<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 17, 1997
PIONEER COMPANIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-9859 06-1215192
-------- ------ ----------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File No.) Identification No.)
4200 NATIONSBANK CENTER
700 LOUISIANA, HOUSTON, TEXAS 77002 77002
- ------------------------------------ -----
(Address of principal executive offices) (Zip Code)
</TABLE>
<TABLE>
<S> <C>
Registrant's telephone number, including area code: 713-225-3831
-------------
</TABLE>
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. Acquisition or Disposition of Assets.
Pursuant to the terms of an Asset Purchase Agreement, effective as of
May 14, 1997, between Pioneer Companies, Inc. (the "Company" or the
"Registrant") and OCC Tacoma, Inc. ("OCC Tacoma"), on June 17, 1997, Pioneer
Chlor Alkali Company, Inc. ("PCAC") acquired substantially all of the assets and
properties used by OCC Tacoma, an affiliate of Occidential Chemical Corporation
("OxyChem"), in the chlor-alkali business at Tacoma, Washington, including a
chlor-alkali production facility (the "Tacoma Plant"). PCAC is an indirect
wholly-owned subsidiary of Pioneer Americas Acquisition Corp. ("PAAC"), which is
a wholly-owned subsidiary of the Company. The purchase price for the
acquisition of the Tacoma Plant (the "Tacoma Acquisition"), which was determined
through arms'-length negotiations, was $97,000,000 in cash and 55,000 shares of
a new series of preferred stock issued by the Company to OCC Tacoma. The Tacoma
Plant has an annual production capacity of approximately 225,000 tons of
chlorine, 247,500 tons of caustic soda, 44,000 tons of hydrochloric acid and
8,800 tons of calcium chloride. PCAC will continue to use the Tacoma Plant in
the chlor-alkali business.
PCAC and OCC Tacoma and OxyChem also entered into certain related
agreements in connection with the Tacoma Acquisition. Pursuant to a Chlorine
Purchase Agreement, OCC Tacoma will purchase 100,000 tons of chlorine from PCAC
during the year following the acquisition, and PCAC has the right to require OCC
Tacoma to purchase, and OCC Tacoma has the right to require PCAC to sell, up to
100,000 tons of chlorine during the second year following the acquisition and up
to 75,000 tons of chlorine during the third year following the acquisition. All
deliveries will be from the Tacoma Plant to an OxyChem plant at Ingleside,
Texas. Market prices will apply to all such transactions, with transportation
costs to be borne and paid by OCC Tacoma. PCAC will also have the right to
require OCC Tacoma to purchase up to 50,000 tons of chlorine during the fourth
year following the acquisition and up to 25,000 tons of chlorine during the
fifth year following the acquisition at market prices, with each of the parties
to bear 50% of the transportation costs from Tacoma to Ingleside for any
purchases during such fourth and fifth years.
Pursuant to a Chlorine and Caustic Soda Sales Agreement, PCAC will
sell to OxyChem those quantities of chlorine and caustic soda necessary for
OxyChem to satisfy its obligations under certain contracts with OxyChem's
national account customers. It is estimated that during the year following the
Tacoma Acquisition PCAC will sell approximately 22,400 tons of chlorine and
46,000 tons of caustic soda under the agreement, at prices set each quarter at
levels equal to 95% of the average prices received by OxyChem under its
customer contracts during the preceding quarter. Deliveries of chlorine and
caustic soda under the arrangement will continue through December 31, 2000.
Each share of the Company's Series A Preferred Stock issued in
connection with the Tacoma Acquisition has a liquidation value of $100, and
will be convertible at any time into eight shares of Class A Common Stock of
the Company. Each share will be redeemable at the Company's option at
redemption prices equal to the following percentages of liquidation value: 102%
during the first year after the Tacoma Acquisition, 104% during the second year
after the
-2-
<PAGE> 3
acquisition, 106% during the third year after the acquisition, 108% during the
fourth year after the acquisition and 110% during each of the fifth through the
tenth years after the acquisition. One day after the end of the tenth year
after the acquisition, the Company is required to redeem any Series A Preferred
Stock which remains outstanding at a price of $100 per share. No dividends are
payable on the Series A Preferred Stock. Each share is entitled to eight votes
per share and will vote with the Company's outstanding common stock on all
matters.
PAAC borrowed $100,000,000 under a Term Loan Agreement, dated as of
June 17, 1997 (the "Term Loan Agreement"), among PAAC, DLJ Capital Funding, Inc.
(as a lender and as Syndication Agent), Salomon Brothers Holding Company Inc
(as a lender and as Documentation Agent), Bank of America Illinois (as
Administrative Agent) and such other financial institutions as may become
parties thereto. PAAC also received the proceeds of an offering (the "Offering")
of $200,000,000 of 9-1/4% Senior Secured Notes due 2007 (the "Notes") which was
completed on June 17, 1997. The borrowings under the Term Loan Agreement (the
"Term Loans") and the proceeds of the Offering were used to pay the cash portion
of the purchase price of the Tacoma Plant, to purchase the $135,000,000 in
principal amount of PAAC's outstanding 13-3/8% First Mortgage Notes due 2005
which were tendered in response to a tender offer made by PAAC (the "Tender
Offer"), and for working capital and general corporate purposes.
ITEM 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
-3-
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors,
OCCIDENTAL CHEMICAL CORPORATION:
We have audited the accompanying balance sheets of the Tacoma Plant (as
defined in Note 1) of Occidental Chemical Corporation, an indirect wholly-owned
subsidiary of Occidental Petroleum Corporation, as of December 31, 1996 and
1995, and the related statements of operations and changes in owner's investment
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of Occidental Chemical
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Tacoma Plant of
Occidental Chemical Corporation as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 28, 1997
4
<PAGE> 5
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
CURRENT ASSETS
Cash........................................................ $ 6 $ 6
Inventories................................................. 4,818 4,790
Deferred income taxes....................................... 1,287 2,389
Other current assets........................................ 1,009 95
------- -------
Total current assets.............................. 7,120 7,280
PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated
depreciation of $80,650 in 1996 and $74,768 in 1995....... 61,512 62,857
OTHER ASSETS, net........................................... 795 973
------- -------
TOTAL ASSETS...................................... $69,427 $71,110
======= =======
CURRENT LIABILITIES
Accounts payable............................................ $ 2,720 $ 2,919
Accrued liabilities......................................... 4,510 8,248
------- -------
Total current liabilities......................... 7,230 11,167
DEFERRED INCOME TAXES....................................... 1,961 2,727
ACCRUED ENVIRONMENTAL LIABILITIES........................... 20,481 21,242
OTHER LIABILITIES........................................... 7,791 8,244
------- -------
Total liabilities................................. 37,463 43,380
COMMITMENTS AND CONTINGENT LIABILITIES (Note 6)
OWNER'S INVESTMENT.......................................... 31,964 27,730
------- -------
TOTAL LIABILITIES AND OWNER'S INVESTMENT.......... $69,427 $71,110
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
STATEMENTS OF OPERATIONS AND CHANGES IN OWNER'S INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
EXTERNAL SALES, net......................................... $61,848 $60,871 $40,588
SALES TO OWNER AT MARKET VALUE.............................. 11,867 9,270 10,069
------- ------- -------
TOTAL SALES, net............................................ 73,715 70,141 50,657
OPERATING COSTS AND EXPENSES:
Cost of Sales............................................. 52,420 53,252 53,420
Selling, general and administrative expenses.............. 1,782 1,995 1,782
Other operating expense................................... 2,209 2,607 2,254
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES........................... 17,304 12,287 (6,799)
Income tax expense (benefit).............................. 6,059 4,301 (2,377)
------- ------- -------
NET INCOME (LOSS)........................................... 11,245 7,986 (4,422)
PENSION LIABILITY ADJUSTMENT................................ 439 643 (105)
INCREASE (DECREASE) IN OWNER'S INVESTMENT................... (7,450) (4,567) 8,646
OWNER'S INVESTMENT, beginning of year....................... 27,730 23,668 19,549
------- ------- -------
OWNER'S INVESTMENT, end of year............................. $31,964 $27,730 $23,668
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $11,245 $ 7,986 $(4,422)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization of assets................ 6,247 5,928 5,587
Deferred income taxes.................................. 99 1,088 1,073
Other noncash charges to income........................ 1,941 2,039 1,630
Changes in operating assets and liabilities:
Increase in inventories................................ (28) (851) (193)
Decrease (increase) in other current assets............ (914) (93) 3
Decrease in accounts payable and accrued liabilities... (3,937) (204) (3,588)
Other, net................................................ (2,589) (4,794) (3,723)
------- ------- -------
Net cash provided (used) by operating activities............ 12,064 11,099 (3,633)
------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (4,614) (6,532) (5,011)
------- ------- -------
Net cash used by investing activities....................... (4,614) (6,532) (5,011)
------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (decrease) in owner's investment................. (7,450) (4,567) 8,646
------- ------- -------
Net cash provided (used) by financing activities............ (7,450) (4,567) 8,646
------- ------- -------
Change in cash.............................................. -- -- 2
Cash -- beginning of year................................... 6 6 4
------- ------- -------
Cash -- end of year......................................... $ 6 $ 6 $ 6
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
Organization, business and basis of presentation --
The accompanying financial statements present the financial position,
results of operations and cash flows of the Tacoma plant (the Tacoma Plant) of
Occidental Chemical Corporation (OCC), a New York corporation. The financial
statements are prepared for a proposed acquisition by Pioneer Companies, Inc.
(Pioneer) of the Tacoma Plant (see Note 11).
All of the outstanding common shares of OCC are owned indirectly by
Occidental Petroleum Corporation (Occidental). Certain amounts in the
accompanying financial statements have been allocated in a reasonable and
consistent manner in order to depict the financial position, results of
operations and cash flows of the Tacoma Plant on a stand-alone basis.
The Tacoma Plant, located in Tacoma, Washington, consists of a chlor-alkali
process which manufactures chlorine, sodium hydroxide and related products, and
a discontinued ammonia process that has not operated since 1992. The Tacoma
Plant's products are sold to national and international markets as well as to
other plants and affiliates of OCC. The accompanying financial statements
exclude the previously discontinued manufacturing processes associated with
unrelated product lines, including chlorinated organic compounds. Additionally,
the Tacoma Plant does business as OCC and enters into operating and sales
contracts administered by OCC. These include national sales agreements as well
as purchase and energy agreements.
Occidental utilizes a centralized cash management system for its
operations, including the Tacoma Plant. Cash distributed to or advanced from
Occidental has been reflected in Owner's investment in the accompanying balance
sheets. In addition, settlements of transactions with OCC and other Occidental
affiliates are recorded through Owner's investment.
Supplemental cash flow information --
For the years ended December 31, 1996, 1995 and 1994, all cash payments
for income taxes were made by Occidental. For the same periods, there were no
cash payments for interest.
As of December 31, 1996 and 1995, net trade receivables of $7,604,000 and
$8,952,000, respectively, were transferred to an affiliate (see Note 2).
Property, plant and equipment --
Property, plant and equipment additions, major renewals and improvements
are capitalized at cost. Maintenance and repair costs are charged to expense as
incurred. The cost and related accumulated depreciation, depletion and
amortization of property, plant and equipment sold or retired are removed from
the property, plant and equipment accounts and any resulting gain or loss is
recorded.
Depreciation of plant and equipment is primarily provided using the
units-of-production method.
Costs incurred during the construction period of major projects are
capitalized and accumulated in Construction in progress (see Note 5). Upon
completion, the costs are transferred to the appropriate Property, plant and
equipment accounts. Interest costs incurred during the construction period of
major projects which extend longer than one year are capitalized and amortized
over the lives of the related assets. There were no such major projects during
1996, 1995 or 1994.
8
<PAGE> 9
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Income taxes--
The Tacoma Plant is included in the consolidated U.S. federal income tax
return of Occidental. The Tacoma Plant uses the asset and liability method
required by Statement of Financial Accounting Standards (SFAS) No.
109 -- "Accounting for Income Taxes." Deferred income taxes are recorded at
enacted rates to recognize the future effects of temporary differences which
arise between financial statement assets and liabilities and their basis for
income tax reporting purposes. A portion of the income tax provision for this
return is allocated to the Tacoma Plant on the basis of a tax sharing
arrangement between OCC and Occidental Chemical Holding Corporation (OCHC), an
indirect parent of OCC. Current and deferred income tax provisions allocated by
OCC are based on taxable income determined as though the Tacoma Plant filed as
an independent company, making the same tax return elections used in
Occidental's consolidated return. However, this arrangement also permits the
Tacoma Plant to recognize income tax benefits for current year operating losses
and deductible temporary differences without limiting such benefits. Amounts due
to Occidental for current income tax provisions are netted in Owner's investment
in the accompanying balance sheets.
Risks and uncertainties --
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts, generally not by material amounts. Management
believes that these estimates and assumptions provide a reasonable basis for the
fair presentation of the Tacoma Plant's financial position and results of
operations.
Included in the accompanying balance sheets are deferred income tax assets
of $11,061,000 and $12,555,000 as of December 31, 1996 and 1995, respectively,
consisting of the current portion of $1,287,000 and $2,389,000, shown as current
deferred income tax assets and the noncurrent portion which is netted against
deferred income tax liabilities (see Note 7). Realization of that asset is
dependent upon the generation of sufficient future taxable income. It is
expected that the recorded deferred income tax asset will be realized through
future operating income and reversal of taxable temporary differences.
Since the Tacoma Plant's two principal products are commodities,
significant changes in the prices of chlorine and sodium hydroxide could have a
significant impact on the Tacoma Plant's results of operations for any
particular year.
Fair value of financial instruments --
The Tacoma Plant values financial instruments as required by SFAS No. 107
-- "Disclosures About Fair Value of Financial Instruments." The carrying value
of on-balance sheet financial instruments approximates fair value.
(2) RECEIVABLES --
As of December 31, 1996 and 1995, OCC transferred, with limited recourse,
to an Occidental affiliate net trade receivables of the Tacoma Plant under a
revolving sale program, in connection with the ultimate sale for cash of such
receivables. The net trade receivables transferred amounted to $7,604,000 and
$8,952,000 as of December 31, 1996 and 1995, respectively. OCC transferred the
receivables to the affiliate in a noncash transaction that was reflected as a
reduction in the Tacoma Plant's Owner's investment. OCC has retained the
9
<PAGE> 10
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(2) RECEIVABLES -- (CONTINUED)
collection responsibility with respect to the receivables sold. An interest in
newly created receivables is transferred monthly, net of collections made from
customers. Fees related to the sales of receivables under this program, which
are allocated from OCC, were $377,000, $425,000 and $333,000 for the years ended
December 31, 1996, 1995 and 1994, respectively, and are included in Other
operating expense.
(3) INVENTORIES --
Inventories are valued at the lower of cost or market. The last-in,
first-out (LIFO) cost method was used in determining the costs of raw materials
and finished goods. Materials and supplies inventories were determined using the
weighted-average cost method. Inventories consisted of the following as of
December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Raw materials............................................... $ 1,291 $ 1,653
Materials and supplies...................................... 3,338 3,152
Finished goods.............................................. 2,071 2,519
------- -------
6,700 7,324
LIFO reserve................................................ (1,882) (2,534)
------- -------
Inventory at lower of cost or market........................ $ 4,818 $ 4,790
======= =======
</TABLE>
During the years ended December 31, 1996 and 1994, certain inventory
quantities carried at LIFO were reduced. These reductions resulted in a
liquidation of LIFO inventory quantities, the effect of which did not have a
material impact on Cost of sales.
(4) CHANGE IN ACCOUNTING PRINCIPLE --
In December 1992, the Financial Accounting Standards Board issued SFAS No.
112 -- "Employers' Accounting for Postemployment Benefits," which substantially
changed the existing method of accounting for employer benefits provided to
inactive or former employees after active employment but before retirement. This
statement requires that the cost of postemployment benefits (principally medical
benefits for inactive employees) be recognized in the financial statements
during employees' active working careers. OCC adopted SFAS No. 112 effective
January 1, 1994, but the adoption did not have a material impact on the Tacoma
Plant's financial position or results of operations.
(5) PROPERTY, PLANT AND EQUIPMENT --
Property, plant and equipment at December 31, 1996 and 1995 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land and land improvements.................................. $ 2,951 $ 2,875
Buildings................................................... 9,173 8,915
Machinery and equipment..................................... 118,212 114,530
Construction in progress.................................... 11,826 11,305
-------- --------
142,162 137,625
Accumulated depreciation.................................... (80,650) (74,768)
-------- --------
$ 61,512 $ 62,857
======== ========
</TABLE>
10
<PAGE> 11
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(6) COMMITMENTS AND CONTINGENT LIABILITIES --
Commitments --
The Tacoma Plant leases railcars as well as certain machinery and equipment
under noncancelable operating leases. The operating lease for machinery and
equipment expires in 2001, at which time the property can be purchased for the
then fair market value or the lease can be renewed at the then fair rental value
for two years.
At December 31, 1996, future minimum lease payments under noncancelable
operating leases were as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 3,784
1998........................................................ 3,561
1999........................................................ 3,412
2000........................................................ 3,560
2001........................................................ 3,178
Thereafter.................................................. 16,582
-------
Total minimum lease payments.............................. $34,077
=======
</TABLE>
Rental expense totaled approximately $4,156,000, $4,164,000 and $4,262,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
OCC purchases the entire requirement of salt for the Tacoma Plant from
Mitsubishi International Corporation (MIC) under the terms of a contract ending
on December 31, 1996. The contract requires OCC to purchase a predetermined
annual quantity of salt at an established price. Payments are made to MIC each
month in the amount of one-twelfth of the annual quantity at the established
price for that year. Total purchases under this contract were $8,202,000,
$7,712,000 and $6,339,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. In May 1996, OCC entered into a new contract with MIC to purchase
salt for the Tacoma Plant under similar terms for 1997 through 1999.
OCC purchases electric power for the Tacoma Plant from the City of Tacoma,
Department of Public Utilities, Light Division (the City) under the terms of a
contract expiring in September 2001. The contract has three monthly levels of
commitment. The first two take-or-pay levels are for fixed quantities of power
at predetermined prices. The third level is for power consumed above the
take-or-pay quantities at market prices. Under the terms of the contract, any
power committed to but not consumed by the Tacoma Plant can be resold by the
City, the proceeds of which will be applied against the Tacoma Plant's
commitment. Total purchases under this contract were $13,621,000, $13,894,000
and $13,643,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Lawsuits --
An individual brought a lawsuit in 1995 against OCC alleging personal
injury from exposure to chlorine gas released from the Tacoma Plant in 1994.
Although a release did occur, the alleged causation and damages are denied. It
is impossible at this time to determine the ultimate legal liabilities that may
arise from this lawsuit. However, in management's opinion, the lawsuit should
not have a material adverse effect upon the financial position or results of
operations of the Tacoma Plant.
11
<PAGE> 12
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(7) INCOME TAXES --
Income tax expense (benefit) for the years ended December 31, 1996, 1995
and 1994 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Current U.S. federal.................................... $5,960 $3,213 $(3,450)
Deferred U.S. federal................................... 99 1,088 1,073
------ ------ -------
$6,059 $4,301 $(2,377)
====== ====== =======
</TABLE>
The following table reconciles the maximum statutory U.S. federal income
tax rate multiplied by the Tacoma Plant's income (loss) before income taxes to
the recorded income tax expense (benefit) (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
U.S. federal income tax at 35%.......................... $6,056 $4,300 $(2,380)
Nondeductible expenses and other........................ 3 1 3
------ ------ -------
$6,059 $4,301 $(2,377)
====== ====== =======
</TABLE>
Pension liability adjustments charged directly to Owner's investment in
1996, 1995 and 1994 were net of tax charges (benefits) of $237,000, $347,000 and
($23,000), respectively.
Deferred income taxes reflect the future tax consequences of temporary
differences between the tax basis of assets and liabilities and their financial
reporting amounts. Temporary differences are associated with the financial
statement assets and liabilities shown in the table below. Deferred income tax
assets and liabilities have been recorded in the following amounts as of
December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Inventories................................ $ 371 $ -- $ 340 $ --
Property, plant and equipment, net......... -- 11,565 -- 12,592
Other assets............................... -- 170 -- 301
Accrued liabilities........................ 916 -- 2,049 --
Other liabilities.......................... 9,774 -- 10,166 --
------- ------- ------- -------
$11,061 $11,735 $12,555 $12,893
======= ======= ======= =======
</TABLE>
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS --
The Tacoma Plant participates in various defined contribution retirement
plans sponsored by Occidental for its salaried, union and nonunion hourly
employees that provide for periodic contributions by OCC based on plan-specific
criteria, such as base pay, age level, and employee contributions. OCC
contributed and the Tacoma Plant expensed $250,000, $255,000 and $240,000 under
the provisions of these plans during the years ended December 31, 1996, 1995 and
1994, respectively.
Also, the Tacoma Plant's retirement and postretirement defined benefit
plans for union hourly employees are accrued based on various assumptions and
discount rates, as described below. The actuarial assumptions
12
<PAGE> 13
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- (CONTINUED)
used could change in the near term as a result of changes in expected future
trends and other factors which, depending on the nature of the changes, could
cause increases or decreases in the liabilities accrued.
Pension costs for the Tacoma Plant defined benefit pension plan, for union
hourly employees determined by independent actuarial valuations, are funded by
payments to trust funds that are administered by independent trustees. The
components of the net pension cost for the years ended December 31, 1996, 1995
and 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Service cost -- benefits earned during the period........ $ 374 $ 389 $ 347
Interest cost on projected benefit obligation............ 660 676 674
Estimated return on plan assets.......................... (1,492) (1,699) (252)
Net amortization and deferral............................ 891 1,348 (133)
------- ------- -----
Net pension cost............................... $ 433 $ 714 $ 636
======= ======= =====
</TABLE>
The Tacoma Plant recorded adjustments to Owner's investment of an increase
of $439,000 in 1996 and $643,000 in 1995 and a decrease of $105,000 in 1994 to
reflect the net-of-tax difference between the additional liability required
under pension accounting provisions and the corresponding intangible asset.
The following table sets forth the defined benefit plan's funded status and
amounts recognized in the Tacoma Plant balance sheets at December 31, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
ACCUMULATED BENEFITS
EXCEED ASSETS
---------------------
1996 1995
-------- ---------
<S> <C> <C>
Present value of the estimated pension benefits to be paid
in the future:
Vested benefits........................................... $9,043 $ 8,473
Nonvested benefits........................................ 437 410
------ -------
Accumulated benefit obligation.............................. 9,480 8,883
Excess of projected benefit obligation over accumulated
benefit obligation..................................... 426 399
------ -------
Total projected benefit obligations......................... 9,906 9,282
Plan assets at fair value................................... 9,701 8,085
------ -------
Projected benefit obligation in excess of plan assets....... $ 205 $ 1,197
====== =======
Projected benefit obligation in excess of plan assets....... $ 205 $ 1,197
Unrecognized net asset...................................... 160 192
Unrecognized prior service cost............................. (195) (215)
Unrecognized net loss....................................... (363) (1,266)
Additional minimum liability(a)............................. -- 891
------ -------
Pension liability (prepaid pension)......................... $ (193) $ 799
====== =======
</TABLE>
(a) A related amount up to the limit allowable under SFAS No. 87 -- "Employers'
Accounting for Pensions" has been included in Other assets. Amounts
exceeding such limits have been charged to Owner's investment.
13
<PAGE> 14
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- (CONTINUED)
In 1996 and 1995, the discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.5 percent. The rate of
increase in future compensation levels used in determining the actuarial present
value of the projected benefit obligations was 4.5 percent in 1996 and 1995. The
expected long-term rate of return on assets was 8 percent in 1996 and 1995.
OCC provides medical, dental and life insurance for certain active,
retired, and disabled employees of the Tacoma Plant and their eligible
dependents. Beginning in 1993, certain salaried participants pay for all medical
cost increases in excess of increases in the Consumer Price Index (CPI). The
benefits generally are funded by OCC as the benefits are paid during the year.
The cost of providing these benefits is based on claims filed and insurance
premiums paid for the period.
To reflect the Tacoma Plant's participation in the OCC plan, the net
periodic postretirement benefit costs and the postretirement benefit obligations
are based on an allocation of the OCC actuarial study using participant counts
at the Tacoma Plant for each of the years presented in the tables below. This
allocation excludes amounts attributable to salaried retirees and surviving
spouses because nonunion retiree information is not maintained for such
participants by plant location.
The OCC postretirement benefit obligation as of December 31, 1996 and 1995
was determined by application of the terms of medical, dental, and life
insurance plans, including the effect of established maximums on covered costs,
together with relevant actuarial assumptions and health care cost trend rates
projected at a CPI increase of 3 percent and 4 percent in 1996 and 1995,
respectively (except for union employees). For union employees, the health care
cost trend rates were projected at annual rates ranging ratably from 9 percent
in 1996 to 6 percent through the year 2002 and level thereafter. The effect of a
one percent annual increase in these assumed cost trend rates would increase the
allocated accumulated postretirement benefit obligation by approximately
$660,000 and the allocated annual service and interest costs by approximately
$95,000 in 1996. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation as of December 31, 1996 and 1995
was 7.5 percent. The plans are unfunded.
The following table sets forth the allocation of OCC postretirement plans'
combined status, reconciled with the amounts included in the accompanying
balance sheets at December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $3,924 $3,820
Fully eligible active plan participants................... 642 630
Other active plan participants............................ 3,573 3,310
------ ------
Total accumulated postretirement benefit obligation......... 8,139 7,760
Unrecognized prior service cost............................. (109) (156)
Unrecognized net loss....................................... (586) (691)
------ ------
Allocated accrued postretirement benefit cost............... $7,444 $6,913
====== ======
</TABLE>
14
<PAGE> 15
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- (CONTINUED)
The allocated net periodic postretirement benefit cost included the
following components for the years ended December 31, 1996, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost -- benefits attributed to service during the
period.................................................... $202 $194 $190
Interest cost on accumulated postretirement benefit
obligation................................................ 582 572 570
Net amortization and deferral............................... 47 47 47
---- ---- ----
Allocated net periodic postretirement benefit cost.......... $831 $813 $807
==== ==== ====
</TABLE>
(9) RELATED PARTY TRANSACTIONS --
The Tacoma Plant has been charged for certain financial and operational
support services provided by OCC, such as marketing, sales and customer service,
transportation and distribution, and technical services. Charges for such
support services included in the accompanying statements of operations totaled
$8,759,000, $8,806,000 and $10,151,000 for the years ended December 31, 1996,
1995 and 1994, respectively. These charges were allocated based on ratios
including such factors as revenues, operating income, fixed assets, and working
capital in a reasonable and consistent manner.
Included in the above allocations are research and development costs, which
are charged to operations by OCC as incurred, and were $70,000, $96,000 and
$143,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
These charges are included in Selling, general and administrative expenses in
the accompanying statements of operations.
See Note 1 regarding the centralized cash management system of Occidental.
See Note 2 regarding the transfer of receivables to an affiliate.
(10) ENVIRONMENTAL COSTS --
General --
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to existing conditions
caused by past operations, and that do not contribute to current or future
revenue generation, are expensed. Reserves for estimated costs are recorded when
environmental remedial efforts are probable and the costs can be reasonably
estimated. In determining the reserves, the Tacoma Plant uses the most current
information available, including similar past experiences, available technology,
regulations in effect, the timing of remediation and cost-sharing arrangements.
The environmental reserves are based on management's estimate of the most likely
costs to be incurred and are reviewed periodically and adjusted as additional or
new information becomes available.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1 "Environmental Remediation Liabilities,"
which provides authoritative guidance on specific accounting issues that are
present in the recognition, measurement, display, and disclosure of
environmental remediation liabilities. The provisions of this SOP are effective
for fiscal years beginning after December 15, 1996. OCC plans to adopt the
provisions of this SOP in 1997. The impact of adopting this SOP, if any, on the
financial statements of the Tacoma Plant has not been determined.
15
<PAGE> 16
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(10) ENVIRONMENTAL COSTS -- (CONTINUED)
Tacoma Plant site --
Historic operations of various discontinued processes and equipment at the
Tacoma Plant site, including past activities of other owners or operators of all
or a portion of the Tacoma Plant site, have resulted in releases of certain
hazardous and nonhazardous substances and materials into the soil, surface
water, groundwater and intertidal and subtidal sediments at and in the vicinity
of the Tacoma Plant site.
The Tacoma Plant is permitted under the Resource Conservation and Recovery
Act (RCRA). Although permitted waste management units at the Tacoma Plant site
have been closed in accordance with RCRA, the current RCRA permit requires the
owner and operator of the Tacoma Plant to take corrective action to address the
presence of certain substances in groundwater associated with past practices at
the Tacoma Plant site. The Tacoma Plant is controlling migration of and
remediating substances in groundwater through extraction, treatment and
reinjection (see Reserves and expenditures for the Tacoma Plant site section of
Note 10 below).
In addition, governmental authorities have identified OCC as a "potentially
responsible party" for the Commencement Bay Nearshore/Tideflats Superfund Site
(the CB/NT site), which includes the Hylebos Waterway, pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act. The CB/NT
site covers in excess of ten square miles and includes the Tacoma Plant site and
other properties along the Hylebos Waterway and in the vicinity of Commencement
Bay. More than 100 potentially responsible parties have been identified with
respect to the Hylebos Waterway area of the CB/NT site. OCC is participating
with a group of entities in performing a pre-remedial design investigation to
evaluate potential alternatives for remediation of sediments in the Hylebos
Waterway.
It is reasonably possible that the activities of the Tacoma plant
chlor-alkali process and discontinued processes have contributed to the presence
of hazardous and nonhazardous substances and materials at and in the vicinity of
the Tacoma Plant site. It is impossible at this time to determine the quantity
of such substances and materials, if any, attributable to these processes, and
OCC does not have sufficient information available to determine a range of
potential liability.
Reserves and expenditures for the Tacoma Plant site --
At December 31, 1996 and 1995, the current portion of the reserve for
groundwater remediation at the Tacoma Plant site included in Accrued liabilities
was $2,550,000 and $5,200,000, respectively. The reserve for remediation was
originally established in 1990. Additions to the remediation reserve of
$1,932,000, $2,030,000 and $1,530,000 for the years ended December 31, 1996,
1995 and 1994, respectively, are included in Other operating expense.
The Tacoma Plant's estimated operating expenses relating to compliance with
environmental laws and regulations governing ongoing operations on the Tacoma
Plant site were approximately $901,000, $983,000 and $958,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. In addition, estimated
capital expenditures for environmental compliance on the Tacoma Plant site for
the years ended December 31, 1996, 1995 and 1994 were approximately $1,175,000,
$693,000 and $82,000, respectively.
(11) SALE OF TACOMA PLANT --
Pioneer is currently negotiating to purchase selected assets, liabilities
and operations of the Tacoma Plant primarily including, but not limited to,
property, plant and equipment and inventories. As of February 1, 1997,
16
<PAGE> 17
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(11) SALE OF TACOMA PLANT -- (CONTINUED)
OCC transferred substantially all of the Tacoma Plant's assets and liabilities
into OCC Tacoma, Inc., a newly created, wholly-owned subsidiary of OCC.
The assets, liabilities and operations included in these financial
statements are those required to present the Tacoma Plant as a stand-alone
entity and include certain assets, liabilities and operations that are not
included in the proposed sale to Pioneer, such as certain railcar and equipment
leases. Excluded operations include, among other things, support services such
as marketing, sales and customer service, transportation and distribution, and
technical services. In addition, OCC will retain various chlorine and caustic
soda account contracts which will be supplied in part by a proposed arrangement
between Pioneer and OCC.
Negotiations are ongoing concerning a mutually acceptable method of
acquisition by Pioneer. As currently contemplated, in addition to the primary
asset conveyance instrument, related agreements would allocate responsibility,
as between OCC and Pioneer, for environmental costs and obligations associated
with the Tacoma Plant site arising from pre-closing events or occurrences,
including any investigation, monitoring, treatment or remediation of substances
and materials in water, soils and sediments at and in the vicinity of the Tacoma
Plant site, the Hylebos Waterway and the CB/NT site. This allocation of
responsibility is expected to include cost and time limitations, above or after
which OCC's responsibility for environmental costs and obligations associated
with the Tacoma Plant site between the parties would terminate.
17
<PAGE> 18
(b) Pro forma financial information.
The following unaudited pro forma financial information (the "Pro
Forma Financial Information") of the Company has been derived from and should
be read in conjunction with (i) the audited consolidated financial statements
of the Company and the related notes thereto, as included in the Company's
annual report on Form 10-K for the year ended December 31, 1996, and (ii) the
financial statements of the business acquired, included under paragraph (a)
above. The Pro Forma Financial Information has been prepared to illustrate the
effects of the Tacoma Acquisition, the Offering, the Term Loans, the Tender
Offer and the July 1996 acquisition of T.C. Products, Inc. by a subsidiary of
the Company.
