<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1997
REGISTRATION NO. 333-30683
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PIONEER AMERICAS ACQUISITION CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C> <C>
DELAWARE 2812 06-1420850
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
PIONEER AMERICAS, INC. DELAWARE 76-0280373
PIONEER CHLOR ALKALI COMPANY, INC. DELAWARE 51-0302028
IMPERIAL WEST CHEMICAL CO. NEVADA 95-2375683
ALL-PURE CHEMICAL CO. CALIFORNIA 94-2314942
BLACK MOUNTAIN POWER COMPANY TEXAS 76-0291143
ALL-PURE CHEMICAL NORTHWEST, INC. WASHINGTON 94-2714064
PIONEER CHLOR ALKALI INTERNATIONAL, BARBADOS 98-0118164
INC. NEVADA 88-0336831
G.O.W. CORPORATION DELAWARE 51-0375981
PIONEER (EAST), INC. NEW MEXICO 86-0311265
T.C. HOLDINGS, INC. WASHINGTON 91-1536884
T.C. PRODUCTS, INC. (State or other jurisdiction of (I.R.S. Employer
(Exact name of registrants as incorporation or organization) Identification No.)
specified in their charters)
</TABLE>
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4300 NATIONSBANK CENTER, 700 LOUISIANA STREET, HOUSTON, TEXAS 77002,
(713) 225-3831
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
---------------
KENT R. STEPHENSON, ESQ.
PIONEER AMERICAS ACQUISITION CORP.
4300 NATIONSBANK CENTER
700 LOUISIANA STREET
HOUSTON, TEXAS 77002
(713) 225-3831
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
with a copy to:
CORNELIUS T. FINNEGAN III, ESQ.
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
(212) 821-8000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE
SECURITIES TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1997
PIONEER AMERICAS ACQUISITION CORP.
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 9 1/4% SERIES B SENIOR SECURED
NOTES DUE 2007
FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 9 1/4% SERIES A SENIOR
SECURED NOTES DUE 2007
---------------------
Pioneer Americas Acquisition Corp., a Delaware company ("PAAC" or the
"Company"), hereby offers to exchange (the "Exchange Offer") up to $200,000,000
in aggregate principal amount of its 9 1/4% Series B Senior Secured Notes Due
2007 (the "Exchange Notes") for up to $200,000,000 in aggregate principal amount
of its outstanding 9 1/4% Series A Senior Secured Notes Due 2007 issued in
reliance upon an exemption from registration under the Securities Act of 1933,
as amended (the "Original Notes" and, together with the Exchange Notes, the
"Notes").
The terms of the Exchange Notes will be substantially identical in all
respects (including principal amount, interest rate, maturity and ranking) to
the terms of the Original Notes for which they may be exchanged pursuant to the
Exchange Offer, except that (i) the Exchange Notes will be freely transferable
by holders thereof (except as provided below) and (ii) the Exchange Notes will
be issued without any covenant of the Issuers (as defined) regarding
registration. The Exchange Notes will be issued under the indenture governing
the Original Notes. The Exchange Notes will be, and the Original Notes are,
senior obligations of the Company and will be and are fully and unconditionally
guaranteed on a senior basis by all of the subsidiaries of the Company (other
than inconsequential subsidiaries) (the "Subsidiary Guarantors", and together
with the Company, the "Issuers"). In addition, the guarantee of Pioneer Chlor
Alkali Company, Inc. ("PCAC") with respect to the Exchange Notes will be, and
with respect to the Original Notes is, secured by (i) a first mortgage lien on
the chlor-alkali production facility acquired in the Tacoma Acquisition (as
defined), (ii) a first priority security interest in certain agreements related
to the Tacoma Acquisition and (iii) first mortgage liens on PCAC's chlor-alkali
production facilities located in Henderson, Nevada and St. Gabriel, Louisiana,
and the guarantee of Pioneer Americas, Inc. ("PAI") with respect to the Exchange
Notes will be, and with respect to the Original Notes is, secured by a pledge of
the Capital Stock of PCAC and All-Pure Chemical Co. ("All-Pure") held by PAI.
The Exchange Notes will rank pari passu with all other existing and future
Senior Indebtedness (as defined) and senior to all subordinated Indebtedness of
the Company. As of June 30, 1997, the Company and its subsidiaries had
approximately $300.0 million of outstanding Senior Indebtedness. For a complete
description of the terms of the Exchange Notes, including provisions relating to
the ability of the Issuers to create indebtedness that is senior or pari passu
to the Exchange Notes, see "Description of the Notes." There will be no cash
proceeds to the Issuers from the Exchange Offer.
The Notes will bear interest from and including their respective dates of
issuance. Holders whose Original Notes are accepted for exchange will receive
accrued interest thereon to, but not including, the date of issuance of the
Exchange Notes, such interest to be payable with the first interest payment on
the Exchange Notes, but will not receive any payment in respect of interest on
the Original Notes accrued after the issuance of the Exchange Notes.
The Original Notes were originally issued and sold on June 17, 1997 in a
transaction not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption provided in Section 4(2) of
the Securities Act and Rule 144A of the Securities Act (the "Initial Offering").
Accordingly, the Original Notes may not be reoffered, resold or otherwise
pledged, hypothecated or transferred in the United States unless so registered
or unless an applicable exemption from the registration requirements of the
Securities Act is available. Based upon interpretations by the Staff (the
"Staff") of the Securities and Exchange Commission (the "Commission") issued to
third parties, the Issuers believe that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired Original Notes directly from
the Issuers or (iii) a broker-dealer who acquired Original Notes as a result of
market making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes. Each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. Broker-dealers who
acquired Original Notes as a result of market making or other trading activities
may use this Prospectus, as supplemented or amended, in connection with resales
of the Exchange Notes. The Issuers have agreed that, for a period not to exceed
180 days after the Exchange Date (as defined), they will make this Prospectus
available to any broker-dealer for use in connection with any such resale. Any
holder that cannot rely upon such interpretations must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
The Original Notes and the Exchange Notes constitute new issues of
securities with no established trading market. Any Original Notes not tendered
and accepted in the Exchange Offer will remain outstanding. To the extent that
Original Notes are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered, and tendered but unaccepted, Original Notes could be
adversely affected. Following consummation of the Exchange Offer, the holders of
Original Notes will continue to be subject to the existing restrictions on
transfer thereof and the Issuers will have no further obligation to such holders
to provide for the registration under the Securities Act of the Original Notes
except under certain limited circumstances. (See "Original Notes Registration
Rights.") No assurance can be given as to the liquidity of the trading market
for either the Original Notes or the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m., New York City time, on October , 1997, unless extended
(the "Expiration Date"). The date of acceptance for exchange of the Original
Notes (the "Exchange Date") will be the first business day following the
Expiration Date, upon surrender of the Original Notes. Original Notes tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date; otherwise such tenders are irrevocable.
---------------------
SEE "RISK FACTORS" ON PAGE 14 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is September , 1997
<PAGE> 3
AVAILABLE INFORMATION
The Company and the Subsidiary Guarantors have filed with the Commission a
Registration Statement on Form S-4 (the "Registration Statement," which term
shall include all amendments, exhibits, annexes and schedules thereto) pursuant
to the Securities Act, and the rules and regulations promulgated thereunder,
covering the Exchange Notes being offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to in the Registration Statement
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports and other information required
by the Commission. Periodic reports and other information filed by the Company
with the Commission may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at its regional offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding companies that file electronically with the Commission.
The address of such site is http://www.sec.gov. Copies of such material can also
be obtained from the Company upon request. Any such request should be directed
to the Secretary of the Company at 4300 NationsBank Center, 700 Louisiana
Street, Houston, Texas 77002, telephone number (713) 225-3831.
The Company's obligation to file periodic reports with the Commission
pursuant to the Exchange Act may be suspended if the Notes are held of record by
fewer than 300 holders at the beginning of any fiscal year of the Company, other
than the fiscal year in which the Exchange Offer Registration Statement (as
defined) or any Shelf Registration Statement (as defined) becomes effective. The
Company has agreed that, whether or not it is required to do so by the rules and
regulations of the Commission, for so long as any of the Notes remain
outstanding, it will furnish to the holders of the Notes and submit to the
Commission (unless the Commission will not accept such materials) (i) all
quarterly and annual financial information that would be required to be
contained in filings with the Commission on Forms 10-Q and 10-K if the Company
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants, and (ii) all reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, for so long as any of the Notes remain outstanding, the
Company has agreed to make available upon request to any prospective purchaser
of, or beneficial owner of Notes in connection with any offer or sale thereof,
the information required by Rule 144A(d)(4) under the Securities Act.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SUBSIDIARY GUARANTORS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE
NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF.
ii
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................... ii
PROSPECTUS SUMMARY......................... 1
RISK FACTORS............................... 14
Consequences of Failure to Exchange...... 14
Financial Leverage....................... 14
Industry Cyclicality..................... 14
Environmental Regulation................. 15
Operating Hazards and Uninsured Risks.... 19
Limitations on Security Interest......... 19
No Assurance of Realizable Value from
Collateral............................. 20
Potential Environmental Liability of
Secured Lenders........................ 20
Competition.............................. 20
Dependence on Key Customers and Key
Suppliers.............................. 20
Ranking of the Notes..................... 21
Tax Matters.............................. 21
Change of Control........................ 22
Control by Certain Stockholders.......... 22
Forward-Looking Statements............... 22
Lack of Public Market.................... 23
USE OF PROCEEDS............................ 24
THE EXCHANGE OFFER......................... 25
Purpose of the Exchange Offer............ 25
Terms of the Exchange.................... 25
Expiration Date; Extensions; Termination;
Amendments............................. 26
How to Tender............................ 27
Terms and Conditions of the Letter of
Transmittal............................ 28
Withdrawal Rights........................ 29
Acceptance of Original Notes for
Exchange; Delivery of Exchange Notes... 29
Conditions to the Exchange Offer......... 29
Exchange Agent........................... 30
Solicitation of Tenders; Expenses........ 30
Appraisal Rights......................... 31
Federal Income Tax Consequences.......... 31
Other.................................... 31
THE ACQUISITION............................ 32
The Tacoma Acquisition................... 32
Use of Proceeds from Initial Offering.... 33
THE COMPANY AND PIONEER.................... 34
The Company.............................. 34
Pioneer.................................. 34
CAPITALIZATION............................. 36
PRO FORMA FINANCIAL
INFORMATION.............................. 37
SELECTED HISTORICAL FINANCIAL DATA......... 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................... 47
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
BUSINESS................................... 54
General.................................. 54
Industry Overview........................ 54
Strategy................................. 57
Operating Units.......................... 58
Facilities............................... 64
Saguaro Power............................ 67
Basic Investments........................ 67
Competition.............................. 67
Employees................................ 68
Environmental and Safety Regulation...... 68
Insurance................................ 75
Legal Proceedings........................ 76
MANAGEMENT................................. 77
Directors and Executive Officers of
PAAC................................... 77
Executive Compensation................... 79
Pension Plan............................. 81
Employment Agreements and Severance and
Change-in-Control Arrangements......... 82
Compensation of Directors................ 83
Compensation Committee Interlocks and
Insider Participation.................. 83
CERTAIN TRANSACTIONS....................... 84
STOCK OWNERSHIP............................ 86
DESCRIPTION OF OTHER INDEBTEDNESS.......... 87
New Credit Facilities.................... 87
Other.................................... 88
DESCRIPTION OF THE NOTES................... 89
General.................................. 89
Payment Terms............................ 89
Ranking.................................. 89
Guarantees............................... 90
Security................................. 91
Intercreditor Agreements................. 92
Certain Bankruptcy Limitations........... 92
Optional Redemption...................... 93
Change of Control........................ 94
Certain Covenants........................ 96
Release of Note Collateral............... 106
Certain Definitions...................... 107
Defaults and Remedies.................... 117
Transfer and Exchange.................... 118
Amendment, Supplement and Waiver......... 118
Legal Defeasance and Covenant
Defeasance............................. 119
The Trustee.............................. 120
Book-entry; Delivery and Form............ 120
ORIGINAL NOTES REGISTRATION RIGHTS......... 122
PLAN OF DISTRIBUTION....................... 124
LEGAL MATTERS.............................. 125
EXPERTS.................................... 125
CHANGE IN INDEPENDENT ACCOUNTANTS.......... 125
INDEX TO FINANCIAL STATEMENTS.............. F-1
</TABLE>
iii
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context otherwise requires, (i) the term PAAC refers to Pioneer Americas
Acquisition Corp., (ii) the terms PAI and Predecessor Company refer to Pioneer
Americas, Inc. and its subsidiaries, (iii) the term Company means PAAC and its
subsidiaries and (iv) the term Pioneer refers to Pioneer Companies, Inc., the
parent company of PAAC. "Pro forma net sales" for Pioneer Chlor Alkali Company,
Inc. gives effect to the acquisition of a chlor-alkali production facility and
related business located in Tacoma, Washington consummated on June 17, 1997 (the
"Tacoma Acquisition"). "Pro forma net sales" for All-Pure Chemical Co. gives
effect to the acquisition of T.C. Products, Inc. ("T.C. Products"), a regional
producer of bleach and related products that was acquired in July 1996. "Pro
forma net sales" and "pro forma EBITDA" for the Company and its subsidiaries
gives effect to these acquisitions. See "The Company and Pioneer".
THE COMPANY
The Company manufactures and markets chlorine and caustic soda and several
related downstream water treatment products. The Company conducts its business
primarily through its subsidiaries: Pioneer Chlor Alkali Company, Inc. ("PCAC"),
with pro forma net sales of $199.1 million for the twelve months ended June 30,
1997, and All-Pure Chemical Co. ("All-Pure"), with pro forma net sales of $54.1
million for such period. The Company also owns a 50% unconsolidated joint
venture interest in Kemwater North America Company ("Kemwater"). For the twelve
months ended June 30, 1997, the Company's pro forma net sales and pro forma
EBITDA (as defined) were $253.2 million and $74.1 million, respectively.
Chlorine and caustic soda are the seventh and sixth most commonly produced
chemicals, respectively, in the United States, based on volume, and are used in
a wide variety of applications and chemical processes. Chlorine and caustic soda
are co-products, concurrently produced in a ratio of 1 to 1.1, respectively,
through the electrolysis of salt water. A chlor-alkali electrochemical unit
("ECU") consists of 1 ton of chlorine and 1.1 tons of caustic soda. During the
twelve months ended June 30, 1997, after giving pro forma effect to the Tacoma
Acquisition, the Company produced approximately 564,500 tons of chlorine and
629,900 tons of caustic soda.
Chlorine is used in the manufacture of over 15,000 products, comprising
approximately 60% of all commercial chemistry, 85% of all pharmaceutical
chemistry and 95% of all crop protection chemistry. Products manufactured with
chlorine as a raw material include water treatment chemicals, plastics,
detergents, pharmaceuticals, disinfectants and agricultural chemicals. Chlorine
is also used directly in water disinfection applications. In the United States
and Canada, virtually all public drinking water is made safe to drink by
chlorination, and a significant portion of industrial and municipal waste water
is treated with chlorine or chlorine derivatives to kill water-borne pathogens
and remove solids.
Caustic soda is a versatile chemical alkali used in a diverse range of
manufacturing processes, including metal smelting, petroleum production and
refining, pulp and paper production and paint manufacturing. Caustic soda is
combined with chlorine and water to produce bleach and is used as an active
ingredient in a wide variety of other end use products, including detergents,
rayon and cellophane.
The Company has expanded its presence in the western United States by
acquiring the Tacoma, Washington-based chlor-alkali business of OCC Tacoma, Inc.
("OCC Tacoma"), a subsidiary of Occidental Chemical Corporation ("OxyChem").
Following the Tacoma Acquisition, the Company owns and operates three
chlor-alkali production facilities, located in St. Gabriel, Louisiana;
Henderson, Nevada; and Tacoma, Washington, with aggregate production capacity of
574,000 ECUs. These facilities produce chlorine and caustic soda for sale in the
merchant markets and for use as raw materials in the ten downstream production
facilities of All-Pure and Kemwater located in California, Washington and
Georgia. The downstream operations use chlorine and caustic soda in the
production of bleach, iron chlorides, polyaluminum chlorides and other water
treatment chemicals. After giving effect to the Tacoma Acquisition and the
acquisition of T.C. Products, the Company used approximately 13% of its chlorine
production capacity and approximately
1
<PAGE> 6
6% of its caustic soda production capacity to supply substantially all of the
chlorine and caustic soda requirements of its downstream businesses in 1996.
Primary markets for the Company's products include water treatment for
industrial, municipal and consumer applications, polyvinyl chloride ("PVC") and
other plastics, detergents and agricultural chemicals. The Company believes that
the chlorine and caustic soda currently produced at its Henderson and Tacoma
facilities provide a significant source of supply for the West Coast region,
where the Company is also the largest supplier of chlorine and bleach for water
treatment purposes and where Kemwater is the largest producer of iron chlorides.
The Company believes the St. Gabriel and Tacoma facilities are leading suppliers
of premium, low-salt grade caustic soda in their respective regions. The Company
believes the Tacoma Acquisition will allow the Company to more efficiently
supply its downstream operations in the western and northwestern United States.
THE TACOMA ACQUISITION
On June 17, 1997, Pioneer, the Company and OCC Tacoma, a subsidiary of
OxyChem, consummated the Tacoma Acquisition. Pursuant to the Asset Purchase
Agreement (the "Purchase Agreement"), dated as of May 14, 1997, the Company
acquired substantially all of the assets and properties used by OCC Tacoma in
the chlor-alkali business at Tacoma, Washington, including the Tacoma
chlor-alkali production facility (the "Tacoma Facility"). The purchase price
consisted of (i) $97.0 million, payable in cash, (ii) 55,000 shares of
Convertible Redeemable Preferred Stock, par value $.01 per share, of Pioneer
(the "Pioneer Preferred Stock"), having a liquidation preference of $100 per
share, and (iii) the assumption of certain obligations related to the acquired
chlor-alkali business. The amount of cash to be paid is subject to adjustment
under the terms of the Purchase Agreement.
The Company believes that the Tacoma Acquisition presented an attractive
opportunity to acquire a well-maintained chlor-alkali production facility, which
includes sophisticated membrane cell technology, in a location contiguous to the
Company's existing customer base. By acquiring a low-cost facility in the
Pacific Northwest, the Company is well-positioned to direct output to outlying
market areas while more efficiently supplying the All-Pure and Kemwater
downstream operations, principally in the western and northwestern United
States. The Tacoma Facility provides the Company with an opportunity to further
expand into chlor-alkali markets in the Pacific Northwest based on the Company's
operating efficiencies and disciplined market penetration.
The Tacoma Facility is located in an industrial complex on the Hylebos
waterway. It serves customers in the Pacific Northwest and California and to a
lesser extent, foreign caustic soda customers. Annual capacity is approximately
225,000 tons of chlorine, 247,500 tons of caustic soda, 44,000 tons of
hydrochloric acid and 8,800 tons of calcium chloride. The site has docks capable
of handling ocean-going vessels up to 30,000 DWT size, and is served by a rail
fleet of 492 leased tankcars included as a part of the Tacoma Acquisition. The
Company believes that the plant would have generated pro forma net sales of
$77.0 million and pro forma EBITDA of $31.4 million for the twelve months ended
June 30, 1997, if the Tacoma Acquisition had occurred at the beginning of such
period.
Pursuant to the terms of the Purchase Agreement, the Company, OxyChem and
OCC Tacoma entered into certain related agreements in connection with the Tacoma
Acquisition. Pursuant to a Chlorine Purchase Agreement, OCC Tacoma will purchase
100,000 tons of chlorine from the Company during the year following the Tacoma
Acquisition, which would have represented approximately 7% of the Company's pro
forma net sales for the twelve months ended June 30, 1997. In addition, the
Company has the right to require OCC Tacoma to purchase, and OCC Tacoma has the
right to require the Company to sell, certain decreasing amounts of chlorine
during the second through fifth years following the Tacoma Acquisition. Pursuant
to a Chlorine and Caustic Soda Sales Agreement, the Company will sell to OxyChem
those quantities of chlorine and caustic soda necessary for OxyChem to satisfy
its obligations under contracts with certain of OxyChem's national account
customers.
2
<PAGE> 7
BUSINESS STRATEGY
The Company's management team is pursuing a business strategy designed to
capitalize on its competitive strengths in terms of its marketing expertise,
production and distribution capabilities and geographic focus. The Company seeks
to manage effectively the intrinsic cyclicality of the chlor-alkali industry
while continuing to grow and improve profitability by pursuing a strategy which
includes the following principal elements:
- Focusing on the Merchant Chlor-Alkali Market. The Company is dedicated to
serving the merchant chlor-alkali market, acting as a reliable source of
supply of chlorine and caustic soda. The Company is committed to being
flexible and responsive in periods of volatile chlor-alkali demand,
making it the preferred supplier for many of its customers. Unlike its
major competitors, the Company does not compete with its PVC customers
and, as a result, is viewed as a preferred, non-competing source of raw
materials.
- Optimizing Plant Efficiencies through High Capacity Utilization. The
Company seeks to maximize profitability by achieving a constant flow of
product through its plants. The Company strives to maintain a steady
demand for its output through (i) programs aimed primarily at growing
markets such as PVC and water treatment; (ii) renewable contracts with
major customers and the Chlorine Purchase Agreement with OCC Tacoma;
(iii) direct linkage with major customers via pipelines, including a
proposed seven-mile liquid chlorine pipeline from the St. Gabriel
facility (the "Pipeline Project") expected to be completed in 1998; and
(iv) captive demand for chlorine and caustic soda through its downstream
water treatment operations. As a result of these actions, the Company's
Henderson and St. Gabriel chlor-alkali plants have operated at 101%, 100%
and 100% capacity utilization during 1994, 1995 and 1996, respectively,
up from 93% in 1990.
- Improving Cost Efficiency. The Company continually seeks to improve its
cost competitiveness through a combination of productivity enhancements,
strict operating cost controls, capital improvements and maintenance of
high capacity utilization rates. Despite inflation, the Company's cash
production costs per ECU decreased by 5% from 1990 through 1996, while
ECU production per employee increased by 20%. In addition, the Company
seeks to reduce distribution costs and improve plant operating efficiency
through the efficient use of its strategic locations with deep water port
facilities, direct pipeline connections to customers and opportunistic
product exchanges with chlor-alkali producers in other regions.
- Focusing on Geographic Diversity and Market Penetration. The Company's
products are manufactured and marketed in a number of markets, providing
a wide base for future growth and distribution to help mitigate the
effects of regional and economic fluctuations. Following the Tacoma
Acquisition, the Company has major chlor-alkali facilities in three
states (Louisiana, Nevada and Washington) and downstream water treatment
chemical processing plants serving several distinct areas of the country.
The Company is well-positioned to direct its chlor-alkali output to
additional areas while more efficiently supplying the growth in its own
downstream operations in the western, northwestern and southeastern
United States. Through focused expansion, the Company has been able to
penetrate new and outlying market areas while maintaining its strong
presence in the Gulf Coast region and areas west of the Rocky Mountains.
- Expanding Water Treatment Operations. The Company has developed water
treatment operations whose steady requirements for chlorine and caustic
soda help maintain high operating rates at the Company's chlor-alkali
facilities which, in turn, decreases unit production costs. In addition
to serving as a source of demand, these growing businesses service
diverse product markets and regions and can tend to offset industry
cyclicality in the chlorine and caustic soda markets by providing a more
stable downstream source of revenue.
- Growing through Product Line Extensions and Strategic Acquisitions.
Management believes that there are significant opportunities to continue
the Company's growth both internally and through strategic acquisitions.
The Company focuses its product development efforts on areas identified
by its customers
3
<PAGE> 8
as being of major commercial importance. For example, in the area of water
treatment, the Company has developed or acquired rights to a number of
innovative coagulant products which represent cost effective, advanced waste
water treatment solutions. In addition, the Company is constantly
reviewing acquisitions in related markets and since 1990 has consummated
five downstream acquisitions, which provide attractive product offerings
and geographic coverage.
RECENT INDUSTRY TRENDS
The chlorine and caustic soda markets are cyclical markets that are
sensitive to relative changes in supply and demand, which are in turn affected
by general economic conditions, capacity additions and other factors. Over the
last five years, the market for PVC, the largest use of chlorine in the United
States, has experienced steady growth, resulting in strong demand for chlorine.
However, the use of chlorine as a bleaching agent in the pulp and paper industry
and as feedstock in the production of chlorofluorocarbons ("CFCs") has been
reduced significantly due to regulatory pressures. As a result of these factors
and a general decline in economic growth in the early 1990s, the North American
chlor-alkali industry experienced declining prices, as ECU prices fell by over
52% from $389 per ECU in the fourth quarter of 1989 to $185 per ECU in the
second quarter of 1993. After a significant improvement in domestic economic
growth, in early 1994 chlor-alkali markets experienced increased levels of
demand. Limited new capacity was added during this time, resulting in greater
capacity utilization and higher domestic and export prices for chlor-alkali
products. These conditions continued in 1995 and the increase in demand enabled
the Company and the industry in general to increase selling prices significantly
at a time when operating costs generally did not increase. Toward the end of
1995, however, ECU prices began to decrease as strengthening demand for chlorine
was offset by an oversupply of caustic soda. The industry has continued to
operate at full capacity and management does not anticipate a significant
increase in capacity over the next several years. The Company therefore believes
that the previous volatility in ECU prices should moderate over such period.
RECENT DEVELOPMENTS
The FP Acquisition
As of September 19, 1997, PCI Chemicals Canada Inc. and PCI Carolina, Inc.,
newly-formed subsidiaries of the Company, entered into an Asset Purchase
Agreement (the "Purchase Agreement") with ICI Canada Inc. ("ICI Canada") and ICI
Americas Inc., ("ICI Americas"), subsidiaries of Imperial Chemical Industries
PLC ("ICI"), in connection with the acquisition (the "FP Acquisition") of
substantially all of the assets and properties used by ICI Canada and ICI
Americas in their North American chlor-alkali businesses (the "FP Business").
The purchase price consists of $235.6 million, payable in cash, and the
assumption of certain obligations related to the acquired chlor-alkali business.
Pioneer and ICI will at the closing of the FP Acquisition enter into
certain related agreements. Pursuant to a Transition Services Agreement, ICI
Canada and certain of its affiliates will provide transition services to the
Company. Pursuant to a Noncompetition Agreement, ICI will agree not to engage in
any production or sales of chlor-alkali or related products until 2002 in
designated areas of North America where ICI's chlor-alkali business is presently
conducted.
The purchase price is subject to adjustment based on the difference between
base working capital of Cdn$16.4 million and the actual working capital on the
closing date. The Purchase Agreement also provides certain environmental
indemnification from ICI Canada and ICI Americas, including certain thresholds
and limitations, which obligations will be guaranteed by ICI.
The Related Financings
The Company is pursuing a series of related financings comprised of (i) a
$100.0 million private debt offering, (ii) borrowings of $150.0 million in term
loans under a new term loan facility secured by the assets of the FP Business
and (iii) the establishment of a new $65.0 million revolving loan and letter of
credit facility.
4
<PAGE> 9
The FP Business
The Company is expanding into the eastern Canadian and eastern United
States chlor-alkali markets with the acquisition of the FP Business.
Headquartered in Montreal, Quebec, the FP Business is a leading eastern Canadian
merchant chlor-alkali manufacturer, serving primarily the pulp and paper
industry.
The FP Business operates two chlor-alkali production facilities, at
Becancour, Quebec and Dalhousie, New Brunswick, with aggregate production
capacity of approximately 376,000 ECUs, as well as downstream production units
at Cornwall, Ontario. The Becancour chlor-alkali facility has an annual capacity
of 340,000 tons of chlorine and 383,000 tons of caustic soda, and also
manufactures hydrochloric acid and bleach. The Dalhousie chlor-alkali facility
has an annual capacity of 36,000 tons of chlorine and 40,000 tons of caustic
soda, and also manufactures bleach and sodium chlorate. The Cornwall facility
manufactures bleach, with an annual capacity of 222,000 tons, as well as
additives and other ancillary products.
THE COMPANY AND PIONEER
PAAC is a wholly-owned subsidiary of Pioneer, a publicly-traded company
that immediately prior to the acquisition of PAI had no operations. Pioneer has
an available net operating loss carryforward for federal income tax reporting
purposes which it believes was approximately $68.2 million at June 30, 1997,
which includes the impact of the extraordinary loss due to early extinguishment
of debt during the second quarter of 1997. In April 1995, PAAC acquired PAI for
a purchase price, including the retirement of debt and the redemption of
preferred stock, of approximately $152.3 million in cash and $11.5 million of
subordinated promissory notes of Pioneer, as well as certain amounts payable
after the closing based on certain of PAI's real estate holdings.
Interlaken Investment Partners, L.P., a Delaware limited partnership (the
"Interlaken Partnership"), beneficially owns approximately 34.9% of the voting
power of Pioneer, and William R. Berkley, Chairman of Pioneer and PAAC (who may
be deemed to beneficially own all shares of Pioneer common stock held by the
Interlaken Partnership), may be deemed to beneficially own approximately 59.9%
of the voting power of Pioneer. See "Stock Ownership."
5
<PAGE> 10
THE REFINANCINGS
Concurrent with the closing of the Tacoma Acquisition on June 17, 1997, the
Company consummated a series of related transactions (the "Refinancings")
comprised of (i) the Initial Offering, (ii) a cash tender offer (the "Tender
Offer") to purchase all of its existing 13 3/8% First Mortgage Notes due 2005
(the "First Mortgage Notes") and the related solicitation of consents (the
"Consent Solicitation") and (iii) borrowings of $100.0 million in term loans
under a new term loan facility.
THE TENDER OFFER AND CONSENT SOLICITATION
On May 19, 1997, PAAC commenced the Tender Offer for all of its existing
First Mortgage Notes and the related Consent Solicitation from holders of the
First Mortgage Notes to delete or modify certain covenants and other provisions
governing the First Mortgage Notes. On June 17, 1997, all outstanding First
Mortgage Notes were repurchased in the Tender Offer.
NEW CREDIT FACILITIES
On June 17, 1997, the Company entered into new credit facilities (the "New
Credit Facilities"), consisting of a $100.0 million term loan facility (the
"Term Facility") and a $35.0 million revolving loan and letter of credit
facility (the "Revolving Facility"). See "Description of Other
Indebtedness -- New Credit Facilities."
Term Facility
The Company entered into the Term Facility, to provide for term loans (the
"Term Loans") in an aggregate principal amount up to $100.0 million. The Company
borrowed $100.0 million in Term Loans on June 17, 1997 in connection with the
Refinancings and the Tacoma Acquisition.
Revolving Facility
The Company entered into the Revolving Facility, to provide for revolving
loans (the "Revolving Loans") in an aggregate principal amount up to $35.0
million, of which up to $10.0 million will be available for the issuance of
letters of credit. The Company did not incur Revolving Loans at closing in
connection with the Refinancings and the Tacoma Acquisition but had $2.8 million
in letters of credit outstanding at such time under the Revolving Facility.
6
<PAGE> 11
THE EXCHANGE OFFER
The Exchange Offer......... The Company is offering to exchange (the "Exchange
Offer") up to $200,000,000 aggregate principal
amount of 9 1/4% Series B Senior Secured Notes due
2007 (the "Exchange Notes") for up to $200,000,000
aggregate principal amount of its outstanding
9 1/4% Series A Senior Secured Notes due 2007
issued in reliance upon an exemption from
registration under the Securities Act (the
"Original Notes"). The terms of the Exchange Notes
will be substantially identical in all respects
(including principal amount, interest rate,
maturity and ranking) to the terms of the Original
Notes for which they may be exchanged pursuant to
the Exchange Offer, except that (i) the Exchange
Notes will be freely transferable by holders
thereof except as provided herein (see "The
Exchange Offer -- Terms of the Exchange" and
"-- Terms and Conditions of the Letter of
Transmittal") and (ii) the Exchange Notes will be
issued without any covenant regarding registration
under the Securities Act.
Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Original Notes may be
offered for resale, resold and otherwise
transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the Issuers
within the meaning of Rule 405 under the Securities
Act, (ii) a broker-dealer who acquired Original
Notes directly from an Issuer or (iii)
broker-dealers who acquired Original Notes as a
result of market making or other trading
activities) without compliance with the
registration and prospectus delivery provisions of
the Securities Act provided that such Exchange
Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged
in, and do not intend to engage in, and have no
arrangement or understanding with any person to
participate in, a distribution of such Exchange
Notes.
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Original
Notes being tendered for exchange.
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on October , 1997 unless extended
(the "Expiration Date").
Exchange Date.............. The first date of acceptance for exchange for the
Original Notes will be the first business day
following the Expiration Date.
Conditions to the Exchange
Offer...................... The obligation of the Issuers to consummate the
Exchange Offer is subject to certain conditions.
See "The Exchange Offer -- Conditions to the
Exchange Offer." The Issuers reserve the right to
terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of
any such condition.
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to the
Expiration Date. Any Original Notes not accepted
for any reason will be returned without expense to
the tendering holders thereof as promptly as
practicable after the expiration or termination of
the Exchange Offer.
Procedures for Tendering
Original Notes........... See "The Exchange Offer -- How to Tender."
7
<PAGE> 12
Federal Income Tax
Consequences............. The exchange of Original Notes for Exchange Notes
by holders will not be a taxable exchange for
federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest
income as a result of such exchange.
Effect on Holders of
Original Notes............. As a result of the making of this Exchange Offer,
and upon acceptance for exchange of all validly
tendered Original Notes pursuant to the terms of
this Exchange Offer, the Issuers will have
fulfilled a covenant contained in the terms of the
Original Notes and the Exchange and Registration
Rights Agreement (the "Registration Rights
Agreement") dated as of June 17, 1997 between the
Issuers, Donaldson, Lufkin & Jenrette Securities
Corporation and Salomon Brothers Inc, as initial
purchasers, and, accordingly, the holders of the
Original Notes will have no further registration or
other rights under the Registration Rights
Agreement, except under certain limited
circumstances. See "Original Notes Registration
Rights." Holders of the Original Notes who do not
tender their Original Notes in the Exchange Offer
will continue to hold such Original Notes and will
be entitled to all the rights and limitations
applicable thereto under the Indenture, dated as of
June 17, 1997, among the Company, the Subsidiary
Guarantors and United States Trust Company of New
York, as Trustee (the "Trustee"), relating to the
Original Notes and the Exchange Notes (the
"Indenture"). All untendered, and tendered but
unaccepted, Original Notes will continue to be
subject to the restrictions on transfer provided
for in the Original Notes and the Indenture. To the
extent that Original Notes are tendered and
accepted in the Exchange Offer, the trading market,
if any, for the Original Notes could be adversely
affected. See "Risk Factors -- Consequences of
Failure to Exchange."
TERMS OF THE NOTES
The Exchange Offer applies to $200,000,000 aggregate principal amount of
the Original Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Original Notes for which they may be exchanged except that
the Exchange Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof. The Exchange Notes will
evidence the same debt as the Original Notes and will be entitled to the
benefits of the Indenture. See "Description of the Notes."
Notes Offered.............. $200,000,000 aggregate principal amount of 9 1/4%
Series B Senior Secured Notes due 2007.
Maturity................... June 15, 2007.
Interest Payment Dates..... June and December of each year, commencing December
15, 1997.
Ranking.................... The Notes will be senior obligations of the
Company, and will rank pari passu with all existing
and future Senior Indebtedness of the Company and
senior to all Subordinated Indebtedness of the
Company. The Notes, however, will be effectively
subordinated to secured Senior Indebtedness of the
Company and its subsidiaries with respect to the
assets securing such Indebtedness. Such secured
Senior Indebtedness will include loans under the
New Credit Facilities. The Guarantee of PCAC with
respect to the Notes and the Term Loans is
effectively
8
<PAGE> 13
secured (i) by a first mortgage lien on the Tacoma
Facility, (ii) by a first priority security
interest in certain agreements related to the
Tacoma Acquisition and (iii) by first mortgage
liens on the Henderson and St. Gabriel facilities.
The guarantee of PAI with respect to the Notes and
the Term Loans is secured by a pledge of the
Capital Stock of PCAC and All-Pure held by PAI. In
addition, the Company and its Subsidiaries may
incur up to $50.0 million of Senior Indebtedness
which will be secured on a pari passu basis with
the Notes. As of June 30, 1997, after giving effect
to the Initial Offering and the Refinancings, the
Company and its Subsidiaries had outstanding
approximately $300.0 million aggregate principal
amount of secured Senior Indebtedness. As of June
30, 1997, the Company and its Subsidiaries had,
subject to certain restrictions (including
borrowing base limitations), the ability to draw up
to $32.2 million of additional secured Senior
Indebtedness under the Revolving Facility. See
"Risk Factors -- Ranking of the Notes,"
"Description of Other Indebtedness -- New Credit
Facilities" and "Description of the
Notes -- Ranking."
Security................... The Notes will be effectively secured by the Note
Collateral (as defined). Pursuant to an
Intercreditor and Collateral Agency Agreement (the
"Intercreditor Agreement") by and among the
Company, PAI, PCAC, the Trustee under the
Indenture, the agent under the Term Facility (the
"Term Loan Agent") and the collateral agent
thereunder (the "Collateral Agent"), the Collateral
Agent will hold the Collateral (as defined)
securing the Notes and the Term Loans for the equal
and ratable benefit of the Trustee, the holders of
the Notes, the Term Loan Agent and the holders of
the Term Loans. The Collateral will be limited to
(i) a first mortgage lien on the Tacoma Facility
(including real property, buildings, fixtures and
certain equipment), (ii) a first priority security
interest in certain agreements related to the
Tacoma Acquisition, (iii) first mortgage liens on
the Henderson and St. Gabriel facilities (including
real property, buildings, fixtures and certain
equipment) and (iv) a pledge of the Capital Stock
of PCAC and All-Pure. The Intercreditor Agreement
will provide generally that the holders of a
majority of the obligations secured by the
Collateral may direct the Collateral Agent with
respect to certain matters. The Indenture will
provide that any release of Note Collateral,
including Trust Moneys, will be subject to the
provisions of Section 314(d) of the Trust Indenture
Act relating to, among other things, the delivery
of a certificate or an opinion of an engineer,
appraiser or other expert as to the fair value of
Note Collateral being released from the Liens of
the Security Documents. See "Description of the
Notes -- Security" and "-- Intercreditor
Agreement."
Guarantees................. The Notes will be fully and unconditionally
guaranteed on a senior basis by the Subsidiary
Guarantors (which will be PAI and its subsidiaries,
other than inconsequential subsidiaries). The
Guarantee of each Subsidiary Guarantor will rank
pari passu with all existing and future Senior
Indebtedness of such Subsidiary Guarantor and
senior to all Subordinated Indebtedness, if any, of
such Subsidiary Guarantor, except that the
Guarantees will be effectively subordinated to
secured Senior Indebtedness of the Subsidiary
Guarantors with respect to the assets securing such
Indebtedness. The Guarantees will be joint and
several obligations of the Subsidiary Guarantors.
PCAC has granted liens on certain of its
9
<PAGE> 14
assets and property (including the Tacoma Facility)
to secure its Guarantee of the Notes, and PAI has
pledged the Capital Stock of PCAC and All-Pure to
secure PAI's Guarantee of the Notes. See
"Description of the Notes -- Guarantees."
Optional Redemption........ The Notes will be redeemable in cash at the option
of the Company, in whole or in part, at any time or
from time to time on or after June 15, 2002, at the
redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of
redemption. In addition, the Company may also
redeem in cash at its option at any time prior to
June 15, 2000 up to 35% of the aggregate principal
amount of the Notes originally issued at a purchase
price of 109.25% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption, with
the net proceeds of (i) an Equity Offering by the
Company or (ii) an Equity Offering by Pioneer, but
only to the extent that Pioneer contributes such
net proceeds to the Company as a capital
contribution; provided that at least 65% of the
aggregate principal amount of the Notes originally
issued remains outstanding immediately after giving
effect to such redemption. See "Description of the
Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control, each holder of the Notes
will have the right to require the Company to
repurchase all or a portion of such holder's Notes
then outstanding at a purchase price equal to 101%
of the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, to
the date of repurchase. The Company's ability to
repurchase the Notes may be limited by, among other
things, the Company's financial resources at the
time of repurchase. See "Risk Factors -- Change of
Control" and "Description of the Notes -- Change of
Control."
Certain Covenants.......... The indenture governing the Notes (the "Indenture")
contains certain covenants with respect to the
Company and its subsidiaries which restrict, among
other things, (a) the incurrence of additional
indebtedness, (b) the payment of dividends and
other restricted payments, (c) the creation of
certain liens, (d) the use of proceeds from sales
of assets and subsidiary stock, (e) sale and
leaseback transactions and (f) transactions with
affiliates. The Indenture also restricts the
Company's ability to consolidate or merge with or
into, or to transfer all or substantially all of
its assets to, another person. These restrictions
and requirements are subject to a number of
important qualifications and exceptions. See
"Description of the Notes -- Certain Covenants."
Exchange Offer;
Registration Rights........ Pursuant to an Exchange and Registration Rights
Agreement (the "Registration Rights Agreement")
among the Company, the Subsidiary Guarantors and
the Initial Purchasers, the Company and the
Subsidiary Guarantors have agreed to file by the
30th day following the date of closing of the
Initial Offering (the "Closing Date") a
registration statement (the "Exchange Offer
Registration Statement") with respect to an offer
to exchange the Original Notes for the Exchange
Notes, which will be registered under the
Securities Act with terms (other than restrictions
on transfer) substantially identical to those of
the Original Notes and to use their best efforts to
cause such registration statement to become
effective by the 150th day following the Closing
Date and, upon
10
<PAGE> 15
becoming effective, to commence the Exchange Offer
and cause the same to remain open for acceptance
for not less than 20 business days after the date
of commencement. If the Exchange Offer is not
consummated within 30 business days following the
date the Exchange Offer Registration Statement is
declared effective or, under certain circumstances,
the initial purchasers in the Initial Offering (the
"Initial Purchasers") so request, the Company and
the Subsidiary Guarantors will file and use their
best efforts to cause to be declared effective a
shelf registration statement with respect to
resales of the Original Notes from time to time and
will use their best efforts to keep such
registration statement effective until three years
after the effective date thereof.
If the applicable registration statement is not
filed or declared effective or ceases to be
effective or the Exchange Offer is not consummated
within the applicable time periods related thereto
(each, a "Registration Default"), the Company will
be required to pay Liquidated Damages to each
holder of the Original Notes, in the amount of $.05
per week per $1,000 principal amount of Original
Notes for the initial 90-day period following such
Registration Default. The amount of such Liquidated
Damages will increase by an additional $.05 per
week per $1,000 principal amount of Original Notes
at the beginning of each subsequent 90-day period,
up to a maximum amount of $.50 per week per $1,000
principal amount of Original Notes. If,
subsequently, such Registration Default is cured,
the accrual of Liquidated Damages will cease. See
"Original Notes Registration Rights."
Use of Proceeds............ There will be no proceeds to the Issuers from the
exchange pursuant to the Exchange Offer. The net
proceeds from the Initial Offering, together with
borrowings under the Term Facility, were used to
pay the cash portion of the purchase price of the
Tacoma Acquisition, to repurchase First Mortgage
Notes in the Tender Offer, to pay the consent fee
in the Consent Solicitation and for working capital
and general corporate purposes. See "The
Acquisition."
Transfer Restrictions...... The Original Notes have not been registered under
the Securities Act or under the securities laws of
any state and may not be offered or sold within the
United States or to, or for the benefit of, U.S.
persons except pursuant to an exemption from, or in
a transaction not subject to, the registration
requirements of the Securities Act or applicable
state securities laws.
Risk Factors............... Holders of Original Notes should carefully consider
the matters set forth under the caption "Risk
Factors" prior to making a decision with respect to
the Exchange Offer. See "Risk Factors."
11
<PAGE> 16
SUMMARY CONSOLIDATED FINANCIAL DATA
The following financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Selected Historical Financial Data," "Pro Forma Financial
Information" and the audited and unaudited historical financial statements of
the Company and the Tacoma Plant and the respective notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA(4)
------------------------
PREDECESSOR TWELVE
COMPANY COMBINED SIX MONTHS SIX MONTHS MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 31, JUNE 30,
1994(1) 1995(2) 1996(3) 1996 1997 1996 1997(5)
------------ ------------ ------------ ------------ ------------ ------------ ---------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................... $167,217 $200,756 $183,326 $91,963 $ 84,831 $267,238 $253,208
Cost of sales............... 134,556 135,575 126,739 64,343 65,659 181,680 179,540
-------- -------- -------- ------- -------- -------- --------
Gross profit................ 32,661 65,181 56,587 27,620 19,172 85,558 73,668
Selling, general and
administrative expenses... 22,529 26,883 23,528 12,375 12,281 27,207 26,213
-------- -------- -------- ------- -------- -------- --------
Operating income............ 10,132 38,298 33,059 15,245 6,891 58,351 47,455
Equity in net income (loss)
of unconsolidated
subsidiary................ 183 204 (2,607) (223) (1,774) (2,607) (4,158)
Interest expense, net....... 6,407 14,570 17,290 8,349 9,438 26,390 26,831
Settlement of litigation and
insurance claims, net..... 3,326 -- -- -- -- -- --
Other income, net........... 1,154 318 1,684 104 437 1,702 2,053
-------- -------- -------- ------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
items..................... 8,388 24,250 14,846 6,777 (3,884) 31,056 18,519
Income tax provision
(benefit)................. 3,242 11,017 6,735 3,887 (311) 12,380 7,935
-------- -------- -------- ------- -------- -------- --------
Income (loss) before
extraordinary item........ 5,146 13,233 8,111 2,890 (3,573) $ 18,676 $ 10,584
Extraordinary item, net of
applicable tax(6)......... -- 3,420 -- -- 18,658 -- 18,658
-------- -------- -------- ------- -------- -------- --------
Net income (loss)........... $ 5,146 $ 9,813 $ 8,111 $ 2,890 $(22,231) $ 18,676 $ (8,074)
======== ======== ======== ======= ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation and
amortization.............. 13,595 16,764 15,695 8,284 8,553 24,717 24,597
Capital expenditures........ 5,681 17,003 17,121 8,505 5,278 21,900 18,022
ADDITIONAL INFORMATION:
EBITDA(7)................... $ 28,207 $ 55,380 $ 50,438 $23,633 $ 15,881 $ 84,770 $ 74,105
Ratio of pro forma EBITDA to
pro forma interest........ 3.2x 2.8x
Ratio of net debt to pro
forma EBITDA.............. 3.1x 3.7x
OPERATING DATA:
Average ECU price........... $ 327 $ 414 $ 385 $ 383 $ 368 $ 374 $ 368
ECU production (in
thousands)................ 321.1 327.9 345.7 170.6 174.0 559.7 556.8
Annualized ECU production
per employee.............. 1,189 1,123 1,137 1,122 1,144 1,186 1,196
Chlor-alkali operating
rate...................... 101% 100% 100% 98% 95% 98% 98%
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 37,406
Total assets................................................ 439,079
Total debt.................................................. 306,783
Common stockholder's equity................................. 57,367
</TABLE>
(see footnotes on following page)
12
<PAGE> 17
- ---------------
(1) GPS Pool Supply, Inc. ("GPS") was acquired in May 1994 and therefore the
results of operations for the year ended December 31, 1994 include the
results of operations from the date of acquisition in May 1994 through
December 31, 1994. GPS generated third party sales during such partial
period of $9.4 million.
(2) For comparative purposes the combined results of operations for the year
ended December 31, 1995 include the Company's operating results for the
period from Inception through December 31, 1995 and the Predecessor
Company's operating results from January 1, 1995 through April 20, 1995. The
Company believes that this provides a meaningful basis for comparison.
(3) Kemwater was formed in connection with the acquisition of Kemira Water
Treatment, Inc. ("KWT") in February 1996 to continue the business activities
previously conducted by Imperial West Chemical Co. ("Imperial West") and,
accordingly, the results of operations for the year ended December 31, 1996
include the results of operations of Imperial West only for the month of
January 1996. Since the acquisition, 50% of Kemwater's results of operations
are included as equity in net loss of unconsolidated subsidiary. Prior to
the formation of Kemwater, the financial statements of Imperial West were
consolidated with the Company's consolidated financial statements.
(4) The pro forma statement of income data for the year ended December 31, 1996
gives effect to the Initial Offering, the other Refinancings, the Tacoma
Acquisition and the acquisition of T.C. Products as if they had occurred on
January 1, 1996. The pro forma statement of income data for the twelve
months ended June 30, 1997 gives effect to the Initial Offering, the other
Refinancings, the Tacoma Acquisition and the acquisition of T.C. Products as
if they had occurred on July 1, 1996. The pro forma financial data is not
necessarily indicative of either future results of operations or the results
that might have occurred if the foregoing transactions had been consummated
on the indicated date.
(5) The pro forma financial information for the twelve months ended June 30,
1997 is calculated by subtracting the pro forma six months ended June 30,
1996 from the pro forma year ended December 31, 1996 and adding the pro
forma six months ended June 30, 1997.
(6) An extraordinary item of $3.4 million, net of an income tax benefit of $2.1
million, was due to costs incurred and previously capitalized costs written
off, pertaining to debt refinanced by the Predecessor Company prior to the
PAI Acquisition. An extraordinary item of $18.7 million, net of an income
tax benefit of $12.4 million, was due to costs incurred and previously
capitalized costs written off, pertaining to debt refinanced by the Company
concurrent with the Tacoma Acquisition.
(7) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization and equity in net income (loss) of unconsolidated
subsidiaries and is presented because the Company believes that it provides
useful information regarding its ability to service and/or incur debt.
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows from operating activities and other combined income or
cash flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of the Company's profitability or
liquidity.
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RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Original Notes for the Exchange Notes offered hereby, holders of
Original Notes should consider carefully the following factors, which may be
generally applicable to the Original Notes as well as the Exchange Notes:
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes as set forth in the legend
thereon as a consequence of the issuance of the Original Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Except under certain limited circumstances, the Issuers do
not intend to register the Original Notes under the Securities Act. In addition,
any holder of Original Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent Original Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for the
Original Notes not tendered could be adversely affected. See "The Exchange
Offer" and "Original Notes Registration Rights."
FINANCIAL LEVERAGE
As of June 30, 1997, after giving effect to the Initial Offering, the other
Refinancings and the Tacoma Acquisition, PAAC had approximately $306.8 million
of indebtedness and $57.4 million of stockholder's equity. See "Capitalization."
The degree to which PAAC is leveraged could have important consequences to
holders of the Notes, including the following: (i) the Company has significant
cash interest expense for the Notes and other debt; (ii) the Company's
significant degree of leverage could make it vulnerable to changes in industry
and general economic conditions; and (iii) the Company's ability to obtain
additional financings for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired.
In addition, the Company's operating flexibility with respect to certain
business matters is limited by covenants contained in the Indenture and in the
New Credit Facilities. Among other things, these covenants limit the ability of
the Company and its subsidiaries to incur additional indebtedness, create liens
upon assets, apply the proceeds from disposal of assets, make dividend payments
and other distributions on capital stock and redeem any capital stock. There can
be no assurance that such covenants will not adversely affect the Company's
ability to finance its future operations or capital needs or to engage in other
business activities which may be in the interest of the Company. See
"Description of Other Indebtedness -- New Credit Facilities" and "Description of
the Notes -- Certain Covenants."
PAAC expects to generate sufficient cash flow from operations to meet its
debt service obligations. However, the ability of the Company to satisfy its
obligations, including its obligations on the Notes, will be dependent upon the
future performance of the Company and will be subject to financial, business and
other factors affecting the business and operations of the Company, including
factors beyond its control, such as prevailing economic conditions and
regulatory matters. See "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
INDUSTRY CYCLICALITY
Substantially all of the Company's revenues are attributable to the sale of
chlorine, caustic soda and other chemicals that use chlorine or caustic soda as
a primary raw material. The chlorine and caustic soda markets are cyclical
markets that are sensitive to relative changes in supply and demand, which are
in turn affected by general economic conditions, capacity additions and other
factors. Over the last five years, the market for
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PVC, the largest use of chlorine in the United States, has experienced steady
growth, resulting in strong demand for chlorine. However, the use of chlorine as
a bleaching agent in the pulp and paper industry and as feedstock in the
production of CFCs has been reduced significantly due to regulatory pressures.
As a result of these factors and a general decline in economic growth in the
early 1990s, the North American chlor-alkali industry experienced declining
prices, as ECU prices fell by over 52% from $389 per ECU in the fourth quarter
of 1989 to $185 per ECU in the second quarter of 1993. After a significant
improvement in domestic economic growth in early 1994, chlor-alkali markets
experienced increased levels of demand. Limited new capacity was added during
this time, resulting in greater capacity utilization and higher domestic and
export prices for chlor-alkali products. These conditions continued in 1995 and
the increase in demand enabled the Company and the industry in general to
increase selling prices significantly at a time when operating costs generally
did not increase. Toward the end of 1995, however, ECU prices began to decrease
as strengthening demand for chlorine was offset by an oversupply of caustic
soda. There can be no assurance that demand for the Company's products will be
sustained or that it will keep pace with unanticipated capacity additions or
that other events which may adversely affect the supply/demand balance for
chlorine and caustic soda will not occur.
ENVIRONMENTAL REGULATION
The Company and its operations are subject to extensive federal, state and
local laws, regulations, rules and ordinances relating to pollution, the
protection of the environment and the release or disposal of regulated
materials. The operation of any chemical manufacturing plant and the
distribution of chemical products entail obligations under current environmental
laws, and present or future laws may affect the Company's capital and operating
costs relating to compliance, impose cleanup requirements with respect to site
contamination resulting from past, present or future spills and releases and
affect the markets for the Company's products. Furthermore, there can be no
assurance that such costs or liabilities will not be material.
The Company relies on indemnification from the previous owners in
connection with certain environmental liabilities at its chlor-alkali plants and
other facilities. There can be no assurance, however, that such indemnification
arrangements will be adequate to protect the Company from environmental
liabilities at these sites or that such third parties will perform their
obligations under the respective indemnification arrangements, in which case the
Company would be required to incur significant expenses for environmental
liabilities, which would have a material adverse effect on the Company. See
"Business -- Environmental and Safety Regulation -- Indemnities."
Compliance Costs. Environmental laws and regulations impose requirements
pertaining to emissions to the air, discharges to water, management and disposal
of solid and hazardous wastes and other activities of the Company in connection
with its manufacturing operations. Failure to observe these requirements may
lead to enforcement actions brought by governmental agencies or private parties,
and can lead to substantial civil or criminal fines and other penalties. The
Company believes that its operations are currently in general compliance with
environmental laws and regulations, the violation of which could result in a
material adverse effect on the Company's business, properties or results of
operations on a consolidated basis. There can be no assurance, however, that
material costs will not be incurred as a result of instances of noncompliance or
new regulatory requirements.
Cleanup Costs. Environmental laws and regulations also impose liability for
the cleanup of contamination, even if the contamination resulted from historical
activities that were in compliance with applicable legal requirements at the
time they occurred. Such costs may arise at facilities owned or operated by the
Company or at off-site facilities to which the Company sent wastes for
treatment, storage or disposal. As a result of historical activities, incidental
spills or other releases, many of the facilities owned or operated by the
Company are known to be, or could be, affected by contamination of soil or
groundwater. The Company has conducted investigations, including Phase I
pre-acquisition assessments and, in some cases, soil or groundwater sampling, at
its facilities and has implemented or is implementing cleanup actions where
required by regulatory authorities. The investigations have generally been
non-invasive in nature and are inherently limited in the sense that conclusions
are drawn and recommendations developed from information obtained from limited
research and site evaluation; there can be no assurance that any such
investigation can determine the
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existence of any hazardous materials at a given site. In addition, the Company,
along with other parties with an interest in the Henderson, Nevada industrial
complex, has entered into a consent agreement with the State of Nevada, pursuant
to which the Company has submitted a "Phase I Environmental Conditions
Assessment." The Company has also executed a Phase II Consent Agreement, which
covers additional investigation of the plant site, including sampling. The
Company is also aware of certain claims that have been asserted with respect to
off-site facilities, which claims could lead to liability for the Company. See
"Business -- Environmental and Safety Regulation -- Superfund" and
"-- Remediation Matters." Such investigation and cleanup activities have not had
a material adverse effect on the operations or financial results of the Company
to date. There can be no assurance, however, that the Company is aware of all
such site contamination issues, that regulatory authorities will not require
cleanup in the future for sites that are not currently being remediated, or that
remedial standards will not become more stringent. Accordingly, no assurance can
be given that such activities will not have a material adverse effect on the
operations or financial results of the Company in the future.
Environmental Regulation of Products. Environmental regulations can
directly or indirectly affect the markets for the Company's products by
regulating the uses of the Company's products or the chemicals or materials made
from those products. Certain environmental groups and international commissions
have urged the restriction or ban of chlorine-related processes and products,
based on concerns that the products or by-products from these applications might
cause damage to human health or the environment. Such pressures may stimulate
regulatory initiatives which could have the effect of reducing the use of
chlorine by customers in the Company's markets or could have the effect of
increasing competition from other chlorine producers with respect to the
Company's markets. Each such effect was experienced by the Company from 1990 to
1992 following increased regulation of the use of CFCs, although during that
period demand for chlorine from other market segments more than offset the loss
of demand from reduced production of CFCs. The Company is working with other
industry representatives to advocate a risk-based scientific approach for
evaluating the alleged health and environmental risks of chlorine and
chlorinated compounds, which are used in a broad range of consumer products,
including water, plastics, detergents, agricultural chemicals and
pharmaceuticals. See "Business -- Environmental and Safety Regulation."
Environmental Cost Summary. The Company's operating expenses relating to
environmental matters totaled $1.7 million during the year ended December 31,
1996 and $0.6 million for the six months ended June 30, 1997. The Company does
not anticipate a material increase in these types of expenses during the
remainder of 1997. Capital expenditures for environmental related matters were
$4.3 million during the year ended December 31, 1996 and are expected to be
approximately $4.1 million in 1997. Capital expenditures and, to a lesser
extent, costs and operating expenses relating to environmental matters for years
after 1997 will be subject to evolving regulatory requirements and will depend
to a great degree on the types of procedures that may be approved by various
federal and state governmental agencies with respect to environmental clean-up.
Henderson Remediation Matters; ZENECA Indemnity; PAI Sellers'
Indemnity. The Company's plant in Henderson, Nevada is located within an area
known as the "Basic Complex" that was originally owned by and constructed under
the direction of the United States government in the 1940s and since that time
has been used for chemical manufacturing by several companies. Soil and
groundwater contamination have been identified within and adjoining the land
owned by the Company. See "Business -- Environmental and Safety
Regulation -- Remediation Matters."
Certain of the Company's environmental liabilities in connection with the
Henderson facility are addressed by indemnifications provided by the previous
owner of the Henderson facility, and by the sellers under the PAI Acquisition
Agreement (as defined). The Henderson plant was acquired by the Company in
October 1988 in connection with the purchase of Stauffer Chlor Alkali Company,
Inc. from ICI Delaware Holdings, Inc. ("ICI"), a subsidiary of ICI Americas,
Inc. ("ICI Americas"). Under the acquisition agreement relating to such
acquisition, ICI indemnified the Company for certain environmental liabilities
that might be incurred by the Company as a result of actions occurring prior to
the closing date, including actions (other than chlor-alkali related actions) at
the Henderson property and liabilities for actions at other sites in the Basic
Complex and liabilities arising in connection with off-site disposal sites. See
"Business --
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Environmental and Safety Regulation -- Indemnities." The Company has been
advised by ZENECA Delaware Holdings, Inc. and ZENECA, Inc. (collectively, the
"ZENECA Companies") that the indemnity obligations of ICI and ICI Americas under
the acquisition agreement have been assumed by the ZENECA Companies.
Payments for environmental liabilities under the indemnity from the ZENECA
Companies (the "ZENECA Indemnity"), together with other non-environmental
liabilities for which ICI agreed to indemnify the Company, cannot exceed
approximately $65 million. Through June 30, 1997, the Company has been
reimbursed for approximately $12 million of costs covered by the ZENECA
Indemnity, but the ZENECA Companies may have directly incurred additional costs
that would further reduce the total amount remaining under the ZENECA Indemnity.
As a result of the PAI Acquisition, the ZENECA Indemnity will terminate in
accordance with its terms on April 20, 1999, except with respect to claims as to
which PAI has satisfied the contractual requirements for extending the
indemnity. See "Business -- Environmental and Safety Regulation -- Indemnities."
In April 1995, pursuant to a Stock Purchase Agreement, dated as of March
24, 1995 (the "PAI Acquisition Agreement"), PAAC acquired PAI (the "PAI
Acquisition") for a purchase price, including the retirement of debt and the
redemption of preferred stock, of approximately $152.3 million in cash and $11.5
million of subordinated promissory notes of Pioneer (the "Pioneer Seller
Notes"), as well as certain amounts payable after the closing based upon
earnings or proceeds attributable to certain of PAI's direct and indirect real
estate holdings which were not necessary for PAI's chlor-alkali business. In the
PAI Acquisition Agreement, the sellers agreed to indemnify Pioneer, PAAC and
their affiliates for certain environmental liabilities that result from certain
discharges of hazardous materials, or violations of environmental laws, arising
prior to the PAI Acquisition from or relating to the PAI plant sites or arising
before or after the PAI Acquisition with respect to certain environmental
liabilities relating to the real estate owned by Basic Investments and Victory
Valley (each as defined) and certain real property adjoining the sites of the
Company's Henderson, St. Gabriel and Mojave plants (collectively, the
"Contingent Payment Properties"). See "Business -- Basic Investments." Amounts
payable pursuant to such indemnification obligations (the "PAI Sellers'
Indemnity") will generally be payable as follows: (i) out of certain reserves
established on PAI's balance sheet at December 31, 1994; (ii) either by offset
against the amounts payable under the Pioneer Seller Notes or from amounts held
in an account (the "Contingent Payment Account") established under the related
Contingent Payment Agreement; and (iii) in certain circumstances and subject to
specified limitations, out of the personal assets of the sellers. The Company is
required to reimburse the sellers with amounts recovered under the ZENECA
Indemnity or from other third parties. The Company and the sellers have agreed
that they will cooperate in matters relating to the ZENECA Indemnity.
The sellers will not be required to make any payments under the PAI
Sellers' Indemnity out of their personal assets until the end of the tenth year
from the PAI Acquisition, and to the extent that liabilities exceed amounts
realized from sales of Contingent Payment Properties, the Company would be
limited, for a ten-year period, principally to its rights of offset against the
Pioneer Seller Notes (and to amounts available under the ZENECA Indemnity, to
the extent then in effect) to cover such liabilities. The Pioneer Seller Notes
will be payable in five equal annual principal installments, beginning on the
sixth anniversary of the PAI Acquisition.
