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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1994 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
COMMISSION FILE NUMBER 1-9859
PIONEER COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1215192
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 NATIONSBANK CENTER
700 LOUISIANA STREET
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
<TABLE>
<S> <C>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Class A Common Stock, $.01 par value
(Title of class)
</TABLE>
On March 22, 1996, there were outstanding 7,905,824 shares of the
Company's Class A Common Stock, $.01 par value. The aggregate market value of
the Company's voting stock held by non-affiliates of the Company is
$17,216,220, based on the closing price for the Class A Common Stock in
consolidated trading on March 22, 1996.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES X NO
--- ---
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A under the Securities Exchange
Act of 1934 in connection with the Company's 1996 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Annual Report on
Form 10-K.
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PIONEER COMPANIES, INC.
Table of Contents
Form 10-K for the Period
Ended December 31, 1995
PART I PAGE
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Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 4.1 Executive Officers of the Registrant 13
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 59
PART III
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Item 10. Directors and Executive Officers of the Registrant 59
Item 11. Executive Compensation 59
Item 12. Security Ownership of Certain Beneficial Owners and
Management 59
Item 13. Certain Relationships and Related Transactions 60
PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. 60
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PART I
Unless the context otherwise requires, (i) the term "Pioneer" refers to
Pioneer Companies, Inc., formerly known as GEV Corporation, (ii) the term
"PAAC" refers to Pioneer Americas Acquisition Corp. a wholly-owned subsidiary
of Pioneer, (iii) the terms "Pioneer Americas" and "Predecessor Company" refer
to Pioneer Americas, Inc. and its subsidiaries, and (iv) the term "Company"
means Pioneer and its consolidated subsidiaries.
Item 1. BUSINESS.
At the annual shareholders meeting held on March 31, 1995, the change of
the name of GEV Corporation ("GEV") to Pioneer Companies, Inc. was approved,
subject to the consummation of the acquisition described below.
THE ACQUISITION
On April 20, 1995 (the "Closing Date"), pursuant to a Stock Purchase
Agreement, dated as of March 24, 1995 (the "Acquisition Agreement"), by and
among Pioneer, PAAC and the holders of the outstanding common stock and other
common equity interests of Pioneer Americas, Inc. (the "Sellers"), PAAC
acquired all of such stock and interests (the "Acquisition") for a purchase
price equal to the sum of approximately (i) $102 million, paid in cash, (ii)
$11.5 million aggregate principal amount of subordinated promissory notes of
Pioneer (the "Seller Notes") and (iii) certain amounts payable after the
closing based upon earnings or proceeds attributable to certain of the
Company's direct and indirect real estate holdings which are not necessary for
the Company's chlor-alkali business. In addition, as further consideration for
the Acquisition, PAAC paid approximately $51.7 million to retire all
outstanding indebtedness of Pioneer Americas and $5 million to redeem the
outstanding preferred stock of Pioneer Americas, Inc.
In connection with the consummation of the Acquisition, (i) PAAC issued and
sold $135 million in principal amount of 13 3/8% Senior Notes due 2005 ("the
Senior Notes"), (ii) Pioneer issued and sold the Seller Notes in exchange for
certain of the outstanding shares of Pioneer Americas Inc., which Pioneer
contributed to PAAC, (iii) Pioneer issued and sold to Interlaken Investment
Partners, L.P., a Delaware limited partnership (the "Interlaken Partnership"),
Class A Common Stock of Pioneer for an aggregate purchase price of $15 million
(the "Interlaken Partnership Purchase"), the proceeds of which were contributed
to PAAC, (iv) Pioneer issued and sold to Richard C. Kellogg, Jr. and Frans G.J.
Speets, directors and executive officers of Pioneer Americas, and to certain
other employees of Pioneer Americas (collectively, the "Management Investors"),
Class A Common Stock of Pioneer for an aggregate purchase price of $6 million
(the "Management Purchase"), the proceeds of which were contributed to PAAC, and
(v) Pioneer Americas entered into a new bank revolving credit facility (the
"Bank Credit Facility") with Bank of America Illinois, providing for borrowings
of up to $30 million. The net proceeds of the sale of the Senior Notes, the
Interlaken Partnership Purchase, the Management Purchase and a borrowing under
the Bank Credit Facility were used to pay the cash portion of the purchase price
of the Acquisition, to retire the outstanding Pioneer Americas indebtedness and
to redeem the outstanding preferred stock of Pioneer Americas, Inc.
GENERAL
Following the filing on February 4, 1991, of an involuntary bankruptcy
petition against a significant subsidiary, on February 11, 1991, GEV and each
of what were then its operating subsidiaries (collectively, the "Debtors")
filed voluntary petitions seeking reorganization under Chapter 11 of the U.S.
Bankruptcy Code. On February 11, 1992, the Debtors filed two amended plans of
reorganization (the "Plans"). One plan (the "Joint Plan") covered GEV and its
dairy subsidiaries, as well as Good Foods Acquisition Corp. (the "Reorganized
Operating Subsidiaries"), and the other covered SEFCO Holdings, Inc., the
operating assets of which had been sold in June 1991. A confirmation order was
entered with respect to the Plans on June 9, 1992, and on July 9, 1992, after
the confirmation process became fully effective, GEV and its Reorganized
Operating Subsidiaries emerged from bankruptcy.
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Through various pre- and post-petition agreements, GEV and the Reorganized
Operating Subsidiaries granted to the then lending bank group security
interests in all the assets and property of the Reorganized Operating
Subsidiaries. As a result of that and the confirmation of the Joint Plan, GEV
no longer exercised significant influence over the operating and financing
decisions of the Reorganized Operating Subsidiaries, and on December 31, 1991
GEV changed its method of accounting and unconsolidated the subsidiaries in its
year-end financial statements for all periods presented.
Prior to the Acquisition, GEV, which is now known as Pioneer, was actively
seeking acquisitions and had no other operations. As of December 31, 1995,
Pioneer had a net operating loss carryforward ("NOL") which it believes is
approximately $63.1 million and is available to offset future taxable income.
As of December 31, 1995, and as a result of the consummation of the Interlaken
Partnership Purchase and the Management Purchase, the Interlaken Partnership
beneficially owned approximately 35.7% of the voting power of Pioneer, William
R. Berkley (who may be deemed to beneficially own all shares of Pioneer common
stock held by the Interlaken Partnership) beneficially owned approximately
61.1% of the voting power of Pioneer and the Management Investors beneficially
owned approximately 14.3% of the voting power of Pioneer.
OPERATIONS
Following its formation in 1988, Pioneer Americas acquired two
chlor-alkali plants previously owned and operated by Stauffer Chlor Alkali
Company, Inc. Pioneer Americas subsequently acquired several businesses
engaged in municipal, industrial and commercial water treatment. During 1995
Pioneer Americas conducted its primary business through its operating
subsidiaries: Pioneer Chlor Alkali Company, Inc. ("PCAC"), Imperial West
Chemical Co. ("Imperial West"), and All-Pure Chemical Co. ("All-Pure"), which,
effective in March 1995, succeeded by merger to Pioneer Americas' GPS Pool
Supply, Inc. ("GPS") operations. In 1995, PCAC accounted for 59% of the
Company's total revenues, and Imperial West and All-Pure/GPS accounted for 16%
and 25%, respectively, of the Company's total revenues, net of intercompany
eliminations.
On February 2, 1996, Imperial West participated in the acquisition of
Kemira Water Treatment, Inc. ("KWT") from a subsidiary of Kemira Oy of Finland
("Kemira"). KWT produces specialty and commodity inorganic coagulants,
including polyaluminum chloride, 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 a new company, Kemwater North
America Company ("Kemwater"), fifty percent of the common stock of which is
held by a subsidiary of PAAC and fifty percent of the common stock of which is
owned by another subsidiary of the Company. A subsidiary of PAAC also owns all
of the outstanding shares of Kemwater's preferred stock.
PCAC. PCAC owns and operates two chlor-alkali production facilities,
located in St. Gabriel, Louisiana and Henderson, Nevada. These facilities,
which are the largest ones operated by the Company, produce chlorine and
caustic soda for sale in the merchant markets and for use as raw materials by
PCAC, Imperial West and All-Pure in the manufacture of downstream products. The
Henderson facility also produces hydrochloric acid. PCAC also has an indirect
15% equity interest in Saguaro Power Company L.P. ("Saguaro Power"), which owns
and operates a 90-megawatt cogeneration facility located on approximately six
acres of the Henderson property.
All-Pure. All-Pure manufactures bleach, repackages chlorine and
hydrochloric acid and distributes these products along with caustic soda and
related products to municipalities, swimming pool supply distributors and
selected commercial and retail markets in the western United States. All-Pure
purchases 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.
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Kemwater. The Imperial West operations now conducted by Kemwater involve
manufacturing and supplying iron chlorides to the potable and waste water
markets in the western United States, and polyaluminum chloride to the same
markets in the eastern United States. The products are used primarily to
remove solids from waste water streams and to control hydrogen sulfide
emissions. Kemwater also manufactures and markets aluminum sulfate to the waste
water and pulp and paper industries and in the western U.S. is a manufacturer
of bleach for municipal water disinfection. Kemwater will be adding
polyaluminum chloride production capacity to its western plants, and ferric
chloride production capacity to the KWT plant in Savannah, Georgia. 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 U.S.) 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. During 1995 Imperial West 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.
The following tables set forth, for the periods indicated, certain sales
and operating data regarding the Company's principal operating subsidiaries:
Production Volumes (thousands of tons)
<TABLE>
<CAPTION>
Year Ended December 31,
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1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
PCAC:
Chlorine . . . . . . . . . . . . . . . . . . . . . . 327.9 321.1 313.4 300.8 283.3
Caustic soda . . . . . . . . . . . . . . . . . . . . 362.5 352.6 347.9 334.2 311.9
Hydrochloric acid . . . . . . . . . . . . . . . . . 126.6 123.0 125.5 124.7 94.9
All-Pure/GPS(1):
Bleach (gallons in millions) . . . . . . . . . . . . 31.1 28.4 19.2 22.5 16.8
Repackaged chlorine . . . . . . . . . . . . . . . . 28.6 27.6 27.9 26.2 25.6
Imperial West:
Iron chlorides . . . . . . . . . . . . . . . . . . . 62.2 65.1 65.0 65.8 64.2
Aluminum sulfate . . . . . . . . . . . . . . . . . . 30.5 37.8 35.3 33.5 43.7
</TABLE>
Average Net Sales Prices
<TABLE>
<CAPTION>
Year Ended December 31,
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1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
PCAC:
ECU(2) . . . . . . . . . . . . . . . . . . . . . . . $ 414 $ 327 $ 275 $ 315 $ 344
Hydrochloric acid (per ton) . . . . . . . . . . . . 50 54 60 29 33
All-Pure/GPS:
Bleach (per gallon) . . . . . . . . . . . . . . . . 0.84 0.81 1.13 0.96 0.96
Repackaged chlorine (per ton) . . . . . . . . . . . 498 464 371 361 352
Imperial West:
Iron chlorides (per ton) . . . . . . . . . . . . . . 226 214 170 149 151
Aluminum sulfate (per ton) . . . . . . . . . . . . . 95 94 97 98 102
</TABLE>
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(1) GPS was acquired in May 1994 and the production volumes and average net
sales prices shown reflect GPS operations since that date.
(2) Chlorine and caustic soda are co-products, concurrently produced in a
ratio of 1 to 1.1, respectively, through electrolysis of salt water. An
electrochemical unit ("ECU") consists of 1 ton of chlorine and 1.1 tons of
caustic soda.
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COMPETITION
The chlor-alkali industry is highly competitive. Most of the Company's
competitors are larger and have greater financial resources than the Company.
Many of the Company's competitors are some of the world's 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 maintain
competitive prices and to provide reliable and responsive service to its
customers.
The United States chlor-alkali industry is currently dominated by two
producers, Occidental Chemical Corp. and The Dow Chemical Company, each with
approximately one quarter of United States capacity. The remaining capacity is
held by approximately 15 companies. Approximately 70% of United States
chlor-alkali capacity is located on the Gulf Coast in Texas and Louisiana. The
Company has approximately 3% of United States 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 Kemwater is the largest producer of iron chlorides in the region
of the United States west of the Rocky Mountains and that All-Pure is the
largest supplier of chlorine and bleach for water treatment purposes in such
region.
EMPLOYEES
As of December 31, 1995, the Company had 692 employees. Approximately 94
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 1997. Approximately 83 of the Company's employees at
All-Pure's City of Industry facility are covered by collective bargaining
agreements with the Steel, Paper House, Chemical Drivers and Helpers Union and
the International Chemical Workers Union that are in effect until September
1997 and January 1998, respectively. The Company's employees at 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 it has not experienced any strikes or work stoppages.
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ENVIRONMENTAL REGULATION
Air Quality. The Company's operations are subject to the Federal Clean
Air Act and the amendments to that act which were adopted by Congress 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. 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 PCAC's Henderson
facility. In response, local emergency authorities evacuated areas in and
around the City of Henderson. PCAC has resolved substantially all of the
personal injury, property damage and regulatory claims relating to this
release. There was a release of about 10 tons of chlorine from PCAC's St.
Gabriel facility in 1992 and another release in 1994 of less than one ton of
chlorine, and in 1995 there was a release of less than ten pounds of chlorine
from All-Pure's Santa Fe Springs, California facility. These releases were
controlled by plant personnel with the assistance of local emergency response
personnel, and there were no material claims against PCAC or All-Pure as a
result of these incidents. The Company maintains systems to detect emissions of
chlorine at its plants, and the St. Gabriel and Henderson plants are members of
their local industrial emergency response networks. The Company believes that
its insurance coverage is adequate with respect to costs that might be incurred
in connection with any future release, although there can be no assurance that
the Company will not incur substantial expenditures that are not covered by
insurance if a release does occur in the future.
Water Quality. The Company maintains waste water discharge permits for
many of its facilities pursuant to the Federal Water Pollution Control Act of
1972, as amended, and comparable state laws. Where required, the Company has
also applied for permits to discharge stormwater under such laws. In order to
meet the discharge requirements applicable to stormwater, it will be necessary
to modify surface drainage or make other changes at certain plants. The Company
plans to spend an additional $2.2 million by the end of 1997 for modifications
to the stormwater sewer system at PCAC's 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 $1.5 million during the next fifteen years
for closure of eight chlor-alkali waste water disposal ponds at the Henderson
plant.
Hazardous and Solid Wastes. The Company's manufacturing facilities
generate hazardous and non-hazardous solid wastes which are subject to the
requirements of the federal Resource Conservation and Recovery Act ("RCRA") and
comparable state statues. 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 PCAC'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 remaining waste is
currently sent to commercial disposal sites in Canada and the United States.
The Company is installing an in-plant treatment system that will reduce 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 and the
in-plant treatment system fails to perform as expected.
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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. 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 the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), also known
as the "Superfund" law, regulatory agencies or third parties may incur costs to
investigate or remediate such conditions and seek reimbursement from the
Company for such costs. However, no investigations or remedial activities are
currently being conducted under CERCLA by third parties at any of the Company's
facilities. Such activities are being carried out at certain facilities under
the other statutory authorities discussed above.
INDEMNITIES
ZENECA Indemnity. 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 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
PCAC's property.
In connection with the 1988 acquisition of the Henderson and St. Gabriel
facilities by Pioneer Americas, the sellers agreed to indemnify Pioneer
Americas 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, Pioneer Americas 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, Pioneer Americas 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 indemnity also covers certain claims
by non-governmental third parties, provided notice of such claims is given to
the ZENECA Companies not later than four years after the Acquisition. Pioneer
Americas 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 operating and maintenance costs of a groundwater treatment system at
the facility. In addition, subject to certain exceptions, Pioneer Americas has
a contractual duty not to take any action that could reasonably be expected to
increase materially the obligations of the ZENECA Companies under the
indemnity.
Payments for environmental liabilities under the ZENECA indemnity,
together with other non-environmental liabilities for which the ZENECA
Companies have agreed to indemnify Pioneer Americas, cannot exceed
approximately $65 million. To date, Pioneer Americas has been reimbursed for
approximately $12 million of costs covered by the indemnity, but the ZENECA
Companies may have directly incurred additional costs that would further reduce
the total amount remaining under the indemnity. In 1994, Pioneer Americas
recorded an additional $3.2 million environmental reserve related to preclosing
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.
The acquisition of the common stock of Pioneer Americas from the Sellers
will cause the ZENECA indemnity to terminate on April 20, 1999. The indemnity
will continue to cover claims after the expiration of the term of the indemnity
provided that, prior to its expiration, 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
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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 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.
Sellers' Indemnity. 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 the Closing Date from or relating to the Pioneer Americas
plant sites or arising before or after the Closing Date with respect to certain
environmental liabilities relating to the Contingent Payment Properties (as
described in the next paragraph). Amounts payable pursuant to the Sellers'
Indemnity will generally be payable as follows: (i) out of certain reserves
established on Pioneer Americas' balance sheet at December 31, 1994; (ii)
either by offset against the amounts payable under the Seller Notes or from
amounts received in connection with the Contingent Payment Properties; and
(iii) in certain circumstances and subject to specified limitations, out of the
personal assets of the Sellers. The Company is required to reimburse the
Sellers with amounts recovered under the ZENECA indemnity or from other third
parties. The Company and the Sellers have agreed that they will cooperate in
matters relating to the ZENECA indemnity. The Company has also agreed to
indemnify the Sellers for certain environmental liabilities that may arise
after the Closing Date. The Company owns an equity interest of approximately
32% in Basic Investments, Inc., a Nevada corporation ("Basic Investments").
Through its subsidiaries, Basic Investments owns certain undeveloped land in
the Las Vegas/Clark County, Nevada area and is, through a subsidiary, the
general partner of Victory Valley Land Company, L.P., a Delaware limited
partnership ("Victory Valley"), that owns additional undeveloped land in such
area as well as an option to acquire the remainder of the undeveloped land
owned by Basic Investments. Basic Investments also owns and maintains the water
and power distribution network within the Basic Complex. The Company contracts
with subsidiaries of Basic Investments for the delivery of the Company's water
to the Company's plant site and transmission of the Company's power within the
Henderson site. Pricing for the services provided is on an arm's-length basis.
The Company owns a 21% limited partnership interest in Victory Valley, and
Basic Investments owns an indirect 50% partnership interest in Victory Valley.
The Company has a combined interest in Victory Valley of approximately 37%
through its own direct interest and its partial ownership of Basic Investments.
The Company also owns certain real property adjoining the sites of the
Henderson, St. Gabriel and Mojave plants that is not used in the businesses
conducted at such sites. Such property, comprising approximately 900 acres in
the aggregate, is referred to herein as the "Excess Land." In accordance with
the terms of the Acquisition, the Company's interests in Basic Investments,
Victory Valley and the Excess Land (collectively, the "Contingent Payment
Properties") are being held for the benefit of the Sellers until April 20,
2015. The Company will not receive any of the economic benefits from the
Contingent Payment Properties, except that certain environmental and other
indemnification obligations of the Sellers to the Company may be satisfied from
proceeds of or payments on account of such investments and except to the extent
that such investments are owned by the Company at the end of such 20-year
period.
9
<PAGE> 10
Item 2. PROPERTIES.
FACILITIES
The following table sets forth certain information regarding the Company's
principal production and distribution facilities as of March 25, 1996. All
property is leased unless otherwise indicated.
<TABLE>
<CAPTION>
Type of Facility Location
---------------- --------
<S> <C>
Chlor-alkali plants St. Gabriel, Louisiana*
Henderson, Nevada*
Bleach plants Antioch, California*
Santa Fe Springs, California
Tracy, California
Kalama, Washington
City of Industry, California
Marysville, California
Chlorine and hydrochloric acid repackaging Santa Fe Springs, California
Tracy, California
Kalama, Washington
City of Industry, California
Marysville, California
Iron chloride plants Mojave, California*
Pittsburg, California*
Aluminum sulfate plants Antioch, California*
Spokane, Washington
Savannah, Georgia
Polyaluminum chloride plant Savannah, Georgia
Sodium aluminate plant Savannah, Georgia
Caustic soda terminals Tampa, Florida
Memphis, Tennessee
Wilmington, California
Tracy, California
Antioch, California*
Aluminum sulfate and sulfuric acid terminal Albany, Oregon
Distribution centers Fresno, California
Spokane, Washington
</TABLE>
- ---------------
* Owned property
10
<PAGE> 11
The Company's corporate headquarters are located in leased office space in
Houston, Texas under a lease terminating in 2002.
In accordance with the terms of an Exchange and Registration Rights
Agreement (the "Exchange Agreement") which Pioneer entered into at the time of
the Acquisition, on January 23, 1996, Pioneer exchanged $135.0 million of its
13 3/8% First Mortgage Notes due 2005 (the "Mortgage Notes") for all of the
outstanding Senior Notes. The Mortgage Notes and obligations outstanding under
the Bank Credit Facility are secured by first mortgages on PCAC's St. Gabriel
and Henderson facilities.
PCAC FACILITIES
St. Gabriel, Louisiana. PCAC's St. Gabriel plant is located on a
100-acre site near Baton Rouge, Louisiana. Approximately 228 acres adjoining
the site are available to the Company for future industrial development, and
approximately 400 acres adjoining the site constitute Excess Land. The plant
was completed in 1970 and is situated on the Mississippi River with river
frontage and deepwater docking, loading and unloading facilities. Annual
production capacity at St. Gabriel is 182,000 tons of chlorine and 200,200 tons
of caustic soda.
Henderson, Nevada. PCAC's Henderson plant is located on a 374-acre site
near Las Vegas, Nevada. Approximately 70 acres are developed and used for
production facilities, and approximately 60 acres adjoining the site constitute
Excess Land. The original plant, which began operation in 1942, was upgraded
and rebuilt in 1976-1977. Annual production capacity at the plant is 140,000
tons of chlorine, 154,000 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,
railroad facilities and access roads.
ALL-PURE FACILITIES
Tracy, California. The Tracy plant includes a 168,000 ton per year
bleach production facility and a chlorine repackaging facility on a 15-acre
tract. The land at the facility is leased under a lease expiring in the year
2000. All-Pure's corporate office is located in separate leased offices in
Tracy.
Santa Fe Springs, California. The Santa Fe Springs plant includes a
275,000 ton per year bleach production plant and a chlorine repackaging
facility on a 4.5-acre tract. The land at the facility is leased under a lease
expiring in 1998 with a five-year renewal option.
Kalama, Washington. The Kalama plant includes a 41,000 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; an
alternative site for the facility has been located in Kalama, although the
final terms of the lease have not yet been negotiated.
Marysville, California. The Marysville plant includes a chlorine and
sulfur dioxide repackaging facility and a 5,000 ton per year bleach production
facility on a 10-acre tract. The land is leased under a lease expiring in the
year 2000.
Fresno, California. The Fresno facility consists of an approximately
10,000 square foot warehouse. 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 2001.
City of Industry, California. The City of Industry plant includes a
307,500 tons 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.
11
<PAGE> 12
KEMWATER FACILITIES
Antioch, California. Production facilities at the Antioch facility
include a 30,000 ton per year aluminum sulfate plant and a 12,500 ton per year
bleach plant. Caustic soda and sulfuric acid are terminaled and distributed
from the location. The site also serves as corporate headquarters for
Kemwater. The 22-acre company-owned site has deepwater access and rail
service.
Mojave, California. The Mojave facility, which was constructed in 1988 and
1989, includes a 130,000 ton per year iron chlorides production facility that
is located on approximately eight acres of a 30-acre company-owned tract.
Approximately 444 acres of adjoining land constitute Excess Land. The plant
consists of two separate, identical production trains and has rail service.
The facility also terminals caustic soda, sulfuric acid and hydrochloric acid
for distribution.
Pittsburg, California. The Pittsburg plant has a 30,000 ton per year iron
chlorides production facility. During 1995, Imperial West acquired the 10-acre
rail served site, which was previously leased.
Spokane, Washington. The Spokane facility has a 30,000 ton per year
aluminum sulfate plant located on 4 acres. Sulfuric acid purchased from third
parties is also distributed from the location. The land at the site is leased
under a lease that can be terminated by either party with 30 days' notice.
Albany, Oregon. Aluminum sulfate, which is manufactured in Spokane,
Washington, is distributed from the Albany terminal. Sulfuric acid purchased
from third parties is also distributed from the terminal, primarily to pulp and
paper customers in central and southern Oregon. The land at the site is leased
under a lease with an indefinite term, with cancellation by either party on 30
days' notice.
Savannah, Georgia. Production facilities at Savannah include a 45,000 ton
per year polyaluminum chloride plant, a 25,000 ton per year aluminum sulfate
plant, a 15,000 ton per year sodium aluminate plant, and a 18,000 ton per year
ferric sulfate granule dissolving plant. The two acre site is leased under a
lease expiring in 2005, subject to options to extend the lease until 2015.
12
<PAGE> 13
Item 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of its business. The
Company maintains insurance coverage against potential claims in amounts which
it believes to be adequate. In the opinion of management, uninsured losses, if
any, resulting from these matters will not have a material adverse effect on
the Company's results of operations, cash flow or financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of 1995 to a vote of
holders of Pioneer's Common Stock.
Item 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT.
The names, ages and current offices of the executive officers of the
Company, who are to serve until the next annual meeting of the Board of
Directors to be held in 1996, are set forth below.
<TABLE>
<CAPTION>
Name and Age Office
------------ ------
<S> <C>
Richard C. Kellogg, Jr. (44) President
Paul J. Kienholz (65) President and Chief Operating Officer
of Pioneer Americas, Inc.
Philip J. Ablove (55) Vice President and Chief Financial Officer
Jerry B. Bradley (50) Vice President, Human Resources
of Pioneer Americas, Inc.
James E. Glattly (49) Vice President, Sales and Marketing
of Pioneer Americas, Inc.
Verrill M. Norwood (64) Vice President, Environmental, Health
and Safety of Pioneer Americas, Inc.
Kent R. Stephenson (46) Vice President, General Counsel
and Secretary
Frank B. Belliss (42) President of Kemwater North America
Company
Ronald E. Ciora (54) President of All-Pure Chemical Co.
</TABLE>
Richard C. Kellogg, Jr. has served as President and a director of Pioneer
since the closing of the Acquisition on April 20, 1995. In October 1988 he was
a co-founder of Pioneer Americas Inc. and he has served as Chairman of the
Board and a director of that company since October 1988. Mr. Kellogg is also a
director of Basic Investments, Inc., a corporation in which Pioneer holds an
equity interest of approximately 32%. From 1983 to 1993, Mr. Kellogg served as
Vice President of Trans Marketing Houston, Inc. ("TMHI"), a company that he
co-founded and which was involved in the international trading of refined
petroleum products and chemicals. TMHI filed for bankruptcy in April 1993 and a
liquidation plan was approved by the federal bankruptcy court in December 1993.
Paul J. Kienholz has served as President and Chief Operating Officer of
Pioneer Americas, Inc. since 1988. Mr. Kienholz was employed by PPG
Industries, Inc. from 1959 to 1988, where he served in various capacities,
including Director, Chlor-Alkali Products.
Philip J. Ablove has served as Vice President and Chief Financial Officer
of the Company since March 1996. He has been a consultant and an officer and
director specializing in high growth or financially distressed companies since
1983. In a consulting role, he served as Acting Chief Financial Officer of
Pioneer from October 1995 to March 1996, and he has been a director of Pioneer
since January 1991. He was President and Chief Executive Officer of GEV
Corporation from January 1991 to July 1992 after serving as a consultant to GEV
Corporation from October 1990 to January 1991. From June 1988 until June 1990,
he was a director and officer of Ironstone Group,
13
<PAGE> 14
Inc., a publicly-held holding company with interests in wholesale plumbing
distribution and oil and gas exploration and production, which filed a petition
in January 1991 for reorganization under federal bankruptcy law. From July
1988 to June 1990, Mr. Ablove was also Executive Vice President and a director
of Iron-Oak Supply Corporation, a subsidiary of Ironstone, which filed a
bankruptcy petition in January 1991.
Jerry B. Bradley has served as Vice President, Human Resources of Pioneer
Americas, Inc. 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.
James E. Glattly has served as Vice President, Sales and Marketing of
Pioneer Americas, Inc. since 1988. Prior to joining Pioneer Americas, Inc., 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.
Verrill M. Norwood has served as Vice President, Environmental, Health and
Safety of Pioneer Americas, Inc. since 1990. Prior to joining Pioneer Americas,
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 Pioneer since June 1995, and as Vice President, General Counsel
and Secretary of Pioneer Americas, Inc. since 1993. Prior to joining Pioneer
Americas, 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.
Frank B. Belliss has served as President of Kemwater North America Company
since February 1996. He served as President of Imperial West from February
1994 to February 1996. Mr. Belliss was Vice President and General Manager of
Imperial West for more than five years prior to February 1994.
Ronald E. Ciora has served as President of All-Pure since November 1995.
For more than five years prior thereto, he was President and Chief Executive
Officer of DPC Industries, Inc., DX Distribution, Inc. and DXI Industries,
Inc., which are companies engaged in chemical distribution, chlorine
repackaging and bleach manufacturing.
14
<PAGE> 15
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On March 31, 1995, Pioneer's stockholders approved a one-for-four reverse
stock split which was effective on April 27, 1995 (the "Reverse Stock Split").
The number of authorized shares remained at 46.0 million for Class A Common
Stock and 4.0 million for Class B Common Stock, and the par value of the Common
Stock was unchanged. Unless the context otherwise requires, all references in
this Report to Common Stock share and per share amounts reflect the Reverse
Stock Split.
Since May 19, 1995, Pioneer's Class A Common Stock has been traded on the
NASDAQ National Market under the symbol "PIONA". Prior to that date it was
traded on the NASD OTC Bulletin Board. There is no established trading market
for Pioneer's Class B Common Stock. The price range for the Class A Common
Stock, as adjusted to reflect the Reverse Stock Split, for each quarterly
period for the last two fiscal years is shown in the following table:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1995
----
Fourth Quarter $ 8.63 $ 5.25
Third Quarter 9.38 5.00
Second Quarter 12.00 3.75
First Quarter 6.50 1.25
1994
----
Fourth Quarter 1.88 0.50
Third Quarter 2.25 1.50
Second Quarter 3.00 1.75
First Quarter 2.75 1.00
</TABLE>
Information set forth in the table with respect to periods prior to May 19,
1995, is derived from high and low bid and ask prices, and is not indicative of
actual trading prices. For periods after that date, prices are as reported in
the consolidated transaction reporting system.
As of March 22, 1996, there were approximately 230 holders of record of
the Class A Common Stock and there were two holders of record of the Class B
Common Stock.
No dividends have been declared with respect to Pioneer's Common Stock
during the two most recent fiscal years. Pursuant to the terms of the indenture
with respect to the outstanding 13-3/8% First Mortgage Notes issued by PAAC,
prior to April 1, 1997, dividends on PAAC's stock cannot be paid in amounts in
excess of those necessary to enable Pioneer to pay interest on the $11.5 million
principal amount of its outstanding Seller Notes and for certain other limited
purposes. It is anticipated that as a result of such restriction, no dividends
on Pioneer's Common Stock will be declared during such period.
15
<PAGE> 16
Item 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical financial data of the
Predecessor Company for the years ended December 31, 1994, 1993, 1992, and
1991. The data should be read in conjunction with the Consolidated Financial
Statements included in Item 8. Financial Statements and Supplementary Data. The
table also sets forth the financial condition of the Company at December 31,
1995 and the results of operations of the Company for the year ended December
31, 1995. For comparative purposes the Predecessor Company's operating results
from January 1, 1995 through April 20, 1995 are also presented. The following
table should also be read in conjunction with Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------------------------------
PERIOD FROM
JANUARY 1,
1995
YEAR ENDED THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, APRIL 20, -----------------------------------------------
1995 (1) 1995 1994(2) 1993 1992 1991
---------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues . . . . . . . . . . . . $142,908 $ 57,848 $167,217 $151,191 $157,401 $162,454
Costs and expenses:
Cost of sales . . . . . . . . 98,175 37,400 134,556 131,711 126,149 128,592
Selling, general and
administrative expenses . . 20,765 7,047 22,529 21,850 22,602 19,521
Interest expense, net . . . . 13,540 1,665 6,407 7,551 8,189 9,950
Other income (expense) from
settlement of litigation and
insurance claims, net . . . . . -- -- 3,326 8,360 2,755 (4,517)
Other income (expense) . . . . . 637 (115) 1,337 2,103 1,130 (77)
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary items . . . . 11,065 11,621 8,388 542 4,346 (203)
Provision for (benefit from)
income taxes . . . . . . . . . 5,579 4,809 3,242 486 1,765 (283)
-------- -------- -------- -------- -------- --------
Income before extraordinary
item . . . . . . . . . . . . . 5,486 6,812 5,146 56 2,581 80
Extraordinary item, net of
applicable tax . . . . . . . . -- 3,420 -- -- -- --
-------- -------- -------- -------- -------- --------
Net income . . . . . . . . . . . $ 5,486 $ 3,392 $ 5,146 $ 56 $ 2,581 $ 80
======== ======== ======== ======== ======== ========
Net income per share . . . . . . $ 0.75
========
OTHER FINANCIAL DATA:
Capital expenditures . . . . . . $ 13,556 $ 3,447 $ 5,681 $ 5,888 $ 6,652 $ 7,313
Depreciation and amortization . . 12,274 4,490 13,595 13,446 12,992 11,953
EBITDA(3) . . . . . . . . . . . . 36,879 17,776 28,390 21,539 25,527 21,700
BALANCE SHEET DATA:
Total assets . . . . . . . . . . $267,300 $166,998 $164,531 $158,638 $170,638 $184,799
Total debt, redeemable preferred
stock and redeemable stock put
warrants . . . . . . . . . . . 146,463 57,677 57,865 67,709 76,848 88,393
Common stockholders' equity . . . 44,475 26,370 23,102 19,721 20,165 21,374
</TABLE>
(See footnotes)
16
<PAGE> 17
(1) The results of operations include the results of operations of Pioneer
Americas since its acquisition.
(2) 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.
(3) EBITDA is defined as earnings before interest, income taxes, depreciation,
amortization and extraordinary item 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 following table sets forth selected historical financial data of the
Company for the years ended December 31, 1994, 1993, 1992, and 1991. The data
should be read in conjunction with the Consolidated Financial Statements
included in Item 8. Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
GEV CORPORATION
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1994 1993 1992 1991
------ ------ ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
General and administrative expenses . . . . . . $ 155 $ 505 $ 560 $ 1,543
Equity in earnings of unconsolidated -- -- -- 1,490
subsidiaries . . . . . . . . . . . . . . . .