The pro forma balance sheet as of March 31, 1997 gives effect to the
Tacoma Acquisition, the Offering, the Term Loans and the Tender Offer as if they
had occurred on March 31, 1997. The pro forma statement of operations for the
year ended December 31, 1996 gives effect to the Tacoma Acquisition, the
Offering, the Term Loans, the Tender Offer and the acquisition of T.C. Products,
Inc. as if they had occurred on January 1, 1996. The pro forma statement of
operations for the three months ended March 31, 1997 gives effect to the Tacoma
Acquisition, the Offering, the Term Loans, and the acquisition of T.C. Products
as if they had occurred on January 1, 1997. The acquisition of T.C. Products was
effective July 1, 1996 and was accounted for using the purchase method. The Pro
Forma Financial Information is not necessarily indicative of either future
results of operations or the results that might have occurred if the foregoing
transactions had been consummated on the indicated date.
The Tacoma Acquisition will be accounted for using the purchase
method. The total purchase cost of the Tacoma Acquisition will be allocated to
the Company's assets and liabilities based upon the estimated fair value of the
assets and liabilities being acquired. The pro forma adjustments reflected in
the Pro Forma Financial Information are based upon information available as of
the date of the Tacoma Acquisition. Accordingly, there can be no assurance that
the actual adjustments will not differ significantly from the pro forma
adjustments reflected in the Pro Forma Financial Information. The pro forma
adjustments reflect certain plans and assumptions of management of the Company.
No assurance can be given that such plans will be implemented as now
contemplated or that such assumptions will prove to be accurate.
-18-
<PAGE> 19
PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------------- -------------------------
TACOMA AS
COMPANY PLANT ADJUSTMENTS ADJUSTED
-------- ------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash........................................ $ 16,064 $ 6 $ 30,125 (a) $ 46,195
Accounts receivable, net.................... 24,123 -- 24,123
Inventories................................. 13,173 5,181 1,781 (b) 20,135
Prepaid expenses............................ 1,291 1,990 (1,447)(c) 1,834
-------- ------- --------- --------
Total current assets................ 54,651 7,177 30,459 92,287
Property, plant and equipment, net............ 105,735 60,695 18,480 (d) 184,910
Other assets, net............................. 26,763 794 19,233 (e) 46,790
Excess cost over the fair value of net assets
acquired, net............................... 113,193 -- 15,020 (f) 128,213
-------- ------- --------- --------
Total assets........................ $300,342 $68,666 $ 83,192 $452,200
======== ======= ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable............................ $ 17,587 $ 2,104 $ (2,104)(g) $ 17,587
Accrued liabilities......................... 24,921 3,037 (3,037)(h) 24,921
Returnable deposits......................... 3,175 -- 3,175
Current portion of long-term debt........... 128 -- 128
-------- ------- --------- --------
Total current liabilities........... 45,811 5,141 (5,141) 45,811
Long-term debt, less current maturities....... 161,071 -- (135,000)(i) 26,071
Term Loans.................................. -- -- 100,000 (j) 100,000
9 1/4% Senior Secured Notes due 2007........ -- -- 200,000 (j) 200,000
Returnable deposits........................... 3,272 -- 3,272
Accrued pension and other employee benefits... 14,555 -- 14,555
Deferred income taxes......................... -- 2,384 (2,384)(k) --
Other long-term liabilities................... 17,312 27,924 (27,924)(l) 17,312
Stockholder's equity..................... 58,321 33,217 (46,359)(m) 45,179
-------- ------- --------- --------
Total liabilities and stockholder's
equity............................ $300,342 $68,666 $ 83,192 $452,200
======== ======= ========= ========
</TABLE>
(see footnotes on following page)
19
<PAGE> 20
NOTES TO PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(a) Excess cash after payment of purchase price and related acquisition and
financing costs.
(b) Elimination of the last in first out ("LIFO") reserve from the Tacoma
Plant's balance sheet as the Company uses the first in first out ("FIFO") or
average cost methods for inventory valuation.
(c) Reflects the following:
<TABLE>
<C> <S> <C>
(1) Elimination of the Tacoma Plant's deferred taxes as the
transaction is an asset purchase.......................... $(1,249)
(2) Elimination of OCC Tacoma's prepaid pension expense......... (198)
-------
$(1,447)
=======
</TABLE>
(d) Adjustment to fair value of acquired property, plant and equipment in
accordance with the purchase method of accounting.
(e) Reflects the following:
<TABLE>
<S> <S> <C>
(1) Capitalization of transaction and financing costs........... $10,875
(2) Write-off of existing financing costs....................... (4,070)
(3) Deferred tax benefit on extraordinary item.................. 12,428
-------
$19,233
=======
</TABLE>
(f) Addition of excess of cost over the fair value of net assets acquired.
(g) Elimination of accounts payable not assumed by the Company in the Tacoma
Acquisition.
(h) Elimination of accrued liabilities not assumed by the Company in the Tacoma
Acquisition.
(i) Repurchase of existing 13 3/8% First Mortgage Notes.
(j) Debt incurred under the Offering and the Term Loans in connection with the
other Refinancings and the Tacoma Acquisition.
(k) Elimination of deferred taxes as the transaction is an asset purchase.
(l) Elimination of other long-term liabilities not assumed by the Company in the
Tacoma Acquisition.
(m) Reflects the following:
<TABLE>
<C> <S> <C>
(1) Elimination of the Tacoma Plant's historical equity in
accordance with the purchase method of accounting......... $(33,217)
(2) Preferred stock issued by the Company to OCC Tacoma as part
of the purchase price..................................... 5,500
(3) Extraordinary item, early extinguishment of debt, net of
applicable tax............................................ (18,642)
--------
$(46,359)
========
</TABLE>
20
<PAGE> 21
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------------- -------------------------------------------
TACOMA T.C. PRODUCTS AS
COMPANY PLANT ACQUISITION(1) ADJUSTMENTS(2) ADJUSTED
-------- ------- -------------- -------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues............................ $208,908 $73,715 $4,255 $5,942(a) $292,820
Cost of sales....................... 150,464 52,420 2,550 (29)(b) 205,405
-------- ------- ------ ------ --------
Gross profit........................ 58,444 21,295 1,705 5,971 87,415
Selling, general and administrative
expenses.......................... 29,860 1,782 900 997(c) 33,539
-------- ------- ------ ------ --------
Operating income.................... 28,584 19,513 805 4,974 53,876
Interest expense, net............... 19,212 -- 271 8,829(d) 28,312
Other income (expense), net......... 887 (2,209) 11 2,216(e) 905
-------- ------- ------ ------ --------
Income before income taxes and
extraordinary item................ 10,259 17,304 545 (1,639) 26,469
Provision for income taxes.......... 5,859 6,059 241 (655)(f) 11,504
-------- ------- ------ ------ --------
Income before extraordinary item.... $ 4,400 $11,245 $ 304 $ (984) $ 14,965
======== ======= ====== ====== ========
</TABLE>
(see footnotes on following page)
21
<PAGE> 22
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) Reflects the pro forma financial results of T.C. Products for the period of
January 1, 1996 to July 1, 1996, the period prior to ownership by the
Company.
(2) Reflects the adjustments to the Tacoma Plant's operating results to reflect
operations as part of the Company:
(a) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of freight costs associated with the sale of
100,000 tons per year of chlorine shipped to the Gulf Coast
for which OCC Tacoma will bear the cost..................... $ 6,394
(2) Adjustment to sales to OCC Tacoma for the difference between
historical prices and Gulf Coast prices..................... 60
(3) Additional 5% commission to be paid to OxyChem on OxyChem's
national accounts to be serviced by the Company............. (512)
--------
$ 5,942
========
</TABLE>
(b) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of the impact of LIFO accounting previously used
by the Tacoma Plant as the Company uses FIFO or average cost
methods of accounting for inventory valuation............... $ 652
(2) Additional depreciation expense with respect to the
properties, plant and equipment purchased in connection with
the Tacoma Acquisition using the straight-line method over
an average life of 20 years................................. 351
(3) Elimination of operating lease expense for equipment
capitalized by the Company which was previously leased by
OCC Tacoma.................................................. (1,532)
(4) Incremental insurance costs................................. 500
--------
$ (29)
========
</TABLE>
(c) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of OxyChem corporate allocations................ $ (1,782)
(2) Addition of the Company's incremental selling, general and
administrative expenses..................................... 750
(3) Additional amortization expense with respect to intangible
assets purchased in connection with the Tacoma Acquisition
using the straight-line method over periods of 5 to 25
years....................................................... 2,029
--------
$ 997
========
</TABLE>
(d) Incremental interest expense related to the Term Loans with an assumed
interest rate of 8.375% and to the Notes with an interest rate of 9.25%. A
0.25% change in the interest rate applicable to the Term Loans would change
pro forma interest expense by $250.
(e) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of environmental expense associated with the
Tacoma Plant's accrual of known environmental matters....... $ 1,932
(2) Elimination of fees related to the Tacoma Plant's sales of
receivables................................................. 377
(3) Elimination of amortization of deferred gain on equipment
capitalized by the Company, which was previously leased by
the Tacoma Plant............................................ (93)
--------
$ 2,216
========
</TABLE>
(f) Represents the tax effect of all pro forma adjustments.
22
<PAGE> 23
PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------------ -----------------------
TACOMA AS
COMPANY PLANT ADJUSTMENTS ADJUSTED
------- ------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................................... $46,046 $18,738 $ 1,065 (a) $65,849
Cost of sales...................................... 36,339 13,590 (121)(b) 49,808
------- ------- ------- -------
Gross profit....................................... 9,707 5,148 1,186 16,041
Selling, general and administrative expenses....... 8,405 269 426 (c) 9,100
------- ------- ------- -------
Operating income................................... 1,302 4,879 760 6,941
Interest expense, net.............................. 4,774 -- 2,207 (d) 6,981
Other income, net.................................. 229 542 (540)(e) 231
------- ------- ------- -------
Income (loss) before income taxes and extraordinary
item............................................. (3,243) 5,421 (1,987) 191
Provision for income taxes......................... (789) 1,898 (795)(f) 314
------- ------- ------- -------
Income (loss) before extraordinary item............ $(2,454) $ 3,523 $(1,192) $ (123)
======= ======= ======= =======
</TABLE>
(see footnotes on following page)
23
<PAGE> 24
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(a) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of freight costs associated with the sale of
100,000 tons per year of chlorine shipped to the Gulf Coast
for which OCC Tacoma will bear the cost..................... $ 793
(2) Reclassification of freight rebate from other income to
offset freight costs included in revenues................... 586
(3) Adjustment to sales to OCC Tacoma for the difference between
historical prices and Gulf Coast prices..................... (186)
(4) Additional 5% commission to be paid to OxyChem on OxyChem's
national accounts to be serviced by the Company............. (128)
------
$1,065
======
</TABLE>
(b) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of the impact of LIFO accounting previously used
by the Tacoma Plant as the Company uses FIFO or average cost
methods of accounting for inventory valuation............... $ 101
(2) Additional depreciation expense with respect to the
properties, plant and equipment purchased in connection with
the Tacoma Acquisition using the straight-line method over
an average life of 20 years................................. 36
(3) Elimination of operating lease expense for the equipment
capitalized by the Company which was previously leased by
OCC Tacoma.................................................. (383)
(4) Incremental insurance costs................................. 125
------
$ (121)
======
</TABLE>
(c) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of OxyChem corporate allocations................ $ (269)
(2) Addition of the Company's incremental selling, general and
administrative expenses..................................... 188
(3) Additional amortization expense with respect to intangible
assets purchased in connection with the Tacoma Acquisition
using the straight-line method over periods of 5 to 25
years....................................................... 507
------
$ 426
======
</TABLE>
(d) Incremental interest expense related to the Term Loans with an assumed
interest rate of 8.375% and to the Notes with an interest rate of 9.25%.
(e) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of fees related to the Tacoma Plant's sales of
receivables................................................. $ 69
(2) Elimination of amortization of deferred gain on equipment
capitalized by the Company, which was previously leased by
the Tacoma Plant............................................ (23)
(3) Reclassification of freight rebate to revenues to offset
freight costs............................................... (586)
------
$ (540)
======
</TABLE>
(f) Represents the tax effect of all pro forma adjustments.
24
<PAGE> 25
(c) Exhibits.
The following exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION OF EXHIBITS
2 Asset Purchase Agreement, dated as
of May 14, 1997, between the Company
and OxyChem.
4 Certificate of Designations of
Series A Preferred Stock of the
Company.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PIONEER COMPANIES, INC.
June __, 1997 By: /s/ PHILIP A. ABLOVE
-----------------------------
Philip A. Ablove
Vice President and
Chief Financial Officer
-25-
<PAGE> 26
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS
2 Asset Purchase Agreement, dated as
of May 14, 1997, between the Company
and OCC Tacoma.
4 Certificate of Designations of
Series A Preferred Stock of the
Company.
-26-
<PAGE> 1
EXHIBIT 2
ASSET PURCHASE AGREEMENT
By and Between
OCC TACOMA, INC.
as Seller
and
PIONEER COMPANIES, INC.
as Purchaser
May 14, 1997
1
<PAGE> 2
TABLE OF CONTENTS
PRELIMINARY STATEMENTS
ARTICLE I DEFINITIONS
<TABLE>
<CAPTION>
Page
<S> <C>
1.01 Certain Defined Terms 1
1.02 References, Etc 1
ARTICLE II PURCHASE AND SALE OF COMPANY ASSETS
2.01 Purchase and Sale of Company Assets 2
2.02 Time and Place of Closing 2
2.03 Delivery of the Company Assets; Payment of Purchase Price 2
2.04 Purchase Price Adjustment 2
2.05 Allocation of Consideration 3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER
3.01 Organization and Qualification 4
3.02 Authority 4
3.03 No Conflict 4
3.04 Consents and Approvals 5
3.05 Facility Financial Statements 5
3.06 Other Liabilities 5
3.07 Absence of Changes 6
3.08 Litigation 6
3.09 Company Assets 7
3.10 Leases 7
3.11 Condemnation 7
3.12 Contracts 7
3.13 Intellectual Property Rights 8
3.14 Permits 8
3.15 Collective Bargaining Agreements 8
3.16 Labor Matters 9
3.17 Employee Benefit Plans 9
3.18 Compliance with Laws 11
3.19 Claims Experience 11
3.20 Customers, Suppliers and Distributors 12
3.21 Public Utility Holding Company 12
3.22 Investment Company 12
3.23 Acquisition Transactions 12
3.24 Real Property 13
3.25 Representations Relating to Securities 13
3.26 Brokers' Fees 14
3.27 Acknowledgment Concerning Purchaser Representations and Warranties 14
3.28 Limitation on Representation and Warranties 14
</TABLE>
2
<PAGE> 3
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER
<TABLE>
<S> <C>
4.01 Organization and Qualification 15
4.02 Authority 15
4.03 No Conflict 16
4.04 Consents and Approvals 16
4.05 Litigation 16
4.06 Capitalization of Purchaser 17
4.07 Purchaser Financial Statements 17
4.08 No Adverse Change 18
4.09 SEC Reports 18
4.10 Brokers' Fees 18
4.11 Public Utility Holding Company 18
4.12 Investment Company 18
4.13 Employee Benefit Plans 18
4.14 Acknowledgment Concerning Seller Representations and Warranties 19
4.15 Limitation on Representations and Warranties 19
4.16 Citizenship of Purchaser 20
ARTICLE V COVENANTS
5.01 Access to Properties and Records 20
5.02 Closing Conditions; Obtaining Consents; Novations 21
5.03 Further Assurances 21
5.04 Conduct of Business 22
5.05 Public Announcements 23
5.06 Acquisition Transactions 23
5.07 Casualty Loss and Condemnation 23
5.08 Certain Notifications; Specific Performance 25
5.09 Title Policy 26
5.10 Antitrust Law Compliance 26
5.11 Sureties and Financial Commitments 26
5.12 Financing Materials 27
5.13 Insurance Claims 27
5.14 Pierce County Series 1993 Bonds 27
5.15 Additional Financial Statements 27
5.16 Removal of Excluded Assets 28
5.17 Wheels Lease 28
5.18 Prorations 28
5.19 Books and Records 29
5.20 Tradenames or Trademarks of Seller and its Affiliates 29
5.21 Related Agreements 30
5.22 Performance of Assumed Obligations 30
5.23 Availability of Information 30
5.24 Employees and Employee Benefit Plans 30
5.25 Transfer of Certain Rail Cars 36
5.26 Ammonia Plant 38
ARTICLE VI CONDITIONS
6.01 Conditions to Obligations of each of the Parties 38
6.02 Conditions to Obligations of Seller 39
6.03 Conditions to Obligations of Purchaser 41
ARTICLE VII TERMINATION
7.01 Termination 43
7.02 Effect of Termination 44
</TABLE>
3
<PAGE> 4
ARTICLE VIII INDEMNIFICATION
<TABLE>
<S> <C>
8.01 Indemnification of Seller 44
8.02 Indemnification of Purchaser 45
8.03 Limitations on Indemnification 45
8.04 Indemnification Procedures 46
8.05 Payment 47
8.06 Survival of Representations and Warranties 48
8.07 Exclusive Remedy 48
8.08 Mitigation of Damages 49
8.09 Related Agreements 49
ARTICLE IX MISCELLANEOUS
9.01 Notices 49
9.02 Confidentiality 50
9.03 Benefit and Burden 51
9.04 No Third Party Rights 51
9.05 Amendments and Waiver 51
9.06 Assignments 51
9.07 Counterparts 52
9.08 Captions and Headings 52
9.09 Construction 52
9.10 Severability 52
9.11 Applicable Law 52
9.12 Service of Process; Consent to Jurisdiction; Etc. 53
9.13 Bulk Sales Laws 53
9.14 Expenses; Transfer Taxes 53
9.15 Knowledge 53
9.16 Post-Closing Competition 53
9.17 Schedules 54
9.18 Entire Agreement 54
ANNEX "A"
Definitions A-1
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A - Conveyance Instrument
EXHIBIT B - Proforma Title Policy
EXHIBIT C - Form of Opinion of Kent R. Stephenson
EXHIBIT D - Form of Opinion of Foster Pepper & Shefelman
EXHIBIT E - Form of Opinion of Preston, Gates & Ellis L.L.P.
EXHIBIT F - Assignment and Assumption Agreement (Purchase Agreement)
EXHIBIT G - Form of Opinion of Duane M. Stamp
EXHIBIT H - Form of Opinion of Bogle & Gates P.L.L.C.
EXHIBIT I - Assignment and Assumption Agreement (Richmond Terminal Services
Agreement)
EXHIBIT J - Assignment and Assumption Agreement (Wilmington Terminal Services
Agreement)
EXHIBIT K - Chlorine and Caustic Soda Sales Agreement
EXHIBIT L - Chlorine Purchase Agreement
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
EXHIBIT M - Designation of Series A Preferred Stock
EXHIBIT N - Environmental Easement
EXHIBIT O - Environmental Operating Agreement
EXHIBIT P - Equipment Sublease Agreement
EXHIBIT Q - Equipment Sublease Easement
EXHIBIT R - Equipment Substitution Agreement
EXHIBIT S - Interim Services Agreement
EXHIBIT T - Joint Defense Agreement
EXHIBIT U - OCC Guaranty
EXHIBIT V - Operating Services Agreement
EXHIBIT W - Purchaser Guaranty (OCC)
EXHIBIT X - Purchaser Guaranty (OCC Tacoma)
EXHIBIT Y - Rail Car Riders
EXHIBIT Z - Richmond Product Exchange and Terminal Services Agreement
EXHIBIT AA - Legal Description of the Site
EXHIBIT BB - Special Warranty Deed
EXHIBIT CC - Technology License Agreement
EXHIBIT DD - Wilmington Product Exchange and Terminal Services Agreement
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 2.04(i) Minimum Inventory Value
Schedule 2.04(ii) Minimum Stores and Spares Value
Schedule 2.05 Allocation of Consideration
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C>
Schedule 3.04 Consents and Approvals
Schedule 3.05 Facility Financial Statements
Schedule 3.06 Other Liabilities
Schedule 3.07 Absence of Changes
Schedule 3.08 Litigation
Schedule 3.09 Company Assets
Schedule 3.10 Leases
Schedule 3.11 Condemnation
Schedule 3.12 Contracts
Schedule 3.13 Intellectual Property Rights
Schedule 3.14 Permits
Schedule 3.15 Collective Bargaining Agreements
Schedule 3.16 Labor Matters
Schedule 3.17 Seller Employee Benefit Plans
Schedule 3.18 Compliance with Laws
Schedule 3.20(a) Customers
Schedule 3.20(b) Suppliers
Schedule 3.20(c) Distributors
Schedule 3.22 Investment Company
Schedule 3.24 Real Property
Schedule 4.03 No Conflict
Schedule 4.04 Consents and Approvals
Schedule 4.06(b) Capitalization of Purchaser
Schedule 4.13 Purchaser Employee Benefit Plans
Schedule 5.02(b) Contracts to be Novated
Schedule 5.04 Conduct of Business
Schedule 5.11 Sureties and Financial Commitments
Schedule 5.18 Preliminary Schedule of Prorations
Schedule 5.24(k) Employees and Employee Benefit Plans
Schedule 5.24(m) Actuarial Methods and Assumptions
Schedule 5.25 Certain Rail Cars
Schedule 5.26 Ammonia Plant
Schedule 6.01(c) Certain Contracts
Schedule 9.15 Executive Officers, Directors and Key Employees
</TABLE>
<PAGE> 7
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made effective as of
the 14th day of May, 1997, by and between OCC TACOMA, INC., a Delaware
corporation and wholly-owned subsidiary of OCC ("Seller"), and PIONEER
COMPANIES, INC., a Delaware corporation ("Purchaser").
PRELIMINARY STATEMENTS
WHEREAS, Seller is engaged in the ownership and operation of a chloralkali
manufacturing facility located in Tacoma, Washington (the "Facility"); and
WHEREAS, Purchaser desires to purchase from Seller, and Seller desires to
sell to Purchaser, the Facility, together with certain assets, rights and
obligations related thereto.
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties do hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Certain Defined Terms. Capitalized terms used in this
Agreement and not otherwise defined herein shall have the respective meanings
set forth in Annex A.
Section 1.02 References, Etc. The words "hereof," "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
terms defined in Annex A or in any other provision of this Agreement in the
singular shall have the same meanings in the plural and vice versa. All
pronouns, nouns and other terms used in this Agreement shall include the
masculine, feminine and neuter forms thereof, wherever appropriate to the
context. All references herein to Articles, Sections, Annexes, Exhibits and
Schedules shall, unless the context requires a different construction, be
deemed to be references to the Articles and Sections of this Agreement and the
Annexes, Exhibits and Schedules attached hereto. The Annexes and Schedules
attached to this Agreement are by this reference incorporated into and made a
part of this Agreement. In this Agreement, unless a clear contrary intention
appears, the word "including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding such
term. All accounting terms not specifically defined herein shall be construed
in accordance with GAAP.
ARTICLE II
PURCHASE AND SALE OF COMPANY ASSETS
Section 2.01 Purchase and Sale of Company Assets. (a) On the Closing Date,
Seller shall sell to Purchaser and Purchaser shall purchase from Seller (the
"Conveyance") all of the Company Assets.
(b) Subject to the occurrence of the Closing, Purchaser agrees to fulfill,
perform, pay and discharge all of the Assumed Obligations.
(c) The Conveyance shall be effected by a General Conveyance, Assignment
and Assumption Agreement in substantially the form of such document attached
hereto as Exhibit A ("Conveyance Instrument").
(d) In full consideration and exchange for the Company Assets, Purchaser
shall, at the Closing, (i) pay and deliver to Seller the sum of Ninety-Seven
Million Dollars ($97,000,000), which funds, as adjusted by the Purchase Price
Adjustment pursuant to Section 2.04, shall be paid by wire transfer of
immediately available funds to The Chase Manhattan Bank, N.A., New York, New
York, ABA No. 021000021 for the account of OCC to be held for the
7
<PAGE> 8
exclusive benefit of Seller, Account No. 144-0-06612, or such other account as
is specified by Seller in writing to Purchaser no later than two Business Days
prior to the Closing Date; (ii) issue and deliver to Seller certificates
evidencing the Preferred Stock; and (iii) assume the Assumed Obligations.
Section 2.02 Time and Place of Closing. Subject to the satisfaction or
waiver of the conditions set forth in Article VI hereof, the closing of the
transactions contemplated by this Agreement shall take place on the Closing
Date at 12:30 p.m., New York time, at the offices of Andrews & Kurth L.L.P.,
425 Lexington Avenue, New York, New York 10017-3903 or at such other time, date
or place as Seller and Purchaser may agree (the "Closing").
Section 2.03 Delivery of the Company Assets; Payment of Purchase Price On
the Closing Date: (a) Seller shall deliver to Purchaser the Conveyance
Instrument and any other documents or instruments required to be delivered by
Seller to Purchaser pursuant to the terms hereof; and (b) Purchaser shall pay
and deliver to Seller the Purchase Price as provided in Section 2.01(d).
Section 2.04 Purchase Price Adjustment. The Purchase Price shall be
subject to adjustment ("Purchase Price Adjustment") for the amount by which the
value of (i) Inventory on the Closing Date is less than the aggregate value of
the minimum Inventory stipulated and agreed by Seller and Purchaser and set
forth on Schedule 2.04(i) ("Minimum Inventory Value"); and (ii) Spares and
Stores on the Closing Date is less than the aggregate value of the minimum
Spares and Stores stipulated and agreed by Seller and Purchaser and set forth
on Schedule 2.04(ii) ("Minimum Spares and Stores Value"), which Inventory and
Spares and Stores shall for all determinations provided for in this Section
2.04 be valued in the manner set forth in Schedule 2.04(i) and Schedule
2.04(ii), respectively. Inventory and Spares and Stores on hand at Closing and
covered by the Conveyance Instrument shall each be estimated and valued by
Seller ("Estimated Value") not later than two Business Days prior to Closing,
and Seller shall on or prior to such date notify Purchaser of such
determination. The cash payment due from Purchaser to Seller at Closing
provided for in Section 2.01(d) shall be reduced by the amount, if any, by
which the sum of the Minimum Inventory Value plus the Minimum Spares and Stores
Value exceeds the sum of the respective Estimated Values ("Shortage"). Not
later than thirty (30) days following the Closing Date, Purchaser shall prepare
and deliver to Seller schedules reflecting the actual Inventory and Spares and
Stores as of the opening of business on the Closing Date, valued as set forth
on Schedule 2.04(i) and Schedule 2.04(ii), respectively, and the respective
values thereof ("Actual Value"). Seller shall have ten days following receipt
to review such schedules and to discuss with Purchaser any issues therein. If
Seller and Purchaser agree on all matters in such schedules, then (i) the net
amount by which the respective Actual Values are less than the respective
Estimated Values shall be paid by Seller to Purchaser by wire transfer of
immediately available funds to Purchaser's account at Bank of America,
Illinois, ABA No. 07100 0039, for the account of Purchaser, Account No.
77-85593, or (ii) to the extent the sum of the respective Actual Values exceeds
the sum of the respective Estimated Values (the difference being herein called
"Excess Value"), then Purchaser shall pay to Seller the lesser of (a) the
Excess Value, and (b) an amount equal to the Shortage. Such payment shall be
made by Purchaser to Seller by wire transfer of immediately available funds to
Seller's account designated in Section 2.01. Any such payment by Seller or
Purchaser shall be made within five days after determination of the amount due,
together with interest thereon at 9% per annum (but not to exceed the maximum
lawful rate) from the Closing Date until the date paid. If Purchaser and Seller
shall be unable to agree on any component in the determination of the Actual
Values, such dispute shall be resolved by Arthur Andersen LLP and Deloitte &
Touche LLP acting jointly in the matter or, if such independent accountants are
unable to agree on the matters in question, by any other nationally recognized
independent accounting firm mutually selected by the Parties, whose
determination shall be final and binding on Seller and Purchaser. All costs and
fees of such independent accountants shall be shared equally by Purchaser and
Seller.
Section 2.05 Allocation of Consideration. The Purchase Price shall be
allocated for purposes of this Agreement and for federal, state and local tax
purposes in such manner as is agreed to between Seller and Purchaser. Schedule
2.05 sets forth the allocation reflecting the initial purchase price agreed
upon by Seller and Purchaser as of the Closing Date. As promptly as practicable
following the completion of the Purchase Price Adjustment calculations, but in
no event more than ninety (90) days after the Closing Date, Schedule 2.05 shall
be amended if necessary to reflect any items that may have changed. Seller and
Purchaser hereby agree to cooperate in making any such necessary adjustments
consistent with the agreed allocation. The Purchase Price shall be allocated
among the Company Assets in the manner required by Section 1060 of the Internal
Revenue Code of 1986, as amended, and regulations thereunder. Each of Seller
and Purchaser shall file on a timely basis all federal, state, local and
foreign tax returns and reports, including the "Asset Acquisition Statement
under Section 1060" on Form 8594 to be filed with the Internal Revenue Service
with respect hereto, in accordance with such allocation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Subject to all of the terms, conditions and provisions of this Agreement,
Seller hereby represents and warrants to Purchaser, as of the date hereof and
as of the Closing Date, as follows:
Section 3.01 Organization and Qualification. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Seller has all requisite corporate power and authority to own,
lease and operate the
8
<PAGE> 9
Company Assets, as applicable, and to carry on the Facility Operations as they
are now being conducted. Seller is duly qualified or licensed to do business
and in good standing or authorized as a foreign corporation to do business in
each other jurisdiction where, because of the nature of the Company Assets or
the Facility Operations, such qualification or licensing is required, except
for such jurisdictions where the failure to be so qualified or licensed will
not have a Material Adverse Effect with respect to Seller.
Section 3.02 Authority. Seller has all requisite corporate power and
authority to execute and deliver this Agreement and each of the Related
Agreements to which Seller is a party, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Seller of this
Agreement and such Related Agreements, and the consummation of the transactions
contemplated hereby and thereby, have been duly and validly authorized by all
necessary corporate action (including any stockholder action) on the part of
Seller, and no other corporate proceedings on the part of Seller are necessary
to authorize the execution and delivery by Seller of this Agreement or such
Related Agreements, or to consummate the transactions contemplated hereby or
thereby. Assuming the due authorization, execution and delivery of this
Agreement and such Related Agreements by the parties hereto and thereto other
than Seller, this Agreement constitutes, and when executed and delivered by
Seller, each of such Related Agreements will constitute, a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar Laws affecting creditors'
rights generally and general equitable principles (whether applied in a court
of law or equity).
Section 3.03 No Conflict. The execution and delivery by Seller of this
Agreement and each of the Related Agreements to which Seller is a party, and
the consummation of the transactions contemplated hereby and thereby, do not
and will not: (i), assuming the receipt of the Governmental Approvals and the
completion of the notifications, filings and registrations set forth on
Schedule 3.04, violate any provision of any Law, or of any Governmental
Approval or any writ, injunction, order, judgment or decree of any Governmental
Authority, in each case presently in effect and applicable to Seller or any
Affiliate of Seller or to the Company Assets, (ii) result in a breach of or
constitute (with or without the giving of notice or the passage of time or
both) a default under (x) the charter or by-laws of Seller, or (y) any
resolution adopted by the Board of Directors or stockholder of Seller, (iii)
result in a breach of or constitute (with or without the giving of notice or
the passage of time or both) a default under any Contract to which Seller is a
party or by which Seller or any of the Company Assets is bound or affected, or
(iv) result in, or require, the imposition or creation of any Lien upon the
Company Assets.
Section 3.04 Consents and Approvals. Governmental Approvals. Except as set
forth in Schedule 3.04 and no consents, licenses, authorizations, approvals,
Permits, notifications, filings or registrations to or with any Person, are
required to be obtained or made by Seller, or any of its Affiliates, in
connection with the execution and delivery by Seller of this Agreement or any
of the Related Agreements to which Seller is a party or the consummation of the
transactions contemplated hereby or thereby, other than (i) such Governmental
Approvals, consents, licenses, authorizations, approvals, Permits,
notifications, filings and registrations which have been obtained or made and
are in full force and effect, (ii) other filings with Governmental Authorities
in the Ordinary Course of Business of Seller that are not required to be made
prior to the consummation of the transactions contemplated by this Agreement or
such Related Agreements, and (iii) consents, notices, authorizations and
approvals of parties to Contracts not required to be listed on Schedules 3.10,
3.12, 3.13 or 3.15.