The Company believes that the remediation costs relating to its Henderson
chlor-alkali facilities will not be material and that the Company will be
reimbursed by the ZENECA Companies, under the PAI Sellers' Indemnity or from
other responsible parties for substantially all of the non-chlor-alkali related
remediation costs it may incur in connection with the Henderson, Nevada
facility. No assurance can be given, however, that the Company will not be
required to incur significant expenses for remedial and other liabilities under
environmental laws in connection with the Henderson facility or operations,
whether at or near the Henderson facility or at off-site locations, or that such
expenses will be reimbursed under the ZENECA Indemnity or the PAI Sellers'
Indemnity or by other responsible parties. In any such event, the Company may be
required to fund costs and expenses or other environmental liabilities, and such
funding could have a material adverse effect on the Company. See
"Business -- Environmental and Safety Regulation."
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No assurance can be given that the indemnification provisions of the PAI
Sellers' Indemnity will be adequate to protect the Company from the
environmental liabilities intended to be covered by the PAI Sellers' Indemnity.
In particular, no assurance can be given that funds will be available in the
Contingent Payment Account in amounts, or at the times, necessary to pay any
such liabilities as they arise. Further, no assurance can be given that the
sellers will have the financial resources to perform their personal obligations
under the PAI Sellers' Indemnity, that the sellers will promptly pay any
liability for which they are responsible or that the Company will be able to
recover funds or assets from the sellers (particularly in view of the ten-year
period that must pass before the sellers would be personally liable under the
PAI Sellers' Indemnity) or that the Company will not be required to incur
significant costs for environmental conditions not covered by the PAI Sellers'
Indemnity. In addition, because the sellers may recognize certain economic
benefits from the Contingent Payment Properties, there can be no assurance that
conflicts will not arise between the interests of sellers who are directors or
officers of the Company or its subsidiaries and the Company.
Tacoma Remediation Matters; OCC Tacoma Indemnity. The Tacoma Facility is
located adjacent to the Hylebos Waterway, which is connected to Commencement
Bay. The Hylebos Waterway is one of the study areas included in the Commencement
Bay Nearshore/Tideflats site which has been placed on the National Priorities
List for remediation under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"). OxyChem is a member of the Hylebos
Cleanup Committee ("HCC"), which has entered into a consent agreement with the
Environmental Protection Agency ("EPA") under which the HCC will prepare a
pre-remedial design for cleanup of the Hylebos Waterway. OxyChem is
participating in a voluntary, non-binding mediation under which an arbitrator
will allocate liability for the waterway among approximately 30 participating
Potentially Responsible Parties ("PRPs"). The aggregate costs of the cleanup of
the Hylebos Waterway will depend upon cleanup levels established by the EPA.
Cleanup levels have been selected by the EPA, the HCC and other interested
parties and a remediation plan is being prepared but has not yet been finalized
or approved by the EPA. The Company believes that a remediation plan based upon
the final EPA cleanup levels may be completed within five years, and that the
voluntary mediation will be completed prior to that date. However, the Company
cannot presently determine the amount of cleanup costs that will ultimately be
allocated to OxyChem, or the timing of such final allocation.
The Tacoma Facility has a federal Resource Conservation and Recovery Act
("RCRA") treatment, storage, and disposal facility permit which requires the
plant to investigate groundwater contamination at the site and to treat the
groundwater to standards established in the permit. Pursuant to this
requirement, the plant has installed a groundwater extraction, treatment and
injection system (not included in the Tacoma Acquisition), which withdraws the
groundwater, removes volatile organic compounds and returns the treated water to
the subsurface through wells that are designed to control off-site migration of
contamination. Certain other areas at the Tacoma Facility are currently being
voluntarily investigated under the oversight of the Washington Department of
Ecology ("DOE") or the EPA. OCC Tacoma has voluntarily proposed to investigate
certain substances that may exceed site-specific cleanup levels in the
embankment area of the Tacoma Facility next to the Hylebos Waterway and in a
subtidal and intertidal area adjacent to the northern portion of the Tacoma
Facility, and to submit investigation and remediation plans for consideration by
the EPA. If remediation plans are agreed upon, these areas would be remediated
either in conjunction with or prior to the general remediation of Hylebos
Waterway sediments.
OxyChem has been named as a Potentially Liable Party ("PLP") under state
law for remediation of, or it is voluntarily investigating, certain off-site,
upland disposal sites used by the Tacoma Facility. OCC Tacoma agreed to retain
responsibility for these sites. Two other properties, located immediately
adjacent to the Tacoma Facility, have allegedly been affected by operations at
the Tacoma Facility. A groundwater contamination plume under the Tacoma Facility
extends to the northwest and west. This area is being addressed by the Tacoma
Facility's groundwater treatment system. In August 1997, OCC Tacoma acquired the
neighboring property to the south of the Tacoma Facility. Waste from the Tacoma
Facility was allegedly disposed in the past on the embankment area of this
neighboring property and allegedly impacted the groundwater quality. The
embankment area of this property is currently under investigation with the
oversight of the DOE and the EPA. Remediation of this embankment area will be
conducted, if necessary, in
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conjunction with the remediation of the adjacent embankment area of the Tacoma
Facility. At this time, the Company is not able to determine the cost or scope
of any such remediation of this neighboring property.
OCC Tacoma agreed to indemnify the Company for certain pre-closing
environmental conditions. The OCC Tacoma indemnity is subject to limitations as
to dollar amount and duration, as well as certain other conditions. After the
applicable period of OCC Tacoma's indemnification, the Company will indemnify
OCC Tacoma for remaining liabilities other than those from hazardous materials
present as a result of pre-closing releases in the non-Hylebos area of
Commencement Bay, public, private or commercial disposal facilities upland of
the waterways and natural resource damages arising under state or federal
statutes, for which liability will be retained by OCC Tacoma. The Company has
reviewed the time frames currently estimated for remediation of the known
environmental conditions associated with Commencement Bay, the Hylebos Waterway,
the plant and adjacent properties and the Company presently believes that it
should have no material liability upon the termination of OCC Tacoma's
indemnity. There can be no assurance that such indemnity will be adequate to
protect the Company, that remediation will proceed on the present schedule, that
it will involve the presently anticipated remedial methods, or that
unanticipated conditions will not be identified. If these or other changes
occur, the Company could incur a material liability for which it is not insured
or indemnified. See "Business -- Environmental and Safety
Regulation -- Indemnities."
OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to risks inherent in the chemical
industry, such as explosions, fires, chemical spills or releases, pollution and
other environmental risks. Any significant interruption of operations at the
Company's principal facilities could have a material adverse effect on the
Company. The Company has in the past experienced chlorine releases at its
plants. In 1991, there was a release of approximately 42 tons of chlorine from
the Henderson facility. The Company has resolved substantially all of the
personal injury, property damage and regulatory claims relating to this release,
and certain of the costs incurred as a result of the accident were recovered
under applicable insurance policies. See "Business -- Environmental and Safety
Regulation." The Company maintains general liability insurance and property and
business interruption insurance with coverage limits it believes are adequate.
Because of the nature of industry hazards, it is possible that liabilities for
pollution and other damages arising from a major occurrence could exceed
insurance coverage or policy limits or that such insurance may not be available
at reasonable rates in the future. Any such liabilities, which could arise due
to injury and loss of life, severe damage to and destruction of property and
equipment, pollution and other environmental damage and suspension of
operations, could have a material adverse effect on the Company. See
"Business -- Insurance."
LIMITATIONS ON SECURITY INTEREST
The Notes will be effectively secured by the Note Collateral more fully
described under "Description of the Notes -- Security." Such security interest
generally is limited to (i) a first mortgage lien on the Tacoma Facility, (ii) a
first priority security interest in certain agreements related to the Tacoma
Acquisition, (iii) first mortgage liens on PCAC's chlor-alkali production
facilities located in Henderson, Nevada and St. Gabriel, Louisiana, and (iv) a
pledge of the Capital Stock of PCAC and All-Pure. Upon a default on indebtedness
secured by the Note Collateral, including the Notes, and a declaration of
acceleration of the Notes as a result thereof, the Trustee may, subject to the
provisions of the Intercreditor Agreement, cause the Collateral Agent to take
such action as it may deem advisable to protect and enforce the rights of the
Trustee and the holders in the Note Collateral, including causing any Note
Collateral to be sold and the proceeds to be applied to the pro rata payment of
the indebtedness secured by the Note Collateral, including the Notes, before
such proceeds are applied to debts of other creditors of PCAC and/or PAI, except
to the extent that certain liens, including landlord's, warehousemen's and
materialmen's liens and certain tax liens, may, as a matter of law, have
priority over the lien and security interest granted to the Collateral Agent in
the Note Collateral. The ability of the Collateral Agent to cause any Note
Collateral to be sold may be delayed pursuant to the automatic stay provisions
under the United States Bankruptcy Code, as amended (the "Bankruptcy Code"), if
PAAC, PCAC and/or PAI is the subject of any bankruptcy or receivership
proceedings. The Indenture permits the
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release of Note Collateral without substitution of Note Collateral of equal
value under certain circumstances. See "Description of the Notes -- Release of
Note Collateral."
The Company and its Subsidiaries may incur up to $50.0 million of Senior
Indebtedness which will be secured on a pari passu basis with the Notes. In
addition, the Indenture will permit the Company and its subsidiaries, under
certain circumstances, to incur additional Indebtedness, including Indebtedness
secured by assets that do not constitute Note Collateral. See "Description of
the Notes -- Certain Covenants."
NO ASSURANCE OF REALIZABLE VALUE FROM NOTE COLLATERAL
In connection with the granting of liens on the Note Collateral, the
Company made no representation as to the value or sufficiency of such Note
Collateral. Accordingly, there can be no assurance that the proceeds of sale of
any Note Collateral pursuant to the Indenture and the related security documents
following a declaration of acceleration of the Notes, will be sufficient to
satisfy any payment of principal of, or accrued and unpaid interest, if any, on,
the Notes. Any deficiency claim would rank pari passu in right of payment with
all other unsecured senior indebtedness of PAAC. In addition, the ability of the
Collateral Agent to realize upon the Note Collateral may be inhibited or
impaired by applicable bankruptcy law. See "Description of the Notes -- Certain
Bankruptcy Considerations."
POTENTIAL ENVIRONMENTAL LIABILITY OF SECURED LENDERS
Lenders that hold a security interest in real property may, in certain
specific circumstances, be held liable under certain environmental laws for the
costs of remediating or preventing releases or threatened releases of hazardous
substances at the mortgaged property. See "Description of the
Notes -- Security." While lenders that neither foreclose on nor participate in
the management of the mortgaged property (as interpreted under applicable law)
generally have not been subject to such liability, currently, the law is unclear
with respect to lenders that take possession of a mortgaged property or that
participate in the management of a mortgaged property. In this regard, the
Collateral Agent, the Trustee or the holders of the Notes would need to evaluate
the impact of these potential liabilities before determining to foreclose on the
mortgaged properties securing such Notes and exercising other available
remedies. In addition, the Collateral Agent or the Trustee, as the case may be,
may decline to foreclose upon the mortgaged properties or exercise remedies
available to the extent that they do not receive indemnification to their
satisfaction from the holders of the Notes. See "Description of the
Notes -- Security."
COMPETITION
The industries in which the Company operates are highly competitive. Many
of the Company's competitors are larger and have greater financial resources
than the Company. Among the Company's competitors are two of the world's largest
chemical companies, OxyChem and The Dow Chemical Company. Because of their
greater financial resources, these companies may be better able than the Company
to withstand severe price competition and volatile market conditions. In
addition, as a result of the reduced demand for chlorine by the pulp and paper
industry and in the production of CFCs, certain competitors may rely on price
competition to capture market share. See "Business -- Competition."
DEPENDENCE ON KEY CUSTOMERS AND KEY SUPPLIERS
Novartis Crop Protection Inc. ("Novartis") accounted for approximately 13%
of the Company's net sales for the year ended December 31, 1996 and was the only
customer that accounted for more than 10% of the Company's sales during such
period. Novartis would have accounted for approximately 9% of the Company's pro
forma net sales in 1996. The loss of Novartis or a number of other significant
customers would have a material adverse effect on the Company's financial
condition, results of operations and cash flows. In connection with the Tacoma
Acquisition, the Company and OCC Tacoma entered into a Chlorine Purchase
Agreement, pursuant to which OCC Tacoma will purchase 100,000 tons of chlorine
from the Company during the year following the Tacoma Acquisition, which would
have represented approximately 7% of the Company's pro forma net sales for the
twelve months ended June 30, 1997, and the Company has the right to
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require OCC Tacoma to purchase, and OCC Tacoma has the right to require the
Company to sell, certain decreasing amounts of chlorine during the second
through fifth years following the Tacoma Acquisition. Pursuant to a Chlorine and
Caustic Soda Sales Agreement, the Company will sell to OxyChem those quantities
of chlorine and caustic soda necessary for OxyChem to satisfy its obligations
under contracts with certain of OxyChem's national account customers. There can
be no assurance that the Company will be able to replace chlorine sales under
such agreements with sales to alternative customers in the future. There can be
no assurance that the historical levels of business from these customers will be
maintained in the future.
The production of chlor-alkali products principally requires salt,
electricity and water as raw materials, and if the supply of such materials were
limited or a significant supplier were unable to meet its obligations under the
current supply arrangements, the Company could be forced to incur increased
costs. Additional raw materials purchased by the Company include scrap iron,
aluminum oxide compounds and sulfuric acid. Any significant interruption in
supply or increase in prices for raw materials could have a material adverse
effect on the Company's financial condition, results of operation or cash flows.
RANKING OF THE NOTES
The Notes will be senior obligations of the Company and will rank pari
passu with all existing and future Senior Indebtedness of the Company (including
the loans under the New Credit Facilities) and senior to all Subordinated
Indebtedness of the Company. The Notes, however, will be effectively
subordinated to secured Senior Indebtedness of the Company and its subsidiaries
with respect to the assets securing such Indebtedness (such as accounts
receivable, inventory and certain related assets of the Company and its
subsidiaries that secure the loans under the Revolving Facility). The guarantee
of PCAC with respect to the Notes and the Term Loans will be secured by (i) a
first mortgage lien on the Tacoma Facility, (ii) a first priority security
interest in certain agreements related to the Tacoma Acquisition, and (iii)
first mortgage liens on PCAC's chlor-alkali production facilities located in
Henderson, Nevada and St. Gabriel, Louisiana, and the guarantee of PAI with
respect to the Notes and the Term Loans is secured by a pledge of the Capital
Stock of PCAC and All-Pure held by PAI. In addition, the Company and its
Subsidiaries may incur up to $50.0 million of Senior Indebtedness which will be
secured on a pari passu basis with the Notes.
As of June 30, 1997, after giving effect to the Initial Offering, the other
Refinancings and the Tacoma Acquisition, the Company and its Subsidiaries had
outstanding approximately $300.0 million aggregate principal amount of secured
Senior Indebtedness. At June 30, 1997, the Company and its Subsidiaries had,
subject to certain restrictions (including borrowing base limitations), the
ability to draw up to $32.2 million of additional secured Senior Indebtedness
under the Revolving Facility.
Pursuant to the Indenture governing the Notes, PAAC and the Subsidiary
Guarantors may incur additional secured and unsecured Indebtedness, or provide
guarantees of Indebtedness, in certain circumstances. See "Description of Other
Indebtedness" and "Description of the Notes -- Ranking" and "-- Certain
Covenants."
TAX MATTERS
Pioneer has an available net operating loss carryforward ("NOL") for
federal income tax reporting purposes which it believes was approximately $68.2
million at June 30, 1997, which includes the impact of the extraordinary loss
due to early extinguishment of debt during the second quarter of 1997. The NOL
would be available for offset against future federal taxable income, including
income of PAI (except PAI "built-in" gain recognized during the five-year period
following the acquisition of PAI as provided by section 384 of the Internal
Revenue Code of 1986, as amended (the "Code")), if generated during the
carryforward period, which expires between 2003 to 2012. See "The Company and
Pioneer -- Pioneer."
Tax benefits arising from net operating loss carryforwards are subject to
challenge by the Internal Revenue Service and may not be available. In
particular, the use of the NOL may be reduced or eliminated if (a) an ownership
change within the meaning of Code section 382 has occurred or occurs after the
Offering with respect to Pioneer, (b) a subsidiary of Pioneer that in prior
years generated a significant portion of the NOL was not permitted to file a
consolidated return with Pioneer or (c) Code section 269 (applicable to
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certain transactions the principal purpose of which is tax avoidance) applies to
PAAC's acquisition of PAI. Until April 1998, the Tacoma Acquisition may increase
the possibility that Pioneer may experience an "ownership change" under Code
section 382, either through subsequent issuances of stock by Pioneer or through
certain public trading in the Pioneer stock. Pioneer's ability to use the NOL to
offset operating income of PAI will also depend on Pioneer's ability to
establish certain facts and to prevail with respect to certain legal issues in
any controversy with the Internal Revenue Service. If challenged by the Internal
Revenue Service, Pioneer believes that it can present adequate proof of these
facts and prevail with respect to these legal issues to the satisfaction of the
Internal Revenue Service or in litigation. If Pioneer is unable to establish
such facts and prevail with respect to such legal issues, its ability to use the
NOL may be substantially restricted, and Pioneer's after-tax cash flow may be
materially adversely affected.
CHANGE OF CONTROL
Upon the occurrence of a "Change of Control", as defined in the Indenture,
each holder of Notes will have the right to require that PAAC purchase such
holder's Notes in whole or in part at a purchase price in cash in an amount
equal to 101% of the principal amount thereof, plus accrued and unpaid interest.
PAAC's ability to redeem Notes may be limited by the availability of sufficient
funds, restrictions imposed by any other debt obligations (including the New
Credit Facilities) that may then be in effect and compliance with applicable
securities laws. The Term Facility requires a mandatory prepayment of the Term
Loans at 100% of the principal amount thereof, plus accrued and unpaid interest,
with respect to a change of control under the Term Facility. The Revolving
Facility prohibits the Company from repurchasing Notes if at the time of such
repurchase an event of default under the Revolving Facility exists or would be
caused thereby. The occurrence of a Change of Control may cause an event of
default under the New Credit Facilities, upon which event of default all amounts
outstanding under the New Credit Facilities may become due and payable. After
giving effect to the Initial Offering, the other Refinancings and the Tacoma
Acquisition, PAAC does not currently have, and no assurance can be given that
PAAC will have, sufficient funds available to purchase all of the outstanding
Notes were they to be tendered in response to an offer made as a result of a
Change of Control. Further, the provisions of the Indenture may not afford
holders of Notes protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction involving PAAC that
may adversely affect holders of Notes, if such transaction does not result in a
Change of Control. See "Description of the Notes -- Change of Control."
CONTROL BY CERTAIN STOCKHOLDERS
William R. Berkley, Chairman of Pioneer and PAAC (who may be deemed to
beneficially own all shares of Pioneer common stock held by the Interlaken
Partnership), may be deemed to beneficially own approximately 59.9% of Pioneer's
outstanding voting power. Pioneer, in turn, owns all of the outstanding common
stock of PAAC, which owns all of the outstanding stock of PAI. As a result, Mr.
Berkley is able to control the election of PAAC's Board of Directors and thereby
direct the management and policies of PAAC, PAI and its subsidiaries. See "Stock
Ownership."
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements." Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, both domestic and foreign;
industry capacity; demographic changes; existing government regulations and
changes in, or the failure to comply with, government regulations; legislative
proposals concerning pollution, protection of the environment and the release or
disposal of regulated materials; liability and other claims asserted against the
Company; competition; the loss of any significant customers; changes in
operating strategy or development plans; the ability to attract and retain
qualified personnel; the significant indebtedness
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of the Company after the Tacoma Acquisition; the successful integration of the
Tacoma Facility following the Tacoma Acquisition; the availability and terms of
capital to fund the expansion of the Company's business; and other factors
referenced in this Prospectus. Certain of these factors are discussed in more
detail elsewhere in this Prospectus, including, without limitation, under the
captions "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business."
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
LACK OF PUBLIC MARKET FOR THE NOTES
The Notes constitute a new issue of securities with no established trading
market, and there can be no assurance as to (i) the liquidity of any such market
that may develop, (ii) the ability of holders of Notes to sell their Notes or
(iii) the price at which the holders of Notes would be able to sell their Notes.
If such a market were to exist, the Notes could trade at prices that may be
higher or lower than their principal amount or purchase price, depending on many
factors, including prevailing interest rates, the market for similar notes and
the financial performance of the Company and its subsidiaries. PAAC has been
advised by the Initial Purchasers that they presently intend to make a market in
the Original Notes and the Exchange Notes. However, the Initial Purchasers are
not obligated to do so, and any market-making activity with respect to the
Original Notes or the Exchange Notes may be discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and may be limited during such exchange offer or
the pendency of an applicable shelf registration statement. See "Original Notes
Registration Rights." There can be no assurance that even following registration
of the Original Notes or the Exchange Notes, as the case may be, an active
trading market will exist for the Original Notes or the Exchange Notes, as the
case may be, or that any such trading market will be liquid.
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USE OF PROCEEDS
There will be no proceeds to the Issuers from the exchange pursuant to the
Exchange Offer. The net proceeds to the Company from the issuance of the
Original Notes in the Initial Offering were approximately $194.0 million. The
net proceeds received by the Company, together with borrowings under the Term
Facility, were used to pay the cash portion of the purchase price of the Tacoma
Acquisition, to repurchase First Mortgage Notes in the Tender Offer, to pay the
consent fee in the Consent Solicitation and for working capital and general
corporate purposes. See "The Acquisition -- Use of Proceeds from Initial
Offering."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Original Notes were originally issued and sold on June 17, 1997. Such
sales were not registered under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act and Rule 144A of the
Securities Act. Pursuant to the Registration Rights Agreement, the Company and
the Subsidiary Guarantors have agreed to file by the 30th day following the
Closing Date of the Initial Offering, a registration statement (the "Exchange
Offer Registration Statement") with respect to an offer to exchange the Original
Notes for the Exchange Notes and to use their best efforts to cause such
registration statement to become effective by the 150th day following the
Closing Date and, upon becoming effective, to commence the Exchange Offer and
cause the same to remain open for acceptance for not less than 20 business days
after the date of commencement. If the Exchange Offer is not consummated within
30 days following the date the Exchange Offer Registration Statement is declared
effective or, under certain circumstances, the Initial Purchasers so request,
the Company and the Subsidiary Guarantors will file and use their best efforts
to cause to be declared effective a shelf registration statement with respect to
resales of the Original Notes and the Guarantees from time to time and will use
their best efforts to keep such registration statement effective until three
years after the effective date thereof. If the applicable registration statement
is not filed or declared effective or ceases to be effective or the Exchange
Offer is not consummated within the applicable time periods related thereto
(each, a "Registration Default"), the Company will be required to pay Liquidated
Damages to each holder of the Original Notes, in the amount of $.05 per week per
$1,000 principal amount of Original Notes for the initial 90-day period
following such Registration Default. The amount of such Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of Original
Notes at the beginning of each subsequent 90-day period, up to a maximum amount
of $.50 per week per $1,000 principal amount of Original Notes. If,
subsequently, such Registration Default is cured, the accrual of Liquidated
Damages will cease. See "Original Notes Registration Rights."
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Issuers with respect to the Registration Rights Agreement.
TERMS OF THE EXCHANGE
The Issuers hereby offer to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying this
Prospectus (the "Letter of Transmittal"), $1,000 in principal amount of Exchange
Notes for each $1,000 in principal amount of the Original Notes. The terms of
the Exchange Notes are identical in all respects to the terms of the Original
Notes for which they may be exchanged pursuant to this Exchange Offer, except
that the Exchange Notes will generally be freely transferable by holders
thereof, and the holders of the Exchange Notes (as well as remaining holders of
any Original Notes) will not be entitled to registration rights under the
Registration Rights Agreement. See "Original Notes Registration Rights." The
Exchange Notes will evidence the same debt as the Original Notes and will be
entitled to the benefits of the Indenture. See "Description of the Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange.
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Issuers believe that Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired Original Notes directly from
the Issuer or (iii) broker-dealers who acquired Original Notes as a result of
market making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes. Each broker-dealer that receives Exchange
Notes pursuant to the Exchange Offer must acknowledge that it
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will deliver a prospectus in connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so acknowledging, and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Broker-dealers who
acquired Original Notes as a result of market making or other trading activities
may use this Prospectus, as supplemented or amended, in connection with resales
of the Exchange Notes. The Issuers have agreed that, for a period not to exceed
180 days after the Exchange Date, they will make this Prospectus available to
any broker-dealer for use in connection with any such resale. Any holder that
cannot rely upon such interpretations must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
Tendering holders of Original Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Original Notes
pursuant to the Exchange Offer.
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Original Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance of
the Exchange Notes, such interest to be payable with the first interest payment
on the Exchange Notes, but will not receive any payment in respect of interest
on the Original Notes accrued after the issuance of the Exchange Notes.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on October , 1997, unless the
Issuers in their sole discretion extend the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Issuers, expires.
The Issuers reserve the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to United
States Trust Company of New York (the "Exchange Agent") and by timely public
announcement communicated, unless otherwise required by applicable law or
regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all Original Notes previously tendered pursuant
to the Exchange Offer will remain subject to the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Issuers expressly reserve the right to (i) terminate the
Exchange Offer and not accept for exchange any Original Notes for any reason,
including if any of the events set forth below under "-- Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Issuers and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Original Notes. If any such termination or
amendment occurs, the Issuers will notify the Exchange Agent in writing and will
either issue a press release or give written notice to the holders of the
Original Notes as promptly as practicable. Unless the Issuers terminate the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date,
the Issuers will exchange the Exchange Notes for the Original Notes on the
Exchange Date.
If the Issuers waive any material condition to the Exchange Offer, or amend
the Exchange Offer in any other material respect, and if at the time that notice
of such waiver or amendment is first published, sent or given to holders of
Original Notes in the manner specified above, the Exchange Offer is scheduled to
expire at any time earlier than the expiration of a period ending on the fifth
business day from, and including, the date that such notice is first so
published, sent or given, then the Exchange Offer will be extended until the
expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Issuers to record holders of Original Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Original Notes.
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HOW TO TENDER
The tender to the Issuers of Original Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between such
holder and the Issuers in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
General Procedures. A holder of an Original Note may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile thereof
(all references in this Prospectus to the Letter of Transmittal shall be deemed
to include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the Original Notes being tendered and
any required signature guarantees (or a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") pursuant to the procedure described
below), to the Exchange Agent at its address set forth on the back cover of this
Prospectus on or prior to the Expiration Date or (ii) complying with the
guaranteed delivery procedures described below.
If tendered Original Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Original Notes are to be reissued) in the
name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Original Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Issuers and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a firm (an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program (an "Eligible Program") within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Notes and/or Original Notes not exchanged are to
be delivered to an address other than that of the registered holder appearing on
the note register for the Original Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Original Notes should contact such holder promptly and instruct such
holder to tender Original Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Original Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Original Notes, either make appropriate arrangements to register
ownership of the Original Notes in such beneficial owner's name or follow the
procedures described in the immediately preceding paragraph. The transfer of
record ownership may take considerable time.
Book-Entry Transfer. The Exchange Agent will make a request to establish an
account with respect to the Original Notes at The Depository Trust Company (the
"Book-Entry Transfer Facility") for purposes of the Exchange Offer within two
business days after receipt of this Prospectus, and any financial institution
that is a participant in the Book-Entry Transfer Facility's systems may make
book-entry delivery of Original Notes by causing the Book-Entry Transfer
Facility to transfer such Original Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Original Notes
may be effected through book-entry transfer at the Book-Entry Transfer Facility,
the Letter of Transmittal, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at the address specified on the back cover page of this
Prospectus on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Original Notes to
reach the Exchange Agent before the Expiration Date, a tender may be effected if
the Exchange Agent has received at its office listed on the back cover hereof on
or prior to the Expiration Date a letter, telegram or facsimile transmission
from an Eligible Institution setting forth the name and address of the tendering
holder, the names in which the Original Notes are registered and,
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if possible, the certificate numbers of the Original Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that within five
New York Stock Exchange trading days after the date of execution of such letter,
telegram or facsimile transmission by the Eligible Institution, the Original
Notes, in proper form for transfer, will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Original Notes being
tendered by the above-described method (or a timely Book-Entry Confirmation) are
deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Issuers may, at their option, reject the tender.
Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are being delivered
with this Prospectus and the related Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Original Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Original Notes
(or a timely Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Original Notes will be
determined by the Issuers, whose determination will be final and binding. The
Issuers reserve the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Issuers, be unlawful. The Issuers also reserve the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. None of the Issuers, the
Exchange Agent or any other person will be under any duty to give notification
of any defects or irregularities in tenders or shall incur any liability for
failure to give any such notification. The Issuers' interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Original Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Original Notes to the Issuers and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Original Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Original
Notes and to acquire Exchange Notes issuable upon the exchange of such tendered
Original Notes, and that, when the same are accepted for exchange, the Issuers
will acquire good and unencumbered title to the tendered Original Notes, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Issuers to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Original Notes. The Transferor further agrees that acceptance of any
tendered Original Notes by the Issuers and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Issuers of its
obligations under the Registration Rights Agreement and that the Issuers shall
have no further obligations or liabilities thereunder (except in certain limited
circumstances). All authority conferred by the Transferor will survive the death
or incapacity of the Transferor and every obligation of the Transferor shall be
binding upon the heirs, legal representatives, successors, assigns, executors
and administrators of such Transferor.
By tendering Original Notes, the Transferor certifies (a) that it is not an
"affiliate" of the Issuers within the meaning of Rule 405 under the Securities
Act, that it is not a broker-dealer that owns Original Notes acquired directly
from the Issuers or an affiliate of the Issuers, that it is acquiring the
Exchange Notes offered
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hereby in the ordinary course of such Transferor's business and that such
Transferor has no arrangement with any person to participate in the distribution
of such Exchange Notes or (b) that it is an "affiliate" (as so defined) of the
Issuers or of the initial purchasers in the Initial Offering of the Original
Notes, and that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable to it.
WITHDRAWAL RIGHTS
Original Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth on the back cover of this Prospectus. Any such notice of
withdrawal must specify the person named in the Letter of Transmittal as having
tendered Original Notes to be withdrawn, the certificate numbers of Original
Notes to be withdrawn, the principal amount of Original Notes to be withdrawn
(which must be an authorized denomination), a statement that such holder is
withdrawing his election to have such Original Notes exchanged, and the name of
the registered holder of such Original Notes, and must be signed by the holder
in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Issuers that the person withdrawing the tender has succeeded
to the beneficial ownership of the Original Notes being withdrawn. The Exchange
Agent will return the properly withdrawn Original Notes promptly following
receipt of notice of withdrawal. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by the Issuers, and
such determination will be final and binding on all parties.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Original Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Issuers shall be deemed to have accepted for
exchange validly tendered Original Notes when, as and if the Issuers have given
written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Original
Notes for the purposes of receiving Exchange Notes from the Issuers and causing
the Original Notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the Exchange Offer, delivery of Exchange Notes to
be issued in exchange for accepted Original Notes will be made by the Exchange
Agent promptly after acceptance of the tendered Original Notes. Original Notes
not accepted for exchange by the Issuers will be returned without expense to the
tendering holders (or in the case of Original Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the procedures described above, such non-exchanged Original Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility) promptly following the Expiration Date or, if the Issuers terminate
the Exchange Offer prior to the Expiration Date, promptly after the Exchange
Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Issuers will not be required to issue Exchange Notes
in respect of any properly tendered Original Notes not previously accepted and
may terminate the Exchange Offer (by oral or written notice to the Exchange
Agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service) or, at its option, modify or otherwise amend the Exchange Offer, if (a)
there shall be threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree shall have been issued by, any court
or governmental agency or other governmental regulatory or administrative agency
or commission, (i) seeking to restrain or prohibit the making or consummation of
the Exchange Offer or any other transaction contemplated by the Exchange Offer,
29
<PAGE> 34
(ii) assessing or seeking any damages as a result thereof, or (iii) resulting in
a material delay in the ability of the Issuers to accept for exchange or
exchange some or all of the Original Notes pursuant to the Exchange Offer; (b)
any statute, rule, regulation, order or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange Offer or
any of the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority, agency
or court, domestic or foreign, that in the sole judgment of the Issuers might
directly or indirectly result in any of the consequences referred to in clauses
(a)(i) or (ii) above or, in the sole judgment of the Issuers, might result in
the holders of Exchange Notes having obligations with respect to resales and
transfers of Exchange Notes which are greater than those described in the
interpretations of the Commission referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the Exchange
Offer; or (c) a material adverse change shall have occurred in the business,
condition (financial or otherwise), operations, or prospects of the Issuers.
The foregoing conditions are for the sole benefit of the Issuers and may be
asserted by them with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Issuers) giving rise to such condition or may be waived by the Issuers in whole
or in part at any time or from time to time in their sole discretion. The
failure by the Issuers at any time to exercise any of the foregoing rights will
not be deemed a waiver of any such right, and each right will be deemed an
ongoing right which may be asserted at any time or from time to time. In
addition, the Issuers have reserved the right, notwithstanding the satisfaction
of each of the foregoing conditions, to terminate or amend the Exchange Offer.
Any determination by the Issuers concerning the fulfillment or
non-fulfillment of any conditions will be final and binding upon all parties.
In addition, the Issuers will not accept for exchange any Original Notes
tendered and no Exchange Notes will be issued in exchange for any such Original
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or qualification of the Indenture under the Trust Indenture Act of 1939
(the "Trust Indenture Act").
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. Letters of Transmittal must be addressed to the
Exchange Agent at its address set forth on the back cover page of this
Prospectus.
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Issuers have not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Issuers
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Issuers will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and expenses
of the Exchange Agent and printing, accounting and legal fees, will be paid by
the Company and are estimated at approximately $250,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Issuers. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Issuers since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of)
30
<PAGE> 35
holders of Original Notes in any jurisdiction in which the making of the
Exchange Offer or the acceptance thereof would not be in compliance with the
laws of such jurisdiction. However, the Issuers may, at their discretion, take
such action as it may deem necessary to make the Exchange Offer in any such
jurisdiction and extend the Exchange Offer to holders of Original Notes in such
jurisdiction. In any jurisdiction the securities laws or blue sky laws of which
require the Exchange Offer to be made by a licensed broker or dealer, the
Exchange Offer is being made on behalf of the Issuers by one or more registered
brokers or dealers which are licensed under the laws of such jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF ORIGINAL NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL
RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Original Notes for Exchange Notes by holders will not be a
taxable exchange for federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Original Notes pursuant to the terms of this Exchange Offer,
the Issuers will have fulfilled a covenant contained in the terms of the
Original Notes and the Registration Rights Agreement. Holders of the Original
Notes who do not tender their certificates in the Exchange Offer will continue
to hold such certificates and will be entitled to all the rights, and
limitations applicable thereto, under the Indenture, except for any such rights
under the Registration Rights Agreement, which by their terms terminate or cease
to have further effect as a result of the making of this Exchange Offer. See
"Description of the Notes." All untendered Original Notes will continue to be
subject to the restriction on transfer set forth in the Indenture. To the extent
that Original Notes are tendered and accepted in the Exchange Offer, the trading
market, if any, for the Original Notes could be adversely affected. See "Risk
Factors -- Consequences of Failure to Exchange."
The Issuers may in the future seek to acquire untendered Original Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Issuers have no present plan to acquire any Original
Notes which are not tendered in the Exchange Offer.
31
<PAGE> 36
THE ACQUISITION
THE TACOMA ACQUISITION
On June 17, 1997, Pioneer, the Company and OCC Tacoma, a subsidiary of
OxyChem, consummated the Tacoma Acquisition. Pursuant to the Purchase Agreement,
the Company acquired substantially all of the assets and properties used by OCC
Tacoma in the chlor-alkali business at Tacoma, Washington, including the Tacoma
Facility. The purchase price consisted of (i) $97.0 million, payable in cash,
(ii) 55,000 shares of Pioneer Preferred Stock, having a liquidation preference
of $100 per share, and (iii) the assumption of certain obligations related to
the acquired chlor-alkali business. Prior to closing, Pioneer assigned its
rights and obligations under the Purchase Agreement to PCAC (except for rights
to acquire certain inventory, which were assigned to PAAC).
The Company believes that the Tacoma Acquisition presented an attractive
opportunity to acquire a well-maintained chlor-alkali production facility, which
includes sophisticated membrane cell technology, in a location contiguous to the
Company's existing customer base. By acquiring a low-cost production facility in
the Pacific Northwest, the Company is well-positioned to direct output to
outlying market areas while more efficiently supplying the All-Pure and Kemwater
downstream operations, principally in the western and northwestern United
States. The Tacoma Facility provides the Company with an opportunity to further
expand chlor-alkali markets in the Pacific Northwest based on the Company's
operating efficiencies and disciplined market penetration.
The Tacoma Facility is located in an industrial complex on the Hylebos
waterway. It serves customers in the Pacific Northwest and California and, to a
lesser extent, foreign caustic soda customers. Annual capacity is approximately
225,000 tons of chlorine, 247,500 tons of caustic soda, 44,000 tons of
hydrochloric acid and 8,800 tons of calcium chloride. The site has docks capable
of handling ocean-going vessels up to 30,000 DWT size, and is served by a rail
fleet of 492 leased tankcars included as a part of the Tacoma Acquisition. The
Company believes that the plant would have generated pro forma net sales of
$77.0 million and pro forma EBITDA of $31.4 million during the twelve months
ended June 30, 1997, if the Tacoma Acquisition had occurred at the beginning of
such period.
Pursuant to the terms of the Purchase Agreement, the Company, OxyChem and
OCC Tacoma entered into certain related agreements in connection with the Tacoma
Acquisition. Pursuant to a Chlorine Purchase Agreement, OCC Tacoma will purchase
100,000 tons of chlorine from the Company during the year following the Tacoma
Acquisition, which would have represented approximately 7% of the Company's pro
forma net sales for the twelve months ended June 30, 1997. In addition, the
Company has the right to require OCC Tacoma to purchase, and OCC Tacoma has the
right to require the Company to sell, up to 100,000 tons of chlorine during the
second year following the Tacoma Acquisition and up to 75,000 tons of chlorine
during the third year following the Tacoma Acquisition. All deliveries will be
from the Tacoma Facility to OxyChem's plant at Ingleside, Texas. Market prices
will apply to all such transactions, with transportation costs to be borne and
paid by OCC Tacoma. The Company will also have the right to require OCC Tacoma
to purchase up to 50,000 tons of chlorine during the fourth year following the
Tacoma Acquisition and up to 25,000 tons of chlorine during the fifth year
following the Tacoma Acquisition at market prices, with each of the parties to
bear 50% of the transportation costs from Tacoma to Ingleside for any purchases
during such fourth and fifth years.
Pursuant to a Chlorine and Caustic Soda Sales Agreement, the Company will
sell to OxyChem those quantities of chlorine and caustic soda necessary for
OxyChem to satisfy its obligations under contracts with certain of OxyChem's
national account customers. The Company estimates that during the year following
the Tacoma Acquisition the Company will sell approximately 22,400 tons of
chlorine and 46,000 tons of caustic soda under the agreement, at prices set each
quarter at levels equal to 95% of the average prices received by OxyChem under
its arm's-length customer contracts during the preceding quarter. The final
deliveries of chlorine and caustic soda under the arrangement will occur in
December 2000.
In connection with the Tacoma Acquisition, the Company acquired OCC
Tacoma's leases of terminal facilities and related terminal services in
Wilmington and Richmond, California and, pursuant to two Product
32
<PAGE> 37
Exchange and Terminal Services Agreements, the Company agreed to allow OxyChem
to use the terminals for the storage and transfer of up to 16,000 tons of
OxyChem's caustic soda during the year following the Tacoma Acquisition, to the
extent the parties do not otherwise enter into product exchange transactions.
Under any such transactions, the Company will accept deliveries from one of
OxyChem's facilities in the Gulf Coast area and OxyChem will accept deliveries
from the Richmond and Wilmington terminal facilities.
The Company and OCC Tacoma also entered into an Interim Services Agreement,
pursuant to which OCC Tacoma will provide certain interim services to the
Company during the transition of plant operations, and an Environmental
Operating Agreement, which provides certain agreements and indemnities with
respect to environmental matters affecting the Tacoma Facility. The obligations
of OCC Tacoma under its agreements with the Company have been guaranteed by
OxyChem. See "Business -- Operating Units" and "-- Environmental and Safety
Regulation."
Each share of Pioneer Preferred Stock issued in connection with the Tacoma
Acquisition will be convertible at any time into eight shares of Class A Common
Stock of Pioneer, and each share will be redeemable at Pioneer's option at
redemption prices equal to the following percentages of liquidation value: 102%
during the first year after the Tacoma Acquisition, 104% during the second year
after the Tacoma Acquisition, 106% during the third year after the Tacoma
Acquisition, 108% during the fourth year after the Tacoma Acquisition and 110%
during each of the fifth through the tenth years after the Tacoma Acquisition.
On the first business day after the end of the tenth year after the Tacoma
Acquisition, Pioneer is required to redeem any Pioneer Preferred Stock which
remains outstanding at a price of $100 per share. No dividends are payable on
the Pioneer Preferred Stock. The Pioneer Preferred Stock is entitled to eight
votes per share (subject to adjustment) and will vote with the Pioneer common
stock on all matters. The Pioneer Preferred Stock issued to OCC Tacoma
represents approximately 4.8% of the voting power of Pioneer.
The cash portion of the purchase price for the Tacoma Acquisition is
subject to adjustment based on the difference, if any, between the aggregate
value of the inventories of raw materials, work-in-process, finished goods and
spares and stores transferred to the Company pursuant to the Tacoma Acquisition
and the agreed minimum value of such inventories as set forth in the Purchase
Agreement.
USE OF PROCEEDS FROM INITIAL OFFERING
The net proceeds from the sale of the Original Notes of approximately
$194.0 million, together with net proceeds of $97.6 million from borrowings
under the Term Facility, were used to pay the cash portion of the purchase price
of the Tacoma Acquisition, to repurchase PAAC's 13 3/8% First Mortgage Notes due
2005 in the Tender Offer, to pay the consent fee in the Consent Solicitation and
for working capital and general corporate purposes.
33
<PAGE> 38
THE COMPANY AND PIONEER
THE COMPANY
The Predecessor Company was formed in October 1988 to acquire two existing
chlor-alkali plants. Subsequently, the Company acquired several businesses
engaged in municipal, industrial and commercial water treatment, and on June 17,
1997 acquired the Tacoma Facility as its third chlor-alkali plant. The Company
conducts its business primarily through PCAC and All-Pure. The Company also owns
a 50% unconsolidated joint venture interest in Kemwater (which effective in
February 1996 succeeded to the operations of Imperial West). Pioneer owns the
remaining 50% joint venture interest in Kemwater.
PCAC. Following the Tacoma Acquisition, PCAC owns and operates three
chlor-alkali production facilities, located in St. Gabriel, Louisiana;
Henderson, Nevada; and Tacoma, Washington. These facilities produce chlorine and
caustic soda for sale in the merchant markets and for use as raw materials by
PCAC, All-Pure and Kemwater in the manufacture of downstream products. The
Henderson facility also produces hydrochloric acid, and the Tacoma Facility also
produces hydrochloric acid and calcium chloride. PCAC also has an indirect 15%
equity interest in Saguaro Power Company LP ("Saguaro Power"), which owns and
operates a 90-megawatt cogeneration facility located on approximately six acres
of the Henderson property.
All-Pure. The Company believes that All-Pure is the largest distributor of
packaged chlor-alkali products in the region of the United States west of the
Rocky Mountains and the only full-line marketer of bleach in the region.
All-Pure manufactures bleach and repackages chlorine and hydrochloric acid and
distributes these products along with caustic soda and related products to
municipalities, swimming pool supply distributors and selected commercial and
retail markets. In July 1996, All-Pure acquired T.C. Products, which is engaged
in the manufacture and marketing of bleach and related products from its plant
in Tacoma, Washington. All-Pure purchases substantially all of its chlorine and
caustic soda and a substantial portion of its hydrochloric acid from PCAC.
Because bleach contains a high percentage of water, freight costs and logistics
are an important competitive factor. All-Pure's production plants and
distribution facilities are strategically located in or near most of the largest
population centers of the West Coast.
Kemwater. Kemwater, a 50% owned joint venture, manufactures and supplies
iron chlorides to the potable and waste water markets in the region of the
United States west of the Rocky Mountains, supplying municipal customers such as
the cities of Los Angeles, Sacramento and San Diego. Iron chlorides are used
primarily to remove solids from waste water streams and to control hydrogen
sulfide emissions. Kemwater also manufactures and markets polyaluminum chlorides
for markets in the southeastern United States, as well as aluminum sulfate for
the potable and waste water and industrial water treatment industries, sodium
aluminate for the production of catalysts and paint ingredients, and bleach for
municipal water disinfection. Kemwater has exclusive licenses to use the
existing and future advanced water treatment technology of Kemira Oy of Finland
("Kemira") in the development and sale of products and services for the potable
water, waste water and industrial water treatment markets in the United States
(other than the northeastern United States) and the Caribbean, and nonexclusive
access to the use of the technology for the Canadian and Mexican markets, with
an option to acquire an exclusive license for those markets in the future. For
the year ended December 31, 1996, Kemwater purchased all of its chlorine and
caustic soda requirements and a substantial portion of its hydrochloric acid
requirements from PCAC, and it is anticipated that in the future PCAC will
continue to provide Kemwater with a substantial amount of its raw materials.
PIONEER
PAAC is a wholly-owned subsidiary of Pioneer, a publicly-traded company
that immediately prior to the acquisition of PAI had no operations. Pioneer has
an available net operating loss carryforward for federal income reporting
purposes which it believes was approximately $68.2 million at June 30, 1997,
which includes the impact of the extraordinary loss due to early extinguishment
of debt during the second quarter of 1997. In April 1995, PAAC acquired PAI for
a purchase price, including the retirement of debt and the redemption of
preferred stock, of approximately $152.3 million in cash and $11.5 million of
subordinated promissory notes of Pioneer, as well as certain amounts payable
after the closing based on certain of PAI's real estate holdings.
34
<PAGE> 39
The Interlaken Partnership beneficially owns approximately 34.9% of the
voting power of Pioneer, and William R. Berkley, Chairman of Pioneer and PAAC
(who may be deemed to beneficially own all shares of Pioneer common stock held
by the Interlaken Partnership), may be deemed to beneficially own approximately
59.9% of the voting power of Pioneer. See "Stock Ownership."
PAAC maintains its headquarters at 4300 NationsBank Center, 700 Louisiana
Street, Houston, Texas 77002, and its telephone number is (713) 225-3831. PAAC
was incorporated in the State of Delaware in March 1995.
35
<PAGE> 40
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997, which reflects the Initial Offering, the other Refinancings and the
Tacoma Acquisition. See "The Acquisition." The table should be read in
conjunction with the historical financial information of the Company and the
Tacoma Plant and the respective notes thereto and the unaudited pro forma
information of the Company and the notes thereto appearing elsewhere in this
Prospectus. See also "Description of the Notes."
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Short-term debt:
Current portion of long-term debt......................... $ 1,163
--------
Total short-term debt............................. 1,163
--------
Long-term debt:
New Credit Facilities (1)................................. 99,000
9 1/4% Notes offered hereby............................... 200,000
Long-term debt............................................ 6,620
--------
Total long-term debt.............................. 305,620
--------
Stockholder's equity:
Common Stock(2)........................................... 1
Additional paid in capital(3)............................. 66,624
Retained earnings (deficit)(4)............................ (9,258)
--------
Total stockholder's equity........................ 57,367
--------
Total capitalization.............................. $364,150
========
</TABLE>
- ------------
(1) Represents borrowings of $100.0 million in Term Loans. The Company did not
incur Revolving Loans at closing in connection with the Refinancings and the
Tacoma Acquisition but had $2.8 million in letters of credit outstanding at
such time under the Revolving Facility. See "Description of Other
Indebtedness -- New Credit Facilities."
(2) Par value $.01 per share, 1,000 shares authorized, issued and outstanding.
(3) Concurrent with the Tacoma Acquisition, Pioneer issued to OCC Tacoma the
Pioneer Preferred Stock. As a result, Pioneer contributed additional paid-in
capital of $5.5 million to PAAC.
(4) Includes the extraordinary loss on the early extinguishment of debt
associated with the Tender Offer for the $135.0 million of First Mortgage
Notes of $18.6 million, net of an income tax benefit of $12.4 million.
36
<PAGE> 41
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Pro Forma
Financial Information") of the Company has been derived from and should be read
in conjunction with (i) the audited consolidated financial statements of the
Company and the related notes thereto included elsewhere herein which statements
have been audited by Deloitte & Touche LLP, independent auditors, whose report
is included elsewhere herein and (ii) the audited financial statements of the
Tacoma Plant and the related notes thereto included elsewhere herein, which
statements have been audited by Arthur Andersen LLP, independent auditors, whose
report is included elsewhere herein. The Pro Forma Financial Information has
been prepared to illustrate the effects of the Initial Offering, the other
Refinancings, the Tacoma Acquisition and the acquisition of T.C. Products. This
pro forma financial information does not necessarily present the results of
operations as they would have been if the companies involved had constituted one
entity for the periods presented. See "Prospectus Summary -- The Tacoma
Acquisition" and "The Acquisition."
The pro forma statement of operations for the year ended December 31, 1996
gives effect to the Initial Offering, the other Refinancings, the Tacoma
Acquisition and the acquisition of T.C. Products as if they had occurred on
January 1, 1996. The pro forma statement of operations for the six months ended
June 30, 1997 gives effect to the Initial Offering, the other Refinancings and
the Tacoma Acquisition as if they had occurred on January 1, 1997. The pro forma
statement of operations for the six months ended June 30, 1996 gives effect to
the Initial Offering, the other Refinancings, the Tacoma Acquisition and the
acquisition of T.C. Products as if they had occurred on January 1, 1996. The
acquisition of T.C. Products was effective July 1, 1996 and was accounted for
using the purchase method. The Pro Forma Financial Information is not
necessarily indicative of either future results of operations or the results
that might have occurred if the foregoing transactions had been consummated on
the indicated date.
37
<PAGE> 42
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------------- -------------------------------------------
TACOMA T.C. PRODUCTS AS
COMPANY PLANT ACQUISITION(1) ADJUSTMENTS(2) ADJUSTED
-------- ------- -------------- -------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues............................ $183,326 $73,715 $4,255 $5,942 (a) $267,238
Cost of sales....................... 126,739 52,420 2,550 (29)(b) 181,680
-------- ------- ------ ------ --------
Gross profit........................ 56,587 21,295 1,705 5,971 85,558
Selling, general and administrative
expenses.......................... 23,528 1,782 900 997 (c) 27,207
-------- ------- ------ ------ --------
Operating income.................... 33,059 19,513 805 4,974 58,351
Equity in net loss of unconsolidated
subsidiary........................ 2,607 -- -- -- 2,607
Interest expense, net............... 17,290 -- 271 8,829 (d) 26,390
Other income (expense), net......... 1,684 (2,209) 11 2,216 (e) 1,702
-------- ------- ------ ------ --------
Income before income taxes and
extraordinary item................ 14,846 17,304 545 (1,639) 31,056
Provision for income taxes.......... 6,735 6,059 241 (655)(f) 12,380
-------- ------- ------ ------ --------
Income before extraordinary item.... $ 8,111 $11,245 $ 304 $ (984) $ 18,676
======== ======= ====== ====== ========
</TABLE>
(see footnotes on following page)
38
<PAGE> 43
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) Reflects the pro forma financial results of T.C. Products for the period of
January 1, 1996 to July 1, 1996, the period prior to ownership by the
Company.
(2) Reflects the adjustments to the Tacoma Plant's operating results to reflect
operations as part of the Company:
(a) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of freight costs associated with the sale of
100,000 tons per year of chlorine shipped to the Gulf Coast
for which OCC Tacoma will bear the cost..................... $ 6,394
(2) Adjustment to sales to OCC Tacoma for the difference between
historical prices and Gulf Coast prices..................... 60
(3) Additional 5% commission to be paid to OxyChem on OxyChem's
national accounts to be serviced by the Company............. (512)
--------
$ 5,942
========
</TABLE>
(b) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of the impact of LIFO accounting previously used
by the Tacoma Plant as the Company uses FIFO or average cost
methods of accounting for inventory valuation............... $ 652
(2) Additional depreciation expense with respect to the
properties, plant and equipment purchased in connection with
the Tacoma Acquisition using the straight-line method over
an average life of 20 years................................. 351
(3) Elimination of operating lease expense for equipment
capitalized by the Company which was previously leased by
OCC Tacoma.................................................. (1,532)
(4) Incremental insurance costs................................. 500
--------
$ (29)
========
</TABLE>
(c) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of OxyChem corporate allocations................ $ (1,782)
(2) Addition of the Company's incremental selling, general and
administrative expenses..................................... 750
(3) Additional amortization expense with respect to intangible
assets purchased in connection with the Tacoma Acquisition
using the straight-line method over periods of 5 to 25
years....................................................... 2,029
--------
$ 997
========
</TABLE>
(d) Incremental interest expense related to the Term Loans with an assumed
interest rate of 8.375% and to the Notes with an interest rate of 9.25%. A
0.25% change in the interest rate applicable to the Term Loans would change
pro forma interest expense by $250.
(e) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of environmental expense associated with the
Tacoma Plant's accrual of known environmental matters....... $ 1,932
(2) Elimination of fees related to the Tacoma Plant's sales of
receivables................................................. 377
(3) Elimination of amortization of deferred gain on equipment
capitalized by the Company, which was previously leased by
the Tacoma Plant............................................ (93)
--------
$ 2,216
========
</TABLE>
(f) Represents the tax effect of all pro forma adjustments.
39
<PAGE> 44
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------------ -----------------------
TACOMA AS
COMPANY PLANT ADJUSTMENTS ADJUSTED
------- ------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.......................................... $84,831 $34,491 $ 2,530 (a) $121,852
Cost of sales..................................... 65,659 27,141 (971)(b) 91,829
------- ------- ------- --------
Gross profit...................................... 19,172 7,350 3,501 30,023
Selling, general and administrative expenses...... 12,281 539 735 (c) 13,555
------- ------- ------- --------
Operating income.................................. 6,891 6,811 2,766 16,468
Equity in net loss of unconsolidated subsidiary... 1,774 -- 1,774
Interest expense, net............................. 9,438 -- 4,042 (d) 13,480
Other income, net................................. 437 455 (494)(e) 398
------- ------- ------- --------
Income (loss) before income taxes and
extraordinary item.............................. (3,884) 7,266 (1,770) 1,612
Provision (benefit) for income taxes.............. (311) 2,545 (150)(f) 2,084
------- ------- ------- --------
Income (loss) before extraordinary item........... $(3,573) $ 4,721 $(1,620) $ (472)
======= ======= ======= ========
</TABLE>
(see footnotes on following page)
40
<PAGE> 45
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(a) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of freight costs associated with the sale of
100,000 tons per year of chlorine shipped to the Gulf Coast
for which OCC Tacoma will bear the cost..................... $2,548
(2) Reclassification of freight rebate from other income to
offset freight costs included in revenues................... 586
(3) Adjustment to sales to OCC Tacoma for the difference between
historical prices and Gulf Coast prices..................... (344)
(4) Additional 5% commission to be paid to OxyChem on OxyChem's
national accounts to be serviced by the Company............. (260)
------
$2,530
======
</TABLE>
(b) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of the impact of LIFO accounting previously used
by the Tacoma Plant as the Company uses FIFO or average cost
methods of accounting for inventory valuation............... $ (555)
(2) Additional depreciation expense with respect to the
properties, plant and equipment purchased in connection with
the Tacoma Acquisition using the straight-line method over
an average life of 20 years................................. 121
(3) Elimination of operating lease expense for the equipment
capitalized by the Company which was previously leased by
OCC Tacoma.................................................. (766)
(4) Incremental insurance costs................................. 229
------
$ (971)
======
</TABLE>
(c) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of OxyChem corporate allocations................ $ (539)
(2) Addition of the Company's incremental selling, general and
administrative expenses..................................... 344
(3) Additional amortization expense with respect to intangible
assets purchased in connection with the Tacoma Acquisition
using the straight-line method over periods of 5 to 25
years....................................................... 930
------
$ 735
======
</TABLE>
(d) Incremental interest expense related to the Term Loans with an assumed
interest rate of 8.375% and to the Notes with an interest rate of 9.25%.
(e) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of fees related to the Tacoma Plant's sales of
receivables................................................. $ 138
(2) Elimination of amortization of deferred gain on equipment
capitalized by the Company, which was previously leased by
the Tacoma Plant............................................ (46)
(3) Reclassification of freight rebate to revenues to offset
freight costs............................................... (586)
------
$ (494)
======
</TABLE>
(f) Represents the tax effect of all pro forma adjustments.
41
<PAGE> 46
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
----------------- ------------------------------------------------
TACOMA T.C. PRODUCTS AS
COMPANY PLANT ACQUISITION(1) ADJUSTMENTS(2) ADJUSTED
------- ------- -------------- -------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues........................... $91,963 $36,536 $4,255 $3,128 (g) $135,882
Cost of sales...................... 64,343 27,767 2,550 (691)(b) 93,969
------- ------- ------ ------ --------
Gross profit....................... 27,620 8,769 1,705 3,819 41,913
Selling, general and administrative
expenses......................... 12,375 875 900 399 (c) 14,549
------- ------- ------ ------ --------
Operating income................... 15,245 7,894 805 3,420 27,364
Equity in net loss of
unconsolidated subsidiary........ 223 -- -- -- 223
Interest expense, net.............. 8,349 -- 271 4,410 (d) 13,030
Other income (expense), net........ 104 (1,178) 11 1,111 (e) 48
------- ------- ------ ------ --------
Income before income taxes and
extraordinary item............... 6,777 6,716 545 121 14,159
Provision for income taxes......... 3,887 2,352 241 48 (f) 6,528
------- ------- ------ ------ --------
Income before extraordinary item... $ 2,890 $ 4,364 $ 304 $ 73 $ 7,631
======= ======= ====== ====== ========
</TABLE>
(see footnotes on following page)
42
<PAGE> 47
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) Reflects the pro forma financial results of T.C. Products for the period of
January 1, 1996 to July 1, 1996, the period prior to ownership by the
Company.
(2) Reflects the adjustments to the Tacoma Plant's operating results to reflect
operations as part of the Company:
(a) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of freight costs associated with the sale of
100,000 tons per year of chlorine shipped to the Gulf Coast
for which OCC Tacoma will bear the cost..................... $3,246
(2) Adjustment to sales to OCC Tacoma for the difference between
historical prices and Gulf Coast prices..................... 142
(3) Additional 5% commission to be paid to OxyChem on OxyChem's
national accounts to be serviced by the Company............. (260)
------
$3,128
======
</TABLE>
(b) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of the impact of LIFO accounting previously used
by the Tacoma Plant as the Company uses FIFO or average
costs methods of accounting for inventory valuation......... $ (329)
(2) Additional depreciation expense with respect to the
properties, plant and equipment purchased in connection with
the Tacoma Acquisition using the straight-line method over
an average life of 20 years................................. 175
(3) Elimination of operating lease expense for the equipment
capitalized by the Company which was previously leased by
OCC Tacoma.................................................. (766)
(4) Incremental insurance costs................................. 229
------
$ (691)
======
</TABLE>
(c) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of OxyChem corporate allocations................ $ (875)
(2) Addition of the Company's incremental selling, general and
administrative expenses..................................... 344
(3) Additional amortization expense with respect to intangible
assets purchased in connection with the Tacoma Acquisition
using the straight-line method over periods of 5 to 25
years....................................................... 930
------
$ 399
======
</TABLE>
(d) Incremental interest expense related to the Term Loans with an assumed
interest rate of 8.375% and to the Notes with an interest rate of 9.25%.
(e) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of environmental expense associated with the
Tacoma Plant's accrual of known environmental matters....... $ 966
(2) Elimination of fees related to the Tacoma Plant's sales of
receivables................................................. 191
(3) Elimination of amortization of deferred gain on equipment
capitalized by the Company, which was previously leased by
the Tacoma Plant............................................ (46)
------
$1,111
======
</TABLE>
(f) Represents the tax effect of all pro forma adjustments.