Bankruptcy costs . . . . . . . . . . . . . . . -- -- 377 5,093
Reduction in carrying value of investment in
unconsolidated subsidiaries . . . . . . . . -- -- -- 15,196
Interest (income) expense, net . . . . . . . . (15) 15 9 865
------ ------ ------- --------
Loss before income taxes and extraordinary item (140) (520) (946) (21,207)
Extraordinary item(1) . . . . . . . . . . . . . -- -- 34,698 --
------ ------ ------- --------
Net income (loss) . . . . . . . . . . . . . . . $ (140) $ (520) $33,752 (2) $(21,207)
====== ====== ======= ========
Net income (loss) per share . . . . . . . . . . $ (.03) $ (.15) $ 11.11 $ (8.00)
====== ====== ======= ========
Average number of shares of common stock
outstanding . . . . . . . . . . . . . . . 4,323 3,419 3,037 2,650
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . $ 912 $ 217 $ 283 $ 89,566
Long-term obligations . . . . . . . . . . . . . -- -- 478 --
Liabilities subject to compromise . . . . . . . -- -- -- 122,042
Stockholders' equity (deficiency) . . . . . . . 762 (223) (355) (35,550)
</TABLE>
(1) Represents gain on settlement of pre-petition liabilities.
(2) The 1992 period included an extraordinary gain from the settlement of
pre-petition liabilities totaling $34,698, or $11.43 per share.
17
<PAGE> 18
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company, through its subsidiaries, manufactures chlorine, caustic soda
and several related downstream water treatment products, principally
hydrochloric acid, bleach, iron chlorides and aluminum sulfate. The Company's
products are used in a variety of applications including water treatment,
plastics, detergents and agricultural chemicals. During 1995 the Company's
operating subsidiaries were PCAC, Imperial West and All-Pure (including GPS,
acquired in May 1994).
The chlorine and caustic soda markets in which the Company competes are
cyclical markets that are sensitive to relative changes in supply and demand,
which are in turn affected by general economic conditions. Over the last five
years the PVC (polyvinyl chloride) market has experienced steady growth.
However, the use of chlorine as a bleaching agent in the pulp and paper
industry and as a feedstock in the production of CFCs (chlorofluorocarbons) has
been reduced significantly due to regulatory pressures. As a result of these
factors and a general economic recession in the early 1990s, the North American
chlor-alkali industry experienced declining prices, as ECU prices fell by over
52% from the fourth quarter of 1989 to the second quarter of 1993. After a
significant improvement in domestic economic growth, in early 1994 chlor-alkali
markets experienced increased levels of demand. In addition, little new
capacity had been added during this time, resulting in greater capacity
utilization and higher domestic and export prices for chlor-alkali products.
These conditions continued in 1995. 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. For example, from
January 1994 through December 1995, the Company increased its average selling
prices by 38%, from $283 to $391 per ECU.
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 cost efficiencies if production rates are often cycled up and down. The
desirability of maintaining steady production rates is made difficult by the
cyclical nature of the chlor-alkali business, which is at times exacerbated by
the fact that the price and demand curves for chlorine differ from those of its
co-product, caustic soda. Peak and trough demand for chlorine and caustic soda
rarely coincide and caustic soda demand tends to trail chlorine demand into and
out of economic growth cycles.
To achieve operating efficiencies and to 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 Company acquired Imperial West and All-Pure in 1990, GPS in
1994, and KWT in February 1996, each of which is a major manufacturer and
distributor, primarily in the western United States, of water treatment
chemicals such as iron chlorides, aluminum sulfate, repackaged chlorine and
bleach. The success of this strategy is reflected in the Company's increased
capacity utilization rates for chlorine and caustic soda over the last five
years, from 93% of capacity in 1990 to approximately 102% in 1994. The capacity
utilization decreased in 1995 to approximately 92% due primarily to the planned
shutdown for maintenance at the St. Gabriel facility. Gross profit margins for
downstream sales vary from gross profit margins of chlor-alkali sales; the
difference depends on where the chlor-alkali industry is in its cycle.
18
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth certain operating data for the periods
indicated:
<TABLE>
<CAPTION>
PRO FORMA (1) PREDECESSOR COMPANY
---------------------- ------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1995 1994 1993
------ ------ ------
% OF % OF % OF
$'000S REVENUES $'000S REVENUES $'000S REVENUES
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
PCAC $ 118,298 58.9% $ 88,907 53.2% $ 81,393 53.8%
Imperial West 32,909 16.4 30,438 18.2 27,679 18.3
All-Pure and GPS(2) 49,549 24.7 47,872 28.6 42,119 27.9
--------- ------ -------- ----- -------- -----
Total revenues 200,756 100.0 167,217 100.0 151,191 100.0
Costs and expenses:
Cost of sales 135,575 67.5 134,556 80.5 131,711 87.1
Selling, general and
administrative expense 27,812 13.9 22,529 13.5 21,850 14.4
Interest expense, net 15,205 7.6 6,407 3.8 7,551 5.0
Other income from settlement of
litigation and insurance claims,
net -- -- 3,326 2.0 8,360 5.5
Other income, net 1,494 0.8 1,337 0.8 2,103 1.4
--------- ------ -------- ----- -------- -----
Income before income taxes
and extraordinary item 23,658 11.8 8,388 5.0 542 0.4
Provision for income taxes 10,388 5.2 3,242 1.9 486 0.3
--------- ------ -------- ----- -------- -----
Net income before
extraordinary item 13,270 6.6 5,146 3.1 56 0.1
Extraordinary item, net of
applicable tax (3,420) (1.7) -- -- -- --
--------- ------ -------- ----- -------- -----
Net income $ 9,850 4.9% $ 5,146 3.1% $ 56 0.1%
========= ====== ======== ===== ======== =====
</TABLE>
- ---------------
(1) The pro forma results of operations, which combine the Company's operating
results for the year ended December 31, 1995 and the Predecessor Company's
operating results from January 1, 1995 through April 20, 1995, are
provided for comparative purposes. The Predecessor Company's operating
results exclude approximately $1.0 million of transaction costs related to
the Acquisition. The Company believes that this provides a meaningful
basis for comparison. The Company and the Predecessor Company have
different asset bases and the effects on operating results of these
differences are discussed below.
(2) 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.
19
<PAGE> 20
PRO FORMA 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, a result of 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 was essentially flat but increased as a percentage of revenues
to 32.5% in 1995 from 19.5% in 1994 due to a combination of increased revenues
and lower raw material costs which offset higher transportation and other
expenses and an Acquisition related inventory step-up.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by $5.3 million or
23% to $27.8 million for the year ended December 31, 1995. This increase was
primarily the result of the impact 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
Acquisition.
Interest Expense, net
Interest expense increased by $8.8 million or 137% to $15.2 million for
1995 from $6.4 million for 1994. This increase was a result of debt incurred in
connection with the Acquisition.
Income Before Taxes and Extraordinary Item
As a result of the above, net income before taxes and extraordinary item
increased by $15.3 million or 182% to $23.7 million of income for the year
ended December 31, 1995 from $8.4 million for the year ended December 31, 1994.
Provision for Income Taxes
Provision for income taxes increased $7.1 million to $10.4 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 carryfoward.
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 Acquisition.
Net Income
As a result of the forgoing, net income increased 91% to $9.9 million.
20
<PAGE> 21
PREDECESSOR COMPANY YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED
DECEMBER 31, 1993
Revenues
Revenues during 1994 increased by $16.0 million or 10.6% to $167.2
million. The increase was primarily attributable to significantly higher
selling prices and moderately higher sales volumes for chlorine due to an
industry-wide increase in chlorine demand, partially offset by slightly lower
selling prices and volumes for caustic soda. In addition, All-Pure/GPS
revenues increased by $5.8 million or 13.7% primarily as a result of the
contribution of $9.4 million of revenues by GPS from the date of its
acquisition in May 1994 through December 31, 1994.
Gross Profit
Gross profit increased by $13.2 million or 67.7% to $32.7 million in 1994.
Gross margin increased to 19.5% for 1994 from 12.9% for 1993. The increase in
gross profit and gross margin was primarily attributable to the increase in
revenues at PCAC related to higher prices, lower costs of power, and lower
per-unit fixed costs due to the higher throughput which increased by
approximately 7,700 tons in 1994 due to increased efficiencies. These factors
were offset by the inability of All-Pure to pass on approximately $2.7 million
of increased ECU prices and other raw material costs to its customers in a
timely manner due to the terms of existing contracts and market conditions.
Selling, General and Administrative
Selling, general and administrative expenses increased slightly in 1994
but decreased to 13.5% of revenues from 14.4% in 1993.
Interest Expense
Interest expense in 1994 decreased $1.1 million from $7.6 million in 1993
as a result of reduction in debt offset by increases in interest rates, which
were tied to the prime rate.
Other Income from Settlement of Litigation and Insurance Claims, net
Other income from settlements of litigation and insurance claims decreased
by $5.0 million to $3.3 million in 1994 from $8.4 million in 1993. In 1994 the
Company received a $5.9 million insurance recovery relating to the 1991
chlorine release at the Henderson facility, of which $3.3 million was
recognized as other income, $2.1 million was recognized as reimbursement of
current costs and $0.5 million was accrued for future liabilities. In 1993 the
Company received a $7.8 million arbitration settlement from the prior owner of
the Company's Henderson and St. Gabriel plants relating to disputes over supply
and sales contracts.
Other Income, net
Other income decreased by $0.8 million to $1.3 million in 1994. The
decrease was primarily attributable to a charge for the revaluation of stock
appreciation rights ("SAR's") issued to certain of the Company's lenders in
1990.
Provision for Income Taxes
Provision for income taxes was $3.2 million in 1994 as compared to $0.5
million in 1993 due to an increase in pre-tax income partially offset by a
lower effective tax rate which includes an adjustment of previously provided
taxes.
Net Income
As a result of the foregoing, net income was $5.1 million in 1994 as
compared to $0.1 million in 1993.
21
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
The Company incurred substantial indebtedness in connection with the
Acquisition. As of December 31, 1995, the Company had outstanding indebtedness
of approximately $146.5 million.
Concurrently with the Acquisition, the Bank Credit Facility became
available to Pioneer Americas, Inc. The Bank Credit Facility provides a $30
million revolving line of credit, subject to borrowing base limitations that
relate to the level of accounts receivable and inventory of Pioneer Americas,
Inc. and its subsidiaries, PCAC, Imperial West and All-Pure ("Subsidiary
Guarantors"). As of December 31, 1995, the Subsidiary Guarantors had $2.9
million of letters of credit outstanding and had, subject to certain
restrictions (including borrowing base limitations), the ability to draw up to
$27.1 million of additional secured indebtedness under the Bank Credit Facility
through 1998. The Bank Credit Facility is secured by the accounts receivable
and inventory of the Subsidiary Guarantors, and the guarantee of PCAC issued in
connection therewith is secured by first mortgage liens on PCAC's St. Gabriel,
Louisiana and Henderson, Nevada plants pari passu with PAAC's outstanding
13 3/8% First Mortgage Notes ( the "Mortgage Notes."). The only financial
coverage ratio requirements included in either the indenture with respect to the
Mortgage Notes or the Bank Credit Facility are those which require a
calculation of a consolidated cash flow coverage ratio and an interest coverage
ratio. The indenture requires that, on a pro forma basis, the Company's
consolidated cash flow coverage ratio for the most recently ended four full
fiscal quarters immediately preceding the date on which indebtedness is
incurred, calculated on a pro forma basis as if indebtedness was incurred on
the first day of such four full fiscal quarter period, would be at least 2.75
to 1.0. Dividends may not be paid unless, among other tests, PAAC could incur
$1.00 of additional indebtedness. The Bank Credit Facility requires an interest
coverage ratio of 1:00 to 1:00. PAAC and Pioneer Americas are in compliance
with the financial coverage ratio requirements.
The Company believes that cash flow from current and anticipated future
levels of operations and, to a lesser extent, the availability under the Bank
Credit Facility, will be adequate to make the required payments of principal
and interest on outstanding indebtedness, as well as to fund its foreseeable
capital expenditures and working capital requirements. Annual cash interest of
$19.0 million will be payable on the Mortgage Notes and on the Seller Notes.
The Company anticipates that capital expenditures for 1996 will be
approximately $16.0 million, including approximately $3.4 million for
environmental compliance matters. The Company believes that forecasted capital
expenditures will permit it to maintain its facilities on a basis competitive
within the industry through improved efficiency and throughput and continuation
of high operating rates. To the extent that the Company were to draw upon the
commitments under the Bank Credit Facility due to adverse business conditions
or to finance acquisitions or for other corporate purposes, the Company's
aggregate interest expense would be increased.
The Company's belief that it will generate sufficient cash flow for its
requirements is based, among other things, on the assumptions that: (i) the
Company's cash flow will be strong for several years as a result of continued
high ECU prices; (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. Based on its analysis of
industry trends, management expects that current ECU prices, which are at
historically high levels, will continue at such levels during the next several
years, which, together with established low cash ECU production costs, should
result in cash inflows significantly greater than those experienced previously.
Pioneer's source of funds for payment of principal and interest on the
Seller Notes will be provided by dividends from PAAC. PAAC is restricted in
paying such dividends to 50% of the cumulative consolidated net income of PAAC
for the period subsequent to January 1, 1995, and is required to meet a
consolidated cash flow coverage ratio test of at least 2.75 to 1.0 for the
prior four fiscal quarters. Payment of dividends by PAAC to Pioneer should not
impair PAAC's liquidity if the tests are met.
Working Capital. The Company had working capital of $11.0 million at
December 31, 1995, as compared to a working capital deficiency of the
Predecessor Company of $4.4 million at December 31, 1994, primarily due to
higher cash balances and receivables as a result of higher volumes and prices
associated with ECU sales. Also, $12.1 million of current maturities of
long-term debt was included in current liabilities in 1994.
22
<PAGE> 23
Net Cash Used in Investing Activities. Cash used in investing activities
for 1995 was $169.0 million, an increase of $164.3 million from that used by the
Predecessor Company in 1994. This increase was due primarily to the purchase
of the Predecessor Company by Pioneer for $152.3 million and an increase in
capital spending of $11.3 million for equipment replacement, operation
improvements and environmental compliance.
Cash used in investing activities by the Predecessor Company for 1994 was
$5.0 million, a decrease of $0.7 million from 1993. This decrease was mainly a
result of the 1994 sale of certain land located near PCAC's Henderson facility
for approximately $0.7 million. Capital spending, which was for equipment
replacement, operations improvements and environmental compliance, totaled $5.7
million in 1994 and $5.9 million in 1993.
Net Cash Provided by (Used in) Financing Activities. Cash provided by
financing activities in 1995 was $146.7 million compared to cash used in
financing activities by the Predecessor Company in 1994 of $15.9 million. The
difference is primarily due to the borrowings on the Mortgage Notes of $135.0
million and the issuance of $21.0 million of common stock during 1995 as
compared to net repayments on debt in 1994. Cash used in financing activities
in 1994 was $15.9 million, an increase of $4.1 million from 1993. The
difference is primarily a result of an increase in the amount of debt repaid in
1994.
SFAS 121
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," (SFAS 121) which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed. The Company
will adopt SFAS 121 in the first quarter of 1996 and, based on current
circumstances, does not believe the effect of adoption will be material.
SFAS 123
The Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock-Based Compensation," (SFAS No. 123) in October 1995.
SFAS No. 123, which is effective for fiscal years beginning after December 15,
1995, allows companies either to (i) continue to measure compensation cost
based on the "intrinsic value" method prescribed by Accounting Principles Board
Opinion No. 25 (APB No. 25) or (ii) adopt a "fair value" method of accounting
for all employee stock-based compensation; provided, however, that in either
case companies will be required to significantly expand disclosures related to
stock-based employee compensation arrangements (including the pro forma amount
of net income and earnings per share as if the new "fair value" method were
adopted, for those companies choosing to retain the "intrinsic value" method of
APB No. 25.) The accounting requirements for companies choosing to adopt SFAS
No. 123 apply to all stock-based awards granted, modified or settled in cash in
fiscal years beginning after December 15, 1995. The pro forma disclosure
requirements for companies electing to continue to apply APB No. 25 include,
for comparative purposes, the effects of all stock-based awards granted in
fiscal years beginning after December 15, 1994. The Company has elected to
continue utilizing the accounting prescribed by APB No. 25 for stock issued to
employees and therefore the impact on the Company of this change in accounting
principle will be only to increase disclosure requirements.
23
<PAGE> 24
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) Consolidated financial statements, Pioneer Companies, Inc. and
subsidiary companies:
Report of Deloitte & Touche LLP, independent public accountants,
dated March 22, 1996................................................. 25
Report of Ernst & Young LLP, independent auditors, dated
June 26, 1995........................................................ 26
Report of Piercy, Bowler, Taylor & Kern, independent public
accountants, dated January 30, 1995.................................. 27
Consolidated balance sheets---December 31, 1995 and 1994 and
Predecessor Company at December 31, 1994 ............................ 28
Consolidated statements of operations for the years ended December
31, 1995, 1994 and 1993 and Predecessor Company Period
from January 1, 1995 through April 20, 1995 and Years
Ended December 31, 1994 and 1993.................................... 30
Consolidated statements of stockholders' equity (deficiency) for the
years ended December 31, 1995, 1994 and 1993 and Predecessor
Company Period from January 1, 1995 through April 20, 1995
and Years Ended December 31, 1994 and 1993 .......................... 31
Consolidated statements of cash flows for the years ended December 31,
1995, 1994 and 1993 and Predecessor Company Period from
January 1, 1995 through April 20, 1995 and Years Ended
December 31, 1994 and 1993.......................................... 32
Notes to consolidated financial statements ............................... 35
(2) Supplemental Schedule:
Schedule II - Valuation and Qualifying Accounts .......................... 63
</TABLE>
All schedules, except the one listed above, have been omitted since the
information required to be submitted has been included in the financial
statements or notes or has been omitted as not applicable or not required.
24
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pioneer Companies, Inc.
We have audited the accompanying consolidated balance sheets of Pioneer
Companies, Inc. (the "Company"), as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the three years then ended. Our audits
also included the 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 the financial statements and
schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Pioneer Companies, Inc., at December 31, 1995 and 1994, and the consolidated
results of its operations, changes in stockholders' equity (deficiency) and
cash flows for each of the three years then ended 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.
DELOITTE & TOUCHE LLP
Houston, Texas
March 22, 1996
25
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pioneer Americas, Inc.
We have audited the accompanying consolidated balance sheet of Pioneer
Americas, Inc. (the "Company"), as of December 31, 1994 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the period from January 1, 1995 through April 20, 1995 and for each of the
two years in the period ended December 31, 1994. Our audits also included the
related 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 audits. The financial statements of certain of the Company's investments
(as described in Note 4) have been audited by other auditors whose reports have
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 reports.
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 reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Pioneer Americas,
Inc., at December 31, 1994 and the consolidated results of its operations and
its cash flows for the period from January 1, 1995 through April 20, 1995 and
each of the two years in the period 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
26
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
Board of Directors
Basic Investments, Inc.
Henderson, Nevada
We have audited the accompanying combined balance sheets of Basic Investments,
Inc. and affiliates (the Company) as of December 31, 1994 and the related
combined statements of income, equity and cash flows for each of the two years
in the period 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 combined financial position of Basic
Investments, Inc. and affiliates as of December 31, 1994 and the results of its
combined operations and cash flows for each of the two years in the period
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
27
<PAGE> 28
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
DECEMBER 31, COMPANY
------------------------- DECEMBER 31,
1995 1994 1994
-------- -------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,276 $ 880 $ 3,310
Accounts receivable, less allowance for doubtful accounts of
$1,424 at December 31, 1995 and $2,038 at
December 31, 1994 (Predecessor Company) . . . . . . . . . 29,238 -- 26,170
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 13,004 -- 12,236
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 3,781 -- 1,845
-------- ----- --------
Total current assets . . . . . . . . . . . . . . . . . 57,299 880 43,561
Property, plant, and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,711 -- 11,203
Buildings and improvements . . . . . . . . . . . . . . . . . 13,997 -- 13,891
Machinery and equipment . . . . . . . . . . . . . . . . . . 67,587 71 107,857
Cylinders and tanks . . . . . . . . . . . . . . . . . . . . 4,503 -- 4,337
Construction in progress . . . . . . . . . . . . . . . . . . 9,394 -- 3,392
-------- ----- --------
97,192 71 140,680
Less accumulated depreciation . . . . . . . . . . . . . . . (7,795) (39) (56,267)
-------- ----- --------
89,397 32 84,413
Investment in Victory Valley Land Company, L.P. ("VVLC") . . . . -- -- 1,612
Investment in Basic Investments, Inc. ("BII") . . . . . . . . . . -- -- 15,704
Other assets, net of accumulated amortization of $1,168
at December 31, 1995 and $11,302 at December 31, 1994
(Predecessor Company) . . . . . . . . . . . . . . . . . . . . 11,664 -- 9,197
Excess cost over the fair value of net assets acquired, net of
accumulated amortization of $3,311 at December 31, 1995
and $2,722 at December 31, 1994 (Predecessor Company) . . . . 108,940 -- 10,044
-------- ----- --------
Total assets . . . . . . . . . . . . . . . . . . . . . $267,300 $ 912 $164,531
======== ===== ========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 29
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
DECEMBER 31, COMPANY
------------------------- DECEMBER 31,
1995 1994 1994
-------- -------- -----------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 18,793 $ 20 $ 13,103
Accrued liabilities . . . . . . . . . . . . . . . . . . 24,108 130 19,330
Returnable deposits . . . . . . . . . . . . . . . . . . 3,437 -- 3,423
Current maturities of long-term debt . . . . . . . . . . -- -- 12,056
-------- -------- --------
Total current liabilities . . . . . . . . . . . . . 46,338 150 47,912
Bank Credit Facility . . . . . . . . . . . . . . . . . . . . -- -- --
13-3/8% First Mortgage Notes due 2005 . . . . . . . . . . . . 135,000 -- --
Seller Notes . . . . . . . . . . . . . . . . . . . . . . . . 11,463 -- --
Long-term debt, less current maturities . . . . . . . . . . . -- -- 36,757
Returnable deposits . . . . . . . . . . . . . . . . . . . . . 3,281 -- 3,788
Accrued pension and other employee benefits . . . . . . . . . 13,573 -- 10,794
Future tax effects . . . . . . . . . . . . . . . . . . . . . -- -- 19,799
Other long-term liabilities . . . . . . . . . . . . . . . . . 13,170 -- 13,327
Commitments and contingencies
Redeemable preferred stock . . . . . . . . . . . . . . . . . -- -- 6,227
Redeemable stock put warrants . . . . . . . . . . . . . . . . -- -- 2,825
Stockholders' equity:
Preferred stock: $.01 par value, authorized 10,000,000
shares, none issued
Common stock:
Class A, $.01 par value, authorized 46,000,000 shares,
issued and outstanding 7,883,593 at December 31,
1995 and 3,768,499 at December 31, 1994 . . . . . . 79 38 --
Class B, $.01 par value, authorized 4,000,000 shares,
issued and outstanding 655,199 at December 31,
1995 and 769,354 at December 31, 1994, convertible
share-for-share into Class A shares . . . . . . . . 7 8 --
Common stock, $.01 par value, authorized 3,000,000
shares, issued and outstanding 1,509,343 at
December 31, 1994 . . . . . . . . . . . . . . . . . . -- -- 15
Additional paid-in capital . . . . . . . . . . . . . . . 40,056 1,869 4,186
Retained earnings (deficit) . . . . . . . . . . . . . . 4,333 (1,153) 18,901
-------- -------- --------
Total stockholders' equity . . . . . . . . . . . . 44,475 762 23,102
-------- -------- --------
Total liabilities and stockholders' equity . . . . $267,300 $ 912 $164,531
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 30
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------------
PERIOD FROM
JANUARY 1,
1995
YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED DECEMBER 31,
-------------------------------- APRIL 20, -----------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . $142,908 $ -- $ -- $ 57,848 $167,217 $151,191
Costs and expenses:
Cost of sales . . . . . . . . . . 96,504 -- -- 37,400 134,556 131,711
Cost of sales--acquisition
related inventory step-up . . . 1,671 -- -- -- -- --
Selling, general and
administrative . . . . . . . . 20,765 155 505 7,047 22,529 21,850
Interest expense, net . . . . . . 13,540 (15) 15 1,665 6,407 7,551
-------- -------- -------- -------- -------- --------
Total costs and expenses . . 132,480 140 520 46,112 163,492 161,112
Other income from the settlement of
litigation and insurance claims, net -- -- -- -- 3,326 8,360
Other income, net . . . . . . . . . . . 637 -- -- (115) 1,337 2,103
-------- -------- -------- -------- -------- --------
Income (loss) before taxes and
extraordinary item . . . . . . . . . 11,065 (140) (520) 11,621 8,388 542
Income tax provision . . . . . . . . . 5,579 -- -- 4,809 3,242 486
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item . . . . . . . . . . . . . . . 5,486 (140) (520) 6,812 5,146 56
Extraordinary item . . . . . . . . . . -- -- -- (3,420) -- --
-------- -------- -------- -------- -------- --------
Net income (loss) . . . . . . . . . . . 5,486 (140) (520) 3,392 5,146 56
Accretion of dividends on preferred
stock and adjustment to redeemable
stock put warrants . . . . . . . . . -- -- -- -- (1,824) (400)
-------- -------- -------- -------- -------- --------
Net income (loss) applicable to
common stock . . . . . . . . . . . . $ 5,486 $ (140) $ (520) $ 3,392 $ 3,322 $ (344)
======== ======== ======== ======== ======== ========
Net income (loss) per share . . . . . . $ .75 $ (.03) $ (.15)
======== ======== ========
Weighted average number of shares of
common stock outstanding . . . . . . 7,337 4,323 3,419
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
ISSUED AND OUTSTANDING ADDITIONAL
---------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
Balance at December 31, 1992 . . . . . 1,453 $ 14 $ 4,028 $ 16,123 $ 20,165
Accretion of excess redemption value
of redeemable preferred stock over
carrying value and amount of
dividends not declared or paid . . -- -- -- (500) (500)
Net income . . . . . . . . . . . . . -- -- -- 56 56
-------- -------- -------- -------- --------
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
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK ISSUED AND OUTSTANDING
----------------------------------------
CLASS A CLASS B ADDITIONAL RETAINED
------------------- ------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
-------- -------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
PIONEER COMPANIES, INC.
Balance at December 31, 1992 . . . . . 2,650 $ 27 769 $ 8 $ 101 $ (493)
Net loss . . . . . . . . . . . . . . -- -- -- -- -- (520)
Forgiveness of indebtedness . . . . . -- -- -- -- 653 --
-------- -------- -------- -------- -------- --------
Balance at December 31, 1993 . . . . . 2,650 27 769 8 754 (1,013)
Private placement . . . . . . . . . . 1,102 11 -- -- 1,092 --
Net loss . . . . . . . . . . . . . . -- -- -- -- -- (140)
Stock issued to non-employee Directors 16 -- -- -- 23 --
-------- -------- -------- -------- -------- --------
Balance at December 31, 1994 . . . . . 3,768 38 769 8 1,869 (1,153)
Private placement . . . . . . . . . . 24 1 -- -- 36 --
Stock issued to Interlaken Investment
Partners, L.P. . . . . . . . . . . 2,841 28 -- -- 14,972 --
Stock issued to certain employees and
directors of the Predecessor Company 1,136 11 -- -- 5,989 --
Conversion of Class B shares into Class A
shares . . . . . . . . . . . . . . 114 1 (114) (1) -- --
Utilization of the NOL . . . . . . . -- -- -- -- 17,190 --
Net income . . . . . . . . . . . . . -- -- -- -- -- 5,486
-------- -------- -------- -------- -------- --------
Balance at December 31, 1995 . . . . . 7,883 $ 79 655 $ 7 $ 40,056 $ 4,333
======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 32
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------------
PERIOD
FROM
JANUARY 1,
1995
YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED DECEMBER 31,
-------------------------------- APRIL 20, -----------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . $ 5,486 $ (140) $ (520) $ 3,392 $ 5,146 $ 56
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization . . . 12,274 6 8 4,490 13,595 13,446
Provision for bad debts . . . . . . 138 -- -- 47 1,235 1,100
Write-off of previous finance
costs . . . . . . . . . . . . . . -- -- -- 1,282 -- --
Loss (Gain) on disposal of
property, plant and equipment . . -- -- -- 13 (4) (46)
Provision for SAR's . . . . . . . . -- -- -- -- 968 --
Equity in earnings of BII and
VVLC . . . . . . . . . . . . . . -- -- -- (204) (183) (1,149)
Future tax effects . . . . . . . . . -- -- -- (2,086) (1,256) 1,723
Utilization of NOL . . . . . . . . . 3,590 -- -- -- -- --
Changes in operating assets and
liabilities (net of acquisitions):
Accounts receivable . . . . . . 1,866 -- -- (3,617) (4,889) 4,032
Due from affiliates . . . . . . -- -- -- -- 535 613
Receivable from insurance
carriers and agents . . . . . -- -- -- -- (102) 102
Income taxes receivable . . . . -- -- -- -- 2,738 (1,299)
Inventories . . . . . . . . . . 1,541 -- -- (638) (876) 744
Prepaid expenses . . . . . . . (1,416) -- -- 722 (371) 447
Other assets . . . . . . . . . (3,104) 24 -- (1,342) (305) (398)
Accounts payable . . . . . . . (2,464) -- -- 4,899 862 (3,138)
Accrued liabilities . . . . . . 8,931 (291) 204 (3,784) 3,783 1,156
Returnable deposits . . . . . . (234) -- -- (259) (323) 208
Other long-term liabilities . . (71) -- -- (726) 1,079 (93)
Accrued pension and other
employee benefits . . . . . . 477 -- -- 422 787 674
-------- -------- -------- -------- ------- --------
Total adjustments . . . . 21,528 (261) 212 (781) 17,273 18,122
-------- -------- -------- -------- ------- --------
Net cash provided by (used in)
operating activities . . . . . . . . . 27,014 (401) (308) 2,611 22,419 18,178
INVESTING ACTIVITIES:
Purchase of Predecessor Company (152,318) -- -- -- -- --
Capital expenditures . . . . . . . . (13,556) -- -- (3,447) (5,681) (5,889)
Proceeds from sale of property,
plant and equipment . . . . . . . -- -- -- 58 694 204
-------- -------- -------- -------- ------- --------
Net cash used in investing activities . . (165,874) -- -- ( 3,389) (4,987) (5,685)
======== ======== ======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------------
PERIOD
FROM
JANUARY 1,
1995
YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED DECEMBER 31,
-------------------------------- APRIL 20, -----------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Payments on revolving credit
facility . . . . . . . . . . (18,500) -- -- -- -- --
Borrowings on revolving credit
facility . . . . . . . . . . 18,500 -- -- -- -- --
Borrowings on 13 3/8% First
Mortgage Notes due 2005 . . . 135,000 -- -- -- -- --
Payments on long-term debt . . . (9,000) -- -- (103,971) (99,961) (14,544)
Proceeds from borrowings on
long-term debt . . . . . . . -- -- -- 106,000 83,900 2,700
Proceeds from borrowings on loan
payable to unconsolidated
subsidiary . . . . . . . . . -- 75 175 -- -- --
Dividends paid on preferred stock
and purchase stock put warrant -- -- -- (2,341) -- --
Proceeds from private placement
of Class A Common Stock . . . 21,036 1,102 -- -- -- --
Proceeds from issuance of
common stock . . . . . . . . -- -- -- -- 170 --
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities . . . . . . . 147,036 1,177 175 (312) (15,891) (11,844)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash . . . 8,176 776 (133) (1,090) 1,541 649
Cash acquired in acquisition . . . . 2,220 -- -- -- -- --
Cash at beginning of period . . . . . 880 104 237 3,310 1,769 1,120
-------- -------- -------- -------- -------- --------
Cash at end of period . . . . . . . . $ 11,276 $ 880 $ 104 $ 2,220 $ 3,310 $ 1,769
======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 34
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------------
PERIOD
FROM
JANUARY 1,
1995
YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED DECEMBER 31,
-------------------------------- APRIL 20, -----------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . $ 8,704 $ -- $ -- $ 3,067 $ 4,482 $ 5,871
======== ======== ======== ======== ======== ========
Income taxes . . . . . . . . . . $ 1,707 $ -- $ -- $ 1,852 $ 3,730 $ --
======== ======== ======== ======== ======== ========
Supplemental schedule of non-cash
investing and financing activities:
The allocation of the purchase
price is summarized as follows:
Fair value of assets acquired . $267,977
Cash paid for acquisition . . . (152,318)
Seller Notes issued . . . . . . (11,463)
NOL benefit recognized . . . . (13,600)
--------
Liabilities assumed . . . . . . $ 90,596
========
In May 1994, the Predecessor
Company purchased all of the
issued and outstanding stock of
GPS Pool Supply, Inc. for
$3,492 summarized as follows:
Fair value of net assets
acquired . . . . . . . . . . $ 3,336
Goodwill . . . . . . . . . . . 156
Cash paid for capital stock . . (238)
--------
Note balance . . . . . . . . . $ 3,254
========
</TABLE>
See notes to consolidated financial statements.
34
<PAGE> 35
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
At the annual shareholders meeting held on March 31, 1995, the change of
GEV Corporation's name to Pioneer Companies, Inc. ("Pioneer") was approved
subject to the consummation of the acquisition described below. The consolidated
financial statements include the accounts of Pioneer and its subsidiaries (the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation. All dollar amounts in the tabulations in the notes
to the financial statements are stated in thousands of dollars unless otherwise
indicated.
On April 20, 1995, the Company purchased Pioneer Americas, Inc. ("Pioneer
Americas" or the "Predecessor Company") which, through its subsidiaries,
manufactures chlorine, caustic soda and related products used in a variety of
applications including water treatment, plastics, detergents and agricultural
chemicals. Prior to April 20, 1995 the Company, which had previously sold its
businesses, was actively seeking acquisitions and had no other operations.
Share and per share information has been retroactively restated to reflect
the one-for-four reverse stock split of Pioneer's Class A and Class B Common
Stock, effective April 27, 1995. Income (loss) per common share is computed
using the weighted average number of Class A and Class B common shares
outstanding during the period.