Section 3.05 Facility Financial Statements.05 Facility
Financial Statements.05 Facility Financial Statements. Prior to the date
hereof, Seller has caused to be delivered to Purchaser copies of: (i) the
balance sheets of the Facility Operations as at and for the fiscal years ended
1995 and 1996, and (ii) statements of income and retained earnings and
statements of cash flow of the Facility Operations as at and for the fiscal
years ended 1994, 1995 and 1996, in each case as audited and certified by
Arthur Andersen LLP (collectively, the "Financial Statements"). Except as set
forth in Schedule 3.05, the Financial Statements have been prepared in
accordance with GAAP and present fairly in all material respects the financial
position of the Facility Operations as of the dates indicated therein and the
results of operations and cash flow for the respective periods indicated
therein (except as otherwise noted therein). The Financial Statements do not
give effect to the transactions contemplated by this Agreement or any of the
Related Agreements. The assets, liabilities and operations included in the
Financial Statements include certain assets, liabilities and operations that
will not be included in the Conveyance, such as deferred income taxes and
certain rail car and equipment leases. Excluded operations include, among other
things, support services such as marketing, sales and customer service,
transportation and distribution, and technical services, and Seller and its
Affiliates will retain certain chlorine and caustic soda national account
contracts which are to be supplied for a limited period of time following the
Closing by Purchaser as set forth in the Chlorine and Caustic Soda Sales
Agreement.
Section 3.06 Other Liabilities.06 Other Liabilities.06 Other Liabilities.
Except as set forth in Schedule 3.06, Seller did not have as of the date of the
most recent Financial Statements, and Seller has not incurred since that date,
any Liabilities relating to the Company Assets or the Facility Operations,
except Liabilities: (i) which, if required by GAAP to be accrued or reserved
against, are accrued or adequately reserved against in the most recent
Financial Statements; or (ii) which were incurred after the date of the most
recent Financial Statements in the Ordinary Course of Business of Seller and
which could not reasonably be expected to have a Material Adverse Effect with
respect to the Company Assets and the Facility Operations, taken as a whole.
Section 3.07 Absence of Changes. Except with respect to the transactions
contemplated by this Agreement, the Related Agreements or the Contribution
Agreement, or as set forth in Schedule 3.07, since the date of the most recent
Financial Statements, Seller or its Affiliates have:
9
<PAGE> 10
(a) conducted the Facility Operations only in the Ordinary Course of
Business of Seller or such Affiliate;
(b) not (i) purchased, acquired or leased any Assets and Properties Used
in the Facility Operations other than in the Ordinary Course of Business of
Seller or such Affiliate, (ii) made any capital expenditure or commitment
therefor with respect to the Facility Operations other than in the Ordinary
Course of Business of Seller or such Affiliate, or which obligate Seller for
capital expenditures in excess of $100,000 on the Closing Date, or (iii) sold,
pledged, leased, disposed of or encumbered any of the Company Assets other than
sales of Inventory and scrap or surplus equipment in the Ordinary Course of
Business of Seller or such Affiliate;
(c) not (i) entered into or amended, or committed itself to enter into or
amend, any employment, severance, consulting, compensation or special pay
Contract, with respect to termination of employment or otherwise, or other
similar Contracts with any key employees involved in the Facility Operations,
(ii) paid or agreed to pay any pension, retirement allowance or other employee
benefit to any such key employee involved in the Facility Operations, whether
past or present (other than for benefit entitlements under Employee Plans and
Agreements in effect as of the date of the most recent Financial Statements in
accordance with the terms of such Employee Plans and Agreements), or (iii) paid
any bonuses to, or increased the compensation of, any such key employee, except
in the Ordinary Course of Business of Seller or such Affiliate;
(d) not adopted, entered into or amended, or committed itself to adopt,
enter into or amend, any of the Employee Plans and Agreements, except as
required to comply with changes in applicable Law;
(e) not suffered any event or condition which has caused or would cause a
material adverse change of $1,000,000 or more with respect to the business,
financial condition, results of operations or prospects (in the case of
prospects, not taking into account general economic conditions or general
industry developments) of the Company Assets or the Facility Operations, taken
as a whole;
(f) not suffered any destruction of or damage to the Company Assets
(whether or not insured) in excess of $250,000 in the aggregate; and
(g) not entered into any Contract to do any act prohibited by any of the
foregoing.
Section 3.08 Litigation. Except as set forth in Schedule 3.08 and except
with respect to Environmental Laws or Environmental Conditions, there is no
action, suit, proceeding, arbitration, assessment or investigation served or
pending of which Seller or any of its Affiliates has received notice, or, to
the knowledge of Seller, threatened, relating to the Facility, the Facility
Operations or any of the Company Assets before or by any Governmental Authority
or any other Person which is reasonably expected to result in Liabilities of
more than $1 million with respect to the Facility Operations or any of the
Company Assets. There is no such action, suit, proceeding, arbitration,
assessment or investigation pending or, to the knowledge of Seller, threatened
which seeks to restrain or enjoin the execution and delivery of this Agreement
or any of the Related Agreements or the consummation of any of the transactions
contemplated hereby or thereby. Except as set forth in Schedule 3.08 and except
with respect to Environmental Laws or Environmental Conditions, there are no
outstanding judgments, orders, injunctions, decrees, stipulations or awards
(whether rendered by a Governmental Authority or by an arbitrator) against
Seller, any of its Affiliates or any of the Company Assets: (i) that are
reasonably expected to result in Liabilities of more than $1 million with
respect to the Facility Operations or any of the Company Assets; or (ii) which
prohibit or restrict, or could reasonably be expected to result in any delay
of, the consummation of the transactions contemplated by this Agreement or any
of the Related Agreements.
Section 3.09 Company Assets. Except as set forth in Schedule 3.09, Seller
has good and indefeasible title to all of the Company Assets (other than the
Site), free and clear of Liens (other than Permitted Encumbrances). Except as
set forth in Schedule 3.09, the Company Assets and such title are all of the
Assets and Properties necessary for Seller to conduct the Facility Operations
in the Ordinary Course of Business of Seller. Except as set forth in Schedule
3.09, all of the raw materials and finished goods Inventory constituting a part
of the Company Assets are in compliance with the published specifications of
Seller, if any, for such Inventory. Except as set forth in Schedule 3.09, all
of the tangible Company Assets (including Inventory, but excepting Inventory in
storage or in transit) are located on the Site.
Section 3.10 Leases. Schedule 3.10 lists all of the Company Assets which
constitute leases and which involve consideration or other expenditures in
excess of $25,000 or performance over a period of more than one year (the
"Leases"). Except as set forth in Schedule 3.10, all such Leases are free and
clear of Liens created by Seller or any of its Affiliates (other than Permitted
Encumbrances), and are in full force and effect in accordance with their
respective terms. There is not, under any of such Leases: (i) any existing
default by Seller or, to the knowledge of Seller, by any other party thereto;
or (ii) to the knowledge of Seller, any event which with the giving of notice
or the lapse of time, or both, would become such a default, except for such
defaults as to which requisite waivers or consents have been or will, on or
prior to the Closing Date, be obtained.
10
<PAGE> 11
Section 3.11 Condemnation. Except as set forth in Schedule 3.11, there are
no pending condemnation or eminent domain proceedings, or contemplated sales in
lieu thereof of which Seller or any of its Affiliates has received notice or,
to the knowledge of Seller, threatened, involving a partial or total taking of
any of the Company Assets other than any such condemnation or eminent domain
proceeding or any such sale which may become pending, threatened or
contemplated after the date hereof and which is subject to Section 5.07.
Section 3.12 Contracts. Schedule 3.12 sets forth a complete and accurate
list of all Contracts relating to the Facility Operations (including all
amendments thereto) to which Seller is a party or by which Seller or any of the
Company Assets is bound and which (i) involve consideration or other
expenditures in excess of $25,000 or performance over a period of more than one
year, or (ii) relate to transactions of any nature between Seller and any
Affiliate of Seller (collectively, "Material Contracts"). Seller has made
available to Purchaser true and complete copies of all of such Material
Contracts. Except as set forth on Schedule 3.12, as of the date hereof Seller
is not, and to the knowledge of Seller, no other party to any such Material
Contract is, in breach or violation of any such Material Contract or in default
thereunder, and, except as so set forth, there does not exist any event that,
with the giving of notice or the lapse of time, or both, would become a breach,
violation or default by Seller or, to the knowledge of Seller, any other party
thereto, except for such breaches, violations, defaults and events as to which
requisite waivers or consents have been or will, on or prior to the Closing
Date, be obtained. Except as set forth on Schedule 3.12, no consents or other
authorizations are required for the assignment to Purchaser of any of such
Material Contracts included in the Company Assets.
Section 3.13 Intellectual Property Rights. Schedule 3.13 sets forth a
complete and accurate list of: (i) all patents, trademarks, copyrights, service
marks, applications for any of the foregoing or technology licenses (other than
commercial software licenses under which Seller is a licensee) included in the
definition of Intellectual Property Rights, specifying whether each such
Intellectual Property Right is owned or licensed by Seller; and (ii) all
Contracts creating any such Intellectual Property Rights. Except as set forth
on Schedule 3.13, Seller is, or shall be on the Closing Date, the owner or
licensee of all such Intellectual Property Rights. Seller is not now in default
under any license, distribution agreement, manufacturing agreement or other
Contract related to any of such Intellectual Property Rights included in the
Company Assets. Except as set forth in Schedule 3.13, neither Seller nor any
Affiliate of Seller has granted any license to any Person, or made any
assignment, of any of such Intellectual Property Rights. Except as set forth in
Schedule 3.13, Seller, in the conduct of the Facility Operations, is not
infringing on any intellectual property rights of any Person, and there is no
pending action, suit or proceeding which has been instituted or, to the
knowledge of Seller, threatened, that challenges the validity, use or ownership
by Seller of such Intellectual Property Rights.
Section 3.14 Permits. Except as set forth in Schedule 3.14 and except with
respect to any Permits required pursuant to any Environmental Law: (i) Seller
has all Permits required for the ownership of the Company Assets and the
conduct of the Facility Operations as presently conducted, except where the
failure to obtain any such Permit would not result in a Liability of $1 million
or more with respect to the Company Assets and the Facility Operations; (ii)
all of such Permits are in full force and effect, except for any such Permit
with respect to which applications for renewal shall have been filed; (iii)
Seller is in compliance in all material respects with all of such Permits; and
(iv) Seller has not received any notice of violation of any of the terms of any
such Permits, which violation is outstanding and unresolved or unsatisfied. No
revocation, termination, limitation or withdrawal of any such Permit is pending
of which Seller or any of its Affiliates has received notice or, to the
knowledge of Seller, threatened.
Section 3.15 Collective Bargaining Agreements. Except as set forth in
Schedule 3.15: (i) neither Seller nor any of its Affiliates is a party to any
collective bargaining agreements with any unions, guilds, shop committees or
other collective bargaining groups representing or purporting to represent
Employees; (ii) Seller or its Affiliates have made available to Purchaser true
and complete copies of all agreements listed or otherwise described in Schedule
3.15; and (iii) no grievance or arbitration proceeding is pending of which
Seller or any of its Affiliates has received notice or, to the knowledge of
Seller, threatened, arising out of or in connection with any of the agreements
listed or otherwise described in Schedule 3.15.
Section 3.16 Labor. Except as set forth in Schedule 3.16, within the last
three years neither Seller nor any of its Affiliates has experienced any labor
strike, general employment dispute, request for representation, union
organization efforts, work slowdown or stoppage or boycott with respect to the
products or services sold by Seller or any of its Affiliates in the conduct of
the Facility Operations, or against or affecting the Facility Operations or the
Company Assets. To the extent relating to the Employees or the conduct of the
Facility Operations, and except as set forth in Schedule 3.16: (i) Seller and
its Affiliates have complied, and are in compliance, in all material respects
with all applicable Laws (other than Environmental Laws) respecting employment
and employment practices, employment terms and conditions of employment,
including any provisions thereof relating to wages, hours, collective
bargaining and the payment of social security, unemployment and similar Taxes;
(ii) there is no unfair labor practice charge or complaint against Seller or
any of its Affiliates pending of which Seller or any of its Affiliates has
received notice or, to the knowledge of Seller, threatened; (iii) there is no
labor strike, general employment dispute, request for representation, union
organization effort, work slowdown or stoppage or boycott with respect to the
products or services sold by Seller or any of its Affiliates in the conduct of
the Facility Operations pending of which Seller or any of its Affiliates has
received notice or, to the knowledge of Seller, threatened against Seller or
any of its Affiliates, the Facility Operations or the Company Assets; (iv)
there are no administrative charges or judicial proceedings against Seller or
any of its Affiliates concerning alleged employment discrimination or other
employment related matters arising out of or in connection with the conduct of
the Facility Operations pending of which Seller or any of its Affiliates has
received notice or, to the knowledge of Seller, threatened before the U.S.
Equal Employment Opportunity Commission or any other Governmental Authority;
and (v) no Person has, to the knowledge of Seller or any of its Affiliates,
asserted that Seller or any of its Affiliates has any Liability for any
arrearages of wages or any Taxes or penalties for failure to comply with any of
the foregoing.
11
<PAGE> 12
Section 3.17 Employee Benefit Plans.
(a) Disclosure. Schedule 3.17 sets forth a complete and accurate list of
all pension, thrift, savings, profit sharing, retirement, incentive bonus or
other bonus, medical, dental, life, accident insurance, benefit, employee
welfare, disability, group insurance, stock purchase, stock option, stock
appreciation, stock bonus, executive or deferred compensation, loan,
hospitalization, cafeteria plan and other similar fringe or employee benefit or
compensation plans, programs and arrangements, and any employment or consulting
contracts, "golden parachutes," severance agreements or plans, vacation and
sick leave plans, programs, arrangements and policies, in each case relating to
the Employees, and including all related "employee benefit plans" (as defined
in Section 3(3) of ERISA), all employee manuals, and all binding written, or,
to the knowledge of Seller, oral statements of policies, practices or
understandings relating to employment (collectively, the "Employee Plans and
Agreements"), which are provided to, for the benefit of, or relate to the
Employees. Except as set forth in Schedule 3.17, Seller or its Affiliates have
made available to Purchaser true and complete copies of: (i) all of the
Employee Plans and Agreements, including all amendments thereto and all summary
plan descriptions thereof; (ii) the most recent liability valuation report with
respect to each Employee Pension Benefit Plan that is a defined benefit pension
plan; (iii) the most recent annual report (form 5500) filed with respect to
each of the Employee Plans and Agreements for which such report must be filed;
and (iv) the most recent favorable Internal Revenue Service determination
letter received with respect to each of the Employee Plans and Agreements that
is intended to be qualified under Section 401(a) of the Code or trust intended
to be exempt under Section 501(a) or Section 501(c)(9) of the Code.
(b) Compliance with Laws and Plan Terms; Qualification and Exemption;
Title IV of ERISA. With respect to each of the Employee Plans and Agreements,
Seller and its Affiliates have complied in all material respects with, and each
of the Employee Plans and Agreements conforms in all material respects to and
has from its inception been operated in all material respects in compliance
with, all applicable Laws (other than Environmental Laws), including ERISA and
the Code, and each of the Employee Plans and Agreements has been administered
in all material respects in accordance with its terms. All contributions
required to be made on or before the date of this Agreement to any of the
Employee Plans and Agreements have been timely made. All applicable premiums
for insurance coverage for each fiscal year for each of the Employee Plans and
Agreements ended before the date hereof, and for any portion of a fiscal year
ending on the Closing Date, have been timely paid. Payments required to be
made, but not due as of the date of the most recent Financial Statements, were
properly accrued and recorded in the most recent Financial Statements. Each of
the Employee Plans and Agreements that is intended to be qualified under
Section 401(a) of the Code and each trust that is intended to be exempt under
Section 501(a) of the Code is qualified or exempt, as the case may be.
(c) Liabilities; Claims and Proceedings; Terminations. No event or
condition has occurred or exists (including any contingent withdrawal liability
event under Section 4204 of ERISA) with respect to any "employee benefit plan"
(as defined in Section 3(3) of ERISA, including any "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA), whether or not maintained or
contributed to by Seller or any of its Affiliates, which individually or
collectively could result in a material Liability to Seller or any of its
Affiliates under Title IV of ERISA. There are no pending Claims of which Seller
or any of its Affiliates has received notice or, to the knowledge of Seller,
threatened (other than routine Claims for the payment of benefits in accordance
with the terms thereof), grievances or allegations of unfair labor practices
(or any basis therefor) involving any of the Employee Plans and Agreements or
any investigation, proceeding, administrative review or other administrative
agency process pending of which Seller or any of its Affiliates has received
notice or, to the knowledge of Seller, threatened, which could result in the
imposition upon Seller or any of its Affiliates or the Company Assets or the
Facility Operations of any penalty, assessment or Liability in connection with
any of the Employee Plans and Agreements, individually or collectively. Except
as set forth on Schedule 3.17, each of the Employee Plans and Agreements can be
unilaterally terminated at any time by the sponsor of such plan.
(d) Prohibited Transactions; Reportable Events. None of the Employee Plans
and Agreements has engaged, or is about to engage, in a "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code (a
"Prohibited Transaction")), and no "reportable event" (as defined in Section
4043 of ERISA) has occurred or is about to occur, in either case, which could
result in any material Liability to Seller or any of its Affiliates or to the
Company Assets or Facility Operations.
(e) No Triggering of Obligations. Except as specifically contemplated by
the terms of this Agreement and except as otherwise set forth on Schedule 3.17,
the execution and delivery by Seller of this Agreement and each of the Related
Agreements to which Seller is a party and the consummation of the transactions
contemplated hereby and thereby do not and will not: (i) entitle any Employee
to severance pay, unemployment compensation or any other payment; (ii)
accelerate the time of payment or vesting or increase the amount of
compensation due to any Employee; or (iii) result in any Prohibited Transaction
for which a statutory exemption is not available.
(f) Future Commitments. Except as specifically contemplated by the terms
of this Agreement and except as otherwise set forth in Schedule 3.17, neither
Seller nor any of its Affiliates has any commitment and has not taken any
action to adopt or establish any additional employee plans and agreements
covering the Employees or to materially increase the benefits under any of the
Employee Plans and Agreements, as the same relate to Employees.
Section 3.18 Compliance with Laws. Except as set forth in Schedule 3.18,
Seller in the conduct of the Facility Operations: (i) is operating the Company
Assets and is conducting the Facility Operations in compliance with all Laws
(excluding any Environmental Laws) applicable to the Company Assets or the
Facility Operations, (ii) has not received any notice alleging or charging any
lack of compliance or violation of any material requirement of any such Law
(excluding any Environmental Law) which remains pending and unresolved, except,
in the case of each of clauses (i) and (ii),
12
<PAGE> 13
where such lack of compliance or violation will not result in a material
adverse change of $1,000,000 or more with respect to the business, financial
condition, results of operations or prospects (in the case of prospects, not
taking into account general economic conditions or general industry
developments) of the Company Assets or the Facility Operations, taken as a
whole. Except as set forth in Schedule 3.18, no investigation or review by any
Governmental Authority with respect to the Company Assets or the Facility
Operations, other than with respect to any Environmental Laws, is pending of
which Seller or any of its Affiliates has received notice or, to the knowledge
of Seller, threatened.
Section 3.19 Claims Experience. Seller has made available to Purchaser (i)
a true and complete list of all claims made under any insurance policy (other
than claims with respect to Environmental Laws or Environmental Conditions),
including any log or other record of such claims maintained by Seller and (ii)
all notices given to any insurer by Seller or any of its Affiliates with
respect to each policy, binder or contract of insurance (other than notices
with respect to Environmental Laws or Environmental Conditions), in each of
clause (i) and (ii) to the extent arising in connection with, or with respect
to, the Company Assets or the Facility Operations during the last three years.
Section 3.20 Customers, Suppliers and Distributors.
(a) Customers. Schedule 3.20(a) sets forth a complete and accurate list of
substantially all of the customers of the Facility Operations who purchased the
Facility's production (and reflecting the amount of purchases of each product
from the Facility during 1996 and January and February, 1997), other than
customers and purchases under national account contracts which are subject to
the Chlorine and Caustic Soda Sales Agreement.
(b) Suppliers. Schedule 3.20(b) sets forth a complete and accurate list of
each of the ten largest suppliers of the Facility Operations (in terms of the
amount of purchases by Seller during 1996). Purchaser acknowledges that Seller
and its Affiliates purchase certain goods under nationwide contracts and that
while suppliers under such Contracts may be listed on Schedule 3.20(b), such
Contracts are not being assigned to Purchaser and constitute Excluded Assets.
(c) Distributors. Schedule 3.20(c) sets forth a complete and accurate list
of the ten largest distributors of the Facility Operations (in terms of dollar
volume of product from the Facility during 1996). Purchaser acknowledges that
certain Contracts with the distributors listed on Schedule 3.20(c) constitute
Excluded Assets but that certain of such Contracts are subject to Section
5.02(b).
(d) Contractual Relationships. Prior to the date hereof, Seller has made
available to Purchaser copies of all customer, supplier and distributor
Contracts which are included in the Company Assets.
Section 3.21 Public Utility Holding Company. Seller is not a "holding
company", a "subsidiary company" of a "holding company", an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company" or a
"public utility", as such terms are defined in the Public Utility Holding
Company Act of 1935 and the rules and regulations thereunder.
Section 3.22 Investment Company. Except as set forth in Schedule 3.22,
Seller is not subject to regulation under the Investment Company Act of 1940,
as amended, nor is Seller subject to regulation pursuant to any rules or
regulations promulgated thereunder.
Section 3.23 Acquisition Transactions. Except for the Letter of Intent and
this Agreement, neither Seller nor any of its Affiliates is a party to any
Contract, including any letter of intent or term sheet, in connection with,
related to or providing, directly or indirectly, for the acquisition of all or
any substantial part of the Facility Operations or the Company Assets.
Section 3.24 Real Property.
(a) The Real Property and the conduct of the Facility Operations thereon
as currently conducted do not violate in any material respect any provisions of
any applicable building code, fire, health or safety regulation, or any other
governmental ordinance, order or regulation (excluding any Environmental Laws).
(b) There are utility services, including water, sewer, and electricity
lines, to the Real Property, and neither Seller nor any of its Affiliates has
received notice from any applicable Governmental Authority or any other Person
that any such utilities will be terminated.
(c) The Real Property has full and free access to and from public
highways, streets or roads and, neither Seller nor any of its Affiliates has
received written notice of any pending or threatened proceeding by any
Governmental Authority which would impair or result in the termination of such
access.
13
<PAGE> 14
(d) Seller has furnished to Purchaser a current date as-built survey of
the Real Property prepared by Apex Engineering PLLC (the "Survey"). Purchaser
hereby acknowledges that the Survey is acceptable to Purchaser.
Section 3.25 Representations Relating to Securities.25 Representations
Relating to Securities.25 Representations Relating to Securities.
(a) Seller understands that the Preferred Stock has not been registered
under the Securities Act nor qualified under any state securities laws, and
that the Preferred Stock is being offered and delivered to Seller pursuant to
an exemption from such registration and qualification based in part upon the
representations of Seller contained herein.
(b) Seller has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an investment
in the Preferred Stock. Seller is able to bear the economic risk of such
investment, including, but not limited to, a complete loss of such investment.
(c) Seller understands: (i) that Seller must bear the economic risk of the
investment in the Preferred Stock indefinitely unless the Preferred Stock then
held by Seller is registered pursuant to the Securities Act or an exemption
from such registration is available, and unless the disposition of the
Preferred Stock is qualified under applicable state securities laws or an
exemption from such qualification is available; and (ii) that Purchaser has no
obligation or present intention of so registering or qualifying any of the
Preferred Stock. Seller further understands that there is no assurance that any
exemption from the Securities Act will be available, or, if available, that
such exemption will allow Seller to sell, assign, pledge, hypothecate, encumber
or otherwise transfer or dispose of (each, a "Transfer") any or all of the
Preferred Stock, held by Seller in the amounts or at the times Seller might
propose. Seller further understands and agrees that any certificates evidencing
the Preferred Stock will bear the following legend reflecting the statutory
restrictions on transferability:
Neither the securities represented by this certificate nor
any securities issuable upon conversion thereof have been
registered under the Securities Act of 1933, as amended (the
"Act"). These securities may not be sold, pledged,
transferred or otherwise disposed of without an effective
registration of such disposition under the Act or other
applicable securities laws or unless made pursuant to an
exemption therefrom.
At any such time as Pioneer has reasonable assurance that the Preferred Stock
(or securities issued in exchange therefor or upon conversion thereof) may be
sold publicly without requiring registration under the Act (Seller's delivery
of an opinion of nationally recognized counsel shall be deemed to be one of the
acceptable means of providing reasonable assurance for this purpose), upon (x)
the surrender of the certificates evidencing the Preferred Stock or such other
securities by the holders thereof and (y) written request of any such holder,
Pioneer shall, without charge, cancel all certificates evidencing the Preferred
Stock or such other securities and issue to the holder thereof replacement
certificates that do not bear such a legend.
(d) Seller is acquiring the Preferred Stock solely for its own account for
investment and not with a view toward a Transfer thereof, nor with any present
intention of distributing the Preferred Stock, except pursuant to an applicable
exemption under the Securities Act. Except as provided in this Agreement,
Seller has not granted to another Person any right with respect to or interest
in the Preferred Stock, nor has Seller agreed to give any Person any such
interest or right in the future.
Section 3.26 Brokers' Fees. Seller does not have any liability to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which Purchaser or any of its
Affiliates could become liable or obligated.
Section 3.27 Acknowledgment Concerning Purchaser Representations and
Warranties. Seller acknowledges and affirms that it has had the opportunity to
complete its own independent investigation, analysis and evaluation of
Purchaser and the business, assets, liabilities and prospects of Purchaser,
that Seller has been afforded the opportunity to inspect the assets of
Purchaser, that, in making its decision to acquire the Preferred Stock, Seller
has relied upon (i) its own independent investigation, analysis and evaluation
of the businesses, assets, liabilities and prospects of Purchaser, (ii) the
representations and warranties of Purchaser set forth in Article IV and in the
Related Agreements, and (iii) the covenants of Purchaser set forth in Article
V, in the Related Agreements and in the Preferred Stock, as a basis for such
acquisition, and that Seller has made all such reviews and inspections of the
foregoing as it has deemed necessary or appropriate.
Section 3.28 Limitation on Representation and Warranties
(a) Except as and to the extent expressly set forth in this Article III,
included on any Schedule hereto or included in any Related Agreement or other
writing delivered by Seller to Purchaser concurrently herewith or subsequent
hereto expressly pursuant to this Agreement, Seller makes no other
representation or warranty and disclaims all liability and responsibility for
any representation, warranty, statement or information (financial or otherwise)
made or communicated (orally or in writing) to Purchaser or any of its
Affiliates, employees, agents, consultants or representatives (including,
without limitation, any opinion, information, projection, financial statement
or advice that may have been provided to Purchaser by any officer, director,
employee, agent, consultant or representative of Seller or of any Affiliate
thereof).
14
<PAGE> 15
(b) WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AND WITHOUT
DIMINISHING IN ANY MANNER THE SCOPE OF THE REPRESENTATIONS AND WARRANTIES SET
FORTH IN THIS ARTICLE III, EXCEPT TO THE EXTENT EXPRESSLY SET FORTH IN THIS
ARTICLE III, SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS
TO THE FOLLOWING MATTERS: THE MAINTENANCE, REPAIR, SEAWORTHINESS, CONDITION,
QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF ANY OF THE COMPANY ASSETS,
INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY AS TO
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY OF THE COMPANY
ASSETS, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT PURCHASER
IS OBTAINING RIGHTS IN THE COMPANY ASSETS "AS IS", "WHERE IS" AND "WITH ALL
FAULTS". THE PROVISIONS OF THIS SECTION 3.28(b) HAVE BEEN SPECIFICALLY
NEGOTIATED IN THIS AGREEMENT.
(c) Seller makes no representation or warranty to Purchaser regarding the
probable success or future profitability of the Facility Operations or of any
of the Company Assets.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Subject to all of the terms, conditions and provisions of this Agreement,
Purchaser hereby represents and warrants to Seller, as of the date hereof, and
as of the Closing Date, as follows:
Section 4.01 Organization and Qualification. Purchaser is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware. Purchaser has all requisite corporate power and authority to
own, lease and operate its Assets and Properties and to carry on its business
as now being conducted. Purchaser is duly qualified or licensed to do business
and in good standing as a foreign corporation authorized to do business in each
other jurisdiction where, because of the nature of its Assets and Properties or
the nature of its business, such qualification or licensing is required, except
for such jurisdictions where the failure to be so qualified or licensed will
not have a Material Adverse Effect with respect to Purchaser.
Section 4.02 Authority. Purchaser has all requisite corporate power and
authority to execute and deliver this Agreement and each of the Related
Agreements to which Purchaser is a party, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Purchaser of
this Agreement and such Related Agreements, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action (including any stockholder action)
on the part of Purchaser, and no other corporate proceedings on the part of
Purchaser are necessary to authorize the execution and delivery by Purchaser of
this Agreement or such Related Agreements, or to consummate the transactions
contemplated hereby or thereby. Assuming the due authorization, execution and
delivery of this Agreement and such Related Agreements by the parties hereto
and thereto other than Purchaser, this Agreement constitutes, and when executed
and delivered by Purchaser, each of such Related Agreements will constitute, a
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws
affecting creditors' rights generally and general equitable principles (whether
applied in a court of law or equity).
Section 4.03 No Conflict. Except for Liens on certain of the Company
Assets to be granted by Purchaser in connection with financing for the
transactions contemplated by this Agreement or as otherwise set forth in
Schedule 4.03, the execution and delivery by Purchaser of this Agreement and
each of the Related Agreements to which Purchaser is a party, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not: (i) assuming the receipt of the Governmental Approvals and the
completion of the notifications, filings and registrations set forth on
Schedule 4.04, violate any provision of any Law, or of any Governmental
Approval or any writ, injunction, order, judgment or decree of any Governmental
Authority, in each case presently in effect and applicable to Purchaser or any
Affiliate of Purchaser or the Assets and Properties of Purchaser, (ii) result
in a breach of or constitute (with or without the giving of notice or the
passage of time or both) a default under (x) the charter or by-laws of
Purchaser, or (y) any resolution adopted by the Board of Directors or
stockholders of Purchaser, (iii) result in a breach of or constitute (with or
without the giving of notice or the passage of time or both) a default under
any Contract to which Purchaser is a party or by which Purchaser or any of
Purchaser's Assets and Properties is bound or affected, or (iv) result in, or
require, the imposition or creation of any Lien upon Purchaser's Assets and
Properties.
Section 4.04 Consents and Approvals. Except as set forth in Schedule 4.04,
no Governmental Approvals, and no consents, licenses, authorizations,
approvals, Permits, notifications, filings or registrations to or with any
Person, are required to be obtained or made by Purchaser, or any of its
Affiliates, in connection with the execution and delivery by Purchaser of this
Agreement or any of the Related Agreements to which Purchaser is a party or the
consummation of the transactions contemplated hereby or thereby, other than (i)
such Governmental Approvals, consents, licenses,
15
<PAGE> 16
authorizations, approvals, Permits, notifications, filings and registrations
which have been obtained or made and are in full force and effect and (ii)
other filings with Governmental Authorities in the Ordinary Course of
Business of Purchaser that are not required to be made prior to the
consummation of the transactions contemplated by this Agreement or such Related
Agreements.
Section 4.05 Litigation. Except as set forth in the Purchaser SEC Reports,
there is no action, suit, proceeding, arbitration, assessment or investigation
served or pending of which Purchaser or any of its Affiliates has received
notice, or, to the knowledge of Purchaser, threatened before or by any
Governmental Authority or any other Person, which would have a Material Adverse
Effect with respect to Purchaser and its subsidiaries, taken as a whole. There
is no such action, suit, proceeding, arbitration, assessment or investigation
pending or, to the knowledge of Purchaser or any of its Affiliates threatened,
which seeks to restrain or enjoin the execution and delivery of this Agreement
or any of the Related Agreements or the consummation of any of the transactions
contemplated hereby or thereby. Except as set forth in the Purchaser SEC
Reports, there are no outstanding judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a Governmental Authority or by an
arbitrator) against Purchaser or any of its Affiliates: (i) which could
reasonably be expected to have a Material Adverse Effect with respect to
Purchaser or (ii) which prohibit or restrict, or could reasonably be expected
to result in any delay of, the consummation of the transactions contemplated by
this Agreement or any of the Related Agreements.
Section 4.06 Capitalization of Purchaser.
