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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1994 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
COMMISSION FILE NUMBER 1-9859
PIONEER COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1215192
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 NATIONSBANK CENTER
700 LOUISIANA STREET
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
---------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Class A Common Stock, $.01 par value
(Title of class)
On March 26, 1997, there were outstanding 8,623,220 shares of the
Company's Class A Common Stock, $.01 par value. The aggregate market value of
the Company's voting stock held by non-affiliates of the Company is $13,919,331,
based on the closing price for the Class A Common Stock in consolidated trading
on March 26, 1997.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X , NO ___.
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES X , NO ___.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act
of 1934 in connection with the Company's 1997 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Annual Report on Form 10-K.
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PIONEER COMPANIES, INC.
TABLE OF CONTENTS
FORM 10-K FOR THE PERIOD
ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
PART I PAGE
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Item 1. Business 3
Item 2. Properties 9
Item 3 Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 48
PART III
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Item 10. Directors and Executive Officers of the Registrant 49
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners and Management 49
Item 13. Certain Relationships and Related Transactions 49
PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 50
</TABLE>
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PART I
Unless the context otherwise requires, (i) the term "Pioneer" refers to
Pioneer Companies, Inc., (ii) the term "PAAC" refers to Pioneer Americas
Acquisition Corp., a wholly-owned subsidiary of Pioneer, (iii) the terms
"Pioneer Americas" and "Predecessor Company" refer to Pioneer Americas, Inc.
and its subsidiaries, and (iv) the term "Company" means Pioneer and its
consolidated subsidiaries.
Item 1. BUSINESS.
THE ACQUISITION
On April 20, 1995 (the "Closing Date"), pursuant to a Stock Purchase
Agreement, dated as of March 24, 1995 (the "Acquisition Agreement"), by and
among Pioneer, PAAC and the holders of the outstanding common stock and other
common equity interests of Pioneer Americas, Inc. (the "Sellers"), PAAC acquired
all of such stock and interests (the "Acquisition") for a purchase price equal
to the sum of approximately (i) $102 million, paid in cash, (ii) $11.5 million
aggregate principal amount of subordinated promissory notes of Pioneer (the
"Seller Notes") and (iii) certain amounts payable after the closing based upon
earnings or proceeds attributable to certain of the Company's direct and
indirect real estate holdings which are not necessary for the Company's
chlor-alkali business. In addition, as further consideration for the
Acquisition, PAAC paid approximately $51.7 million to retire all outstanding
indebtedness of Pioneer Americas and $5 million to redeem the outstanding
preferred stock of Pioneer Americas, Inc.
In connection with the consummation of the Acquisition, (i) PAAC issued
$135 million in principal amount of 13 3/8% Senior Notes due 2005 (the "Senior
Notes"), (ii) Pioneer issued the Seller Notes in exchange for certain of the
outstanding shares of Pioneer Americas, Inc., which Pioneer contributed to PAAC,
(iii) Pioneer issued to Interlaken Investment Partners, L.P., a Delaware limited
partnership (the "Interlaken Partnership"), Class A Common Stock of Pioneer for
an aggregate purchase price of $15 million (the "Interlaken Partnership
Purchase"), the proceeds of which were contributed to PAAC, (iv) Pioneer issued
to certain employees of Pioneer Americas Class A Common Stock of Pioneer for an
aggregate purchase price of $6 million (the "Management Purchase"), the proceeds
of which were contributed to PAAC, and (v) Pioneer Americas entered into a new
bank revolving credit facility (the "Bank Credit Facility") with Bank of America
Illinois, providing for borrowings of up to $30 million. The net proceeds of the
sale of the Senior Notes, the Interlaken Partnership Purchase, the Management
Purchase and a borrowing under the Bank Credit Facility were used to pay the
cash portion of the purchase price of the Acquisition, to retire the outstanding
Pioneer Americas indebtedness and to redeem the outstanding preferred stock of
Pioneer Americas, Inc.
GENERAL
Prior to the Acquisition, Pioneer was actively seeking acquisitions and
had no other operations. As of December 31, 1996, Pioneer had a net operating
loss carryforward ("NOL") which it believes is now approximately $35.6 million
and is available to offset future taxable income. As of December 31, 1996, the
Interlaken Partnership beneficially owned approximately 35.6% of the voting
power of Pioneer and William R. Berkley (who may be deemed to beneficially own
all shares of Pioneer common stock held by the Interlaken Partnership)
beneficially owned approximately 61.0% of the voting power of Pioneer. Mr.
Berkley is Chairman of the Board of Directors of Pioneer.
Following its formation in 1988, the Predecessor Company acquired two
chlor-alkali plants previously owned and operated by Stauffer Chlor Alkali
Company, Inc., and several businesses engaged in municipal, industrial and
commercial water treatment. During 1996 the Company conducted its primary
business through its operating subsidiaries: Pioneer Chlor Alkali Company, Inc.
("PCAC"), All-Pure Chemical Co. ("All-Pure") (including T.C. Products, Inc.
following its acquisition in July 1996), and Imperial West Chemical Co.
("Imperial West") and Kemwater North America Company ("Kemwater"). In 1996, PCAC
accounted for 58% of the Company's total
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revenues, and All-Pure and Imperial West/Kemwater accounted for 24% and 18%,
respectively, of the Company's total revenues, net of intercompany eliminations.
In February 1996 Pioneer formed Kemwater to continue the business activities
previously conducted by its subsidiary, Imperial West, and to operate the
business acquired through the acquisition of KWT, Inc. ("KWT") from a subsidiary
of Kemira Oy of Finland ("Kemira").
PCAC. PCAC owns and operates two chlor-alkali production facilities,
located in St. Gabriel, Louisiana and Henderson, Nevada. These facilities, which
are the largest operated by the Company, produce chlorine and caustic soda for
sale in the merchant markets and for use as raw materials by PCAC, All-Pure and
Kemwater in the manufacture of downstream products. The Henderson facility also
produces hydrochloric acid. PCAC also has an indirect 15% equity interest in
Saguaro Power Company L.P. ("Saguaro Power"), which owns and operates a
90-megawatt cogeneration facility located on approximately six acres of the
Henderson property.
Chlorine and caustic soda are co-products, concurrently produced in a ratio
of 1 to 1.1, respectively, through electrolysis of salt water. An
electrochemical unit ("ECU") consists of one ton of chlorine and 1.1 tons of
caustic soda.
On December 11, 1996, the Company announced that it had initiated
discussions with Occidental Chemical Corporation ("OxyChem") regarding the
proposed acquisition by the Company of OxyChem's Tacoma, Washington chlor-alkali
facility (the "Tacoma Facility"). If agreement with OxyChem on the terms of the
transaction can be reached, the Company expects that the securing of required
financing and completion of the transaction could occur during the first half
of 1997. The Tacoma Facility would be PCAC's largest plant.
All-Pure. All-Pure manufactures bleach, repackages chlorine and
hydrochloric acid and distributes these products along with caustic soda and
related products to municipalities, swimming pool supply distributors and
selected commercial and retail markets in the western United States. Because
bleach contains a high percentage of water, freight costs and logistics are an
important competitive factor. All-Pure's production plants and distribution
facilities are strategically located in or near most of the largest population
centers of the West Coast. All-Pure purchases all of its chlorine and caustic
soda and a substantial portion of its hydrochloric acid from PCAC. In July 1996,
All-Pure acquired T.C. Products, Inc. ("T.C. Products"), which is engaged in the
manufacture and marketing of bleach and related products from its plant in
Tacoma, Washington.
Kemwater. Fifty percent of the common stock of Kemwater is held by a
subsidiary of PAAC and fifty percent of the common stock of Kemwater is owned by
another subsidiary of the Company. A subsidiary of PAAC also owns all of the
outstanding shares of Kemwater's preferred stock.
Kemwater manufactures and supplies iron chlorides to the potable and waste
water markets in the western United States, and, through KWT, polyaluminum
chloride to the same markets in the eastern United States. The products are used
primarily to remove solids from waste water streams and to control hydrogen
sulfide emissions. Kemwater also manufactures and markets aluminum sulfate to
the waste water and pulp and paper industries and in the western U.S. is a
manufacturer of bleach for municipal water disinfection. KWT also produces
aluminum sulfate, sodium aluminate and ferric sulfate at its plant in Savannah,
Georgia for sale to the water treatment market in the eastern United States and
the Caribbean. Kemwater intends to add polyaluminum chloride production capacity
to its western plants. Kemwater has exclusive licenses to use Kemira's existing
and future advanced water treatment technology in the development and sale of
products and services for the potable water, waste water and industrial water
treatment markets in the United States (other than the northeastern U.S.) and
the Caribbean, and nonexclusive access to the use of the technology for the
Canadian and Mexican markets, with an option to acquire an exclusive license for
those markets in the future. During 1996 Imperial West and Kemwater purchased a
substantial portion of their chlorine, caustic soda and hydrochloric acid needs
from PCAC, and it is anticipated that in the future PCAC will continue to
provide Kemwater with a substantial amount of its raw materials.
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The following tables set forth, for the periods indicated, certain
sales and operating data regarding the Company's principal operating
subsidiaries:
Production Volumes (thousands of tons)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PCAC:
Chlorine 345.7 327.9 321.1 313.4 300.8
Caustic soda 379.7 362.5 352.6 347.9 334.2
Hydrochloric acid 134.3 126.6 123.0 125.5 124.7
All-Pure(1):
Bleach (gallons in millions) 34.0 31.1 28.4 19.2 22.5
Repackaged chlorine 29.2 28.6 27.6 27.9 26.2
Kemwater(2):
Iron chlorides 53.5 62.2 65.1 65.0 65.8
Aluminum sulfate 42.6 30.5 37.8 35.3 33.5
</TABLE>
Average Net Sales Prices
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
PCAC:
ECU $ 385 $ 414 $ 327 $ 275 $ 315
Hydrochloric acid (per ton) 49 50 54 60 29
All-Pure(1):
Bleach (per gallon) 0.80 0.84 0.81 1.13 0.96
Repackaged chlorine (per ton) 471 498 464 371 361
Kemwater(2):
Iron chlorides (per ton) 220 226 214 170 149
Aluminum sulfate (per ton) 98 95 94 97 98
</TABLE>
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(1) GPS Pool Supply, Inc. ("GPS") was acquired by All-Pure in May 1994; the
production volumes and average net sales prices reflect GPS operations
since that date. The production volumes and average net sales prices
reflect T.C. Products operations since the date of its acquisition in July
1996.
(2) Kemwater was formed in connection with the acquisition of KWT in February
1996; the production volumes and average net sales prices reflect Imperial
West operations prior to that date.
COMPETITION
The chlor-alkali industry is highly competitive. Most of the Company's
competitors are larger and have greater financial resources than the Company.
Many of the Company's competitors are some of the world's largest chemical
companies that have their own raw material resources and numerous regional
companies that specialize in a smaller number of chemical products. While a
significant portion of the Company's business is based upon widely available
technology, the Company believes that the difficulty in obtaining permits for
the production of chlor-alkali and chlor-alkali related products inhibits easy
entry to the market. The Company's ability to compete effectively depends on its
ability to maintain competitive prices and to provide reliable and responsive
service to its customers.
The United States chlor-alkali industry is currently dominated by two
producers, OxyChem and The Dow Chemical Company, each with approximately one
quarter of United States capacity. The remaining capacity is held by
approximately 15 companies. Approximately 70% of United States chlor-alkali
capacity is located on the Gulf
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Coast in Texas and Louisiana. The Company believes that it currently has
approximately 2.6% of United States chlor-alkali capacity, and that following
the acquisition of the Tacoma Facility it would have approximately 4.2% of such
capacity. The Company believes it has a strong regional presence with respect to
many of its products in the markets it serves.
Competitors in the chlor-alkali related industries in which the Company
operates are numerous and the industry is highly fragmented. The Company
believes that Kemwater is the largest producer of iron chlorides in the region
of the United States west of the Rocky Mountains and that All-Pure is the
largest supplier of chlorine and bleach for water treatment purposes in that
region.
EMPLOYEES
As of December 31, 1996, the Company had 692 employees. Approximately 94 of
the Company's employees at its Henderson, Nevada plant are covered by collective
bargaining agreements with the United Steelworkers of America and the
International Association of Machinists and Aerospace Workers that are in effect
until March 2001. Approximately 83 of the Company's employees at All-Pure's City
of Industry facility are covered by collective bargaining agreements with the
Steel, Paper House, Chemical Drivers and Helpers Union and the International
Chemical Workers Union that are in effect until September 1997 and January 1998,
respectively. The Company's employees at other production facilities are not
covered by union contracts or collective bargaining agreements. The Company
considers its relationship with its employees to be good and it has not
experienced any strikes or work stoppages.
ENVIRONMENTAL REGULATION
Air Quality. The Company's operations are subject to the Federal Clean Air
Act and the amendments to that act which were adopted by Congress in 1990. The
Company will be subject to some of the additional environmental regulations
adopted by the federal EPA and state environmental agencies to implement the
Clean Air Act Amendments of 1990. Among the requirements that are potentially
applicable to the Company are those that require the EPA to establish hazardous
air pollutant emissions requirements for chlorine production facilities.
Although the Company cannot estimate the cost of complying with these
requirements until the implementing regulations are proposed, at this time the
Company does not believe that such requirements will have a material adverse
effect on its results of operations or financial position.
Most of the Company's plants manufacture or use chlorine, which is in
gaseous form if released into the air. Chlorine gas in relatively low
concentrations can irritate the eyes, nose and skin and in large quantities or
high concentrations can cause permanent injury or death. In 1991, there was an
accidental release of approximately 42 tons of chlorine from PCAC's Henderson
facility. In response, local emergency authorities evacuated areas in and around
the City of Henderson. PCAC has resolved substantially all of the personal
injury, property damage and regulatory claims relating to this release. There
was a release of about 10 tons of chlorine from PCAC's St. Gabriel facility in
1992 and another release in 1994 of less than one ton of chlorine, and from 1995
to date there have been six releases of chlorine from the Company's plants, each
of which was less than 35 pounds. These releases were controlled by plant
personnel, in some cases with the assistance of local emergency response
personnel, and there were no material claims against PCAC or All-Pure as a
result of these incidents. The Company maintains systems to detect emissions of
chlorine at its plants, and the St. Gabriel and Henderson plants are members of
their local industrial emergency response networks. The Company believes that
its insurance coverage is adequate with respect to costs that might be incurred
in connection with any future release, although there can be no assurance that
the Company will not incur substantial expenditures that are not covered by
insurance if a release does occur in the future.
Water Quality. The Company maintains waste water discharge permits for many
of its facilities pursuant to the Federal Water Pollution Control Act of 1972,
as amended, and comparable state laws. Where required, the Company has also
applied for permits to discharge stormwater under such laws. In order to meet
the discharge requirements applicable to stormwater, the Company has a
continuing program to modify surface drainage or make other changes at certain
plants. The Company plans to spend an additional $2.1 million by the end of 1997
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for modifications to the stormwater system at PCAC's Henderson plant. The
Company believes that the costs associated with stormwater discharge at
Henderson and its other plants will not have a material adverse effect on the
Company's financial condition, liquidity or operating results. The various
states in which the Company operates also have water pollution control statutes
and regulatory programs which include groundwater and surface water protection
provisions. The requirements of these laws vary and are generally implemented
through a state regulatory agency. These water protection programs typically
require site discharge permits, and spill notification, prevention and
corrective action plans. At several of the Company's facilities, investigations
or remediations are underway and at some of these locations regulatory agencies
are considering whether additional actions are necessary to protect or remediate
surface or groundwater resources, and the Company could be required to incur
additional costs to construct and operate remediation systems in the future. In
addition, at several of its facilities, the Company is in the process of
replacing or closing ponds for the collection of wastewater. The Company plans
to spend approximately $1.3 million during the next fifteen years for closure of
eight chlor-alkali waste water disposal ponds at the Henderson plant.
Hazardous and Solid Wastes. The Company's manufacturing facilities generate
hazardous and non-hazardous solid wastes which are subject to the requirements
of the federal Resource Conservation and Recovery Act ("RCRA") and comparable
state statutes. Under the 1984 amendments to RCRA, the EPA promulgated
regulations banning the land disposal of certain hazardous wastes unless the
wastes meet defined treatment or disposal standards, including certain
mercury-containing wastes generated by PCAC's St. Gabriel plant. In response to
these regulations, the St. Gabriel plant has substantially reduced the quantity
of wastes that are subject to the ban. The Company has installed an in-plant
treatment system that reduces the level of mercury in its wastes below the
hazardous classification. The Company's disposal costs could increase
substantially if its present disposal sites become unavailable due to capacity
or regulatory restrictions. The Company presently believes, however, that its
current disposal arrangements, together with the new treatment system, will
allow the Company to continue to dispose of land-banned wastes with no material
adverse effect on it.
Superfund. In the ordinary course of the Company's operations, substances
are generated that fall within the definition of "hazardous substances," and the
Company is the owner or operator of several sites at which hazardous substances
have been released into soil or groundwater. Under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), also known as
the "Superfund" law, regulatory agencies or third parties may incur costs to
investigate or remediate such conditions and seek reimbursement from the Company
for such costs. However, no investigations or remedial activities are currently
being conducted under CERCLA by third parties at any of the Company's
facilities. Such activities are being carried out at certain facilities under
the other statutory authorities discussed above.
INDEMNITIES
ZENECA Indemnity. PCAC's Henderson plant is located within what is known as
the "Basic Complex." Soil and groundwater contamination have been identified
within and adjoining the Basic Complex, including land owned by PCAC. A
groundwater treatment system was installed at the facility in 1983 and, pursuant
to a Consent Agreement with the Nevada Division of Environmental Protection, a
study is being conducted to further evaluate soil and groundwater contamination
at the facility and other properties within the Basic Complex and to determine
whether additional remediation will be necessary with respect to PCAC's
property.
In connection with the 1988 acquisition of the Henderson and St. Gabriel
facilities by Pioneer Americas, the sellers agreed to indemnify Pioneer Americas
with respect to, among other things, certain environmental liabilities
associated with historical operations at the Henderson site. ZENECA Delaware
Holdings, Inc. and ZENECA, Inc. (collectively, the "ZENECA Companies") have
assumed the indemnity obligations. In general, Pioneer Americas is indemnified
against environmental costs which arise from or relate to pre-acquisition
actions which involved disposal, discharge or release of materials resulting
from the former agricultural chemical and other non-chlor-alkali manufacturing
operations at the Henderson plant. The ZENECA Companies are also responsible for
costs arising out of the pre-acquisition actions of Basic Investments and
pre-acquisition actions at the Basic Complex and for other pre-acquisition
environmental liabilities arising at other off-site locations. Under the ZENECA
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indemnity, Pioneer Americas may only recover indemnified amounts for
environmental work to the extent that such work is required to comply with
environmental laws or is reasonably required to prevent an interruption in the
production of chlor-alkali products. The indemnity also covers certain claims by
non-governmental third parties, provided notice of such claims is given to the
ZENECA Companies not later than April 20, 1999. Pioneer Americas is responsible
for environmental costs relating to the chlor-alkali manufacturing operations at
the Henderson plant, both pre- and post-acquisition, for certain actions taken
without ZENECA's consent and for certain operating and maintenance costs of a
groundwater treatment system at the facility. In addition, subject to certain
exceptions, Pioneer Americas has a contractual duty not to take any action that
could reasonably be expected to increase materially the obligations of the
ZENECA Companies under the indemnity.
Payments for environmental liabilities under the ZENECA indemnity, together
with other non-environmental liabilities for which the ZENECA Companies have
agreed to indemnify Pioneer Americas, cannot exceed approximately $65 million.
To date, Pioneer Americas has been reimbursed for approximately $12 million of
costs covered by the indemnity, but the ZENECA Companies may have directly
incurred additional costs that would further reduce the total amount remaining
under the indemnity. In 1994, Pioneer Americas recorded an additional $3.2
million environmental reserve related to pre-acquisition actions at sites that
are the responsibility of ZENECA. At the same time a receivable was recorded
from ZENECA for the same amount. It is the Company's policy to record such
amounts when a liability can be reasonably estimated. No additional amounts were
recorded in 1995 or 1996.
The ZENECA indemnity will terminate on April 20, 1999. The indemnity will
continue to cover claims after the expiration of the term of the indemnity
provided that, prior to its expiration, proper notice to the ZENECA Companies is
given and either the ZENECA Companies have assumed control of such claims or the
Company is contesting the legal requirements that gave rise to such claims, or
has commenced removal, remedial or maintenance work with respect to such claims,
or has commenced an investigation which results in the commencement of such work
within ninety days. The Company believes that the ZENECA Companies will continue
to honor their obligations under the indemnity for claims properly presented by
the Company. It is possible, however, that disputes could arise between the
parties concerning the effect of contractual language and that the Company would
have to subject its claims for clean-up expenses, which could be substantial, to
the contractually-established arbitration process.
Sellers' Indemnity. In the Acquisition Agreement, the Sellers have agreed
to indemnify the Company for certain environmental liabilities that result from
certain discharges of hazardous materials or violations of environmental laws
arising prior to the Closing Date from or relating to the Pioneer Americas plant
sites or arising before or after the Closing Date with respect to certain
environmental liabilities relating to the Contingent Payment Properties (as
described in the next two paragraphs). Amounts payable pursuant to the Sellers'
Indemnity will generally be payable as follows: (i) out of certain reserves
established on Pioneer Americas' balance sheet at December 31, 1994; (ii) either
by offset against the amounts payable under the Seller Notes or from amounts
received in connection with the Contingent Payment Properties; and (iii) in
certain circumstances and subject to specified limitations, out of the personal
assets of the Sellers. The Company is required to reimburse the Sellers with
amounts recovered under the ZENECA indemnity or from other third parties. The
Company and the Sellers have agreed that they will cooperate in matters relating
to the ZENECA indemnity. The Company has also agreed to indemnify the Sellers
for certain environmental liabilities that may arise after the Closing Date.
The Company owns an equity interest of approximately 32% in Basic
Investments, Inc., a Nevada corporation ("Basic Investments"). Through its
subsidiaries, Basic Investments owns certain undeveloped land in the Las
Vegas/Clark County, Nevada area and is, through a subsidiary, the general
partner of Victory Valley Land Company, L.P., a Delaware limited partnership
("Victory Valley"), that owns additional undeveloped land in such area as well
as an option to acquire the remainder of the undeveloped land owned by Basic
Investments. Basic Investments also owns and maintains the water and power
distribution network within the Basic Complex. The Company contracts with
subsidiaries of Basic Investments for the delivery of the Company's water to the
Company's plant site and transmission of the Company's power within the
Henderson site. The Company believes pricing for the services provided is on an
arm's-length basis. The Company owns a 21% limited partnership interest in
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Victory Valley, and Basic Investments owns an indirect 50% partnership interest
in Victory Valley. The Company has a combined interest in Victory Valley of
approximately 37% through its own direct interest and its partial ownership of
Basic Investments. The Company also owns certain real property adjoining the
sites of the Henderson, St. Gabriel and Mojave plants that is not used in the
businesses conducted at such sites. Such property, now comprising approximately
845 acres in the aggregate, is referred to herein as the "Excess Land."
In accordance with the terms of the Acquisition, the Company's interests in
Basic Investments, Victory Valley and the Excess Land (collectively, the
"Contingent Payment Properties") are being held for the benefit of the Sellers
until April 20, 2015. The Company will not receive any of the economic benefits
from the Contingent Payment Properties, except that certain environmental and
other indemnification obligations of the Sellers to the Company may be satisfied
from proceeds of or payments on account of such investments and except to the
extent that such investments are owned by the Company at the end of such 20-year
period. As of December 31, 1996, such proceeds, which are held by the Company in
a separate account as collateral for any indemnification obligations of the
Sellers to the Company, amounted to $2.3 million.
Item 2. PROPERTIES.
FACILITIES
The following table sets forth certain information regarding the Company's
principal production and distribution facilities as of March 24, 1997. All
property is leased unless otherwise indicated.
Type of Facility Location
- ---------------- --------
Chlor-alkali plants St. Gabriel, Louisiana*
Henderson, Nevada*
Bleach plants Antioch, California*
Santa Fe Springs, California
Tracy, California
Kalama, Washington
City of Industry, California
Marysville, California
Chlorine and hydrochloric acid repackaging Santa Fe Springs, California
Tracy, California
Kalama, Washington
City of Industry, California
Marysville, California
Iron chloride plants Mojave, California*
Pittsburg, California*
Aluminum sulfate plants Antioch, California*
Spokane, Washington
Savannah, Georgia
Polyaluminum chloride plant Savannah, Georgia
Sodium aluminate plant Savannah, Georgia
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Caustic soda terminals Tampa, Florida
Wilmington, California
Tracy, California
Antioch, California*
Aluminum sulfate and sulfuric acid terminal Albany, Oregon
Ferric sulfate terminal Cape Girardeau, Missouri
Distribution centers Fresno, California
Spokane, Washington
- ---------------
* Owned property
The Company's corporate headquarters are located in leased office space in
Houston, Texas under a lease terminating in 2006.