BASIS OF PRESENTATION EFFECTIVE APRIL 20, 1995
On April 20, 1995, pursuant to a Stock Purchase Agreement, dated as of
March 24, 1995 (the "Acquisition Agreement"), by and among Pioneer, Pioneer
Americas Acquisition Corp. ("PAAC"), and the holders of the outstanding common
stock and other common equity interests (the "Sellers") of the Predecessor
Company, PAAC acquired all of such stock and interests (the "Acquisition") for
a purchase price equal to the sum of approximately (i) $102.0 million, paid in
cash, (ii) $11.5 million aggregate principal amount of subordinated promissory
notes of Pioneer (the "Seller Notes") and (iii) certain amounts payable
pursuant to a Contingent Payment Agreement among Pioneer, PAAC and the Sellers
("Contingent Payment Agreement") after the closing based upon earnings or
proceeds attributable to certain of Pioneer Americas' direct and indirect real
estate holdings ("Contingent Payment Properties") which are not necessary for
Pioneer Americas' business. In addition, as further consideration for the
Acquisition, PAAC paid approximately $51.7 million to retire all outstanding
indebtedness of the Predecessor Company, $5.0 million to redeem Predecessor
Company outstanding preferred stock and $6.3 million of fees and expenses for
a total purchase price of $176.5 million.
In connection with the consummation of the Acquisition, (i) PAAC issued
and sold $135.0 million aggregate principal amount of 13-3/8% First Mortgage
Notes (the "Initial Offering" or "Mortgage Notes"), (ii) Pioneer issued the
Seller Notes in exchange for certain of the outstanding shares of Pioneer
Americas, Inc., which Pioneer contributed to PAAC, (iii) Pioneer issued and
sold to Interlaken Investment Partners, L.P., a Delaware limited partnership
(the "Interlaken Partnership"), 2,840,909 shares of Class A Common Stock of
Pioneer for an aggregate purchase price of $15.0 million (the "Interlaken
Partnership Purchase"), the proceeds of which were contributed to PAAC, (iv)
Pioneer issued and sold to certain employees and directors of the Predecessor
Company (collectively, the "Management Investors"), 1,136,363 shares of Class
A Common Stock of Pioneer for an aggregate purchase price of $6.0 million (the
"Management Purchase"), the proceeds of which were contributed to PAAC, and
(v) Pioneer Americas entered into
35
<PAGE> 36
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
a new bank revolving credit facility (the "Bank Credit Facility") providing
for borrowings of up to $30.0 million. The net proceeds of the Initial
Offering, the Interlaken Partnership Purchase, the Management Purchase and a
borrowing under the Bank Credit Facility were used to pay the cash portion of
the purchase price of the Acquisition, to retire the outstanding Predecessor
Company indebtedness, to redeem the Predecessor Company's outstanding preferred
stock and to pay certain transaction costs associated with the Acquisition.
The Acquisition has been accounted for by the purchase method of
accounting. The excess of the purchase price over the estimated fair value of
the net assets acquired of approximately $112.0 million will be amortized on a
straight-line basis over periods of up to 25 years. The purchase price
allocation is based on estimates of the fair value of the net assets acquired
and liabilities assumed and is subject to adjustment as additional information
becomes available.
The following pro forma financial data presents the consolidated financial
results of operations as if the Acquisition, the Initial Offering, the
Interlaken Partnership Purchase, the Management Purchase and the borrowing
under the Bank Credit Facility had occurred at the beginning of the periods
presented and does not purport to be indicative of either future results of
operations or results that would have occurred had the Acquisition actually
been made as of such dates.
PRO FORMA COMBINED SUMMARY STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994
--------- ---------
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,756 $ 167,217
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 17,825 17,311
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . 19,226 18,967
Income (loss) before income taxes and extraordinary item . . . . . . 17,824 (5,839)
Income (loss) before extraordinary item . . . . . . . . . . . . . . . 10,263 (5,839)
Extraordinary item, early extinguishment of debt (net of income tax
benefit of $2,140) . . . . . . . . . . . . . . . . . . . . . . . . (3,420) --
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,843 $ (5,839)
========= =========
Weighted average number of shares of common stock outstanding 8,535 8,344
PER SHARE DATA:
Income (loss) before extraordinary item . . . . . . . . . . . . . . . $ 1.20 $ (0.70)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . (0.40) --
--------- ---------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.80 $ (0.70)
========= =========
</TABLE>
The pro forma combined summary statements of operations reflect the
inclusion of the Predecessor Company's results of operations for the period
from January 1, 1995 through April 20, 1995 and for the year ended December 31,
1994 as applicable, adjusted for: depreciation and amortization on property,
plant and equipment valuation increases of $0.3 million and $0.8 million, excess
cost over the fair value of net assets acquired and financing cost of $1.5
million and $5.1 million, interest expense on financing in connection with the
Acquisition of $5.8 million and $19.0 million, adjustment of the income tax
provision of $2.8 million and $3.2 million; and
36
<PAGE> 37
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
elimination of historical interest expense of $1.7 million and $6.4 million,
amortization of excess cost over fair value of net assets acquired and
amortization of organization costs of $1.2 million and $2.2 million and equity
income from certain real estate investments of $0.2 million and $0.2 million.
The December 31, 1994 pro forma information also reflects the elimination of
the expense related to special appreciation rights granted to a subordinated
debt holder of $1.0 million and bank fees of $1.4 million.
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.
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 results of operations for the year ended 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.
OTHER ASSETS
Other assets include amounts for deferred financing costs which are being
amortized on a straight-line basis over the term of the related debt.
Amortization expense for other assets for the year ended December 31, 1995 was
approximately $1.1 million.
Other assets of the Predecessor Company included amounts for organization
costs, deferred financing costs, noncompete agreements, permits, licenses, and
customer lists obtained in conjunction with the acquisitions of All-Pure
Chemical Co. ("APC"), GPS Pool Supply, Inc. ("GPS") and Imperial West Chemical
Co. ("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 expense for other assets was approximately $0.8
million for the period from January 1, 1995 through April 20, 1995 and $1.7
million and $2.1 million for each of the years ending December 31, 1994 and
1993.
EXCESS COST OVER THE FAIR VALUE OF NET ASSETS ACQUIRED
Excess cost over the fair value of net assets acquired of approximately
$112 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
37
<PAGE> 38
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
is reviewed annually and if this review indicates that such excess cost will
not be recoverable, as determined based on the 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 cash flows. Amortization expense for excess cost
over the fair value of net assets acquired was approximately $3.3 million for
the year ended December 31, 1995.
The Predecessor Company's excess cost over the fair value of net assets
acquired or goodwill related to the All-Pure, Imperial West, and GPS
acquisitions of approximately $12.8 million was amortized on a straight-line
basis over 20 years. Amortization expense for goodwill was approximately $0.2
million for the period from January 1, 1995 through April 20, 1995 and $0.6
million for each of the years ending December 31, 1994 and 1993.
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.
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 and $19.3 million in 1994 and 1993, respectively.
ENVIRONMENTAL EXPENDITURES
Environmental related restoration and remediation costs are recorded as
liabilities and expensed when site restoration and environmental remediation
and clean-up obligations are either known or considered probable and the
related costs can be reasonably estimated. Other environmental expenditures,
that are principally maintenance or preventative in nature, are recorded when
expended and are expensed or capitalized as appropriate.
RETURNABLE DEPOSITS
Customers are required to pay a security deposit on All-Pure 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
Pioneer files a consolidated tax return. Pioneer has entered into a tax
sharing agreement with PAAC whereby PAAC will make tax sharing payments to
Pioneer with respect to federal cash income taxes reflecting the consolidated
cash tax liability of Pioneer. State income taxes are included in income taxes
payable.
FUTURE TAX EFFECTS
Future tax effects, including effects of the Company's tax sharing
agreement, are computed under the provisions of SFAS No. 109 ("Accounting for
Income Taxes") and result from temporary differences in the recognition of
expenses for financial reporting and tax purposes. Temporary differences
include differences in methods of computing depreciation for financial
statement and tax purposes and differences in the financial statement basis and
tax basis of assets and liabilities acquired.
38
<PAGE> 39
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PER SHARE INFORMATION
Income per common share is computed using the weighted average number of
common shares outstanding during the period.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's assets and liabilities which are
considered to be financial instruments approximate their value. The estimated
fair value for the Company's long-term debt which approximates its fair value
as of December 31, 1995 was determined by the Company using appropriate
valuation methodologies and information available to management at that time.
Considerable judgment is required in developing these estimates and,
accordingly, no assurance can be given that the estimated values 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, 1995.
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.
STOCK OPTIONS
The Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock-Based Compensation," (SFAS No. 123) in October 1995.
SFAS No. 123, which is effective for fiscal years beginning after December 15,
1995, allows companies either to (i) continue to measure compensation cost
based on the "intrinsic value" method prescribed by Accounting Principles Board
Opinion No. 25 (APB No. 25) or (ii) adopt a "fair value" method of accounting
for all employee stock-based compensation; provided, however, that in either
case companies will be required to significantly expand disclosures related to
stock-based employee compensation arrangements (including the pro forma amount
of net income and earnings per share as if the new "fair value" method were
adopted, for those companies choosing to retain the "intrinsic value" method of
APB No. 25.) The accounting requirements for companies choosing to adopt SFAS
No. 123 apply to all stock-based awards granted, modified or settled in cash in
fiscal years beginning after December 15, 1995. The pro forma disclosure
requirements for companies electing to continue to apply APB No. 25 include,
for comparative purposes, the effects of all stock-based awards granted in
fiscal years beginning after December 15, 1994. The Company has elected to
continue utilizing the accounting for stock issued to employees prescribed by
APB No. 25 and therefore the impact on the Company of this change in accounting
principle will only be to increase its disclosure requirements.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
DECEMBER 31,
----------------------------
1995 1994
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials, supplies, and parts . . . . . . . . . . . . . . . . . . . . . $ 9,849 $ 9,111
Finished goods and work-in-process . . . . . . . . . . . . . . . . . . . . . 3,155 3,125
------------ -----------
$ 13,004 $ 12,236
============ ===========
</TABLE>
39
<PAGE> 40
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
4. INVESTMENTS IN BASIC INVESTMENTS, INC. (BII) AND VICTORY VALLEY LAND
COMPANY, L.P. (VVLC)
The Company, through its subsidiary Pioneer Chlor Alkali Company, Inc.
("PCAC"), owns approximately 32% of the common stock of 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. The investment in BII is accounted for under the equity
method after adjustment to reflect PCAC's basis.
PCAC has an approximate 21% limited partnership interest in VVLC. The
purpose of VVLC's business is to receive and hold 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. 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
the 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 owned by BII or VVLC) are deposited
into the Contingent Payment Account and used to satisfy certain obligations of
the Sellers under environmental and other obligations 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 conditions) to direct the sales or disposition of interests
constituting the Basic Ownership and the right (with certain exceptions) to
vote the interests constituting the Basic Ownership, notwithstanding the
ownership of such interests by the Company. As the Sellers maintain the
economic benefit of the Basic Ownership, the Company has not maintained these
balances in its 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:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
(IN THOUSANDS)
<S> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,922
Land development costs and water rights . . . . . . . . . . . . . . . . . . . . . 2,746
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,869
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,225
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,296
--------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,058
========
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,385
Shareholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Limited partner's capital . . . . . . . . . . . . . . . . . . . . . . . . . 3,873
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,799
--------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . 12,673
--------
Total liabilities and shareholders' equity . . . . . . . . . . . $ 28,058
========
</TABLE>
40
<PAGE> 41
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
4. INVESTMENTS IN BASIC INVESTMENTS, INC. (BII) AND VICTORY VALLEY LAND
COMPANY, L.P. (VVLC) (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1993
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,659 $ 17,347
Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,834 4,611
------------ ------------
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 825 12,736
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (274) (2,952)
------------- ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 551 $ 9,784
============ ============
</TABLE>
The following is a summary of the impact of the investments on the
Predecessor Company's statements of operations:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1993
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Equity in earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 183 3,320
Adjustment to reflect PCAC's basis . . . . . . . . . . . . . . . . . . . . . $ -- (2,171)
------------ ------------
Net impact on statements of operations . . . . . . . . . . . . . . . . $ 183 $ 1,149
============ ============
</TABLE>
The Predecessor Company's retained earnings balance at April 20, 1995 and
December 31, 1994 included, before giving effect to PCAC's basis adjustment,
approximately $3.8 million and $3.3 million, respectively, of undistributed
earnings of BII and VVLC. The difference between the recorded investment
amounts of BII and VVLC and PCAC's share of net assets is due to PCAC's basis
differences of the land and water rights.
PCAC 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
period from April 21, 1995, through December 31, 1995, BII charged expenses to
PCAC of approximately $0.2 million. For the period from January 1, 1995 through
April 20, 1995 and the years ended December 31, 1994 and 1993, BII charged
expenses to the Predecessor Company of approximately $0.2 million, $0.5 million
and $0.6 million, respectively.
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
DECEMBER 31,
--------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Exchanges payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,217 $ 1,492
Payroll, benefits, and pension . . . . . . . . . . . . . . . . . . . . . . . . 5,371 4,299
Interest and bank fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,172 2,454
Future tax effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,782
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,348 8,303
----------- ----------
$ 24,108 $ 19,330
=========== ==========
</TABLE>
41
<PAGE> 42
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
5. ACCRUED LIABILITIES (CONTINUED)
Exchanges payable result from product exchange transactions which are
entered into between the Company and other producers that manufacture
homogeneous products, whereby other producers ship product on behalf of the
Company to its customers. These exchanges, which are recorded as payables,
generally are settled by the Company's shipment of product to such producers'
customers.
6. PENSION AND OTHER EMPLOYEE BENEFITS
Annual pension costs and liabilities for PCAC under its two
defined-benefit plans are determined by actuaries using various methods and
assumptions. For purposes of determining annual expenses and funding
contributions, the following assumptions were used for the years ended December
31:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0% 8.0% 8.0%
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5% 7.5% 8.0%
Annual compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0% 5.0% 5.0%
</TABLE>
Pension expense was comprised of:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY,
-----------------------------------------
PERIOD FROM
JANUARY 1,
1995 YEAR ENDED
YEAR ENDED THROUGH DECEMBER 31,
DECEMBER 31, APRIL 20, ---------------------
1995 1995 1994 1993
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . . . . $ 410 $ 178 $ 571 $ 665
Interest cost . . . . . . . . . . . . . . . . . . 566 260 770 700
Return on plan assets . . . . . . . . . . . . . . (394) (149) (537) (429)
Amortization of prior service cost and other . . 56 (7) 225 32
----- ----- ------- -----
Total pension expense . . . . . . . . . . . . $ 638 $ 282 $ 1,029 $ 968
===== ===== ======= =====
</TABLE>
The actuarial present value of the accumulated benefit obligation is:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-------------
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,488 $ 7,919
Nonvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,513 1,444
------------- ------------
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . $ 10,001 $ 9,363
============= ============
</TABLE>
42
<PAGE> 43
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
6. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The reconciliation of the funded status of the plans is:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-------------
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,200 $ 11,420
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,293 7,340
------------- ------------
Projected benefit obligation in excess of plan assets . . . . . . . . . . . . . 4,907 4,080
Unrecognized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 592
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . (202) (16)
-------------- ------------
Pension obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,890 $ 4,656
Long-term portion of pension obligation . . . . . . . . . . . . . . . . . . . . 3,984 4,303
------------- ------------
Current accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . 906 353
============= ============
</TABLE>
Subsidiaries of the Company offer defined-contribution plans for their
employees with employees contributing from 1% to 15% of their compensation.
Employer contributions are discretionary. PCAC contributed approximately $0.2
million to defined-contribution plans for the year ended December 31, 1995.
PCAC also contributed approximately $0.1 million, $-0-, and $-0- to
defined-contribution plans for the period from January 1, 1995 through April
20, 1995 and the years ended December 31, 1994 and 1993 respectively. All-Pure
and Imperial West made no employer contributions to their respective
defined-contribution plans for the year ended December 31, 1995, the period
from January 1, 1995 through April 20, 1995 and for the years ended December
31, 1994 and 1993.
43
<PAGE> 44
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
6. PENSION AND OTHER EMPLOYEE BENEFITS (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 PCAC.
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's balance sheet:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-------------
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,669 $ 1,843
Fully eligible active plan participants . . . . . . . . . . . . . . . . . 1,380 2,102
Other active plan participants . . . . . . . . . . . . . . . . . . . . . . 4,169 3,758
------------- ------------
9,218 7,703
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 828
Unrecognized transition obligation . . . . . . . . . . . . . . . . . . . . . . -- 385
------------- ------------
Accrued post-retirement benefit cost . . . . . . . . . . . . . . . . . . . . . $ 9,218 $ 6,490
============= ============
</TABLE>
Net periodic post-retirement benefit cost includes the following
components:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------
PERIOD FROM
JANUARY 1,
1995 YEAR ENDED
YEAR ENDED THROUGH DECEMBER 31,
DECEMBER 31, APRIL 20, -------------------
1995 1995 1994 1993
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . . . . . . . $ 243 $ 109 $ 324 $ 256
Interest cost . . . . . . . . . . . . . . . . . . . . . 449 176 519 432
Amortization of transition obligation over 20 years . . 15 8 32 23
Other components . . . . . . . . . . . . . . . . . . . 48 -- -- --
----- ----- ----- ----
Net periodic post-retirement benefit cost . . . . . $ 755 $ 293 $ 875 711
===== ===== ===== ====
</TABLE>
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 1995
(the same as the rate previously assumed for 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, 1995 and 1994 by $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 1995 and 1994
by $0.1 million.
44
<PAGE> 45
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
6. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The weighted-average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.5% at December 31, 1995 and 1994.
As a result of the Acquisition, the unrecognized net loss and unrecognized
transition obligation were recognized.
7. BANK CREDIT FACILITY
In April 1995, Pioneer Americas entered into a credit agreement which
provides for a three-year Bank Credit Facility with Bank of America, Illinois
("BAI"). Pioneer Americas may borrow up to $30.0 million, subject to certain
borrowing base limitations. At December 31, 1995, no amounts were outstanding
under the Bank Credit Facility. The revolving loans bear interest at a rate
equal to, at Pioneer Americas' option, (i) the reference rate set by BAI or
(ii) the LIBOR Base Rate. The Bank Credit Facility requires Pioneer Americas 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 Pioneer Americas' inventory,
accounts receivable and certain other assets. Up to $10.0 million of the
Borrowing Base, as defined by the Bank Credit Facility, can be utilized for
letters of credit. The Borrowing Base at December 31, 1995 was approximately
$30.0 million. After consideration of the outstanding letters of credit of
approximately $2.9 million, the unused availability of the Borrowing Base was
approximately $27.1 million at December 31, 1995.
The Bank Credit Facility contains restrictive covenants that, among other
things and under certain conditions, limit the ability of Pioneer Americas to
incur additional indebtedness, to acquire or dispose of assets or operations
and to pay dividends or redeem shares of stock.
8. 13 3/8% FIRST MORTGAGE NOTES DUE 2005
In April 1995, PAAC issued and sold $135.0 million of Senior Notes.
Interest is payable on April 1 and October 1 of each year. The Senior Notes
were senior secured obligations of PAAC, ranking senior in right of payment to
all subordinated indebtedness of PAAC and pari passu in right of payment with
each other and with all existing and future senior indebtedness, including
indebtedness under the Bank Credit Facility. On September 14, 1995, the
obligations of PAAC under the Senior Notes were secured with first mortgage
liens on certain manufacturing facilities.
PAAC filed a registration statement with the Securities and Exchange
Commission relating to PAAC's offer to exchange (the "Exchange Offer") up to
$135.0 million aggregate principal amount of new 13 3/8% First Mortgage Notes
due 2005 (the "Mortgage Notes") for up to $135.0 million aggregate principal
amount of its outstanding Senior Notes. The Exchange Offer was completed on
January 23, 1996. The Mortgage Notes are freely transferable subject to certain
provisions and are otherwise identical to the Senior Notes. Since the
registration statement was not declared effective by August 13, 1995 and the
Exchange Offer was not consummated by September 12, 1995, the interest rate
borne by the Senior Notes was increased by 25 basis points per annum for the
90-day period following August 13, 1995. Such interest rate increased by an
additional 25 basis points per annum on November 11, 1995. The Mortgage Notes
bear the 13 3/8% interest rate originally borne by the Senior Notes.
45
<PAGE> 46
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
8. 13 3/8% FIRST MORTGAGE NOTES DUE 2005 (CONTINUED)
The Mortgage Notes are redeemable at PAAC's option on and after April 1,
2000. In addition, PAAC may also redeem at its option at any time prior to
April 1, 1998 up to $35.0 million of the Mortgage Notes at 113% of the
principal amount thereof with funds raised in a public offering of common stock
of PAAC or of common stock of Pioneer to the extent such proceeds are
contributed to PAAC. Upon a change of control, as defined in the Mortgage
Notes' indenture, PAAC will be required to offer to repurchase the Mortgage
Notes at a purchase price equal to 101%.
The Mortgage Notes contain restrictive covenants that, among other things
and under certain conditions, limit the ability of PAAC to incur additional
indebtedness, to acquire or dispose of assets or operations and to pay
dividends or redeem shares of stock.
9. SELLER NOTES
At the Closing of the Acquisition, the Company delivered to the Sellers,
Seller Notes in the aggregate principal amount of $11.5 million, after
adjustments resulting from terms and conditions defined in the Acquisition
Agreement. Interest on the Seller Notes is payable at a rate of 8% per annum
on a quarterly basis. The principal is payable in five equal annual
installments commencing on April 20, 2001.
46
<PAGE> 47
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
10. PREDECESSOR COMPANY LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------
(IN THOUSANDS)
<S> <C>
Long-term debt with a bank, due in quarterly installments with additional principal
reductions, due semiannually, equal to 70% of net cash flows, as defined, with a
final payment due September 30, 1996, interest due quarterly at the bank's base
rate plus 2%. The additional principal reductions were approximately $9.9 million
during 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,887
Revolving credit loan with a bank with principal reductions at 50% of net cash flows, as
defined, after repayment of the long-term debt, with a final amount due September 30,
1996, limited to a borrowing base as defined, less outstanding letters of credit, interest
due quarterly at the bank's base rate plus 1.5%. . . . . . . . . . . . . . . . . . . . . . . 7,600
Subordinated debt with a financial institution, due in installments of $122,847 on the fifth
day of each April and October, from October 1994 through October 1996
and installments of $4,147,743 starting in April 1997 with a final payment due October
19, 1998, interest due quarterly at a rate of 14.5%, secured by receivables, inventory,
property, plant, and equipment, and other assets. . . . . . . . . . . . . . . . . . . . . . 18,060
Unsecured note payable, original face value of $8,825,055, with a contract interest rate at
the average 30-59 day GMAC rate, due in eight installments of $1.0 million due each August
29, with the remaining balance due on August 29, 1996, with an effective interest rate of
15%, net of unamortized discount of $0.4 million at December 31, 1994. . . . . . . . . . . 3,407
Unsecured noninterest-bearing, long-term debt, original face value of $6.5 million, payable in
six annual installments of $1.0 million and a final payment of $0.5 million subject to certain
reductions as provided in the purchase agreement with the prior owner of PCAC,
beginning October 26, 1989, with an effective interest rate of 15%, net of unamortized
discount of $0.1, million at December 31, 1994. . . . . . . . . . . . . . . . . . . . . . . 435
Promissory note, original face value of $3,254,339, with a contractual interest rate of 7%
per annum with installments of principal and interest due quarterly from
September 20, 1994 until May 27, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,425
---------
48,814
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,057)
---------
$ 36,757
=========
</TABLE>
As of December 31, 1994 the amended loan agreements reflecting the above
debt included restrictions regarding capital expenditures, the borrowing of
additional money, the formation or acquisition of subsidiaries, the signing of
long-term leases, the maintenance of certain financial ratios, and other
reporting and disclosure requirements regarding monthly operating results of
the Predecessor Company's subsidiaries. Also, unless otherwise consented in
writing by the lender, the Predecessor Company could not declare or pay any
47
<PAGE> 48
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. PREDECESSOR COMPANY LONG-TERM DEBT (CONTINUED)
dividends other than subsidiary dividends to the parent in order to cover
certain expenditures at specified maximum amounts, as defined. The Predecessor
Company's subsidiaries were in compliance with all the above requirements after
obtaining amendments.
The amended loan agreement relating to the long-term debt with a bank
required the Predecessor Company within ten calendar days after receipt to make
a mandatory prepayment equal to 95% of any extraordinary income received by the
Company on or after January 1, 1993. Such payments were to be applied first to
accrued and unpaid interest due and payable as of the date of payment, then to
the differential between principal payments under the former loan agreement and
the amended loan agreement through September 30, 1994, then to scheduled
principal installments under the amended loan agreement in inverse order of
their maturity. Extraordinary income was defined as income which did not
constitute operating income derived from normal and customary operations of the
Predecessor Company, such as settlements or jury awards in litigation
proceedings and settlements or judges' awards in any arbitration proceedings,
sale of assets other than inventory, and insurance proceeds which were treated
as income under generally accepted accounting principles. In determining
extraordinary income, provisions for taxes and offsets for amounts owed to the
source of payment were to be deducted from the cash received.
The long-term debt and revolving credit loan were secured by receivables,
inventory, property, plant, and equipment, other assets, and PCAC stock. At
December 31, 1994 the borrowing base, as defined, under the revolving credit
loan was approximately $17.5 million.
In a separate agreement, a group of banks received additional bank fees
totaling 5.0% of adjusted net income, as defined. The fee was payable annually
through September 30, 1996.
The Predecessor Company issued warrants to a financial institution that
financed previous acquisitions. As of December 31, 1994, the instruments were
detachable from the debt and contained puts that required redemption for cash
or conversion into common stock of the Predecessor Company under certain
conditions.
11. COMMITMENTS AND CONTINGENCIES
LETTERS OF CREDIT
At December 31, 1995 the Company had letters of credit and performance
bonds outstanding of approximately $2.9 million and $6.5 million respectively.
These letters of credit and performance bonds were issued for the benefit of:
(i) customers under sales agreements securing delivery of products sold, (ii) a
power company as a deposit for the supply of electricity, and (iii) a state
environmental agency as required for manufacturers in the state. The letters
of credit expire at various dates in 1996 and 1997. No amounts were drawn on
the letters of credit at December 31, 1995.
PURCHASE COMMITMENTS
PCAC has committed to purchase electrical power and transmission services
for its chlor-alkali plants through September 30, 2017. At the current base
price, allocated capacity, and allocated energy per the contract terms, this
commitment would approximate $26.7 million for each of the years 1996 through
1998; $28.5 million for the years 1999 and 2000; and $11 million for each of
the years 2001 through 2010. The allocated capacity is subject to adjustment
for other priority users. The Company purchased approximately $15.6 million
in electrical power and transmission services for the year ended December 31,
1995. The Predecessor Company purchased approximately
48
<PAGE> 49
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
$8.9 million, $27.2 million and $27.0 million in electrical power and
transmission services for the period from January 1, 1995 through April 20,
1995 and the years ended December 31, 1994 and 1993, respectively.
In addition, PCAC has committed to purchase salt used in the production
process under contracts which continue through December 31, 1998. Based on the
contract terms, a minimum of 600,527 tons of salt are to be purchased in 1996;
620,832 tons in 1997; and 631,832 tons in 1998. The future minimum salt
commitments are as follows (in thousands):
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . $ 10,474
1997 . . . . . . . . . . . . . . . . . . . 11,621
1998 . . . . . . . . . . . . . . . . . . . 7,048
-------------
$ 29,143
=============
</TABLE>
The Company purchased approximately $6.0 million of salt for the year ended
December 31, 1995. The Predecessor Company purchased approximately $2.8
million, $8.6 million and $9.1 million of salt for the period from January 1,
1995 through April 20, 1995 and the years ended December 31, 1994 and 1993,
respectively.
OPERATING LEASES
The Company and its subsidiaries lease 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, 1995 are as follows (in
thousands):
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . $ 9,640
1997 . . . . . . . . . . . . . . . . . . . 9,229
1998 . . . . . . . . . . . . . . . . . . . 8,605
1999 . . . . . . . . . . . . . . . . . . . 7,626
2000 . . . . . . . . . . . . . . . . . . . 4,840
Thereafter . . . . . . . . . . . . . . . . 253
-------------
Total minimum obligations . . . . . . . . . $ 40,193
=============
</TABLE>
Lease expense charged to operations for the year ended December 31, 1995
was approximately $6.3 million. Lease expense charged to the Predecessor
Company's operations for the period from January 1, 1995 through April 20, 1995
and the years ended December 31, 1994 and 1993 was approximately $3.3 million,
$8.4 million and $8.4 million, respectively.
49
<PAGE> 50
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
SALES COMMITMENTS
PCAC has a sales contract with a customer which requires PCAC to sell and
the customer to purchase amounts of chlorine and caustic soda of not less than
the percentage of the customer's use of chlorine and caustic soda supplied by
PCAC in the 12-month period ended July 31, 1987 (base period). The contract,
which expires on December 31, 1997, states that the sales price will not be
less than PCAC's standard cost as calculated based on 1987 amounts and adjusted
thereafter for price changes for raw materials and changes in other costs as
reflected in the producer price index.
LITIGATION
Pioneer Americas settled litigation with an insurance company in December
1992 relating to claims resulting from a chlorine release in 1991. In
accordance with the settlement, the insurance company reimbursed Pioneer
Americas $2.1 million relating to claims paid by Pioneer Americas prior to
November 1, 1992 and agreed to pay Pioneer Americas (a) upon proof of same,
$100,000 relative to claims and expenses incurred after July 31, 1992 but prior
to November 1, 1992 and (b) all claims after November 1, 1992 until an
aggregate total of $3.8 million had been paid. As of April 20, 1995, a total of
approximately $3.8 million in claims had been paid.
During 1993, Imperial West was awarded $1.38 million as the result of a
breach of contract claim it 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. The settlement did not affect the
appeal pending with respect to the breach of contract judgment. Certain
insurers paid a portion of Imperial West's defense costs in connection with the
subsequent lawsuit by the lessor.
In October 1994, the trustee in the bankruptcy of a company which was a
customer of PCAC filed suit against PCAC, seeking the recovery of up to $2.2
million in payments made to PCAC on a basis which the trustee alleges was
preferential to other creditors' claims. Management has been advised by counsel
that the range of any loss which may be incurred as the result of the suit will
be substantially below the amount claimed, and PCAC is vigorously contesting
the action. The Company has established a reserve consistent with its estimate
of its liability related to such transactions.
Pioneer and its subsidiaries are parties to other legal proceedings and
potential claims arising in the ordinary course of their businesses. In the
opinion of management, Pioneer and its subsidiaries have 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.
50
<PAGE> 51
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-------------
DECEMBER 31,
------------------------------
1995 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation . . . . . . . . . . . . . . . . . . . . . . . $ 22,063 $ 19,964
Investment in BII and VVLC . . . . . . . . . . . . . . . . . . . . . . . -- 6,509
Other--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,435 5,585
------------ ------------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . 23,498 32,058
------------ ------------
Deferred tax assets:
OPEB obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,761 2,499
Pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,030 1,885
Bad debt provision . . . . . . . . . . . . . . . . . . . . . . . . . . . 569 784
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 6,530 4,310
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . 22,091 --
------------ ------------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . 34,981 9,478
Valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . . 11,483 --
------------ ------------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,498 9,478
------------ ------------
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 22,580
============= ============
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------------------
PERIOD FROM
JANUARY 1,
1995 YEAR ENDED
YEAR ENDED THROUGH DECEMBER 31,
DECEMBER 31, APRIL 20, -----------------------
1995 1995 1994 1993
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . $ 715 $ 5,938 $ 3,930 $ (1,152)
State . . . . . . . . . . . . . . . . . . . 1,701 957 568 (85)
------- ------- ------- --------
Total current 2,416 6,895 4,498 (1,237)
------- ------- ------- --------
Deferred:
Federal . . . . . . . . . . . . . . . . . . 3,764 (1,816) (1,010) 1,592
State . . . . . . . . . . . . . . . . . . . (601) (270) (246) 131
------- ------- ------- --------
Total deferred 3,163 (2,086) (1,256) 1,723
------- ------- ------- --------
$ 5,579 $ 4,809 $ 3,242 $ 486
======= ======= ======= ========
</TABLE>
51
<PAGE> 52
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the U.S. federal statutory
tax rates to income tax expense is presented below:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------------------
PERIOD FROM
JANUARY 1, 1995
THROUGH YEAR ENDED DECEMBER 31,
APRIL 20, -----------------------------------
1995 1995 1994 1993
------ ------ ------ ------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- -------- -------
(in thousands) (in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates . . . $3,872 35% $4,068 35% $ 2,936 35% $ 184 34%
State income taxes, net of
federal tax benefit . . . . . . 723 7 407 3 321 4 46 9
Amortization of excess cost over
the fair value of net assets
acquired . . . . . . . . . . . . 1,159 10 69 1 221 2 223 41
Adjustment of previously
provided taxes . . . . . . . . . -- -- -- -- (285) (3) -- --
Other--net . . . . . . . . . . . . (175) (2) 265 2 49 1 33 6
------- --- ------- --- ------- --- ------ ---
$ 5,579 50% $ 4,809 41% $ 3,242 39% $ 486 90%
======= === ======= === ======= === ====== ===
</TABLE>
At December 31, 1995, Pioneer had available to it on a consolidated tax
return basis approximately $63.1 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.
The Internal Revenue Code limits the amount of a corporation's NOL that may
be used each year to offset future income after an "ownership change" (as
defined). Pioneer does not believe that either the reorganization resulting from
certain previous Chapter 11 proceedings or the Acquisition resulted in an
ownership change.
Upon adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," Pioneer established a deferred tax asset based
upon the future utilization of the NOL. However, since Pioneer had no operating
subsidiaries at December 31, 1994 with which to generate taxable income, a 100%
valuation reserve was recorded against this asset. Due to the reorganization,
any future utilization of this NOL by Pioneer will be recognized as an
increase to additional paid-in capital. Approximately $13.6 million was
recognized as an increase to additional paid-in capital at April 20, 1995. An
additional $3.6 million was recognized as an increase to additional paid-in
capital for the period from April 21, 1995 through December 31, 1995. During
1995 the valuation allowance was reduced by $17.2 million.
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. The Company believes that it is in substantial compliance
with existing governmental regulations.
52
<PAGE> 53
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. OTHER LONG-TERM LIABILITIES--ENVIRONMENTAL (CONTINUED)
In connection with the October 1988 acquisition of the chlor-alkali
business by the Predecessor Company, ICI Delaware Holdings, Inc. and ICI
Americas, Inc. (such companies or their successors, the "ZENECA Companies")
agreed to indemnify the Predecessor Company for certain environmental
liabilities (the "ZENECA Indemnity"), including liabilities associated with
operations at the Company's plant located in Henderson, Nevada (the "Henderson
Plant"). In general, the ZENECA Companies agreed to indemnify the Predecessor
Company from environmental costs which arise from or relate to pre-closing
actions which involved disposal, discharge, or release of materials resulting
from non-chlor-alkali manufacturing operations at the Henderson Plant and at
other properties within the same industrial complex. Payments under the
indemnity cannot exceed approximately $65 million.