(a) The authorized capital stock of Purchaser consists of (i) 46,000,000
shares of Class A Common Stock, $0.01 par value ("Class A Common"), of which
7,905,813 shares were issued and outstanding on December 31, 1996, and
4,000,000 shares of Class B Common Stock, $0.01 par value ("Class B Common"),
of which 655,199 shares were issued and outstanding on December 31, 1996 (such
issued and outstanding shares of Class A Common and Class B Common being herein
referred to as the "Purchaser Securities"), and (ii) 10,000,000 shares of
preferred stock, par value $.01 per share, of which no shares are issued and
outstanding on the date of this Agreement and no such shares will be issued and
outstanding as of the Closing Date except the Preferred Stock to be issued
pursuant to the terms hereof. All of the Purchaser Securities have been duly
authorized and are validly issued, fully paid and nonassessable, and no shares
of the capital stock of Purchaser are subject to, or issued in violation of,
any preemptive rights. The Preferred Stock has been duly authorized and, when
issued and delivered as contemplated herein, will be validly issued, fully paid
and nonassessable, free of any preemptive rights, and will have the
designations, rights and preferences set forth in the Designation of Series A
Preferred Stock. Purchaser has reserved for issuance, and will continue to so
reserve, out of its authorized but unissued shares of Class A Common, a number
of shares of Class A Common sufficient to honor in full conversion of the
Preferred Stock. The Class A Common issued upon conversion of the Preferred
Stock has been duly authorized and, when issued and delivered, will be validly
issued, fully paid and nonassessable, free of any preemptive rights.
(b) Except for this Agreement, the Purchaser Securities and securities
issued or reserved for issuance (and which may be issued prior to Closing) as
reflected in Schedule 4.06(b), there are no outstanding options, warrants,
agreements, conversion rights, preemptive rights or other rights to subscribe
for, purchase or otherwise acquire any of the shares of capital stock of
Purchaser or any unissued shares of such capital stock.
Section 4.07 Purchaser Financial Statements. Purchaser has delivered to
Seller audited consolidated balance sheets and statements of income and cash
flows of Purchaser and its subsidiaries as of the close of its fiscal year
ended December 31, 1996 and the preceding fiscal year, accompanied by a report
of independent auditors, which financial statements (including the notes
thereto) are collectively referred to as "Purchaser Financial Statements". The
Purchaser Financial Statements have been prepared in accordance with GAAP and
present fairly in all material respects the consolidated financial position of
Purchaser as of the dates indicated therein and the results of operations and
cash flow for the respective periods indicated therein (except as otherwise
noted therein).
Section 4.08 No Adverse Change. Since December 31, 1996, there has been no
material adverse change in the business, financial condition, results of
operations or prospects (in the case of prospects, not taking into account
general economic conditions or general industry developments) of Purchaser and
its subsidiaries, taken as a whole.
Section 4.09 SEC Reports. Purchaser has delivered to Seller copies of its
(i) Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
(ii) proxy and information statements relating to all meetings of its
stockholders (whether annual or special) from January 1, 1997 until the date
hereof, and (iii) all other reports or registration statements filed by
Purchaser with the SEC since January 1, 1997 and prior to the date hereof
(other than registration statements filed on Form S-8) (collectively, the
"Purchaser SEC Reports"). As of their respective dates, the Purchaser SEC
Reports complied (and all other reports and registration statements filed by
Purchaser with the SEC after the date hereof and prior to Closing will comply)
in all material respects with the applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and in each case, at the time filed, did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
16
<PAGE> 17
Section 4.10 Brokers' Fees. Purchaser does not have any liability to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which Seller or any of its
Affiliates could become liable or obligated.
Section 4.11 Public Utility Holding Company. Purchaser is not a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate"
of a "holding company" or of a "subsidiary company" of a "holding company", or
a "public utility", within the meaning of the Public Utility Holding Company
Act of 1935 and the rules and regulations promulgated thereunder.
Section 4.12 Investment Company. Purchaser is not subject to regulation
under the Investment Company Act of 1940, as amended, nor is Purchaser subject
to regulation pursuant to any rules or regulations promulgated thereunder.
Section 4.13 Employee Benefit Plans.
(a) Disclosure. Schedule 4.13 sets forth a complete and accurate list of
all the Purchaser Benefit Plans referred to in Section 5.24(i). Except as set
forth in Schedule 4.13, Purchaser has furnished Seller with true and complete
copies of: (i) all such Purchaser Benefit Plans, including all amendments
thereto and all summary plan descriptions thereof; (ii) the most recent
statement of assets with respect to each such Purchaser Benefit Plan, (iii) the
most recent annual report (form 5500) filed with respect to each such Purchaser
Benefit Plan; and (iv) the most recent favorable Internal Revenue Service
determination letter received with respect to each such Purchaser Benefit Plan
that is intended to be qualified under Section 401(a) of the Code or trust
intended to be exempt under Section 501(a) of the Code.
(b) Compliance with Laws and Plan Terms and Plan Qualification. With
respect to each Purchaser Benefit Plan referred to in Section 5.24(i),
Purchaser has complied in all material respects with, and each such Purchaser
Benefit Plan conforms in all material respects to and has from its inception
been operated in all material respects in compliance with, all applicable Laws,
including, without limitation, ERISA and the Code, and each such Purchaser
Benefit Plan has been administered in all material respects in accordance with
its terms. All contributions required to be made on or before the date of this
Agreement to such Purchaser Benefit Plans have been timely made. Each such
Purchaser Benefit Plan is qualified under Section 401(a) of the Code and each
trust is exempt under Section 501(a) of the Code.
(c) Prohibited Transactions; Reportable Events. None of the Purchaser
Benefit Plans referred to in Section 5.24(i) has engaged, or is about to
engage, in a Prohibited Transaction, and no "reportable event" (as defined in
Section 4043 of ERISA) has occurred or is about to occur, in either case, which
could result in any material Liability to Purchaser.
Section 4.14 Acknowledgment Concerning Seller Representations and
Warranties. Purchaser acknowledges and affirms that it has had the opportunity
to complete its own independent investigation, analysis and evaluation of
Seller, the Company Assets and the Facility Operations, that Purchaser has been
afforded the opportunity to inspect the Company Assets and the Facility
Operations, that, in making its decision to acquire the Company Assets,
Purchaser has relied upon (i) its own independent investigation, analysis and
evaluation of the Company Assets and the Facility Operations, (ii) the
representations and warranties of Seller set forth in Article III and in the
Related Agreements, and (iii) the covenants of Seller and its Affiliates set
forth in Article V and in the Related Agreements, as a basis for such
acquisition, and that Purchaser has made all such reviews and inspections of
the foregoing as it has deemed necessary or appropriate.
Section 4.15 Limitation on Representations and Warranties.
(a) Except as and to the extent expressly set forth in this Article IV,
included on any Schedule hereto or included in any Related Agreement or any
other writing delivered by Purchaser to Seller concurrently herewith or
subsequent hereto expressly pursuant to this Agreement, Purchaser makes no
other representation or warranty and disclaims all liability and responsibility
for any representation, warranty, statement or information (financial or
otherwise) made or communicated (orally or in writing) to Seller or any of its
Affiliates, employees, agents, consultants or representatives (including,
without limitation, any opinion, information, projection, financial statement
or advice that may have been provided to Seller by any officer, director,
employee, agent, consultant or representative of Purchaser or of any Affiliate
thereof).
(b) Purchaser makes no representation or warranty to Seller regarding the
probable success or profitability of Purchaser.
Section 4.16 Citizenship of Purchaser. Purchaser is a citizen of the
United States of America as defined in 46 U.S.C. ss. 802, and the regulations
in effect thereunder, and is entitled to own vessels, to operate them in the
coastwise trade of the United States, and to document them for that trade
pursuant to Chapter 121 of Title 46 of the United States Code, and the
regulations in effect thereunder.
17
<PAGE> 18
ARTICLE V
COVENANTS
Section 5.01 Access to Properties and Records.
(a) After the date hereof and prior to the Closing Date or the earlier
termination of this Agreement, Seller shall (i) afford to Purchaser and its
accountants, counsel, financial advisors, agents and other representatives
involved in the transactions contemplated by this Agreement and the Related
Agreements (the "Purchaser Representatives"), upon reasonable request, during
normal business hours, full and complete access to the offices, Assets and
Properties, Books and Records and personnel of Seller, in each case to the
extent relating exclusively to or used exclusively in connection with the
Facility Operations, and (ii) use commercially reasonable efforts to assist and
to accompany Purchaser in contacting representatives of customers, suppliers
and distributors of Seller (other than national account customers) for the
purposes of facilitating Purchaser's investigation of the Facility Operations
and to plan for consummation of the Closing; provided, however, (x) that such
investigation shall be conducted in such a manner so as to not cause any
unreasonable disruption of or to the personnel and operations of Seller, (y)
such investigation would not result in a waiver of any attorney-client, work
product or similar privilege and (z) Purchaser shall not contact such
customers, suppliers or distributors of Seller for such purpose without Seller.
Notwithstanding any term or other provision of this Section 5.01(a) or
elsewhere in this Agreement, prior to the Closing, Purchaser will not have
access to personnel records of Seller relating to individual performance or
evaluation records, medical histories or other information, the disclosure of
which could, in the reasonable opinion of Seller, subject Seller to risk of
liability. Subject to Section 5.08, no investigation pursuant to this Section
5.01 shall affect any representations or warranties made in this Agreement or
any of the Related Agreements or the conditions to the obligations of the
respective parties to consummate the transactions contemplated hereby or
thereby.
(b) In the event that this Agreement is terminated in accordance with its
terms, each Party shall promptly destroy or redeliver to the other all
non-public written material provided pursuant to this Section 5.01 or otherwise
and shall not retain any copies, extracts or other reproductions in whole or in
part of such written material. In such event, all documents, memoranda, notes
and other writings prepared by Purchaser based on the information in such
material shall also be destroyed (and Purchaser shall use commercially
reasonable efforts to cause the Purchaser Representatives to similarly destroy
their documents, memoranda, notes and other writings).
(c) Purchaser shall provide Seller with copies of all reports filed by
Purchaser with the SEC after the date hereof and prior to the Closing Date.
Section 5.02 Closing Conditions; Obtaining Consents; Novations.
(a) After the date hereof and prior to the Closing Date or the earlier
termination of this Agreement, subject to the terms and conditions herein
provided, each of Seller and Purchaser agrees to use commercially reasonable
efforts to take, or cause to be taken, all actions and to use commercially
reasonable efforts to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and to cooperate in connection with
the foregoing, including using commercially reasonable efforts to: (i) obtain
all waivers, consents and approvals required to be obtained from other parties
to Contracts of Seller; (ii) obtain all Governmental Approvals required to be
obtained under any Law; (iii) effect all necessary registrations and filings
including submissions of information requested by Governmental Authorities; and
(iv) fulfill its respective conditions (to the extent within its control) set
forth in Article VI of this Agreement.
(b) After the date hereof and prior to the Closing Date or the earlier
termination of this Agreement, subject to the terms and conditions herein
provided, each of Seller and Purchaser agrees to use commercially reasonable
efforts to novate, effective as of the Closing but not otherwise, each of the
Contracts listed on Schedule 5.02(b) between OCC or Seller and the distributor
or customer identified therein such that: (i) OCC and Seller shall be released
from any and all Liabilities arising under or relating to each such Contract in
connection with OCC's or Seller's obligation, after the Closing, to provide to
such customer or distributor the products designated in Schedule 5.02(b) to the
locations designated in Schedule 5.02(b); (ii) OCC or Seller shall remain
obligated to the respective customer or distributor pursuant to the terms and
conditions of each such Contract except to the extent OCC or Seller shall be
released therefrom as provided in clause (i) above; and (iii) Purchaser shall
enter into a Contract with each such customer or distributor with respect to
the supply of the products to the locations covered by clause (i) above which
Contracts shall be effective as of the Closing but not otherwise.
Section 5.03 Further Assurances. Each of Seller and Purchaser agrees that,
from time to time, whether at or after the Closing Date, it will take, and will
cause its Affiliates to take, such other action as may be reasonably requested
and necessary or appropriate to carry out the purposes and intent of this
Agreement and any Related Agreement. Each of Seller and Purchaser agrees that,
from time to time after the Closing Date, at the request of the other Party,
it, to the extent it then may lawfully do so: (i) shall, and shall cause each
of its Affiliates to, take such actions and execute, acknowledge and deliver
such deeds, assignments, conveyances, transfers, powers of attorney and
assurances as may reasonably be necessary to effect or evidence the transfer to
Purchaser of any of the Company Assets held by or in the name of, or which may
appear in any public record to be owned by, any such Person; and (ii) shall
cooperate with the requesting Party in transferring to Purchaser (x) the
Assumed Obligations and (y) all Governmental Approvals, if any, that are held
by any such Person or any of their respective predecessors and are necessary to
the Facility Operations or to the operation or maintenance of the Company
Assets.
18
<PAGE> 19
Section 5.04 Conduct of Business. Except as otherwise contemplated by this
Agreement or the Related Agreements, or as set forth in Schedule 5.04, after
the date hereof and prior to the Closing Date or earlier termination of this
Agreement, unless Purchaser shall otherwise consent in writing, which consent
shall not be unreasonably withheld, Seller shall:
(a) not take or perform any act or refrain from taking or performing any
act which, if taken or performed or failed to be taken or performed between the
date of the most recent Financial Statements and the date hereof, would have
resulted in a breach of the representations and warranties of Seller set forth
in Section 3.07;
(b) not enter into any agreement, or extend an existing agreement, for the
purchase or sale of chlorine or caustic soda that will survive after the
Closing Date other than in the Ordinary Course of Business of Seller and its
Affiliates;
(c) not sell (other than sales of Inventory and scrap or surplus equipment
in the Ordinary Course of Business of Seller and its Affiliates), pledge,
lease, license or otherwise transfer any of the Company Assets;
(d) not enter into any Contract relating to the Facility Operations, or
amend, modify or terminate any such Contract, other than in the Ordinary Course
of Business of Seller and its Affiliates;
(e) promptly notify Purchaser of any material development affecting the
Company Assets or the Facility Operations; provided, however, that such notice
need not contain any information the disclosure of which to Purchaser would be
prohibited by Law; and
(f) not enter into any Contract to (i) take or perform any act which
Seller is required to not take or perform pursuant to this Section 5.04 or (ii)
refrain from taking or performing any act which Seller is required to take or
perform pursuant to this Section 5.04.
Nothing contained in this Agreement shall give to Purchaser, directly or
indirectly, rights to control or direct the conduct of the Facility Operations
prior to the Closing Date. Prior to the Closing Date, Seller or its Affiliates
shall exercise, consistent with the terms and conditions of this Agreement,
complete control and supervision of the Facility Operations.
For any matter for which Seller shall request the consent of Purchaser
under this Section 5.04, Seller shall give written notice to Purchaser
describing such matter in reasonable detail and requesting consent under this
Section 5.04. Within five Business Days of receipt of any notice given by
Seller under this Section 5.04, Purchaser shall promptly grant or withhold its
consent by giving written notice to Seller or by giving telephonic notice to
Seller, promptly thereafter confirmed by written notice; provided, however,
that, if Purchaser fails to notify Seller of its grant or withholding of such
consent within such period of time, Purchaser shall be deemed to have consented
to such matter.
Section 5.05 Public Announcements. Except as required by Law or pursuant
to the rules or regulations of any national securities exchange, without the
prior written approval of the other Party, neither Seller nor Purchaser will
issue, or permit any agent or Affiliate thereof to issue, any press release or
otherwise make or permit any agent or Affiliate thereof to make, any public
statement or announcement with respect to this Agreement, the Related
Agreements or the transactions contemplated hereby and thereby; provided,
however, that to the extent that, in the opinion of their respective counsels,
any press releases or written public statements are required to be made by
Seller or Purchaser pursuant to any Law or pursuant to any such rules or
regulations, the Parties will consult with each other prior to issuing any such
press release or written public statement.
Section 5.06 Acquisition Transactions. After the date hereof and prior to
the Closing Date or the earlier termination of this Agreement, neither Seller
nor any of its Affiliates shall initiate, solicit, negotiate, or knowingly
encourage any submissions of inquiries, proposals or offers from any potential
buyer (other than Purchaser or any of its Affiliates) to, directly or
indirectly, acquire all or any substantial part of the Facility Operations or
the Company Assets, whether by merger, purchase of assets, tender offer or
otherwise, and whether for cash, securities or any other consideration or
combination thereof. In the event that Seller shall breach any of the covenants
contained in this Section 5.06, Purchaser shall have the right, as its sole
remedy, to recover from Seller the direct, reasonable out-of-pocket expenses
incurred by Purchaser in negotiating the definitive terms and conditions of
this Agreement and the Related Agreements, undertaking to obtain the financing
necessary to consummate the transactions contemplated by this Agreement and
conducting its review of the Company Assets and the Facility Operations.
Section 5.07 Casualty Loss and Condemnation.
(a) In the event of, prior to the Closing, (i) the destruction of, or
material damage to, any Company Asset which shall, together with all other
Company Assets damaged or destroyed, have a Replacement Cost exceeding $250,000
(a "Casualty Event") which Seller shall have elected not to repair, rebuild,
19
<PAGE> 20
restore or replace as provided below, or (ii) the condemnation of any Company
Asset which shall, together with all other Company Assets so condemned, have a
Replacement Cost exceeding $250,000, Purchaser, at its option, may elect, prior
to Closing:
(x) to exclude such Company Asset and to treat such
Company Asset as an Excluded Asset, provided, however, that the
Purchase Price shall be reduced by the Replacement Cost of such
Company Asset to reflect the exclusion of such Company Asset; or
(y) in the event that such damage, destruction or
condemnation would prevent Purchaser from operating the Facility
immediately after the Closing, to terminate this Agreement.
(b) In the event that such Company Asset or all such Company Assets
damaged, destroyed or condemned shall have a Replacement Cost which exceeds $20
million, either Purchaser or Seller may elect, prior to Closing, to terminate
this Agreement.
(c) Seller shall give Purchaser prompt written notice (a "Casualty
Notice") of any such condemnation or Casualty Event, indicating the Company
Asset or Company Assets which suffered such condemnation or Casualty Event, and
Seller's estimate of the Replacement Cost (subject to dispute resolution as
provided in Section 5.07(g)) of each such Company Asset accompanied, in the
case of any Casualty Event, by copies of all insurance related thereto, any
deductibles or retention applicable thereto, any defenses threatened or
asserted by the insurer or known to Seller, its estimate of, and all available
information relevant to, the cost of repair, rebuilding, restoration or
replacement thereof, and any other information reasonably requested by
Purchaser. In the case of any retention or deductible, Seller shall provide to
Purchaser prompt notice of such retention or deductible. Purchaser shall make
any election permitted by Section 5.07(a) promptly, but in any event within
five Business Days of the receipt of a Casualty Notice.
(d) In the event of the occurrence of any Casualty Event with respect to
any Company Asset, Seller may, in the applicable Casualty Notice, elect to
repair, rebuild, restore or replace such Company Asset. Upon any such election,
Purchaser shall have the option, exercisable by notice to Seller on or before
the fifth Business Day after such Casualty Notice (but in any event prior to
the Closing), to accept such Company Asset without such repair, rebuilding,
restoration or replacement, in which event the Purchase Price shall be reduced
by the Replacement Cost of such Company Asset. In the event that Purchaser does
not exercise such option, Seller shall promptly undertake to repair, rebuild,
restore or replace such Company Asset to substantially the same condition as
prior to the event causing such destruction or damage.
(e) With respect to any such Company Asset that has been condemned or has
suffered a Casualty Event (other than any Company Asset that Seller has elected
to repair, rebuild, restore or replace), Purchaser may, in lieu of any
reduction to the Purchase Price set forth in clause (x) of subsection (a) of
this Section 5.07 and by notice to Seller set forth in the election by
Purchaser referred to in subsection (a) of this Section 5.07, request that
Seller, and, upon any such request, Seller shall, (i) pay to Purchaser, at the
Closing, all sums theretofore paid to Seller by third parties by reason of such
condemnation or Casualty Event, (ii) assign to Purchaser, no later than the
Closing, all of the right, title and interest of Seller in and to any unpaid
awards or other amounts payable by third parties or under Seller's personal
property and casualty insurance policies arising out of such condemnation or
Casualty Event, and (iii) pay to Purchaser any deductible or retention under
any applicable insurance.
(f) At any time during which Purchaser may elect to receive the proceeds
thereof pursuant to Section 5.07(e), Seller shall not, without the consent of
Purchaser, compromise, settle or adjust any material amounts receivable by
reason of any condemnation or Casualty Event occurring with respect to any such
Company Asset.
(g) If the Replacement Cost of any Company Asset must be determined,
Seller shall submit to Purchaser an estimate of the Replacement Cost of such
Company Asset. If, on or before the fifteenth calendar day after Seller shall
have provided such an estimate, Seller and Purchaser shall not have reached
agreement on the Replacement Cost of such Company Asset, Seller and Purchaser
shall each designate, on or before the tenth calendar day after the expiration
of such 15-day period, an appraiser which shall be an individual, experienced
in such matters in the State of Washington, with which the Party selecting the
same and any Affiliate of such Party has not conducted business within five
years prior to such designation. The two appraisers shall then select a third
appraiser. Purchaser and Seller shall within five days after the date of the
selection of the third appraiser each present to each of the appraisers a
written estimate of the Replacement Cost, together with such information in
support of such estimate as Purchaser or Seller shall desire. The appraisers
shall as soon as reasonably practicable, but within fifteen days after the
submission of the last estimate by Purchaser or Seller, select either
Purchaser's or Seller's estimate as the one which most closely approximates the
Replacement Cost of the Company Asset. The decision of two of the three
appraisers shall be the final decision and shall be binding on the Parties. The
cost of such appraisal shall be shared equally by Seller and Purchaser. Seller
and Purchaser shall provide such appraisers all information reasonably
requested by such appraisers to determine the Replacement Cost of such Company
Asset.
Section 5.08 Certain Notifications; Specific Performance.
(a) Prior to Closing, each of the Seller and the Purchaser shall promptly
notify the other Party if, to the knowledge of the Seller or the
20
<PAGE> 21
Purchaser, as the case may be, any event, fact or condition exists which
constitutes or will constitute a material breach by the other Party of any
representation, warranty, covenant or agreement set forth in this Agreement or
any of the Related Agreements. In the event of any such breach by any Party,
the other Party may elect to consummate the transactions contemplated by this
Agreement, and, upon any such election, (i) the Parties may enter into a
mutually acceptable amendment to this Agreement addressing such breach and any
other matters related thereto, or (ii) such other Party shall be deemed to have
unilaterally waived such breach, provided that in no event shall the Party
responsible for such breach be required to enter into any such amendment unless
such amendment provides that such breach shall be deemed unconditionally waived
by such other Party for all purposes of this Agreement; provided, however, that
the preceding shall not apply to any representations, warranties, covenants or
agreements set forth in the Environmental Operating Agreement.
(b) This Agreement shall not be specifically enforceable, except that, in
the event of the satisfaction by Seller, on the one hand, or Purchaser, on the
other hand, of their respective conditions to Closing (including any such
satisfaction by waiver by the other Party or parties), the obligation of Seller
or Purchaser, as the case may be, to consummate the transactions contemplated
by this Agreement shall be specifically enforceable by such other Party or
parties to the full extent permitted by Law.
Section 5.09 Title Policy. At Closing, Seller shall furnish to Purchaser a
Standard Owner Title Policy covering the Site and all improvements thereon
issued by Transnation Title Company ("Title Company") on the 1970 policy form
in the amount of $75,000,000 (the "Title Policy"), which shall be substantially
in the form attached hereto as Exhibit B, subject to the following revisions:
(i) Special Exception No. 5 on Schedule B thereto shall be deleted in its
entirety; (ii) Special Exception No. 7.C. on Schedule B thereto shall be
deleted in its entirety; and (iii) Special Exception No. 9 on Schedule B
thereto shall be deleted in its entirety. In connection with the issuance of
the Title Policy, Title Company shall be required to reinsure $37,500,000 of
the Title Policy with Commonwealth Land Title Insurance Company ("Reinsurer")
and provide Purchaser with a direct access reinsurance agreement with
Reinsurer. Seller shall pay the base premium required in connection with the
issuance of the Title Policy and Purchaser shall pay for the cost of obtaining
the extended coverage endorsement and all other endorsements issued in
connection with the Title Policy, including, but not limited to, the costs of
reinsurance, if any. Subject to the preceding, Purchaser hereby acknowledges
that the Title Commitment is acceptable to Purchaser. Seller shall not object
to Purchaser's purchase from a title insurer, at Purchaser's sole cost, expense
and obligation, any other extended coverage and other title coverage or
endorsements as Purchaser may choose.
Section 5.10 Antitrust Law Compliance. Seller and Purchaser have
heretofore prepared and filed with the United States Department of Justice (the
"Department") and the Federal Trade Commission (the "FTC") the notification and
report form with respect to the transactions contemplated by this Agreement as
required pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
and the statutory waiting period has expired. Seller and Purchaser shall each
cooperate with the other in responding to any inquiries of the Department or
the FTC with respect to such filings.
Section 5.11 Sureties and Financial Commitments. With respect only to
those commitments (which may include Assumed Obligations) of Seller or any
Affiliate of Seller set forth on Schedule 5.11, Purchaser shall use all
reasonable commercial efforts to (i) substitute, as of the Closing Date, the
commitment of Purchaser (or its permitted assignee hereunder) for all
commitments of Seller or any of its Affiliates in respect of any Assumed
Obligation or Company Asset or to (x) any Governmental Authority in support of
(A) any Permit affecting the Company Assets or the operation thereof which is,
or is purported to be, assigned to Purchaser under the Conveyance Instrument,
or (B) any Contract between Seller and any Governmental Authority relating to
the Company Assets or the operation thereof which is, or is purported to be,
assigned to Purchaser under the Conveyance Instrument, (y) any financial
institution or surety company providing an undertaking to either a Governmental
Authority or any other Person that is a party to any Contract with Seller
relating to the Company Assets or the operation thereof which is, or is
purported to be, assigned to Purchaser under the Conveyance Instrument, and (z)
any other Person that is a party to any Contract with Seller relating to the
Company Assets or the operation thereof which is, or is purported to be,
assigned to Purchaser under the Conveyance Instrument, or (ii) otherwise
arrange for the release of Seller or any Affiliate of Seller from any such
commitment. In the event that Purchaser shall fail to arrange any such
substitution or release, Purchaser shall not sell, transfer or otherwise
dispose of any of the Company Assets to which any such commitment of Seller or
any of its Affiliates relates without the prior written consent of Seller,
which consent shall not be unreasonably withheld.
Section 5.12 Financing Materials. As far in advance as is possible,
Purchaser shall provide Seller with drafts and final copies of each financing
document or other offering document (including in each case updates) of
Purchaser or any of its Affiliates that Purchaser or any such Affiliate shall
prepare for the purpose of seeking financing to enable Purchaser to consummate
the transactions contemplated by this Agreement. Purchaser shall provide Seller
with a reasonable opportunity to object to the inclusion or character of any
information pertaining to Seller or the transactions contemplated by this
Agreement or any Related Agreement that is contained in any offering
document(s), and Purchaser shall, prior to commencing any such offering,
consider the corrections reasonably requested by Seller with respect to such
information provided that any such objections shall have been communicated to
Purchaser or its representatives within three Business Days after the day
Seller receives the applicable draft offering document(s). In addition, as
reasonably requested by Seller, Purchaser shall advise Seller of the status of
any negotiations with any prospective lenders to Purchaser or any such
Affiliate regarding such financing. Nothing set forth in this Agreement or in
the Financial Statements shall be deemed to be a consent by Arthur Andersen LLP
to the inclusion of the Financial Statements or any other financial statements
in any such financing document.
Section 5.13 Insurance Claims. From and after the Closing, Seller and
Purchaser shall each cooperate with the other in making information available
to the other Party to assist such Party in preparing and filing any insurance
claims relating to occurrences prior to the Closing
21
<PAGE> 22
Date and pertaining to the Company Assets or the Facility Operations. No
policy, binder or contract of insurance which is currently in force and
providing coverage for Seller or any of its Affiliates or the Company Assets
will cover the Company Assets, Purchaser's interest therein or the Facility
Operations after the Closing. After the Closing, Seller or its representatives
may issue a cancellation notice with respect to any document evidencing
insurance then outstanding under each policy which is owned by Seller or any of
its Affiliates.
Section 5.14 Pierce County Series 1993 Bonds. Upon the conveyance of the
Project (as such term is defined in the Revenue Bonds Loan Agreement) from
Seller to Purchaser in accordance with the provisions of the Environmental
Operating Agreement, Purchaser will not make any changes in the Project which
would, at the time made, result in the interest on the Revenue Bonds becoming
subject to federal income taxation, or would otherwise violate any provisions
of any Laws (excluding any Environmental Laws).
Section 5.15 Additional Financial Statements. As soon as such statements
are prepared, Seller shall caused to be delivered to Purchaser copies of the
balance sheets, statements of income and retained earnings and statements of
cash flow of the Facility Operations as at and for each of the three month
periods ended March 31, 1996 and 1997, as certified by the chief financial
officer of OCC (and upon delivery to Purchaser, such statements shall be deemed
included for all purposes in the definition of Financial Statements, except
that there need be no audit performed or certification issued by Arthur
Andersen LLP with respect to such additional financial statements). Such
additional financial statements shall be prepared in accordance with GAAP and
present fairly in all material respects the financial position of the Facility
Operations as of the dates indicated therein and the results of operations and
cash flows for the respective periods indicated therein (except as otherwise
noted therein).
Section 5.16 Removal of Excluded Assets. Not later than five days prior to
the Closing, Seller shall remove any Excluded Asset (other than personal
property utilized for investigation or remediation of any Environmental
Condition on the Site or property identified as an excluded asset in the
Technology License Agreement) which is located on any Company Asset to a
location which Seller retains.
Section 5.17 Wheels Lease. Prior to the Closing, Seller and Purchaser
shall use all reasonable commercial efforts (i) to obtain all requisite
consents from Wheels, Inc. for the assignment or transfer to Purchaser of all
rights and obligations with respect to that portion of the Wheels Lease that
relates to the Vehicles, (ii) to have Purchaser enter into a new lease
agreement whereby Purchaser shall assume all liability arising from and after
the date of such lease agreement with respect to the Vehicles, and (iii) to
have Wheels, Inc. release Seller and any of its Affiliates from any liability
from and after the date of such release with respect to the Vehicles. In the
event that, on or prior to the Closing Date, the requisite consent for such
transfer is not obtained, and Purchaser does not execute a new lease agreement
with Wheels, Inc., Seller shall, at the Closing, assign its rights to the
Vehicles to Purchaser, and Purchaser shall, by an instrument in writing,
indemnify Seller from and against any liability arising from and after the
Closing Date with respect to the Vehicles. Such assignment shall cover the
Vehicles only for the remaining term of the Wheels Lease.
Section 5.18 Prorations.
(a) Any real and personal property taxes and ad valorem taxes with respect
to the Site and the Facility for any taxable period commencing prior to the
Closing Date and ending after the Closing Date shall be apportioned on a per
diem basis between (i) the period commencing on the initial day of such taxable
period and ending one day prior to the Closing Date ("Pre-Closing Taxes"), and
(ii) the period commencing on the Closing Date and ending on the last day of
such taxable period ("Post-Closing Taxes"). On the Closing Date, or as promptly
as practicable following the Closing Date, but in no event later than sixty
(60) calendar days thereafter, Pre-Closing Taxes and Post-Closing Taxes, local
business or other license fees or taxes, rents under the Leases assumed by
Purchaser, merchants' association dues and other similar periodic charges
payable with respect to the Site and the Facility shall be prorated between
Purchaser and Seller effective as of the Closing Date. A preliminary and
estimated proration schedule reflecting all proration items is attached hereto
as Schedule 5.18. If any of the real property or personal property tax rates
for the current tax year are not established by the Closing Date, the
prorations shall be made on the basis of the rate in effect for the preceding
tax year, and such proration shall be adjusted upon presentation of written
evidence by Purchaser that the actual taxes paid differ from the amount used on
the Closing Date. Any payment by Seller or Purchaser required by this Section
5.18 shall be made within five (5) days after a mutually acceptable
determination of the amount due.
(b) Seller shall use reasonable commercial efforts to have (i) meters for
electricity, telephone, gas and water read as of the opening of business on the
Closing Date, and (ii) bills rendered to Seller based on such readings. Seller
shall cooperate with Purchaser in arranging for the transfer of such services.
To the extent such meter readings are not taken on the Closing Date or are not
used as the basis for calculating all charges applicable on such date, such
electricity, telephone, gas and water utility charges shall be pro-rated as of
the opening of business on the Closing Date between Purchaser and Seller
effective as of the Closing (based on the number of days in applicable
pre-Closing and post-Closing periods). Seller shall deliver to Purchaser copies
of each relevant bill or statement to the extent relating to the proration
obligations under this Section 5.18. Any dispute over utility or any other
prorations shall be resolved in the manner set forth in the last two sentences
of Section 2.04(a).
22
<PAGE> 23
Section 5.19 Books and Records.
