and PAAC) shall default in the due performance and observance of any of its obligations under Sections 7.1.7, 7.1.9, 7.2.1, 7.2.2, 7.2.3, 7.2.5, 7.2.6, 7.2.10 or 7.2.11. SECTION 8.1.4. Non-Performance of Other Covenants and Obligations. Any Obligor (including the Borrower and PAAC) shall default in the due performance and observance of any other agreement contained herein or in any other Loan Document executed by it, and such 75 83 default shall continue unremedied for a period of 30 days after written notice thereof shall have been given to the Borrower or PAAC by the Administrative Agent at the direction of the Required Lenders specifying such default and demanding that it be remedied. SECTION 8.1.5. Disaffirmation of Obligations. (a) The Borrower or PAAC shall either deny or disaffirm its obligations under this Agreement or any other Loan Document or (b) any PAI Guarantor or other Obligor shall either deny or disaffirm its obligations under the Guaranty or any other Loan Document executed by it. SECTION 8.1.6. Effectiveness and Enforceability of Guarantees. Any Guaranty for any reason ceases to be, or is asserted in writing by any Guarantor or the Borrower not to be, in full force and effect and enforceable in accordance with its terms, except to the extent contemplated in such Guaranty. SECTION 8.1.7. Default on Other Indebtedness. A default shall occur (i) in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness, other than Indebtedness described in Section 8.1.1, of the Borrower, PAAC or any of their Subsidiaries having a principal amount in excess of $5,000,000 or (ii) in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity. SECTION 8.1.8. Judgments. A final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Borrower, PAAC or any or their Restricted Subsidiaries and such judgment or judgments remain undischarged, unbonded or unstayed for a period of sixty days, provided that the aggregate of all such judgments (other than any judgment as to which, and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) equals or exceeds $5,000,000. SECTION 8.1.9. Bankruptcy, Insolvency, etc. (a) The Borrower, PAAC, any PAI Guarantor or any Restricted Subsidiary of PAAC pursuant to or within the meaning of any U.S. Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case in which it is a debtor, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, (v) admits in writing its inability to pay debts as the same become due; 76 84 (b) a court of competent jurisdiction enters an order or decree under any U.S. Bankruptcy Law that: (i) is for relief against the Borrower, PAAC, any PAI Guarantor or any Restricted Subsidiary of PAAC in an involuntary case in which it is a debtor, (ii) appoints a Custodian of the Borrower, PAAC, any PAI Guarantor or any Restricted Subsidiary of PAAC or for all or substantially all of their property, (iii) orders the liquidation of the Borrower, PAAC, or any PAI Guarantor or any Restricted Subsidiary of PAAC, and the order or decree remains unstayed and in effect for sixty days; or (c) PCICC, any other Restricted Subsidiary of PAAC subject to any Canadian Bankruptcy Law or any PAI Guarantor subject to Canadian Bankruptcy Law within the meaning of any Canadian Bankruptcy Law: (i) becomes insolvent or generally does not pay its debts as such debts become due, (ii) admits in writing its inability to pay its debts generally or makes a general assignment for the benefit of creditors, (iii) files a notice of intention to file a proposal under any Canadian Bankruptcy Law, (iv) institutes or has instituted against it any proceeding seeking: (A) to adjudicate it a bankrupt or insolvent, (B) any liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any Canadian Bankruptcy Law, or (C) the entry of an order for relief or the appointment of a receiver, interim receiver, receiver and manager, assignee, liquidator, sequestrator, trustee or other similar official for it or for any substantial part of its property, and in the case of any such proceeding instituted against it (but not instituted by it), it shall not be actively and diligently contesting such proceeding in good faith by appropriate legal proceedings or any of the actions sought in such proceeding (including the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its Property) shall occur, or (v) takes any corporate action to authorize any of the foregoing actions. 77 85 SECTION 8.1.10. Impairment of Security, etc. Any of the Security Documents ceases to give the Collateral Agent a valid and perfected Lien of the priority required thereby or the rights, powers and privileges purported to be created thereby (other than in accordance with their respective terms), or any of the Security Documents is declared null and void, or the Borrower, or any other Obligor denies any of its obligations under any of the Security Documents or any Collateral becomes subject to any Lien other than the Liens created or permitted by the Security Documents or this Agreement. SECTION 8.2. Action if Bankruptcy, etc. If any Event of Default described in clause (a), (b) or (c) of Section 8.1.9 shall occur the Term Loan Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Term Loans and all other Obligations shall automatically be and become immediately due and payable, without notice or demand. SECTION 8.3. Action if Other Event of Default. If any Event of Default (other than an Event of Default described in clause (a), (b) or (c) of Section 8.1.9) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Administrative Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare all or any portion of the outstanding principal amount of the Term Loans and other Obligations to be due and payable and/or declare the Term Loan Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Term Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Term Loan Commitments shall terminate. ARTICLE IX GUARANTY SECTION 9.1. Guaranty. The Parent Guarantor hereby absolutely, unconditionally and irrevocably (a) guarantees the full and punctual payment when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations of the Borrower now or hereafter existing, whether for principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. Section 362(a), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. Section 502(b) and Section 506(b)), and (b) indemnifies and holds harmless each Lender Party and each holder of a Term Note for any and all costs and expenses (including reasonable attorney's fees and expenses) incurred by such Lender Party or such holder, as the case may be, in enforcing any rights under the guaranty set forth in this Article IX. The guaranty set forth in this Article IX constitutes a guaranty of payment when due and not of collection, and the Parent Guarantor specifically agrees that it shall not be necessary or required that any Lender Party or any holder of any Term Note exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Borrower or any other Obligor (or any 78 86 other Person) before or as a condition to the obligations of the Parent Guarantor under the guaranty set forth in this Article IX. SECTION 9.2. Acceleration of Parent Guaranty. The Parent Guarantor agrees that, in the event of any Default of the nature set forth in clause (a), (b) or (c) of Section 8.1.9, and if such event shall occur at a time when any of the Obligations of the Borrower and each other Obligor may not then be due and payable, the Parent Guarantor agrees that it will pay to the Administrative Agent for the account of the Lender Parties forthwith the full amount which would be payable under the guaranty set forth in this Article IX by the Parent Guarantor if all such Obligations were then due and payable. SECTION 9.3. Guaranty Absolute, etc. The guaranty set forth in this Article IX shall in all respects be a continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full force and effect until all Obligations of the Borrower and each other Obligor have been paid in full in cash, all obligations of the Parent Guarantor under the guaranty set forth in this Article IX shall have been paid in full in cash and the Term Loan Commitment shall have terminated. The Parent Guarantor guarantees that the Obligations of the Borrower will be paid strictly in accordance with the terms of this Agreement and each other Loan Document under which they arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Lender Party or any holder of any Term Note with respect thereto. The liability of the Parent Guarantor under the guaranty set forth in this Article IX shall be absolute, unconditional and irrevocable irrespective of: (a) any lack of validity, legality or enforceability of this Agreement, any Term Note or any other Loan Document; (b) the failure of any Lender Party or any holder of any Term Note (i) to assert any claim or demand or to enforce any right or remedy against the Borrower, any other Obligor or any other Person (including any other guarantor (including the Parent Guarantor)) under the provisions of this Agreement, any Term Note, any other Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor (including the Parent Guarantor) of, or collateral securing, any Obligations of the Borrower; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of the Borrower, or any other extension, compromise or renewal of any Obligation of the Borrower; (d) any reduction, limitation, impairment or termination of any Obligations of the Borrower for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Parent Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Obligations of the Borrower or otherwise; 79 87 (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of this Agreement, any Term Note or any other Loan Document; (f) any addition, exchange, release, surrender or non-perfection of any collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any other guaranty, held by any Lender Party or any holder of any Term Note securing any of the Obligations of the Borrower; (g) the occurrence of any change in the laws, rules, regulations or ordinances of any jurisdiction by any present or future action of any governmental authority or court amending, varying, reducing or otherwise affecting, or purporting to amend, vary, reduce or otherwise affect, any of the Obligations and the obligations of any Guarantor; (h) the application by the Administrative Agent or the Lenders of all monies at any time and from time to time received from the Borrower, any Guarantor or any other Person on account of any Obligations owing by the Borrower or any Guarantor to the Administrative Agent or the Lenders, in such manner as the Administrative Agent or the Lenders deems best and the changing of such application in whole or in part and at any time or from time to time, or any manner of application of Collateral, or proceeds thereof, to all or any of the Obligations; (i) any change in the name, business, capital structure or governing instrument of the Borrower or any Guarantor or any refinancing or restructuring of any of the Obligations; (j) the sale of the Borrower's or any Guarantor's business or any part thereof; (k) subject to Section 7.2.5, any merger or consolidation, arrangement or reorganization of the Borrower, any Guarantor, any Person resulting from the merger or consolidation of the Borrower or any Guarantor with any other Person or any other successor to such Person or merged or consolidated Person or any other change in the corporate existence, structure or ownership of the Borrower or any Guarantor; or (l) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower, any surety or any guarantor. SECTION 9.4. Reinstatement, etc. The Parent Guarantor agrees that the guaranty set forth in this Article IX shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is rescinded or must otherwise be restored by any Lender Party or any holder of any Term Note, upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made. SECTION 9.5. Waiver, etc. The Parent Guarantor hereby waives promptness, diligence, notice of acceptance and, to the extent permitted by law, any other notice with respect to any of the Obligations of the Borrower and the guaranty set forth in this Article IX and any requirement that the Administrative Agent, any other Lender Party or any holder of any Term Note protect, secure, perfect or insure any security interest or Lien, or any property subject 80 88 thereto, or exhaust any right or take any action against the Borrower, any other Obligor or any other Person (including any other guarantor) or entity or any collateral securing the Obligations of the Borrower. SECTION 9.6. Postponement of Subrogation, etc. The Parent Guarantor agrees that it will not exercise any rights which it may acquire by way of rights of subrogation under the guaranty set forth in this Article IX, by any payment made under the guaranty set forth in this Article IX or otherwise, until the prior payment in full in cash of all Obligations of the Borrower and each other Obligor and the termination of the Term Loan Commitment. Any amount paid to the Parent Guarantor on account of any such subrogation rights prior to the payment in full in cash of all Obligations of the Borrower and each other Obligor shall be held in trust for the benefit of the Lender Parties and each holder of a Term Note and shall immediately be paid to the Administrative Agent for the benefit of the Lender Parties and each holder of a Term Note and credited and applied against the Obligations of the Borrower and each other Obligor, whether matured or unmatured, in accordance with the terms of this Agreement; provided, however, that if (a) the Parent Guarantor has made payment to the Lender Parties and each holder of a Term Note of all or any part of the Obligations of the Borrower, and (b) all Obligations of the Borrower and each other Obligor have been paid in full in cash, and the Term Loan Commitment has been terminated, each Lender Party and each holder of a Term Note agrees that, at the Parent Guarantor's request, the Administrative Agent, on behalf of the Lender Parties and the holders of the Term Notes, will execute and deliver to the Parent Guarantor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to the Parent Guarantor of an interest in the Obligations of the Borrower resulting from such payment by the Parent Guarantor. In furtherance of the foregoing, for so long as any Obligations or the Term Loan Commitment remain outstanding, the Parent Guarantor shall refrain from taking any action or commencing any proceeding against the Borrower (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in the respect of payments made under the guaranty set forth in this Article IX to any Lender Party or any holder of a Term Note. SECTION 9.7. Successors, Transferees and Assigns; Transfers of Term Notes, etc. The guaranty set forth in this Article IX shall: (a) be binding upon the Parent Guarantor, and its successors, transferees and assigns; and (b) inure to the benefit of and be enforceable by the Administrative Agent and each other Lender Party. Without limiting the generality of the foregoing clause (b), any Lender may assign or otherwise transfer (in whole or in part) any Term Note or Term Loan held by it to any other Person, and such other Person shall thereupon become vested with all rights and benefits in respect thereof granted to such Lender under any Loan Document (including the guaranty set forth in this 81 89 Article IX) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of Section 11.11 and Article X. ARTICLE X THE AGENTS SECTION 10.1. Appointment of Agents. Each Lender hereby irrevocably appoints DLJ as Syndication Agent, Salomon as Documentation Agent and BofA as its Administrative Agent under and for purposes of this Agreement, the Term Notes and each other Loan Document. Each Lender authorizes the Administrative Agent to act on behalf of such Lender under this Agreement, the Term Notes and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by the Administrative Agent (with respect to which the Administrative Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. The provisions of this Article X are solely for the benefit of the Agents and Lenders, and neither the Borrower, PAAC nor any other Obligor shall have any rights as a third- party beneficiary of any of the provisions hereof other than with respect to an Agent's resignation. In performing their functions and duties under this Agreement and each other Loan Document, the Agents shall act solely as agents of the Lenders and do not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for the Borrower, PAAC or any other Obligor. SECTION 10.2. Intercreditor Agreement and Collateral Agent; Power of Attorney. (a) Each Agent (in its capacity as an Agent) and each Lender consents and agrees to all of the terms and provisions of the Intercreditor Agreement and the other Security Documents, as the same may be amended, supplemented, amended and restated or otherwise modified from time to time in accordance with the provisions of the Security Documents and this Agreement, and authorizes and directs the Collateral Agent to act as mortgagee or secured party with respect thereto or to act as collateral agent pursuant to the Intercreditor Agreement. (b) For purposes of constituting security on PCICC's property located in the Province of Quebec pursuant to the Quebec Mortgage and Security Agreement as security for the due payment of all obligations of PCICC under each Canadian Demand Debenture and the performance by PCICC of all of its obligations contained in the Canadian Demand Debenture, the Administrative Agent and each Lender hereby irrevocably grants to the Collateral Agent, for the purposes of holding, on behalf of and for the benefit of the Administrative Agent and the Lenders, the security constituted by PCICC under the Quebec Mortgage and Security Agreement, a power of attorney (within the meaning of the Civil Code of Quebec) of the Administrative Agent and the Lenders. To the extent that any Person becomes the Administrative Agent or a Lender under this Agreement after the date hereof, then such Person, by becoming bound by the terms and conditions of this Agreement, whether by assignment or otherwise, shall be automatically deemed to have ratified and consented to the irrevocable granting by the Administrative Agent and Lenders to the Collateral Agent of the power of attorney constituted hereunder. 82 90 SECTION 10.3. Nature of Duties of the Agents. The Agents shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement and each other Loan Document. Neither the Agents nor any of their officers, directors, employees or agents shall be liable for any action taken or omitted by it as such hereunder or under each other Loan Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Agents shall be mechanical and administrative in nature; the Agents shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any other Loan Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agents any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. No duty to act, or refrain from acting, and no other obligation whatsoever, shall be implied on the basis of or imputed in respect of any right, power or authority granted to any Agent or shall become effective in the event of any temporary or partial exercise of such rights, power or authority. SECTION 10.4. General Immunity. Neither the Agents, the Arranger nor any of their directors, officers, agents, attorneys or employees shall be liable to any Lender for any action taken or omitted to be taken by it or them under this Agreement or any other Loan Document or in connection herewith or therewith except for its or their own willful misconduct or gross negligence. Without limiting the generality of the foregoing, the Agents and the Arranger: (i) shall not be responsible to the Lenders for any recitals, statements, warranties or representations under this Agreement or any other Loan Document or any agreement or document relative hereto or thereto or for the financial or other condition of any Obligor, (ii) shall not be responsible to the Lenders for the authenticity, accuracy, completeness, value, validity, effectiveness, due execution, legality, genuineness, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or any other agreements or any assignments, certificates, requests, financial statements, projections, notices, schedules or opinions of counsel executed and delivered pursuant hereto or thereto, (iii) shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of Obligors or of any of the terms of any such agreement by any party hereto or thereto and shall have no duty to inspect the property (including the books and records) of any Obligor, (iv) shall have no obligation whatsoever to the Lenders or to any other Person to assure that the Collateral exists or is owned by the Borrower, PAAC or another Obligor or is cared for, protected or insured or that the Liens granted to the Administrative Agent herein or in any other Loan Document or pursuant hereto or thereto have been properly or sufficiently or lawfully created, perfected, protected, enforced, realized upon or are entitled to any particular priority, and (v) shall incur no liability under or in respect of this Agreement or any other Loan Document or any other document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable, telex, telecopier or similar form of facsimile transmission) believed by the Agents to be genuine and signed or sent by the proper party. The Agents may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by the Agents and shall not be liable for any action taken or omitted to be taken in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 10.5. Successor. Each of the Syndication Agent and the Documentation Agent may resign as such upon one Business Day's notice to the Borrower and the Administrative Agent. The Administrative Agent may resign as such at any time upon at least 30 days' prior notice to the Borrower and all Lenders. If the Administrative Agent at any time 83 91 shall resign, the Required Lenders may, with the prior consent of the Borrower (which consent shall not be unreasonably withheld), appoint another Lender as a successor Administrative Agent which shall thereupon become the Administrative Agent hereunder. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 20 days after the retiring Administrative Agent's giving notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be one of the Lenders or a commercial banking institution organized under the laws of the United States or a United States branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall be entitled to receive from the retiring Administrative Agent such documents of transfer and assignment as such successor Administrative Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation hereunder as the Administrative Agent, the provisions of (i) this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement, and (ii) Section 11.3 and Section 11.4 shall continue to inure to its benefit. SECTION 10.6. Agents in their Capacity as Lenders. With respect to their obligation (if any) to lend under this Agreement and each other Loan Document, the Agents shall have the same rights and powers under this Agreement and each other Loan Document as any Lender and may exercise the same as though it were not an Agent. "Lender" or "Lenders" shall, unless the context otherwise indicates, include each Agent in its capacity as a Lender hereunder. The Agents, any Lender and their respective affiliates may accept deposits from, lend money to, and generally engage in any kind of banking or trust business with the Borrower or any other Obligor, as if it were not an Agent or as if it or they were not a Lender hereunder and without any duty to account therefor to the other parties to this Agreement; provided, that the obligations of the Borrower under such transactions shall not be deemed to be Obligations secured by any Collateral without the prior written agreement of the Required Lenders. In furtherance of the foregoing, each Lender acknowledges that, as of the date hereof, (i) BofA is not a Lender under this Agreement, (ii) BofA is the sole lender (and the administrative agent) under the Revolving Credit Agreement and (iii) pursuant to the Revolving Credit Agreement, BofA is the beneficiary of certain Liens on the inventory, receivables and related general intangibles of the Borrower and its Subsidiaries. SECTION 10.7. Actions by Each Agent. (a) Actual Knowledge. Each Agent may assume that no Event of Default has occurred and is continuing, unless such Agent has actual knowledge of the Event of Default, has received notice from the Borrower or the Borrower's independent certified public accountants stating the nature of the Event of Default, or has received notice from a Lender stating the nature of the Event of Default and that such Lender considers the Event of Default to have occurred and to be continuing. (b) Discretion to Act. Each Agent shall have the right to request instructions from the Required Lenders by notice to each Lender. If such Agent shall request instructions from the Required Lenders with respect to any act or action (including the failure to act) in connection with this Agreement or any other Loan Document, such Agent shall be entitled to refrain from such act or taking such action unless and until it shall have received instructions from the 84 92 Required Lenders, and such Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or refraining from acting hereunder or under any other Loan Document in accordance with the instructions of the Required Lenders. Each Agent may give any notice required under Article VIII hereof without the consent of any of the Lenders unless otherwise directed by the Required Lenders in writing and will, at the direction of the Required Lenders, give any such notice required under Article VIII. Except for any obligation expressly set forth in this Agreement or any other Loan Document, each Agent may, but shall not be required to, exercise its discretion to act or not act, except that such Agent shall be required to act or not act upon the instructions of the Required Lenders (unless all of the Lenders are required to provide such instructions as provided in Section 10.1) and those instructions shall be binding upon each Agent and all Lenders; provided, however, that each Agent shall not be required to act or not act if to do so would expose such Agent to liability or would be contrary to this Agreement or any other Loan Document or to applicable law. SECTION 10.8. Right to Indemnity. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document or in relation hereto or thereto unless it shall first be indemnified (upon requesting such indemnification) to its satisfaction by the Lenders against any and all liability and expense which it may incur by reason of taking or continuing to take any such action. The Lenders further agree to indemnify each Agent ratably in accordance with their Percentages for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby, or the enforcement of any of the terms hereof or thereof or of any other documents, and either not indemnified by the Borrower pursuant to Section 11.4 or with respect to which the Borrower has failed to fully honor its indemnification obligations under Section 11.4; provided, however, that no such liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement results from such Agent's gross negligence or willful misconduct. Each Lender agrees to reimburse each Agent in the amount of its pro rata share of any out-of-pocket expenses for which such Agent is entitled to receive, but has not received, reimbursement pursuant to this Agreement. The agreements in this Section 10.8 shall survive the payment and fulfillment of the Obligations and termination of this Agreement. SECTION 10.9. Suits to Protect Collateral. Subject to the provisions of the Intercreditor Agreement, the Administrative Agent, acting at the written direction of the Required Lenders, shall have power to institute and to maintain, or direct the Collateral Agent to institute and maintain, such suits and proceeds as the Administrative Agent may deem expedient to prevent any impairment of the Collateral by any acts which may be unlawful or in violation of this Agreement or any other Loan Document, and such suits and proceedings as the Administrative Agent may deem expedient to preserve or protect its interest and the interests of the Lenders in the Collateral (including the power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the Liens of the Collateral Agent in the Collateral or be prejudicial to the interests of the Lender or the Administrative Agent). SECTION 10.10. Determinations Relating to Collateral. In the event (i) the Administrative Agent shall receive any written request from the Borrower, PAAC or any other 85 93 Obligor under this Agreement or any other Loan Document for consent or approval with respect to any matter relating to any Collateral or the Borrower's, PAAC's or such Obligor's obligations with respect thereto or (ii) there shall be due to or from the Administrative Agent under the provisions of any this Agreement or any other Loan Document, any performance or the delivery of any instrument or (iii) the Administrative Agent shall become aware of any nonperformance by the Borrower, PAAC or any other Obligor of any covenant or any breach of any representation or warranty for the Borrower, PAAC or any other Obligor set forth in this Agreement or any other Loan Document, then, in each such event, the Administrative Agent shall be entitled, at the expense of the Borrower and subject to Section 10.7(b), to hire experts, consultants, agents and attorneys (including internal counsel) to advise the Administrative Agent on the manner in which the Administrative Agent should respond to such request or render any requested performance or response to such nonperformance or breach. The Administrative Agent shall be fully protected in the taking of any action recommended or approved by any such expert, consultant, agent or attorney (including internal counsel) or agreed to by the Required Lenders pursuant to Section 10.7(b). SECTION 10.11. Trust Moneys. To the extent Trust Moneys consist of insurance proceeds or condemnation or other taking awards, any such moneys which may be used to effect a restoration of the affected Collateral shall be permitted to be withdrawn by the Borrower and paid by the Collateral Agent in accordance with the Intercreditor Agreement. SECTION 10.12. Release of Collateral. Each Lender hereby irrevocably authorizes the Administrative Agent or the Collateral Agent, as the case may be, at its option and in its discretion, to release any and all guaranties of the Obligations and any Lien granted to or held by or in favor of the Administrative Agent or the Collateral Agent, as the case may be, for the benefit of the Lenders with respect to any Guarantor or Collateral (i) upon termination of the Lenders' obligations to make Term Loans and payment and satisfaction of all Term Loans and all other Obligations and which the Administrative Agent or the Collateral Agent, as the case may be, has been notified in writing are then due and payable; (ii) constituting Collateral being sold or disposed of if the Borrower certifies to the Administrative Agent and the Collateral Agent pursuant to an Officers' Certificate that the sale or disposition is made in compliance with the terms of this Agreement and the other Loan Documents (and, absent any actual knowledge of the Administrative Agent or the Collateral Agent, as the case may be, to the contrary, the Administrative Agent or the Collateral Agent, as the case may be, may rely conclusively on any such certificate, without further inquiry); (iii) as provided in Section 7.1.8(b); (iv) constituting property in which the Borrower, PAAC or any other Obligor owned no interest at the time the Lien was granted and at all times thereafter; or (v) if approved, authorized or ratified in writing by the Administrative Agent or the Collateral Agent, as the case may be, at the direction of all Lenders. Upon request by the Administrative Agent or the Collateral Agent, as the case may be, at any time, each Lender will confirm in writing the Administrative Agent's or the Collateral Agent's, as the case may be, authority to release particular types or items of Collateral pursuant to this Section 10.12. Section 10.13. Holding of Security. Each Lender agrees (i) with the other Lenders that it will not, without the prior consent of the other Lenders, take or obtain any Lien on any property of PCICC to secure the Obligations of the Borrower hereunder or under any other Loan Document, except for the benefit of the Collateral Agent, for and on behalf of the Administrative Agent and of all the Lenders or as may otherwise be required by law; and (ii) that, notwithstanding the provisions of Section 32 of the Special Corporate Powers Act (Quebec), the 86 94 Collateral Agent, may as the person holding the power of attorney of the Administrative Agent and of the Lenders, acquire any title to indebtedness secured by any hypothec in its favor related to this Agreement or any other Loan Document. Section 10.14. Application of Proceeds of Collateral. The Administrative Agent shall apply the proceeds of any collection of the Collateral payable to the Administrative Agent for the benefit of it and the Lenders, first, to the payment of all costs and expenses incurred by the Administrative Agent in connection with such collection or otherwise in connection with this Agreement or any other Loan Document, including and together with any amounts then due and payable to the Administrative Agent (in its capacity as such) hereunder (including any amount then due and payable to the Administrative Agent pursuant to its rights to indemnification under Sections 10.5 and 10.8), and, second, to the payment in full of the Obligations then due and payable to the Lenders (such payment to be distributed among the Lenders pro rata in accordance with the amount of such Obligations owed to them on the date of such distribution). SECTION 10.15. Rights and Remedies to be Exercised by Administrative Agent Only. In the event any remedy may be exercised with respect to this Agreement or any other Loan Document or the Collateral, the Administrative Agent shall pursue remedies designated by the Required Lenders subject to the proviso set forth in Section 10.7(b). Each Lender agrees that no Lender shall have any right individually to realize upon the security created by any Security Document. SECTION 10.16. Credit Decisions. Each Lender acknowledges that it has, independently of and without reliance upon each Agent, the Arranger and each other Lender, and based on such Lender's review of the financial information of the Borrower and each other Obligor, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Term Loan Commitment. Each Lender also acknowledges that it will, independently of and without reliance upon each Agent, the Arranger and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. Except as otherwise expressly provided for herein, the Agents shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, litigation, liabilities or business of the Parent, the Borrower or any other Obligor. SECTION 10.17. Copies, etc. The Administrative Agent shall give prompt notice to each Lender of each notice or request required or permitted to be given to the Administrative Agent by the Borrower pursuant to the terms of this Agreement (unless concurrently delivered to the Lenders by the Borrower). The Administrative Agent will distribute to each Lender each document or instrument received for such Lender's account and copies of all other communications received by the Administrative Agent from the Borrower for distribution to the Lenders by the Administrative Agent in accordance with the terms of this Agreement (except to the extent any such Lender shall have provided written notice to the Administrative Agent that it is not to receive any such documents, instruments or communications). In the event such information is so furnished by any Agent, such Agent shall have no duty to confirm or verify its accuracy or completeness and shall have no liability whatsoever with respect thereto. 