Due to the change in ownership resulting from the Acquisition, the ZENECA
Indemnity will terminate on April 20, 1999. The ZENECA Indemnity will continue
to cover claims after the expiration of the term of the indemnity provided
that, prior to the expiration of the indemnity, proper notice to the ZENECA
Companies is given and the Company has taken certain other actions. The Company
believes that the ZENECA Companies will continue to honor their obligations
under the ZENECA Indemnity for claims properly presented by the Company. It is
possible, however, that disputes could arise between the parties and that the
Company would have to subject its claims for clean-up expenses, which could be
substantial, to the contractually established arbitration process.
In the 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 the Contingent Payment Properties
("Sellers' Indemnity"). Amounts payable pursuant to the Sellers' Indemnity
will generally be payable as follows: (i) out of certain reserves established
on Pioneer Americas' 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. Pioneer 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. Pioneer and the Sellers have agreed that they will
cooperate in matters relating to the ZENECA Indemnity.
Liabilities related to environmental matters are recorded when site
restoration and environmental remediation and clean-up obligations are either
known or considered probable and are reasonably determinable. 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 $1.2 million for
the year ended December 31, 1995 and $0.4 million, $1.8 million and $2.3
million for the Predecessor Company for the period from January 1, 1995 through
April 20, 1995 and the years ended December 31, 1994 and 1993, respectively.
Capital expenditures for environmental-related matters at existing facilities
approximated $2.2 million for the year ended December 31, 1995 and $0.2
million, $0.5 million and $1.1 million for the Predecessor Company for the
period from January 1, 1995 through April 20, 1995 and the years ended December
31, 1994 and 1993, respectively. Future environmental-related capital
expenditures will depend upon regulatory requirements, as well as timing
related to obtaining necessary permits and approvals.
53
<PAGE> 54
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. OTHER LONG-TERM LIABILITIES--ENVIRONMENTAL (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 Pioneer for chlor-alkali-related
remediation of the Henderson and St. Gabriel facilities. The recorded accrual
includes certain amounts related to anticipated closure and post-closure
actions that may be required when operation of the present chlor-alkali plants
ceases. 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. Other assets include an account
receivable of the same amount from the ZENECA Companies. Certain other
environmental matters exist for which the Company has not determined the
specific strategy for or cost of remediation. It is possible that additional
costs, depending on the final choice of remediation strategies, may be incurred
in the future. As additional information becomes available, changes in the
estimates of liabilities will be recorded. If such costs are incurred,
additional annual operating and maintenance costs may also be required. 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 sells certain products and services to and purchases steam from Saguaro
at market prices. Balances with Saguaro are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------------
PERIOD FROM
JANUARY 1,
1995
YEAR ENDED THROUGH DECEMBER 31,
DECEMBER 31, APRIL 20, ---------------------
1995 1995 1994 1993
------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales to Saguaro . . . . . . . . . . . . . . . $ 754 $ 353 $ 1,286 $ 1,154
Purchases from Saguaro . . . . . . . . . . . . 1,388 616 2,096 1,455
Due from Saguaro . . . . . . . . . . . . . . . 131 169 117 212
Due to Saguaro . . . . . . . . . . . . . . . . 135 372 186 297
</TABLE>
The Company received distributions of partnership income from this
affiliate of $0.6 million for the year ended December 31, 1995 which are
included in other income, net. The Predecessor Company received distributions
of partnership income from this affiliate of $-0-, $1.3 million and $0.7
million for the period from January through April 20, 1995 and
54
<PAGE> 55
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. RELATED PARTY TRANSACTIONS (CONTINUED)
the years ended December 31, 1994 and 1993, which are included in other income,
net. Also, reimbursable expenses of $0.6 million were received for 1993.
PCAC was committed to sell liquid caustic soda to a related entity. During
the year ended December 31, 1993 such sales totaled approximately $2.0 million.
This related entity filed for bankruptcy in April 1993 and, subsequent to the
filing, no longer did business with PCAC. PCAC charged an additional $1.1
million against income in 1993 related to 1993 sales as the receivable was
deemed uncollectible. PCAC received certain transfers from this related entity
that have been challenged as preferences. As of December 31, 1995 the Company
has established a reserve related to such transactions.
15. REDEEMABLE PREFERRED STOCK
In the event of any liquidation, dissolution or winding up of the affairs
of the Predecessor Company, the holders of redeemable preferred stock were
entitled to be paid first out of the assets of the Predecessor Company
available for distribution to holders of the Predecessor Company's capital
stock. No dividends or distributions were to be paid to holders of any class of
equity security which had rights junior to the redeemable preferred stock
except upon consent of the holder of redeemable preferred stock. The holder of
redeemable preferred stock was also entitled to receive cumulative dividends,
if and when declared by the Predecessor Company, at an annual rate of 8% per
annum. No dividends were paid during 1994 and 1993. The carrying value of the
redeemable preferred stock, which included the accretion of accumulated and
unpaid dividends, was $6.6 million as of December 31, 1994. All accumulated and
unpaid dividends on the redeemable preferred stock were paid on March 22, 1995.
The preferred stock was redeemed for $5.0 million in conjunction with the
Acquisition on April 20, 1995.
16. STOCK WARRANTS AND APPRECIATION RIGHTS
The Predecessor Company issued 111,111 warrants to a bank which were
detachable from the related debt. Each warrant entitled the lender to purchase
a share of common stock of Pioneer Americas, Inc. at $.01 par value to be
exercised at any time until the expiration date of October 31, 1998. No
warrants had been exercised at December 31, 1994.
The Predecessor Company had also granted the holder of these warrants the
right and option to sell to the Predecessor Company and to require the
Predecessor Company to purchase all or any part of the warrants or the common
stock acquired pursuant to the exercise of the warrants. This option could have
been exercised any time prior to November 1, 1998 at an exercise price equal to
the greatest of the current market value, the net book value, or a computation
based on net income. In the event the Predecessor Company did not have
available cash to purchase the warrants or common stock, the Predecessor
Company would have given a promissory note in the amount of the obligation
owed. Such promissory note would have matured on October 25, 1996. Any excess
of the redemption value over the carrying value was accreted by periodic
charges to retained earnings over the term of the option.
During 1990, the Predecessor Company issued to a subordinated debtholder
an additional 187,359 warrants which were detachable from the related debt.
Each warrant entitled the debtholder to purchase a share of nonvoting common
stock any time beginning after October 19, 1994, but before the expiration date
of October 19, 2000. The
55
<PAGE> 56
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. STOCK WARRANTS AND APPRECIATION RIGHTS (CONTINUED)
exercise price at the time the agreement was entered into was $12 per warrant.
These warrants included a put option which required the Predecessor Company to
purchase any or all warrants or the common stock acquired pursuant to the
exercise of the warrants at an amount equal to the greater of the net book
value, current market value, or the net book value less the price of the
warrants. No warrants had been exercised at December 31, 1994.
During 1990, the Predecessor Company issued Stock Appreciation Rights
(SAR's) to a subordinated debtholder. The SAR's entitled the holder of the
SAR's to the right and option to receive the benefits of any appreciation in
the value of 93,680 shares of the Predecessor Company's common stock calculated
on a fully diluted basis over a Base Share Value. The Base Share Value was
originally valued at $12 per share. The exercise period for the SAR's commenced
on October 19, 1994 and was to expire on October 19, 2000. During 1993, the
Predecessor Company issued additional SAR's equivalent to 100,000 common shares
with exercise rights commencing on October 19, 1994 and which were to expire on
October 19, 2000.
In September 1994, the Predecessor Company and the debtholder amended and
modified the warrant and SAR's Agreement, providing the Predecessor Company
with the right and option at any time during the term of the agreement to
prepay the debt held by the debtholder. In addition, if this prepayment option
was exercised, the Predecessor Company would have the right and option to
purchase from the debtholder 128,199 of the warrants for total consideration of
$0.6 million and the SAR's for $1.0 million. Based upon such agreement, in 1994
the Predecessor Company adjusted the carrying value of the warrants and SAR's
to $17 per share, resulting in an increase to redeemable stock put warrants of
$1.4 million, through a reduction to retained earnings and a charge to other
expense of $1.0 million related to the SAR's. On March 22, 1995, the debt was
prepaid, 128,199 of the warrants were repurchased and all SAR's were
repurchased.
17. STOCK OPTIONS
The Company has a stock option plan in effect for executives and
non-executives. The following table summarizes the activity relating to the
plan:
<TABLE>
<CAPTION>
Year ended
December 31, 1995
-------------------------------
Executives Non-executives
---------- --------------
<S> <C> <C>
Outstanding at beginning of the period . . . . . . . . . . . . . . . . . . . -- --
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398,076 69,800
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Terminated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 10,400
----------- -------------
Outstanding at end of period . . . . . . . . . . . . . . . . . . . . . . . . 398,076 59,400
=========== =============
</TABLE>
56
<PAGE> 57
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. STOCK OPTIONS (CONTINUED)
The Predecessor Company had a stock option plan in effect for key
employees which allowed the Predecessor Company to grant options for 100,000
shares of common stock of Pioneer Americas, Inc.
The following table summarizes the activity relating to the Predecessor
Company's stock option plan:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------------
PERIOD FROM
JANUARY 1,
1995
THROUGH YEAR ENDED DECEMBER 31,
APRIL 20, ------------------------
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Outstanding at beginning of the period . . . . . . . . . . . . 23,088 92,352 80,808
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 11,544
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (56,627) --
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (12,637) --
------- -------- --------
Outstanding at end of period . . . . . . . . . . . . . . . . . 23,088 23,088 92,352
======= ======== ========
</TABLE>
Options exercised during 1994 were exercised at $3 per share. The remaining
options outstanding were exercisable at prices of either $6 or $9 per share.
18. SUBSEQUENT EVENTS
On February 2, 1996, subsidiaries of the Company completed the acquisition
of Kemira Water Treatment, Inc. ("KWT"), from a subsidiary of Kemira Oy of
Finland ("Kemira"). KWT produces specialty and commodity inorganic coagulants,
including polyaluminum chloride, 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.
KWT is now owned by Kemwater North America Company ("Kemwater"), which was
formed through a subsidiary of Pioneer, Pioneer Water Technologies, Inc., in
combination with Imperial West. The combined businesses of KWT and IWC, the
latter of which produces ferric and ferrous chloride and aluminum sulfate for
sale to the water treatment market in the western United States, will be
carried out in the name of Kemwater. Kemwater will be adding ferric chloride
capacity to the Savannah plant, and production capacity for polyaluminum
chloride, sold under the trade name PAX, will be added to the western
operations.
As a part of the transaction, Kemwater also acquired 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 U.S.) and the Caribbean. Kemwater has 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 entered into product supply agreements with subsidiaries of
Kemira, to ensure a continuing supply of granulated ferric sulfate and dry
aluminum sulfate, which are used as raw materials.
57
<PAGE> 58
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1995 1995 1995 1994
------ -------- -------- -------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 36,405 $ 59,248 $47,255
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . -- 24,901 39,972 31,631
Cost of sales--acquisition related inventory
step-up . . . . . . . . . . . . . . . . . . . . -- 1,671 -- --
Selling, general and administrative . . . . . . . 152 5,558 8,446 6,609
Interest expense, net . . . . . . . . . . . . . . -- 3,817 4,923 4,805
Other Income -- 349 45 243
------ -------- -------- -------
Income (loss) before tax . . . . . . . . . . . . . . . (152) 807 5,952 4,453
Income tax provision . . . . . . . . . . . . . . . . . -- 628 2,509 2,442
------ -------- -------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . $ (152) $ 179 $ 3,443 $ 2,011
====== ======== ======== =======
Net income (loss) per share . . . . . . . . . . . . . . $ (.03) $ .02 $ .40 $ .24
====== ======== ======== =======
Average number of shares of common stock
outstanding . . . . . . . . . . . . . . . . . . . . . . 4,546 7,665 8,539 8,539
====== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1994 1994 1994 1994
------ ------ ------ -------
<S> <C> <C> <C> <C>
General and administrative expense, net . . . . . . . . $ (26) $ (93) $ (109) $ 73
Interest income . . . . . . . . . . . . . . . . . . . . 5 5 5
------ ------ ------ -------
Net income (loss) . . . . . . . . . . . . . . . $ (26) $ (88) $ (104) $ 78
====== ====== ====== =======
Income (loss) per share: $ (.01) $ (.02) $ (.02) $ .02
====== ====== ====== =======
Average number of shares of common stock outstanding. . 3,623 4,538 4,542 4,546
====== ====== ====== =======
</TABLE>
58
<PAGE> 59
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Deloitte & Touche LLP has acted as independent accountants of the Company
for many years. Following the Acquisition it was determined that Deloitte &
Touche LLP would continue to act as independent accountants of the Company and
its consolidated subsidiaries.
Ernst & Young LLP had been the independent accountants for Pioneer
Americas and its consolidated subsidiaries prior to its dismissal, effective
October 16, 1995. The reports of Ernst & Young LLP on the financial statements
of Pioneer Americas for the fiscal years ended December 31, 1994 and 1993 did
not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of the financial statements of Pioneer Americas
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.
Ernst & Young LLP furnished a letter addressed to the Securities and
Exchange Commission stating that it agreed with the above statements. A copy of
that letter, dated March 29, 1996, is filed as an exhibit to this Annual Report.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 10 of Part III of Form 10-K is incorporated by reference to the
information set forth in Pioneer's definitive proxy statement relating to the
1996 Annual Meeting of Stockholders of Pioneer (the "1996 Proxy Statement") to
be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), in response to Items 401 and 405 of Regulation
S-K under the Securities Act of 1933, as amended, and the Exchange Act
("Regulation S-K"), or if the 1996 Proxy Statement is not so filed within 120
days after December 31, 1995, such information will be included in an amendment
to this report filed not later than the end of such period. Reference is also
made to the information appearing in Item 4.1 of Part I of this report under
the caption "Executive Officers of the Registrant."
Item 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 11 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1996 Proxy Statement in response to Item 402 of
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days
after December 31, 1995, such information will be included in an amendment to
this report filed not later than the end of such period.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 12 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1996 Proxy Statement in response to Item 403 of
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days
after December 31, 1995, such information will be included in an amendment to
this report filed not later than the end of such period.
59
<PAGE> 60
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 13 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1996 Proxy Statement in response to Item 404 of
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days
after December 31, 1995, such information will be included in an amendment to
this report filed not later than the end of such period.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) LIST OF DOCUMENTS FILED.
(1) The financial statements filed as part of this report are listed in
the Index to Financial Statements under Item 8 on page __ hereof.
(2) Additional financial information and schedules included pursuant to
the requirements of Form 10-K are listed in the Index to Financial Statements
under Item 8 on page 24 hereof.
(3) Exhibits
The exhibits indicated by an asterisk (*) are incorporated by reference. The
exhibits indicated by a plus sign (+) each constitute a management contract or
compensatory plan or arrangement required to be filed as an exhibit pursuant to
the requirements of Item 14(c) of Form 10-K.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
2* Stock Purchase Agreement, dated as of March 24, 1995, by and
among Pioneer, PAAC and the Sellers parties thereto
(incorporated by reference to Exhibit 2 to Pioneer's Current
Report on Form 8-K filed on May 5, 1995).
3.1(a)* Third Restated Certificate of Incorporation of Pioneer filed
with Secretary of State of Delaware on May 21, 1993
(incorporated by reference to Exhibit 3.1 to Pioneer's Annual
Report on Form 10-K for the year ended December 31, 1993).
3.1(b) Amendment to Third Restated Certificate of Incorporation of
Pioneer filed with Secretary of State of Delaware on April 20,
1995.
3.1(c) Amendment to Third Restated Certificate of Incorporation of
Pioneer filed with Secretary of State of Delaware on April 27,
1995.
3.2* By-laws of Pioneer (incorporated by reference to Exhibit 3.2
to Pioneer's Annual Report on Form 10-K for the year ended
December 31, 1988).
4.1(a)* Indenture, dated as of April 1, 1995, by and among PAAC, the
Subsidiary Guarantors parties thereto and IBJ Schroder Bank &
Trust Company, as trustee, relating to $135,000,000 principal
amount of 13 3/8% Senior Notes due 2005, including form of
Senior Note and Guarantee (incorporated by reference to
Exhibit 4.1 to Pioneer's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).
60
<PAGE> 61
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
4.1(b)* First Supplemental Indenture, dated as of September 14, 1995,
by and among PAAC, the Subsidiary Guarantors parties thereto
and United States Trust Company of New York, as trustee,
relating to $135,000,000 principal amount of notes renamed 13
3/8% First Mortgage Notes due 2005 (incorporated by reference
to Exhibit 4.1(b) to the Registration Statement on Form S-4
(file no. 33-98828) filed by PAAC on October 30, 1995).
4.1(c)* Mortgage, Assignment of Leases and Rents, Security Agreement,
Fixture Filing and Financing Statement by Pioneer Chlor Alkali
Company, Inc. (St. Gabriel, Louisiana) (incorporated by
reference to Exhibit 4.2(a) to the Registration Statement in
Form S-4 (file no. 33-98828) filed by PAAC on October 30,
1995).
4.1(d)* Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by Pioneer
Chlor Alkali Company, Inc. (Henderson, Nevada) (incorporated
by reference to Exhibit 4.2(b) to the Registration Statement
on Form S-4 (file no. 33-98828) filed by PAAC on October 30,
1995).
4.1(e)* Intercreditor and Collateral Agency Agreement, dated as of
September 14, 1995, by and among United States Trust Company
of New York, as Trustee and Collateral Agent, Bank of America
Illinois, as Agent, the Company, Pioneer, PAAC and Pioneer
Chlor Alkali Company, Inc. (incorporated by reference to
Exhibit 4.4 to the Registration Statement on Form S-4 (file
no. 33-98828) filed by PAAC on October 30, 1995).
4.2(a)* Loan and Security Agreement, dated as of April 12, 1995, by
and among Pioneer Americas, Inc. and certain Subsidiary
Guarantors, the lenders party thereto and Bank of America
Illinois, as Agent (incorporated by reference to Exhibit
4.2(a) to Pioneer's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).
4.2(b)* Master Corporate Guaranty, dated April 12, 1995, executed by
each of the Subsidiary Guarantors party thereto, as guarantor,
respectively, in favor of Bank of America Illinois, as Agent,
for the ratable benefit of the lenders, guaranteeing the
obligations of one another under the Bank Credit Agreement
(incorporated by reference to Exhibit 4.2(b) to Pioneer's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995).
4.2(c)* Master Security Agreement, dated April 12, 1995, executed by
each of the Subsidiary Guarantors party thereto, as debtor,
respectively, in favor of Bank of America Illinois, as Agent,
for the ratable benefit of the lenders (incorporated by
reference to Exhibit 4.2(c) to Pioneer's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995).
4.3* Form of Seller Note issued to the Sellers party to the Stock
Acquisition Agreement dated as of March 24, 1995 (incorporated
by reference to Exhibit 4.1 to Pioneer's Current Report on
Form 8-K filed on May 5, 1995).
4.4* Registration Rights Agreement, dated as of April 20, 1995, by
and among Pioneer, Richard C. Kellogg, Jr. and Frans G.J.
Speets and certain other stockholders of Pioneer,
(incorporated by reference to Exhibit 4.2 to Pioneer's Current
Report on Form 8-K filed on May 5, 1995).
10.1* Shareholders Agreement, dated as of April 20, 1995, by and
between William R. Berkley and Richard C. Kellogg, Jr.
(incorporated by reference to Exhibit 10.1 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
61
<PAGE> 62
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.2* Contingent Payment Agreement, dated as of April 20, 1995, by
and among Pioneer, PAAC and the Sellers party thereto
(incorporated by reference to Exhibit 10.2 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
10.3* Tax Sharing Agreement, dated as of April 20, 1995, by and
among Pioneer, PAAC and the Subsidiary Guarantors
(incorporated by reference to Exhibit 10.3 to the Registration
Statement on Form S-4 (file no. 33-98828) filed by PAAC on
October 30, 1995).
10.4*+ Pioneer Companies, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the Registration
Statement on Form S-4 (file no. 33-98828) filed by PAAC on
October 30, 1995).
10.5+ Pioneer Chlor Alkali Company, Inc. Supplemental Retirement
Plan.
10.6*+ Employment Agreement, dated April 20, 1995, between the
Pioneer and Richard C. Kellogg, Jr. (incorporated by
reference to Exhibit 10.1 to Pioneer's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995).
10.7+ Employment Agreement, dated November 1, 1992, and First
Amendment to Employment Agreement, dated as of April 20, 1995,
between Pioneer Chlor Alkali Company, Inc. and Paul J.
Kienholz.
10.8+ Employment Agreement, dated April 20, 1995, between Pioneer
Americas, Inc. and James E. Glattly.
10.9+ Employment Agreement, dated April 20, 1995, between Pioneer
Americas, Inc. and Verrill M. Norwood, Jr.
10.10+ Employment Agreement, dated April 20, 1995, between Pioneer
Americas, Inc. and Kent R. Stephenson.
10.11+ Employment Agreement, Dated April 20, 1995, between Pioneer
Americas, Inc. and Frank B. Belliss.
16 Letter from Ernst & Young LLP regarding change in independent
accountants.
21 Subsidiaries of Pioneer.
24 Powers of Attorney.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
Pioneer did not file any reports on Form 8-K during the quarter ended
December 31, 1995.
(c) FINANCIAL STATEMENT SCHEDULE.
Filed herewith as a financial statement schedule is Schedule II with
respect to Valuation and Qualifying Accounts. All other schedules have been
omitted because they are not applicable or not required or the required
information is included in the financial statements or notes thereto.
62
<PAGE> 63
SCHEDULE II
PIONEER COMPANIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSE ADDITIONS DEDUCTIONS PERIOD
----------- --------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
PERIOD FROM JANUARY 1, 1995 THROUGH
DECEMBER 31, 1995:
Allowance for doubtful accounts . . . $-- $138 $1,416(A) $(130)(B) $1,424
</TABLE>
___________
(A) Allowance balance established on April 20, 1995 for the acquisition of
Pioneer Americas, Inc.
(B) Uncollectible accounts written off, net of recoveries.
63
<PAGE> 64
SCHEDULE II
PIONEER AMERICAS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSE ADDITIONS DEDUCTIONS PERIOD
----------- --------- ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful accounts . . . . $ 572 $ 1,100 $ -- $ (1,151)(A) $ 521
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts . . . . 521 1,235 300(B) (18)(A) 2,038
PERIOD FROM JANUARY 1, 1995 THROUGH APRIL 20,
1995:
Allowance for doubtful accounts . . . . 2,038 47 -- (169)(A) 1,916
</TABLE>
___________
(A) Uncollectible accounts written off, net of recoveries.
(B) Allowance balance established in May 1994 for the acquisition of GPS.
64
<PAGE> 65
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
By /s/ RICHARD C. KELLOGG, JR.
________________________________
Richard C. Kellogg, Jr., President
April 1, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD C. KELLOGG, JR. President (Principal Executive Officer) April 1, 1996
___________________________ and Director
(Richard C. Kellogg, Jr.)
/s/ PHILIP J. ABLOVE Vice President and Chief Financial Officer April 1, 1996
__________________________ and Director (Principal Financial
(Philip J. Ablove) and Accounting Officer)
/s/ WILLIAM R. BERKLEY* Chairman of the Board April 1, 1996
____________________________
(William R. Berkley)
/s/ ANDREW M. BURSKY* Director April 1, 1996
____________________________
(Andrew M. Bursky)
Director April 1, 1996
____________________________
(George H. Conrades)
</TABLE>
65
<PAGE> 66
<TABLE>
<S> <C> <C>
/s/ DONALD J. DONAHUE* Director April 1, 1996
- ---------------------------
(Donald J. Donahue)
/s/ JACK H. NUSBAUM* Director April 1, 1996
- ---------------------------
(Jack H. Nusbaum)
/s/ THOMAS H. SCHNITZIUS* Director April 1, 1996
- ---------------------------
(Thomas H. Schnitzius)
*By: /s/ KENT R. STEPHENSON
----------------------
(Kent R. Stephenson,
Attorney-in-Fact)
</TABLE>
66
<PAGE> 67
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
3.1(b) Amendment to Third Restated Certificate of Incorporation of
Pioneer filed with Secretary of State of Delaware on April 20,
1995.
3.1(c) Amendment to Third Restated Certificate of Incorporation of
Pioneer filed with Secretary of State of Delaware on April 27,
1995.
10.5+ Pioneer Chlor Alkali Company, Inc. Supplemental Retirement
Plan.
10.7+ Employment Agreement, dated November 1, 1992, and First
Amendment to Employment Agreement, dated as of April 20, 1995,
between Pioneer Chlor Alkali Company, Inc. and Paul J.
Kienholz.
10.8+ Employment Agreement, dated April 20, 1995, between Pioneer
Americas, Inc. and James E. Glattly.
10.9+ Employment Agreement, dated April 20, 1995, between Pioneer
Americas, Inc. and Verrill M. Norwood, Jr.
10.10+ Employment Agreement, dated April 20, 1995, between Pioneer
Americas, Inc. and Kent R. Stephenson.
10.11+ Employment Agreement, Dated April 20, 1995, between Pioneer
Americas, Inc. and Frank B. Belliss.
16 Letter from Ernst & Young LLP regarding change in independent
accountants.
21 Subsidiaries of Pioneer.
24 Powers of Attorney.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 3.1(b)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GEV CORPORATION
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
We, Joshua A. Polan, Vice President, and William L. Mahone, Secretary
of GEV Corporation, a corporation existing under the laws of the State of
Delaware, do hereby certify as follows:
FIRST: That the Board of Directors of said corporation, at a
meeting duly held, adopted a resolution proposing and declaring
advisable the following amendment to the Certificate of Incorporation
of said corporation:
By deleting Article FIRST in its entirety and replacing it
with the following:
"FIRST: The name of the Corporation is Pioneer
Companies, Inc."
SECOND: That the stockholders of said corporation, at a
meeting duly held, have approved said amendment in accordance with the
General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, we have signed this certificate this 20th
day of April, 1995.
/s/ Joshua A. Polan
---------------------------
Name: Joshua A. Polan
Title: Vice President
/s/ William L. Mahone
---------------------------
Name: William L. Mahone
Title: Vice President,
General Counsel
and Secretary
<PAGE> 1
EXHIBIT 3.1(c)
CERTIFICATE OF AMENDMENT
OF THE
THIRD RESTATED CERTIFICATE OF INCORPORATION
OF
PIONEER COMPANIES, INC.
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
We, Joshua A. Polan, Vice President, and William L. Mahone,
Assistant Secretary of Pioneer Companies, Inc., a corporation existing under
the laws of the State of Delaware, do hereby certify as follows:
FIRST: That the Board of Directors of said corporation, at a
meeting duly held, adopted a resolution proposing and declaring
advisable the following amendment to the Third Restated Certificate of
Incorporation of said corporation:
That Article FOURTH be amended by adding the following
paragraphs immediately following paragraph D of Article
FOURTH:
"E. At 5 p.m. New York City time on
the effective date of this amendment
(the "Effective Time") each share of
Class A Common stock issued and
outstanding immediately prior to the
Effective Time (the "Old Class A
Common Stock") shall automatically and
without any action on the part of the
holder thereof be reclassified as and
changed into one-fourth (1/4) of a
share of Class A Common Stock (the "New
Class A Common Stock"), subject to the
treatment of fractional share interests
as described below. Such
reclassification and change of Old
Class A Common Stock into New Class A
Common Stock shall not change the par
value per share of the shares
reclassified and changed, which par
value shall remain $.01 per share.
Each holder of a certificate or
certificates which immediately prior to
the Effective Time represented
outstanding shares of Old Class A
Common Stock (the "Old Class A
Certificates," whether one or more)
shall be entitled to receive upon
surrender of such Old Class A
Certificates to the Corporation's
Transfer Agent for cancellation, a
<PAGE> 2
certificate or certificates (the "New
Class A Certificates," whether one or
more) representing the number of whole
shares of New Class A Common Stock into
which and for which the shares of the
Old Class A Common Stock formerly
represented by such old Class A
Certificates so surrendered, are
reclassified under the terms hereof.
From and after the Effective Time, Old
Class A Certificates shall represent
only the right to receive New Class A
Certificates (and, where applicable,
cash in lieu of fractional shares, as
provided below) pursuant to the
provisions hereof. No certificates or
scrip representing fractional share
interests in New Class A Common Stock
will be issued, and no such fractional
share interest will entitle the holder
thereof to vote, or to any rights of a
stockholder of the Corporation. A
holder of Old Class A Certificates
shall receive, in lieu of any fraction
of a share of New Class A Common Stock
to which the holder would otherwise be
entitled, a cash payment therefor in an
amount equal to the product of (a) the
number of shares of Old Class A Common
Stock that would otherwise be converted
into a fractional interest pursuant to
the reclassification effected hereby
and (b) the average of the high bid and
low asked prices of one share of Old
Class A Common Stock, as reported on
the NASD OTC Bulletin Board, for the
ten business days immediately preceding
the effective date of this amendment
for which transactions in Old Class A
Common Stock are reported thereon. If
more than one Old Class A Certificate
shall be surrendered at one time for
the account of the same stockholder,
the number of full shares of New Class
A Common Stock for which New Class A
Certificates shall be issued shall be
computed on the basis of the aggregate
number of shares represented by the Old
Class A Certificates so surrendered.
If any New Class A Certificates is to
be issued in a name other than that in
which the Old Class A Certificates
surrendered for exchange are issued,
the Old Class A Certificates so
surrendered shall be properly endorsed
and otherwise in proper form for
transfer, and the person or persons
requesting such exchange shall affix
any requisite stock transfer tax stamps
to the Old Class A Certificates
surrendered, or provide funds for their
purchase, or establish to
2
<PAGE> 3
the satisfaction of the Transfer Agent
that such taxes are not payable. From
and after the Effective Time, the
amount of capital represented by the
shares of the New Class A Common Stock
into which and for which the shares of
the Old Class A Common Stock are
reclassified under the terms hereof
shall be the same as the amount of
capital represented by the shares of
Old Class A Common Stock so
reclassified, until thereafter reduced
or increased in accordance with
applicable law.
F. At the Effective Time, each share
of Class B Common Stock issued and
outstanding immediately prior to the
Effective Time (the "Old Class B Common
Stock") shall automatically and without
any action on the part of the holder
thereof be reclassified as and changed
into one-fourth (1/4) of a share of
Class B Common Stock (the "New Class B
Common Stock"), subject to the
treatment of fractional share interests
as described below. Such
reclassification and change of Old
Class B Common Stock into New Class B
Common Stock shall not change the par
value per share of the shares
reclassified, which par value shall
remain $.01 per share. Each holder of
a certificate or certificates which
immediately prior to the Effective Time
represented outstanding shares of Old
Class B Common Stock (the "Old Class B
Certificates," whether one or more)
shall be entitled to receive upon
surrender of such Old Class B
Certificates to the Corporation's
Transfer Agent for cancellation, a
certificate or certificates (the "New
Class B Certificates," whether one or
more) representing the number of whole
shares of New Class B Common Stock into
which and for which the shares of the
Old Class B Common Stock formerly
represented by such Old Class B
Certificates so surrendered, are
reclassified under the terms hereof.
From and after the Effective Time, Old
Class B Certificates shall represent
only the right to receive New Class B
Certificates (and, where applicable,
cash in lieu of fractional shares, as
provided below) pursuant to the
provisions hereof. No certificates or
scrip representing fractional share
interests in New Class B Common Stock
will be issued, and no such fractional
share interest will entitle the holder
thereof to vote, or to any
3
<PAGE> 4
rights of a stockholder of the
Corporation. A holder of Old Class B
Certificates shall receive, in lieu of
any fraction of a share of New Class B
Common Stock to which the holder would
otherwise be entitled, a cash payment
therefor in an amount equal to the
product of (a) the number of shares of
Old Class B Common Stock that would
otherwise be converted into a
fractional interest pursuant to the
reclassification effected hereby and
(b) the average of the high bid and low
asked prices of one share of Old Class
A Common Stock, as reported on the NASD
OTC Bulletin Board, for the ten
business days immediately preceding the
effective date of this amendment for
which transactions in Old Class A
Common Stock are reported thereon. If
more than one Old Class B Certificate
shall be surrendered at one time for
the account of the same stockholder,
the number of full shares of New Class
B Common Stock for which New Class B
Certificates shall be issued shall be
computed on the basis of the aggregate
number of shares represented by the Old
Class B Certificates so surrendered.
If any New Class B Certificate is to be
issued in a name other than that in
which the Old Class B Certificates
surrendered for exchange are issued,
the Old Class B Certificates so
surrendered shall be properly endorsed
and otherwise in proper form for
transfer, and the person or persons
requesting such exchange shall affix
any requisite stock transfer tax stamps
to the Old Class B Certificates
surrendered, or provide funds for their
purchase, or establish to the
satisfaction of the Transfer Agent that
such taxes are not payable. From and
after the Effective Time, the amount of
capital represented by the shares of
the New Class B Common Stock into which
and for which the shares of the Old
Class B Common Stock are reclassified
under the terms hereof shall be the
same as the amount of capital
represented by the shares of Old Class
B Common Stock so reclassified, until
thereafter reduced or increased in
accordance with applicable law."
SECOND: That the stockholders of said corporation, at a
meeting duly held, have approved said amendment in accordance with the
General Corporation Law of the State of Delaware.
4
<PAGE> 5
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the corporation has caused this
certificate to be signed by its duly authorized officers this 27th day of
April, 1995.
/s/ JOSHUA A. POLAN
---------------------------
Name: Joshua A. Polan
Title: Vice President
/s/ WILLIAM L. MAHONE
---------------------------
Name: William L. Mahone
Title: Assistant Secretary
5
<PAGE> 1
EXHIBIT 10.5
PIONEER CHLOR ALKALI COMPANY, INC.
SUPPLEMENTAL RETIREMENT PLAN
PIONEER CHLOR ALKALI COMPANY, INC. (the "Company") hereby establishes
the Pioneer Chlor Alkali Company, Inc. Supplemental Retirement Plan (the
"Plan") effective as of November 1, 1995. The terms, provisions and conditions
of the Plan are as follows:
SECTION I
Purpose of the Plan
Section 1.1 Purpose. The purpose of the Plan is to provide
nonqualified, supplemental retirement benefits to certain designated key
employees of the Company in addition to those retirement benefits provided to
them under the Pioneer Chlor Alkali Company, Inc. Retirement Plan (the
"Qualified Plan").
SECTION II
Eligibility
Section 2.1 Eligibility. Only those key employees of the Company who
are either "highly compensated" or "members of a select group of management",
as such terms are used in the Employee Retirement Income Security of 1974,
shall be eligible to become participants in this Plan. An eligible key
employee shall become a participant in the Plan only if he or she is designated
as a participant by action of the Board of Directors of the Company (the
"Board"). The employees who have been designated as participants shall be set
forth on Schedule I attached hereto, as it may be amended from time to time by
the Board.