PAAC has $135.0 million of 13 3/8% First Mortgage Notes due 2005 (the
"Mortgage Notes") outstanding. The Mortgage Notes and obligations outstanding
under the Bank Credit Facility are secured by first mortgages on PCAC's St.
Gabriel and Henderson facilities.
PCAC FACILITIES
St. Gabriel, Louisiana. The St. Gabriel plant is located on a 100-acre site
near Baton Rouge, Louisiana and serves the southern U.S. and Mississippi River
markets and the export market. Approximately 228 acres adjoining this site are
available to the Company for future industrial development, and approximately
400 acres adjoining the site constitute Excess Land. The plant was completed in
1970 and is situated on the Mississippi River with river frontage and deep water
docking, loading and unloading facilities. The dock is capable of berthing
ocean-going vessels of up to 36,000 DWT. The Company calculates its rated
capacity ("Rated Capacity") as a product of a production unit's instantaneous
rate and an average onstream time factor. Rated Capacity at St. Gabriel is
196,000 tons of chlorine and 215,600 tons of caustic soda.
Henderson, Nevada. The Henderson plant is located on a 374-acre site near
Las Vegas, Nevada. Approximately 70 acres are developed and used for production
facilities, and approximately 16 acres adjoining the site constitute Excess
Land. The original plant, which began operation in 1942, was upgraded and
rebuilt in 1976-1977. Rated Capacity at the plant is 150,000 tons of chlorine,
165,000 tons of caustic soda, 130,000 tons of hydrochloric acid and 5,100 tons
of bleach. The Henderson plant is part of an industrial complex shared with
three other manufacturing companies. Common facilities and property are owned
and managed by subsidiaries of Basic Investments, which provide common services
to the four site companies. Basic Investments' facilities include extensive
water and high voltage power distribution systems and access roads.
ALL-PURE FACILITIES
Tracy, California. The Tracy plant includes a 168,000 ton per year bleach
production facility and a chlorine repackaging facility on a 15-acre tract. The
land at the facility is leased under a lease expiring in the year 2000.
All-Pure's corporate office is currently located in separate leased offices in
Tracy. During the second quarter of 1997, All-Pure headquarters will be
relocated to rented offices in Walnut Creek, California to be shared with
Kemwater.
10
<PAGE> 11
Santa Fe Springs, California. The Santa Fe Springs plant includes a 262,000
ton per year bleach production plant and a chlorine repackaging facility on a
4.5-acre tract. The land at the facility is leased under a lease expiring in
1998 with a five-year renewal option.
Kalama, Washington. The Kalama plant includes a 52,500 ton per year bleach
production facility and a chlorine repackaging facility on a three-acre tract.
The land at the facility is leased under a month-to-month lease; All-Pure and
the lessor are engaged in discussions regarding a long-term lease extension or
the lease of a new site within the same port facility.
Marysville, California. The Marysville plant includes a chlorine and sulfur
dioxide repackaging facility and a 5,000 ton per year bleach production facility
on a 10-acre tract. The land is leased under a lease expiring in the year 2000.
In January 1997, heavy rains and river overflows flooded the plant, and it has
not yet been determined whether the plant will be returned to operation, or when
it might be possible to resume operations. In the opinion of the Company's
management, there are no material impairment writedowns required as a result of
this uncertainty.
Fresno, California. The Fresno facility consists of an approximately 10,000
square foot warehouse. All product shipped from the warehouse is transferred
from the Tracy, California production facility for distribution to customers.
The land at the facility is leased under a lease expiring in 2001.
City of Industry, California. The City of Industry plant includes a 262,000
ton per year bleach production facility and chlorine, hydrochloric acid and dry
chemical repackaging facilities on a five-acre tract. The facility includes a
96,000 square foot warehouse. The land at the facility is leased under a lease
expiring in 1998 with options to extend until 2008.
KEMWATER FACILITIES
Antioch, California. Production facilities at the Antioch facility include
a 30,000 ton per year aluminum sulfate plant and a 12,500 ton per year bleach
plant. Caustic soda and sulfuric acid are terminaled and distributed from the
location. The site also currently serves as corporate headquarters for Kemwater;
during the second quarter of 1997, Kemwater headquarters will be relocated to
rented offices in Walnut Creek, California to be shared with All-Pure. The
22-acre company-owned site has deepwater access and rail service.
Mojave, California. The Mojave facility, which was constructed in 1988 and
1989, includes a 130,000 ton per year iron chlorides production facility that is
located on approximately eight acres of a 30-acre company-owned tract.
Approximately 429 acres of adjoining land constitute Excess Land. The plant
consists of two separate, identical production trains and has rail service. The
facility also terminals caustic soda, sulfuric acid, polyaluminum chloride and
hydrochloric acid for distribution.
Pittsburg, California. The Pittsburg plant has a 30,000 ton per year
iron chlorides production facility. The 10-acre rail served site is owned
by Kemwater.
Spokane, Washington. The Spokane facility has a 30,000 ton per year
aluminum sulfate plant located on four acres. Sulfuric acid purchased from third
parties is also distributed from the location, and the facility also terminals
polyaluminum chloride and sulfuric acid. The land at the site is leased under a
lease that can be terminated by either party with 30 days' notice.
Albany, Oregon. Aluminum sulfate, which is manufactured in Spokane,
Washington, is distributed from the Albany terminal. Sulfuric acid purchased
from third parties is also distributed from the terminal. The land at the site
is leased under a lease with an indefinite term, with cancellation by either
party on 30 days' notice.
Savannah, Georgia. Production facilities at Savannah include a 45,000 ton
per year polyaluminum chloride plant, a 25,000 ton per year aluminum sulfate
plant, a 15,000 ton per year sodium aluminate plant, and a 18,000 ton per year
11
<PAGE> 12
ferric sulfate granule dissolving plant. The two acre site is leased under a
lease expiring in 2005, subject to options to extend the lease until 2015.
Item 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of its business. The
Company maintains insurance coverage against potential claims in amounts which
it believes to be adequate. In the opinion of management, uninsured losses, if
any, resulting from these matters will not have a material adverse effect on the
Company's results of operations, cash flow or financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of 1996 to a vote of
holders of Pioneer's Common Stock.
Item 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT.
The names, ages and current offices of the executive officers of the
Company, who are to serve until the next annual meeting of the Board of
Directors to be held in 1997, are set forth below.
......
Name and Age.... Office
- ------------ ------
Michael J. Ferris (52) President and Chief Executive Officer
Philip J. Ablove (56) Vice President and Chief Financial Officer
Jerry B. Bradley (51) Vice President, Human Resources of Pioneer
Americas, Inc.
Verrill M. Norwood (65) Vice President, Environmental, Health and Safety
of Pioneer Americas, Inc.
Kent R. Stephenson (47) Vice President, General Counsel and Secretary
James E. Glattly (50) President of Pioneer Chlor Alkali Company, Inc.
Ronald E. Ciora (55) President of All-Pure Chemical Co.
Frank B. Belliss (43) President of Kemwater North America Company
Michael J. Ferris has served as President and Chief Executive Officer of
Pioneer since January 5, 1997. Prior to joining the Company, he was employed by
Vulcan Materials Company from March 1974 to January 1997, where he served as
Executive Vice President, Chemicals from 1996 to 1997. Mr. Ferris is also a
director of ChemFirst, Inc., a specialty chemical company.
Philip J. Ablove has served as Vice President and Chief Financial Officer
of Pioneer since March 1996, after serving as Acting Chief Financial Officer
since October 1995, and has been a director of Pioneer since January 1991. He
was President and Chief Executive Officer of Pioneer from January 1991 to July
1992, and he served as a consultant to Pioneer from October 1990 to January 1991
and from October 1995 to March 1996. He also served as an officer and director
specializing in restructuring financially distressed companies from 1983 to
1995. From June 1988 until June 1990, he was a director and officer of Ironstone
Group, Inc., a holding company with interests in wholesale plumbing distribution
and oil and gas exploration and production, which filed a chapter 11 petition in
January 1991 for reorganization under federal bankruptcy law. Mr. Ablove was
Executive Vice President and a director of Iron-Oak Supply Corporation from July
1988 until June 1990, which filed a bankruptcy petition in January 1991.
12
<PAGE> 13
Jerry B. Bradley has served as Vice President, Human Resources of Pioneer
Americas, Inc. since October 1995. From May 1993 to October 1995, Mr. Bradley
was President of Tandem Partners, Inc., a human resources consulting firm. From
1978 to 1993 he was employed by Occidental Chemical Corporation, where he served
as Vice President, Human Resources.
Verrill M. Norwood has served as Vice President, Environmental, Health and
Safety of Pioneer Americas, Inc. since 1990. Prior to joining Pioneer Americas,
Mr. Norwood was employed by Olin Corporation from 1973 to 1990, where he served
as Vice President, Environmental Affairs from 1978 to 1990.
Kent R. Stephenson has served as Vice President, General Counsel and
Secretary of Pioneer since June 1995, and as Vice President, General Counsel and
Secretary of Pioneer Americas, Inc. since 1993. Prior to joining Pioneer
Americas, he was employed by Zapata Corporation, a gas services company, from
1978 to 1993, where he served as Senior Vice President, General Counsel and
Secretary from 1987 to 1993.
James E. Glattly has served as President of Pioneer Chlor Alkali Company,
Inc. since December 1996. He was Vice President, Sales and Marketing of Pioneer
Chlor Alkali Company, Inc. from 1988 to 1996. Prior to joining Pioneer Americas,
Inc., he was employed by Occidental Chemical Corporation from 1985 to 1988 and
from 1974 to 1983, where he served in various capacities, including Western
Regional Manager and various other sales positions. From 1983 to 1985 Mr.
Glattly served as General Manager of HCI Chemical.
Ronald E. Ciora has served as President of All-Pure since November 1995.
For more than five years prior thereto, he was President and Chief Executive
Officer of DPC Industries, Inc., DX Distribution, Inc. and DXI Industries, Inc.,
which are companies engaged in chemical distribution, chlorine repackaging and
bleach manufacturing.
Frank B. Belliss has served as President of Kemwater since February 1996.
He served as President of Imperial West from February 1994 to February 1996. Mr.
Belliss was Vice President and General Manager of Imperial West for more than
five years prior to February 1994.
13
<PAGE> 14
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On March 31, 1995, Pioneer's stockholders approved a one-for-four reverse
stock split which was effective on April 27, 1995 (the "Reverse Stock Split").
On December 4, 1996, Pioneer's Board of Directors approved a seven percent stock
dividend, which was paid on January 7, 1997 to stockholders of record on
December 16, 1996 (the "Stock Dividend"). The number of authorized shares
remained at 46.0 million for Class A Common Stock and 4.0 million for Class B
Common Stock, and the par value of the Common Stock was unchanged. Unless the
context otherwise requires, all references in this Report to Common Stock share
and per share amounts reflect the Reverse Stock Split and the Stock Dividend.
Since May 19, 1995, Pioneer's Class A Common Stock has been traded on the
NASDAQ National Market under the symbol "PIONA". Prior to that date it was
traded on the NASD OTC Bulletin Board. There is no established trading market
for Pioneer's Class B Common Stock. The price range for the Class A Common
Stock, as adjusted to reflect the Reverse Stock Split, for each quarterly period
for the last two fiscal years is shown in the following table:
High Low
----- -----
1996
----
Fourth Quarter $ 5.88 $4.32
Third Quarter 6.54 5.25
Second Quarter 7.36 5.37
First Quarter 9.23 6.08
1995
----
Fourth Quarter 8.63 5.25
Third Quarter 9.38 5.00
Second Quarter 12.00 3.75
First Quarter 6.50 1.25
Information set forth in the table with respect to periods prior to May
19, 1995, is derived from high and low bid and ask prices, and is not indicative
of actual trading prices. For periods after that date, prices are as reported in
the consolidated transaction reporting system.
As of March 7, 1997, there were approximately 230 holders of record of the
Class A Common Stock and there were two holders of record of the Class B Common
Stock.
No cash dividends have been declared with respect to Pioneer's Common
Stock during the two most recent fiscal years. Pursuant to the terms of the
indenture with respect to the outstanding 13 3/8% First Mortgage Notes issued
by PAAC, prior to April 1, 1997, dividends on PAAC's stock cannot be paid in
amounts in excess of those necessary to enable Pioneer to pay interest on the
$11.5 million principal amount of its outstanding Seller Notes.
14
<PAGE> 15
Item 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical financial data of the
Predecessor Company for the years ended December 31, 1994, 1993, and 1992. The
data should be read in conjunction with the Consolidated Financial Statements
included in Item 8. Financial Statements and Supplementary Data. The table also
sets forth the financial condition of the Company at December 31, 1996 and 1995
and the results of operations of the Company for the years ended December 31,
1996 and 1995. For comparative purposes the Predecessor Company's operating
results from January 1, 1995 through April 20, 1995 are also presented. Certain
amounts have been reclassified in prior years to conform to the current year
presentation. All reclassifications have been applied consistently for the
periods presented. Per share information for all periods presented reflects a 7%
stock dividend on the Class A and Class B Common Stock declared December 4, 1996
to shareholders of record December 16, 1996 and paid January 7, 1997. The
following table should also be read in conjunction with Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------------------------------------
PERIOD FROM
JANUARY 1,
1995
YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED DECEMBER 31,
-------------------------- APRIL 20, --------------------------------------
1996(1) 1995(2) 1995 1994(3) 1993 1992
---------- ---------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 208,908 $ 142,908 $ 57,848 $ 167,217 $ 151,191 $ 157,401
Cost of sales 150,464 98,175 37,400 134,556 131,711 126,149
---------- ---------- ----------- ----------- ---------- ----------
Gross profit 58,444 44,733 20,448 32,661 19,480 31,252
Selling, general and
administrative expenses 29,860 20,765 7,047 22,529 21,850 22,602
---------- ---------- ----------- ----------- ---------- ----------
Operating income (loss) 28,584 23,968 13,401 10,132 (2,370) 8,650
Interest expense, net 19,212 13,540 1,665 6,407 7,551 8,189
Settlement of litigation and
insurance claims, net -- -- -- 3,326 8,360 2,755
Other income (expense), net 887 637 (115) 1,337 2,103 1,130
---------- ---------- ----------- ----------- ---------- ----------
Income before income taxes and
extraordinary items (4) 10,259 11,065 11,621 8,388 542 4,346
Income tax provision 5,859 5,579 4,809 3,242 486 1,765
---------- ---------- ----------- ----------- ---------- ----------
Income before extraordinary
item 4,400 5,486 6,812 5,146 56 2,581
Extraordinary item, net of
applicable tax -- -- 3,420 -- -- --
---------- ---------- ----------- ----------- ---------- ----------
Net income $ 4,400 $ 5,486 $ 3,392 $ 5,146 $ 56 $ 2,581
========== ========== =========== =========== ========== ==========
Net income per share $ 0.48 $ 0.70
========== ==========
OTHER FINANCIAL DATA:
Capital expenditures $ 17,839 $ 13,556 $ 3,447 $ 5,681 $ 5,888 $ 6,652
Depreciation and amortization 18,213 12,274 4,490 13,595 13,446 12,992
BALANCE SHEET DATA:
Total assets $ 301,568 $ 264,083 $ 165,329 $ 163,039 $ 154,922 $ 165,915
Total long-term debt (exclusive
of current maturities), redeemable
preferred stock and redeemable
stock put warrants 161,103 146,463 57,677 57,865 67,709 76,848
Common stockholders' equity 59,901 44,475 26,370 23,102 19,721 20,165
</TABLE>
(See footnotes)
15
<PAGE> 16
(1) In February 1996, KWT was acquired and its operations were combined with
Imperial West and are now conducted by Kemwater; the results of operations
for the year ended December 31, 1996 include the results of operations from
the effective date of acquisition in February 1996 through December 31,
1996 on a consolidated basis. KWT generated third party sales during such
period of $7.7 million. T.C. Products was acquired in July 1996 and,
accordingly, the results of operations for the year ended December 31, 1996
include the results of operations from the date of acquisition through
December 31, 1996. T.C. Products generated third party sales during such
period of $5.1 million.
(2) The results of operations include the results of operations of Pioneer
Americas since its acquisition.
(3) GPS was acquired in May 1994 and accordingly, the results of operations
for the year ended December 31, 1994 include the results of operations
from the date of acquisition through December 31, 1994. GPS generated
third party sales during such period of $9.4 million.
(4) An extraordinary item of $3.4 million net of an income tax benefit of $2.1
million recorded during the period ended April 20, 1995 was due to costs
incurred and previously capitalized costs written off, pertaining to debt
refinanced by the Predecessor Company prior to the Acquisition.
The following table sets forth selected historical financial data of the
Company prior to the Acquisition for the years ended December 31, 1994, 1993,
and 1992. The data should be read in conjunction with the Consolidated Financial
Statements included in Item 8. Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
--------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
General and administrative expenses $ 155 $ 505 $ 560
Bankruptcy costs -- -- 377
Interest (income) expense, net (15) 15 9
--------- ----------- ----------
Loss before income taxes and extraordinary item (140) (520) (946)
Extraordinary item(1) -- -- 34,698
--------- ----------- ----------
Net income (loss) $ (140) $ (520) $ 33,752(2)
========= ========= =========
Net income (loss) per share $ (.03) $ (.14) $ 10.39
========= ========= =========
Average number of shares of common stock outstanding 4,626 3,658 3,250
BALANCE SHEET DATA:
Total assets $ 912 $ 217 $ 283
Long-term obligations -- -- 478
Stockholders' equity (deficiency) 762 (223) (355)
</TABLE>
(1) Represents gain on settlement of pre-petition liabilities.
(2) The 1992 period included an extraordinary gain from the settlement of
pre-petition liabilities totaling $34,698, or $10.68 per share.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company manufactures chlorine, caustic soda and several downstream
water treatment products, principally hydrochloric acid, bleach, iron chlorides,
aluminum sulfate and polyaluminum chlorides. The Company's products are used in
a variety of applications including water treatment, plastics, detergents, and
agricultural chemicals.
Chlorine and caustic soda markets and profitability have been, and are
likely to continue to be, cyclical. Periods of high demand, high capacity
utilization, and increasing operating margins tend to result in new plant
investments and increased production until supply exceeds demand, followed by
periods of declining prices and declining capacity utilization until the cycle
is repeated. In addition, markets for chlorine and caustic soda are affected by
general economic conditions, both in the U.S. and elsewhere in the world, and a
downturn in the economy could have a material adverse effect on the Company's
operations and its cash flows.
Chlorine demand over the last three years has experienced steady growth,
following trends in polyvinyl chloride ("PVC"), non-vinyl polymers and water
treatment markets. This increased demand has been partially offset by declining
chlorine use in the pulp and paper industry and as a feedstock in the production
of chlorofluorocarbons ("CFC's") due to regulatory pressures. Due to increased
demand, published chlorine prices have risen from $145/ton in early 1994 to
approximately $160/ton at the end of 1996.
As chlorine demand continued strong in 1996, the industry's operating rate
remained high. However, this resulted in an overproduction of chlorine's
co-product, caustic soda, relative to demand. This oversupply led to decreasing
caustic soda prices, offsetting increased chlorine prices and resulting in ECU
netbacks (net selling prices) decreasing during 1996 from 1995 levels.
Large quantities of chlorine are not typically stored on- or off-site.
Chlor-alkali production rates are therefore typically based on short-term
chlorine demand (typically one month). However, chlor-alkali plants do not
achieve optimum cost efficiency if production rates are cycled. The maintaining
of steady production rates is made difficult by the cyclical nature of the
chlor-alkali business, which is at times exacerbated by the fact that the price
and demand curves for chlorine differ from those of caustic soda. Peak and
trough demand for chlorine and caustic soda rarely coincide and caustic soda
demand, in the past, has tended to trail chlorine demand into and out of
economic growth cycles. In addition, the chlor-alkali market has shifted from
ECU buyers to independent markets, further unlinking the markets for these two
products.
To achieve operating efficiencies and to help mitigate the effects of
cyclicality on the Company's business, the Company has pursued a strategy of
converting chlorine and caustic soda into products that are used in markets with
steady demand, particularly water treatment chemicals. In pursuit of this
strategy, the Predecessor Company and the Company acquired Imperial West and
All-Pure in 1990, GPS in 1994, and T.C. Products in July 1996, each of which is
a major manufacturer and distributor of water treatment chemicals such as iron
chlorides, aluminum sulfate, repackaged chlorine and bleach, primarily in the
western United States. The KWT acquisition enabled the Company to broaden its
water treatment product line and improve its technology, allowing the Company to
offer a wider range of cost-effective solutions to its customers' water
treatment products. Gross profit margins for all downstream products vary from
that of chlor-alkali; the difference depends on where the chlor-alkali industry
is in its cycle.
Due in part to these acquisitions and the improved chlorine market, the
Predecessor Company and the Company increased ECU capacity utilization rates
over the last seven years from 93% in 1990 to approximately 100% in 1996.
17
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth certain operating data for the periods
indicated:
<TABLE>
<CAPTION>
PRO FORMA (1) PREDECESSOR COMPANY
------------------- -------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994
------------------ ------------------- -------------------
% OF % OF % OF
$'000S REVENUES $'000S REVENUES $'000S REVENUES
-------- ----- --------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
PCAC $121,192 58 % $ 118,298 59 % $ 88,907 53 %
Kemwater (2) 36,830 18 32,909 16 30,438 18
All-Pure (3) 50,886 24 49,549 25 47,872 29
-------- ----- --------- ------ -------- -----
Total revenues 208,908 100 200,756 100 167,217 100
Cost of sales 150,464 72 135,575 67 134,556 80
-------- ----- --------- ------ -------- -----
Gross profit 58,444 28 65,181 33 32,661 20
Selling, general and administrative
expense 29,860 14 27,812 14 22,529 14
-------- ----- --------- ------ -------- -----
Operating income 28,584 14 37,369 19 10,132 6
Interest expense, net 19,212 9 15,205 8 6,407 4
Other income from settlement of
litigation and insurance claims,
net -- -- -- -- 3,326 2
Other income, net 887 -- 1,494 1 1,337 1
-------- ----- --------- ------ -------- -----
Income before income taxes and
extraordinary item 10,259 5 23,658 12 8,388 5
Provision for income taxes 5,859 3 10,388 5 3,242 2
-------- ----- --------- ------ -------- -----
Net income before extraordinary
item 4,400 2 13,270 7 5,146 3
Extraordinary item, net of
applicable tax -- -- (3,420) 2 -- --
-------- ----- --------- ------ -------- -----
Net income $ 4,400 2 % $ 9,850 5% $ 5,146 3 %
======== ===== ======== ====== ======== =====
</TABLE>
(1) The pro forma results of operations, which combine the Company's operating
results for the year ended December 31, 1995 and the Predecessor Company's
operating results from January 1, 1995 through April 20, 1995, are provided
for comparative purposes. The Predecessor Company's operating results
exclude approximately $1.0 million of transaction costs related to the
Acquisition. The Company believes that this provides a meaningful basis for
comparison. The Company and the Predecessor Company have different asset
bases and the effects on operating results of these differences are
discussed in the comparison which follows.
(2) To continue the business activities previously conducted by Imperial West,
Kemwater was formed in connection with the acquisition of KWT in February
1996 and, accordingly, the results of operations for the year ended
December 31, 1996 include the results of operations of KWT since the
effective acquisition date. KWT generated third party sales during such
partial period of $7.7 million.
(3) GPS was acquired in May 1994 and therefore the results of operations for
the year ended December 31, 1994 include the results of operations from the
date of acquisition. GPS generated third party sales during such period of
$9.4 million. T.C. Products was acquired in July 1996 and, accordingly, the
results of operations for the year ended December 31, 1996 includes the
results of operations since the acquisition date. T.C.
Products generated third party sales during such period of $5.1 million.
18
<PAGE> 19
YEAR ENDED DECEMBER 31, 1996 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31, 1995
Revenues
Revenues increased by $8.2 million or 4% to $208.9 million for 1996
compared to 1995. The KWT and T.C. Products acquisitions during 1996 accounted
for a $12.8 million increase in revenue, more than off-setting a revenue
decrease of $3.1 million for the operations of Kemwater. Revenues for the
Company's chlor-alkali products during 1996 remained relatively unchanged from
1995 as an approximate 9% increase in caustic soda sales volumes was offset by a
7% decrease in ECU netback.