87 95 SECTION 10.18. The Syndication Agent, the Documentation Agent and the Administrative Agent. Notwithstanding anything else to the contrary contained in this Agreement or any other Loan Document, the Agents, in their respective capacities as such, each in such capacity, shall have no duties or responsibilities under this Agreement or any other Loan Document nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Syndication Agent, the Documentation Agent or the Administrative Agent, as applicable, in such capacity except as are explicitly set forth herein or in the other Loan Documents. SECTION 10.19. Agreement to Cooperate. Each Lender agrees to cooperate to the end that the terms and provisions of this Agreement may be promptly and fully carried out. The Lenders also agree, from time to time, at the request of the Agents, to execute and deliver any and all other agreements, documents or instruments and to take such other actions, all as may be reasonably necessary or desirable to effectuate the terms, provisions and intent of this Agreement and the other Loan Documents. SECTION 10.20. Lenders to Act as Agents. If any Collateral or proceeds thereof at any time comes into the possession or under the control of any Lender, such Lender shall hold such Collateral or proceeds thereof as agent for the joint benefit of the Lenders, and will, upon receipt therefor, deliver such Collateral or proceeds thereof to the Administrative Agent. ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1. Waivers, Amendments, etc. The provisions of this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no such amendment, modification or waiver which would: (a) modify any requirement hereunder that any particular action be taken by all the Lenders or by the Required Lenders shall be effective unless consented to by each Lender; (b) modify this Section 11.1, or clause (a) of Section 11.10, change the definition of "Required Lenders", increase the Term Loan Commitment Amount or the Percentage of any Lender, reduce any fees described in Section 3.3, release any Guarantor from its obligations under any Guaranty or release a substantial portion of the Collateral (except in each case as otherwise specifically provided in this Agreement, such Guaranty or applicable Security Document) or extend the Term Loan Commitment Termination Date shall be made without the consent of each Lender adversely affected thereby; (c) extend the due date for, or reduce the amount of, any scheduled repayment or prepayment of principal of or interest on or fees payable in respect of any Term Loan or reduce the principal amount of or rate of interest on any Term Loan shall be made without the consent of the holder of the Term Note evidencing such Term Loan; or 88 96 (d) affect adversely the interests, rights or obligations of any Agent or Arranger (in its capacity as Agent or Arranger), unless consented to by such Agent or Arranger, as the case may be. No failure or delay on the part of any Agent, any Lender or the holder of any Term Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by any Agent, any Lender or the holder of any Term Note under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 11.2. Notices. All notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by facsimile and addressed, delivered or transmitted to such party at its address or facsimile number set forth in Schedule II hereto or, in the case of a Lender that becomes a party hereto after the date hereof, as set forth in the Lender Assignment Agreement pursuant to which such Lender becomes a Lender hereunder or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted (and electronic confirmation of receipt thereof has been received). SECTION 11.3. Payment of Costs and Expenses. The Borrower agrees to pay on demand all expenses of each of the Agents (including the fees and out-of-pocket expenses of counsel to the Agents (including internal counsel) and of local counsel, if any, who may be retained by counsel to the Agents) in connection with (a) the syndication by the Syndication Agent and the Arranger of the Term Loans, the negotiation, preparation, execution and delivery of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated; (b) the filing, recording, refiling or rerecording of each Mortgage, each Security Agreement, any Uniform Commercial Code or PPSA financing statements and each other Security Document relating thereto and all amendments, supplements and modifications to any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms hereof or of such Mortgage, Security Agreement or other Security Document; and (c) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document. 89 97 The Borrower further agrees to pay, and to save the Agents and the Lenders harmless from all liability for, any stamp or other similar taxes which may be payable in connection with the execution or delivery of this Agreement, the Term Loans made hereunder or the issuance of the Term Notes or any other Loan Documents. The Borrower also agrees to reimburse each Agent and each Lender upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses (including those of internal counsel)) incurred by such Agent or such Lender in connection with (x) the negotiation of any restructuring or "work-out", whether or not consummated, of any Obligations, (y) the enforcement of any Obligations and (z) any litigation relating to the Obligations, this Agreement or any Loan Document. SECTION 11.4. Indemnification. In consideration of the execution and delivery of this Agreement by each Lender and the extension of the Term Loan Commitments, each of the Borrower and PAAC hereby, to the fullest extent permitted under applicable law, indemnifies, exonerates and holds each Agent, the Arranger and each Lender and each of their respective Affiliates, and each of their respective partners, officers, directors, employees and agents, and each other Person controlling any of the foregoing within the meaning of either Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended (collectively, the "Indemnified Parties"), free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (including those of internal counsel) (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Term Loan; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower or PAAC as the result of any determination by the Required Lenders pursuant to Article V not to fund any Borrowing); (c) any investigation, litigation or proceeding related to any acquisition or proposed acquisition by the Borrower, PAAC or any of their Subsidiaries of all or any portion of the stock or assets of any Person, whether or not such Agent, such Arranger or such Lender is party thereto; (d) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by the Borrower, PAAC or any of their Subsidiaries of any Hazardous Material; (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the Borrower, PAAC or any of their Subsidiaries of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower, PAAC or such Subsidiary; or 90 98 (f) with respect to BofA, any action taken by BofA in its capacity as agent under the Revolving Credit Agreement, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or willful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, each of the Borrower and PAAC hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 11.5. Survival. The obligations of the Borrower and PAAC under Sections 4.3, 4.4, 4.5, 4.6, Article IX, Sections 11.3 and 11.4, and the obligations of the Lenders under Section 11.1, shall in each case survive any termination of this Agreement, the payment in full of all Obligations and the termination of all Term Loan Commitments. The representations and warranties made by the Borrower, PAAC and each other Obligor in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION 11.6. Severability. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such other Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 11.7. Headings. The various headings of this Agreement and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION 11.8. Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower, each Lender and the Administrative Agent (or notice thereof satisfactory to the Administrative Agent) shall have been received by the Administrative Agent. SECTION 11.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE TERM NOTES AND, EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED THEREIN, EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement, the Term Notes and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. Upon the execution and delivery of this Agreement by the parties hereto, all obligations and liabilities of the Arranger under or relating or with respect to the Commitment Letter shall be terminated and of no further force or effect. SECTION 11.10. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that (i) neither the Borrower nor PAAC may assign or transfer its rights or 91 99 obligations hereunder without the prior written consent of each of the Agents and all Lenders, and (ii) the rights of sale, assignment and transfer of the Lenders are subject to Section 11.11. SECTION 11.11. Sale and Transfer of Term Loans and Term Notes; Participations in Term Loans and Term Notes. Each Lender may assign, or sell participations in, its Term Loan and Term Loan Commitment to one or more other Persons in accordance with this Section 11.11. SECTION 11.11.1. Assignments. Any Lender (the "Assignor Lender"), (a) with written notice to the Administrative Agent and the written consents of the Borrower and the Syndication Agent (which consents shall not be (i) unreasonably delayed or withheld or (ii) required in the case of any assignments made by the Syndication Agent or any of its Affiliates and which consent in the case of the Borrower, shall be deemed to have been given in the absence of a written notice delivered by the Borrower to the Administrative Agent, on or before the fifth Business Day after receipt by the Borrower of such Assignor Lender's request for consent, stating, in reasonable detail, the reasons why the Borrower proposes to withhold such consent), may at any time assign and delegate to one or more commercial banks or other financial institutions (including funds engaged in the business of investing in loans), and (b) with notice to the Borrower, the Syndication Agent and the Administrative Agent, but without the consent of the Borrower or any Agent, may assign and delegate to any of its Affiliates or to any other Lender or to any Person whose investment manager or investment advisor is the investment manager or investment advisor of such Lender (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), all or any fraction of such Assignor Lender's total Term Loans and Term Loan Commitment in a minimum aggregate amount of (i) $1,000,000 or (ii) the then remaining amount of such Lender's Term Loans and Term Loan Commitment; provided, however, that any such Assignee Lender will comply, if applicable, with the provisions contained in the last sentence of Section 4.6 and provided, further, however, that, the Borrower, each other Obligor and the Agents shall be entitled to continue to deal solely and directly with such Assignor Lender in connection with the interests so assigned and delegated to an Assignee Lender until (i) written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been given to the Borrower and the Agents by such Assignor Lender and such Assignee Lender; (ii) such Assignor Lender and such Assignee Lender shall have executed and delivered to the Borrower and the Agents a Lender Assignment Agreement, accepted by the Administrative Agent; and (iii) the processing fees described below shall have been paid. From and after the date that the Administrative Agent accepts such Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and 92 100 delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (y) the Assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Within ten Business Days after its receipt of notice that the Administrative Agent has accepted an executed Lender Assignment Agreement, the Borrower shall execute and deliver to the Administrative Agent (for delivery to the relevant Assignee Lender) a new Term Note evidencing such Assignee Lender's assigned Term Loans and Term Loan Commitments and, if the Assignor Lender has retained Term Loans and Term Loan Commitments hereunder, a replacement Term Note in the principal amount of the Term Loans and Term Loan Commitments retained by the Assignor Lender hereunder (such Term Note to be in exchange for, but not in payment of, that Term Note then held by such Assignor Lender). Each such Term Note shall be dated the date of the predecessor Term Note. The Assignor Lender shall mark the predecessor Term Note "exchanged" and deliver it to the Borrower. Accrued interest on that part of the predecessor Term Note evidenced by the new Term Note, and accrued fees, shall be paid as provided in the Lender Assignment Agreement. Accrued interest on that part of the predecessor Term Note evidenced by the replacement Term Note shall be paid to the Assignor Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Term Note and in this Agreement. Such Assignor Lender or such Assignee Lender must also pay a processing fee to the Administrative Agent upon delivery of any Lender Assignment Agreement in the amount of $2,500, unless such assignment and delegation is by a Lender to its Affiliate or if such assignment and delegation is by a Lender to a Federal Reserve Bank, as provided below or is otherwise consented to by the Administrative Agent. Any attempted assignment and delegation not made in accordance with this Section 11.11.1 shall be null and void. Nothing contained in this Section 11.11.1 shall prevent or prohibit any Lender from pledging its rights (but not its obligations to make Loans) under this Agreement and/or its Loans and/or its Term Note hereunder to a Federal Reserve Bank in support of Borrowings made by such Lender from such Federal Reserve Bank. SECTION 11.11.2. Participations. Any Lender may at any time sell to one or more commercial banks or other Persons (each such commercial bank and other Person being herein called a "Participant") participating interests in any of the Term Loans, Term Loan Commitments or other interests of such Lender hereunder; provided, however, that (a) no participation contemplated in this Section shall relieve such Lender from its Term Loan Commitments or its other obligations hereunder or under any other Loan Document; (b) such Lender shall remain solely responsible for the performance of its Term Loan Commitments and such other obligations; (c) the Borrower and each other Obligor and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents; (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document, except that such Lender may agree 93 101 with any Participant that such Lender will not, without such Participant's consent, agree to (i) any reduction in the interest rate or amount of fees that such Participant is otherwise entitled to, (ii) a decrease in the principal amount, or an extension of the final Stated Maturity Date, of any Term Loan in which such Participant has purchased a participating interest or (iii) a release of all or substantially all of the collateral security under the Loan Documents or any Guarantor under any Guaranty, in each case except as otherwise specifically provided in a Loan Document; and (e) the Borrower shall not be required to pay any amount under Section 4.6, that is greater than the amount which it would have been required to pay had no participating interest been sold. The Borrower acknowledges and agrees that each Participant, for purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 11.3 and 11.4, shall be considered a Lender. SECTION 11.12. Other Transactions. Nothing contained herein shall preclude any Agent or any other Lender from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower, PAAC or any of their Affiliates in which the Borrower, PAAC or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 11.13. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS, THE BORROWER OR PAAC RELATING THERETO SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) IN THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH OF THE BORROWER AND PAAC HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY, AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. EACH OF THE BORROWER AND PAAC IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH OF THE BORROWER AND PAAC HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN 94 102 INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER OR PAAC HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER OR PAAC, WHICHEVER APPLICABLE, HEREBY IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 11.14. Waiver of Jury Trial. THE AGENTS, THE LENDERS, THE BORROWER AND PAAC HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS OR THE BORROWER RELATING THERETO. EACH OF THE BORROWER AND PAAC ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. SECTION 11.15. Judgment Currency. (a) If, for purposes of obtaining judgment in any court, it is necessary to convert any sum due or owing under any Loan Document to the Administrative Agent or any one or more of the Lenders in any currency (the "Original Currency") into another currency (the "Other Currency"), the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, the Administrative Agent could purchase the Original Currency with the Other Currency on the Business Day preceding that on which the final judgment is granted. (b) The Obligations of the Borrower in respect of any sum due in the Original Currency from it to the Administrative Agent or any one or more of the Lenders under any of the Loan Documents shall, notwithstanding any judgment in any Other Currency, be discharged only to the extent that on the Business Day following receipt by the Administrative Agent of any sum adjudged to be so due or owing in such Other Currency, the Administrative Agent may in accordance with normal banking procedures purchase the Original Currency with such Other Currency. If the amount of the Original Currency so purchased is less than the sum originally due or owing to the Administrative Agent or any one or more of the Lenders in the Original Currency, the Borrower shall, as a separate obligation and notwithstanding any such judgment, indemnify the Administrative Agent or such Lender(s) against such loss, and if the amount of the Original Currency so purchased exceeds the sum originally due or owing to the Administrative Agent or such Lender(s) in the Original Currency, the Administrative Agent or such Lender(s) shall remit such excess to the Borrower. 95 103 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 96 104 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. PIONEER AMERICAS, INC. By: /s/ Philip J. Ablove ------------------------------------- Title: Vice President PIONEER AMERICAS ACQUISITION CORP. By: /s/ Philip J. Ablove ------------------------------------- Title: Vice President DLJ CAPITAL FUNDING, INC., as the Syndication Agent and as Lender By: /s/ Harold Philipps ------------------------------------- Title: Managing Director SALOMON BROTHERS HOLDING COMPANY INC, as the Documentation Agent and as Lender By: /s/ Townsend Weekes ------------------------------------- Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as the Administrative Agent By: /s/ David Johanson ------------------------------------- Title: Vice President 105 UNITED STATES TRUST COMPANY OF NEW YORK, as the Collateral Agent By: /s/ Patricia Stermer ------------------------------------- Title: Assistant Vice President 106 SCHEDULE I DISCLOSURE SCHEDULE ITEM 6.7 Insurance. ITEM 6.8 Litigation. Description of Proceedings Action or Claim Sought -------------------------- ---------------------- ITEM 6.10 Subsidiaries. ITEM 6.11 Partnerships; Joint Ventures. ITEM 6.13 Intellectual Property. ITEM 6.15 Contracts and Labor Matters. ITEM 6.16 Pension and Welfare Plans. ITEM 7.2.1 (c) Existing Indebtedness. ITEM 7.2.2 (a) Existing Liens. ITEM 7.2.3 Existing Investments. ITEM 7.2.8 Existing Affiliate Agreements. 107 SCHEDULE II to Credit Agreement PERCENTAGES ----------- TERM LOAN DLJ Capital Funding, Inc. 60% Salomon Brothers Holding Company Inc 40% ADMINISTRATIVE INFORMATION -------------------------- Notice Information ------------------ Pioneer Americas, Inc. 700 Louisiana Street Houston, Texas 77002 Contact: Vice President, Chief Financial Officer Fax: 713-225-4426 Pioneer Americas Acquisition Corp. 700 Louisiana Street Houston, Texas 77002 Contact: Vice President, Chief Financial Officer Fax: 713-225-4426 DLJ Capital Funding, Inc., as Syndication Agent 277 Park Avenue New York, New York 10172 Contact: Sheila O'Sullivan Fax: 212-892-5286 Salomon Brothers Holding Company Inc, as Documentation Agent Seven World Trade Center New York, New York 10048 Contact: Simone Dagnino Fax: 212-783-2823 108 Bank of America National Trust and Savings Association, as Administrative Agent 231 South LaSalle Street, Eighth Floor Chicago, Illinois 60697 Contact: Richard A. Beutel Fax: 312-974-0761 United States Trust Company of New York, as Collateral Agent 114 West 47th Street New York, New York 10036-1532 Contact: Patricia Stermer Fax: 212-852-1625 Lenders' Domestic and LIBOR Offices ----------------------------------- DLJ Capital Funding, Inc. 525 Washington Blvd. Jersey City, New Jersey 07310 Contact: Ed Vowinkel Fax: 201-610-1965 Salomon Brothers Holding Company Inc Seven World Trade Center New York, New York 10048 Contact: Simone Dagnino Fax: 212-783-2823 EX-4.8(B) 10 AFILIATE GUARANTY DATED 10/30/97 1 EXHIBIT 4.8(b) AFFILIATE GUARANTY This AFFILIATE GUARANTY (as amended, supplemented, amended and restated or otherwise modified from time to time, this "Guaranty"), dated as of October 30, 1997, is made by each of the signatories hereto and each other Person which may from time to time hereafter become a party hereto pursuant to Section 5.5 (each, individually, an "Additional Affiliate Guarantor", and, collectively, the "Additional Affiliate Guarantors", and, together with each of the signatories hereto, each, individually, an "Affiliate Guarantor", and, collectively, the "Affiliate Guarantors"), in favor of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as administrative agent (the "Administrative Agent") for each of the Lender Parties (as defined below). W I T N E S S E T H: WHEREAS, pursuant to a Term Loan Agreement, dated as of October 30, 1997 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Term Loan Agreement"), among Pioneer Americas, Inc., a corporation organized under the laws of Delaware (the "Borrower"), the Parent Guarantor named therein, the various financial institutions as are, or may from time to time become, parties thereto (each, individually, a "Lender", and collectively, the "Lenders"), DLJ Capital Funding, Inc., as Syndication Agent for the Lenders, Salomon Brothers Holding Company Inc, as Documentation Agent for the Lenders, the Administrative Agent, and United States Trust Company of New York, as Collateral Agent for the Secured Parties, the Lenders have extended Term Loan Commitments to make Term Loans to the Borrower; WHEREAS, as a condition precedent to the making of the Term Loans under the Term Loan Agreement, each Affiliate Guarantor is required to execute and deliver this Guaranty; WHEREAS, each Affiliate Guarantor has duly authorized the execution, delivery and performance of this Guaranty; and WHEREAS, it is in the best interests of each Affiliate Guarantor to execute this Guaranty inasmuch as each Affiliate Guarantor will derive substantial direct and indirect benefits from the making of Term Loans to the Borrower by the Lenders pursuant to the Term Loan Agreement; NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Lenders to make the Term Loans to the Borrower pursuant to the Term Loan Agreement, each Affiliate Guarantor agrees, for the benefit of each Lender Party, as follows: 2 ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Guaranty, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Additional Affiliate Guarantor" and "Additional Affiliate Guarantors" are defined in the preamble. "Administrative Agent" is defined in the preamble. "Affiliate Guarantor" and "Affiliate Guarantors" are defined in the preamble. "Borrower" is defined in the first recital. "Guaranteed Obligations" is defined in clause (a) of Section 2.1. "Guaranty" is defined in the preamble. "Lender" and "Lenders" are defined in the first recital. "Lender Parties" means, collectively, the Agents, the Lenders and each of their respective successors, transferees and assigns. "Original Currency" is defined in Section 2.9. "Other Currency" is defined in Section 2.9. "PCI Carolina" means PCI Carolina, Inc., a Delaware corporation and any successor thereto. "Pioneer Licensing" means Pioneer Licensing, Inc., a Delaware corporation and any successor thereto. "Term Loan Agreement" is defined in the first recital. SECTION 1.2. Term Loan Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Guaranty, including its preamble and recitals, have the meanings provided in the Term Loan Agreement. 3 ARTICLE II GUARANTY PROVISIONS SECTION 2.1. Guaranty. Each Affiliate Guarantor hereby absolutely, unconditionally and irrevocably (a) guarantees the full and punctual payment when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations of the Borrower and each other Obligor, now or hereafter existing, whether for principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. Section 362(a), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. Section 502(b) and Section 506(b) or any applicable amount which would become due but for any similar stay under any Canadian Bankruptcy Law) (the "Guaranteed Obligations"), and (b) indemnifies and holds harmless each Lender Party and each holder of a Term Note for any and all costs and expenses (including reasonable attorneys' fees and expenses) incurred by such Lender Party or such holder, as the case may be, in enforcing any rights under this Guaranty; provided, however, that each Affiliate Guarantor shall be liable under this Guaranty for the maximum amount of such liability that can be hereby incurred without rendering this Guaranty, as it relates to such Affiliate Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount. This Guaranty constitutes a guaranty of payment when due and not of collection, and each Affiliate Guarantor specifically agrees that it shall not be necessary or required that any Lender Party or any holder of any Term Note exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Borrower or any other Obligor (or any other Person) before or as a condition to the obligations of such Affiliate Guarantor hereunder. SECTION 2.2. Acceleration of Guaranty. Each Affiliate Guarantor agrees that, in the event of any Default of the nature set forth in clause (a), (b) or (c) of Section 8.1.9 of the Term Loan Agreement, and if such event shall occur at a time when any of the Guaranteed Obligations may not then be due and payable, such Affiliate Guarantor will pay to the Lenders forthwith the full amount which would be payable hereunder by such Affiliate Guarantor if all such Guaranteed Obligations were then due and payable. SECTION 2.3. Guaranty Absolute, etc. This Guaranty shall in all respects be a continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full force and effect until all Guaranteed Obligations have been paid in full in cash, all obligations of each Affiliate Guarantor hereunder shall have been paid in full in cash and all Term Loan Commitments shall have terminated. Each Affiliate Guarantor guarantees that the Guaranteed 4 Obligations will be paid strictly in accordance with the terms of the Term Loan Agreement, the Term Notes and each other Loan Document under which they arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Lender Party or any holder of any Term Note with respect thereto. The liability of each Affiliate Guarantor under this Guaranty shall be absolute, unconditional and irrevocable irrespective of: (a) any lack of validity, legality or enforceability of the Term Loan Agreement, any Term Note or any other Loan Document; (b) the failure of any Lender Party or any holder of any Term Note (i) to assert any claim or demand or to enforce any right or remedy against the Borrower, any other Obligor or any other Person (including any other guarantor (including any Affiliate Guarantor)) under the provisions of the Term Loan Agreement, any Term Note, any other Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor (including any Affiliate Guarantor) of, or collateral securing, any Guaranteed Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other extension, compromise or renewal of any Guaranteed Obligation; (d) any reduction, limitation, impairment or termination of any Guaranteed Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each Affiliate Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Guaranteed Obligations or otherwise; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Term Loan Agreement, any Term Note or any other Loan Document; (f) any addition, exchange, release, surrender or non-perfection of any collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any other guaranty, held by any Lender Party or any holder of any Term Note securing any of the Guaranteed Obligations; (g) the occurrence of any change in the laws, rules, regulations or ordinances of any jurisdiction by any present or future action of any governmental authority or court amending, varying, reducing or otherwise affecting, or purporting to amend, vary, reduce 5 or otherwise affect, any of the Guaranteed Obligations and the obligations of any Affiliate Guarantor hereunder; (h) the application by the Administrative Agent or the Lenders of all monies at any time and from time to time received from the Borrower, any Affiliate Guarantor or any other Person on account of any Indebtedness owing by the Borrower or any Affiliate Guarantor to the Administrative Agent or the Lenders, in such manner as the Administrative Agent or the Lenders deems best and the changing of such application in whole or in part and at any time or from time to time, or any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations; (i) any change in the name, business, capital structure or governing instrument of the Borrower or any Affiliate Guarantor or any refinancing or restructuring of any of the Guaranteed Obligations; (j) the sale of the Borrower's or any Affiliate Guarantor's business or any part thereof; (k) subject to Section 7.2.5 of the Term Loan Agreement, any amalgamation, merger or consolidation, arrangement or reorganization of the Borrower, any Affiliate Guarantor, any Person resulting from the amalgamation, merger or consolidation of the Borrower or any Affiliate Guarantor with any other Person or any other successor to such Person or merged or consolidated Person or any other change in the corporate existence, structure or ownership of the Borrower or any Affiliate Guarantor; or (l) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower, any other Obligor, any surety or any guarantor. SECTION 2.4. Reinstatement, etc. Each Affiliate Guarantor agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Guaranteed Obligations is rescinded or must otherwise be restored by any Lender Party or any holder of any Term Note, upon the insolvency, bankruptcy or reorganization of the Borrower or any other Obligor or otherwise, all as though such payment had not been made. SECTION 2.5. Waiver, etc. Each Affiliate Guarantor hereby waives promptness, diligence, notice of acceptance and, to the extent permitted by law, any other notice with respect to any of the Guaranteed Obligations and of this Guaranty and any requirement that the Administrative Agent, any other Lender Party or any holder of any Term Note protect, secure, perfect or insure any security interest or Lien, or any property subject thereto, or exhaust any right or take any action against the Borrower, any other Obligor or any other Person (including any other guarantor) or entity or any collateral securing the Guaranteed Obligations. 6 SECTION 2.6. Postponement of Subrogation, etc. Each Affiliate Guarantor hereby agrees that it will not exercise any rights which it may acquire by way of rights of subrogation under this Guaranty, by any payment made hereunder or otherwise, until the prior payment in full in cash of all Guaranteed Obligations, until the prior payment in full in cash of all obligations of such Affiliate Guarantor hereunder and the termination of all Term Loan Commitments. Any amount paid to any Affiliate Guarantor on account of any such subrogation rights prior to the payment in full in cash of all Guaranteed Obligations shall be held in trust for the benefit of the Lender Parties and each holder of a Term Note and shall immediately be paid to the Administrative Agent for the benefit of the Lender Parties and each holder of a Term Note and credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the Term Loan Agreement; provided, however, that if (a) such Affiliate Guarantor has made payment to the Lender Parties and each holder of a Term Note of all or any part of the Guaranteed Obligations, and (b) all Guaranteed Obligations have been paid in full in cash, all obligations of such Affiliate Guarantor hereunder shall have been paid in full in cash and all Term Loan Commitments have been terminated, each Lender Party and each holder of a Term Note agrees that, at such Affiliate Guarantor's request, the Administrative Agent, on behalf of the Lender Parties and the holders of the Term Notes, will execute and deliver to such Affiliate Guarantor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to such Affiliate Guarantor of an interest in the Guaranteed Obligations resulting from such payment by such Affiliate Guarantor. In furtherance of the foregoing, for so long as any Guaranteed Obligations, obligations of any Affiliate Guarantor hereunder or Term Loan Commitments remain outstanding, each Affiliate Guarantor shall refrain from taking any action or commencing any proceeding against the Borrower or any other Obligor (or any of their respective successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amount in respect of any payment made under this Guaranty to any Lender Party or any holder of a Term Note; provided, however, that an Affiliate Guarantor may file appropriate proofs of claim in any bankruptcy or insolvency proceeding of the Borrower or any other Affiliate Guarantor; provided further, however, that such Affiliate Guarantor shall not accept any payment or distribution of cash, securities or other property in respect of any such proof of claim unless and until each of the conditions referred to in clause (b) of the proviso to the preceding sentence shall have occurred and, in the event such Affiliate Guarantor shall in any case receive or be entitled to receive any such payment or distribution in contravention of this proviso, such payment or distribution shall be received and held in trust for, and/or shall be promptly paid over or delivered to, the Lender Parties to the extent necessary to pay the Guaranteed Obligations and other obligations referred to in such clause (b) in full. SECTION 2.7. Right of Contribution. Each Affiliate Guarantor hereby agrees that to the extent that an Affiliate Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Affiliate Guarantor shall be entitled to seek and receive 7 contribution from and against any other Affiliate Guarantor hereunder who has not paid its proportionate share of such payment. Each Affiliate Guarantor's right of contribution shall be subject to the terms and conditions of Section 2.6. The provisions of this Section 2.7 shall in no respect limit the obligations and liabilities of any Affiliate Guarantor to the Administrative Agent and each other Lender Party, and each Affiliate Guarantor shall remain liable to the Administrative Agent and each other Lender Party for the full amount guaranteed by such Affiliate Guarantor hereunder. SECTION 2.8. Successors, Transferees and Assigns; Transfers of Term Notes, etc. This Guaranty shall: (a) be binding upon each Affiliate Guarantor, and its successors, transferees and assigns; and (b) inure to the benefit of and be enforceable by the Administrative Agent and each other Lender Party. Without limiting the generality of clause (b), any Lender may assign or otherwise transfer (in whole or in part) any Term Note or Term Loan held by it to any other Person in accordance with the provisions of the Term Loan Agreement, and such other Person shall thereupon become vested with all rights and benefits in respect thereof granted to such Lender under any Loan Document (including this Guaranty) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of Section 11.11 and Article X of the Term Loan Agreement. SECTION 2.9. Judgment Currency. (a) If, for purposes of obtaining judgment in any court, it is necessary to convert any sum due, or owing under any Loan Document to the Administrative Agent or any one or more of the Lenders in any currency (the "Original Currency") into another currency (the "Other Currency"), the parties signatory hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, the Administrative Agent could purchase the Original Currency with the Other Currency on the Business Day preceding that on which the final judgment is granted. (b) The Obligations of any Affiliate Guarantor in respect of any sum due in the Original Currency from it to the Administrative Agent or any one or more of the Lenders under any of the Loan Documents shall, notwithstanding any judgment in any Other Currency, be discharged only to the extent that on the Business Day following receipt by the Administrative Agent of any such adjudged to be so due or owing in such Other Currency, the Administrative Agent may in accordance with normal banking procedures purchase the Original Currency with such Other Currency. If the amount of the Original Currency so purchased is less than the sum originally due or owing to the Administrative 8 Agent or any one or more of the Lenders in the Original Currency, such Affiliate Guarantor shall, as a separate obligation and notwithstanding any such judgment, indemnify the Administrative Agent or such Lender(s) against such loss, and if the amount of the Original Currency so purchased exceeds the sum originally due or owing to the Administrative Agent or such Lender(s) in the Original Currency, the Administrative Agent or such Lender(s) shall remit such excess to such Affiliate Guarantor. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. Each Affiliate Guarantor hereby represents and warrants for itself unto each Lender Party as to all matters contained in Article VI of the Term Loan Agreement and this Article III, in each case insofar as applicable to such Affiliate Guarantor or such Affiliate Guarantor's properties, together with all related definitions and ancillary provisions, all of which are hereby incorporated into this Article III as though specifically set forth herein. SECTION 3.2. Organization, etc. Each Affiliate Guarantor and such Affiliate Guarantor's Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its respective incorporation. Each Affiliate Guarantor and such Affiliate Guarantor's Subsidiaries is in good standing and is duly qualified to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification is required, except for those states in which its failure to qualify to do business would not be reasonably likely to have a Material Adverse Effect. SECTION 3.3. Due Authorization, Non-Contravention, etc. Each Affiliate Guarantor is duly authorized to execute and deliver this Guaranty and each other Loan Document to be executed by it and to perform its obligations under this Guaranty and each other Loan Document to be executed by it and is and will continue to be duly authorized to perform its obligations thereunder. The execution, delivery and performance by each Affiliate Guarantor of this Guaranty and each other Loan Document to which it is a party do not and will not require any consent or approval of any governmental agency or authority. SECTION 3.4. No Conflicts. The execution, delivery and performance by each Affiliate Guarantor of this Guaranty and each other Loan Document to which it is a party do not and will not conflict with (i) any provision of law, (ii) the Certificate or Articles of Incorporation, as applicable, or bylaws, of such Affiliate Guarantor, (iii) any agreement binding upon which conflict is reasonably likely to have a Material Adverse Effect or (iv) any court or administrative order or decree applicable to such Affiliate Guarantor which conflict is reasonably likely to have a Material Adverse Effect, and do not and will not require, or result in, the creation or imposition 9 of any Lien on any asset of such Affiliate Guarantor, except to the extent created pursuant to any Loan Document. SECTION 3.5. Validity and Binding Effect. This Guaranty and each other Loan Document, when duly executed and delivered, will be legal, valid and binding obligations of each Affiliate Guarantor party thereto, as applicable, enforceable against such Affiliate Guarantor in accordance with their respective terms. SECTION 3.6. Investment Company Act Representation. No Affiliate Guarantor or any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 3.7. Public Utility Holding Company Act Representation. No Affiliate Guarantor or any of its Subsidiaries is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. ARTICLE IV COVENANTS, ETC. SECTION 4.1. Affirmative Covenants. Each Affiliate Guarantor covenants and agrees that, until all Term Loan Commitments have terminated, all Guaranteed Obligations have been paid in full in cash and all obligations of such Affiliate Guarantor hereunder shall have been paid in full in cash, such Affiliate Guarantor will perform, comply with and be bound by all the agreements, covenants and obligations contained in the Term Loan Agreement applicable to such Affiliate Guarantor or such Affiliate Guarantor's properties. Each such agreement, covenant and obligation contained in the Term Loan Agreement and all related definitions and ancillary provisions are hereby incorporated into this Guaranty as though specifically set forth herein. SECTION 4.2. Concerning the Collateral and the Loan Documents. (a) In order to secure the due and punctual payment of the Guaranteed Obligations, including principal of, premium (if any) and interest (including interest on overdue principal) on the Term Loans, when and as the same shall become due and payable, whether on the scheduled payment date therefor, at maturity, by acceleration or otherwise, and performance of all other obligations of the Borrower to the Agents and the Lenders under the Term Loan Agreement and each other Loan Document and all obligations of each Affiliate Guarantor under this Guaranty and each other Loan Document, the Borrower and the Affiliate Guarantors acknowledge that they have entered into each of the applicable Security Documents (including this Guaranty) to which each is a party. 10 (b) PCI Carolina, Pioneer Licensing and each Additional Affiliate Guarantor that is a Restricted Subsidiary of any PCIFP Company shall, jointly and severally, perform at their sole cost and expense any and all acts and execute any and all documents (including the execution, amendment or supplementation of any financing statement and continuation statement or other statement) for filing under the provisions of the UCC and the rules and regulations thereunder, or any other statute, rule or regulation of any applicable federal, state or local jurisdiction, including any filings in local real estate land record offices, which are necessary or advisable and shall do such other acts and execute such other documents as may be required under any of the Security Documents, from time to time, in order to grant and maintain valid and perfected Liens on the Collateral in favor of the Collateral Agent in the priorities purported to be created by the Security Documents, subject only to Liens permitted under the Security Documents to be senior or pari passu to the Liens of the Collateral Agent, and to fully preserve and protect the rights of the Agents and the Lenders under the Term Loan Agreement and the other Loan Documents. PCI Carolina, Pioneer Licensing and such Additional Affiliate Guarantor shall pay and satisfy promptly all mortgage and financing and continuation statement recording and/or filing fees, charges and taxes relating to this Term Loan Agreement, the Security Documents and the other Loan Documents, any amendments thereto and any other instruments of further assurance. ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.1. Loan Document. This Guaranty is a Loan Document executed pursuant to the Term Loan Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 5.2. Binding on Successors, Transferees and Assigns; Assignment. In addition to, and not in limitation of, Section 2.8, this Guaranty shall be binding upon each Affiliate Guarantor and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each Lender Party and each holder of a Term Note and their respective successors, transferees and assigns (to the fullest extent provided pursuant to Section 2.8); provided, however, that no Affiliate Guarantor may assign any of its obligations hereunder without the prior written consent of all Lenders. SECTION 5.3. Amendments, etc. No amendment to or waiver of any provision of this Guaranty, nor consent to any departure by any Affiliate Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent (on behalf of the Lenders or the Required Lenders, as the case may be) and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 5.4. Notices. All notices and other communications provided for hereunder shall be in writing and mailed or telecopied or delivered, if to an Affiliate Guarantor, to such Affiliate Guarantor in care of the Borrower at the address of the Borrower specified in the Term 11 Loan Agreement, and, if to the Administrative Agent, to the Administrative Agent at the address of the Administrative Agent specified in the Term Loan Agreement, or as to any party, at such other address as shall be designated by such party in a written notice to the Agent or the Affiliate Guarantors (in care of the Borrower), as the case may be, complying as to delivery with the terms of this Section. All such notices and other communications, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any such notice or communication, if transmitted by facsimile, shall be deemed given when electronic confirmation thereof is received by the transmitter. SECTION 5.5. Additional Affiliate Guarantors. Upon the execution and delivery by any other Person of an instrument in the form of Annex I hereto, such Person shall become an "Affiliate Guarantor" hereunder with the same force and effect as if originally named as an Affiliate Guarantor herein. The execution and delivery of any such instrument shall not require the consent of any other Affiliate Guarantor hereunder. The rights and obligations of each Affiliate Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Affiliate Guarantor as a party to this Guaranty. SECTION 5.6. Guaranty Is in Addition to Other Security. This Guaranty shall be in addition to and not in substitution for any other guarantees or other security which the Administrative Agent may now or hereafter hold in respect of the Guaranteed Obligations owing to the Administrative Agent or the Lenders by the Borrower and (except as may be required by law) the Administrative Agent shall be under no obligation to marshal in favor of each of the Affiliate Guarantors any other guarantees or other security or any monies or other assets which the Administrative Agent may be entitled to receive or upon which the Administrative Agent or the Lenders may have a claim. SECTION 5.7. No Waiver; Remedies. In addition to, and not in limitation of, Section 2.3 and Section 2.5, no failure on the part of any Lender Party or any holder of a Term Note to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 5.8. Captions. Section captions used in this Guaranty are for convenience of reference only, and shall not affect the construction of this Guaranty. SECTION 5.9. Setoff. In addition to, and not in limitation of, any rights of any Lender Party or any holder of a Term Note under applicable law, each Lender Party and each such holder shall, upon the occurrence of any Default described in any of clause (a), (b) or (c) of Section 8.1.9 of the Term Loan Agreement or with the consent of the Required Lenders, any Event of Default, have the right to appropriate and apply to the payment of the obligations of any Affiliate Guarantor owing to it hereunder, whether or not then due, and such Affiliate Guarantor hereby grants to each Lender Party and each such holder a continuing security interest in, any 12 and all balances, credits, deposits, accounts or moneys of such Affiliate Guarantor then or thereafter maintained with such Lender Party, or such holder or any agent or bailee for such Lender Party or such holder; provided, however, that any such appropriation and application shall be subject to the provisions of Section 4.8 of the Term Loan Agreement. SECTION 5.10. Severability. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. SECTION 5.11. Governing Law, Entire Agreement, etc. THIS GUARANTY SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 5.12. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE LENDER PARTIES OR THE AFFILIATE GUARANTORS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH AFFILIATE GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. EACH AFFILIATE GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH AFFILIATE GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY AFFILIATE GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF 13 ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH AFFILIATE GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS GUARANTY AND THE OTHER LOAN DOCUMENTS. SECTION 5.13. Waiver of Jury Trial. EACH AFFILIATE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE LENDER PARTIES OR ANY AFFILIATE GUARANTOR. EACH AFFILIATE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH SUCH AFFILIATE GUARANTOR IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER PARTIES ENTERING INTO THE TERM LOAN AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. SECTION 5.14. Counterparts. This Guaranty may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. 14 IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. PCI CAROLINA, INC. By /s/ Philip J. Ablove ----------------------------- Name: Philip J. Ablove Title: Vice President PIONEER LICENSING, INC. By /s/ Philip J. Ablove ----------------------------- Name: Philip J. Ablove Title: Vice President PIONEER CHLOR ALKALI COMPANY, INC. By /s/ Philip J. Ablove ----------------------------- Name: Philip J. Ablove Title: Vice President ALL-PURE CHEMICAL CO. By /s/ Philip J. Ablove ----------------------------- Name: Philip J. Ablove Title: Vice President IMPERIAL WEST CHEMICAL CO. By /s/ Philip J. Ablove ----------------------------- Name: Philip J. Ablove Title: Vice President 15 BLACK MOUNTAIN POWER COMPANY By /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President ALL PURE CHEMICAL NORTHWEST, INC. By /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President PIONEER CHLOR ALKALI INTERNATIONAL, INC. By /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President G.O.W. CORPORATION By /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President PIONEER (EAST), INC. By /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President 16 T.C. HOLDINGS, INC. By /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President T.C. PRODUCTS, INC. By /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President EX-4.9 11 CONSENT AND AMEND. 1 TO LOAN & SECURITY AGMT. 1 EXHIBIT 4.9 CONSENT AND AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT November 5, 1997 Pioneer Americas Acquisition Corp. 4300 NationsBank Center 700 Louisiana Street Houston, Texas 77002 Attention: Chief Financial Officer and Corporate Secretary Ladies and Gentlemen: Reference is made hereby to the certain Loan and Security Agreement dated as of June 17, 1997 among Pioneer Americas Acquisition Corp. ("Borrower"), Bank of America National Trust and Savings Association, successor by merger to Bank of America Illinois, as Agent (the "Agent") and a Lender and the other Lenders party thereto (the "Loan Agreement"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings provided to such terms in the Loan Agreement. 1. Background. Borrower has informed Agent and Lenders that (a) Borrower's Subsidiary, PAI, has established three new Subsidiaries, PCI Chemicals Canada Inc., a New Brunswick corporation ("PCI Canada"), PCI Carolina, Inc., a Delaware corporation ("PCI Carolina") and Pioneer Licensing, Inc., a Delaware corporation ("Licensing"); (b) PCI Canada and PCI Carolina have agreed to acquire (the PCI Acquisition") certain of the assets, and assume certain of the liabilities, of ICI Canada Inc. ("ICI Canada") and ICI Americas Inc. ("ICI Americas"); (c) PAI has agreed to obtain a $83,000,000 term loan (the "Term Loan") from DLJ Capital Funding, Inc., ("DLJ") and Salomon Brothers Holding Company Inc. ("Salomon"); (d) PCI Canada has agreed to issue $175,000,000 of senior secured notes (the "Senior Secured Notes"), the sale of which will be underwritten by DLJ and Salomon; (e) PCI Canada and PCI Carolina has each agreed to grant to the Collateral Agent for the lenders in respect of the Term Loan and the Senior Secured Notes, a lien on its real estate, equipment and certain general intangibles, and certain related property (the "Collateral Grant"), to secure the obligations in respect of the Term Loan and the Senior Secured Notes; (f) Borrower and each Subsidiary of Borrower has agreed to guaranty the obligations in respect of the Term Loan and in respect of the Senior Secured Notes; (g) PCI Canada and PCI Carolina has each agreed to transfer its rights in respect of certain license agreements to Licensing; and (h) Borrower and its Subsidiaries intend to consummate certain other transactions in 2 Pioneer Americas Acquisition Corp. November 5, 1997 Page 2 connection with the foregoing (all of the foregoing being collectively referred to as the "Transactions"). Consummation of the Transactions would violate various provisions of the Loan Agreement. Consequently, Borrower has requested that Agent and Lenders consent to the consummation of the Transactions. Borrower has also requested that Agent and Lenders agree to amend the Loan Agreement in certain respects in order to (i) increase the Revolving Credit Amount from $35,000,000 to $65,000,000; (ii) add PCI Canada as a borrowing entity thereunder; (iii) provide for loans in Canadian Dollars; (iv) add Kemwater North America, Inc. as a borrower thereunder; (v) accept Borrower's designation of PCI Canada, PCI Carolina and Licensing as Designated Subsidiaries thereunder; and (vi) extend the term thereof, amend the interest rates and fees payable in connection therewith, amend the financial covenants contained therein and otherwise revise and amend the Loan Agreement in various respects. In connection with such requests, Agent and its affiliate, BancAmerica Robertson Stephens ("BRS"), have issued a certain commitment letter dated October 10, 1997 and accepted by Borrower on October 17, 1997 (the "Commitment Letter"), which Commitment Letter describes the terms on which Agent and Lenders have agreed to amend the Loan Agreement. A copy of the Commitment Letter is attached hereto as Exhibit B. Borrower and Agent have agreed that it will not be possible to consummate the amendments described in the Commitment Letter prior to the scheduled closing of the Transactions on November 5, 1997. Consequently, Borrower has requested that Agent and Lenders (x) enter into an amendment to the Loan Agreement that increases the Revolving Credit Amount thereunder to $65,000,000, adds PCI Canada as a borrowing entity thereunder (subject to satisfaction of certain conditions prior to Loans actually being made available to PCI Canada), amends the interest charges and fees payable in connection with the Loans and accepts the designation of PCI Canada, PCI Carolina and Licensing as Designated Subsidiaries and (y) agree with Borrower that after consummation of the Transactions, Agent and Lenders will negotiate with Borrower an Amended and Restated Loan and Security Agreement (the "Amended Agreement") and related agreements, instruments and documents, that collectively will effect the financing terms described in the Commitment Letter. Agent and Lenders have agreed to all of the foregoing on the terms described herein. 3 Pioneer Americas Acquisition Corp. November 5, 1997 Page 3 2. Consent. Agent and Lenders hereby consent to the consummation of the Transactions and agree that notwithstanding anything to the contrary contained in the Loan Agreement, the consummation of the Transactions shall not constitute an Event of Default or an Unmatured Event of Default, provided that: a. the Acquisition is consummated pursuant to the terms of the certain Asset Purchase Agreement dated as of September 22, 1997, as amended October 31, 1997, among PCI Canada, PCI Carolina, Parent, ICI Canada, ICI Americas and Imperial Chemical Industries PLC and related agreements, instruments and documents in the forms presented to Agent and its counsel prior to the date hereof; b. the Term Loan is consummated pursuant to the terms of a Term Loan Agreement dated as of October 30, 1997 and related agreements 31, 1997, instruments and documents in the forms presented to Agent and its counsel prior to the date hereof; c. the Senior Secured Notes are issued pursuant to the terms of a Senior Note Indenture and a Purchase Agreement, each dated as of October 30, 1997 and related agreements, instruments and documents in the forms presented to Agent and its counsel prior to the date hereof; d. the Collateral Grant is consummated pursuant to the terms of various agreements, instruments and documents in substantially the forms presented to Agent and its counsel prior to the date hereof; and e. the other Transactions are consummated pursuant to the terms of various agreements, instruments and documents in substantially the forms presented to Agent and its counsel prior to the date hereof. This Consent and Amendment No. 1 to Loan and Security Agreement (the "Amendment") shall constitute a consent only to the matters specifically described herein and shall not constitute a consent to any other departure from the terms of the Loan Agreement or any Related Agreement or a waiver of any existing or future Event of Default or Unmatured Event of Default under any of the foregoing, whether or not now known to Agent or any Lender. 4 Pioneer Americas Acquisition Corp. November 5, 1997 Page 4 3. Amendments. The Loan Agreement is hereby amended as follows: a. The term "Revolving Credit Amount" contained in the Loan Agreement is hereby amended to increase the amount thereof to $65,000,000. b. PCI Canada is hereby added as a borrowing entity under the Loan Agreement. However, the term "Borrower" shall be deemed to continue to refer only to PAAC until such time as the Amended Agreement is effective. Notwithstanding PCI Canada's designation as a borrowing entity, PCI Canada shall not be entitled to request Loans or Letters of Credit under the Loan Agreement, nor shall Agent or any Lender have any obligation to make Loans to, or issue Letters of Credit on the application of, PCI Canada, in any case until the Amended Agreement is effective. c. The definition of the term "Applicable Margin" contained in the Loan Agreement is hereby amended and restated in its entirety, as follows: "'Applicable Margin' means, at any time, a percentage determined with reference to Borrower's Interest Coverage Ratio for the twelve month period ending on the last day of Borrower's most recent fiscal quarter, as set forth below for the applicable interest rate or fee: 5 Pioneer Americas Acquisition Corp. November 5, 1997 Page 5
Applicable Margin Applicable for LIBOR Rate Margin for Applicable Interest Coverage and Letter Floating Rate Margin for Coverage Ratio of Credit Commissions Loans Non-Use Fee -------------- --------------------- ----- ----------- Greater than or equal to 1.75% 0.75% 0.35% 3.5:1.0 Less than 3.5:1.0 and 2.00% 1.00% 0.40% greater than or equal to 3.0:1.0 Less than 3.0:1.0 and 2.25% 1.25% 0.45% greater than or equal to 2.5:1.0 Less than 2.5:1.0 2.50% 1.50% 0.50%
The Interest Coverage Ratio for any fiscal quarter shall be determined pursuant to Borrower's monthly financial statements for the last month in such quarter delivered pursuant to Section 5.1.1(b) or, with respect to the last fiscal quarter in any Fiscal Year, Borrower's annual audited financial statements for such Fiscal Year delivered pursuant to Section 5.1.1(a). Changes in the Applicable Margin shall become prospectively effective 5 days after receipt by Agent of the applicable financial statements, accompanied by a calculation of the Interest Coverage Ratio. The Applicable Margin for the period from November 5, 1997 until 5 days after receipt by Agent of Borrower's financial statements for December 31, 1997 shall be set at the level that would be applicable if the Interest Coverage Ratio were less than 2.5:1.0." d. The definition of the term "Floating Rate" contained in the Loan Agreement is hereby amended and restated in its entirety, as follows: "'Floating Rate' means, at any time, the Reference Rate plus the Applicable Margin." 6 Pioneer Americas Acquisition Corp. November 5, 1997 Page 6 e. The first sentence of the definition of the term "Reference Rate" contained in the Loan Agreement is hereby amended and restated in its entirety, as follows: "'Reference Rate' means, at any time, the higher of (a) the rate of interest than most recently announced by Bank of America National Trust and Savings Association at Chicago, Illinois as its reference rate and (b) the then applicable Federal Funds Rate plus one-half of one percent (0.50%)." f. Section 2.2(b) of the Loan Agreement is hereby amended to provide that the Letter of Credit commissions payable thereunder at any time that the Default Rate is not being charged, shall be equal to the Applicable Margin. g. Section 5.29 of the Loan Agreement is hereby amended to provide that the merger of Borrower and PAI must be completed on or before October 31, 1998. h. The Loan Agreement is hereby amended to provide that Borrower will pay to Agent, for its own account, an annual agency fee equal to $15,000 per annum, payable on the date hereof, on October 10, 1998 and on each anniversary of October 10, 1998 until termination. i. The Loan Agreement is hereby amended to provide that on the date hereof, Borrower will pay BRS, for its own account, any unpaid portion of the $275,000 arrangement fee described in the Commitment Letter. j. The Loan Agreement is hereby amended to provide that interest on the Floating Rate Loans shall be payable in arrears on the last day of each quarter, commencing on December 31, 1997 and at maturity and that interest on LIBOR Rate Loans shall be payable in arrears on the last day of each quarter, commencing on December 31, 1997, on the last day of each Interest Rate Period applicable thereto, and at maturity. k. PCI Canada, PCI Carolina and Licensing are hereby deemed to be "Designated Subsidiaries" under the Loan Agreement. Notwithstanding such designation, (i) no Accounts Receivable of any of such Persons shall be deemed to be Eligible Accounts Receivable; (ii) no Inventory of any such Person shall be deemed to be Eligible Inventory; and (iii) Borrower shall not be entitled to make 7 Pioneer Americas Acquisition Corp. November 5, 1997 Page 7 loans or advances to any such Person, in each case until each such Person has complied with the terms of Sections 5.19 and 5.20 of the Loan Agreement and until the Amended Agreement has become effective. l. This Amendment shall have the effect of amending the Loan Agreement, Supplement A and the Related Agreements as appropriate to express the agreements contained herein. In all other respects, the Loan Agreement, Supplement A and the Related Agreements shall remain in full force and effect in accordance with their respective terms. 4. Agreement. Agent and Lenders hereby agree with Borrower that after consummation of the Transactions and prior to December 31, 1997, Agent and Lenders will negotiate with Borrower an Amended Agreement and related agreements, instruments and documents, that collectively will effect the financing terms described in the Commitment Letter, subject to all of the conditions set forth therein. 5. Conditions to Effectiveness. This Amendment shall be effective upon execution hereof by Agent and Lenders and acceptance hereof by Borrower and each other Obligor, together with (a) each other item listed in Section IX of the Closing Checklist attached hereto as Exhibit C, all in form and substance satisfactory to Agent, (b) the balance of the $275,000 arrangement fee due to BRS in connection with the 8 Pioneer Americas Acquisition Corp. November 5, 1997 Page 8 issuance of the Commitment Letter and the $15,000 initial annual agency fee due to Agent in connection with the issuance of the Commitment Letter (each of which fees may be paid by debit to the Loan Account) and (c) evidence satisfactory to Agent that each of the other Transactions will be consummated contemporaneously with, and in accordance with the terms of, this Amendment. Very truly yours, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent and as a Lender By /s/ David A. Johanson -------------------------------- Its Vice President ---------------------------- Acknowledged and agreed to as of this 5th day of November, 1997 PIONEER AMERICAS ACQUISITION CORP. By /s/ Philip J. Ablove ---------------------------------- Its Vice President ------------------------------- PCI CHEMICALS CANADA, INC. By /s/ Philip J. Ablove ---------------------------------- Its Vice President ------------------------------- 9 Acknowledgment and Acceptance of Guarantors Each of the undersigned is a party to the Master Corporate Guaranty dated June 17, 1997 in favor of Bank of America National Trust and Savings Association, as Agent for itself and Lenders (the "Guaranty"), pursuant to which each of the undersigned has guaranteed the Liabilities of Borrower under the Loan Agreement. Each of the undersigned hereby acknowledges receipt of the foregoing Consent and Amendment No. 1 to Loan and Security Agreement, accepts and agrees to be bound by the term thereof, ratifies and confirms all of its obligations under the Guaranty, and agrees that the Guaranty shall continue in full force and effect as to it, notwithstanding such amendment. Acknowledged and Agreed to this 5th day of November, 1997. EACH OF THE SUBSIDIARIES SET FORTH ON EXHIBIT A ATTACHED HERETO By /s/ Philip J. Ablove --------------------------- Vice President of each such Subsidiary 10 EXHIBIT A Subsidiaries Pioneer Americas, Inc. Pioneer Chlor Alkali Company, Inc. Imperial West Chemical Co. All-Pure Chemical Co. All-Pure Chemical Northwest, Inc. Black Mountain Power Company EX-4.10 12 INTERCREDITOR AND COLLATERAL AGENCY AGMT -10/30/97 1 EXHIBIT 4.10 INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT dated as of this 30th day of October, 1997, by and among UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee for its own benefit and for the benefit of the Holders (as hereinafter defined) under the Indenture (as hereinafter defined) (in such capacity, the "Trustee"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent for its own benefit and for the benefit of the Term Loan Lenders (as hereinafter defined) under the Term Loan Agreement (as hereinafter defined) (in such capacity, the "Term Loan Agent"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent under the Revolving Credit Agreement (as hereinafter defined) (in such capacity, the "Agent Bank"), UNITED STATES TRUST COMPANY OF NEW YORK, as collateral agent (the "Collateral Agent"), PCI CHEMICALS CANADA INC. ("PCI Canada"), PIONEER AMERICAS, INC. ("PAI") and PIONEER AMERICAS ACQUISITION CORP. ("PAAC" and together with PCI Canada and PAI sometimes hereinafter referred to collectively as the "Companies"). Recitals A. Pursuant to that certain Indenture dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Indenture") among PCI Canada, the Guarantors (as defined therein) and the Trustee, as trustee for the holders (the "Holders") of the Notes (as hereinafter defined), PCI Canada will issue its 9 1/4% Senior Secured Notes due 2007 (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor, upon the registration of such notes pursuant to the Securities Act of 1933 or otherwise, the "Notes") in the aggregate principal amount of $175 million. B. Pursuant to that certain Loan Agreement dated as of the date hereof (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Term Loan Agreement") among PAI, PAAC, as parent guarantor, the Term Loan Agent, DLJ Capital Funding, Inc., as syndication agent, Salomon Brothers Holding Company Inc, as documentation agent, and the lenders from time to time parties thereto (the "Term Loan Lenders"), the Term Loan Lenders will make loans to PAI to be evidenced by, among other things, certain promissory notes (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, including all notes issued in exchange or substitution therefor, the "U.S. Term Loan Notes") in an aggregate principal amount of up to $100 million and a Bond (Quebec Law) (as the same may be amended, 2 2 amended and restated, supplemented or otherwise modified from time to time, including all bonds issued in exchange or substitution therefor, the "Bond" and together with the U.S. Term Loan Notes, the "Term Loan Notes"). C. PAAC has entered into a Loan and Security Agreement, dated as of June 17, 1997, as amended by a Consent and Amendment, dated as of the date hereof (as the same may be further amended, amended and restated, supplemented or otherwise modified from time to time, the "Revolving Credit Agreement"), among PAAC, as borrower, the Agent Bank, as agent and a lender, and the other lenders party thereto, under which the Agent Bank and such other lenders (collectively, the "Bank Lenders") have agreed to provide certain revolving loan and letter of credit facilities to PAI in an aggregate principal or face amount not in excess of $65 million. D. Pursuant to the Guaranty dated as of the date hereof, PCI Canada has guaranteed (such guarantee by PCI Canada being hereinafter referred to as the "Term Loan Guarantee") the payment and performance of the Term Loan Obligations (as hereinafter defined). E. PCI Canada (or, in the case of the Bond Pledge Agreement described in clause (ii) below, PAI) has executed and delivered (or will execute and deliver) the following documents (collectively, and as amended, amended and restated, supplemented or otherwise modified from time to time, the "Security Documents") to the Collateral Agent to secure the payment and performance of its obligations under the Indenture, the U.S. Term Loan Notes, the Bond and the Term Loan Guarantee, as applicable: (i) Deed of Hypothec (the "Deed of Hypothec") dated as of the date hereof in respect, inter alia, of certain premises in Becancour, Quebec by PCI Canada, as grantor, to the Collateral Agent, for its own account and for the account of the Trustee, the Term Loan Agent, the Holders and the Term Loan Lenders; (ii) Bond Pledge Agreement dated as of the date hereof in respect, inter alia, of the Bond to the Collateral Agent for its own account and for the account of the Trustee, the Term Loan Agent, the Holders and the Term Loan Lenders; (iii) Demand Debenture (the "New Brunswick Debenture") in the principal amount of $500,000,000 dated as of the date hereof in respect, inter alia, of certain premises in Dalhousie, New Brunswick, by PCI Canada to the Collateral Agent, as beneficiary, for the benefit of the Trustee, the Term Loan Agent, the Holders and the Term Loan Lenders; 3 3 (iv) Debenture Pledge Agreement dated as of the date hereof in respect of the New Brunswick Debenture by PCI Canada, to the Collateral Agent, for the benefit of the Trustee, the Term Loan Agent, the Holders and the Term Loan Lenders; and (v) Demand Debenture (the "Ontario Debenture") in the principal amount of $500,000,000 dated as of the date hereof in respect, inter alia, of certain premises in Cornwall, Ontario and Mississauga, Ontario, by PCI Canada to the Collateral Agent, as beneficiary, for the benefit of the Trustee, the Term Loan Agent, the Holders and the Term Loan Lenders; (vi) Debenture Pledge Agreement dated as of the date hereof in respect of the Ontario Debenture by PCI Canada, to the Collateral Agent, for the benefit of the Trustee, the Term Loan Agent, the Holders and the Term Loan Lenders; and (vii) Demand Debenture (the "Nova Scotia Debenture") in the principal amount of $500,000,000 dated as of the date hereof in respect, inter alia, of certain premises in Point Tupper, Nova Scotia, by PCI Canada to the Collateral Agent, as beneficiary, for the benefit of the Trustee, the Term Loan Agent, the Holders and the Term Loan Lenders; (viii) Debenture Pledge Agreement dated as of the date hereof in respect of the Nova Scotia Debenture by PCI Canada, to the Collateral Agent, for the benefit of the Trustee, the Term Loan Agent, the Holders and the Term Loan Lenders; and (ix) Borrower (Canadian) Security Agreement; Patent Security Agreement; Trademark Security Agreement; and Copyright Security Agreement (collectively, and as each of the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "General Security Agreement") dated as of the date hereof by PCI Canada, as grantor, to the Collateral Agent, as secured party, for the benefit of the Trustee, the Term Loan Agent, the Holders and the Term Loan Lenders. A g r e e m e n t : The parties agree as follows: ARTICLE 1 DEFINITIONS Definitions. (a) Capitalized terms that are not otherwise defined herein are used herein with the meanings given thereto in the Deed of Hypothec and the Debenture as in effect on the date of execution of this Agreement. 