<PAGE> 2
SECTION III
Benefits
Section 3.1 Amount of Benefits. Subject to the further provisions of
the Plan, a participant shall be entitled to receive from the Company,
beginning on the first of the month coinciding with or next following the date
the participant reaches age 65, a monthly supplemental retirement benefit for
life equal to the amount as set forth for such participant on Schedule I
hereto.
Section 3.2 Surviving Spouse's Benefit. Upon a participant's death,
whether before or after the commencement of the benefit payable under Section
3.1, if the participant is survived by a spouse to whom the participant had
been married for the entire one-year period preceding his date of death, a
monthly survivor's benefit shall be payable to the participant's surviving
spouse for the spouse's lifetime, beginning on the first of the month on or
next following the participant's death, in an amount equal to 50% of the amount
of the participant's monthly benefit set forth on Schedule I.
Section 3.3 No Other Death Benefits. Except as provided in Section
3.2, no other death benefits shall be payable under the Plan.
Section 3.4 Benefits Unfunded. The Plan is completely separate from
and is not a part of the Qualified Plan. The benefits to be provided hereunder
are unfunded and shall be paid by the Company, including any grantor trust
established by the Company, as they become due. Each participant and any
surviving spouse shall be a general unsecured creditor of the Company with
respect to the benefits payable under this Plan.
SECTION IV
Administration
Section 4.1 Duties of Company. The Plan shall be administered by the
Company. The duties of the Company shall be performed by the administrative
committee of the Qualified Plan, which shall have all the powers, duties and
protections
2
<PAGE> 3
of the committee as set forth in the Qualified Plan. The committee shall
determine on behalf of the Company the amount and manner of payment of the
benefits due to, or on behalf of, each participant under the Plan and the
commencement and termination dates of such benefit payments.
Section 4.2 Appeal of Decisions. A participant or surviving spouse who
has been denied a benefit hereunder either in whole or in part may appeal that
decision to the Board. The appeals procedures shall be the same as those under
the Qualified Plan.
SECTION V
Amendment and Termination
Section 5.1 Right to Amendment and Termination. The Company, by action
of the Board, may amend and/or terminate the Plan at any time for whatever
reasons it may deem appropriate. However, no such amendment or termination of
the Plan shall reduce any participant's (or surviving spouse's) vested right to
receive the benefit provided to such person hereunder.
Section 5.2 Liquidation, Succession or Termination. In the event that
the Company (or its successor) is liquidated or dissolved, the Actuarial
Equivalent (as defined in the Qualified Plan) of all benefits accrued under
Section III as of the date of such event shall become immediately payable to
the participants (or surviving spouses, as the case my be) in a lump sum.
The Company (or its successor) shall require any purchaser of all or
substantially all of the business or assets of the Company expressly to assume
and agree to pay the benefits provided for under this Plan as of the date of
such succession in the same manner and to the same extent as the Company would
have been required if no such purchase had taken place. Failure of the Company
(or its successor) to obtain such agreement prior to the effectiveness of any
such purchase shall entitle a participant (or
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surviving spouse) to be paid from the Company (or its successor) the lump sum
amount determined in the preceding paragraph as if the Company had been
liquidated.
A termination of the Plan shall be treated as the same as a
liquidation of the Company.
SECTION VI
Miscellaneous
Section 6.1 No Employment Rights. Nothing contained in the Plan shall
be construed as a contract of employment between the Company and any
participant, or as creating a right in any participant to be continued in the
employment of the Company (or its successor), or as a limitation of the right
of the Company to discharge any participant, with or without cause.
Section 6.2 Assignment. The benefits payable under this Plan may not
be assigned, alienated, pledged, transferred or hypothecated in any manner.
Section 6.3 Withholding of Taxes. The Company (or its successor) shall
have the right to deduct from all payments made under the Plan, any federal,
state or local taxes required by law to be withheld from such payments.
Section 6.4 Law Applicable. This Plan shall be governed by the laws of
the State of Texas.
IN WITNESS WHEREOF, the Company has caused its duly authorized officers
to affix its name hereto with effect as of November 1, 1995.
PIONEER CHLOR ALKALI COMPANY, INC.
By: _________________________________
Kent R. Stephenson, Vice President
4
<PAGE> 5
Schedule I
Participant Monthly Benefit
----------- ---------------
Paul J. Kienholz $1,072.72
Verrill Norwood. Jr. $1,428.01
5
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This agreement is between PIONEER CHLOR ALKALI COMPANY, INC., a
Delaware corporation with its business headquarters at 4200 NationsBank Center,
700 Louisiana Street, Houston, Texas 77002 ("PCAC"), and PAUL J. KIENHOLZ, an
individual residing at 9333 Memorial Drive, #301, Houston, Texas 77024
("Kienholz").
WHEREAS, PCAC desires to engage the services of Kienholz to serve as
an employee of PCAC, and Kienholz desires to accept said employment on the
terms and conditions herein contained.
ACCORDINGLY, for the mutual covenants and considerations set forth
herein, PCAC and Kienholz agree as follows:
1. TERMS OF EMPLOYMENT. PCAC hereby employs Kienholz and
Kienholz hereby accepts employment with PCAC for a period of three (3) years
commencing on November 1, 1992 and terminating on October 31, 1995.
2. TERMINATION. During the term of this agreement, PCAC shall
have the right to terminate the employment of Kienholz hereunder by giving
written notice to Kienholz in the event of any of the following:
A. For Cause: PCAC may immediately terminate Kienholz for cause.
For purposes hereof, "cause" shall consist of:
* conduct by Kienholz which has been found by the PCAC's
Board of Directors to constitute a willful dereliction of
duty, or a willful breach or neglect of Kienholz's
obligation hereunder; or
* a criminal indictment alleging activity by Kienholz
involving moral turpitude (or an indictment for same).
B. Disability: PCAC may terminate Kienholz upon the occurrence
of any physical or mental disability which prevents Kienholz
from performing substantially all of the services required of
Kienholz hereunder for more than six (6) consecutive months.
Provided, the foregoing shall not prejudice Kienholz's rights
to continuing, existing insurance benefits for which he is
otherwise eligible, specifically including disability
benefits.
C. Death: This agreement shall immediately terminate upon the
death of Kienholz.
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<PAGE> 2
Upon termination of this agreement, neither party shall have any
further rights or obligations hereunder. Kienholz's right to compensation
under this agreement shall cease upon the date of termination, provided that
nothing contained herein shall affect Kienholz's right to compensation earned
prior to the date of such termination.
3. COMPENSATION. In consideration for the performance of his
services hereunder, Kienholz shall receive from PCAC:
A. Base Salary: Kienholz shall be paid a base salary ("Base
Salary") of not less than Two Hundred Thousand and no/100
Dollars ($200,000.00) per year. The Base Salary shall be
payable in twenty four (24) equal semi-monthly installments on
the first and fifteenth of each month during the term hereof.
Such compensation shall be prorated for any applicable partial
employment period.
B. Benefits: Kienholz shall be entitled to participate in all
benefit plans, programs, group insurance policies, sick leave,
and other benefits, including bonus payments, as may be from
time to time established for its employees by PCAC's Board of
Directors of PCAC (provided that Kienholz is eligible under the
respective provisions thereof). Kienholz shall be entitled to
twenty (20) business days paid vacation per year.
C. Salary Continuation agreement: PCAC and Kienholz shall
continue the Salary Continuation Agreement between PCAC and
Kienholz executed December 14, 1988.
D. Stock Options: Kienholz and PCAC shall consummate the Option
Exercise Letter Agreement between PCAC and Kienholz whereunder
PCAC shall provide additional funding for Kienholz's
acquisition of the 23,088 shares subject to the Incentive
Stock Option agreement made effective May 1, 1989 between PCAC
and Kienholz.
E. Expenses: Consistent with the relevant policies and
procedures of PCAC as may be in effect from time to time, PCAC
shall reimburse Kienholz for all reasonable expenses incurred
by Kienholz during the term of this agreement and in the
performance of his duties hereunder.
4. DUTIES. Kienholz is hereby hired and employed by PCAC to act
as President and Chief Operating Officer of the company and to carry out those
duties required of such office as prescribed by PCAC's Bylaws, and to carry out
any and all duties established by the Board of Directors of PCAC for such
office or for such other alternative office or position as may be determined by
PCAC's Board of Directors.
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<PAGE> 3
5. EXTENT OF DUTIES. Kienholz shall devote such time, attention
and energy as is necessary to perform his duties under this agreement. Without
the prior written consent of PCAC, Kienholz shall not engage in any activity
during his employment with PCAC which would conflict with, interfere with,
impede or hamper the performance of his duties for PCAC or which would
otherwise be prejudicial to PCAC's business interests.
6. CONFIDENTIAL INFORMATION. During the term of this agreement,
Kienholz shall have access to and become familiar with various trade secrets,
records, and compilations of information which are owned by PCAC and which are
regularly used in the operation of the business of PCAC. Kienholz shall not
knowingly disclose any of such trade secrets, directly or indirectly, nor use
them in any way, either during the term of this agreement or at any time
thereafter, except as required in the course of his employment. All files,
records, documents, drawing specifications, equipment and similar items
relating to the business of PCAC, whether prepared by Kienholz or otherwise
coming into his possession, shall be works for hire and shall be and/or shall
remain the exclusive property of PCAC (excepting from the foregoing personal
property brought to PCAC by Kienholz). For purposes of paragraphs 5 and 6
hereunder, references to "PCAC" shall also be deemed to include PCAC's parent,
and all of its subsidiary and affiliated entities.
7. NOTICES. All notices prescribed by this agreement shall be in
writing and shall be hand delivered personally to the party entitled thereto or
shall be delivered by telecopy or by U.S. Mail, postage prepaid, certified or
registered mail, return receipt requested and addressed to the party entitled
thereto at such party's address in the opening paragraph of this agreement.
Upon five (5) days prior written notice given as above provided, either party
hereto may change its address for notice hereunder.
8. GOVERNING LAW. THIS AGREEMENT IS MADE AND ENTERED INTO AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS. THIS AGREEMENT SHALL BE PERFORMABLE IN HARRIS COUNTY, TEXAS.
9. AMENDMENTS. This agreement may be amended or modified only by
written agreement signed by both parties hereto.
10. SOLE AGREEMENT; ASSIGNMENT. This agreement is the sole
agreement between the parties regarding Kienholz's employment with PCAC and any
and all other agreements or understandings, express or implied, written or
oral, are superseded hereby. Kienholz may not assign his rights or obligations
under this agreement.
11. BINDING EFFECT. Subject to the provisions of the paragraph
10, this agreement shall be binding on and inure to the
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benefit of the parties hereto and their respective successors, assigns, heirs
and legal representatives.
EXECUTED this the 1st day of November, 1992.
PIONEER CHLOR ALKALI COMPANY, INC.
/s/ R.C. Kellogg, Jr.
----------------------------------
By: R.C. KELLOGG, JR.
/s/ Paul J. Kienholz
-----------------------------------
PAUL J. KIENHOLZ
4
<PAGE> 5
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") dated
as of the 20th day of April, 1995, is by and between Pioneer Chlor Alkali
Company, Inc., (the "Company") and Paul J. Kienholz (the "Executive").
WHEREAS, the Company and the Executive are parties to that certain
Employment Agreement (the "Existing Agreement") executed in November, 1992,
pursuant to which the Executive is employed by the Company as the President and
Chief Operating Officer of the Company, and
WHEREAS the Company and the Executive desire to amend the Existing
Agreement to extend the term thereof for one year to October 31, 1996;
NOW THEREFORE, in consideration of the premises and the mutual
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
Section 1. Amendment. Section 1 of the Existing Agreement is hereby
deleted and substituted in its entirety with the following:
1. TERM OF EMPLOYMENT. PCAC hereby employs Kienholz and Kienholz
hereby accepts employment with PCAC for a period of four (4) YEARS
commencing on November 1, 1992 and terminating on October 31, 1996.
Section 2. Effect of Amendment. Except as provided in Section 1, the
Existing Agreement shall remain in full force and effect.
Section 3. Counterparts. This Amendment may be executed in two
counterparts, each of which will be an original but together which shall
constitute on and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
PIONEER CHLOR ALKALI COMPANY, INC.
By: /s/ Richard C. Kellogg, Jr.
---------------------------------
Printed Name: Richard C. Kellogg, Jr.
Title: Chairman
/s/ Paul J. Kienholz
-------------------------------------
Paul J. Kienholz
<PAGE> 1
EXHIBIT 10.8
EXECUTIVE EMPLOYMENT AGREEMENT
(Noncompetition Covenants)
This EMPLOYMENT AGREEMENT is made and entered into as of this 20th day
of April, 1995, between Pioneer Americas, Inc., a Delaware corporation (the
"Company"), and James E. Glattly (the "Executive").
WITNESSETH:
WHEREAS, Pioneer Americas Acquisition Corp., a Delaware corporation
("PAAC") and GEV Corporation, a Delaware corporation and the owner of all of
the outstanding capital stock of PAAC ("GEV"), have agreed to acquire all of
the issued and outstanding capital stock of the Company pursuant to a Stock
Purchase Agreement, dated as of March 24, 1995, by and among PAAC, GEV, and all
holders of equity securities and rights to acquire equity securities of the
Company (the "Purchase Agreement");
WHEREAS, the Executive is currently employed by the Company and the
Company desires to secure for itself the continued benefit of the Executive's
background, experience, ability and expertise and the Executive has indicated
his willingness to continue to provide his services, on the terms and
conditions set forth herein;
WHEREAS, by virtue of the Executive's position with the Company, the
Executive has knowledge of certain Confidential Information (as defined below);
and, therefore, in order to protect the value of the business acquired under
the Purchase Agreement, the Company desires to enter into this Agreement with
the Executive, and the Executive desires to make the agreements provided for
herein in consideration of the amounts payable to the Executive pursuant
hereto;
WHEREAS, it is a condition to closing of the transactions contemplated
by the Purchase Agreement that the Executive and the Company enter into this
Agreement;
NOW, THEREFORE, on the basis of the foregoing premises and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
SECTION 1. EMPLOYMENT. (a) The Company hereby agrees to employ the
Executive and the hereby accepts employment with the Company, on the terms and
subject to the conditions hereinafter set forth. Subject to the terms and
conditions contained herein, the Executive shall serve as Vice President -
Sales & Marketing of the Company and, in such capacity, shall report directly
to the Board of Directors of the Company ("Board of Directors") or its designee
and shall have such duties, functions, responsibilities and authority as are
consistent with the Executive's position as the senior executive officer in
charge of the management, development and implementation of strategies for
marketing of the products and services of the Company and its subsidiaries,
including coordination with the sales, transportation and logistics aspects of
such marketing and sales personnel, together
<PAGE> 2
with such additional duties, functions, responsibilities and authority
including, without limitation, serving as an officer and/or director of any
subsidiary of the Company, commensurate with the Executive's position as set
forth in this Agreement, as may be reasonably assigned to the Executive from
time to time by the Board of Directors or its designee. In connection with his
employment under this Agreement, the Executive shall be based at the offices of
the Company where the Executive currently resides.
(b) As additional consideration for the Executive to enter into the
obligations set forth in this Agreement: (i) GEV shall, contemporaneous with
execution and delivery of this Agreement, cause to be granted to the Executive
options to acquire 200,000 shares of the Class A common stock, par value $.01
per share of GEV, pursuant to the GEV Corporation 1995 Stock Incentive Plan,
which options shall have an exercise price and shall vest and become
exercisable in the manner set forth in the stock option agreement to be
executed by the Executive and GEV evidencing such option rights; and (ii) GEV
and the Company, jointly and severally, shall indemnify and hold harmless
Executive from any claim asserted against him as an employee, officer or
director of the Company or any subsidiary or affiliate of the Company to the
fullest extent permitted by, and subject to the provisions of, the Delaware
General Corporation Law, except only that Executive shall not be indemnified
for any violation by Executive of the terms of this Agreement.
SECTION 2. TERM. Subject to the provisions and conditions of this
Agreement (including Section 6), the Executive's employment hereunder shall
commence on the date hereof and shall continue during the period ending on the
third anniversary of the date hereof (the "Employment Term").
SECTION 3. COMPENSATION.
(a) Salary. As compensation for the performance of the Executive's
services hereunder, the Company shall pay to the Executive a base salary (the
"Salary") of $165,000 per annum with increases, if any, as may be approved in
writing by the Board of Directors or its designee. The Salary shall be
payable in accordance with payroll practices of the Company as the same shall
exist from time to time. In no event shall the Salary be decreased during the
Employment Term.
(b) Bonus Plan. The Executive shall be entitled to receive bonus
compensation consisting of cash, securities or property ("Bonus") in accordance
with any management incentive plan or plans (including, without limitation, any
shared earnings plan) which may be established by the Board of Directors of the
Company for its executive officers and management.
(c) Benefits. In addition to the Salary and Bonus, the Executive
shall be entitled to participate in or to receive the same health, insurance,
pension, automobile, severance, vacation, holiday, sick leave, disability,
profit sharing, 401(k) savings and other benefits as have been provided to
executive officers of the Company or its subsidiaries on the date hereof,
subject to such changes therein as shall be determined by the Board of
Directors to be consistent with the best interests of the Company.
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<PAGE> 3
(d) Paying Entity. The Company may cause any one or more of its
subsidiaries to provide the salary and benefits to the Executive as are
required by this Agreement.
SECTION 4. EXCLUSIVITY. During the Employment Term, the Executive
shall devote substantially all of his time to the business of the Company,
shall faithfully serve the Company, shall in all respects conform to and comply
with the lawful and reasonable directions and instructions given to him by the
Board of Directors or its designee in accordance with the terms of this
Agreement, shall use his best efforts to promote and serve the interests of the
Company and shall not engage in any other business activity, whether or not
such activity shall be engaged in for pecuniary profit, except that the
Executive may (a) participate in the activities of professional trade
organizations related to the business of the Company, and (b) engage in
personal investing and other personal activities, provided that activities set
forth in the foregoing clauses, either singly or in the aggregate, do not
interfere in any material respect with the services to be provided by the
Executive hereunder.
SECTION 5. REIMBURSEMENT FOR EXPENSES. The Company shall promptly
reimburse the Executive for all reasonable out-of-pocket travel, entertainment
and other business expenses incurred by the Executive during the term of this
Agreement and in the performance of this duties hereunder in accordance with
the Company's reimbursement policies in effect on the date hereof.
SECTION 6. TERMINATION.
(a) Death. This Agreement shall automatically terminate upon the
death of the Executive and upon such event, the Executive's estate shall be
entitled to receive the amounts specified in Section 6(f) below.
(b) Disability. If the Executive is unable to perform the duties
required of him under this Agreement because of physical or mental disability,
this Agreement shall remain in full force and effect and the Company shall pay
all compensation required to be paid to the Executive hereunder, unless the
Executive is unable to perform the duties required of him under this Agreement
for an aggregate of one hundred twenty (120) days (whether or not consecutive)
during any twelve (12) month period during the term of this Agreement, in which
event this Agreement (other than Sections 7, 8, 9 and 12 hereof), including,
but not limited to, the Company's obligations to pay any Salary or to provide
any privileges under this Agreement, shall, upon written notice by the Company
to the Executive to such effect, terminate; provided, however, that the
foregoing shall not prejudice the Executive's rights to continuing, existing
insurance benefits for which he is otherwise eligible, including disability
benefits. In case of any dispute as to whether Executive is disabled within
the meaning of this Section 6(b), the determination of such disability for the
period specified shall be certified by a physician reasonably acceptable to
both the Company and the Executive, which physician's determination shall be
final and binding on the parties hereto. The Company shall be permitted to
hire a replacement for the Executive, so long as this Agreement shall remain in
effect, to serve in the event and for so long as the Executive shall be unable
to perform the duties required of him hereunder due to his disability for an
aggregate of sixty (60) days during any 12-month period during the term of this
Agreement.
(c) Just Cause. The Company may terminate this Agreement (other than
Sections 7, 8, 9 and 12 hereof) for "Just Cause." For purposes of this
Agreement, "Just Cause" shall mean: (i) the Executive's willful and continued
failure, neglect or
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<PAGE> 4
refusal to perform his duties hereunder which failure, neglect or refusal shall
not have been corrected by the Executive within thirty (30) days of receipt by
the Executive of written notice from the Company of such failure, neglect or
refusal, which notice shall specifically set forth the nature of said failure,
neglect or refusal; (ii) any willful or intentional engagement by the Executive
in misconduct (including repeated drunkenness or use of illegal drugs) that is
materially injurious to the reputation or business of the Company or its
affiliates or that materially impairs the ability of the Executive to perform
his duties and responsibilities hereunder; (iii) any continued or repeated
absence from the Company, unless such absence is (A) approved or excused by the
Board of Directors or its designee or (B) is the result of the Executive's
physical or mental disability (in which event the provisions of Section 6(b)
hereof shall control) or a personal or family emergency; (iv) conviction of the
Executive for the commission of a felony; or (v) the commission by the
Executive of an act of fraud or embezzlement against the Company. If the
Executive's employment is terminated for Just Cause, the Executive shall be
entitled to receive the amounts specified in Section 6(f) hereof. In the event
of any termination pursuant to this Section 6(c), the Company shall deliver to
the Executive written notice setting forth the basis for such termination,
which notice shall specifically set forth the nature of the Just Cause, and the
facts and circumstances in connection therewith, which is the reason for such
termination.
(d) Good Reason. The Executive may terminate this Agreement for
"Good Reason" following a Substantial Breach (as defined below) if such
Substantial Breach shall not have been corrected by the Company within thirty
(30) days of receipt by the Company of written notice from the Executive of the
occurrence of such Substantial Breach, which notice shall specifically set
forth the nature of the Substantial Breach which, if not corrected, will
entitle the Executive at any time after such thirty (30) day notice period and
by subsequent written notice to terminate this Agreement. In the event of
resignation by the Executive following a Substantial Breach, the Executive
shall be entitled to receive the amounts specified in Section 6(f) hereof. An
election by the Executive to terminate his employment under this paragraph
shall not be a breach of this Agreement. The term "Substantial Breach" means
any material breach by the Company of its obligations hereunder consisting of:
(i) the failure of the Company to pay the Executive the Salary or Bonus, if
any, in accordance with Sections 3(a) and (b) hereof; (ii) the failure by the
Company to substantially maintain and continue the Executive's participation in
benefit plans as provided in Section 3(c) hereof; (iii) any removal of the
Executive from or any failure to re-elect the Executive to the positions or
material diminishment in the duties or responsibilities of the Executive
described in Section 1, except in connection with promotions to higher office;
(iv) the Company's requiring the Executive to be based anywhere other than in
or within 35 miles of the Executive's current principal place of employment,
except for required travel on the business of the Company to an extent
substantially consistent with the Executive's prior business travel
obligations, or, in the event the Executive consents to relocation, the failure
of the Company to pay or reimburse the Executive for all reasonable costs
incurred by the Executive in connection with such relocation as mutually agreed
by the Company and the Executive prior to such relocation; and (v) the failure
of any successor to all or substantially all of the business and/or assets of
the Company to assume this Agreement; provided, however, that the term
"Substantial Breach" shall not include a termination of the Executive's
employment hereunder pursuant to Section 6(b) or (c) hereof. The date of
termination of the Executive's employment under this Section 6(d) shall be the
effective date of any resignation specified in writing by the Executive, which
shall not be less than thirty (30) days after receipt by the Company of written
notice of such resignation, provided that any resignation by Executive
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<PAGE> 5
shall not be effective pursuant to this Section 6(d) if such Substantial Breach
shall have been corrected by the Company during the thirty (30) day period
following notice by the Executive of the existence thereof or if corrected
thereafter prior to the date of resignation by the Executive.
(e) Without Cause. The Company, by action of its Board of Directors,
may terminate this Agreement (other than Sections 7, 8, 9 and 12 hereof)
without Just Cause upon the giving to the Executive of thirty (30) days' prior
written notice of such termination. If the Executive's employment is
terminated by the Company without Just Cause, the Executive shall be entitled
to receive the amounts specified in Section 6(f) hereof.
(f) Payments. In the event that the Executive's employment hereunder
terminates for any reason, the Company shall promptly pay to the Executive all
amounts accrued but unpaid hereunder through the date of termination in respect
of the Salary and for reimbursement of any expenses pursuant to Section 5
hereof, and, in the case of any termination by reason of death or physical or
mental disability of the Executive pursuant to Section 6(a) or 6(b) hereof, a
pro rated portion of the Bonus, if any, which the Executive would have been
otherwise entitled to receive under Section 3(b) for the calendar year in which
such termination occurs, such pro rated portion being the portion of such Bonus
corresponding to the period commencing on January 1 of such year and ending on
the date of termination. In the event that the Executive's employment has been
terminated by the Company for Just Cause, the Company shall have no obligations
to the Executive for Salary, Bonus or other benefits herein provided accruing
on or after the date of termination except as set forth in the preceding
sentence or as may be otherwise provided by law. In the event that the
Executive's employment hereunder is terminated by the Company without Just
Cause or by the Executive with Good Reason, in addition to the amounts
specified in the first sentence of this Section 6(f), the Executive shall
continue to receive the Salary at the rate in effect hereunder on the date of
such termination periodically, in accordance with the Company's prevailing
payroll practices, until the last date of the Employment Term or until the
first anniversary of the termination date, if longer, plus (i) the cost of the
Executive's premiums for health care benefits under COBRA or the cost of the
Executive's premiums under any replacement health insurance coverage obtained
by Executive containing substantially the same coverage as provided to the
Executive at such time, which premiums shall be payable as and when the Salary
would otherwise have been payable as provided in this Agreement; and (ii) a
prorated portion of the Bonus, if any, which the Executive would have otherwise
been entitled to receive under Section 3(b) for the calendar year in which the
Executive is terminated prorated in the same manner as set forth in the first
sentence of this Section 6(f). Without intending to limit the generality of
Section 7, in the event that the Executive accepts other employment or engages
in his own business prior to the last date of the Employment Term, the
Executive shall forthwith notify the Company and the Company shall be entitled
to set off from amounts due the Executive under this Section 6(f) the amounts
paid to the Executive in respect of such other employment or business activity.
Upon any termination of this Agreement, all of the rights, privileges and
duties of the Executive hereunder shall cease, except for any rights under this
Section 6(f) and any obligations under Sections 7, 8, 9 and 12 hereunder.
SECTION 7. SECRECY AND NON-COMPETITION.
(a) No Competing Employment. The Executive acknowledges that the
agreements and covenants contained in this Section 7 are essential to protect
the
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<PAGE> 6
value of the Company's business and assets and that by virtue of his past and
current employment with the Company, the Executive has obtained and will obtain
Confidential Information and there is a substantial probability that such
Confidential Information could be used to the substantial advantage of a
competitor of the Company or its subsidiaries and to the Company's or its
subsidiaries' substantial detriment. The Executive also acknowledges that GEV
and PAAC have purchased all of the outstanding shares of the Company in
reliance on the covenants made by the Executive in this Section 7, and that
they would not have acquired such shares in the absence of the covenants made
by the Executive in this Section 7. Therefore, the Executive agrees that
during the term of this Agreement and for a period of one year following the
date of termination of the Executive's employment hereunder (the "Restricted
Period") the Executive shall not participate or engage, directly or indirectly,
for himself or on behalf of or in conjunction with any person, partnership,
corporation or other entity, whether as an employee, agent, officer, director,
shareholder, partner, joint venturer, investor or otherwise, in any business
activities if such activity consists of the manufacture, processing, marketing,
sale, storage and transport of chorine, caustic soda, muriatic acid, bleach,
iron chlorides, aluminum sulfate, hydrogen and steam and certain other products
relating thereto or the management thereof and all activities necessary
therefor or incidental thereto (the "Chlor Alkali Business"); provided,
however, that nothing contained in this Section 7(a) shall prohibit or restrict
the Executive from making any investment, for investment purposes only, of up to
three percent (3%) of the stock of any publicly-traded entity whose stock is
either listed on a national stock exchange or on the NASDAQ National Market
System, provided, further, that anything in this Section 7(a) or in Section 7(b)
to the contrary notwithstanding, following termination of this Agreement the
Executive shall not be prohibited from serving as a director, officer, or
employee of, or consultant to, an entity which is engaged in whole or in part,
in the Chlor Alkali Business so long as the Executive, at all times during the
Restricted Period, does not (i) initiate contact or solicit, directly or
indirectly, those Persons who were customers of or suppliers to, or who
otherwise had business relationships with, the Company, or any of its respective
subsidiaries, at any time during the twelve month period preceding the date of
termination, or (ii) disclose or use Confidential Information in any manner
which would be materially adverse to the Chlor Alkali Business conducted by the
Company and its subsidiaries as of the date of termination.
(b) Nondisclosure of Confidential Information. The Executive, except
in connection with his employment hereunder or as required by legal process,
shall not disclose to any person or entity or use, during the Employment Term
or at any time thereafter, any information not in the public domain or
generally known in the industry, in any form acquired by the Executive while
employed by the Company or any predecessor to the Company's business or, if
acquired following the Employment Term, such information which, to the
Executive's knowledge, has been acquired, directly, or indirectly, from any
person or entity owing a duty of confidentiality to the Company or any of its
subsidiaries or affiliates, relating to the Company, its subsidiaries or
affiliates, including but not limited to information regarding customers,
vendors, suppliers, trade secrets, training programs, manuals or materials,
technical information, contracts, systems, procedures, mailing lists, know-how,
trade names, improvements, price lists, financial or other data (including the
revenues, costs or profits associated with any of the Company's products or
services), business plans, code books, invoices and other financial statements,
computer programs, software systems, databases, discs and printouts, plans
(business, technical or otherwise), customer and industry lists,
correspondence, internal reports, personnel files, sales and advertising
material, telephone numbers, names
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<PAGE> 7
addresses or any other compilation of information, written or unwritten, which
is or was used in the business of the Company or any of its subsidiaries or
affiliates (collectively, "Confidential Information"); provided, however, that
the term Confidential Information shall not include (i) general skills and
general knowledge of an industry obtained by reason of the Executive's
association with the Company; (ii) information concerning the business and
operations of the Company and its subsidiaries and/or the industry in which the
Company and its subsidiaries conduct business which was in the possession of or
known to the Executive prior to the Executive's employment with the Company;
and (iii) any financial or other information with respect to the assets,
properties, rights, business or operations of Basic or any of its subsidiaries,
or Victory Valley, or relating to the Subject Parcels (as such terms are
defined in the Purchase Agreement). The Executive agrees and acknowledges that
all Confidential Information, in any form, and copies and extracts thereof, are
and shall remain the sole and exclusive property of the Company, and upon
termination of his employment with the Company, the Executive shall return to
the Company the originals and all copies of any Confidential Information
provided to or acquired by the Executive in connection with the performance of
his duties for the Company, and shall return to the Company all files,
correspondence and/or other communications received, maintained and/or
originated by the Executive during the course of his employment.
(c) No Interference. During the Restricted Period, the Executive
shall not, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business organization
(other than the Company), directly or indirectly, solicit, endeavor to entice
away from the Company, its affiliates or subsidiaries, or otherwise directly
interfere with the relationship of the Company, its affiliates or subsidiaries
with any person who, to the knowledge of the Executive, is employed by or
otherwise engaged to perform services for the Company, its affiliates or
subsidiaries (including, but not limited to, any independent distributor or
sales representative or organization) or who is, or was within the then most
recent twelve-month period, a customer or client of the Company, its
predecessors or any of its subsidiaries or affiliates.
(d) Inventions. The Executive hereby sells, transfers and assigns to
the Company, or to any person or entity designated in writing by the Company,
all of the right, title and interest of the Executive in and to all inventions,
sales materials, software, training materials, disclosures and improvements,
whether patented or unpatented, and copyrightable material, made or conceived
by the Executive, solely or jointly, in whole or in part, during his employment
with the Company which are not generally known to the public or the industry or
recognized as standard practice and which (i) relate to services, trade names,
methods, ideas, apparatus, designs, products, processes or devices which may be
sold, leased, used or under construction or development by the Company, or any
franchise affiliated with the Company and (ii) arise (wholly or partly) from
the efforts of the Executive during and in the course of his employment with
the Company (an "Invention"). The Executive shall communicate promptly and
disclose to the Company, in such form as the Company reasonably requests, all
information, details and data pertaining to any such Invention. With respect
to all Inventions which are to be assigned pursuant to this Section 7, the
Executive will assist the Company in any reasonable manner to obtain for the
Company's benefit patents thereon, including, but not limited to, executing
patent applications, transfers or assignments thereof to the Company and any
and all other documents reasonably deemed necessary by the Company. The
Company shall pay all costs incident to the preparation, execution and delivery
of such patent applications, transfers, assignments and other documents. Any
Invention by the
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<PAGE> 8
Executive within six (6) months following the termination of his employment
hereunder shall be presumed to fall within the provisions of this Section 7(d)
unless the Executive bears the burden of proof showing that the Invention was
first conceived and made following such termination. Notwithstanding anything
contained herein to the contrary, the Executive shall continue to own the
exclusive right, title and interest in and to any and all inventions,
improvements, discoveries, ideas, designs, documents and other data (whether or
not patentable): (A) conceived, made and developed prior to the date of this
Agreement; and (B) irrespective of when conceived, made or developed, which do
not relate to the actual or anticipated business of the Company or any existing
or prior research and development activities of the Company or any of its
subsidiaries.
(e) Limited Enforceability. Anything in this Agreement to the
contrary notwithstanding, in the event that Executive terminates this Agreement
for Good Reason pursuant to Section 6(d) hereof, or if the Company terminates
the employment of Executive without Just Cause under Section 6(e) hereof,
Executive shall be released as of the date of any such termination from any and
all further restrictions pursuant to Section 4 and Section 7(a) and 7(c) of
this Agreement.
SECTION 8. INJUNCTIVE RELIEF. Without intending to limit the
remedies available to the Company, the Executive acknowledges that a breach of
any of the covenants contained in Section 7 hereof may result in material
irreparable injury to the Company or its subsidiaries or affiliates for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of such a breach or
threat thereof, the Company shall be entitled to seek a temporary restraining
order and/or a preliminary or permanent injunction, restraining the Executive
from engaging in activities prohibited by Section 7 hereof or such other relief
as may be required specifically to enforce any of the covenants in Section 7
hereof.
SECTION 9. EXTENSION OF RESTRICTED PERIOD. In addition to the
remedies the Company may seek and obtain pursuant to Section 8 of this
Agreement, the Restricted Period shall be extended by any and all periods
during which the Executive shall be found by a court to have been in violation
of the covenants contained in Section 7 hereof.