Cost of Sales
Cost of sales increased by approximately 11% from $135.6 million in 1995 to
$150.5 million in 1996. The KWT and T.C. Products acquisitions accounted for
$10.1 million of this increase. In addition, higher caustic soda sales volumes
resulted in an increase in cost of sales of approximately $3.6 million.
Interest Expense, net
Interest expense increased by $4.0 million or 26% to $19.2 million for
1996. This increase was a result of debt incurred in connection with the
Acquisition, as well as debt incurred in financing the KWT and T.C. Products
acquisitions.
Provision for Income Taxes
The provision for income taxes for 1996 was $5.9 million, with an effective
tax rate of 57%, compared to $10.4 million, with an effective tax rate of 44%,
for 1995. The decrease in the provision was primarily a result of the decrease
in the Company's pre-tax income to $10.3 million for 1996 from $23.7 million in
1995. Taxable income is higher than book income due to the non-deductibility of
amortization of the excess cost over the fair value of net assets acquired. A
provision is recorded on the income statement based on taxable income; however,
federal income taxes payable are reduced and paid-in capital is increased due to
the utilization of the net operating loss carryforward.
Net Income
Due to the factors described above, net income for December 1996 was
$4.4 million, compared to $9.9 million for 1995.
19
<PAGE> 20
PRO FORMA YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues
Revenues increased by $33.5 million or 20% to $200.7 million for 1995
compared to 1994. This increase was primarily due to a $29.4 million increase in
chlor-alkali sales, a result of industry-wide strengthening of ECU prices. The
average ECU price during the 1995 period increased 27% over the same period in
1994. This was partially offset by reduced sales volumes due to the planned
shutdown for maintenance at the St. Gabriel facility.
Cost of Sales
Cost of sales as a percentage of revenues decreased to 67% for 1995 from
80% for 1994 as a result of lower raw material costs which were partially offset
by higher transportation and other expenses and an Acquisition related inventory
step-up.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by $5.3 million or
23% to $27.8 million for the year ended December 31, 1995. This increase was
primarily the result of the impact of an acquisition by the Predecessor Company
in May 1994, additional compensation pursuant to the Company's incentive
compensation program, and increased amortization as a result of the Acquisition.
Interest Expense, net
Interest expense increased by $8.8 million to $15.2 million for 1995
from $6.4 million for 1994. This increase was a result of debt incurred in
connection with the Acquisition.
Income Before Taxes and Extraordinary Item
As a result of the above, net income before taxes and extraordinary item
increased by $15.3 million to $23.7 million of income for the year ended
December 31, 1995 from $8.4 million for the year ended December 31, 1994.
Provision for Income Taxes
Provision for income taxes increased to $10.4 million, with an effective
tax rate of 44%, for the year ended December 31, 1995 from $3.2 million, with an
effective tax rate of 39%, for the comparable 1994 period due to higher income.
The increase in the effective tax rate is due primarily to the nondeductible
nature of the amortization of the excess cost over the fair value of net assets
acquired.
Extraordinary Item
An extraordinary item of $3.4 million net of an income tax benefit of $2.1
million recorded during the 1995 period was due to costs incurred, and
previously capitalized costs written off, pertaining to debt refinanced by the
Predecessor Company in the 1995 period prior to the Acquisition.
Net Income
Due to the factors described above, net income increased 91% to $9.9
million for 1995.
20
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
The Company incurred substantial indebtedness in connection with the
Acquisition. Concurrently with the Acquisition, the Bank Credit Facility became
available to Pioneer Americas. The Bank Credit Facility provides a $30 million
revolving line of credit, subject to borrowing base limitations that relate to
the level of accounts receivable and inventory of PCAC and All-Pure ("Subsidiary
Guarantors"). As of December 31, 1996, the Subsidiary Guarantors had $5.2
million of letters of credit outstanding and had, subject to certain
restrictions (including borrowing base limitations), the ability to draw up to
$15.7 million of additional secured indebtedness under the Bank Credit Facility.
The Bank Credit Facility is secured by the accounts receivable and inventory of
the Subsidiary Guarantors, and the guarantee of PCAC issued in connection
therewith is secured by first mortgage liens on PCAC's St. Gabriel, Louisiana
and Henderson, Nevada plants shared pari passu with PAAC's outstanding 13 3/8%
First Mortgage Notes ( the "Mortgage Notes."). The only financial coverage ratio
requirements included in either the indenture with respect to the Mortgage Notes
or the Bank Credit Facility are those which require a calculation of a
consolidated cash flow coverage ratio and an interest coverage ratio. The
indenture requires that, on a pro forma basis, when the Company seeks to incur
additional indebtedness the Company's consolidated cash flow coverage ratio for
the most recently ended four full fiscal quarters immediately preceding the date
on which indebtedness is incurred, calculated on a pro forma basis as if
indebtedness was incurred on the first day of such four full fiscal quarter
period, would be at least 2.75 to 1.0. Dividends may not be paid unless, among
other tests, PAAC could incur $1.00 of additional indebtedness. The Bank Credit
Facility requires an interest coverage ratio of 1:00 to 1:00. PAAC and Pioneer
Americas are in compliance with the financial coverage ratio requirements.
The Company incurred $8.0 million of term debt concurrently with the
acquisition of KWT, with principal payments due at various times beginning March
31, 2000 and with a final payment due December 31, 2002. The Company incurred an
additional $4.5 million of term debt concurrently with the acquisition of T.C.
Products, with principal payments due July 31, 2001, subject to prepayment. T.C.
Products has an issue of tax-exempt bonds outstanding in the amount of $2.3
million.
The Company believes that cash flow from current and anticipated future
levels of operations and, to a lesser extent, the availability under the Bank
Credit Facility, will be adequate to make the required payments of principal and
interest on outstanding indebtedness, as well as to fund its foreseeable capital
expenditures and working capital requirements. Annual cash interest of $19.0
million will be payable on the Mortgage Notes and on the Seller Notes. The
Company routinely incurs expenses associated with environmental compliance
matters in ongoing operations. These operating expenses include items such as
outside waste management, fuel, electricity and salaries. The amounts of these
operating expenses were approximately $1.9 million and $1.2 million for the
years ended December 31, 1996 and 1995, respectively. The Company considers
these types of environmental expenditures normal operating expenses and includes
them in cost of sales. The Company does not anticipate a material increase in
these types of expenses during 1997. Capital expenditures for
environmental-related matters at existing facilities were approximately $4.5
million and $2.2 million for the years ended December 31, 1996 and 1995,
respectively. The Company anticipates that capital expenditures for 1997 will be
approximately $16.0 million, including approximately $4.4 million for
environmental compliance matters. The Company believes that forecasted capital
expenditures will permit it to maintain its facilities on a basis competitive
within the industry through improved efficiency and throughput and continuation
of high operating rates. To the extent that the Company were to draw upon the
commitments under the Bank Credit Facility due to adverse business conditions or
to finance acquisitions or for other corporate purposes, the Company's aggregate
interest expense would be increased.
The Company's belief that it will generate sufficient cash flow for its
requirements is based, among other things, on the assumptions that: (i) the
Company's cash flow will be positive as a result of continuing operating
profitability of its business; (ii) the Company's working capital requirements
will be consistent; (iii) the Company will not incur any material capital
expenditures in excess of its business plan.
Pioneer's source of funds for payment of principal and interest on the
Seller Notes will be provided by dividends from PAAC. PAAC is restricted in
paying such dividends to 50% of the cumulative consolidated net income of PAAC
for the period subsequent to January 1, 1995, and is also required to meet a
21
<PAGE> 22
consolidated cash flow coverage ratio test of at least 2.75 to 1.0 for the prior
four fiscal quarters. Payment of dividends by PAAC to Pioneer should not impair
PAAC's liquidity if the tests are met.
On December 11, 1996, the Company announced that it had initiated
discussions with Occidental Chemical Corporation ("OxyChem") regarding the
proposed acquisition by the Company of OxyChem's Tacoma, Washington chlor-alkali
facility (the "Tacoma Facility"). If agreement with OyyChem on the terms of the
transaction can be reached, the Company expects that the securing of required
financing and completion of the transaction could occur during the first half
of 1997. The Tacoma Facility would be the Company's largest plant.
Working Capital. The Company had working capital of $8.3 million at
December 31, 1996, as compared to $11.0 million at December 31, 1995,
principally because accrued liabilities at December 31, 1996 increased to $23.9
million from $20.9 million at December 31, 1995 and accounts receivable
decreased by $2.6 million.
Net Cash Used in Investing Activities. Cash used in investing activities
for 1996 was $25.1 million, a decrease of $140.8 million from that used by the
Predecessor Company in 1995. This decrease was due primarily to the purchase of
the Predecessor Company by the Company for $152.3 million in 1995.
Net Cash Provided by (Used in) Financing Activities. Cash provided by
financing activities in 1996 was $0.1 million compared to cash provided by
financing activities in 1995 of $147.0 million. The difference is primarily due
to the borrowings on the Mortgage Notes of $135 million and the issuance of
$21.0 million of Common Stock during 1995 to finance the Acquisition.
Property, Plant and Equipment. Property, plant and equipment, gross,
increased $26.6 million due to routine capital expenditures in 1996 of $17.8
million along with $9.4 million associated with the KWT and T.C.
Products acquisitions.
Other Assets. Other assets increased $15.5 million to $27.2 million at
December 31, 1996 compared to $11.7 million at December 31, 1995. This increase
was primarily due to the elimination of the Company's valuation allowance
associated with the future utilization of the Company's net operating loss
carryforward ("NOL") as the Company determined that future utilization of the
NOL was more likely than not. The elimination of the Company's valuation
allowance resulted in a corresponding increase in additional paid-in capital.
Excess Cost Over the Fair Value of Net Assets Acquired. Excess cost over
the fair value of net assets acquired increased $5.5 million to $114.4 million
at December 31, 1996 compared to December 31, 1995. This increase was mainly
attributable to the goodwill recorded as a result of the Company's acquisition
of KWT and T.C. Products during 1996, partially offset by the amortization of
the asset during 1996.
Other Long-Term Liabilities. Other long-term liabilities increased by $4.7
million at December 31, 1996 compared to December 31, 1995 due to an increase in
technology license fees payable, incurred in connection with the KWT
acquisition, along with the incurrence of a capital lease obligation
associated with equipment replaced at the St. Gabriel plant.
22
<PAGE> 23
ACCOUNTING CHANGES
The Company adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of " ("SFAS No. 121"), on January 1, 1996. SFAS No. 121 sets forth
guidance on how to measure an impairment of long-lived assets and when to
recognize such an impairment. The adoption of this standard did not have a
material impact on the Company's financial position or results from operations.
The Company adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), on January 1, 1996.
Under SFAS No. 123, a company is permitted to either adopt this new standard
and record expenses for stock options and other stock-based employee
compensation plans based on their fair value at date of grant, or continue to
apply its current accounting policy under Accounting Principles Board ("APB")
Opinion No. 25 and increase its footnote disclosure. The Company has elected to
continue to apply APB Opinion No. 25, and accordingly has increased its footnote
disclosure to include the pro-forma impact on net income and earnings per share
pursuant to the application of the fair value based method of accounting.
23
<PAGE> 24
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) Consolidated financial statements, Pioneer Companies, Inc. and
subsidiary companies:
Report of Deloitte & Touche LLP, independent public accountants,
dated March 7, 1997 25
Report of Ernst & Young LLP, independent auditors, dated June
26, 1995 26
Report of Piercy, Bowler, Taylor & Kern, independent public
accountants, dated January 30, 1995 27
Consolidated balance sheets--December 31, 1996 and 1995 28
Consolidated statements of operations for the years ended
December 31, 1996, 1995 and 1994 and Predecessor Company
Period from January 1, 1995 through April 20, 1995 and year
ended December 31, 1994 30
Consolidated statements of stockholders' equity for the years
ended December 31, 1994, 1995 and 1996 and Predecessor
Company year ended December 31, 1994 and Period from
January 1, 1995 through April 20, 1995 31
Consolidated statements of cash flows for the years ended
December 31, 1996, 1995 and 1994 and Predecessor Company
Period from January 1, 1995 through April 20, 1995 and year
ended December 31, 1994 32
Notes to consolidated financial statements 33
(2) Supplemental Schedules:
Schedule II - Valuation and Qualifying Accounts -
Pioneer Companies, Inc. 54
Schedule II - Valuation and Qualifying Accounts -
Pioneer Americas, Inc. 55
</TABLE>
All schedules, except the one listed above, have been omitted since the
information required to be submitted has been included in the financial
statements or notes or has been omitted as not applicable or not required.
24
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pioneer Companies, Inc.
We have audited the accompanying consolidated balance sheets of Pioneer
Companies, Inc. and its subsidiaries (the "Company"), as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. Our audits also included the consolidated financial statement schedule
II. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
the related consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
March 7, 1997
25
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pioneer Americas, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Pioneer Americas, Inc. (the "Predecessor
Company") for the period from January 1, 1995 through April 20, 1995 and for the
year ended December 31, 1994. Our audits also included the related financial
statement schedule II. These financial statements and schedule are the
responsibility of the Predecessor Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits. The financial statements of certain of the Predecessor Company's
investments (as described in Note 4) have been audited by other auditors whose
report has been furnished to us; insofar as our opinion on the consolidated
financial statements relates to data included for these investments, it is based
solely on their report.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated results of operations and cash flows of the
Predecessor Company for the period from January 1, 1995 through April 20, 1995
and the year ended December 31, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects, the information set forth
therein.
ERNST & YOUNG LLP
Houston, Texas
June 26, 1995
26
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
Board of Directors
Basic Investments, Inc.
Henderson, Nevada
We have audited the combined statements of income, equity and cash flows of
Basic Investments, Inc. and affiliates (the Company) for the year ended December
31, 1994. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of Basic Investments, Inc. and
affiliates combined operations and cash flows for the year ended December 31,
1994 in conformity with generally accepted accounting principles.
PIERCY, BOWLER, TAYLOR & KERN
CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS ADVISORS
A PROFESSIONAL CORPORATION
Las Vegas, Nevada
January 30, 1995
27
<PAGE> 28
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 15,754 $ 11,276
Accounts receivable, less allowance for doubtful accounts:
1996, $1,311; 1995, $1,424 25,053 27,678
Inventories 11,026 11,347
Prepaid expenses 1,807 3,781
------------ ------------
Total current assets 53,640 54,082
Property, plant and equipment:
Land 5,043 1,711
Buildings and improvements 20,956 13,997
Machinery and equipment 80,898 67,587
Cylinders and tanks 4,540 4,503
Construction in progress 12,321 9,394
------------ ------------
123,758 97,192
Less accumulated depreciation (17,479) (7,795)
------------ ------------
106,279 89,397
Other assets, net of accumulated amortization:
1996, $1,631; 1995, $1,168 27,190 11,664
Excess cost over the fair value of net assets acquired, net of
accumulated amortization: 1996, $8,027; 1995, $3,311 114,459 108,940
------------ ------------
Total assets $ 301,568 $ 264,083
============ ============
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 29
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,103 $ 18,793
Accrued liabilities 23,859 20,891
Returnable deposits 3,238 3,437
Current maturities of long-term debt 128 --
------------ ------------
Total current liabilities 45,328 43,121
Bank Credit Facility -- --
Long-term debt, less current maturities 161,103 146,463
Returnable deposits 3,272 3,281
Accrued pension and other employee benefits 14,100 13,573
Other long-term liabilities 17,864 13,170
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock: $.01 par value, authorized 10,000
shares, none issued
Common stock:
Class A, $.01 par value, authorized 46,000 shares, issued and
outstanding:
1996, 7,906; 1995, 7,884 79 79
Class B, $.01 par value, authorized 4,000 shares,
655 shares issued and outstanding,
convertible share-for-share into Class A shares 7 7
Additional paid-in capital 53,853 40,056
Retained earnings 5,962 4,333
------------ ------------
Total stockholders' equity 59,901 44,475
------------ ------------
Total liabilities and stockholders' equity $ 301,568 $ 264,083
============ ===========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 30
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------
PERIOD FROM
JANUARY 1
YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED
---------------------------------- APRIL 20, DECEMBER 31,
1996 1995 1994 1995 1994
--------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 208,908 $ 142,908 $ -- $ 57,848 $ 167,217
Cost of sales 150,464 98,175 -- 37,400 134,556
--------- --------- -------- ---------- ---------
Gross profit 58,444 44,733 -- 20,448 32,661
Selling, general and
administrative expenses 29,860 20,765 155 7,047 22,529
--------- --------- -------- ---------- ---------
Operating income (loss) 28,584 23,968 (155) 13,401 10,132
Interest expense, net (19,212) (13,540) 15 (1,665) (6,407)
Settlement of litigation and
insurance claims, net -- -- -- -- 3,326
Other income (expense), net 887 637 -- (115) 1,337
--------- --------- -------- ---------- ---------
Income (loss) before taxes and
extraordinary item 10,259 11,065 (140) 11,621 8,388
Income tax provision 5,859 5,579 -- 4,809 3,242
--------- --------- -------- ---------- ---------
Income (loss) before extraordinary
item 4,400 5,486 (140) 6,812 5,146
Extraordinary item, early
extinguishment of debt (net of
income tax benefit of $2,140) -- -- -- 3,420 --
--------- --------- -------- ---------- ---------
Net income (loss) 4,400 5,486 (140) 3,392 5,146
Accretion of dividends on preferred
stock and adjustment to redeemable
stock put warrants -- -- -- -- (1,824)
--------- --------- -------- ---------- ---------
Net income (loss) applicable to
common stock $ 4,400 $ 5,486 $ (140) $ 3,392 $ 3,322
========= ========= ======== ========== =========
Net income (loss) per share $ .48 $ .70 $ (.03)
========= ========= ========
Weighted average number of shares of
common stock outstanding 9,156 7,850 4,626
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ISSUED AND OUTSTANDING
-------------------------------------- ADDITIONAL RETAINED
CLASS A CLASS B PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------- ------ ------ ------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PIONEER COMPANIES, INC.
Balance at December 31, 1993 2,650 $ 27 769 $ 8 $ 754 $ (1,013) $ (224)
Private placement 1,102 11 -- -- 1,092 -- 1,103
Net loss -- -- -- -- -- (140) (140)
Stock issued to non-employee
Directors 16 -- -- -- 23 -- 23
------ ------ ------ ------ -------- -------- ---------
Balance at December 31, 1994 3,768 38 769 8 1,869 (1,153) 762
Private placement 24 1 -- -- 36 -- 37
Stock issued to Interlaken
Investment Partners, L.P. 2,841 28 -- -- 14,972 -- 15,000
Stock issued to certain employees
and directors of the Predecessor
Company 1,136 11 -- -- 5,989 -- 6,000
Conversion of Class B shares into
Class A shares 114 1 (114) (1) -- -- --
Recognition of the NOL benefit -- -- -- -- 17,190 -- 17,190
Net income -- -- -- -- -- 5,486 5,486
------ ------ ------ ------ -------- -------- ---------
Balance at December 31, 1995 7,883 79 655 7 40,056 4,333 44,475
Stock issued to non-employee
Directors 22 -- -- -- 147 -- 147
Stock dividend issuable -- -- -- -- 2,771 (2,771) --
Recognition of the NOL benefit -- -- -- -- 10,879 -- 10,879
Net income -- -- -- -- -- 4,400 4,400
------ ------ ------ ------ -------- -------- ---------
Balance at December 31, 1996 7,905 $ 79 655 $ 7 $ 53,853 $ 5,962 $ 59,901
====== ====== ====== ====== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
ISSUED AND OUTSTANDING PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
Balance at December 31, 1993 1,453 $ 14 $ 4,028 $ 15,679 $ 19,721
Common Stock issuance 56 1 158 -- 159
Adjust carrying value of stock
warrants -- -- -- (1,424) (1,424)
Accretion of excess redemption value
of redeemable preferred stock over
carrying value and amount of
dividends not declared or paid -- -- -- (500) (500)
Net income -- -- -- 5,146 5,146
----------- -------- ---------- ---------- -----------
Balance at December 31, 1994 1,509 15 4,186 18,901 23,102
Accretion of excess redemption value
of redeemable preferred stock over
carrying value and amount of
dividends not declared or paid -- -- -- (124) (124)
Net income -- -- -- 3,392 3,392
----------- -------- ---------- ---------- -----------
Balance at April 20, 1995 1,509 $ 15 $ 4,186 $ 22,169 $ 26,370
=========== ======== ========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 32
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------
PERIOD
FROM
JANUARY 1,
1995
YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED
--------------------------------------- APRIL 20, DECEMBER 31,
1996 1995 1994 1995 1994
------------ ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 4,400 $ 5,486 $ (140) $ 3,392 $ 5,146
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 18,213 12,274 6 4,490 13,595
Provision for bad debts -- 138 -- 47 1,235
Write-off of previous finance
costs -- -- -- 1,282 --
Loss (gain) on disposal of
property, plant and equipment -- -- -- 13 (4)
Provision for SAR's -- -- -- -- 968
Equity in earnings of BII and
VVLC -- -- -- (204) (183)
Net change in deferred taxes 3,773 3,590 -- (2,086) (1,256)
Net effect of changes in
operating assets and liabilities
(net of acquisitions) 2,848 5,526 (267) (4,323) 2,918
------------ ---------- --------- -------- ---------
Net cash flows from operating activities 29,234 27,014 (401) 2,611 22,419
------------ ---------- --------- -------- ---------
INVESTING ACTIVITIES:
Acquisition of businesses (7,281) (152,318) -- -- --
Capital expenditures (17,839) (13,556) -- (3,447) (5,681)
Proceeds from sale of property,
plant and equipment -- -- -- 58 694
------------ ---------- --------- -------- ---------
Net cash flows from investing activities (25,120) (165,874) -- ( 3,389) (4,987)
------------ ---------- --------- -------- ---------
FINANCING ACTIVITIES:
Borrowings:
Proceeds -- 153,500 75 106,000 83,900
Repayments (75) (27,500) -- (103,971) (99,961)
Dividends paid on preferred stock
and purchase stock put warrant -- -- -- (2,341) --
Proceeds from issuance of
equity securities 147 21,036 1,102 -- 170
------------ ---------- --------- -------- ---------
Net cash flows from financing activities 72 147,036 1,177 (312) (15,891)
------------ ---------- --------- -------- ---------
Net increase (decrease) in cash 4,186 8,176 776 (1,090) 1,541
Cash acquired in acquisition 292 2,220 -- -- --
Cash at beginning of period 11,276 880 104 3,310 1,769
------------ ---------- --------- -------- ---------
Cash at end of period $ 15,754 $ 11,276 $ 880 $ 2,220 $ 3,310
============ ========= ======== ========= ==========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
As of March 31, 1995, GEV Corporation ("GEV") changed its name to Pioneer
Companies, Inc. ("Pioneer"). GEV had previously sold its businesses and had no
active operations before it made the acquisitions described below.
On April 20, 1995, Pioneer acquired Pioneer Americas, Inc. ("Pioneer
Americas" or the "Predecessor Company") for approximately $177 million (the
"Acquisition"). Pioneer Americas manufactured chlorine, caustic soda and related
products used in a variety of applications including water treatment, plastics,
detergents and agricultural chemicals. Consideration for the Acquisition
included cash, assumption of certain liabilities and repayment of debt of the
Predecessor Company, redemption of preferred stock of the Predecessor Company
and fees and expenses related to the Acquisition. In connection with the
Acquisition, Pioneer sold common stock, issued long-term debt and entered into a
new bank revolving credit facility. The Acquisition was accounted for as a
purchase; accordingly, the purchase price was allocated to the assets acquired
and liabilities assumed based upon their fair market value and the operations of
the Predecessor Company were included in the consolidated financial statements
from the date acquired. The acquisition resulted in $112 million of excess cost
over the fair value of the net assets acquired, which is being amortized on a
straight line basis over periods of up to 25 years.
Pioneer acquired KWT, Inc. in February 1996 for $9.6 million and T.C.
Products in July 1996 for $10.0 million. KWT, Inc. produces polyaluminum
chloride, aluminum sulfate, sodium aluminate and ferric sulfate for the waste
water treatment market. T. C. Products manufactures bleach and related products.