4 4 (b) The following terms shall have the respective meanings set forth below: "Agent Bank" is defined in the first paragraph of this Agreement. "Asset Sale Release Notice" is defined in Section 3.2(b)(i) of this Agreement. "Bank Lenders" is defined in Recital C of this Agreement. "Bond" is defined in Recital B of this Agreement. "Collateral" means the Hypothecated Property (as defined in the Deed of Hypothec), the Collateral (as defined in the Debenture and as defined in the General Security Agreement), the New Collateral and any other property or assets (including, without limitation, the St. Gabriel Pipeline, as defined in the Indenture) which may from time to time be subject to one or more of the Liens evidenced or created by any of the Collateral Documents. "Collateral Account" is defined in Section 5.1 of this Agreement. "Collateral Agent" is defined in the first paragraph of this Agreement. "Collateral Agent's Fees" means all fees, costs and expenses of the Collateral Agent of the type described in Sections 7.3, 7.4, 7.5 and 7.6 of this Agreement. "Collateral Documents" means, collectively, (i) the Security Documents, (ii) this Intercreditor and Collateral Agency Agreement, (iii) the documentation relating to the Collateral Account and (iv) all hypothecs, debentures, security agreements, mortgages, deeds of trust, pledges, collateral assignments or any other instruments (including, without limitation, the Pipeline Security Documents, as defined in the Indenture, and the Affiliate Security Agreements, as defined in the Term Loan Agreement) evidencing or creating any security interest in favor of the Collateral Agent for the benefit of the Secured Parties or in favor of the Collateral Agent for its account and for the account of the Secured Parties in all or any portion of any property or assets of any Obligor, in each case as amended, supplemented or otherwise modified from time to time. "Companies" is defined in the first paragraph of this Agreement. 5 5 "Debenture" means, collectively, the New Brunswick Debenture, the Ontario Debenture and the Nova Scotia Debenture. "Debt Instrument" means each of the Notes, the Bond and the U.S. Term Loan Notes. "Deed of Hypothec" is defined in Recital E(i) of this Agreement. "Default" means a Default under the Term Loan Agreement or under the Indenture, as the case may be. "Distribution Date" means the date on which any funds are distributed by the Collateral Agent in accordance with the provisions of Section 6.1 of this Agreement. "Enforcement Notice" is defined in Section 2.2(a) of this Agreement. "Event of Default" means an Event of Default under the Term Loan Agreement or under the Indenture, as the case may be. "Excepted Liens" shall mean (a) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action and for which appropriate reserves have been maintained; (b) operators', vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction or other like Liens arising by operation of law in the ordinary course of business or statutory landlord's liens; (c) any Liens reserved in leases for rent and for compliance with the terms of the leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause does not materially impair the use of the Collateral covered by such Lien for the purposes for which such Collateral is held by PCI Canada or materially impair the value of such Collateral subject thereto; (d) the registrations described in the Title Opinion with respect to such Collateral; and (e) Liens and encumbrances (other than to secure the payment of borrowed money or the deferred purchase price of Collateral or services), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any rights of way for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, and defects, irregularities, zoning restrictions and deficiencies in title to the Collateral which in the aggregate do not prevent the use of the Collateral for the purposes for which it is currently held by PCI Canada or have a Material Adverse Effect on the Companies taken as a whole. 6 6 "General Security Agreement" is defined in Recital E(ix) of this Agreement. "Holders" is defined in Recital A of this Agreement. "Indenture" is defined in Recital A of this Agreement. "Indenture Obligations" means any and all indebtedness, obligations and liabilities of PCI Canada now or hereafter existing under or in respect of the Notes, including, without limitation, payment of principal, premium, if any, interest and Liquidated Damages (as defined in the Indenture), if any, when due and payable, and all other amounts due or to become due under or in connection with the Indenture (including, without limitation, all sums due to the Trustee pursuant to Section 606 thereof), the Notes and the performance of all other obligations to the Trustee and the holders of the Notes under the Indenture and the Notes, according to the terms thereof. "Lien" means any interest in Collateral owed to, or a claim by a Person, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to the lien or security interest arising from a hypothec, debenture, debenture pledge, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include prior claims (within the meaning of the Civil Code of Quebec) reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting the Collateral. "Majority Holders" means the holders of Debt Instruments which in principal amount constitute more than 50% of the Total Amount of Secured Obligations; provided, however, that for purposes of this definition there shall not be counted any interests in any Debt Instrument (A) for which (and to the extent that) there are at such time on deposit with the Collateral Agent, or the Trustee or the Term Loan Agent, as the case may be, amounts to be applied to the payment of principal thereof or (B) which are held by any of the Companies or any Affiliate (as defined in the Indenture as in effect on the date hereof) of any of the Companies. "Material Adverse Effect" shall mean, as to any Person, asset or Property, a material adverse effect on the business, assets, properties, condition (financial or other), operations or results of operations of such Person, asset or Property, which effect is not adequately and effectively insured or indemnified against by a financially sound insurance company, and excepting effects arising solely out of general national economic 7 7 conditions and/or effects arising solely out of matters affecting the industry in which such Person, asset or Property conducts business as a whole. "New Brunswick Debenture" is defined in Recital E(iii) of this Agreement. "New Collateral" shall mean any Collateral pledged to the Collateral Agent pursuant to stock pledge agreements executed and delivered pursuant to Section 1017 of the Indenture or Section 7.1.9 of the Term Loan Agreement. "Note Majority Holders" shall mean the holders of the Notes which in principal amount constitute more than 50% of the Indenture Obligation provided that for purposes for this definition, there shall not be counted any interest in the Notes (i) for which (and to the extent that) there are at such time on deposit with the Collateral Agent or the Trustee amounts to be applied to the payment of principal thereof or (ii) which are held by any of the Companies or any Affiliate of any of the Companies. "Notes" is defined in Recital A of this Agreement. "Nova Scotia Debenture" is defined in Recital E(vii) of this Agreement. "Obligor" means PCI Canada and any other grantor, pledgor or assignor under a Collateral Document. "Obligor Collateral" is defined in the Revolving Credit Agreement. As used in this definition, "Revolving Credit Agreement" shall mean the Revolving Credit Agreement as in effect on the date hereof. "Officers' Certificate" is defined in the Indenture as in effect on the date hereof. "Ontario Debenture" is defined in Recital E(v) of this Agreement. "Opinion of Counsel" has the meaning set forth in the Indenture as in effect on the date hereof. "Other Released Interest" is defined in Section 3.2(c) of this Agreement. "Other Valuation Date" is defined in Section 3.2(c)(i) of this Agreement. 8 8 "PAAC" is defined in the first paragraph of this Agreement. "PAI" is defined in the first paragraph of this Agreement. "Person" shall mean any individual, corporation, legal person, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity. "PCI Canada" is defined in the first paragraph of this Agreement. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Pro Rata Share" with respect to any Secured Party means, at any date of determination thereof, the percentage derived by dividing (i) the total, without duplication, of all outstanding Indenture Obligations or Term Loan Obligations, as the case may be (whether by virtue of acceleration or otherwise) under or in respect of the Debt Instruments held or administered by such Secured Party, including all fees, expenses and other amounts owing to the Trustee or the Term Loan Agent, less the amount of any cash collateral on deposit with the Trustee or the Term Loan Agent, as the case may be, with respect thereto, by (ii) the Total Amount of Secured Obligations. "Quebec Secured Party" means each of the Holders, the Trustee, the Term Loan Lenders and the Term Loan Agent, and their respective successors and assigns. "Real Property" means any interest in any real property or any portion thereof, whether owned in fee or leased or otherwise owned. "Release Notice" is defined in Section 3.2(c)(i) of this Agreement. "Released Interests" is defined in Section 3.2(b) of this Agreement. "Released Trust Moneys" is defined in Section 4.4 of this Agreement. "Revolving Credit Agreement" is defined in Recital C of this Agreement. 9 9 "Secured Obligations" means, at any time, the obligations of the Companies from time to time under or in respect of the Debt Instruments. "Secured Party" means each of the Trustee (acting for its own benefit and for the benefit of the Holders) and the Term Loan Agent (acting for its own benefit and for the benefit of the Term Loan Lenders), and their respective successors and assigns. "Security Documents" is defined in Recital E of this Agreement. "Survey" means a survey or certificate of location of any parcel of real property (and all improvements thereon): (i) prepared by a surveyor or engineer licensed to perform surveys in the state in which such property is located, (ii) dated (or redated) not earlier than six months prior to the date of delivery thereof (unless there shall have occurred within six months prior to such date of delivery any exterior construction on the site of such property, in which event such survey shall be dated (or redated) to a date after the completion of such construction, (iii) certified by the surveyor (in a manner reasonably acceptable to the title company providing title insurance in respect of the Liens of the Collateral Documents) and (iv) complying in all respects with the minimum detail requirements of the American Land Title Association, or local equivalent, as such requirements are in effect on the date of preparation of such survey. "Term Loan Agent" is defined in the first paragraph of this Agreement. "Term Loan Agreement" is defined in Recital B of this Agreement. "Term Loan Asset Sale" is defined in Section 3.2(b) of this Agreement. "Term Loan Collateral Proceeds" is defined in Section 3.2(b)(iv) of this Agreement. "Term Loan Guarantee" is defined in Recital D of this Agreement. "Term Loan Lenders" is defined in Recital B of this Agreement. "Term Loan Note Majority Holders" shall mean the holders of the Term Loan Notes which in principal amount constitute more than 50% of the Term Loan Obligation, provided that for purposes of this definition there shall not be counted 10 10 any interest in the Term Loan Notes (i) for which (and to the extent that) there are at such time on deposit with the Collateral Agent or the Term Loan Agent amounts to be applied to the payment of principal thereof and (ii) which are held by any of the Companies or any Affiliate of any of the Companies. "Term Loan Notes" is defined in Recital B of this Agreement. "Term Loan Obligations" means any and all indebtedness, obligations and liabilities of PCI Canada and PAI now or hereafter existing under or in respect of the Term Loan Guarantee and the Term Loan Notes, including, without limitation, payment of principal, premium, if any, and interest when due and payable, and all other amounts due or to become due under or in connection with the Term Loan Agreement (including, without limitation, all sums due to the Term Loan Agent pursuant to Section 11.3 and 11.4 thereof) and the Term Loan Notes and the performance of all other obligations to the Term Loan Agent and the Term Loan Lenders under the Term Loan Agreement and the Term Loan Notes according to the terms thereof. "Title Opinions" means the title opinions delivered to the Collateral Agent with respect to the registration of the Liens under the Security Documents. "Total Amount of Secured Obligations" means, at any time, the total, without duplication, of all amounts then outstanding under or in respect of each of the Debt Instruments less, in each case, the amount of cash collateral on deposit with the Trustee or the Term Loan Agent, as the case may be, with respect thereto. "Total Net Proceeds" is defined in Section 6.1(a) of this Agreement. "Trustee" is defined in the first paragraph of this Agreement. "Trust Estate" means (i) the right, title and interest of the Collateral Agent in and to the Collateral and in, to and under each of the Collateral Documents, (ii) the right, title and interest of the Collateral Agent in, to and under each of the Title Opinions and (iii) any amounts from time to time held in the Collateral Account. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. "Trust Moneys" is defined in Section 4.1 of this Agreement. 11 11 "U.S. Term Loan Notes" is defined in Recital B of this Agreement. "Valuation Date" is defined in Section 3.2(b)(i) of this Agreement. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section references are to this Agreement unless otherwise specified. ARTICLE 2 DECLARATION OF TRUST; REMEDIES 2.1 The Collateral Agent hereby declares, and the Companies agree that, for purposes of constituting security in the Collateral located in the Province of Quebec, the Collateral Agent has received a Power of Attorney (within the meaning of the Civil Code of Quebec) from and for all and each of the Quebec Secured Parties for the purposes of holding, on behalf of and for the benefit of all of the Quebec Secured Parties, the security constituted by the Deed of Hypothec. The Collateral Agent, for itself and its successors, confirms its acceptance of such Power of Attorney. 2.1A Declaration and Acceptance of Trust. The Collateral Agent hereby declares, and the Companies agree, that the Collateral Agent holds the Trust Estate as secured party, grantee or beneficiary, as the case may be, in trust or under power of attorney (within the meaning of the Civil Code of Quebec) under this Agreement and the Collateral Documents for the equal and ratable benefit of the Secured Parties (and the Persons for whom the Secured Parties act as trustee, agent or fiduciary, as applicable) or the Quebec Secured Parties, as the case may be, without preference, priority or distinction of any thereof over any other by reason of difference in time of issuance, sale or otherwise, as provided herein. Each Secured Party, by executing and delivering this Agreement, and each Person for whom such Secured Party acts as trustee, agent or fiduciary, as applicable, by acceptance of the benefits of this Agreement and the Collateral Documents, (i) consents to the appointment of the Collateral Agent as agent hereunder and grants to the Collateral Agent all rights and powers necessary for the Collateral Agent to perform its obligations hereunder, (ii) confirms that the Collateral Agent shall have the authority, subject to the terms of this Agreement, to act as the exclusive agent and attorney-in-fact of such Secured Party (or Person, as applicable) to make claims under and otherwise act in all respects as the 12 12 beneficiary of the Title Opinions, to enforce any remedies under or with respect to any Collateral Document, to give or withhold any consent or approval relating to any Collateral or the Collateral Documents or any obligations with respect thereto, and otherwise to take any action on behalf of the Secured Parties (and such Persons) contemplated in the Collateral Documents (including, without limitation, receiving opinions, maintaining collateral accounts and exercising remedies) and (iii) agrees that, except as provided in this Agreement, such Secured Party (or Person, as applicable) shall not take any action to enforce any of such remedies or give any such consents or approvals relating to any Collateral or the Collateral Documents or itself make any claim under the Title Opinions. 2.2 Remedies. (a) Upon the occurrence and during the continuance of an Event of Default under the Indenture, the Note Majority Holders shall have the right at any time, and, upon the occurrence and during the continuance of an Event of Default under the Term Loan Agreement, the Term Loan Note Majority Holders shall have the right at any time, to direct in one or more writings (each, an "Enforcement Notice") addressed to the Collateral Agent and the Secured Parties that any right or remedy available to the Collateral Agent and the Trustee or the Term Loan Agent, as the case may be, with respect to the Collateral be exercised by the Collateral Agent on behalf of both Secured Parties or the Quebec Secured Parties, as the case may be, (subject to Section 6.3 hereof), which Enforcement Notice shall be effective 10 days from the date of delivery thereof, provided, however, that the Note Majority Holders or the Term Loan Note Majority Holders, as the case may be, taking such action must hold an aggregate principal amount of Notes or Term Loan Notes, as the case may be, representing at least 15% of the Total Amount of Secured Obligations. Each Enforcement Notice shall state that an Event of Default either under the Indenture or the Term Loan Agreement exists and generally describe the nature of and any relevant facts relating to such Event of Default. Following receipt of any Enforcement Notice, the Collateral Agent shall, subject to the provisions hereof relating to indemnification of the Collateral Agent by the Companies, take the actions directed therein and any other actions which it deems proper and which are not inconsistent with such direction, provided, however, that the Collateral Agent shall have no obligation to take any actions outside the Enforcement Notice. (b) Upon the effective date of an Enforcement Notice from the Note Majority Holders or the Term Loan Note Majority Holders, as the case may be, the Collateral Agent shall notify PCI Canada and PAI in writing that the Collateral Agent has received such Enforcement Notice, enclosing a copy of such Enforcement Notice. An Enforcement Notice shall be deemed to be in effect hereunder only if such notice shall have been given and 13 13 not rescinded, annulled or withdrawn in writing by the Note Majority Holders or the Term Loan Note Majority Holders, as applicable, by whom such notice was given. (c) Whether or not the Collateral Agent has been directed to exercise any right or remedy with respect to the Collateral pursuant to the provisions of this Section 2.2, the Bank Lenders shall have the right, subject to all relevant provisions of the Revolving Credit Agreement, to pursue remedies with respect to Obligor Collateral in accordance with the provisions of the Revolving Credit Agreement, all related agreements and this Agreement. In the event that the Collateral Agent has been so instructed to pursue remedies with respect to the Collateral, the Collateral Agent shall take such steps as it deems reasonable and appropriate to avoid interfering with the Agent Bank's exercise of rights and remedies with respect to Obligor Collateral. (d) In the event that the Agent Bank shall attempt to exercise any of its remedies with respect to Obligor Collateral, the Collateral Agent (i) shall not hinder, delay or otherwise prevent the Agent Bank from taking any and all action to the extent permitted by law which the Agent Bank deems necessary to enforce its security interest in the Obligor Collateral and realize thereon and (ii) to the extent that the Collateral Agent is in possession of the Collateral, shall permit the Agent Bank to access, occupy and use the Collateral, in each case without rent, for a period not to exceed 90 days from the date the Agent Bank receives written notice from the Collateral Agent that it has acquired possession of the Collateral, or such shorter period as is necessary for the Agent Bank to complete Obligor Collateral consisting of work-in-process, to store Obligor Collateral constituting inventory and to otherwise remove such Obligor Collateral and complete its exercise of remedies in respect thereof. Agent Bank shall indemnify the Collateral Agent for all damage to the Collateral (ordinary wear and tear excepted) proximately caused by the negligence or willful misconduct of the Agent Bank or its agents or employees. The Collateral Agent further agrees that it will not enforce any statutory, possessory or other liens (including, without limitation, rights of levy) with respect to the Obligor Collateral without the prior written consent of the Agent Bank. 2.3 Determinations Relating to Collateral. In the event (i) the Collateral Agent shall receive any written request from any Obligor under any Collateral Document for consent or approval with respect to any matter or thing relating to any Collateral or such Obligor's obligations with respect thereto or (ii) there shall be due to or from the Collateral Agent under the provisions of any Collateral Document any material performance or the delivery of any material instrument or (iii) the Collateral 14 14 Agent shall have actual knowledge of any nonperformance by any Obligor of any covenant or any breach of any representation or warranty of any Obligor set forth in any Collateral Document, then, in each such event, the Collateral Agent shall, within five Business Days (as defined in the Indenture, as in effect on the date hereof), advise the Secured Parties in writing of the matter or thing as to which consent has been requested or the performance or instrument required to be delivered or the nonperformance or breach of which the Collateral Agent has become aware. The Majority Holders shall have the exclusive authority to direct the Collateral Agent's response to any of the circumstances contemplated in clauses (i), (ii) and (iii) above, provided that the Majority Holders include the Term Loan Note Majority Holders. 2.4 Right to Make Advances. If an advance of funds shall at any time be required for the preservation or maintenance of any Collateral, then, upon three Business Days' notice to the applicable Obligor, the Collateral Agent or either Secured Party shall be entitled (but shall not be obligated) to make such advance (it being understood that the Trustee shall not be obligated to make any such advance other than in accordance with the terms of the Indenture and that the Term Loan Agent shall not be obligated to make any such advance other than in accordance with the terms of the Term Loan Agreement). Each such advance shall be reimbursed, with interest from the date such advance was made (at the rate initially borne by the Notes or the Term Loan Notes, as applicable), by the applicable Obligor, upon demand by the Collateral Agent or such Secured Party, as the case may be, and if the applicable Obligor fails to comply with any such demand, out of the proceeds of any sale of or other realization upon any Collateral distributed pursuant to clause FIRST of Section 4.1. In the event either Secured Party shall receive any funds which, under this Section 2.4, belong to the Collateral Agent or the other Secured Party, such Secured Party shall remit such funds promptly to the Collateral Agent for distribution to the Collateral Agent or such other Secured Party, as the case may be, and prior to such remittance shall hold such funds in trust for the Collateral Agent or such other Secured Party, as the case may be. 2.5 Nature of Secured Parties' Rights. Both Secured Parties (and each Person for whom a Secured Party acts as trustee, agent or fiduciary) shall be bound by any instruction or direction properly given by the Majority Holders, the Note Majority Holders or the Term Loan Note Majority Holders, as the case may be, as required by and subject to the provisions of this Agreement. 2.6 Voting. In each case where any vote or consent of the Holders or Term Loan Lenders, as the case may be, is required 15 15 or desired to be made or determined hereunder each Secured Party shall, to the extent required pursuant to and in accordance with the provisions of the Indenture or the Term Loan Agreement, respectively, advise in writing the Persons for whom it acts as trustee, agent or fiduciary of the matters or thing to which such vote or consent pertain and afford such Persons an opportunity to indicate (which may be accomplished by affirmative act or failure to act within a prescribed time period) a response to the matters or things set forth in such writing. The results of such voting or consent solicitation shall be promptly reported in writing to the Collateral Agent and shall be certified as correct to the best knowledge of such Secured Party. Any determination as to whether the requisite vote or consent has been obtained shall be made by the Collateral Agent on the basis of such written information, which information may be conclusively relied upon by the Collateral Agent. The Collateral Agent shall not be liable for errors in such determinations unless the Collateral Agent shall have been grossly negligent or shall have acted in bad faith in connection therewith. ARTICLE 3 COLLATERAL DOCUMENTS 3.1 Recording; Priority; Opinions, Etc. (a) Each Obligor shall at its sole cost and expense perform any and all acts and execute any and all documents (including, without limitation, the execution, amendment or supplementation of any financing statement and continuation statement or other statement) for filing under the provisions of, any statute, rule or regulation of any applicable United States or Canadian federal, state, provincial or local jurisdiction, including any filings or registrations in local real estate land record offices or registry offices which are necessary or advisable and shall do such other acts and execute such other documents as may be required from time to time, in order to create, grant, maintain, register, record, file, perfect, protect, renew and preserve in favor of the Collateral Agent for the benefit of the Secured Parties or for its account and the account of the Quebec Secured Parties a valid and perfected first priority Lien on the Collateral, subject only to Liens permitted under the Collateral Documents to be senior to the Liens of the Collateral Agent, and to fully preserve and protect the rights of the Collateral Agent under the Collateral Documents. Each Obligor shall from time to time promptly pay and satisfy all recording, registration and/or filing fees, charges and taxes relating to the Collateral Documents to which such Obligor is a party, any amendments thereto and any other instruments of further assurance. Without limiting the 16 16 generality of the foregoing, if at any time the Trustee, the Term Loan Agent or the Collateral Agent shall determine that additional recording, filing, transfer or similar taxes are required to be paid to perfect or continue any Lien on any Collateral, the applicable Obligor shall pay such taxes promptly upon demand by the Collateral Agent. (b) The Obligors shall, with respect to clause (i) below, on or prior to the date hereof, and, with respect to clause (ii) below, at such times as contemplated therein, furnish to the Trustee, the Term Loan Agent and the Collateral Agent: (i) Opinion(s) of Counsel either (a) to the effect that, in the opinion of such counsel, this Agreement and the grants of liens or security interests in the Collateral intended to be made by the Collateral Documents and all other instruments of further assurance, including, without limitation, financing statements and each of the Collateral Documents has been properly registered, recorded, renewed and filed to the extent necessary to perfect the Lien on the Collateral created by the Collateral Documents and reciting the details of such action, and stating that as to the Liens created pursuant to the Collateral Documents, such recordings, registrations, renewals and filings are the only recordings, registrations and filings necessary to give notice thereof and that no re-recordings, re-registrations, renewals or refilings are necessary to maintain such notice (other than as stated in such opinion), or (b) to the effect that, in the opinion of such counsel, no such action is necessary to perfect such Lien; and (ii) on each anniversary of the Closing Date (as defined in the Indenture, as in effect on the date hereof), beginning with such anniversary in the year 1998, an Opinion of Counsel dated as of such date, either (a) to the effect that, in the opinion of such counsel, such action has been taken with respect to the recordings, registerings, filings, renewals, re-recordings, re-registerings and refilings of all financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Lien of each of the Collateral Documents and reciting with respect to such Liens the details of such action or referencing prior Opinions of Counsel in which such details are given, and stating that all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding twelve months fully to preserve and protect the rights of the Collateral Agent, the Holders, the Trustee, the Term Loan Lenders and the Term Loan Agent hereunder and under each of the Collateral Documents with respect to such Liens, 17 17 or (b) to the effect that, in the opinion of such counsel, no such action is necessary to maintain such Liens. 