(a) Inspection. Each of Seller and Purchaser agrees that, for a period of
five years following the Closing Date, such Party shall take all necessary
action to ensure that (i) all Books and Records pertaining to the Company
Assets or the Facility Operations (including, to the extent applicable to the
Facility Operations, any Books and Records with respect to customers of the
Facility prior to the Closing Date that may also be customers of Seller or its
Affiliates) with respect to periods ending on or before the Closing Date and in
the possession or control of such Party or any of its Affiliates shall be open
for inspection by representatives of the other Party at any time during regular
business hours, and (ii) such other Party may during such period at its expense
make such excerpts therefrom as it may reasonably request.
(b) Destruction and Cooperation. For a period of five years following the
Closing Date (or for such longer period as may be required by Law), no Party or
any of its Affiliates shall destroy or give up possession of any of the Books
and Records relating to any matter for which a Party shall have any continuing
responsibility under this Agreement without first offering to the other Party
the opportunity, at its expense, to obtain such Books and Records. During such
period, each Party shall use its commercially reasonable efforts to cooperate
with the other Party and make available such Books and Records to the employees
and representatives of such Party to the extent that such Party may reasonably
require for its corporate and other business purposes (including, without
limitation, attendance at depositions or legal proceedings, or audits requested
by such Party to be performed by such Party's independent accountants for any
period through the Closing Date).
Section 5.20 Tradenames or Trademarks of Seller and its Affiliates.20
Tradenames or Trademarks of Seller and its Affiliates.20 Tradenames or
Trademarks of Seller and its Affiliates. As promptly as reasonably practical
and in any event within 180 days after the Closing, Purchaser shall eliminate
the word "Occidental," "OxyChem" or "Oxy," or any word or expression similar
thereto, from the names under which Purchaser does business. As promptly as
practicable after the Closing, the word "Occidental," "OxyChem" or "Oxy," or
any word or expression similar thereto, shall be removed from the Company
Assets, and, thereafter, neither Purchaser nor any Affiliate thereof shall use
any such logo or name belonging to Seller or any of its Affiliates.
Section 5.21 Related Agreements. Except as contemplated by Section 9.06,
contemporaneously with the Closing, each of Seller and Purchaser shall execute
and deliver the Related Agreements to which it is a party, and shall cause each
of its Affiliates to execute and deliver the Related Agreements to which each
such Affiliate is a party.
Section 5.22 Performance of Assumed Obligations. From and after the
Closing, Purchaser shall fulfill, perform, pay and discharge all of the Assumed
Obligations.
Section 5.23 Availability of Information. During any period that Purchaser
is subject to the reporting requirements of Sections 13 or 15(d) of the
Exchange Act, Purchaser will comply therewith. In addition, Purchaser will
comply with all other public information reporting requirements of the SEC
(including Rule 144 promulgated by the SEC under the Securities Act) from time
to time in effect available to Purchaser and relating to the availability of an
exemption from the Securities Act for the sale of the Preferred Stock and any
securities received in respect thereof; provided, however, that Purchaser shall
not be required voluntarily to become or remain a reporting company under the
Exchange Act if it is not otherwise required to do so. Purchaser will also
cooperate with the holder of any Preferred Stock or any such securities
received in respect thereof and provide such information as may be requested by
such holder as is reasonable to complete and file any information reporting
forms presently or hereafter required by the SEC as a condition to the
availability of an exemption from the Securities Act for the sale of such
Preferred Stock or any such securities received in respect thereof. Purchaser
will furnish to the holder of any Preferred Stock or any such securities
received in respect thereof promptly upon their becoming available, copies of
all financial statements, reports, notices and proxy statements sent or made
available generally by Purchaser to its stockholders, and copies of all regular
and periodic reports and all registration statements (other than registration
statements filed on Form S-8) and prospectuses filed by Purchaser with any
securities exchange or with the SEC.
Section 5.24 Employees and Employee Benefit Plans.
(a) "Salaried Employees" shall mean all employees (either salaried or
hourly) of Seller whose work relates solely and exclusively to the Facility
Operations who are not Union Employees and who are immediately prior to the
Closing (i) in the active employment of Seller ("Active Salaried Employees"),
or (ii) on short term disability, sick leave, or other temporary leave of
absence approved by Seller ("Salaried Employees on Approved Leave").
(b) "Union Employees" shall mean all employees in the active employment of
Seller who are part of the collective bargaining units represented by the
Unions and who are employees of Seller at the Facility Operations immediately
prior to the Closing Date, including such employees who are, on the Closing
Date on layoff, sick leave or other temporary leave of absence pursuant to the
terms of the Union Contract(s).
(c) "Employees" shall mean, collectively, the Salaried Employees and the
Union Employees. A true and complete list of names, positions, salaries or
hourly wage rates, as applicable, and the last bonus of the Employees shall be
provided by Seller to Purchaser no later than ten days after the date of this
Agreement and shall be updated by Seller from time to time up to the Closing.
23
<PAGE> 24
(d) As of the Closing Date, Purchaser shall offer employment to each
Salaried Employee and each Union Employee to commence on the Closing. Each
Active Salaried Employee who accepts such offer and each Salaried Employee on
Approved Leave shall be a "Transferred Salaried Employee". If, within twelve
months of the Closing, Purchaser actually or constructively terminates any
Transferred Salaried Employee or if any Salaried Employee fails to accept such
Purchaser offer of employment, Purchaser shall pay such Salaried Employee
severance benefits not less than those provided under the Severance Plan in
effect on the date of this Agreement, to the extent that such benefits would
have been payable under such Severance Plan. With regard to the Facility
Operations, Purchaser shall not at any time prior to 60 days after the Closing
Date, effectuate a "plant closing" or a "mass layoff", as those terms are
defined in the Worker Adjustment and Retraining Notification Act, affecting in
whole or in part, the Facility Operations, site of employment or operating
unit, or any Employees without complying fully with the notice and all other
applicable requirements of such Act.
(e) As of the Closing Date, Purchaser shall provide each Transferred
Salaried Employee with "Purchaser Benefit Plans", which shall mean, with
respect to Transferred Salaried Employees, the benefit plans and programs under
(i) the Employee Plans and Agreements as in effect immediately prior to the
Closing Date, (ii) Purchaser's benefit plans and programs applicable as of the
Closing Date to employees of Purchaser in similar jobs, or (iii) a combination
of Employee Plans and Agreements and Purchaser's benefit plans and programs,
the determination of which shall be at the sole discretion of Purchaser. From
and after the Closing, each Transferred Salaried Employee shall be eligible to
participate in such Purchaser Benefit Plans in accordance with the terms and
conditions thereof. Under such Purchaser Benefit Plans which are Employee
Welfare Benefit Plans, Transferred Salaried Employees and their eligible
dependents, if participants in any health, long term disability or life
insurance plans, as applicable, of Seller or its Affiliates immediately prior
to the Closing Date (x) shall participate in such Purchaser Benefit Plans that
are Employee Welfare Benefit Plans as of the Closing Date, and (y) shall be
deemed to satisfy any pre-existing condition limitations under such Purchaser
Benefit Plans that are group medical, dental, life insurance or disability
plans. In addition, amounts paid by such Transferred Salaried Employees towards
deductibles and copayment limitations under the health plans of Seller or its
Affiliates with respect to the 1997 plan year shall be counted toward meeting
any similar deductible and copayment limitations under the health plans that
shall be provided under the Purchaser Benefit Plans.
(f) Purchaser shall recognize all service credited for each of the
Transferred Salaried Employees on Seller's or its Affiliates' records for
purposes of eligibility for benefits and vesting under the Purchaser Benefit
Plans and the level of benefits under the Purchaser Benefit Plans, but
specifically excluding any benefit accrual under any defined benefit pension
plan of Purchaser or an Affiliate of Purchaser.
(g) Seller agrees that, for Transferred Salaried Employees and Union
Employees with an accrued benefit under the PRA, the PSA, or the SIP, Seller
shall cause the appropriate plan sponsor to amend such pension plans so that
full vesting in such accrued benefit shall occur as of the Closing Date.
(h) From and after the Closing, each Union Employee shall continue
participating in such plans and programs as are applicable to the Union
Employees in accordance with the terms and conditions of the Union Contracts as
assumed by Purchaser. Except as provided pursuant to the provisions of Section
5.24(j) and Section 5.24(k), any expenses and benefits incurred subsequent to
June 4, 1997 necessary to extend any of the Union Contracts past June 4, 1997
shall be paid solely by Purchaser.
(i) Seller and Purchaser shall promptly take the necessary steps to
provide for a plan to plan transfer (as such transfer is described in Section
414(l) of the Code) of account balances (in cash and including outstanding
loans) of Transferred Salaried Employees and Union Employees from the PSA and
the SIP to the Pioneer Tacoma Salaried 401(k) Plan or Pioneer Tacoma Bargaining
Unit 401(k) Plan, as applicable. Such transfers shall not take place until
Purchaser provides Seller a written opinion of its counsel that such Purchaser
savings plans, in form, are qualified plans as described in Section 401(a) of
the Code, which meet the requirements of Section 401(k) of the Code, and that
any related trust meets the requirements for exemption from income taxability
of Section 501(a) of the Code, or Purchaser provides a favorable Internal
Revenue Service determination letter with respect to each such Purchaser
savings plan and associated trust.
(j) From and after the Closing, Transferred Salaried Employees shall be
entitled to retain and take any vacation days earned but not taken under
Seller's or OCC's vacation policy for the period from January 1, 1997 through
the Closing Date. On or promptly after the Closing Date, Seller shall pay to
each Transferred Salaried Employee any applicable Banked Vacation. "Banked
Vacation" shall mean vacation time accrued on Seller's or its Affiliates'
records as payable to any Transferred Salaried Employee for which vacation time
has not been taken prior to May 31, 1997 and which was earned prior to January
1, 1997. If agreed to by the Unions prior to the Closing, on or promptly after
the Closing Date Seller shall pay to each Union Employee any applicable Accrued
Union Vacation. If there is no agreement with the Unions prior to the Closing,
Seller shall exercise its rights under federal labor law to undertake to
provide the benefit referred to in the preceding sentence. "Accrued Union
Vacation" shall mean one-half of the vacation time accrued on Seller's or its
Affiliate's records as payable to any Union Employee for which vacation time
was earned prior to January 1, 1997, but has not been taken prior to May 31,
1997. In addition, Seller shall pay to Purchaser on or promptly after the
Closing Date an amount equal to one-half of the aggregate vacation time accrued
but not taken by the Transferred Salaried Employees and the Union Employees
from January 1, 1997 until May 31, 1997.
(k) Schedule 5.24(k) lists the Employees eligible for retiree medical
benefits under the medical plans of Seller or its Affiliates, as applicable, as
of May 31, 1997. If any Transferred Salaried Employee listed on Schedule
5.24(k) retires directly from continuous active employment with Purchaser
24
<PAGE> 25
after the Closing Date, such Transferred Salaried Employee shall be eligible
for retiree medical benefits under Seller's or OCC's medical plan, if any,
which may then generally be available to Seller's or any of its Affiliates'
salaried employees retiring directly from employment with Seller or OCC. If
agreed to by the Unions prior to Closing, if any Union Employee listed on
Schedule 5.24(k) retires directly from continuous active employment with
Purchaser after the Closing Date, such Union Employee shall be eligible for
retiree medical benefits under Seller's medical plans which are available to
Union Employees retiring directly from employment with Seller immediately prior
to the Closing. If there is no agreement with the Unions prior to Closing,
Seller shall exercise its rights under federal labor law to undertake to
provide the benefit coverage referred to in the preceding sentence. Expenses
and benefits relating to such retiree medical claims for such eligible
Employees and their covered dependents shall be the sole responsibility of
Seller or its Affiliates, except that if any such Employee who is eligible for
retiree medical benefits under the medical plans of Seller or its Affiliates,
as applicable, under this Section 5.24(k) is subsequently rehired by, or
performs any services for, Purchaser, the expenses and benefits relating to
such retiree medical claims for such eligible Employee and his or her covered
dependents shall be the sole responsibility of Purchaser during any period such
Employee is employed by, or performs any services for, Purchaser. For purposes
of this Section 5.24(k), a claim is deemed to be incurred when the services
giving rise to the claim are performed.
(l) As of the Closing Date, the Employees shall cease to accrue service
credit, except as expressly provided in this Section 5.24, under any and all of
the welfare plans of Seller or its Affiliates, under any and all of the pension
plans of Seller or its Affiliates, and under any and all non-ERISA plans or
programs of Seller or its Affiliates, in which participation had been available
to such Employees prior to the Closing.
(m) Except as otherwise provided in this Section 5.24, Seller and
Purchaser agree that this Agreement does not contemplate the transfer of any
assets or liabilities from any Employee Plans and Agreements to any Purchaser
Benefit Plan or to Purchaser or any of its Affiliates. Except as otherwise
expressly provided in this Agreement, Purchaser hereby waives any and all
claims which Purchaser or any of its Affiliates might have to any of the assets
of any plan of Seller or its Affiliates.
Notwithstanding the foregoing, as soon as practicable after the Closing
Date, Seller and/or Purchaser, as the case may be, shall take all actions
necessary or appropriate to cause (i) OCC to spin off all liabilities and
assets relating to all participants represented by the Unions, including
current and former Union employees of Seller or its Affiliates, from the Union
Pension Plan as of the last day of the calendar month coincident with or next
following the Closing Date (the "Asset Allocation Date"), in accordance with
Section 4044 of ERISA and Section 414(1) of the Code, (ii) OCC to create a new
qualified defined benefit pension plan (the "Tacoma Union Pension Plan")
sponsored by OCC to receive the spun off assets and liabilities attributable to
such participants, (iii) Purchaser to establish a new qualified defined benefit
pension plan, effective as of the Closing Date, with provisions substantially
identical to the provisions of the Tacoma Union Pension Plan (the "Purchaser's
Union Pension Plan"), (iv) OCC to transfer sponsorship of the Tacoma Union
Pension Plan to Purchaser after the contribution described in the following
paragraph has been made, and (v) Purchaser to merge the Tacoma Union Pension
Plan into Purchaser's Union Pension Plan and to assume all past, present and
future obligations and liabilities of OCC with respect to the Tacoma Union
Pension Plan.
After the spin-off from the Union Pension Plan and prior to the transfer
of sponsorship of the Tacoma Union Pension Plan to Purchaser, as described
above, Seller shall, or shall cause its Affiliates to, contribute, if
necessary, to the qualified plan trust for the Tacoma Union Pension Plan, an
amount that shall be sufficient to fully fund the "accumulated benefit
obligation" (as such term is defined in SFAS 87) of the Tacoma Union Pension
Plan as of the Asset Allocation Date, as determined by Seller's independent
actuary, after such amount has been reviewed and agreed to by Purchaser, whose
agreement shall not be unreasonably withheld. The actuarial calculation
required by this paragraph shall be based upon the applicable provisions for
the Unions under the Union Pension Plan in effect on the Closing Date using the
actuarial methods and assumptions set forth on Schedule 5.24(m), with the
exception that the discount rate used to value the accumulated benefit
obligation will be 6.5% for inactive participants.
Seller agrees that from inception through the transfer of the sponsorship
of the Tacoma Union Pension Plan: (i) the Tacoma Union Pension Plan shall
comply in all material respects and shall be operated in all material respects
in compliance with its terms and with all applicable Laws (excluding any
Environmental Laws), including ERISA and the Code, (ii) the Tacoma Union
Pension Plan shall be qualified under Section 401(a) of the Code and the
associated trust shall be exempt under Section 501(a) of the Code, (iii) no
event or condition shall occur with respect to the Tacoma Union Pension Plan
which could result in a material Liability to Purchaser or any of its
Affiliates under Title IV of ERISA, and (iv) the Tacoma Union Pension Plan
shall not engage in a Prohibited Transaction. All contributions required to be
made from Closing until the transfer of the sponsorship of the Tacoma Union
Pension Plan shall be timely made by Purchaser.
After the Asset Allocation Date until the instruction to liquidate assets
attributable to the Tacoma Union Pension Plan in the Union Pension Plan has
been received and executed by the trustee, assets relating to the Tacoma Union
Pension Plan shall be invested at the discretion of the fiduciary of the Union
Pension Plan. Any earnings or losses on such assets after the Asset Allocation
Date and before the date such assets are liquidated shall be based on the
investment return of the Union Pension Plan or the Tacoma Union Pension Plan,
as applicable, during such period, as determined by the trustee. After the date
of liquidation of assets until the date of transfer of the assets to the Tacoma
Union Pension Plan, earnings or losses on such assets shall be based on the
Short Term Investment Fund rate of the Northern Trust Company. The amount of
assets to be spun off to the Tacoma Union Pension Plan shall be reduced to
reflect the payments, on and after the Asset Allocation Date and through the
date assets are spun off to the separate Tacoma Union Pension Plan, of
benefits, such payments to be limited only to benefits accrued through the
Closing Date, and of reasonable administrative expenses.
25
<PAGE> 26
Notwithstanding any other provision of this Section 5.24(m), if, prior to
the transfer of the sponsorship of the Tacoma Union Pension Plan, any
Governmental Authority imposes requirements or demands on Seller related to the
transactions contemplated by this Section 5.24(m) which, in Seller's opinion,
are unduly burdensome, or, if the amount that Seller would be required to
contribute, as determined under this Section 5.24(m), to the Tacoma Union
Pension Plan would exceed $4,000,000, then the spin-off from the Union Pension
Plan contemplated by this Section 5.24(m) shall be voidable at the election of
Seller. If such proposed transaction is voided by Seller, each Union Employee
shall become fully vested in such Union Employee's accrued benefit under the
Union Pension Plan as of the Closing Date.
(n) In the event that Seller or any of its Affiliates terminates any of
its employees at any time prior to the Closing Date, Seller or such Affiliate,
as applicable, shall be solely responsible for any liability with respect to
such termination, including liability for all severance benefit payments to
such employees pursuant to its severance plan and any costs associated with
violation of any applicable Laws.
(o) Seller shall retain the sole responsibility for, and shall continue to
pay, all hospital, medical, and health care continuation coverage benefits as
described in section 4980B of the Code, life insurance, disability, other
welfare plan expenses and benefits (including all benefits under the Employee
Plans and Agreements), and workers' compensation for employees of Seller or its
Affiliates (including each Employee) and their covered dependents, including
"qualified beneficiaries" within the meaning of section 607(3) of ERISA, with
respect to claims incurred prior to the Closing. In addition, Seller shall
retain sole responsibility for the payment of any claim for medical benefits,
health care continuation coverage benefits as described in section 4980B of the
Code, life insurance or other welfare benefits by, or any other item of
compensation or benefits payable under any Employee Plan and Agreement to (i)
any employees and their covered dependents of Seller or its Affiliates after
the Closing, (ii) any former employees and their covered dependents of Seller
or its Affiliates who retired or died prior to the Closing Date, and (iii) any
Transferred Salaried Employee who qualifies for long term disability benefits
under Seller's long term disability plan within the 26 week entitlement after
the Closing Date and whose qualifying event occurred prior to Closing. Except
as provided pursuant to provisions of Section 5.24(k), expenses and benefits
relating to such types of claims incurred by Transferred Salaried Employees and
Union Employees and their covered dependents on or after the Closing Date shall
be the sole responsibility of Purchaser. For the purposes of this Section
5.24(o), a claim is deemed incurred when the services giving rise to the claim
are performed.
(p) Nothing expressed or implied in this Agreement shall confer upon any
Employee, or any legal representative thereof, including the Unions, any rights
or remedies, including any right to employment, whether directly or as a third
party beneficiary, or continued employment for any specified period, of any
nature or kind whatsoever.
(q) Except as set forth in this Section 5.24, Purchaser and its Affiliates
shall hold Seller and its Affiliates harmless (i) from all claims (including
costs of defense, prosecution, collection and reasonable attorney's fees) by
any Transferred Salaried Employee or any Union Employee after the Closing who
Purchaser or any of its Affiliates actually or constructively terminates or by
any spouse, dependent, estate or other beneficiary of such Transferred Salaried
Employee or such Union Employee, and (ii) from any claims or charges (including
costs of defense, prosecution, collection and reasonable attorney's fees) by or
relating to a Transferred Salaried Employee or any Union Employee concerning
wrongful termination, discrimination, harassment, or violation of (A) the Fair
Labor Standards Act, (B) the Labor Management Relations Act, (C) the Workers
Adjustment and Retraining Notification Act, (D) the Americans With Disabilities
Act, (E) ERISA, (F) the Consolidated Omnibus Budget Reconciliation Act of 1985,
(G) Title VII of the Civil Rights Act of 1964, (H) the Family and Medical Leave
Act, (I) the Health Insurance Portability and Accountability Act, or (J) the
Age Discrimination in Employment Act, all as attributable to the conduct of
Purchaser or any of its Affiliates with respect to such Transferred Salaried
Employee or such Union Employee relating to the period from and after the
Closing or as are related to or based upon any act, omission or event occurring
on or after the Closing.
(r) Except as otherwise specified in this Section 5.24, Seller and its
Affiliates shall hold Purchaser and its Affiliates harmless (i) from all
liabilities and obligations (including costs of defense, prosecution,
collection and reasonable attorney's fees) with respect to any Employee Plans
and Agreements, or claims of employees or former employees of Seller or its
Affiliates or of any spouse, dependent, estate, or other beneficiary of such
employees or former employees that in any case arose or are related to or based
upon any act, omission or event occurring prior to the Closing, including,
without limitation, any such liability or obligation which may arise under
Section 5.24(n) and from (ii) any claims or charges relating to wrongful
termination, discrimination, harassment, or violation of (A) the Fair Labor
Standards Act, (B) the Labor Management Relations Act, (C) the Workers
Adjustment and Retraining Notification Act, (D) the Americans With Disabilities
Act, (E) ERISA, (F) the Consolidated Omnibus Budget Reconciliation Act of 1985,
(G) Title VII of the Civil Rights Act of 1964, (H) the Family and Medical Leave
Act, (I) the Health Insurance Portability and Accountability Act, or (J) the
Age Discrimination in Employment Act, all as attributable to the conduct of
Seller or its Affiliates with respect to (x) any employees or former employees
of Seller or its Affiliates who do not become Transferred Salaried Employees
and Union Employees relating to the periods both before and after the Closing,
and (y) the Transferred Salaried Employees and Union Employees, relating to the
period prior to the Closing.
(s) Representatives of Purchaser shall be entitled to meet with the
Employees at mutually agreeable times prior to the Closing to explain and
answer questions about the conditions, policies and benefits of employment by
Purchaser after the Closing. Seller shall cooperate with Purchaser until
26
<PAGE> 27
Closing in communicating to such Employees any additional information
concerning employment after the Closing which such Employees may seek, or which
Purchaser may desire to provide, and during normal business hours shall allow
additional meetings by representatives of Purchaser with such Employees upon
the reasonable requests of Purchaser. In addition, Seller and Purchaser agree
to furnish each other with appropriate records for each of the Employees as may
be necessary to assist in proper benefit administration.
(t) The indemnity provisions of this Section 5.24 shall be administered
under Sections 8.04 and 8.05 and be subject to the limitations and requirements
of Sections 8.07 and 8.08 of this Agreement.
Section 5.25 Transfer of Certain Rail Cars.
(a) Not later than six months after the Closing Date, Seller shall
cooperate with Purchaser to arrange for the transfer of all of Seller's or any
of its Affiliate's right, title and interest in leases of rail cars of the
number and type identified on Schedule 5.25 (the "Purchaser Rail Cars"). The
Purchaser Rail Cars shall be within the range of age and rental rate specified
in Schedule 5.25 and shall be subject to full service maintenance leases
expiring within the range of years specified on Schedule 5.25.
(b) Prior to the transfer of Seller's or any such Affiliate's right, title
and interest in leases of the Purchaser Rail Cars, Seller or any such Affiliate
shall sublease to Purchaser, pursuant to the Rail Car Sublease, rail cars (the
"Leased Rail Cars") of the number and type, and complying with the
specifications as to age and rental rate, set forth in Section 5.25(a). In the
event that Seller or any of its Affiliates transfers its right, title and
interest in any leases of Purchaser Rail Cars on the Closing Date, the number
of Leased Rail Cars initially subject to the Rail Car Sublease shall be
correspondingly reduced. Seller shall use reasonable commercial efforts
(including seeking the consent of the lessors of the Purchaser Rail Cars) to
arrange for the release of the Purchaser Rail Cars from any master lease (and
any rider corresponding thereto) relating to the Purchaser Rail Cars. Each of
Seller and Purchaser shall use reasonable commercial efforts to arrange for the
inclusion of the Purchaser Rail Cars on master leases (or, if applicable,
riders to master leases) between the lessors of the Purchaser Rail Cars and
Purchaser.
(c) Any Leased Rail Car agreed to by Purchaser (which agreement may not be
withheld if the Leased Rail Car to be released and the Purchaser Rail Car
identified are of similar state of repair) may be released from the Rail Car
Sublease at Seller's discretion upon Seller's identification of a Purchaser
Rail Car of the same type as such Leased Rail Car, which Leased Rail Car shall
be released as soon as reasonably practicable after the release of such
Purchaser Rail Car to Purchaser. Each Purchaser Rail Car shall be deemed to
have been delivered to Purchaser by Seller or any Affiliate of Seller on the
day such Purchaser Rail Car is released on the bill of lading relating to such
Purchaser Rail Car. Each Leased Rail Car shall be deemed to have been delivered
to Seller or an Affiliate of Seller, as applicable, by Purchaser on the day
such Leased Rail Car is released on the bill of lading relating to such Leased
Rail Car. Each Purchaser Rail Car shall be transferred to Purchaser free and
clear of all Liens (other than Permitted Encumbrances).
(d) Notwithstanding anything in Section 5.25(a) to the contrary, Seller or
any such Affiliate shall not be required to transfer its right, title and
interest in any Purchaser Rail Car until the lessor of such Purchaser Rail Car
has released Seller or any such Affiliate from all of its liabilities and
obligations relating to such Purchaser Rail Car.
(e) If Seller, or any Affiliate of Seller, and Purchaser are unable to
complete the transfer of Seller's or any such Affiliate's right, title and
interest in all of the Purchaser Rail Cars for any reason whatsoever, the
number of Leased Rail Cars not so transferred shall remain subject to the Rail
Car Sublease until such time as Seller or any such Affiliate and Purchaser
shall mutually agree to terminate the Rail Car Sublease with respect to any
such Leased Rail Car.
(f) Subject to Section 8.02(f), from and after delivery of a
Purchaser Rail Car to Purchaser as provided above in this Section 5.25, Seller
and its Affiliates shall have no further obligation or liability to Purchaser
or its Affiliates in respect of such Purchaser Rail Car, and Purchaser hereby
waives and releases Seller and its Affiliates from any such obligation or
liability to Purchaser and Purchaser's Affiliates and assignees.
Section 5.26 Ammonia Plant. Seller shall, at Seller's sole cost and
expense, within five years from the Closing Date demolish (and remove the
resulting debris and salvage) the ammonia plant (and related ammonia process
equipment) identified on Schedule 5.26 located on the Site to foundation grade
level (leaving "slabs"). Seller shall provide Purchaser with not less than 60
days notice of the date on which it intends to commence demolition of the
ammonia plant. Once such work has begun, Seller shall diligently pursue the
project to completion. Seller and Purchaser shall consult and cooperate with
respect to such removal, and Seller shall use its commercially reasonable
efforts to reduce the project's interference with Purchaser's operations at the
Facility. Project work shall, unless otherwise agreed by Seller, be
accomplished generally during business hours. Seller shall be responsible for
removal from the Site and disposal of all construction material, debris and
salvage resulting from the destruction and removal of the ammonia plant. Seller
shall retain any proceeds from the disposal of all construction material,
debris and salvage resulting from the destruction and removal of the ammonia
plant. Purchaser shall cause the Facility and the Site to be accessible to
Seller and its agents and representatives for purposes of the project as may be
reasonably requested by any of them.
27
<PAGE> 28
If Purchaser shall desire to modify the existing Facility or construct new
facilities on the Site which modifications or new construction would, in the
judgment of Purchaser and its consultants, be most suitable in the present
location of the ammonia plant or otherwise require the demolition of all or a
part of the ammonia plant or would cause the ammonia plant to be materially
less accessible for demolition and removal, then, Purchaser shall give Seller
written notice of such plans. Seller shall within 180 days after the receipt of
such notice or such later time as may be specified in the notice from Purchaser
commence the demolition of the ammonia plant to grade level, at Seller's sole
cost and expense.
ARTICLE VI
CONDITIONS
Section 6.01 Conditions to Obligations of each of the Parties. The
respective obligations of each Party to consummate the transactions
contemplated hereby shall be subject to the fulfillment on or prior to the
Closing Date of the following conditions:
(a) no preliminary or permanent injunction or other order, decree or
ruling by any Governmental Authority or any other Person which prevents the
consummation of the transactions contemplated by this Agreement or any of the
Related Agreements shall have been issued and remain in effect;
(b) no suit, litigation or other proceeding shall have been commenced by
any Governmental Authority or any other Person, and no Law shall have been
enacted, promulgated or issued by any Governmental Authority, which would (i)
prohibit the ownership or operation by Purchaser of all or any material portion
of the Company Assets, (ii) prohibit the consummation of the transactions
contemplated by this Agreement or any of the Related Agreements or (iii) make
the consummation of any such transactions illegal;
(c) (i) all Governmental Approvals legally required for the consummation
of the transactions contemplated by this Agreement and the Related Agreements,
(ii) all waivers, consents and approvals required to be obtained from other
parties to Contracts of Seller listed on Schedule 6.01(c) to consummate the
transactions contemplated by this Agreement, and (iii) all registrations and
filings, including submissions of information requested by Governmental
Authorities, necessary to consummate the transaction contemplated by this
Agreement, shall have been obtained or effected and be in full force and effect
on the Closing Date, except as to clauses (i) and (iii) such which, if not
obtained or effected, would not have a Material Adverse Effect with respect to
the Facility Operations and the Company Assets, taken as a whole;
(d) the Related Agreements shall have been executed and delivered by the
parties thereto;
(e) the consent of the parties which are signatories to the Equipment
Sublease Agreement shall have been obtained, to the extent required by its
terms, with respect to such agreement; and
(f) all actions, proceedings, instruments, opinions and documents required
to consummate the transactions contemplated by this Agreement, and all other
related legal matters, shall be reasonably satisfactory to counsel to each of
Seller and Purchaser.
Section 6.02 Conditions to Obligations of Seller.02 Conditions to
Obligations of Seller.02 Conditions to Obligations of Seller. The obligations
of Seller to consummate the transactions contemplated hereby shall be subject
to the fulfillment on or prior to the Closing Date of the following additional
conditions, except as Seller may waive in writing:
(a) Purchaser and any Affiliate of Purchaser shall have complied with and
performed in all material respects all of the terms, covenants, agreements and
conditions contained in this Agreement and the Related Agreements to which each
is a party which are required to be complied with and performed by Purchaser or
such Affiliate on or prior to the Closing Date;
(b) the representations and warranties of Purchaser and any Affiliate of
Purchaser in this Agreement and in each of the Related Agreements to which
Purchaser or such Affiliate is a party, if qualified by reference to a Material
Adverse Effect, shall be true and correct in all respects, and, if not so
qualified, shall be true and correct except in such respects as, in the
aggregate, do not have a Material Adverse Effect with respect to Purchaser, in
each case, on and as of the Closing Date, with the same force and effect as
though such representations and warranties had been made on and as of the
Closing Date, except (i) to the extent that such representations and warranties
expressly related to an earlier date, or (ii) as contemplated by this
Agreement;
28
<PAGE> 29
(c) Seller shall have received each of the following, dated the Closing
Date or, with respect to certificates of Governmental Authorities, dated within
ten Business Days prior to the Closing Date:
(i) a copy of the Certificate of Incorporation of State of Delaware,
the Bylaws of Purchaser certified by its Secretary or an
Assistant Secretary, and a certificate of the Secretary of State
of the State of Delaware as to the existence and good standing
of Purchaser;
(ii) resolutions of the Board of Directors of Purchaser, certified by
its Secretary or an Assistant Secretary, which authorize the
execution, delivery and performance by Purchaser of this
Agreement and the Related Agreements to which Purchaser is or is
to be a party;
(iii) a certificate of incumbency certified by the Secretary or an
Assistant Secretary of Purchaser certifying the names of the
officers of Purchaser authorized to execute this Agreement and
the Related Agreements to which Purchaser is or is to be a party
(including the certificates contemplated herein)together with
specimen signatures of such officers;
(iv) to the extent that Purchaser shall have assigned this Agreement
and its rights hereunder to an Affiliate of Purchaser pursuant
to the provisions of clause (i) of Section 9.06, in addition to
the information required pursuant to the foregoing clauses (i),
(ii) and (iii) with respect to Purchaser and the Related
Agreements to which Purchaser is oris to be a party, the
information required pursuant to the foregoing clauses (i), (ii)
and (iii) with respect to such Affiliate and the Related
Agreements to which such Affiliate is or is to be a party,
and certified with respect to information provided in clause(
i) by the Secretary of State of its jurisdiction of
incorporation;
(v) a certificate of Purchaser signed on Purchaser's behalf by the
Chairman of the Board, Chief Executive Officer, President or a
Vice President of Purchaser certifying as to the fulfillment of
the conditions specified in Section 6.02(a) and Section 6.02(b);
(vi) a certificate evidencing the Preferred Stock duly issued,
executed and delivered by Purchaser;
(vii) an opinion of Kent R. Stephenson, general counsel of Purchaser,
dated the Closing Date, in form and substance as set forth as
Exhibit C;
(viii)an opinion of Foster Pepper and Shefelman, special State of
Washington counsel to Purchaser, dated the Closing Date, in form
and substance as set forth as Exhibit D; and
(ix) an opinion of Preston, Gates & Ellis L.L.P., special State of
Washington counsel to Purchaser, dated the Closing Date, in form
and substance as set forth as Exhibit E.