43
<PAGE> 48
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data of the
Predecessor Company for the years ended December 31, 1992, 1993, and 1994 and
the period from January 1, 1995 through April 20, 1995. Such data were derived
from the Predecessor Company's financial statements, which were audited by Ernst
& Young LLP, independent auditors, except for the financial statements of
certain of the Company's investments, which were audited by other independent
auditors. The table also sets forth the historical financial information of the
Company for the period from March 6, 1995 ("Inception") through December 31,
1995 and the year ended December 31, 1996. Such data were audited by Deloitte &
Touche LLP. For comparative purposes the combined year ended December 31, 1995
has been included. The table also sets forth the historical financial
information of the Company for the six months ended June 30, 1996 and 1997. The
consolidated balance sheets at June 30, 1996 and June 30, 1997 and the
consolidated statements of operations for the three months ended June 30, 1996
and June 30, 1997 are unaudited and reflect all adjustments, consisting of
normal recurring items, which management considers necessary for a fair
presentation. Operating results for the first six months of 1997 are not
necessarily indicative of results to be expected for the year ending December
31, 1997. The data should be read in conjunction with the Consolidated Financial
Statements included elsewhere in this Prospectus. The following table should
also be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
44
<PAGE> 49
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------------------------------------- PERIOD FROM
PERIOD FROM INCEPTION
YEAR ENDED DECEMBER 31, JANUARY 1, 1995 THROUGH
------------------------------ THROUGH APRIL 20, DECEMBER 31,
1992 1993 1994(1) 1995 1995
-------- -------- -------- ----------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................... $157,401 $151,191 $167,217 $ 57,848 $142,908
Cost of sales...................... 126,149 131,711 134,556 37,400 98,175
-------- -------- -------- -------- --------
Gross profit....................... 31,252 19,480 32,661 20,448 44,733
Selling, general and administrative
expenses......................... 22,602 21,850 22,529 7,047 19,836
-------- -------- -------- -------- --------
Operating income (loss)............ 8,650 (2,370) 10,132 13,401 24,897
Equity in net income (loss) of
unconsolidated subsidiary........ 26 1,149 183 204 --
Interest expense, net.............. 8,189 7,551 6,407 1,665 12,905
Settlement of litigation and
insurance claims, net............ 2,755 8,360 3,326 -- --
Other income (expense), net........ 1,104 954 1,154 (319) 637
-------- -------- -------- -------- --------
Income (loss) before taxes and
extraordinary items.............. 4,346 542 8,388 11,621 12,629
Income tax provision (benefit)..... 1,765 486 3,242 4,809 6,208
-------- -------- -------- -------- --------
Income (loss) before extraordinary
item............................. 2,581 56 5,146 6,812 6,421
Extraordinary item, net of
applicable tax(4)................ -- -- -- 3,420 --
-------- -------- -------- -------- --------
Net income (loss).................. $ 2,581 $ 56 $ 5,146 $ 3,392 $ 6,421
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................... $ 7,697 $ (5,521) $ (4,351) $ 10,013 $ 10,450
Total assets....................... 165,915 154,922 163,039 165,329 264,731
Total debt, redeemable preferred
stock and redeemable stock put
warrants......................... 76,848 67,709 57,865 57,677 135,000
Common stockholder's equity........ 20,165 19,721 23,102 26,370 55,427
OTHER FINANCIAL DATA:
Capital expenditures............... 6,652 5,888 5,681 3,447 13,556
Depreciation and amortization...... 12,992 13,446 13,595 4,490 12,274
Ratio of earnings to fixed
charges(5)....................... 1.4x -- 1.8x 5.1x 1.8x
ADDITIONAL INFORMATION:
EBITDA(6).......................... $ 25,501 $ 20,390 $ 28,207 $ 17,572 $ 37,808
<CAPTION>
COMBINED SIX MONTHS ENDED
YEAR ENDED YEAR ENDED ---------------------
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995(2) 1996(3) 1996 1997
------------ ------------ --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................... $200,756 $183,326 $ 91,963 $ 84,831
Cost of sales...................... 135,575 126,739 64,343 65,659
-------- -------- -------- --------
Gross profit....................... 65,181 56,587 27,620 19,172
Selling, general and administrative
expenses......................... 26,883 23,528 12,375 12,281
-------- -------- -------- --------
Operating income (loss)............ 38,298 33,059 15,245 6,891
Equity in net income (loss) of
unconsolidated subsidiary........ 204 (2,607) (223) (1,774)
Interest expense, net.............. 14,570 17,290 8,349 9,438
Settlement of litigation and
insurance claims, net............ -- -- -- --
Other income (expense), net........ 318 1,684 104 437
-------- -------- -------- --------
Income (loss) before taxes and
extraordinary items.............. 24,250 14,846 6,777 (3,884)
Income tax provision (benefit)..... 11,017 6,735 3,887 (311)
-------- -------- -------- --------
Income (loss) before extraordinary
item............................. 13,233 8,111 2,890 (3,573)
Extraordinary item, net of
applicable tax(4)................ 3,420 -- -- 18,658
-------- -------- -------- --------
Net income (loss).................. $ 9,813 $ 8,111 $ 2,890 $(22,231)
======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................... $ 10,450 $ 3,334 $ 2,452 $ 37,406
Total assets....................... 264,731 291,010 285,374 439,079
Total debt, redeemable preferred
stock and redeemable stock put
warrants......................... 135,000 141,757 135,000 306,783
Common stockholder's equity........ 55,427 74,323 61,037 57,367
OTHER FINANCIAL DATA:
Capital expenditures............... 17,003 17,121 8,505 5,278
Depreciation and amortization...... 16,764 15,695 8,284 8,553
Ratio of earnings to fixed
charges(5)....................... 2.4x 1.7x 1.7x --
ADDITIONAL INFORMATION:
EBITDA(6).......................... $ 55,380 $ 50,438 $ 23,633 $ 15,881
</TABLE>
(see footnotes on following page)
45
<PAGE> 50
NOTES TO SELECTED HISTORICAL FINANCIAL DATA
(1) GPS was acquired in May 1994 and therefore the results of operations for the
year ended December 31, 1994 include the results of operations from the date
of acquisition in May 1994 through December 31, 1994. GPS generated third
party sales during such partial period of $9.4 million.
(2) For comparative purposes the combined results of operations for the year
ended December 31, 1995 include the Company's operating results for the
period from Inception through December 31, 1995 and the Predecessor
Company's operating results from January 1, 1995 through April 20, 1995. The
Company believes that this provides a meaningful basis for comparison.
(3) Kemwater was formed in connection with the acquisition of KWT in February
1996 to continue the business activities previously conducted by Imperial
West and, accordingly, the results of operations for the year ended December
31, 1996 include the results of operations of Imperial West only for the
month of January 1996. Since the acquisition, 50% of Kemwater's results of
operations are included as equity in net loss of unconsolidated subsidiary.
Prior to the formation of Kemwater, the financial statements of Imperial
West were consolidated with the Company's consolidated financial statements.
(4) An extraordinary item of $3.4 million, net of an income tax benefit of $2.1
million, was due to costs incurred and previously capitalized costs written
off, pertaining to debt refinanced by the Predecessor Company prior to the
PAI Acquisition. An extraordinary item of $18.7 million, net of an income
tax benefit of $12.4 million, was due to costs incurred and previously
capitalized costs written off, pertaining to debt refinanced by the Company
concurrent with the Tacoma Acquisition.
(5) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income (loss) before provision for income taxes, excluding equity
in net income (loss) of subsidiaries owned 50% or less by the Company, plus
fixed charges net of capitalized interest. Fixed charges consist of interest
expense, including capitalized interest, the portion of rental expense
representative of an interest factor from operating leases and the
amortization of financing costs. The Company's earnings were insufficient to
cover total fixed charges for the year ended December 31, 1993 and for the
six months ended June 30, 1997. The coverage deficiencies were $0.6 million
and $3.4 million, respectively.
(6) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization and equity in net income (loss) of unconsolidated
subsidiaries and is presented because the Company believes that it provides
useful information regarding its ability to service and/or incur debt.
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows from operating activities and other combined income or
cash flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of the Company's profitability or
liquidity.
46
<PAGE> 51
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth revenues of the Company for the periods
indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------
PREDECESSOR
COMPANY COMBINED(1)
----------- -----------
1994 1995 1996(2) 1996(2) 1997(3)
----------- ----------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues
PCAC.............................. $ 88,907 $118,298 $129,570 $66,915 $59,470
All-Pure.......................... 47,872 49,549 51,317 22,609 25,361
Kemwater/Imperial West(4)......... 30,438 32,909 2,439 2,439 --
-------- -------- -------- ------- -------
Total revenues............ $167,217 $200,756 $183,326 $91,963 $84,831
======== ======== ======== ======= =======
</TABLE>
- ---------------
(1) For comparative purposes the combined results of operations for the year
ended December 31, 1995 include the Predecessor Company's operating results
from January 1, 1995 through April 20, 1995 and the Company's operating
results for the period from Inception through December 31, 1995. The Company
believes that this provides a meaningful basis for comparison.
(2) T.C. Products was acquired by All-Pure in July 1996 and, accordingly, the
results of operations for the year ended December 31, 1996 includes the
results of operations since the acquisition date. T.C. Products generated
third party sales during such period of $5.1 million.
(3) The Tacoma Facility was acquired by PCAC on June 17, 1997 and, accordingly,
the results of operations for the six months ended June 30, 1997 includes
the results of operations since the acquisition date.
(4) Kemwater was formed in connection with the acquisition of KWT in February
1996 to continue the business activities previously conducted by Imperial
West and, accordingly, the results of operations for the year ended December
31, 1996 includes the results of operations of Imperial West only for the
month of January 1996. Since the acquisition, 50% of Kemwater's results of
operations are included as equity in net loss of unconsolidated subsidiary.
Prior to the formation of Kemwater, the financial statements of Imperial
West were consolidated with the Company's consolidated financial statements.
GENERAL
The Company manufactures and markets chlorine and caustic soda in the
United States and is a major manufacturer and marketer of several related
downstream water treatment products. The Company generates revenues principally
through PCAC and All-Pure. The Company also owns a 50% unconsolidated interest
in Kemwater, which was formed in February 1996 to continue the operations
previously conducted by the Company's Imperial West subsidiary and to operate
the business acquired through the acquisition of KWT.
Chlorine and caustic soda markets and profitability have been, and are
likely to continue to be, cyclical. Periods of high demand, high capacity
utilization and increasing operating margins tend to result in new plant
investments and increased production until supply exceeds demand, followed by
periods of declining prices and declining capacity utilization until the cycle
is repeated. In addition, markets for chlorine and caustic soda are affected by
general economic conditions, both in the United States and elsewhere in the
world, and a downturn in the economy could have a material adverse effect on the
Company's operations and its cash flows.
Large quantities of chlorine are not typically stored on- or off-site.
Chlor-alkali production rates are therefore typically based on short-term
chlorine demand (typically one month). However, chlor-alkali plants do not
achieve optimum cost efficiency if production rates are cycled. The maintaining
of steady production 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
47
<PAGE> 52
for chlorine and caustic soda rarely coincide and caustic soda demand, in the
past, has tended to trail chlorine demand into and out of economic growth
cycles. In addition, in recent years the end markets for chlorine and caustic
soda have increasingly diverged.
Chlorine demand over the last three years has experienced steady growth,
following trends in PVC, urethane intermediates and water treatment markets.
This increased demand has been partially offset by declining chlorine use in the
pulp and paper industry and as a feedstock in the production of CFCs due to
regulatory pressures. Due to increased demand, published chlorine prices have
risen from approximately $145 per ton during 1994 to approximately $160 per ton
at the end of 1996.
As chlorine demand continued to be strong in 1996, the industry's operating
rate remained high. However, this resulted in an overproduction of chlorine's
co-product, caustic soda, relative to demand. This oversupply led to decreasing
caustic soda prices, offsetting increased chlorine prices and resulting in ECU
netbacks (net selling prices) decreasing during 1996 from 1995 levels.
To achieve operating efficiencies and to help mitigate the effects of
cyclicality on the Company's business, the Company has pursued a strategy of
converting chlorine and caustic soda into products that are used in markets with
steady demand, particularly water treatment chemicals. In pursuit of this
strategy, the Predecessor Company acquired Imperial West and All-Pure in 1990
and GPS in 1994, and the Company acquired T.C. Products in July 1996, each of
which is a major manufacturer and distributor of water treatment chemicals such
as iron chlorides, aluminum sulfate, repackaged chlorine and bleach, primarily
in the western United States.
Due in part to these acquisitions and the improved chlorine market, the
Predecessor Company and the Company increased ECU capacity utilization rates
over the last seven years from 93% in 1990 to approximately 100% in 1996.
On February 2, 1996, Imperial West participated in the acquisition of KWT
from a subsidiary of Kemira. KWT produces specialty and commodity inorganic
coagulants, including polyaluminum chlorides, aluminum sulfate, sodium aluminate
and ferric sulfate, at its plant in Savannah, Georgia for sale to the water
treatment market in the eastern United States and the Caribbean. The combined
operations of Imperial West and KWT are now conducted by Kemwater, 50% of the
common stock of which is held by a subsidiary of PAAC and 50% of the common
stock which is owned by a subsidiary of Pioneer. A subsidiary of PAAC also owns
all of the outstanding shares of Kemwater's preferred stock. The Company's
investment in Kemwater is accounted for by the equity method.
Effective July 1, 1996, All-Pure acquired T.C. Products through the
acquisition of its parent, T.C. Holdings, Inc. from its shareholders.
Consideration for the acquisition consisted of net cash payments of $5.5 million
and All-Pure subordinated notes with an aggregate principal amount of $4.5
million due July 30, 2001, subject to prepayment. The Company's existing cash
balances were used to fund the cash portion of the purchase price. T.C. Products
continues to manufacture and package bleach and related products at its plant in
Tacoma, Washington. The purchase of T.C. Products has been accounted for as a
purchase transaction and, accordingly, the consolidated financial statements
subsequent to July 1, 1996 reflect the purchase price, including transaction
costs, allocated to tangible and intangible assets acquired and liabilities
assumed, based on their fair values as of July 1, 1996, and include the results
of operations of T.C. Products subsequent to such date.
On June 17, 1997, Pioneer and the Company consummated the Tacoma
Acquisition. Pursuant to the Asset Purchase Agreement dated as of May 14, 1997,
PCAC acquired substantially all of the assets and properties used by OCC Tacoma
in the chlor-alkali business at Tacoma, Washington. The purchase price consisted
of (i) $97.0 million, payable in cash, (ii) 55,000 shares of Pioneer Preferred
Stock, having a liquidation preference of $100 per share, and (iii) the
assumption of certain obligations related to the acquired chlor-alkali business.
Concurrent with the closing of the Tacoma Acquisition on June 17, 1997,
PAAC consummated a series of related transactions comprised of (i) the
repurchase of all of PAAC's existing First Mortgage Notes at 120% of their
principal amount, (ii) the issuance and sale of $200.0 million of Notes and
(iii) borrowings of
48
<PAGE> 53
$100.0 million in Term Loans under the Term Facility. The proceeds of $300.0
million from these transactions were used to complete the Tender Offer, effect
the Tacoma Acquisition and pay related expenses. Funds not so used were added to
working capital.
On June 17, 1997, PAAC also entered into the Revolving Facility, a $35.0
million revolving loan (subject to borrowing base limitations that relate to the
level of accounts receivable and inventory) and letter of credit facility. The
Revolving Facility provides for Revolving Loans in an aggregate principal amount
up to $35.0 million, of which up to $10.0 million will be available for the
issuance of letters of credit. PAAC did not incur Revolving Loans at closing in
connection with the Refinancings and the Tacoma Acquisition but had $2.8 million
in letters of credit outstanding at such time under the revolving facility.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues
Revenues decreased by $7.1 million or approximately 8% to $84.8 million for
the six months ended June 30, 1997. Revenues for PCAC decreased by $7.4 million
or approximately 10% in the first six months of 1997 compared to the same period
a year ago. ECU prices decreased by approximately 4%, which reflects a $50 per
ton decrease in caustic soda prices, partially offset by a $43 per ton increase
in chlorine prices. In addition, caustic soda sales volume decreased 12% due to
weather-related delays in Mississippi River barge shipments during the first
quarter of 1997 and a reduction in exchange activity. Revenues for All-Pure
increased 12% or $2.7 million in the first six months of 1997 compared to the
same period a year ago. This increase was due to the revenues associated with
the acquisition of T.C. Products which the Company acquired in the second
quarter of 1996. The remaining decrease in revenues was attributable to the
transfer of the business of a subsidiary of the Company to a joint venture with
Pioneer that is accounted for on the equity method.
Cost of Sales
Cost of sales decreased by $1.3 million or almost 2% to $65.7 million for
the six months ended June 30, 1997. This increase was the result of the
acquisition mentioned above, partially offset by lower cost of sales for caustic
soda due to lower sales volumes and the transfer of the business of a subsidiary
to a joint venture mentioned above.
Gross Profit
Gross profit margin decreased from 30% during the first six months of 1996
to approximately 23% during the first six months of 1997. This decrease was a
result of the lower ECU prices described above along with somewhat higher ECU
manufacturing costs.
Selling, General and Administrative Expense
Selling, general and administrative expense remained relatively unchanged
between the first six months of 1996 and the first six months of 1997.
Equity in Net Loss of Unconsolidated Subsidiary
Equity in net loss of unconsolidated subsidiary increased by $1.6 million
for the six months ended June 30, 1997 due to increased losses sustained by
Kemwater. Kemwater's profitability decreased as a result of higher raw material
costs which it was unable to pass through to its customers.
Interest Expense
Interest expense increased by approximately $1.1 million to $9.4 million in
the six months of 1997 from $8.3 million in the first half of 1996. The increase
was a result of the acquisition mentioned above and the debt incurred for the
refinancing of the Company's long-term debt and acquisition of OCC Tacoma's
chlor-alkali facility.
49
<PAGE> 54
Income (Loss) Before Taxes and Extraordinary Item
As a result of the above, income (loss) before income taxes and
extraordinary item decreased $10.7 million to a loss of $3.9 million for the six
months ended June 30, 1997 from income of $6.8 million for the six months ended
June 30, 1996.
Extraordinary Loss from Early Extinguishment of Debt
During the second quarter of 1997, the Company recognized a $18.7 million
extraordinary loss as a result of the early extinguishment of the 13 3/8% First
Mortgage Notes. The extraordinary loss consisted primarily of the 20% premium
paid or the face value of the notes and the write-off of debt placement fees
related to the notes (net of tax benefit of $12.4 million).
Income Tax Provision
Provision for income taxes declined by $4.2 million to a $0.3 million
benefit as a result of the Company's profitability outlined above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO COMBINED YEAR ENDED DECEMBER 31, 1995
Revenues
Revenues decreased by $17.4 million or approximately 9% to $183.3 million
for 1996 compared to $200.8 million in 1995. The transfer of the Imperial West
business to Kemwater in February 1996 caused a decrease in Imperial West's
revenues of approximately $30.5 million. This decrease was partially offset by
an $8.3 million increase in revenues at PCAC related to sales to Kemwater which,
as a result of this change of ownership, are no longer eliminated in
consolidation. Also affecting PCAC's 1996 as compared to 1995 revenues was a 9%
increase in caustic soda sales volumes of 31,000 tons ($7.4 million), a 6%
increase in chlorine sales volumes of 20,000 tons ($3.0 million) and an
approximate 7% decrease in ECU sales prices ($10.6 million). Revenues for
All-Pure in 1996 increased by $1.7 million, which included the impact of $5.4
million of revenues from the T.C. Products acquisition in July 1996, which was
partially offset by a decrease in All-Pure sales volumes in 1996 as compared
with 1995.
Cost of Sales
Cost of sales decreased by approximately $8.8 million, or 7%, to $126.7 in
1996 from $135.5 million in 1995. The decrease was the result of the transfer of
the Imperial West operations to Kemwater ($20.5 million). Offsetting this
decrease was an increase in manufacturing costs ($4.2 million), which was
primarily related to increased electricity costs, and increased caustic soda and
chlorine sales volume ($6.1 million). In addition, All-Pure's 1996 cost of sales
were higher primarily as the result of the inclusion of T.C. Products which
increased cost of sales by $3.1 million.
Gross Profit
Gross profit decreased by $8.6 million, or 13%, from $65.2 million in 1995
to $56.6 million in 1996. Gross margin decreased from 32% in 1995 to 31% in
1996. The decline was a result of a reduction of the factors outlined above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased approximately $3.4
million to $23.5 million in 1996 due primarily to the transfer of Imperial West
operations to Kemwater during 1996.
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Equity in Net Loss of Unconsolidated Subsidiaries
Equity in net loss of unconsolidated subsidiaries represents the Company's
50% ownership interest in Kemwater which was formed in February 1996 as the
result of the acquisition of KWT by Imperial West. Kemwater experienced a loss
in 1996 as a result of increased competitive pressure in their markets.
Interest Expense, Net
Interest expense increased by $2.7 million or 19% to $17.3 million for
1996. This increase was a result of including a full year of interest expense
for the debt incurred in connection with the PAI Acquisition in April 1995 as
well as the debt incurred in financing the T.C. Products acquisition.
Income Tax Provision
Provision for income taxes was $6.7 million in 1996 with an effective tax
rate of 45% as compared to $11.0 million in 1995, with an effective tax rate of
45%. The decrease in the income tax provision was primarily a result of the
decrease in the Company's income before income tax and extraordinary item to
$14.8 million for 1996 from $24.2 million in 1995.
Net Income
Due to the factors described above, net income for the year ended December
31, 1996 decreased to $8.1 million from $9.8 million for 1995, which includes an
extraordinary expense of $3.4 million for the write-off of financing costs.
COMBINED YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues
Revenues increased by $33.5 million or 20% to $200.7 million for the 1995
period. This increase was primarily due to a $29.4 million increase in
chlor-alkali sales at PCAC, resulting from an industry-wide strengthening of ECU
prices. The average ECU price during the 1995 period increased 27% over the same
period in 1994.
Gross Profit
Gross profit increased as a percentage of revenues to 32% in 1995 from 20%
in 1994 due to a combination of increased revenues and lower raw material costs
which more than offset higher transportation and other expenses and an inventory
step-up related to the PAI Acquisition.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by $4.4 million or
19% to $26.9 million for the year ended December 31, 1995. This increase was
primarily the result of an acquisition by the Predecessor Company in May 1994,
additional compensation pursuant to the Company's incentive compensation
program, and increased amortization as a result of the PAI Acquisition.
Interest Expense, Net
Interest expense increased by $8.2 million or 127% to $14.6 million for the
1995 period from $6.4 million for 1994. This increase was a result of debt
incurred with the PAI Acquisition.
Income Before Taxes and Extraordinary Item
As a result of the above, net income before taxes and extraordinary item
increased by $15.9 million or 189% to $24.2 million of income for the year ended
December 31, 1995 from $8.4 million for the year ended December 31, 1994.
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Income Tax Provision
Provision for income taxes increased $7.8 million to $11.0 million for the
year ended December 31, 1995 from $3.2 million for the comparable 1994 period
due to higher income. Taxable income is higher than book income due to the
non-deductibility of amortization of the excess cost over the fair value of the
net assets acquired. A provision is recorded on the income statement; however,
federal income taxes payable are reduced due to the utilization of the net
operating loss carryforward.
Extraordinary Item
An extraordinary item of $3.4 million net of an income tax benefit of $2.1
million recorded during the 1995 period was due to costs incurred, and
previously capitalized costs written off, pertaining to debt refinanced by the
Predecessor Company in the 1995 period prior to the PAI Acquisition.
Net Income
As a result of the foregoing, net income increased 91% to $9.8 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company is highly leveraged. Concurrently with the closing of the
Initial Offering and the Tacoma Acquisition, the Company entered into the New
Credit Facilities. The New Credit Facilities consist of a $100.0 million senior
Term Facility and a $35.0 million Revolving Facility, subject to borrowing base
limitations that relate to the level of accounts receivable and inventory. As of
June 30, 1997, after giving effect to the Initial Offering, the other
Refinancing and the Tacoma Acquisition, the Company had outstanding indebtedness
of approximately $306.8 million.
The Company believes that cash flow from current and anticipated future
levels of operations and, to a lesser extent, the availability under the
Revolving Facility, will be adequate to make required payments of interest and
principal on the indebtedness that is outstanding, as well as to fund its
foreseeable capital expenditures and working capital requirements. The Company
estimates that annualized cash interest of $26.9 million will be payable on the
Notes and Term Loans. The Company anticipates that capital expenditures for
1997, excluding acquisitions, will be approximately $20.4 million, including
approximately $4.1 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.
The Company's belief that it will generate sufficient cash flow for its
requirements is based upon, among other things, the assumptions that: (i) the
Company's cash flow will be positive as a result of the continuing operating
profitability of its business; (ii) the Company will invest in working capital
in accordance with prior practices; (iii) the Company will not incur any
material capital expenditures in excess of its business plan; and (iv) the
Company has the benefit of a tax-sharing agreement with Pioneer which reduces
the amount of taxes payable by the Company.
Net Cash Provided (Used) by Operating Activities. During the year ended
December 31, 1996, the Company generated $32.5 million in cash from operating
activities from profitability, depreciation, the utilization of the NOL and a
decrease in working capital (excluding the effects of the purchases of KWT and
T. C. Products). During the six months ended June 30, 1997, the Company used
$1.2 million in cash for operating activities primarily due to the net loss for
the period, partially offset by depreciation and amortization.
Net Cash Used in Investing Activities. Cash used in investing activities
for the year ended December 31, 1996 was $29.2 million, primarily due to capital
expenditures related to property, plant and equipment and the purchases of KWT
and T.C. Products by the Company. Cash used in investing activities for the six
months ended June 30, 1997 was $103.1 million, primarily due to the Tacoma
Acquisition.
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Net Cash Provided (Used) in Financing Activities. Cash used in financing
activities for the year ended December 31, 1996 was $757,000, primarily due to a
payment of dividends to Pioneer. Cash provided in financing activities for the
six months ended June 30, 1997 was $124.5 million, primarily due to financing of
the Tacoma Acquisition.
ACCOUNTING CHANGES
The Company adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS No. 121"), on January 1, 1996. SFAS No. 121 sets forth
guidance on how to measure an impairment of long-lived assets and when to
recognize such an impairment. The adoption of this standard did not have a
material impact on the Company's financial position or results from operations.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). SFAS No. 128 establishes new standards for computing and presenting
earnings per share. The Company is required to adopt the provisions of SFAS No.
128 for its consolidated financial statements for the year ended December 31,
1997 and subsequent interim periods. Upon adoption, the standard also requires
the restatement of all prior period earnings per share information presented.
The adoption of SFAS No. 128 is not expected to have a material effect on the
Company's earnings per share computations or disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," (SFAS No. 130) and Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information," (SFAS No.
131). SFAS No. 130 and SFAS No. 131 are effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 establishes standards for reporting and
displaying of comprehensive income and its components. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in interim and annual financial statements. These two
statements have no effect on the Company's 1997 financial statements, but
management is currently evaluating what, if any, additional disclosures may be
required when these two statements are adopted for periods beginning with the
first quarter of the year ending December 31, 1998.
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BUSINESS
GENERAL
The Company is a manufacturer and marketer of chlorine and caustic soda in
the United States and is a major manufacturer and marketer of several related
downstream water treatment products. The Company conducts its business primarily
through PCAC and All-Pure. The Company also owns a 50% unconsolidated joint
venture interest in Kemwater (which effective in February 1996 succeeded to the
operations of Imperial West). Pioneer owns the remaining 50% joint venture
interest in Kemwater.
INDUSTRY OVERVIEW
The Company operates in chlor-alkali and chlor-alkali related industries.
Chlorine and caustic soda are co-products, concurrently produced in a ratio of 1
to 1.1. An ECU consists of 1 ton of chlorine and 1.1 tons of caustic soda.
Chlorine is used in the manufacture of over 15,000 products, comprising
approximately 60% of all commercial chemistry, 85% of all pharmaceutical
chemistry and 95% of all crop protection chemistry. Products manufactured with
chlorine as a raw material include plastics, detergents, pharmaceuticals, water
treatment chemicals and agricultural chemicals. Chlorine also is used directly
in water disinfection applications. In the United States and Canada, virtually
all public drinking water is made safe to drink by chlorination, and a
significant portion of industrial and municipal waste water is treated by
chlorine and chlorinated chemicals to kill water-borne pathogens and remove
solids.
The caustic soda market is even more diverse than that of chlorine. It is
used in thousands of industrial and commercial processes (either as an essential
raw material, as an intermediate or as a medium to control acidity) including
metal smelting, petroleum production and refining, pulp and paper production and
paint manufacturing. Caustic soda is combined with chlorine and water to produce
bleach and is also used as an active ingredient in a wide variety of end use
products, including detergents, rayon and cellophane.
The following table sets forth certain information regarding the principal
industry-wide applications for the Company's products.
<TABLE>
<CAPTION>
PRODUCTS PRINCIPAL APPLICATIONS
-------- ----------------------
<S> <C>
Chlorine....................... Agricultural chemical and pharmaceutical manufacturing,
steel, PVC and other plastics, detergents, paints, water
purification, bleach, pulp and paper products, mining,
textiles
Caustic soda................... Cleaners, pulp and paper products, oil production and
refining, rayon, cellophane, vegetable oils, cosmetics,
aluminum, food processing, bleach, water treatment, mining
Hydrochloric acid.............. Cleaning, mining, dyes, ink, titanium, textiles, rocket
fuel, exotic metals, water treatment, oil production
Hydrogen....................... Boiler and turbine fuel, chemical manufacturing, petroleum
Calcium chloride............... Concrete formulation, dust control, pulp and paper
products
Iron chlorides................. Waste and potable water treatment, electronics
Polyaluminum chlorides......... Waste and potable water treatment
Sodium aluminate............... Catalyst production, paints, waste and potable water
treatment
Ferric sulfate................. Waste and potable water treatment
Aluminum sulfate............... Waste and potable water treatment, pulp and paper products
Bleach......................... Waste and potable water treatment, household and
commercial cleaners, food processing, swimming pool
treatment
</TABLE>
The United States represents approximately one-fourth of world chlor-alkali
production capacity, with approximately 12.9 million tons of chlorine and 13.9
million tons of caustic soda production capacity. OxyChem and The Dow Chemical
Company are the two largest chlor-alkali producers in the United States, each
with approximately one quarter of United States capacity. The remaining capacity
is held by approximately 20 companies. Approximately 70% of United States
chlor-alkali capacity is located on the Gulf Coast of Texas and Louisiana. The
Company believes that following the Tacoma Acquisition it has
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approximately 4.1% of U.S. chlor-alkali capacity. The Company believes that the
chlorine and caustic soda currently produced at its Henderson facility provide a
significant source of supply for the West Coast region, where the Company is
also the largest supplier of chlorine and bleach for water treatment purposes
and where Kemwater is the largest producer of iron chlorides. The Company
believes the St. Gabriel and Tacoma facilities are leading suppliers of premium,
low-salt grade caustic soda in their respective regions. The Company believes
the Tacoma Facility is a significant producer of chlorine and caustic soda in
the Pacific Northwest and will allow the Company to more efficiently supply its
downstream operations in the western and northwestern United States.
There has been a long-term downward trend in total North-American
chlor-alkali production capacity as industry participants have closed
inefficient production facilities. Since 1982, 29 United States facilities with
an annual production capacity of approximately 3.4 million ECUs have been
permanently shut down. As a result, total North American production capacity has
decreased from a peak of approximately 14.2 million ECUs in 1982 to
approximately 13.9 million ECUs in 1996.
Over the same time period, there has been a long-term upward trend in
capacity utilization, increasing from a low of approximately 62% in 1982 to
approximately 99% in 1996. This trend is a result of the combination of
decreasing industry production capacity and increasing chlor-alkali demand.
The Company believes that the chlor-alkali capacity increases announced for
completion in late 1997 will increase overall North-American capacity by
approximately 2%, keeping pace with the overall projected chlorine demand
increase. The Company anticipates that the global chlorine supply/demand balance
will remain relatively stable over the next few years.
The following graph highlights these trends.
INDUSTRY CAPACITY AND UTILIZATION RATES
[CAPACITY AND UTILIZATION RATES GRAPH]
Source: The Chlorine Institute, Inc., industry and Company data.
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Environmental pressures over the last five years have led to a substantial
decline in chlorine demand in two major chlorine markets -- pulp and paper and
CFCs. Usage of chlorine by the pulp and paper industry declined by 36%, from 1.2
million tons in 1991 to 771,610 tons in 1996. The use of chlorine for the
production of CFCs has been almost completely discontinued. The Company believes
that the current level of chlorine demand by the pulp and paper industry will
continue to decline over the next five years.
The declines in these markets have been offset by the growth in chlorine
demand for PVC, polycarbonate resins and isocyanates, water treatment
applications and engineering plastics. In addition, the Company believes that as
the global economy continues to improve, export demand for chlorine derivatives
should increase. The Company believes that caustic soda demand will grow at a
slower pace than chlorine demand. Industry sources estimate that world
chlor-alkali demand will grow by approximately one to two percent annually.
The chlorine and caustic soda markets are cyclical markets that are
sensitive to relative changes in supply and demand, which are in turn affected
by general economic conditions, capacity additions and other factors. Over the
last five years, the market for PVC, the largest use of chlorine, has
experienced steady growth, resulting in strong demand for chlorine. However, the
use of chlorine as a bleaching agent in the pulp and paper industry and as
feedstock in the production of CFCs has been reduced significantly due to
regulatory pressures. As a result of these factors and a general decline in
economic growth in the early 1990s, the North American chlor-alkali industry
experienced declining prices, as ECU prices fell by over 52% from $389 per ECU
in the fourth quarter of 1989 to $185 per ECU in the second quarter of 1993.
After a significant improvement in domestic economic growth, in early 1994
chlor-alkali markets experienced increased levels of demand. Limited new
capacity was added during this time, resulting in greater capacity utilization
and higher domestic and export prices for chlor-alkali products. These
conditions continued in 1995 and the increase in demand enabled the Company and
the industry in general to increase selling prices significantly at a time when
operating costs generally did not increase. Toward the end of 1995, however, ECU
prices began to decrease as strengthening demand for chlorine was offset by an
oversupply of caustic soda. The industry has continued to operate at full
capacity and management does not anticipate a significant increase in capacity
over the next several years. The Company therefore believes that the previous
volatility in ECU prices should moderate over such period.
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The following graph presents industry-wide average annual ECU prices since
1976 and the Company's average annual ECU prices since 1991.
INDUSTRY AVERAGE ANNUAL ECU PRICES
[GRAPH]
Source: United States Commerce Department, industry and Company data.
STRATEGY
The Company's management team is pursuing a business strategy designed to
capitalize on its competitive strengths in terms of its marketing expertise,
production and distribution capabilities and geographic focus. The Company seeks
to manage effectively the intrinsic cyclicality of the chlor-alkali industry
while continuing to grow and improve profitability by pursuing a strategy which
includes the following principal elements:
- Focusing on the Merchant Chlor-Alkali Market. The Company is dedicated to
serving the merchant chlor-alkali market, acting as a reliable source of
supply of chlorine and caustic soda. The Company is committed to being
flexible and responsive in periods of volatile chlor-alkali demand,
making it the preferred supplier for many of its customers. Unlike its
major competitors, the Company does not compete with its PVC customers
and, as a result, is viewed as a preferred, non-competing source of raw
materials.
- Optimizing Plant Efficiencies through High Capacity Utilization. The
Company seeks to maximize profitability by achieving a constant flow of
product through its plants. The Company strives to maintain a steady
demand for its output through (i) programs aimed primarily at growing
markets such as PVC and water treatment; (ii) renewable contracts with
major customers and the Chlorine Purchase Agreement with OCC Tacoma;
(iii) direct linkage with major customers via pipelines, including the
Pipeline Project, a proposed seven-mile liquid chlorine pipeline from the
St. Gabriel facility expected to be completed in 1998; and (iv) captive
demand for chlorine and caustic soda through its downstream water
treatment operations. As a result of these actions, the Company's
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Henderson and St. Gabriel chlor-alkali plants have operated at 101%, 100%
and 100% capacity utilization during 1994, 1995 and 1996, respectively,
up from 93% in 1990.
- Improving Cost Efficiency. The Company continually seeks to improve its
cost competitiveness through a combination of productivity enhancements,
strict operating cost controls, capital improvements and maintenance of
high capacity utilization rates. Despite inflation, the Company's cash
production costs per ECU decreased by 5% from 1990 through 1996, while
ECU production per employee increased by 20%. In addition, the Company
seeks to reduce distribution costs and improve plant operating efficiency
through the efficient use of its strategic locations with deep water port
facilities, direct pipeline connections to customers and opportunistic
product exchanges with chlor-alkali producers in other regions.
- Focusing on Geographic Diversity and Market Penetration. The Company's
products are manufactured and marketed in a number of markets, providing
a wide base for future growth and distribution to help mitigate the
effects of regional and economic fluctuations. Following the Tacoma
Acquisition, the Company has major chlor-alkali facilities in three
states (Louisiana, Nevada and Washington) and downstream water treatment
chemical processing plants serving several distinct areas of the country.
The Company is well-positioned to direct its chlor-alkali output to
additional areas while more efficiently supplying the growth in its own
downstream operations in the western, northwestern and southeastern
United States. Through focused expansion, the Company has been able to
penetrate new and outlying market areas while maintaining its strong
presence in the Gulf Coast region and areas west of the Rocky Mountains.
- Expanding Water Treatment Operations. The Company has developed
downstream water treatment operations whose steady requirements for
chlorine and caustic soda help maintain high operating rates at the
Company's chlor-alkali facilities which, in turn, decreases unit
production costs. In addition to serving as a source of demand, these
growing businesses service diverse product markets and regions and can
tend to offset industry cyclicality in the chlorine and caustic soda
markets by providing a more stable downstream source of revenue.
- Growing through Product Line Extensions and Strategic Acquisitions.
Management believes that there are significant opportunities to continue
the Company's growth both internally and through strategic acquisitions.
The Company focuses its product development efforts on areas identified
by its customers as being of major commercial importance. For example, in
the area of water treatment, the Company has developed or acquired rights
to a number of innovative coagulant products which represent cost
effective, advanced waste water treatment solutions. In addition, the
Company is constantly reviewing acquisitions in related markets and since
1990 has consummated five downstream acquisitions, which provide
attractive product offerings and geographic coverage.
OPERATING UNITS
PCAC
PCAC manufactures chlorine and caustic soda for sale to third parties and
to All-Pure and Kemwater as raw materials in the manufacture of chlor-alkali
related products, including bleach and iron chlorides. In addition to chlorine
and caustic soda, PCAC produces commercial quantities of hydrochloric acid and
hydrogen. PCAC's chlor-alkali operations generated pro forma net sales
representing approximately 78% of the Company's total pro forma net sales in
1996. Pro forma merchant sales of chlorine (including resales of purchased
chlorine) accounted for approximately 35% of PCAC's pro forma net sales in such
period. Pro forma merchant sales of caustic soda accounted for approximately 60%
of PCAC's pro forma net sales in such period. Pro forma merchant sales of
hydrochloric acid and hydrogen accounted for approximately 5% of PCAC's pro
forma net sales in such period. On a pro forma basis, approximately 10% of
PCAC's chlorine production was used by PCAC for the production of hydrochloric
acid and other chemical products, while approximately 14% of chlorine production
and 6% of caustic soda production was supplied to All-Pure and Kemwater for
bleach and iron chloride production, repackaging and distribution.
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Following the Tacoma Acquisition, PCAC owns and operates three chlor-alkali
production facilities, located in St. Gabriel, Louisiana; Henderson, Nevada; and
Tacoma, Washington, with aggregate production capacity of 574,000 ECUs.
The Tacoma Facility manufactures chlorine, caustic soda, hydrochloric acid
and calcium chloride. Annual capacity is approximately 225,000 tons of chlorine,
247,500 tons of caustic soda, 44,000 tons of hydrochloric acid and 8,800 tons of
calcium chloride. The products are sold to many customers previously being
served by the plant, as well as to the Company's downstream operations at
All-Pure and Kemwater. The Company believes that the plant would have generated
pro forma net sales of $77.0 million and pro forma EBITDA of $31.4 million for
the twelve months ended June 30, 1997, if the Tacoma Acquisition had occurred at
the beginning of such period. On a pro forma basis, such sales would represent
approximately 30% of the Company's total net sales.
The Tacoma Facility utilizes both membrane cell and diaphragm cell
technology to produce chlorine, caustic soda and hydrogen. The membrane cells
account for approximately 45% of the total plant capacity and the diaphragm
cells account for approximately 55% of the total plant capacity. The chlorine is
stored in pressurized tanks on-site, and the caustic soda solution is stored in
tanks at the plant and at off-site terminals. Bulk shipments of evaporated sea
salt are brought in from Baja California, Mexico under a long-term contract with
Mitsubishi. The typical salt load on a ship is approximately 35,000 tons, and is
stored on-site on an open-air salt storage pad, for dilution and processing.
PCAC's other chlor-alkali production facilities are located in Henderson,
Nevada and St. Gabriel, Louisiana. The Henderson facility utilizes diaphragm
cell technology and the St. Gabriel facility utilizes mercury cell technology.
The elemental chlorine gas is dried, liquefied through compression and
refrigeration and stored in pressurized tanks. The caustic soda solution is
stored in tanks at the plants and off-site terminals. Hydrogen, produced as a
by-product, is transported by pipeline to the point of its final consumption,
used internally in the production of hydrochloric acid or vented.
Production rates for chlorine and caustic soda are generally set based upon
demand for chlorine, because storage capacity for chlorine is both limited and
expensive. When demand is less than plant operational capacity and available
storage is filled, production operations must be curtailed. PCAC currently
leases a fleet of 672 rail cars for chlorine distribution, 503 rail cars for
caustic soda distribution, 103 rail cars for hydrochloric acid distribution and
three rail cars for calcium chloride distribution. These cars can, under certain
circumstances, be used to provide additional storage capacity.
Chlorine. PCAC has the capacity to produce approximately 349,000 tons of
chlorine annually at its Henderson and St. Gabriel plants. Expansion projects
between 1990 and 1996 have increased the production capacity at the Henderson
plant by approximately 37,300 tons of chlorine per year. For the year ended
December 31, 1996, the Company produced approximately 345,700 tons of chlorine.
Directly and through exchanges, PCAC supplied the equivalent of approximately
76,100 tons of chlorine to All-Pure and Kemwater for bleach and iron chloride
production and for repackaging and distribution. An additional 44,800 tons of
chlorine, approximately 13% of PCAC's chlorine production, was used to produce
hydrochloric acid at the Henderson plant. Chlorine was also sold to
approximately 30 customers or shipped on behalf of exchange partners.
Caustic Soda. PCAC has the capacity to produce approximately 383,900 tons
of caustic soda annually at its Henderson and St. Gabriel plants. The St.
Gabriel plant's mercury cell production process yields a higher grade of caustic
soda, commonly known as low salt. This higher grade caustic soda is a niche
product which is required for certain end uses and therefore receives premium
pricing in the marketplace. For the year ended December 31, 1996, PCAC produced
approximately 379,700 tons of caustic soda, approximately 57% of which was low
salt grade. PCAC supplied all caustic soda required by All-Pure and Kemwater for
bleach production and distribution. Caustic soda was also sold to approximately
75 customers or shipped on behalf of exchange partners.
Hydrochloric Acid. PCAC has the capacity to produce approximately 130,000
tons of hydrochloric acid annually at its Henderson plant by combining hydrogen
and chlorine. For the year ended December 31, 1996,
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PCAC produced approximately 134,300 tons of hydrochloric acid. PCAC supplied the
equivalent of approximately 18% of its hydrochloric acid production to All-Pure
and Kemwater for distribution and production of iron chlorides. The remainder
was sold to approximately 45 customers or shipped on behalf of exchange
partners. PCAC can and does vary the production of hydrochloric acid depending
upon the relative prices of chlorine and hydrochloric acid.
Hydrogen. Hydrogen produced at the Henderson facility is used to
manufacture hydrochloric acid and is sold to a third party for use as turbine
fuel. Hydrogen produced at the St. Gabriel plant is used as a boiler fuel and is
sold as a feedstock to another chemical company. For the year ended December 31,
1996, PCAC produced approximately four million cubic feet of hydrogen, a portion
of which was sold to Saguaro Power as fuel and a portion to Borden Chemicals and
Plastics, LP ("BCP") as feedstock. Approximately 24% of the hydrogen was used
internally in the production of hydrochloric acid and as boiler fuel. At both
plants, hydrogen not used or sold is vented.
Sales and Marketing. Pursuant to a Chlorine Purchase Agreement, OCC Tacoma
will purchase 100,000 tons of chlorine during the year following the Tacoma
Acquisition, which would have represented approximately 7% of the Company's pro
forma net sales for the twelve months ended June 30, 1997. In addition, the
Company has the right to require OCC Tacoma to purchase, and OCC Tacoma has the
right to require the Company to sell, up to 100,000 tons of chlorine during the
second year following the Tacoma Acquisition and up to 75,000 tons of chlorine
during the third year following the Tacoma Acquisition. All deliveries will be
from the Tacoma Facility to OxyChem's plant at Ingleside, Texas. Market prices
will apply to all such transactions, with transportation costs to be borne and
paid by OCC Tacoma. The Company will also have the right to require OCC Tacoma
to purchase up to 50,000 tons of chlorine during the fourth year following the
Tacoma Acquisition and up to 25,000 tons of chlorine during the fifth year
following the Tacoma Acquisition at market prices, with each of the parties to
bear 50% of the transportation costs from Tacoma to Ingleside for any purchases
during such fourth and fifth years.
Pursuant to a Chlorine and Caustic Soda Sales Agreement, the Company will
sell to OxyChem those quantities of chlorine and caustic soda necessary for
OxyChem to satisfy its obligations under contracts with certain of OxyChem's
national account customers. The Company estimates that during the year following
the Tacoma Acquisition the Company will sell approximately 22,400 tons of
chlorine and 46,000 tons of caustic soda under the agreement, at prices set each
quarter at levels equal to 95% of the average price received by OxyChem under
its arm's-length customer contracts during the preceding quarter. The final
deliveries of chlorine and caustic soda under the arrangement will occur in
December 2000.
One PCAC customer, Novartis, accounted for approximately 13% of the
Company's net sales for the year ended December 31, 1996 and would have
accounted for approximately 9% of the Company's pro forma net sales for such
period. PCAC has a five-year contract with Novartis that expires in 1998 and
requires Novartis to purchase from PCAC 100% of Novartis's annual requirement of
chlorine. Product is transported directly to Novartis through pipelines from the
St. Gabriel plant.
Logistics play a significant role in marketing chlor-alkali and
chlor-alkali related products for two primary reasons. First, many customers
take shipments to fulfill requirement on an as-needed basis. PCAC must therefore
manage potential short-term dislocations between sales and production due to
seasonal or other factors in order to maintain the high, steady production rates
at which the plants operate most efficiently. Second, the relatively high cost
of distribution tends to regionalize producers and markets. To minimize these
exposures, PCAC has developed product exchange relationships with other
producers for its primary products. The purpose of these exchanges is to lower
freight and other distribution costs, control inventory, maintain steady
operating rates and diversify sales through exchanges of different products and
product grades. In addition, PCAC utilizes product exchanges in instances where
it can capture more of a premium for its low-salt grade caustic soda than it
might otherwise receive.
The Company continually seeks improved methods of meeting the needs of its
customers. As a part of that effort, the Company is currently acquiring the
necessary permits and easements for the Pipeline Project, a seven-mile liquid
chlorine pipeline, which will extend from the St. Gabriel facility to Geismar,
Louisiana. The state-of-the-art pipeline, which will be equipped with leak and
excavation detection systems, will be capable of
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delivering 600 tons of chlorine per day to customers in the Geismar area. It is
estimated that the Pipeline Project will be completed in 1998.
In order to maintain high capacity utilization rates at its chlor-alkali
plants, PCAC seeks to sell more chlorine than it can produce and therefore
frequently purchases chlorine for resale. In this manner, it is often able to
adjust chlorine purchase levels, rather than plant production levels, in
response to changes in the demand for chlorine. This strategy resulted in
chlorine production of 345,700 tons for the year ended December 31, 1996,
implying a capacity utilization rate of approximately 100%.
PCAC's chlor-alkali operations employ 25 personnel in sales, marketing and
distribution. The corporate executive offices in Houston, Texas include sales
administration and distribution functions and oversight of the field sales
offices. Field sales offices are located in Huntington Beach, California and St.
Louis, Missouri. Unlike most of its competitors, PCAC has maintained its
customer service centers at its plants. This facilitates the close
synchronization of sales, production, shipping and accounting which has given
PCAC the capability of filling "just-in-time" orders. The customer service
centers at the Henderson and St. Gabriel plants are responsible for all
order-entry and shipping and rail fleet management. Sales of chlor-alkali
products are primarily on a direct basis to customers under annual or
longer-term contractual arrangements. The arrangements identify delivery,
product quality and other standard terms and allow PCAC to make advance
determination of output requirements, although generally price provisions are
flexible so that both PCAC and the customer receive the benefit of prices which
bear a relationship to the current market price. In addition to direct sales,
PCAC has resale agreements with approximately 20 independent distributors for
caustic soda and hydrochloric acid.
All-Pure
All-Pure manufactures bleach and repackages chlorine and hydrochloric acid
and distributes these products along with caustic soda and other related
products in the western U.S. All-Pure also purchases and distributes various
complementary dry and specialty products such as calcium hypochloride and sulfur
dioxide, and purchases, tabletizes and repackages dry and specialty water
treatment products for distribution to municipalities, swimming pool supply
distributors and selected commercial and retail markets in southern California.
All-Pure's products are generally sold on a delivered basis and are delivered
primarily through a fleet of trucks, including equipment owned by Kemwater. In
July 1996, All-Pure acquired T.C. Products, which is engaged in the manufacture
and marketing of household bleach and related products from its plant in Tacoma,
Washington. All-Pure generated pro forma net sales representing approximately
21% of the Company's total pro forma net sales in 1996. Pro forma sales of
bleach accounted for approximately 56% of All-Pure's pro forma sales for such
period. Pro forma sales of repackaged chlorine accounted for approximately 25%
of All-Pure's pro forma sales for such period. Pro forma sales of specialty
swimming pool and spa chemicals accounted for approximately 7% of All-Pure's pro
forma sales for such period. The remaining 12% of All-Pure's pro forma sales was
derived from sales of other chlor-alkali related products.
While the technology for bleach-making and chlorine-repackaging is neither
difficult nor capital-intensive, the local operating permits required to engage
in these activities are not easily acquired. Management believes that these
operating permits constitute a significant barrier to entry into the business,
particularly in California. Because bleach contains a high percentage of water,
freight costs and logistics are an important consideration in product
distribution. All-Pure's production plants and distribution facilities are
strategically located in or near most of the largest population centers of the
West Coast. For safety reasons, some municipalities have switched from chlorine
gas to bleach for water disinfection purposes, and should other municipalities
decide to switch from chlorine gas to bleach for this purpose, All-Pure has
significant spare bleach-making capacity that can be used to supply product in
bulk.
Bleach. All-Pure has the capacity to produce approximately 200 million
gallons of bleach annually. For the year ended December 31, 1996, All-Pure
produced approximately 34.0 million gallons of bleach, which was sold in
containers ranging from gallon containers to tank trucks.
Chlorine Repackaging. All-Pure repackages and distributes chlorine to end
users in the western U.S. As a regional distributor of chlorine, All-Pure
purchases chlorine in rail cars and repackages the chlorine for sale to
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customers. For the year ended December 31, 1996, All-Pure repackaged and sold
approximately 29.2 tons of chlorine.
Product Distribution. In addition to chlorine and hydrochloric acid,
All-Pure distributes caustic soda and other related products in the western U.S.
For the year ended December 31, 1996, All-Pure sold approximately 4,800 tons of
caustic soda to customers located primarily in northern California.
Dry and Specialty Pool and Spa Chemicals. All-Pure purchases dry and
specialty pool and spa products for distribution to the pool water treatment
supply industry. In addition, All-Pure repackages dry pool chemicals for
distribution.
Sales and Marketing. All-Pure primarily repackages chlor-alkali chemicals,
manufactures bleach and distributes these products as well as other products
purchased for resale to approximately 2,200 customers in a variety of markets.
The dynamics of each market vary significantly, requiring All-Pure to be
extremely versatile in its methods of marketing. All-Pure also manufactures and
distributes bleach for swimming pool water treatment in southern California.
All-Pure repackages and distributes complementary products such as hydrochloric
acid and specialty pool and spa products.
Delivered costs of All-Pure's products are freight sensitive because the
products contain water, or are packaged in steel containers that constitute
approximately 40% of the gross weight of the delivered unit, and because such
products provide relatively low per-volume sales revenue. All-Pure has an
advantage over its competitors through its multiple plant locations, which limit
freight costs through their close proximity to customers, allowing All-Pure to
provide reliable supply and service.
The majority of products are sold as water treatment chemicals for swimming
pools, potable water and waste water. Seasonality is a variable that impacts
sales of water treatment chemicals for swimming pools. In order to lessen the
impact of seasonality on their business, All-Pure focuses on increasing
household bleach sales during the winter months.
All-Pure is divided into three regional profit centers -- southern
California, northern California and the Pacific Northwest each under the
direction of a general manager, who, in turn, reports to senior management of
Pioneer. There are 12 sales representatives overall. The administrative support
staff is at All-Pure headquarters, currently located in Tracy, California.
All-Pure's headquarters is currently located in Walnut Creek, California in
rented offices shared with Kemwater. It is anticipated that the ability to share
certain administrative support functions will provide cost savings for both
All-Pure and Kemwater.
Kemwater
The combined operations of Imperial West and KWT are now conducted by
Kemwater, 50% of the common stock of which is held by a subsidiary of PAAC and
50% of the common stock of which is owned by a subsidiary of Pioneer. A
subsidiary of PAAC also owns all of the outstanding shares of Kemwater's
preferred stock.
Since the Company does not own a controlling interest in Kemwater, the
Company accounts for Kemwater using the equity method. In the consolidated
financial statements, the Company's investment in Kemwater is presented as
"Investment in and advances to unconsolidated subsidiary" and its equity in the
loss of Kemwater is shown as "Equity in net loss of unconsolidated subsidiary."
In the 1995 consolidated financial statements, Imperial West is consolidated and
includes total assets of $25.7 million, total revenues of $23.7 million and a
net loss of $0.6 million.
Kemwater manufactures six chemical products: iron chlorides (ferric and
ferrous chlorides), polyaluminum chlorides, aluminum sulfate, sodium aluminate,
ferric sulfate solution and bleach. Kemwater markets these products and other
inorganic chemicals purchased by it to municipalities and industrial customers
for use primarily in the treatment of potable water and waste water. Kemwater's
products are generally sold on a delivered basis and are delivered primarily
through a fleet of tank trucks, including Kemwater's own equipment. All of
Kemwater's chlorine requirements for its production of iron chlorides and bleach
are provided by PCAC.
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Kemwater is the major supplier of iron chlorides to the waste and potable
water markets west of the Rocky Mountains. Iron chlorides are used primarily to
remove organic solids from waste water and potable water streams and to control
hydrogen sulfide emissions. Kemwater also manufactures polyaluminum chlorides in
Savannah, Georgia. The majority of polyaluminum chloride sales are currently in
the southeastern United States. Kemwater also uses terminals at its facilities
in Mojave, California and Spokane, Washington for distribution of polyaluminum
chlorides in the western U.S. and Canada. Additionally, Kemwater sells
polyaluminum chlorides through exclusive distributors in Mexico, the Caribbean
and western Canada. Kemwater will be adding polyaluminum chloride production
capacity 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 United
States) and the Caribbean, and nonexclusive access to the use of the technology
for the Canadian and Mexican markets, with an option to acquire an exclusive
license for those markets in the future. Kemwater also manufactures and markets
aluminum sulfate to the water treatment and pulp and paper industries and is a
manufacturer of bleach for municipal water disinfection.
Kemwater markets liquid inorganic chemicals in bulk to municipalities and
industry for use mainly in the treatment of municipal and industrial waste water
and potable water. Kemwater differentiates itself from its competitors through
emphasis on superior product quality, customer service and a private tank truck
transportation fleet. Kemwater employs 16 personnel in sales, marketing and
customer service. Kemwater sells its products directly to customers primarily on
municipal bid contracts. The contracts typically have terms of one or more years
with prices fixed on an annual basis. Sales through distributors accounted for
less than 10% of product sales volume for the year ended December 31, 1996.
Kemwater's headquarters is currently located in Walnut Creek, California in
rented offices shared with All-Pure. It is anticipated that the ability to share
certain administrative support functions will provide cost savings for both
Kemwater and All-Pure.
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FACILITIES
The following table sets forth certain information regarding the Company's
principal production, distribution and storage facilities. All property is
leased unless otherwise indicated.
<TABLE>
<CAPTION>
LOCATION MANUFACTURED PRODUCTS: TYPE OF FACILITY
-------- ---------------------------------------
<S> <C>
PCAC Facilities
St. Gabriel, Louisiana*...................... Chlorine and caustic soda
Hydrogen
Henderson, Nevada*........................... Chlorine and caustic soda
Hydrochloric acid
Bleach
Tacoma, Washington*.......................... Chlorine and caustic soda
Calcium chloride
Hydrochloric acid
Tampa, Florida............................... Caustic soda storage tanks
Richmond, California......................... Caustic soda storage tanks
Wilmington, California....................... Caustic soda storage tanks
All-Pure Facilities
Tracy, California............................ Bleach
Chlorine repackaging
Santa Fe Springs, California................. Bleach
Chlorine repackaging
Kalama, Washington........................... Bleach
Chlorine repackaging
Tacoma, Washington........................... Bleach
Fresno, California........................... Distribution center
City of Industry, California................. Bleach
Chlorine repackaging
Hydrochloric acid repackaging
Dry chemical repackaging
</TABLE>
- ---------------
* Owned property
PCAC Facilities
St. Gabriel, Louisiana Plant. PCAC's St. Gabriel plant is located on a
100-acre site near Baton Rouge, Louisiana and serves the southern U.S. and
Mississippi River markets and the export market. Approximately 228 acres
adjoining this site are available to the Company for future industrial
development. The plant was completed in 1970 and is situated on the Mississippi
River with river frontage and deep water docking, loading and unloading
facilities. The dock is capable of berthing ocean-going vessels of up to 36,000
DWT. Annual capacity at St. Gabriel is 197,000 tons of chlorine and 216,700 tons
of caustic soda. In 1996, the plant received ISO 9002 registration.
St. Gabriel is the newest mercury-cell plant in the U.S. The mercury-cell
production process yields a higher quality of caustic soda, called low-salt
grade, which usually receives premium pricing in the marketplace. Caustic soda
produced by mercury cells does not require evaporation to meet market
concentration requirements. Accordingly, even though mercury cell technology
uses more electricity than membrane cell or diaphragm cell technology, total
costs of production are generally competitive.
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The production of chlor-alkali products principally requires salt,
electricity and water as raw materials. Salt is delivered under long-term supply
contracts to the St. Gabriel plant by barge. Electricity is supplied to the
plant under long-term contracts through regional power networks. Water is
provided at the St. Gabriel plant from on-site water wells.
St. Gabriel's chlorine production system includes a three-tower drying
system, multi-stage centrifugal chlorine compressors and a three-stage
liquefaction system. St. Gabriel has a utility section consisting of two boiler
systems for steam generation used principally for heating. Each boiler, capable
of producing 325,000 pounds per hour of steam, has fuel feedstock flexibility,
allowing conversion from outside-sourced natural gas to internally generated
hydrogen.
Chlorine tank storage capacity at the St. Gabriel plant is 3,000 tons,
which provides storage for approximately six days of production. The St. Gabriel
plant supplies its largest customer, Novartis, which is located adjacent to the
St. Gabriel facility, with chlorine directly through a dedicated pipeline. No
other chlor-alkali producer has a dedicated line to such customer. Caustic soda
storage capacity is 10,500 tons, which provides for approximately 18 days of
production. Additional production storage capacity is available using rail cars.
Hydrogen produced at the St. Gabriel plant is piped directly to BCP under a
long-term contract.
Henderson, Nevada Plant. PCAC's Henderson plant is located on a 374-acre
site near Las Vegas, Nevada and serves customers in the western U.S. It is the
closest chlor-alkali plant to the important southern California area by over 500
miles. Approximately 70 acres are developed and used for production facilities.
The original plant began operation in 1942. Annual capacity at the plant is
152,000 tons of chlorine, 167,200 tons of caustic soda, 130,000 tons of
hydrochloric acid and 5,100 tons of bleach. The Henderson plant is part of an
industrial complex shared with three other manufacturing companies. Common
facilities and property are owned and managed by subsidiaries of Basic
Investments, which provide common services to the four site companies. Basic
Investments' facilities include extensive water and high voltage power
distribution systems and access roads.
Salt is delivered under long-term supply contracts to the Henderson plant
by rail car. Electricity is supplied to the plant under long-term contracts
through regional power networks. The electric power is distributed within the
Henderson industrial site through facilities owned and operated by a subsidiary
of Basic Investments. The Henderson plant obtains water from Lake Mead pursuant
to PCAC's Category IV federal water rights. The water is transported by means of
a 25-mile pipeline system operated by a subsidiary of Basic Investments.
The plant was upgraded and rebuilt in 1976-1977 to use diaphragm cell
technology, and in 1978 quadruple-effect caustic soda evaporation units were
installed. Incremental expansions during the period from 1990 to 1995 resulted
in plant capacity increases of 105 ECUs per day. The evaporation plant requires
2.2 tons of steam per ton of caustic soda produced. Steam for the facility is
currently provided under a favorable long-term contract with Saguaro Power, a
cogeneration electricity producer in which PCAC has an indirect 15% interest.
PCAC also has its own boilers at the Henderson facility that are capable of
producing steam. PCAC leases two units used in the production of hydrochloric
acid.
Following evaporation to desired levels of concentration, caustic soda is
stored in tanks and off-site terminals. Caustic soda storage capacity is 7,000
tons, which provides storage for approximately 16 days of production. Chlorine
tank storage capacity at the Henderson plant is 600 tons, which provides storage
for approximately two days of production. Additional production storage capacity
for chlorine and caustic soda is available using rail cars, and the Company's
terminals in Richmond, California and Wilmington, California provide additional
caustic soda storage capacity. Hydrochloric acid storage capacity at the
Henderson plant is 1,500 tons, which provides for approximately three days of
production. Additional storage capacity is available using rail cars.
Tacoma, Washington Plant. The Tacoma Facility is located on a 31-acre site
which is part of an industrial complex on the Hylebos waterway in Tacoma,
Washington. It serves customers in the Pacific Northwest and California and, to
a lesser extent, foreign caustic soda customers. The site has docks capable of
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handling ocean-going vessels up to 30,000 DWT size. Annual capacity is
approximately 225,000 tons of chlorine, 247,500 tons of caustic soda, 44,000
tons of hydrochloric acid and 8,800 tons of calcium chloride.
The plant uses both diaphragm cells installed in the late 1970s and
membrane cells installed in 1988. The state-of-the-art membrane cell production
process yields a higher quality of caustic soda and thus for some end uses
receives premium pricing. The membrane cells account for approximately 45% of
the total plant caustic soda capacity, with the diaphragm cells accounting for
the remaining caustic soda production capacity. The operations of the two
systems are designed to optimize the capabilities of the plant in a
cost-efficient manner, resulting in a cost-competitive facility.
Steam for the facility is produced on-site in two natural gas fired steam
boilers. The boilers are capable of using a portion of the hydrogen generated in
the cell operations as fuel. Process water for the plant is purchased from the
City of Tacoma and sea water is used for cooling purposes throughout the
facility.
Electric power is purchased from the Tacoma Department of Public Utilities
under a contract extending to September 30, 2001. Prices are fixed except for
the top 27 MW portion of the load, or approximately 33% of the total electricity
usage, which is purchased on a market-price basis. Steam for the facility is
produced on-site in two natural gas fired steam boilers. The gas for these units
is supplied under a contract effective through September 30, 1997, subject to
annual renewal. The boilers are capable of utilizing a portion of the hydrogen
generated in the cell operations. Process water for the plant is purchased from
the City of Tacoma and sea water is used for cooling purposes throughout the
facility.
Chlorine tank storage capacity is 1,500 tons, which provides storage for
approximately 2 1/2 days of production. Caustic soda storage capacity is 11,100
tons, providing storage for approximately 16 days of production. Additional
production storage capacity is available using rail cars, and the Company's
leased terminals in Richmond, California and Wilmington, California provide
additional storage capacity for caustic soda. The Company also acquired a leased
railroad tankcar fleet as part of the Tacoma Acquisition. The Tacoma Facility is
a WISHA Star site. ISO 9002 registration was completed in December 1996.