3.2 Release of Collateral. To the extent applicable, and subject to applicable laws of Canada and provinces of Canada, the Obligors shall cause Trust Indenture Act Section 314(d) relating to the release of property or Liens to be complied with. (a) Satisfaction and Discharge of Indenture Obligation and Term Loan Obligation. The Obligors shall be entitled to obtain a full release of all of the Collateral from the Lien of the Collateral Documents upon compliance with all of the conditions precedent set forth in Section 1201 of the Indenture for complete satisfaction and discharge of all of PCI Canada's obligations under the Indenture and all of PAI's obligations under Section 10.12 of the Term Loan Agreement for complete satisfaction of all of PAI's obligations under the Term Loan Agreement and the termination thereof. Upon delivery by PCI Canada and PAI, respectively, to the Trustee, the Term Loan Agent and the Collateral Agent of (i) an Officers' Certificate and an Opinion of Counsel and (ii) an Officers' Certificate (as defined in the Term Loan Agreement) and an Opinion of Counsel (as defined in the Term Loan Agreement), all to the effect that such conditions precedent have been complied with, the Trustee and the Term Loan Agent shall, at the written request and expense of PCI Canada, promptly direct the Collateral Agent to release and reconvey to PCI Canada all of the Collateral, and upon receipt of such direction by the Trustee and the Term Loan Agent, the Collateral Agent shall do so and deliver any Collateral in its possession to PCI Canada. (b) Sales of Collateral Permitted by Section 1009 of the Indenture and Section 7.2.6 of the Term Loan Agreement. PCI Canada shall be entitled to obtain a release of all or any part of the Collateral (other than Trust Moneys) (the "Released Interests") subject to an Asset Sale (as defined in the Indenture) or to an Asset Sale (as defined in the Term Loan Agreement and for purposes hereof a "Term Loan Asset Sale"), and the Trustee and the Term Loan Agent shall direct the Collateral Agent to release the Released Interests from the Liens of the Collateral Documents, promptly upon (x) compliance with (i) the conditions precedent specified in Section 1009 of the Indenture for any Asset Sale involving Collateral, and (ii) the conditions precedent specified in Section 7.2.6 of the Term Loan Agreement for any Term Loan Asset Sale involving Collateral and (y) delivery by PCI Canada to the Trustee, the Term Loan Agent and the Collateral Agent of the following: (i) Release Notice. A notice (each, an "Asset Sale Release Notice"), which shall (A) refer to this Section 3.2, (B) attach all the documents referred to below, (C) describe 18 18 with particularity the Released Interests, (D) specify the fair market value of such Released Interests on a date within 60 days of the Asset Sale Release Notice (the "Valuation Date"), (E) certify that the purchase price received is not less than the fair market value of the Released Interests as of the date of such release, (F) state that the release of the Released Interests will not interfere with or impede the Collateral Agent's ability to realize the value of the remaining Collateral and will not impair the maintenance and operation of the remaining Collateral, and (G) be accompanied by a counterpart of the instruments proposed to give effect to the release fully executed and acknowledged (if applicable) by all parties thereto other than the Collateral Agent; (ii) Officers' Certificate. An Officers' Certificate certifying that (A) such Asset Sale covers only the Released Interests and complies with the terms and conditions of an Asset Sale pursuant to Section 1009 of the Indenture and Section 7.2.6 of the Term Loan Agreement, (B) all Collateral Proceeds (as defined in the Indenture) from the sale of the Released Interests will be applied pursuant to Section 1009 of the Indenture and Section 7.2.6 of the Term Loan Agreement, (C) there is no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement in effect or continuing on the date thereof, the Valuation Date or the date of such Asset Sale or Term Loan Asset Sale, (D) the release of the Released Interests will not result in a Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement and (E) all conditions precedent to such release have been complied with; (iii) Regarding Real Property. If any Released Interest is only a portion of a discrete parcel of real property, evidence that Canadian counsel to PCI shall have committed to issue to the Collateral Agent a title opinion relating to the affected property, confirming that after such release, the Lien of the applicable Collateral Documents shall continue unimpaired as a first priority perfected Lien upon the remaining Collateral encumbered thereby subject only to Excepted Liens and that the remaining Collateral satisfies all applicable subdivision, zoning and land use requirements and is not part of a larger tax lot; (iv) Proceeds of Asset Sale. The Collateral Proceeds (as defined in the Indenture) and the Net Proceeds (as defined in the Term Loan Agreement) resulting from an Asset Sale in respect of Collateral ("Term Loan Collateral 19 19 Proceeds") and other non-cash consideration received from an Asset Sale or Term Loan Asset Sale shall be required to be delivered to the Collateral Agent to be deposited in the Collateral Account to be applied pursuant to Article 4 hereof; and if any property other than cash or Cash Equivalents (as defined in the Indenture and the Term Loan Agreement) is included in such consideration, such instruments of conveyance, assignment and transfer, if any, delivered to the Collateral Agent as may be necessary, in the opinion of counsel to the Collateral Agent, to subject to the Lien of the Collateral Documents all right, title and interest of the applicable Obligor in and to such property; (v) Opinions of Counsel. One or more Opinions of Counsel which, when considered collectively, shall be substantially to the effect (A) that any obligation included in the consideration for any Released Interest and to be received by the Collateral Agent pursuant to paragraph (iv) above is a valid and binding obligation enforceable in accordance with its terms, subject to such customary exceptions regarding equitable principles and creditors' rights generally as shall be reasonably acceptable to the Collateral Agent, the Trustee and the Term Loan Agent, and the Collateral Documents are effective to create a valid and perfected security interest in such obligations, subject to customary exceptions, (B) either (1) that such instruments of conveyance, assignment and transfer as have been or are then delivered to the Collateral Agent are sufficient to subject to the Lien of the Collateral Documents all right, title and interest of the applicable Obligor in and to any property, other than cash or Cash Equivalents included in the consideration for the Released Interests and to be received by the Collateral Agent pursuant to paragraph (iv) above, or (2) that no instruments of conveyance, assignment or transfer are necessary for such purpose, (C) that the applicable Obligor has corporate power to own all property included in the consideration for such release and (D) that all conditions precedent provided in the Indenture, the Term Loan Agreement and the Collateral Documents relating to the Asset Sale or Term Loan Asset Sale and such release of the Released Interests have been complied with; and (vi) Other Documents. All documentation required by Trust Indenture Act Section 314(d). (c) Other Release of Collateral. In the event PCI Canada desires to release any Collateral not otherwise permitted by Section 3.2(b) or 3.3 of this Agreement (the "Other Released Interest"), PCI Canada, shall be entitled to obtain a release of such Collateral upon (x) the consent of the Majority Holders provided that such Majority Holders include Term Loan 20 20 Lenders holding 100% of the aggregate outstanding principal amount of the Term Loan Notes (provided that for purposes of this Section there shall not be counted any interest in Notes or Term Loan Notes (A) for which (and to the extent that) there are at such time on deposit with the Collateral Agent, the Trustee or the Term Loan Agent amounts to be applied to the payment of principal thereof and (B) which are held by any of the Companies or any Affiliate of any of the Companies) and (y) delivery by PCI Canada to the Trustee, the Term Loan Agent and the Collateral Agent of the following: (i) Release Notice. A notice (each a "Release Notice" which shall (A) refer to this Section 3.2(c), (B) attach all the documents referred to below, (C) describe with particularity the Other Released Interest, (D) specify the fair market value of such Other Released Interest on a date within 60 days of the Release Notice (the "Other Valuation Date"), (E) certify that the purchase price to be received is not less than the fair market value of the Other Released Interest as of the date of the proposed release, (F) state that the release of the Other Released Interest will not interfere with or impede the Collateral Agent's ability to realize the value of the remaining Collateral and will not impair the maintenance and operation of the remaining Collateral and (G) be accompanied by a counterpart of the instruments proposed to give effect to the release fully executed and acknowledged (if applicable) by all parties thereto other than the Collateral Agent. (ii) Officers' Certificate. An Officers' Certificate certifying that (A) such sale covers only the Other Released Interest, (B) all proceeds from the sale of the Other Released Interest will be deemed Trust Moneys (as hereinafter defined) and deposited into the Collateral Account to be applied pursuant to Article 4 hereof, (C) there is no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement in effect or continuing on the date thereof, the Other Valuation Date or the date of such sale, (D) the release of the Other Released Interests will not result in a Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement, (E) all conditions precedent to such release have been complied with, (F) requirements of Section 3.2(b)(iii) have been met with respect to the Other Released Interest, as if such Other Released Interest were a Released Interest. (iii) Proceeds of Asset Sale. The Collateral Proceeds (as defined in the Indenture) and the Term Loan Collateral Proceeds and other non-cash consideration received from the 21 21 sale of the Other Released Interest shall be required to be delivered to the Collateral Agent to be deposited in the Collateral Account to be applied pursuant to Article 4 hereof; and if any property other than cash or Cash Equivalents (as defined in the Indenture and the Term Loan Agreement) is included in such consideration, such instruments of conveyance, assignment and transfer, if any, delivered to the Collateral Agent as may be necessary, in the opinion of counsel to the Collateral Agent, to subject to the Lien of the Collateral Documents all right, title and interest of the applicable Obligor in and to such property. (iv) Opinion. One or more Opinions of Counsel meeting the requirements of Section 3.2(b)(v). At any time when an Event of Default under either the Indenture or the Term Loan Agreement shall have occurred and be continuing, no release of Collateral pursuant to the provisions of this Agreement or the other Collateral Documents shall be effective as against the Collateral Agent or the Secured Parties. (d) Release of New Collateral. Any New Collateral shall be released by the Collateral Agent upon delivery by PAAC of an Officer's Certificate to the Trustee, the Term Loan Agent and the Collateral Agent that the conditions set forth in Section 1017 of the Indenture (as in effect on the date hereof) have been satisfied. 3.3 Disposition of Collateral Not Requiring Consent. (a) So long as no Event of Default under either the Indenture or the Term Loan Agreement shall have occurred and be continuing, PCI Canada may, without any consent by the Collateral Agent, sell or otherwise dispose of any Collateral the sale or disposition of which would not constitute an Asset Sale (as defined in the Indenture) or Term Loan Asset Sale by virtue of clauses (i) and (iv) of the definitions thereof; provided, that notwithstanding the foregoing, if any such Collateral consists of Real Property, PCI Canada shall deliver to the Trustee, the Term Loan Agent and the Collateral Agent an Officers' Certificate confirming that the requirements of Section 3.2(b)(iii) have been met and containing the statement set forth in Section 3.2(b)(i)(F). (b) In the event that PCI Canada has sold, exchanged, or otherwise disposed of or proposes to sell, exchange or otherwise dispose of any portion of the Collateral which under the provisions of this Section 3.3 may be sold, exchanged or otherwise disposed of by PCI Canada without any release or consent of the Collateral Agent, and PCI Canada requests in writing that the Collateral Agent furnish a written disclaimer, release or quit-claim of any interest in such property under any of the Collateral Documents, the Collateral Agent shall promptly 22 22 execute such an instrument upon delivery to the Trustee, the Term Loan Agent and the Collateral Agent of (i) an Officers' Certificate by PCI Canada reciting the sale, exchange or other disposition made or proposed to be made and describing in reasonable detail the property affected thereby, and stating and demonstrating that such property is property which by the provisions of this Section 3.3 may be sold, exchanged or otherwise disposed of or dealt with by PCI Canada without any release or consent of the Collateral Agent and (ii) an Opinion of Counsel stating that the sale, exchange or other disposition made or proposed to be made was duly made by PCI Canada in conformity with this Agreement and that the execution of such written disclaimer, release or quitclaim is appropriate to confirm the propriety of such sale, exchange or other disposition under this Section 3.3. Notwithstanding the preceding sentence, all purchasers and grantees of any property or rights purporting to be released herefrom shall be entitled to rely upon any release executed by the Collateral Agent hereunder as sufficient for the purposes hereof. 3.4 Eminent Domain, Expropriation and Other Governmental Takings. Subject to the provisions of the Collateral Documents, should any of the Collateral be taken by eminent domain or expropriation or be sold pursuant to the exercise by Canada or any state, province, municipality or other governmental authority of any right which any of them may then have to purchase, or to designate a purchaser or to order a sale of, all or any part of the Collateral, the Collateral Agent shall release the property so taken or purchased, but only upon receipt by the Trustee, the Term Loan Agent and the Collateral Agent of the following: (a) Officers' Certificates. An Officers' Certificate stating that (i) such property has been taken by eminent domain or expropriation and the amount of the award therefor, or that such property has been sold pursuant to a right vested in Canada or a state, province, municipality or other governmental authority to purchase, or to designate a purchaser or order a sale of such property and the amount of the proceeds of such sale, and (ii) that all conditions precedent herein provided for relating to such release have been complied with; (b) Proceeds of Taking. The proceeds of such taking or purchase, delivered to the Collateral Agent, to be held by the Collateral Agent and applied as provided herein; and (c) Opinion of Counsel. An Opinion of Counsel substantially to the effect: (i) that such property has been lawfully taken by exercise of the right of eminent domain or expropriation, or 23 23 has been sold pursuant to the exercise of a right vested in Canada or a state, province, municipality or other governmental authority to purchase, or to designate a purchaser or order a sale of, such property; (ii) in the case of any taking by eminent domain or expropriation, that the award for the property so taken has become final or that appeal from such award is not advisable in the interests of the Companies or the Secured Parties; (iii) in the case of any such sale, that the amount of the proceeds of the property so sold is not less than the amount to which PCI Canada is legally entitled under the terms of such right to purchase or designate a purchaser, or under the order or orders directing such sale, as the case may be; (iv) in the event that the award for such property or the proceeds of such sale, or a specified portion thereof, shall be certified to have been deposited with the trustee, mortgagee or other holder of a Lien which is permitted by the Collateral Documents to be prior to the Lien of the Collateral Documents, that the property to be released, or a specified portion thereof, is or immediately before such taking or purchase was subject to such prior Lien permitted by the Collateral Documents, and that such deposit is required by such prior Lien permitted by the Collateral Documents; and (v) that the instrument or the instruments and the award or proceeds of such sale which have been or are therewith delivered to and deposited with the Collateral Agent conform to the requirements of this Agreement and the other Collateral Documents and that, upon the basis of such application, the Collateral Agent is permitted by the terms hereof and of the other Collateral Documents to execute and deliver the release requested, and that all conditions precedent herein provided for relating to such release have been complied with. In any proceedings for the taking or purchase or sale of any part of the Collateral, by eminent domain or expropriation or by virtue of any such right to purchase or designate a purchaser or to order a sale, the Collateral Agent may be represented by counsel who may be counsel for PCI Canada. 3.5 Suits to Protect Collateral. Subject to the provisions hereof, the Majority Holders (provided that such Majority Holders include the Term Loan Majority Holders) shall have the right to direct the Collateral Agent, and if so directed, the Collateral Agent shall have the power, to institute 24 24 and to maintain such suits and proceedings as such Majority Holders may deem expedient to prevent any impairment of the Collateral by any acts which may be unlawful or in violation of any of the Collateral Documents, and such suits and proceedings as such Majority Holders may deem expedient to preserve or protect their interests in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the Liens of the Collateral Agent in the Collateral or be prejudicial to the interests of the Secured Parties). 3.6 Purchaser Protected. In no event shall any purchaser in good faith of any property purported to be released hereunder be bound to ascertain the authority of the Collateral Agent to execute the release or to inquire as to the satisfaction of any conditions required by the provisions hereof for the exercise of such authority or to see to the application of any consideration given by such purchaser or other transferee; nor shall any purchaser or other transferee of any property or rights permitted by this Article 3 to be sold be under obligation to ascertain or inquire into the authority of PCI Canada to make any such sale or other transfer. 3.7 Powers Exercisable by Receiver or Trustee. In case the Collateral shall be in the possession of a receiver or trustee, lawfully appointed, the powers conferred in this Article 3 upon PCI Canada with respect to the release, sale or other disposition of such property may be exercised by such receiver or trustee, and an instrument signed by such receiver or trustee shall be deemed the equivalent of any similar instrument of PCI Canada or of any officer or officers thereof required by the provisions of this Article 3. 3.8 Determinations Relating to Collateral. In the event (i) the Collateral Agent shall receive any written request from PCI Canada under any Collateral Document for consent or approval with respect to any matter or thing relating to any Collateral or the obligations of any Obligor with respect thereto or (ii) there shall be due to or from the Collateral Agent under the provisions of any Collateral Document any performance or the delivery of any instrument or (iii) the Collateral Agent shall have actual knowledge of any nonperformance by any Obligor of any covenant or any breach of any representation or warranty of such Obligor set forth in any Collateral Document, then, in each such event, the Collateral Agent shall be entitled to hire experts, consultants, agents and attorneys to advise the Collateral Agent on the manner in which the Collateral Agent should respond to such request or render any requested performance or response to 25 25 such nonperformance or breach. The Collateral Agent shall be fully protected in the taking of any action recommended or approved by any such expert, consultant, agent or attorney or agreed to by the Majority Holders and the Term Loan Note Majority Holders. 3.9 Form and Sufficiency of Release. In the event that PCI Canada has sold, exchanged, or otherwise disposed of or proposes to sell, exchange or otherwise dispose of any portion of the Collateral which under the provisions of this Article 3 may be sold, exchanged or otherwise disposed of by PCI Canada, and the applicable Obligor requests the Collateral Agent to furnish a written disclaimer, release or quitclaim of any interest in such property under any of the Collateral Documents, the Collateral Agent shall execute such an instrument promptly after satisfaction of the conditions set forth herein for delivery of such instrument. Notwithstanding the preceding sentence, all purchasers and grantees of any property or rights purporting to be released herefrom shall be entitled to rely upon any release executed by the Collateral Agent hereunder as sufficient for the purposes of this Indenture and as constituting a good and valid release of the property therein described from the Lien of this Indenture and the Collateral Documents. 3.10 Possession and Use of Collateral. Subject to and in accordance with the provisions of this Agreement and the other Collateral Documents, so long as no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement shall have occurred and be continuing, the Obligors shall have the right to remain in possession and retain exclusive control of the Collateral (other than Trust Moneys, as defined in Section 4.1 hereof, securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent hereunder or under the other Collateral Documents), to operate, manage, develop, use and enjoy the Collateral (other than Trust Moneys, securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent hereunder or under the other Collateral Documents) and to collect, receive, use, invest and dispose of the reversions, remainders, rates, interest, rents, issues, profits, revenues, proceeds and other income thereof (other than Trust Moneys, securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent hereunder or under the other Collateral Documents). 3.11 Additional Collateral. All Liens on any Property of the Companies or any Guarantor (as defined in the Indenture) at any time granted to secure any Secured Obligation shall constitute Collateral for the purposes of this Agreement and 26 26 shall be held by the Collateral Agent for the pari passu benefit of the Secured Parties. ARTICLE 4 APPLICATION OF TRUST MONEYS 4.1 "Trust Moneys" Defined. All cash or Cash Equivalents received by the Collateral Agent: (a) upon the release of property from the Lien of any of the Collateral Documents; or (b) as proceeds of insurance upon any, all or part of the Collateral (other than any liability insurance proceeds payable to either of the Secured Parties or to the Collateral Agent, respectively, for any loss, liability or expense incurred by it), including, without limitation, proceeds of any insurance received pursuant to the terms of the Collateral Documents; or (c) as proceeds of any other sale or other disposition of all or any part of the Collateral by or on behalf of the Collateral Agent (including any proceeds received pursuant to the terms of the Collateral Documents in respect of the sale or other disposition of all or any part of the Collateral taken by eminent domain or expropriation or purchased by, or sold pursuant to any order of a governmental authority) or any collection, recovery, receipt, appropriation or other realization of or from all or any part of the Collateral pursuant to the Collateral Documents or otherwise; or (d) for application under this Article 4 as elsewhere provided in this Agreement or the other Collateral Documents, or whose disposition is not elsewhere otherwise specifically provided for herein or in the Collateral Documents; (all such moneys being herein sometimes called "Trust Moneys") shall be subject to a Lien and security interest in favor of the Collateral Agent and shall be held by the Collateral Agent in the Collateral Account for the benefit of the Secured Parties as a part of the Collateral. The Collateral Agent shall apply such amount or proceeds as soon as practicable after receipt as follows: FIRST: To the Collateral Agent in an amount equal to the Collateral Agent's Fees which are unpaid as of the applicable Distribution Date and to any Secured Party which has theretofore advanced or paid any such Collateral Agent's Fees in an amount equal to the amount thereof so advanced or paid by such Secured 27 27 Party and to reimburse to the Collateral Agent and any Secured Party the amount of any advance made pursuant to Section 2.4 (with interest thereon at the rate initially borne by the Notes or the Term Loan Notes, as applicable); SECOND: Provided that no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement shall have occurred and be continuing, (i) any such Trust Moneys constituting Insurance Proceeds or Net Awards may be withdrawn by PAI or PCI Canada pursuant to Section 4.2 hereof to be applied to effect a Restoration in accordance with the applicable Security Document; (ii) in accordance with the terms of Section 1009 of the Indenture governing Net Proceeds and Section 7.2.6 of the Term Loan Agreement governing Net Proceeds (as defined in the Term Loan Agreement as in effect on the date hereof), any such Trust Moneys constituting Collateral Proceeds (as defined in the Indenture) or Term Loan Collateral Proceeds, Insurance Proceeds or Net Awards may be withdrawn by PAI and PCI Canada pursuant to Sections 4.3 or 4.4 hereof to be applied to a reinvestment in PAI or in one of its Subsidiaries that is a Restricted Subsidiary for purposes of both the Indenture and the Term Loan Agreement in a Related Business (as defined in the Indenture as in effect on the date hereof) or to the permanent repayment or prepayment of any Senior Indebtedness (as defined in the Indenture as in effect on the date hereof) then outstanding; and (iii) any such Trust Moneys not so withdrawn and applied shall be held by the Collateral Agent as Excess Proceeds (as defined in the Indenture) and shall be transferred to the Trustee as and when required in connection with an Asset Sale Offer in respect of such Excess Proceeds pursuant to Section 1009 of the Indenture. 4.2 Withdrawals of Insurance Proceeds and Net Awards for Restoration. To the extent that any Trust Moneys consist of either Insurance Proceeds or Net Awards received by the Collateral Agent pursuant to the Security Documents and such Insurance Proceeds or Net Awards may be applied by PAI or PCI Canada to effect a Restoration of the affected Collateral, such Trust Moneys may be withdrawn by PAI or PCI Canada and shall be paid by the Collateral Agent, upon a request by a Company Order (as defined in the Indenture as in effect on the date hereof) to reimburse the applicable Obligor for expenditures made, or to pay costs incurred, by such Obligor to repair, rebuild or replace the Collateral destroyed, damaged or taken, upon receipt by the Trustee, the Term Loan Agent and the Collateral Agent of the following: (a) Officers' Certificate. An Officers' Certificate of PAI or PCI Canada, as applicable, dated not more than 30 days prior to the date of the application for the withdrawal and payment of such Trust Moneys: 28 28 (i) that expenditures have been made, or costs incurred, by the Obligor in a specified amount for the purpose of making certain repairs, rebuildings and replacements of the Collateral, which shall be briefly described, and stating the fair market value thereof at the date of the expenditure or incurrence thereof by PAI or PCI Canada; (ii) that no part of such expenditures or costs has been or is being made the basis for the withdrawal of any Trust Moneys in any previous or then pending application pursuant to this Agreement; (iii) that there is no outstanding Indebtedness (as defined in the Indenture as in effect on the date hereof) other than costs for which payment is being requested, for the purchase price or construction of such repairs, rebuildings or replacements, or for labor, wages, materials or supplies in connection with the making thereof, which, if unpaid, might become the basis of a vendor's, mechanic's, laborer's, materialman's statutory or other similar Lien upon any Collateral; (iv) that the property to be repaired, rebuilt or replaced is necessary or desirable in the conduct of the business of PAI or PCI Canada, as the case may be;; (v) whether any part of such repairs, rebuildings or replacements within six months before the date of acquisition thereof by the Obligor has been used or operated by any person other than such Obligor in a business similar to that in which such property has been or is to be used or operated by such Obligor, and whether the fair value to such Obligor, at the date of such acquisition, of such part of such repairs, rebuildings or replacement is more than $25,000; (vi) that no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement shall have occurred and be continuing; and (vii) that all conditions precedent provided for herein and in the Indenture and the Term Loan Agreement (if any) relating to such withdrawal and payment have been complied with; (b) Opinion of Counsel. An Opinion of Counsel substantially stating: 29 29 (i) that the instruments that have been or are therewith delivered to the Collateral Agent, the Trustee and the Term Loan Agent conform to the requirements of this Agreement and the other Collateral Documents, and that, upon the basis of such request of PAI or PCI Canada, as the case may be, and the accompanying documents specified in this Section 4.2, all conditions precedent provided for herein and in the Indenture and the Term Loan Agreement (if any) relating to such withdrawal and payment have been complied with, and the Trust Moneys whose withdrawal is then requested may be lawfully paid over under this Section 4.2; (ii) that the Collateral Agent has a valid and perfected lien on such repairs, rebuildings and replacements, that the same and every part thereof are subject to no Liens prior to the Lien of the Collateral Documents, except Liens permitted under the Collateral Documents to which the property so destroyed or damaged shall have been subject at the time of such destruction or damage; and (iii) that all of the Obligor's right, title and interest in and to said repairs, rebuildings or replacements, or combination thereof, are then subject to the Lien of the Collateral Documents; (c) Architect's Certificate. An Architect's Certificate (as defined in the applicable Security Document) stating: (i) that all Restoration Work to which such request relates has been done in compliance with the approved Plans and Specifications (as defined in the applicable Security Document) and in accordance with all provisions of law; (ii) the sums requested are required to reimburse the Obligor for payments by such Obligor to, or are due to, the contractors, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services or materials for the Restoration, and that, when added to the sums, if any, previously paid out by the Collateral Agent, such sums do not exceed the cost of the Restoration to the date of such Architect's Certificate; (iii) whether or not the Estimate (as defined in the applicable Security Document) continues to be accurate, and if not, what the entire cost of such Restoration is then estimated to be; and (iv) that the amount of the Insurance Proceeds or Net Awards, as the case may be, plus any amount received by the 30 30 Collateral Agent under an Additional Undertaking (as defined in the applicable Security Document) remaining after giving effect to such payment, will be sufficient on completion of the Restoration to pay for the same in full (including, in detail, an estimate by trade of the remaining costs of completion); (d) Final Request Documentation. If such request is the final request for any payment, in addition to the documentation required by (a), (b) and (c) above, such request shall be accompanied by: (i) an Opinion of Counsel satisfactory to the Collateral Agent confirming that there has not been filed with respect to all or any part of the applicable Collateral any Lien which is not either discharged of record or bonded and which could have priority over the Lien of the applicable Security Document; and (ii) an Officers' Certificate stating that all occupancy certificates, operating and other permits, licenses, waivers, other documents, or any combination of the foregoing required by law in connection with or as a result of such Restoration have been obtained; and (e) Other Documents. All documentation required under Trust Indenture Act Section 314(d). Upon compliance with the foregoing provisions of this Section 4.2, the Collateral Agent shall pay on the written request of the applicable Obligor, as the case may be, an amount of Trust Moneys of the character aforesaid equal to the amount of the expenditures or costs stated in the Officers' Certificate required by clause (i) of subsection (a) of this Section 4.2, or the fair value to such Obligor, as the case may be, of such repairs, rebuildings and replacements covered by such Officers' Certificate, whichever is less. 4.3 Withdrawal of Trust Moneys on Basis of Retirement of Securities or other Senior Indebtedness. (a) Except with respect to Trust Moneys subject to release pursuant to Section 4.3(b) and Section 4.4 hereof, and as otherwise permitted by the Collateral Documents, (x) the Collateral Agent shall transfer to the Term Loan Agent, at the written direction of the Obligors, and the Term Loan Agent shall apply, Trust Moneys from time to time to the payment of the principal of and interest on any Term Loan Notes then due and payable or to the prepayment thereof, including, without limitation, pursuant to a Change of Control (as defined in the Term Loan Agreement) or a Term Loan Asset Sale, or (y) the Collateral Agent shall apply, at the direction of the Obligors, Trust Moneys from time to time to the permanent 31 31 repayment or prepayment of Senior Indebtedness (as defined in the Indenture as in effect on the date hereof) in accordance with the terms of such Senior Indebtedness and pursuant to Section 7.2.6(c) of the Term Loan Agreement and Section 1009(b)(i) of the Indenture, in each case as the Obligors shall request in writing, upon receipt by the Trustee, the Term Loan Agent and the Collateral Agent of the following: (i) Board Resolution. Board Resolutions of each of the Obligors directing the application pursuant to this Section 4.3 of a specified amount of Trust Moneys and (A) if any such moneys are to be applied to the payment of Term Loan Notes and/or Securities (as defined in the Indenture), designating the Term Loan Notes and/or Securities so to be paid and, in case any such moneys are to be applied to the prepayment or purchase of Term Loan Notes and/or Securities, prescribing the method of prepayment or purchase, the price or prices to be paid and the maximum principal amount of Term Loan Notes and/or Securities to be prepaid or purchased and any other provisions of this Agreement, the Term Loan Agreement or the Indenture governing such prepayment or purchase, and (B) in case any such moneys are to be applied to the payment of other Senior Indebtedness, specifying such other Senior Indebtedness and the principal amount thereof to be paid, together with payment instructions therefor; (ii) Purchase Price. Cash in the maximum amount of the accrued interest, if any, required to be paid in connection with any such payment, prepayment or purchase, which cash shall be held by the Collateral Agent, in trust for such purpose; (iii) Officers' Certificate. An Officers' Certificate, dated not more than five Business Days prior to the date of the relevant application, stating (A) that no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement exists unless such Default or Event of Default would be cured by the application of Trust Moneys and that no such Default or Event of Default would result from such application, and (B) that all conditions precedent and covenants provided for herein and in the Indenture and the Term Loan Agreement (if any) relating to such application of Trust Moneys have been complied with; and (iv) Opinion of Counsel. An Opinion of Counsel stating that the documents and the cash or Cash Equivalents (as defined in the Indenture as in effect on the date hereof), if any, which have been or are therewith delivered to and deposited with the Collateral Agent, the Term Loan Agent or the Trustee conform to the requirements of the 32 32 Indenture and that all conditions precedent provided for herein and in the Term Loan Agreement and the Indenture relating to such application of Trust Moneys have been complied with. Upon compliance with the foregoing provisions of this Section 4.3(a), the Collateral Agent shall apply Trust Moneys as directed and specified by such Board Resolution, up to, but not exceeding, the principal amount of the Term Loan Notes, Securities or other Senior Indebtedness so paid, prepaid or purchased, using the cash deposited pursuant to paragraph (ii) of this Section 4.3(a), to the extent necessary, to pay any accrued interest required in connection with such payment, prepayment or purchase. (b) To the extent that any Trust Moneys consist of (i) Term Loan Collateral Proceeds received by the Collateral Agent that result in the requirement to prepay principal in respect of the Term Loan Notes pursuant to Section 7.2.6 of the Term Loan Agreement and a Term Loan Lender refuses any such prepayment or (ii) Collateral Proceeds received by the Collateral Agent that result in the requirement pursuant to Section 1009 of the Indenture to make an Asset Sale Offer (as defined in the Indenture) and PCI Canada has made such Asset Sale Offer which is not fully subscribed to by the Holders (as defined in the Indenture), the Trust Moneys remaining after completion of such prepayment or Asset Sale Offer may be withdrawn by PAI or PCI Canada, as the case may be, and shall be paid by the Collateral Agent to PAI or PCI Canada (or as otherwise directed by the Obligors) upon a Company Order to the Collateral Agent and upon receipt by the Secured Parties and the Collateral Agent of the following: (i) Notice. A notice which shall (A) refer to this Section 4.3(b) and (B) describe with particularity the Asset Sale or Term Loan Asset Sale or the destruction or condemnation in respect of which such Trust Moneys were held as Collateral, the amount of Trust Moneys applied to the prepayment of principal in respect of Term Loan Notes or the purchase of Securities pursuant to the Asset Sale Offer and the remaining amount of Trust Moneys to be released; (ii) Officers' Certificate. An Officer's Certificate certifying that (A) the release of the Trust Moneys complies with the terms and conditions of Section 1009 of the Indenture and Section 7.2.6 of the Term Loan Agreement, (B) there is no Default under either the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement in effect or continuing on the date thereof, (C) the release of the Trust Moneys will not result in a Default under either the Indenture or 33 33 the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement, and (D) all conditions precedent and covenants provided for herein and in the Indenture and the Term Loan Agreement (if any) relating to such release have been complied with; (iii) Opinion of Counsel. An Opinion of Counsel stating that the documents that have been or are therewith delivered to the Collateral Agent or the Secured Parties conform to the requirements of this Agreement and that all conditions precedent provided for herein and in the Indenture and the Term Loan Agreement (if any) relating to such application of Trust Moneys have been complied with; and (iv) Other Documents. All documentation required under Trust Indenture Act Section 314(d). 