(d) Seller shall have received an opinion from bond counsel, at its cost
and expense, to the effect that the transactions contemplated herein do not
adversely affect the tax exempt status of the Revenue Bonds;
(e) Purchaser shall have assumed all of the terms, conditions,
obligations, and benefits of the Union Contracts in the place and stead of
Seller with respect to the Union Employees;
(f) Purchaser shall have paid to Seller the cash portion of the Purchase
Price as provided in Section 2.01; and
(g) Purchaser shall have assigned to PCAC, in accordance with the
provisions of Section 9.01(i), this Agreement and Purchaser's rights and
obligations hereunder, pursuant to the Assignment and Assumption Agreement
between Purchaser and PCAC, in substantially the form set forth as Exhibit F.
Section 6.03 Conditions to Obligations of Purchaser. The obligations of
Purchaser to consummate the transactions contemplated hereby shall be subject
to the fulfillment on or prior to the Closing Date of the following additional
conditions, except as Purchaser may waive in writing:
(a) Seller and any Affiliate of Seller shall have complied with and
performed in all material respects all of the terms, covenants, agreements and
conditions contained in this Agreement and the Related Agreements to which each
is a party which are required to be complied with and performed by Seller or
such Affiliate on or prior to the Closing Date;
29
<PAGE> 30
(b) the representations and warranties of Seller and any Affiliate of
Seller in this Agreement and in each of the Related Agreements to which Seller
or such Affiliate is a party, if qualified by reference to a Material Adverse
Effect, shall be true and correct in all respects and, if not so qualified,
shall be true and correct except in such respects as, in the aggregate, do not
have a Material Adverse Effect with respect to the Facility Operations and the
Company Assets, in each case, on and as of the Closing Date, with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date, except (i) to the extent that such representations
and warranties expressly related to an earlier date, or (ii) as contemplated by
this Agreement;
(c) OxyTech Systems, Inc. and Purchaser or its permitted assignee shall
have executed and entered into the Technology License Agreement;
(d) all conditions precedent under the financing arrangements of
Purchaser, referred to in Section 5.12, for Purchaser to consummate the
transactions contemplated herein shall have been complied with and satisfied in
all respects, and Purchaser shall have received the funds to be provided to
Purchaser pursuant to the provisions of such financing arrangements, it being
understood that the obtaining and arranging of such financing shall be solely
the responsibility and obligation of Purchaser or its Affiliates;
(e) Purchaser shall have received each of the following, dated the Closing
Date or, with respect to certificates of Governmental Authorities, dated within
ten Business Days prior to the Closing Date:
(i) a copy of the Certificate of Incorporation of Seller certified
by the Secretary of State of the State of Delaware, the
Bylaws of Seller certified by its Secretary or an Assistant
Secretary, a certificate of the Secretary of State of the
State of Delaware as to the existence and good standing of
Seller and certificates of the Secretary of State of the
State of Washington as to the qualification or licensing, and
the authority of Seller to transact business in the State of
Washington;
(ii) resolutions of the Board of Directors of Seller, certified by
the Secretary or an Assistant Secretary of Seller, which
authorize the execution, delivery and performance by Seller of
this Agreement and the Related Agreements to which Seller is
or is to be a party;
(iii) a certificate of incumbency certified by the Secretary or an
Assistant Secretary of Seller certifying the names of the
officers of Seller authorized to execute this Agreement and
the Related Agreements to which Seller is or is to be a
party (including the certificates contemplated herein)
together with specimen signatures of such officers;
(iv) a copy of the Articles of Incorporation, as amended,
of OCC certified by the Secretary of State of the State
of New York, the Bylaws of OCC certified by its Secretary or
an Assistant Secretary, and a certificate of the Secretary of
State of the State of New York as to the existence and good
standing of OCC;
(v) resolutions of the Board of Directors of OCC, certified by the
Secretary or an Assistant Secretary of OCC, which authorize
(x) the execution, delivery and performance by OCC of the
Related Agreements to which OCC is or is to be a party and
(y) the sale by Seller to Purchaser, pursuant to the provisions
of this Agreement, of substantially all of the assets and
properties of Seller;
(vi) a certificate of incumbency certified by the Secretary or an
Assistant Secretary of OCC certifying the names of the
officers of OCC authorized to execute the Related Agreements to
which OCC is or is to be a party together with specimen
signatures of such officers;
(vii) a certificate of Seller signed on Seller's behalf by
the Chairman of the Board, Chief Executive Officer,
President, Treasurer or a Vice President of Seller, certifying
as to the fulfillment of the conditions specified in Section
6.03(a) and Section 6.03(b);
(viii) an opinion of Duane Stamp, an Associate General Counsel of
Seller, dated the Closing Date, in form and substance as set
forth as Exhibit G; and
(ix) an opinion of Bogle & Gates P.L.L.C., special State of
Washington counsel to Seller, dated the Closing Date, in form
and substance as set forth as Exhibit H.
30
<PAGE> 31
ARTICLE VII
TERMINATION
Section 7.01 Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by the mutual written consent of Seller and Purchaser;
(b) by Seller if (i) Purchaser shall have breached in any material respect
any covenant or agreement contained in this Agreement and required to be
performed by Purchaser on or before the Closing Date, which breach shall not
have been either (x) cured within ten days following notice thereof by Seller
to Purchaser or (y) waived by Seller or (ii) Purchaser shall have breached in
any material respect any representation or warranty made by Purchaser and
contained in this Agreement, which breach shall not have been cured as of the
Closing Date or waived by Seller;
(c) by Purchaser if (i) Seller shall have breached in any material respect
any covenant or agreement contained in this Agreement and required to be
performed by Seller on or before the Closing Date, which breach shall not have
been either (x) cured within ten days following notice thereof by Purchaser to
Seller or (y) waived by Purchaser or (ii) Seller shall have breached in any
material respect any representation or warranty made by Seller and contained in
this Agreement, which breach shall not have been cured as of the Closing Date
or waived by Purchaser;
(d) by either Seller or Purchaser if the Closing shall not have occurred
on or prior to the Termination Date, unless such failure to close shall be due
to a breach of this Agreement by the Party seeking to terminate this Agreement
pursuant to this clause (d);
(e) by either Seller or Purchaser upon the issuance of an injunction, stay
or restraining order issued by any court of competent jurisdiction enjoining or
preventing the consummation of the transactions contemplated by this Agreement
beyond the Termination Date, which injunction, stay or order has not been
reversed, vacated or expired so as to permit the Closing to occur on or before
the Termination Date; or
(f) by Purchaser in the event that Seller shall have amended any of the
Schedules to this Agreement or any Related Agreement to disclose the occurrence
of any event, or the existence of any condition, (i) between the date of this
Agreement and the Closing Date and, absent such amendment, Seller would have
breached in any material respect any representation, warranty, covenant or
agreement contained in this Agreement or any Related Agreement (assuming such
Related Agreements had been theretofore executed) (which breach shall not have
been cured as of the Closing Date or waived by Purchaser) or (ii) on or prior
to the date of this Agreement (without regard to the materiality of such event
or condition).
Section 7.02 Effect of Termination. In order to elect to terminate this
Agreement pursuant to Section 7.01, written notice of such election must be
given by the terminating Party to the other Party specifying the provision
hereof pursuant to which such termination shall be made and, upon receipt of
such notice by the non-terminating Party, this Agreement shall terminate and
have no further effect, and the transactions contemplated hereby shall be
abandoned without any further action by the Parties, except that the provisions
of Sections 5.01(b) and 7.02 and the provisions of Article IX shall survive the
termination of this Agreement; provided, however, that any termination pursuant
to the provisions of clauses (b), (c) or (f) of Section 7.01 shall not relieve
either Party from any liability to the other Party for its willful or
intentional breach of any of the provisions of this Agreement occurring prior
to such termination.
ARTICLE VIII
INDEMNIFICATION
Section 8.01 Indemnification of Seller. Subject to the terms and
conditions of this Article VIII (and except for any matters covered by the
Environmental Operating Agreement), from and after the Closing, Purchaser
agrees to indemnify, defend and hold harmless Seller, its Affiliates, the
respective present and former directors and officers of Seller and its
Affiliates and their respective heirs, executors, personal representatives,
administrators, successors and assigns (the "Seller Indemnified Persons"), from
and against any and all Losses (including without limitation Losses from
Claims) which may be imposed on, incurred by or asserted against any Seller
Indemnified Person, resulting from, directly or indirectly:
(a) the inaccuracy of any representation or breach of any warranty of
Purchaser contained in this Agreement;
(b) the breach of any covenant or agreement of Purchaser contained in this
Agreement or the Conveyance Instrument;
31
<PAGE> 32
(c) any Assumed Obligation;
(d) except to the extent that any Liability under any such commitment
relates to the period prior to the Closing, any commitment listed on Schedule
5.11; and
(e) the financing or offering materials of Purchaser used in connection
with any financing arrangements of Purchaser for Purchaser to consummate the
transactions contemplated herein containing an untrue statement of material
fact or omitting to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (except to the extent
such information is supplied in writing by Seller or its Affiliates
specifically for inclusion therein, including the Financial Statements).
Section 8.02 Indemnification of Purchaser. Subject to the terms and
conditions of this Article VIII (and except for any matters covered by the
Environmental Operating Agreement), from and after the Closing, Seller agrees
to indemnify, defend and hold harmless Purchaser, its Affiliates, the
respective present and former directors and officers of Purchaser and their
respective heirs, executors, personal representatives, administrators,
successors and assigns (the "Purchaser Indemnified Persons"), from and against
any and all Losses (including without limitation Losses from Claims) which may
be imposed on, incurred by or asserted against any Purchaser Indemnified
Person, resulting from, directly or indirectly:
(a) the inaccuracy of any representation or breach of any warranty of
Seller contained in this Agreement;
(b) the breach of any covenant or agreement of Seller contained in this
Agreement or the Conveyance Instrument;
(c) any failure to timely pay or otherwise comply with the terms of the
Revenue Bonds;
(d) any Liability under any commitment listed on Schedule 5.11 to the
extent that such Liability relates to the period prior to Closing; and
(e) any Liability relating to defaults in payments due to the lessor,
under any lease to which a Purchaser Rail Car is subject, which exists at the
time such Purchaser Rail Car is delivered to Purchaser pursuant to Section
5.25.
Section 8.03 Limitations on Indemnification.The obligations of Purchaser
and Seller to indemnify any Person pursuant to this Article VIII shall be
subject to the following limitations:
(a) except as provided in Section 8.03(c), neither the Seller Indemnified
Persons nor the Purchaser Indemnified Persons shall be entitled to
indemnification unless for any individual claim for indemnification, the Loss
incurred by the party, or parties, seeking indemnification for such individual
claim (the "Indemnified Group") is in an amount greater than $100,000. If the
applicable individual threshold set forth in the preceding sentence has been
reached with respect to any individual claim for indemnity by an Indemnified
Group (or any member(s) thereof) against Seller or Purchaser, as applicable,
the Indemnified Group shall be entitled to indemnification for the full amount
of the Loss with respect to such Claim as provided pursuant to this Article
VIII;
(b) except as provided in Section 8.03(c), the aggregate liability of
Seller to indemnify Purchaser Indemnified Persons shall not exceed an amount
equal to $15,000,000 and the aggregate liability of Purchaser to indemnify
Seller Indemnified Persons shall not exceed an amount equal to $15,000,000;
(c) notwithstanding the foregoing, (i) the thresholds established by
Section 8.03(a) shall not apply to claims for indemnification arising from a
breach of the representations, warranties and covenants in Section 3.02, the
first sentence of Section 3.09, Section 3.23, Section 3.25, Section 3.26,
Section 4.02, Section 4.10, the first sentence of Section 5.06, the pro-rations
requirements of Section 5.18, Section 5.24, Section 5.26, clauses (c), (d) and
(e) of Section 8.01, clauses (c) through (e) inclusive of Section 8.02 and
Section 9.14; and (ii) the aggregate liabilities set forth in Section 8.03(b)
shall not apply to claims for indemnification arising from a breach of the
representations, warranties and covenants in Section 3.26, Section 4.10,
Section 5.24, clauses (c), (d) and (e) of Section 8.01 and clauses (c) through
(e) inclusive of Section 8.02; and
(d) no Party shall have liability for any lost business opportunities,
loss of revenue, speculative or prospective profits or any other special,
incidental, consequential, exemplary, punitive or indirect damages.
Section 8.04 Indemnification Procedures. The obligations of any Party to
indemnify any other party pursuant to this Article VIII shall be subject to the
following terms and conditions:
32
<PAGE> 33
(a) Notice and Defense. Within 30 days after a party or parties to be
indemnified (whether one or more, the "Indemnified Party") receives actual
notice of any Claim covered by Section 8.01 or 8.02, as the case may be, the
Indemnified Party shall, if a Claim in respect thereof is to be made pursuant
to Section 8.01 or 8.02, notify the party from whom indemnification is sought
(the "Indemnifying Party") in writing of such Claim; provided, however, that
the failure to so notify the Indemnifying Party shall not relieve the
Indemnifying Party from any Liability which it may have to the Indemnified
Party pursuant to Section 8.01 or 8.02, except to the extent of any material
detriment suffered by the Indemnifying Party as a result of such failure. The
amount of each Claim for indemnity, together with a list identifying each
separate item of loss, liability, damage, cost or expense to the extent known,
shall be set forth in the Claim notice delivered to the Indemnifying Party. In
the event that a Claim arises out of or results from Claims of third parties,
the Indemnifying Party may at its option undertake the defense thereof by
counsel or representatives chosen by it which are reasonably acceptable to the
Indemnified Party. The Indemnifying Party shall have the sole right to
compromise or settle any such Claim if (i) such settlement or disposition shall
impose no material obligation or burden whatsoever on the Indemnified Party
which is not wholly discharged by the Indemnifying Party, and shall provide a
full release to the Indemnified Party, and (ii) the Indemnifying Party shall be
fully capable of performing its obligations pursuant to such settlement or
disposition. The Indemnifying Party shall have the right to compromise or
settle all other such third-party Claims with the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld. Each of
the Indemnifying Party and the Indemnified Party shall be entitled to consult
with each other, to the extent it reasonably requests, in respect of the
defense of such Claim and shall cooperate in the defense of any such Claim,
including making its officers, directors, employees and Books and Records
available for use in defending against such Claim, and shall take those
commercially reasonable actions within its power which are necessary to
preserve any legal defenses to such matters.
(b) Failure to Defend. If the Indemnifying Party, within a reasonable time
(and in any event not more than 30 days) after notice of any third-party Claim,
fails to undertake the defense of such Claim, the Indemnified Party shall have
the right to undertake the defense of such Claim with counsel or
representatives chosen by it. The Losses of the Indemnified Party shall include
the reasonable costs and expenses (including attorneys' fees and expenses)
incurred in any such defense of a third party's Claim. Notwithstanding the
foregoing, the Indemnified Party shall have no right to settle or compromise
any such Claim without the prior written consent of the Indemnifying Party
which consent shall not unreasonably be withheld; provided, however, that if
any third party's offer of settlement solely for money is proffered by the
Indemnified Party to the Indemnifying Party and is not consented to by the
Indemnifying Party, then the Indemnifying Party shall be deemed to have waived
any rights it may otherwise have retained to contest the validity of any
damages suffered by the Indemnified Party by reason of a judgment rendered in
favor of such third party to the extent that the award in such judgment exceeds
the offer of settlement.
Section 8.05 Payment.
(a) The Indemnifying Party shall reimburse each Indemnified Party for all
reasonable costs and expenses of defense (including reasonable counsel fees)
for which the Indemnified Party is entitled to be indemnified hereunder as they
are incurred by such Indemnified Party. The Indemnifying Party shall pay any
claims for indemnification under this Article VIII within 30 days after its
receipt of a proper notice of such Claim under Section 8.04(a); provided,
however, that if, within such 30-day period, the Indemnifying Party notifies
the claimant of its objection to such payment (or, if a third-party Claim, the
contest thereof), then payment shall be made promptly after such time as it is
finally determined whether such Claim is entitled to indemnity hereunder and
the extent or amount to which so entitled. The Indemnifying Party shall be
subrogated to the rights of the Indemnified Party, to the extent of any
payments made by the Indemnifying Party to the Indemnified Party pursuant to
this Article VIII.
(b) If an Indemnifying Party is determined by a final and unappealable
judgment of a court of competent jurisdiction to have breached its obligations
to indemnify an Indemnified Party hereunder, (subject to Section 8.03(b)) the
Indemnified Party shall be entitled to receive from the Indemnifying Party, in
addition to all other amounts due hereunder, interest on all amounts otherwise
paid by the Indemnified Party in respect of such breach from the date of the
breach at 12% per annum (but not in excess of the maximum lawful rate permitted
by applicable Law).
Section 8.06 Survival of Representations and Warranties.
(a) All representations and warranties made by Seller and Purchaser in
this Agreement or in any certificate delivered at Closing pursuant to Article
VI shall survive the execution and delivery of this Agreement, regardless of
any investigation made by or on behalf of any Party; provided, however, that:
(i) the representations and warranties of Seller shall terminate and have
no further force or effect on the second anniversary of the Closing (except
that (x) those contained in Sections 3.01, 3.02 and the first sentence of
Section 3.09 shall terminate and have no further force or effect on the fourth
anniversary of the Closing and (y) those contained in Section 3.17 shall
terminate and have no further force or effect upon the expiration of the
statute of limitations period applicable thereto) (each of the representations
and warranties of Seller contained in Sections 3.01, 3.02, 3.17 and the first
sentence of 3.09 are collectively the "Seller Major Representations"); and
(ii) the representations and warranties of Purchaser shall terminate and
have no further force or effect on the second anniversary of the Closing
(except that (x) those contained in Sections 4.01, 4.02 and the last three
sentences of 4.06(a) shall terminate and have no further force or effect on the
fourth anniversary of the Closing and (y) those contained in Section 4.13 shall
terminate and have no further force or effect upon the expiration of the
statute of
33
<PAGE> 34
limitations period applicable thereto) (each of the representations and
warranties of Purchaser contained in Sections 4.01, 4.02, 4.13 and the last
three sentences of 4.06(a) are collectively the "Purchaser Major
Representations").
(b) No payment on account of any Loss pursuant to the breach of any
representation or warranty contained in this Agreement or any certificate
delivered at the Closing pursuant to Article VI of this Agreement shall be
required to be made by Seller to any Purchaser Indemnified Person or by
Purchaser to any Seller Indemnified Person unless the Indemnified Party shall
have delivered to Seller or Purchaser, as applicable, a notice of claim prior
to the second anniversary of the Closing Date, or (i) with respect to breaches
of Seller Major Representations, prior to the termination date thereof
specified in Section 8.06(a)(i), and (ii) with respect to breaches of Purchaser
Major Representations, prior to the termination date thereof specified in
Section 8.06(a)(ii).
Section 8.07 Exclusive Remedy. Except as provided by Section 5.06 or
Section 5.08(b), the right to indemnification provided in this Article VIII and
in Section 5.24 shall be the exclusive remedy of any Purchaser Indemnified
Person or Seller Indemnified Person with respect to the inaccuracy of any
representation or the breach of any warranty, covenant or agreement made by
Seller or Purchaser in this Agreement or arising in connection with the subject
matter of this Agreement. Seller and Purchaser hereby waive and relinquish any
other rights, remedies, causes of action or other Claims in respect of any such
inaccuracy or breach including, without limitation, equitable and common law
rights and rights created by statute, which Seller or Purchaser would otherwise
have for any such inaccuracy or breach or with respect to any Liability arising
from, or related to, the Company Assets or the Facility Operations.
Section 8.08 Mitigation of Damages. The Parties shall take all such
reasonable actions as may be necessary to mitigate damages for which any Party
may claim indemnification under this Article VIII or Section 5.24.
Section 8.09 Related Agreements. Nothing in this Article VIII or elsewhere
in this Agreement shall govern the rights of the Parties in respect of any
breach of any Related Agreement, except for any breach of any of the terms of
(i) the Assignment and Assumption Agreement (Richmond Terminal Services
Agreement), (ii) the Assignment and Assumption Agreement (Wilmington Terminal
Services Agreement), (iii) the Conveyance Instrument, or (iv) the Special
Warranty Deed.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Notices. Any and all notices, requests or other
communications hereunder shall be given in writing and delivered by: (a)
regular, overnight or registered or certified mail (return receipt requested),
with first class postage prepaid; (b) hand delivery; (c) facsimile
transmission; or (d) overnight courier service, to the Parties at the following
addresses or facsimile numbers:
(i) if to Seller, to:
OCC Tacoma, Inc.
P.O. Box 809050
5005 LBJ Freeway
Dallas, Texas 75380-9050
Attention: President
Facsimile number: 214/404-3806
Telephone number: 214/404-3804
With a copy to:
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: Mr. Stephen Chazen
Facsimile Number: 310/443-6812
Telephone Number: 310/443-6311
34
<PAGE> 35
(ii) if to Purchaser, to:
Pioneer Companies, Inc.
700 Louisiana, Suite 4200
Houston, Texas 77002
Attention: Kent R. Stephenson, Esq.
Facsimile Number: 713/223-9202
Telephone Number: 713/225-3831
With a copy to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Attention: John T. Cabaniss, Esq.
Facsimile Number: 713/220-4285
Telephone Number: 713/220-4454
or at such other address or number as shall be designated by Seller or
Purchaser in a notice to the other Party or Parties given in accordance with
this Section 9.01. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given: (A) in the case of a
notice sent by regular or certified mail, three Business Days after it is duly
deposited in the mails; (B) in the case of a notice delivered by hand, when
personally delivered; (C) in the case of a notice sent by facsimile, upon
transmission subject to telephone confirmation of receipt; and (D) in the case
of a notice sent by overnight mail or overnight courier service, the next
Business Day after such notice is mailed or delivered to such courier, in each
case given or addressed as aforesaid.
Section 9.02 Confidentiality. Each Party (but in the case of clause (i) of
this Section 9.02, Purchaser only) shall, and shall cause its Affiliates,
directors, officers, employees, partners, agents, financing sources,
accountants, legal counsel, advisors and other representatives to, hold in
strict confidence, and not utilize for any commercial or other purpose
whatsoever, information of any kind concerning (i) Seller or its business, or
(ii) the transactions contemplated by this Agreement, in each case (x) obtained
from any other Party or any of its Affiliates, employees, agents, accountants,
legal counsel or other representatives (hereinafter such information is
referred to as the "Information"), or (y) collected, obtained or renewed by, or
on behalf of, Purchaser; provided, however, that the foregoing obligation of
confidence shall not apply to (A) any Information that is or shall become
generally available to the public other than as a result of a disclosure by
such Party, any of its Affiliates or the respective employees, agents,
accountants, legal counsel or other representatives of such Party or any such
Affiliate, (B) any Information that is or shall become available to such Party
or its employees, agents, accountants, legal counsel or other representatives
prior to the Closing on a nonconfidential basis prior to its disclosure by such
Party or its employees, agents, accountants, legal counsel or other
representatives, and (C) any Information that shall be required to be disclosed
by such Party, any of its Affiliates or the respective employees, agents,
accountants, legal counsel or other representatives of such Party or any such
Affiliate as a result of any offering of securities of such Party or of any
such Affiliate or otherwise, in each case under any Law or any rule or
regulation of any stock exchange. The obligations of each Party under this
Section 9.02 shall (except to the extent otherwise provided in the
Environmental Operating Agreement or the Technology License Agreement)
terminate on the Closing Date, or if the Closing shall not occur, on December
31, 2002.
Section 9.03 Benefit and Burden. This Agreement shall inure to the benefit
of, and shall be binding upon, the Parties hereto and their successors and
permitted assigns.
Section 9.04 No Third Party Rights. NOTHING IN THIS AGREEMENT SHALL BE
DEEMED TO CREATE ANY RIGHT IN ANY CREDITOR OR OTHER PERSON NOT A PARTY HERETO
(OTHER THAN THE SELLER INDEMNIFIED PERSONS, THE PURCHASER INDEMNIFIED PERSONS
AND ANY ASSIGNEE PROVIDED FOR IN SECTION 9.06), AND THIS AGREEMENT SHALL NOT BE
CONSTRUED IN ANY RESPECT TO BE A CONTRACT IN WHOLE OR IN PART FOR THE BENEFIT
OF ANY THIRD PARTY (OTHER THAN THE PERSONS HEREINBEFORE STATED).
Section 9.05 Amendments and Waiver. No amendment, modification,
restatement or supplement of this Agreement shall be valid unless the same is
in writing and signed by the Parties hereto. No waiver of any provision of this
Agreement shall be valid unless in writing and signed by the Party against whom
that waiver is sought to be enforced. No failure or delay on the part of any
Party hereto in exercising any right, power or privilege hereunder and no
course of dealing between or among any of the Parties hereto shall operate as a
waiver of any right, power or privilege hereunder. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder. No notice to or demand on any Party in any case shall entitle such
Party to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of any Party to any other or
further action in any circumstances without notice or demand.
35
<PAGE> 36
Section 9.06 Assignments. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, by operation of law or
otherwise (other than as a result of any merger or consolidation), by any Party
without the prior express written consent of the other Party; provided,
however, that, notwithstanding the foregoing, (i) before the Closing, Purchaser
may assign this Agreement or its rights and obligations hereunder to PCAC and
(ii) at or after the Closing, (a) Purchaser may collaterally assign all of its
rights and obligations under this Agreement and any Related Agreement to any
bank, financial institution or other lender (or any such entity acting as an
indenture trustee on behalf of any Person) that provides financing in
connection with (x) consummation of the transactions contemplated by this
Agreement or any Related Agreement (including any renewal, extension or
rearrangement of such financing) or (y) working capital financing for the
Facility Operations, (b) in connection with any sale of the Facility as a whole
or any sale of the properties and assets of any Party substantially as an
entirety to any Person, the Party making such sale may assign this Agreement,
or its rights hereunder, to such Person, and (c) any Party may assign this
Agreement, or its rights hereunder, to any Affiliate of such Party; provided,
however, that (1), in the case of any assignment referred to in clause (i),
(ii)(b) or (ii)(c) of this Section 9.06, prior to any such assignment, the
Person to which such assignment shall be made shall expressly assume, by an
instrument in writing reasonably satisfactory to Seller or Purchaser, as the
case may be, executed and delivered to Seller or Purchaser, as the case may be,
the performance and observance of every obligation, covenant and agreement in
this Agreement on the part of the Party making such assignment to be performed
or observed, and (2) no assignment referred to in this Section 9.06 shall have
the effect of releasing such Party or any other Person (including any such
additional party) from its obligations, covenants or agreements under this
Agreement. In the event that Purchaser shall assign this Agreement or its
rights and obligations hereunder to PCAC in accordance with the provisions of
clause (i) of this Section 9.06, Purchaser shall (i) cause PCAC to execute and
deliver, contemporaneously with the Closing, each of the Related Agreements and
(ii) execute and deliver, contemporaneously with the Closing, the Purchaser
Guaranties.
Section 9.07 Counterparts. This Agreement may be executed in counterparts
and by the different Parties in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute one and the same agreement.
Section 9.08 Captions and Headings. The captions and headings contained in
this Agreement are inserted and included solely for convenience and shall not
be considered or given any effect in construing the provisions hereof if any
question of intent should arise.
Section 9.09 Construction. The Parties acknowledge that each of them has
had the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement and the Related Agreements with its legal
counsel and that this Agreement and the Related Agreements shall be construed
as if jointly drafted by the Parties hereto.
Section 9.10 Severability. Should any clause, sentence, paragraph,
subsection, Section or Article of this Agreement be judicially declared to be
invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Agreement, and the Parties agree
that the part or parts of this Agreement so held to be invalid, unenforceable
or void will be deemed to have been stricken herefrom by the Parties, and the
remainder will have the same force and effectiveness as if such stricken part
or parts had never been included herein.
Section 9.11 Applicable Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF WASHINGTON, WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
Section 9.12 Service of Process; Consent to Jurisdiction; Etc. Each Party
hereby irrevocably agrees that any legal action or proceeding against it
arising out of this Agreement may be brought in the courts of the State of
Washington, or of the United States of America for the Western District of
Washington, and does hereby irrevocably (i) designate, appoint and empower the
Secretary of State of the State of Washington to receive for and on behalf of
it service of process in the State of Washington, and (ii) consent to service
of process outside the territorial jurisdiction of such courts in the manner
provided by law. In addition, each Party irrevocably waives (x) any objection
which such Party may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of, or relating to, this Agreement brought in
any such court, (y) any claim that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum, and (z) the right
to object, with respect to any such claim, suit, action or proceeding brought
in any such court, that such court does not have jurisdiction over such Party
or any other party. In addition, any such legal action or proceeding may be
brought in any court having jurisdiction pursuant to applicable law.
Section 9.13 Bulk Sales Laws. Each of the Parties waives compliance with
all requirements of any applicable bulk sales law.
Section 9.14 Expenses; Transfer Taxes. Except as otherwise provided in
this Agreement or any Related Agreement, Seller and Purchaser shall each pay
its own expenses incident to this Agreement and the Related Agreements and the
transactions contemplated hereby and thereby, including all legal and
accounting fees and disbursements. Seller shall pay all real estate transfer
taxes and all excise taxes and any other sales, use, transfer or excise taxes
in connection with the Conveyance. Notwithstanding the foregoing, Seller will
pay the costs of the Survey, and Seller and Purchaser shall each pay a portion
of the costs relating to the Title Policy as provided in Section 5.09.
36
<PAGE> 37
Section 9.15 Knowledge.
(a) The terms "knowledge of Seller", "Seller's knowledge" or other similar
terms when used in this Agreement shall mean the knowledge of all officers,
directors and key employees of Seller or its Affiliates heretofore involved in
the Facility Operations who are identified on Schedule 9.15.
(b) The terms "knowledge of Purchaser", "Purchaser's knowledge" or other
similar terms when used in this Agreement shall mean the knowledge of all
officers, directors and key employees of Purchaser or its Affiliates who are
identified on Schedule 9.15.
Section 9.16 Post-Closing Competition. Nothing in this Agreement shall
prevent Seller and its Affiliates, on the one hand, or Purchaser and its
Affiliates, on the other, from competing with the other Party and its
Affiliates in any respect, including competition in the sale of chlorine or
caustic soda to any Person.
Section 9.17 Schedules. Schedules. Subject to Purchaser's rights pursuant
to the provisions of Section 7.01(f), Seller shall have the right, prior to
Closing, to supplement with updated information or to correct any Schedules
attached to this Agreement or to any Related Agreement solely with respect to
matters occurring in the Ordinary Course of Business of Seller between the date
hereof and the Closing Date; provided, however, that Seller shall deliver the
final form of any Schedule to Purchaser not later than midnight New York time
on the third Business Day preceding the Closing Date.
Section 9.18 Entire Agreement. This Agreement and the Related Agreements
set forth all of the promises, agreements, conditions, understandings,
warranties and representations among the Parties with respect to the
transactions contemplated hereby and thereby, and supersede all prior
agreements, arrangements and understandings between the Parties, whether
written, oral or otherwise. There are no promises, agreements, conditions,
understandings, warranties or representations, oral or written, express or
implied, among the Parties concerning the subject matter hereof or thereof
except as set forth herein and therein.
37
<PAGE> 38
IN WITNESS WHEREOF, the Parties have duly executed this
Agreement as of the day and year first above written.
"SELLER"
OCC TACOMA, INC.
By: /s/ LINDA S. PETERSON
------------------------------------
Printed Name: Linda S. Peterson
Title: Vice President and Assistant
Secretary
"PURCHASER"
PIONEER COMPANIES, INC.
By: /s/ ANDREW M. BURSKY
------------------------------------
Printed Name: Andrew M. Bursky
Title: Director
38
<PAGE> 39
ANNEX A
DEFINITIONS
"Accrued Union Vacation" has the meaning specified in Section 5.24(j) of
the Agreement.