Tampa, Florida. To facilitate distribution to the southeastern region of
the U.S., PCAC leases two caustic soda storage tanks at Tampa, Florida with a
capacity of 5,100 tons, approximately nine days of production from the St.
Gabriel facility.
Richmond, California. As a part of the Tacoma Acquisition, PCAC acquired
the leases to three caustic soda storage tanks at Richmond, California, which
are used to facilitate distribution to customers in northern California. The
tanks have a capacity of 9,100 tons, approximately 13 days of production from
the Tacoma Facility.
Wilmington, California. PCAC acquired the leases to four caustic soda
storage tanks at Wilmington, California as a part of the Tacoma Acquisition.
Those tanks and PCAC's existing leased tank at the same facility provide storage
capacity of 17,400 tons, representing approximately 38 days of production from
the Henderson facility or approximately 25 days of production from the Tacoma
Facility. The tanks are used to facilitate distribution to the southern
California region.
All-Pure Facilities
Tracy, California. The Tracy facility is located 60 miles east of Oakland
and serves the central California and San Francisco Bay area markets. The plant
includes a 262,000 ton per year bleach production facility and a chlorine
repackaging facility on a 15-acre tract. The land at the facility is leased
under a lease expiring in the year 2000. All-Pure's home office is currently
located in a leased facility in Tracy.
Santa Fe Springs, California. The Santa Fe facility is located in the Los
Angeles area and serves the southern California markets. The plant includes a
262,000 ton per year bleach production facility and a chlorine repackaging
facility on a 4.5-acre tract. The land at the facility is leased under a lease
expiring in 1998 with a five-year renewal option.
Kalama, Washington. Located 30 miles north of Portland, Oregon, the Kalama
facility serves the northern Oregon and Washington markets. The plant includes a
52,500 ton per year bleach production facility
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and a chlorine repackaging facility on a three-acre tract. The land at the
facility is leased under a month-to-month lease; All-Pure and the lessor are
engaged in discussions regarding a long-term lease extension or the lease of a
new site within the same port facility.
Tacoma, Washington. The T.C. Products facility in Tacoma serves the Pacific
Northwest market. The plant consists of a 105,000 ton per year bleach production
facility on a five-acre tract.
Fresno, California. The Fresno facility consists of an approximately 10,000
square foot warehouse, excluding office space, and serves the central California
market. All product shipped from the warehouse is transferred from the Tracy,
California production facility for distribution to customers. The land at the
facility is leased under a lease expiring in June 2001.
City of Industry, California. The City of Industry facility is located in
the Los Angeles area and serves the southern California, southern Nevada and
western Arizona markets. The plant includes a 262,000 ton per year bleach
production facility and chlorine, hydrochloric acid and dry chemical repackaging
facilities on a five-acre tract. The facility includes a 96,000 square foot
warehouse. The land at the facility is leased under a lease expiring in 1998
with options to extend until 2008.
SAGUARO POWER
PCAC has an indirect 15% equity interest in Saguaro Power, which owns and
operates a 90-megawatt cogeneration facility located on approximately six acres
of the Henderson property. The Saguaro Power facility is operated by an indirect
subsidiary of S.C.E. Capital Company. The facility uses natural gas, which is
supplied under a defined price long-term contract, as feedstock to produce
electricity and steam. Electricity is sold to one customer under a long-term
contract, and steam is sold primarily to PCAC, which has a right to resell steam
to other companies in the Henderson industrial complex. PCAC leases the property
to Saguaro Power under a lease that expires in 2022. The cost to the Company of
purchasing steam from Saguaro Power is substantially less than the cost to the
Company of producing the steam internally.
BASIC INVESTMENTS
PCAC's facility in Henderson, Nevada is located within an industrial
complex operated by Basic Investments. Other industrial operators in the complex
are Kerr-McGee Chemical Corporation ("Kerr McGee"), Titanium Metals Corporation
("Timet") and Chemical Lime Company ("Chemical Lime") which, together with PCAC,
own all of the capital stock of Basic Investments. PCAC owns approximately 32%
of the common stock of Basic Investments, including voting shares which entitle
it to elect two members of the seven person board of directors.
The Company's interests in Basic Investments and in Victory Valley Land
Company, L.P. (referred to collectively as the "Basic Ownership"), together with
certain real property (the "Excess Land"), constitute assets that, pursuant to
the PAI Acquisition Agreement, will be held for the economic benefit of the
sellers for a period of 20 years. Any proceeds from such interests are deposited
into an escrow account and are available to satisfy certain obligations of the
sellers under environmental and other obligations in favor of Pioneer, PAAC and
their affiliates. After payment or provision for payment of such obligations,
amounts received by the Company on account of the Basic Ownership will be
remitted to the PAI sellers for such 20-year period. The sellers also have
certain rights during such period with respect to determinations affecting the
Basic Ownership, including the right (subject to certain conditions) to direct
the sale or disposition of interests constituting the Basic Ownership and the
sale or disposition of Excess Land and the right (with certain exceptions) to
vote the interests constituting the Basic Ownership. Since the PAI Acquisition,
approximately 64 acres of Excess Land have been sold, and the escrow account had
a balance of approximately $4.6 million on June 30, 1997.
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
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largest chemical companies that have their own raw material resources and
numerous regional companies that specialize in a smaller number of chemical
products. While a significant portion of the Company's business is based upon
widely available technology, the difficulty in obtaining permits for the
production of chlor-alkali and chlor-alkali related products is a barrier to
entry. The Company's ability to compete effectively depends on its ability to
deliver quality products at competitive prices and to provide reliable and
responsive service to its customers.
The U.S. chlor-alkali industry is currently dominated by two producers,
OxyChem and The Dow Chemical Company, each with approximately one quarter of
U.S. capacity. The remaining capacity is held by approximately 20 companies.
Approximately 70% of U.S. chlor-alkali capacity is located on the Gulf Coast in
Texas and Louisiana. The Company currently has approximately 4.1% of U.S.
chlor-alkali capacity. The Company believes it has a strong regional presence
with respect to many of its products in the markets it serves.
Competitors in the chlor-alkali related industries in which the Company
operates are numerous and the industry is highly fragmented. The Company
believes that All-Pure is the largest supplier of chlorine and bleach for water
treatment purposes in the region of the United States west of the Rocky
Mountains and that Kemwater is the largest producer of iron chlorides in such
region.
EMPLOYEES
As of July 31, 1997, the Company had 905 employees. Approximately 96 of the
Company's employees at its Henderson, Nevada plant are covered by collective
bargaining agreements with the United Steelworkers of America and the
International Association of Machinists and Aerospace Workers that are in effect
until March 2001. Approximately 117 employees at the Tacoma Facility are
represented by the International Chemical Workers Union and International Union
of Operating Engineers under collective bargaining agreements that expire in
September 1997 and June 1998, respectively. Approximately 67 of the Company's
employees at an All-Pure facility are covered by collective bargaining
agreements with the Steel, Paper House, Chemical Drivers and Helpers Union and
the International Chemical Workers Union that are in effect until September 1997
and January 1998, respectively. An additional 31 employees are covered by a
collective bargaining agreement with the Teamsters Union in Tacoma, Washington
which is in effect until December 1997. The Company's employees at its other
production facilities are not covered by union contracts or collective
bargaining agreements. The Company considers its relationship with its employees
to be good and has not experienced any strikes or work stoppages.
ENVIRONMENTAL AND SAFETY REGULATION
General Environmental Matters
General. The manufacturing operations of the Company are subject to
federal, state and local laws and regulations relating to protection of the
environment, including those applicable to waste management, discharge of
pollutants into the air and water, cleanup liability from historical waste
disposal practices and employee health and safety. Each of the federal
environmental programs typically has a state counterpart. The state
environmental programs generally must be at least as stringent as the federal
requirements, and some state regulations are more onerous than the federal
requirements. Both federal and state environmental programs allow the imposition
of substantial civil and criminal penalties for noncompliance. Although the
Company believes that its operations are in general compliance with applicable
environmental laws and regulations, risks of substantial costs and liabilities
are inherent in chemical manufacturing operations, and there can be no assurance
that significant costs and liabilities will not be incurred. Moreover, it is
possible that other developments, such as new environmental laws and regulations
or stricter enforcement and cleanup policies, could result in substantial costs
and liabilities to the Company. The Company has accrued $11.9 million related to
expected future environmental restoration and remediation costs, computed on an
undiscounted basis. In the opinion of management, there is currently no material
estimable range of loss in excess of the amount recorded. However, it is
possible that new information about the sites for which the
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reserve has been established, new technology or future developments could
require the Company to reassess its potential exposure related to environmental
matters.
The Company relies on indemnification from the previous owners in
connection with certain environmental liabilities at its chlor-alkali plants and
other facilities. There can be no assurance, however, that such indemnification
arrangements will be adequate to protect the Company from environmental
liabilities at these sites or that such third parties will perform their
obligations under the respective indemnification arrangements, in which case the
Company would be required to incur significant expenses for environmental
liabilities, which would have a material adverse effect on the Company.
Air Quality. The Company's operations are subject to the Federal Clean Air
Act and the amendments to that act which were enacted in 1990. The Company will
be subject to some of the additional environmental regulations adopted by the
federal EPA and state environmental agencies to implement the Clean Air Act
Amendments of 1990. The Tacoma plant has applied for a Title V operating permit
under these regulations. Among the requirements that are potentially applicable
to the Company are those that require the EPA to establish hazardous air
pollutant emissions requirements for chlorine production facilities. Although
the Company cannot estimate the cost of complying with these requirements until
the implementing regulations are proposed, at this time the Company does not
believe that such requirements will have a material adverse effect on it.
Most of the Company's plants manufacture or use chlorine, which is in
gaseous form if released into the air. Chlorine gas in relatively low
concentrations can irritate the eyes, nose and skin and in large quantities or
high concentrations can cause permanent injury or death. In 1991, there was an
accidental release of approximately 42 tons of chlorine from the Henderson
facility. In response, local emergency authorities evacuated areas in and around
the City of Henderson. The Company has resolved substantially all of the
personal injury, property damage and regulatory claims relating to this release,
and substantially all the costs incurred as a result of the accident have been
recovered under applicable insurance policies. There was a release of about 10
tons of chlorine from the St. Gabriel facility in 1992 and another release in
1994 of less than one ton of chlorine, and from 1995 to date, there have been
six releases from the Company's plants, each of which was less than 35 pounds.
These releases were controlled by plant personnel, in some cases with the
assistance of local emergency response personnel, and there were no material
claims against the Company as a result of these incidents. The Company maintains
systems to detect emissions of chlorine at its plants, and the St. Gabriel and
Henderson plants are members of their local industrial emergency response
networks. The Company believes that its insurance coverage is adequate with
respect to costs that might be incurred in connection with any future release,
although there can be no assurance that the Company will not incur substantial
expenditures that are not covered by insurance if a release does occur in the
future.
Water Quality. The Company maintains waste water discharge permits for many
of its facilities pursuant to the Federal Water Pollution Control Act of 1972,
as amended, and comparable state laws. Where required, the Company has also
applied for permits to discharge stormwater under such laws. In order to meet
the discharge requirements applicable to stormwater, it will be necessary to
modify surface drainage or make other changes at certain plants. The Company
plans to spend an additional $2.1 million by the end of 1997 for modifications
to the stormwater system at the Henderson plant. The Company believes that the
costs associated with stormwater discharge at Henderson and its other plants
will not have a material adverse effect on the Company's financial condition,
liquidity or operating results. The various states in which the Company operates
also have water pollution control statutes and regulatory programs which include
groundwater, as well as surface water, protection provisions. The requirements
of these laws vary and are generally implemented through a state regulatory
agency. These water protection programs typically require site discharge
permits, and spill notification, prevention and corrective action plans. At
several of the Company's facilities, investigations or remediations are underway
and at some of these locations regulatory agencies are considering whether
additional actions are necessary to protect or remediate surface or groundwater
resources and the Company could be required to incur additional costs to
construct and operate remediation systems in the future. In addition, at several
of its facilities, the Company is in the process of replacing or closing ponds
for the collection of wastewater. The Company plans to spend approximately $1.3
million during the next 15 years for closure of eight chlor-alkali waste water
disposal ponds at its Henderson plant.
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Chlorine Regulation. Chlorine uses in two markets, pulp and paper bleaching
and as a feedstock in the production of CFCs, have declined since the late
1980s. This decline was based on concerns that the products or by-products from
those applications might cause damage to human health or the environment.
Certain environmental groups and international commissions have urged the
restriction or ban of chlorine-related processes and products and the EPA is
considering new or additional regulation of chlorine-containing substances such
as the herbicide atrazine and byproducts from the treatment of drinking water.
Such pressures and regulatory initiatives could have the effect of reducing the
use of chlorine by customers in the Company's markets or could have the effect
of increasing competition from other chlorine producers with respect to the
Company's markets. The Company is working with other industry representatives to
advocate a risk-based scientific approach for evaluating the alleged health and
environmental risks of chlorine and chlorinated compounds which are used for a
broad range of consumer products, such as plastics, water and pharmaceuticals.
The Company believes that a risk-based approach will show that the risk
associated with not using such compounds, or the risks of other chemicals that
might be proposed to replace them, support a conclusion that there is no need
for a ban or substantial new restrictions, but the necessary studies have not
been completed with respect to all of such areas.
OSHA and Community Right-to-Know. The Company is subject to laws and
regulations concerning occupational health and safety, emergency planning and
community right-to-know disclosures. These laws include the Federal Occupational
Safety and Health Act ("OSHA") and the Emergency Planning and Community
Right-to-Know Act of 1986 ("EPCRA"). OSHA and comparable state statutes
establish workplace standards that apply generally to businesses in the
manufacturing sector, including the Company's businesses. EPCRA establishes
notification requirements for businesses, like the Company's, that use regulated
hazardous substances. The Company is not aware of any failures to comply with
OSHA or EPCRA requirements that could reasonably be expected to result in a
material adverse effect on the Company's business, properties or results of
operations on a consolidated basis.
The Company's St. Gabriel plant uses mercury in its chlorine manufacturing
process. The Company currently complies with both OSHA and industry standards
for employees who could be exposed to mercury. The Federal Occupational Safety
and Health Administration has previously proposed to lower the maximum
permissible exposure level for mercury, and the Company believes that it will be
able to comply with the new standard if it is reproposed at the same level. It
is possible, however, that even lower mercury emissions or exposure limits could
be imposed in the future by the Federal Occupational Safety and Health
Administration or the EPA and the cost of compliance with such new limits cannot
be estimated at the present time.
Hazardous and Solid Wastes. The Company's manufacturing facilities generate
hazardous and non-hazardous solid wastes which are subject to the requirements
of RCRA and comparable state statutes. Under the 1984 amendments to RCRA, the
EPA promulgated regulations banning the land disposal of certain hazardous
wastes unless the wastes meet defined treatment or disposal standards, including
certain mercury-containing wastes generated by the Company's St. Gabriel plant.
In response to these regulations, the St. Gabriel plant has substantially
reduced the quantity of wastes that are subject to the land ban. The Company has
installed an in-plant treatment system that reduces the level of mercury in its
wastes below the hazardous classification. The Company's disposal costs could
increase substantially if its present disposal sites become unavailable due to
capacity or regulatory restrictions. The Company presently believes, however,
that its current disposal arrangements, together with the new treatment system,
will allow the Company to continue to dispose of land-banned wastes with no
material adverse effect on it.
Superfund. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability,
without regard to fault or the legality of the original conduct, on certain
classes of persons for the clean-up of releases of a "hazardous substance" into
the environment. These persons include the owner or operator of the disposal
site or sites where the release occurred and companies that disposed or arranged
for the disposal of hazardous substances found at the site. Persons who are or
were responsible for releases of hazardous substances under CERCLA may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources. In the ordinary course of the Company's
operations, substances are generated that fall within the definition of
"hazardous substances," and the Company is the
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owner or operator of several sites at which hazardous substances have been
released into soil or groundwater. Under CERCLA, regulatory agencies or third
parties may incur costs to investigate or remediate such conditions and seek
reimbursement from the Company for such costs. However, no investigations or
remedial activities are currently being conducted under CERCLA by third parties
at any of the Company's facilities. Such activities are being carried out at
certain facilities under the other statutory authorities discussed above.
Indemnities
ZENECA Indemnity. The Company's Henderson plant is located within what is
known as the "Basic Complex." Soil and groundwater contamination have been
identified within and adjoining the Basic Complex, including land owned by the
Company. A groundwater treatment system has been installed at the facility and,
pursuant to a consent agreement with the Nevada Division of Environmental
Protection, a study is being conducted to further evaluate soil and groundwater
contamination at the facility and other properties within the Basic Complex and
to determine whether additional remediation will be necessary with respect to
the Company's property.
In connection with the 1988 acquisition of the Henderson and St. Gabriel
properties by PAI, the sellers agreed to indemnify the Company with respect to,
among other things, certain environmental liabilities associated with historical
operations at the Henderson site. Zeneca Delaware Holdings, Inc. and Zeneca,
Inc. (collectively, the "ZENECA Companies") have assumed the indemnity
obligations. In general, PAI is indemnified against environmental costs which
arise from or relate to pre-closing actions which involved disposal, discharge
or release of materials resulting from the former agricultural chemical and
other non-chlor-alkali manufacturing operations at the Henderson plant. The
ZENECA Companies are also responsible for costs arising out of the pre-closing
actions of Basic Investments and pre-closing actions at the Basic Complex and
for other pre-closing environmental liabilities arising at other off-site
locations. Under the ZENECA Indemnity, the Company may only recover indemnified
amounts for environmental work to the extent that such work is required to
comply with environmental laws or is reasonably required to prevent an
interruption in the production of chlor-alkali products. The ZENECA Indemnity
also covers certain claims by non-governmental third parties. The Company is
responsible for environmental costs relating to the chlor-alkali manufacturing
operations at the Henderson plant, both pre- and post-acquisition, for certain
actions taken without ZENECA's consent and for certain operation and maintenance
costs of a groundwater treatment system at the facility.
Payments for environmental liabilities under the ZENECA Indemnity, together
with other non-environmental liabilities for which the ZENECA Companies agreed
to indemnify the Company, cannot exceed approximately $65 million. Through June
30, 1997, the Company has been reimbursed for approximately $12 million of costs
covered by the ZENECA Indemnity, but the ZENECA Companies may have directly
incurred additional costs that would further reduce the total amount remaining
under the ZENECA Indemnity. In 1994, the Company recorded an additional $3.2
million environmental reserve related to pre-closing actions at sites that are
the responsibility of ZENECA. At the same time a receivable was recorded from
ZENECA for the same amount. It is the Company's policy to record such amounts
when a liability can be reasonably estimated. No additional amounts were
recorded in 1995, 1996 or 1997.
As a result of the PAI Acquisition, the ZENECA Indemnity will terminate on
April 20, 1999. The ZENECA Indemnity will continue to cover claims after the
expiration of the term of the indemnity provided that, prior to the expiration
of the indemnity, proper notice to the ZENECA Companies is given and either the
ZENECA Companies have assumed control of such claims or the Company is
contesting the legal requirements that gave rise to such claims, or has
commenced removal, remedial or maintenance work with respect to such claims, or
has commenced an investigation which results in the commencement of such work
within ninety days. The Company believes that the ZENECA Companies will continue
to honor their obligations under the ZENECA Indemnity for claims properly
presented by the Company. It is possible, however, that disputes could arise
between the parties concerning the effect of contractual language and that the
Company would have to subject its claims for clean-up expenses, which could be
substantial, to the contractually-established arbitration process.
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PAI Sellers' Indemnity. In the PAI Acquisition Agreement, the sellers
agreed to indemnify Pioneer, PAAC and their affiliates for certain environmental
liabilities that result from certain discharges of hazardous materials, or
violations of environmental laws, arising prior to the closing date from or
relating to the PAI plant sites or arising before or after the closing date with
respect to certain environmental liabilities relating to the Contingent Payment
Properties. Amounts payable pursuant to the PAI Sellers' Indemnity will
generally be payable as follows: (i) out of certain reserves established on PAI
balance sheet at December 31, 1994; (ii) either by offset against the amounts
payable under the Pioneer Seller Notes or from amounts held in the Contingent
Payment Account; and (iii) in certain circumstances and subject to specified
limitations, out of the personal assets of the sellers. See "Business -- Basic
Investments." The Company is required to reimburse the sellers with amounts
recovered under the ZENECA Indemnity or from other third parties. The Company
and the sellers have agreed that they will cooperate in matters relating to the
ZENECA Indemnity. The Company has also agreed to indemnify the sellers for
certain environmental liabilities that may arise after the closing date. See
"Risk Factors -- Environmental Regulation -- Henderson Remediation Matters;
ZENECA Indemnity; PAI Sellers' Indemnity."
OCC Tacoma Indemnity. The Tacoma Facility is located adjacent to the
Hylebos Waterway, which is connected to Commencement Bay. The Hylebos Waterway
is one of the study areas included in the Commencement Bay Nearshore/Tideflats
site which has been placed on the National Priorities List for remediation under
CERCLA. OxyChem is a member of the Hylebos Cleanup Committee ("HCC"), which has
entered into a consent agreement with the EPA under which the HCC will prepare a
pre-remedial design for cleanup of the Hylebos Waterway. OxyChem is
participating in a voluntary, non-binding mediation under which an arbitrator
will allocate liability for the waterway among approximately 30 participating
PRPs. The aggregate costs of the cleanup of the Hylebos Waterway will depend
upon cleanup levels established by the EPA. Cleanup levels have been selected by
the EPA, the HCC and other interested parties and a remediation plan is being
prepared but has not yet been finalized or approved by the EPA. The Company
believes that a remediation plan based upon the final EPA cleanup levels may be
completed within five years, and that the voluntary mediation will be completed
prior to that date. However, the Company cannot presently determine the amount
of cleanup costs that will ultimately be allocated to OxyChem, or the timing of
such final allocation.
The Tacoma Facility has a RCRA treatment, storage, and disposal facility
permit which requires the plant to investigate groundwater contamination at the
site and to treat the groundwater to standards established in the permit.
Pursuant to this requirement, the plant has installed a groundwater extraction,
treatment and injection system (not included in the Tacoma Acquisition), which
withdraws the groundwater, removes volatile organic compounds (including
trichloroethylene and perchloroethylene) and returns the treated water to the
subsurface through wells that are designed to control off-site migration of
contamination. The plant has estimated that this groundwater system will operate
for at least 30 years. Certain other areas at the Tacoma Facility are currently
being voluntarily investigated under the oversight of the Washington Department
of Ecology ("DOE") or the EPA. OCC Tacoma has voluntarily proposed to
investigate certain substances that may exceed site-specific cleanup levels in
the embankment area of the Tacoma Facility next to the Hylebos Waterway and in a
subtidal and intertidal area adjacent to the northern portion of the Tacoma
Facility, and to submit investigation and remediation plans for consideration by
the EPA. If remediation plans are agreed upon, these areas would be remediated
either in conjunction with or prior to the general remediation of Hylebos
Waterway sediments.
OxyChem has been named as a Potentially Liable Party ("PLP") under state
law for remediation of, or it is voluntarily investigating, certain off-site,
upland disposal sites used by the Tacoma Facility. OCC Tacoma has agreed to
retain responsibility for these sites. Two other properties, located immediately
adjacent to the Tacoma Facility, have allegedly been affected by operations at
the Tacoma Facility. A groundwater contamination plume under the Tacoma Facility
extends to the northwest and west. This area is being addressed by the Tacoma
Facility's groundwater treatment system. In August 1997, OCC Tacoma acquired the
neighboring property to the south of the Tacoma Facility. Waste from the Tacoma
Facility was allegedly disposed in the past on the embankment area of this
neighboring property and allegedly impacted the groundwater quality. The
embankment area of this property is currently under investigation with the
oversight
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of the DOE and the EPA. Remediation of this embankment area will be conducted,
if necessary, in conjunction with the remediation of the adjacent embankment
area of the Tacoma Facility. At this time, the Company is not able to determine
the cost or scope of any such remediation of this neighboring property.
In connection with the Tacoma Acquisition, OCC Tacoma agreed to indemnify
the Company with respect to certain environmental matters, which indemnity is
guaranteed by OxyChem. In general, the Company will be indemnified against
damages incurred for remediation of certain environmental conditions, for
certain environmental violations caused by pre-closing operations at the site
and for certain common law claims. The conditions subject to the indemnity are
sites at which hazardous materials have been released prior to closing as a
result of pre-closing operations at the site, including Commencement Bay
(outside the Hylebos area), off-site disposal sites in areas upland of the
waterways and natural resource damages (together, the "Excluded Environmental
Conditions"). In addition, OCC Tacoma will indemnify the Company for certain
costs relating to releases of hazardous materials from pre-closing operations at
the site into Hylebos Waterway, site groundwater containing certain volatile
organic compounds that must be remediated under the RCRA permit, and historical
disposal areas on the embankment adjacent to the site for maximum periods of 24
or 30 years, depending upon the particular condition, after which the Company
will have full responsibility for any remaining liabilities with respect to such
conditions. OCC Tacoma may obtain an early expiration date for conditions other
than the Excluded Environmental Conditions by obtaining a discharge of liability
or an approval letter from a governmental authority. Although there can be no
assurance that the presently anticipated remediation work will be completed
prior to the expiration of the indemnity, or that additional remedial
requirements will not be imposed thereafter, the Company believes that the
residual liabilities, if any, can be managed in a manner that will not have a
material adverse effect on the Company.
OCC Tacoma will also indemnify the Company against certain other
environmental conditions and environmental violations caused by pre-closing
operations that are identified after the closing. Environmental conditions that
are subject to formal agency action within five years after closing or to an
administrative or court order within ten years after closing, and environmental
violations that are subject to formal agency action within two years after
closing or to an administrative or court order within five years after closing,
will be covered by the indemnity up to certain dollar amounts and time limits.
The Company will indemnify OCC Tacoma for environmental conditions and
environmental violations identified after the closing if (i) an order or agency
action is not imposed within the relevant time frames or (ii) applicable
expiration dates or dollar limits are reached.
The Company is responsible for remediation of environmental conditions and
correction of environmental violations caused by post-closing actions at the
site (other than post-closing actions by OCC Tacoma and its representatives) and
the Company will indemnify OCC Tacoma for such conditions and violations.
Moreover, if the Company takes certain actions which increase the cost of
remediation or result in the identification of new environmental conditions
after the closing, the Company will be liable for such costs. In particular, the
Company may not, without OCC Tacoma's consent, construct new facilities within
designated areas of the site that are being or will be remediated. In addition,
the Company must consult with OCC Tacoma prior to construction or expansion in
other areas of the site that requires the disturbance, excavation or remediation
of soil, sediment or groundwater. This could limit the Company's ability to
expand production capacity or to add material new capacity at the site.
The indemnity obtained from OCC Tacoma for the Excluded Environmental
Conditions, for expansion of or repairs to improvements at the site and for
certain other matters is personal to the Company and its affiliates and may not,
without OCC Tacoma's consent, be assigned to other persons.
The Company has reviewed the time frames currently estimated for
remediation of the known environmental conditions associated with Commencement
Bay, the Hylebos Waterway, the plant and adjacent properties and the Company
presently believes that it will have no material liability upon the termination
of OCC Tacoma's indemnity. However, the OCC Tacoma indemnity is subject to
limitations as to dollar amount and duration, as well as certain other
conditions, and there can be no assurance that such indemnity will be adequate
to protect the Company, that remediation will proceed on the present schedule,
that it will involve
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the presently anticipated remedial methods, or that unanticipated conditions
will not be identified. If these or other changes occur, the Company could incur
a material liability for which it is not insured or indemnified.
Remediation Matters
General. Most of the plant sites on which the Company's manufacturing
operations are located have been used for many years. Although the Company
believes that prior operators utilized operating and disposal practices that met
industry standards at the time, state and federal laws relating to remediation
of historical disposal sites have become more stringent. As a result, to the
extent wastes have been released or disposed of at its manufacturing sites, the
Company has in the past been, and will in the future be, required to remediate
contaminated property or remove previously disposed wastes and address related
liabilities. In the past the Company has been subject to claims by neighboring
landowners and other third parties asserting claims for personal injury and
property damage allegedly caused by hazardous substances released into the
environment. However, the Company has resolved, or expects to resolve, such
claims without material liability.
Basic Complex. Environmental contamination, including soil and groundwater
contamination, has been identified within and adjoining the Basic Complex,
including land owned and occupied by the Company. The Company is cooperating
with the NDEP with respect to the issues affecting such property. In 1983,
Stauffer Chemical, Montrose and the NDEP entered into a Consent Order requiring
Stauffer Chemical and Montrose to install a groundwater intercept system to
analyze for designated organic chemicals identified in the groundwater outside
Stauffer Chemical's plant site and to remove certain chemicals to levels
specified in the Consent Order. At that time, the NDEP made a finding that the
organic contamination that had migrated off site did not represent an imminent
or substantial endangerment to human health or the environment. In consideration
for the companies' implementation of the groundwater intercept system, the State
of Nevada and the NDEP granted the companies a release and covenant not to sue
under certain environmental statutes for any civil liabilities or claims arising
out of the presence of the organics covered by the Consent Order, subject to the
compliance by the companies with the Consent Order. The companies have
implemented the groundwater intercept system, and it meets the treatment levels
specified in the Consent Order. Although the Company is not a party to the
Consent Order, the Company contractually agreed, in connection with its
acquisition of the Henderson facility, to operate the system and to pay for 50%
of certain operating and maintenance costs for the system. Montrose agreed to
pay the other 50% of such costs, and ZENECA must pay for remaining obligations
arising as a result of the Consent Order. While it is possible that these costs
could increase substantially if the existing groundwater treatment system must
be modified or expanded, or additional groundwater remediation is required, the
Company believes that some of these costs would be borne by Montrose and ZENECA,
and the remaining costs would not have a material adverse effect on the Company.
At the present time, however, the Company cannot reasonably estimate the scope
of any other operating and maintenance requirements or their probable cost.
PCAC, along with Stauffer Management Company ("Stauffer Management") (a
ZENECA subsidiary), Montrose, Kerr McGee, Timet and Chemical Lime entered into a
Consent Agreement in 1991 with the NDEP under which the parties agreed to
provide reports summarizing documented information regarding historical waste
disposal at each of their sites at the Basic Complex. These reports were Phase I
of the "Environmental Conditions Assessment" (or "ECA") process for the Basic
Complex. PCAC and Stauffer Management submitted the required report for the PCAC
plant site in April 1993. The Phase I Report identified both present and former
waste management areas, including disposal sites for agricultural chemicals
formerly manufactured at the site and ponds used for disposal of chlor-alkali
waste water.
PCAC and Stauffer Management have entered into a Phase II agreement with
the NDEP, which would cover additional investigation of the plant site,
including additional soil and groundwater sampling. The parties have received a
Letter of Understanding which identifies the areas that will be addressed in
Phase II. Montrose also filed a report covering its leased portions of the
Henderson property and has negotiated a Phase II agreement with the NDEP. In
certain instances, PCAC, Stauffer Management and Montrose will cooperate in the
preparation of information required for Phase II.
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PCAC and Stauffer Management also participated as members of the Henderson
Industrial Site Steering Committee in the submission in April 1993 of a report
regarding the Basic Complex common disposal areas. Historical waste management
areas identified in the report included a landfill, waste water transmission
ditches and waste water disposal ponds. These areas were used in the past for
disposal of wastes manufactured in the Basic Complex. A Phase II agreement
requiring additional investigations of the Basic Complex common area has also
been negotiated. It is likely that a third phase of work, including remediation
of soil or groundwater, may follow the Phase II investigations. Because the
costs of future remedial obligations cannot be determined until the
investigation is complete, it is not possible to determine whether, if at all,
such costs will exceed amounts currently reserved with respect to such
liabilities.
The EPA is not a party to the various agreements with the NDEP and
therefore is not bound by the terms of such agreements, nor is it bound by the
release and covenant not to sue set forth in the Consent Order. The EPA is not
presently pursuing any enforcement action relating to remediation of historical
waste disposal at PCAC or the Basic Complex common area. There can be no
assurance, however, that the EPA will not attempt to exercise its jurisdiction
under federal environmental statutes, including CERCLA, with respect to the
Basic Complex common areas or the individual plant sites in the future. If the
EPA elects to exercise its jurisdiction over the Basic Complex or the Henderson
plant and pursue an independent enforcement action, it is possible that the
costs of remediation would substantially exceed those that the Company currently
anticipates under the terms of the NDEP Consent Agreement.
The Company believes that the remediation costs related to the Company's
chlor-alkali facilities will not be material and that it will be reimbursed
under the ZENECA Indemnity or the PAI Sellers' Indemnity or by other responsible
parties for substantially all of the non-chlor-alkali related remediation costs
that may be incurred in connection with historical waste disposal at the
Henderson plant and the Basic Complex common areas. The inactive waste
management areas at the Henderson facility include a drum disposal area, ponds
and other waste disposal areas at which significant quantities of wastes from
historical non-chlor-alkali manufacturing operations were disposed of or
accumulated. Generally, these historical disposal areas have been closed by
leaving the wastes in place and capping them with a clay cover to minimize the
migration of any contaminants. Groundwater monitoring wells were installed
downgradient to detect any significant contaminant migration. To date, the
results from these wells and communications with the NDEP indicate that on-site
containment will continue to be an acceptable long-term waste management
solution for these historical wastes. However, if off-site disposal is required,
because of more stringent disposal standards in the future or unanticipated
significant groundwater impacts from these areas, the cost of such disposal
could be substantial and could, together with other remediation obligations,
approach or exceed the amount available under the ZENECA Indemnity, the PAI
Sellers' Indemnity or by other responsible parties. No assurance can be given
that the Company will not be required to incur significant expenses for remedial
and other liabilities under environmental laws in connection with the Henderson
facility or operations, whether at or near the Henderson facility or at off-site
locations, or that such expenses will be reimbursed under the ZENECA Indemnity
or the PAI Sellers' Indemnity or by other responsible parties. See "Risk
Factors -- Environmental Regulation."
Antioch Plant. Kemwater's Antioch plant received a Clean-up and Abatement
Order from the California Regional Water Quality Control Board (the "RWQCB")
relating to contaminated groundwater. The RWQCB has requested Kemwater to
prepare a work plan for additional investigation and remediation of the
groundwater. Kemwater is preparing a plan for additional investigation and is
reviewing the costs associated with remediation technologies that would meet the
state standards. In the event that treatment of the ground water is necessary,
there can be no assurance that it would not have a material adverse effect on
Kemwater.
INSURANCE
The Company maintains general liability insurance and property and business
interruption insurance, as well as worker's compensation insurance. In
accordance with customary industry practice, the Company is not fully insured
against all risks incident to its business. Because of the nature of industry
hazards, it is possible that liabilities for pollution and other damages arising
from a major occurrence could exceed insurance coverage or policy limits or that
such insurance may not be available at reasonable rates in the future. Any such
liabilities could have a material adverse effect on the Company.
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LEGAL PROCEEDINGS
The Company has been named as a defendant in various legal proceedings
arising in the ordinary course of its business. In the opinion of management,
none of such litigation is material to the Company's financial statements.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF PAAC
The directors and executive officers of PAAC as of September 1, 1997 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William R. Berkley................... 51 Chairman of the Board
Michael J. Ferris.................... 52 President and Chief Executive Officer and
Director
Philip J. Ablove..................... 57 Vice President and Chief Financial Officer and
Director
Jerry B. Bradley..................... 51 Vice President, Human Resources
Verrill M. Norwood................... 66 Vice President, Environmental and Regulatory
Affairs
Kent R. Stephenson................... 48 Vice President, General Counsel and Secretary
Ronald E. Ciora...................... 56 President of All-Pure
James E. Glattly..................... 50 President of PCAC
Andrew M. Bursky..................... 41 Director
Donald J. Donahue.................... 73 Director
Richard C. Kellogg, Jr............... 46 Director
Paul J. Kienholz..................... 66 Director
Jack H. Nusbaum...................... 57 Director
Thomas H. Schnitzius................. 55 Director
</TABLE>
The Board of Directors has an Executive Committee and an Audit Committee.
The current members of the Executive Committee are Messrs. Berkley, Bursky,
Ferris and Nusbaum. The current members of the Audit Committee are Messrs.
Donahue and Nusbaum. The current members of the Compensation and Stock Option
Committee are Messrs. Donahue and Nusbaum.
William R. Berkley has been a director of PAAC since its formation in March
1995 and Chairman of the Board and a director of Pioneer since its formation in
1987. He also serves as Chairman of the Board of several companies which he
controls or founded. These include W.R. Berkley Corporation, a property and
casualty insurance holding company, and Interlaken Capital, Inc., a private
investment and consulting firm. Mr. Berkley is also a director of Strategic
Distribution, Inc., a publicly traded distributor of maintenance and safety
products to industry.
Michael J. Ferris has served as President and Chief Executive Officer of
PAAC and Pioneer since January 5, 1997. Prior to joining PAAC and Pioneer, he
was employed by Vulcan Materials Company, a company engaged in the production of
industrial materials and commodities, from March 1974 to January 1997, where he
served as Executive Vice President, Chemicals from 1996 to 1997. Mr. Ferris is
also a director of ChemFirst, Inc., a specialty chemical company.
Philip J. Ablove has served as Vice President and Chief Financial Officer
of PAAC and Pioneer since March 1996, after serving as Acting Chief Financial
Officer since October 1995, and has been a director of PAAC since its formation
in March 1995 and a director of Pioneer and its corporate predecessor since
January 1991. He was President and Chief Executive Officer of Pioneer's
corporate predecessor from January 1991 to July 1992, and he served as a
consultant to such entity from October 1990 to January 1991. Mr. Ablove served
as a consultant to Pioneer from October 1995 to March 1996. He has served as a
consultant to various companies since 1983.
Jerry B. Bradley has served as Vice President of Human Resources of PAAC
and of Pioneer since October 1995. From May 1993 to October 1995, Mr. Bradley
was President of Tandem Partners, Inc., a human resources consulting firm. From
1978 to 1993 he was employed by Occidental Chemical Corporation, where he served
as Vice President, Human Resources from 1978 to 1993.
Verrill M. Norwood has served as Vice President of Environmental and
Regulatory Affairs of PAAC since the consummation of the PAI Acquisition on
April 20, 1995, and as Vice President of Environmental
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and Regulatory Affairs of PAI since 1990. Prior to joining PAI, Mr. Norwood was
employed by Olin Corporation from 1973 to 1990, where he served as Vice
President, Environmental Affairs from 1978 to 1990.
Kent R. Stephenson has served as Vice President, General Counsel and
Secretary of PAAC since the consummation of the PAI Acquisition on April 20,
1995, as Vice President, General Counsel and Secretary of PAI since June 1995,
and as Vice President, General Counsel and Secretary of PAI since 1993. Prior to
joining PAI, he was employed by Zapata Corporation, a publicly traded gas
services company, from 1978 to 1993. Mr. Stephenson served as Senior Vice
President, General Counsel and Secretary of Zapata from 1987 to 1993.
Ronald E. Ciora has served as President of All-Pure since November 1995.
From March 1989 to November 1995, he was President and Chief Operating Officer
of DPC Industries, Inc., DX Distribution, Inc. and DXI Industries, Inc., which
are companies engaged in chemical distribution, chlorine repackaging and bleach
manufacturing.
James E. Glattly has served as President of PCAC since December 1996, and
served as Vice President of Sales and Marketing of PAAC from April 1995 to
December 1996 and as Vice President of Sales and Marketing of PAI from 1988 to
December 1996. Prior to joining PAI, he was employed by Occidental Chemical
Corporation from 1985 to 1988 and from 1974 to 1983, where he served in various
capacities, including Western Regional Manager and various other sales
positions. From 1983 to 1985 Mr. Glattly served as General Manager of HCI
Chemical.
Andrew M. Bursky has been a director of PAAC since its formation in March
1995 and a director of Pioneer since January 1994. Mr. Bursky has been Managing
Director of Interlaken Capital, Inc. since May 1980. He has been Chairman of the
Board of Strategic Distribution, Inc. since July 1988. Mr. Bursky was an
executive officer of Idle Wild Farm, Inc., a privately owned manufacturer of
frozen food, and Blue Lustre Products, Inc., a privately owned company engaged
in the sale and leasing of carpet cleaning equipment and other carpet cleaning
products, which in October 1993 and October 1995, respectively, while he was an
executive officer, filed chapter 11 petitions for reorganization under federal
bankruptcy law.
Donald J. Donahue has been a director of PAAC since its formation in March
1995 and a director of Pioneer since February 1988. Mr. Donahue served as
Chairman of the Board of Magma Copper Company from 1987 to 1996 and as Chairman
of Nacolah Holding Co., a life and health insurance company, from 1990 to 1993.
From 1984 to 1985, Mr. Donahue served as Chairman and was a director of KMI
Continental Group, Inc., a natural resource conglomerate. From 1975 to 1984, he
was Vice Chairman and a director of Continental Group, Inc. Mr. Donahue is a
director of Chase Brass Industries, Inc. and a director of Counsellors Tandem
Securities Fund, Inc. and 15 other registered investment companies managed by
EMW Warburg Pincus Counsellors, Inc.
Richard C. Kellogg, Jr. has been a director of PAAC and Pioneer since April
1995. He served as Chairman of the Board and Chief Executive Officer of PAAC and
as President of Pioneer from April 1995 to January 1997. He was a co-founder of
PAI, serving as its Chairman of the Board and a director from its inception in
1988 to January 1997. From 1983 to 1993, Mr. Kellogg served as Vice President of
Trans Marketing Houston, Inc. ("TMHI"), an international trading company that he
co-founded dealing in refined petroleum products and chemicals. TMHI filed for
bankruptcy in April 1993 and a liquidation plan was approved by the federal
bankruptcy court in December 1993.
Paul J. Kienholz has been a director of PAAC and Pioneer since June 1996.
He served as President and Chief Operating Officer of PAAC from the consummation
of the PAI Acquisition on April 20, 1995 until his retirement in November 1996,
and as President of PAI from 1988 until his retirement. Prior to joining PAI,
Mr. Kienholz was employed by PPG Industries, Inc. from 1959 to 1988, where he
served in various capacities, including Director, Chlor-Alkali Products.
Jack H. Nusbaum has been a director of PAAC since its formation in March
1995 and a director of Pioneer since 1988. Mr. Nusbaum is a Senior Partner and
Chairman of the New York law firm of Willkie Farr & Gallagher, where he has been
a partner for more than the past twenty-five years. He is a director of
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W.R. Berkley Corporation, Fine Host Corporation, Strategic Distribution, Inc.,
The Topps Company, Inc. and Prime Hospitality Corp.
Thomas H. Schnitzius has served as a director of each of Pioneer and PAAC
since the consummation of the PAI Acquisition on April 20, 1995, and as a
director of PAI since October 1993. He has been a principal in the Houston
investment banking firm of Schnitzius & Vaughan since its formation in October
1987. Prior to 1987, he was a principal in the investment banking firm of
Schnitzius & Co., Ltd.
EXECUTIVE COMPENSATION
Executive officers of PAAC are compensated in their capacity as executive
officers of Pioneer or certain of its other subsidiaries. The following table
sets forth certain information concerning compensation for service to Pioneer
and its subsidiaries paid (i) during the last three fiscal years to William R.
Berkley, Chairman of the Board of Pioneer, who received no compensation for
acting in a capacity similar to that of a chief executive officer, (ii) during
the period from April 21, 1995 to December 31, 1995 and during 1996, to Richard
C. Kellogg, Jr., who acted in a capacity similar to that of a chief executive
officer during such period, (iii) during the period from April 21, 1995 to
December 31, 1995 and during 1996, to Pioneer's other four most highly
compensated executive officers serving during 1996 and (iv) during the period
from April 21, 1995 to December 31, 1995 and during 1996, to Paul J. Kienholz,
who retired as President and Chief Operating Officer of PAAC on November 30,
1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS ALL OTHER
NAME AND PRINCIPAL ------------------------------- OTHER ANNUAL ------------ COMPEN-
POSITION YEAR(1) SALARY($) BONUS($) COMPENSATION(2)($) OPTIONS(3) SATION($)
------------------ ------- --------- -------- ------------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
William R. Berkley 1996 8,000(4) 0 22,000 0 0
Chairman of the Board 1995 8,000(4) 0 22,000 0 0
1994 0 0 6,000 0 0
Richard C. Kellogg, Jr. 1996 300,000 75,000 0 0 3,750(6)
President(5) 1995 206,731 135,900 0 131,691 4,590(6)
James C. Glattly 1996 193,336 50,000 0 0 3,750(6)
President, PCAC(7) 1995 114,327 69,675 0 53,500 2,453(6)
Philip J. Ablove 1996 183,318 40,000 0 0 1,406(6)
Vice President and
Chief Financial Officer
Verrill M. Norwood 1996 172,497 25,000 0 0 10,890(8)
Vice President, Environmental, 1995 104,423 58,793 0 26,750 320,893(9)
Health & Safety, PCAC
Ronald E. Ciora 1996 165,000 50,000 0 0 2,062(6)
President, All-Pure 1995 18,827 -- 0 16,050 45,000(10)
Paul J. Kienholz 1996 250,000 50,000 0 0 16,623(12)
President, PCAC(11) 1995 172,243 124,125 0 56,175 539,092(13)
</TABLE>
- ---------------
(1) Each of Messrs. Kellogg, Kienholz, Glattly and Norwood were officers of PAI
on April 20, 1995, when PAI was acquired by Pioneer. After the PAI
Acquisition, each served as an executive officer of Pioneer (including
service as an executive officer of one or more subsidiaries of Pioneer),
and information with respect to 1995 compensation is provided for each only
with respect to services provided to Pioneer and its subsidiaries during
the portion of the year beginning on April 21, 1995. Information with
respect to Mr. Ablove, who became Vice President and Chief Financial
Officer of Pioneer on March 8, 1996, and Mr. Ciora, who became President of
All-Pure on December 1, 1995, is provided for the portions of the relevant
years during which each served.
(2) Mr. Berkley is not an officer of Pioneer. As a director of Pioneer he
receives an annual retainer, all or a portion of which has been paid
through the delivery of shares under Pioneer's 1993 Non-Employee Director
Stock Plan. The retainer for service as a director during each of 1995 and
1996 was $22,000 per
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year, with payment for 1996 in the form of 2,700 shares of Class A Common
Stock and $7,994 in cash, and with payment for 1995 in the form of 3,320
shares of Class A Common Stock. The $6,000 in payment of the retainer and
director's meeting fees for 1994 was paid in the form of 4,000 shares of
Class A Common Stock.
(3) Expressed in terms of the numbers of shares of Pioneer's Class A Common
Stock underlying options granted during the year. All such options were
granted under Pioneer's 1995 Stock Incentive Plan.
(4) Represents director's meeting fees.
(5) Mr. Kellogg resigned as President of Pioneer and PAAC on January 4, 1997
and no longer serves as an executive officer.
(6) Represents amounts contributed to match a portion of the employee's
contributions under a 401(k) plan.
(7) Mr. Glattly served as Vice President, Sales and Marketing of PAAC and PCAC
until December 1, 1996, when he was named President of PCAC.
(8) Includes (a) $7,140, representing payment under a supplemental pension
plan, and (b) $3,750, which was contributed to match a portion of
contributions under a 401(k) plan.
(9) Includes (a) $318,575, representing payment upon the termination of a
salary continuation agreement in effect since 1993, together with payment
for the resulting tax liability, and (b) $2,318, which was contributed to
match a portion of contributions under a 401(k) plan.
(10) Represents an amount paid as compensation for the loss of benefits from a
previous employer.
(11) Mr. Kienholz served as President of PCAC until December 1, 1996. He retired
on January 1, 1997, and no longer serves as an executive officer
(12) Includes (a) $12,873, representing payment under a supplemental pension
plan, and (b) $3,750, which was contributed to match a portion of
contributions under a 401(k) plan.
(13) Includes (a) $533,206, representing payment upon the termination of a
salary continuation agreement in effect since 1988, together with payment
for the resulting tax liability, and (b) $5,886, which was contributed to
match a portion of contributions under a 401(k) plan.
Pioneer has adopted the 1995 Stock Incentive Plan (the "1995 Stock
Incentive Plan"), under which 802,500 shares of Class A Common Stock of Pioneer
were reserved for issuance pursuant to the grant of stock based awards to
employees of Pioneer and its subsidiaries, including PAAC. Such awards may
include incentive stock options, nonqualified stock options, stock appreciation
rights ("SARs"), restricted stock awards, phantom stock unit awards, performance
share unit awards and other forms of equity-based incentive compensation, or
combinations of the foregoing. No more than 133,750 shares of Class A Common
Stock may be issued to any one person pursuant to awards of options or SARs
during any one year. Share numbers referred to above and in the following
discussions have each been adjusted as a result of the 7% stock dividend paid on
January 7, 1997. Applicable stock option exercise prices have also been adjusted
as a result of the stock dividend.
On April 20, 1995, options exercisable for approximately 535,000 shares of
Class A Common Stock of Pioneer were granted to the employees of PAAC and its
subsidiaries pursuant to the 1995 Stock Incentive Plan. Such options are
exercisable at a price of $6.07 per share, the fair market value of the Class A
Common Stock as of the date of grant. None of the options is exercisable prior
to April 20, 1998.
In 1996 Pioneer adopted the Key Executive Stock Grant Plan, under which
535,000 shares of Class A Common Stock of Pioneer were reserved for issuance
pursuant to the grant of stock based awards to senior executives of Pioneer and
its subsidiaries, including PAAC. Such awards are to be made in the form of
phantom stock awards under Pioneer's incentive compensation bonus plan, payable
upon vesting in shares of Class A Common Stock. No awards have been made under
the Key Executive Stock Grant Plan.
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OPTION GRANTS IN LAST FISCAL YEAR
In 1996, Philip J. Ablove was the only named executive officer who received
a grant of options to purchase Class A Common Stock of Pioneer. The following
table provides information with respect to such grant:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SHARES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME(1) GRANTED(#) 1996 (PER SHARE) DATE 5%($) 10%($)
------- ----------- ---------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Philip J. Ablove...... 53,500 100.0 $5.61 6/04/06 $188,753 $478,378
</TABLE>
- ---------------
(1) The options were granted under Pioneer's 1995 Stock Incentive Plan at fair
market value on the date of grant. The options granted are exercisable in
17,833-share increments on June 4 in the years 1999 through 2001.
(2) These amounts represent assumed rates of appreciation in market value from
the date of grant until the end of the option term, at the rates set by the
Securities and Exchange Commission, and therefore are not intended to
forecast possible future appreciation, if any, in Pioneer's stock price.
Pioneer did not use an alternative formula for a grant date valuation, as it
is not aware of any formula which will determine with reasonable accuracy a
present value based on future unknown or volatile factors.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table shows with respect to the named executive officers the
number of shares covered by both exercisable and non-exercisable stock options
as of December 31, 1996, with respect to options to purchase Class A Common
Stock of Pioneer. Also reported are the values for in-the-money options which
represent the positive spread between the exercise price of any such existing
stock options and the year-end price of the Class A Common Stock of Pioneer. No
shares of Class A Common Stock of Pioneer were issued during 1996 to any
individual as the result of the exercise of stock options.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISABLE
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
1996(#) DECEMBER 31, 1996($)(1)
---------------------------- ----------------------------
NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard C. Kellogg, Jr........... -0- 131,691 -0- -0-
James E. Glattly................. -0- 53,500 -0- -0-
Philip J. Ablove................. -0- 53,500 -0- -0-
Verrill M. Norwood, Jr........... -0- 26,750 -0- -0-
Ronald E. Ciora.................. -0- 16,050 -0- -0-
Paul J. Kienholz(2).............. -0- 56,175 -0- -0-
</TABLE>
- ---------------
(1) The closing price of the Class A Common Stock of Pioneer on December 31,
1996, the last trading day of Pioneer's fiscal year, was $5.00 per share.
(2) As a result of Mr. Kienholz' retirement on December 31, 1996, the options
held by him expired on March 31, 1997.
PENSION PLAN
PCAC's pension plan provides defined benefit retirement coverage to the
executive officers of Pioneer and substantially all of PCAC's employees. At the
normal retirement age of 65, participants receive benefits based on their
credited service and their covered compensation for the average of their highest
five complete consecutive plan years out of their last ten complete consecutive
plan years. Covered compensation under the plan includes base pay, overtime and
shift differential pay and certain annual performance and sales incentive
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<PAGE> 86
programs and commissions, but excludes all other items of compensation. However,
the Internal Revenue Code limits remuneration which may be taken into account
(subject to certain grandfather rules) under the pension plan for 1995 to
$150,000. The benefits in the table set forth below are computed as a straight
life annuity at age 65. Benefits are not subject to any deduction for social
security since the basic benefit formula incorporates the average social
security breakpoint in calculating the benefit. Pioneer's other operating
subsidiaries do not have similar plans.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(1)
---------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000......................... $27,153 $36,204 $45,255 $54,306 $63,357
150,000......................... 32,778 43,704 54,630 65,556 76,482
175,000......................... 32,778 43,704 54,630 65,556 76,482
200,000......................... 32,778 43,704 54,630 65,556 76,482
225,000......................... 32,778 43,704 54,630 65,556 76,482
250,000......................... 32,778 43,704 54,630 65,556 76,482
300,000......................... 32,778 43,704 54,630 65,556 76,482
400,000......................... 32,778 43,704 54,630 65,556 76,482
450,000......................... 32,778 43,704 54,630 65,556 76,482
500,000......................... 32,778 43,704 54,630 65,556 76,482
</TABLE>
- ---------------
(1) The estimated years of credited service for each of the named executive
officers of PAAC as of December 31, 1996, were: Mr. Kellogg -- 5 years; Mr.
Kienholz -- 7 years; Mr. Glattly -- 7 years; and Mr. Norwood -- 4 years.
Messrs. Kienholz and Norwood also participate in a supplemental retirement
plan which was established by Pioneer in 1995 in order to fund amounts due to
such individuals under agreements reached when they were hired in 1988 and 1993,
respectively. Under such plan, Mr. Kienholz began receiving supplemental
retirement payments in the amount of $1,073 per month after he reached age 65 in
December 1995, and Mr. Norwood began receiving supplemental retirement payments
in the amount of $1,428 per month after he reached age 65 in July 1996.
EMPLOYMENT AGREEMENTS AND SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS
On April 20, 1995, Pioneer entered into a five-year employment agreement
with Richard M. Kellogg, Jr. pursuant to which Mr. Kellogg served as President
of Pioneer through January 1997 and continues to serve as an employee of
Pioneer. Pursuant to the terms of the agreement, Pioneer will continue to pay
Mr. Kellogg's annual salary of $300,000 per year through April 20, 2000.
On April 20, 1995, PCAC extended its existing employment agreement with Mr.
Kienholz, pursuant to which Mr. Kienholz served as President of PCAC. The
agreement provided for an annual salary of at least $200,000, and for continuing
employment until October 31, 1996. Mr. Kienholz retired on December 31, 1996. On
April 20, 1995, Pioneer entered into three-year employment agreements with
Messrs. Glattly and Norwood. The employment agreement with Mr. Glattly provides
for an annual salary of at least $165,000. The employment agreement with Mr.
Norwood provides for an annual salary of at least $143,100.
On March 8, 1996, Philip J. Ablove, who is a director of Pioneer and PAAC,
was elected Vice President and Chief Financial Officer of Pioneer, after serving
as acting Chief Financial Officer and a management consultant to Pioneer since
October 1995. Pioneer has agreed to pay Mr. Ablove an annual salary of $225,000.
Following any change of control during his employment by Pioneer, he would be
entitled to a severance payment equal to at least 12 months' salary.
On January 4, 1997, Pioneer entered into a three-year employment agreement
with Michael J. Ferris, pursuant to which Mr. Ferris serves as President and
Chief Executive Officer of Pioneer and PCAC. The
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agreement provides for an annual salary of not less than $350,000, and that
during 1997 Mr. Ferris will also receive a cash bonus of not less than $200,000,
payable quarterly in arrears.
Under each of the employment agreements currently in effect, the employee
will be entitled to receive other benefits made available to executive officers
and to receive bonus compensation in accordance with any management incentive
plan established by the Board of Directors. Each of the employment agreements
provides that if the executive's employment thereunder is terminated by the
employer without "just cause" or by the employee for "good reason" (as such
terms are defined in the employment agreement), the executive shall continue to
receive his annual salary until the last date of the employment term or, if
later, the first anniversary of the termination date, subject to certain
provisions for offset, and will continue to receive certain other benefits
provided for in the agreement. Termination following a change in control does
not constitute "just cause" or "good reason", but "good reason" does include the
failure of any successor to the employer by operation of law to assume the
employment agreement.
Pioneer and Mr. Ferris entered into a Stock Purchase Agreement dated
January 4, 1997, in connection with Mr. Ferris' employment as President and
Chief Executive Officer of Pioneer. In accordance with the terms of the
agreement, on February 13, 1997, Pioneer sold 150,000 shares of Pioneer's Class
A Common Stock to Mr. Ferris for $5.346 per share, or $801,900 in the aggregate.
The price paid was the average of the closing sale prices of the Common Stock as
reported on the NASDAQ National Market System on the days during which the
Common Stock was traded during the 30 consecutive trading days immediately
preceding the date of the agreement. The shares were sold to Mr. Ferris in
reliance on the exemption provided by Section 4(2) of the Securities Act.
On January 4, 1997, Mr. Ferris was granted an incentive stock option to
purchase 133,750 shares of Class A Common Stock under Pioneer's 1995 Stock
Incentive Plan, at an exercise price of $5.00 per share, the fair market value
of a share of Class A Common Stock on the date of grant. The option is
exercisable in 20,000-share increments on January 4 in the years 1998 through
2003, with an additional 13,750 exercisable on January 4, 2004. Mr. Ferris was
also granted a non-qualified stock option to purchase 191,250 shares of Class A
Common Stock at an exercise price of $5.00 per share. The option is exercisable
in 38,250-share increments on January 4 in the years 1998 through 2002. As a
part of his compensation package, it was also agreed that Mr. Ferris will
receive a future grant of a non-qualified stock option to purchase 25,000 shares
of Class A Common Stock on January 4 in each of the years 1998, 1999 and 2000.
Shares subject to the options will have exercise prices of $6.00, $7.00 and
$8.00, respectively.
COMPENSATION OF DIRECTORS
Directors of PAAC do not receive a fee for service as directors. Directors
of PAAC are reimbursed for travel expenses incurred in attending board and
committee meetings.
All of the directors of PAAC also serve as directors of Pioneer. In 1992,
the Board of Directors of Pioneer established a policy under which each director
who is not also an employee of Pioneer receives an annual retainer and a fee for
each meeting attended. Pursuant to Pioneer's 1993 Non-Employee Director Stock
Plan, Pioneer granted each non-employee director who served throughout the year
2,700 shares of Class A Common Stock of Pioneer and $7,994 in cash in payment of
the 1996 annual retainer of $22,000, and each director was paid $2,000 for each
Board of Directors meeting attended in 1996. Mr. Ablove received 501 shares and
$1,489 in cash in payment of the retainer as a result of his service as a
non-employee director during a portion of the year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William R. Berkley, a member of the Compensation and Stock Option Committee
of PAAC and Pioneer, is a director of PAAC and the Chairman of the Board of
Directors of Pioneer. Mr. Berkley (who may be deemed to beneficially own all
shares of Pioneer common stock held by the Interlaken Partnership) may be deemed
to beneficially own approximately 59.9% of the voting power of Pioneer. See
"Stock Ownership."
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CERTAIN TRANSACTIONS
PCAC, a wholly-owned subsidiary of PAAC, is party to an agreement with
Basic Investments, an entity in which PCAC owns a minority interest (and which
constitutes part of the Basic Ownership held for the benefit of the sellers in
the PAI Acquisition), for the delivery of water to the Henderson production
facility. The agreement provides for the delivery of a minimum of eight million
gallons of water per day. The agreement expires on December 31, 2014, unless
terminated earlier in accordance with the provisions thereof. Basic Investments
also charges PCAC and other companies in the Basic Complex for power
distribution services. For the year ended December 31, 1996, Basic Investments
charged PCAC approximately $500,000 for the provision of such services. At
December 31, 1996, net receivables from Basic Investments were $300,000. See
"Business -- Basic Investments."
PCAC sells certain services to and purchases steam from Saguaro Power. For
the year ended December 31, 1996, sales to Saguaro Power totaled $1.0 million
and purchases from Saguaro Power totaled $1.8 million; as of December 31, 1996,
Saguaro Power owed PCAC $0.1 million and PCAC owed Saguaro Power $0.2 million.
See "Business -- Saguaro Power."
PCAC is also party to a development management agreement with Victory
Valley, an entity controlled by Basic Investments and in which PCAC owns a
minority interest (and which constitutes part of the Basic Ownership held for
the benefit of the sellers in the PAI Acquisition). Pursuant to the agreement,
Victory Valley manages the development of certain real property in Henderson,
Nevada which is a portion of the Excess Land owned by PCAC.
PCAC sells certain products to Kemwater at market prices. Sales to Kemwater
totaled $8.8 million during the year ended December 31, 1996. Kemwater provides
transportation services to PCAC at market prices which totaled $1.8 million for
1996.
PAI sold caustic soda to TMHI for export from 1988 to 1993 and participated
in certain joint insurance programs. Mr. Kellogg, who was an executive officer
and director of PAI, co-founded TMHI and served as a director and executive
officer of TMHI. PAI wrote off $1.3 million of receivables in 1992 and charged
an additional $1.1 million against income in 1993 related to sales to TMHI that
were deemed uncollectible. In April 1993, TMHI filed for bankruptcy.
In connection with the consummation of the PAI Acquisition, Pioneer issued
and sold (i) to the Interlaken Partnership, 3,039,772 shares of Class A Common
Stock of Pioneer for an aggregate purchase price of $15 million, and (ii) to Mr.
Kellogg, 515,000 shares of Class A Common Stock of Pioneer for an aggregate
purchase price of approximately $2.5 million. An entity controlled by Mr.
Berkley is the sole general partner of the Interlaken Partnership, and Mr.
Berkley also owns approximately 32.3% of the limited partnership interests in
the Interlaken Partnership. The Interlaken Partnership beneficially owns
approximately 34.9% of the voting power of Pioneer, and William R. Berkley,
Chairman of Pioneer and PAAC (who may be deemed to beneficially own all shares
of Pioneer common stock held by the Interlaken Partnership), may be deemed to
beneficially own approximately 59.9% of the voting power of Pioneer. Mr. Berkley
has the right to vote and otherwise act in respect of the shares of Pioneer
beneficially owned by the Interlaken Partnership in his capacity, through
controlled entities, as the sole general partner of the Interlaken Partnership.