The acquisitions were accounted for as a purchase; accordingly, the purchase
price was allocated to the assets acquired and liabilities assumed based upon
their fair market value and the operations for the acquired companies were
included in the consolidated financial statements from the date acquired. The
acquisitions resulted in $9.8 million of excess cost over the fair value of the
net assets acquired, which is being amortized on a straight line basis over
periods of up to 25 years. Had the acquisitions been made as of January 1, 1996
and 1995, they would not have had a significant impact upon the consolidated
results of operations for the years ended December 31, 1996 and 1995. The
acquisitions do not have a significant impact on the Company's financial
statements, and therefore pro forma information is not presented.
The consolidated financial statements include the accounts of Pioneer and
its subsidiaries (the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation. All dollar amounts in
tabulations in the notes to the consolidated financial statements are stated in
thousands of dollars unless otherwise indicated.
Amounts presented in the notes to the consolidated financial statements for
the Predecessor Company are based upon its historical accounting basis for the
periods presented. Such amounts do not include effects of the purchase of the
Predecessor Company by Pioneer. Amounts presented in the notes to the
consolidated financial statements for the Predecessor Company for the period
from January 1, 1995 through April 20, 1995 and for the year ended December 31,
1994 are included under the captions "Predecessor Company, 1995" and
"Predecessor Company, 1994," respectively.
The Company operates in one industry segment and one geographic area.
33
<PAGE> 34
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. Interest income is netted
against interest expense for the periods presented. The company had interest
income for the years ended December 31, 1996 and 1995 of $0.7 million and $0.3
million, respectively. The Predecessor Company had interest income for the
period from January 1, 1995 through April 20, 1995 and the year ended December
31, 1994 of $0.1 million for each period.
INVENTORIES
Inventories are valued at the lower of cost or market. Finished goods and
work-in-process costs are calculated under the average cost method, which
includes appropriate elements of material, labor, and manufacturing overhead
costs, while the first-in, first-out method is utilized for raw materials,
supplies, and parts. The Company enters into agreements with other companies to
exchange chemical inventories in order to minimize working capital requirements
and to facilitate distribution logistics. Balances related to quantities due to
or payable by the Company are included in inventory. The results of operations
for the year ended December 31, 1995 include the effects of an increase of $1.7
million to cost of sales due to the step-up in value of inventory in connection
with the Acquisition.
PROPERTY, PLANT, AND EQUIPMENT
Depreciation for financial reporting purposes is computed primarily under
the straight-line method over the estimated remaining useful lives of the
assets. Asset lives range from 5 to 15 years with a predominant life of 10
years.
OTHER ASSETS
Other assets include amounts for deferred financing costs which are being
amortized on a straight-line basis over the term of the related debt.
Amortization of such costs using the interest method would not result in
material differences in the amounts amortized during the periods presented.
Amortization expense for other assets for the years ended December 31, 1996 and
1995 were approximately $2.3 million and $1.1 million, respectively.
Other assets of the Predecessor Company included amounts for organization
costs, deferred financing costs, noncompete agreements, permits, licenses, and
customer lists obtained in conjunction with the acquisitions of All-Pure, GPS
Pool Supply, Inc. ("GPS") and Imperial West Chemical Co. ("Imperial West") which
were being amortized on a straight-line basis over their estimated useful lives.
The Predecessor Company's deferred financing costs were being amortized on a
straight-line basis over the term of the related debt. Amortization of such
costs using the interest method would not result in material differences in the
amounts amortized during the periods presented. Amortization expense for other
assets was approximately $0.8 million for the period from January 1, 1995
through April 20, 1995 and $1.7 million for the year ended December 31, 1994 .
EXCESS COST OVER THE FAIR VALUE OF NET ASSETS ACQUIRED
Excess cost over the fair value of net assets acquired of approximately
$122 million is amortized on a straight-line basis over periods of up to 25
years. The carrying value of excess cost over the fair value of net assets
acquired is reviewed annually and if this review indicates that such excess cost
will not be recoverable, as determined based on the estimated future
undiscounted cash flows of the entity acquired over the remaining amortization
period, the Company's carrying value of excess cost over the fair value of net
assets acquired will be reduced by the estimated shortfall of discounted cash
flows or the fair value of the related entity. No such reductions were made in
1996 or 1995. Amortization expense for excess cost over the fair value of net
assets acquired was approximately $5.1 million and $3.3 million for the years
ended December 31, 1996 and 1995, respectively.
34
<PAGE> 35
The Predecessor Company's excess cost over the fair value of net assets
acquired of approximately $12.8 million and is amortized on a straight-line
basis over 20 years. Amortization expense was approximately $0.2 million for the
period from January 1, 1995 through April 20, 1995 and $0.6 million for 1994.
ENVIRONMENTAL EXPENDITURES
Remediation costs are accrued based on estimates of known environmental
remediation exposure. Such accruals are based upon management's best estimate of
the ultimate cost and are recorded even if significant uncertainties exist over
the ultimate cost of the remediation. Ongoing environmental compliance cost,
including maintenance and monitoring costs, are charged to operations as
incurred.
RETURNABLE DEPOSITS
Customers are required to pay a security deposit on cylinders, tanks, and
containers. The deposits are refunded to the customer upon the termination of
service and return of the cylinders, tanks, and containers.
INCOME TAXES
For financial reporting purposes, deferred income taxes are determined
utilizing an asset and liability approach. This method gives consideration to
the future tax consequences associated with differences between the financial
accounting basis and tax basis of the assets and liabilities, and the ultimate
realization of any deferred tax asset resulting from such differences.
PER SHARE INFORMATION
Income per common share is computed using the weighted average number of
common shares outstanding during the period, after giving retroactive effect to
the one-for-four reverse stock split of Pioneer's Class A and Class B Common
Stock, effective as of April 27, 1995, and after giving retroactive effect to a
7% stock dividend on the Class A and Class B Common Stock to shareholders of
record on December 16, 1996. Common stock equivalents are not significant;
accordingly, such items were not used in the computation of income per common
share.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
For 1996, the Company adopted a new accounting standard for the impairment
of long-lived assets. This standard requires that certain assets be reviewed for
impairment whenever events or circumstances indicate that the carrying amount of
the assets may not be recovered. If it is determined that the asset's carrying
amount is not recoverable, the new accounting standard requires that the
carrying value be reduced to the fair value of the assets. Implementation of
this standard did not have a significant impact on the Company's 1996
consolidated financial statements.
STOCK-BASED COMPENSATION
For 1996, the Company adopted a new accounting standard for stock-based
compensation. Under the new standard, a company may elect to continue its
current method to account for stock-based compensation and include additional
disclosure in its financial statements or record expenses for such compensation
based on the fair value of the instruments on the date of their grant. The
Company elected to continue with the method that it had previously used;
accordingly, the 1996 consolidated financial statements do not include any
charge for the fair value of grants for stock-based-compensation instruments.
The additional disclosure required by the accounting standard is presented in
Note 15.
35
<PAGE> 36
RECLASSIFICATIONS
Certain amounts have been reclassified in prior years to conform to the
current year presentation. All reclassifications have been applied consistently
for the periods presented.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Net effect of changes in operating assets and liabilities (net of
acquisitions) are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994 1995 1994
--------- ---------- ------ -------- ---------
<S> <C> <C> <C> <C> <C>
Accounts receivable $ 4,588 $ 1,866 $ -- $(3,617) $ (4,889)
Due from affiliates -- -- -- -- 535
Receivable from insurance carriers and
agents -- -- -- -- (102)
Income taxes receivable -- -- -- -- 2,738
Inventories 2,259 1,541 -- (638) (876)
Prepaid expenses (241) (1,416) -- 722 (371)
Other assets (2,617) (3,104) 24 (1,342) (305)
Accounts payable (3,171) (2,464) -- 4,899 862
Accrued liabilities 187 8,931 (291) (3,784) 3,783
Returnable deposits (199) (234) -- (259) (323)
Other long-term liabilities 1,515 (71) -- (726) 1,079
Accrued pension and other employee
benefits 527 477 -- 422 787
--------- ---------- ------ -------- ---------
Net change in operating accounts $ 2,848 $ 5,526 $ (267) $(4,323) $ 2,918
========== ========== ====== ======== =========
</TABLE>
Following is supplemental cash information:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994 1995 1994
--------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash payments for:
Interest $ 19,215 $ 8,704 $ -- $ 3,067 $ 4,482
========= ============ =========== ========== ==========
Income taxes $ 4,106 $ 1,707 $ -- $ 1,852 $ 3,730
========= ============ =========== ========== ==========
Investing activities of acquisitions
during the period:
Cash paid for acquisition $ 7,281 $ 152,318 $ -- $ -- $ 238
Long-term debt issued 12,517 11,463 -- -- 3,254
Liabilities assumed 7,419 90,596 -- -- --
NOL benefit recognized -- 13,600 -- -- --
--------- ------------ ----------- ---------- ----------
Fair value of assets acquired $ 27,217 $ 267,977 $ -- $ -- $ 3,492
========= ============ =========== =========== =========
</TABLE>
Included in the above table are the acquisitions of: KWT, Inc. and T.C.
Products in 1996; Pioneer Americas, Inc. in 1995; and GPS in 1994 by the
Predecessor Company.
36
<PAGE> 37
Other non-cash items included in the consolidated financial statements
include: increase in shareholders equity of $10.9 million and $3.6 million in
1996 and 1995, respectively, due to recognizing the benefit of the net operating
loss carryforward; and exchange of $135 million of 13 3/8% Senior Notes for
$135 million of 13 3/8% First Mortgage Notes in 1996.
4. INVENTORIES
Inventories consisted of the following at December 31:
1996 1995
------------- ------------
Raw materials, supplies, and parts $ 10,610 $ 9,849
Finished goods and work-in-process 4,349 3,155
Inventories under exchange agreements (3,933) (1,657)
------------- ------------
$ 11,026 $ 11,347
============= ============
5. INVESTMENTS IN BASIC INVESTMENTS, INC. (BII) AND VICTORY VALLEY LAND
COMPANY, L.P. (VVLC)
The Company, through its subsidiary Pioneer Chlor Alkali Company, Inc.
("PCAC"), owns approximately 32% of the common stock of BII, which owns and
maintains the water and power distribution network within the Henderson, Nevada
industrial complex and which is a large landowner in Clark County, Nevada. The
remainder of the common stock of BII is owned by other companies located in the
industrial complex. Prior to the Acquisition, the investment in BII was
accounted for by the Predecessor Company under the equity method after
adjustment to reflect PCAC's basis.
PCAC has an approximate 21% limited partnership interest in VVLC. The
purpose of VVLC's business is to receive, hold and develop the lands, water
rights, and other assets contributed by the partners for investment. A wholly
owned subsidiary of BII, acting as general partner with a 50% interest in VVLC,
contributed all rights, title, and interest in and to certain land to VVLC. PCAC
assigned certain water rights to VVLC. Prior to the Acquisition, the investment
in VVLC was accounted for by the Predecessor Company under the equity method.
The Company's interests in BII and in VVLC (referred to as the Basic
Ownership) constitute assets that, pursuant to the Acquisition Agreement and the
Contingent Payment Agreement, will be held for the economic benefit of the
Sellers for a period of 20 years. Dividends and distributions received by the
Company on account of the Basic Ownership (including amounts payable as a result
of sales of land or other assets owned by BII or VVLC) are deposited into the
Contingent Payment Account and used to satisfy certain obligations of the
Sellers under environmental and other obligations in favor of the Company. After
payment or provision for payment of such obligations in accordance with the
provisions of the Contingent Payment Agreement, amounts received by the Company
subsequent to April 20, 1995 on account of the Basic Ownership will be remitted
to the Sellers under the Contingent Payment Agreement for such 20-year period.
The Sellers also have certain rights during such period with respect to
determinations affecting the Basic Ownership, including the right (subject to
certain limited conditions) to direct the sales or disposition of interests
constituting the Basic Ownership and the right (with certain limited
exceptions) to vote the interests constituting the Basic Ownership,
notwithstanding the ownership of such interests by the Company. Since the
Sellers maintain the economic benefit of the Basic Ownership and the Company
has not received, nor expects to receive in the future, any economic benefit
from BII or VVLC, the Company has not maintained these balances in its
financial statements since the Acquisition.
37
<PAGE> 38
The BII financial information includes the accounts of VVLC. The following
is a summary of financial information pertaining to BII and VVLC for the
Predecessor Company for the year ended December 31, 1994:
Revenues $ 5,659
Costs and expenses 4,834
-------------
Income before taxes 825
Income tax expense (274)
-------------
Net income $ 551
=============
Equity in earnings (included in other income) $ 183
=============
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
1996 1995
-------------- -----------
Payroll, benefits, and pension $ 2,583 $ 5,371
Interest and bank fees 5,327 5,172
Current deferred tax liability 2,305 2,293
Other accrued liabilities 13,644 8,055
----------- -----------
Accrued liabilities $ 23,859 $ 20,891
=========== ===========
7. PENSION AND OTHER EMPLOYEE BENEFITS
Annual pension costs and liabilities for the Company under its two
defined-benefit plans covering all of its employees are determined by actuaries
using various methods and assumptions. The Company has agreed to voluntarily
contribute such amounts as are necessary to provide assets sufficient to meet
the benefits to be paid to its employees. The Company's present intent is to
make annual contributions, which are actuarially computed, in amounts not more
than the maximum nor less than the minimum allowable under the Internal Revenue
Code. For purposes of determining annual expenses and funding contributions, the
following assumptions were used for the years ended December 31:
1996 1995 1994
---- ---- ----
Rate of return on plan assets 8.0% 8.0% 8.0%
Discount rate 7.5% 7.5% 7.5%
Annual compensation increase 4.0% 4.0% 5.0%
Pension expense for the periods presented was comprised of:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------
1996 1995 1995 1994
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SERVICE COST $ 597 $ 410 $ 178 $ 571
INTEREST COST 892 566 260 770
RETURN ON PLAN ASSETS (1,132) (394) (149) (537)
AMORTIZATION OF PRIOR SERVICE AND OTHER 462 56 (7) 225
----------- ---------- --------- ----------
TOTAL PENSION EXPENSE $ 819 $ 638 $ 282 $ 1,029
=========== ========== ========= ==========
</TABLE>
38
<PAGE> 39
The funded status of the pension plans for which assets exceed accumulated
benefits and the plan for which accumulated benefits exceed assets as of the
actuarial valuation dates of December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------- --------------
Accumulated Assets Exceed Accumulated
Benefits Exceed Accumulated Benefits Exceed
Assets Benefits Assets
<S> <C> <C> <C>
Actuarial present value of benefits based on service to date
and present pay levels:
Vested benefit obligation $ 3,823 $ 6,122 $ 8,488
Non-vested benefit obligation 212 389 1,513
------------- ------------ ------------
Accumulated benefit obligation 4,035 6,511 10,001
Plan assets at fair value 3,318 6,963 7,293
------------ ------------ ------------
Plan assets in excess (less than) accumulated benefit
obligation 717 (452) (2,708)
Additional amounts related to projected salary increases 2,171 911 2,199
------------ ------------ ------------
Plan assets less than total projected benefit obligation (1,454) (1,363) (4,907)
Unrecognized gain 236 1,254 185
Unrecognized prior service cost (372) 220 (202)
------------- ------------ ------------
Pension obligation $ 1,318 $ 2,837 $ 4,890
============ ============ ============
</TABLE>
Plan assets at December 31, 1996 and 1995 consist primarily of fixed income
investments and equity investments.
The Company offers defined-contributions plans for its employees with the
employees generally contributing from 1% to 15% of their compensation. Aggregate
contributions by the Company to such plans were $0.5 million and $0.2 million in
1996 and 1995, respectively. Aggregate contributions by the Predecessor Company
for such plans were $0.1 million for the period from January 1, 1995 through
April 20, 1995 and none for 1994.
39
<PAGE> 40
In addition to providing pension benefits, PCAC provides certain health
care and life insurance benefits for retired employees. Substantially all of
PCAC's employees may become eligible for those benefits if they reach normal
retirement age while working for the Company. The following table presents the
plan's funded status reconciled with amounts recognized in the Company's balance
sheet at December 31:
1996 1995
------------- ---------
Accumulated post-retirement benefit obligation:
Retirees $ 3,737 $ 3,669
Fully eligible active plan participants 1,483 1,380
Other active plan participants 4,986 4,169
------------- --------------
10,206 9,218
Unrecognized net loss (125) --
------------- --------------
Accrued post-retirement benefit cost $ 10,081 $ 9,218
============= ==============
Net periodic post-retirement benefit cost for the periods presented
includes the following components:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------
1996 1995 1995 1994
--------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Service cost $ 369 $ 243 $ 109 $ 324
Interest cost 693 449 176 519
Amortization of transition obligation
over 20 years -- 15 8 32
Other components -- 48 -- --
--------- ---------- --------- -----------
Net periodic post-retirement benefit cost $ 1,062 $ 755 $ 293 $ 875
========= ========== ========= ===========
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is 10.0% for 1996 (the
same as the rate previously assumed for 1995 and 1994) and is assumed to
decrease gradually to 6% for 2010 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated post-retirement
benefit obligation as of December 31, 1996, 1995 and 1994 by $0.8 million, $0.7
million and $0.6 million, respectively, and the aggregate of the service and
interest cost components of the net periodic post-retirement benefit cost for
each of 1996, 1995 and 1994 by $0.1 million.
The weighted-average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.5% at December 31, 1996, 1995 and 1994.
As a result of the Acquisition, the unrecognized net loss and unrecognized
transition obligation amounts as of that date were recognized.
8. BANK CREDIT FACILITY
In April 1995, the Company entered into a credit agreement which provides
for the three-year Bank Credit Facility with Bank of America, Illinois ("BAI").
The Company may borrow up to $30.0 million, subject to certain borrowing base
limitations. At December 31, 1996, no amounts were outstanding under the Bank
Credit Facility. The revolving loans bear interest at a rate equal to, at the
Company's option, (i) the reference rate set by BAI or (ii) the LIBOR Base Rate.
The Bank Credit Facility requires the Company to pay a fee equal to one half of
one percent per annum on the total unused balance. Indebtedness outstanding
under the Bank Credit Facility is collateralized by a security interest in all
of the inventory, accounts receivable and certain other assets of PCAC and
All-Pure Chemical Co. ("All-Pure). Up to $10.0 million of the Borrowing Base, as
defined by the Bank Credit Facility, can be utilized for letters of credit. The
Borrowing Base at December 31, 1996 was approximately $18.6 million. After
consideration of applicable outstanding letters of credit of approximately $2.9
million, the unused availability of the Borrowing Base was approximately $15.7
million at December 31, 1996.
40
<PAGE> 41
The Bank Credit Facility contains restrictive covenants that, among other
things and under certain conditions, limit the ability of the Company to incur
additional indebtedness, to acquire or dispose of assets or operations and to
pay dividends or redeem shares of stock.
9. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
13 3/8% First Mortgage Notes, due 2005 $135,000 $135,000
Seller notes, interest at 8% per annum and payable quarterly, due in five annual
installments beginning in 2001 11,463 11,463
Promissory note to Kemira Kemi AB, principal payments due in four equal installments
on March 31, 2000, 2001, 2002 and December 31, 2002, with a variable interest
rate based on LIBOR plus 1.2%, interest is paid semi-annually 8,016 --
Subordinated notes payable to the sellers of T.C. Products, principal payments due
July 31, 2001, subject to prepayment, with a variable interest rate based on a
bank's prime rate plus 1%, interest is paid monthly 4,500 --
Tax-exempt bond financed through the Economic Development Corporation of Pierce
County, Washington, principal payments due in variable annual installments
through 2014, with a variable interest rate based on current market rates for
comparable securities, interest is paid monthly 2,252 --
------------ -------------
Total 161,231 146,463
Current maturities of long-term debt (128) --
------------ -------------
Long-term debt $161,103 $146,463
============ =============
</TABLE>
Long-term debt matures as follows: $0.1 million in 1997; $0.1 million
in 1998: $0.1 million in 1999; $2.1 million in 2000; $6.6 million in 2001;
and $152.1 million thereafter.
As part of the Acquisition in April 1995, the Company issued and sold $135
million of 13 3/8% Senior Notes due in 2005. In January 1996, the Company
exchanged, as part of a public offering, the $135 million of Senior Notes for
$135 million of 13 3/8% First Mortgage Notes due in 2005. Like the Senior Notes,
the Mortgage Notes are senior secured obligations of the Company, ranking senior
in right of payment to all subordinated indebtedness. The Mortgage Notes are
fully and unconditionally guaranteed on a joint and several basis by all of
Pioneer Americas Acquisition Corp.'s direct and indirect wholly-owned
subsidiaries and are secured by first mortgage liens on certain manufacturing
facilities. Following is a summary of selected items for the direct and indirect
subsidiaries which are not guarantors of the Mortgage Notes as of and for the
year ended December 31, 1996 (in thousands):
Current assets $ 13,004
Non-current assets 32,224
Current liabilities 7,294
Non-current liabilities 40,498
Revenues 36,142
Gross profit 1,865
Net loss (5,214)
The Company is a holding company with no operating assets or operations.
Financial statements of the Company's direct and indirect wholly-owned
subsidiaries are not separately included as the Company's management does not
believe this information would be material to investors.
The Mortgage Notes are redeemable at the Company's option starting in 2000.
Before 1998, the Company may redeem a maximum of $35 million of the Mortgage
Notes at 113% of the principal amount due with funds from a public offering of
41
<PAGE> 42
common stock of the Company (to the extent such funds are contributed to the
Company). Upon change of control, as defined in the agreement, the Company is
required to offer to purchase the Mortgage Bonds for 101% of the principal due.
The Mortgage Notes, the Seller Notes and other long-term debt contains
various restrictions on the Company, which, among other things, limit the
ability of the Company to incur additional indebtedness, to acquire or dispose
of assets or operations and to pay dividends or redeem shares of stock.
10. FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
The Company manufactures and sells its products to companies in diverse
industries. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. The Company's
sales are primarily to customers in the western and southeastern regions of the
United States. Credit losses relating to these customers have been within
management's expectations.
The Company maintains cash deposits with major banks, which from time to
time may exceed federally insured limits. The Company periodically assesses the
financial condition of the institutions and believes that any possible loss is
minimal.
Net sales of the Company included sales to a major customer of
approximately $23.5 million for the year ended December 31, 1996. Net sales of
the Predecessor Company included sales to a major customer of approximately $7.5
million for the period from January 1, 1995 through April 20, 1995 and $18.7
million in 1994.
INVESTMENTS
It is the policy of the Company to invest its excess cash in investment
instruments or securities whose value is not subject to market fluctuations such
as master notes of issuers rated at the time of such investment of at least
"A-2" or the equivalent thereof by S&P or at least "P-2" or the equivalent
thereof by Moody's or any bank or financial institution party to the Company's
Bank Credit Agreement with Bank of America.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In preparing disclosures about the fair value of financial instruments, the
Company has assumed that the carrying amount approximates fair value for cash
and cash equivalents, receivables, short-term borrowings, accounts payable and
certain accrued expenses because of the short maturities of those instruments.
The fair values of long-term debt instruments are estimated based upon quoted
market values (if applicable), or on the current interest rates available to the
Company for debt with similar terms and remaining maturities. Considerable
judgment is required in developing these estimates and, accordingly, no
assurance can be given that the estimated values presented herein are indicative
of the amounts that would be realized in a free market exchange. The Company
held no derivative financial instruments as of December 31, 1996 and 1995.
At December 31, 1996, the fair market value of all of the Company's
financial instruments approximated the book value, except its 13 3/8% First
Mortgage Notes due 2005, which had a book value of $135 million and a fair value
based upon its current quoted market price of $153 million.
11. COMMITMENTS AND CONTINGENCIES
LETTERS OF CREDIT
At December 31, 1996 the Company had letters of credit and performance
bonds outstanding of approximately $5.2 million and $4.7 million, respectively.
These letters of credit and performance bonds were issued for the benefit of:
customers under sales agreements securing delivery of products sold, a power
42
<PAGE> 43
company as a deposit for the supply of electricity, and a state environmental
agency as required for manufacturers in the state. The letters of credit expire
at various dates in 1997 and 1998. No amounts were drawn on the letters of
credit at December 31, 1996.
PURCHASE COMMITMENTS
The Company has committed to purchase salt used in the production process
under contracts which continue through December 31, 2003. Based on the contract
terms, a minimum of 563,111 tons of salt are to be purchased in 1997, 280,000
tons in 1998 and 225,000 tons in each of the years 1999 through 2003. The future
minimum salt commitments are as follows (in thousands):
1997 $ 4,402
1998 2,480
1999 1,903
2000 1,960
2001 2,019
Thereafter 4,221
--------
Total purchase commitment $ 16,985
========
OPERATING LEASES
The Company leases certain manufacturing and distribution facilities,
computer equipment, and administrative offices under noncancelable leases.