SECTION 10. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES.
This Agreement shall inure to the benefit of, and be binding upon, the parties
hereto and their respective successors and assigns, including, but not limited
to, the Executive's heirs and personal representatives of the Executive's
estate; provided, however, that neither party shall assign or delegate any of
the obligations created under this Agreement without the prior written consent
of the other party. Notwithstanding the foregoing, the Company shall have
unrestricted right to assign this Agreement and to delegate all or any part of
its obligations hereunder to any of its subsidiaries, so long as such
assignment does not diminish the duties, function, responsibility or authority
of the Executive or result in any assignment of duties or responsibilities
materially inconsistent with those set forth in this Agreement (unless
consented to by the Executive) but in such event such assignee shall expressly
assume all obligations of the Company hereunder and the Company shall remain
fully liable for the performance of all such obligations in the manner
prescribed in this Agreement. Nothing in this Agreement shall confer upon any
person or entity not a party to this Agreement, or (unless otherwise expressly
provided herein) the legal representatives of such person or entity, any rights
or remedies of any nature or kind whatsoever under or by reason of this
Agreement.
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<PAGE> 9
SECTION 11. WAIVER AND AMENDMENTS. Any waiver, alteration, amendment
or modification of any of the terms of this Agreement shall be valid only if
made in writing and signed by the parties hereto. No waiver by either of the
parties hereto of their rights hereunder shall be deemed to constitute a waiver
with respect to any subsequent occurrences or transactions hereunder unless
such waiver specifically states that it is to be construed as a continuing
waiver.
SECTION 12. SEVERABILITY AND GOVERNING LAW. The Executive
acknowledges and agrees that the covenants set forth in Section 7 hereof are
reasonable and valid in all respects. Each party hereto acknowledges and
agrees that if any of such covenants or other provisions of this Agreement are
found to be invalid or unenforceable by a final determination of a court of
competent jurisdiction (a) the remaining terms and provisions hereof shall be
unimpaired and (b) the invalid and unenforceable term or provision shall be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid and unenforceable term
or provision. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW PROVISIONS THEREOF.
SECTION 13. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made if delivered personally or sent by registered or certified mail
(postage prepaid, return receipt requested), or sent by facsimile transmission
or overnight courier service, addressed in the case of the Company, to Pioneer
Americas, Inc., 4200 NationsBank Center, 700 Louisiana Street, Houston, Texas
77002, Attention: Chairman of the Board, fax: (713) 225-4426 and, in the case
of the Executive, to the Executive's address set forth on the signature page
hereof or, in each case, to such other address as may be designated to the
other party from time to time as provided above. All notices so given shall be
effective when received at the designated address.
SECTION 14. CAPTIONS AND SECTION HEADINGS. Captions and section
headings herein are solely for convenience of reference and shall not affect
the meaning or interpretation of this Agreement or of any term or provision
hereof.
SECTION 15. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties hereto regarding the employment of
the Executive. This Agreement supersedes all prior negotiations, discussions,
correspondence, communications, understandings and agreements between the
parties relating to the subject matter of this Agreement, all of which are
merged into this Agreement.
SECTION 16. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
SECTION 17. DISPUTES. Any dispute or controversy arising under, out
of, in connection with or in relation to this Agreement ("Disputes") shall, at
the election and upon written demand if either party, be finally determined and
settled by arbitration in the city of Houston, Texas in accordance with the
procedures set forth in the exhibit entitled "Arbitration Procedures" attached
hereto, and judgment upon the award may be entered in any court having
jurisdiction thereof; provided,
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<PAGE> 10
however, that: (a) this Section 17 shall not apply to matters required to be
determined by a physician pursuant to Section 6(b); and (b) the parties
acknowledge and agree that an arbitrator or arbitrators shall not have the
power or the right to order the payment by either party of damages (including
punitive damages), compensation or other amounts that are not provided for in
this Agreement, it being the intention of the parties that the arbitrator or
arbitrators shall resolve Disputes, in respect of payments, only as to whether
or not a payment is due hereunder and, if so, the amount thereof, but shall not
provide for any additional payments as a result of the matters contemplated
hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PIONEER AMERICAS, INC.
By: /s/ George T. Henning,Jr.
--------------------------------
Name: George T. Henning, Jr.
Title: Vice President
EXECUTIVE
By: /s/ James E. Glattly
---------------------------------
James E. Glattly
Address: 810 Saybrook Lane
Houston, TX 77024
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<PAGE> 11
ARBITRATION PROCEDURES
(a) All Disputes between the parties submitted to arbitration shall
be resolved by binding arbitration administered by the American Arbitration
Association (the "AAA") in accordance with, and in the following order of
priority: (i) the terms of these arbitration provisions; (ii) the Commercial
Arbitration Rules of the AAA; (iii) the Federal Arbitration Act (Title 9 of the
United States Code); and (iv) to the extent the foregoing are inapplicable,
unenforceable or invalid, the laws of the State of Texas. The validity and
enforceability of these arbitration provisions shall be determined in
accordance with this same order of priority. In the event of any inconsistency
between these arbitration provisions and such rules and statutes, these
arbitration provisions shall control. Judgment upon any award rendered
hereunder shall be entered in any court having jurisdiction.
(b) All statutes of limitation applicable to any Dispute shall apply
to any proceeding in accordance with these arbitration provisions.
(c) Arbitrators are empowered to resolve Disputes by summary rulings
substantially similar to summary judgments and motions to dismiss.
Arbitrators shall resolve all Disputes in accordance with the applicable
substantive law. Any arbitrator selected shall be required to be experienced
and knowledgeable in the substantive laws applicable to the subject matter of
the Dispute. With respect to a Dispute in which the claims or amounts in
controversy do not exceed $100,000, a single arbitrator shall be chosen and
shall resolve the Dispute. In such case, the arbitrator shall be required to
make specific, written findings of fact, and shall have authority to render
an award up to but not to exceed $100,000, including all amounts properly
payable and costs, fees and expenses (subject to Section 17 of the Agreement).
A Dispute involving claims or amounts in controversy exceeding $100,000, shall
be decided by a majority vote of a panel of three (3) arbitrators (an
"Arbitration Panel"), the determination of any two (2) of the three (3)
arbitrators constituting the determination of the Arbitration Panel; provided,
however, that all three (3) arbitrators on the Arbitration Panel; provided
however, that all three (3) arbitrators on the Arbitration Panel must
actively participate in all hearings and deliberations. Arbitrators, including
any Arbitration Panel, may grant any remedy or relief deemed just and equitable
and within the scope of these arbitration provisions and may also grant such
ancillary relief as is necessary to make effective any award. Arbitration
Panels shall be required to make specific, written findings of fact and
conclusion of law, and in such proceedings before an Arbitration Panel only,
the parties shall have the additional right to seek vacation or modification of
any award of an Arbitration Panel that is based in whole, or in part, on an
incorrect or erroneous ruling of law by appeal to a Federal or State Court of
Appeals, following the entry of judgment on the award in Federal or State
District Court, as appropriate. For these purposes, the award and judgment
entered by the Federal or State District Court shall be considered to be the
same as the award and judgment of the Arbitration Panel. All requirements
applicable to appeals from any Federal or State District Court judgment shall
be applicable to appeals from judgments entered on decisions rendered by
Arbitration Panels. The Appellate
<PAGE> 12
Courts shall have the power and authority to vacate of modify an award based
upon a determination that there has been an incorrect or erroneous ruling of
law. The Appellate Court shall also have the power to reverse and/or remand
the decision of an Arbitration Panel. Subject to the foregoing, the
determination of an arbitrator or Arbitration Panel shall be binding on all
parties and shall not be subject to further review or appeal except as
otherwise allowable by applicable law.
(d) To the maximum extent practicable, the AAA, the arbitrator (or
the Arbitration Panel, as appropriate) and the parties shall take any action
necessary to require that an arbitration proceeding hereunder shall be
concluded within one hundred eighty (180) days of the filing of the Dispute
with the AAA. Unless the Company and the Executive shall agree otherwise,
arbitration proceedings hereunder shall be conducted in Houston, Texas.
Arbitrators shall be empowered to impose sanctions and to take such other
actions as they deem necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure and applicable law. With respect to any
Dispute, each party agrees that all discovery activities shall be expressly
limited to matters directly relevant to the Dispute and any arbitrator,
Arbitration Panel and the AAA shall be required to fully enforce this
requirement. The provisions of these arbitration provisions shall survive any
termination, amendment or expiration of this Agreement, unless the parties
otherwise expressly agree in writing. To the extent permitted by applicable
law, arbitrators, including any Arbitration Panel, shall have the power to
award recovery of all costs and fees (including attorneys' fees, administrative
fees and arbitrators' fees) to the prevailing party or, if no clear prevailing
party, as the arbitrator (or Arbitration Panel, if applicable) shall deem just
and equitable. Each party agrees to keep all Disputes and arbitration
proceedings strictly confidential, except for disclosures of information
required by applicable law.
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<PAGE> 1
EXHIBIT 10.9
EXECUTIVE EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made and entered into as of this 20th day
of April, 1995, between Pioneer Americas, Inc., a Delaware corporation (the
"Company"), and Verrill M. Norwood, Jr. (the "Executive").
WITNESSETH:
WHEREAS, Pioneer Americas Acquisition Corp., a Delaware corporation
("PAAC") and GEV Corporation, a Delaware corporation and the owner of all of
the outstanding capital stock of PAAC ("GEV"), have agreed to acquire all of
the issued and outstanding capital stock of the Company pursuant to a Stock
Purchase Agreement, dated as of March 24, 1995, by and among PAAC, GEV, and all
holders of equity securities and rights to acquire equity securities of the
Company (the "Purchase Agreement");
WHEREAS, the Executive is currently employed by the Company and the
Company desires to secure for itself the continued benefit of the Executive's
background, experience, ability and expertise and the Executive has indicated
his willingness to continue to provide his services, on the terms and
conditions set forth herein;
WHEREAS, by virtue of the Executive's position with the Company, the
Executive has knowledge of certain Confidential Information (as defined below);
and, therefore, in order to protect the value of the business acquired under
the Purchase Agreement, the Company desires to enter into this Agreement with
the Executive, and the Executive desires to make the agreements provided for
herein in consideration of the amounts payable to the Executive pursuant
hereto;
WHEREAS, it is a condition to closing of the transactions contemplated
by the Purchase Agreement that the Executive and the Company enter into this
Agreement;
NOW THEREFORE, on the basis of the foregoing premises and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
SECTION 1. EMPLOYMENT. (a) The Company hereby agrees to employ the
Executive and the Executive hereby accepts employment with the Company, on the
terms and subject to the conditions hereinafter set forth. Subject to the
terms and conditions contained herein, the Executive shall serve as Vice
President - Environmental Affairs of the Company and, in such capacity, shall
report directly to the Board of Directors of the Company ("Board of Directors")
or its designee and shall have such duties, functions, responsibilities and
authority as are consistent with the Executive's position as the senior
executive officer in charge of the management, development and implementation
of environmental programs and activities of the Company and its subsidiaries,
including, but not limited to, coordination of administrative, legal, technical
and public relations activities and oversight of compliance with environmental
laws and regulations, together with such additional duties, functions,
responsibilities and authority including, without limitation, serving as an
officer and/or director of any subsidiary of the Company, commensurate
<PAGE> 2
with the Executive's position as set forth in this Agreement, as may be
reasonably assigned to the Executive from time to time by the Board of
Directors or its designee. In connection with his employment under this
Agreement, the Executive shall be based at the offices of the Company where the
Executive currently resides.
(b) As additional consideration for the Executive to enter into the
obligations set forth in this Agreement: (i) GEV shall, contemporaneous with
execution and delivery of this Agreement, cause to be granted to the Executive
options to acquire 100,000 shares of the Class A common stock, par value $.01
per share of GEV, pursuant to the GEV Corporation 1995 Stock Incentive Plan,
which options shall have an exercise price and vest and become exercisable in
the manner set forth in the stock option agreement to be executed by the
Executive and GEV evidencing such option rights; and (ii) GEV and the Company,
jointly and severally, shall indemnify and hold harmless Executive from any
claim asserted against him as an employee, officer or director of the Company
or any subsidiary or affiliate of the Company to the fullest extent permitted
by, and subject to the provisions of, the Delaware General Corporation Law,
except only that Executive shall not be indemnified for any violation by
Executive of the terms of this Agreement.
SECTION 2. TERM. Subject to the provisions and conditions of this
Agreement (including Section 6), the Executive's employment hereunder shall
commence on the date hereof and shall continue during the period ending on the
third anniversary of the date hereof (the "Employment Term").
SECTION 3. COMPENSATION.
(a) Salary. As compensation for the performance of the Executive's
services hereunder, the Company shall pay to the Executive a base salary (the
"Salary") of $143,100 per annum with increases, if any, as may be approved in
writing by the Board of Directors or its designee. The Salary shall be
payable in accordance with payroll practices of the Company as the same shall
exist from time to time. In no event shall the Salary be decreased during the
Employment Term.
(b) Bonus Plan. The Executive shall be entitled to receive bonus
compensation consisting of cash, securities or property ("Bonus") in accordance
with any management incentive plan or plans (including, without limitation, any
shared earnings plans) which may be established by the Board of Directors of
the Company for its executive officers and management.
(c) Benefits. In addition to the Salary and Bonus, the Executive
shall be entitled to: (i) participate in or to receive the same health,
insurance, pension, automobile, severance, vacation, holiday, sick leave,
disability, profit sharing, 401(k) savings and other benefits as have been
provided to executive officers of the Company or its subsidiaries on the date
hereof, subject to such changes therein as shall be determined by the Board of
Directors to be consistent with the best interests of the Company; and (ii)
receive the benefits to be provided to the Executive pursuant to the
obligations of a subsidiary of the Company under that certain Salary
Continuation Agreement dated June 10, 1993 by and between such subsidiary and
the Executive.
(d) Paying Entity. The Company may cause any one or more of its
subsidiaries to provide the salary and benefits to the Executive as are
required by this Agreement.
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<PAGE> 3
SECTION 4. EXCLUSIVITY. During the Employment Term, the Executive
shall devote substantially all of his time to the business of the Company,
shall faithfully serve the Company, shall in all respects conform to and comply
with the lawful and reasonable directions and instructions given to him by the
Board of Directors or its designee in accordance with the terms of this
Agreement, shall use his best efforts to promote and serve the interests of the
Company and shall not engage in any other business activity, whether or not
such activity shall be engaged in for pecuniary profit, except that the
Executive may (a) participate in the activities of professional trade
organizations related to the business of the Company, (b) devote such portion
of his time as may be necessary to environmental matters affecting real
properties owned by any direct or indirect subsidiaries of the Company arising
prior to the closing of the transactions contemplated by the Purchase
Agreement, (c) continue to provide consulting to his former employer, Olin
Corporation, on the same basis as the Executive has provided such consulting
prior to the date hereof, and (d) engage in personal investing and other
personal activities, provided that activities set forth in the foregoing
clauses, either singly or in the aggregate, do not interfere in any material
respect with the services to be provided by the Executive hereunder.
SECTION 5. REIMBURSEMENT FOR EXPENSES. The Company shall promptly
reimburse the Executive for all reasonable out-of-pocket travel, entertainment
and other business expenses incurred by the Executive during the term of this
Agreement and in the performance of his duties hereunder in accordance with the
Company's reimbursement policies in effect on the date hereof.
SECTION 6. TERMINATION.
(a) Death. This Agreement shall automatically terminate upon the
death of the Executive and upon such event, the Executive's estate shall be
entitled to receive the amounts specified in Section 6(f) below.
(b) Disability. If the Executive is unable to perform the duties
required of him under this Agreement because of physical or mental disability,
this Agreement shall remain in full force and effect and the Company shall pay
all compensation required to be paid to the Executive hereunder, unless the
Executive is unable to perform the duties required of him under this Agreement
for an aggregate of one hundred twenty (120) days (whether or not consecutive)
during any twelve (12) month period during the term of this Agreement, in which
event this Agreement (other than Sections 7, 8 and 11 hereof), including, but
not limited to, the Company's obligations to pay any Salary or to provide any
privileges under this Agreement, shall, upon written notice by the Company to
the Executive to such effect, terminate; provided, however, that the foregoing
shall not prejudice the Executive's rights to continuing, existing insurance
benefits for which he is otherwise eligible, including disability benefits. In
case of any dispute as to whether Executive is disabled within the meaning of
this Section 6(b), the determination of such disability for the period
specified shall be certified by a physician reasonably acceptable to both the
Company and the Executive, which physician's determination shall be final and
binding on the parties hereto. The Company shall be permitted to hire a
replacement for the Executive, so long as this Agreement shall remain in
effect, to serve in the event and for so long as the Executive shall be unable
to perform the duties required of him hereunder due to his disability for an
aggregate of sixty (60) days during the 12-month period during the term of this
Agreement.
(c) Just Cause. The Company may terminate this Agreement (other than
Sections 7, 8 and 11 hereof) for "Just Cause." For purposes of this Agreement,
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<PAGE> 4
"Just Cause" shall mean: (i) the Executive's willful and continued failure,
neglect or refusal to perform his duties hereunder which failure, neglect or
refusal shall not have been corrected by the Executive within thirty (30) days
of receipt by the Executive of written notice from the Company of such failure,
neglect or refusal, which notice shall specifically set forth the nature of said
failure, neglect or refusal; (ii) any willful or intentional engagement by the
Executive in misconduct (including repeated drunkenness or use of illegal drugs)
that is materially injurious to the reputation or business of the Company or its
affiliates or that materially impairs the ability of the Executive to perform
his duties and responsibilities hereunder; (iii) any continued or repeated
absence from the Company, unless such absence is (A) approved or excused by the
Board of Directors or its designee or (B) is the result of the Executive's
physical or mental disability (in which event the provisions of Section 6(b)
hereof shall control) or a personal or family emergency; (iv) conviction of the
Executive for the commission of a felony; or (v) the commission by the Executive
of an act of fraud or embezzlement against the Company. If the Executive's
employment is terminated for Just Cause, the Executive shall be entitled to
receive the amounts specified in Section 6(f) hereof. In the event of any
termination pursuant to this Section 6(c), the Company shall deliver to the
Executive written notice setting forth the basis for such termination, which
notice shall specifically set forth the nature of the Just Cause, and the facts
and circumstances in connection therewith, which is the reason for such
termination.
(d) Good Reason. The Executive may terminate this Agreement for
"Good Reason" following a Substantial Breach (as defined below) if such
Substantial Breach shall not have been corrected by the Company within thirty
(30) days of receipt by the Company of written notice from the Executive of the
occurrence of such Substantial Breach, which notice shall specifically set
forth the nature of the Substantial Breach which, if not corrected, will
entitle the Executive at any time after such thirty (30) day notice period and
by subsequent written notice to terminate this Agreement. In the event of
resignation by the Executive following a Substantial Breach, the Executive
shall be entitled to receive the amounts specified in Section 6(f) hereof. An
election by the Executive to terminate his employment under this paragraph
shall not be a breach of this Agreement. The term "Substantial Breach" means
any material breach by the Company of its obligations hereunder consisting of:
(i) the failure of the Company to pay the Executive the Salary or Bonus, if
any, in accordance with Sections 3(a) and (b) hereof; (ii) the failure by the
Company to substantially maintain and continue the Executive's participation in
benefit plans as provided in Section 3(c) hereof; (iii) any removal of the
Executive from or any failure to re-elect the Executive to the positions or
material diminishment in the duties or responsibilities of the Executive
described in Section 1, except in connection with promotions to higher office;
(iv) the Company's requiring the Executive to be based anywhere other than in
or within 35 miles of the Executive's current principal place of employment,
except for required travel on the business of the Company to an extent
substantially consistent with the Executive's prior business travel
obligations, or, in the event the Executive consents to relocation, the failure
of the Company to pay or reimburse the Executive for all reasonable costs
incurred by the Executive in connection with such relocation as mutually agreed
by the Company and the Executive prior to such relocation; and (v) the failure
of any successor to all or substantially all of the business and/or assets of
the Company to assume this Agreement; provided, however, that the term
"Substantial Breach" shall not include a termination of the Executive's
employment hereunder pursuant to Section 6(b) or (c) hereof. The date of
termination of the Executive's employment under this Section 6(d) shall be the
effective date of any resignation specified in writing by the Executive, which
shall not be less than thirty (30) days after receipt by the Company
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<PAGE> 5
of written notice of such resignation, provided that any resignation by
Executive shall not be effective pursuant to this Section 6(d) if such
Substantial Breach shall have been corrected by the Company during the thirty
(30) day period following notice by the Executive of the existence thereof or
if corrected thereafter prior to the date of resignation by the Executive.
(e) Without Cause. The Company, by action of its Board of Directors,
may terminate this Agreement (other than Sections 7, 8 and 11 hereof)
without Just Cause upon the giving to the Executive of thirty (30) days' prior
written notice of such termination. If the Executive's employment is
terminated by the Company without Just Cause, the Executive shall be entitled
to receive the amounts specified in Section 6(f) hereof.
(f) Payments. In the event that the Executive's employment hereunder
terminates for any reason, the Company shall promptly pay to the Executive all
amounts accrued but unpaid hereunder through the date of termination in respect
of the Salary and for reimbursement of any expenses pursuant to Section 5
hereof, and, in the case of any termination by reason of death or physical or
mental disability of the Executive pursuant to Section 6(a) or 6(b) hereof, a
pro rated portion of the Bonuses, if any, which the Executive would have been
otherwise entitled to receive under Section 3(b) for the calendar year in which
such termination occurs, such pro rated portion being the portion of such Bonus
corresponding to the period commencing on January 1 of such year and ending on
the date of termination. In the event that the Executive's employment has been
terminated by the Company for Just Cause, the Company shall have no obligations
to the Executive for Salary, Bonus or other benefits herein provided accruing
on or after the date of termination except as set forth in the preceding
sentence or as may be otherwise provided by law. In the event that the
Executive's employment hereunder is terminated by the Company without Just
Cause or by the Executive with Good Reason, in addition to the amounts
specified in the first sentence of this Section 6(f), the Executive shall
continue to receive the Salary at the rate in effect hereunder on the date of
such termination periodically, in accordance with the Company's prevailing
payroll practices, until the last date of the Employment Term or until the
first anniversary of the termination date, if longer, plus (i) the cost of the
Executive's premiums for health care benefits under COBRA or the cost of the
Executive's premiums under any replacement health insurance coverage obtained
by Executive containing substantially the same coverage as provided to the
Executive at such time, which premiums shall be payable as and when the Salary
would otherwise have been payable as provided in this Agreement; and (ii) a
pro rated portion of the Bonus, if any, which the Executive would have otherwise
been entitled to receive under Section 3(b) for the calendar year in which the
Executive is terminated pro rated in the same manner as set forth in the first
sentence of this Section 6(f). Without intending to limit the generality of
Section 7, in the event that the Executive accepts other employment or engages
in his own business prior to the last date of the Employment Term, the
Executive shall forthwith notify the Company and the Company shall be entitled
to set off from amounts due the Executive under this Section 6(f) the amounts
paid to the Executive in respect of such other employment or business activity.
Upon any termination of this Agreement, all of the rights, privileges and
duties of the Executive hereunder shall cease, except for any rights under this
Section 6(f) and any obligations under Sections 7, 8, and 11 hereunder.
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<PAGE> 6
SECTION 7. SECRECY.
(a) Nondisclosure of Confidential Information. The Executive, except
in connection with his employment hereunder or as required by legal process,
shall not disclose to any person or entity or use, during the Employment Term
or at any time thereafter, any information not in the public domain or
generally known in the industry, in any form acquired by the Executive while
employed by the Company or any predecessor to the Company's business or, if
acquired following the Employment Term, such information which, to the
Executive's knowledge, has been acquired, directly, or indirectly, from any
person or entity owing a duty of confidentiality to the Company or any of its
subsidiaries or affiliates, relating to the Company, its subsidiaries or
affiliates, including but not limited to information regarding customers,
vendors, suppliers, trade secrets, training programs, manuals or materials,
technical information, contracts, systems, procedures, mailing lists, know-how,
trade names, improvements, price lists, financial or other data (including the
revenues, costs or profits associated with any of the Company's products or
services), business plans, code books, invoices and other financial statements,
computer programs, software systems, databases, discs and printouts, plans
(business, technical or otherwise), customer and industry lists,
correspondence, internal reports, personnel files, sales and advertising
material, telephone numbers, names, addresses or any other compilation of
information, written or unwritten, which is or was used in the business of the
Company or any of its subsidiaries or affiliates (collectively, "Confidential
Information"); provided, however, that the term Confidential Information shall
not include (i) general skills and general knowledge of an industry obtained by
reason of the Executive's association with the Company; (ii) information
concerning the business and operations of the Company and its subsidiaries
and/or the industry in which the Company and its subsidiaries conduct business
which was in the possession of or known to the Executive prior to the
Executive's employment with the Company; and (iii) any financial or other
information with respect to the assets, properties, rights, business or
operations of Basic or any of its subsidiaries, or Victory Valley, or relating
to the Subject Parcels (as such terms are defined in the Purchase Agreement).
The Executive agrees and acknowledges that all Confidential Information, in any
form, and copies and extracts thereof, are and shall remain the sole and
exclusive property of the Company, and upon termination of his employment with
the Company, the Executive shall return to the Company the originals and all
copies of any Confidential Information provided to or acquired by the Executive
in connection with the performance of his duties for the Company, and shall
return to the Company all files, correspondence and/or other communications
received, maintained and/or originated by the Executive during the course of
his employment.
(b) Inventions. The Executive hereby sells, transfers and assigns to
the Company, or to any person or entity designated in writing by the Company,
all of the right, title and interest of the Executive in and to all inventions,
sales materials, software, training materials, disclosures and improvements,
whether patented or unpatented, and copyrightable material, made or conceived
by the Executive, solely or jointly, in whole or in part, during his employment
with the Company which are not generally known to the public or the industry or
recognized as standard practice and which (i) relate to services, trade names,
methods, ideas, apparatus, designs, products, processes or devices which may be
sold, leased, used or under construction or development by the Company, or any
franchise affiliated with the Company and (ii) arise (wholly or partly) from
the efforts of the Executive during and in the course of his employment with
the Company (an "Invention"). The Executive shall communicate promptly and
disclose to the Company, in such form as the Company
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<PAGE> 7
reasonably requests, all information, details and data pertaining to any such
Invention. With respect to all Inventions which are to be assigned pursuant to
this Section 7, the Executive will assist the Company in any reasonable manner
to obtain for the Company's benefit patents thereon, including, but not limited
to, executing patent applications, transfers or assignments thereof to the
Company and any and all other documents reasonably deemed necessary by the
Company. The Company shall pay all costs incident to the preparation,
execution and delivery of such patent applications, transfers, assignments and
other documents. Any invention by the Executive within six (6) months
following the termination of his employment hereunder shall be presumed to fall
within the provisions of this Section 7(d) unless the Executive bears the
burden of proof showing that the Invention was first conceived and made
following such termination. Notwithstanding anything contained herein to the
contrary, the Executive shall continue to own the exclusive right, title and
interest in and to any and all inventions, improvements, discoveries, ideas,
designs, documents and other data (whether or not patentable): (A) conceived,
made and developed prior to the date of this Agreement; and (B) irrespective of
when conceived, made or developed, which do not relate to the actual or
anticipated business of the Company or any existing or prior research and
development activities of the Company or any of its subsidiaries.
SECTION 8. INJUNCTIVE RELIEF. Without intending to limit the
remedies available to the Company, the Executive acknowledges that a breach of
any of the covenants contained in Section 7 hereof may result in material
irreparable injury to the Company or its subsidiaries or affiliates for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of such a breach or
threat thereof, the Company shall be entitled to seek a temporary restraining
order and/or a preliminary or permanent injunction, restraining the Executive
from engaging in activities prohibited by Section 7 hereof or such other relief
as may be required specifically to enforce any of the covenants in Section 7
hereof.
SECTION 9. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES.
This Agreement shall inure to the benefit of, and be binding upon, the parties
hereto and their respective successors and assigns, including, but not limited
to, the Executive's heirs and personal representatives of the Executive's
estate; provided, however, that neither party shall assign or delegate any of
the obligations created under this Agreement without the prior written consent
of the other party. Notwithstanding the foregoing, the Company shall have
unrestricted right to assign this Agreement and to delegate all or any part of
its obligations hereunder to any of its subsidiaries, so long as such
assignment does not diminish the duties, function, responsibility or authority
of the Executive or result in any assignment of duties or responsibilities
materially inconsistent with those set forth in this Agreement (unless
consented to by the Executive) but in such event such assignee shall expressly
assume all obligations of the Company hereunder and the Company shall remain
fully liable for the performance of all such obligations in the manner
prescribed in this Agreement. Nothing in this Agreement shall confer upon any
person or entity not a party to this Agreement, or (unless otherwise expressly
provided herein) the legal representatives of such person or entity, any rights
or remedies of any nature or kind whatsoever under or by reason of this
Agreement.
SECTION 10. WAIVER AND AMENDMENTS. Any waiver, alteration, amendment
or modification of any of the terms of this Agreement shall be valid only if
made in writing and signed by the parties hereto. No waiver by either of the
parties hereto of their rights hereunder shall be deemed to constitute a waiver
with
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<PAGE> 8
respect to any subsequent occurrences or transactions hereunder unless such
waiver specifically states that it is to be construed as a continuing waiver.
SECTION 11. SEVERABILITY AND GOVERNING LAW. Each party hereto
acknowledges and agrees that if any covenants or other provisions of this
Agreement are found to be invalid or unenforceable by a final determination of
a court of competent jurisdiction (a) the remaining terms and provisions hereof
shall be unimpaired and (b) the invalid and unenforceable term or provision
shall be deemed replaced by a term or provision that is valid and enforceable
and that comes closest to expressing the intention of the invalid or
unenforceable term or provision. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TENNESSEE
WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PROVISIONS THEREOF.
SECTION 12. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made if delivered personally or sent by registered or certified mail
(postage prepaid, return receipt requested), or sent by facsimile transmission
or overnight courier service, addressed in the case of the Company, to Pioneer
Americas, Inc., 4200 NationsBank Center, 700 Louisiana Street, Houston, Texas
77002, Attention: Chairman of the Board, fax: (713) 225-4426 and, in the case
of the Executive, to the Executive's address set forth on the signature page
hereof or, in each case, to such other address as may be designated to the
other party from time to time as provided above. All notices so given shall be
effective when received at the designated address.
SECTION 13. CAPTIONS AND SECTION HEADINGS. Captions and section
headings herein are solely for convenience of reference and shall not affect
the meaning or interpretation of this Agreement or of any term or provision
hereof.
SECTION 14. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties hereto regarding the employment of
the Executive. This Agreement supersedes all prior negotiations, discussions,
correspondence, communications, understandings and agreements between the
parties relating to the subject matter of this Agreement, all of which are
merged into this Agreement.
SECTION 15. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
SECTION 16. DISPUTES. Any dispute or controversy arising under, out
of, in connection with or in relation to this Agreement ("Disputes") shall, at
the election and upon written demand if either party, be finally determined and
settled by arbitration in the city of Houston, Texas in accordance with the
procedures set forth in the exhibit entitled "Arbitration Procedures" attached
hereto, and judgment upon the award may be entered in any court having
jurisdiction thereof; provided, however, that: (a) this Section 16 shall not
apply to matters required to be determined by a physician pursuant to Section
6(b); and (b) the parties acknowledge and agree that an arbitrator or
arbitrators shall not have the power or the right to order the payment by
either party of damages (including punitive damages), compensation or other
amounts that are not provided for in this Agreement, it being the intention of
the parties that the arbitrator or arbitrators shall resolve Disputes, in
respect of payments, only as to whether or not a payment is due hereunder and,
if so, the
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<PAGE> 9
amount thereof, but shall not provide for any additional payments as a result
of the matters contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PIONEER AMERICAS, INC.
By: /s/ George T. Henning,Jr.
--------------------------------
Name: George T. Henning, Jr.
Title: Vice President
EXECUTIVE
By: /s/ Verrill M. Norwood, Jr.
---------------------------------
Verrill M. Norwood, Jr.
Address: 121 Blueberry Hill Rd. NW
Cleveland, TN 37312
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<PAGE> 10
ARBITRATION PROCEDURES
(a) All Disputes between the parties submitted to arbitration
shall be resolved by binding arbitration administered by the American
Arbitration Association (the "AAA") in accordance with, and in the following
order of priority: (i) the terms of these arbitration provisions; (ii) the
Commercial Arbitration Rules of the AAA; (iii) the Federal Arbitration Act
(Title 9 of the United States Code); and (iv) to the extent the foregoing are
inapplicable, unenforceable or invalid, the laws of the State of Tennessee.
The validity and enforceability of these arbitration provisions shall be
determined in accordance with this same order of priority. In the event of any
inconsistency between these arbitration provisions and such rules and statutes,
these arbitration provisions shall control. Judgment upon any award rendered
hereunder shall be entered in any court having jurisdiction.
(b) All statutes of limitation applicable to any Dispute shall
apply to any proceeding in accordance with these arbitration provisions.
(c) Arbitrators are empowered to resolve Disputes by summary
rulings substantially similar to summary judgments and motions to dismiss.
Arbitrators shall resolve all Disputes in accordance with the applicable
substantive law. Any arbitrator selected shall be required to be experienced
and knowledgeable in the substantive laws applicable to the subject matter of
the Dispute. With respect to a Dispute in which the claims or amounts in
controversy do not exceed $100,000, a single arbitrator shall be chosen and
shall resolve the Dispute. In such case, the arbitrator shall be required to
make specific, written findings of fact, and shall have authority to render an
award up to but not to exceed $100,000, including all amounts properly payable
and costs, fees and expenses (subject to Section 16 of the Agreement). A
Dispute involving claims or amounts in controversy exceeding $100,000 shall be
decided by a majority vote of a panel of three (3) arbitrators (an "Arbitration
Panel"), the determination of any two (2) of the three (3) arbitrators
constituting the determination of the Arbitration Panel; provided, however,
that all three (3) arbitrators on the Arbitration Panel must actively
participate in all hearings and deliberations. Arbitrators, including any
Arbitration Panel, may grant any remedy or relief deemed just and equitable and
within the scope of these arbitration provisions and may also grant such
ancillary relief as is necessary to make effective any award. Arbitration
Panels shall be required to make specific, written findings of fact and
conclusions of law, and in such proceedings before an Arbitration Panel only,
the parties shall have the additional right to seek vacation or modification
of any award of an Arbitration Panel that is based in whole, or in part, on an
incorrect or erroneous ruling of law by appeal to a Federal or State Court of
Appeals, following the entry of judgment on the award in Federal or State
District Court, as appropriate. For these purposes, the award and judgment
entered by the Federal or State District Court shall be considered to be the
same as the award and judgment of the Arbitration Panel. All requirements
applicable to appeals from any Federal or State District Court judgment shall
be applicable to appeals from judgments entered on decisions rendered by
Arbitration Panels. The Appellate Courts shall have the power and authority to
vacate or modify an award based upon a
<PAGE> 11
determination that there has been an incorrect or erroneous ruling of law. the
Appellate Court shall also have the power to reverse and/or remand the decision
of an Arbitration Panel. Subject to the foregoing, the determination of an
arbitrator or Arbitration Panel shall be binding on all parties and shall not
be subject to further review or appeal except as otherwise allowed by
applicable law.