See "Stock Ownership."
Upon consummation of the PAI Acquisition, Interlaken Capital, Inc., an
entity controlled by Mr. Berkley, received a fee of approximately $1.6 million
from PAAC in connection with financial advisory services with respect to the PAI
Acquisition and related financings. The firm was also paid a fee of $300,000,
plus reimbursement of reasonable out-of-pocket expenses, for services rendered
in connection with the KWT transaction. The firm was paid a fee of approximately
$1.3 million, plus reimbursement of reasonable out-of-pocket expenses, for
services rendered in connection with the Tacoma Acquisition.
Upon consummation of the PAI Acquisition, Pioneer and PAI entered into
employment agreements with the executive officers of PAI, and Pioneer granted to
such executive officers options to purchase shares of Pioneer's Class A Common
Stock pursuant to its 1995 Stock Incentive Plan. See "Management -- Executive
Compensation."
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<PAGE> 89
PAAC and its subsidiaries (the "PAAC Group") have entered into a tax
sharing agreement (the "Tax Sharing Agreement") with Pioneer and the other
members of the consolidated group (the "Pioneer Group") of which Pioneer is the
common parent. Under the Tax Sharing Agreement, (i) Pioneer is obligated to pay
the federal income tax liability of the Pioneer Group and (ii) the PAAC Group is
required to make tax sharing payments to Pioneer in an amount equal to its share
of the Pioneer Group's consolidated cash tax liability, if any. In determining
the PAAC Group's share of the Pioneer Group's consolidated cash tax liability
(x) available net operating loss carryforwards each year will be determined as
if any prior use of those carryforwards by members of the Pioneer Group other
than the PAAC Group (the "Non-PAAC Group"), except carryforwards generated by
the Non-PAAC Group after the PAI Acquisition, had not occurred ("Previously Used
NOLs") and (y) net operating loss carryforwards, except carryforwards generated
by the Non-PAAC Group after the PAI Acquisition, will first reduce the "separate
tax liability" of the PAI Group each year to the fullest extent permitted by the
Code before any net operating loss use by the Non-PAAC Group except that
Previously Used NOLs may only be utilized by the PAAC Group.
Jack H. Nusbaum, a director of Pioneer and PAAC, is a Senior Partner and
Chairman of the law firm of Willkie Farr & Gallagher, which regularly acts as
counsel to Pioneer and PAAC and is acting as counsel to Pioneer and PAAC in
connection with the Exchange Offer.
Thomas H. Schnitzius, a director of Pioneer and PAAC, is a principal of
Schnitzius & Vaughan, an investment banking firm. PAI retained Schnitzius &
Vaughan to provide merger and acquisition and financial advisory services to
PAI. PAI paid Schnitzius & Vaughan a $250,000 fee for financial advisory
services rendered in connection with PAI's March 1995 debt refinancing. In
addition, as compensation for financial services rendered to it by Schnitzius &
Vaughan in connection with the PAI Acquisition, PAI paid that firm a fee of
approximately $1.0 million upon the consummation of the PAI Acquisition, plus
reimbursement of reasonable out-of-pocket expenses relating to such services.
The firm was also paid a fee of $300,000, plus reimbursement of reasonable
out-of-pocket expenses, for services rendered in connection with the KWT
transaction, and a fee of $150,000, plus reimbursement of reasonable
out-of-pocket expenses, for services rendered in connection with the T.C.
Products acquisition. Schnitzius & Vaughan provides financial advisory services
on an on-going basis to the Company, for which it received fees of $476,000 for
1996. The firm is currently paid a retainer for such services of $6,000 per
month. The firm was paid a fee of approximately $450,000, plus reimbursement of
reasonable out-of-pocket fees and expenses, for services rendered in connection
with the Tacoma Acquisition.
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<PAGE> 90
STOCK OWNERSHIP
Since the formation of PAAC in March 1995, all of the outstanding shares of
common stock, par value $.01 per share, of PAAC have been owned by Pioneer. The
following table sets forth, as of September 1, 1997, certain information
regarding ownership of PAAC common stock by (i) each person known by PAAC to be
the beneficial owner of more than five percent of the PAAC common stock, (ii)
each of the directors of PAAC and the executive officers of PAAC named in the
Summary Compensation Table and (iii) all directors and executive officers of
PAAC as a group. Except as otherwise indicated, each party has sole voting and
investment power over the shares beneficially owned.
<TABLE>
<CAPTION>
AMOUNT AND
TITLE OF NAME OF NATURE PERCENT
CLASS BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
-------- ---------------- ----------------------- --------
<S> <C> <C> <C>
Common Stock Pioneer Companies, Inc.......................... 1,000 100%
4300 NationsBank Center
700 Louisiana Street
Houston, TX 77002
William R. Berkley.............................. 1,000(1) 100%
c/o Pioneer Companies, Inc.
165 Mason Street
Greenwich, CT 06830
All Directors and Executive Officers as a group
(14 persons).................................... 1,000(1) 100%
</TABLE>
- ---------------
(1) Mr. Berkley, Chairman of the Board and principal shareholder of Pioneer, may
be deemed to beneficially own the shares of PAAC common stock owned by
Pioneer. Mr. Berkley disclaims beneficial ownership of all such shares.
The Interlaken Partnership beneficially owns approximately 34.9% of the
voting power of Pioneer and William R. Berkley, Chairman of Pioneer and PAAC
(who may be deemed to beneficially own all shares of Pioneer common stock held
by the Interlaken Partnership), may be deemed to beneficially own approximately
59.9% of the voting power of Pioneer. As a result of Mr. Berkley's ownership of
Pioneer voting stock, Mr. Berkley is able to control the election of PAAC's
Board of Directors and thereby direct the management and policies of PAAC, PAI
and its subsidiaries.
Pioneer's authorized and outstanding common stock consists of Class A
Common Stock, entitled to one vote per share, and Class B Common Stock, entitled
to one-tenth of one vote per share and convertible into Class A Common Stock on
a share-for-share basis. The Class B Common Stock of Pioneer was issued to
Pioneer's former lending banks under the plan of reorganization of Pioneer and
its subsidiaries in 1992. Information obtained from a Schedule 13G, dated July
21, 1992, filed with the Securities and Exchange Commission by Chemical Bank
("Chemical"), Barnett Bank of South Florida, N.A. ("Barnett") and The Chase
Manhattan Bank ("Chase") indicates that (i) Chemical had acquired 616,768 shares
of Class B Common Stock of Pioneer of which it was the beneficial owner with
sole voting and dispositive power, (ii) Barnett had acquired 122,146 shares of
Class B Common Stock of which it was the beneficial owner with sole voting and
dispositive power and (iii) Chase had acquired 84,295 shares of Class B Common
Stock of which it was the beneficial owner with sole voting and dispositive
power. In September 1995, Barnett converted its Class B Common Stock into Class
A Common Stock. The holdings of Chemical and Chase will represent approximately
0.7% and 0.1%, respectively, of the voting power of Pioneer upon consummation of
the Tacoma Acquisition and, in the aggregate, approximately 7.7% of the number
of shares of Pioneer common stock outstanding.
Upon consummation of the Tacoma Acquisition, Pioneer issued 55,000 shares
of Pioneer Preferred Stock, constituting all of the issued and outstanding
shares of Pioneer Preferred Stock, to OCC Tacoma. Each share of Pioneer
Preferred Stock is convertible at any time into eight shares of Class A Common
Stock of Pioneer. Each share of Pioneer Preferred Stock is entitled to eight
votes per share (subject to adjustment) and votes with the Pioneer common stock
on all matters. The Pioneer Preferred Stock issued to OCC Tacoma upon
consummation of the Tacoma Acquisition represents approximately 4.8% of the
voting power of Pioneer.
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<PAGE> 91
DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT FACILITIES
Term Facility
Concurrent with the closing of the Initial Offering, the other Refinancings
and the Tacoma Acquisition, the Company entered into a nine and one-half year
$100.0 million Term Facility provided by a syndicate of financial institutions.
Quarterly amortization of the Term Loans will be in an aggregate annual
principal amount equal to 1% of the initial principal amount beginning September
30, 1997, with the remaining 90.75% of the initial principal amount maturing on
December 15, 2006. Indebtedness under the Term Facility will be subject to
mandatory prepayment provisions including, without limitation: (i) upon the
occurrence of a change of control (to be defined in a manner similar to "change
of control" in the Indenture) and (ii) with 100% of the net proceeds from asset
sales permitted under the Term Facility (provided that up to $35.0 million of
such proceeds since the closing of the Term Facility may be re-invested within
365 days of their receipt in the Company or its subsidiaries in their current
lines of business).
Borrowings under the Term Facility bear interest at a floating rate, based
at the Company's option on LIBOR or the administrative agent's alternate base
rate.
Indebtedness under the Term Facility is guaranteed by all direct and
indirect subsidiaries of the Company, provided that a non-U.S. subsidiary will
only be required to deliver a guarantee to the extent it would not result in
material increased tax or similar liabilities for the Company and its
subsidiaries on a consolidated basis. The Term Facility is secured on a pari
passu basis with the Notes, by (a) a first mortgage lien and security interest
in the real property, buildings, fixtures and equipment relating to the Tacoma
Facility, (b) a first-priority, perfected security interest in certain
agreements related to the Tacoma Acquisition, (c) first mortgage liens on the
Henderson, Nevada and St. Gabriel, Louisiana chlor-alkali production facilities
of PCAC, including real property, buildings, fixtures and equipment, and (d) a
first-priority, perfected pledge of all the capital stock of PCAC and All-Pure.
The Term Facility contains covenants similar to the covenants contained in
the Indenture. Events of default with respect to the Term Facility include,
among others, failure to make payment when due, defaults under certain other
agreements or instruments of indebtedness and certain other events of default
similar to those contained in the Indenture.
Revolving Facility
Concurrent with the closing of the Initial Offering, the other Refinancings
and the Tacoma Acquisition, the Company entered into the Revolving Facility
under which the agent bank (the "Bank") and the other lenders provide a
revolving loan and letter of credit facility to the Company, subject to the
conditions set forth therein.
The Bank extends credit to the Company on a revolving basis at any time and
from time to time for a period of five years following the Initial Offering in
an aggregate principal amount of Revolving Loans outstanding of not in excess of
$35.0 million, up to $10.0 million of which amount will be available for the
issuance of letters of credit ("Letters of Credit"); provided that the aggregate
amount of the Revolving Loans and the aggregate undrawn face amount of Letters
of Credit may not at any time exceed the borrowing base (the "Borrowing Base"),
which will be the sum of, subject to certain exceptions, (i) up to 85% of
eligible accounts receivable and (ii) up to 50% of eligible inventory, not to
exceed the lesser of (a) $10.0 million or (b) 35% of the amount of the foregoing
clause (i). The obligations of PAAC under the Revolving Facility are secured by
a first priority lien on all accounts receivables and inventory, and certain
assets related thereto, of the Company and certain of its subsidiaries,
including Kemwater. Borrowings under the Revolving Facility bear interest at a
rate determined by reference to the Bank's reference rate in effect from time to
time (the "Reference Rate") or, at the Company's option, the Bank's LIBOR
interest rate (the "LIBOR Rate"). The interest rate will be adjusted quarterly
based upon the ratio of total debt to earnings before interest, taxes and
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<PAGE> 92
depreciation and amortization for the preceding four quarters. If any borrowings
are not repaid when due, the outstanding principal amount of such borrowings
will bear interest at the then applicable rate plus 2.0%. The Company will pay
the Bank, monthly in arrears, a commitment fee based on the average difference
between $35.0 million and the aggregate of the Revolving Loans and the aggregate
undrawn face amount of the Letters of Credit outstanding. PAAC will also pay
other customary fees including a fee on Letters of Credit based on the average
aggregate undrawn face amount of Letters of Credit outstanding. The Revolving
Facility is guaranteed by PAI and its subsidiaries.
The Revolving Facility contains customary covenants with respect to, among
other things, (i) maintenance of a ratio of EBITDA to interest expense and (ii)
restrictions on the incurrence of additional liens or indebtedness. The Company
intends to use any borrowings under the Revolving Facility for its ongoing
working capital needs and general corporate purposes. Letters of Credit will be
used to support obligations of the Company incurred in the ordinary course of
business.
OTHER
Other long-term debt of PAAC consists of $4.5 million of outstanding
variable rate subordinated notes, with principal payments due July 31, 2001, and
$2.3 million of an outstanding variable rate tax-exempt bond, financed through
the Economic Development Corporation of Pierce County, Washington, with
principal payments due in variable annual installments through 2014.
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<PAGE> 93
DESCRIPTION OF THE NOTES
GENERAL
The Exchange Notes will be issued, and the Original Notes were issued,
under an Indenture (the "Indenture") among the Company, as issuer, all of the
Company's Subsidiaries (collectively, the "Subsidiary Guarantors") and United
States Trust Company of New York, as trustee (the "Trustee"). The terms and
conditions of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act") as in effect on the date of the Indenture. The Notes are
subject to all such terms and conditions, and reference is made to the Indenture
and the Trust Indenture Act for a statement thereof. The following statements
are summaries of the provisions of the Notes and the Indenture and do not
purport to be complete. Such summaries make use of certain terms defined in the
Indenture and are qualified in their entirety by express reference to the
Indenture. Certain of such defined terms are set forth below under "-- Certain
Definitions." For purposes of this "Description of the Notes," the "Company"
means Pioneer Americas Acquisition Corp. A copy of the Indenture will be
available upon request to the Company.
The Notes will be limited to $200.0 million aggregate principal amount and
will be issued in fully registered form without coupons in denominations of
$1,000 and any integral multiple of $1,000. Principal of, premium and Liquidated
Damages, if any, and interest on the Notes will be payable, and the Notes will
be transferable, at the corporate trust office or agency of the Trustee
maintained for such purposes in New York, New York. Initially, the Trustee will
act as paying agent and registrar under the Indenture. The Company and its
Subsidiaries may act as paying agent and registrar under the Indenture, and the
Company may change any paying agent and registrar without notice to the Persons
who are registered holders ("Holders") of the Notes. The Company may pay
principal, premium and interest by check and may mail an interest check to a
Holder's registered address. Holders must surrender the Notes to the paying
agent to collect principal and premium payments. No service charge will be made
for any registration of transfer or exchange of the Notes, except for any tax or
other governmental charge that may be imposed in connection therewith.
PAYMENT TERMS
Interest on the Notes will initially accrue from the respective issue date,
and thereafter from the most recent date to which interest has been paid.
Interest will be payable semi-annually on June 15 and December 15 of each year,
commencing December 15, 1997, at the rate of 9 1/4% per annum to Holders of the
Notes as of the close of business on June 1 and December 1 next preceding the
applicable interest payment date. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. The Notes mature on June 15,
2007.
Payment of the Notes is guaranteed by the Subsidiary Guarantors, jointly
and severally, on a senior basis. See "-- Guarantees."
RANKING
The Notes will be senior obligations of the Company and will rank pari
passu with all existing and future Senior Indebtedness of the Company (including
the loans under the New Credit Facilities) and senior to all Subordinated
Indebtedness of the Company. The Notes, however, will be effectively
subordinated to secured Senior Indebtedness of the Company and its subsidiaries
with respect to the assets securing such Indebtedness (such as the accounts
receivable, inventory and certain related assets of the Company and its
subsidiaries which are expected to secure the Indebtedness under the Revolving
Facility). The guarantee of PCAC with respect to the Notes will be secured by
(i) a first mortgage lien on the Tacoma Facility, (ii) a first priority security
interest in certain agreements related to the Tacoma Acquisition, and (iii)
first mortgage liens on PCAC's chlor-alkali production facilities located in
Henderson, Nevada and St. Gabriel, Louisiana and the guarantee of PAI with
respect to the Notes will be secured by a pledge of the Capital Stock of PCAC
and All-Pure held by PAI. Such liens will also secure, equally and ratably,
PCAC's guarantee and PAI's guarantee, respectively, of the Term Loans. In
addition, the Company and its Subsidiaries may incur up to $50.0 million of
Senior Indebtedness which will be secured on a pari passu basis with the Notes.
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<PAGE> 94
As of June 30, 1997, after giving effect to the Refinancings and the Tacoma
Acquisition, the Company and its Subsidiaries had outstanding approximately
$300.0 million aggregate principal amount of secured Senior Indebtedness. At
June 30, 1997, the Company and its Subsidiaries had, subject to certain
restrictions (including borrowing base limitations), the ability to draw up to
$32.2 million of additional secured Senior Indebtedness under the Revolving
Facility. See "Risk Factors -- Ranking of the Notes" and "Description of Other
Indebtedness."
Holders of secured Indebtedness of the Company or the Subsidiary Guarantors
have claims with respect to the assets constituting collateral for such
Indebtedness that are prior to the claims of holders of the Notes and the
Guarantees, respectively. In the event of a default on the Notes, or a
bankruptcy, liquidation or reorganization of the Company or the Subsidiary
Guarantors, such assets will be available to satisfy obligations with respect to
the Indebtedness secured thereby before any payment therefrom could be made on
the Notes or the Guarantees, as the case may be. To the extent that the value of
such collateral is not sufficient to satisfy the Indebtedness secured thereby,
amounts remaining outstanding on such Indebtedness would be entitled to share,
together with the Indebtedness under the Notes and the Guarantees, as the case
may be, with respect to any other assets of the Company and the Subsidiary
Guarantors. See "-- Security."
GUARANTEES
The Subsidiary Guarantors will, jointly and severally, unconditionally
guarantee the due and punctual payment of principal of, premium, if any, and
interest on, the Notes. Such guarantees will be senior obligations of each
Subsidiary Guarantor, and will rank pari passu with all existing and future
Senior Indebtedness of such Subsidiary Guarantor and senior to all Subordinated
Indebtedness of such Subsidiary Guarantor.
The guarantee of PCAC with respect to the Notes and the Term Loans will be
secured by (i) a first mortgage lien on the Tacoma Facility, (ii) a first
priority security interest in certain agreements related to the Tacoma
Acquisition, and (iii) first mortgage liens on PCAC's chlor-alkali production
facilities located in Henderson, Nevada and St. Gabriel, Louisiana. The
guarantee of PAI with respect to the Notes and the Term Loans will be secured by
a pledge of the Capital Stock of PCAC and All-Pure. See "-- Security" and
"-- Intercreditor Agreement."
The Subsidiary Guarantors on the date of this Prospectus are set forth
below:
Pioneer Americas, Inc.
Pioneer Chlor Alkali Company, Inc.
Imperial West Chemical Co.
All-Pure Chemical Co.
Black Mountain Power Company
All-Pure Chemical Northwest, Inc.
Pioneer Chlor Alkali International, Inc.
G.O.W. Corporation
Pioneer (East), Inc.
T.C. Holdings, Inc.
T.C. Products, Inc.
Subsidiary Guarantors will include such other Subsidiaries of the Company
that become Subsidiary Guarantors as described under "-- Certain Covenants --
Guarantees." The Indenture provides that the obligations of the Subsidiary
Guarantors under their respective Guarantees will be reduced to the extent
necessary to prevent the Guarantees from violating or becoming voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
Upon any sale, exchange, transfer or other disposition to any Person of all
of the Company's or a Restricted Subsidiary's Equity Interests in, or all or
substantially all of the assets of, any Subsidiary Guarantor which is in
compliance with the Indenture, such Subsidiary Guarantor will be released from
all its obligations under its Guarantee.
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<PAGE> 95
Separate financial statements of the Subsidiary Guarantors are not included
herein because (i) the Company is a holding company with no independent
operations, (ii) the Guarantees are full and unconditional (except to the extent
necessary to comply with fraudulent conveyance laws), (iii) such Subsidiary
Guarantors are jointly and severally liable with respect to the Guarantees, and
(iv) all of the Subsidiaries of the Company currently in existence (other than
inconsequential subsidiaries) are Subsidiary Guarantors and the aggregate
consolidated net assets, earnings and equity of the Subsidiary Guarantors are
substantially equivalent to the net assets, earnings and equity of the Company
on a consolidated basis.
SECURITY
PCAC has granted to United States Trust Company of New York, as collateral
agent (the "Collateral Agent"), for the benefit of (x) the Trustee, for itself
and the Holders, and (y) the agent under the Term Facility (the "Term Loan
Agent"), for itself and the other Term Loan lenders, (i) a first mortgage lien
and security interest in the real property, buildings, fixtures and certain
equipment relating to the Tacoma Facility, (ii) a first priority security
interest in certain agreements related to the Tacoma Acquisition, including the
Purchase Agreement, the Chlorine Purchase Agreement, the Chlorine and Caustic
Soda Sales Agreement and the Environmental Operating Agreement, and (iii) first
mortgage liens on the Henderson and St. Gabriel chlor-alkali production
facilities (including real property, buildings, fixtures and certain equipment).
PAI will grant to the Collateral Agent for the benefit of (x) the Trustee, for
itself and the Holders, and (y) the Term Loan Agent, for itself and the other
Term Loan lenders, a pledge of the Capital Stock of PCAC and All-Pure pursuant
to a stock pledge agreement (the "Stock Pledge Agreement"). The items described
in (i) through (iii) above and the Capital Stock of PCAC and All-Pure are
collectively referred to herein as the "Note Collateral." See "The Acquisition",
"Risk Factors -- Limitations on Security Interest" and "-- Intercreditor
Agreement."
There can be no assurance that the proceeds of any sale of the Note
Collateral in whole or in part pursuant to the Indenture and the related
security documents following an Event of Default would be sufficient to satisfy
payments due on any of the Notes or the other secured Indebtedness. See "Risk
Factors -- Limitations on Security Interest." In addition, the ability of the
Collateral Agent, the Trustee, any of the Holders, the Term Loan Agent, the Term
Loan lenders (the "Secured Parties") to realize upon the Note Collateral may be
subject to certain bankruptcy law limitations in the event of a bankruptcy. See
"-- Certain Bankruptcy Limitations."
The collateral release provisions of the Indenture will permit the release
of Note Collateral without substitution of collateral of equal value under
certain circumstances. See "-- Release of Note Collateral." As described under
"-- Certain Covenants -- Limitations on Asset Sales," the Net Proceeds of
certain Asset Sales may under specified circumstances be required to be utilized
to make a pro rata offer to purchase Notes.
For so long as any of the Original Notes or the Exchange Notes, as the case
may be, are outstanding, if an Event of Default occurs under the Indenture and a
declaration of acceleration of the Original Notes or the Exchange Notes, as the
case may be, occurs as a result thereof, the Trustee, on behalf of the Holders,
and as directed by Holders of a majority of the total principal amount of the
Notes, in addition to any rights or remedies available to it under the
Indenture, may, subject to the provisions of the Intercreditor Agreement (as
defined under "-- Intercreditor Agreement"), cause the Collateral Agent to take
such action as it may deem advisable to protect and enforce the rights of the
Trustee and the Holders in the Note Collateral, including the institution of
foreclosure proceedings. The proceeds received by the Collateral Agent from any
foreclosure with respect to the Note Collateral will be applied by the
Collateral Agent first to pay the expenses of such foreclosure and fees and
other amounts then payable to the Collateral Agent under the Intercreditor
Agreement, and thereafter to pay, pro rata: (i) the obligations under the
Indenture, including amounts then payable to the Trustee under the Indenture and
the principal of, premium, if any, and interest on the Notes and any Exchange
Notes, and (ii) the obligations under the Term Facility, including amounts then
payable to the Term Loan Agent and the principal of, premium, if any, and
interest on the Term Loans.
Dispositions of Note Collateral may be subject to delay pursuant to the
Intercreditor Agreement. See "-- Intercreditor Agreement."
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<PAGE> 96
Real property pledged as security to a lender may be subject to known and
unforeseen environmental risks. Under CERCLA, a lender who does not foreclose on
a property may be held liable, in certain limited circumstances, for the costs
of remediating or preventing releases or threatened releases of hazardous
substances at a mortgaged property. There may be similar risks under various
state laws and common law theories. Such liability has seldom been imposed, and
finding a lender liable generally has been based on the lender's having become
sufficiently involved in the operations of the borrower so that its activities
are deemed to constitute "participation in the management." A lender may also be
considered to be a current owner of a property who can be held liable under
CERCLA if the lender takes title to property by foreclosure, although certain
courts have held that mere foreclosure on the borrower's property, in order to
protect the lender's security interest, does not make the lender liable under
CERCLA. The uncertain state of current law does not provide any assurance that
lenders can avoid the risk of liability under CERCLA if they foreclose on
properties or become involved in work-outs or similar situations that may entail
some involvement in, or influence over, facility operations.
INTERCREDITOR AGREEMENT
The Company, PAI, PCAC, the Trustee, the Term Loan Agent and the Collateral
Agent have entered into an Intercreditor and Collateral Agency Agreement (the
"Intercreditor Agreement"). The Intercreditor Agreement provides generally that
(i) with respect to administering the Note Collateral and amending,
supplementing or waiving the provisions of the instruments relating to the
security interests granted therein, the holders of a majority of the aggregate
outstanding principal amount of the obligations secured by the Note Collateral
(the "Majority Holders") may direct the Collateral Agent, provided that the
Majority Holders include the holders of a majority of the aggregate outstanding
principal amount of the Term Loans; (ii) with respect to releasing a substantial
portion of the Note Collateral in circumstances not otherwise permitted by the
Indenture or the Term Facility, the Majority Holders may direct the Collateral
Agent, provided that the Majority Holders include the holders of 100% of the
aggregate outstanding principal amount of the Term Loans; and (iii) with respect
to foreclosing on or otherwise pursuing remedies with respect to the Note
Collateral, the holders of a majority of the aggregate outstanding principal
amount of either (x) the Notes or (y) the Term Loans may direct the Collateral
Agent, provided that the holders taking such action hold an aggregate principal
amount of such debt representing at least 15% of the aggregate outstanding
principal amount of the obligations secured by the Note Collateral.
All cash or cash equivalents received by the Collateral Agent (x) upon the
release of Note Collateral, (y) as proceeds of insurance or condemnation or
other taking awards, or (z) as proceeds of any sale (including an Asset Sale
authorized under the terms of the Indenture) or other disposition of Note
Collateral (collectively, "Trust Moneys") shall be subject to a lien and
security interest in favor of the Collateral Agent for the benefit of the
Secured Parties in accordance with the terms of Intercreditor Agreement.
If an Event of Default shall have occurred and be continuing, and the
obligations secured by the Note Collateral shall have been accelerated, then
upon the instructions of the holders of the obligations secured by the Note
Collateral, in accordance with the terms of the Intercreditor Agreement, the
Collateral Agent shall, as soon as practicable, apply the Trust Moneys relating
to the Note Collateral first to pay amounts then payable to the Collateral Agent
under the Intercreditor Agreement, and thereafter to pay, pro rata: (i) the
obligations under the Indenture, including amounts then payable to the Trustee
under the Indenture and the principal of, premium, if any, and interest on the
Original Notes and the Exchange Notes and (ii) the obligations under the Term
Facility, including amounts then payable to the Term Loan Agent and the
principal of, premium, if any, and interest on the Term Loans.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Collateral Agent to repossess and dispose of the Note
Collateral upon the occurrence of an Event of Default is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy case were to
be commenced by or against the Company, PAI or PCAC prior to the Collateral
Agent's having repossessed and disposed of the relevant Note Collateral. Under
the Bankruptcy Code, a secured creditor such as the Collateral Agent is
prohibited from repossessing its security from a debtor in a bankruptcy case, or
from
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<PAGE> 97
disposing of security repossessed from such debtor, without bankruptcy court
approval. Moreover, the Bankruptcy Code permits the debtor to continue to retain
and to use collateral even though the debtor is in default under the applicable
debt instruments, provided that the secured creditor is given "adequate
protection." The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value of the secured
creditor's interest in the collateral and may include cash payments or the
granting of additional security, if and at such times as the court in its
discretion determines, for any diminution in the value of the collateral as a
result of the stay of repossession or disposition or any use of the collateral
by the debtor during the pendency of the bankruptcy case. In view of the lack of
a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict how long
payments under the Original Notes, the Exchange Notes, or the other secured
indebtedness could be delayed following commencement of a bankruptcy case,
whether or when the Collateral Agent could repossess or dispose of the Note
Collateral or whether or to what extent holders of such indebtedness would be
compensated for any delay in payment or loss of value of the Note Collateral
through the requirement of "adequate protection." Furthermore, in the event that
the bankruptcy court determines the value of the collateral is not sufficient to
repay all amounts due on such indebtedness, the holders of such indebtedness
would hold "undersecured claims." Applicable federal bankruptcy laws do not
permit the payment and/or accrual of interest, costs and attorney's fees for
"undersecured claims" during the pendency of a debtor's bankruptcy case.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the option of the Company prior to June
15, 2002. On or after that date, the Notes will be redeemable at the option of
the Company, in whole or in part from time to time, on not less than 30 nor more
than 60 days' prior notice, mailed by first-class mail to the Holders'
registered addresses, in cash, at the following redemption prices (expressed as
percentages of the principal amount), if redeemed in the 12-month period
commencing June 15 in the year indicated below, in each case plus accrued and
unpaid interest and Liquidated Damages, if any, to the date fixed for
redemption:
<TABLE>
<CAPTION>
YEAR REDEMPTION
- ---- ----------
<S> <C>
2002........................................................ 104.625%
2003........................................................ 103.083%
2004........................................................ 101.542%
2005 and thereafter......................................... 100.000%
</TABLE>
The Notes will not be subject to, or entitled to the benefits of, any
sinking fund.
Notwithstanding the foregoing, at any time prior to June 15, 2000, the
Company may redeem, in part, up to 35% of the aggregate principal amount of the
Notes originally issued at a purchase price of 109.25% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the
date fixed for redemption, with the net proceeds of (i) any Equity Offering by
the Company or (ii) any Equity Offering by Pioneer, but only to the extent that
Pioneer contributes such net proceeds to the Company as a capital contribution;
provided that at least 65% of the aggregate principal amount of the Notes
originally issued remains outstanding immediately after giving effect to such
redemption. In order to effect the foregoing redemption, the Company will be
required to send the redemption notice not later than 60 days after the receipt
of the proceeds of such public offering.
Notes may be redeemed or repurchased as set forth below under "-- Change of
Control" and "-- Certain Covenants -- Limitations on Asset Sales" in part in
multiples of $1,000. If less than all the Notes issued under the Indenture are
to be redeemed, the Trustee will select the Notes to be redeemed pro rata, by
lot or by any other method which the Trustee deems fair and appropriate. The
Indenture provides that if any Note is to be redeemed or repurchased in part
only, the notice which relates to the redemption or repurchase of such Note will
state the portion of the principal amount of such Note to be redeemed or
repurchased and will state that on or after the date fixed for redemption or
repurchase a new Note equal to the unredeemed portion thereof will be issued.
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On and after the date fixed for redemption or repurchase, interest will
cease to accrue on the Notes or portions thereof called for redemption or
tendered for repurchase.
CHANGE OF CONTROL
The Indenture provides that in the event of a Change of Control (the date
of such occurrence being the "Change of Control Date"), the Company will notify
the Holders in writing of such occurrence and will make an irrevocable offer
(the "Change of Control Offer") to purchase on a business day (the "Change of
Control Payment Date") not later than 60 days following the Change of Control
Date, all Notes then outstanding at a purchase price (the "Purchase Price")
equal to 101% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages, if any, to the Change of Control Payment Date.
Notice of a Change of Control Offer will be mailed by the Company to the
Holders at their registered addresses not less than 30 days nor more than 45
days before the Change of Control Payment Date. The Change of Control Offer is
required to remain open for at least 20 business days and until 5:00 p.m., New
York City time, on the Change of Control Payment Date. The notice will contain
all instructions and materials necessary to enable Holders to tender (in whole
or in part in a principal amount equal to $1,000 or a whole multiple thereof)
their Notes pursuant to the Change of Control Offer. Substantially
simultaneously with mailing of the notice, the Company will cause a copy of such
notice to be published in a newspaper of general circulation in the Borough of
Manhattan, The City of New York.
The notice, which governs the terms of the Change of Control Offer, will
state, among other things: (i) that the Change of Control Offer is being made
pursuant to this covenant; (ii) the Purchase Price and the Change of Control
Payment Date; (iii) that any Notes not surrendered or accepted for payment will
continue to accrue interest; (iv) that any Notes accepted for payment pursuant
to the Change of Control Offer will cease to accrue interest after the Change of
Control Payment Date; (v) that any Holder electing to have a Note purchased (in
whole or in part) pursuant to a Change of Control Offer will be required to
surrender the Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Note completed, to the Paying Agent at the address
specified in the notice (or otherwise make effective delivery of the Note
pursuant to book-entry procedures and the related rules of the applicable
depositories) at least five business days before the Change of Control Payment
Date; and (vi) that any Holder will be entitled to withdraw his election if the
Paying Agent receives, not later than three business days prior to the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Note the
Holder delivered for purchase, the certificate number of the Note and a
statement that such Holder is withdrawing his election to have such Note
purchased.
On the Change of Control Payment Date, the Company will: (i) accept for
payment the Notes, or portions thereof, surrendered and properly tendered and
not withdrawn, pursuant to the Change of Control Offer; (ii) deposit with the
Paying Agent money sufficient to pay the Purchase Price of all the Notes, or
portions thereof, so accepted; and (iii) deliver to the Trustee the Notes so
accepted together with an officer's certificate stating that such Notes have
been accepted for payment by the Company. The Paying Agent will promptly mail or
deliver to Holders of Notes so accepted payment in an amount equal to the
Purchase Price. Holders whose Notes are purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered.
A "Change of Control" means the occurrence of any of the following: (i) a
"person" or "group" (as such terms are used in Sections 14(d)(2) and 13(d)(3),
respectively, of the Exchange Act), other than any of (x) William R. Berkley and
his Affiliates and/or (y) Interlaken Capital, Inc. and its Affiliates (each
individually a "Substantial Shareholder" and collectively the "Substantial
Shareholders"), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of at least 50% of the outstanding voting power of the
fully diluted Voting Stock of Pioneer or the Company, (ii) the adoption of a
plan relating to the liquidation or dissolution of Pioneer or the Company, (iii)
the merger or consolidation of Pioneer or the Company with or into another
corporation with the effect that the stockholders of Pioneer or the Company
immediately prior to such merger or consolidation cease to be the "beneficial
owners" (as defined in Rule 13d-3 under the Exchange Act) of 50% or more of the
combined voting power of the securities of the
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surviving corporation of such merger or the corporation resulting from such
merger or consolidation ordinarily (and apart from rights arising under special
circumstances) having the right to vote in the election of directors outstanding
immediately after such merger or consolidation or (iv) during any period of two
consecutive calendar years individuals who at the beginning of such period
constituted the Board of Directors of Pioneer or the Company (together with any
new directors whose election by the Board of Directors of Pioneer or the
Company, or whose nomination for election by the shareholders of Pioneer or the
Company, was approved by a vote of a majority of the directors then still in
office who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the directors of Pioneer or the Company then
in office. Notwithstanding the foregoing, a Change of Control will not be deemed
to have occurred under clause (iii) above solely as a result of a merger or
consolidation of the Company with or into Pioneer provided that such merger or
consolidation is permitted by the covenant described below under "-- Certain
Covenants -- Limitations on Mergers; Sales of Assets."
The Company will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act, any other tender offer rules under the
Exchange Act and other securities laws or regulations in connection with the
offer to repurchase and the repurchase of the Notes as described above.
The Company's ability to repurchase the Notes pursuant to a Change of
Control Offer will be limited by, among other things, the Company's financial
resources at the time of repurchase. There can be no assurance that sufficient
funds will be available at the time of any Change of Control to make any
required repurchases. Furthermore, there can be no assurance that the Company
will be able to fund the repurchase of Notes upon a Change of Control within the
limitations imposed by the terms of other then-existing Senior Indebtedness. The
Revolving Facility prohibits the Company from repurchasing Notes if at the time
of such repurchase an event of default under the Revolving Facility exists or
would be caused thereby. The occurrence of a Change of Control may cause an
event of default under the New Credit Facilities, upon which event of default
all amounts outstanding under the New Credit Facilities may become due and
payable. In the event a Change of Control occurs at a time when the Company is
prohibited from purchasing Notes, the Company will be required under the
Indenture, within 30 days following a Change of Control to (i) seek the consent
of its lenders to the purchase of the Notes or (ii) refinance the Indebtedness
that prohibits such purchase. If the Company does not obtain such a consent or
refinance such borrowings, the Company will remain prohibited from repurchasing
Notes. The Company's failure to purchase tendered Notes or make a Change of
Control Offer following a Change of Control would constitute an Event of Default
under the Indenture. An amendment of or waiver under the Indenture may not waive
the Company's obligation to make a Change of Control Offer without the consent
of the Holders of at least two-thirds in outstanding principal amount of the
Notes.
The existence of the right of Holders to require the Company to repurchase
their Notes upon the occurrence of a Change of Control may deter a third party
from acquiring Pioneer or the Company in a transaction which would constitute a
Change of Control. Subject to certain limitations described below in "-- Certain
Covenants", including the limitation on incurrence of additional Indebtedness,
Pioneer or the Company could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Indenture, but that could increase the
amount of Senior Indebtedness (or any other Indebtedness) outstanding at such
time or otherwise affect Pioneer's or the Company's capital structure or credit
ratings. The Change of Control provisions will not prevent a leveraged buyout
led by Pioneer or the Company management, a recapitalization of Pioneer or the
Company or a change in a majority of the members of the Board of Directors of
Pioneer or the Company which is approved by the then-present Board of Directors,
as the case may be.
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, create or permit to exist or become effective
any restriction (other than restrictions not more restrictive taken as a whole
(as determined in good faith by the chief financial officer of the Company) than
those in effect under Existing Indebtedness and the New Credit Facilities) that
would materially impair the ability of the Company to make a Change of Control
Offer to purchase the Notes or, if such Change of Control Offer is made, to pay
for the Notes tendered for purchase.
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CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitations on Indebtedness. The Indenture provides that the Company will
not, and will not permit its Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become liable with respect
to or become responsible for the payment of, contingently or otherwise
("incur"), any Indebtedness; provided, however, that the Company, or a
Restricted Subsidiary of the Company, may incur Indebtedness if at the time of
such incurrence and after giving pro forma effect thereto, the Company's
Consolidated Cash Flow Coverage Ratio for the most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such Indebtedness is incurred,
calculated on a pro forma basis as if such Indebtedness was incurred on the
first day of such four full fiscal quarter period, would be at least 2.0 to 1.0.
The Indenture further provides that notwithstanding the foregoing
limitations, the incurrence of the following will not be prohibited:
(a) Indebtedness of the Company evidenced by the Notes, the Exchange
Notes and Indebtedness of the Subsidiary Guarantors evidenced by the
Guarantees and the guarantees with respect to the Exchange Notes;
(b) Indebtedness of the Company evidenced by the Term Loans and
Indebtedness of the Restricted Subsidiaries evidenced by the guarantees
with respect to the Term Loans;
(c) Indebtedness of the Company or any Restricted Subsidiary
constituting Existing Indebtedness, and any extension, deferral, renewal,
refinancing or refunding thereof;
(d) Indebtedness of the Company or any Restricted Subsidiary incurred
under one or more Credit Facilities in an aggregate principal amount at any
one time outstanding not to exceed the Borrowing Base at the time such
Indebtedness was incurred, less the aggregate amount of all permanent
repayments of revolving loans under such Credit Facilities made in
accordance with the second paragraph of the covenant described under
"-- Limitations on Asset Sales";
(e) Capitalized Lease Obligations of the Company or any Restricted
Subsidiary and Indebtedness of the Company or any Restricted Subsidiary
secured by Liens that secure the payment of all or part of the purchase
price of assets or property acquired or constructed in the ordinary course
of business after the date of the Indenture; provided, however, that the
aggregate principal amount of such Capitalized Lease Obligations plus such
Indebtedness of the Company and all of the Restricted Subsidiaries does not
exceed $10.0 million outstanding at any time;
(f) Indebtedness of the Company to any Restricted Subsidiary or of any
Restricted Subsidiary to the Company or another Restricted Subsidiary (but
only so long as such Indebtedness is held by the Company or a Restricted
Subsidiary);
(g) Indebtedness under Hedging Obligations, provided, however, that,
in the case of foreign currency exchange or similar agreements which relate
to other Indebtedness, such agreements do not increase the Indebtedness of
the Company or any Restricted Subsidiary outstanding other than as a result
of fluctuations in foreign currency exchange rates, and in the case of
interest rate protection agreements, only if the notional principal amount
of such interest rate protection agreement does not exceed the principal
amount of the Indebtedness to which such interest rate protection agreement
relates;
(h) Indebtedness in respect of performance, completion, guarantee,
surety and similar bonds, banker's acceptances or letters of credit
provided by the Company or any Restricted Subsidiary in the ordinary course
of business;
(i) In addition to any Indebtedness otherwise permitted to be Incurred
under the Indenture, up to $10.0 million aggregate principal amount of
Indebtedness at any one time outstanding; and
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(j) Any refinancing, refunding, deferral, renewal or extension (each,
a "Refinancing") of any Indebtedness of the Company or any Restricted
Subsidiary permitted by the initial paragraph of this covenant and clauses
(a) and (b) of the second paragraph of this covenant (the "Refinancing
Indebtedness"); provided, however, that (i) such Refinancing Indebtedness
does not exceed the aggregate principal amount of the Indebtedness so
refinanced, plus the amount of any premium required to be paid in
connection with such Refinancing in accordance with the terms of such
Indebtedness or the amount of any premium reasonably determined by the
Board of Directors as necessary to accomplish such Refinancing, plus the
amount of reasonable and customary out-of-pocket fees and expenses payable
in connection therewith, (ii) the Refinancing Indebtedness does not provide
for any mandatory redemption, amortization or sinking fund requirement in
an amount greater than or at a time prior to the amounts and times
specified in the Indebtedness being refinanced, refunded, deferred, renewed
or extended and (iii) if the Indebtedness being refinanced, refunded,
deferred, renewed or extended is subordinated to the Notes, the Refinancing
Indebtedness incurred to refinance, refund, defer, renew or extend such
Indebtedness is subordinated in right of payment to the Notes on terms at
least as favorable to the Holders as those contained in the documentation
governing the Indebtedness being so refinanced, refunded, deferred, renewed
or extended.
Notwithstanding anything to the contrary contained in the Indenture, the
Company and its Restricted Subsidiaries each may guarantee Indebtedness of the
Company or any Restricted Subsidiary that is permitted to be incurred under the
Indenture; provided that if such Indebtedness is subordinated in right of
payment to any other Indebtedness of the obligor, then such guarantee shall be
subordinated to Indebtedness of such guarantor to the same extent.
Limitations on Restricted Payments. The Indenture provides that the Company
will not, nor will it cause, permit or suffer any Restricted Subsidiary to, (i)
declare or pay any dividends or make any other distributions (including through
mergers, liquidations or other transactions commonly known as leveraged buyouts)
on any class of Equity Interests of the Company or such Restricted Subsidiary
(other than dividends or distributions payable by a Wholly-Owned Restricted
Subsidiary on account of its Equity Interests held by the Company or another
Restricted Subsidiary or payable in shares of Capital Stock of the Company other
than Redeemable Stock), (ii) make any payment on account of, or set apart money
for a sinking or other analogous fund for, the purchase, redemption or other
retirement of such Equity Interests, (iii) purchase, defease, redeem or
otherwise retire any Subordinated Indebtedness, or (iv) make any Restricted
Investment, either directly or indirectly, whether in cash or property or in
obligations of the Company (all of the foregoing being called "Restricted
Payments"), unless, (x) in the case of a dividend, such dividend is payable not
more than 60 days after the date of declaration and (y) after giving effect to
such proposed Restricted Payment, all the conditions set forth in clauses (1)
through (3) below are satisfied (A) at the date of declaration (in the case of
any dividend), (B) at the date of such setting apart (in the case of any such
fund) or (C) on the date of such other payment or distribution (in the case of
any other Restricted Payment) (each such date being referred to as a
"Computation Date"):
(1) no Default or Event of Default has occurred and is continuing or
would result from the making of such Restricted Payment;
(2) at the Computation Date for such Restricted Payment and after
giving effect to such Restricted Payment on a pro forma basis, the Company
or such Restricted Subsidiary could incur $1.00 of additional Indebtedness
pursuant to the covenant described in the initial paragraph under
"-- Limitations on Indebtedness;" and
(3) the aggregate amount of Restricted Payments declared, paid or
distributed subsequent to the Closing Date (including the proposed
Restricted Payment) does not exceed the sum of (i) 50% of the cumulative
Consolidated Net Income of the Company for the period subsequent to July 1,
1997 to and including the last day of the Company's last fiscal quarter
ending prior to the Computation Date (each such period to constitute a
"Computation Period") (or, if such aggregate cumulative Consolidated Net
Income is a loss, minus 100% of such loss) of the Company during the
Computation Period, (ii) the aggregate Net Cash Proceeds of the issuance or
sale or the exercise (other than to a Subsidiary or an
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employee stock ownership plan or other trust established by the Company or
any of its Subsidiaries for the benefit of their employees) of the
Company's Equity Interests (other than Redeemable Stock) subsequent to the
Closing Date, (iii) the aggregate Net Cash Proceeds of the issuance or sale
(other than to a Subsidiary) of any debt securities of the Company that
have been converted into or exchanged for Equity Interests (other than
Redeemable Stock) of the Company to the extent such debt securities were
originally issued or sold for cash, plus the aggregate Net Cash Proceeds
received by the Company at the time of such conversion or exchange, in each
case subsequent to the Closing Date, (iv) cash contributions to the
Company's capital subsequent to the Closing Date and (v) $5.0 million.
If no Default or Event of Default has occurred and is continuing or would
occur as a result thereof, the prohibitions set forth above are subject to the
following exceptions: (a) Restricted Investments in obligations representing a
portion of the proceeds of any Asset Sale consummated in accordance with the
covenant described under "-- Limitations on Asset Sales", provided, however,
that such Restricted Investments will be excluded in the calculation of the
amount of Restricted Payments previously made for purposes of clause (3) of the
preceding paragraph; (b) any purchase or redemption of Equity Interests or
Subordinated Indebtedness made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Equity Interests of the Company (other than
Redeemable Stock and other than Equity Interests issued or sold to a Subsidiary
or an employee stock ownership plan), provided, however, that (x) such purchase
or redemption will be excluded in the calculation of the amount of Restricted
Payments previously made for purposes of clause (3) of the preceding paragraph
and (y) the Net Cash Proceeds from such sale will be excluded for purposes of
clause (3)(ii) of the preceding paragraph to the extent utilized for purposes of
such purchase or redemption; (c) any purchase or redemption of Subordinated
Indebtedness of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Subordinated Indebtedness of the Company or
any Restricted Subsidiary which is permitted to be issued pursuant to the
provisions of the covenant described under "-- Limitation on Indebtedness,"
provided, however, that such purchase or redemption will be excluded in the
calculation of the amount of Restricted Payments previously made for purposes of
clause (3) of the preceding paragraph; (d) the repurchase, redemption or other
acquisition or retirement for value of Capital Stock of Pioneer or the Company
held by management or other employees of Pioneer or the Company or any
Subsidiary pursuant to any shareholders agreement, management or employee stock
option agreement or management or employee equity subscription agreement, in
accordance with the provisions of any such arrangement, in an amount not greater
than $500,000 in any calendar year plus the portion of any such amounts which
remains unused at the end of the two prior calendar years, but in no event to
exceed $1.5 million in any calendar year; provided, however, that any such
purchase, redemption, acquisition or retirement for value will be excluded in
the calculation of the amount of Restricted Payments previously made for
purposes of clause (3) of the preceding paragraph; (e) payments to Pioneer
pursuant to any tax sharing arrangement so long as payments thereunder do not
exceed the amount of the Company and its consolidated subsidiaries' share of
Federal and state income taxes actually paid or to be paid by Pioneer, provided,
however, that such payments will be excluded in the calculation of the amount of
Restricted Payments previously made for purposes of clause (3) of the preceding
paragraph; (f) payments to Pioneer to perform accounting, legal, corporate
reporting and administrative functions in the ordinary course of business in an
amount not greater than $500,000 in any calendar year, or to pay required fees
in connection with the Tacoma Acquisition, provided, however, that such payments
will be excluded in the calculation of the amount of Restricted Payments
previously made for purposes of clause (3) of the preceding paragraph; and (g)
Investments described in clause (vi) of the definition of Permitted Investments,
provided, however, that such Investments will be included in the calculation of
the amount of Restricted Payments previously made for purposes of clause (3) of
the preceding paragraph.
For purposes of this covenant, (a) the amount of any Restricted Payment
declared, paid or distributed in property of the Company or any Restricted
Subsidiary will be deemed to be the net book value of any such property that is
intangible property and the Fair Market Value (as determined by and set forth in
a resolution of the Company's Board of Directors) of any such property that is
tangible property at the Computation Date, in each case, after deducting related
reserves for depreciation, depletion and amortization; (b) the amount of any
Restricted Payment declared, paid or distributed in obligations of the Company
or any Restricted
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Subsidiary will be deemed to be the principal amount of such obligations as of
the date of the adoption of a resolution by the Board of Directors of the
Company or such Restricted Subsidiary authorizing such Restricted Payment; and
(c) a distribution to holders of the Company's Equity Interests of (i) shares of
Capital Stock or other Equity Interests of any Restricted Subsidiary of the
Company or (ii) other assets of the Company, without, in either case, the
receipt of equivalent consideration therefor will be regarded as the equivalent
of a cash dividend equal to the excess of the Fair Market Value of the Equity
Interests or other assets being so distributed at the time of such distribution
over the consideration, if any, received therefor. The Company shall deliver to
the Trustee an officers' certificate stating that such Restricted Payment is
permitted, attaching a copy of the applicable resolution of the Company's Board
of Directors pursuant to which the value of the Restricted Payment to be made
was determined and setting forth the basis upon which the calculations required
by this covenant were computed.
Limitations on Liens. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Lien upon any of their respective assets or properties now owned or
acquired after the Closing Date, or any income or profits therefrom, excluding,
however, from the operation of the foregoing any of the following:
(a) Liens existing as of the Closing Date or pursuant to an agreement
or document in existence on the Closing Date, including the New Credit
Facilities and security and intercreditor documents related thereto;
(b) Permitted Liens;
(c) Liens on assets or property of the Company, or on assets or
property of Restricted Subsidiaries of the Company, to secure the payment
of all or a part of the purchase price of assets or property acquired or
constructed in the ordinary course of business after the date of the
Indenture; provided, however, that (i) the aggregate principal amount of
Indebtedness secured by such Liens does not exceed the original cost or
purchase price of the assets or property so acquired (including the
reasonable and customary costs of installation of such acquired assets) or
constructed, (ii) the Indebtedness secured by such Liens is otherwise
permitted to be incurred under the Indenture, (iii) such Liens do not
encumber any other assets or property of the Company or any of its
Restricted Subsidiaries and (iv) the Indebtedness secured by such Liens may
not be created more than 100 days after the later of the acquisition,
completion of construction, repair, improvement, addition or commencement
of full operation of the property subject to such Liens;
(d) Liens on assets or property acquired by the Company or any
Restricted Subsidiary after the date of the Indenture; provided, however,
that (i) such Liens existed on the date such assets or property were
acquired and were not incurred as a result of or in anticipation of such
acquisition and (ii) such Liens do not extend to or cover any assets or
property of the Company or any of its Restricted Subsidiaries other than
the assets or property so acquired;
(e) Liens securing Indebtedness which is incurred to refinance
Indebtedness which has been secured by a Lien permitted under the Indenture
and which is permitted to be refinanced under the Indenture; provided,
however, that such Liens do not extend to or cover any assets or property
of the Company or any of its Restricted Subsidiaries not securing the
Indebtedness so refinanced;
(f) Liens on assets or property of the Company or any Restricted
Subsidiary that is subject to a Sale and Leaseback Transaction, provided,
however, that the aggregate principal amount of Attributable Indebtedness
in respect of all Sale and Leaseback Transactions then outstanding does not
at the time such a Lien is incurred exceed $10.0 million;
(g) Liens on property or shares of Capital Stock of a Person at the
time such Person becomes a Restricted Subsidiary; provided, however, that
such Liens are not created, incurred or assumed in contemplation of the
acquisition thereof by the Company or a Subsidiary; provided further, that
such Liens may not extend to any other property owned by the Company or a
Restricted Subsidiary;
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(h) Liens securing Indebtedness of a Restricted Subsidiary owing to
the Company or a Wholly-Owned Restricted Subsidiary;
(i) Liens on inventory, accounts receivable or related general
intangibles of any Restricted Subsidiary securing the obligations under
clause (d) of the covenant described under "-- Limitations on
Indebtedness";
(j) pari passu Liens on the Note Collateral securing up to $50.0
million aggregate principal amount of Indebtedness permitted to be incurred
under the initial paragraph of the covenant described under "-- Limitations
on Indebtedness," provided that (i) the proceeds of such Indebtedness are
used to acquire or construct additional property, plant and equipment that
will be utilized in one or more Related Businesses, (ii) the aggregate
principal amount of Indebtedness secured by such Liens does not exceed the
original cost or purchase price of the assets or property so acquired
(including the reasonable and customary costs of installation of such
acquired assets) or constructed, and (iii) the assets or property acquired
or constructed with such Indebtedness are pledged to the Collateral Agent
in accordance with the Intercreditor Agreement to become part of the
Collateral securing the Notes and the Term Loans on a pari passu basis with
such Indebtedness, and in connection therewith (A) the holders of such
Indebtedness or any trustee or other representative thereof becomes party
to the Intercreditor Agreement, as amended, and is authorized to exercise
rights and remedies in accordance therewith, and (B) the Collateral Agent
receives an endorsement to its title insurance policies relating to the
mortgage liens constituting part of the Note Collateral insuring the
continuing priority of such mortgage liens as set forth in the title
insurance policies; and
(k) Liens on assets or property of the Company, or on assets or
property of Restricted Subsidiaries of the Company, acquired or constructed
after the date of the Indenture other than in the ordinary course of
business and other than assets or property acquired or constructed in
replacement, repair or improvement of any assets or property constituting
Note Collateral; provided, however, that (i) the aggregate principal amount
of Indebtedness secured by such Liens does not exceed the original cost or
purchase price of the assets or property so acquired (including the
reasonable and customary costs of installation of such acquired assets) or
constructed, (ii) the Indebtedness secured by such Liens is otherwise
permitted to be incurred under the Indenture and (iii) such Liens do not
encumber the Note Collateral.
Limitations on Payment Restrictions Affecting Restricted Subsidiaries. The
Indenture provides that the Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distribution to the Company or its Restricted Subsidiaries on its Equity
Interests, (ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary, except (A) consensual encumbrances or restrictions
contained in or created pursuant to the New Credit Facilities, other Existing
Indebtedness listed on a schedule to the Indenture and security and
intercreditor documents related thereto in existence on the Closing Date, (B)
consensual encumbrances or restrictions in the Notes, the Exchange Notes and the
Indenture, (C) any restriction, with respect to a Restricted Subsidiary of the
Company that is not a Subsidiary of the Company on the Closing Date, in
existence at the time such entity becomes a Restricted Subsidiary of the
Company; provided that such encumbrance or restriction is not created in
anticipation of or in connection with such entity becoming a Subsidiary of the
Company and is not applicable to any Person or the properties or assets of any
Person other than a Person that becomes a Subsidiary, (D) any encumbrances or
restrictions pursuant to an agreement effecting a refinancing of Indebtedness
referred to in clauses (A) or (C) of this covenant or contained in any amendment
to any agreement creating such Indebtedness, provided that the encumbrances and
restrictions contained in any such refinancing or amendment are not materially
more restrictive taken as a whole (as determined in good faith by the chief
financial officer of the Company) than those provided for in such Indebtedness
being refinanced or amended, (E) encumbrances or restrictions contained in any
other Indebtedness permitted to be incurred subsequent to the Closing Date
pursuant to the provisions of the covenant described under "-- Limitations on
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Indebtedness", provided that any such encumbrances or restrictions are not
materially more restrictive taken as a whole (as determined in good faith by the
chief financial officer of the Company) than the most restrictive of those
provided for in the Indebtedness referred to in clause (A) or (C) of this
covenant, (F) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of the lease, (G) any restriction with
respect to a Restricted Subsidiary imposed pursuant to an agreement entered into
for the sale or disposition of all or substantially all of the Capital Stock or
assets of such Restricted Subsidiary in compliance with the Indenture pending
the closing of such sale or disposition; or (H) any encumbrance or restriction
due to applicable law.
Limitations on Asset Sales. The Indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, make any Asset Sale
(other than to the Company or other Restricted Subsidiary) unless (i) the
Company or such Restricted Subsidiary receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the assets sold or
otherwise disposed of, and at least 80% of the consideration received by the
Company or such Restricted Subsidiary from such Asset Sale is in the form of
cash; provided however, that the amount of any cash equivalent or note or other
obligation received by the Company or such Restricted Subsidiary from the
transferee in any such transaction that is converted within 90 days by the
Company or such Restricted Subsidiary into cash will be deemed upon such
conversion to be cash for purposes of this provision; and (ii) the Net Proceeds
received by the Company or such Restricted Subsidiary from such Asset Sale are
applied in accordance with the following paragraphs.
If all or a portion of the Net Proceeds of any Asset Sale are not required
to be applied to repay permanently any Senior Indebtedness of the Company then
outstanding as required by the terms thereof, or the Company determines not to
apply such Net Proceeds to the permanent prepayment of any Senior Indebtedness
outstanding (in the case of any optional prepayment of Term Loans, only if such
prepayment is effected on a pro rata basis in accordance with the Intercreditor
Agreement and in the case of a revolving credit facility or similar arrangement
that makes credit available, the commitment thereunder is also permanently
reduced by such amount) or if no such Senior Indebtedness is then outstanding,
then the Company may within 365 days of the Asset Sale, invest the Net Proceeds
in the Company or in one or more Restricted Subsidiaries in a Related Business.
The Term Facility requires that any cumulative Net Proceeds received in excess
of $35.0 million will be used to make a mandatory prepayment of the Term Loans.
The amount of Net Proceeds neither used to permanently repay or prepay Senior
Indebtedness nor used or invested as set forth in this paragraph constitutes
"Excess Proceeds."
When the aggregate amount of Excess Proceeds from one or more Asset Sales
equals $10.0 million or more, the Company will apply 100% of such Excess
Proceeds within 365 days subsequent to the consummation of the Asset Sale which
resulted in the Excess Proceeds equalling $10.0 million or more to the purchase
of Notes tendered to the Company for purchase at a price equal to 100% of the
principal amount thereof, plus accrued interest and Liquidated Damages, if any,
to the date of purchase pursuant to an offer to purchase made by the Company (an
"Asset Sale Offer") with respect to the Notes. Any Asset Sale Offer may include
a pro rata offer under similar circumstances to purchase other Senior
Indebtedness requiring a similar offer. Any Asset Sale Offer will be made
substantially in accordance with the procedures for a Change of Control Offer
described under "-- Change of Control." Until such time as the Net Proceeds from
any Asset Sale are applied in accordance with this covenant, such Net Proceeds
will be segregated from the other assets of the Company and the Subsidiaries and
invested in cash or Eligible Investments, except that the Company or any
Restricted Subsidiary may use any Net Proceeds pending the utilization thereof
in the manner (and within the time period) described above, to repay revolving
loans (under the Revolving Facility or otherwise) without a permanent reduction
of the commitment thereunder.
The Company will cause a notice of any Asset Sale Offer to be mailed to the
Holders at their registered addresses not less than 30 days nor more than 45
days before the purchase date. Such notice will contain all instructions and
materials necessary to enable Holders to tender their Notes to the Company. Upon
receiving notice of an Asset Sale Offer, Holders may elect to tender their Notes
in whole or in part in integral multiples of $1,000 in exchange for cash. To the
extent that Holders properly tender Notes in an amount exceeding the
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Asset Sale Offer, Notes of tendering Holders will be repurchased on a pro rata
basis (based on amounts tendered).
The Company's ability to repurchase the Notes pursuant to an Asset Sale
Offer may be prohibited by the New Credit Facilities if at the time of such
repurchase an event of default under the New Credit Facilities exists or would
be caused thereby. Any future credit agreements to which the Company becomes a
party may restrict the Company's ability to repurchase the Notes pursuant to an
Asset Sale Offer. In the event the Company is required to make an Asset Sale
Offer at a time when the Company is prohibited from making such Offer, the
Company will be required under the Indenture, on or prior to the date that the
Company is required to make an Asset Sale Offer, to (i) seek the consent of its
lenders to repurchase Notes pursuant to such Asset Sale Offer or (ii) refinance
the Indebtedness that prohibits such Asset Sale Offer. If the Company does not
obtain such a consent or refinance such borrowings, the Company will remain
prohibited from making such Offer. The Company's failure to purchase Notes
pursuant to an Asset Sale Offer or make such Asset Sale Offer would constitute
an Event of Default under the Indenture. See "-- Change of Control."
The Company will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act, any other tender offer rules under the
Exchange Act and other securities laws or regulations in connection with any
offer to repurchase and the repurchase of the Notes as described above.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create or permit to exist or become effective any consensual
restriction (other than restrictions not more restrictive taken as a whole (as
determined in good faith by the chief financial officer of the Company) than
those in effect under Existing Indebtedness and the New Credit Facilities) that
would materially impair the ability of the Company to comply with the provisions
of this "Limitations on Asset Sales" covenant.
Limitations on Sale and Leaseback Transactions. The Indenture provides that
the Company will not, and will not permit any Restricted Subsidiary to, enter
into any Sale and Leaseback Transaction unless (i) at the time of the occurrence
of such transaction and after giving effect to such transaction and (x) in the
case of a Sale and Leaseback Transaction which is a Capitalized Lease
Obligation, giving effect to the Indebtedness in respect thereof, and (y) in the
case of any other Sale and Leaseback Transaction, giving effect to the
Attributable Indebtedness in respect thereof, the Company or such Restricted
Subsidiary could incur $1.00 of additional Indebtedness pursuant to the covenant
described in the initial paragraph under "-- Limitations on Indebtedness," (ii)
at the time of the occurrence of such transaction, the Company or such
Restricted Subsidiary could incur Indebtedness secured by a Lien on property in
a principal amount equal to or exceeding the Attributable Indebtedness in
respect of such Sale and Leaseback Transaction pursuant to the covenant
described under "-- Limitations on Liens", and (iii) the transfer of assets in
such Sale and Leaseback Transaction is permitted by, and the Company applies the
proceeds of such transaction in compliance with, the covenant described under
"-- Limitations on Asset Sales."