Minimum future rental payments on such leases with terms in excess of one year
in effect at December 31, 1996 are as follows (in thousands):
1997 $ 9,851
1998 9,439
1999 9,363
2000 7,647
2001 7,023
Thereafter 4,952
--------
Total minimum obligations $ 48,275
========
Lease expense charged to operations for the years ended December 31, 1996
and 1995 was approximately $9.5 million and $6.3 million, respectively. Lease
expense charged to the Predecessor Company's operations for the period from
January 1, 1995 through April 20, 1995 and the year ended December 31, 1994 was
approximately $3.3 million and $8.4 million, respectively.
LITIGATION
During 1993, Imperial West was awarded $1.38 million as the result of a
breach of contract claim it asserted against the lessor of one of the Imperial
West plants. Appeals of the judgment were upheld and the award together with
interest was paid in January 1996. The consolidated financial statements at
December 31, 1995 included a receivable for the award. The lessor also filed
suit alleging that Imperial West was required to remediate alleged contamination
prior to the termination of the lease in July 1995. The parties settled that
action under terms pursuant to which (i) Imperial West paid the lessor $900,000
upon the termination of the lease in July 1995, and (ii) the lessor transferred
title to the property to Imperial West. In addition, Imperial West agreed to
indemnify the lessor against any future environmental liability with respect to
the property. Certain insurers paid a portion of Imperial West's defense costs
in connection with the lawsuit by the lessor.
In 1994, the trustee in the bankruptcy of a company which was a customer of
the Predecessor Company filed suit against the Predecessor Company, seeking the
recovery of up to $2.2 million in payments made to the Predecessor Company on a
43
<PAGE> 44
basis which the trustee alleges was preferential to other creditors' claims.
Management has been advised by counsel that the range of any loss which may be
incurred as the result of the suit will be substantially below the amount
claimed, and the Company is vigorously contesting the action. The Company does
not believe this action will have a significant effect on its consolidated
financial position at December 31, 1996.
The Company is party to other legal proceedings and potential claims
arising in the ordinary course of its businesses. In the opinion of
management, the Company has adequate legal defenses and/or insurance coverage
with respect to these matters and management does not believe that they will
materially affect the Company's operations or financial position.
12. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax liabilities and assets are as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book basis--property, plant and equipment $ 20,006 $ 22,063
Other--net 399 1,435
------------- --------------
Total deferred tax liabilities 20,405 23,498
------------- --------------
Deferred tax assets:
Post employment benefits 5,552 5,791
Alternative minimum tax credit carryover 671 --
Allowance for doubtful accounts 511 569
Other accrued liabilities 6,165 6,530
Net operating loss carryforward 14,964 22,091
------------- --------------
Total deferred tax assets 27,863 34,981
Valuation allowance for deferred tax assets -- 11,483
------------- --------------
Net deferred tax assets 27,863 23,498
------------- --------------
Net deferred taxes $ 7,458 --
============= ==============
</TABLE>
Significant components of the provision for income taxes for the periods
presented are as follows:
<TABLE>
<CAPTION>
Predecessor Company
------------------------------
1996 1995 1995 1994
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal $ 418 $ 715 $ 5,938 $ 3,930
State 1,416 1,701 957 568
------------ ------------ ----------- ----------
Total current 1,834 2,416 6,895 4,498
------------ ------------ ----------- ----------
Deferred:
Federal 4,470 3,764 (1,816) (1,010)
State (445) (601) (270) (246)
------------ ------------ ----------- ----------
Total deferred 4,025 3,163 (2,086) (1,256)
------------ ------------ ----------- ----------
Total income tax provision $ 5,859 $ 5,579 $ 4,809 $ 3,242
========== ============ =========== ==========
</TABLE>
44
<PAGE> 45
The reconciliation of income tax computed at the U.S. federal statutory
tax rates to income tax expense for the periods presented are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------------
1996 1995 1995 1994
----------------- ---------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates $3,591 35% $3,872 35% $4,068 35% $2,936 35%
State income taxes, net of
federal tax benefit 631 6 723 7 407 3 321 4
Amortization of excess cost over
the fair value of net assets
acquired 1,591 16 1,159 10 69 1 221 2
Adjustment of previously
provided taxes -- -- -- -- -- -- (285) (3)
Other--net 46 -- (175) (2) 265 2 49 1
------ ------- ------ ------- ------ ------- ------ -------
$5,859 57% $5,579 50% $4,809 41% $3,242 39%
====== ======= ====== ======= ====== ======= ====== =======
</TABLE>
At December 31, 1996, the Company had available to it on a consolidated tax
return basis approximately $35.6 million of net operating loss carryforward
("NOL") for income tax purposes (expiring 2003 to 2010). The NOL is available
for offset against future taxable income if generated during the carryforward
period.
Since the Company had no operations before the Acquisition, it had no means
to generate taxable income; accordingly, the Company established a valuation
allowance equal to the full amount of the NOL at December 31, 1994. Concurrent
with the Acquisition, the Company estimated that approximately $13.6 million of
the NOL would be utilized; as a result, the valuation allowance was reduced by
that amount as part of the purchase price allocation. The Company's taxable
income for 1995 exceeded its estimate; the Company, therefore, recognized an
additional $3.6 of NOL in 1995. Since it has continued to generate more taxable
income than it originally expected, the Company eliminated the valuation
allowance in 1996, thereby recognizing the remaining $10.9 million of the NOL.
The Company's NOL originated before it was reorganized in 1992; accordingly, any
recognition of the NOL is recorded as an increase in the Company's paid-in
capital rather than as a reduction in the provision for income taxes. Thus, the
reduction of the valuation allowance for the NOL in 1996 and 1995 had no effect
on the Company's provision for income taxes or net income.
13. OTHER LONG-TERM LIABILITIES--ENVIRONMENTAL
The Company's operations are subject to extensive environmental laws
and regulations related to protection of the environment, including those
applicable to waste management, discharge of materials into the air and water,
clean-up liability from historical waste disposal practices, and employee health
and safety. At several of the Company's facilities, investigations or
remediations are underway and at some of these locations regulatory agencies
are considering whether additional actions are necessary to protect or remediate
surface or groundwater resources, and the Company could be required to incur
additional costs to construct and operate remediation systems in the future. In
addition, at several of its facilities, the Company is in the process of
replacing or closing ponds for the collection of wastewater. The Company plans
to spend approximately $1.3 million during the next fifteen years for closure of
eight chlor-alkali waste water disposal ponds at the Henderson plant.The
Company believes that it is in substantial compliance with existing
governmental regulations.
PCAC's Henderson plant is located within what is known as the "Basic
Complex." Soil and groundwater contamination have been identified within and
adjoining the Basic Complex, including land owned by PCAC. A groundwater
treatment system was installed at the facility in 1983 and, pursuant to a
Consent Agreement with the Nevada Division of Environmental Protection, a study
is being conducted to further evaluate soil and groundwater contamination at the
facility and other properties within the Basic Complex and to determine whether
additional remediation will be necessary with respect to PCAC's property.
In connection with the October 1988 acquisition of the chlor-alkali
business by the Predecessor Company, ICI Delaware Holdings, Inc. and ICI
Americas, Inc. (such companies or their successors, the "ZENECA Companies")
agreed to indemnify the Predecessor Company for certain environmental
liabilities (the "ZENECA Indemnity"), including liabilities associated with
operations at the Company's plant located in Henderson, Nevada (the "Henderson
Plant"). In general, the ZENECA Companies agreed to indemnify the Predecessor
Company from environmental costs which arise from or relate to pre-acquisition
actions which involved disposal, discharge, or release of materials resulting
from non-chlor-alkali manufacturing operations at the Henderson Plant and at
other properties within the same industrial complex. Payments under the
indemnity cannot exceed approximately $65 million.
Due to the change in ownership resulting from the Acquisition, the ZENECA
Indemnity will terminate on April 20, 1999. The ZENECA Indemnity will continue
to cover claims after the expiration of the term of the indemnity provided that,
prior to the expiration of the indemnity, proper notice to the ZENECA Companies
is given and the Company has taken certain other actions. The Company believes
that the ZENECA Companies will continue to honor their obligations under the
45
<PAGE> 46
ZENECA Indemnity for claims properly presented by the Company. It is possible,
however, that disputes could arise between the parties and that the Company
would have to subject its claims for clean-up expenses, which could be
substantial, to the contractually established arbitration process. In the
opinion of management, any environmental liability in excess of the amount
indemnified and accrued on the consolidated balance sheet, if any, would not
have a material adverse affect on the consolidated financial statements.
In the Acquisition Agreement, the Sellers agreed to indemnify the Company
for certain environmental liabilities that result from certain discharges of
hazardous materials, or violations of environmental laws, arising prior to April
20, 1995 (the "Closing Date") from or relating to the Pioneer Americas plant
sites or arising before or after the Closing Date with respect to certain
environmental liabilities relating to the Contingent Payment Properties
("Sellers' Indemnity"). Amounts payable pursuant to the Sellers' Indemnity will
generally be payable as follows: (i) out of certain reserves established on the
Predecessor Company's balance sheet at December 31, 1994; (ii) either by offset
against the amounts payable under the Seller Notes or from amounts held pursuant
to the Contingent Payment Agreement, and (iii) in certain circumstances and
subject to specified limitations, out of the personal assets of the Sellers.
Subject to certain exceptions and limitations set forth in the Acquisition
Agreement, a claim notice with respect to amounts payable pursuant to the
Sellers' Indemnity must generally be given within 15 years of the Closing Date.
Pioneer is required to reimburse the Sellers for amounts paid under the Sellers'
Indemnity with amounts recovered under the ZENECA Indemnity or from other third
parties. Pioneer and the Sellers have agreed that they will cooperate in matters
relating to the ZENECA Indemnity.
Remediation costs are accrued based on estimates of known environmental
remediation exposure. Such accruals are based upon management's best estimate of
the ultimate cost and are recorded even if significant uncertainties exist over
the ultimate cost of the remediation. Ongoing environmental compliance cost,
including maintenance and monitoring costs, are charged to operations as
incurred. The liabilities are based upon all available facts, existing
technology, past experience and cost-sharing arrangements, including the
viability of other parties. Charges made against income for recurring
environmental matters, included in "cost of sales" on the statements of
operations, totaled approximately $1.9 million and $1.2 million for the years
ended December 31, 1996 and 1995, respectively, and $0.4 million and $1.8
million for the Predecessor Company for the period from January 1, 1995 through
April 20, 1995 and the year ended December 31, 1994, respectively. Capital
expenditures for environmental-related matters at existing facilities
approximated $4.5 million and $2.2 million for the years ended December 31, 1996
and 1995 and $0.2 million and $0.5 million for the Predecessor Company for the
period from January 1, 1995 through April 20, 1995 and the year ended December
31, 1994, respectively. Future environmental-related capital expenditures will
depend upon regulatory requirements, as well as timing related to obtaining
necessary permits and approvals.
Estimates of future environmental restoration and remediation costs are
inherently imprecise due to currently unknown factors such as the magnitude of
possible contamination, the timing and extent of such restoration and
remediation, the extent to which such costs are recoverable from third parties,
and the extent to which environmental laws and regulations may change in the
future. The Predecessor Company established a reserve of approximately $9.0
million at the time of its acquisition of its Henderson, Nevada and St. Gabriel,
Louisiana facilities with respect to potential remediation costs relating to
matters not covered by the ZENECA Indemnity, consisting primarily of remediation
costs that may be incurred by the Company for chlor-alkali-related remediation
of the Henderson and St. Gabriel facilities. The recorded accrual included
certain amounts related to anticipated closure and post-closure actions that may
be required in the event that operation of the present chlor-alkali plants
ceases. Such accrual is recorded in the Company's consolidated balance sheets at
December 31, 1996 and 1995. However, complete analysis and study has not been
completed and therefore additional future charges may be recorded at the time a
decision for closure is made.
In 1994, the Predecessor Company recorded an additional $3.2 million
environmental reserve related to pre-closing actions at sites that are the
responsibility of the ZENECA Companies. Such accrual is recorded in the
Company's consolidated balance sheets at December 31, 1996 and 1995. Other
assets include an account receivable of the same amount from the ZENECA
Companies. The Company believes it will be reimbursed by the ZENECA Companies
for substantially all of such costs that are incurred at the Henderson Plant and
46
<PAGE> 47
other properties within the same industrial complex. Additionally, certain other
environmental matters exist which have been assumed directly by the ZENECA
Companies. No assurance can be given that actual costs will not exceed accrued
amounts or the amounts currently estimated. The imposition of more stringent
standards or requirements under environmental laws or regulations, new
developments or changes respecting site cleanup costs, or a determination that
the Company is potentially responsible for the release of hazardous substances
at other sites could result in expenditures in excess of amounts currently
estimated by the Company to be required for such matters. Further, there can be
no assurance that additional environmental matters will not arise in the future.
14. RELATED PARTY TRANSACTIONS
The Company has a 15% partnership interest in Saguaro Power Company
("Saguaro"), which owns a cogeneration plant located in Henderson, Nevada. The
Company's interest in Saguaro is accounted for using the cost method of
accounting. The Company sells certain products and services to and purchases
steam from Saguaro at market prices. Transactions with Saguaro are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------
1996 1995 1995 1994
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales to Saguaro $ 1,005 $ 754 $ 353 $ 1,286
Purchases from Saguaro 1,840 1,388 616 2,096
Partnership distribution from Saguaro
(included in other income) 735 637 -- 1,290
</TABLE>
Accounts receivable from and accounts payable to Saguaro are at the
Company's normal trade terms and are generally not significant to the Company's
consolidated balance sheet.
The Company is a party to an agreement negotiated on an arms-length basis
with BII for the delivery of the Company's water to the Henderson production
facility. The agreement provides for the delivery of a minimum of eight million
gallons of water per day. The agreement expires on December 31, 2014, unless
terminated earlier in accordance with the provisions of the agreement. For each
of the years ended December 31, 1996 and 1995, BII charged expenses to the
Company of approximately $0.2 million. For the period from January 1, 1995
through April 20, 1995 and the year ended December 31, 1994, BII charged
expenses to the Predecessor Company of approximately $0.2 million and $0.5
million, respectively.
15. STOCK-BASED COMPENSATION
Under the terms of the Company's Incentive Stock Option Plan (the "Plan")
750,000 shares of the Company's Common Stock were reserved for issuance to key
employees. Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Exercise Exercise
Number of Shares Price Per Share Price Per Share
---------------- ---------------- ---------------
<S> <C> <C> <C>
1995:
Granted 449,476 $ 5.625-$ 7.25 $ 6.50
Exercised -- -- --
Forfeited 3,600 $ 6.50 $ 6.50
Outstanding at December 31, 1995 445,876 $ 5.625-$ 7.25 $ 6.50
1996:
Granted 51,800 $ 6.00-$ 7.25 $ 6.04
Exercised -- -- --
Forfeited 3,600 $ 6.50 $ 6.50
Outstanding at December 31, 1996 494,076 $ 5.625-$ 7.25 $ 6.50
</TABLE>
47
<PAGE> 48
All stock options are granted at fair market value of the Common Stock at
the grant date. The weighted average fair value of the stock options granted
during 1996 and 1995 was $2.0 million and $0.2 million, respectively. The fair
value of each stock option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for the grants in 1996 and 1995: risk free interest rate of
6.7%; expected dividend yield of 0.0%; expected life of six years; and expected
volatility of 111.7%. Stock options generally expire ten years from the date of
grant. Stock options fully vest after three years. The outstanding stock options
at December 31, 1996 have a weighted average contractual life of 8.45 years.
There were no stock option shares exercisable at December 31, 1996.
The Company accounts for the Plan in accordance with Accounting Principles
Board Opinion No. 25, under which no compensation costs have been recognized for
stock option awards. Had compensation cost for the Plan been determined
consistent with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" (SFAS No. 123), the Company's pro forma net income
and earnings per share for 1996 would have been $3.7 million and $0.40,
respectively. The Company's pro forma net income and earnings per share for 1995
would have been $5.1 million and $0.65, respectively.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
For Year Ended December 31, 1996
Revenues $ 48,896 $ 54,217 $ 55,969 $ 49,826
Net income 1,155 1,091 786 1,368
Net income per share 0.13 0.12 0.09 0.15
For Year Ended December 31, 1995
Revenues -- 36,405 59,248 47,255
Net income (loss) (152) 179 3,443 2,011
Net income (loss) per share (0.03) 0.02 0.38 0.22
</TABLE>
No dividends were paid by the Company in 1996 or 1995.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Deloitte & Touche LLP has acted as independent accountants of the Company
for many years. Following the Acquisition it was determined that Deloitte &
Touche LLP would continue to act as independent accountants of the Company and
its consolidated subsidiaries.
Ernst & Young LLP had been the independent accountants for Pioneer Americas
and its consolidated subsidiaries prior to its dismissal, effective October 16,
1995. The reports of Ernst & Young LLP on the financial statements of Pioneer
Americas for the fiscal year ended December 31, 1994 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. In connection with the audit
of the financial statements of Pioneer Americas for the year ended December 31,
1994, and in the subsequent interim period, there were no disagreements with
Ernst & Young LLP on matters of accounting principles or practices, financial
statement disclosure or auditing scope and procedures which, if not resolved to
the satisfaction of Ernst & Young LLP, would have caused Ernst & Young to make
reference to the matter in their report.
48
<PAGE> 49
Ernst & Young LLP furnished a letter addressed to the Securities and
Exchange Commission stating that it agreed with the above statements. A copy of
that letter, dated October 30, 1995, is filed as an exhibit to this Annual
Report.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 10 of Part III of Form 10-K is incorporated by reference to the
information set forth in Pioneer's definitive proxy statement relating to the
1997 Annual Meeting of Stockholders of Pioneer (the "1997 Proxy Statement") to
be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), in response to Items 401 and 405 of Regulation
S-K under the Securities Act of 1933, as amended, and the Exchange Act
("Regulation S-K"), or if the 1997 Proxy Statement is not so filed within 120
days after December 31, 1996, such information will be included in an amendment
to this report filed not later than the end of such period. Reference is also
made to the information appearing in Item 4.1 of Part I of this report under the
caption "Executive Officers of the Registrant."
Item 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 11 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1997 Proxy Statement in response to Item 402 of
Regulation S-K, or if the 1997 Proxy Statement is not so filed within 120 days
after December 31, 1996, such information will be included in an amendment to
this report filed not later than the end of such period.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 12 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1997 Proxy Statement in response to Item 403 of
Regulation S-K, or if the 1997 Proxy Statement is not so filed within 120 days
after December 31, 1996, such information will be included in an amendment to
this report filed not later than the end of such period.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 13 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1997 Proxy Statement in response to Item 404 of
Regulation S-K, or if the 1997 Proxy Statement is not so filed within 120 days
after December 31, 1996, such information will be included in an amendment to
this report filed not later than the end of such period.
49
<PAGE> 50
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) LIST OF DOCUMENTS FILED.
(1) The financial statements filed as part of this report are listed in
the Index to Financial Statements under Item 8 on page 24 hereof.
(2) Additional financial information and schedules included pursuant to
the requirements of Form 10-K are listed in the Index to Financial Statements
under Item 8 on page 24 hereof.
(3) Exhibits
The exhibits indicated by an asterisk (*) are incorporated by reference. The
exhibits indicated by a plus sign (+) each constitute a management contract or
compensatory plan or arrangement required to be filed as an exhibit pursuant to
the requirements of Item 14(c) of Form 10-K.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
2* Stock Purchase Agreement, dated as of March 24, 1995,
by and among Pioneer, PAAC and the Sellers parties thereto
(incorporated by reference to Exhibit 2 to Pioneer's Current
Report on Form 8-K filed on May 5, 1995).
3.1(a)* Third Restated Certificate of Incorporation of Pioneer filed
with Secretary of State of Delaware on May 21, 1993
(incorporated by reference to Exhibit 3.1 to Pioneer's Annual
Report on Form 10-K for the year ended December 31, 1993).
3.1(b)* Amendment to Third Restated Certificate of Incorporation of
Pioneer filed with Secretary of State of Delaware on April 20,
1995 (incorporated by reference to Exhibit 3.1(b) to Pioneer's
Annual Report on Form 10-K for the year ended December 31,
1995).
3.1(c)* Amendment to Third Restated Certificate of Incorporation of
Pioneer filed with Secretary of State of Delaware on April 27,
1995 (incorporated by reference to Exhibit 3.1(c) to Pioneer's
Annual Report on Form 10-K for the year ended December 31,
1995).
3.2* By-laws of Pioneer (incorporated by reference to Exhibit
3.2 to Pioneer's Annual Report on Form 10-K for the year
ended December 31, 1988).
4.1(a)* Indenture, dated as of April 1, 1995, by and among PAAC, the
Subsidiary Guarantors parties thereto and IBJ Schroder Bank &
Trust Company, as trustee, relating to $135,000,000 principal
amount of 13 3/8% Senior Notes due 2005, including form of
Senior Note and Guarantee (incorporated by reference to
Exhibit 4.1 to Pioneer's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).
50
<PAGE> 51
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
4.1(b)* First Supplemental Indenture, dated as of September 14, 1995,
by and among PAAC, the Subsidiary Guarantors parties thereto
and United States Trust Company of New York, as trustee
(incorporated by reference to Exhibit 4.1(b) to the
Registration Statement on Form S-4 (file no. 33-98828) filed
by PAAC on October 30, 1995).
4.1(c) Second Supplemental Indenture, dated as of December 30, 1996,
by and among PAAC, the Subsidiary Guarantors parties thereto
and United States Trust Company of New York, as trustee.
4.1(d)* Mortgage, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by Pioneer
Chlor Alkali Company, Inc. (St. Gabriel, Louisiana)
(incorporated by reference to Exhibit 4.2(a) to the
Registration Statement in Form S-4 (file no. 33-98828) filed
by PAAC on October 30, 1995).
4.1(e)* Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by Pioneer
Chlor Alkali Company, Inc. (Henderson, Nevada) (incorporated
by reference to Exhibit 4.2(b) to the Registration Statement
on Form S-4 (file no. 33-98828) filed by PAAC on October 30,
1995).
4.1(f)* Intercreditor and Collateral Agency Agreement, dated as of
September 14, 1995, by and among United States Trust Company
of New York, as Trustee and Collateral Agent, Bank of America
Illinois, as Agent, the Company, Pioneer, PAAC and Pioneer
Chlor Alkali Company, Inc. (incorporated by reference to
Exhibit 4.4 to the Registration Statement on Form S-4 (file
no. 33-98828) filed by PAAC on October 30, 1995).
4.2(a)* Loan and Security Agreement, dated as of April 12, 1995, by
and among Pioneer Americas, Inc. and certain Subsidiary
Guarantors, the lenders party thereto and Bank of America
Illinois, as Agent (incorporated by reference to Exhibit
4.2(a) to Pioneer's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).
4.2(b)* Master Corporate Guaranty, dated April 12, 1995, executed by
each of the Subsidiary Guarantors party thereto, as guarantor,
respectively, in favor of Bank of America Illinois, as Agent,
for the ratable benefit of the lenders, guaranteeing the
obligations of one another under the Bank Credit Agreement
(incorporated by reference to Exhibit 4.2(b) to Pioneer's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995).
4.2(c)* Master Security Agreement, dated April 12, 1995, executed by
each of the Subsidiary Guarantors party thereto, as debtor,
respectively, in favor of Bank of America Illinois, as Agent,
for the ratable benefit of the lenders (incorporated by
reference to Exhibit 4.2(c) to Pioneer's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995).
4.3* Form of Seller Note issued to the Sellers party to the Stock
Acquisition Agreement dated as of March 24, 1995
(incorporated by reference to Exhibit 4.1 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
4.4* Registration Rights Agreement, dated as of April 20, 1995,
by and among Pioneer, Richard C. Kellogg, Jr. and Frans G.J.
Speets and certain other stockholders of Pioneer,
(incorporated by reference to Exhibit 4.2 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
51
<PAGE> 52
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.1* Shareholders Agreement, dated as of April 20, 1995, by and
between William R. Berkley and Richard C. Kellogg, Jr.
(incorporated by reference to Exhibit 10.1 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
10.2* Contingent Payment Agreement, dated as of April 20, 1995,
by and among Pioneer, PAAC and the Sellers party thereto
(incorporated by reference to Exhibit 10.2 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
10.3* Tax Sharing Agreement, dated as of April 20, 1995, by and
among Pioneer, PAAC and the Subsidiary Guarantors
(incorporated by reference to Exhibit 10.3 to the
Registration Statement on Form S-4 (file no. 33-98828) filed
by PAAC on October 30, 1995).
10.4*+ Pioneer Companies, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-4 (file no. 33-98828) filed
by PAAC on October 30, 1995).