"Act" has the meaning specified in Section 3.25(c) of the Agreement.
"Active Salaried Employees" has the meaning specified in Section 5.24(a)
of the Agreement.
"Actual Value" has the meaning specified in Section 2.04 of the Agreement.
"Affiliate" means, any Person that is an "affiliate" within the meaning of
the regulations promulgated under the Securities Act as such regulations and
the Securities Act shall be amended and in effect on the date of this
Agreement.
"Agreement" means the Asset Purchase Agreement to which this Annex A is
attached, as the same may be amended, modified or supplemented from time to
time pursuant to the provisions thereof.
"Asset Allocation Date" has the meaning specified in Section 5.24(m) of
the Agreement.
"Assets and Properties" means all assets and properties of every kind,
nature, character and description, whether real, personal or mixed, tangible or
intangible, wherever situated, and, with respect to any Person, means all such
assets and properties Used by such Person.
"Assignment and Assumption Agreement (Richmond)" means the Assignment and
Assumption Agreement (Richmond Terminal Services Agreement), dated the Closing
Date, between Seller and Purchaser, and the consent of the Richmond terminal
operator attached thereto, in substantially the form set forth as Exhibit I to
the Agreement.
"Assignment and Assumption Agreement (Wilmington)" means the Assignment
and Assumption Agreement (Wilmington Terminal Services Agreement), dated the
Closing Date, between Seller and Purchaser, and the consent of the Wilmington
terminal operator attached thereto, in substantially the form set forth as
Exhibit J to the Agreement.
"Assumed Obligations" has the meaning specified in Article I of the
Conveyance Instrument.
"Banked Vacation" has the meaning specified in Section 5.24(j) of the
Agreement.
"Books and Records" means, with respect to any Person, all files,
documents, instruments, papers, books and records relating to the Company
Assets and the Facility Operations, including deeds, title policies, surveys,
Contracts, Governmental Approvals, operating data and plans and environmental
studies and plans.
"Business Day" means any day on which commercial banks are not authorized
or required by Law to close in the State of Washington.
"Casualty Event" has the meaning specified in Section 5.07(a) of the
Agreement.
"Casualty Notice" has the meaning specified in Section 5.07(c) of the
Agreement.
"Chlorine and Caustic Soda Sales Agreement" means the Chlorine and Caustic
Soda Sales Agreement, dated the Closing Date, between Seller and Purchaser, in
substantially the form set forth as Exhibit K to the Agreement.
"Chlorine Purchase Agreement" means the Chlorine Purchase Agreement, dated
the Closing Date, between Seller and Purchaser, in substantially the form set
forth as Exhibit L to the Agreement.
S-39
<PAGE> 40
"Claim" means any claim, demand, investigation, action, suit, assessment,
litigation or other proceeding, including arbitral proceedings and proceedings
by or before any Governmental Authority.
"Class A Common" has the meaning specified in Section 4.06(a) of the
Agreement.
"Class B Common" has the meaning specified in Section 4.06(a) of the
Agreement.
"Closing" has the meaning specified in Section 2.02 of the Agreement.
"Closing Date" means June 20, 1997 or such other date mutually agreed to
by the Parties, which in no event shall occur later than ten days after all of
the conditions precedent specified in Article VI are satisfied.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Assets" has the meaning specified in Article I of the Conveyance
Instrument.
"Contract" has the meaning specified in Article I of the Conveyance
Instrument.
"Contribution Agreement" means the Assignment and Assumption Agreement,
dated as of February 1, 1997, between Seller and OCC.
"Conveyance" has the meaning specified in Section 2.01(a) of the
Agreement.
"Conveyance Instrument" has the meaning specified in Section 2.01(c) of
the Agreement.
"Debt" means, for any Person, all indebtedness, liabilities and
obligations of such Person: (i) for the repayment of money borrowed (whether or
not represented by bonds, debentures, notes, securities or other evidences of
indebtedness); (ii) representing deferred payment of the purchase price for
goods, services or Assets and Properties; (iii) under any lease which, in
conformity with GAAP, is required to be capitalized for balance sheet purposes;
(iv) under guaranties, endorsements (other than for collection or deposit in
the ordinary course of business) or assumptions of, or other contingent
obligations in respect of, or to purchase or otherwise acquire, any
indebtedness, liabilities or other obligations of any other Person; (v) in
respect of letters of credit; (vi) secured by a Lien existing on Assets and
Properties owned by such Person, whether or not the indebtedness, liabilities
or obligations secured thereby shall have been assumed by such Person; and/or
(vii) to redeem or repurchase any of such Person's capital stock, warrants,
equity interests or equivalents.
"Department" has the meaning specified in Section 5.10 of the Agreement.
"Designation of Series A Preferred Stock" means the Certificate of
Designations of Series A Convertible Redeemable Preferred Stock (Par Value
$0.01 Per Share) of Purchaser set forth as Exhibit M to the Agreement.
"Dollar" and the sign "$" mean lawful money of the United States.
"Employee Pension Benefit Plan" has the meaning specified in Section 3(2)
of ERISA.
"Employee Plans and Agreements" has the meaning specified in Section
3.17(a) of the Agreement.
"Employee Welfare Benefit Plan" has the meaning specified in Section 3(1)
of ERISA.
"Employees" has the meaning specified in Section 5.24(c) of the Agreement.
"Environmental Condition" has the meaning specified in Article I of the
Environmental Operating Agreement.
"Environmental Easement" means the Grant of Environmental Easement and
Agreement, dated as of the Closing Date, between Seller and Purchaser, in
substantially the form set forth as Exhibit N to the Agreement.
A-40
<PAGE> 41
"Environmental Laws" has the meaning specified in Article I of the
Environmental Operating Agreement.
"Environmental Operating Agreement" means the Environmental Operating
Agreement, dated as of the Closing Date, between Seller and Purchaser, in
substantially the form set forth as Exhibit O to the Agreement.
"Equipment Sublease Agreement" means the Equipment Sublease Agreement,
dated as of the Closing Date, between Seller and Purchaser, in substantially
the form set forth as Exhibit P to the Agreement.
"Equipment Sublease Easement" means the Grant of Easement and Agreement,
dated as of the Closing Date, between Seller and Purchaser, in substantially
the form set forth as Exhibit Q to the Agreement.
"Equipment Substitution Agreement" means the agreement, dated as of the
Closing Date, between Seller and Purchaser, in substantially the form set forth
as Exhibit R to the Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer to any successor
sections.
"Estimated Value" has the meaning specified in Section 2.04 of the
Agreement.
"Excess Value" has the meaning specified in Section 2.04 of the Agreement.
"Excluded Asset" has the meaning specified in Article I of the Conveyance
Instrument.
"Exchange Act" has the meaning specified in Section 4.09 of the Agreement.
"Facility" has the meaning specified in the recitals to the Agreement.
"Facility Operations" means the operations and business conducted at the
Facility on the date hereof including the manufacture, storage and shipment of
chlorine, caustic soda, muriatic acid and calcium chloride at the Facility.
"Financial Statements" has the meaning specified in Section 3.05 of the
Agreement.
"FTC" has the meaning specified in Section 5.10 of the Agreement.
"GAAP" means generally accepted United States accounting principles,
applied on a consistent basis, and which are applicable in the circumstances as
of the date in question.
"Governmental Approval" means any authorization, consent, approval,
license, franchise, lease, ruling, permit, certificate or exemption of, or
filing or registration with, any Governmental Authority.
"Governmental Authority" means any nation or government, any federal,
state, county, province, city, town, municipality, local or other political
subdivision thereof or thereto and any court, tribunal, department, commission,
board, bureau, instrumentality, agency, council, arbitrator or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government and any other governmental entity with
authority over the applicable Person or Assets and Properties.
"Indemnified Group" has the meaning specified in Section 8.03(a) of the
Agreement.
"Indemnified Party" has the meaning specified in Section 8.04(a) of the
Agreement.
"Indemnifying Party" has the meaning specified in Section 8.04(a) of the
Agreement.
A-41
<PAGE> 42
"Information" has the meaning specified in Section 9.02 of the Agreement.
"Intellectual Property Rights" means any and all interests in patents,
patent applications, copyrights, copyright registrations, applications for the
registration of copyrights, trademarks, trademark registrations and
applications therefor, service marks, service mark registrations and
applications therefor, trade names (whether or not registered or registrable),
trade-secrets, know-how and other intangible properties, in each case Used by
Seller or its Affiliates in the Facility Operations in the Ordinary Course of
Business of Seller or its Affiliates including those described on Schedule
3.13.
"Interim Services Agreement" means the Interim Services Agreement, dated
as of the Closing Date, between Seller and Purchaser, in substantially the form
set forth as Exhibit S to the Agreement.
"Inventory" means any inventory (including, without limitation, any
contractual right to receive such inventory without further payment)
constituting inventory of raw materials or supplies, work-in-progress and
finished goods Used in, or (in the case of finished goods) resulting from, the
Facility Operations, whether located at the Site or in transit.
"Joint Defense Agreement" means the Joint Defense Agreement, dated as of
the Closing Date, between Seller and Purchaser, in substantially the form set
forth as Exhibit T to the Agreement.
"knowledge of Purchaser," "Purchaser's knowledge" and similar terms have
the meaning specified in Section 9.15 of the Agreement.
"knowledge of Seller," "Seller's knowledge" and similar terms have the
meaning specified in Section 9.15 of the Agreement.
"Laws" means all laws, statutes, rules, regulations, ordinances, orders,
writs, injunctions or decrees and other pronouncements having the effect of law
of any Governmental Authority (other than Environmental Laws).
"Leases" has the meaning specified in Section 3.10 of the Agreement.
"Leased Rail Cars" has the meaning specified in Section 5.25(b) of the
Agreement.
"Letter of Intent" means the Letter of Intent, dated December 11, 1996,
between OCC and Purchaser.
"Liability" means, with respect to any Person, any Debt, obligation and
other liability of such Person, whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due, including liabilities for Taxes,
material forward or long-term commitments, or unrealized or anticipated Losses
from any unfavorable Contracts or commitments.
"Lien" means any mortgage, lien, charge, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, security interest, assessment,
lease, adverse claim, levy, preference or priority or other security agreement
of any kind or nature whatsoever (whether voluntary or involuntary, affirmative
or negative, and whether imposed or created by operation of Law or otherwise)
in, on or with respect to, or pledge of, any Assets and Properties or equity
interests, whether now owned or hereafter acquired, or any other interest in
Assets and Properties or equity interests designed to secure the repayment of
Debt or any other obligation, whether arising by contract, operation of Law or
otherwise, or any contract to give any of the foregoing, and including any
conditional sale or other title retention agreement and any financing lease
having substantially the same effect as any of the foregoing.
"Losses" means any and all damages, fines, penalties, judgments,
deficiencies, losses, costs and expenses, including court costs, reasonable
fees of attorneys, accountants and other experts and other reasonable expenses
of any Claim.
"Master Rail Car Lease" means the Master Agreement for the Lease of Rail
Cars, Agreement No. P001, dated as of June 8, 1995, by and between OCC and
PCAC.
"Material Adverse Effect" means, with respect to any Person, asset or
operation, any set of circumstances or events which in the aggregate would
constitute, or cause, a material adverse effect on such asset or operation and,
in the case of any Person, its condition, financial or otherwise, or on the
ability of such Person to perform its obligations under the Agreement or any of
the Related Agreements to which it is a party or to consummate the transactions
contemplated thereby.
A-42
<PAGE> 43
"Material Contracts" has the meaning specified in Section 3.12 of the
Agreement.
"Minimum Inventory Value" has the meaning specified in Section 2.04 of the
Agreement.
"Minimum Spares and Stores Value" has the meaning specified in Section
2.04 of the Agreement.
"OCC" means Occidental Chemical Corporation, a New York corporation.
"OCC Guaranty" means the guaranty, dated as of the Closing Date, by OCC in
favor of Purchaser, in substantially the form set forth as Exhibit U to the
Agreement.
"Operating Services Agreement" means the Operating Services Agreement,
dated as of the Closing Date, between Seller and Purchaser, in substantially
the form set forth as Exhibit V to the Agreement.
"Ordinary Course of Business" of any Person, means any action taken by
such Person that (i) is consistent with the past practices of such Person or,
in the case of Seller and its Affiliates, their Past Practice and (ii) is taken
in the ordinary course of the day-to-day operations of such Person.
"Party" means Purchaser or Seller, as applicable; and "Parties" means
Purchaser and Seller.
"Past Practice" means the manner in which the Facility and the Facility
Operations have been operated and conducted by Seller or any of its Affiliates
in the ordinary course of business since January 1, 1994.
"PCAC" means Pioneer Chlor Alkali Company, Inc., a Delaware corporation
and an Affiliate of Purchaser.
"Permitted Encumbrances" means any and all: (i) Liens for Taxes if the
same shall at the time not be delinquent or thereafter may be paid without
penalty; (ii) Liens consisting of minor easements, zoning restrictions,
encumbrances, clouds on title or other restrictions on the use of real property
that do not materially affect the value of the Company Assets encumbered
thereby or materially impair the ability of Seller to use such Company Assets
in the Facility Operations; (iii) Liens of landlords, mechanics, materialmen,
warehousemen, carriers, suppliers, vendors or other statutory Liens securing
obligations that are not yet due and are incurred in the Ordinary Course of
Business of Seller; (iv) Liens reflected on the Title Commitment; and (v) Liens
resulting from deposits to secure payments of workers' compensation or other
social security programs or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids or Contracts in the Ordinary Course
of Business of Seller.
"Permit" means any authorization, consent, approval, license, franchise,
ruling, permit, certification or exemption of any Governmental Authority.
"Person" means any individual, firm, corporation, trust, association,
company, limited liability company, joint stock company, partnership, joint
venture, Governmental Authority or other entity or enterprise.
"PRA" means the Occidental Petroleum Corporation Retirement Plan.
"Post-Closing Taxes" has the meaning specified in Section 5.18(a) of the
Agreement.
"Pre-Closing Taxes" has the meaning specified in Section 5.18(a) of the
Agreement.
"Preferred Stock" means 55,000 shares of Series A Preferred Stock of
Purchaser, which Preferred Stock shall have the designations, rights and
preferences set forth in the Designation of Series A Preferred Stock.
"Prohibited Transaction" has the meaning specified in Section 3.17(d) of
the Agreement.
"PSA" means the Occidental Petroleum Corporation Savings Plan.
"Purchase Price" means the consideration specified in Section 2.01(d) of
the Agreement.
"Purchase Price Adjustment" has the meaning specified in Section 2.04 of
the Agreement.
A-43
<PAGE> 44
"Purchaser" means Pioneer Companies, Inc., a Delaware corporation, and its
successors or assigns.
"Purchaser Benefit Plans" means, with respect to Union Employees, all
benefit plans and programs provided by Purchaser to Union Employees from and
after the Closing, and, with respect to Transferred Salaried Employees, has the
meaning specified in Section 5.24(e) of the Agreement.
"Purchaser Financial Statements" has the meaning specified in Section 4.07
of the Agreement.
"Purchaser Guaranties" means the Purchaser Guaranty (OCC) and the
Purchaser Guaranty (OCC Tacoma).
"Purchaser Guaranty (OCC)" means the guaranty, dated as of the Closing
Date, by Purchaser in favor of OCC, in substantially the form set forth as
Exhibit W to the Agreement.
"Purchaser Guaranty (OCC Tacoma)" means the guaranty, dated as of the
Closing Date, by Purchaser in favor of Seller, in substantially the form set
forth as Exhibit X to the Agreement.
"Purchaser Indemnified Persons" has the meaning specified in Section 8.02
of the Agreement.
"Purchaser Major Representations" has the meaning specified in Section
8.06(a)(ii) of the Agreement.
"Purchaser Rail Cars" has the meaning specified in Section 5.25(a) of the
Agreement.
"Purchaser Representatives" has the meaning specified in Section 5.01(a)
of the Agreement.
"Purchaser SEC Reports" has the meaning specified in Section 4.09 of the
Agreement.
"Purchaser Securities" has the meaning specified in Section 4.06(a) of the
Agreement.
"Purchaser's Union Pension Plan" has the meaning specified in Section
5.24(m) of the Agreement.
"Rail Car Riders" means the riders to the Master Rail Car Lease, dated as
of the Closing Date, between OCC and Purchaser, in substantially the form set
forth as Exhibit Y to the Agreement.
"Rail Car Sublease" means the Master Rail Car Lease, together with (i) all
riders thereto executed pursuant to the terms thereof as of the date hereof and
(ii) the Rail Car Riders.
"Real Property" means the Site and other real property located thereat
transferred by Seller to Purchaser in the Special Warranty Deed.
"Reinsurer" has the meaning specified in Section 5.09 of the Agreement.
"Related Agreements" means:
(i) the Assignment and Assumption Agreement (Richmond),
(ii) the Assignment and Assumption Agreement (Wilmington),
(iii) the Chlorine and Caustic Soda Sales Agreement,
(iv) the Chlorine Purchase Agreement,
(v) the Conveyance Instrument,
(vi) the Environmental Easement,
(vii) the Environmental Operating Agreement,
(viii) the Equipment Sublease Agreement,
(ix) the Equipment Sublease Easement,
(x) the Equipment Substitution Agreement,
A-44
<PAGE> 45
(xi) the Interim Services Agreement,
(xii) the Joint Defense Agreement,
(xiii) the OCC Guaranty,
(xiv) the Operating Services Agreement,
(xv) the Rail Car Sublease,
(xvi) the Richmond Terminal Services Agreement,
(xvii) the Special Warranty Deed,
(xviii) the Wilmington Terminal Services Agreement,
(xix) any other document required to effect the Conveyance
and executed and delivered at the Closing, and
(xx) in the event that Purchaser shall have assigned the
Agreement or its rights thereunder to an Affiliate
of Purchaser in accordance with the provisions of
clause (i) of Section 9.06 of the Agreement, the
Purchaser Guaranties.
"Replacement Cost" of any Company Asset means the cost that would be
incurred to repair or replace, as applicable, such Company Asset to
substantially the same condition as immediately prior to any damage,
destruction or condemnation of such Company Asset which amount shall be
determined by the agreement of Seller and Purchaser or by appraisal as provided
in Section 5.07(g) of the Agreement.
"Revenue Bonds" means the $19,250,000 Economic Development Corporation of
Pierce County (Washington) Solid Waste Disposal Revenue Bonds (Occidental
Petroleum Project) - Series 1993.
"Revenue Bonds Loan Agreement" means the Loan Agreement, dated as of
September 1, 1993, between the Economic Development Corporation of Pierce
County, a public corporation organized under the laws of the State of
Washington, and OCC.
"Richmond Terminal Services Agreement" means the Richmond Product Exchange
and Terminal Services Agreement, dated as of the Closing Date, between Seller
and Purchaser, in substantially the form set forth as Exhibit Z to the
Agreement.
"Salaried Employees" has the meaning specified in Section 5.24(a) of the
Agreement.
"Salaried Employees on Approved Leave" has the meaning specified in
Section 5.24(a) of the Agreement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means OCC Tacoma, Inc., a Delaware corporation, and its
successors or assigns.
"Seller Indemnified Persons" has the meaning specified in Section 8.01 of
the Agreement.
"Seller Major Representations" has the meaning specified in Section
8.06(a)(i) of the Agreement.
"Seller Retained Liabilities" has the meaning specified in Article I of
the Conveyance Instrument.
"Severance Plan" means the Occidental Chemical Corporation Severance Pay
Policy.
"SFAS 87" means Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions".
"Shortage" has the meaning specified in Section 2.04 of the Agreement.
"SIP" means the Occidental Chemical Corporation Savings and Investment
Plan.
"Site" means the real property specifically described in Exhibit AA to the
Agreement.
"Spares and Stores" has the meaning specified in Article I of the
Conveyance Instrument.
A-45
<PAGE> 46
"Special Warranty Deed" means the Special Warranty Deed, dated the Closing
Date, between Seller and Purchaser, in substantially the form set forth as
Exhibit BB to the Agreement.
"Survey" has the meaning specified in Section 3.24(d) of the Agreement.
"Tacoma Union Pension Plan" has the meaning specified in Section 5.24(m)
of the Agreement.
"Tax" or "Taxes" means any federal, state, local or foreign net income,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, customs, duties or other type
of fiscal levy and all other taxes, fees, assessments or governmental charges
of any kind whatsoever, together with any interest and penalties, additions to
tax or additional amounts imposed or assessed with respect thereto.
"Technology License Agreement" means the Technology License Agreement,
dated as of the Closing Date, between OxyTech Systems, Inc. and Purchaser, in
substantially the form set forth as Exhibit CC to the Agreement.
"Termination Date" means June 30, 1997.
"Title Commitment" means the Commitment for Title Insurance covering the
Site and all improvements located thereon given by Title Company and having an
effective date of December 10, 1996.
"Title Company" has the meaning specified in Section 5.09 of the
Agreement.
"Title Policy" has the meaning specified in Section 5.09 of the Agreement.
"Transfer" has the meaning specified in Section 3.25(c) of the Agreement.
"Transferred Salaried Employees" has the meaning specified in Section
5.24(d) of the Agreement.
"Union Contracts" means the contracts in place between the Unions and
Seller immediately prior to Closing.
"Union Employees" has the meaning specified in Section 5.24(b) of the
Agreement.
A-46
<PAGE> 47
"Union Pension Plan" means the Occidental Chemical Corporation Retirement
Plan for Union (Hourly and Salaried) Employees Plan.
"Unions" mean the International Chemical Workers Union (Local 110) and
International Union of Operating Engineers (Local 286) representing hourly
employees of Seller.
"United States" and "U.S." means the United States of America and its
territories and possessions.
"Used" means acquired for use, held for use or used.
"Vehicles" has the meaning specified in Article I of the Conveyance
Instrument.
"Wheels Lease" means the lease, dated July 15, 1983, between Wheels, Inc.
and Occidental Petroleum Corporation, a Delaware corporation.
"Wilmington Terminal Services Agreement" means the Wilmington Product
Exchange and Terminal Services Agreement, dated as of the Closing Date, between
Seller and Purchaser, in substantially the form set forth as Exhibit DD to the
Agreement.
A-47
<PAGE> 1
EXHIBIT 4
CERTIFICATE OF DESIGNATIONS OF SERIES A
CONVERTIBLE REDEEMABLE PREFERRED STOCK
(PAR VALUE $0.01 PER SHARE)
OF
PIONEER COMPANIES, INC.
----------------------------------------
PURSUANT TO SECTION 151(G) OF THE
GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
----------------------------------------
The undersigned DOES HEREBY CERTIFY that the following resolutions were
duly adopted by the Board of Directors of Pioneer Companies, Inc., a Delaware
corporation (the "Corporation"), in accordance with the provisions of Section
151(g) of the Delaware General Corporation Law, at a meeting duly convened and
held on May 9, 1997, at which a quorum was present and acting throughout:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Corporation by the provisions of the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), this Board of Directors hereby authorizes the creation of a
series of preferred stock, par value $.01 per share, of the Corporation upon
the terms and conditions set forth herein, and hereby fixes the designation and
number of shares and the relative rights, preferences and limitations thereof
(in addition to those set forth in the Certificate of Incorporation that may be
applicable to the Series A Preferred Stock), as follows:
1. Designation and Number of Shares. The preferred stock created and
authorized hereby shall be designated as the "Series A Preferred Stock"
("Series A Preferred Stock"). The number of shares of Series A Preferred Stock
shall be 55,000. The Series A Preferred Stock is issuable solely in whole
shares that shall entitle the holder thereof to exercise the voting rights, to
participate in the distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock as set forth herein and in the Certificate
of Incorporation. The par value of each share of Series A Preferred Stock
shall be $.01.
2. Definitions. The following terms when used herein shall have the
meanings set forth below:
"Assets" has the meaning specified in Section 9(b)(v).
-1-
<PAGE> 2
"Business Day" means, with respect to the Series A Preferred Stock, any
day other than a Saturday, a Sunday or a day on which commercial banking
institutions in the City of New York, New York are authorized or obligated by
law or executive order to close.
"Certificate of Incorporation" has the meaning specified in the second
paragraph of this Certificate.
"Closing Price" with respect to any security on any day shall mean
the closing sale price, regular way, on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and asked prices,
regular way, in each case on the principal national securities exchange or
quotation system on which such security is quoted or listed or admitted to
trading or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the average of the closing bid and
asked prices of such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau Incorporated, or a
similar generally accepted reporting service, or if not so available, in such
manner as furnished by any NYSE member firm selected from time to time by the
Board of Directors for that purpose.
"Common Stock" means the Class A Common Stock, par value $0.01 per
share, of the Corporation, which term shall include, in the case of a
reclassification, recapitalization or other change in such common stock or in
the case of a consolidation or merger of the Corporation with or into another
corporation, such consideration to which a holder of a share of such common
stock of the Corporation would be entitled upon the occurrence of such event.
"Consent of Requisite Holders" means the written consent of Requisite
Holders, or the consent of Requisite Holders given in person or by proxy at an
annual or special meeting of the holders of Series A Preferred Stock or of all
stockholders of the Corporation, in each case, only with respect to those
matters in which the holders of Series A Preferred Stock shall vote separately
as a class and not with respect to any matters in which the holders of Series A
Preferred Stock shall have the right to vote together with the holders of
Common Stock, with each share of Series A Preferred Stock having one vote,
which written consent or consent by vote shall be binding upon all holders of
Series A Preferred Stock.
"Conversion Rate" has the meaning specified in Section 9(a).
"Corporation" has the meaning specified in the introductory
paragraph to this Certificate.
"Current Market Value" means the value per share of Common Stock as of
a specified date which is equal to the average, for the 15 consecutive Trading
Days immediately prior to the date of determination, of the Closing Prices of
the Common Stock
-2-
<PAGE> 3
on such days; provided however, that if any event similar to the events
described in Section 9(b)(i), (ii), (iii), (iv), or (v) shall occur and shall
affect the Closing Prices of the Common Stock during such period of time, then
the Board of Directors shall in good faith appropriately adjust (such
adjustment to be evidenced in a resolution adopted by the Board of Directors)
the Closing Prices to reflect the impact of such event on the Closing Prices.
"Declaration Date" has the meaning specified in the definition of
"Extraordinary Cash Dividend".
"Determination Date" shall mean, with respect to any dividend or other
distribution, the date fixed for the determination of the holders of shares of
Common Stock entitled to receive such dividend or distribution, or if a
dividend or distribution is paid or made without fixing such a date, the date
of such dividend or distribution.
"Event Redemption Date" has the meaning specified in Section 5(c).
"Ex-Date" shall mean (i) when used with respect to any dividend or
distribution, the first date on which the Common Stock trades regular way on
the relevant exchange or in the relevant market without the right to receive
such dividend or distribution, and (ii) when used with respect to any
subdivision or combination of shares of Common Stock, the first date on which
the Common Stock trades regular way on such exchange or in such market after
the time at which such subdivision or combination becomes effective.
"Extraordinary Cash Dividend" shall mean, with respect to any cash
dividend or cash distribution (other than a dividend or distribution in
connection with a Liquidation) on the Common Stock (the "Specified Dividend"),
an amount determined pursuant to the following sentence. If, upon the date
prior to the date of the declaration (the "Declaration Date") with respect to
the Specified Dividend, the aggregate per share amount of the Specified
Dividend, together with the aggregate per share amounts of all cash dividends
and cash distributions on the Common Stock with Ex-Dates occurring in the 360
consecutive day period ending on the date prior to the Ex-Date with respect to
the Specified Dividend, exceeds 10% of the Current Market Value of the Common
Stock on the Trading Day prior to the Declaration Date with respect to the
Specified Dividend, such excess shall be deemed to be an Extraordinary Cash
Dividend.
"Junior Securities" means the shares of Common Stock and the shares of
any other class or series of capital stock of the Corporation which (by the
terms of the Certificate of Incorporation or of the instrument by which the
Board of Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof) shall be subordinated to the Series A Preferred Stock in respect of
the right to receive assets of the Corporation in liquidation.
-3-
<PAGE> 4
"Liquidation" means the distribution of the assets of the Corporation
upon any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
"Liquidation Preference" has the meaning specified in Section 7.
"NASDAQ NMS" means the National Market System of The Nasdaq Stock
Market, Inc. (or any successor to such system).
"NYSE" means the New York Stock Exchange, Inc.
"Optional Conversion" has the meaning specified in Section 9(a).
"Original Issue Date" means, as to any share of Series A Preferred
Stock, the date on which such share of Series A Preferred Stock was first
issued by the Corporation.
"Parity Securities" means the shares of any class or series of capital
stock of the Corporation which (by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix
the relative rights, preferences and limitations thereof) shall, in the event
that the amounts payable thereon in liquidation are not paid in full, be
entitled to share ratably with the Series A Preferred Stock in any distribution
of assets other than by way of dividends in accordance with the sums which
would be payable in such distribution of assets if all sums payable were
discharged in full.
"Redemption Date" shall have the meaning set forth in Section 4(b).
"Redemption Price" means the product of (a) $100 per share of Series A
Preferred Stock to be redeemed, multiplied by, (b) the percentage applicable to
the period in which the Redemption Date or the Event Redemption Date, as
applicable, occurs, as shown in the table below. After the tenth anniversary of
the Original Issue Date, the Redemption Price shall equal $100 per share of
Series A Preferred Stock.
-4-
<PAGE> 5
<TABLE>
<CAPTION>
================================================================================
Applicable
Period Percentage
- --------------------------------------------------------------------------------
<S> <C>
From and including the Original Issue Date to and including the
first anniversary of the Original Issue Date 102%
- --------------------------------------------------------------------------------
From and excluding the first anniversary of the Original Issue Date
to and including the second anniversary of the Original Issue Date 104
- --------------------------------------------------------------------------------
From and excluding the second anniversary of the Original Issue
Date to and including the third anniversary of the Original Issue
Date 106
- --------------------------------------------------------------------------------
From and excluding the third anniversary of the Original Issue Date
to and including the fourth anniversary of the Original Issue Date 108
- --------------------------------------------------------------------------------
From and excluding the fourth anniversary of the Original Issue
Date to and including the tenth anniversary of the Original Issue
Date 110
================================================================================
</TABLE>
"Regular Cash Dividend" means any cash dividend or cash distribution
with respect to the Common Stock other than an Extraordinary Cash Dividend.
"Requisite Holders" means holders of Series A Preferred Stock holding
not less than a majority of the aggregate number of shares of Series A Preferred
Stock then outstanding.
"Series A Preferred Stock" has the meaning specified in Section 1.
"Specified Dividend" has the meaning specified in the definition of
"Extraordinary Cash Dividend".
"Trading Day" shall mean (x) if the applicable security is listed or
admitted for trading on the NYSE or another national securities exchange, a day
on which the NYSE or such other national securities exchange is open for
business or (y) if the applicable security is quoted on the NASDAQ NMS, a day on
which a trade may be made on the NASDAQ NMS or (z) if the applicable security is
not otherwise listed, admitted for trading or quoted, any day other than a
Saturday or Sunday or a day on which banking institutions in the City of New
York, New York are authorized or obligated by law or executive order to close.
3. Dividends.
No holder of any share of Series A Preferred Stock shall be entitled to
receive any dividends by virtue of holding such Series A Preferred Stock.
-5-
<PAGE> 6
4. Mandatory Redemption and Redemption at the Option of the Corporation.
(a) At any time, or from time to time, after the Original Issue Date, the
Series A Preferred Stock shall be redeemable, in whole or in part, at the
option of the Corporation, upon the giving of notice as provided in Section
4(b) of this Certificate, at the Redemption Price applicable on the Redemption
Date specified in such notice, without interest; provided, however, that if not
theretofore redeemed, all issued and outstanding shares of Series A Preferred
Stock shall be redeemed by the Corporation on the first Business Day after the
date which is ten (10) years after the Original Issue Date.
(b) At least 30 days, but not more than 60 days, prior to the date fixed
for the redemption of shares of Series A Preferred Stock pursuant to Section
4(a) of this Certificate (the "Redemption Date"), written notice of such
redemption shall be mailed, to each holder of record of shares of Series A
Preferred Stock to be redeemed, in a postage prepaid envelope sent by first
class mail and addressed to such holders at their last addresses as they shall
appear on the stock register of the Corporation; provided, however, that no
failure to give such notice by mail, nor any defect therein or in the mailing
thereof, shall affect the validity of the proceedings for the redemption of the
shares of Series A Preferred Stock to be redeemed.
Each such notice shall state:
(i) the Redemption Date;
(ii) the number of shares of Series A Preferred Stock to be redeemed
and, if less than all of the shares of Series A Preferred Stock held by
such holder are to be redeemed from such holder, the number of shares of
Series A Preferred Stock to be redeemed from such holder and the method
used to calculate such number;
(iii) the Redemption Price; and
(iv) the place or places where certificates for such shares of
Series A Preferred Stock are to be surrendered for payment of the
Redemption Price.