(d) To the maximum extent practicable, the AAA, the arbitrator (or
the Arbitration Panel, as appropriate) and the parties shall take any action
necessary to require that an arbitration proceeding hereunder shall be
concluded within one hundred eight (180) days of the filing of the Dispute with
the AAA. Unless the Company and the Executive shall agree otherwise,
arbitration proceedings hereunder shall be conducted in Houston, Texas.
Arbitrators shall be empowered to impose sanctions and to take such other
actions as they deem necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure and applicable law. With respect to any
Dispute, each party agrees that all discovery activities shall be expressly
limited to matters directly relevant to the Dispute and any arbitrator,
Arbitration Panel and the AAA shall be required to fully enforce this
requirement. The provisions of these arbitration provisions shall survive any
termination, amendment or expiration of this Agreement, unless the parties
otherwise expressly agree in writing. To the extent permitted by applicable
law, arbitrators, including any Arbitration Panel, shall have the power to
award recovery of all costs and fees (including attorneys' fees, administrative
fees and arbitrators' fees) to the prevailing party or, if no clear prevailing
party, as the arbitrator (or Arbitration Panel, if applicable) shall deem just
and equitable. Each party agrees to keep all Disputes and arbitration
proceedings strictly confidential, except for disclosure of all information
required by applicable law.
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<PAGE> 1
EXHIBIT 10.10
EXECUTIVE EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made and entered into as of this 20th day
of April, 1995, between Pioneer Americas, Inc., a Delaware corporation (the
"Company"), and Kent R. Stephenson (the "Executive").
WITNESSETH:
WHEREAS, Pioneer Americas Acquisition Corp., a Delaware corporation
("PAAC") and GEV Corporation, a Delaware corporation and the owner of all of
the outstanding capital stock of PAAC ("GEV"), have agreed to acquire all of
the issued and outstanding capital stock of the Company pursuant to a Stock
Purchase Agreement, dated as of March 24, 1995, by and among PAAC, GEV, and all
holders of equity securities and rights to acquire equity securities of the
Company (the "Purchase Agreement");
WHEREAS, the Executive is currently employed by the Company and the
Company desires to secure for itself the continued benefit of the Executive's
background, experience, ability and expertise and the Executive has indicated
his willingness to continue to provide his services, on the terms and
conditions set forth herein;
WHEREAS, by virtue of the Executive's position with the Company, the
Executive has knowledge of certain Confidential Information (as defined below);
and, therefore, in order to protect the value of the business acquired under
the Purchase Agreement, the Company desires to make the agreements provided for
herein in consideration of the amounts payable to the Executive pursuant
hereto;
WHEREAS, it is a condition to closing of the transactions contemplated
by the Purchase Agreement that the Executive and the Company enter into this
Agreement;
NOW, THEREFORE, on the basis of the foregoing premises and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
SECTION 1. EMPLOYMENT. (a) The Company hereby agrees to employ the
Executive and the Executive hereby accepts employment with the Company, on the
terms and subject to the conditions hereinafter set forth. Subject to the terms
and conditions contained herein, the Executive shall serve as Vice President and
General Counsel of the Company and, in such capacity, shall report directly to
the Board of Directors of the Company ("Board of Directors") or its designee and
shall have such duties, functions, responsibilities and authority as are
consistent with the Executive's position as the senior executive officer in
charge of the management of the general legal affairs of the Company and its
subsidiaries, including, but not limited to, the management, development and
implementation of legal aspects of
<PAGE> 2
contracts, corporate organization, litigation compliance with laws,
governmental relations, labor relations and acquisitions and dispositions of
real estate and personal property of the Company and/or subsidiaries of the
Company together with such additional duties, functions, responsibilities and
authority including, without limitation, serving as an officer and/or director
of any subsidiary of the Company, commensurate with the Executive's position as
set forth in this Agreement, as may be reasonably assigned to the Executive
from time to time by the Board of Directors or its designee. In connection
with his employment under this Agreement, the Executive shall be based at the
offices of the Company where the Executive currently resides.
(b) As additional consideration for the Executive to enter into
the obligations set forth in this Agreement: (i) GEV shall, contemporaneous
with execution and delivery of this Agreement, cause to be granted to the
Executive options to acquire 40,000 shares of the Class A common stock, par
value $.01 per share of GEV, pursuant to the GEV Corporation 1995 Stock
Incentive Plan, which options shall have an exercise price and vest and become
exercisable in the manner set forth in the stock option agreement to be
executed by the Executive and GEV evidencing such option rights; and (ii) GEV
and the Company, jointly and severally, shall indemnify and hold harmless
Executive from any claim asserted against him as an employee, officer or
director of the Company or any subsidiary or affiliate of the Company to the
fullest extent permitted by, and subject to the provisions of, the Delaware
General Corporation Law, except only that Executive shall not be indemnified
for any violation by Executive of the terms of this Agreement.
SECTION 2. TERM. Subject to the provisions and conditions of this
Agreement (including Section 6), the Executive's employment hereunder shall
commence on the date hereof and shall continue during the period ending on the
second anniversary of the date hereof (the "Employment Term").
SECTION 3. COMPENSATION.
(a) Salary. As compensation for the performance of the
Executive's services hereunder, the Company shall pay to the Executive a base
salary (the "Salary") of $140,400 per annum with increases, if any, as may be
approved in writing by the Board of Directors or its designee. The Salary
shall be payable in accordance with payroll practices of the Company as the
same shall exist from time to time. In no event shall the Salary be decreased
during the Employment Term.
(b) Bonus Plan. The Executive shall be entitled to receive bonus
compensation consisting of cash, securities or property ("Bonus") in accordance
with any management incentive plan or plans (including, without limitation, any
shared earnings plans) which may be established by the Board of Directors of
the Company for its executive officers and management.
(c) Benefits. In addition to the Salary and Bonus, the Executive
shall be entitled to participate in or to receive the same health, insurance,
pension, automobile, severance, vacation, holiday, sick leave, disability,
profit sharing, 401(k) savings and other benefits as have been provided to
executive officers of the Company or its subsidiaries on the date hereof,
subject to such changes therein as shall be determined by the Board of
Directors to be consistent with the best interests of the Company.
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<PAGE> 3
(d) Paying Entity. The Company may cause any one or more of its
subsidiaries to provide the salary and benefits to the Executive as are
required by this Agreement.
SECTION 4. EXCLUSIVITY. During the Employment Term, the Executive
shall devote substantially all of his time to the business of the Company,
shall faithfully serve the Company, shall in all respects conform to and comply
with the lawful and reasonable directions and instructions given to him by the
Board of Directors or its designee in accordance with the terms of this
Agreement, shall use his best efforts to promote and serve the interests of the
Company and shall not engage in any other business activity, whether or not
such activity shall be engaged in for pecuniary profit, except that the
Executive may (a) participate in the activities of professional trade
organizations related to the business of the Company, and (b) engage in
personal investing an other personal activities, provided that activities set
forth in the foregoing clauses, either singly or in the aggregate, do not
interfere in any material respect with the services to be provided by the
Executive hereunder.
SECTION 5. REIMBURSEMENT FOR EXPENSES. The Company shall promptly
reimburse the Executive for all reasonable out-of-pocket travel, entertainment
and other business expenses incurred by the Executive during the term of this
Agreement and in the performance of his duties hereunder in accordance with the
Company's reimbursement policies in effect on the date hereof.
SECTION 6. TERMINATION.
(a) Death. This Agreement shall automatically terminate upon the
death of the Executive and upon such event, the Executive's estate shall be
entitled to receive the amounts specified in Section 6(f) below.
(b) Disability. If the Executive is unable to perform the duties
required of him under this Agreement because of physical or mental disability,
this Agreement shall remain in full force and effect and the Company shall pay
all compensation required to be paid to the Executive hereunder, unless the
Executive is unable to perform the duties required of him under this Agreement
for an aggregate of one hundred twenty (120) days (whether or not consecutive)
during any twelve (12) month period during the term of this Agreement, in which
event this Agreement (other than Sections 7, 8 and 11 hereof), including but
not limited to, the Company's obligations to pay any Salary or to provide any
privileges under this Agreement, shall, upon written notice by the Company to
the Executive to such effect, terminate; provided, however, that the foregoing
shall not prejudice the Executive's rights to continuing, existing insurance
benefits for which he is otherwise eligible, including disability benefits. In
case of any dispute as to whether Executive is disabled within the meaning of
this Section 6(b), the determination of such disability for the period
specified shall be certified by a physician reasonably acceptable to both the
Company and the Executive, which physician's determination shall be final and
binding on the parties hereto. The Company shall be permitted to hire a
replacement for the Executive, so long as this Agreement shall remain in
effect, to serve in the event and for so long as the Executive shall be unable
to perform the duties required of him hereunder due to his disability for an
aggregate of sixty (60) days during any 12-month period during the term of this
Agreement.
(c) Just Cause. The Company may terminate this Agreement (other
than Sections 7, 8 and 11 hereof) for "Just Cause." For purposes of this
Agreement, "Just Cause" shall mean: (i) the Executive's willful and continued
failure, neglect or
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<PAGE> 4
refusal to perform his duties hereunder which failure, neglect or refusal shall
not have been corrected by the Executive within thirty (30) days of receipt by
the Executive of written notice from the Company of such failure, neglect or
refusal, which notice shall specifically set forth the nature of said failure,
neglect or refusal; (ii) any willful or intentional engagement by the Executive
in misconduct (including repeated drunkenness or use of illegal drugs) that is
materially injurious to the reputation or business of the Company or its
affiliates or that materially impairs the ability of the Executive to perform
his duties and responsibilities hereunder; (iii) any continued or repeated
absence from the Company, unless such absence is (A) approved or excused by the
Board of Directors or its designee or (B) is the result of the Executive's
physical or mental disability (in which event the provisions of Section 6(b)
hereof shall control) or a personal or family emergency; (iv) conviction of the
Executive for the commission of a felony; or (v) the commission by the
Executive of an act of fraud or embezzlement against the Company. If the
Executive's employment is terminated for Just Cause, the Executive shall be
entitled to receive the amounts specified in Section 6(f) hereof. In the event
of any termination pursuant to this Section 6(c), the Company shall deliver to
the Executive written notice setting forth the basis for such termination,
which notice shall specifically set forth the nature of the Just Cause, and
the facts and circumstances in connection therewith, which is the reason for
such termination.
(d) Good Reason. The Executive may terminate this Agreement for
"Good Reason" following a Substantial Breach (as defined below) if such
Substantial Breach shall not have been corrected by the Company within thirty
(30) days of receipt by the Company of written notice from the Executive of the
occurrence of such Substantial Breach, which notice shall specifically set
forth the nature of the Substantial Breach which, if not corrected, will
entitle the Executive at any time after such thirty (30) day notice period and
by subsequent written notice to terminate this Agreement. In the event of
resignation by the Executive following a Substantial Breach, the Executive
shall be entitled to receive the amounts specified in Section 6(f) hereof. An
election by the Executive to terminate his employment under this paragraph
shall not be a breach of this Agreement. The term "Substantial Breach" means
any material breach by the Company of its obligations hereunder consisting of:
(i) the failure of the Company to pay the Executive the Salary or Bonus, if
any, in accordance with Sections 3(a) and (b) hereof; (ii) the failure by the
Company to substantially maintain and continue the Executive's participation in
benefit plans as provided in Section 3(c) hereof; (iii) any removal of the
Executive from any failure to re-elect the Executive to the positions or
material diminishment in the duties or responsibilities of the Executive
described in Section 1, except in connection with promotions to higher office;
(iv) the Company's requiring the Executive to be based anywhere other than in
or within 35 miles of the Executive's current principal place of employment,
except for required travel on the business of the Company to an extent
substantially consistent with the Executive's prior business travel
obligations, or, in the event the Executive consents to relocation, the failure
of the Company to pay or reimburse the Executive for all reasonable costs
incurred by the Executive in connection with such relocation as mutually agreed
by the Company and the Executive prior to such relocation; and (v) the failure
of any successor to all or substantially all of the business and/or assets of
the Company to assume this Agreement; provided, however, that the term
"Substantial Breach" shall not include a termination of the Executive's
employment hereunder pursuant to Section 6(b) or (c) hereof. The date of
termination of the Executive's employment under this Section 6(d) shall be the
effective date of any resignation specified in writing by the Executive, which
shall not be less than thirty (30) days after receipt by the Company of written
notice of such resignation, provided that any resignation by Executive
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<PAGE> 5
shall not be effective pursuant to this Section 6(d) if such Substantial Breach
shall have been corrected by the Company during the thirty (30) day period
following notice by the Executive of the existence thereof or if corrected
thereafter prior to the date of resignation by the Executive.
(e) Without Cause. The Company, by action of its Board of
Directors, may terminate this Agreement (other than Sections 7, 8 and 11
hereof) without Just Cause upon the giving to the Executive of thirty (30)
days' prior written notice of such termination. If the Executive's employment
is terminated by the Company without Just Cause, the Executive shall be
entitled to receive the amounts specified in Section 6(f) hereof.
(f) Payments. In the event that the Executive's employment
hereunder terminates for any reason, the Company shall promptly pay to the
Executive all amounts accrued but unpaid hereunder through the date of
termination in respect of the Salary and for reimbursement of any expenses
pursuant to Section 5 hereof, and, in the case of any termination by reason of
death or physical or mental disability of the Executive pursuant to Section
6(a) or 6(b) hereof, a pro rated portion of the Bonus, if any, which the
Executive would have been otherwise entitled to receive under Section 3(b) for
the calendar year in which such termination occurs, such pro rated portion
being the portion of such Bonus corresponding to the period commencing on
January 1 of such year and ending on the date of termination. In the event
that the Executive's employment has been terminated by the Company for Just
Cause, the Company shall have no obligations to the Executive for Salary, Bonus
or other benefits herein provided accruing on or after the date of termination
except as set forth in the preceding sentence or as may be otherwise provided
by law. In the event that the Executive's employment hereunder is terminated
by the Company without Just Cause or by the Executive with Good Reason, in
addition to the amounts specified in the first sentence of this Section 6(f),
the Executive shall continue to receive the Salary at the rate in effect
hereunder on the date of such termination periodically, in accordance with the
Company's prevailing payroll practices, until the last date of the Employment
Term or until the first anniversary of the termination date, if longer, plus
(i) the cost of the Executive's premiums for health care benefits under COBRA
or the cost of the Executive's premiums under any replacement health insurance
coverage obtained by Executive containing substantially the same coverage as
provided to the Executive at such time, which premiums shall be payable as and
when the Salary would otherwise have been payable as provided in this
Agreement; and (ii) a pro rated portion of the Bonus, if any, which the
Executive would have otherwise been entitled to receive under Section 3(b) for
the calendar year in which the Executive is terminated pro rated in the same
manner as set forth in the first sentence of this Section 6(f). Without
intending to limit the generality of Section 7, in the event that the Executive
accepts other employment or engages in his own business prior to the last date
of the Employment Term, the Executive shall forthwith notify the Company and
the Company shall be entitled to set off from amounts due the Executive under
this Section 6(f) the amounts paid to the Executive in respect of such other
employment or business activity. Upon any termination of this Agreement, all
of the rights, privileges and duties of the Executive hereunder shall cease,
except for any rights under this Section 6(f) and any obligations under
Sections 7, 8 and 11 hereunder.
SECTION 7. SECRECY.
(a) Nondisclosure of Confidential Information. The Executive,
except in connection with his employment hereunder or as required by legal
process, shall not
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<PAGE> 6
disclose to any person or entity or use, during the Employment Term or at any
time thereafter, any information not in the public domain or generally known in
the industry, in any form acquired by the Executive while employed by the
Company or any predecessor to the Company's business or, if acquired following
the Employment Term, such information which, to the Executive's knowledge, has
been acquired, directly, or indirectly, from any person or entity owing a duty
of confidentiality to the Company or any of its subsidiaries or affiliates,
relating to the Company, its subsidiaries or affiliates, including but not
limited to information regarding customers, vendors, suppliers, trade secrets,
training programs, manuals or materials, technical information, contracts,
systems, procedures, mailing lists, know-how, trade names, improvements, price
lists, financial or other data (including the revenues, costs or profits
associated with any of the Company's products or services), business plans,
code books, invoices and other financial statements, computer programs,
software systems, databases, discs and printouts, plans (business, technical or
otherwise), customer and industry lists, correspondence, internal reports,
personnel files, sales and advertising material, telephone numbers, names,
addresses or any other compilation of information, written or unwritten, which
is or was used in the business of the Company or any of its subsidiaries or
affiliates (collectively, "Confidential Information"); provided, however, that
the term Confidential Information shall not include (i) general skills and
general knowledge of an industry obtained by reason of the Executive's
association with the Company; (ii) information concerning the business and
operations of the Company and its subsidiaries and/or the industry in which the
Company and its subsidiaries conduct business which was in the possession of or
known to the Executive prior to the Executive's employment with the Company;
and (iii) any financial or other information with respect to the assets,
properties, rights, business or operations of Basic or any of its subsidiaries,
or Victory Valley, or relating to the Subject Parcels (as such terms are defined
in the Purchase Agreement). The Executive agrees and acknowledges that all
Confidential Information, in any form, and copies and extracts thereof, are and
shall remain the sole and exclusive property of the Company, and upon
termination of his employment with the Company, the Executive shall return to
the Company the originals and all copies of any Confidential Information
provided to or acquired by the Executive in connection with the performance of
his duties for the Company, and shall return to the Company all files,
correspondence and/or other communications received, maintained and/or
originated by the Executive during the course of his employment.
(b) Inventions. the Executive hereby sells, transfers and assigns
to the Company, or to any person or entity designated in writing by the
Company, all of the right, title or interest of the Executive in and to all
inventions, sales materials, software, training materials, disclosures and
improvements, whether patented or unpatented, and copyrightable material, made
or conceived by the Executive, solely or jointly, in whole or in part, during
his employment with the Company which are not generally known to the public or
the industry or recognized as standard practice and which (i) relate to
services, trade names, methods, ideas, apparatus, designs, products, processes
or devices which may be sold, leased, used or under construction or development
by the Company, or any franchise affiliated with the Company and (ii) arise
(wholly or partly) from the efforts of the Executive during and in the course of
his employment with the Company (an "Invention"). The Executive shall
communicate promptly and disclose to the Company, in such form as the Company
reasonable requests, all information, details and data pertaining to any such
Invention. With respect to all Inventions which are to be assigned pursuant to
this Section 7, the Executive will assist the Company in any reasonable manner
to obtain for the Company's benefit patents thereon, including, but not limited
to, executing
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<PAGE> 7
patent applications, transfers or assignments thereof to the Company and any
and all other documents reasonably deemed necessary by the Company. The
Company shall pay all costs incident to the preparation, execution and delivery
of such patent applications, transfers, assignments and other documents. Any
Invention by the Executive within six (6) months following the termination of
his employment hereunder shall be presumed to fall within the provisions of
this Section 7(d) unless the Executive bears the burden of proof of showing
that the Invention was first conceived and made following such termination.
Notwithstanding anything contained herein to the contrary, the Executive shall
continue to own the exclusive right, title and interest in and to any and all
inventions, improvements, discoveries, ideas, designs, documents and other data
(whether or not patentable): (A) conceived, made and developed prior to the
date of this Agreement; and (B) irrespective of when conceived, made or
developed, which do not relate to the actual or anticipated business of the
Company or any existing or prior research and development activities of the
Company or any of its subsidiaries.
SECTION 8. INJUNCTIVE RELIEF. Without intending to limit the
remedies available to the Company, the Executive acknowledges that a breach of
any of the covenants contained in Section 7 hereof may result in material
irreparable injury to the Company or its subsidiaries or affiliates for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of such a breach or
threat thereof, the Company shall be entitled to seek a temporary restraining
order and/or a preliminary or permanent injunction, restraining the Executive
from engaging in activities prohibited by Section 7 hereof or such other relief
as may be required specifically to enforce any of the covenants in Section 7
hereof.
SECTION 9. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES.
This Agreement shall inure to the benefit of, and be binding upon, the parties
hereto and their respective successors and assigns, including, but not limited
to, the Executive's heirs and personal representatives of the Executive's
estate; provided, however, that neither party shall assign or delegate any of
the obligations created under this Agreement without the prior written consent
of the other party. Notwithstanding the foregoing, the Company shall have the
unrestricted right to assign this Agreement and to delegate all or any part of
its obligations hereunder to any of its subsidiaries, so long as such
assignment does not diminish the duties, function, responsibility or authority
of the Executive or result in any assignment of duties or responsibilities
materially inconsistent with those set forth in this Agreement (unless
consented to by the Executive) but in such event such assignee shall expressly
assume all obligations of the Company hereunder and the Company shall remain
fully liable for the performance of all such obligations in the manner
prescribed in this Agreement. Nothing in this Agreement shall confer upon any
person or entity not a party to this Agreement, or (unless otherwise expressly
provided herein) the legal representatives of such person or entity, any rights
or remedies of any nature or kind whatsoever under or by reason of this
Agreement.
SECTION 10. WAIVER AND AMENDMENTS. Any waiver, alteration, amendment
or modification of any of the terms of this Agreement shall be valid only if
made in writing and signed by the parties hereto. No waiver by either of the
parties hereto of their rights hereunder shall be deemed to constitute a waiver
with respect to any subsequent occurrences or transactions hereunder unless
such waiver specifically states that it is to be construed as a continuing
waiver.
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<PAGE> 8
SECTION 11. SEVERABILITY AND GOVERNING LAW. Each party hereto
acknowledges and agrees that if any covenants or other provisions of this
Agreement are found to be invalid or unenforceable by a final determination of
a court of competent jurisdiction (a) the remaining terms and provisions hereof
shall be unimpaired and (b) the invalid and unenforceable term or provision
shall be deemed replaced by a term or provision that is valid and enforceable
and that comes closest to expressing the intention of the invalid or
unenforceable term or provision. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PROVISIONS THEREOF.
SECTION 12. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made if delivered personally or sent by registered or certified mail
(postage prepaid, return receipt requested), or sent by facsimile transmission
or overnight courier service, addressed in the case of the Company, to Pioneer
Americas, Inc., 4200 NationsBank Center, 700 Louisiana Street, Houston, Texas
77002, Attention: Chairman of the Board, fax: (713) 225-4426 and, in the case
of the Executive, to the Executive's address set forth of the signature page
hereof or, in each case, to such other address as may be designated to the
other party from time to time as provided above. All notices so given shall be
effective when received at the designated address.
SECTION 13. CAPTIONS AND SECTION HEADINGS. Captions and section
headings herein are solely for convenience of reference and shall not affect
the meaning or interpretation of this Agreement or of any term or provision
hereof.
SECTION 14. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties hereto regarding the employment of
the Executive. This Agreement supersedes all prior negotiations, discussions,
correspondence, communications, understandings and agreements between the
parties relating to the subject matter of this Agreement, all of which are
merged into this Agreement.
SECTION 15. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall be considered one of the same agreement.
SECTION 16. DISPUTES. Any dispute or controversy arising under, out
of, in connection with or in relation to this Agreement ("Disputes") shall, at
the election and upon written demand of either party, be finally determined and
settled by arbitration in the city of Houston, Texas in accordance with the
procedures set forth in the exhibit entitled "Arbitration Procedures" attached
hereto, and judgment upon the award may be entered in any court having
jurisdiction thereof; provided, however, that: (a) this Section 16 shall not
apply to matters required to be determined by a physician pursuant to Section
6(b); and (b) the parties acknowledge and agree that an arbitrator or
arbitrators shall not have the power or right to order the payment by either
party of damages (including punitive damages), compensation or other amounts
that are not provided for in this Agreement, it being the intention of the
parties that the arbitrator or arbitrators shall resolve Disputes, in respect
of payments, only as to whether or not a payment is due hereunder and, if so,
the amount thereof, but shall not provide for any additional payments as a
result of the matters contemplated hereby.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PIONEER AMERICAS, INC.
By: /s/ GEORGE T. HENNING, JR.
-----------------------------
Name: George T. Henning, Jr.
----------------------
Title: Vice President
----------------------
EXECUTIVE
/s/ KENT R. STEPHENSON
-----------------------------
Kent R. Stephenson
Address: 314 Hickory Post
-----------------------------
Houston, TX 77079
-----------------------------
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<PAGE> 10
ARBITRATION PROCEDURES
(a) All Disputes between the parties submitted to arbitration
shall be resolved by binding arbitration administered by the American
Arbitration Association (the "AAA") in accordance with, and in the following
order of priority: (i) the terms of these arbitration provisions; (ii) the
Commercial Arbitration Rules of the AAA; (iii) the Federal Arbitration Act
(Title 9 of the United States Code); and (iv) to the extent the foregoing are
inapplicable, unenforceable or invalid, the laws of the State of Texas.
The validity and enforceability of these arbitration provisions shall be
determined in accordance with this same order of priority. In the event of any
inconsistency between these arbitration provisions and such rules and statutes,
these arbitration provisions shall control. Judgment upon any award rendered
hereunder shall be entered in any court having jurisdiction.
(b) All statutes of limitation applicable to any Dispute shall
apply to any proceeding in accordance with these arbitration provisions.
(c) Arbitrators are empowered to resolve Disputes by summary
rulings substantially similar to summary judgments and motions to dismiss.
Arbitrators shall resolve all Disputes in accordance with the applicable
substantive law. Any arbitrator selected shall be required to be experienced
and knowledgeable in the substantive laws applicable to the subject matter of
the Dispute. With respect to a Dispute in which the claims or amounts in
controversy do not exceed $100,000, a single arbitrator shall be chosen and
shall resolve the Dispute. In such case, the arbitrator shall be required to
make specific, written findings of fact, and shall have authority to render an
award up to but not to exceed $100,000, including all amounts properly payable
and costs, fees and expenses (subject to Section 16 of the Agreement). A
Dispute involving claims or amounts in controversy exceeding $100,000, shall be
decided by a majority vote of a panel of three (3) arbitrators (an "Arbitration
Panel"), the determination of any two (2) of the three (3) arbitrators
constituting the determination of the Arbitration Panel; provided, however,
that all three (3) arbitrators on the Arbitration Panel must actively
participate in all hearings and deliberations. Arbitrators, including any
Arbitration Panel, may grant any remedy or relief deemed just and equitable and
within the scope of these arbitration provisions and may also grant such
ancillary relief as is necessary to make effective any award. Arbitration
Panels shall be required to make specific, written findings of fact and
conclusions of law, and in such proceedings before an Arbitration Panel only,
the parties shall have the additional right to seek vacation or modification
of any award of an Arbitration Panel that is based in whole, or in part, on an
incorrect or erroneous ruling of law by appeal to a Federal or State Court of
Appeals, following the entry of judgment on the award in Federal or State
District Court, as appropriate. For these purposes, the award and judgment
entered by the Federal or State District Court shall be considered to be the
same as the award and judgment of the Arbitration Panel. All requirements
applicable to appeals from any Federal or State District Court judgment shall
be applicable to appeals from judgments entered on decisions rendered by
Arbitration Panels. The Appellate Courts shall have the power and authority to
vacate or modify an award based upon a
<PAGE> 11
determination that there has been an incorrect or erroneous ruling of law. The
Appellate Court shall also have the power to reverse and/or remand the decision
of an Arbitration Panel. Subject to the foregoing, the determination of an
arbitrator or Arbitration Panel shall be binding on all parties and shall not
be subject to further review or appeal except as otherwise allowed by
applicable law.
(d) To the maximum extent practicable, the AAA, the arbitrator (or
the Arbitration Panel, as appropriate) and the parties shall take any action
necessary to require that an arbitration proceeding hereunder shall be
concluded within one hundred eighty (180) days of the filing of the Dispute with
the AAA. Unless the Company and the Executive shall agree otherwise,
arbitration proceedings hereunder shall be conducted in Houston, Texas.
Arbitrators shall be empowered to impose sanctions and to take such other
actions as they deem necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure and applicable law. With respect to any
Dispute, each party agrees that all discovery activities shall be expressly
limited to matters directly relevant to the Dispute and any arbitrator,
Arbitration Panel and the AAA shall be required to fully enforce this
requirement. The provisions of these arbitration provisions shall survive any
termination, amendment or expiration of this Agreement, unless the parties
otherwise expressly agree in writing. To the extent permitted by applicable
law, arbitrators, including any Arbitration Panel, shall have the power to
award recovery of all costs and fees (including attorneys' fees, administrative
fees and arbitrators' fees) to the prevailing party or, if no clear prevailing
party, as the arbitrator (or Arbitration Panel, if applicable) shall deem just
and equitable. Each party agrees to keep all Disputes and arbitration
proceedings strictly confidential, except for disclosures of information
required by applicable law.
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<PAGE> 1
EXHIBIT 10.11
EXECUTIVE EMPLOYMENT AGREEMENT
(Noncompetition Covenants)
This EMPLOYMENT AGREEMENT is made and entered into as of this 20th day
of April, 1995, between Pioneer Americas, Inc., a Delaware corporation (the
"Company"), and Frank B. Belliss (the "Executive").
WITNESSETH:
WHEREAS, Pioneer Americas Acquisition Corp., a Delaware corporation
("PAAC") and GEV Corporation, a Delaware corporation and the owner of all of
the outstanding capital stock of PAAC ("GEV"), have agreed to acquire all of
the issued and outstanding capital stock of the Company pursuant to a Stock
Purchase Agreement, dated as of March 24, 1995, by and among PAAC, GEV, and all
holders of equity securities and rights to acquire equity securities of the
Company (the "Purchase Agreement");
WHEREAS, the Executive is currently employed by the Company and the
Company desires to secure for itself the continued benefit of the Executive's
background, experience, ability and expertise and the Executive has indicated
his willingness to continue to provide his services, on the terms and
conditions set forth herein;
WHEREAS, by virtue of the Executive's position with the Company, the
Executive has knowledge of certain Confidential Information (as defined below);
and, therefore, in order to protect the value of the business acquired under
the Purchase Agreement, the Company desires to enter into this Agreement with
the Executive, and the Executive desires to make the agreements provided for
herein in consideration of the amounts payable to the Executive pursuant
hereto;
WHEREAS, it is a condition to closing of the transactions contemplated
by the Purchase Agreement that the Executive and the Company enter into this
Agreement;
NOW, THEREFORE, on the basis of the foregoing premises and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
SECTION 1. EMPLOYMENT. (a) The Company hereby agrees to employ
the Executive and the Executive hereby accepts employment with the Company, on
the terms and subject to the conditions hereinafter set forth. Subject to the
terms and conditions contained herein, the Executive shall serve as President -
Imperial West Chemical Company, Inc. and, in such capacity, shall report
directly to the Board of Directors of the Company ("Board of Directors") or its
designee and shall have such duties, functions, responsibilities and authority
as are consistent with the Executive's position as the senior executive officer
in charge of the management, development and implementation of the business of
Imperial West Chemical Co. and/or its subsidiaries, together with such
additional duties, functions, responsibilities and authority including, without
limitation, serving as an officer
<PAGE> 2
and/or director of any subsidiary of the Company, commensurate with the
Executive's position as set forth in this Agreement, as may be reasonably
assigned to the Executive from time to time by the Board of Directors or its
designee. In connection with his employment under this Agreement, the
Executive shall be based at the offices of Imperial West Chemical Co. where the
Executive currently resides.
(b) As additional consideration for the Executive to enter into
the obligations set forth in this Agreement: (i) GEV shall, contemporaneous
with execution and delivery of this Agreement, cause to be granted to the
Executive options to acquire 75,000 shares of the Class A common stock, par
value $.01 per share of GEV, pursuant to the GEV Corporation 1995 Stock
Incentive Plan, which options shall have an exercise price and shall vest and
become exercisable in the manner set forth in the stock option agreement to be
executed by the Executive and GEV evidencing such option rights; and (ii) GEV
and the Company, jointly and severally, shall indemnify and hold harmless
Executive from any claim asserted against him as an employee, officer or
director of the Company or any subsidiary or affiliate of the Company to the
fullest extent permitted by, and subject to the provisions of, the Delaware
General Corporation Law, except only that Executive shall not be indemnified
for any violation by Executive of the terms of this Agreement.
SECTION 2. TERM. Subject to the provisions and conditions of this
Agreement (including Section 6), the Executive's employment hereunder shall
commence on the date hereof and shall continue during the period ending on the
third anniversary of the date hereof (the "Employment Term").
SECTION 3. COMPENSATION.
(a) Salary. As compensation for the performance of the
Executive's services hereunder, the Company shall pay to the Executive a base
salary (the "Salary") of $130,000 per annum with increases, if any, as may be
approved in writing by the Board of Directors or its designee. The Salary
shall be payable in accordance with payroll practices of the Company as the
same shall exist from time to time. In no event shall the Salary be decreased
during the Employment Term.
(b) Bonus Plan. The Executive shall be entitled to receive bonus
compensation consisting of cash, securities or property ("Bonus") in accordance
with any management incentive plan or plans (including, without limitation, any
shared earnings plans) which may be established by the Board of Directors of
the Company for its executive officers and management.
(c) Benefits. In addition to the Salary and Bonus, the Executive
shall be entitled to participate in or to receive the same health, insurance,
pension, automobile, severance, vacation, holiday, sick leave, disability,
profit sharing, 401(k) savings and other benefits as have been provided to
executive officers of the Company or its subsidiaries on the date hereof,
subject to such changes therein as shall be determined by the Board of
Directors to be consistent with the best interests of the Company.
(d) Paying Entity. The Company may cause any one or more of its
subsidiaries to provide the salary and benefits to the Executive as are
required by this Agreement.
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<PAGE> 3
SECTION 4. EXCLUSIVITY. During the Employment Term, the Executive
shall devote substantially all of his time to the business of the Company,
shall faithfully serve the Company, shall in all respects conform to and comply
with the lawful and reasonable directions and instructions given to him by the
Board of Directors or its designee in accordance with the terms of this
Agreement, shall use his best efforts to promote and serve the interests of the
Company and shall not engage in any other business activity, whether or not
such activity shall be engaged in for pecuniary profit, except that the
Executive may (a) participate in the activities of professional trade
organizations related to the business of the Company, and (b) engage in
personal investing an other personal activities, provided that activities set
forth in the foregoing clauses, either singly or in the aggregate, do not
interfere in any material respect with the services to be provided by the
Executive hereunder.