10.5*+ Pioneer Companies, Inc. Key Executive Stock Grant Plan
(incorporated by reference to Exhibit 10.2 to Pioneer's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996).
10.6*+ Pioneer Chlor Alkali Company, Inc. Supplemental Retirement
Plan (incorporated by reference to Exhibit 10.5 to Pioneer's
Annual Report on Form 10-K for the year ended December 31,
1995).
10.7*+ Employment Agreement, dated April 20, 1995, between the
Pioneer and Richard C. Kellogg, Jr. (incorporated by
reference to Exhibit 10.1 to Pioneer's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995).
10.8*+ Employment Agreement, dated November 1, 1992, and First
Amendment to Employment Agreement, dated as of April 20, 1995,
between Pioneer Chlor Alkali Company, Inc. and Paul J.
Kienholz (incorporated by reference to Exhibit 10.7 to
Pioneer's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.9*+ Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and James E. Glattly (incorporated by
reference to Exhibit 10.8 to Pioneer's Annual Report on Form
10-K for the year ended December 31, 1995).
10.10*+ Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and Verrill M. Norwood, Jr.
(incorporated by reference to Exhibit 10.9 to Pioneer's
Annual Report on Form 10-K for the year ended December 31,
1995).
10.11*+ Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and Kent R. Stephenson (incorporated
by reference to Exhibit 10.10 to Pioneer's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.12*+ Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and Frank B. Belliss (incorporated by
reference to Exhibit 10.11 to Pioneer's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.13+ Executive Employment Agreement, dated January 4, 1997,
between Pioneer Companies, Inc. and Michael J. Ferris.
52
<PAGE> 53
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.14+ Stock Purchase Agreement, dated January 4, 1997, between
Pioneer Companies, Inc. and Michael J. Ferris.
10.15+ Non-Qualified Stock Option Agreement, dated January 4, 1997,
between Pioneer Companies, Inc. and Michael J. Ferris.
16* Letter from Ernst & Young LLP regarding change in
independent accountants (incorporated by reference to
Exhibit 16 to Pioneer's Annual Report on Form 10-K for the
year ended December 31, 1995).
21 Subsidiaries of Pioneer.
27 Financial Data Schedule.
-------------------
(B) REPORTS ON FORM 8-K.
Pioneer did not file any reports on Form 8-K during the quarter ended
December 31, 1996.
(C) FINANCIAL STATEMENT SCHEDULE.
Filed herewith as a financial statement schedule is Schedule II with
respect to Valuation and Qualifying Accounts. All other schedules have been
omitted because they are not applicable or not required or the required
information is included in the financial statements or notes thereto.
53
<PAGE> 54
SCHEDULE II
PIONEER COMPANIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSE ADDITIONS DEDUCTIONS PERIOD
----------- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts $1,424 $-- $-- $(113)(A) $1,311
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts -- 138 1,416(B) (130)(A) 1,424
</TABLE>
- ----------------
(A) Uncollectible accounts written off, net of recoveries.
(B) Allowance balance established on April 20, 1995 in connection with the
acquisition of Pioneer Americas, Inc.
54
<PAGE> 55
SCHEDULE II
PIONEER AMERICAS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSE ADDITIONS DEDUCTIONS PERIOD
----------- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
PERIOD FROM JANUARY 1, 1995 THROUGH APRIL 20,
1995:
Allowance for doubtful accounts $ 2,038 $ 47 $ -- $ (169)(A) $1,916
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts 521 1,235 300(B) (18)(A) 2,038
</TABLE>
- ----------------
(A) Uncollectible accounts written off, net of recoveries.
(B) Allowance balance established in May 1994 in connection with the acquisition
of GPS.
55
<PAGE> 56
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PIONEER COMPANIES, INC.
By: /s/ Michael J. Ferris
-------------------------------
Michael J. Ferris, President
and Chief Executive Officer
March 31, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael J. Ferris President and Chief Executive Officer March 31, 1997
- -------------------------------- (Principal Executive Officer) and Director
(Michael J. Ferris)
/s/ Philip J. Ablove Vice President and Chief Financial Officer March 31, 1997
- -------------------------------- and Director (Principal Financial
(Philip J. Ablove) Officer)
/s/ John R. Beaver Controller (Principal Accounting Officer) March 31, 1997
- --------------------------------
(John R. Beaver)
/s/ William R. Berkley Chairman of the Board March 31, 1997
- --------------------------------
(William R. Berkley)
/s/ Andrew M. Bursky Director March 31, 1997
- ---------------------------
(Andrew M. Bursky)
</TABLE>
56
<PAGE> 57
<TABLE>
<S> <C> <C>
/s/ Donald J. Donahue Director March 31, 1997
- --------------------------------
(Donald J. Donahue)
/s/ Richard C. Kellogg, Jr. Director March 31, 1997
- --------------------------------
(Richard C. Kellogg, Jr.)
/s/ Paul J. Kienholz Director March 31, 1997
- --------------------------------
(Paul J. Kienholz)
/s/ Jack H. Nusbaum Director March 31, 1997
- --------------------------------
(Jack H. Nusbaum)
/s/ Thomas H. Schnitzius Director March 31, 1997
- --------------------------------
(Thomas H. Schnitzius)
</TABLE>
57
<PAGE> 58
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
2* Stock Purchase Agreement, dated as of March 24, 1995,
by and among Pioneer, PAAC and the Sellers parties thereto
(incorporated by reference to Exhibit 2 to Pioneer's Current
Report on Form 8-K filed on May 5, 1995).
3.1(a)* Third Restated Certificate of Incorporation of Pioneer filed
with Secretary of State of Delaware on May 21, 1993
(incorporated by reference to Exhibit 3.1 to Pioneer's Annual
Report on Form 10-K for the year ended December 31, 1993).
3.1(b)* Amendment to Third Restated Certificate of Incorporation of
Pioneer filed with Secretary of State of Delaware on April 20,
1995 (incorporated by reference to Exhibit 3.1(b) to Pioneer's
Annual Report on Form 10-K for the year ended December 31,
1995).
3.1(c)* Amendment to Third Restated Certificate of Incorporation of
Pioneer filed with Secretary of State of Delaware on April 27,
1995 (incorporated by reference to Exhibit 3.1(c) to Pioneer's
Annual Report on Form 10-K for the year ended December 31,
1995).
3.2* By-laws of Pioneer (incorporated by reference to Exhibit
3.2 to Pioneer's Annual Report on Form 10-K for the year
ended December 31, 1988).
4.1(a)* Indenture, dated as of April 1, 1995, by and among PAAC, the
Subsidiary Guarantors parties thereto and IBJ Schroder Bank &
Trust Company, as trustee, relating to $135,000,000 principal
amount of 13 3/8% Senior Notes due 2005, including form of
Senior Note and Guarantee (incorporated by reference to
Exhibit 4.1 to Pioneer's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).
<PAGE> 59
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
4.1(b)* First Supplemental Indenture, dated as of September 14, 1995,
by and among PAAC, the Subsidiary Guarantors parties thereto
and United States Trust Company of New York, as trustee
(incorporated by reference to Exhibit 4.1(b) to the
Registration Statement on Form S-4 (file no. 33-98828) filed
by PAAC on October 30, 1995).
4.1(c) Second Supplemental Indenture, dated as of December 30, 1996,
by and among PAAC, the Subsidiary Guarantors parties thereto
and United States Trust Company of New York, as trustee.
4.1(d)* Mortgage, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by Pioneer
Chlor Alkali Company, Inc. (St. Gabriel, Louisiana)
(incorporated by reference to Exhibit 4.2(a) to the
Registration Statement in Form S-4 (file no. 33-98828) filed
by PAAC on October 30, 1995).
4.1(e)* Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by Pioneer
Chlor Alkali Company, Inc. (Henderson, Nevada) (incorporated
by reference to Exhibit 4.2(b) to the Registration Statement
on Form S-4 (file no. 33-98828) filed by PAAC on October 30,
1995).
4.1(f)* Intercreditor and Collateral Agency Agreement, dated as of
September 14, 1995, by and among United States Trust Company
of New York, as Trustee and Collateral Agent, Bank of America
Illinois, as Agent, the Company, Pioneer, PAAC and Pioneer
Chlor Alkali Company, Inc. (incorporated by reference to
Exhibit 4.4 to the Registration Statement on Form S-4 (file
no.
33-98828) filed by PAAC on October 30, 1995).
4.2(a)* Loan and Security Agreement, dated as of April 12, 1995, by
and among Pioneer Americas, Inc. and certain Subsidiary
Guarantors, the lenders party thereto and Bank of America
Illinois, as Agent (incorporated by reference to Exhibit
4.2(a) to Pioneer's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).
4.2(b)* Master Corporate Guaranty, dated April 12, 1995, executed by
each of the Subsidiary Guarantors party thereto, as guarantor,
respectively, in favor of Bank of America Illinois, as Agent,
for the ratable benefit of the lenders, guaranteeing the
obligations of one another under the Bank Credit Agreement
(incorporated by reference to Exhibit 4.2(b) to Pioneer's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995).
4.2(c)* Master Security Agreement, dated April 12, 1995, executed by
each of the Subsidiary Guarantors party thereto, as debtor,
respectively, in favor of Bank of America Illinois, as Agent,
for the ratable benefit of the lenders (incorporated by
reference to Exhibit 4.2(c) to Pioneer's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995).
4.3* Form of Seller Note issued to the Sellers party to the Stock
Acquisition Agreement dated as of March 24, 1995
(incorporated by reference to Exhibit 4.1 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
4.4* Registration Rights Agreement, dated as of April 20, 1995,
by and among Pioneer, Richard C. Kellogg, Jr. and Frans G.J.
Speets and certain other stockholders of Pioneer,
(incorporated by reference to Exhibit 4.2 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
<PAGE> 60
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.1* Shareholders Agreement, dated as of April 20, 1995, by and
between William R. Berkley and Richard C. Kellogg, Jr.
(incorporated by reference to Exhibit 10.1 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
10.2* Contingent Payment Agreement, dated as of April 20, 1995,
by and among Pioneer, PAAC and the Sellers party thereto
(incorporated by reference to Exhibit 10.2 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
10.3* Tax Sharing Agreement, dated as of April 20, 1995, by and
among Pioneer, PAAC and the Subsidiary Guarantors
(incorporated by reference to Exhibit 10.3 to the
Registration Statement on Form S-4 (file no. 33-98828) filed
by PAAC on October 30, 1995).
10.4*+ Pioneer Companies, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-4 (file no. 33-98828) filed
by PAAC on October 30, 1995).
10.5*+ Pioneer Companies, Inc. Key Executive Stock Grant Plan
(incorporated by reference to Exhibit 10.2 to Pioneer's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996).
10.6*+ Pioneer Chlor Alkali Company, Inc. Supplemental Retirement
Plan (incorporated by reference to Exhibit 10.5 to Pioneer's
Annual Report on Form 10-K for the year ended December 31,
1995).
10.7*+ Employment Agreement, dated April 20, 1995, between the
Pioneer and Richard C. Kellogg, Jr. (incorporated by
reference to Exhibit 10.1 to Pioneer's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995).
10.8*+ Employment Agreement, dated November 1, 1992, and First
Amendment to Employment Agreement, dated as of April 20, 1995,
between Pioneer Chlor Alkali Company, Inc. and Paul J.
Kienholz (incorporated by reference to Exhibit 10.7 to
Pioneer's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.9*+ Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and James E. Glattly (incorporated by
reference to Exhibit 10.8 to Pioneer's Annual Report on Form
10-K for the year ended December 31, 1995).
10.10*+ Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and Verrill M. Norwood, Jr.
(incorporated by reference to Exhibit 10.9 to Pioneer's
Annual Report on Form 10-K for the year ended December 31,
1995).
10.11*+ Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and Kent R. Stephenson (incorporated
by reference to Exhibit 10.10 to Pioneer's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.12*+ Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and Frank B. Belliss (incorporated by
reference to Exhibit 10.11 to Pioneer's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.13+ Executive Employment Agreement, dated January 4, 1997,
between Pioneer Companies, Inc. and Michael J. Ferris.
<PAGE> 61
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.14+ Stock Purchase Agreement, dated January 4, 1997, between
Pioneer Companies, Inc. and Michael J. Ferris.
10.15+ Non-Qualified Stock Option Agreement, dated January 4, 1997,
between Pioneer Companies, Inc. and Michael J. Ferris.
16* Letter from Ernst & Young LLP regarding change in
independent accountants (incorporated by reference to
Exhibit 16 to Pioneer's Annual Report on Form 10-K for the
year ended December 31, 1995).
21 Subsidiaries of Pioneer.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 4.1(c)
================================================================================
SECOND SUPPLEMENTAL INDENTURE
dated as of December 30, 1996
to
INDENTURE
dated as of April 1, 1995
among
PIONEER AMERICAS ACQUISITION CORP.
as Issuer,
PIONEER AMERICAS, INC.,
PIONEER CHLOR ALKALI COMPANY, INC.,
IMPERIAL WEST CHEMICAL CO.,
ALL-PURE CHEMICAL CO.,
BLACK MOUNTAIN POWER COMPANY,
ALL-PURE CHEMICAL NORTHWEST, INC.,
PIONEER CHLOR ALKALI INTERNATIONAL, INC.,
G.O.W. CORPORATION,
as Subsidiary Guarantors
and
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
================================================================================
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................... 3
ARTICLE II GUARANTEES..................................................................... 3
ARTICLE III REPRESENTATIONS AND WARRANTIES................................................. 4
Section 301. Representations of the New Subsidiary Guarantors............................... 4
Section 302. Representations of the Company and the Subsidiary Guarantors................... 4
Section 303. Representations of the Trustee................................................. 5
ARTICLE IV CONDITIONS PRECEDENT........................................................... 5
ARTICLE V MISCELLANEOUS.................................................................. 6
Section 501. Execution of Supplemental Indenture; Ratification of Original
Indenture...................................................................... 6
Section 502. Concerning the Trustee......................................................... 6
Section 503. Counterparts................................................................... 6
Section 504 GOVERNING LAW.................................................................. 7
</TABLE>
i
<PAGE> 3
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of April 1, 1995
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
--------------- -------
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . 608
(a)(2) . . . . . . . . . . . . . 608
(a)(3) . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . 607, 609
(c) . . . . . . . . . . . . . N.A.
Section 311(a) . . . . . . . . . . . . . 612
(b) . . . . . . . . . . . . . 612
(c) . . . . . . . . . . . . . N.A.
Section 312(a) . . . . . . . . . . . . . 701
(b) . . . . . . . . . . . . . 117
(c) . . . . . . . . . . . . . 117
Section 313(a) . . . . . . . . . . . . . 703
(b)(1) . . . . . . . . . . . . . 703
(b)(2) . . . . . . . . . . . . . 703
(c) . . . . . . . . . . . . . 703
(d) . . . . . . . . . . . . . 703
Section 314(a) . . . . . . . . . . . . . 704, 1003
(b) . . . . . . . . . . . . . 1402
(c)(1) . . . . . . . . . . . . . 103
(c)(2) . . . . . . . . . . . . . 103
(c)(3) . . . . . . . . . . . . . 103
(d) . . . . . . . . . . . . . 1403, 1404
(e) . . . . . . . . . . . . . 103
(f) . . . . . . . . . . . . . N.A.
Section 315(a) . . . . . . . . . . . . . 602, 613, 903
(b) . . . . . . . . . . . . . 601, 602, 903
(c) . . . . . . . . . . . . . 602, 903
(d) . . . . . . . . . . . . . 602, 903
(e) . . . . . . . . . . . . . 512
Section 316(a) (last sentence)
(a)(1)(A) . . . . . . . . . . . . . 502, 505
(a)(1)(B) . . . . . . . . . . . . . 504
(a)(2) . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . 507
(c) . . . . . . . . . . . . . 105
Section 317(a)(1) . . . . . . . . . . . . . 508
(a)(2) . . . . . . . . . . . . . 509
(b) . . . . . . . . . . . . . N.A.
Section 318(a) . . . . . . . . . . . . . 310
</TABLE>
N.A. means not applicable.
-------------------------------------------
Note: This reconciliation and tie shall not, for any purpose, be
deemed a part of this Indenture.
<PAGE> 4
SECOND SUPPLEMENTAL INDENTURE, dated as of December 30, 1996 (this
"Second Supplemental Indenture"), to the Indenture dated as of April 1, 1995
(the "Original Indenture") among PIONEER AMERICAS ACQUISITION CORP., a
Delaware corporation (together with its successors and assigns, the "Company"),
PIONEER AMERICAS, INC. ("PAI"), PIONEER CHLOR ALKALI COMPANY, INC. ("PCAC"),
each a Delaware corporation, IMPERIAL WEST CHEMICAL CO., a Nevada corporation,
ALL-PURE CHEMICAL CO. ("APC"), a California corporation, BLACK MOUNTAIN POWER
COMPANY, a Texas corporation, ALL-PURE CHEMICAL NORTHWEST, INC., a Washington
corporation, PIONEER CHLOR ALKALI INTERNATIONAL, INC., a Barbados corporation,
and G.O.W. CORPORATION, a Nevada corporation (collectively, the "Original
Subsidiary Guarantors"), and UNITED STATES TRUST COMPANY OF NEW YORK, as
trustee (the "Trustee"), as amended and supplemented by the First Supplemental
Indenture, dated as of September 14, 1995 (the "First Supplemental Indenture")
among the Company, the Original Subsidiary Guarantors and the Trustee (the
Original Indenture, as so supplemented and amended, the "Indenture").
WHEREAS, the Company, the Original Subsidiary Guarantors and IBJ
Schroder Bank & Trust Company ("IBJ"), as trustee, have heretofore executed and
delivered the Original Indenture to provide for the issuance of Securities (as
defined in the Original Indenture) of the Company, and the issuance of
Guarantees (as defined in the Original Indenture) with respect thereto by the
Original Subsidiary Guarantors;
WHEREAS, by an Instrument of Resignation, Appointment and Acceptance
dated as of September 14, 1995, IBJ resigned as trustee under the Original
Indenture, the Company appointed the Trustee as successor trustee under the
Original Indenture, and the Trustee accepted such appointment, all in
accordance with the terms of the Original Indenture;
WHEREAS, the Company, the Original Subsidiary Guarantors and the
Trustee have heretofore executed and delivered the First Supplemental Indenture
to secure PCAC's Guarantee with liens on PCAC's St. Gabriel, Louisiana and
Henderson, Nevada plants (including real property, buildings, fixtures and
equipment), and in connection therewith, to modify covenants, to provide
additional indemnity to the Trustee, and to modify other provisions of the
Original Indenture, the Securities or the Guarantees that relate to such
collateral or that were or may be impacted by the providing of such collateral,
and entered into certain agreements, documents and other instruments to effect
the foregoing, including, without limitation, an intercreditor agreement
relating to liens on such collateral on a pari passu basis in favor of the
Trustee for the benefit of itself and the Holders (as defined in the Original
Indenture) and the Agent Bank (as defined in the First Supplemental Indenture)
for the benefit of itself and the other lenders under the Bank Credit Facility
(as defined in the Original Indenture);
WHEREAS, on June 5, 1996, Pioneer (East), Inc. ("Pioneer (East)") was
incorporated in Delaware and all of Pioneer (East)'s outstanding Capital Stock
(as defined in the Original
-1-
<PAGE> 5
Indenture) was issued to PAI, as a result of which Pioneer (East) is a
Subsidiary (as defined in the Original Indenture) of the Company and is a
Restricted Subsidiary (as defined in the Original Indenture);
WHEREAS, on July 31, 1996, APC acquired all of the issued and
outstanding Capital Stock of T.C. Holdings, Inc. ("Holdings"), a New Mexico
corporation, which owns all of the issued and outstanding Capital Stock of T.C.
Products, Inc. ("Products"), a Washington corporation, and as a result of such
acquisition each of Holdings and Products is a Subsidiary of the Company and is
a Restricted Subsidiary;
WHEREAS, Section 1019 of the Indenture provides that if any Subsidiary
of the Company becomes a Restricted Subsidiary after the Closing Date (as
defined in the Original Indenture), the Company shall cause such Subsidiary to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Subsidiary shall unconditionally guarantee, in accordance with Article
Thirteen of the Original Indenture, all of the Company's obligations under the
Original Indenture and the Securities on the same terms as the other Subsidiary
Guarantors (as defined in the Original Indenture), which Guarantee shall rank
pari passu with any Senior Indebtedness (as defined in the Original Indenture)
of such Subsidiary;
WHEREAS, Section 901 of the Original Indenture provides that the
Company, the Subsidiary Guarantors and the Trustee may, without the consent of
the Holders, enter into indentures supplemental to the Original Indenture to
add a Subsidiary Guarantor pursuant to the requirements of Section 1019
thereof;
WHEREAS, the Company has requested the Trustee, the Original
Subsidiary Guarantors, Pioneer (East), Holdings and Products to enter into this
Second Supplemental Indenture for the purpose of adding Pioneer (East),
Holdings and Products (collectively, the "New Subsidiary Guarantors") as
Subsidiary Guarantors under the Original Indenture, and to provide for each
such New Subsidiary Guarantor's unconditional guarantee, in accordance with
Article Thirteen of the Original Indenture, of all of the Company's obligations
under the Original Indenture and the Securities on the same terms as the
Original Subsidiary Guarantors; and
WHEREAS, all acts and things necessary to constitute these presents a
valid and binding supplemental indenture according to its terms, have been done
and performed, and the execution of this Second Supplemental Indenture (the
Original Indenture, as supplemented by the First Supplemental Indenture and
this Second Supplemental Indenture, being hereinafter called the "Indenture")
has in all respects been duly authorized, and the Company, the Original
Subsidiary Guarantors and the New Subsidiary Guarantors, in the exercise of the
legal rights and powers vested in them, each executes this Second Supplemental
Indenture;
NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH:
- 2 -
<PAGE> 6
That, for and in consideration of the premises and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree, for the equal and proportionate
benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS
(a) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings assigned thereto in the Original Indenture.
(b) For all purposes of the Indenture, except as otherwise
expressly provided or unless the context otherwise requires, the following
terms shall have the following respective meanings (such meanings shall apply
equally to both the singular and plural forms of the respective terms):
"Effective Date" means, subject to the satisfaction of the conditions
precedent specified in Article IV hereof, the date of execution and delivery of
this Second Supplemental Indenture.
"First Supplemental Indenture" has the meaning specified in the
recitals hereto.
"Indenture" means the Original Indenture as amended and supplemented
by the First Supplemental Indenture and this Second Supplemental Indenture, and
as otherwise amended or supplemented from time to time in accordance with its
terms.
"New Subsidiary Guarantors" means Pioneer (East), Holdings and
Products.
"Original Indenture" has the meaning specified in the recitals hereto.
(c) For all purposes of this Indenture, the words "herein",
"hereof" and "hereunder" and other words of similar import refer to the
Indenture as a whole and not to this Second Supplemental Indenture or to any
particular Article, Section or other subdivision.
ARTICLE II
GUARANTEES
For value received, each of the New Subsidiary Guarantors hereby
unconditionally guarantees, jointly and severally, to the Holders of the
Securities the payment of principal of, premium, if any, and interest on the
Securities in the amounts and at the time when due and interest on the overdue
principal and interest, if any, of the Securities, if lawful, and the payment
- 3 -
<PAGE> 7
or performance of all other obligations of the Company under the Indenture or
the Securities, to the Holders of the Securities and the Trustee, all in
accordance with and subject to the terms and limitations of the Securities and
Article Thirteen of the Indenture.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 301. Representations of the New Subsidiary Guarantors.
The New Subsidiary Guarantors, jointly and severally, represent and
warrant that the Guarantees have been duly and validly authorized and, when
executed and authenticated in accordance with the terms of the Indenture, (i)
will be legal, valid and binding obligations of the New Subsidiary Guarantors
enforceable against the New Subsidiary Guarantors in accordance with their
terms, except as (A) the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect affecting creditors' rights generally and (B) the
availability of equitable remedies may be limited by equitable principles of
general applicability (regardless of whether in a proceeding in equity or at
law) and as may be limited by the discretion of the court before which any
proceeding therefor may be brought, and (ii) will be entitled to the benefits
of the Indenture.
Section 302. Representations of the Company and the Subsidiary
Guarantors.