Limitations on Mergers; Sales of Assets. The Indenture provides that the
Company will not consolidate with or merge into, or sell, assign, convey, lease
or transfer all or substantially all of its assets and those of its Subsidiaries
taken as a whole to, any Person, unless (i) the resulting, surviving or
transferee Person expressly assumes all the obligations of the Company under the
Notes and the Indenture; (ii) such Person is organized and existing under the
laws of the United States of America, a state thereof or the District of
Columbia; (iii) at the time of the occurrence of such transaction and after
giving effect to such transaction on a pro forma basis, such Person could incur
$1.00 of additional Indebtedness pursuant to the covenant described in the
initial paragraph under "-- Limitations on Indebtedness" (assuming a market rate
of interest with respect to such additional Indebtedness); (iv) at the time of
the occurrence of such transaction and after giving effect to such transaction
on a pro forma basis, the Consolidated Net Worth of such Person is equal to or
greater than the Consolidated Net Worth of the Company immediately prior to such
transaction; (v) each Subsidiary Guarantor, to the extent applicable, will by
supplemental indenture confirm that its Guarantee will apply to such Person's
obligations under the Notes; and (vi) immediately before and immediately after
giving effect to such transaction and treating any Indebtedness which becomes an
obligation of the Company or any of its Subsidiaries or of such Person as a
result of such transaction as having been incurred by the Company or such
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Subsidiary or such Person, as the case may be, at the time of such transaction,
no Default or Event of Default has occurred and is continuing.
No Subsidiary Guarantor will, and the Company will not permit a Subsidiary
Guarantor to, in a single transaction or series of related transactions merge or
consolidate with or into any other corporation (other than the Company or any
other Subsidiary Guarantor) or other entity, or sell, assign, convey, transfer,
lease or otherwise dispose of all or substantially all of its properties and
assets to any entity (other than the Company or any other Subsidiary Guarantor)
unless at the time and giving effect thereto: (i) either (1) such Subsidiary
Guarantor is the continuing corporation or (2) the entity (if other than such
Subsidiary Guarantor) formed by such consolidation or into which such Subsidiary
Guarantor is merged or the entity which acquires by sale, assignment,
conveyance, transfer, lease or disposition the properties and assets of such
Subsidiary Guarantor is a corporation duly organized and validly existing under
the laws of the United States of America, any state thereof or the District of
Columbia and expressly assumes by a supplemental indenture, executed and
delivered to the Trustee, in a form reasonably satisfactory to the Trustee, all
the obligations of such Guarantor under the Notes and the Indenture; and (ii)
immediately before and immediately after giving effect to such transaction, no
Default or Event of Default has occurred and is continuing. The provisions of
this paragraph will not apply to any transaction (including any Asset Sale made
in accordance with " -- Limitations on Asset Sales" above) with respect to any
Subsidiary Guarantor if the Guarantee of such Subsidiary Guarantor is released
in connection with such transaction in accordance with the applicable provisions
of the Indenture. Upon any sale, exchange, transfer or other disposition to any
Person of all of the Company's or a Restricted Subsidiary's Equity Interests in,
or all or substantially all of the assets of, any Subsidiary Guarantor which is
in compliance with the Indenture, such Subsidiary Guarantor will be released
from all its obligations under its Guarantee.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which the Company or any Subsidiary Guarantor is not the continuing corporation,
the successor Person formed or remaining will succeed to, and be substituted
for, and may exercise every right and power of, the Company or such Subsidiary
Guarantor, as the case may be, and the Company or such Subsidiary Guarantor, as
the case may be, would be discharged from its obligations under the Indenture,
the Notes or its Guarantee, as the case may be.
The governing law of the Indenture and the Notes is New York law. New York
law offers no clear guidance as to the definition of the term "all or
substantially all" in the context of the "Limitations on Mergers; Sales of
Assets" covenant in an indenture such as the Indenture. To the extent that the
law of other jurisdictions does offer guidance as to the definition of the term,
such jurisdictions have applied a qualitative test as well as quantitative tests
to determine the meaning of "all or substantially all" on a case-by-case basis.
The lack of an established meaning for the term "all or substantially all" could
lead to uncertainty as to the ability of the Holders of Notes to determine
whether or not a transaction governed by this "Limitations on Mergers; Sales of
Assets" covenant has occurred.
Subsidiary Guarantees. The Indenture provides that if (i) any Subsidiary of
the Company becomes a Restricted Subsidiary after the Closing Date, (ii) the
Company or any Subsidiary of the Company that is a Subsidiary Guarantor
transfers or causes to be transferred, in one transaction or a series of related
transactions, property or assets (including, without limitation, businesses,
divisions, real property, assets or equipment) which in the aggregate have a
value equal to or greater than 15% of the Company's total assets determined on a
consolidated basis as of the time of transfer to any Subsidiary or Subsidiaries
of the Company that is not a Subsidiary Guarantor or are not Subsidiary
Guarantors, (iii) any Subsidiary of the Company which has a value equal to or
greater than 5% of the Company's total assets determined on a consolidated basis
as of the time of determination directly or indirectly guarantees or otherwise
becomes obligated with respect to any Senior Indebtedness of the Company, or
(iv) any Subsidiary of the Company becomes a guarantor of the Term Loans after
the Closing Date, the Company will cause such Subsidiary or Subsidiaries to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Subsidiary or Subsidiaries will unconditionally guarantee all of the
Company's obligations under the Indenture and the Notes on the same terms as the
other Subsidiary Guarantors, which Guarantee will rank pari passu with any
Senior Indebtedness of such Subsidiary.
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Transactions with Affiliates. The Indenture provides that the Company and
its Restricted Subsidiaries will not, directly or indirectly, enter into any
transaction or series of related transactions with or for the benefit of any of
their respective Affiliates other than with the Company or any Restricted
Subsidiaries, except on an arm's-length basis and if (x)(i) in the case of any
such transaction in which the aggregate rental value, remuneration or other
consideration (including the value of a loan), together with the aggregate
rental value, remuneration or other consideration (including the value of a
loan) of all such other transactions consummated in the year during which such
transaction is proposed to be consummated, exceeds $750,000, the Company
delivers board resolutions to the Trustee evidencing that the Board of Directors
of the Company and the Independent Directors that are disinterested each have
(by a majority vote) determined in good faith that the aggregate rental value,
remuneration or other consideration (including the value of any loan) inuring to
the benefit of such Affiliate from any such transaction is not greater than that
which would be charged to or extended by the Company or its Subsidiaries, as the
case may be, on an arm's-length basis for similar properties, assets, rights,
goods or services by or to a Person not affiliated with the Company or its
Subsidiaries, as the case may be, and (ii) in the case of any such transaction
in which the aggregate rental value, remuneration or other consideration
(including the value of any loan), together with the aggregate rental value,
remuneration or other consideration (including the value of any loan) of all
such other transactions consummated in the year during which such transactions
are proposed to be consummated, exceeds $7.5 million, the Company delivers to
the Trustee board resolutions as described in clause (x)(i) of this paragraph
and an opinion of a nationally recognized investment banking firm, unaffiliated
with the Company and the Affiliate which is party to such transaction, to the
effect that the aggregate rental price, remuneration or other consideration
(including the value of a loan) inuring to the benefit of such Affiliate from
any such transaction is not greater than that which would be charged to or
extended by the Company or its Subsidiaries, as the case may be, on an
arm's-length basis for similar properties, assets, rights, goods or services by
or to a Person not affiliated with the Company or its Subsidiaries, as the case
may be, and (y) all such transactions referred to in clauses (x)(i) and (ii) are
entered into in good faith. Any transaction required to be approved by
Independent Directors pursuant to the preceding paragraph must be approved by at
least one such Independent Director.
The provisions of the preceding paragraph do not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the provisions of the
covenant described under "-- Limitations on Restricted Payments" other than with
respect to Investments described in the following clause (ii), (ii) any
Investment made in Kemwater during a period of three years following the Closing
Date, provided that such Investment matures or is required to be redeemed within
one year of its being made, (iii) any issuance of securities, or other payments,
awards or grants in cash, securities or otherwise pursuant to, or the funding
of, employment arrangements, stock options and stock ownership plans approved by
the Board of Directors, (iv) loans or advances to employees in the ordinary
course of business consistent with past practices, not to exceed $500,000
aggregate principal amount outstanding at any time, (v) the payment of fees and
compensation paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any of its Subsidiaries, as
determined by the board of directors of the Company or any of its Subsidiaries
in good faith and (vi) Existing Affiliate Agreements, including amendments
thereto entered into after the Closing Date provided that the terms of any such
amendment either (A) are not, in the aggregate, less favorable to the Company
than the terms of such agreement prior to such amendment, or (B) if such terms
are, in the aggregate, less favorable to the Company, such amendment satisfies
the requirements of the preceding paragraph.
Limitation on Ownership of Wholly-Owned Restricted Subsidiary Stock. The
Indenture provides that the Company (a) will not, and will not permit any
Wholly-Owned Restricted Subsidiary of the Company to, transfer, convey, sell or
otherwise dispose of any Capital Stock of any Wholly-Owned Restricted Subsidiary
of the Company (other than All-Pure and its subsidiaries) to any Person (other
than the Company or a Wholly-Owned Restricted Subsidiary of the Company), unless
(i) such transfer, conveyance, sale or other disposition is of all the Capital
Stock of such Wholly-Owned Restricted Subsidiary and (ii) the Net Proceeds from
such transfer, conveyance, sale, lease or other disposition are applied in
accordance with the covenant described under the caption "-- Limitations on
Asset Sales," and (b) will not permit any Wholly-Owned Restricted Subsidiary of
the Company (other than All-Pure and its subsidiaries) to issue any of its
Equity Interests
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(other than, if necessary, Capital Stock constituting directors' qualifying
shares or interests held by directors or shares or interests required to be held
by foreign nationals, to the extent mandated by applicable law) to any Person
other than to the Company or a Wholly-Owned Restricted Subsidiary of the
Company.
Impairment of Security Interest. The Indenture provides that the Company
will not, and will not cause or permit any Restricted Subsidiaries to, take or
omit to take any action which action or omission might or would have the result
of affecting or impairing the Liens and security interest in favor of the
Collateral Agent for the benefit of the Secured Parties with respect to the Note
Collateral and the Company will not grant to any Person, or suffer any Person to
have any interest whatsoever in the Note Collateral, in each case other than as
otherwise permitted by the Indenture, the Term Facility or the Security
Documents. The Company will not, and will not cause or permit any Restricted
Subsidiaries to, enter into any agreement or instrument that by its terms
requires that the proceeds received from any sale of Note Collateral be applied
to repay, redeem, defease or otherwise acquire or retire any Indebtedness of any
Person, other than pursuant to the Indenture, the Term Facility or any
instrument governing Indebtedness permitted to be secured by a Lien on the Note
Collateral pursuant to the covenant described under "-- Limitations on Liens." A
release of any of the Note Collateral strictly in accordance with the terms and
conditions of the Indenture and the Security Documents will not be deemed for
any purpose to be an impairment of security under the Indenture.
Amendment to Security Documents. The Indenture provides that the Company
will not amend, modify or supplement, or permit or consent to any amendment,
modification or supplement of, the Security Documents in any manner or to any
extent that would constitute an Event of Default under the Indenture or the
Security Documents; provided that the Indenture and the Security Documents may
be amended, modified or supplemented as set forth under the caption "Amendment,
Supplement or Waiver."
Stock Pledge Agreements. The Indenture provides that if (i) any Restricted
Subsidiary of the Company engages in any business activity other than the
holding of the Capital Stock of one or more Subsidiaries of the Company (or in
the case of Imperial West, engaging in any business activity other than the
holding of its Investment in Kemwater) and (ii) such Restricted Subsidiary has a
value equal to or greater than 5% of the Company's total assets determined on a
consolidated basis as of the time of determination, then the Company will, and
will cause the applicable Subsidiary or Subsidiaries of the Company (the
"Pledgor Subsidiary" or "Pledgor Subsidiaries") to, execute and deliver to the
Trustee and the Collateral Agent one or more stock pledge agreements
substantially in the form of the stock pledge agreement attached as an exhibit
to the Indenture providing for the pledge to the Collateral Agent for the
benefit of (x) the Trustee, for itself and the Holders, and (y) the Term Loan
Agent, for itself and the other Term Loan lenders, all of the Capital Stock of
such Restricted Subsidiary held by the Company and the Pledgor Subsidiary or
Pledgor Subsidiaries, together with certificates evidencing such Capital Stock,
which Capital Stock will become "Note Collateral" for purposes of the
Intercreditor Agreement.
The Indenture further provides that if (i) there are no Term Loans
outstanding, (ii) there is no Indebtedness (the "New Indebtedness") outstanding
which refinanced the Term Loans and requires pledges of Capital Stock of one or
more Restricted Subsidiaries of the Company in connection therewith, (iii) all
other amounts due and owing to the Term Loan lenders under the Term Facility or
the New Indebtedness lenders under the agreement providing for the issuance of
the New Indebtedness, as the case may be, have been paid in full, (iv) the Term
Facility agreement or the agreement providing for the issuance of the New
Indebtedness, as the case may be, has been terminated, and (v) the Company has
delivered to the Trustee and the Collateral Agent an officers' certificate
stating that the foregoing requirements have been satisfied (which officers'
certificate must also be signed by the Term Loan Agent or the agent, trustee or
other representative of the New Indebtedness, as the case may be), then (x) the
Company will be released from its obligations to comply with this covenant, (y)
the failure to comply with this covenant will not constitute a Default or Event
of Default with respect to the Notes, and (z) all stock pledge agreements
entered into by the Company and one or more Subsidiaries of the Company after
the Closing Date pursuant to this covenant will be terminated, and all
certificates evidencing Capital Stock pledged thereunder will be released, by
the Collateral Agent.
If at any time after the operation of the immediately preceding paragraph
the Company or any Subsidiary of the Company intends to incur any Indebtedness
which requires the pledge of Capital Stock of one or more
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Restricted Subsidiaries of the Company in connection therewith, neither the
Company nor such Subsidiary will incur such Indebtedness without directly
securing the Notes with such pledge of Capital Stock on an equal and ratable
basis (or prior to in the case of Indebtedness subordinated to the Notes or the
Guarantees, as the case may be) and in connection therewith the Company's
obligation to comply with the provisions of this covenant will be reinstated if
a covenant or agreement similar to this covenant is included in the agreement
providing for the issuance of such Indebtedness.
Provision of Financial Statements. The Indenture provides that, whether or
not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, the
Company will, to the extent permitted under the Exchange Act, file with the
Commission the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to such
Section 13(a) or 15(d) if the Company were so subject, such documents to be
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Company would have been required so to file such
documents if the Company were so subject. The Company will also in any event (x)
within 15 days of each Required Filing Date (i) transmit by mail to all holders
of Notes, as their names and addresses appear in the security register, without
cost to such holders and (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act if the Company were subject to such Sections and (y) if filing such
documents by the Company with the Commission is not permitted under the Exchange
Act, promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
holder of Notes at the Company's cost.
Limitation on Applicability of Certain Covenants. The Indenture provides
that notwithstanding anything to the contrary therein, the covenants described
above entitled "Limitations on Indebtedness," "Limitations on Restricted
Payments," "Limitations on Liens," "Limitations on Payment Restrictions
Affecting Restricted Subsidiaries," "Limitations on Asset Sales" and
"Transactions with Affiliates" will not apply to transactions effected pursuant
to and in accordance with the Contingent Payment Agreement and amounts related
to such transactions will not be required to be included in any calculation
required by any such covenant. Such transactions include (i) any payment made by
the Company or a Restricted Subsidiary, (ii) any assets or property transferred
by the Company or a Restricted Subsidiary, (iii) the application of any proceeds
received by the Company or any Restricted Subsidiary in connection with any
transfer of assets or property made by such Person, (iv) any escrow or
segregation of moneys to be paid by the Company or a Restricted Subsidiary, (v)
any Investment of such escrowed or segregated moneys by the Company or a
Restricted Subsidiary or any other Investment under the Contingent Payment
Agreement, (vi) any obligation of the Company or a Restricted Subsidiary to make
any such payments or to effect any such escrow or segregation of moneys, (vii)
any Indebtedness incurred by the Company or a Restricted Subsidiary that is
non-recourse to the assets of the Company, such Restricted Subsidiary or any
other Restricted Subsidiary, other than the borrower's interest in Basic
Investments, Victory Valley, the Excess Land and/or any other assets or funds
held under the Contingent Payment Agreement, and as to which neither the Company
nor any Restricted Subsidiary (other than the borrower) provides credit support
or is directly or indirectly liable, or (viii) any Lien incurred by the Company
or any Restricted Subsidiary in connection with Indebtedness described in clause
(vii) above that does not extend to assets of the Company or any Restricted
Subsidiary other than such Person's interest in Basic Investments, Victory
Valley, the Excess Land and/or any other assets or funds held under the
Contingent Payment Agreement.
Additional Covenants. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in the City of New York; (iii) arrangements
regarding the handling of money held in trust; (iv) maintenance of corporate
existence; (v) payment of taxes and other claims; (vi) maintenance of
properties; and (vii) maintenance of insurance.
RELEASE OF NOTE COLLATERAL
The Company will be permitted to sell Note Collateral in an Asset Sale and
obtain a release of the liens of the Security Documents in such Note Collateral
only upon compliance with the covenant described in "-- Certain
Covenants -- Limitations on Asset Sales" and only upon delivery to the Trustee
and the
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Collateral Agent of (a) a notice that, among other things, describes the
interests to be released, states the fair market value of the released interests
as of a date no later than 60 days before the date of such notice, and certifies
that the purchase price received is not less than the fair market value of such
released interest as of the date of such release, (b) the Net Proceeds of the
Asset Sale, (c) an officer's certificate certifying, among other things, the
terms of the Indenture governing Asset Sales and all other applicable terms have
been complied with, (d) an opinion of counsel as to the Asset Sale, and (e)
satisfactory evidence from a title company that the Liens of the Collateral
Agent on the remaining Note Collateral continue unimpaired as perfected first
priority liens.
To the extent Trust Moneys consist of insurance proceeds or condemnation or
other taking awards, any such moneys which may be used to effect a restoration
of the affected Note Collateral will be permitted to be withdrawn by the Company
and paid by the Collateral Agent, at the direction of the Trustee, upon a
request by the Company to reimburse the Company or PCAC for expenditures made or
costs incurred to repair, rebuild or replace the destroyed, damaged, or taken
Note Collateral, and upon delivery of (a) an officer's certificate certifying,
among other things, as to expenditures made or costs incurred, the necessity or
desirability in the conduct of the Company's business of the repaired, rebuilt,
or replaced property, and the fair market value of such property as of the date
of the expenditures, (b) an opinion of counsel as to the validity and perfection
of the Collateral Agent's lien on the repaired or replaced Note Collateral and
(c) an architect's certificate as to the costs of such restoration and
compliance with law.
To the extent Trust Moneys consist of proceeds of an Asset Sale, and the
Company intends to reinvest such proceeds in the Company or in one or more
Restricted Subsidiaries in a Related Business, such Trust Moneys will be
permitted to be withdrawn by the Company upon request to the Trustee and upon
receipt by the Trustee and the Collateral Agent of (a) notice of such
withdrawal, (b) an officer's certificate certifying compliance with the
Indenture, (c) instruments granting the Collateral Agent first priority liens,
for the benefit of the Secured Parties, on the real or personal property
interests in which the Company or its Restricted Subsidiary have invested, and
(d) an opinion of counsel as to the instruments governing such liens and
security interests.
Trust Moneys will be permitted to be applied from time to time (x) to the
payment of principal and interest on the Notes, or (y) to the extent otherwise
permitted by the Indenture, to redeem or repurchase Notes, including without
limitation pursuant to a Change of Control Offer or (to the extent such Trust
Moneys constitute proceeds from Asset Sales) an Asset Sale Offer, or (z) at the
direction of the Company and PCAC, to pay any other Senior Indebtedness secured
by liens in the Note Collateral (but only to the extent such Trust Moneys
constitute proceeds from Asset Sales), in each case upon receipt by the Trustee
and the applicable Collateral Agent of (a) resolutions of the boards of
directors of the Company and PCAC directing such application, (b) cash equaling
the accrued interest, if any, required to be paid in connection with such
payment or purchase, (c) an officer's certificate, and (d) an opinion of
counsel. Trust Moneys received by the applicable Collateral Agent or the Trustee
pursuant to an Asset Sale Offer remaining after the completion of such Asset
Sale Offer will be permitted to be withdrawn by the Company upon request of the
Company and delivery of an officer's certificate and an opinion of counsel.
The Indenture provides that any release of Note Collateral, including Trust
Moneys, will be subject to the provisions of Section 314(d) of the Trust
Indenture Act relating to, among other things, the delivery of a certificate or
an opinion of an engineer, appraiser or other expert as to the fair value of
Note Collateral being released from the Liens of the Security Documents.
CERTAIN DEFINITIONS
"Affiliate" means, with respect to any party, any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such party including any estate or trust under will of such party.
For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided, however, that beneficial ownership of 5% or
more of the voting securities of a Person will be deemed to be control.
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"Asset Sale" means, with respect to the Company or any Restricted
Subsidiary, the sale, lease, conveyance or other disposition (including, without
limitation, by way of merger or consolidation, and whether by operation of law
or otherwise) to any Person other than the Company or a Wholly-Owned Restricted
Subsidiary of any of the Company's or such Restricted Subsidiary's assets
(including, without limitation, (x) any sale or other disposition of Equity
Interests of any Restricted Subsidiary and (y) any sale or other disposition of
any noncash consideration received by the Company or such Restricted Subsidiary
from any prior transaction or series of related transactions that constituted an
Asset Sale under the Indenture), whether owned on the date of the Indenture or
subsequently acquired, in one transaction or a series of related transactions:
provided, however, that the following will not constitute Asset Sales: (i)
transactions (other than transactions described in clause (y) above and
transactions involving Collateral as defined in the Stock Pledge Agreement) in
any calendar year with aggregate cash and/or Fair Market Value of any other
consideration received (including, without limitation, the unconditional
assumption of Indebtedness) of less than $1.0 million; (ii) a transaction or
series of related transactions that results in a Change in Control; (iii) any
sale of assets of the Company and its Restricted Subsidiaries or merger
permitted under the covenant described under "Certain Covenants -- Limitations
on Mergers; Sales of Assets"; (iv) any sale or other disposition of inventory,
property (whether real, personal or mixed) or equipment that has become worn
out, obsolete or damaged or otherwise unsuitable or no longer needed for use in
connection with the business of the Company or any Restricted Subsidiary, as the
case may be, in the good faith determination of the Board of Directors; and (v)
any sale of inventory to customers in the ordinary and customary course of
business.
"Attributable Indebtedness" means, with respect to any Sale and Leaseback
Transaction, as at the time of determination, the greater of (i) the Fair Market
Value of the property subject to such transaction and (ii) the present value
(discounted at a rate equivalent to the Company's then current weighted average
cost of funds for borrowed money, compounded on a semi-annual basis) of the
total net obligations of the lessee for rental payments during the remaining
term of the lease included in such arrangement (including any period for which
such lease has been extended). As used in the preceding sentence, the "total net
obligations of the lessee for rental payments" under any lease for any such
period means the sum of rental and other payments required to be paid with
respect to such period by the lessee thereunder excluding any amounts required
to be paid by such lessee on account of maintenance and repairs, insurance,
taxes, assessments, water rates or similar charges. In the case of any lease
which is terminable by the lessee upon payment of a penalty, such net amount of
rent also includes the amount of such penalty, but no rent will be considered as
required to be paid under such lease subsequent to the first date upon which it
may be so terminated.
"Basic Investments" means Basic Investments, Inc., a Nevada corporation.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
85% of the net book value of all accounts receivable of the Company and its
Restricted Subsidiaries as of such date, (b) 50% of the net book value of all
inventory owned by the Company and its Restricted Subsidiaries as of such date,
and (c) the lesser of (x) $10.0 million and (y) 85% of the net book value of all
accounts receivable of Kemwater as of such date plus 50% of the net book value
of all inventory as of such date owned by Kemwater, all calculated on a
consolidated basis and in accordance with GAAP. To the extent that information
is not available as to the amount of accounts receivable or inventory as of a
specific date, the Company may utilize the most recent available quarterly or
annual financial report for purposes of calculating the Borrowing Base.
"Capital Stock" means, with respect to any Person, any common stock,
preferred stock and any other capital stock of such Person and shares,
interests, participations or other ownership interest (however designated), of
any Person and any rights (other than debt securities convertible into, or
exchangeable for, capital stock), warrants or options to purchase any of the
foregoing, including (without limitation) each class of common stock and
preferred stock of such Person if such Person is a corporation and each general
and limited partnership interest of such Person if such Person is a partnership.
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"Capitalized Lease Obligation" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP and the amount of such Indebtedness
will be the capitalized amount of such obligations determined in accordance with
GAAP.
"Cash Flow" for any period means the Consolidated Net Income of the Company
and its Restricted Subsidiaries for such period, plus the following to the
extent included in calculating such Consolidated Net Income: (i) Consolidated
Interest Expense, (ii) income tax expense and (iii) depreciation, depletion and
amortization expense.
"Closing Date" means June 17, 1997.
"Consolidated Cash Flow Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of Cash Flow for the period of the
most recent four consecutive fiscal quarters for which internal financial
statements are available prior to the date of such determination to (ii)
Consolidated Interest Expense for such four fiscal quarters of the Company and
its Restricted Subsidiaries; provided, however, that (A) if the Company or any
Restricted Subsidiary has incurred any Indebtedness since the beginning of such
period that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Cash Flow Coverage Ratio is an incurrence of
Indebtedness, or both, Cash Flow and Consolidated Interest Expense for such
period will be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been issued on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (B) if since the
beginning of such period the Company or any Restricted Subsidiary has made any
Asset Sale, the Cash Flow for such period will be reduced by an amount equal to
the Cash Flow (if positive), directly attributable to the assets which are the
subject of such Asset Sale for such period, or increased by an amount equal to
the Cash Flow (if negative), directly attributable thereto for such period and
Consolidated Interest Expense for such period will be reduced by an amount equal
to the Consolidated Interest Expense directly attributable to any Indebtedness
of the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with any such sale or other disposition for such
period (or, if the Capital Stock of any Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale), (C) if
since the beginning of such period the Company or any Restricted Subsidiary (by
merger or otherwise) has made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with a transaction
causing a calculation to be made under the Indenture, which constitutes all or
substantially all of an operating unit of a business, Cash Flow and Consolidated
Interest Expense for such period will be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period and (D) in
making such computation, Consolidated Interest Expense attributable to any
Indebtedness incurred under any revolving credit facility will be computed based
on the average daily balance of such Indebtedness during such period. For
purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto, and
the amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith, the pro forma calculations will be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest on such Indebtedness will be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period.
"Consolidated Indebtedness" means the Indebtedness of the Company and its
consolidated Restricted Subsidiaries determined on a consolidated basis in
conformity with GAAP.
"Consolidated Interest Expense" means, for any period, interest expense of
the Company and its consolidated Restricted Subsidiaries, excluding amortization
of any deferred financing fees, plus, to the extent not included in such
interest expense, (i) interest expense attributable to Capitalized Lease
Obligations, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest
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expense, (v) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing, (vi) interest actually
paid by the Company or any such Restricted Subsidiary under any guarantee of
Indebtedness or other obligation of any other Person, (vii) net costs associated
with Hedging Obligations (including amortization of fees), (viii) Preferred
Stock dividends in respect of all Redeemable Stock of the Company held by
Persons other than the Company or a Wholly-Owned Restricted Subsidiary and (ix)
the cash contributions to any employee stock ownership plan or similar trust to
the extent such contributions are used by such plan or trust to pay interest or
fees to any Person (other than the Company) in connection with loans incurred by
such plan or trust to purchase newly issued or treasury shares of the Capital
Stock of the Company.
"Consolidated Net Income" means, for any period, and as to any Person, the
aggregate Net Income of such Person and its Subsidiaries (other than, in the
case of the Company, the Unrestricted Subsidiaries of the Company) for such
period determined in accordance with GAAP; provided that (i) the Net Income of
any Person which is not a Subsidiary of such Person but which is consolidated
with such Person or is accounted for by such Person by the equity method of
accounting will be included only to the extent of the amount of cash dividends
or cash distributions paid to such Person or a Wholly-Owned Restricted
Subsidiary of such Person (other than, in the case of the Company, the
Unrestricted Subsidiaries of the Company), (ii) the Net Income of any Person
acquired by such Person or a Subsidiary of such Person in a pooling of interests
transaction for any period prior to the date of such acquisition will be
excluded, (iii) the Net Income of any Subsidiary of such Person that is subject
to restrictions, direct or indirect, on the payment of dividends or the making
of distributions to such Person will be excluded to the extent of such
restrictions, (iv) the Net Income of (A) any Unrestricted Subsidiary and (B) any
Subsidiary less than 80% of whose securities having the right (apart from the
right under special circumstances) to vote in the election of directors are
owned by the Company or its Wholly-Owned Restricted Subsidiaries will be
included only to the extent of the amount of cash dividends or cash
distributions actually paid by such Subsidiary to the Company or a Wholly-Owned
Restricted Subsidiary of the Company, (v) in the case of the Company, the Net
Income attributable to any business, properties or assets acquired (by way of
merger, consolidation, purchase or otherwise) by the Company or any Restricted
Subsidiary of the Company for any period prior to the date of such acquisition
will be excluded, (vi) all extraordinary gains and losses, and any gain or loss
realized upon the termination of any employee pension benefit plan, in respect
of dispositions of assets other than in the ordinary course of business and any
one-time increase or decrease to Net Income which is required to be recorded
because of the adoption of new accounting policies, practices or standards
required by GAAP (together, in each case, with any provision for taxes) will be
excluded, and (vii) all amounts of "other income, net" classified as such on one
or more lines of such Person's statement of operations, in accordance with GAAP,
net of applicable income taxes, will be excluded from such Person's aggregate
Net Income; provided that in the case of the Company the foregoing exclusion
will not apply to cash dividends or cash distributions paid to the Company in
respect of its indirect equity interest in Saguaro Power Company, a Limited
Partnership, to the extent included in clause (i) of this definition.
"Consolidated Net Worth" means, for any Person, the total of the amounts
shown on the balance sheet of such Person and its consolidated Subsidiaries,
determined on a consolidated basis without duplication in accordance with GAAP,
as of the end of the most recent fiscal quarter of such Person ending at least
45 days prior to the taking of any action for the purpose of which the
determination is being made, as (i) the amount of Capital Stock (other than
Redeemable Stock) plus (ii) the amount of surplus and retained earnings (or, in
the case of a surplus or retained earnings deficit, minus the amount of such
deficit).
"Contingent Payment Agreement" means the Contingent Payment Agreement dated
as of April 20, 1995 among Pioneer, the Company and the Sellers named therein.
"Credit Facility" means any revolving credit facility or similar
arrangement that makes credit available entered into by and among the Company
and/or any of its Subsidiaries that is a Guarantor and the lending institutions
party thereto, including any credit agreement, related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time.
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"Eligible Investments" means, (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than 90 days from the date of acquisition, (ii) time deposits and certificates
of deposit with maturities of not more than 90 days from the date of
acquisition, of any commercial banking institution that is a member of the
Federal Reserve System having capital and surplus in excess of $500.0 million,
whose debt has a rating at the time of any such investment of at least "A-2" or
the equivalent thereof by Standard & Poor's Ratings Group or at least "P-2" or
the equivalent thereof by Moody's Investors Service, Inc., or any bank or
financial institution party to the Term Facility or the Revolving Facility,
(iii) fully secured repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) entered into
with any bank or financial institution meeting the qualifications specified in
clause (ii) above, (iv) commercial paper issued by the parent corporation of any
commercial banking institution that is a member of the Federal Reserve System
having capital and surplus in excess of $500.0 million and commercial paper or
master notes of issuers, rated at the time of any such investment at least "A-2"
or the equivalent thereof by Standard & Poor's Ratings Group or at least "P-2"
or the equivalent thereof by Moody's Investors Service, Inc., or any bank or
financial institution party to the Term Facility or the Revolving Facility, and
in each case maturing within 270 days after the date of acquisition, and (v) any
shares in an open-end mutual fund organized by a bank or financial institution
having combined capital and surplus of at least $500.0 million investing solely
in investments permitted by the foregoing clauses (i), (ii) and (iv).
"Equity Interests" means shares, interests, participations or other
equivalents (however designated) of Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security which is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering of Equity Interests (other than
Redeemable Stock) of any Person made on a primary basis by such Person
(including a rights offering to existing stockholders of such Person), which
yields gross proceeds to such Person of $15.0 million or more.
"Excess Land" means certain real property adjoining the sites of PCAC's
Henderson, Nevada and St. Gabriel, Louisiana plants and the Mojave, California
property owned by Imperial West that is not used in the business conducted at
such sites, which real property is referred to and defined in the Contingent
Payment Agreement as the "Subject Parcels."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means notes issued pursuant to any Exchange Offer
Registration Statement.
"Exchange Offer Registration Statement" means the registration statement
filed by the Company and the Subsidiary Guarantors with the Securities and
Exchange Commission (the "Commission") with respect to an offer to exchange the
Original Notes for the Exchange Notes.
"Existing Affiliate Agreements" means (i) agreements between Pioneer
Americas, Inc. or any of its subsidiaries and Saguaro Power Company, a Limited
Partnership, relating to the delivery of steam and other services, existing on
the date of the Indenture and listed on a schedule thereto, (ii) the Tax Sharing
Agreement of Pioneer and its subsidiaries, (iii) agreements between Pioneer
Americas, Inc. or any of its subsidiaries and Basic Investments relating to the
delivery of water and power, power transmission services, and other services,
existing on the date of the Indenture and listed on a schedule thereto and (iv)
any other agreements with affiliates of the Company, existing on the date of the
Indenture and listed on a schedule thereto.
"Existing Indebtedness" means all Indebtedness (other than the Term Loans
and the Revolving Loans outstanding) of the Company or any Restricted Subsidiary
existing on the date of the Indenture and listed on a schedule thereto.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length transaction, for cash, between a
willing seller and a willing buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. Fair Market Value will be determined by
a
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majority of the members of the Board of Directors of the Company, and a majority
of the disinterested members of such Board of Directors, if any, acting in good
faith and will be evidenced by a duly and properly adopted resolution of the
Board of Directors.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect from time to time.
"Hedging Obligations" means the obligations of any Person or entity
pursuant to any swap or cap agreement, exchange agreement, collar agreement,
option, futures or forward hedging contract, derivative instrument or other
similar agreement or arrangement designed to protect such Person or entity
against fluctuations in interest rates or foreign exchange rates or the price of
raw materials and other chemical products used or produced in the Company's
business, as the case may be.
"incur" has the meaning ascribed thereto in the covenant described under
"-- Certain Covenants -- Limitations on Indebtedness"; provided that (a) with
respect to any Indebtedness of any Restricted Subsidiary of the Company that is
owing to the Company or another Restricted Subsidiary of the Company, any
disposition, pledge or transfer of such Indebtedness to any Person (other than
the Company or a Wholly-Owned Restricted Subsidiary) will be deemed to be an
incurrence of such Indebtedness and (b) with respect to any Indebtedness of the
Company or a Restricted Subsidiary that is owing to another Restricted
Subsidiary, any transaction pursuant to which a Wholly-Owned Restricted
Subsidiary to which such Indebtedness is owing ceases to be a Wholly-Owned
Restricted Subsidiary will be deemed to be an incurrence of such Indebtedness,
and provided, further that any Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary will be deemed to be incurred by
such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. The
term "incurrence" has a corresponding meaning.
"Indebtedness" of any Person means, without duplication, all liabilities
with respect to (i) indebtedness for money borrowed or which is evidenced by a
bond, debenture, note or other similar instrument or agreement, but excluding
trade credit evidenced by any such instrument or agreement; (ii) reimbursement
obligations, letters of credit and bankers' acceptances; (iii) indebtedness with
respect to Hedging Obligations; (iv) Capitalized Lease Obligations; (v)
indebtedness, secured or unsecured, created or arising in connection with the
acquisition or improvement of any property or asset or the acquisition of any
business; (vi) all indebtedness secured by any Lien upon property owned by such
Person and all indebtedness secured in the manner specified in this clause even
if such Person has not assumed or become liable for the payment thereof; (vii)
all indebtedness of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
or otherwise representing the deferred and unpaid balance of the purchase price
of any such property, including all indebtedness created or arising in the
manner specified in this clause even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property; (viii) guarantees, direct or indirect, of
any indebtedness of other Persons referred to in clauses (i) through (vii)
above, or of dividends or leases, taxes or other obligations of other Persons,
excluding any guarantee arising out of the endorsement of negotiable instruments
for collection in the ordinary course of business; (ix) contingent obligations
in respect of, or to purchase or otherwise acquire or be responsible or liable
for, through the purchase of products or services, irrespective of whether such
products are delivered or such services are rendered, or otherwise, any such
indebtedness referred to in clauses (i) through (vii) above; (x) any obligation,
contingent or otherwise, arising under any surety, performance or maintenance
bond; and (xi) Redeemable Stock of the Company valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends; which indebtedness, Capitalized Lease Obligation, guarantee or
contingent or other obligation such Person has directly or indirectly created,
incurred, assumed, guaranteed or otherwise become liable or responsible for,
whether then outstanding or thereafter created in the case of clauses (i)
through (x) above, to the extent any of the foregoing indebtedness (other than
letters of credit and Hedging Obligations) would appear as a liability on the
balance sheet of such Person in accordance with GAAP. For purposes of the
foregoing definition, the "maximum fixed repurchase price" of any Redeemable
Stock which does not have a fixed repurchase price will be calculated in
accordance with the terms of such Redeemable Stock as if such
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Redeemable Stock were purchased on any date on which Indebtedness is required to
be determined pursuant to the Indenture. As used herein, Indebtedness with
respect to any Hedging Obligation means, with respect to any specified Person on
any date, the net amount (if any) that would be payable by such specified Person
upon the liquidation, close-out or early termination on such date of such
Hedging Obligation. For purposes of the foregoing, any settlement amount payable
upon the liquidation, close-out or early termination of a Hedging Obligation
will be calculated by the Company in good faith and in a commercially reasonable
manner on the basis that such liquidation, close-out or early termination
results from an event of default or other similar event with respect to such
specified Person. Any reference in this definition to indebtedness will be
deemed to include any renewals, extensions and refundings of any such
indebtedness or any indebtedness issued in exchange for such indebtedness.
"Independent Director" means a director of the Company other than a
director (i) who (apart from being a director of the Company or any of its
Subsidiaries) is an employee, insider, associate or Affiliate of the Company or
any of its Subsidiaries or has held any such position during the previous year
or (ii) who is a director, an employee, insider, associate or Affiliate of
another party to the transaction in question.
"Investment" means any direct or indirect advance, loan, other extension of
credit or capital contribution (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others) to, purchase or acquisition of Equity Interests, bonds, notes,
debentures or other securities of, or purchase or other acquisition of all or a
substantial part of the business, Equity Interests or other evidence of
beneficial ownership of, or any other investment in or guarantee of any
Indebtedness of, any Person or any other item that would be classified as an
investment on a balance sheet prepared in accordance with GAAP. Investments do
not include advances to customers and suppliers in the ordinary course of
business and on commercially reasonable terms. If the Company or any Subsidiary
of the Company sells or otherwise disposes of any Equity Interests of any direct
or indirect Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of the Company, the
Company shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the Fair Market Value of the Equity Interests of such
Subsidiary not sold or disposed of determined as provided in the final paragraph
of the covenant described under "-- Certain Covenants -- Limitations on
Restricted Payments."
"Lien" means any mortgage, pledge, lien, security interest, charge or
encumbrance of any kind (including any conditional sale or other title retention
agreement and any lease in the nature thereof).
"Net Cash Proceeds" means, with respect to any issuance or sale of Equity
Interests or debt securities that have been converted into or exchanged for
Equity Interests, as referred to under "-- Certain Covenants -- Limitations on
Restricted Payments," the proceeds of such issuance or sale in the form of cash
or cash equivalents, net of attorneys' fees, accountants' fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Income" of any Person, for any period, means the net income (loss) of
such Person and its subsidiaries (other than, in the case of the Company, its
Unrestricted Subsidiaries) determined in accordance with GAAP.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, the proceeds of insurance paid on account of the loss of or
damage to any property, or compensation or other proceeds for any property taken
by condemnation, eminent domain or similar proceedings, and any non-cash
consideration received by the Company or any Restricted Subsidiary from any
Asset Sale that is converted into or sold or otherwise disposed of for cash
within 90 days after the relevant Asset Sale), net of (i) the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees and sales commissions), (ii) any taxes paid or
payable as a result thereof, (iii) all amounts required to be applied to the
repayment of, or representing the amount of permanent reductions in the
commitments relating to, Indebtedness secured by a Lien on the asset or assets
the subject of such Asset Sale which Lien is permitted pursuant to the terms of
the Indenture, (iv) any reserve for adjustment in respect of the sale price of
such asset or assets required by
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GAAP, (v) all distributions and other payments required to be made (including
any amounts held pending distribution) to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Sale, and (vi) all
payments due under Existing Affiliate Agreements arising out of an Asset Sale.
The amount of any taxes required to be accrued as a liability under GAAP as a
consequence of an Asset Sale will be the amount thereof as determined in good
faith by the Board of Directors of the Company.
"Permitted Investment" means (i) any Eligible Investment, (ii) any
Investment in the Company, (iii) Investments in existence on the Closing Date,
and any such Investment in Basic Investments, Basic Land Company, Basic
Management, Inc., Basic Water Company or Victory Valley which has been
reclassified or converted into an alternate form of Investment in the same or a
successor entity, (iv) intercompany notes permitted under clause (f) of the
covenant described under "-- Certain Covenants -- Limitations on Indebtedness,"
(v) Investments in any Wholly-Owned Restricted Subsidiary or any Person which,
as a result of such Investment, becomes a Wholly-Owned Restricted Subsidiary;
provided that such Wholly-Owned Restricted Subsidiary is engaged in a Related
Business, and (vi) other Investments after the Closing Date in joint ventures,
corporations, limited liability companies, partnerships or Unrestricted
Subsidiaries engaged in a Related Business that do not at any one time
outstanding exceed $5.0 million; provided that the amount of Investments
pursuant to clause (vi) will be included in the calculation of Restricted
Payments pursuant to the covenant described under "-- Certain
Covenants -- Limitations on Restricted Payments."
"Permitted Liens" means as of any particular time, any one or more of the
following:
(a) Liens for taxes, rates and assessments not yet past due or, if
past due, the validity of which is being contested in good faith by the
Company or any Restricted Subsidiary by appropriate proceedings promptly
instituted and diligently conducted and against which the Company has
established appropriate reserves in accordance with GAAP;
(b) the Lien of any judgment rendered which is being contested in good
faith by the Company or any of its Restricted Subsidiaries by appropriate
proceedings promptly instituted and diligently conducted and against which
the Company has established appropriate reserves in accordance with GAAP
and which does not have a material adverse effect on the ability of the
Company and its Restricted Subsidiaries to operate their business or
operations;
(c) other than in connection with Indebtedness, any Lien arising in
the ordinary course of business (i) to secure payments of workers'
compensation, unemployment insurance, pension or other social security or
retirement benefits, or to secure the performance of bids, tenders, leases,
progress payments, contracts (other than for the payment of money) or to
secure public or statutory obligations of the Company, or any Restricted
Subsidiary, or to secure surety or appeal bonds to which the Company or any
Restricted Subsidiary is a party, (ii) imposed by law dealing with
materialmen's, mechanics', workmen's, repairmen's, warehousemen's,
landlords', vendors' or carriers' Liens created by law, or deposits or
pledges which are not yet due or, if due, the validity of which is being
contested in good faith by the Company or any Restricted Subsidiaries by
appropriate proceedings promptly instituted and diligently conducted and
against which the Company has established appropriate reserves in
accordance with GAAP, (iii) rights of financial institutions to set off and
chargeback arising by operation of law and (iv) similar Liens;
(d) servitudes, licenses, easements, encumbrances, restrictions,
rights-of-way and rights in the nature of easements or similar charges
which will not in the aggregate materially adversely impair the use of the
subject property by the Company or a Restricted Subsidiary;
(e) zoning and building by-laws and ordinances, municipal bylaws and
regulations, and restrictive covenants, which do not materially interfere
with the use of the subject property by the Company or a Restricted
Subsidiary as such property is used as of the date of the Indenture; and
(f) any extension, renewal, substitution or replacement (or successive
extensions, renewals, substitutions or replacements), as a whole or in
part, of any of the Liens referred to in clauses (a) through (e) of this
definition or the Indebtedness secured thereby; provided that (i) such
extension, renewal, substitution or replacement Lien is limited to that
portion of the property or assets, now owned or hereafter acquired, that
secured the Lien prior to such extension, renewal, substitution or
replacement
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Lien and (ii) the Indebtedness secured by such Lien (assuming all available
amounts were borrowed) at such time is not increased.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Equity Interests of any corporation,
means stock of any class or classes (however designated) which is preferred over
shares of stock of any other class of such corporation as to the distribution of
assets on any voluntary or involuntary liquidation or dissolution of such
corporation or as to dividends.
"Redeemable Stock" means any Equity Interest that by its terms or otherwise
(i) is required to be redeemed prior to the maturity of the Notes, (ii) matures
or is redeemable, in whole or in part, at the option of the Company, any
Subsidiary or the holder thereof or pursuant to a mandatory sinking fund at any
time prior to the maturity of the Notes, or (iii) is convertible into or
exchangeable for debt securities which provide for any scheduled payment of
principal prior to the maturity of the Notes at the option of the issuer at any
time prior to the maturity of the Notes, until the right to so convert or
exchange is irrevocably relinquished.
"Related Business" means any corporation or other entity engaged in, and
any asset utilized in, the manufacture or distribution of chlorine, caustic
soda, bleach, hydrochloric acid, iron and other chlorides and aluminum sulfate,
and in lines of business reasonably related thereto.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" means (i) any Subsidiary Guarantor, (ii) any
Subsidiary of the Company in existence on the date hereof to which any line of
business or division (and the assets associated therewith) of any Subsidiary
Guarantor are transferred after the date of the Indenture, (iii) any Subsidiary
of the Company organized or acquired after the date of the Indenture, unless
such Subsidiary has been designated as an Unrestricted Subsidiary by a
resolution of the Board of Directors as provided in the definition of
"Unrestricted Subsidiary" and (iv) any Unrestricted Subsidiary which is
designated as a Restricted Subsidiary by the Board of Directors; provided, that
immediately after giving effect to any such designation (A) no Default or Event
of Default has occurred and is continuing and (B) in the case of any designation
referred to in clause (iii) or (iv) hereof, the Company could incur at least
$1.00 of Indebtedness pursuant to the covenant described in the initial
paragraph under "-- Certain Covenants -- Limitations on Indebtedness," on a pro
forma basis taking into account such designation. The Company will evidence any
such designation to the Trustee by promptly filing with the Trustee an officers'
certificate certifying that such designation has been made and complies with the
requirements of the immediately preceding sentence. Notwithstanding any
provision of the Indenture to the contrary, each Subsidiary Guarantor will be a
Restricted Subsidiary.
"Sale and Leaseback Transaction" with respect to any Person, means any
arrangement with another Person for the leasing of any real or tangible personal
property, which property has been or is to be sold or transferred by such Person
to such other Person in contemplation of such leasing.
"Security Documents" means the Intercreditor Agreement and all security
agreements, mortgages, deeds of trust, pledge agreements, collateral assignments
or any other instrument evidencing or creating any security interest in favor of
the Collateral Agent in all or any portion of the Note Collateral, in each case
as amended, supplemented or otherwise modified from time to time.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of the Company or its Restricted Subsidiaries, whether
outstanding on the date of the Indenture or thereafter incurred as permitted by
the Indenture, unless, in the case of any particular Indebtedness, the agreement
or instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness is junior or subordinated
in right of payment to any item of Indebtedness of the Company or its Restricted
Subsidiaries. Without limiting the generality of the foregoing, "Senior
Indebtedness" includes the principal of, premium, if any, and interest and all
other obligations of every nature of the Company from time to time owed under
the New Credit Facilities. Notwithstanding the foregoing, "Senior
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Indebtedness" does not include (i) in the case of the obligation of the Company
in respect of each Note, the obligation of the Company in respect of the other
Notes, (ii) any liability for foreign, federal, state, local or other taxes owed
or owing by the Company or any Restricted Subsidiary to the extent that such
liability constitutes Indebtedness, (iii) Indebtedness of the Company to any
Restricted Subsidiary or of any Restricted Subsidiary to the Company or another
Restricted Subsidiary, (iv) that portion of any Indebtedness which at the time
of issuance is issued in violation of the Indenture and (v) Indebtedness and
amounts incurred in connection with obtaining goods, materials or services in
the ordinary course of business (other than such Indebtedness which is owed to
banks and other financial institutions or secured by the goods or materials
which were purchased with such Indebtedness).
"Subordinated Indebtedness" means Indebtedness of the Company or any
Subsidiary Guarantor subordinated in right of payment to the Notes or any
Guarantee, as the case may be.
"Subsidiary" means, with respect to the Company, (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors, under ordinary circumstances,
is at the time owned, directly or indirectly, by the Company, by the Company and
one or more of its Subsidiaries or by one or more of the Company's Subsidiaries
or (ii) any other Person or entity of which at least a majority of voting
interest, under ordinary circumstances, is at the time owned, directly or
indirectly, by the Company, by the Company and one or more of its Subsidiaries
or by one or more of the Company's Subsidiaries.
"Trust Moneys" means all cash or Eligible Investments received by the
Collateral Agent: (a) in exchange for the release of property from the Lien of
any of the Security Documents; or (b) as compensation for or proceeds of the
sale of all or any part of the Note Collateral taken by eminent domain or
purchased by, or sold pursuant to any order of, a governmental authority or
otherwise disposed of; or (c) as proceeds of insurance upon any, all or part of
the Note Collateral (other than any liability insurance proceeds payable to the
Collateral Agent for any loss, liability or expense incurred by it); or (d) as
proceeds of any other sale or other disposition of all or any part of the Note
Collateral by or on behalf of the Collateral Agent or any collection, recovery,
receipt, appropriation or other realization of or from all or any part of the
Note Collateral pursuant to the Security Documents or otherwise; or (e) for
application under the Indenture as provided in the Indenture or any Security
Document, or whose disposition is not otherwise specifically provided for in the
Indenture or in any Security Document.
"Unrestricted Subsidiary" means, until such time as it may be designated as
a Restricted Subsidiary by the Board of Directors of the Company as provided in
and in compliance with the definition of "Restricted Subsidiary," (i) any
Subsidiary of the Company organized or acquired after the date of the Indenture
designated as an Unrestricted Subsidiary by the Board of Directors of the
Company in which all investments by the Company or any Restricted Subsidiary are
made only from funds available for the making of Restricted Payments as
described under "-- Certain Covenants -- Limitations on Restricted Payments" and
(ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Equity Interests of, or owns, or holds any Lien upon,
any property of, any Subsidiary of the Company which is not a Subsidiary of such
Subsidiary to be so designated; provided that (w) each Subsidiary to be so
designated and each of its Subsidiaries has not, at the time of designation, and
does not thereafter, directly or indirectly, incur any Indebtedness pursuant to
which the lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries, (x) immediately after giving effect to such designation
no Default or Event of Default has occurred and is continuing, (y) all
outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation equal in amount to the
Fair Market Value of such Investments at the time of such designation and would
be Restricted Payments permitted to be paid pursuant to the provisions of the
covenant described under "-- Certain Covenants -- Limitations on Restricted
Payments" and (z) the amount of such Restricted Payments will be included in the
calculation of the amount of Restricted Payments previously made pursuant to
such covenant. The Company will evidence any such designation by promptly filing
with the Trustee an
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officers' certificate certifying that such designation has been made and
complies with the requirements of the immediately preceding sentence.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clause (i) or (ii) above, are not callable or redeemable at the option of the
issuer thereof.
"Victory Valley" means Victory Valley Land Company, L.P., a Delaware
limited partnership.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly-Owned Restricted Subsidiary" means, with respect to any Person, a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than capital stock constituting
directors' qualifying shares or interests held by directors or shares or
interests required to be held by foreign nationals, to the extent mandated by
applicable law) are owned by such Person or by one or more Wholly-Owned
Restricted Subsidiaries of such Person and one or more Wholly-Owned Restricted
Subsidiaries of such Person.
DEFAULTS AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in payment of interest on the Notes; (ii)
default in payment of principal of, or premium with respect to, the Notes; (iii)
failure by the Company or a Subsidiary Guarantor, if applicable, to comply with
the covenants entitled "Limitations on Restricted Payments," "Limitations on
Indebtedness," "Subsidiary Guarantees," "Limitations on Liens," "Limitations on
Asset Sales," "Limitations on Sale and Leaseback Transactions," "Limitations on
Ownership of Restricted Subsidiary Stock," "Change of Control," and "Limitation
on Mergers; Sales of Assets;" (iv) failure by the Company or a Subsidiary
Guarantor, if applicable, to comply with any of its other agreements in the
Indenture, the Security Documents or the Notes for a period that continues for
60 days after receipt of written notice from the Trustee or from the Holders of
at least 25% of the aggregate principal amount of the Notes then outstanding,
specifying such default; (v) the Company denies or disaffirms in writing its
obligations under the Indenture or the Notes; (vi) a Subsidiary Guarantor denies
or disaffirms in writing its obligations under its Guarantee, or any Guarantee
for any reason ceases to be, or is asserted in writing by any Subsidiary
Guarantor or the Company not to be, in full force and effect and enforceable in
accordance with its terms, except to the extent contemplated by the Indenture
and any such Guarantee; (vii) a default under any Indebtedness of the Company or
any of its Subsidiaries, which default (A) is caused by a failure to pay the
final scheduled principal installment on such Indebtedness on the stated
maturity date thereof (which failure continues beyond any applicable grace
period) or (B) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness with respect
to which the principal amount remains unpaid at its final maturity or the
maturity of which has been so accelerated, aggregates $5.0 million or more;
(viii) final judgments rendered against the Company or any of its Restricted
Subsidiaries (other than any judgment as to which and only to the extent, a
reputable insurance company has acknowledged coverage of such claim in writing)
of $5.0 million or more which remain undischarged or unstayed for a period of 60
days; (ix) any of the Security Documents ceases to be in full force and effect
(other than in accordance with their respective terms), or any of the Security
Documents ceases to give either Collateral Agent the Liens, rights, powers and
privileges purported to be created thereby, or any Security Document is declared
null and void, or the Company or PCAC or PAI denies any of its obligations under
any Security Document or any Note Collateral becomes subject to any Lien other
than the Liens created or permitted by the Indenture or the Security Documents;
and (x) certain events of bankruptcy or insolvency of the Company or any of its
Restricted Subsidiaries.
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If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the Notes may declare the Notes due and
payable immediately. However, if an Event of Default resulting from bankruptcy
or insolvency occurs, such amount will be due and payable without any
declaration or any act on the part of the Trustee or the Holders. Such
declaration or acceleration may be rescinded and past defaults may be waived by
the Holders of a majority in principal amount of the Notes upon conditions
provided in the Indenture.
Holders may not enforce the Indenture, the Security Documents or the Notes,
except as provided therein. The Trustee may require an indemnity satisfactory to
it before enforcing the Indenture, the Security Documents or the Notes. Subject
to certain limitations, Holders of a majority in principal amount of the Notes
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture, that is unduly prejudicial
to the rights of any Holder or that would subject the Trustee to personal
liability. The Trustee may withhold from the Holders of the Notes notice of any
continuing default (except a default in payment of principal, premium, if any,
or interest) if it determines in good faith that withholding notice is in their
interest. The Company is required to file periodic reports with the Trustee as
to the absence of Default. If a Default exists, the Company is required to
describe the Default and efforts undertaken to remedy the Default.
Directors, officers, employees or stockholders, as such, of the Company,
the Subsidiary Guarantors and the other Subsidiaries of the Company will not
have any liability for any obligations of the Company or any Subsidiary
Guarantors under the Notes, any Guarantee or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations. Each Holder of a
Note by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law. The Registrar need not transfer or exchange any Note previously selected
for redemption. A registered Holder of a Note will be treated as the owner
thereof for all purposes. No Note will be valid until the Trustee or an
authenticating agent manually signs the certificate of authentication on the
Note. Each Note will become effective on the date upon which it is so signed.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented, and any past default or compliance with any provision may be
waived, with the consent of the Holders of a majority in principal amount of the
Notes then outstanding. Without the consent of any Holder, the Company and the
Subsidiary Guarantors will be permitted to amend or supplement the Indenture,
the Security Documents or the Notes to comply with the provisions of the
Indenture in the case of a consolidation, merger or sale of all or substantially
all of the assets of the Company and its Subsidiaries taken as a whole, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to cure any ambiguity, defect or inconsistency, to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act, to comply with any requirement of the
Commission or applicable law to effectuate the Exchange Offer, to add additional
guarantees with respect to the Notes, to further secure the Notes or the
Guarantees, to add to the covenants of the Company or any Subsidiary for the
benefit of the holders of the Notes, to surrender any right or power conferred
upon the Company or any Subsidiary or to make any other change that does not
adversely affect the rights of any Holder.
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder) (i) reduce the
principal amount of Notes whose holders must consent to an amendment or waiver
of the Indenture or the Security Documents; (ii) reduce the rate of, or
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change the time for payment of, interest, including default interest, on any
Note; (iii) reduce the principal of or change the fixed maturity of any Note, or
alter the optional redemption provisions, or alter the price at which the
Company will offer to purchase such Note pursuant to an Asset Sale Offer or a
Change of Control Offer; (iv) make any Note payable in money other than that
stated in such Note; (v) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of the Notes to
receive payments of principal of or interest on the Notes; (vi) waive a Default
or Event of Default in the payment of principal of, premium if any, or interest
on the Notes, including any such obligation arising pursuant to an Asset Sale
Offer, a Change of Control Offer (except a rescission of acceleration of the
Notes by the Holders of at least a majority (or, in the case of the failure to
make a Change of Control Offer, two-thirds) in principal amount of the Notes
then outstanding and a waiver of the payment default that resulted from such
acceleration); (vii) waive the obligation to make an Asset Sale Offer or any
payment required to be made pursuant to an Asset Sale Offer, a Change of Control
Offer or a Guarantee; (viii) affect the ranking of the Notes; (ix) release all
or substantially all of the Note Collateral other than pursuant to the terms of
the Indenture or the Security Documents; or (x) make any change in the foregoing
amendment and waiver provisions. An amendment or waiver may not waive the
Company's obligation to make a Change of Control Offer without the consent of
the Holders of at least two-thirds in outstanding principal amount of the Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of the
obligations of the Company and each Subsidiary Guarantor discharged with respect
to the outstanding Notes ("Legal Defeasance") except for (i) the rights of
Holders of outstanding Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due but only
from assets deposited by the Company pursuant to clause (i) of the following
paragraph, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration or transfer of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and any Subsidiary Guarantor released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations will not constitute
a Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to effect either a Legal Defeasance or a Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable U.S. Government
Obligations, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
of such principal or installment of principal of, premium, if any, or interest
on the outstanding Notes; (ii) in the case of Legal Defeasance, the Company will
deliver to the Trustee an opinion of counsel reasonably acceptable to the
Trustee confirming that (A) the Company has received from the Internal Revenue
Service a ruling or (B) since the date of the Indenture, there has been a change
in the applicable federal income tax law, including by means of a Revenue Ruling
published by the Internal Revenue Service, in either case to the effect that,
and based thereon such opinion of counsel will confirm that, the holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company will deliver to the Trustee an opinion
of counsel reasonably acceptable to the Trustee confirming that the holders of
the outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Covenant Defeasance had not occurred; (iv)
no Default or Event of Default has occurred and is
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continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than the Indenture) to which
the Company or any Subsidiary Guarantor is a party or by which the Company or
any Subsidiary Guarantor is bound; (vi) the Company will deliver to the Trustee
an opinion of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and that the Trustee has a perfected security interest in such
trust funds for the ratable benefit of the Holders of the outstanding Notes;
(vii) the Company will deliver to the Trustee an officers' certificate stating
that the deposit was not made by the Company with the intent of preferring the
Holders of the Notes or any Guarantee over the other creditors of the Company or
any Subsidiary Guarantor or with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or any Subsidiary Guarantor or others; and
(viii) the Company will deliver to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in their exercise as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company or any Subsidiary Guarantor, to obtain payment
of claims in certain cases or to realize on certain property received by it in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest, it must eliminate such conflict or resign.
The Company or any Subsidiary Guarantor may have customary banking
relationships with the Trustee in the ordinary course of business. The Trustee
acts as trustee under the indenture with respect to the First Mortgage Notes.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Notes will be issued in fully registered
form. The Company expects that the Exchange Notes initially will each be
represented by a single global certificate in fully registered form (the "Global
Note") and will be deposited with the Trustee as custodian for The Depository
Trust Company ("DTC") and registered in the name of a nominee of DTC.
Global Note. The Company expects that upon the issuance of the Global Note,
DTC or its custodian will credit, on its book-entry registration and transfer
system, the respective principal amount of Exchange Notes of the individual
beneficial interests represented by such Global Note to the accounts of Persons
who have accounts with such depositary. Ownership of beneficial interests in the
Global Note will be limited to Persons who have accounts with DTC
("participants") or Persons who hold interests through participants. Ownership
of beneficial interests in the Global Note will be shown on, and the transfer of
that ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of Persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the Indenture and the Exchange Notes. No beneficial owner of
an interest in the Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture.
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Payments of the principal of, premium (if any) and interest on, the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. Neither the Company, the Trustee nor any Paying Agent will have
any responsibility or liability for any aspect of the record relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any record relating to such beneficial
ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
The Company expects that transfers between participants in DTC will be
effected in the ordinary way in accordance with DTC rules and will be settled in
same day funds. If a holder requires physical delivery of a Certificated Note
for any reason, including to sell Exchange Notes to Persons in states which
require physical delivery of such Notes or to pledge such Notes, such holder
must transfer its interest in the Global Note in accordance with the normal
procedures of DTC and the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global Note is credited
and only in respect of such portion of the aggregate principal amount of
Exchange Notes as to which such participant or participants has or have given
such direction. However, if there is an Event of Default under the Notes or the
Indenture, DTC will exchange the Global Note for Certificated Notes, which it
will distribute to its participants.