SECTION 5. REIMBURSEMENT FOR EXPENSES. The Company shall promptly
reimburse the Executive for all reasonable out-of-pocket travel, entertainment
and other business expenses incurred by the Executive during the term of this
Agreement and in the performance of his duties hereunder in accordance with the
Company's reimbursement policies in effect on the date hereof.
SECTION 6. TERMINATION.
(a) Death. This Agreement shall automatically terminate upon the
death of the Executive and upon such event, the Executive's estate shall be
entitled to receive the amounts specified in Section 6(f) below.
(b) Disability. If the Executive is unable to perform the duties
required of him under this Agreement because of physical or mental disability,
this Agreement shall remain in full force and effect and the Company shall pay
all compensation required to be paid to the Executive hereunder, unless the
Executive is unable to perform the duties required of him under this Agreement
for an aggregate of one hundred twenty (120) days (whether or not consecutive)
during any twelve (12) month period during the term of this Agreement, in which
event this Agreement (other than Sections 7, 8, 9 and 12 hereof), including but
not limited to, the Company's obligations to pay any Salary or to provide any
privileges under this Agreement, shall, upon written notice by the Company to
the Executive to such effect, terminate; provided, however, that the foregoing
shall not prejudice the Executive's rights to continuing, existing insurance
benefits for which he is otherwise eligible, including disability benefits. In
case of any dispute as to whether Executive is disabled within the meaning of
this Section 6(b), the determination of such disability for the period
specified shall be certified by a physician reasonably acceptable to both the
Company and the Executive, which physician's determination shall be final and
binding on the parties hereto. The Company shall be permitted to hire a
replacement for the Executive, so long as this Agreement shall remain in
effect, to serve in the event and for so long as the Executive shall be unable
to perform the duties required of him hereunder due to his disability for an
aggregate of sixty (60) days during any 12-month period during the term of this
Agreement.
(c) Just Cause. The Company may terminate this Agreement (other
than Sections 7, 8, 9 and 12 hereof) for "Just Cause." For purposes of this
Agreement, "Just Cause" shall mean: (i) the Executive's willful and continued
failure, neglect or refusal to perform his duties hereunder which failure,
neglect or refusal shall not have been corrected by the Executive within thirty
(30) days of receipt by the Executive of written notice from the Company of
such failure, neglect or refusal, which notice shall specifically set forth the
nature of said failure, neglect or refusal;
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<PAGE> 4
(ii) any willful or intentional engagement by the Executive in misconduct
(including repeated drunkenness or use of illegal drugs) that is materially
injurious to the reputation or business of the Company or its affiliates or
that materially impairs the ability of the Executive to perform his duties and
responsibilities hereunder; (iii) any continued or repeated absence from the
Company, unless such absence is (A) approved or excused by the Board of
Directors or its designee or (B) is the result of the Executive's physical or
mental disability (in which event the provisions of Section 6(b) hereof shall
control) or a personal or family emergency; (iv) conviction of the Executive
for the commission of a felony; or (v) the commission by the Executive of an
act of fraud or embezzlement against the Company. If the Executive's
employment is terminated for Just Cause, the Executive shall be entitled to
receive the amounts specified in Section 6(f) hereof. In the event of any
termination pursuant to this Section 6(c), the Company shall deliver to the
Executive written notice setting forth the nature of the Just Cause, and the
facts and circumstances in connection therewith, which is the reason for such
termination.
(d) Good Reason. The Executive may terminate this Agreement for
"Good Reason" following a Substantial Breach (as defined below) if such
Substantial Breach shall not have been corrected by the Company within thirty
(30) days of receipt by the Company of written notice from the Executive of the
occurrence of such Substantial Breach, which notice shall specifically set
forth the nature of the Substantial Breach which, if not corrected, will
entitle the Executive at any time after such thirty (30) day notice period and
by subsequent written notice to terminate this Agreement. In the event of
resignation by the Executive following a Substantial Breach, the Executive
shall be entitled to receive the amounts specified in Section 6(f) hereof. An
election by the Executive to terminate his employment under this paragraph
shall not be a breach of this Agreement. The term "Substantial Breach" means
any material breach by the Company of its obligations hereunder consisting of:
(i) the failure of the Company to pay the Executive the Salary or Bonus, if
any, in accordance with Sections 3(a) and (b) hereof; (ii) the failure by the
Company to substantially maintain and continue the Executive's participation in
benefit plans as provided in Section 3(C) hereof; (iii) any removal of the
Executive from any failure to re-elect the Executive to the positions or
material diminishment in the duties or responsibilities of the Executive
described in Section 1, except in connection with promotions to higher office;
(iv) the Company's requiring the Executive to be based anywhere other than in
or within 35 miles of the Executive's current principal place of employment,
except for required business travel on the business of the Company to an extent
substantially consistent with the Executive's prior business travel
obligations, or, in the event the Executive consents to relocation, the failure
of the Company to pay or reimburse the Executive for all reasonable costs
incurred by the Executive in connection with such relocation as mutually agreed
by the Company and the Executive prior to such relocation; and (v) the failure
of any successor to all or substantially all of the business and/or assets of
the Company to assume this Agreement; provided, however, that the term
"Substantial Breach" shall not include a termination of the Executive's
employment hereunder pursuant to Section 6(b) or (c) hereof. The date of
termination of the Executive's employment under this Section 6(d) shall be the
effective date of any resignation specified in writing by the Executive, which
shall not be less than thirty (30) days after receipt by the Company of written
notice of such resignation, provided that any resignation by Executive shall
not be effective pursuant to this Section 6(d) if such Substantial Breach shall
have been corrected by the Company during the thirty (30) day period following
notice by the Executive of the existence thereof or if corrected thereafter
prior to the date of resignation by the Executive.
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<PAGE> 5
(e) Without Cause. The Company, by action of its Board of
Directors, may terminate this Agreement (other than Sections 7, 8, 9 and 12
hereof) without Just Cause upon the giving to the Executive of thirty (30)
days' prior written notice of such termination. If the Executive's employment
is terminated by the Company without Just Cause, the Executive shall be
entitled to receive the amounts specified in Section 6(f) hereof.
(f) Payments. In the event that the Executive's employment
hereunder terminates for any reason, the Company shall promptly pay to the
Executive all amounts accrued but unpaid hereunder through the date of
termination in respect of the Salary and for reimbursement of any expenses
pursuant to Section 5 hereof, and, in the case of any termination by reason of
death or physical or mental disability of the Executive pursuant to Section
6(a) or 6(b) hereof, a pro rated portion of the Bonus, if any, which the
Executive would have been otherwise entitled to receive under Section 3(b) for
the calendar year in which such termination occurs, such pro rated portion
being the portion of such Bonus corresponding to the period commencing on
January 1 of such year and ending on the date of termination. In the event
that the Executive's employment has been terminated by the Company for Just
Cause, the Company shall have no obligations to the Executive for Salary, Bonus
or other benefits herein provided accruing on or after the date of termination
except as set forth in the preceding sentence or as may be otherwise provided
by law. In the event that the Executive's employment hereunder is terminated
by the Company without Just Cause or by the Executive with Good Reason, in
addition to the amounts specified in the first sentence of this Section 6(f),
the Executive shall continue to receive the Salary at the rate in effect
hereunder on the date of such termination periodically, in accordance with the
Company's prevailing payroll practices, until the last date of the Employment
Term or until the first anniversary of the termination date, if longer, plus
(i) the cost of the Executive's premiums for health care benefits under COBRA
or the cost of the Executive's premiums under any replacement health insurance
coverage obtained by Executive containing substantially the same coverage as
provided to the Executive at such time, which premiums shall be payable as and
when the Salary would otherwise have been payable as provided in this
Agreement; and (ii) a pro rated portion of the Bonus, if any, which the
Executive would have otherwise been entitled to receive under Section 3(b) for
the calendar year in which the Executive is terminated prorated in the same
manner as set forth in the first sentence of this Section 6(f). Without
intending to limit the generality of Section 7, in the event that the Executive
accepts other employment or engages in his own business prior to the last date
of the Employment Term, the Executive shall forthwith notify the Company and
the Company shall be entitled to set off from amounts due the Executive under
this Section 6(f) the amounts paid to the Executive in respect of such other
employment or business activity. Upon any termination of this Agreement, all
of the rights, privileges and duties of the Executive hereunder shall cease,
except for any rights under this Section 6(f) and any obligations under
Sections 7, 8, 9 and 12 hereunder.
SECTION 7. SECRECY AND NON-COMPETITION.
(a) No Competing Employment. The Executive acknowledges that the
agreements and covenants contained in this Section 7 are essential to protect
the value of the Company's business and assets and that by virtue of his past
and current employment with the Company, the Executive has obtained and will
obtain Confidential Information and there is a substantial probability that
such Confidential Information could be used to the substantial advantage of a
competitor
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<PAGE> 6
of the Company or its subsidiaries and to the Company's or its subsidiaries'
substantial detriment. The Executive also acknowledges that GEV and PAAC have
purchased all of the outstanding shares of the Company in reliance on the
covenants made by the Executive in this Section 7, and that they would not have
acquired such shares in the absence of the covenants made by the Executive in
this Section 7. Therefore, the Executive agrees that during the term of this
Agreement and for a period of one year following the date of termination of the
Executive's employment hereunder (the "Restricted Period") the Executive shall
not participate or engage, directly or indirectly, for himself or on behalf of
or in conjunction with any person, partnership, corporation or other entity,
whether as an employee, agent, officer, director, shareholder, partner, joint
venturer, investor or otherwise, in any business activities if such activity
consists of the manufacture, processing, marketing, sale, storage and transport
of chorine, caustic soda, muriatic acid, bleach, iron chlorides, aluminum
sulfate, hydrogen and steam and certain other products relating thereto or the
management thereof and all activities necessary therefor or incidental thereto
(the "Chlor Alkali Business"); provided, however, that nothing contained in
this Section 7(a) shall prohibit or restrict the Executive from making any
investment, for investment purposes only, of up to three percent (3%) of the
stock of any publicly-traded entity whose stock is either listed on a national
stock exchange or on the NASDAQ National Market System, provided, further, that
anything in this Section 7(a) or in Section 7(b) to the contrary
notwithstanding, following termination of this Agreement, the Executive shall
not be prohibited from serving as a director, officer, or employee of, or
consultant to, an entity which is engaged in whole or part, in the Chlor Alkali
Business so long as the Executive, at all times during the Restricted Period,
does not (i) initiate contact or solicit, directly or indirectly, those Persons
who were customers of or suppliers to, or who otherwise had business
relationships with, the Company, or any of its respective subsidiaries, at any
time during the twelve month period preceding the date of termination, or (ii)
disclose or use Confidential Information in any manner which would be
materially adverse to the Chlor Alkali Business conducted by the Company and
its subsidiaries as of the date of termination.
(b) Nondisclosure of Confidential Information. The Executive,
except in connection with his employment hereunder or as required by legal
process, shall not disclose to any person or entity or use, during the
Employment Term or at any time thereafter, any information not in the public
domain or generally known in the industry, in any form acquired by the
Executive while employed by the Company or any predecessor to the Company's
business or, if acquired following the Employment Term, such information which,
to the Executive's knowledge, has been acquired directly, or indirectly, from
any person or entity owing a duty of confidentiality to the Company or any of
its subsidiaries or affiliates, relating to the Company, its subsidiaries or
affiliates, including but not limited to information regarding customers,
vendors, suppliers, trade secrets, training programs, manuals or materials,
technical information, contracts, systems, procedures, mailing lists, know-how,
trade names, improvements, price lists, financial or other data (including the
revenues, costs or profits associated with any of the Company's products or
services), business plans, code books, invoices and other financial statements,
computer programs, software systems, databases, discs and printouts, plans
(business, technical or otherwise), customer and industry lists,
correspondence, internal reports, personnel files, sales and advertising
material, telephone numbers, names, addresses or any other compilation of
information, written or unwritten, which is or was used in the business of the
Company or any of its subsidiaries or affiliates (collectively, "Confidential
Information"); provided, however, that the term Confidential Information shall
not include (i) general skills and general knowledge of
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<PAGE> 7
an industry obtained by reason of the Executive's association with the Company;
(ii) information concerning the business and operations of the Company and its
subsidiaries and/or the industry in which the Company and its subsidiaries
conduct business which was in the possession of or known to the Executive prior
to the Executive's employment with the Company; and (iii) any financial or
other information with respect to the assets, properties, rights, business or
operations of Basic or any of its subsidiaries, or Victory Valley, or relating
to the Subject Parcels (as such terms are defined in the Purchase Agreement).
The Executive agrees and acknowledges that all Confidential Information, in any
form, and copies and extracts thereof, are and shall remain the sole and
exclusive property of the Company, and upon termination of his employment with
the Company, the Executive shall return to the Company the originals and all
copies of any Confidential Information provided to or acquired by the Executive
in connection with the performance of his duties for the Company, and shall
return to the Company all files, correspondence and/or other communications
received, maintained and/or originated by the Executive during the course of
his employment.
(c) No Interference. During the Restricted Period, the Executive
shall not, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business organization
(other than the Company), directly or indirectly, solicit, endeavor to entice
away from the Company, its affiliates or subsidiaries, or otherwise directly
interfere with the relationship of the Company, its affiliates or subsidiaries
with any person who, to the knowledge of the Executive, is employed by or
otherwise engaged to perform services for the Company, its affiliates or
subsidiaries (including, but not limited to, any independent distributor or
sales representative or organization) or who is, or was within the then most
recent twelve-month period, a customer or client of the Company, its
predecessors or any of its subsidiaries or affiliates.
(d) Inventions. The Executive hereby sells, transfers and assigns
to the Company, or to any person or entity designated in writing by the
Company, all of the right, title or interest of the Executive in and to all
inventions, sales materials, software, training materials, disclosures and
improvements, whether patented or unpatented, and copyrightable material, made
or conceived by the Executive, solely or jointly, in whole or in part, during
his employment with the Company which are not generally known to the public or
the industry or recognized as standard practice and which (i) relate to
services, trade names, methods, ideas, apparatus, designs, products, processes
or devices which may be sold, leased, used or under construction or development
by the Company, or any franchise affiliated with the Company and (ii) arise
(wholly or partly) from the efforts of the Executive during and in the course of
his employment with the Company (an "Invention"). The Executive shall
communicate promptly and disclose to the Company, in such form as the Company
reasonable requests, all information, details and data pertaining to any such
Invention. With respect to all Inventions which are to be assigned pursuant to
this Section 7, the Executive will assist the Company in any reasonable manner
to obtain for the Company's benefit patents thereon, including, but not limited
to, executing patent applications, transfers or assignments thereof to the
Company and any and all other documents reasonably deemed necessary by the
Company. The Company shall pay all costs incident to the preparation, execution
and delivery of such patent applications, transfers, assignments and other
documents. Any Invention by the Executive within six (6) months following the
termination of his employment hereunder shall be presumed to fall within the
provisions of this Section 7(d) unless the Executive bears the burden of proof
of showing that the Invention was first conceived and made following such
termination. Notwithstanding anything
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<PAGE> 8
contained herein to the contrary, the Executive shall continue to own the
exclusive right, title and interest in and to any and all inventions,
improvements, discoveries, ideas, designs, documents and other data (whether or
not patentable): (A) conceived, made and developed prior to the date of this
Agreement; and (B) irrespective of when conceived, made or developed, which do
not relate to the actual or anticipated business of the Company or any existing
or prior research and development activities of the Company of any of its
subsidiaries.
(e) Limited Enforceability. Anything in this Agreement to the
contrary notwithstanding, in the event that Executive terminates this Agreement
for Good Reason pursuant to Section 6(d) hereof, or if the Company terminates
the employment of Executive without Just Cause under Section 6(e) hereof,
Executive shall be released as of the date of any such termination from any and
all further restrictions pursuant to Section 4 and Section 7(a) and 7(c) of
this Agreement.
SECTION 8. INJUNCTIVE RELIEF. Without intending to limit the
remedies available to the Company, the Executive acknowledges that a breach of
any of the covenants contained in Section 7 hereof may result in material
irreparable injury to the Company or its subsidiaries or affiliates for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of such a breach or
threat thereof, the Company shall be entitled to seek a temporary restraining
order and/or a preliminary or permanent injunction, restraining the Executive
from engaging in activities prohibited by Section 7 hereof or such other relief
as may be required specifically to enforce any of the covenants in Section 7
hereof.
SECTION 9. EXTENSION OF RESTRICTED PERIOD. In addition to the
remedies the Company may seek and obtain pursuant to Section 8 of this
Agreement, the Restricted Period shall be extended by any and all periods
during which the Executive shall be found by a court to have been in violation
of the covenants contained in Section 7 hereof.
SECTION 10. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES.
This Agreement shall inure to the benefit of, and be binding upon, the parties
hereto and their respective successors and assigns, including, but not limited
to, the Executive's heirs and personal representatives of the Executive's
estate; provided, however, that neither party shall assign or delegate any of
the obligations created under this Agreement without the prior written consent
of the other party. Notwithstanding the foregoing, the Company shall have the
unrestricted right to assign this Agreement and to delegate all or any part of
its obligations hereunder to any of its subsidiaries, so long as such
assignment does not diminish the duties, function, responsibility or authority
of the Executive or result in any assignment of duties or responsibilities
materially inconsistent with those set forth in this Agreement (unless
consented to by the Executive) but in such event such assignee shall expressly
assume all obligations of the Company hereunder and the Company shall remain
fully liable for the performance of all such obligations in the manner
prescribed in this Agreement. Nothing in this Agreement shall confer upon any
person or entity not a party to this Agreement, or (unless otherwise expressly
provided herein) the legal representatives of such person or entity, any rights
or remedies of any nature or kind whatsoever under or by reason of this
Agreement.
SECTION 11. WAIVER AND AMENDMENTS. Any waiver, alteration, amendment
or modification of any of the terms of this Agreement shall be valid only if
made in writing and signed by the parties hereto. No waiver by either of the
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<PAGE> 9
parties hereto of their rights hereunder shall be deemed to constitute a waiver
with respect to any subsequent occurrences or transactions hereunder unless
such waiver specifically states that it is to be construed as a continuing
waiver.
SECTION 12. SEVERABILITY AND GOVERNING LAW. the Executive
acknowledges and agrees that the covenants set forth in Section 7 hereof are
reasonable and valid in all respects. Each party hereto acknowledges and
agrees that if any of such covenants or other provisions of this Agreement are
found to be invalid or unenforceable by a final determination of a court of
competent jurisdiction (a) the remaining terms and provisions hereof shall be
unimpaired and (b) the invalid and unenforceable term or provision shall be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO
THE CHOICE OF LAW PROVISIONS THEREOF.
SECTION 13. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made if delivered personally or sent by registered or certified mail
(postage prepaid, return receipt requested), or sent by facsimile transmission
or overnight courier service, addressed in the case of the Company, to Pioneer
Americas, Inc., 4200 NationsBank Center, 700 Louisiana Street, Houston, Texas
77002, Attention: Chairman of the Board, fax: (713) 225-4426 and, in the case
of the Executive, to the Executive's address set forth on the signature page
hereof or, in each case, to such other address as may be designated to the
other party from time to time as provided above. All notices so given shall be
effective when received at the designated address.
SECTION 14. CAPTIONS AND SECTION HEADINGS. Captions and section
headings herein are solely for convenience of reference and shall not affect
the meaning or interpretation of this Agreement or of any term or provision
hereof.
SECTION 15. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties hereto regarding the employment of
the Executive. This Agreement supersedes all prior negotiations, discussions,
correspondence, communications, understandings and agreements between the
parties relating to the subject matter of this Agreement, all of which are
merged into this Agreement.
SECTION 16. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
SECTION 17. DISPUTES. Any dispute or controversy arising under, out
of, in connection with or in relation to this Agreement ("Disputes") shall, at
the election and upon written demand of either party, be finally determined and
settled by arbitration in the city of Houston, Texas in accordance with the
procedures set forth in the exhibit entitled "Arbitration Procedures" attached
hereto, and judgment upon the award may be entered in any court having
jurisdiction thereof; provided, however, that: (a) this Section 17 shall not
apply to matters required to be determined by a physician pursuant to Section
6(b); and (b) the parties acknowledge and agree that an arbitrator or
arbitrators shall not have the power or right to order the payment by either
party of damages (including punitive damages), compensation or other amounts
that are not provided for in this Agreement, it being the intention of
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<PAGE> 10
other amounts that are not provided for in this Agreement, it being the
intention of the parties that the arbitrator shall resolve Disputes, in respect
of payments, only as to whether or not a payment is due hereunder and, if so,
the amount thereof, but shall not provide for any additional payments as a
result of the matters contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PIONEER AMERICAS, INC.
By: /s/ George T. Henning, Jr.
------------------------------
Name: George T. Henning, Jr.
-----------------------
Title: Vice President
-----------------------
EXECUTIVE
/s/ Frank B. Belliss
------------------------------
Frank B. Belliss
Address: 1040 Lorinda Lane
------------------------------
Lafayette, CA 94549
------------------------------
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<PAGE> 11
ARBITRATION PROCEDURES
(a) All Disputes between the parties submitted to arbitration
shall be resolved by binding arbitration administered by the American
Arbitration Association (the "AAA") in accordance with, and in the following
order of priority: (i) the terms of these arbitration provisions; (ii) the
Commercial Arbitration Rules of the AAA; (iii) the Federal Arbitration Act
(Title 9 of the United States Code); and (iv) to the extent the foregoing are
inapplicable, unenforceable or invalid, the laws of the State of California.
The validity and enforceability of these arbitration provisions shall be
determined in accordance with this same order of priority. In the event of any
inconsistency between these arbitration provisions and such rules and statutes,
these arbitration provisions shall control. Judgment upon any award rendered
hereunder shall be entered in any court having jurisdiction.
(b) All statutes of limitation applicable to any Dispute shall
apply to any proceeding in accordance with these arbitration provisions.
(c) Arbitrators are empowered to resolve Disputes by summary
rulings substantially similar to summary judgments and motions to dismiss.
Arbitrators shall resolve all Disputes in accordance with the applicable
substantive law. Any arbitrator selected shall be required to be experienced
and knowledgeable in the substantive laws applicable to the subject matter of
the Dispute. With respect to a Dispute in which the claims or amounts in
controversy do not exceed $100,000, a single arbitrator shall be chosen and
shall resolve the Dispute. In such case, the arbitrator shall be required to
make specific, written findings of fact, and shall have authority to render an
award up to but not to exceed $100,000, including all amounts properly payable
and costs, fees and expenses (subject to Section 17 of the Agreement). A
Dispute involving claims or amounts in controversy exceeding $100,000 shall be
decided by a majority vote of a panel of three (3) arbitrators (an "Arbitration
Panel"), the determination of any two (2) of the three (3) arbitrators
constituting the determination of the Arbitration Panel; provided, however,
that all three (3) arbitrators on the Arbitration Panel must actively
participate in all hearings and deliberations. Arbitrators, including any
Arbitration Panel, may grant any remedy or relief deemed just and equitable and
within the scope of these arbitration provisions and may also grant such
ancillary relief as is necessary to make effective any award. Arbitration
Panels shall be required to make specific, written findings of fact and
conclusions of law, and in such proceedings before an Arbitration Panel only,
the parties shall have the additional right to seek vacations or modification
of any award of an Arbitration Panel that is based in whole, or in part, on an
incorrect or erroneous ruling of law by appeal to a Federal or State Court of
Appeals, following the entry of judgment on the award in Federal or State
District Court, as appropriate. For these purposes, the award and judgment
entered by the Federal or State District Court shall be considered to be the
same as the award and judgment of the Arbitration Panel. All requirements
applicable to appeals from any Federal or State District Court judgment shall
be applicable to appeals from judgments entered on decisions rendered by
Arbitration Panels. The Appellate
<PAGE> 12
Courts shall have the power and authority to vacate or modify an award based
upon a determination that there has been an incorrect or erroneous ruling of
law. the Appellate Court shall also have the power to reverse and/or remand
the decision of an Arbitration Panel. Subject to the foregoing, the
determination of an arbitrator or Arbitration Panel shall be binding on all
parties and shall not be subject to further review or appeal except as
otherwise allowed by applicable law.
(d) To the maximum extent practicable, the AAA, the arbitrator (or
the Arbitration Panel, as appropriate) and the parties shall take any actions
necessary to require that an arbitration proceeding hereunder shall be
concluded within one hundred eighty (180) days of the filing of the Dispute with
the AAA. Unless the Company and the Executive shall agree otherwise,
arbitration proceedings hereunder shall be conducted in Houston, Texas.
Arbitrators shall be empowered to impose sanctions and to take such other
actions as they deem necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure and applicable law. With respect to any
Dispute, each party agrees that all discovery activities shall be expressly
limited to matters directly relevant to the Dispute and any arbitrator,
Arbitration Panel and the AAA shall be required to fully enforce this
requirement. The provisions of these arbitration provisions shall survive any
termination, amendment or expiration of this Agreement, unless the parties
otherwise expressly agree in writing. To the extent permitted by applicable
law, arbitrators, including any Arbitration Panel, shall have the power to
award recovery of all costs and fees (including attorneys' fees, administrative
fees and arbitrators' fees) to the prevailing party or, if no clear prevailing
party, as the arbitrator (or Arbitration Panel, if applicable) shall deem just
and equitable. Each party agrees to keep all Disputes and arbitration
proceedings strictly confidential, except for disclosures of all information
required by applicable law.
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<PAGE> 1
EXHIBIT 16
March 29, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read the Change in Auditors section included in the Annual Report (Form
10-K) for the year ended December 31, 1995 for Pioneer Companies, Inc. and are
in agreement with the statements contained in the second and third paragraphs
therein. We have no basis to agree or disagree with other statements of the
registrant contained therein.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
<PAGE> 1
EXHIBIT 21
PIONEER COMPANIES, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Company Jurisdiction
--------------- ------------
<S> <C>
Pioneer Americas Acquisition Corp. Delaware
Pioneer Americas, Inc. Delaware
All-Pure Chemical Co. California
All-Pure Chemical Northwest, Inc. Washington
Imperial West Chemical Co. Nevada
Pioneer Chlor Alkali Company, Inc. Delaware
Black Mountain Power Company Texas
G.O.W. Corporation Nevada
Pioneer Chlor Alkali International, Inc. Barbados
Pioneer Water Technologies, Inc. Delaware
KWT Holdings, Inc. Delaware
Kemwater North America Company(1) Delaware
KWT, Inc.(2) Delaware
</TABLE>
______________
(1) Each of KWT Holdings, Inc. and Imperial West Chemical Co. own fifty
percent of the outstanding voting stock of Kemwater North America Company.
(2) KWT, Inc. does business under the tradename "Kemwater".
<PAGE> 1
EXHIBIT 24
PIONEER COMPANIES, INC.
Power of Attorney
-----------------
WHEREAS, PIONEER COMPANIES, INC., a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an annual report on Form 10-K for the fiscal year ended December 31,
1995 (the "Form 10-K"), and such amendments thereto as the appropriate officers
of the Company may deem necessary or advisable;
NOW, THEREFORE, the undersigned in his capacity of a director or
officer or both, as the case may be, of the Company, does hereby constitute and
appoint Philip J. Ablove and Kent R. Stephenson, and each of them severally, as
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to do any and all acts and things in his name
and on his behalf in his capacity as a director or officer or both, as the case
may be, of the Company, as fully and to all intents and purposes as the
undersigned might or could do in person, and to execute any and all instruments
for the undersigned and in his name in any and all capacities which such person
may deem necessary or advisable to enable the Company to comply with the Act
and any rules, regulations and requirements of the Commission, in connection
with the filing of the Form 10-K, including specifically, but not limited to,
power and authority to sign for the undersigned, in his capacity as a director
or officer or both, as the case may be, of the Company, the Form 10-K and any
and all other documents (including, without limitation, any amendments to the
Form 10-K or to such other documents) which such person may deem necessary or
advisable in connection therewith; and the undersigned does hereby ratify and
confirm all that such person shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 28th day of March, 1996.
/S/WILLIAM R. BERKLEY
---------------------
William R. Berkley
<PAGE> 2
PIONEER COMPANIES, INC.
Power of Attorney
-----------------
WHEREAS, PIONEER COMPANIES, INC., a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an annual report on Form 10-K for the fiscal year ended December 31,
1995 (the "Form 10-K"), and such amendments thereto as the appropriate officers
of the Company may deem necessary or advisable;
NOW, THEREFORE, the undersigned in his capacity of a director or
officer or both, as the case may be, of the Company, does hereby constitute and
appoint Philip J. Ablove and Kent R. Stephenson, and each of them severally, as
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to do any and all acts and things in his name
and on his behalf in his capacity as a director or officer or both, as the case
may be, of the Company, as fully and to all intents and purposes as the
undersigned might or could do in person, and to execute any and all instruments
for the undersigned and in his name in any and all capacities which such person
may deem necessary or advisable to enable the Company to comply with the Act
and any rules, regulations and requirements of the Commission, in connection
with the filing of the Form 10-K, including specifically, but not limited to,
power and authority to sign for the undersigned, in his capacity as a director
or officer or both, as the case may be, of the Company, the Form 10-K and any
and all other documents (including, without limitation, any amendments to the
Form 10-K or to such other documents) which such person may deem necessary or
advisable in connection therewith; and the undersigned does hereby ratify and
confirm all that such person shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 28th day of March, 1996.
/S/ANDREW M. BURSKY
--------------------
Andrew M. Bursky
<PAGE> 3
PIONEER COMPANIES, INC.
Power of Attorney
-----------------
WHEREAS, PIONEER COMPANIES, INC., a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an annual report on Form 10-K for the fiscal year ended December 31,
1995 (the "Form 10-K"), and such amendments thereto as the appropriate officers
of the Company may deem necessary or advisable;
NOW, THEREFORE, the undersigned in his capacity of a director or
officer or both, as the case may be, of the Company, does hereby constitute and
appoint Philip J. Ablove and Kent R. Stephenson, and each of them severally, as
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to do any and all acts and things in his name
and on his behalf in his capacity as a director or officer or both, as the case
may be, of the Company, as fully and to all intents and purposes as the
undersigned might or could do in person, and to execute any and all instruments
for the undersigned and in his name in any and all capacities which such person
may deem necessary or advisable to enable the Company to comply with the Act
and any rules, regulations and requirements of the Commission, in connection
with the filing of the Form 10-K, including specifically, but not limited to,
power and authority to sign for the undersigned, in his capacity as a director
or officer or both, as the case may be, of the Company, the Form 10-K and any
and all other documents (including, without limitation, any amendments to the
Form 10-K or to such other documents) which such person may deem necessary or
advisable in connection therewith; and the undersigned does hereby ratify and
confirm all that such person shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 28th day of March, 1996.
/S/DONALD J. DONAHUE
--------------------
Donald J. Donahue
<PAGE> 4
PIONEER COMPANIES, INC.
Power of Attorney
-----------------
WHEREAS, PIONEER COMPANIES, INC., a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an annual report on Form 10-K for the fiscal year ended December 31,
1995 (the "Form 10-K"), and such amendments thereto as the appropriate officers
of the Company may deem necessary or advisable;
NOW, THEREFORE, the undersigned in his capacity of a director or
officer or both, as the case may be, of the Company, does hereby constitute and
appoint Philip J. Ablove and Kent R. Stephenson, and each of them severally, as
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to do any and all acts and things in his name
and on his behalf in his capacity as a director or officer or both, as the case
may be, of the Company, as fully and to all intents and purposes as the
undersigned might or could do in person, and to execute any and all instruments
for the undersigned and in his name in any and all capacities which such person
may deem necessary or advisable to enable the Company to comply with the Act
and any rules, regulations and requirements of the Commission, in connection
with the filing of the Form 10-K, including specifically, but not limited to,
power and authority to sign for the undersigned, in his capacity as a director
or officer or both, as the case may be, of the Company, the Form 10-K and any
and all other documents (including, without limitation, any amendments to the
Form 10-K or to such other documents) which such person may deem necessary or
advisable in connection therewith; and the undersigned does hereby ratify and
confirm all that such person shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 28th day of March, 1996.
/S/JACK H. NUSBAUM
------------------
Jack H. Nusbaum
<PAGE> 5
PIONEER COMPANIES, INC.
Power of Attorney
-----------------
WHEREAS, PIONEER COMPANIES, INC., a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an annual report on Form 10-K for the fiscal year ended December 31,
1995 (the "Form 10-K"), and such amendments thereto as the appropriate officers
of the Company may deem necessary or advisable;
NOW, THEREFORE, the undersigned in his capacity of a director or
officer or both, as the case may be, of the Company, does hereby constitute and
appoint Philip J. Ablove and Kent R. Stephenson, and each of them severally, as
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to do any and all acts and things in his name
and on his behalf in his capacity as a director or officer or both, as the case
may be, of the Company, as fully and to all intents and purposes as the
undersigned might or could do in person, and to execute any and all instruments
for the undersigned and in his name in any and all capacities which such person
may deem necessary or advisable to enable the Company to comply with the Act
and any rules, regulations and requirements of the Commission, in connection
with the filing of the Form 10-K, including specifically, but not limited to,
power and authority to sign for the undersigned, in his capacity as a director
or officer or both, as the case may be, of the Company, the Form 10-K and any
and all other documents (including, without limitation, any amendments to the
Form 10-K or to such other documents) which such person may deem necessary or
advisable in connection therewith; and the undersigned does hereby ratify and
confirm all that such person shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 28th day of March, 1996.
/S/THOMAS H. SCHNITZUIS
-----------------------
Thomas H. Schnitzuis
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
FINANCIAL STATEMENTS OF PIONEER COMPANIES, INC. FOR THE YEAR ENDED DECEMBER 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS AND THE FOOTNOTES THERETO, AS INCLUDED IN THE FORM 10-K OF PIONEER
COMPANIES, INC. FOR THE YEAR ENDED DECEMBER 31, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,276
<SECURITIES> 0
<RECEIVABLES> 30,662
<ALLOWANCES> 1,424
<INVENTORY> 13,004
<CURRENT-ASSETS> 57,299
<PP&E> 97,192
<DEPRECIATION> 7,795
<TOTAL-ASSETS> 267,300
<CURRENT-LIABILITIES> 46,338
<BONDS> 146,463
<COMMON> 86
0
0
<OTHER-SE> 44,389
<TOTAL-LIABILITY-AND-EQUITY> 267,300
<SALES> 142,908
<TOTAL-REVENUES> 142,908
<CGS> 98,175
<TOTAL-COSTS> 98,175
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,540
<INCOME-PRETAX> 11,065
<INCOME-TAX> 5,579
<INCOME-CONTINUING> 5,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,486
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