On or after the Redemption Date, each holder of shares of Series A
Preferred Stock to be redeemed shall present and surrender its certificate or
certificates for such shares of Series A Preferred Stock to the Corporation at
the place designated in such notice, and thereupon, the Redemption Price for
such shares of Series A Preferred Stock shall be paid to or on the order of the
person whose name appears on such certificate or certificates as the owner
thereof, and each surrendered certificate shall be canceled. In the event that
fewer than all of the shares of Series A Preferred Stock represented by such
certificate shall be redeemed, a new certificate shall be issued to the person
whose name appears on such certificate representing the unredeemed shares of
Series A Preferred Stock. From and after the Redemption Date (unless the
Corporation shall have not deposited, prior to the Redemption Date, funds
sufficient to pay the Redemption Price, in trust for
-6-
<PAGE> 7
the account of the holders of the shares of Series A Preferred Stock to be
redeemed, with any bank or trust company) all rights of the holders thereof as
stockholders of the Corporation, except the right to receive the Redemption
Price thereof, without interest, upon the surrender of certificates representing
the same, shall cease and terminate, such shares of Series A Preferred Stock
shall not thereafter be transferred (except with the consent of the Corporation)
on the books of the Corporation, and such shares of Series A Preferred Stock
shall not be deemed to be outstanding for any purpose whatsoever.
(c) If fewer than all of the shares of Series A Preferred Stock are to be
redeemed, the Board of Directors of the Corporation shall allocate the
aggregate number of shares to be redeemed pro rata (or as nearly pro rata as
practicable) or by any other method that shall be approved in writing by
holders of shares of Series A Preferred Stock representing Requisite Holders
(which such approval shall be binding on all holders of Series A Preferred
Stock).
(d) In the event that any holder of shares of Series A Preferred Stock
which have been called for redemption has not, within two years after the
Redemption Date, claimed the Redemption Price with respect thereof, the bank or
trust company at which the Corporation shall have deposited the Redemption
Price shall, upon demand by the Corporation, pay over to the Corporation such
unclaimed amount, and thereupon, such bank or trust company shall be relieved
of all responsibility in respect thereof to such holder, and such holder shall
look only to the Corporation for the payment thereof. Any interest accrued on
funds so deposited shall be paid by such bank or trust company to the
Corporation from time to time.
(e) After the first Business Day after the date which is ten (10) years
after the Original Issue Date, no dividends or other distributions shall be
declared, made or paid or set apart for payment or distribution upon the Common
Stock, and Junior Securities or any Parity Securities, nor may any Common
Stock, any Junior Securities or any Parity Securities be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of such stock) by
the Corporation (except by conversion into or in exchange for Common Stock,
such Junior Securities or such Parity Securities), unless all issued and
outstanding shares of Series A Preferred Stock shall have been redeemed by the
Corporation, or called for redemption and a sum sufficient for the payment of
the Redemption Price thereof shall have been deposited with a bank or trust
company in trust for the account of the holders of the shares of Series A
Preferred Stock to be redeemed.
5. Redemption Upon Designated Event And Rating Decline.
(a) In the event that there occurs after the issuance of the Series A
Preferred Stock both (a) a Designated Event and (b) a Rating Decline, each
holder of shares of Series A Preferred Stock may require the Corporation to
redeem all or any portion of such holders' shares of Series A Preferred Stock
on the Event Redemption Date, at the Redemption Price applicable to such Event
Redemption Date.
-7-
<PAGE> 8
(b) On or before the 30th day after the end of the Evaluation Period with
respect to such Designated Event, the Corporation shall mail, or cause to be
mailed, to each holder of record of shares of Series A Preferred Stock, in a
postage prepaid envelope sent by first class mail, addressed to each at their
last addresses as they shall appear on the stock register of the Corporation, a
notice regarding the Designated Event, the Rating Decline and the redemption
right. The notice shall state the date by which the Series A Preferred Stock
must be surrendered for redemption, the Event Redemption Date, the Redemption
Price and the procedure which the holder must follow to elect redemption. To
elect redemption with respect to any share of Series A Preferred Stock, the
holder will be required to surrender such share of Series A Preferred Stock at
least 10 days prior to the Event Redemption Date, together with written notice
of the holder's election. Election by a holder of redemption shall (unless
otherwise provided by law) be irrevocable.
(c) The following terms shall apply to terms used in this Section 5:
A "Designated Event" shall be deemed to occur at such times as (i) a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "1934 Act")), other
than the Corporation or any person or group (x) which as of the date
hereof holds a majority of the Voting Shares or any affiliate of such
person or group or (y) which consists solely of one or more Company
Employee Benefit Plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended), maintained by the
Corporation or any subsidiary thereof or any holding company created as
permitted by clause (iii)(y) of this paragraph, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the 1934 Act) of more than 50% of
the Voting Shares (including Voting Shares not then outstanding of which
such person or group is deemed to be the beneficial owner); or (ii) a
person or group consisting solely of one or more Company Employee Benefit
Plans becomes the beneficial owner of Voting Shares with the proceeds of
any extension of credit (including any loan to such person or group by or
on behalf of the Corporation) and the number of such Voting Shares
remaining unallocated to participants in such Company Employee Benefit
Plans at any time is more than 25% of the total voting power of all
outstanding Voting Shares (including Voting Shares not then outstanding
of which such person or group is deemed to be the beneficial owner); or
(iii) the Corporation consolidates with or merges with or into any person
(or sells or transfers all or substantially all of its assets to any
person) other than (x) a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock or (y) a merger which is elected solely to form a
public holding company or to change the jurisdiction of incorporation of
the Corporation and results in a reclassification, conversion, or exchange
of outstanding shares of Common Stock into solely shares of Common Stock of
such Person; or (iv) the Corporation or any subsidiary of the Corporation
purchases or otherwise acquires, directly or indirectly, beneficial
ownership of Common Stock of the Corporation if, after giving effect to
such acquisition, the Corporation (together with its subsidiaries) has
acquired beneficial ownership of more than 30% of the Common Stock
outstanding on the day before the first such acquisition (taking into
account any stock split, stock dividend or similar transaction effected
during such period) during the
-8-
<PAGE> 9
immediately preceding 12-month period ending on (and including) the date
of such acquisition (or such shorter period if the date of original issue
of the Series A Preferred Stock is after the first day of such period). As
used in this definition, "the Corporation" shall mean Pioneer Companies,
Inc. or any holding company formed pursuant to clause (iii)(y) hereof.
"Evaluation Period" with respect to any particular Designated Event
shall be the period beginning on the 120th day prior to the first public
notice of the occurrence of that particular Designated Event and ending
90 days after such public notice, provided that, if during the Evaluation
Period either Rating Agency shall publicly announce that it has the
Outstanding Debt under consideration for possible downgrade, then the
Evaluation Period shall end at the later of (i) 90 days after the public
notice of the occurrence of such Designated Event or (ii) the time at
which such Rating Agency shall announce a new rating for the Outstanding
Debt, announce the withdrawal of its rating of the Outstanding Debt, or
announce that it no longer has a downgrade of the rating of the
Outstanding Debt under consideration.
"Event Redemption Date" shall mean the date that is 100 days after
the end of the Evaluation Period with respect to a particular Designated
Event.
"Full Rating Category" shall mean (i) with respect to S&P, any of
the following categories: BB, B, CCC, CC, C and D, (ii) with respect to
Moody's, any of the following categories: Ba, B, Caa, Ca and C and (iii)
with respect to any other Rating Agency, the equivalent of any such
category of S&P or Moody's used by such other Rating Agency. In
determining whether the rating of the Outstanding Debt has decreased by
the equivalent of one Full Rating Category, gradation within Full Rating
Categories (+ and - for S&P; 1, 2 and 3 for Moody's or the equivalent
gradation for another Rating Agency) shall be taken into account (e.g.,
with respect to S&P, a decline in a rating from BB+ to B+ will constitute
a decrease of one Full Rating Category, and a decline in a rating from
BB- to B+ will constitute a decrease of less than one Full Rating
Category.
"Investment Grade" shall mean BBB- or higher by S&P or Baa3 or
higher by Moody's or the equivalent of such ratings by S&P or Moody's or
by any other Rating Agency selected as provided above.
"Outstanding Debt" shall mean the outstanding unsecured long-term
debt obligations of the Corporation whose maturity date most closely
approximates the date on which the Series A Preferred Stock must be
redeemed by the Corporation if not previously redeemed.
"Rating Agency" shall mean Standard & Poor's Ratings Services, a
division of the McGraw Hill Companies, Inc. and its successors ("S&P"),
and Moody's Investors Service and its successors ("Moody's"), or, if S&P
or Moody's or both shall not make a rating on the Outstanding Debt
publicly available, a nationally recognized securities rating
-9-
<PAGE> 10
agency or agencies, as the case may be, selected by the Company at such
time which shall be substituted for S&P or Moody's or both, as the case may
be.
"Rating Date", with respect to any particular Designated Event,
shall mean the date which is 121 days prior to the first public notice of
the occurrence of that particular Designated Event.
A "Rating Decline" shall be deemed to have occurred if a Designated
Event shall occur and if (i) one or both Rating Agencies shall have rated
the Outstanding Debt as Investment Grade on the Rating Date (established
with respect to that particular Designated Event as hereinafter
prescribed) and shall either reduce the rating of the Outstanding Debt or
withdraw the rating of the Outstanding Debt so that at the end of the
Evaluation Period the Outstanding Debt shall be rated by both Rating
Agencies below Investment Grade or shall not be rated by either Rating
Agency, (ii) both Rating Agencies shall have rated the Outstanding Debt
below Investment Grade on the Rating Date and shall either (a) reduce the
rating of the Outstanding Debt or withdraw the rating of the Outstanding
Debt so that at the end of the Evaluation Period the Outstanding Debt
shall be rated by both Rating Agencies at least one Full Rating Category
below the rating of the Outstanding Debt on the Rating Date or shall not
be rated by either Rating Agency or (b) reduce the rating of the
Outstanding Debt so that at the end of the Evaluation Period the rating
of the Outstanding Debt shall be D(S&P) and C(Moody's) or the equivalent
of such ratings by any other substituted Rating Agency as provided
herein, or (iii) if neither Rating Agency shall have rated the
Outstanding Debt on the Rating Date, the Designated Event shall have a
material adverse effect on the credit quality of the Corporation.
"Reference Date" means, (x) for any distribution, the day before the
earlier of the record date for such distribution or the first date on
which the Common Stock trades regular way without the right to receive
such distribution, of (y) for any acquisition, the day before the date of
such acquisition.
"Voting Shares" means the total voting power of all classes of stock
then outstanding of the Corporation entitled to vote generally in the
election of members of the Board of Directors.
6. Voting Rights. The holders of Series A Preferred Stock shall have the
right to vote together with the holders of Common Stock as a single class in
any and all matters with respect to which holders of Common Stock have voting
or consent rights. Each share of Series A Preferred Stock shall be entitled to
cast such number of votes as are equal to the number of votes which could be
cast by the number of shares of Common Stock into which such share of Series A
Preferred Stock is then convertible. The Conversion Rate to be used in
connection with the foregoing shall be the Conversion Rate in effect
immediately prior to the date fixed for the determination of holders of Common
Stock entitled to vote on such matter. The holders of the Series
-10-
<PAGE> 11
A Preferred Stock and the holders of Common Stock shall vote as one class except
as otherwise provided by law or this Certificate.
7. Priority of Series A Preferred Stock in event of Liquidation,
Dissolution or Winding Up. In the event of any Liquidation, after payment or
provision for payment of the debts and other liabilities of the Corporation,
the holders of shares of Series A Preferred Stock shall be entitled to receive,
out of the remaining net assets of the Corporation, the amount of one hundred
dollars ($100.00) (the "Liquidation Preference") in cash for each share of
Series A Preferred Stock, before any payment shall be made or any assets
distributed to the holders of the Common Stock or any other Junior Securities
upon such Liquidation. If upon any Liquidation the amounts payable with
respect to the Liquidation Preference of the Series A Preferred Stock and any
Parity Securities are not paid in full, the holders of Series A Preferred Stock
and of the Parity Securities will share pro rata in the amounts payable and
other property distributable with respect to such Liquidation so that the per
share amounts to which holders of Series A Preferred Stock and the Parity
Securities are entitled will in all cases bear to each other the same ratio
that the Liquidation Preferences of the Series A Preferred Stock and the Parity
Securities bear to each other. Except as otherwise provided in this Section 7,
holders of Series A Preferred Stock shall not be entitled to any distribution
in the event of Liquidation. Neither a consolidation, merger or other business
combination of the Corporation with or into another corporation or other
entity, nor a sale or transfer of all or part of the Corporation's assets for
cash, securities or other property shall constitute a Liquidation for purposes
of this Section 7.
8. Ranking of Series A Preferred Stock. With regard to rights to receive
mandatory redemption payments and distributions upon Liquidation, the Series A
Preferred Stock shall rank prior to any other equity securities of the
Corporation, including the Common Stock of the Corporation: (i) unless
otherwise approved in accordance with Section 12(b) of this Certificate, and
(ii) except with respect to Parity Securities.
9. Conversion.
(a) The shares of Series A Preferred Stock are convertible, at any time or
from time to time prior to the close of business on the Redemption Date, in
whole or in part, at the option of the holders thereof ("Optional Conversion"),
unless previously redeemed, into shares of Common Stock at a rate of eight
shares of Common Stock for each share of Series A Preferred Stock (the
"Conversion Rate"), subject to adjustment as set forth below. The right of
conversion of any shares of Series A Preferred Stock called for redemption will
terminate at the close of business on any Redemption Date with respect to such
shares of Series A Preferred Stock.
Optional Conversion of shares of Series A Preferred Stock may be effected
by delivering the certificates evidencing such shares of Series A Preferred
Stock, together with written notice of conversion and proper assignment of such
certificates to the Corporation or in blank, to the office of any transfer
agent for the Series A Preferred Stock or to any other office or agency
maintained by the Corporation for that purpose. Each Optional Conversion shall
be deemed to have
-11-
<PAGE> 12
been effected immediately prior to the close of business on the date on which
the foregoing requirements shall have been satisfied and the person or persons
entitled to receive the Common Stock deliverable upon conversion of the Series A
Preferred Stock shall be treated for all purposes as the record holder or
holders of such Common Stock at such time on such date. The Optional Conversion
shall be at the Conversion Rate in effect at such time on such date.
The Corporation shall, as soon as practicable after the surrender for
conversion of certificates evidencing shares of Series A Preferred Stock and
compliance with the other conditions herein contained, deliver at the offices
of such transfer agent to the person for whom such shares of Series A Preferred
Stock are so surrendered, or to the nominee or nominees of such person,
certificates evidencing the number of full shares of Common Stock to which such
person shall be entitled, together with a cash payment in respect of any
fraction of a share of Common Stock as hereinafter provided.
(b) The Conversion Rate is subject to adjustment from time to time as
provided below in this paragraph (b).
(i) If the Corporation shall fix a Determination Date with respect
to the payment of, or the making of, a dividend or other distribution
with respect to its Common Stock in shares of Common Stock (including by
way of reclassification of any shares of its Common Stock), the
Conversion Rate in effect at the opening of business on the day following
the Determination Date shall be increased by multiplying such Conversion
Rate by a fraction, the numerator of which shall be the sum of the number
of shares of Common Stock outstanding at the close of business on the
Determination Date, excluding the effect of such dividend or distribution,
plus the total number of shares of Common Stock constituting such dividend
or other distribution, and the denominator of which shall be the number of
shares of Common Stock outstanding at the close of business on the
Determination Date, excluding the effect of such dividend or distribution,
such increase to become effective at the opening of business on the day
following the Determination Date. For the purposes of this clause (i), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Corporation and the number of shares
constituting such dividend or other distribution shall include shares
represented by cash issued in lieu of fractional shares of Common Stock.
(ii) If outstanding shares of Common Stock shall be subdivided or
split into a greater number of shares of Common Stock, the Conversion
Rate in effect at the opening of business on the day following the day
upon which such subdivision or split becomes effective shall be
proportionately increased, and, conversely, in case outstanding shares of
Common Stock shall be combined into a lesser number of shares of Common
Stock, the Conversion Rate in effect at the opening of business on the
day following the day upon which such combination becomes effective shall
be proportionately reduced, such increase or reduction, as the case may
be, to become effective at the opening of business on the day following
the day upon which such subdivision or split or combination becomes
effective.
-12-
<PAGE> 13
(iii) If the Corporation shall, after the date hereof, fix a
Determination Date with respect to the issuance of rights or warrants to
all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the
Current Market Value of the Common Stock on the Determination Date, then
in each case the Conversion Rate shall be adjusted by multiplying the
Conversion Rate in effect on the Determination Date by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding at the close of business on the Determination Date, excluding
the effect of such issuance, plus the number of additional shares of
Common Stock offered for subscription or purchase pursuant to such rights
or warrants, and the denominator of which shall be the number of shares
of Common Stock outstanding at the close of business on the Determination
Date, excluding the effect of such issuance, plus the number of shares of
Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered for subscription or purchase pursuant
to such rights or warrants would purchase at such Current Market Value
(determined by multiplying such total number of offered shares by the
exercise price of such rights or warrants and dividing the product so
obtained by such Current Market Value). Shares of Common Stock held by
the Corporation or by another company of which a majority of the shares
entitled to vote in the election of directors are held, directly or
indirectly, by the Corporation shall not be deemed to be outstanding for
purposes of such computation. Such adjustment shall become effective at
the opening of business on the day next following the Determination Date.
To the extent that shares of Common Stock are not delivered by reason of
the expiration of any of such rights or warrants without exercise, the
Conversion Rate shall be readjusted to the Conversion Rate which would
then be in effect had the adjustments made by reason of the issuance of
such rights or warrants been made upon the basis of the issuance of
rights or warrants in respect of only the number of shares of Common
Stock actually delivered.
(iv) If the Corporation shall issue shares of Common Stock at a
price per share less than the Current Market Value of the Common Stock on
the date of such issuance, except for grants or sales of Common Stock to
officers, directors, employees and consultants of the Corporation for
compensation purposes, then the Conversion Rate shall be adjusted by
multiplying the Conversion Rate in effect on such date of issuance by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding at the close of business on such date, excluding the
effect of such issuance, plus the number of additional shares of Common
Stock issued, and the denominator of which shall be the number of shares of
Common Stock outstanding at the close of business on such date, excluding
the effect of such issuance, plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common
Stock so issued would purchase at such Current Market Value (determined by
multiplying such total number of issued shares by the purchase price for
such issued shares and dividing the product so obtained by such Current
Market Value).
-13-
<PAGE> 14
(v) If the Corporation shall fix a Determination Date with respect
to the making of a dividend or other distribution on its Common Stock
(other than a dividend or distribution (A) referred to in Section 9(b)(i)
or (iii), or (B) in connection with a Liquidation) consisting of
evidences of its indebtedness, shares of any class of capital stock or
other assets (including securities and Extraordinary Cash Dividends, but
excluding Regular Cash Dividends) (any of the foregoing, other than any
such excluded dividend or distribution, being hereinafter referred to as
"Assets"), then, in each such case, unless the Corporation elects to
reserve Assets for distribution to the holders of the Series A Preferred
Stock upon the conversion thereof so that any holder converting shares of
Series A Preferred Stock will receive upon such conversion, in addition
to the shares of the Common Stock to which such holder is entitled, the
amount and kind of such Assets that such holder would have received if
such holder had, immediately prior to the Determination Date, converted
its shares of Series A Preferred Stock into Common Stock, the Conversion
Rate in effect as of the opening of business on the day following the
Determination Date shall be increased by multiplying such Conversion Rate
by a fraction (x) the numerator of which shall be the Current Market
Value per share of the Common Stock on the Determination Date and (y) the
denominator of which shall be the Current Market Value per share of the
Common Stock on the Determination Date less the fair market value (as
determined in good faith by the Board of Directors, whose determination
shall be described in a resolution of the Board of Directors) on the
Determination Date of the portion of the Assets so distributed applicable
to one share of Common Stock; provided, however, that in the event the
then fair market value (as so determined) of the portion of the Assets so
distributed or distributable applicable to one share of Common Stock is
equal to or greater than the Current Market Value per share of the Common
Stock on the Determination Date, in lieu of the foregoing adjustment,
adequate provision shall be made so that each holder of shares of Series
A Preferred Stock shall have the right to receive upon conversion the
amount and kind of such Assets that such holder would have received if
such holder had, immediately prior to the Determination Date, converted
its shares of Series A Preferred Stock into Common Stock. If such
dividend or distribution is not so paid or made, the Conversion Rate
shall again be adjusted to be the Conversion Rate that would then be in
effect if such Determination Date had not been fixed. If such Assets
consist of any rights or warrants (other than those referred to in
Section 9(b)(iii)) and such rights or warrants expire and, as a result, a
portion of the Assets issuable on exercise thereof will not be delivered,
the Conversion Rate shall be readjusted to the Conversion Rate that would
then be in effect had the adjustments made upon the issuance of such rights
or warrants been made on the basis of delivery of only the Assets actually
delivered. To the extent that a distribution of Assets consists of or
includes (x) securities and the Board of Directors determines the fair
market value thereof by reference to the trading market therefor, the Board
of Directors shall, if possible, consider the Closing Price of such
securities over the same period and (if appropriate) applying adjustments
of the type used in computing the applicable Current Market Value or (y) an
Extraordinary Cash Dividend, the fair market value thereof shall be deemed
to be the amount of cash constituting such Extraordinary Cash Dividend.
-14-
<PAGE> 15
(vi) Anything in this Section 9 notwithstanding, the Corporation
will be entitled (but shall not be required) to make such upward
adjustments in the Conversion Rate, in addition to those set forth in
this Section 9, as the Corporation, in its sole discretion, shall
determine to be advisable, in order that any stock dividend, subdivision
of stock, distribution of rights to purchase stock or securities, or
distribution of securities convertible into or exchangeable for stock (or
any transaction that could be treated as any of the foregoing
transactions pursuant to Section 305 of the Internal Revenue Code of
1986, as amended, or any successor provision) hereafter made by the
Corporation to its stockholders will not be taxable in whole or in part.
(vii) All adjustments to the Conversion Rate will be calculated to
the nearest 1/100th of a share of Common Stock. No adjustment in the
Conversion Rate will be required unless such adjustment would require an
increase or decrease of at least one percent in the Conversion Rate;
provided, however, that any adjustments which by reason of this
subparagraph are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All adjustments to the
Conversion Rate shall be made successively.
(viii) Prior to taking any action that could result in an adjustment
affecting the Conversion Rate such that the conversion price (for
purposes of this subparagraph, an amount equal to the Liquidation
Preference divided by the Conversion Rate as in effect from time to time)
would be below the then par value of the Common Stock, the Corporation
will take any corporate action which may, in the opinion of its Board of
Directors, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at the
Conversion Rate as so adjusted. The Corporation hereby covenants not to
take any action which would result in the par value per share of the
Common Stock being in excess of an amount equal to the Liquidation
Preference divided by the Conversion Rate.
(c) Adjustment for Consolidation or Merger. In the event that the
Corporation shall enter into any consolidation, merger, share exchange or
similar transaction, however named, (other than a merger or consolidation in
which the Corporation is the continuing corporation and in which the Common
Stock outstanding immediately prior to the merger or consolidation is not
exchanged for cash, securities or other property of the Corporation or another
corporation) or in the event of any statutory exchange of securities with
another corporation (other than in connection with a merger or acquisition),
each share of Series A Preferred Stock shall, after consummation of such
transaction, be subject to conversion at the option of the holder into the kind
and amount of securities, cash or other property receivable upon consummation of
such transaction by a holder of the number of shares of Common Stock into which
such shares of Series A Preferred Stock might have been converted immediately
prior to consummation of such transaction, assuming that such holder of Common
Stock failed to exercise rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon consummation of such
transaction (provided, that
-15-
<PAGE> 16
if the kind or amount of securities, cash or other property receivable upon
consummation of such transaction is not the same for each non-electing share of
Common Stock, then the kind and amount of securities, cash or other property
receivable upon consummation of such transaction for each non-electing share
shall be deemed to be the kind and amount so receivable per share by a plurality
of the non-electing shares). The kind and amount of securities into which the
Series A Preferred Stock shall be convertible after consummation of such
transaction shall be subject to adjustment as described above in Section 9(b)
following the date of consummation of such transaction. The Corporation may not
become a party to any such transaction unless the terms thereof are consistent
with the foregoing.
(d) Whenever the Conversion Rate is adjusted as provided in Section 9(b),
the Corporation shall:
(i) forthwith compute the adjusted Conversion Rate in accordance
with this Section 9 and prepare a certificate signed by the Chief
Financial Officer, any Vice President, the Treasurer or the Controller of
the Corporation setting forth the adjusted Conversion Rate, the method of
calculation thereof in reasonable detail and the facts requiring such
adjustment and upon which such adjustment is based, and shall file such
certificate forthwith with any transfer agent for the Series A Preferred
Stock and the Common Stock; and
(ii) mail a notice stating that the Conversion Rate has been
adjusted, the facts requiring such adjustment and upon which such
adjustment is based and setting forth the adjusted Conversion Rate, to
the holders of record of the outstanding shares of Series A Preferred
Stock, at their last addresses as they shall appear on the stock register
of the Corporation, as soon as practicable after such adjustment has been
made.
(e) In case, at any time while any of the shares of Series A Preferred
Stock are outstanding, the Corporation shall authorize any reclassification of
the Common Stock (other than a subdivision, split or combination thereof) or
any consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation is required (except for a merger
of the Corporation into one of its subsidiaries solely for the purpose of
changing the corporate domicile of the Corporation to another state of the
United States and in connection with which there is no substantive change in the
rights or privileges of any securities of the Corporation other than changes
resulting from differences in the corporate statutes of the state the
Corporation was then domiciled in and the new state of domicile), or the sale or
transfer of all or substantially all of the assets of the Corporation (except to
one or more wholly owned subsidiaries), then the Corporation shall cause to be
filed at each office or agency maintained for the purpose of conversion of the
Series A Preferred Stock, and shall cause to be mailed to the holders of record
of the outstanding shares of Series A Preferred Stock, at their last addresses
as they shall appear on the stock register of the Corporation, at least 10 days
before the date hereinafter specified, a notice stating the date on which any
such reclassification, consolidation, merger, sale or transfer is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record
-16-
<PAGE> 17
shall be entitled to exchange their Common Stock for securities or other
property (including cash), if any, deliverable upon such reclassification,
consolidation, merger, sale or transfer. The failure to give or receive the
notice required by this paragraph (e) or any defect therein shall not affect the
legality or validity of any such action.
10. No Fractional Shares. No fractional shares of Common Stock shall be
issued upon the conversion of any Series A Preferred Stock. Upon any Optional
Conversion, in lieu of any fractional share of Common Stock otherwise issuable
in respect of the aggregate number of shares of Series A Preferred Stock of any
holder that are converted, such holders shall be entitled to receive an amount
in cash (computed to the nearest cent, with one-half cent rounded upward) equal
to the same fraction of the Current Market Value of the Common Stock. If more
than one share of Series A Preferred Stock shall be surrendered for conversion
at one time by or for the same holder, the number of full shares of Common
Stock issuable upon conversion or redemption thereof shall be computed on the
basis of the aggregate number of shares of Series A Preferred Stock so
surrendered.
11. Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized and unissued Common Stock,
solely for issuance upon the conversion of Series A Preferred Stock as herein
provided, free from any preemptive rights, such number of shares of Common
Stock as shall from time to time be sufficient to permit the conversion of all
the Series A Preferred Stock then outstanding.
12. Class Voting Rights.
(a) So long as any shares of the Series A Preferred Stock are outstanding
and unless the vote or consent of the holders of a greater number of shares
shall then be required by law, the Consent of Requisite Holders shall be
necessary for authorizing, effecting or validating the amendment, alteration or
repeal of any of the provisions of this Certificate. Without limiting the
generality of the foregoing, such vote or consent is expressly understood not
to be required with respect to (i) the creation of any class or series of
capital stock as to which no vote or consent is required under Section 12(b) or
(c) below and (ii) any merger, consolidation or transfer of substantially all
the assets of the Corporation or other transaction involving the Corporation
and a third party in which the Corporation is not the survivor and in which the
Series A Preferred Stock shall remain outstanding as an equivalent security of
the survivor with no adverse change to the designations, rights, preferences or
privileges provided for in this Certificate.
(b) So long as any shares of the Series A Preferred Stock are outstanding
and unless the vote or consent of the holders of a greater number of shares
shall then be required by law, the Consent of Requisite Holders shall be
required (i) to amend, alter or repeal any provision of the Certificate of
Incorporation, as the same may be amended from time to time, so as to affect
adversely the relative rights, preferences, qualifications, limitations or
restrictions of the Series A Preferred Stock, (ii) to authorize or issue more
shares of Series A Preferred Stock than are authorized in Section 1 of this
Certificate, or (iii) to create, authorize or issue, or reclassify any
authorized stock of the Corporation into, or increase the authorized amount of,
any class or series of capital stock
-17-
<PAGE> 18
ranking senior to the Series A Preferred Stock with respect to rights to receive
mandatory redemption payments and distributions upon Liquidation.
(c) Nothing herein contained shall be construed to require a class vote or
the Consent of Requisite Holders (i) in connection with any increase in the
total number of authorized or issued shares of Common Stock, including, without
limitation, any shares of Common Stock or options or other rights to acquire
shares of Common Stock issued pursuant to any stock option or other incentive
plan for directors, officers or employees of the Corporation or any subsidiary
of the Corporation, or (ii) in connection with the authorization, increase or
issuance of any class or series of Junior Securities. Shares of the Series A
Preferred Stock which have been issued and redeemed shall (upon compliance with
any applicable provisions of the laws of the state of Delaware) have the status
of authorized and unissued shares of the class of preferred stock, undesignated
as to series and may be redesignated and reissued as part of any series of the
preferred stock, other than the Series A Preferred Stock. Nothing herein
contained shall in any way limit the right and power of the Corporation to
issue any bonds, notes, mortgages, debentures, and other obligations, or to
incur indebtedness to the extent permitted by the Corporation's agreements in
effect from time to time.
13. Prior Notice of Certain Events. In the event:
(a) the Corporation shall (A) declare any dividend or any other
distribution on its Common Stock (other than (x) a dividend or other
distribution payable in shares of Common Stock or (y) a Regular Cash Dividend),
(B) declare or authorize a redemption or repurchase of in excess of 10% of the
then outstanding shares of Common Stock, or (C) authorize the granting to all
holders of Common Stock or rights or warrants to subscribe for or purchase any
shares of stock of any class or of any other rights or warrants; or
(b) of any reclassification of Common Stock (other than a subdivision or
combination of the outstanding Common Stock, or a change in par value, or from
par value to no par value, or from no par value to par value), or of any
consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation shall be required, or of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or other property; or
(c) of a Liquidation;
then the Corporation shall cause to be filed with the transfer agent for, and
mailed to the holders of record of the outstanding shares of, the Series A
Preferred Stock, at their last addresses as they shall appear upon the stock
register of the Corporation, at least fifteen days prior to the applicable
record date hereinafter specified, a notice stating (x) the date on which a
record (if any) is to be taken for the purpose of such dividend, distribution,
redemption, repurchase or granting of rights or warrants or, if a record is not
to be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, redemption, repurchase, rights or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, share exchange or
-18-
<PAGE> 19
Liquidation is expected to become effective, and the date, if any, as of which
it is expected that holders of record of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, share exchange or
Liquidation (but no failure to mail such notice or any defect therein or in the
mailing thereof shall affect the validity of the corporate action required to be
specified in such notice).
14. Miscellaneous.
(a) Transfer Agent and Registrar. The Corporation may at any time act as
its own transfer agent and registrar. The Corporation shall also have the
right, by notice in writing to all holders of Series A Preferred Stock at their
address for notice appearing on the books and records of the Corporation, to
designate an office or agency where shares of Series A Preferred Stock may be
presented for registration or transfer.
(b) Stockholder Reports. The Corporation will, or will cause any transfer
agent to, transmit to the registered holders of shares of the Series A
Preferred Stock all reports and communications from the Corporation that are
generally mailed to holders of the Common Stock.
(c) Severability of Provisions. Whenever possible, each provision hereof
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision hereof is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or otherwise adversely
affecting the remaining provisions hereof.
-19-
<PAGE> 20
RESOLVED FURTHER, that the appropriate officers of the Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, all in
accordance with the requirements of Section 151 of the Delaware General
Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name and on its behalf by the officers named below as of this 4th
day of June, 1997.
PIONEER COMPANIES, INC.
By:
------------------------------------
Name: Kent R. Stephenson
Title: Vice President
Attest:
By:
-----------------------------------
Name: Eva Macias
Title: Assistant Secretary
-20-