To the Company's knowledge, DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers (including
the Initial Purchasers), banks, trust companies and clearing corporations and
certain other organizations. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC customarily agrees to the foregoing procedures in order to
facilitate transfers of interests in global notes among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Notes will be issued in
exchange for the Global Note.
121
<PAGE> 126
ORIGINAL NOTES REGISTRATION RIGHTS
The Company, the Subsidiary Guarantors and the Initial Purchasers entered
into the Registration Rights Agreement on the Closing Date pursuant to which the
Company and the Subsidiary Guarantors agreed, for the benefit of holders of the
Original Notes, to, at their expense (i) on or prior to the 30th day following
the Closing Date, file the Exchange Offer Registration Statement with the
Commission with respect to the Exchange Offer pursuant to which the Original
Notes will be exchanged for the Exchange Notes, which will have terms identical
to the Original Notes and will be guaranteed by the Subsidiary Guarantors on the
same terms as the Guarantees (except that the Exchange Notes will not contain
terms with respect to transfer restrictions or any provision relating to this
paragraph) and (ii) use their best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act by the
150th day after the Closing Date. Upon effectiveness of the Exchange Offer
Registration Statement, the Company and the Subsidiary Guarantors agreed to
offer to all holders of the Notes an opportunity to exchange their securities
for a like principal amount of the Exchange Notes. The Company and the
Subsidiary Guarantors agreed to keep the Exchange Offer open for acceptance for
not less than 20 business days after the date the Exchange Offer Registration
Statement is declared effective, and to comply with Regulation 14E and Rule
13e-4 under the Exchange Act (other than the filing requirements of Rule 13e-4).
For each Original Note surrendered to the Company for exchange pursuant to the
Exchange Offer, the holder of such Original Note will receive an Exchange Note
having a principal amount at maturity equal to that of the surrendered Original
Note. Interest on each Exchange Note will accrue from the last interest payment
date on which interest was paid on the Original Note surrendered in exchange
therefor or, if no interest has been paid on such Original Note, from the date
of original issuance.
Under existing interpretations of the staff of the Commission's Division of
Corporation Finance (the "Staff"), the Exchange Notes will generally be freely
transferable after the Exchange Offer without further registration under the
Securities Act; provided that broker-dealers ("Participating Broker-Dealers")
receiving Exchange Notes in the Exchange Offer will be subject to a prospectus
delivery requirement with respect to resales of such Exchange Notes. To date,
the Staff has taken the position that Participating Broker-Dealers may fulfill
their prospectus delivery requirements with respect to transactions involving an
exchange of securities such as the exchange pursuant to the Exchange Offer
(other than a resale of an unsold allotment from the sale of the Notes to the
Initial Purchasers) with the prospectus contained in the Exchange Offer
Registration Statement. Pursuant to the Registration Rights Agreement, the
Company has agreed to permit Participating Broker-Dealers and other persons, if
any, subject to similar prospectus delivery requirements to use the prospectus
contained in the Exchange Offer Registration Statement in connection with the
resale of such Exchange Notes for a period of 180 days.
Each holder of the Original Notes who wishes to exchange its Original Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company, including that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business, (ii) it
has no arrangement with any person to participate in a public distribution
(within the meaning of the Securities Act) of the Exchange Notes and (iii) it is
not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company
or the Subsidiary Guarantors, or if it is such an affiliate, that it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable to it.
In addition, each holder who is not a broker-dealer will be required to
represent that it is not engaged in, and does not intend to engage in, a public
distribution of the Exchange Notes. Each holder who is a broker-dealer and who
receives Exchange Notes for its own account in exchange for Original Notes that
were acquired by it as a result of market-making activities or other trading
activities, will be required to acknowledge that it will deliver a prospectus in
connection with any resale by it of such Exchange Notes.
In the event that applicable interpretations of the Staff do not permit the
Company and the Subsidiary Guarantors to effect the Exchange Offer or if for any
other reason the Exchange Offer is not consummated by the 30th business day
following the date the Exchange Offer Registration Statement is declared
effective, or if the Initial Purchasers so request with respect to the Original
Notes not eligible to be exchanged for Exchange Notes in the Exchange Offer or
if any holder of Original Notes is not eligible to participate in the Exchange
122
<PAGE> 127
Offer or does not receive freely tradeable Exchange Notes in the Exchange Offer,
the Company and the Subsidiary Guarantors will, at their expense, (a) promptly
file a shelf registration statement (a "Shelf Registration Statement" and
together with the Exchange Offer Registration Statement, the "Registration
Statements") permitting resales from time to time of the Original Notes, (b) use
their best efforts to cause such registration statement to become effective and
(d) use their best efforts to keep such registration statement current and
effective until two years from the date it becomes effective or such shorter
period that will terminate when all the Original Notes covered by such
registration statement have been sold pursuant thereto. The Company and the
Subsidiary Guarantors, at their expense, will provide to each holder of the
Original Notes copies of the prospectus, which is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement has become effective and take certain other actions as are required to
permit unrestricted resales of the Original Notes from time to time. A holder of
Original Notes who sells such Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such holder (including certain indemnification
obligations).
In the event that (i) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to the 30th day after the Closing Date or
declared effective on or prior to the 150th day after the Closing Date, (ii) the
Exchange Offer is not consummated on or prior to the 30th business day following
the date the Exchange Offer Registration Statement is declared effective, (iii)
the Shelf Registration Statement is not filed or declared effective within the
required time periods or (iv) any of the Registration Statements required by the
Registration Rights Agreement is declared effective but thereafter ceases to be
effective (except as specifically permitted therein) for a period of 15
consecutive days without being succeeded immediately by any additional
Registration Statement filed and declared effective (each such event, a
"Registration Default"), then the Company will pay liquidated damages
("Liquidated Damages") to each holder of Original Notes, with respect to the
first 90-day period immediately following the occurrence of such Registration
Default in an amount equal to $.05 per week per $1,000 principal amount of
Original Notes held by such holder. The amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of Original
Notes at the beginning of each subsequent 90-day period, up to a maximum amount
of $.50 per week per $1,000 principal amount of Original Notes. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages will cease.
The exchange of Original Notes for Exchange Notes by holders will not be a
taxable event for federal income tax purposes, and holders should not recognize
any taxable gain or loss or any interest income as a result of such exchange.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
123
<PAGE> 128
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Issuers believe that Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired Original Notes directly from
the Issuers or (iii) broker-dealers who acquired Original Notes as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes; provided that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resales of
such Exchange Notes. To date, the Staff has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to transactions involving an exchange of securities such as the
exchange pursuant to the Exchange Offer (other than a resale of an unsold
allotment from the sale of the Original Notes to the Initial Purchasers) with
the prospectus contained in the Exchange Offer Registration Statement. Pursuant
to the Registration Rights Agreement, the Company has agreed to permit
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use this Prospectus in connection with the
resale of such Exchange Notes. The Issuers have agreed that, for a period not to
exceed 180 days after the Exchange Date, they will make this Prospectus, and any
amendment or supplement to this Prospectus, available to any broker-dealer that
requests such documents in the Letter of Transmittal.
Each holder of the Original Notes who wishes to exchange its Original Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer -- Terms and
Conditions of the Letter of Transmittal." In addition, each holder who is a
broker-dealer and who receives Exchange Notes for its own account in exchange
for Original Notes that were acquired by it as a result of market-making
activities or other trading activities, will be required to acknowledge that it
will deliver a prospectus in connection with any resale by it of such Exchange
Notes.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
124
<PAGE> 129
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes will be passed
upon for PAAC by Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York 10022. Jack H. Nusbaum, a Senior Partner and Chairman
of Willkie Farr & Gallagher, is a director of Pioneer and PAAC and beneficially
owns 13,652 shares of Pioneer's Class A Common Stock.
EXPERTS
The consolidated financial statements and schedule of Pioneer Americas
Acquisition Corp. as of December 31, 1995 and 1996 and for the period from March
6, 1995 through December 31, 1995, included in this Prospectus, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is included herein. The consolidated financial statements and
schedule of Pioneer Americas Acquisition Corp. are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements and schedule of Pioneer Americas,
Inc. (the Predecessor Company) as of December 31, 1994 and for the period from
January 1, 1995 through April 20, 1995 and for the year ended December 31, 1994,
included in this Prospectus, have been audited by Ernst & Young LLP, independent
auditors, as stated in their reports, which are included herein, which are based
in part on the reports of Piercy, Bowler, Taylor & Kern, independent auditors of
Basic Investments, Inc. The consolidated financial statements and schedule of
Pioneer Americas, Inc. (the Predecessor Company) are included in reliance upon
such reports given upon the authority of such firms as experts in accounting and
auditing.
The financial statements of the Tacoma Plant as of December 31, 1996 and
December 31, 1995 and for each of the three years in the period ended December
31, 1996, included in this Prospectus and elsewhere in this Registration
Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their reports, with respect thereto, and/or included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
CHANGE IN INDEPENDENT PUBLIC AUDITORS
Effective October 16, 1995, each of the Subsidiary Guarantors, by action of
its board of directors, engaged Deloitte & Touche LLP as its independent
accountants. Deloitte & Touche LLP has acted as independent accountants of PAAC
since the inception of PAAC and it was determined that, following the
acquisition of the Subsidiary Guarantors by PAAC, Deloitte & Touche LLP should
act as independent accountants of the Subsidiary Guarantors as well.
Ernst & Young LLP had been the independent accountants for PAI prior to
their dismissal, effective October 16, 1995. The reports of Ernst & Young LLP on
the financial statements of PAI for the fiscal years 1993 and 1994 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. In connection
with the audits of the financial statements of PAI for each of the two fiscal
years ended December 31, 1994, and in the subsequent interim period, there were
no disagreements with Ernst & Young LLP on any matters of accounting principles
or practices, financial statement disclosure or auditing scope and procedures
which, if not resolved to the satisfaction of Ernst & Young LLP, would have
caused Ernst & Young LLP to make reference to the matter in their report.
125
<PAGE> 130
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) Pioneer Americas Acquisition Corp. and subsidiary
companies:
Report of Deloitte & Touche LLP, independent
auditors.......................................... F- 2
Report of Ernst & Young LLP, independent
auditors.......................................... F- 3
Report of Piercy, Bowler, Taylor & Kern,
independent public accountants.................... F- 4
Consolidated balance sheets of the Company as of
December 31, 1996 and 1995........................ F- 5
Consolidated statements of operations of the
Company for the year ended December 31, 1996 and
the period from March 6, 1995 ("Inception")
through December 31, 1995 and of the Predecessor
Company for the period from January 1, 1995
through April 20, 1995 and for the year ended
December 31, 1994................................. F- 6
Consolidated statements of stockholders' equity of
the Company for the period from Inception through
December 31, 1995 and for the year ended December
31, 1996 and of the Predecessor Company for the
year ended December 31, 1994 and for the period
from January 1, 1995 through April 20, 1995....... F- 7
Consolidated statements of cash flows of the
Company for the year ended December 31, 1996 and
the period from Inception through December 31,
1995 and of the Predecessor Company for the period
from January 1, 1995 through April 20, 1995 and
for the year ended December 31, 1994.............. F- 8
Notes to consolidated financial statements........ F- 9
Consolidated balance sheets of the Company as of
June 30, 1997 (unaudited) and December 31, 1996... F-25
Unaudited consolidated statements of operations of
the Company for the three months and six months
ended June 30, 1997 and June 30, 1996............. F-26
Unaudited consolidated statements of cash flows of
the Company for the six months ended June 30, 1997
and June 30, 1996................................. F-27
Notes to unaudited consolidated financial
statements........................................ F-28
(2) Tacoma Plant:
Report of Arthur Andersen LLP, independent public
accountants....................................... F-34
Balance sheets for the Tacoma Plant at December
31, 1996 and 1995................................. F-35
Statements of operations and changes in owner's
investment for the Tacoma Plant for the years
ended December 31, 1996, 1995 and 1994............ F-36
Statements of cash flows of the Tacoma Plant for
the years ended December 31, 1996, 1995 and
1994.............................................. F-37
Notes to financial statements..................... F-38
Balance sheets for the Tacoma Plant at June 16,
1997 (unaudited) and December 31, 1996............ F-48
Unaudited statements of operations and changes in
owner's investment for the Tacoma Plant for the
year-to-date periods ended June 16, 1997 and June
30, 1996.......................................... F-49
Unaudited statements of cash flows of the Tacoma
Plant for the year-to-date periods ended June 16,
1997 and June 30, 1996............................ F-50
Notes to unaudited financial statements........... F-51
</TABLE>
F-1
<PAGE> 131
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pioneer Americas Acquisition Corp.
We have audited the accompanying consolidated balance sheets of Pioneer
Americas Acquisition Corp. and its subsidiaries (the "Company"), as of December
31, 1996 and 1995, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the year ended December 31,
1996 and for the period from March 6, 1995 (Inception) through December 31,
1995. Our audit also includes the consolidated financial statement schedule II.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company at December 31, 1996 and 1995, and the results of their operations
and their cash flows for the year ended December 31, 1996 and the period from
Inception through December 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion the related consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects,
the information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
March 7, 1997
F-2
<PAGE> 132
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pioneer Americas, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Pioneer Americas, Inc. (the "Predecessor
Company") for the period from January 1, 1995 through April 20, 1995 and for the
year ended December 31, 1994. Our audits also included the related financial
statement schedule II. These financial statements and schedule are the
responsibility of the Predecessor Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits. The financial statements of certain of the Predecessor Company's
investments (as described in Note 5) have been audited by other auditors whose
report has been furnished to us; insofar as our opinion on the consolidated
financial statements relates to data included for these investments, it is based
solely on their report.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated results of operations and cash flows of the
Predecessor Company for the period from January 1, 1995 through April 20, 1995
and for the year ended December 31, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects, the information set forth
therein.
ERNST & YOUNG LLP
Houston, Texas
June 26, 1995
F-3
<PAGE> 133
INDEPENDENT AUDITORS' REPORT
Board of Directors
Basic Investments, Inc.
Henderson, Nevada
We have audited the combined statements of income, equity and cash flows of
Basic Investments, Inc. and affiliates (the Company) for the year ended December
31, 1994. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of combined operations and cash
flows of Basic Investments, Inc. and affiliates for the year ended December 31,
1994 in conformity with generally accepted accounting principles.
Piercy, Bowler, Taylor & Kern
Certified Public Accountants and
Business Advisors
A Professional Corporation
Las Vegas, Nevada
January 30, 1995
F-4
<PAGE> 134
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 14,417 $ 11,218
Accounts receivable, less allowance for doubtful accounts:
1996, $1,311; 1995, $1,424............................. 18,830 27,825
Due from parent........................................... 2,547 574
Inventories............................................... 6,247 11,347
Prepaid expenses.......................................... 1,156 3,766
-------- --------
Total current assets.............................. 43,197 54,730
Property, plant, and equipment, at cost:
Land................................................... 3,735 1,711
Buildings and improvements............................. 17,062 13,997
Machinery and equipment................................ 71,704 67,587
Cylinders and tanks.................................... 4,540 4,503
Construction in progress............................... 11,871 9,394
-------- --------
108,912 97,192
Less accumulated depreciation.......................... (16,429) (7,795)
-------- --------
92,483 89,397
Investment in and advances to unconsolidated subsidiary..... 28,586 --
Other assets, net of accumulated amortization: 1996, $2,458;
1995, $1,068.............................................. 19,621 11,664
Excess cost over the fair value of net assets acquired, net
of accumulated amortization: 1996, $7,556; 1995, $3,311... 107,123 108,940
-------- --------
Total assets...................................... $291,010 $264,731
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 17,221 $ 20,183
Accrued liabilities....................................... 19,276 20,660
Returnable deposits....................................... 3,238 3,437
Current portion of long-term debt......................... 128 --
-------- --------
Total current liabilities......................... 39,863 44,280
Long-term debt, less current maturities..................... 141,629 135,000
Returnable deposits......................................... 3,272 3,281
Accrued pension and other employee benefits................. 14,100 13,573
Other long-term liabilities................................. 17,823 13,170
Commitments and contingencies (Note 10)
Stockholder's equity:
Common stock, $.01 par value, authorized 1,000 shares,
issued and outstanding 1,000 shares.................... 1 1
Additional paid-in capital................................ 61,124 49,652
Retained earnings......................................... 13,198 5,774
-------- --------
Total stockholder's equity........................ 74,323 55,427
-------- --------
Total liabilities and stockholder's equity........ $291,010 $264,731
======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 135
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------------------
PERIOD FROM PERIOD FROM
INCEPTION JANUARY 1, 1995
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 20, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
Revenues................................ $183,326 $142,908 $57,848 $167,217
Cost of sales........................... 126,739 98,175 37,400 134,556
-------- -------- ------- --------
Gross profit............................ 56,587 44,733 20,448 32,661
Selling, general and administrative
expenses.............................. 23,528 19,836 7,047 22,529
-------- -------- ------- --------
Operating income........................ 33,059 24,897 13,401 10,132
Equity in net loss of unconsolidated
subsidiary............................ (2,607) -- -- --
Interest expense, net................... (17,290) (12,905) (1,665) (6,407)
Settlement of litigation and insurance
claims, net........................... -- -- -- 3,326
Other income (expense), net............. 1,684 637 (115) 1,337
-------- -------- ------- --------
Income before taxes and extraordinary
item.................................. 14,846 12,629 11,621 8,388
Income tax provision.................... 6,735 6,208 4,809 3,242
-------- -------- ------- --------
Income before extraordinary item........ 8,111 6,421 6,812 5,146
Extraordinary item, early extinguishment
of debt (net of income tax benefit of
$2,140)............................... -- -- 3,420 --
-------- -------- ------- --------
Net income.............................. 8,111 6,421 3,392 5,146
Accretion of dividends on preferred
stock and adjustment to redeemable
stock put warrants.................... -- -- -- (1,824)
-------- -------- ------- --------
Net income applicable to common stock... $ 8,111 $ 6,421 $ 3,392 $ 3,322
======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 136
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF
COMMON ADDITIONAL
SHARES COMMON PAID-IN RETAINED
OUTSTANDING STOCK CAPITAL EARNINGS TOTAL
----------- ------ ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Post Acquisition
Balance at Acquisition.................. 1 $ 1 $46,062 $ -- $46,063
Recognition of the NOL benefit........ -- -- 3,590 -- 3,590
Dividend paid to parent............... -- -- -- (647) (647)
Net income............................ -- -- -- 6,421 6,421
----- --- ------- ------- -------
Balance at December 31, 1995............ 1 1 49,652 5,774 55,427
Recognition of the NOL benefit........ -- -- 11,472 -- 11,472
Dividend paid to parent............... -- -- -- (687) (687)
Net income............................ -- -- -- 8,111 8,111
----- --- ------- ------- -------
Balance at December 31, 1996............ 1 $ 1 $61,124 $13,198 $74,323
===== === ======= ======= =======
Predecessor Company
Balance at December 31, 1993............ 1,453 $14 $ 4,028 $15,679 $19,721
Common Stock issuance................. 56 1 158 -- 159
Adjust carrying value of stock
warrants........................... -- -- -- (1,424) (1,424)
Accretion of excess redemption value
of redeemable preferred stock over
carrying value and amount of
dividends not declared or paid..... -- -- -- (500) (500)
Net income............................ -- -- -- 5,146 5,146
----- --- ------- ------- -------
Balance at December 31, 1994............ 1,509 15 4,186 18,901 23,102
Accretion of excess redemption value
of redeemable preferred stock over
carrying value and amount of
dividends not declared or paid..... -- -- -- (124) (124)
Net income............................ -- -- -- 3,392 3,392
----- --- ------- ------- -------
Balance at April 20, 1995............... 1,509 $15 $ 4,186 $22,169 $26,370
===== === ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 137
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
PERIOD FROM -------------------------------
INCEPTION PERIOD FROM
YEAR ENDED THROUGH JANUARY 1, 1995 YEAR ENDED
DECEMBER 31, DECEMBER 31, THROUGH DECEMBER 31,
1996 1995 APRIL 20, 1995 1994
------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................. $ 8,111 $ 6,421 $ 3,392 $ 5,146
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 15,695 12,274 4,490 13,595
Provision for bad debts.............. -- 138 47 1,235
Write-off of previous finance
costs............................. -- -- 1,282 --
Gain on disposal of property, plant
and equipment..................... -- -- 13 (4)
Provision for SAR's.................. -- -- -- 968
Equity in net loss (earnings) of
unconsolidated subsidiaries....... 2,607 -- (204) (183)
Net change in deferred taxes......... 4,339 3,590 (2,086) (1,256)
Net effect of changes in operating
assets and liabilities (net of
acquisitions)..................... 1,701 5,865 (4,323) 2,918
-------- --------- --------- --------
Net cash flows from operating
activities........................... 32,453 28,288 2,611 22,419
-------- --------- --------- --------
INVESTING ACTIVITIES:
Acquisitions of businesses........... (5,459) (152,318) -- --
Investment in and advances to
unconsolidated subsidiaries....... (6,645) -- -- --
Capital expenditures................. (17,121) (13,556) (3,447) (5,681)
Proceeds from sale of property, plant
and equipment..................... -- -- 58 694
-------- --------- --------- --------
Net cash flows from investing
activities........................... (29,225) (165,874) (3,389) (4,987)
-------- --------- --------- --------
FINANCING ACTIVITIES:
Borrowings:
Proceeds.......................... -- 153,500 106,000 83,900
Repayments........................ (70) (27,500) (103,971) (99,961)
Dividends paid to parent............. (687) (416) -- --
Dividends paid on preferred stock and
purchase of stock put warrant..... -- -- (2,341) --
Proceeds from issuance of common
stock............................. -- 21,000 -- 170
-------- --------- --------- --------
Net cash flows from financing
activities........................... (757) 146,584 (312) (15,891)
-------- --------- --------- --------
Net increase (decrease) in cash........ 2,471 8,998 (1,090) 1,541
Cash at beginning of period............ 11,218 -- 3,310 1,769
Cash acquired in acquisition........... 728 2,220 -- --
-------- --------- --------- --------
Cash at end of period.................. $ 14,417 $ 11,218 $ 2,220 $ 3,310
======== ========= ========= ========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 138
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Pioneer Americas Acquisition Corp. (Pioneer) is a Delaware corporation
formed on March 6, 1995 (Inception). Pioneer is 100% owned by Pioneer Companies,
Inc. (PCI).
On April 20, 1995, Pioneer acquired Pioneer Americas, Inc. (Pioneer
Americas or the Predecessor Company) for approximately $177 million (the
Acquisition). Pioneer Americas manufactured chlorine, caustic soda and related
products used in a variety of applications including water treatment, plastics,
detergents, and agricultural chemicals. Consideration for the Acquisition
included cash, assumption of certain liabilities and repayment of debt of the
Predecessor Company, redemption of preferred stock of the Predecessor Company
and fees and expenses related to the Acquisition. In connection with the
Acquisition, PCI sold common stock, issued long-term debt and entered into a new
bank revolving credit facility. The Acquisition was accounted for as a purchase;
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based upon their fair market value and the operations of the
Predecessor Company were included in the consolidated financial statements from
the date acquired. The Acquisition resulted in $112 million of excess cost over
the fair value of the net assets acquired, which is being amortized on a
straight line basis over 25 years.
In February 1996, Pioneer acquired an interest in Kemwater North America
Company (Kemwater) for $0.3 million of cash and a contribution of the assets and
liabilities of its subsidiary Imperial West Chemical Co. (Imperial West).
Kemwater was formed to conduct the operations of Imperial West and KWT, Inc.
(acquired by PCI in February 1996). Kemwater, which manufactures and supplies
iron chlorides that are used to remove solids from water streams and to control
hydrogen sulfide emissions by the potable and waste water markets, is owned 50%
by Pioneer and 50% by PCI. Since it does not own a controlling interest in
Kemwater, Pioneer accounts for Kemwater using the equity method. In the 1996
consolidated financial statements, Pioneer's investment in Kemwater is presented
as Investment in and advances to unconsolidated subsidiary and its equity in the
loss of Kemwater is shown as Equity in net loss of unconsolidated subsidiary. In
the 1995 consolidated financial statements of Pioneer, Imperial West is
consolidated and includes the following: total assets of $25.7 million, total
revenues of $23.7 million and net loss of $0.6 million. Had the acquisition been
made as of January 1, 1996 and 1995, it would not have had a significant impact
on the consolidated financial statements for 1996 and 1995. The acquisition did
not have a material impact on Pioneer s financial statements, and therefore pro
forma information is not presented.
Pioneer acquired T.C. Products in July 1996 for $10.0 million. T.C.
Products manufactures bleach and related products. The acquisitions was
accounted for as a purchase; accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based upon their fair market value
and the operations for the acquired company was included in the consolidated
financial statements from the date acquired. The acquisition resulted in $7.0
million of excess cost over the fair value of the net assets acquired, which is
being amortized on a straight line basis over 25 years. Had the acquisition been
made as of January 1, 1996 and 1995, it would not have had a significant impact
upon the consolidated financial statements for 1996 and 1995. The acquisition
did not have a material impact on Pioneer's financial statements, and therefore
pro forma information is not presented.
The consolidated financial statements include the accounts of Pioneer and
its consolidated subsidiaries (the Company). All significant intercompany
balances and transactions have been eliminated in consolidation. All dollar
amounts in tabulations in the notes to the consolidated financial statements are
stated in thousands of dollars unless otherwise indicated.
Amounts presented in the notes to the consolidated financial statements for
the Predecessor Company are based upon its historical accounting basis for the
periods presented. Such amounts do not include effects of the purchase of the
Predecessor Company by Pioneer. Amounts presented in the notes to the
consolidated financial statements for the Predecessor Company for the period
from January 1, 1995 through April 20, 1995
F-9
<PAGE> 139
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and for the year ended December 31, 1994 are included under the captions
Predecessor Company, 1995 and Predecessor Company, 1994, respectively.
The Company operates in one industry segment and one geographic area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. Interest income is netted
against interest expense for the periods presented. The Company had interest
income for the year ended December 31, 1996 and the period from Inception
through December 31, 1995 of $0.7 million and $0.3 million, respectively. The
Predecessor Company had interest income of $0.1 million for each of the period
from January 1, 1995 through April 20, 1995 and the year ended December 31,
1994.
Inventories
Inventories are valued at the lower of cost or market. Finished goods and
work-in-process costs are calculated under the average cost method, which
includes appropriate elements of material, labor, and manufacturing overhead
costs, while the first-in, first-out method is utilized for raw materials,
supplies, and parts. The Company enters into agreements with other companies to
exchange chemical inventories in order to minimize working capital requirements
and to facilitate distribution logistics. Balances related to quantities due to
or payable by the Company are included in inventory. The results of operations
for the period from Inception through December 31, 1995 include the effects of
an increase of $1.7 million to cost of sales due to the step-up in value of
inventory in connection with the Acquisition.
Property, Plant, and Equipment
Depreciation for financial reporting purposes is computed primarily under
the straight-line method over the estimated remaining useful lives of the
assets. Asset lives range from 5 years to 15 years with a predominant life of 10
years.
Other Assets
Other assets include amounts for deferred financing costs which are being
amortized on a straightline basis over the term of the related debt.
Amortization of such costs using the interest method would not result in
material differences in the amounts amortized during the periods presented.
Amortization expense for other assets for the year ended December 31, 1996 was
$1.3 million and for the period from Inception through December 31, 1995 was
approximately $1.1 million.
Other assets of the Predecessor Company included amounts for organization
costs, deferred financing costs, non-compete agreements, permits, licenses, and
customer lists obtained in conjunction with the acquisitions of All-Pure
Chemical Co. ("All-Pure"), GPS Pool Supply, Inc. ("GPS") and Imperial West,
which were being amortized on a straight-line basis over their estimated useful
lives. The Predecessor Company's deferred financing costs were being amortized
on a straight-line basis over the term of the related debt. Amortization of such
costs using the interest method would not result in material differences in the
amounts amortized during the periods presented. Amortization expense for other
assets was approximately $0.8 million for the period from January 1, 1995
through April 20, 1995 and $1.7 million for the year ending December 31, 1994.
F-10
<PAGE> 140
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Excess Cost Over the Fair Value of Net Assets Acquired
Excess cost over the fair value of net assets acquired of approximately
$115 million is amortized on a straight-line basis over periods of up to 25
years. The carrying value of excess cost over the fair value of net assets
acquired is reviewed annually and if this review indicates that such excess cost
will not be recoverable, as determined based on the estimated future
undiscounted cash flows of the entity acquired over the remaining amortization
period, the Company's carrying value of excess cost over the fair value of net
assets acquired will be reduced by the estimated shortfall of discounted cash
flows or the fair value of the related entity. No such reductions were made in
1996 or 1995. Amortization expense for excess cost over the fair value of net
assets acquired was approximately $4.7 million for the year ended December 31,
1996 and $3.3 million for the period from Inception through December 31, 1995.
The Predecessor Company's excess cost over the fair value of net assets
acquired of approximately $12.8 million and is amortized on a straight-line
basis over 20 years. Amortization expense was approximately $0.2 million for the
period from January 1, 1995 through April 20, 1995 and $0.6 million for 1994.
Environmental Expenditures
Remediation costs are accrued based on estimates of known environmental
remediation exposure. Such accruals are based upon management's best estimate of
the ultimate cost and are recorded even if significant uncertainties exist over
the ultimate cost of the remediation. Ongoing environmental compliance cost,
including maintenance and monitoring costs, are charged to operations as
incurred.
Returnable Deposits
Customers are required to pay a security deposit on cylinders, tanks, and
containers. These deposits are refunded to the customer upon the termination of
service and return of cylinders, tanks, and containers.
Income Taxes
The Company files a consolidated tax return with PCI. Pioneer has entered
into a tax sharing agreement with PCI whereby the Company will make tax sharing
payments to PCI with respect to federal cash income taxes reflecting the
consolidated cash tax liability of PCI. The tax sharing agreement has the effect
of presenting the income tax provision on a separate return basis. For financial
reporting purposes, deferred income taxes are determined utilizing an asset and
liability approach. This method gives consideration to the future tax
consequences associated with differences between the financial accounting basis
and tax basis of the assets and liabilities, and the ultimate realization of any
deferred tax asset resulting from such differences. State income taxes are
included in income taxes payable.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets
During 1996, the Company adopted a new accounting standard for the
impairment of long-lived assets. This standard requires that certain assets be
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of the assets may not be recovered. If it is determined that the
asset's carrying amount is not recoverable, the new accounting standard requires
that the carrying value be reduced to
F-11
<PAGE> 141
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the fair value of the assets. Implementation of this standard did not have a
significant impact on the Company's 1996 consolidated financial statements.
Reclassification
Certain amounts have been reclassified in prior years to conform to the
current year presentation. All reclassifications have been applied consistently
for the periods presented.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Net effect of changes in operating assets and liabilities (net of
acquisitions) are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------
1996 1995 1995 1994
------- ------- -------- --------
<S> <C> <C> <C> <C>
Accounts receivable............................ $ 5,228 $ 802 $(3,617) $(4,889)
Due from parent................................ (1,973) 111 -- 535
Receivable from insurance carriers and
agents....................................... -- -- -- (102)
Income taxes receivable........................ -- -- -- 2,738
Inventories.................................... 3,151 1,541 (638) (876)
Prepaid expenses............................... 76 (1,404) 722 (371)
Other assets................................... (1,254) (3,104) (1,342) (305)
Accounts payable............................... (4,168) (1,030) 4,899 862
Accrued liabilities............................ (4,457) 8,777 (3,784) 3,783
Returnable deposits............................ (199) (234) (259) (323)
Other long-term liabilities.................... 4,770 (71) (726) 1,079
Accrued pension and other employee benefits.... 527 477 422 787
------- ------- ------- -------
Net change in operating accounts............... $ 1,701 $ 5,865 $(4,323) $ 2,918
======= ======= ======= =======
</TABLE>
Following is supplemental cash information:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
---------------
1996 1995 1995 1994
------- -------- ------ ------
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest...................................... $18,297 $ 8,288 $3,067 $4,482
------- -------- ------ ------
Income taxes.................................. $ 3,556 $ 1,707 $1,852 $3,730
======= ======== ====== ======
Investing activities of acquisitions during the
period:
Cash paid for acquisition..................... $ 5,459 $152,318 $ -- $ 238
Long-term debt issued......................... 4,500 11,463 -- 3,254
Liabilities assumed........................... 3,994 90,596 -- --
NOL benefit recognized........................ -- 13,600 -- --
------- -------- ------ ------
Fair value of assets acquired................. $13,953 $267,977 $ -- $3,492
======= ======== ====== ======
</TABLE>
Included in the above table are the acquisitions of T.C. Products in 1996;
Pioneer Americas, Inc. in 1995; and GPS in 1994 by the Predecessor Company.
Other non-cash items included in the consolidated financial statements
include: increase in stockholders' equity of $11.5 million and $3.6 million in
1996 and 1995, respectively, due to recognizing the benefit of the net operating
loss carryforward; and exchange of $135 million of 13 3/8% First Mortgage Notes
for $135 million of 13 3/8% First Mortgage Notes in 1996.
F-12
<PAGE> 142
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Raw materials, supplies and parts........................... $ 7,512 $ 9,849
Finished goods and work-in-process.......................... 2,668 3,155
Inventories under exchange agreements....................... (3,933) (1,657)
------- -------
$ 6,247 $11,347
======= =======
</TABLE>
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES
Kemwater
Pioneer and PCI each own a 50% interest in Kemwater which was formed in
February 1996 to continue the business activities previously conducted by
Pioneer's subsidiary, Imperial West and to operate the business acquired by PCI
through the acquisition of KWT, Inc. At December 31, 1996, Pioneer's investment
in and advances to Kemwater aggregated $28.6 million. Advances to Kemwater are
primarily for purchase of product and to fund Kemwater's current operations and
capital requirements. Pioneer and PCI have funded, and intend to continue
funding in the foreseeable future, Kemwater's operations and capital
requirements; accordingly, Pioneer has reduced its investment at December 31,
1996 to a deficit of $0.3 million. Following is a summary of selected items from
Kemwater's balance sheet at December 31, 1996 and operations for the year ended
December 31, 1996 (in thousands):
<TABLE>
<S> <C>
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)
</TABLE>
BII and VVLC
The Company, through its subsidiary Pioneer Chlor Alkali Company, Inc.
("PCAC"), owns approximately 32% of the common stock of Basic Investments, Inc.
( BII ), which owns and maintains the water and power distribution network
within the Henderson, Nevada industrial complex and which is a large landowner
in Clark County, Nevada. The remainder of the common stock of BII is owned by
other companies located in the industrial complex. Prior to the Acquisition, the
investment in BII was accounted for by the Predecessor Company under the equity
method after adjustment to reflect PCAC's basis.
PCAC has an approximate 21% limited partnership interest in Victory Valley
Land Company ("VVLC"). The purpose of the business is to receive, hold and
develop the lands, water rights, and other assets contributed by the partners
for investment. A wholly owned subsidiary of BII, acting as general partner with
a 50% interest in VVLC, contributed all rights, title, and interest in and to
certain land to VVLC. PCAC assigned certain water rights to VVLC. Prior to the
Acquisition, the investment in VVLC was accounted for by the Predecessor Company
under the equity method.
The Company's interests in BII and in VVLC (referred to as the Basic
Ownership) constitute assets that, pursuant to the Acquisition Agreement and a
related Contingent Payment Agreement, will be held for the economic benefit of
the Sellers for a period of 20 years. Dividends and distributions received by
the Company on account of the Basic Ownership (including amounts payable as a
result of sales of land or other assets
F-13
<PAGE> 143
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
owned by BII or VVLC) are deposited into a Contingent Payment Account and used
to satisfy certain obligations of the Sellers under environmental and other
indemnities in favor of the Company. After payment or provision for payment of
such obligations in accordance with the provisions of the Contingent Payment
Agreement, amounts received by the Company subsequent to April 20, 1995 on
account of the Basic Ownership will be remitted to the Sellers under the
Contingent Payment Agreement for such 20-year period. The Sellers also have
certain rights during such period with respect to determinations affecting the
Basic Ownership, including the right (subject to certain limited conditions) to
direct the sales or disposition of interests constituting the Basic Ownership
and the right (with certain limited exceptions) to vote the interests
constituting the Basic Ownership, notwithstanding the ownership of such
interests by the Company. Since the Sellers maintain the economic benefit of the
Basic Ownership, and the Company has not received, nor expects to receive in the
future, any economic benefit from BII or VVLC, the Company has not maintained
these balances in its consolidated financial statements since the Acquisition.
The BII financial information includes the accounts of VVLC. The following
is a summary of financial information pertaining to BII and VVLC for the
Predecessor Company for the year ended December 31, 1994:
<TABLE>
<S> <C>
Revenues.................................................... $5,659
Costs and expenses.......................................... 4,834
------
Income before taxes......................................... 825
Income tax expenses......................................... (274)
------
Net income........................................ $ 551
======
Equity in earnings (included in other income)..... $ 183
======
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Payroll, benefits, and pension.............................. $ 2,371 $ 5,371
Interest and bank fees...................................... 4,595 4,941
Future tax effects.......................................... 2,237 2,293
Miscellaneous accrued liabilities........................... 10,073 8,055
------- -------
Accrued liabilities....................................... $19,276 $20,660
======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Rate of return of plan assets............................... 8.0% 8.0% 8.0%
Discount rate............................................... 7.5% 7.5% 7.5%
Annual compensation increase................................ 4.0% 4.0% 5.0%
</TABLE>
F-14
<PAGE> 144
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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 EARNED ACCUMULATED BENEFITS EARNED
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-contribution plans for its employees with the
employees generally contributing from 1% to 15% of their compensation. Aggregate
contributions by the Company to such plans were $0.4 million and $0.2 million in
1996 and 1995, respectively. Aggregate contributions by the Predecessor Company
for such plans were $0.1 million for the period from January 1, 1995 through
April 20, 1995 and none for 1994.
F-15
<PAGE> 145
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to providing pension benefits, PCAC provides certain health
care and life insurance benefits for retired employees. Substantially all of
PCAC's employees may become eligible for those benefits if they reach normal
retirement age while working for the Company. The following table presents the
plan's funded status reconciled with amounts recognized in the Company's balance
sheet at December 31:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
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
======= ======
</TABLE>
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. 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
F-16
<PAGE> 146
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $2.9 million, the unused availability of the Borrowing Base was
approximately $15.7 million at December 31, 1996.
The Bank Credit Facility contains restrictive covenants that, among other
things and under certain conditions, limit the ability of the Company to incur
additional indebtedness, to acquire or dispose of assets or operations and to
pay dividends or redeem shares of stock.
9. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
13 3/8% First Mortgage Notes, due
2005.................................. $135,000 $135,000
Subordinated notes payable to sellers of
T.C. Products, principal payments due
July 31, 2001, with a variable
interest rate based on a bank's prime
rate plus 1%, interest is paid
monthly............................... 4,500 --
Tax-exempt bond financed through the
Economic Development Corporation of
Pierce County, Washington, principal
payments due in variable annual
installments through 2014, with a
variable interest rate based on
current market values of comparable
securities, interest is paid
monthly............................... 2,257 --
-------- --------
Total................................... 141,757 135,000
Current maturities of long-term debt.... (128) --
-------- --------
Long-term debt.......................... $141,629 $135,000
======== ========
</TABLE>
Long-term debt matures as follows: $0.1 million in 1997; $0.1 million in
1998; $0.1 million in 1999; $0.1 million in 2000; $4.6 million in 2001; and
$136.6 million thereafter.
As part of the Acquisition in April 1995, the Company issued and sold $135
million of 13 3/8% Senior Notes due in 2005. In January 1996, the Company
exchanged, as part of a public offering, the $135 million of Notes for $135
Million of 13 3/8% First Mortgage Notes due in 2005. Like the Senior Notes, the
Mortgage Notes are senior secured obligations of the Company, ranking senior in
right of payment to all subordinated indebtedness. The Mortgage Notes are fully
and unconditionally guaranteed on a joint and several basis by all of the
Company's direct and indirect wholly-owned subsidiaries and are secured by the
first mortgage liens on certain manufacturing facilities. The Company is a
holding company with no operating assets or operations. Financial statements of
the Company's direct and indirect wholly-owned subsidiaries are not separately
included as the Company's management does not believe this information would be
material to investors.
The Mortgage Notes are redeemable at the Company's option starting in 2000.
Before 1998, the Company may redeem a maximum of $35 million of the Mortgage
Notes at 113% of the principal amount due with funds from a public offering of
common stock of the Company or PCI (to the extent such funds are contributed to
the Company). Upon a change of control, as defined in the agreement, the Company
is required to offer to purchase the Mortgage Notes for 101% of the principal
due.
The Mortgage Notes and other long-term debt contain various restrictions on
the Company, which, among other things, limit the ability of the Company to
incur additional indebtedness, to acquire or dispose of assets or operations and
to pay dividends or redeem shares of stock.
F-17
<PAGE> 147
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. FINANCIAL INSTRUMENTS
Concentration of Credit Risk
The Company manufactures and sells chlorine and caustic-based products to
companies in diverse industries. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. The Company's sales are primarily to customers in the western and
southeastern regions of the United States. Credit losses relating to these
customers have been within management's expectations.
The Company maintains cash deposits with major banks, which from time to
time may exceed federally insured limits. The Company periodically assesses the
financial condition of the institutions and believes that any possible loss is
minimal.
Net sales of the Company included sales to a major customer of
approximately $23.5 million for the year ended December 31, 1996. Net sales of
the Predecessor Company included sales to a major customer of approximately $7.5
million for the period from January 1, 1995 through April 20, 1995 and $18.7
million in 1994.
Investments
It is the policy of the Company to invest its excess cash in investment
instruments or securities whose value is not subject to market fluctuations such
as master notes of issuers rated at the time of such investment of at least A-2
or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by
Moody's or any bank or financial institution party to the Company's Bank Credit
Facility with Bank of America.
Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments, the
Company has assumed that the carrying amount approximates fair value for cash
and cash equivalents, receivables, short-term borrowings, accounts payable and
certain accrued expenses because of the short maturities of those instruments.
The fair values of long-term debt instruments are estimated based upon quoted
market values (if applicable), or on the current interest rates available to the
Company for debt with similar terms and remaining maturities. Considerable
judgment is required in developing these estimates and, accordingly, no
assurance can be given that the estimated values presented herein are indicative
of the amounts that would be realized in a free market exchange. The Company
held no derivative financial instruments as of December 31, 1996 and 1995.
At December 31, 1996, the fair market value of all of the Company's
financial instruments approximated the book value, except its 13 3/8% First
Mortgage Notes Due 2005, which had a book value of $135 million and a fair value
based upon its current quoted market price of $153 million.
11. COMMITMENTS AND CONTINGENCIES
Letters of Credit
At December 31, 1996 the Company had letters of credit and performance
bonds outstanding of approximately $5.2 million and $2.5 million, respectively.
These letters of credit and performance bonds were issued for the benefit of:
customers under sales agreements securing delivery of products sold, a power
company as a deposit for the supply of electricity, and a state environmental
agency as required for manufacturers in the state. The letters of credit expire
at various dates in 1997 and 1998. No amounts were drawn on the letters of
credit at December 31, 1996.
F-18
<PAGE> 148
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Purchase Commitments
The Company has committed to purchase salt used in the production process
under contracts which continue through December 31, 2003. Based on the contract
terms, a minimum of 563,111 tons of salt are to be purchased in 1997, 280,000
tons in 1998 and 225,000 tons in each of the years 1999 through 2003. The future
minimum salt commitments are as follows (in thousands):
<TABLE>
<S> <C>
1997....................................................... $ 4,402
1998....................................................... 2,480
1999....................................................... 1,903
2000....................................................... 1,960
2001....................................................... 2,019
Thereafter................................................. 4,221
-------
Total purchase commitments....................... $16,985
=======
</TABLE>
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):
<TABLE>
<S> <C>
1997.................................... $ 8,318
1998.................................... 7,960
1999.................................... 7,916
2000.................................... 6,267
2001.................................... 5,786
Thereafter.............................. 4,685
-------
Total minimum obligations..... $40,932
=======
</TABLE>
Lease expense charged to operations for the year ended December 31, 1996
and for the period from Inception through December 31, 1995 was approximately
$7.8 million and $6.3 million, respectively. Lease expense charged to the
Predecessor Company's operations for the period from January 1, 1995 through
April 20, 1995 and the year ended December 31, 1994 was approximately $3.3
million and $8.4 million, respectively.
Litigation
During 1993, Imperial West was awarded $1.4 million as the result of a
breach of contract claim it had asserted against the lessor of one of the
Imperial West plants. Appeals of the judgment were upheld and the award together
with interest was paid in January 1996. The consolidated financial statements at
December 31, 1995 included a receivable for the award. The lessor also filed
suit alleging that Imperial West was required to remediate alleged contamination
prior to the termination of the lease in July 1995. The parties settled that
action under terms pursuant to which (i) Imperial West paid the lessor $900,000
upon the termination of the lease in July 1995, and (ii) the lessor transferred
title to the property to Imperial West. In addition, Imperial West agreed to
indemnify the lessor against any future environmental liability with respect to
the property. Certain insurers paid a portion of Imperial West's defense costs
in connection with the lawsuit by the lessor.
In 1994, the trustee in the bankruptcy of a company which was a customer of
the Predecessor Company filed suit against the Predecessor Company, seeking the
recovery of up to $2.2 million in payments made to the Predecessor Company on a
basis which the trustee alleges was preferential to other creditors' claims.
F-19
<PAGE> 149
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management has been advised by counsel that the range of any loss which may be
incurred as the result of the suit will be substantially below the amount
claimed, and the Company is vigorously contesting the action. The Company does
not believe this action will have a significant effect on its financial position
or results of operations.
The Company is party to other legal proceedings and potential claims
arising in the ordinary course of its business. In the opinion of management,
the Company has adequate legal defenses and/or insurance coverage with respect
to these matters and management does not believe that they will materially
affect the Company's operations or financial position.
12. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax liabilities and assets are as follows at December 31:
<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
carryforward....................... 671 --
Allowance for doubtful accounts....... 511 569
Other accrued liabilities............. 6,165 6,530
Net operating loss carry forward of
PCI................................ 14,391 22,091
------- --------
Total deferred tax assets..... 27,290 34,981
Valuation allowance for deferred tax
assets................................ -- (11,433)
------- --------
Net deferred tax assets................. 27,290 23,498
------- --------
Net deferred taxes...................... $ 6,885 $ --
======= ========
</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............................... $ 614 $ 799 $ 5,938 $ 3,930
State................................. 1,528 1,830 957 568
------ ------ ------- -------
Total current................. 2,142 2,629 6,895 4,498
------ ------ ------- -------
Deferred:
Federal............................... 5,032 4,180 (1,816) (1,010)
State................................. (439) (601) (270) (246)
------ ------ ------- -------
Total current................. 4,593 3,579 (2,086) (1,256)
------ ------ ------- -------
Total income tax provision.... $6,735 $6,208 $ 4,809 $ 3,242
====== ====== ======= =======
</TABLE>
F-20
<PAGE> 150
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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............. $4,390 35% $4,420 35% $4,068 35% $2,936 35%
State income taxes, net of federal tax
benefits.............................. 708 6 799 6 407 3 321 4
Amortization of excess cost over the
fair value of net assets acquired..... 1,591 14 1,159 9 69 1 221 2
Adjustment of previously provided
taxes................................. -- -- -- -- -- -- (285) (3)
Other, net.............................. 46 -- (170) (1) 265 2 49 1
------ -- ------ -- ------ -- ------ --
$6,735 55% $6,208 49% $4,809 41% $3,242 39%
====== == ====== == ====== == ====== ==
</TABLE>
At December 31, 1996, PCI had available to it on a consolidated tax return
basis approximately $35.6 million of net operating loss carryforward ("NOL") for
income tax purposes (expiring 2003 to 2010). The NOL is available for offset
against future taxable income if generated during the carryforward period. A tax
sharing agreement provides that the Company will be liable to PCI for its
separate tax liability only to the extent the consolidated group has a tax
liability. However as long as PCI's NOL is available to the consolidated group
to reduce taxable income, the Company's tax liability to PCI will be
substantially reduced. As a result of the tax sharing agreement, the NOL is
reflected by the Company for financial reporting purposes.
For the year ended December 31, 1996 and the period from Inception through
December 31, 1995, the benefit of the utilization of the NOL of $11.5 million
and $3.6 million, respectively was recognized as an increase to additional
paid-in capital. Approximately $13.6 million was recognized as an increase to
additional paid-in capital as part of the purchase price allocation of the
Acquisition.
13. OTHER LONG-TERM LIABILITIES -- ENVIRONMENTAL
The Company's operations are subject to extensive environmental laws and
regulations related to protection of the environment, including those applicable
to waste management, discharge of pollutants into the air and water, clean-up
liability from historical waste disposal practices, and employee health and
safety. At several of the Company's facilities, investigations or remediations
are underway and at some of these locations regulatory agencies are considering
whether additional actions are necessary to protect or remediate surface or
groundwater resources, and the Company could be required to incur additional
costs to construct and operate remediation systems in the future. In addition,
at several of its facilities, the Company is in the process of replacing or
closing ponds for the collection of wastewater. The Company plans to spend
approximately $1.3 million during the next fifteen years for closure of eight
chlor-alkali waste water disposal ponds at the Henderson plant. The Company
believes that it is in substantial compliance with existing governmental
regulations.
PCAC's Henderson plant is located within what is known as the "Basic
Complex." Soil and groundwater contamination have been identified within and
adjoining the Basic Complex, including land owned by PCAC. A groundwater
treatment system was installed at the facility in 1983 and, pursuant to a
Consent Agreement with the Nevada Division of Environmental Protection, a study
is being conducted to further evaluate soil and groundwater contamination at the
facility and other properties within the Basic Complex and to determine whether
additional remediation will be necessary with respect to PCAC's property.
In connection with the October 1988 acquisition of the chlor-alkali
business by the Predecessor Company, ICI Delaware Holdings, Inc. and ICI
Americas, Inc. (such companies or their successors, the "ZENECA Companies")
agreed to indemnify the Predecessor Company for certain environmental
liabilities
F-21
<PAGE> 151
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(the "ZENECA Indemnity"), including liabilities associated with operations at
the Company's plant located in Henderson, Nevada (the "Henderson Plant"). In
general, the ZENECA Companies agreed to indemnify the Predecessor Company from
environmental costs which arise from or relate to pre-closing actions which
involved disposal, discharge, or release of materials resulting from
non-chlor-alkali manufacturing operations at the Henderson Plant and at other
properties within the same industrial complex. Payments under the indemnity
cannot exceed approximately $65 million.
Due to the change in ownership resulting from the Acquisition, the ZENECA
Indemnity will terminate on April 20, 1999. The ZENECA Indemnity will continue
to cover claims after the expiration of the term of the indemnity provided that,
prior to the expiration of the indemnity, proper notice to the ZENECA Companies
is given and the Company has taken certain other actions. The Company believes
that the ZENECA Companies will continue to honor their obligations under the
ZENECA Indemnity for claims properly presented by the Company. It is possible,
however, that disputes could arise between the parties and that the Company
would have to subject its claims for clean-up expenses, which could be
substantial, to the contractually established arbitration process. In the
opinion of management, any environmental liability in excess of the amount
indemnified and accrued on the consolidated balance sheet, if any, would not
have a material adverse effect on the consolidated financial statements.
In the Acquisition Agreement, the Sellers agreed to indemnify the Company
for certain environmental liabilities that result from certain discharges of
hazardous materials, or violations of environmental laws, arising prior to April
20, 1995 (the "Closing Date") from or relating to the Pioneer plant sites or
arising before or after the Closing Date with respect to certain environmental
liabilities relating to certain properties held for the benefit of the Sellers
("Sellers' Indemnity"). Amounts payable pursuant to the Sellers' Indemnity will
generally be payable as follows: (i) out of certain reserves established on the
Predecessor Company s balance sheet at December 31, 1994; (ii) either by offset
against the amounts payable under the Seller Notes or from amounts held pursuant
to the Contingent Payment Agreement, and (iii) in certain circumstances and
subject to specified limitations, out of the personal assets of the Sellers.
Subject to certain exceptions and limitations set forth in the Acquisition
Agreement, a claim notice with respect to amounts payable pursuant to the
Sellers' Indemnity must generally be given within 15 years of the Closing Date.
PCI is required to reimburse the Sellers for amounts paid under the Sellers'
Indemnity with amounts recovered under the ZENECA Indemnity or from other third
parties. PCI and the Sellers have agreed that they will cooperate in matters
relating to the ZENECA Indemnity.
Remediation costs are accrued based on estimates of known environmental
remediation exposure. Such accruals are based upon management's best estimate of
the ultimate cost and are recorded even if significant uncertainties exist over
the ultimate cost of the remediation. Ongoing environmental compliance cost,
including maintenance and monitoring costs, are charge to operations as
incurred. The liabilities are based upon all available facts, existing
technology, past experience and cost-sharing arrangements, including the
viability of other parties. Charges made against income for recurring
environmental matters, included in "cost of sales" on the statements of
operations, totaled approximately $1.7 million and $1.2 million for the year
ended December 31, 1996 and for the period from Inception through December 31,
1995, respectively, and $0.4 million and $1.8 million for the Predecessor
Company for the period from January 1, 1995 through April 20, 1995 and the year
ended December 31, 1994, respectively. Capital expenditures for
environmental-related matters at existing facilities were approximately $4.3
million and $2.2 million for the year ended December 31, 1996 and for the period
from Inception through December 31, 1995, respectively, and $0.2 million and
$0.5 million for the Predecessor Company for the period from January 1, 1995
through April 20, 1995 and the year ended December 31, 1994, respectively.
Future environmental-related capital expenditures will depend upon regulatory
requirements, as well as timing related to obtaining necessary permits and
approvals.
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
F-22
<PAGE> 152
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
restoration and remediation, the extent to which such costs are recoverable from
third parties, and the extent to which environmental laws and regulations may
change in the future. The Predecessor Company established a reserve of
approximately $9.0 million at the time of its acquisition of its Henderson,
Nevada and St. Gabriel, Louisiana facilities with respect to potential
remediation costs relating to matters not covered by the ZENECA Indemnity,
consisting primarily of remediation costs that may be incurred by the Company
for chlor-alkali-related remediation of the Henderson and St. Gabriel
facilities. The recorded accrual included certain amounts related to anticipated
closure and post-closure actions that may be required in the event that
operation of the present chlor-alkali plants ceases. Such accrual is recorded in
the Company's consolidated balance sheets at December 31, 1996 and 1995.
However, complete analysis and study has not been completed and therefore
additional future charges may be recorded at the time a decision for closure is
made.
In 1994, the Predecessor Company recorded an additional $3.2 million
environmental reserve related to pre-closing actions at sites that are the
responsibility of the ZENECA Companies. Such accrual is reflected in the
Company's consolidated balance sheets at December 31, 1996 and 1995. Other
assets include an account receivable of the same amount from the ZENECA
Companies. The Company believes it will be reimbursed by the ZENECA Companies
for substantially all of such costs that are incurred at the Henderson Plant and
other properties within the same industrial complex. Additionally, certain other
environmental matters exist which have been assumed directly by the ZENECA
Companies. No assurance can be given that actual costs will not exceed accrued
amounts or the amounts currently estimated. The imposition of more stringent
standards or requirements under environmental laws or regulations, new
developments or changes respecting site cleanup costs, or a determination that
the Company is potentially responsible for the release of hazardous substances
at other sites could result in expenditures in excess of amounts currently
estimated by the Company to be required for such matters. Further, there can be
no assurance that additional environmental matters will not arise in the future.
14. RELATED PARTY TRANSACTIONS
The Company has a 15% partnership interest in Saguaro Power Company
("Saguaro"), which owns a cogeneration plant located in Henderson, Nevada. The
Company's interest in Saguaro is accounted for using the cost method of
accounting. The Company sells certain products and services to and purchases
steam from Saguaro at market prices. Transactions with Saguaro are as follows:
<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 terms and are generally not significant to the Company's
consolidated balance sheet.
The Company is a party to an agreement negotiated on an arms-length basis
with BII for the delivery of the Company's water to the Henderson production
facility. The agreement provides for the delivery of a minimum of eight million
gallons of water per day. The agreement expires on December 31, 2014, unless
terminated earlier in accordance with the provisions of the agreement. For the
year ended December 31, 1996 and the period from Inception through December 31,
1995, BII charged expenses to the Company of approximately $0.2 million and $0.2
million, respectively. For the period from January 1, 1995 through April 20,
1995 and the year ended December 31, 1994, BII charged expenses to the
Predecessor Company of approximately $0.2 million and $0.5 million,
respectively.
F-23
<PAGE> 153
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company sells certain products to Kemwater at market prices. Sales to
Kemwater totaled $8.8 million during the year ended December 31, 1996. Kemwater
provides transportation services to the Company at market prices which totaled
$1.8 million for 1996.
F-24
<PAGE> 154
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 34,676 $ 14,417
Accounts receivable, less allowance for doubtful accounts
of $1,411 at June 30, 1997 and $1,311 at December 31,
1996................................................... 23,798 18,830
Due from parent........................................... 685 2,547
Inventories............................................... 14,645 6,247
Prepaid expenses.......................................... 349 1,156
-------- --------
Total current assets........................................ 74,153 43,197
Property, plant and equipment:
Land...................................................... 4,885 3,735
Buildings and improvements................................ 26,488 17,062
Machinery and equipment................................... 134,154 71,704
Cylinders and tanks....................................... 4,541 4,540
Construction in progress.................................. 22,471 11,871
-------- --------
192,539 108,912
Less accumulated depreciation............................. (21,924) (16,429)
-------- --------
170,615 92,483
Investment in and advances to unconsolidated subsidiary..... 29,395 28,586
Other assets, net of accumulated amortization of $1,809 at
June 30, 1997 and $2,458 at December 31, 1996............. 39,836 19,621
Excess cost over fair value of net assets acquired, net of
accumulated amortization of $10,009 at June 30, 1997 and
$7,556 at December 31, 1996............................... 125,080 107,123
-------- --------
Total assets................................................ $439,079 $291,010
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 16,718 $ 17,221
Accrued liabilities....................................... 15,451 19,276
Returnable deposits....................................... 3,415 3,238
Current portion of long-term debt......................... 1,163 128
-------- --------
Total current liabilities................................... 36,747 39,863
Long-term debt, less current maturities..................... 305,620 141,629
Returnable deposits......................................... 3,272 3,272
Accrued pension and other employee benefits................. 17,992 14,100
Other long-term liabilities................................. 18,081 17,823
Commitments and contingencies...............................
Stockholder's equity:
Common stock, $.01 par value, authorized 1,000 shares,
issued and outstanding 1,000 shares.................... 1 1
Additional paid-in capital................................ 66,624 61,124
Retained earnings (deficit)............................... (9,258) 13,198
-------- --------
Total stockholders' equity.................................. 57,367 74,323
-------- --------
Total liabilities and stockholders' equity.................. $439,079 $291,010
======== ========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 155
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues.......................................... $ 46,088 $47,671 $ 84,831 $91,963
Cost of sales..................................... 36,656 33,546 65,659 64,343
-------- ------- -------- -------
Gross profit...................................... 9,432 14,125 19,172 27,620
Selling, general and administrative expense....... 6,111 6,285 12,281 12,375
-------- ------- -------- -------
Operating income.................................. 3,321 7,840 6,891 15,245
Equity in net loss of unconsolidated subsidiary... (719) (112) (1,774) (223)
Interest expense, net............................. 4,980 4,405 9,438 8,349
Other income, net................................. 206 15 437 104
-------- ------- -------- -------
Income (loss) before taxes and extraordinary
item............................................ (2,172) 3,338 (3,884) 6,777
Income tax provision (benefit).................... (489) 1,859 (311) 3,887
-------- ------- -------- -------
Income (loss) before extraordinary item........... (1,683) 1,479 (3,573) 2,890
Extraordinary loss from early extinguishment of
debt (net of income tax benefit of $12,439)..... 18,658 -- 18,658 --
-------- ------- -------- -------
Net income (loss)................................. $(20,341) $ 1,479 $(22,231) $ 2,890
======== ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE> 156
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
--------- -------
<S> <C> <C>
Operating activities:
Net income (loss)......................................... $ (22,231) $ 2,890
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item (net of tax)........................ 18,658 --
Depreciation and amortization.......................... 8,553 8,284
Equity in net loss of unconsolidated subsidiaries...... 1,774 223
Net change in deferred taxes........................... (851) 1,425
Net effect of changes in operating assets and
liabilities (net of acquisitions) (Note 2)............ (7,078) (5,174)
--------- -------
Net cash flows from (used in) operating activities.......... (1,175) 7,648
--------- -------
Investing activities:
Acquisition of businesses................................. (97,000) --
Investment in and advances to unconsolidated subsidiary... (809) (2,208)
Capital expenditures...................................... (5,278) (8,505)
--------- -------
Net cash flows used in investing activities................. (103,087) (10,713)
--------- -------
Financing activities:
Payments on long-term debt................................ (162,092) --
Proceeds from long-term debt.............................. 300,000 --
Debt issuance and related costs........................... (13,387) --
--------- -------
Net cash flows from financing activities.................... 124,521 --
--------- -------
Net increase (decrease) in cash............................. 20,259 (3,065)
--------- -------
Cash acquired in purchase................................... -- 505
Cash at beginning of period................................. 14,417 11,218
--------- -------
Cash at end of period....................................... $ 34,676 $ 8,658
========= =======
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE> 157
PIONEER AMERICAS ACQUISITION CORP., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated balance sheet as of June 30, 1997 and the statements of
operations and cash flows for all periods presented are unaudited and reflect
all adjustments, consisting of normal recurring items, which management
considers necessary for a fair presentation. Operating results for the first six
months of 1997 are not necessarily indicative of results to be expected for the
year ending December 31, 1997. The consolidated financial statements include the
accounts of Pioneer Americas Acquisition Corp. and its consolidated subsidiaries
(collectively referred to as the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation. All dollar
amounts in the tabulations in the notes to the financial statements are stated
in thousands of dollars unless otherwise indicated.
The consolidated balance sheet at December 31, 1996 is derived from the
December 31, 1996 audited consolidated financial statements, but does not
include all disclosures required by generally accepted accounting principles,
since certain information and disclosures normally included in the notes to the
financial statements have been condensed or omitted as permitted by the rules
and regulations of the Securities and Exchange Commission. The accompanying
unaudited financial statements should be read in conjunction with the financial
statements contained in the Annual Report on Form 10-K for the year ended
December 31, 1996.
ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," (SFAS No. 130) and Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information," (SFAS No.