The Company and the Subsidiary Guarantors, jointly and severally,
represent and warrant that:
(a) This Second Supplemental Indenture has been duly authorized by
each of the Company and the Subsidiary Guarantors, and, when executed and
delivered by the Company and the Subsidiary Guarantors on the Effective Date
and, assuming due authorization, execution and delivery by the Trustee, will be
a legal, valid and binding agreement of the Company and the Subsidiary
Guarantors enforceable against the Company and the Subsidiary Guarantors in
accordance with its terms, except as (i) the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting creditors' rights
generally, (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability (regardless of whether in a
proceeding in equity or at law) and as may be limited by the discretion of the
court before which any proceeding therefor may be brought and (iii) rights to
indemnity and contribution may be limited by state or Federal laws relating to
securities or by policies underlying such laws; and
(b) The execution, delivery and performance by the Company and the
Subsidiary Guarantors of this Second Supplemental Indenture and the
consummation of the transactions contemplated hereby will not (1) conflict with
or result in a breach or violation of any of the
- 4 -
<PAGE> 8
terms or provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, bank loan or credit agreement, lease or other agreement or
instrument to which the Company or any of the Subsidiary Guarantors is a party
or by which the Company or any of the Subsidiary Guarantors is bound or to
which any of the property or assets of the Company or any of the Subsidiary
Guarantors is subject, (2) result in any violation of the provisions of the
Certificate of Incorporation or the By-laws, in each case as amended, of the
Company or any of the Subsidiary Guarantors or any statute or any order, rule
or regulation of any court or governmental agency or body having jurisdiction
over the Company or any of the Subsidiary Guarantors or any or their
properties, (3) result in or require the creation or imposition of any Lien
upon or with respect to any of the properties of the Company or any of the
Subsidiary Guarantors, except pursuant to or as contemplated by the terms of
the Indenture, or (4) constitute a default under any ordinance, license or
permit, except, in the case of the events specified in clauses (1), (3) and (4)
above, for such conflicts, violations or defaults which would not have a
material adverse effect upon the business, assets, condition (financial or
otherwise), results of operations or prospects of the Company and the
Subsidiary Guarantors, taken as a whole, or on the ability of the Company and
the Subsidiary Guarantors to perform their respective obligations under the
Indenture.
Section 303. Representations of the Trustee.
The Trustee represents that it is duly authorized to execute and
deliver this Second Supplemental Indenture, authenticate the Securities and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1, if any, supplied to the Company are true
and accurate subject to the qualifications set forth therein.
ARTICLE IV
CONDITIONS PRECEDENT
This Second Supplemental Indenture shall become effective as of the
Effective Date upon the satisfaction of the following conditions precedent:
(a) The Trustee shall have received a true and complete original,
except where stated otherwise, of:
(i) this Second Supplemental Indenture, duly executed and
delivered by the Company and the Subsidiary Guarantors;
(ii) an opinion of Kent R. Stephenson, Esq., the General Counsel of
the Company, with respect to the due authorization, execution and delivery
of this Second Supplemental Indenture and such other matters as the
Trustee and its counsel shall reasonably require, and meeting the
requirements of Section 903 of the Indenture; and
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<PAGE> 9
(iii) such other approvals, consents, opinions, or documents as the
Trustee or its counsel may reasonably request.
(b) On the Effective Date, each of the Company and the Subsidiary
Guarantors shall be in compliance with all the terms and provisions on its
respective part to be observed or performed as set forth in the Indenture; any
representations and warranties of the Company and the Subsidiary Guarantors or
the Trustee set forth in this Second Supplemental Indenture shall be true and
correct in all material respects on and as of the Effective Date as if made on
and as of the Effective Date; and no Event of Default shall have occurred and
be continuing on such date, and no event shall have occurred which, with notice
or lapse of time, or both, would constitute an Event of Default under the
Indenture.
ARTICLE V
MISCELLANEOUS
Section 501. Execution of Supplemental Indenture; Ratification of
Original Indenture.
This Second Supplemental Indenture is executed and shall be construed
as an indenture supplemental to the Original Indenture and, as provided in the
Original Indenture, this Second Supplemental Indenture forms a part thereof.
Except as otherwise expressly provided for in this Second Supplemental
Indenture, all of the terms and conditions of the Original Indenture, as
heretofore supplemented and amended by the First Supplemental Indenture, are
hereby ratified and shall remain unchanged and continue in full force and
effect.
Section 502. Concerning the Trustee.
The recitals contained herein and in the Securities, except with
respect to the Trustee's certificates of authentication, shall be taken as the
statements of the Company and the Subsidiary Guarantors and the Trustee assumes
no responsibility for the correctness of same. The Trustee makes no
representations as to the validity or sufficiency of this Second Supplemental
Indenture or of the Securities.
Section 503. Counterparts.
This Second Supplemental Indenture may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one of the same
instrument.
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<PAGE> 10
SECTION 504. GOVERNING LAW.
THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties have caused this Second Supplemental
Indenture to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
PIONEER AMERICAS ACQUISITION CORP.
Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE
----------------------- ------------------------
Name: Kent R. Stephenson Name: Philip J. Ablove
Title: Secretary Title: Vice President
PIONEER AMERICAS, INC.
Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE
----------------------- ------------------------
Name: Kent R. Stephenson Name: Philip J. Ablove
Title: Secretary Title: Vice President
PIONEER CHLOR ALKALI
COMPANY, INC.
Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE
----------------------- ------------------------
Name: Kent R. Stephenson Name: Philip J. Ablove
Title: Secretary Title: Vice President
IMPERIAL WEST CHEMICAL CO.
Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE
----------------------- ------------------------
Name: Kent R. Stephenson Name: Philip J. Ablove
Title: Secretary Title: Vice President
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<PAGE> 11
ALL-PURE CHEMICAL CO.
Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE
----------------------- ------------------------
Name: Kent R. Stephenson Name: Philip J. Ablove
Title: Secretary Title: Vice President
BLACK MOUNTAIN POWER COMPANY
Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE
----------------------- ------------------------
Name: Kent R. Stephenson Name: Philip J. Ablove
Title: Secretary Title: Vice President
ALL-PURE CHEMICAL NORTHWEST, INC.
Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE
----------------------- ------------------------
Name: Kent R. Stephenson Name: Philip J. Ablove
Title: Secretary Title: Vice President
PIONEER CHLOR ALKALI
INTERNATIONAL, INC.
Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE
----------------------- ------------------------
Name: Kent R. Stephenson Name: Philip J. Ablove
Title: Secretary Title: Vice President
G.O.W. CORPORATION
Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE
----------------------- ------------------------
Name: Kent R. Stephenson Name: Philip J. Ablove
Title: Secretary Title: Vice President
- 8 -
<PAGE> 12
PIONEER (EAST), INC.
Attest /s/ DAVID A. LESLIE BY /s/ KENT R. STEPHENSON
-------------------- --------------------------
Name: David A. Leslie Name: Kent R. Stephenson
Title: Assistant Secretary Title: President
T.C. HOLDINGS, INC.
Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE
----------------------- -----------------------
Name: Kent R. Stephenson Name: Philip J. Ablove
Title: Secretary Title: Vice President
T.C. PRODUCTS, INC.
Attest /s/ KENT R. STEPHENSON By /s/ PHILIP J. ABLOVE
----------------------- ---------------------
Name: Kent R. Stephenson Name: Philip J. Ablove
Title: Secretary Title: Vice President
UNITED STATES TRUST COMPANY
OF NEW YORK
Attest /s/ ROBERT F. LEE By /s/ PATRICIA STERMER
-------------------------- ------------------------
Name: Robert F. Lee Name: Patricia Stermer
Title: Assistant Secretary Title: Assistant Vice President
- 9 -
<PAGE> 1
EXHIBIT 10.13
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT is made and entered into
between Pioneer Companies, Inc., a Delaware corporation (the "Company"), and
Michael J. Ferris, (the "Executive") as of January 4, 1997.
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to accept employment with the Company, on the terms and
conditions set forth herein;
NOW, THEREFORE, on the basis of the foregoing premises and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
SECTION 1. Employment. The Company hereby agrees to
employ the Executive and the Executive hereby accepts employment with the
Company, on the terms and subject to the conditions hereinafter set forth.
Subject to such terms and conditions, the Executive shall serve as President
and Chief Executive Officer of the Company and, in such capacity, shall report
directly to the Board of Directors of the Company (the "Board of Directors")
and shall have such duties, functions, responsibilities and authority as are
consistent with the Executive's position as the senior executive officer in
charge of the general management, business and affairs of the Company and
subsidiaries of the Company including, but not limited to, the development and
implementation of strategies and goals and internal policies and program
designed to achieve the profit, market share and product mix goals of the
Company and its subsidiaries, together with such additional duties, functions,
responsibilities and authority including, without limitation, serving as an
officer and/or director of any subsidiary of the Company, commensurate with the
Executive's position as set forth in this Agreement, as may be assigned to the
Executive from time to time by the Board of Directors. The Company shall use
best efforts to have the Executive nominated to the Board of Directors.
SECTION 2. Term. Subject to the provisions and
conditions of this Agreement (including Section 6), the Executive's employment
hereunder shall commence on the date hereof and shall continue during the
period ending on the third anniversary of the date hereof (the "Employment
Term").
SECTION 3. Compensation.
(a) Salary. As compensation for the performance of the
Executive's services hereunder, the Company shall pay to the Executive a base
salary (the "Salary") of Three Hundred Fifty Thousand Dollars ($350,000) per
annum with increases, if any, as may be approved in writing by the Board of
Directors. The Salary shall be payable in accordance with payroll
<PAGE> 2
practices of the Company as the same shall exist from time to time. In no
event shall the Salary be decreased during the Employment Term.
(b) Bonus Plan. The Executive shall be entitled to
receive bonus compensation consisting of cash, securities or property ("Bonus")
in accordance with any management incentive plan or plans (including, without
limitation, any shared earnings plan) which may be established by the Board of
Directors of the Company for its executive officers and management.
Notwithstanding the foregoing, the Executive shall be entitled to receive a
cash bonus of not less than Two Hundred Thousand Dollars ($200,000) in
consideration of services to be rendered to the Company in 1997, such bonus to
be paid quarterly in arrears during 1997.
(c) Benefits. In addition to the Salary and Bonus, the
Executive shall be entitled to participate in or to receive the same health,
insurance, pension, automobile, severance, vacation, holiday, sick leave,
disability, profit sharing, 401(k) savings and other benefits as shall be
provided to executive officers of the Company generally.
(d) Paying Entity. The Company may cause any one or more
of its subsidiaries to provide the salary and benefits to the Executive as are
required by this Agreement.
SECTION 4. Exclusivity. During the Employment Term,
the Executive shall devote substantially all of his time to the business of the
Company, shall faithfully serve the Company, shall in all respects conform to
and comply with the lawful directions and instructions given to him by the
Board of Directors or its designee in accordance with the terms of this
Agreement, shall use his best efforts to promote and serve the interests of the
Company and shall not engage in any other business activity, whether or not
such activity shall be engaged in for pecuniary profit, except that the
Executive may engage in personal investing and charitable activities that do
not interfere in any material respect with the services to be provided by the
Executive hereunder.
SECTION 5. Reimbursement for Expenses. The Company
shall promptly reimburse the Executive for all reasonable out-of-pocket travel,
entertainment and other business expenses incurred by the Executive during the
term of this Agreement and in the performance of his duties hereunder in
accordance with the Company's reimbursement policies in effect from time to
time.
SECTION 6. Termination.
(a) Death. This Agreement shall automatically terminate
upon the death of the Executive and upon such event, the Executive's estate
shall be entitled to receive the amounts specified in Section 6(f) below.
(b) Disability. If the Executive is unable to perform
the duties required of him under this Agreement because of physical or mental
disability, this Agreement shall remain in full force and effect and the
Company shall pay all compensation required to be paid to the Executive
hereunder, unless the Executive is unable to perform the duties required of him
under
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<PAGE> 3
this Agreement for an aggregate of ninety (90) days (whether or not
consecutive) during any twelve (12) month period during the term of this
Agreement, in which event this Agreement (other than Sections 7, 8, 9 and 12
hereof), including, but not limited to, the Company's obligations to pay any
Salary or to provide any privileges under this Agreement, shall, upon written
notice by the Company to the Executive to such effect, terminate; provided,
however, that the foregoing shall not prejudice the Executive's rights to
continuing, existing insurance benefits for which he is otherwise eligible,
including disability benefits. In case of any dispute as to whether the
Executive is disabled within the meaning of this Section 6(b), the
determination of such disability for the period specified shall be certified by
a physician reasonably acceptable to both the Company and the Executive, which
physician's determination shall be final and binding on the parties hereto.
The Company shall be permitted to hire a replacement of the Executive, so long
as this Agreement shall remain in effect, to serve in the event and for so long
as the Executive shall be unable to perform the duties required of him
hereunder due to his disability for an aggregate of thirty (30) days during any
12-month period during the term of this Agreement.
(c) Cause. The Company may terminate this Agreement
(other than Sections 7, 8, 9 and 12 hereof) for "Cause." For purposes of this
Agreement, "Cause" shall mean: (i) the Executive's failure, neglect or refusal
to perform his duties hereunder which failure, neglect or refusal shall not
have been corrected by the Executive within thirty (30) days of receipt by the
Executive of written notice from the Company of such failure, neglect or
refusal, which notice shall set forth the nature of said failure, neglect or
refusal; (ii) any engagement by the Executive in misconduct that is materially
injurious to the reputation or business of the Company or its affiliates or
that materially impairs the ability of the Executive to perform his duties and
responsibilities hereunder; (iii) conviction of the Executive for the
commission of a felony; or (iv) the commission by the Executive of an act of
fraud or embezzlement against the Company. If the Executive's employment is
terminated for Cause, the Executive shall be entitled to receive the amounts
specified in Section 6(f) hereof. In the event of any termination pursuant to
this Section 6(c),the Company shall deliver to the Executive written notice
setting forth the basis for such termination, which notice shall set forth the
nature of the Cause, and the facts and circumstances in connection therewith,
which is the reason for such termination.
(d) Good Reason. The Executive may terminate this
Agreement for "Good Reason" following a Substantial Breach (as defined below)
if such Substantial Breach shall not have been corrected by the Company within
thirty (30) days of receipt by the Company of written notice from the Executive
of the occurrence of such Substantial Breach, which notice shall specifically
set forth the nature of the Substantial Breach which, if not corrected, will
entitle the Executive at any time after such thirty (30) day notice period and
by subsequent written notice to terminate this Agreement. In the event of
resignation by the Executive following a Substantial Breach, the Executive
shall be entitled to receive the amounts specified in Section 6(f) hereof. An
election by the Executive to terminate his employment under this paragraph
shall not be a breach of this Agreement. The term "Substantial Breach" means
any material breach by the Company of its obligations hereunder consisting of:
(i) the failure of the Company to pay the Executive the Salary or Bonus, if
any, in accordance with Section 3(a) and (b) hereof; (ii) the failure by the
Company to substantially maintain and continue the Executive's participation in
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<PAGE> 4
benefit plans as provided in Section 3(c) hereof; or (iii) any material
diminishment in the duties or responsibilities of the Executive described in
Section 1; provided, however, that the term "Substantial Breach" shall not
include a termination of the Executive's employment hereunder pursuant to
Section 6(b) or (c) hereof. The date of termination of the Executive's
employment under this Section 6(d) shall be the effective date of any
resignation specified in writing by the Executive, which shall not be less than
sixty (60) days after receipt by the Company of written notice of such
resignation, provided that any resignation by the Executive shall not be
effective pursuant to this Section 6(d) if such Substantial Breach shall have
been corrected by the Company during the thirty (30) day period following
notice by the Executive of the existence thereof or if corrected thereafter
prior to the date of resignation by the Executive.
(e) Without Cause. The Company, by action of its Board
of Directors, may terminate this Agreement (other than Sections 7, 8, 9 and 12
hereof) without Cause upon the giving to the Executive of thirty (30) days'
prior written notice of such termination. If the Executive's employment is
terminated by the Company without Cause, the Executive shall be entitled to
receive the amounts specified in Section 6(f) hereof.
(f) Payments. In the event that the Executive's
employment hereunder terminates for any reason, the Company shall promptly pay
to the Executive all amounts accrued but unpaid hereunder through the date of
termination in respect of the Salary and for reimbursement of any expenses
pursuant to Section 5 hereof, and, in the case of any termination by reason of
death or physical or mental disability of the Executive pursuant to Section
6(a) or 6(b) hereof, a pro rated portion of the Bonus, if any, which the
Executive would have been otherwise entitled to receive under Section 3(b) for
the calendar year in which such termination occurs, such pro rated portion
being the portion of such Bonus corresponding to the period commencing on
January 1 of such year and ending on the date of termination. In the event
that the Executive's employment has been terminated by the Company for Cause,
the Company shall have no obligations to the Executive for Salary, Bonus or
other benefits herein provided accruing on or after the date of termination
except as set forth in the preceding sentence or as may be otherwise provided
by law. In the event that the Executive's employment hereunder is terminated
by the Company without Cause or by the Executive with Good Reason, in addition
to the amounts specified in the first sentence of this Section 6(f), the
Executive shall continue to receive the Salary at the rate in effect hereunder
on the date of such termination periodically, in accordance with the Company's
prevailing payroll practices, until the last date of the Employment Term or
until the first anniversary of the termination date, if longer, plus (i) the
cost of the Executive's premiums for health care benefits under COBRA or the
cost of the Executive's premiums under any replacement health insurance
coverage obtained by the Executive containing substantially the same coverage
as provided to the Executive at such time, which premiums shall be payable as
and when the Salary would otherwise have been payable as provided in this
Agreement; and (ii) a pro rated portion of the Bonus, if any, which the
Executive would have otherwise been entitled to receive under Section 3(b) for
the calendar year in which the Executive is terminated pro rated in the same
manner as set forth in the first sentence of this Section 6(f). Without
intending to limit the generality of Section 7, in the event that the Executive
accepts other employment or engages in his own business prior to the last date
of the Employment Term, the Executive shall forthwith notify the Company and
the Company shall be
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<PAGE> 5
entitled to set off from amounts due the Executive under this Section 6(f) the
amounts paid to the Executive in respect of such other employment or business
activity. Upon any termination of this Agreement, all of the rights, privileges
and duties of the Executive hereunder shall cease except for any rights under
this Section 6(f) and any obligations under Sections 7, 8, 9 and 12 hereunder.
SECTION 7. Secrecy and Non-competition.
(a) No Competing Employment. The Executive acknowledges that
the agreements and covenants contained in this Section 7 are essential to
protect the value of the Company's business and assets and that by virtue of
his employment with the Company, the Executive will obtain Confidential
Information and there is a substantial probability that such Confidential
Information could be used to the substantial advantage of a competitor of the
Company or its subsidiaries and to the Company's or its subsidiaries'
substantial detriment. Therefore, the Executive agrees that except in
connection with his employment hereunder or as required by legal process, he
shall not disclose to any person or entity or use, during the Employment Term
or at any time thereafter, any information not in the public domain or
generally known in the industry, in any form acquired by the Executive while
employed by the Company or, if acquired following the Employment Term, such
information which, to the Executive's knowledge, has been acquired, directly,
or indirectly, from any person or entity owing a duty of confidentiality to the
Company or any of its subsidiaries or affiliates, relating to the Company, its
subsidiaries or affiliates, including but not limited to information regarding
customers, vendors, suppliers, trade secrets, training programs, manuals or
materials, technical information, contracts, systems, procedures, mailing
lists, know-how, trade names, improvements, price lists, financial or other
data (including the revenues, costs or profits associated with any of the
Company's products or services), business plans, code books, invoices and other
financial statements, computer programs, software systems, databases, discs and
printouts, plans (business, technical or otherwise), customer and industry
lists, correspondence, internal reports, personnel files, sales and advertising
material, telephone numbers, names, addresses or any other compilation of
information, written or unwritten, which is or was used in the business of the
Company or any of its subsidiaries or affiliates (collectively, "Confidential
Information"). The Executive agrees and acknowledges that all Confidential
Information, in any form, and copies and extracts thereof, are and shall remain
the sole and exclusive property of the Company and upon termination of his
employment with the Company, the Executive shall return to the Company the
originals and all copies of any Confidential Information provided to or
acquired by the Executive in connection with the performance of his duties for
the Company, and shall return to the Company all files, correspondence and/or
other communications received, maintained and/or originated by the Executive
during the course of his employment.
(b) No Interference. During the term of this Agreement and
for a period of two (2) years following the date of the termination of the
Executive's employment with the Company (the "Restricted Period"), the
Executive shall not, whether for his own account or for the account of any
other individual, partnership, firm, corporation or other business organization
(other than the Company), directly or indirectly, solicit, endeavor to entice
away from the Company, its affiliates or subsidiaries, or otherwise directly
interfere with the relationship of the Company, its affiliates or subsidiaries
with any person who, to the knowledge of the Executive,
-5-
<PAGE> 6
is employed by or otherwise engaged to perform services for the Company, its
affiliates or subsidiaries (including, but not limited to, any independent
distributor or sales representative or organization).
(c) Inventions. The Executive hereby sells, transfers and
assigns to the Company, or to any person or entity designated in writing by
the Company, all of the right, title and interest of the Executive in and to
all inventions, sales materials, software, training materials, disclosures and
improvements, whether patented or unpatented, and copyrightable material, made
or conceived by the Executive, solely or jointly, in whole or in part, during
his employment with the Company which are not generally known to the public or
the industry or recognized as standard practice and which (i) relate to
services, trade names, methods, ideas, apparatus, designs, products, processes
or devices which may be sold, leased, used or under construction or development
by the Company, or any franchise affiliated with the Company and (ii) arise
(wholly or partly) from the efforts of the Executive during and in the course
of his employment with the Company (an "Invention"). The Executive shall
communicate promptly and disclose to the Company, in such form as the Company
reasonably requests, all information, details and data pertaining to any such
Invention. With respect to all Inventions which are to be assigned pursuant to
this Section 7, the Executive will assist the Company in any reasonable manner
to obtain for the Company's benefit patents thereon, including, but not limited
to, executing patent applications, transfers or assignments thereof to the
Company and any and all other documents reasonably deemed necessary by the
Company. The Company shall pay all costs incident to the preparation,
execution and delivery of such patent applications, transfers, assignments and
other documents. Any Invention by the Executive within six (6) months
following the termination of his employment hereunder shall be presumed to fall
within the provisions of this Section 7(c) unless the Executive bears the
burden of proof of showing that the Invention was first conceived and made
following such termination.
SECTION 8. Injunctive Relief. Without intending to limit
the remedies available to the Company, the Executive acknowledges that a
breach of any of the covenants contained in Section 7 hereof may result in
material irreparable injury to the Company or it subsidiaries or affiliates for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of such a
breach or threat thereof, the Company shall be entitled to seek a temporary
restraining order and/or a preliminary or permanent injunction, restraining the
Executive from engaging in activities prohibited by Section 7 hereof or such
other relief as may be required specifically to enforce any of the covenants in
Section hereof.
SECTION 9. Extension of Restricted Period. In addition
to the remedies the Company may seek and obtain pursuant to Section 8
of this Agreement, the Restricted Period shall be extended by any and all
periods during which the Executive shall be found by a court to have been in
violation of the covenants contained in Section 7 hereof.
SECTION 10. Successors and Assigns; No Third-Party
Beneficiaries. This Agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their respective successors and assigns,
including, but not limited to, the Executive's heirs and
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<PAGE> 7
personal representatives of the Executive's estate; provided, however, that
neither party shall assign or delegate any of the obligations created under
this Agreement without the prior written consent of the other party.
Notwithstanding the foregoing, the Company shall have the unrestricted right to
assign this Agreement and to delegate all or any part of its obligations
hereunder to any of its subsidiaries, so long as such assignment does not
diminish the duties, function, responsibility or authority of the Executive or
result in any assignment of duties or responsibilities materially inconsistent
with those set forth in this Agreement (unless consented to by the Executive)
but in such event such assignee shall expressly assume all obligations of the
Company hereunder and the Company shall remain fully liable for the performance
of all such obligations in the manner prescribed in this Agreement. Nothing in
this Agreement shall confer upon any person or entity not a party to this
Agreement, or (unless otherwise expressly provided herein) the legal
representatives of such person or entity, any rights or remedies of any nature
or kind whatsoever under or by reason of Agreement.
SECTION 11. Waiver and Amendments. Any waiver, alteration,
amendment or modification of any of the terms of this Agreement shall be valid
only if made in writing and signed by the parties hereto. No waiver by either
of the parties hereto of their rights hereunder shall be deemed to constitute a
waiver with respect to any subsequent occurrences or transactions hereunder
unless such waiver specifically states that it is to be construed as a
continuing waiver.
SECTION 12. Severability and Governing Law. The Executive
acknowledges and agrees that the covenants set forth in Section 7 hereof are
reasonable and valid in all respects. Each party hereto acknowledges and
agrees that if any of such covenants or other provisions of this Agreement are
found to be invalid or unenforceable by a final determination of a court of
competent jurisdiction (a) the remaining terms and provisions hereof shall be
unimpaired and (b) the invalid and unenforceable term or provision shall be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW PROVISIONS THEREOF.