4.4 Withdrawal of Trust Moneys for Reinvestment. To the extent that any Trust Moneys consist of Term Loan Collateral Proceeds received by the Collateral Agent pursuant to the provisions hereof and to the extent the aggregate amount of such Term Loan Collateral Proceeds since the date hereof (when added to the aggregate amount of other Net Proceeds of Term Loan Asset Sales since the date hereof) does not exceed $35,000,000, or to the extent that any Trust Moneys consist of Collateral Proceeds received by the Collateral Agent pursuant to the provisions of Section 1009 of the Indenture, and PAI and PCI Canada, intend to reinvest such Term Loan Collateral Proceeds in PAI or in one or more Restricted Subsidiaries in a Related Business (the "Released Trust Moneys"), such Trust Moneys may be withdrawn by PAI and PCI Canada and shall be paid by the Collateral Agent to PAI and PCI Canada (or as otherwise directed by PAI and PCI Canada) upon a Company Order to the Trustee and the Collateral Agent and upon receipt by the Trustee, the Agent Bank and the Collateral Agent of the following: (a) Notice. A notice which shall (i) refer to this Section 4.4, (ii) contain all documents referred to below, (iii) describe with particularity the Released Trust Moneys and the Term Loan Asset Sale from which such Released Trust Moneys were held as Collateral, (iv) describe with particularity the investment to be made with respect to the Released Trust Moneys and (v) be accompanied by a counterpart of the instruments proposed to give effect to the release fully executed and acknowledged (if applicable) by all parties thereto other than the Collateral Agent; (b) Officers' Certificate. An Officer's Certificate certifying that (i) the release of the Released Trust Moneys complies with the terms and conditions of Section 7.2.6 of the 34 34 Term Loan Agreement and Section 1009 of the Indenture, (ii) there is no Default either under the Indenture or the Term Loan Agreement or Event of Default under either the Indenture or the Term Loan Agreement in effect or continuing on the date thereof, (iii) the release of the Released Trust Moneys will not result in a Default either under the Indenture or the Term Loan Agreement or Event of Default either under the Indenture or the Term Loan Agreement, (iv) the parties executing any and all documents required under this Section 4.4 were duly authorized to do so, and (v) all conditions precedent and covenants provided for herein and in the Indenture and Term Loan Agreement (if any) relating to such release and application of the Released Trust Moneys have been complied with; (c) Real Property Investment Documentation. If the Released Trust Moneys are to be invested in Real Property: (i) a hypothec, mortgage, debenture, pledge or other instrument or instruments in recordable form sufficient to grant to the Collateral Agent for the benefit of the Secured Parties or for its own account and for the account of the Quebec Secured Parties, as the case may be, (A) substantially the same rights and remedies in respect of such Real Property as granted thereto under the Security Documents executed and delivered on the date hereof and (B) a valid first priority mortgage Lien on such Real Property subject to no Liens other than Excepted Liens permitted under the Security Documents delivered on the date hereof and, if the Real Property is a leasehold or easement interest, such hypothec, mortgage, debenture, pledge or other instrument or instruments shall include normal and customary provisions with respect thereto, in each case together with evidence of the filing of all such financing statements, application for registration and other instruments as may be necessary to perfect such Lien; (ii) a title opinion verifying that the Lien of the instruments delivered pursuant to clause (i) above constitutes a valid and perfected first priority Lien on such Real Property in an aggregate amount equal to the lesser of the fair market value of the Real Property and the then outstanding principal amount of the Secured Obligations, together with an Officers' Certificate stating that any specific exceptions to such title opinion are Excepted Liens, together with opinions of the type included in the Title Opinions delivered to the Collateral Agent on the date hereof with respect to the Collateral; (iii) in the event such Real Property has a fair market value in excess of $250,000, a Survey with respect thereto; 35 35 (iv) evidence of payment or a closing statement indicating payments to be made by the applicable Obligor of all title premiums, recording charges, transfer taxes and other costs and expenses, including reasonable legal fees and disbursements of counsel for the Collateral Agent (and any local counsel), that may be incurred to validly and effectively subject the Real Property to the Lien of any applicable Collateral Document to perfect such Lien; (v) an Officers' Certificate stating that PAI has caused there to be conducted by a reputable expert a review and analysis of the environmental conditions relating to such Real Property and that, in the reasonable and good faith judgment of the issuer thereof such Real Property does not contain any conditions which would cause a prudent institutional lender to decline to fund loans secured by such Real Property, together with a copy of the written report of such expert; and (vi) such further documents, opinions, certificates or instruments (including, without limitation (A) policies or certificates of insurance, (B) Uniform Commercial Code, judgment and tax lien searches and searches under relevant provincial personal property security legislation, (C) consents, approvals, estoppels and tenant subordination agreements and (D) Officers' Certificates in respect of compliance with local codes or ordinances relating to building or fire safety or structural soundness and the adequacy of utility services) as are customarily provided to institutional mortgage lenders and as the Collateral Agent, the Trustee or Term Loan Agent may require; (d) Personal Property Investment Documentation. If the Released Trust Moneys are not invested in Real Property: (i) an instrument sufficient to grant to the Collateral Agent, for the benefit of the Secured Parties or for its own account and the account of the Quebec Secured Parties, as the case may be, (A) substantially the same rights and remedies in respect of such personal property interest as granted thereto under the Collateral Documents executed and delivered on the date hereof and (B) a valid first priority Lien on such personal property interest subject to no Liens other than Liens permitted under such instrument, together with evidence of the filing of such financing statements and other instruments as may be necessary to perfect such Liens, provided that in no event shall the Collateral Agent be granted any security interests in any Obligor Collateral; and 36 36 (ii) evidence of payment or a closing statement indicating payments to be made by the applicable Obligor of all filing fees, recording charges, transfer taxes and other costs and expenses, including reasonable legal fees and disbursements of counsel for the Collateral Agent (and any local counsel), that may be incurred to validly and effectively subject such personal property to the Lien of any Collateral Document; (e) Opinion of Counsel. An Opinion of Counsel stating that the documents that have been or are therewith delivered to the Collateral Agent or the Secured Parties are enforceable (subject to customary exceptions), create the Liens purported to be created thereby, have been duly authorized, executed and delivered and do not conflict with any other agreements, conform to the requirements of this Agreement and that all conditions precedent provided for herein and in the Indenture and Term Loan Agreement (if any) relating to such application of Trust Moneys have been complied with; and (f) Other Documentation. All documentation required under Trust Indenture Act Section 314(d). Upon compliance with the foregoing provisions of this Section, the Collateral Agent, at the direction of the Trustee, shall apply or cause to be applied the Released Trust Moneys as directed and specified by PAI. 4.5 Powers Exercisable Notwithstanding Default or Event of Default. In case a Default either under the Indenture or the Term Loan Agreement or an Event of Default either under the Indenture or the Term Loan Agreement shall have occurred and shall be continuing, the Obligors, while in possession of the Collateral (other than cash, Cash Equivalents (as defined in the Indenture as in effect on the date hereof), securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent hereunder or under the Collateral Documents), may do any of the things enumerated in Sections 4.2, 4.3 and 4.4 hereof if the Majority Holders and Term Loan Note Majority Holders shall consent to such action, in which event any certificate filed under any of such Sections shall omit the statement to the effect that no Default either under the Indenture or the Term Loan Agreement or Event of Default either under the Indenture or the Term Loan Agreement has occurred and is continuing. This Section 4.5 shall not apply, however, during the continuance of an Event of Default (as defined in the Indenture) of the type specified in Section 501(1) or (2) of the Indenture or an Event of Default (as defined in the Term Loan Agreement) of the type specified in Section 8.1.1 of the Term Loan Agreement. 37 37 4.6 Powers Exercisable by Trustee or Receiver. In case the Collateral (other than any cash, Cash Equivalents, securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent hereunder or under the Collateral Documents) shall be in the possession of a receiver or trustee lawfully appointed, the powers hereinbefore in this Article 4 conferred upon the Obligors with respect to the withdrawal or application of Trust Moneys may be exercised by such receiver or trustee, in which case a certificate signed by such receiver or trustee shall be deemed the equivalent of any Officers' Certificate required by this Article. If the Collateral Agent shall be in possession of any of the Collateral hereunder or under any of the Collateral Documents, such powers may be exercised by the Collateral Agent in its discretion, provided, however, that the Collateral Agent shall not be required to exercise any such powers. ARTICLE 5 COLLATERAL ACCOUNT 5.1 Collateral Account. The Collateral Agent shall establish and maintain until all amounts due to all Secured Parties and the Quebec Secured Parties, as the case may be, have been paid to such Secured Parties and the Quebec Secured Parties, as the case may be, at the office of its corporate trust division, a separate collateral trust account (the "Collateral Account"), which may be a notional account, for the benefit of the Secured Parties and the Quebec Secured Parties, as the case may be. All funds on deposit in the Collateral Account shall be held, applied and disbursed by the Collateral Agent as part of the Trust Estate in accordance with the terms of this Agreement. 5.2 Investment of Funds. The Collateral Agent shall invest and reinvest moneys on deposit in the Collateral Account at any time in Eligible Investments (as defined in the Indenture as in effect on the date hereof) as directed in a writing from the Companies. The Companies shall bear the risk of loss on any such investment (including loss of principal) made hereunder and shall, upon demand of the Collateral Agent, deliver immediately available funds to the Collateral Agent in an amount equal to such loss or losses. ARTICLE 6 APPLICATION OF CERTAIN AMOUNTS UPON DEFAULT 6.1 Application of Trust Moneys upon Default. (a) If a Default either under the Indenture or the Term Loan Agreement 38 38 or an Event of Default either under the Indenture or the Term Loan Agreement has occurred and is continuing, and either the Indenture Obligation or the Term Loan Obligation has been accelerated, then upon the instructions of either the Note Majority Holders or the Term Loan Note Majority Holders, the Collateral Agent shall, as soon as practicable, apply the Trust Moneys and any Insurance Proceeds, Net Awards, Rents (as defined in the Security Documents) or other amounts or proceeds from the sale or other disposition of or realization upon any Collateral (including proceeds of any claim under the Title Opinions) as follows: first to the Collateral Agent's Fees and thereafter (i) to the Trustee in an amount equal to the product of (x) the total amount available for distribution on such Distribution Date under this Section 6.1 (such amount, "Total Net Proceeds") and (y) the Trustee's Pro Rata Share as of such Distribution Date and (ii) to the Term Loan Agent in an amount equal to the product of (x) Total Net Proceeds and (y) the Term Loan Agent's Pro Rata Share as of such Distribution Date. (b) Upon payment in full of all Collateral Agent's Fees and all Secured Obligations, any balance shall be paid by the Collateral Agent to PAI or the successors or assigns of PAI, as their interests may appear, or to such Person who may be lawfully entitled to receive the same. 6.2 Payment Provisions. For the purposes of Section 6.1, all interest accrued and unpaid on any of the Secured Obligations pursuant to the terms of any Debt Instrument shall, as between the Secured Parties and irrespective of whether recognized or allowed by any bankruptcy proceeding, be treated as due and owing on the Secured Obligations. 6.3 Foreclosure of Less than the Total Secured Obligations. In the event that the Collateral Agent is not authorized pursuant to Section 2.2(b) to accelerate the Secured Obligations as a whole in connection with an exercise of remedies with respect to the Collateral, and the Trustee or the Term Loan Agent, as the case may be, does not otherwise accelerate its respective obligation prior to the exercise of remedies by the Collateral Agent under the applicable Security Document, the proceeds of such exercise of remedies shall be applied, notwithstanding Section 6.1, solely to the obligation being accelerated. 39 39 ARTICLE 7 AGREEMENTS WITH COLLATERAL AGENT 7.1 Delivery of Debt Instruments. On the date hereof, each of the Companies shall deliver to the Collateral Agent a true and complete copy of each document evidencing or securing the Term Loan Obligation and the Indenture Obligation to which it is a party as in effect on the date hereof. Promptly upon the execution thereof, each of the Companies shall deliver to the Collateral Agent a true and complete copy of any and all amendments, modifications or supplements of or to any of the foregoing to which it is a party and copies of any such document or agreement it hereafter delivers. 7.2 Information as to Holders. The Companies shall deliver to the Collateral Agent on or before each anniversary of the date of this Agreement, and from time to time upon request of the Collateral Agent, a list setting forth, for the Term Loan Agreement and for the Indenture, (i) the aggregate principal amount outstanding thereunder, (ii) the interest rate or rates then in effect thereunder, and (iii) to the extent known to the Companies, the names of the Term Loan Lenders and Holders and the unpaid principal amount owing to each. The Companies shall furnish to the Collateral Agent within 30 days after the date hereof a list setting forth the name and address of each party to whom notices must be sent under the Term Loan Agreement and the Indenture, respectively, and the Companies shall furnish promptly to the Collateral Agent any changes or additions to such list. 7.3 Compensation and Expenses. The Companies shall pay to the Collateral Agent, from time to time upon demand, (i) compensation (which shall be reasonable and not in excess of the Collateral Agent's customary compensation for similar services and shall not be limited by any provision of law in regard to compensation of a trustee of an express trust) for its services hereunder and for administering the Trust Estate and (ii) all of the fees, costs and expenses of the Collateral Agent (including, without limitation, the reasonable fees and disbursements of its counsel) (a) arising in connection with the preparation, execution, delivery, modification and termination of this Agreement, and the enforcement of any provisions hereof, or (b) incurred or required to be advanced in connection with the administration of the Trust Estate, and the preservation, protection or defense of the Collateral Agent's rights under this Agreement under the Collateral Documents and in and to the Collateral and the Trust Estate. The obligations of the Companies under this Section 7.3 shall survive the termination of the other provisions of this Agreement. 40 40 7.4 Stamp and Other Similar Taxes. The Companies shall indemnify and hold harmless the Collateral Agent and each Secured Party (and each Person for whom any Secured Party acts as trustee, agent or fiduciary) from any present or future claim for liability for any filing, stamp, recording, intangibles or other similar tax and any penalties or interest with respect thereto, which may be assessed, levied or collected by any jurisdiction in connection with this Agreement, any Collateral Document or any Secured Obligation. The obligations of the Companies under this Section 7.4 shall survive the termination of the other provisions of this Agreement. 7.5 Filing Fees, Excise Taxes, etc. The Companies shall pay or reimburse the Collateral Agent for any and all amounts in respect of all search, filing, intangibles, transfer, recording, renewal and registration fees, taxes, excise taxes and other similar imposts which may be payable or determined to be payable in respect of the execution, delivery, performance and enforcement of this Agreement, any Collateral Document or any Secured Obligation to the extent the same may be paid or reimbursed by the Companies without subjecting the Collateral Agent or any Secured Party to any civil or criminal liability. The obligations of the Companies under this Section 7.5 shall survive the termination of the other provisions of this Agreement. 7.6 Indemnification. (a) The Companies agree to pay, indemnify, and hold the Collateral Agent harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and the Collateral Documents unless arising from the gross negligence or willful misconduct of the Collateral Agent. (b) In any suit, proceeding or action brought by the Collateral Agent with respect to the Collateral or for any sum owing in respect of Secured Obligations, or to enforce the provisions of any Collateral Document, the Companies shall save, indemnify and keep the Collateral Agent harmless from and against all expenses, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction of liability whatsoever incurred or suffered by the Collateral Agent arising out of a breach by the Companies of any obligation set forth in this Agreement, and all such obligations of the Companies shall be and remain enforceable against and only against the Companies. The provisions of this Section 7.6 shall survive the termination of the other provisions of this Agreement. 41 41 7.7 Further Assurances. At any time and from time to time, upon the written request of the Collateral Agent, and at the expense of the Companies, the Companies shall promptly execute and deliver any and all such further instruments and documents and take such further action as the Collateral Agent reasonably deems necessary or desirable in obtaining the full benefits intended to be provided by this Agreement. ARTICLE 8 COLLATERAL AGENT 8.1 Acceptance of Trust. The Collateral Agent, for itself and its successors, hereby accepts the trust created by this Agreement upon the terms and conditions hereof. The Collateral Agent's duties in respect of the Trust Estate shall include, without limitation, the review of applications of PCI Canada, PAI or others for consents, waivers, releases or other matters relating to the Trust Estate or the Collateral and the prosecution following any Event of Default under either the Indenture or the Term Loan Agreement of any action or proceeding or the taking of any nonjudicial remedial action as shall be determined to be required pursuant to Sections 2.2 and 2.3. The Collateral Agent shall forward copies of any written communication it receives from the Companies to the Secured Parties. 8.2 Exculpatory Provisions. (a) The Collateral Agent shall not be responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties made by the Companies herein or in any other Collateral Document. The Collateral Agent makes no representations as to the value or condition of the Trust Estate or any part thereof, or as to the title of PCI Canada or PAI, as applicable, thereto or as to the security afforded by the Collateral Documents or this Agreement or as to the validity, execution (except its own execution thereof), enforceability, legality or sufficiency of the Collateral Documents or this Agreement or of the Secured Obligations, and the Collateral Agent shall incur no liability or responsibility in respect of any such matters. The Collateral Agent shall not be responsible for insuring the Trust Estate or for the payment of taxes, charges, assessments or Liens upon the Trust Estate, except that, subject to the provisions of Section 8.4(c), in the event the Collateral Agent enters into possession of a part or all of the Collateral, the Collateral Agent shall use reasonable efforts to preserve the part in its possession. (b) The Collateral Agent shall not be required to ascertain or inquire as to the performance by any Obligor of any 42 42 of the covenants or agreements contained herein, in any Collateral Document or in any Debt Instrument or other document evidencing or securing the Secured Obligations. Whenever it is necessary, or in the opinion of the Collateral Agent advisable, for the Collateral Agent to ascertain the amount of Secured Obligations then held by a Secured Party (or any Person for whom a Secured Part acts as trustee, agent or fiduciary), the Collateral Agent may rely on a certificate as to such amount from any trustee, agent or fiduciary constituting or representing such Secured Party and if any such Secured Party shall not provide such information to the Collateral Agent, such Secured Party shall not be entitled to receive payments hereunder (in which case the amounts otherwise payable to such Secured Party shall be held in trust for such Secured Party in the Collateral Account) until such Secured Party has provided such information to the Collateral Agent. (c) The Collateral Agent shall not be personally liable for any action taken or omitted to be taken by it in accordance with this Agreement or any Collateral Document or any Debt Instrument or other document evidencing or securing the Secured Obligations except for its own gross negligence or willful misconduct. 8.3 Delegation of Duties. The Collateral Agent may execute any of the trusts or powers hereof and perform any duty hereunder either directly or by or through agents or attorneys-in-fact. The Collateral Agent shall be entitled to advice of counsel concerning all matters pertaining to such trusts, powers and duties. The Collateral Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it without gross negligence of willful misconduct in the employment of such agents or attorneys-in-fact. 8.4 Reliance by the Collateral Agent. (a) The Collateral Agent may consult with counsel, and any opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in accordance therewith. The Collateral Agent shall have the right at any time to seek instructions concerning the administration of the Trust Estate from any court of competent jurisdiction. (b) The Collateral Agent may rely, and shall be fully protected in acting, upon any resolution, statement, certificate, instrument, opinion, direction, instruction, report, notice, request, consent, order, bond or other paper or document which it has no reason to believe to be other than genuine and to have been signed or presented by the proper party or parties or, in the case of cables, telecopies and telexes, to have been sent by the proper party or parties. In the absence of its gross 43 43 negligence or willful misconduct, the Collateral Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Collateral Agent and conforming to the requirements of this Agreement or any Collateral Document. (c) The Collateral Agent shall not be under any obligation to exercise any of the rights or powers vested in the Collateral Agent by this Agreement unless the Collateral Agent shall have been provided adequate security and indemnity against the costs, expenses and liabilities that may be incurred by it in compliance with such request or direction, including, without limitation, such reasonable advances as may be requested by the Collateral Agent. Nothing in this Agreement shall obligate any Secured Party or any Person for whom a Secured Party acts as trustee, agent or fiduciary, as applicable to provide any such security or indemnity or to make any such advance unless such Secured Party or Person agrees to do so, in its sole discretion. 8.5 Resignation or Removal of the Collateral Agent. (a) The Collateral Agent may at any time, (i) by giving 60 days' prior written notice to the Secured Parties and the Companies, resign and be discharged of the responsibilities hereby created, such resignation to become effective upon the appointment of a successor collateral agent or collateral agents by the Majority Holders and the acceptance of such appointment by such successor collateral agent or collateral agents or (ii) be removed from its capacity as the Collateral Agent with or without cause by the Majority Holders. If no successor collateral agent or collateral agents shall be appointed and approved within 60 days from the date of the giving of the aforesaid notice of resignation or within 60 days from the date of such removal, the Collateral Agent (notwithstanding the termination of all of its other duties and obligations hereunder by reason of such resignation or such removal) shall, or any Secured Party may, apply to any court of competent jurisdiction to appoint a successor collateral agent or collateral agents to act hereunder. Any successor collateral agent or collateral agents so appointed by such court shall immediately and without further act be superseded by any successor collateral agent or collateral agents appointed by the Majority Holders upon the acceptance of such appointment by such successor collateral agent or collateral agents. (b) If at any time the Collateral Agent shall resign or otherwise become incapable of acting, or if at any time a vacancy shall occur in the office of the Collateral Agent by virtue of the removal of the Collateral Agent pursuant to clause (ii) of Section 8.5(a) or for any other cause, a successor collateral agent or collateral agents may be appointed by the Majority Holders, and the powers, duties, authority and title of 44 44 the predecessor collateral agent or collateral agents shall be terminated and cancelled without procuring the resignation of such predecessor collateral agent or collateral agents, and without any other formality (except as may be required by applicable law). (c) The appointment and designation referred to in Section 8.5(b) shall, after any required filing, be full evidence of the right and authority to make the same and of all the facts therein recited, and this Agreement shall vest in such successor collateral agent or collateral agents, without any further act, deed or conveyance, all of the estate and title of its predecessor or their predecessors, and upon such filing for record the successor collateral agent or collateral agents shall become fully vested with all the estates, properties, rights, powers, trusts, duties, authority and title of its predecessor or their predecessors; but such predecessor or predecessors shall, nevertheless, on the written request of the Majority Holders, the Companies or its or their successor collateral agent or collateral agents, execute and deliver an instrument transferring to such successor or successors all the estates, properties, rights, powers, trusts, duties, authority and title of such predecessor or predecessors hereunder. Each such predecessor or predecessors shall deliver all securities and moneys held by it or them to such successor collateral agent or collateral agents. (d) Any required filing for record of the instrument appointing a successor collateral agent or collateral agents as hereinabove provided shall be at the expense of the Companies. The resignation of any collateral agent or collateral agents and the instrument or instruments removing any collateral agent or collateral agents, together with all other instruments, deeds and conveyances provided for in this Article 8 shall, if required by law, be forthwith recorded, registered and filed by and at the expense of the Companies, wherever this Agreement is recorded, registered and filed. 8.6 Status of Successors to the Collateral Agent. Every successor to the Collateral Agent appointed pursuant to Section 8.5 shall be a bank or trust company in good standing and having power so to act, incorporated under the laws of the United States or any State thereof or the District of Columbia, and having its principal corporate trust office within the 48 contiguous States, and shall also have capital, surplus and undivided profits of not less than $100,000,000, if there be such an institution with such capital, surplus and undivided profits willing, qualified and able to accept the trust upon reasonable or customary terms. 8.7 Merger of the Collateral Agent. Any corporation into which the Collateral Agent may be merged, or with which it 45 45 may be consolidated, or any corporation resulting from any merger or consolidation to which the Collateral Agent shall be a party, shall be the Collateral Agent under this Agreement without the execution or filing of any paper or any further act on the part of the parties hereto. 8.8 Appointment of Additional and Separate Collateral Agent. Whenever (i) the Collateral Agent shall deem it necessary or prudent (in accordance with the advice or opinion of its counsel) in order to conform to any law of any jurisdiction in which all or any part of the Collateral shall be situated or to make any claim or bring any suit with respect to or in connection with the Collateral, or (ii) the Collateral Agent shall be advised by counsel satisfactory to it that it is so necessary or prudent in the interest of the Secured Parties, then, in any such case, the Collateral Agent shall execute and deliver from time to time all instruments and agreements necessary or proper to constitute another bank or trust company or one or more Persons approved by the Collateral Agent either to act as additional trustee or trustees of all or any part of the Trust Estate, jointly with the Collateral Agent, or to act as separate trustee or trustees of all or any part of the Trust Estate, in any such case with such powers as may be provided in such instruments or agreements, and to vest in such bank, trust company or Person as such additional trustee or separate trustee, as the case may be, any property, title, right or power of the Collateral Agent deemed necessary or advisable by the Collateral Agent. The Companies and the Secured Parties hereby consent to all actions taken by the Collateral Agent under the foregoing provisions of this Section 8.8. ARTICLE 9 CERTAIN INTERCREDITOR PROVISIONS 9.1 Contesting Liens or Security Interest. Each Company, the Collateral Agent, each Secured Party and, by acceptance of the benefits of this Agreement and the Collateral Documents, each Person for whom a Secured Party acts as trustee, agent or fiduciary, as applicable, hereby agree that (a) the liens and security interests granted to the Collateral Agent or to the Collateral Agent for its account and for the account of the Quebec Secured Parties, as the case may be, under the Collateral Documents shall be treated, as among the Secured Parties and the Quebec Secured Parties, as the case may be, and each of such Persons, as having equal priority and shall at all times be shared by the Secured Parties and the Quebec Secured Parties, as the case may be, as provided herein, regardless of any claim or defense (including, without limitation, any claims under the fraudulent transfer, preference or similar avoidance 46 46 provisions of applicable bankruptcy, insolvency or other laws affecting the rights of creditors generally) to which the Collateral Agent or any Secured Party or Quebec Secured Party, as the case may be, or any of such Persons may be entitled or subject and (b) none of them shall contest the validity, perfection, priority or enforceability of any lien or security interest granted to the Collateral Agent or any obligation secured by any such lien or security interest. 9.2 No Additional Rights for Companies Hereunder. If a Secured Party shall enforce its rights or remedies in violation of the terms of this Agreement, the Companies agree that they shall not raise such violation as a defense to collection or enforcement by the other Secured Party with respect to the Indenture Obligation or the Term Loan Obligation, as the case may be, or assert such violation as a counterclaim or basis for setoff or recoupment against either Secured Party. 9.3 Concerning Collateral Agent. Notwithstanding anything to the contrary set forth herein, no provision of this Agreement shall require the Collateral Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of any of its powers if it shall have reasonable grounds for believing repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. 9.4 Authority. Each of the parties hereto represents and warrants to all other parties hereto that the execution, delivery and performance by or on behalf of such party of this Agreement has been duly authorized by all necessary action, corporate or otherwise, does not violate any provision of law, governmental regulation, or any agreement or instrument by which such party is bound, and requires no governmental or other consent that has not been obtained and is not in full force and effect. ARTICLE 10 TERMINATION; EXPIRATION OF CERTAIN RIGHTS 10.1 Termination. This Agreement shall terminate when all amounts owing in respect of all the Secured Obligations shall have been paid in full in cash. 10.2 Amendment of Collateral Documents. Subject to the requirements of Sections 2.2, 3.2(c) and 4.5 hereof, the Majority Holders (provided that the Majority Holders include the Term Loan Note Majority Holders) shall have the exclusive authority to direct the Collateral Agent to amend, supplement or 47 47 waive any provision of any Collateral Document or to direct the Collateral Agent to forebear from enforcing any provision of any Collateral Document; provided, however, that no such amendment, supplement or waiver shall affect the right of any Secured Party (or any Person for whom a Secured Part acts as trustee, agent or fiduciary) not consenting thereto in writing to equal and ratable security under the Collateral Documents. In addition, no amendment or modification to any of the Collateral Documents shall impose any additional obligations or responsibilities upon any Secured Party or otherwise adversely effect its rights hereunder without the consent of each of the Secured Parties affected thereby. ARTICLE 11 MISCELLANEOUS 11.1 Amendments to Financing Arrangements or to This Agreement. The Collateral Agent, the Term Loan Agent and the Trustee shall each use its best efforts to notify the other or others of any amendment, modification or waiver to any document evidencing or securing the Secured Obligations, but the failure to do so shall not create a cause of action against the party failing to give such notice or create any claim or right on behalf of any third party. Each of the parties shall, upon request of the other or others, provide copies of all such modifications, amendments and waivers and copies of all other documentation relevant to the Collateral. All modifications, amendments and waivers of this Agreement must be in writing and duly executed by an authorized officer of the Collateral Agent and each Secured Party to be binding and enforceable, and the written consent of the Companies shall be required only if the amendment, modification or waiver would impose, or have the effect of imposing, on the Companies, more restrictive covenants or greater obligations than those applicable to the Companies under this Agreement, which consent shall not be unreasonably withheld, provided, however, the written consent of the Companies shall not be required with respect to an amendment of this Agreement pursuant to Section 3.11. 11.2 Notices, Distributions and Payments. (a) In each case herein or in any Collateral Document where any payment or distribution is to be made or notice is to be given to Secured Parties, (i) such payments, distributions and notices in respect of the Indenture Obligations shall be made to the Trustee for the benefit of the Holders and (ii) such payments, distributions and notices in respect of the Term Loan Obligations shall be made to the Term Loan Agent for the benefit of the Term Loan Lenders. 