SECTION 13. Notices. All notices and other communications
given or made pursuant hereto shall be in writing and shall be deemed to have
been duly given or made if delivered personally or sent by registered or
certified mail (postage prepaid, return receipt requested), or sent by
facsimile transmission or overnight courier service, addressed in the case of
the Company, to Pioneer Companies, Inc., 4200 NationsBank Center, 700 Louisiana
Street, Houston, Texas 77002, Attention: President, fax: (713) 225-4426 with a
copy to Interlaken Capital, Inc., 165 Mason Street, Greenwich, Connecticut
06830, Attention: Chairman of the Board, fax: (203) 629-8554 and, in the case
of the Executive, to Michael J. Ferris, 1273 Branchwater Lane, Birmingham,
Alabama 35216 or, in each case, to such other address as may be designated to
the other party from time to time as provided above. All notices so given
shall be effective when received at the designated address.
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<PAGE> 8
SECTION 14. Captions and Section Headings. Captions and
section headings herein are solely for convenience of reference and shall
not affect the meaning or interpretation of this Agreement or of any term or
provision hereof.
SECTION 15. Entire Agreement. This Agreement constitutes the
entire understanding and agreement of the parties hereto regarding the
employment of the Executive. This Agreement supersedes all prior negotiations,
discussions, correspondence, communications, understandings and agreements
between the parties relating to the subject matter of this Agreement, all of
which are merged into this Agreement.
SECTION 16. Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original and all
of which together shall be considered one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
PIONEER COMPANIES, INC.
By: /s/ PHILIP J. ABLOVE
------------------------------------
Name: Philip J. Ablove
Title: Vice President
EXECUTIVE
/s/ MICHAEL J. FERRIS
--------------------------------------
-8-
<PAGE> 1
EXHIBIT 10.14
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of January 4, 1997 (the
"Agreement"), between Pioneer Companies, Inc., a Delaware corporation (the
"Company"), and Michael J. Ferris (the "Purchaser").
WHEREAS, pursuant to the Executive Employment Agreement (the
"Employment Agreement"), dated as of the date hereof, between the Company and
the Purchaser, the Company has agreed to employ the Purchaser, and the
Purchaser has agreed to be employed by the Company upon and subject to the
terms therein;
WHEREAS, the Company desires to sell 150,000 shares (the
"Shares") of the Class A common stock, par value $.01 per share of the Company
(the "Common Stock") to the Purchaser; and
WHEREAS, the Purchaser desires to purchase the Shares upon the
terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual terms, conditions
and other agreements set forth herein, the parties hereto hereby agree as
follows:
Section 1. Sale and Purchase of Securities. (a) Subject
to the terms and conditions set forth herein, on the Closing Date (as defined
herein), the Company shall sell to the Purchaser and the Purchaser shall
purchase from the Company the Shares for a cash payment per share equal to the
average of the closing sale prices of the Common Stock as reported on the
NASDAQ National Market System on the days during which the Common Stock was
traded during the thirty (30) consecutive trading days immediately preceding
the date hereof (the "Purchase Price").
(b) The sale and purchase of the Shares shall be effected by
the Company's execution and delivery to the Purchaser of a duly executed stock
certificate evidencing the Shares registered in his name, and by the delivery
by the Purchaser to the Company of the Purchaser's check in the amount of the
purchase price of the Shares.
(c) The closing of the transactions hereunder (the "Closing")
shall take place on such day on or prior to the forty-fifth day (or if not a
business day the next succeeding business day) after the date hereof as
specified in a notice from the Company to the Purchaser (the "Closing Date").
Section 2. Representations and Warranties of the Company.
The Company represents and warrants to the Purchaser as follows:
(a) Organization and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has
<PAGE> 2
all requisite power and authority to execute, deliver and perform this
Agreement and to issue, sell and deliver the Shares hereunder.
(b) Authorization, Enforceability. All corporate action
on the part of the Company necessary for the authorization, execution and
delivery of this Agreement and the issuance, sale and delivery of the Shares
hereunder has been taken. This Agreement has been duly authorized, executed
and delivered by the Company and constitutes the valid and legally binding
obligation of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity.
Section 3. Representations of the Purchaser. The Purchaser
hereby represents and warrants as follows:
(a) Validity of Agreement. This Agreement has been
duly executed by the Purchaser and constitutes the valid and binding obligation
of the Purchaser enforceable against the Purchaser in accordance with its
terms, except that such enforcement may be subject to applicable bankruptcy,
insolvency, moratorium or similar laws affecting the enforcement of creditors'
rights generally and general principles of equity.
(b) No Consents. The execution, delivery and
performance by the Purchaser of this Agreement does not require any consent or
approval of any person or entity.
(c) Investment Representations.
(i) The Purchaser is acquiring the Shares solely
for his own account as principal, for investment purposes only, and
not with a view to, or for, subdivision, resale, distribution or
fractionalization thereof, in whole or in part, or for the account, in
whole or in part, of others, and no other person or entity has a
direct or indirect beneficial interest in the Shares; further, the
Purchaser intends to hold the Shares as an investment and does not
presently anticipate any change in circumstances or other particular
occasion or event that would cause him to attempt to sell any of the
Shares;
(ii) the Purchaser understands that no federal or
state agency has made any finding or determination as to the fairness
of this investment and that the sale of the Shares is intended to be
exempt from registration both under the Securities Act of 1933, as
amended (the "Securities Act"), and any applicable state securities
law, and, in furtherance thereof, the Purchaser represents and
warrants to, and agrees with, the Company that he has the financial
ability to bear the economic risk of his investment, and has adequate
means for providing for his current needs and personal contingencies
and has no need for liquidity with respect to his investment in the
Shares;
(iii) the Purchaser has been given the opportunity
to ask questions of, and receive information and answers from, the
Company concerning matters pertaining to the Company and its business
and affairs and this investment, and all such questions have
-2-
<PAGE> 3
been answered, and all such information has been provided, to his
satisfaction and he has determined that the Shares are a suitable
investment for him and that at this time he could bear the complete
loss of his investment;
(iv) the Purchaser is not relying on the Company
in regard to the tax and other personal financial considerations
related to this investment, and the Purchaser has, to the extent he
deems it necessary, relied on the advice of, or has consulted with,
only his own advisors;
(v) the Purchaser will not sell or otherwise
transfer the Shares without registration under the Securities Act, and
applicable state securities laws or unless the Company has received an
appropriate opinion of counsel reasonably acceptable to it that
registration thereunder is not required, and fully understands and
agrees that he must bear the economic risk of his purchase for an
indefinite period of time because, among other reasons, the Shares
have not been registered under the Securities Act or under any
applicable state securities laws and, therefore, cannot be resold,
pledged, assigned or otherwise disposed of unless they are
subsequently registered under the Securities Act and any applicable
state securities laws or an exemption from such registration is
available. The Purchaser understands that the Company is under no
obligation to register the Shares on his behalf or to assist him in
complying with any exemption from registration under the Securities
Act or any state securities laws; and
(vi) the Purchaser is a resident of the state
specified for the Purchaser in Section 6 hereof.
Section 4. Legend. Any certificates evidencing the Shares
shall bear the following legend:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended (the
"Act"), and may not be transferred or sold except pursuant to an
effective registration statement under the Act or in a transaction
which, in the opinion of counsel reasonably satisfactory to Pioneer
Companies, Inc., qualifies as an exempt transaction under the Act and
the rules and regulations promulgated thereunder."
Section 5. Condition to Obligations of the Parties. The
obligations of the Company and the Purchaser to consummate the transactions
contemplated by this Agreement are subject to the continued effectiveness of
the transactions contemplated by the Employment Agreement as of the Closing
Date.
Section 6. Notices. All communications under this Agreement
shall be in writing and shall be delivered by hand, by facsimile or by
overnight courier or by registered or certified mail, postage prepaid: (i)
if to the Company, at 165 Mason Street, Greenwich, Connecticut
-3-
<PAGE> 4
06830, Attention: William L. Mahone, facsimile number 203-629-8554; and (ii)
if to the Purchaser at 1273 Branchwater Lane, Birmingham, Alabama 35216.
Section 7. Fees and Expenses. All costs, fees and expenses
incurred in connection with this Agreement ("Costs") shall be paid by the
party incurring such Costs.
Section 8. Entire Agreement. This Agreement represents the
entire agreement and understanding of the parties with reference to the
transactions set forth herein and no representations or warranties have been
made in connection with this Agreement other than those expressly set forth
herein. This Agreement supersedes all prior negotiations, discussions,
correspondence, communications, understandings and agreements between the
parties relating to the subject matter of this Agreement, all of which are
merged into this Agreement.
Section 9. Amendments. This Agreement may be amended,
modified or supplemented only by a written instrument executed by the parties
hereto.
Section 10. Counterparts. This Agreement may be
executed in two counterparts, each of which shall be deemed an original and all
of which together shall be considered one and the same agreement.
Section 11. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW PROVISIONS
THEREOF.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
PIONEER COMPANIES, INC.
By: /s/ PHILIP J. ABLOVE
------------------------------------
Name: Philip J. Ablove
Title: Vice President
/s/ MICHAEL J. FERRIS
-----------------------------------
Michael J. Ferris
-4-
<PAGE> 1
EXHIBIT 10.15
INCENTIVE
STOCK OPTION AGREEMENT
UNDER THE
PIONEER COMPANIES, INC.
1995 STOCK INCENTIVE PLAN
THIS AGREEMENT, made as of the 4th day of January, 1997, by
and between Pioneer Companies, Inc., a Delaware corporation (the "Company") and
Michael J. Ferris (the "Optionee").
W I T N E S S E T H :
WHEREAS, the Optionee is now employed by the Company or a
"parent" or "subsidiary" of the Company (such terms, as used herein, shall be
as defined in 424(e) and (f) of the Internal Revenue Code of 1986, as amended
(the "Code")), and the Company desires to have him remain in such employment
and to afford him the opportunity to acquire, or enlarge, his ownership of the
Company's Class A Common Stock, par value $.01 per share ("Stock"), so that he
may have a direct proprietary interest in the Company's success;
NOW, THEREFORE, in consideration of the covenants and
agreements herein contained, the parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions set
forth herein and in the Company's 1995 Stock Incentive Plan (the "Plan"), the
Company hereby grants to the Optionee, during the period commencing on the date
of this Agreement and ending on January 4, 2007 (the "Termination Date"), the
right and option (the right to purchase any one share of Stock hereunder being
an "Option") to purchase from the Company, at a price of $5.00 per share, an
aggregate of 133,750 shares of Stock. The Options granted hereunder shall be
"incentive stock options" within the meaning of Section 422 of the Code.
2. Limitations on Exercise of Option. (a) Subject to the
terms and conditions set forth herein, the Optionee may exercise 20,000 of the
Options on January 4, 1998, with none being exercisable prior to such date, an
additional 20,000 on January 4, 1999, an additional 20,000 on January 4, 2000,
an additional 20,000 on January 4, 2001, an additional 20,000 on January 4,
2002, an additional 20,000 on January 4, 2003, and an additional 13,750 on
January 4, 2004.
(b) Notwithstanding the limitations set forth in paragraph
2(a), 100% of the Options shall become immediately exercisable (i) in the event
of a change in control of the
<PAGE> 2
Company, or (ii) if Optionee's employment with the Company or a subsidiary
thereof, as the case may be, is terminated by the Company or a subsidiary
thereof, as the case may be, without Cause (as defined in paragraph 3 hereof).
For purposes of the preceding sentence, a "change of control" shall, unless the
Board of Directors of the Company (the "Board") otherwise directs by resolution
adopted prior thereto, be deemed to occur if (i) any "person" (as that term is
used in Sections 13 and 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act")) other than William R. Berkley or his "affiliates" (as that
term is defined in Rule 144 promulgated pursuant to the Securities Act of 1933
(the "Securities Act")) is or becomes the beneficial owner (as that term is
used in Section 13(d) of the Exchange Act), directly or indirectly, of 30% or
more of either the outstanding shares of Common Stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally, (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election or the nomination
for election by the Company's shareholders of each new director was approved by
a vote of at least three-quarters of the directors then still in office who
were directors at the beginning of the period, or (iii) the Company undergoes a
liquidation or dissolution or a sale of all or substantially all of the assets
of the Company. Any merger, consolidation or corporate reorganization in which
the owners of the combined voting power of the Company's then outstanding
securities entitled to vote generally prior to said combination, own 50% or
more of the resulting entity's outstanding securities entitled to vote
generally shall not, by itself, be considered a change in control.
3. Termination of Employment. (a) If the Optionee shall
cease to be employed by reason of Normal Termination, the Options shall remain
exercisable until the earlier of the Termination Date or the date that is three
months after the date of such Normal Termination to the extent the Options were
exercisable at the time of such Normal Termination. For purposes of this
Agreement, the term "Normal Termination" shall mean termination of Optionee's
employment with the Company or a subsidiary thereof, as the case may be, (i)
because of retirement pursuant to the qualified retirement plan of the Company
or a parent or subsidiary thereof, as the case may be; (ii) on account of
Disability; (iii) with the written approval of the committee administering the
Plan in accordance therewith (the "Committee"); or (iv) by the Company or a
parent or subsidiary thereof, as the case may be, without Cause. For purposes
of the preceding sentence, (I) "Disability" shall mean disability as defined in
the Company's or a subsidiary's or parent's, as the case may be, long term
disability plan then in effect, or, in the absence of such plan, the complete
and permanent inability by reason of illness or accident to perform the duties
of the occupation at which the Optionee was employed when such disability
commenced or, if the Optionee was retired when such disability commenced, the
inability to engage in any substantial gainful activity, as determined by the
Committee based upon medical evidence acceptable to it, and (II) "Cause" shall
mean the Company or a parent or subsidiary thereof, as the case may be, having
cause to terminate an Optionee's employment under any existing employment
agreement between the Optionee and the Company or such parent or subsidiary or,
in the absence of such an employment agreement, upon (A) the determination by
2
<PAGE> 3
the Committee that the Optionee has ceased to perform his duties to the Company
or a parent or subsidiary thereof, as the case may be (other than as a result
of his incapacity due to physical or mental illness or injury), which failure
amounts to an intentional and extended neglect of his duties to such party, (B)
the Committee's determination that the Optionee has engaged or is about to
engage in conduct materially injurious to the Company or a parent or subsidiary
thereof, or (C) the Optionee having been convicted of a felony.
(b) If the Optionee shall die on or prior to the Termination
Date or within three months of Normal Termination, the executor or
administrator of the estate of the Optionee or the person or persons to whom
the Options shall have been validly transferred by the executor or
administrator pursuant to will or the laws of descent and distribution shall
have the right, until the earlier of the Termination Date or the date that is
12 months after the date of the Optionee's death, to exercise the Options to
the extent that the Options were exercisable at the date of death, subject to
any other limitation contained herein on the exercise of the Options in effect
on the date of exercise.
(c) If the Optionee terminates employment for reasons other
than death or Normal Termination, the Options, to the extent not exercised
prior to such termination, shall lapse and be cancelled; provided, however,
that a transfer of employment directly from the Company or a parent or
subsidiary thereof directly to another of any such entities shall not be deemed
a termination of employment for purposes of this Agreement.
(d) Any provision of paragraphs 3(a), 3(b) or 3(c) hereof to
the contrary notwithstanding, the Options may not be exercised beyond the
Termination Date.
(e) Whether employment has been or could have been
terminated for the purposes of this Agreement, and the reasons therefor, shall
be determined by the Committee, whose determination shall be final, binding and
conclusive.
(f) After the expiration of any exercise period described in
either of paragraphs 3(a), 3(b) or 3(c) hereof, the Options shall terminate
together with all of the Optionee's rights hereunder, to the extent not
previously exercised.
4. Method of Exercising Option. The Optionee may exercise any
or all of the Options by delivering to the Committee a written notice signed by
the Optionee stating the number of Options that the Optionee has elected to
exercise at that time and full payment of the purchase price of the shares to
be thereby purchased from the Company. Payment of the purchase price of the
shares may be made (a) by certified or bank cashier's check payable to the
order of the Company, (b) by surrender or delivery to the Company of shares of
Stock having an aggregate fair market value equal to the exercise price, or (c)
in the discretion of the Committee, by surrender or delivery to the Company of,
(X) other property having a fair market value on the date of exercise equal to
the purchase price or (Y) a copy of irrevocable instructions to a
3
<PAGE> 4
stockbroker to deliver promptly to the Company an amount of sale or loan
proceeds sufficient to pay the purchase price.
5. Issuance of Shares. As promptly as practical after
receipt of such written notification and full payment of such purchase price,
the Company shall issue or transfer to the Optionee the number of shares with
respect to which Options have been so exercised, and shall deliver to the
Optionee a certificate or certificates therefor, registered in the Optionee's
name.
6. Optionee. Whenever the word "Optionee" is used in any
provision of this Agreement under circumstances where the provision should
logically be construed to apply to the executors, the administrators, or the
person or persons to whom the Options may be transferred by will or by the laws
of descent and distribution, the word "Optionee" shall be deemed to include
such person or persons.
7. Non-Transferability. The Options are not transferable by
the Optionee otherwise than by will or the laws of descent and distribution and
are exercisable during the Optionee's lifetime only by him. No assignment or
transfer of the Options, or of the rights represented thereby, whether
voluntary or involuntary, by operation of law or otherwise (except by will or
the laws of descent and distribution), shall vest in the assignee or transferee
any interest or right herein whatsoever, but immediately upon such assignment
or transfer the Options shall terminate and become of no further effect.
8. Rights as Stockholder. The Optionee or a transferee of
the Options shall have no rights as a stockholder with respect to any share
covered by the Options until he shall have become the holder of record of such
share, and no adjustment shall be made for dividends or distributions or other
rights in respect of such share for which the record date is prior to the date
upon which he shall become the holder of record thereof.
9. Recapitalizations, Reorganizations, etc. (a) The existence
of the Options shall not affect in any way the right or power of the Company or
its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or
any issue of stock or of options, warrants or rights to purchase stock or of
bonds, debentures, preferred or prior preference stocks ahead of or affecting
the Stock or the rights thereof or convertible into or exchangeable for Stock,
or the dissolution or liquidation of the Company, or any sale or transfer of
all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
(b) The shares with respect to which the Options are granted
are shares of Stock of the Company as presently constituted, but if, and
whenever, prior to the delivery by the Company of all of the shares of the
Stock with respect to which the Options are granted, the Company shall effect a
subdivision or consolidation of shares of the Stock outstanding, without
4
<PAGE> 5
receiving compensation therefor in money, services or property, the number and
price of shares remaining under the Options shall be appropriately adjusted.
Such adjustment shall be made by the Committee, whose determination as to what
adjustment shall be made, and the extent thereof, shall be final, binding and
conclusive. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to the Options.
(c) In the event of any change in the outstanding shares of
Stock by reason of any recapitalization, merger, consolidation, spin-off,
combination or exchange of shares or other corporate change, or any
distributions to common shareholders other than cash dividends, the Committee
shall make such substitution or adjustment, if any, as it deems to be
equitable, as to the number or kind or shares of Stock or other securities
covered by the Options and the option price thereof.
(d) Except as expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into or exchangeable
for shares of stock of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of options, rights or
warrants to subscribe therefor, or to purchase the same, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Stock subject to the Options.
10. Compliance with Law. (a) Notwithstanding any of the
provisions hereof, the Optionee hereby agrees that he will not exercise the
Options, and that the Company will not be obligated to issue or transfer any
shares to the Optionee hereunder, if the exercise hereof or the issuance or
transfer of such shares shall constitute a violation by the Optionee or the
Company of any provisions of any law or regulation of any governmental
authority. Any determination in this connection by the Committee shall be
final, binding and conclusive. The Company shall in no event be obliged to
register any securities pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended) or to take any other affirmative action in
order to cause the exercise of the Options or the issuance or transfer of
shares pursuant thereto to comply with any law or regulation of any
governmental authority.
(b) Upon demand by the Committee, the Optionee shall deliver
to the Committee at the time of any exercise of an Option hereunder a written
representation that the shares to be acquired upon such exercise are to be
acquired for investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such representation prior to the
delivery of any shares issued upon exercise of an Option shall be a condition
precedent to the right of the Optionee or such other person to purchase any
shares. In the event certificates for Stock are delivered under this Agreement
with respect to which such investment representation has been obtained, the
Committee may cause a legend or legends to be placed on such certificates to
make appropriate reference to such representation and to restrict transfer in
the absence of compliance with applicable federal or state securities laws.
5
<PAGE> 6
11. Notice. Every notice or other communication relating to
this Agreement shall be in writing, and shall be mailed to or delivered to the
party for whom it is intended at such address as may from time to time be
designated by it in a notice mailed or delivered to the other party as herein
provided; provided that, unless and until some other address be so designated,
all notices or communications by the Optionee to the Company shall be mailed or
delivered to the Company at its principal executive office, and all notices or
communications by the Company to the Optionee may be given to the Optionee
personally or may be mailed to him at the Optionee's last known address as
reflected in the Company's records.
12. Disposition of Stock. The Optionee agrees to notify the
Company in writing, within 30 days of any disposition (whether by sale,
exchange, gift or otherwise) of shares of Stock purchased under this Option,
within two years from the date of the granting of the Option or within one year
of the transfer of such shares of Stock to the Optionee.
13. Binding Effect. Subject to Section 7 hereof, this
Agreement shall be binding upon the heirs, executors, administrators and
successors of the parties hereto.
14. Governing Law. This Agreement shall be construed and
interpreted in accordance with the laws of the State of Texas without reference
to the principles of conflicts of law thereof.
15. Plan. The terms and provisions of the Plan are
incorporated herein by reference. In the event of a conflict or inconsistency
between discretionary terms and provisions of the Plan and the express
provisions of this Agreement, this Agreement shall govern and control. In all
other instances of conflicts or inconsistencies or omissions, the terms and
provisions of the Plan shall govern and control.
16. Restrictions in Certificate of Incorporation. The
Options and any shares acquired upon exercise thereof may be subject to certain
restrictions on transfer contained in the Certificate of Incorporation of the
Company, a copy of which may be obtained by the Optionee upon written request
to the Secretary of the Company.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PIONEER COMPANIES, INC.
By: /s/ PHILIP J. ABLOVE
-------------------------------------
Philip J. Ablove
Vice President
/s/ MICHAEL J. FERRIS
--------------------------------------
Michael J. Ferris, Optionee
7
<PAGE> 1
Exhibit 21
PIONEER COMPANIES, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Company Jurisdiction
- --------------- ------------
<S> <C>
Pioneer Companies, Inc. Delaware
Pioneer Americas Acquisition Corp. Delaware
Pioneer Americas, Inc. Delaware
All-Pure Chemical Co. California
All-Pure Chemical Northwest, Inc. Washington
T.C. Holdings, Inc. New Mexico
T.C. Products, Inc. Washington
Imperial West Chemical Co. Nevada
Pioneer Chlor Alkali Company, Inc. Delaware
Black Mountain Power Company Texas
G.O.W. Corporation Nevada
Pioneer Chlor Alkali International, Inc. Barbados
Pioneer (East), Inc. Delaware
Pioneer Water Technologies, Inc. Delaware
KWT Holdings, Inc. Delaware
Kemwater North America Company1 Delaware
KWT, Inc. Delaware
Dairy Holdings, Inc. Delaware
Old Atlanta, Inc. Delaware
Old Jacksonville, Inc. Delaware
Old Johnson City, Inc. Delaware
Good Foods Acquisition Corp. Delaware
SEFCO Holdings, Inc. Florida
</TABLE>
1 Fifty percent of the common stock is owned by Kemwater North America Company,
and 50% of the common stock is owned by Imperial West Chemical Co.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,754
<SECURITIES> 0
<RECEIVABLES> 26,364
<ALLOWANCES> 1,311
<INVENTORY> 11,026
<CURRENT-ASSETS> 53,640
<PP&E> 123,758
<DEPRECIATION> (17,479)
<TOTAL-ASSETS> 301,568
<CURRENT-LIABILITIES> 45,328
<BONDS> 161,103
<COMMON> 86
0
0
<OTHER-SE> 59,815
<TOTAL-LIABILITY-AND-EQUITY> 301,568
<SALES> 208,908
<TOTAL-REVENUES> 208,908
<CGS> 150,464
<TOTAL-COSTS> 150,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,212
<INCOME-PRETAX> 10,259
<INCOME-TAX> 5,859
<INCOME-CONTINUING> 4,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,400
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