48 48 (b) All notices requests, demands and other communications provided for or permitted hereunder shall be in writing (including telex and telecopy communications) and shall be sent by mail, telex, telecopier or hand delivery: (i) If to any of the Companies, to such Company at the following address: 4200 NationsBank Center 700 Louisiana Street Houston, Texas 77002 Attention: Vice President, General Counsel and Secretary (ii) If to the Collateral Agent, to the following address: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department (iii) If to the Trustee, to the following address: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department (iv) If to the Term Loan Agent, to the following address: Bank of America National Trust and Savings Association 231 South LaSalle Street 8th Floor Chicago, Illinois 60697 Attention: Agency Management Services (v) If to the Agent Bank, to the following address: Bank of America National Trust and Savings Association 231 South LaSalle Street 8th Floor Chicago, Illinois 60697 Attention: Agency Management Services 49 49 All such notices, requests, demands and communications shall be deemed to have been duly given or made, when delivered by hand or five business days after being deposited in the mail, postage paid, when telexed answer back received and when telecopied, receipt acknowledged. Any party hereto may change its address set forth in this Section 11.2(b) by notice to the other parties given in accordance with the provisions of this Section 11.2(b). 11.3 Headings. Headings used in this Agreement are for convenience only and shall not affect the construction of this Agreement. 11.4 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11.5 Dealings with the Companies. Upon any application or demand by the Companies to the Collateral Agent to take or permit any action under any of the provisions of this Agreement or under any Collateral Document, the Companies shall furnish to the Collateral Agent an officers' certificate and opinion of counsel stating that all conditions precedent, if any, provided for in this Agreement or such Collateral Document, as the case may be, relating to the proposed action have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Agreement or any Collateral Document relating to such particular application or demand, no additional certificate or opinion need be furnished. 11.6 Binding Effect. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and shall inure to the benefit of the Secured Parties (and the Persons for whom the Secured Parties act as trustee, agent or fiduciary, as applicable) and their respective successors and assigns and nothing herein or in any Collateral Document is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Agreement, the Collateral or the Trust Estate. 11.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 11.8 Counterparts. This Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. 50 50 11.9 Execution by Agent Bank. The Agent Bank has executed and delivered this Agreement solely for purposes of agreeing to, and receiving the benefits of, the provisions of Section 2.2(c) and (d) hereof. 11.10 FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) IN THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE OBLIGORS HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY, AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE (AND, IN ANY SUIT BY THE COLLATERAL AGENT, SEEKING ENFORCEMENT AGAINST COLLATERAL OR OTHER PROPERTY, TO THE JURISDICTION OF THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR PROPERTY MAY BE FOUND) AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE OBLIGORS IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH OBLIGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY OBLIGOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH OBLIGOR HEREBY IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT. 11.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO. EACH OBLIGOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION HEREOF AND OF EACH OTHER DOCUMENT 51 51 DESCRIBED HEREIN TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE COLLATERAL AGENT AND SECURED PARTIES ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER DOCUMENT. [Signature page follows.] 52 IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By /s/ PATRICIA STERMER --------------------------------- Name: PATRICIA STERMER Title: ASSISTANT VICE PRESIDENT BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Term Loan Agent By /s/ DAVID A. JOHANSON --------------------------------- Name: David A. Johanson Title: Vice President UNITED STATES TRUST COMPANY OF NEW YORK, as Collateral Agent By /s/ PATRICIA STERMER --------------------------------- Name: PATRICIA STERMER Title: ASSISTANT VICE PRESIDENT PCI CHEMICALS CANADA INC. By /s/ PHILIP J. ABLOVE --------------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer PIONEER AMERICAS ACQUISITION CORP. By /s/ PHILIP J. ABLOVE --------------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer PIONEER AMERICAS, INC. By /s/ PHILIP J. ABLOVE --------------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent Bank By /s/ DAVID A. JOHANSON --------------------------------- Name: David A. Johanson Title: Vice President EX-4.11 13 EXCHANGE AND REGISTRATION RIGHTS AGMT - 11/05/97 1 EXHIBIT 4.11 EXECUTION COPY ================================================================================ EXCHANGE AND REGISTRATION RIGHTS AGREEMENT Dated as of November 5, 1997 by and among PCI Chemicals Canada Inc. The Guarantors listed on Schedule I hereto and Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc ================================================================================ 2 This Registration Rights Agreement (this "AGREEMENT") is made and entered into as of November 5, 1997 by and among PCI Chemicals Canada Inc., a New Brunswick corporation (the "COMPANY"), the companies listed on Schedule I hereto (each a "GUARANTOR" and, collectively, the "GUARANTORS"), and Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc (each an "INITIAL PURCHASER" and, collectively, the "INITIAL PURCHASERS"), each of whom has agreed to purchase the Company's 9 1/4% Senior Secured Notes due 2007 (the "SERIES A NOTES") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the Purchase Agreement, dated October 22, 1997 (the "PURCHASE AGREEMENT"), by and among the Company, the Guarantors and the Initial Purchasers. In order to induce the Initial Purchasers to purchase the Series A Notes, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers set forth in Section 2 of the Purchase Agreement. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to them in the Indenture (the "INDENTURE"), dated as of October 30, 1997, among the Company, the Guarantors, and United States Trust Company of New York, as Trustee, relating to the Series A Notes and the Series B Notes (as defined). The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: ACT: The Securities Act of 1933, as amended. AFFILIATE: As defined in Rule 144 of the Act. BROKER-DEALER: Any broker or dealer registered under the Exchange Act. BUSINESS DAY: Each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York or The New York Stock Exchange are authorized or obligated by law or executive order to close. CERTIFICATED SECURITIES: Physical Securities, as defined in the Indenture. CLOSING DATE: The date hereof. COMMISSION: The Securities and Exchange Commission. CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (a) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Series B Notes to be issued in the Exchange Offer, (b) the maintaining of such Exchange Offer Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the period required pursuant to Section 3(b) hereof and (c) the delivery by the Company to the Registrar under the Indenture of Series B Notes in the same aggregate principal amount as the aggregate principal amount of Series A Notes tendered by Holders thereof pursuant to the Exchange Offer. EFFECTIVENESS DEADLINE: As defined in Section 3(a) and 4(a) hereof. 3 EXCHANGE ACT: The Securities Exchange Act of 1934, as amended. EXCHANGE OFFER: The exchange and issuance by the Company of a principal amount of Series B Notes (which shall be registered pursuant to the Exchange Offer Registration Statement) equal to the outstanding principal amount of Series A Notes that are tendered by such Holders in connection with such exchange and issuance. EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement relating to the Exchange Offer, including the related Prospectus. EXEMPT RESALES: The transactions in which the Initial Purchasers propose to sell the Series A Notes to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act. FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof. HOLDERS: As defined in Section 2 hereof. PROSPECTUS: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and including all material incorporated by reference into such Prospectus. RECOMMENCEMENT DATE: As defined in Section 6(d) hereof. REGISTRATION DEFAULT: As defined in Section 5 hereof. REGISTRATION STATEMENT: Any registration statement of the Company and the Guarantors relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, in each case, (i) that is filed pursuant to the provisions of this Agreement and (ii) including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. RESTRICTED BROKER-DEALER: Any Broker-Dealer that holds Series B Notes that were acquired in the Exchange Offer in exchange for Series A Notes that such Broker-Dealer acquired for its own account as a result of market making activities or other trading activities (other than Series A Notes acquired directly from the Company or any of its affiliates). RULE 144: Rule 144 promulgated under the Act. SERIES B NOTES: The Company's 9 1/4% Senior Secured Notes due 2007 to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as contemplated by Section 4 hereof. SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof. SUSPENSION NOTICE: As defined in Section 6(d) hereof. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. 2 4 TRANSFER RESTRICTED SECURITIES: Each Note, until the earliest to occur of (a) the date on which such Note is exchanged in the Exchange Offer and entitled to be resold to the public by the Holder thereof without complying with the prospectus delivery requirements of the Act, (b) the date on which such Note has been disposed of in accordance with a Shelf Registration Statement, (c) the date on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including delivery of the Prospectus contained therein) or (d) the date on which such Note is distributed to the public pursuant to Rule 144 under the Act. SECTION 2. HOLDERS A Person is deemed to be a holder of Transfer Restricted Securities (each, a "HOLDER") whenever such Person owns Transfer Restricted Securities. SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permitted by applicable federal law (after the procedures set forth in Section 6(a)(i) below have been complied with), the Company and the Guarantors shall (i) cause the Exchange Offer Registration Statement to be filed with the Commission as soon as practicable after the Closing Date (the "EXCHANGE OFFER FILING DATE"), but in no event later than 30 days after the Closing Date (such 30th day being the "FILING DEADLINE"), (ii) use its best efforts to cause such Exchange Offer Registration Statement to become effective at the earliest possible time, but in no event later than 150 days after the Closing Date (such 150th day being the "EFFECTIVENESS DEADLINE"), (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause it to become effective, (B) file, if applicable, a post-effective amendment to such Exchange Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings, if any, in connection with the registration and qualification of the Series B Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer Registration Statement, commence and Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting registration of the Series B Notes to be offered in exchange for the Series A Notes that are Transfer Restricted Securities and to permit resales of Series B Notes by Broker-Dealers that tendered into the Exchange Offer Series A Notes that such Broker-Dealer acquired for its own account as a result of market making activities or other trading activities (other than Series A Notes acquired directly from the Company or any of its Affiliates) as contemplated by Section 3(c) below. (b) The Company and the Guarantors shall use their respective best efforts to cause the Exchange Offer Registration Statement to be declared effective, and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 Business Days. The Company and the Guarantors shall cause the Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the Series B Notes shall be included in the Exchange Offer Registration Statement. The Company and the Guarantors shall use their respective best efforts to cause the Exchange Offer to be Consummated on the earliest practicable date after the Exchange Offer Registration Statement has become effective, but in no event later than 30 Business Days thereafter. (c) The Company shall include a "Plan of Distribution" section in the Prospectus contained in the Exchange Offer Registration Statement and indicate therein that any Broker-Dealer who holds Transfer Restricted Securities that were acquired for the account of such Broker-Dealer as a result of market-making activities or other trading activities (other than Transfer Restricted Securities acquired directly 3 5 from the Company or any Affiliate of the Company), may exchange such Transfer Restricted Securities pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with its initial sale of any Series B Notes received by such Broker-Dealer in the Exchange Offer and that the Prospectus contained in the Exchange Offer Registration Statement may be used to satisfy such prospectus delivery requirement. Such "Plan of Distribution" section shall also contain all other information with respect to such sales by such Broker-Dealers that the Commission may require in order to permit such sales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker- Dealer or disclose the amount of Transfer Restricted Securities held by any such Broker-Dealer, except to the extent required by the Commission as a result of a change in policy, rules or regulations after the date of this Agreement. To the extent necessary to ensure that the Exchange Offer Registration Statement is available for sales of Series B Notes by Broker-Dealers, the Company and the Guarantors agree to use their respective best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 6(c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of 180 days (or such longer period if extended pursuant to Section 6(d) below) from the date on which the Exchange Offer is Consummated, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold pursuant thereto. The Company and the Guarantors shall promptly provide sufficient copies of the latest version of such Prospectus to such Broker-Dealers promptly upon request, and in no event later than one Business Day after such request, at any time during such period. SECTION 4. SHELF REGISTRATION (a) Shelf Registration. If (i) the Exchange Offer is not permitted by applicable law (after the Company and the Guarantors have complied with the procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer Restricted Securities shall notify the Company within 10 Business Days following the Consummation of the Exchange Offer that (A) such Holder was prohibited by law or Commission policy from participating in the Exchange Offer or (B) such Holder may not resell the Series B Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A Notes acquired directly from the Company or any of its Affiliates, then the Company and the Guarantors shall: (x) cause to be filed, on or prior to 30 days after the earlier of (i) the date on which the Company determines that the Exchange Offer Registration Statement cannot be filed as a result of clause (a)(i) above and (ii) the date on which the Company receives the notice specified in clause (a) (ii) above, (such earlier date, the "FILING DEADLINE"), a shelf registration statement pursuant to Rule 415 under the Act (which may be an amendment to the Exchange Offer Registration Statement (the "SHELF REGISTRATION STATEMENT")), relating to all Transfer Restricted Securities, and (y) shall use their respective best efforts to cause such Shelf Registration Statement to become effective on or prior to 150 days after the Filing Deadline (such 150th day the "EFFECTIVENESS DEADLINE"). If, after the Company has filed an Exchange Offer Registration Statement that satisfies the requirements of Section 3(a) above, the Company is required to file and make effective a Shelf 4 6 Registration Statement solely because the Exchange Offer is not permitted under applicable federal law, then the filing of the Exchange Offer Registration Statement shall be deemed to satisfy the requirements of clause (x) above; provided that, in such event, the Company shall remain obligated to meet the Effectiveness Deadline set forth in clause (y). The Company and the Guarantors shall use their respective best efforts to keep any Shelf Registration Statement required by this Section 4(a) effective, supplemented and amended as required by and subject to the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is available for sales of Transfer Restricted Securities by the Holders thereof entitled to the benefit of this Section 4(a), and to ensure that it conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least two years (as extended pursuant to Section 6(d)) following the date on which such Shelf Registration Statement first became effective under the Act, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Shelf Registration Statement have been sold pursuant thereto. (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 15 Business Days after receipt of a request therefor, the information specified in Item 507 or 508 of Regulation S-K, as applicable, of the Act for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to liquidated damages pursuant to Section 5 hereof unless and until such Holder shall have provided all such information. Each selling Holder agrees to promptly furnish additional information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. SECTION 5. LIQUIDATED DAMAGES If (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable Filing Deadline, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not been Consummated within 30 Business Days after the Exchange Offer Registration Statement is first declared effective by the Commission or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose for a period of 15 consecutive days without being succeeded immediately by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective (each such event referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the Company and the Guarantors hereby jointly and severally agree to pay to each Holder of Transfer Restricted Securities affected thereby liquidated damages in an amount equal to $.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.50 per week per $1,000 in principal amount of Transfer Restricted Securities; provided that the Company and the Guarantors shall in no event be required to pay liquidated damages for more than one Registration Default at any given time. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if 5 7 applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-effective amendment to the Registration Statement or an additional Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable in the case of (iv) above, the liquidated damages payable with respect to the Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease. All accrued liquidated damages shall be paid to the Holders entitled thereto, in the manner provided for the payment of interest in the Indenture, on each Interest Payment Date, as more fully set forth in the Indenture and the Notes. All obligations of the Company and the Guarantors set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such security shall have been satisfied in full. SECTION 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Company and the Guarantors shall comply with all applicable provisions of Section 6(c) below, shall use their respective best efforts to effect such exchange and to permit the resale of Series B Notes by Broker-Dealers that tendered in the Exchange Offer Series A Notes that such Broker-Dealer acquired for its own account as a result of its market making activities or other trading activities (other than Series A Notes acquired directly from the Company or any of its Affiliates) being sold in accordance with the intended method or methods of distribution thereof, and shall comply with all of the following provisions: (i) If, following the date hereof there has been announced a change in Commission policy with respect to exchange offers such as the Exchange Offer, that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Exchange Offer is permitted by applicable federal law, the Company and the Guarantors hereby agree to seek a no-action letter or other favorable decision from the Commission allowing the Company and the Guarantors to Consummate an Exchange Offer for such Transfer Restricted Securities. The Company and the Guarantors hereby agree to pursue the issuance of such a decision to the Commission staff level. In connection with the foregoing, the Company and the Guarantors hereby agree to take all such other actions as may be reasonably requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (A) participating in telephonic conferences with the Commission, (B) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursuing a resolution (which need not be favorable) by the Commission staff. (ii) As a condition to its participation in the Exchange Offer, each Holder of Transfer Restricted Securities (including, without limitation, any Holder who is a Broker Dealer) shall furnish, upon the request of the Company, prior to the Consummation of the Exchange Offer, a written representation to the Company and the Guarantors (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an Affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Series B Notes to be issued in the Exchange Offer and (C) it is acquiring the Series B Notes in its ordinary course of business. Each Holder using the Exchange Offer to participate in a distribution of the Series B Notes hereby acknowledges and agrees that, if the resales are of Series B Notes obtained 6 8 by such Holder in exchange for Series A Notes acquired directly from the Company or an Affiliate thereof, it (1) could not, under Commission policy as in effect on the date of this Agreement, rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling (available July 2, 1993), and similar no-action letters (including, if applicable, any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, the Company and the Guarantors shall provide a supplemental letter to the Commission (A) stating that the Company and the Guarantors are registering the Exchange Offer in reliance on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as interpreted in the Commission's letter to Shearman & Sterling (available July 2, 1993), and, if applicable, any no-action letter obtained pursuant to clause (i) above, (B) including a representation that neither the Company nor any Guarantor has entered into any arrangement or understanding with any Person to distribute the Series B Notes to be received in the Exchange Offer and that, to the best of the Company's and each Guarantor's information and belief, each Holder participating in the Exchange Offer is acquiring the Series B Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Series B Notes received in the Exchange Offer and (C) any other undertaking or representation required by the Commission as set forth in any no-action letter obtained pursuant to clause (i) above, if applicable. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company and the Guarantors shall comply with all the provisions of Section 6(c) below and shall use their respective best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (as indicated in the information furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company and the Guarantors will prepare and file with the Commission a Shelf Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof within the time periods and otherwise in accordance with the provisions hereof. (c) General Provisions. In connection with any Registration Statement and any related Prospectus required by this Agreement, the Company and the Guarantors shall: (i) use their respective best efforts to keep such Registration Statement effective and provide all requisite financial statements for the period specified in Section 3 or 4 of this Agreement, as applicable; upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, file promptly an appropriate amendment to such Registration Statement curing such defect, and, if Commission review is required, use their respective best efforts to cause such amendment to be declared effective as soon as practicable; (ii) prepare and file with the Commission such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep such Registration Statement 7 9 effective for the applicable period set forth in Section 3 or 4 hereof, as the case may be; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply with Rules 424, 430A and 462, as applicable, under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) advise the selling Holders (to the extent known by the Company) and Initial Purchasers promptly and, if requested by such Persons, confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any applicable Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; if at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, use their respective best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) subject to Section 6(c)(i), if any fact or event contemplated by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (v) furnish to the Initial Purchasers and each selling Holder named in any Registration Statement or Prospectus in connection with such exchange or sale, if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such Persons in connection with such sale, if any, for a period of at least five Business Days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which such Persons shall reasonably object within five Business Days after the receipt thereof; such Persons shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or 8 10 omission or fails to comply with the applicable requirements of the Act (except with respect to information provided by the Holders or the Initial Purchasers for use therein); (vi) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document to the selling Holders and Initial Purchasers in connection with such exchange or sale, if any, make the Company's and the Guarantors' representatives available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof, in each case as such Persons may reasonably request (except to the extent any such information requested to be included would in the reasonable judgment of the Company make the statements therein misleading); (vii) make available at reasonable times for inspection by the selling Holders participating in any disposition pursuant to such Registration Statement and Initial Purchasers and any attorney or accountant retained by such Persons, all financial and other records, pertinent corporate documents of the Company and the Guarantors and cause the Company's and the Guarantors' officers, directors and employees to supply all information reasonably requested by any such Persons, attorney or accountant in connection with such Registration Statement or any post- effective amendment thereto subsequent to the filing thereof and prior to its effectiveness; (viii) if requested by any selling Holders in connection with such exchange or sale or any Initial Purchasers, in connection with market making activities, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders and Initial Purchasers may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities and the use of the Registration Statement or Prospectus for market making activities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (ix) furnish to each selling Holder so requesting, in connection with such exchange or sale, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (x) deliver to each selling Holder so requesting, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such selling Holder reasonably may request; the Company and the Guarantors hereby consent to the use (in accordance with law) of the Prospectus and any amendment or supplement thereto by each of the selling Holders in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (xi) upon the request of any selling Holder, enter into such agreements (including underwriting agreements) and make such representations and warranties and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any Shelf Registration Statement contemplated by this Agreement as may be reasonably requested by any Holder of Transfer Restricted Securities in connection with any sale or resale pursuant to any Shelf Registration Statement. In such connection, the Company and the Guarantors shall: 9 11 (A) upon request of any selling Holder, furnish (or in the case of paragraphs (2) and (3), use its best efforts to cause to be furnished) to each selling Holder, upon the effectiveness of the Shelf Registration Statement; (1) a certificate, dated such date, signed on behalf of the Company and each Guarantor by (x) the President or any Vice President and (y) a principal financial or accounting officer of the Company and each Guarantor, confirming, as of the date thereof, the matters set forth in paragraphs (a) through (c) of Section 9 of the Purchase Agreement and such other similar matters as the selling Holders may reasonably request; (2) an opinion, dated the date of effectiveness of the Shelf Registration Statement, of counsel for the Company and the Guarantors covering matters similar to those set forth in paragraph (e) of Section 9 of the Purchase Agreement and such other matter as the selling Holders may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Company and the Guarantors, representatives of the independent public accountants for the Company and the Guarantors and have considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing (relying as to materiality to the extent such counsel deems appropriate upon the statements of officers and other representatives of the Company and the Guarantors and without independent check or verification), no facts came to such counsel's attention that caused such counsel to believe that the Shelf Registration Statement, at the time such Shelf Registration Statement or any post-effective amendment thereto became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Registration Statement as of its date, as of the date of Consummation, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in any Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter, dated the date of effectiveness of the Shelf Registration Statement, as the case may be, from the Company's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 9(s) of the Purchase Agreement; and (B) deliver such other documents and certificates as may be reasonably requested by the selling Holders to evidence compliance with clause (A) above and with any customary conditions contained in any agreement entered into by the Company and the Guarantors pursuant to this clause (xi); (xii) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders may request and do any and all other acts or things necessary or advisable to enable the disposition 10 12 in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; provided, however, that neither the Company nor any Guarantor shall be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, in any jurisdiction where it is not now so subject; (xiii) issue, upon the request of any Holder of Series A Notes covered by any Shelf Registration Statement contemplated by this Agreement, Series B Notes having an aggregate principal amount equal to the aggregate principal amount of Series A Notes surrendered to the Company by such Holder in exchange therefor or being sold by such Holder; such Series B Notes to be registered in the name of such Holder or in the name of the purchaser(s) of such Series B Notes, as the case may be; in return, the Series A Notes held by such Holder shall be surrendered to the Company for cancellation; (xiv) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and to register such Transfer Restricted Securities in such denominations and such names as the selling Holders may request at least two Business Days prior to such sale of Transfer Restricted Securities; (xv) use their respective best efforts to cause the disposition of the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xii) above; (xvi) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of a Registration Statement covering such Transfer Restricted Securities and provide the Trustee under the Indenture with printed certificates, if so requested, for the Transfer Restricted Securities which are in a form eligible for deposit with The Depository Trust Company; (xvii) otherwise use their respective best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders with regard to any applicable Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) covering a twelve-month period beginning after the effective date of the Registration Statement (as such term is defined in paragraph (c) of Rule 158 under the Act); (xviii) make appropriate officers of the Company reasonably available to the selling Holders for meetings with prospective purchasers of the Transfer Restricted Securities and prepare and present to potential investors customary "road show" material in a manner consistent with other new issuances of other securities similar to the Transfer Restricted Securities; and (xix) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement and, in connection therewith, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use its best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and 11 13 all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; and (xx) provide promptly to each Holder and Initial Purchaser upon request each document filed with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act. (d) Restrictions on Holders. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of the notice referred to in Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a "SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such Holder's possession which have been replaced by the Company with more recently dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Suspension Notice. The time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of days equal to the number of days in the period from and including the date of delivery of the Suspension Notice to the date of delivery of the Recommencement Date. SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Company's and the Guarantors' performance of or compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Series B Notes to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company, the Guarantors and, with respect to a Shelf Registration Statement only, the Holders of Transfer Restricted Securities; and (v) all fees and disbursements of independent certified public accountants of the Company and the Guarantors (including the expenses of any special audit and comfort letters required by or incident to such performance). Notwithstanding the foregoing or anything in this Agreement to the contrary, each Holder of Transfer Restricted Securities being registered shall pay all commissions, placement agent fees and underwriting discounts and commissions with respect to any Transfer Restricted Securities sold by it and the fees and disbursements of any counsel, other than as set forth in clause (iv) above and paragraph (b) below. The Company will, in any event, bear its and the Guarantors' internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company or the Guarantors. (b) In connection with any Shelf Registration Statement required by this Agreement, the Company and the Guarantors will reimburse the Initial Purchasers and the Holders of Transfer Restricted 12 14 Securities resold pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement, for the reasonable fees and disbursements of not more than one counsel, who shall be Milbank, Tweed, Hadley & McCloy, unless another firm shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 8. INDEMNIFICATION (a) The Company and the Guarantors agree, jointly and severally, to indemnify and hold harmless each Holder, its directors, its officers and each Person, if any, who controls such Holder (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) (each, an "INDEMNIFIED HOLDER"), from and against any and all losses, claims, damages, liabilities and judgments (including without limitation, any legal or other expenses reasonably incurred in connection with investigating or defending any matter, including any action that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Company or any Guarantor to any holder or any prospective purchaser of Series B Notes, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to the Company by such Holder; provided, however, that the indemnity obligations arising under this Section 8(a) with respect to a specific untrue statement or omission or alleged untrue statement or omission of a material fact in any preliminary Prospectus shall not inure to the benefit of any Indemnified Holder if the person asserting any losses, claims, damages, liabilities or judgments with respect to such untrue statement or omission purchased the Series A Notes and Subsidiary Guarantees from such Indemnified Holder and if it is established in the related proceeding that a copy (provided, that the Company and the Guarantors have complied with their obligations under Section 6(c)(x) hereof) of a final Prospectus was not sent or given by or on behalf of such Indemnified Holder to such person at or prior to the written confirmation of the sale of the Series A Notes or Series B Notes and Subsidiary Guarantees to such person if required by applicable law, and if the final Prospectus would have cured the untrue statement or omission giving rise to such losses, claims, damages, liabilities and judgments; provided, further, that the Company and the Guarantors shall not be relieved thereby by their indemnity obligation with respect to any other untrue statement or omission or alleged untrue statement or omission of a material fact. (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Company and the Guarantors, and their respective directors and officers, and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company or the Guarantors to the same extent as the foregoing indemnity from the Company and the Guarantors to each of the Indemnified Holders, but only with reference to information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any Registration Statement. In no event shall any Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. 13 15 (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), an Indemnified Holder shall not be required to assume the defense of such action pursuant to this Section 8(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Indemnified Holder). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by a majority of the Indemnified Holders, in the case of the parties indemnified pursuant to Section 8(a), and by the Company, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with the written consent of the indemnifying party or (ii) effected without the written consent of the indemnifying party if the settlement is entered into more than twenty Business Days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent that the indemnification provided for in this Section 8 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors, on the one hand, and the Holders, on the other hand, from their sale of Transfer Restricted Securities or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Guarantors, on the one hand, and of 14 16 the Indemnified Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company and the Guarantors, on the one hand, and of the Indemnified Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such Guarantor, on the one hand, or by the Indemnified Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and judgments referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Company, the Guarantors and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such indemnified party in connection with investigating or defending any matter, including any action that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 8, no Holder or its related Indemnified Holders shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total amount received by such Holder with respect to the sale of its Transfer Restricted Securities pursuant to a Registration Statement exceeds the sum of (A) the amount paid by such Holder for such Transfer Restricted Securities plus (B) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(d) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each of the Holders hereunder and not joint. (e) The remedies provided for in this Section 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. SECTION 9. RULE 144 AND RULE 144A The Company and each Guarantor agree with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company or such Guarantor (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder of Transfer Restricted Securities, to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. 15 17 SECTION 10. MISCELLANEOUS (a) Remedies. The Company and the Guarantors acknowledge and agree that any failure by the Company and/or the Guarantors to comply with their respective obligations under Sections 3 and 4 hereof may result in material irreparable injury to the Initial Purchasers or the Holders 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 any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's and the Guarantor's obligations under Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. Neither the Company nor any Guarantor will, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Neither the Company nor any Guarantor has previously entered into any agreement granting any registration rights with respect to its outstanding securities (other than the Exchange and Registration Rights Agreement dated as of June 17, 1997, entered into with respect to the Company's 9 1/4% Senior Secured Notes due 2007) to any Person. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's and the Guarantors' securities under any agreement in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless (i) in the case of Section 5 hereof and this Section 10(c)(i), the Company has obtained the written consent of Holders of all outstanding Transfer Restricted Securities and (ii) in the case of all other provisions hereof, the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding Transfer Restricted Securities held by the Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose securities are being tendered pursuant to the Exchange Offer and that does not affect directly or indirectly the rights of other Holders whose securities are not being tendered pursuant to such Exchange Offer may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities subject to such Exchange Offer. (d) Third Party Beneficiary. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect the rights of Holders hereunder. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; 16 18 (ii) if to the Company or the Guarantors, at: PCI Chemicals Canada Inc. 4300 NationsBank Center 700 Louisiana Street Houston, Texas 77002 Attention: General Counsel All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. Upon the date of filing of the Exchange Offer or a Shelf Registration Statement, as the case may be, notice shall be delivered to Donaldson, Lufkin & Jenrette Securities Corporation, on behalf of the Initial Purchasers (in the form attached hereto as Exhibit A) and shall be addressed to: Attention: Louise Guarneri (Compliance Department), 277 Park Avenue, New York, New York 10172. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 17 19 (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (signature pages follow) 18 20 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. PCI CHEMICALS CANADA INC. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer PIONEER AMERICAS ACQUISITION CORP. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer PIONEER AMERICAS, INC. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer PIONEER CHLOR ALKALI COMPANY, INC. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer IMPERIAL WEST CHEMICAL CO. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer 21 ALL-PURE CHEMICAL CO. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer BLACK MOUNTAIN POWER COMPANY By: By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer ALL PURE CHEMICAL NORTHWEST, INC. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer PIONEER CHLOR ALKALI INTERNATIONAL, INC. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer G.O.W. CORPORATION By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer PIONEER (EAST), INC. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President 22 T.C. HOLDINGS, INC. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer T.C. PRODUCTS, INC. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer PCI CAROLINA, INC. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President and Chief Financial Officer PIONEER LICENSING, INC. By: /s/ PHILIP J. ABLOVE ----------------------------- Name: Philip J. Ablove Title: Vice President Accepted as of the date hereof: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION SALOMON BROTHERS INC By: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: [ILLEGIBLE] ----------------------------- Name: Title: 23 SCHEDULE 1 Guarantors Pioneer Americas Acquisition Corp. Pioneer Americas, Inc. Pioneer Chlor Alkali Company, Inc. Imperial West Chemical Co. All-Pure Chemical Co. Black Mountain Power Company All Pure Chemical Northwest, Inc. Pioneer Chlor Alkali International, Inc. G.O.W. Corporation Pioneer (East), Inc. T.C. Holdings, Inc. T.C. Products, Inc. PCI Carolina, Inc. Pioneer Licensing, Inc. 22 EX-10.11 14 NON-QUALIFIFED STOCK OPTION AGMT - 05/15/97 1 EXHIBIT 10.11 PIONEER COMPANIES, INC. NON-QUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 15th day of May, 1997, by and between Pioneer Companies, Inc., a Delaware corporation (the "Company") and Andrew M. Bursky (the "Optionee"). W I T N E S S E T H : WHEREAS, the Optionee is a director of the Company of the Company and in such capacity provides services to the Company and its subsidiaries, and the Company desires to have him continue to provide such services 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, the Company hereby grants to the Optionee, during the period commencing on the date of this Agreement and ending on May 15, 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 an aggregate of 85,000 shares of Stock at a price of $5.56 per share. The Options granted hereunder shall be "nonqualified stock options" within the meaning of the regulations adopted under Section 89 of the Internal Revenue Code of 1986, as amended. 2. Limitations on Exercise of Option. (a) Subject to the terms and conditions set forth herein, the Optionee may exercise 40,000 of the Options on May 15, 1998, with none being exercisable prior to such date, an additional 20,000 on May 15, 1999, an additional 20,000 on May 15, 2000, and an additional 5,000 on May 15, 2001. (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 Company, or (ii) if Optionee's service as a director of the Company 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 2 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 as a Director. (a) If the Optionee's service as a director shall cease 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 service as a director of the Company (i) on account of Disability; (ii) with the written approval of the Board of Directors of the Company (the "Board"); or (iii) by the Board without Cause. For purposes of the preceding sentence, (I) "Disability" shall mean the complete and permanent inability by reason of illness or accident to perform the duties of a member of the Board, and (II) "Cause" shall mean the Board having cause to terminate the Optionee's service as a director upon (A) the determination by the Board that the Optionee has ceased to perform his duties to the Company (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 the Company, (B) the Board's determination that the Optionee has engaged or is about to engage in conduct materially injurious to the Company or a 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. 2 3 (c) If the Optionee terminates his service as a director for reasons other than death or Normal Termination, the Options, to the extent not exercised prior to such termination, shall lapse and be cancelled. (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 the Optionee's service as a director has been or could have been terminated for the purposes of this Agreement, and the reasons therefor, shall be determined by the Board, 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 Board 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 Board, 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 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 3 4 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 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 Board, 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 Board 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 4 5 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 Board 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 Board, the Optionee shall deliver to the Board 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 Board 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. 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. 5 6 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. 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. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PIONEER COMPANIES, INC. By: /s/ Michael J. Ferris ---------------------------------- Michael J. Ferris President and Chief Executive Officer /s/ Andrew M. Bursky ---------------------------------- Andrew M. Bursky, Optionee 6 EX-10.12 15 NONCOMPETION AGREEMENT DATED 10/31/97 1 EXHIBIT 10.12 NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT ("Agreement") is made between Imperial Chemical Industries PLC, a corporation incorporated under the laws of the United Kingdom ("Imperial"), ICI Canada Inc., a corporation incorporated under the laws of Canada ("ICI Canada"), ICI Americas Inc., a Delaware corporation ("ICI Americas") (each an "ICI Party") and collectively, the "ICI Parties") and PCI Chemicals Canada Inc., a New Brunswick corporation ("PCI Canada"), and PCI Carolina Inc., a Delaware corporation ("PCI Carolina" and, with PCI Canada, collectively, the "Pioneer Parties"). WITNESSETH: WHEREAS, ICI Canada, ICI Americas and the Pioneer Parties have entered into an Asset Purchase Agreement dated as of September 22, 1997 (the "Purchase Agreement"), as amended, pursuant to which PCI Canada and PCI Carolina will acquire the Assets, the U.S. Assets, the Business and the U.S. Business as defined and described therein (the Business and the U.S. Business being herein collectively called the "Pioneer Business"); and WHEREAS, in partial consideration and as a material inducement to the Pioneer Parties to enter into the Purchase Agreement and related transactions, the ICI Parties have agreed to enter into this Agreement relating to noncompetition with the Pioneer Parties; WHEREAS, the ICI Parties and the Pioneer Parties agree that ICI America's and ICI Canada's customers and competitors are located principally in the mid-Atlantic, south and eastern regions of the United States and the provinces including and east of Manitoba in Canada; NOW THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein and in the Purchase Agreement, Imperial and each of the other ICI Parties hereby agree as follows: ARTICLE 1 NONCOMPETITION AGREEMENT 1.1 NONCOMPETITION (a) Each of the ICI Parties covenants and agrees that during the Term, it will not, nor will it cause or permit any Affiliate to manufacture, produce, sell, distribute or otherwise deal in or with, directly or indirectly (including through any sales representative, distributor or other marketing activity conducted by or for the account of any ICI Party or any of their Affiliates but excluding operations of any ICI Party or Affiliate 2 - 2 - thereof as presently conducted, including exchanges or swaps entered into in the ordinary course of business) any Product in the Specified Geographical Area (as such terms are defined below), other than through the Pioneer Parties or any Affiliate of the Pioneer Parties. (b) For purposes of the preceding paragraph: (i) "Affiliate" shall have the meaning set forth in the Purchase Agreement. (ii) "Pioneer Business" shall mean the Business and the U.S. Business acquired under and defined in the Purchase Agreement, and activities directly related and incidental thereto. (iii) "Specified Geographical Areas" shall mean the states of the United States and provinces of Canada as set forth in Attachment A hereto. (iv) "Products" shall mean caustic soda, cereclor and anhydrous caustic soda. (v) "Term" shall mean the period which commences on the date of this Agreement and continues thereafter until five (5) years after the date of this Agreement. 1.2 SEVERABILITY; REMEDIES. The parties intend that the noncompetition provisions of this Article 1 shall be deemed to be a series of separate covenants, one for each and every state of the United States of America and province of Canada where such provisions are intended to be effective. The parties to this Agreement acknowledge that money damages would not be a sufficient remedy for any breach of this Article, and the Pioneer Parties shall be entitled to enforce the provisions of this Article by specific performance and injunctive relief as remedies for a breach of this Article, but shall be entitled in addition to all remedies available at law or in equity, including the recovery of damages from any party involved in such breach and remedies available pursuant to other agreements with such parties. 1.3 EXCEPTION; INCIDENTAL BUSINESS. (a) For greater certainty, the Pioneer Parties acknowledge that any future direct or indirect acquisition(s) or subsequent operation by any ICI Party, or by any Affiliate thereof, of a business or businesses which include(s) an Incidental Business engaged in any activity contrary to paragraph 1.1(a), shall nonetheless not constitute a breach thereof. 3 - 3 - (b) For purposes of the preceding paragraph, "Incidental Business" shall mean a portion of a business, where the gross annual revenues of the Incidental Business do not exceed 20% of the gross annual revenues of the entire business. ARTICLE 2 2.1 NOTICES. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given (i) when personally delivered, (ii) when transmitted by telecopier (on the date of confirmation of receipt), (iii) on the next business day when delivered by a recognized national overnight courier service, or (iv) on the fourth business day after the date mailed by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Pioneer Parties, to: Pioneer Companies, Inc. 7000 Louisiana Street Houston, Texas 77002 Attention: General Counsel Telecopier (713) 223-9202 If to the ICI Parties, to: ICI Canada Inc. 90 Sheppard Ave. East P.O. Box 200, Station A North York, Ontario CANADA M2N 6H2 Attention: General Counsel Telecopier: (416) 229-8187 or to such other address as any party may furnish to the others in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 2.2 APPLICABLE LAW. This Agreement is entered into under, and shall be governed and construed in accordance with, the laws of the Province of Quebec and the laws of Canada applicable thereto. 2.3 NO WAIVER. No failure by any party hereto at any time to give notice of any breach by any other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar provisions or conditions at the same or at any prior or subsequent time. 2.4 SEVERABILITY. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall 4 - 4 - not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. 2.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 2.6 HEADINGS. The paragraph headings have been inserted for purposes of convenience and shall not be used for interpretive purposes. 2.7 GENDER AND PLURALS. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely. 2.8 ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. For greater certainty, this Agreement shall not be binding upon any arm's length purchaser of a business of any ICI Party or any Affiliate thereof. 2.9 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire agreement of parties with regard to the subject matter hereof. Any modification of this Agreement will be effective only if it is in writing and signed by the party to be charged. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 31st day of October, 1997. IMPERIAL CHEMICAL INDUSTRIES PLC By: /s/ Derek Kirk ----------------------------------- Name: Derek Kirk Title: Acquisitions Power of Attorney ICI CANADA INC. By: /s/ Gerald L. Sheasgreen ----------------------------------- Name: Gerald L. Sheasgreen Title: V.P. General Counsel Corporate Secretary 5 - 5 - ICI AMERICAS INC. By: /s/ Gerald L. Sheasgreen ----------------------------------- Name: Gerald L. Sheasgreen Title: Corporate Secretary PCI CHEMICALS CANADA INC. By: /s/ Kent R. Stephenson ----------------------------------- Name: Kent R. Stephenson Title: Vice President PCI CAROLINA INC. By: /s/ Kent R. Stephenson ----------------------------------- Name: Kent R. Stephenson Title: Vice President 6 ATTACHMENT A TO SCHEDULE 6.1(1)(I) RIDER TO CONFIDENTIALITY AND NON COMPETITION AGREEMENT SECTION 2.1(b)(iii)
UNITED STATES CANADA PROVINCES Kentucky Maine New Brunswick Illinois Vermont Nova Scotia Louisiana New Hampshire Newfoundland Tennessee Massachusetts Prince Edward Island Connecticut Rhode Island Quebec Mississippi New York Ontario Ohio New Jersey Manitoba Indiana Pennsylvania Michigan Delaware Maryland Virginia West Virginia North Carolina South Carolina Georgia Florida
Alabama EX-12.1 16 STMT RE: COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
PREDECESSOR COMPANY --------------------------------------------- PERIOD FROM YEAR ENDED DECEMBER 31, JANUARY 1, 1995 --------------------------- THROUGH 1992 1993 1994 APRIL 20, 1995 ------- ------- ------- --------------- (DOLLARS IN THOUSANDS, EXCEPT RATIOS) Ratio of earnings to fixed charges Consolidated pretax income from continuing operations...................................... $ 4,346 $ 542 $ 8,388 $11,621 Equity pickup of less than 50% owned affiliates... (26) (1,149) (183) (204) Interest.......................................... 8,189 7,551 6,407 1,665 Interest portion of rental expense................ 2,467 2,753 2,814 692 Amortization of debt financing costs.............. 920 933 944 453 ------- ------- ------- ------- Earnings.......................................... $15,896 $10,630 $18,370 $14,227 ------- ------- ------- ------- Interest.......................................... $ 8,189 $ 7,551 $ 6,407 $ 1,665 Interest portion of rental expense................ 2,467 2,753 2,814 692 Amortization of debt financing costs.............. 920 933 944 453 ------- ------- ------- ------- Fixed charges..................................... $11,576 $11,237 $10,165 $ 2,810 ------- ------- ------- ------- Ratio of earnings to fixed charges................ 1.37 -- 1.81 5.1 ------- ------- ------- ------- Deficiency........................................ $ 607
PERIOD FROM INCEPTION NINE MONTHS THROUGH YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1995 1996 1997 ------------ ------------ ------------- (DOLLARS IN THOUSANDS, EXCEPT RATIOS) Ratio of earnings to fixed charges Consolidated pretax income (loss) from continuing operations........................................... $12,629 $14,846 $ 81 Equity pickup of less than 50% owned affiliates........ -- (713) 883 Interest............................................... 12,905 17,290 16,189 Interest portion of rental expense..................... 1,572 3,107 2,032 Amortization of debt financing costs................... 465 636 616 ------- ------- ------- Earnings............................................... $27,571 $35,166 $19,801 ------- ------- ------- Interest............................................... $12,905 $17,290 $16,189 Interest portion of rental expense..................... 1,572 3,107 2,032 Amortization of debt financing costs................... 465 636 616 ------- ------- ------- Fixed charges.......................................... $14,942 $21,033 $18,837 ------- ------- ------- Ratio of earnings to fixed charges..................... 1.8 1.7 1.1 ------- ------- -------
EX-21.1 17 SUBSIDIARIES OF REGISTRANTS 1 EXHIBIT 21.1 SUBSIDIARIES OF PIONEER AMERICAS ACQUISITION CORP. State of Jurisdiction Name or Incorporation ---- --------------------- PCI Chemicals Canada Inc. New Brunswick Pioneer Americas, Inc. Delaware Pioneer Chlor Alkali Company, Inc. Delaware Imperial West Chemical Co. Nevada All-Pure Chemical Co. California Black Mountain Power Company Texas All-Pure Chemical Northwest, Inc. Washington Pioneer Chlor Alkali International, Inc. Barbados G.O.W. Corporation Nevada Pioneer (East), Inc. Delaware T.C. Holdings, Inc. New Mexico T.C. Products, Inc. Washington PCI Carolina, Inc. Delaware Pioneer Licensing, Inc. Delaware EX-23.1 18 INDEPENDENT AUDITORS' CONSENT OF DELOITTE & TOUCHE 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement, relating to $175,000,000 of 9 1/4% Series B Senior Secured Notes due 2007 of PCI Chemicals Canada Inc. on Form S-4 of our report of Pioneer Americas Acquisition Corp. ("PAAC") dated March 7, 1997, appearing in the Prospectus, which is a part of this Registration Statement, and on our report on PAAC dated March 7, 1997, relative to the financial statement schedule appearing elsewhere in this Registration Statement. We also consent to the reference to us under the headings "Selected Financial Data" and "Experts" in such Prospectus. Deloitte & Touche LLP Houston, Texas November 26, 1997 EX-23.2 19 INDEPENDENT AUDITORS' CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the reference to our firm under the captions "Selected Historical Financial Data," "Experts" and "Change in Independent Public Auditors" and to the use of our report dated June 26, 1995 with respect to the consolidated financial statements and schedule of Pioneer Americas, Inc. (the Predecessor Company) included in the Registration Statement (Form S-4) and related Prospectus of PCI Chemicals Canada Inc. for the registration of $175,000,000 9 1/4% Series B Senior Secured Notes due 2007. ERNST & YOUNG LLP Houston, Texas November 26, 1997 EX-23.3 20 AUDITOR'S CONSENT OF PIERCY, BOWLER, TAYLOR & KERN 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 30, 1995 on the combined financial statements of Basic Investments, Inc. and affiliates in the Registration Statement (Form S-4) and related Prospectus of PCI Chemicals Canada Inc. for the registration of $175,000,000 9 1/4% Series B Senior Secured Notes due 2007. PIERCY, BOWLER, TAYLOR & KERN CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS ADVISORS A PROFESSIONAL CORPORATION Las Vegas, Nevada November 26, 1997 EX-23.4 21 INDEPENDENT AUDITORS' CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.4 INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT As independent public accountants, we hereby consent to the use of our report (and to all references to our firm) dated February 28, 1997 on the financial statements of the Tacoma Plant in the Registration Statement (Form S-4) and related Prospectus of PCI Chemicals Canada Inc. for the registration of $175,000,000 9 1/4% Series B Senior Secured Notes due 2007. Arthur Andersen LLP Dallas, Texas November 26, 1997 EX-23.5 22 INDEPENDENT AUDITOR'S CONSENT OF KPMG 1 EXHIBIT 23.5 INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT We consent to the incorporation by reference in the registration statement on Form S-4 filing of PCI Chemicals Canada Inc. of our report dated September 5, 1997 with respect to the combined balance sheets of ICI Forest Products -- North America as of December 31, 1996, 1995 and 1994, and the related combined statements of operations, head office account and changes in financial position for each of the years in the three year period ended December 31, 1996, which report appears in the Form 8-K of Pioneer Americas Acquisition Corp. dated November 5, 1997. KPMG Chartered Accountants Montreal, Canada November 26, 1997 EX-25.1 23 STATEMENT OF FORM T-1 OF ELIGIBILITY OF TRUSTEE. 1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 -------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE -------------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)____ -------------------- UNITED STATES TRUST COMPANY OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-3818954 (Jurisdiction of incorporation (I. R. S. Employer if not a U. S. national bank) Identification No.) 114 West 47th Street 10036 New York, New York (Zip Code) (Address of principal executive offices) -------------------------- PCI CHEMICAL CANADA, INC. (Exact name of OBLIGOR as specified in its charter) New Brunswick, Canada N/A (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 630 West Rene Levesque Boulevard H3B1S6 Montreal, Quebec (Zip code) (Address of principal executive offices) -------------------- 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.) 2 - 2 - -------------------- PIONEER AMERICAS, INC. (Exact name of REGISTRANT as specified in its charter) Delaware 76-0280373 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) -------------------- PIONEER CHLOR ALKALI COMPANY, INC. (Exact name of REGISTRANT as specified in its charter) Delaware 51-0302028 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) -------------------- IMPERIAL WEST CHEMICAL CO. (Exact name of REGISTRANT as specified in its charter) Nevada 95-2375683 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) -------------------- ALL-PURE CHEMICAL CO. (Exact name of REGISTRANT as specified in its charter) California 94-2314942 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) -------------------- BLACK MOUNTAIN POWER COMPANY (Exact name of REGISTRANT as specified in its charter) Texas 76-0291143 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 3 - 3- -------------------- ALL-PURE CHEMICAL NORTHWEST, INC. (Exact name of REGISTRANT as specified in its charter) Washington 94-2714064 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) -------------------- PIONEER CHLOR ALKALI INTERNATIONAL, INC. (Exact name of REGISTRANT as specified in its charter) Barbados 98-0118164 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) -------------------- G.O.W. CORPORATION (Exact name of REGISTRANT as specified in its charter) Nevada 88-0336831 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) -------------------- PIONEER (EAST), INC. (Exact name of REGISTRANT as specified in its charter) Delaware 51-0375981 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) -------------------- T.C. HOLDINGS, INC. (Exact name of REGISTRANT as specified in its charter) New Mexico 86-0311265 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 4 -4- -------------------- T.C. PRODUCTS, INC. (Exact name of REGISTRANT as specified in its charter) Washington 91-1536884 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) -------------------- PCI CAROLINA, INC.. (Exact name of REGISTRANT as specified in its charter) Delaware 76-0549506 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) -------------------- PIONEER LICENSING, INC. (Exact name of REGISTRANT as specified in its charter) Delaware 52-2058031 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) -------------------- 9 1/4% Series B Senior Secured Notes due 2007 (Title of the indenture securities) 5 - 5 - GENERAL 1. General Information Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York (2nd District), New York, New York (Board of Governors of the Federal Reserve System). Federal Deposit Insurance Corporation, Washington, D. C. New York State Banking Department, Albany, New York (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. 2. Affiliations with the Obligor If the obligor is an affiliate of the trustee, describe each such affiliation. None. 3,4,5,6,7,8,9,10,11,12,13,14 and 15. PCI Chemicals Canada, Inc., Pioneer Americas Acquisition Corp., Pioneer Americas, Inc., Pioneer Chlor Alkali Company, Inc., Imperial West Chemical Co., All-Pure Chemical Co., Black Mountain Power Company, All-Pure Chemical Northwest, Inc., Pioneer Chlor Alkali International, Inc., G.O.W. Corporation, Pioneer (East), Inc., T.C. Holdings, Inc., T.C. Products, Inc., PCI Carolina, Inc. and Pioneer Licensing, Inc. is currently not in default under any of its outstanding securities for which United States Trust Company of New York is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1 are not required under General Instruction B. 16. List of Exhibits T-1.1 -- Organization Certificate, as amended, issued by the State of New York Banking Department to transact business as a Trust Company, is incorporated by reference to Exhibit T-1.1 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). 6 - 6 - 16. List of Exhibits (cont'd) T-1.2 -- Included in Exhibit T-1.1. T-1.3 -- Included in Exhibit T-1.1. T-1.4 -- The By-Laws of United States Trust Company of New York, as amended, is incorporated by reference to Exhibit T-1.4 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.6 -- The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990. T-1.7 -- A copy of the latest report of condition of the trustee pursuant to law or the requirements of its supervising or examining authority. NOTE As of November 20, 1997, the trustee had 2,999,020 shares of Common Stock outstanding, all of which are owned by its parent company, U. S. Trust Corporation. The term "trustee" in Item 2, refers to each of United States Trust Company of New York and its parent company, U. S. Trust Corporation. In answering Item 2 in this statement of eligibility, as to matters peculiarly within the knowledge of the obligor or its directors, the trustee has relied upon information furnished to it by the obligor and will rely on information to be furnished by the obligor and the trustee disclaims responsibility for the accuracy or completeness of such information. _____________________ 7 - 7 - Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, United States Trust Company of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 20th day of November, 1997. UNITED STATES TRUST COMPANY OF NEW YORK, Trustee By: /s/ PATRICIA STERMER ----------------------------------- Patricia Stermer Assistant Vice President 8 EXHIBIT T-1.6 The consent of the trustee required by Section 321(b) of the Act. United States Trust Company of New York 114 West 47th Street New York, NY 10036 September 1, 1995 Securities and Exchange Commission 450 5th Street, N.W. Washington, DC 20549 Gentlemen: Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the limitations set forth therein, United States Trust Company of New York ("U.S. Trust") hereby consents that reports of examinations of U.S. Trust by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Very truly yours, UNITED STATES TRUST COMPANY OF NEW YORK By: /s/ Gerard F. Ganey ----------------------------------- Senior Vice President 9 EXHIBIT T-1.7 UNITED STATES TRUST COMPANY OF NEW YORK CONSOLIDATED STATEMENT OF CONDITION SEPTEMBER 30, 1997 ($ IN THOUSANDS) ASSETS - ------ Cash and Due from Banks $ 116,582 Short-Term Investments 183,652 Securities, Available for Sale 691,965 Loans 1,669,611 Less: Allowance for Credit Losses 16,067 -------------- Net Loans 1,653,544 Premises and Equipment 61,796 Other Assets 125,121 -------------- TOTAL ASSETS $ 2,832,660 ============== LIABILITIES - ----------- Deposits: Non-Interest Bearing $ 541,619 Interest Bearing 1,617,028 -------------- Total Deposits 2,158,647 Short-Term Credit Facilities 365,235 Accounts Payable and Accrued Liabilities 141,793 -------------- TOTAL LIABILITIES $ 2,665,675 ============== STOCKHOLDER'S EQUITY - -------------------- Common Stock 14,995 Capital Surplus 49,542 Retained Earnings 99,601 Unrealized Gains (Losses) on Securities Available for Sale, Net of Taxes 2,847 -------------- TOTAL STOCKHOLDER'S EQUITY 166,985 -------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,832,660 ==============
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank do hereby declare that this Statement of Condition has been prepared in conformance with the instructions issued by the appropriate regulatory authority and is true to the best of my knowledge and belief. Richard E. Brinkmann, SVP & Controller November 13, 1997 -----END PRIVACY-ENHANCED MESSAGE-----