131). SFAS No. 130 and SFAS No. 131 are effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 establishes standards for reporting and
displaying of comprehensive income and its components. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in interim and annual financial statements. These two
statements have no effect on the Company's 1997 financial statements, but
management is currently evaluating what, if any, additional disclosures may be
required when these two statements are adopted for periods beginning with the
first quarter of the year ending December 31, 1998.
ACQUISITION
On June 17, 1997, Pioneer Companies, Inc. ("PCI") and the Company
consummated the acquisition of a chlor-alkali production facility and related
business located in Tacoma, Washington (the "Tacoma Acquisition") from OCC
Tacoma, Inc. ("OCC Tacoma"), a subsidiary of Occidental Chemical Corporation.
Pursuant to the Asset Purchase Agreement dated as of May 14, 1997, a subsidiary
of the Company acquired substantially all of the assets and properties used by
OCC Tacoma in the chlor-alkali business at Tacoma, Washington. The purchase
price consisted of (i) $97.0 million, payable in cash; (ii) 55,000 shares of
Convertible Redeemable Preferred Stock, par value $.01 per share, of PCI, having
a liquidation preference of $100 per share, and (iii) the assumption of certain
obligations related to the acquired chlor-alkali business.
Concurrent with the closing of the Tacoma Acquisition on June 17, 1997, a
subsidiary of the Company, Pioneer Americas Acquisition Corp. ("PAAC")
consummated a series of related transactions (the "Refinancings") comprised of
(i) a cash tender offer (the "Tender Offer") to purchase all of PAAC's existing
13 3/8% First Mortgage Notes due 2005 (the "First Mortgage Notes") at 120% of
their principal amount, (ii) the issuance and sale of $200.0 million of 9 1/4%
Series A Senior Secured Notes due 2007 (the "Initial Offering") and (iii)
borrowings of $100.0 million in term loans under a new term loan facility (the
"Term Facility"). The proceeds of $300.0 million from these transactions were
used to complete the Tender Offer, effect the Tacoma Acquisition, and pay
related expenses. Funds not so used were added to working capital.
On May 19, 1997, PAAC commenced the Tender Offer for all of its existing
First Mortgage Notes and the related consent solicitation from holders of the
First Mortgage Notes to delete or modify certain covenants
F-28
<PAGE> 158
PIONEER AMERICAS ACQUISITION CORP., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
and other provisions governing the First Mortgage Notes. On June 17, 1997, all
outstanding First Mortgage Notes were repurchased in the Tender Offer.
On June 17, 1997, PAAC also entered into a $35.0 million revolving loan
(subject to borrowing base limitations that relate to the level of accounts
receivable and inventory) and letter of credit facility (the "Revolving
Facility").
The Revolving Facility provides for revolving loans (the "Revolving Loans")
in an aggregate principal amount up to $35.0 million, of which up to $10.0
million will be available for the issuance of letters of credit. PAAC did not
incur Revolving Loans at closing in connection with the Refinancings and the
Tacoma Acquisition but had $2.8 million in letters of credit outstanding at such
time under the Revolving Facility.
PRO FORMA FINANCIAL DATA
The following pro forma financial data presents the consolidated financial
results of operations as if the Tacoma Acquisition had occurred at the beginning
of the period presented and does not purport to be indicative of either future
results of operations or results that would have occurred had the Tacoma
Acquisition actually been made as of such date.
PRO FORMA COMBINED SUMMARY FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues.................................................... $121,852 $131,627
Income (loss) before extraordinary item..................... (514) 7,505
Extraordinary loss, early extinguishment of debt (net of
income tax benefit of $12,439)............................ 18,658 --
-------- --------
Net income (loss)........................................... $(19,172) $ 7,505
======== ========
</TABLE>
Earnings per share has not been presented as the Company is a wholly-owned
subsidiary of PCI and per share data would not provide any additional useful
information.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Net effect of changes in operating assets and liabilities (net of
acquisitions) are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1997 1996
------- -------
<S> <C> <C>
Accounts receivable......................................... $(4,577) $(2,132)
Due from parent............................................. 1,862 (1,875)
Inventories................................................. (1,177) 4,100
Prepaid expenses............................................ 815 1,335
Other assets................................................ (108) (2,942)
Accounts payable............................................ (503) (4,604)
Accrued liabilities......................................... (3,825) 278
Returnable deposits......................................... 177 133
Other long-term liabilities................................. 258 533
------- -------
Net change in operating accounts.......................... $(7,078) $(5,174)
======= =======
</TABLE>
F-29
<PAGE> 159
PIONEER AMERICAS ACQUISITION CORP., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Following is supplemental cash flow information:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1997 1996
---- ----
<S> <C> <C>
Cash payments for:
Interest.................................................. $ 4,373 $ 9,201
Income taxes.............................................. 543 3,048
Acquisition of OCC Tacoma facility:
Cash paid for acquisition.............................. $ 97,000
Equity contribution by parent.......................... 5,500
Liabilities assumed.................................... 2,955
--------
Fair value of assets acquired.......................... $105,455
========
Acquisition of KWT, Inc. during the period:
Cash paid for acquisition.............................. $ 1,572
Long-term debt issued.................................. 8,017
Liabilities assumed.................................... 2,167
-------
Fair value of assets acquired.......................... $11,756
-------
</TABLE>
Other non-cash items included in the consolidated financial statements
include an increase in stockholder's equity of $1,400 for the six months ended
June 30, 1996 due to the recognition of the net operating loss carryforward.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Raw materials, supplies and parts........................... $12,930 $ 7,512
Finished goods and work-in-process.......................... 5,480 2,668
Inventories under exchange agreements....................... (3,765) (3,933)
------- --------
$14,645 $ 6,247
======= ========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company is subject to various legal proceedings and potential claims
arising in the ordinary course of its business. In the opinion of management,
the Company has adequate legal defenses and/or insurance coverage with respect
to these matters and management does not believe that they will materially
affect the Company's operations or financial position.
F-30
<PAGE> 160
PIONEER AMERICAS ACQUISITION CORP., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
5. RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues...................................... $ 46,088 $ 47,671 $ 84,831 $ 91,963
Cost of sales................................. 36,656 33,546 65,659 64,343
-------- -------- -------- --------
Gross profit.................................. 9,432 14,125 19,172 27,620
Selling, general and administrative expense... 6,111 6,285 12,281 12,375
-------- -------- -------- --------
Operating income.............................. 3,321 7,840 6,891 15,245
Equity in net loss of unconsolidated
subsidiary.................................. (719) (112) (1,774) (223)
Interest expense, net......................... 4,980 4,405 9,438 8,349
Other income, net............................. 206 15 437 104
-------- -------- -------- --------
Income (loss) before taxes and extraordinary
item........................................ (2,172) 3,338 (3,884) 6,777
Income tax provision (benefit)................ (489) 1,859 (311) 3,887
-------- -------- -------- --------
Income (loss) before extraordinary item....... (1,683) 1,479 (3,573) 2,890
Extraordinary loss from early extinguishment
of debt (net of income tax benefit of
$12,439).................................... 18,658 -- 18,658 --
-------- -------- -------- --------
Net income (loss)........................... $(20,341) $ 1,479 $(22,231) $ 2,890
-------- -------- -------- --------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues
Revenues decreased by $7.1 million or approximately 8% to $84.8 million for
the six months ended June 30, 1997. Revenues for Pioneer Chlor Alkali Company,
Inc. ("PCAC") decreased $7.4 million or approximately 10% in the first six
months of 1997 compared to the same period a year ago. Electrochemical unit
("ECU") prices decreased by approximately 4%, which reflects a $50 per ton
decrease in caustic soda prices, partially offset by a $43 per ton increase in
chlorine prices. In addition, caustic soda sales volume decreased 12% due to
weather-related delays in Mississippi River barge shipments during the first
quarter of 1997 and a reduction in exchange activity. Revenues for All-Pure
Chemical Co. ("All-Pure") increased 12% or $2.7 million in the first six months
of 1997 compared to the same period a year ago. This increase was due to the
revenues associated with the acquisition of T.C. Products, Inc. which the
Company acquired in the second quarter of 1996. The remaining decrease in
revenues was attributable to the transfer of the business of a subsidiary of the
Company to a joint venture with PCI that is accounted for on the equity method.
Cost of Sales
Cost of sales increased by $1.3 million or almost 2% to $65.7 million for
the six months ended June 30, 1997. This increase was the result of the
acquisition mentioned above, partially offset by lower cost of sales for caustic
soda due to lower sales volumes and the transfer of the business of a subsidiary
to a joint venture mentioned above.
Gross Profit
Gross profit margin decreased from 30% during the first six months of 1996
to approximately 23% during the first six months of 1997. This decrease was a
result of lower ECU prices described above along with somewhat higher ECU
manufacturing costs.
F-31
<PAGE> 161
PIONEER AMERICAS ACQUISITION CORP., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Selling, General and Administrative Expense
Selling, general and administrative expense remained relatively unchanged
between the first six months of 1996 and the first six months of 1997.
Interest Expense
Interest expense increased by approximately $1.1 million to $9.4 million in
the first six months of 1997 from $8.3 million in the first half of 1996. This
increase was a result of the acquisition mentioned above and the debt incurred
for the refinancing of the Company's long-term debt and acquisition of OCC
Tacoma's chlor-alkali facility.
Income (Loss) Before Taxes and Extraordinary Item
As a result of the above, income (loss) before income taxes and
extraordinary item decreased $10.7 million to a loss of $3.9 million for the six
months ended June 30, 1997 from income of $6.8 million for the six months ended
June 30, 1996.
Extraordinary Loss from Early Extinguishment of Debt
During the second quarter of 1997, the Company recognized a $18.7 million
extraordinary loss as a result of the early extinguishment of the 13 3/8% First
Mortgage Notes. The extraordinary loss consisted primarily of the 20% premium
paid on the face value of the notes and the write-off of debt placement fees
related to the notes (net of tax benefit of $12.4 million).
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Revenues
Revenues decreased by $1.6 million or approximately 3% to $46.1 million for
the three months ended June 30, 1997. Revenues for PCAC decreased $2.5 million
or approximately 7% in the first three months of 1997 compared to the same
period a year ago. ECU prices decreased by approximately 4%, which reflects a
$58 per ton decrease in caustic soda prices, partially offset by a $48 per ton
increase in chlorine prices. In addition, caustic soda sales volume declined
because of a decrease in exchange activity. Revenues for All-Pure increased 11%
or $1.5 million in the first three months of 1997 compared to the same period a
year ago. This increase was due to the revenues associated with the acquisition
of T.C. Products, Inc. which the Company acquired in the third quarter of 1996.
Cost of Sales
Cost of sales increased by $3.1 million or approximately 9% to $36.7
million for the three months ended June 30, 1997. This increase was the result
of the acquisition mentioned above along with higher ECU manufacturing costs
when compared to the same period a year ago.
Gross Profit
Gross profit margin decreased from 30% during the second quarter of 1996 to
approximately 20% during the second quarter of 1997. This decrease was a result
of lower ECU prices described above along with somewhat higher ECU manufacturing
costs.
F-32
<PAGE> 162
PIONEER AMERICAS ACQUISITION CORP., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Selling, General and Administrative Expense
Selling, general and administrative expense decreased by $0.2 million or 3%
to $6.1 million during the 1997 period.
Interest Expense
Interest expense increased by approximately $0.6 million to $5.0 million in
the second quarter of 1997 from $4.4 million in the second quarter of 1996. This
increase was a result of the acquisitions mentioned above and the debt incurred
for the refinancing of the Company's long-term debt and the Tacoma Acquisition.
Income (Loss) Before Taxes and Extraordinary Item
As a result of the above, income (loss) before income taxes and
extraordinary item decreased $5.5 million to a loss of $2.2 million for the
three months ended June 30, 1997 from income of $3.3 million for the three
months ended June 30, 1996.
Extraordinary Loss from Early Extinguishment of Debt
During the second quarter of 1997, the Company recognized a $18.7 million
extraordinary loss as a result of the early extinguishment of the 13 3/8% First
Mortgage Notes. The extraordinary loss consisted primarily of the 20% premium
paid on the face value of the notes and the write-off of debt placement fees
related to the notes (net of tax benefit of $12.4 million).
F-33
<PAGE> 163
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors,
OCCIDENTAL CHEMICAL CORPORATION:
We have audited the accompanying balance sheets of the Tacoma Plant (as
defined in Note 1) of Occidental Chemical Corporation, an indirect wholly-owned
subsidiary of Occidental Petroleum Corporation, as of December 31, 1996 and
1995, and the related statements of operations and changes in owner's investment
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of Occidental Chemical
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Tacoma Plant of
Occidental Chemical Corporation as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 28, 1997
F-34
<PAGE> 164
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
CURRENT ASSETS
Cash........................................................ $ 6 $ 6
Inventories................................................. 4,818 4,790
Deferred income taxes....................................... 1,287 2,389
Other current assets........................................ 1,009 95
------- -------
Total current assets.............................. 7,120 7,280
PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated
depreciation of $80,650 in 1996 and $74,768 in 1995....... 61,512 62,857
OTHER ASSETS, net........................................... 795 973
------- -------
TOTAL ASSETS...................................... $69,427 $71,110
======= =======
CURRENT LIABILITIES
Accounts payable............................................ $ 2,720 $ 2,919
Accrued liabilities......................................... 4,510 8,248
------- -------
Total current liabilities......................... 7,230 11,167
DEFERRED INCOME TAXES....................................... 1,961 2,727
ACCRUED ENVIRONMENTAL LIABILITIES........................... 20,481 21,242
OTHER LIABILITIES........................................... 7,791 8,244
------- -------
Total liabilities................................. 37,463 43,380
COMMITMENTS AND CONTINGENT LIABILITIES (Note 6)
OWNER'S INVESTMENT.......................................... 31,964 27,730
------- -------
TOTAL LIABILITIES AND OWNER'S INVESTMENT.......... $69,427 $71,110
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE> 165
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
STATEMENTS OF OPERATIONS AND CHANGES IN OWNER'S INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
EXTERNAL SALES, net......................................... $61,848 $60,871 $40,588
SALES TO OWNER AT MARKET VALUE.............................. 11,867 9,270 10,069
------- ------- -------
TOTAL SALES, net............................................ 73,715 70,141 50,657
OPERATING COSTS AND EXPENSES:
Cost of Sales............................................. 52,420 53,252 53,420
Selling, general and administrative expenses.............. 1,782 1,995 1,782
Other operating expense................................... 2,209 2,607 2,254
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES........................... 17,304 12,287 (6,799)
Income tax expense (benefit).............................. 6,059 4,301 (2,377)
------- ------- -------
NET INCOME (LOSS)........................................... 11,245 7,986 (4,422)
PENSION LIABILITY ADJUSTMENT................................ 439 643 (105)
INCREASE (DECREASE) IN OWNER'S INVESTMENT................... (7,450) (4,567) 8,646
OWNER'S INVESTMENT, beginning of year....................... 27,730 23,668 19,549
------- ------- -------
OWNER'S INVESTMENT, end of year............................. $31,964 $27,730 $23,668
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-36
<PAGE> 166
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $11,245 $ 7,986 $(4,422)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization of assets................ 6,247 5,928 5,587
Deferred income taxes.................................. 99 1,088 1,073
Other noncash charges to income........................ 1,941 2,039 1,630
Changes in operating assets and liabilities:
Increase in inventories................................ (28) (851) (193)
Decrease (increase) in other current assets............ (914) (93) 3
Decrease in accounts payable and accrued liabilities... (3,937) (204) (3,588)
Other, net................................................ (2,589) (4,794) (3,723)
------- ------- -------
Net cash provided (used) by operating activities............ 12,064 11,099 (3,633)
------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (4,614) (6,532) (5,011)
------- ------- -------
Net cash used by investing activities....................... (4,614) (6,532) (5,011)
------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (decrease) in owner's investment................. (7,450) (4,567) 8,646
------- ------- -------
Net cash provided (used) by financing activities............ (7,450) (4,567) 8,646
------- ------- -------
Change in cash.............................................. -- -- 2
Cash -- beginning of year................................... 6 6 4
------- ------- -------
Cash -- end of year......................................... $ 6 $ 6 $ 6
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-37
<PAGE> 167
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
Organization, business and basis of presentation --
The accompanying financial statements present the financial position,
results of operations and cash flows of the Tacoma plant (the Tacoma Plant) of
Occidental Chemical Corporation (OCC), a New York corporation. The financial
statements are prepared for a proposed acquisition by Pioneer Companies, Inc.
(Pioneer) of the Tacoma Plant (see Note 11).
All of the outstanding common shares of OCC are owned indirectly by
Occidental Petroleum Corporation (Occidental). Certain amounts in the
accompanying financial statements have been allocated in a reasonable and
consistent manner in order to depict the financial position, results of
operations and cash flows of the Tacoma Plant on a stand-alone basis.
The Tacoma Plant, located in Tacoma, Washington, consists of a chlor-alkali
process which manufactures chlorine, sodium hydroxide and related products, and
a discontinued ammonia process that has not operated since 1992. The Tacoma
Plant's products are sold to national and international markets as well as to
other plants and affiliates of OCC. The accompanying financial statements
exclude the previously discontinued manufacturing processes associated with
unrelated product lines, including chlorinated organic compounds. Additionally,
the Tacoma Plant does business as OCC and enters into operating and sales
contracts administered by OCC. These include national sales agreements as well
as purchase and energy agreements.
Occidental utilizes a centralized cash management system for its
operations, including the Tacoma Plant. Cash distributed to or advanced from
Occidental has been reflected in Owner's investment in the accompanying balance
sheets. In addition, settlements of transactions with OCC and other Occidental
affiliates are recorded through Owner's investment.
Supplemental cash flow information --
For the years ended December 31, 1996, 1995 and 1994, all cash payments for
income taxes were made by Occidental. For the same periods, there were no cash
payments for interest.
As of December 31, 1996 and 1995, net trade receivables of $7,604,000 and
$8,952,000, respectively, were transferred to an affiliate (see Note 2).
Property, plant and equipment --
Property, plant and equipment additions, major renewals and improvements
are capitalized at cost. Maintenance and repair costs are charged to expense as
incurred. The cost and related accumulated depreciation, depletion and
amortization of property, plant and equipment sold or retired are removed from
the property, plant and equipment accounts and any resulting gain or loss is
recorded.
Depreciation of plant and equipment is primarily provided using the
units-of-production method.
Costs incurred during the construction period of major projects are
capitalized and accumulated in Construction in progress (see Note 5). Upon
completion, the costs are transferred to the appropriate Property, plant and
equipment accounts. Interest costs incurred during the construction period of
major projects which extend longer than one year are capitalized and amortized
over the lives of the related assets. There were no such major projects during
1996, 1995 or 1994.
F-38
<PAGE> 168
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Income taxes --
The Tacoma Plant is included in the consolidated U.S. federal income tax
return of Occidental. The Tacoma Plant uses the asset and liability method
required by Statement of Financial Accounting Standards (SFAS) No.
109 -- "Accounting for Income Taxes." Deferred income taxes are recorded at
enacted rates to recognize the future effects of temporary differences which
arise between financial statement assets and liabilities and their basis for
income tax reporting purposes. A portion of the income tax provision for this
return is allocated to the Tacoma Plant on the basis of a tax sharing
arrangement between OCC and Occidental Chemical Holding Corporation (OCHC), an
indirect parent of OCC. Current and deferred income tax provisions allocated by
OCC are based on taxable income determined as though the Tacoma Plant filed as
an independent company, making the same tax return elections used in
Occidental's consolidated return. However, this arrangement also permits the
Tacoma Plant to recognize income tax benefits for current year operating losses
and deductible temporary differences without limiting such benefits. Amounts due
to Occidental for current income tax provisions are netted in Owner's investment
in the accompanying balance sheets.
Risks and uncertainties --
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts, generally not by material amounts. Management
believes that these estimates and assumptions provide a reasonable basis for the
fair presentation of the Tacoma Plant's financial position and results of
operations.
Included in the accompanying balance sheets are deferred income tax assets
of $11,061,000 and $12,555,000 as of December 31, 1996 and 1995, respectively,
consisting of the current portion of $1,287,000 and $2,389,000, shown as current
deferred income tax assets and the noncurrent portion which is netted against
deferred income tax liabilities (see Note 7). Realization of that asset is
dependent upon the generation of sufficient future taxable income. It is
expected that the recorded deferred income tax asset will be realized through
future operating income and reversal of taxable temporary differences.
Since the Tacoma Plant's two principal products are commodities,
significant changes in the prices of chlorine and sodium hydroxide could have a
significant impact on the Tacoma Plant's results of operations for any
particular year.
Fair value of financial instruments --
The Tacoma Plant values financial instruments as required by SFAS No. 107
-- "Disclosures About Fair Value of Financial Instruments." The carrying value
of on-balance sheet financial instruments approximates fair value.
(2) RECEIVABLES --
As of December 31, 1996 and 1995, OCC transferred, with limited recourse,
to an Occidental affiliate net trade receivables of the Tacoma Plant under a
revolving sale program, in connection with the ultimate sale for cash of such
receivables. The net trade receivables transferred amounted to $7,604,000 and
$8,952,000 as of December 31, 1996 and 1995, respectively. OCC transferred the
receivables to the affiliate in a noncash transaction that was reflected as a
reduction in the Tacoma Plant's Owner's investment. OCC has retained the
F-39
<PAGE> 169
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(2) RECEIVABLES -- (CONTINUED)
collection responsibility with respect to the receivables sold. An interest in
newly created receivables is transferred monthly, net of collections made from
customers. Fees related to the sales of receivables under this program, which
are allocated from OCC, were $377,000, $425,000 and $333,000 for the years ended
December 31, 1996, 1995 and 1994, respectively, and are included in Other
operating expense.
(3) INVENTORIES --
Inventories are valued at the lower of cost or market. The last-in,
first-out (LIFO) cost method was used in determining the costs of raw materials
and finished goods. Materials and supplies inventories were determined using the
weighted-average cost method. Inventories consisted of the following as of
December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Raw materials............................................... $ 1,291 $ 1,653
Materials and supplies...................................... 3,338 3,152
Finished goods.............................................. 2,071 2,519
------- -------
6,700 7,324
LIFO reserve................................................ (1,882) (2,534)
------- -------
Inventory at lower of cost or market........................ $ 4,818 $ 4,790
======= =======
</TABLE>
During the years ended December 31, 1996 and 1994, certain inventory
quantities carried at LIFO were reduced. These reductions resulted in a
liquidation of LIFO inventory quantities, the effect of which did not have a
material impact on Cost of sales.
(4) CHANGE IN ACCOUNTING PRINCIPLE --
In December 1992, the Financial Accounting Standards Board issued SFAS No.
112 -- "Employers' Accounting for Postemployment Benefits," which substantially
changed the existing method of accounting for employer benefits provided to
inactive or former employees after active employment but before retirement. This
statement requires that the cost of postemployment benefits (principally medical
benefits for inactive employees) be recognized in the financial statements
during employees' active working careers. OCC adopted SFAS No. 112 effective
January 1, 1994, but the adoption did not have a material impact on the Tacoma
Plant's financial position or results of operations.
(5) PROPERTY, PLANT AND EQUIPMENT --
Property, plant and equipment at December 31, 1996 and 1995 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land and land improvements.................................. $ 2,951 $ 2,875
Buildings................................................... 9,173 8,915
Machinery and equipment..................................... 118,212 114,530
Construction in progress.................................... 11,826 11,305
-------- --------
142,162 137,625
Accumulated depreciation.................................... (80,650) (74,768)
-------- --------
$ 61,512 $ 62,857
======== ========
</TABLE>
F-40
<PAGE> 170
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(6) COMMITMENTS AND CONTINGENT LIABILITIES --
Commitments --
The Tacoma Plant leases railcars as well as certain machinery and equipment
under noncancelable operating leases. The operating lease for machinery and
equipment expires in 2001, at which time the property can be purchased for the
then fair market value or the lease can be renewed at the then fair rental value
for two years.
At December 31, 1996, future minimum lease payments under noncancelable
operating leases were as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 3,784
1998........................................................ 3,561
1999........................................................ 3,412
2000........................................................ 3,560
2001........................................................ 3,178
Thereafter.................................................. 16,582
-------
Total minimum lease payments.............................. $34,077
=======
</TABLE>
Rental expense totaled approximately $4,156,000, $4,164,000 and $4,262,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
OCC purchases the entire requirement of salt for the Tacoma Plant from
Mitsubishi International Corporation (MIC) under the terms of a contract ending
on December 31, 1996. The contract requires OCC to purchase a predetermined
annual quantity of salt at an established price. Payments are made to MIC each
month in the amount of one-twelfth of the annual quantity at the established
price for that year. Total purchases under this contract were $8,202,000,
$7,712,000 and $6,339,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. In May 1996, OCC entered into a new contract with MIC to purchase
salt for the Tacoma Plant under similar terms for 1997 through 1999.
OCC purchases electric power for the Tacoma Plant from the City of Tacoma,
Department of Public Utilities, Light Division (the City) under the terms of a
contract expiring in September 2001. The contract has three monthly levels of
commitment. The first two take-or-pay levels are for fixed quantities of power
at predetermined prices. The third level is for power consumed above the
take-or-pay quantities at market prices. Under the terms of the contract, any
power committed to but not consumed by the Tacoma Plant can be resold by the
City, the proceeds of which will be applied against the Tacoma Plant's
commitment. Total purchases under this contract were $13,621,000, $13,894,000
and $13,643,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Lawsuits --
An individual brought a lawsuit in 1995 against OCC alleging personal
injury from exposure to chlorine gas released from the Tacoma Plant in 1994.
Although a release did occur, the alleged causation and damages are denied. It
is impossible at this time to determine the ultimate legal liabilities that may
arise from this lawsuit. However, in management's opinion, the lawsuit should
not have a material adverse effect upon the financial position or results of
operations of the Tacoma Plant.
F-41
<PAGE> 171
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(7) INCOME TAXES --
Income tax expense (benefit) for the years ended December 31, 1996, 1995
and 1994 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Current U.S. federal.................................... $5,960 $3,213 $(3,450)
Deferred U.S. federal................................... 99 1,088 1,073
------ ------ -------
$6,059 $4,301 $(2,377)
====== ====== =======
</TABLE>
The following table reconciles the maximum statutory U.S. federal income
tax rate multiplied by the Tacoma Plant's income (loss) before income taxes to
the recorded income tax expense (benefit) (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
U.S. federal income tax at 35%.......................... $6,056 $4,300 $(2,380)
Nondeductible expenses and other........................ 3 1 3
------ ------ -------
$6,059 $4,301 $(2,377)
====== ====== =======
</TABLE>
Pension liability adjustments charged directly to Owner's investment in
1996, 1995 and 1994 were net of tax charges (benefits) of $237,000, $347,000 and
($23,000), respectively.
Deferred income taxes reflect the future tax consequences of temporary
differences between the tax basis of assets and liabilities and their financial
reporting amounts. Temporary differences are associated with the financial
statement assets and liabilities shown in the table below. Deferred income tax
assets and liabilities have been recorded in the following amounts as of
December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Inventories................................ $ 371 $ -- $ 340 $ --
Property, plant and equipment, net......... -- 11,565 -- 12,592
Other assets............................... -- 170 -- 301
Accrued liabilities........................ 916 -- 2,049 --
Other liabilities.......................... 9,774 -- 10,166 --
------- ------- ------- -------
$11,061 $11,735 $12,555 $12,893
======= ======= ======= =======
</TABLE>
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS --
The Tacoma Plant participates in various defined contribution retirement
plans sponsored by Occidental for its salaried, union and nonunion hourly
employees that provide for periodic contributions by OCC based on plan-specific
criteria, such as base pay, age level, and employee contributions. OCC
contributed and the Tacoma Plant expensed $250,000, $255,000 and $240,000 under
the provisions of these plans during the years ended December 31, 1996, 1995 and
1994, respectively.
Also, the Tacoma Plant's retirement and postretirement defined benefit
plans for union hourly employees are accrued based on various assumptions and
discount rates, as described below. The actuarial assumptions
F-42
<PAGE> 172
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- (CONTINUED)
used could change in the near term as a result of changes in expected future
trends and other factors which, depending on the nature of the changes, could
cause increases or decreases in the liabilities accrued.
Pension costs for the Tacoma Plant defined benefit pension plan, for union
hourly employees determined by independent actuarial valuations, are funded by
payments to trust funds that are administered by independent trustees. The
components of the net pension cost for the years ended December 31, 1996, 1995
and 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Service cost -- benefits earned during the period........ $ 374 $ 389 $ 347
Interest cost on projected benefit obligation............ 660 676 674
Estimated return on plan assets.......................... (1,492) (1,699) (252)
Net amortization and deferral............................ 891 1,348 (133)
------- ------- -----
Net pension cost............................... $ 433 $ 714 $ 636
======= ======= =====
</TABLE>
The Tacoma Plant recorded adjustments to Owner's investment of an increase
of $439,000 in 1996 and $643,000 in 1995 and a decrease of $105,000 in 1994 to
reflect the net-of-tax difference between the additional liability required
under pension accounting provisions and the corresponding intangible asset.
The following table sets forth the defined benefit plan's funded status and
amounts recognized in the Tacoma Plant balance sheets at December 31, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
ACCUMULATED BENEFITS
EXCEED ASSETS
---------------------
1996 1995
-------- ---------
<S> <C> <C>
Present value of the estimated pension benefits to be paid
in the future:
Vested benefits........................................... $9,043 $ 8,473
Nonvested benefits........................................ 437 410
------ -------
Accumulated benefit obligation.............................. 9,480 8,883
Excess of projected benefit obligation over accumulated
benefit obligation..................................... 426 399
------ -------
Total projected benefit obligations......................... 9,906 9,282
Plan assets at fair value................................... 9,701 8,085
------ -------
Projected benefit obligation in excess of plan assets....... $ 205 $ 1,197
====== =======
Projected benefit obligation in excess of plan assets....... $ 205 $ 1,197
Unrecognized net asset...................................... 160 192
Unrecognized prior service cost............................. (195) (215)
Unrecognized net loss....................................... (363) (1,266)
Additional minimum liability(a)............................. -- 891
------ -------
Pension liability (prepaid pension)......................... $ (193) $ 799
====== =======
</TABLE>
(a) A related amount up to the limit allowable under SFAS No. 87 -- "Employers'
Accounting for Pensions" has been included in Other assets. Amounts
exceeding such limits have been charged to Owner's investment.
F-43
<PAGE> 173
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- (CONTINUED)
In 1996 and 1995, the discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.5 percent. The rate of
increase in future compensation levels used in determining the actuarial present
value of the projected benefit obligations was 4.5 percent in 1996 and 1995. The
expected long-term rate of return on assets was 8 percent in 1996 and 1995.
OCC provides medical, dental and life insurance for certain active,
retired, and disabled employees of the Tacoma Plant and their eligible
dependents. Beginning in 1993, certain salaried participants pay for all medical
cost increases in excess of increases in the Consumer Price Index (CPI). The
benefits generally are funded by OCC as the benefits are paid during the year.
The cost of providing these benefits is based on claims filed and insurance
premiums paid for the period.
To reflect the Tacoma Plant's participation in the OCC plan, the net
periodic postretirement benefit costs and the postretirement benefit obligations
are based on an allocation of the OCC actuarial study using participant counts
at the Tacoma Plant for each of the years presented in the tables below. This
allocation excludes amounts attributable to salaried retirees and surviving
spouses because nonunion retiree information is not maintained for such
participants by plant location.
The OCC postretirement benefit obligation as of December 31, 1996 and 1995
was determined by application of the terms of medical, dental, and life
insurance plans, including the effect of established maximums on covered costs,
together with relevant actuarial assumptions and health care cost trend rates
projected at a CPI increase of 3 percent and 4 percent in 1996 and 1995,
respectively (except for union employees). For union employees, the health care
cost trend rates were projected at annual rates ranging ratably from 9 percent
in 1996 to 6 percent through the year 2002 and level thereafter. The effect of a
one percent annual increase in these assumed cost trend rates would increase the
allocated accumulated postretirement benefit obligation by approximately
$660,000 and the allocated annual service and interest costs by approximately
$95,000 in 1996. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation as of December 31, 1996 and 1995
was 7.5 percent. The plans are unfunded.
The following table sets forth the allocation of OCC postretirement plans'
combined status, reconciled with the amounts included in the accompanying
balance sheets at December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $3,924 $3,820
Fully eligible active plan participants................... 642 630
Other active plan participants............................ 3,573 3,310
------ ------
Total accumulated postretirement benefit obligation......... 8,139 7,760
Unrecognized prior service cost............................. (109) (156)
Unrecognized net loss....................................... (586) (691)
------ ------
Allocated accrued postretirement benefit cost............... $7,444 $6,913
====== ======
</TABLE>
F-44
<PAGE> 174
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -- (CONTINUED)
The allocated net periodic postretirement benefit cost included the
following components for the years ended December 31, 1996, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost -- benefits attributed to service during the
period.................................................... $202 $194 $190
Interest cost on accumulated postretirement benefit
obligation................................................ 582 572 570
Net amortization and deferral............................... 47 47 47
---- ---- ----
Allocated net periodic postretirement benefit cost.......... $831 $813 $807
==== ==== ====
</TABLE>
(9) RELATED PARTY TRANSACTIONS --
The Tacoma Plant has been charged for certain financial and operational
support services provided by OCC, such as marketing, sales and customer service,
transportation and distribution, and technical services. Charges for such
support services included in the accompanying statements of operations totaled
$8,759,000, $8,806,000 and $10,151,000 for the years ended December 31, 1996,
1995 and 1994, respectively. These charges were allocated based on ratios
including such factors as revenues, operating income, fixed assets, and working
capital in a reasonable and consistent manner.
Included in the above allocations are research and development costs, which
are charged to operations by OCC as incurred, and were $70,000, $96,000 and
$143,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
These charges are included in Selling, general and administrative expenses in
the accompanying statements of operations.
See Note 1 regarding the centralized cash management system of Occidental.
See Note 2 regarding the transfer of receivables to an affiliate.
(10) ENVIRONMENTAL COSTS --
General --
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to existing conditions
caused by past operations, and that do not contribute to current or future
revenue generation, are expensed. Reserves for estimated costs are recorded when
environmental remedial efforts are probable and the costs can be reasonably
estimated. In determining the reserves, the Tacoma Plant uses the most current
information available, including similar past experiences, available technology,
regulations in effect, the timing of remediation and cost-sharing arrangements.
The environmental reserves are based on management's estimate of the most likely
costs to be incurred and are reviewed periodically and adjusted as additional or
new information becomes available.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1 "Environmental Remediation Liabilities,"
which provides authoritative guidance on specific accounting issues that are
present in the recognition, measurement, display, and disclosure of
environmental remediation liabilities. The provisions of this SOP are effective
for fiscal years beginning after December 15, 1996. OCC plans to adopt the
provisions of this SOP in 1997. The impact of adopting this SOP, if any, on the
financial statements of the Tacoma Plant has not been determined.
F-45
<PAGE> 175
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(10) ENVIRONMENTAL COSTS -- (CONTINUED)
Tacoma Plant site --
Historic operations of various discontinued processes and equipment at the
Tacoma Plant site, including past activities of other owners or operators of all
or a portion of the Tacoma Plant site, have resulted in releases of certain
hazardous and nonhazardous substances and materials into the soil, surface
water, groundwater and intertidal and subtidal sediments at and in the vicinity
of the Tacoma Plant site.
The Tacoma Plant is permitted under the Resource Conservation and Recovery
Act (RCRA). Although permitted waste management units at the Tacoma Plant site
have been closed in accordance with RCRA, the current RCRA permit requires the
owner and operator of the Tacoma Plant to take corrective action to address the
presence of certain substances in groundwater associated with past practices at
the Tacoma Plant site. The Tacoma Plant is controlling migration of and
remediating substances in groundwater through extraction, treatment and
reinjection (see Reserves and expenditures for the Tacoma Plant site section of
Note 10 below).
In addition, governmental authorities have identified OCC as a "potentially
responsible party" for the Commencement Bay Nearshore/Tideflats Superfund Site
(the CB/NT site), which includes the Hylebos Waterway, pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act. The CB/NT
site covers in excess of ten square miles and includes the Tacoma Plant site and
other properties along the Hylebos Waterway and in the vicinity of Commencement
Bay. More than 100 potentially responsible parties have been identified with
respect to the Hylebos Waterway area of the CB/NT site. OCC is participating
with a group of entities in performing a pre-remedial design investigation to
evaluate potential alternatives for remediation of sediments in the Hylebos
Waterway.
It is reasonably possible that the activities of the Tacoma plant
chlor-alkali process and discontinued processes have contributed to the presence
of hazardous and nonhazardous substances and materials at and in the vicinity of
the Tacoma Plant site. It is impossible at this time to determine the quantity
of such substances and materials, if any, attributable to these processes, and
OCC does not have sufficient information available to determine a range of
potential liability.
Reserves and expenditures for the Tacoma Plant site --
At December 31, 1996 and 1995, the current portion of the reserve for
groundwater remediation at the Tacoma Plant site included in Accrued liabilities
was $2,550,000 and $5,200,000, respectively. The reserve for remediation was
originally established in 1990. Additions to the remediation reserve of
$1,932,000, $2,030,000 and $1,530,000 for the years ended December 31, 1996,
1995 and 1994, respectively, are included in Other operating expense.
The Tacoma Plant's estimated operating expenses relating to compliance with
environmental laws and regulations governing ongoing operations on the Tacoma
Plant site were approximately $901,000, $983,000 and $958,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. In addition, estimated
capital expenditures for environmental compliance on the Tacoma Plant site for
the years ended December 31, 1996, 1995 and 1994 were approximately $1,175,000,
$693,000 and $82,000, respectively.
(11) SALE OF TACOMA PLANT --
Pioneer is currently negotiating to purchase selected assets, liabilities
and operations of the Tacoma Plant primarily including, but not limited to,
property, plant and equipment and inventories. As of February 1, 1997,
F-46
<PAGE> 176
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(11) SALE OF TACOMA PLANT -- (CONTINUED)
OCC transferred substantially all of the Tacoma Plant's assets and liabilities
into OCC Tacoma, Inc., a newly created, wholly-owned subsidiary of OCC.
The assets, liabilities and operations included in these financial
statements are those required to present the Tacoma Plant as a stand-alone
entity and include certain assets, liabilities and operations that are not
included in the proposed sale to Pioneer, such as certain railcar and equipment
leases. Excluded operations include, among other things, support services such
as marketing, sales and customer service, transportation and distribution, and
technical services. In addition, OCC will retain various chlorine and caustic
soda account contracts which will be supplied in part by a proposed arrangement
between Pioneer and OCC.
Negotiations are ongoing concerning a mutually acceptable method of
acquisition by Pioneer. As currently contemplated, in addition to the primary
asset conveyance instrument, related agreements would allocate responsibility,
as between OCC and Pioneer, for environmental costs and obligations associated
with the Tacoma Plant site arising from pre-closing events or occurrences,
including any investigation, monitoring, treatment or remediation of substances
and materials in water, soils and sediments at and in the vicinity of the Tacoma
Plant site, the Hylebos Waterway and the CB/NT site. This allocation of
responsibility is expected to include cost and time limitations, above or after
which OCC's responsibility for environmental costs and obligations associated
with the Tacoma Plant site between the parties would terminate.
F-47
<PAGE> 177
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 16, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 6 $ 6
Inventories............................................... 5,018 4,818
Deferred income taxes..................................... 1,256 1,287
Other current assets...................................... 1,408 1,009
------- -------
Total current assets.............................. 7,688 7,120
PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated
depreciation of $83,551 in 1997 and $80,650 in 1996....... 80,406 61,512
OTHER ASSETS, net........................................... 784 795
------- -------
TOTAL ASSETS...................................... $88,878 $69,427
======= =======
CURRENT LIABILITIES:
Accounts payable.......................................... $ 2,384 $ 2,720
Accrued liabilities....................................... 3,121 4,510
------- -------
Total current liabilities......................... 5,505 7,230
DEFERRED INCOME TAXES....................................... 2,485 1,961
ACCRUED ENVIRONMENTAL LIABILITIES........................... 20,078 20,481
OTHER LIABILITIES........................................... 7,961 7,791
------- -------
Total liabilities................................. 36,029 37,463
COMMITMENTS AND CONTINGENT LIABILITIES (Note 5)
OWNER'S INVESTMENT.......................................... 52,849 31,964
------- -------
TOTAL LIABILITIES AND OWNER'S INVESTMENT.......... $88,878 $69,427
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-48
<PAGE> 178
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
STATEMENTS OF OPERATIONS AND CHANGES IN OWNER'S INVESTMENT
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD PERIOD
FROM THREE FROM SIX
APRIL 1, MONTHS JANUARY 1, MONTHS
1997 TO ENDED 1997 TO ENDED
JUNE 16, JUNE 30, JUNE 16, JUNE 30,
1997 1996 1997 1996
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
EXTERNAL SALES, net................................ $ 10,757 $16,632 $ 24,527 $31,691
SALES TO OWNER AT MARKET VALUE..................... 4,996 2,400 9,964 4,845
-------- ------- -------- -------
TOTAL SALES, net......................... 15,753 19,032 34,491 36,536
OPERATING COSTS AND EXPENSES:
Cost of sales.................................... 13,551 14,702 27,141 27,767
Selling, general and administrative expenses..... 270 429 539 875
Other operating (income) expense................. 87 579 (455) 1,178
-------- ------- -------- -------
INCOME BEFORE INCOME TAXES......................... 1,845 3,322 7,266 6,716
Income tax expense............................... 647 1,163 2,545 2,352
-------- ------- -------- -------
NET INCOME......................................... 1,198 2,159 4,721 4,364
PENSION LIABILITY ADJUSTMENT....................... -- -- -- 8
INCREASE (DECREASE) IN OWNER'S INVESTMENT.......... 18,434 (2,475) 16,164 (1,954)
OWNER'S INVESTMENT, beginning of period............ 33,217 30,464 31,964 27,730
-------- ------- -------- -------
OWNER'S INVESTMENT, end of period.................. $ 52,849 $30,148 $ 52,849 $30,148
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-49
<PAGE> 179
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM SIX
JANUARY 1, MONTHS
1997 TO ENDED
JUNE 16, JUNE 30,
1997 1996
----------- --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income................................................ $ 4,721 $ 4,364
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of assets................ 3,091 3,032
Deferred income taxes.................................. 555 610
Other noncash charges to income........................ 43 1,010
Changes in operating assets and liabilities:
Decrease (increase) in inventories..................... (200) 56
Increase in other current assets....................... (399) (548)
Decrease in accounts payable and accrued liabilities... (1,725) (3,506)
Other, net................................................ (139) (1,000)
---------- --------
Net cash provided by operating activities................... 5,947 4,018
---------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (1,577) (2,064)
Buyout of operating lease................................. (20,534) --
---------- --------
Net cash used by investing activities....................... (22,111) (2,064)
---------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (decrease) in owner's investment................. 16,164 (1,954)
---------- --------
Net cash used by financing activities....................... 16,164 (1,954)
---------- --------
Change in cash.............................................. -- --
Cash -- beginning of period................................. 6 6
---------- --------
Cash -- end of period....................................... $ 6 $ 6
========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-50
<PAGE> 180
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
JUNE 16, 1997 AND JUNE 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
Organization and sale of Tacoma plant --
The accompanying unaudited interim financial statements present the
financial position, results of operations and changes in owner's investment and
cash flows of the Tacoma plant (the Tacoma Plant) of Occidental Chemical
Corporation (OCC-NY), a New York corporation, and of OCC Tacoma Inc., a Delaware
corporation (OCC-NY alone or together with its subsidiary, OCC Tacoma, Inc.
herein referred to as OCC). As of February 1, 1997, OCC-NY transferred
substantially all of the Tacoma Plant's assets and liabilities into OCC Tacoma
Inc., a newly created, wholly-owned subsidiary of OCC-NY.
On June 17, 1997 Pioneer Companies, Inc. (Pioneer) purchased selected
assets, liabilities and operations of the Tacoma Plant primarily including, but
not limited to, property, plant and equipment and inventories for $97 million
plus 55,000 shares of convertible Series A Preferred Stock of Pioneer with a
liquidation value of $5.5 million.
The assets, liabilities and operations included in these financial
statements are those required to present the Tacoma Plant as a stand-alone
entity and include certain assets, liabilities and operations that were not
included in the sale to Pioneer, such as certain railcar leases. Excluded
operations include, among other things, support services such as marketing,
sales and customer service, transportation and distribution, and technical
services. In addition, OCC-NY retained various chlorine and sodium hydroxide
account contracts which will be supplied in part by an arrangement between
Pioneer and OCC-NY.
In addition to the primary asset conveyance instrument, related agreements
allocate responsibility, between OCC Tacoma, Inc. and Pioneer, for environmental
costs and obligations associated with the Tacoma Plant site, including any
investigation, monitoring, treatment or remediation of substances and materials
in water, soils and sediments at and in the vicinity of the Tacoma Plant site,
the Hylebos Waterway and the Commencement Bay Nearshore/Tideflats Superfund site
(the CB/NT site). This allocation of responsibility includes cost and time
limitations, above or after which OCC's responsibility for environmental costs
and obligations associated with the Tacoma Plant site would terminate between
OCC and Pioneer.
In connection with the sale to Pioneer, on June 12, 1997, OCC terminated a
machinery and equipment lease by purchasing the equity of the owner trust which
owned the leased machinery and equipment and prepaying the related debt for an
aggregate expenditure of approximately $20.5 million.
Business and basis of presentation
Certain information and disclosures normally included in the notes to
financial statements have been condensed or omitted pursuant to such rules and
regulations, but resultant disclosures are in accordance with generally accepted
accounting principles as they apply to interim reporting. These interim
financial statements should be read in conjunction with the Tacoma Plant's
audited financial statements for the year ended December 31, 1996 (1996
Financial Statements).
The Tacoma Plant, located in Tacoma, Washington, consists of a chlor-alkali
process which manufactures chlorine, sodium hydroxide and related products, and
a discontinued ammonia process that has not operated since 1992. The Tacoma
Plant's products are sold to national and international markets as well as to
other plants and affiliates of OCC. The accompanying financial statements
exclude the previously discontinued manufacturing processes associated with
unrelated product lines, including chlorinated organic compounds. Additionally,
prior to the sale to Pioneer, the Tacoma Plant did business as OCC and entered
into
F-51
<PAGE> 181
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
JUNE 16, 1997 AND JUNE 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
operating and sales contracts administered by OCC. These included national sales
agreements as well as purchase and energy agreements.
In the opinion of OCC's management, the accompanying interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the Tacoma Plant's financial position as of June 16,
1997 and June 30, 1996 and the results of operations and changes in owner's
investment and cash flows for the periods then ended. The results of operations
and cash flows for the period ended June 16, 1997 are not necessarily indicative
of the results of operations or cash flows to be expected for the full year.
Reference is made to Note 1 to the 1996 Financial Statements for a summary
of significant accounting policies.
Supplemental cash flow information --
For the periods ended June 16, 1997 and June 30 1996, all cash payments for
income taxes were made by Occidental Petroleum Corporation (Occidental). For the
same periods, there were no cash payments for interest.
As of June 16, 1997 and June 30 1996, net trade receivables of $4,621,000
and $10,217,000, respectively, were transferred to an affiliate (see Note 2).
Risks and uncertainties --
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts, generally not by material amounts. Management
believes that these estimates and assumptions provide a reasonable basis for the
fair presentation of the Tacoma Plant's financial position and results of
operations.
Included in the accompanying balance sheets are deferred income tax assets
of $10,791,000 and $11,689,000 as of June 16, 1997 and June 30, 1996,
respectively, consisting of a current portion of $1,256,000 and $1,470,000,
shown as current deferred income tax assets and the noncurrent portion which is
netted against deferred income tax liabilities. Realization of that asset is
dependent upon the generation of sufficient future taxable income. It is
expected that the recorded deferred income tax asset will be realized through
future operating income and reversal of taxable temporary differences.
Since the Tacoma Plant's two principal products are commodities,
significant changes in the prices of chlorine and sodium hydroxide could have a
significant impact on the Tacoma Plant's results of operations for any
particular period.
(2) RECEIVABLES --
As of June 16, 1997 and June 30, 1996, OCC transferred, with limited
recourse, to an Occidental affiliate net trade receivables of the Tacoma Plant
under a revolving sale program, in connection with the ultimate sale for cash of
such receivables. The net trade receivables transferred amounted to $4,621,000
and $10,217,000 as of June 16, 1997 and June 30, 1996, respectively. OCC
transferred the receivables to the affiliate in a noncash transaction that was
reflected as a reduction in the Tacoma Plant's Owner's investment. OCC has
retained the
F-52
<PAGE> 182
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
JUNE 16, 1997 AND JUNE 30, 1996
(2) RECEIVABLES -- (CONTINUED)
collection responsibility with respect to the receivables sold. An interest in
newly created receivables is transferred monthly, net of collections made from
customers. Fees related to the sales of receivables under this program, which
are allocated from OCC, were $138,000 and $191,000 for the year-to-date periods
ended June 16, 1997 and June 30, 1996, respectively, and are included in Other
operating expense.
(3) INVENTORIES --
Inventories are valued at the lower of cost or market. The last-in,
first-out (LIFO) cost method was used in determining the costs of raw materials
and finished goods. Materials and supplies inventories were determined using the
weighted-average cost method. Inventories consisted of the following as of June
16, 1997 and June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials............................................... $ 1,443 $ 1,155
Materials and supplies...................................... 3,336 3,090
Finished goods.............................................. 2,676 3,352
------- -------
7,455 7,597
LIFO reserve................................................ (2,437) (2,863)
------- -------
Inventory at lower of cost or market........................ $ 5,018 $ 4,734
======= =======
</TABLE>
During the year-to-date periods ended June 16, 1997 and June 30, 1996,
certain inventory quantities carried at LIFO were reduced. These reductions
resulted in a liquidation of LIFO inventory quantities, the effect of which did
not have a material impact on Cost of sales.
(4) PROPERTY, PLANT AND EQUIPMENT --
Property, plant and equipment at June 16, 1997 and June 30, 1996 consisted
of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land and land improvements.................................. $ 3,017 $ 2,875
Buildings................................................... 9,733 8,915
Machinery and equipment..................................... 139,164 114,518
Construction in progress.................................... 12,043 13,376
-------- --------
163,957 139,684
Accumulated depreciation.................................... (83,551) (77,582)
-------- --------
$ 80,406 $ 62,102
======== ========
</TABLE>
(5) COMMITMENTS AND CONTINGENT LIABILITIES --
Commitments --
The Tacoma Plant leases railcars under noncancelable operating leases.
F-53
<PAGE> 183
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
JUNE 16, 1997 AND JUNE 30, 1996
(5) COMMITMENTS AND CONTINGENT LIABILITIES -- (CONTINUED)
At June 16, 1997, future minimum lease payments under noncancelable
operating leases were as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 1,042
1998........................................................ 1,905
1999........................................................ 1,756
2000........................................................ 1,872
2001........................................................ 1,491
Thereafter.................................................. 14,190
Total minimum lease payments................................ $22,256
</TABLE>
Rental expense totaled approximately $1,947,000 and $2,086,000 for the
year-to-date periods ended June 16, 1997 and June 30, 1996, respectively.
Reference is made to Note 6 to the 1996 Financial Statements for a
description of salt and electric power purchase commitments.
Total purchases under the salt contract were $3,447,000 and $4,101,000 for
the year-to-date periods ended June 16, 1997 and June 30, 1996, respectively.
Total purchases under the electric power contract were $5,688,000 and
$6,475,000 for the year-to-date periods ended June 16, 1997 and June 30, 1996,
respectively.
Lawsuits --
Reference is made to Note 6 to the 1996 Financial Statements for a
description of lawsuits.
(6) INCOME TAXES --
Income tax expense for the year-to-date periods ended June 16, 1997 and
June 30, 1996 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Current U.S. federal........................................ $1,990 $1,742
Deferred U.S. federal....................................... 555 610
------ ------
$2,545 $2,352
====== ======
</TABLE>
Reference is made to Note 7 to the 1996 Financial Statements for a
description of income taxes.
(7) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS --
Reference is made to Note 8 to the 1996 Financial Statements for a
description of retirement plans and postretirement benefits.
(8) RELATED PARTY TRANSACTIONS --
The Tacoma Plant has been charged for certain financial and operational
support services provided by OCC-NY, such as marketing, sales and customer
service, transportation and distribution, and technical services. Charges for
such support services included in the accompanying statements of operations
totaled
F-54
<PAGE> 184
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
JUNE 16, 1997 AND JUNE 30, 1996
(8) RELATED PARTY TRANSACTIONS -- (CONTINUED)
$5,035,000 and $4,749,000 for the year-to-date periods ended June 16, 1997 and
June 30, 1996, respectively. These charges were allocated based on ratios
including such factors as revenues, operating income, fixed assets, and working
capital in a reasonable and consistent manner.
Included in the above allocations are research and development costs, which
are charged to operations by OCC-NY as incurred, and were $6,000 and $12,000 for
the year-to-date periods ended June 16, 1997 and June 30, 1996, respectively.
These charges are included in Selling, general and administrative expenses in
the accompanying statements of operations.
Reference is made to Note 1 to the 1996 Financial Statements regarding the
centralized cash management system of Occidental.
See Note 2 regarding the transfer of receivables to an affiliate.
(9) ENVIRONMENTAL COSTS --
General --
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to existing conditions
caused by past operations, and that do not contribute to current or future
revenue generation, are expensed. Reserves for estimated costs are recorded when
environmental remedial efforts are probable and the costs can be reasonably
estimated. In determining the reserves, the Tacoma Plant uses the most current
information available, including similar past experiences, available technology,
regulations in effect, the timing of remediation and cost-sharing arrangements.
The environmental reserves are based on management's estimate of the most likely
costs to be incurred and are reviewed periodically and adjusted as additional or
new information becomes available.
Tacoma Plant site
Historic operations of various discontinued processes and equipment at the
Tacoma Plant site, including past activities of other owners or operators of all
or a portion of the Tacoma Plant site, have resulted in releases of certain
hazardous and nonhazardous substances and materials into the soil, surface
water, groundwater and intertidal and subtidal sediments at and in the vicinity
of the Tacoma Plant site.
The Tacoma Plant is permitted under the Resource Conservation and Recovery
Act (RCRA). Although permitted waste management units at the Tacoma Plant site
have been closed in accordance with RCRA, the current RCRA permit requires the
owner and operator of the Tacoma Plant to take corrective action to address the
presence of certain substances in groundwater associated with past practices at
the Tacoma Plant site. The Tacoma Plant is controlling migration of and
remediating substances in groundwater through extraction, treatment and
reinjection (see Reserves and expenditures for the Tacoma Plant site section of
Note 9 below).
In addition, governmental authorities have identified OCC as a "potentially
responsible party" for the CB/NT site, which includes the Hylebos Waterway,
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act. The CB/NT site covers in excess of ten square miles and includes
the Tacoma Plant site and other properties along the Hylebos Waterway and in the
vicinity of Commencement Bay. More than 100 potentially responsible parties have
been identified with respect to the Hylebos Waterway area of the CB/NT site. OCC
is participating with a group of entities in performing a pre-
F-55
<PAGE> 185
OCCIDENTAL CHEMICAL CORPORATION
TACOMA PLANT
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
JUNE 16, 1997 AND JUNE 30, 1996
(9) ENVIRONMENTAL COSTS -- (CONTINUED)
remedial design investigation to evaluate potential alternatives for remediation
of sediments in the Hylebos Waterway.
It is reasonably possible that the activities of the Tacoma plant
chlor-alkali process and discontinued processes have contributed to the presence
of hazardous and nonhazardous substances and materials at and in the vicinity of
the Tacoma Plant site. It is impossible at this time to determine the quantity
of such substances and materials, if any, attributable to these processes, and
OCC does not have sufficient information available to determine a range of
potential liability.
Reserves and expenditures for the Tacoma Plant site --
At June 16, 1997 and June 30, 1996, the current portion of the reserve for
groundwater remediation at the Tacoma Plant site included in Accrued liabilities
was $2,055,000 and $2,570,000, respectively. The reserve for remediation was
originally established in 1990. An addition to the remediation reserve of
$966,000 for the year-to-date period ended June 30, 1996 is included in Other
operating expense.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position No. 96-1 "Environmental Remediation Liabilities"
(SOP 96-1), which provides authoritative guidance on specific accounting issues
that are present in the recognition, measurement, display and disclosure of
environmental remediation liabilities. OCC implemented SOP 96-1 effective
January 1, 1997. The implementation of SOP 96-1 resulted in a $672,000 increase
in Income before taxes for the Tacoma Plant for the year-to-date period ended
June 16, 1997.
F-56
<PAGE> 186
PIONEER AMERICAS ACQUISITION CORP.
All tendered Original Notes, executed Letters of Transmittal, and other
related documents should be directed to the Exchange Agent. Requests for
assistance and for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be directed to the Exchange
Agent.
The Exchange Agent
for the Exchange Offer is
UNITED STATES TRUST COMPANY OF NEW YORK
By Facsimile:
(212) 780-0592
ATTENTION: CUSTOMER SERVICE
Confirm by telephone:
(800) 548-6565
By Registered or Certified Mail:
UNITED STATES TRUST COMPANY OF NEW YORK
P.O. BOX 844 COOPER STATION
NEW YORK, NEW YORK 10276
By Hand:
UNITED STATES TRUST COMPANY OF NEW YORK
111 BROADWAY
NEW YORK, NEW YORK 10006
ATTENTION: CORPORATE TRUST OPERATIONS
By Overnight Courier:
UNITED STATES TRUST COMPANY OF NEW YORK
770 BROADWAY
NEW YORK, NEW YORK 10003
ATTENTION: CORPORATE TRUST OPERATIONS
<PAGE> 187
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
PAAC, which is a Delaware corporation, is empowered by the Delaware General
Corporation Law, subject to the procedures and limitations stated therein, to
indemnify any person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with any threatened, pending or completed action, suit or proceeding
in which such person is made a party by reason of his being or having been a
director, officer, employee or agent of PAAC. The statute provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors, or otherwise. The Certificate
of Incorporation and by-laws of PAAC provide for indemnification of the
directors and officers of such entities to the full extent permitted by the
Delaware General Corporation Law.
PAAC maintains an insurance policy providing for indemnification of its
officers, directors and certain other persons against liabilities and expenses
incurred by any of them in certain stated proceedings and under certain stated
conditions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
<C> <S>
*2.1 -- Asset Purchase Agreement, dated as of May 14, 1997, by
and among OCC Tacoma, Inc. and Pioneer (incorporated by
reference to Exhibit 2 to the Company's Current Report on
Form 8-K, dated June 17, 1997).
*3.1 -- Certificate of Incorporation of PAAC (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-4 (File No. 33-98828) declared
effective by the Commission on December 22, 1995).
*3.2 -- By-laws of PAAC (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-4 (File
No. 33-98828) declared effective by the Commission on
December 22, 1995).
*3.3 -- Certificate of Incorporation of PAI (incorporated by
reference to Exhibit 3.3 to the Company's Registration
Statement on Form S-4 (File No. 33-98828) declared
effective by the Commission on December 22, 1995).
*3.4 -- By-laws of PAI (incorporated by reference to Exhibit 3.4
to the Company's Registration Statement on Form S-4 (File
No. 33-98828) declared effective by the Commission on
December 22, 1995).
*3.5 -- Certificate of Incorporation of PCAC (incorporated by
reference to Exhibit 3.5 to the Company's Registration
Statement on Form S-4 (File No. 33-98828) declared
effective by the Commission on December 22, 1995).
*3.6 -- By-laws of PCAC (Incorporated by reference to Exhibit 3.6
to the Company's Registration Statement on Form S-4 (File
No. 33-98828) declared effective by the Commission on
December 22, 1995).
*3.7 -- Certificate of Incorporation of Imperial West
(incorporated by reference to Exhibit 3.7 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*3.8 -- By-laws of Imperial West (incorporated by reference to
Exhibit 3.8 to the Company's Registration Statement on
Form S-4 (File No. 33-98828) declared effective by the
Commission on December 22, 1995).
*3.9 -- Certificate of Incorporation of All-Pure (incorporated by
reference to Exhibit 3.9 to the Company's Registration
Statement on Form S-4 (File No. 33-98828) declared
effective by the Commission on December 22, 1995).
</TABLE>
II-1
<PAGE> 188
<TABLE>
<CAPTION>
<C> <S>
*3.10 -- By-laws of All-Pure (incorporated by reference to Exhibit
3.10 to the Company's Registration Statement on Form S-4
(File No. 33-98828) declared effective by the Commission
on December 22, 1995).
*3.11 -- Certificate of Incorporation of Black Mountain Power
Company (incorporated by reference to Exhibit 3.11 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*3.12 -- By-laws of Black Mountain Power Company (incorporated by
reference to Exhibit 3.12 to the Company's Registration
Statement on Form S-4 (File No. 33-98828) declared
effective by the Commission on December 22, 1995).
*3.13 -- Certificate of Incorporation of All-Pure Chemical
Northwest, Inc. (incorporated by reference to Exhibit
3.13 to the Company's Registration Statement on Form S-4
(File No. 33-98828) declared effective by the Commission
on December 22, 1995).
*3.14 -- By-laws of All-Pure Chemical Northwest, Inc.
(incorporated by reference to Exhibit 3.14 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*3.15 -- Certificate of Incorporation of Pioneer Chlor Alkali
International, Inc. (incorporated by reference to Exhibit
3.15 to the Company's Registration Statement on Form S-4
(File No. 33-98828) declared effective by the Commission
on December 22, 1995).
*3.16 -- By-laws of Pioneer Chlor Alkali International, Inc.
(incorporated by reference to Exhibit 3.16 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*3.17 -- Certificate of Incorporation of G.O.W. Corporation
(incorporated by reference to Exhibit 3.17 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*3.18 -- By-laws of G.O.W. Corporation (incorporated by reference
to Exhibit 3.18 to the Company's Registration Statement
on Form S-4 (File No. 33-98828) declared effective by the
Commission on December 22, 1995).
*3.19 -- Certificate of Incorporation of Pioneer (East), Inc.
*3.20 -- By-laws of Pioneer (East), Inc.
*3.21 -- Certificate of Incorporation of T.C. Holdings, Inc.
*3.22 -- By-laws of T.C. Holdings, Inc.
*3.23 -- Certificate of Incorporation of T.C. Products, Inc.
*3.22 -- By-laws of T.C. Products, Inc.
*4.1 -- Indenture, dated as of June 17, 1997, by and among PAAC,
the Subsidiary Guarantors defined therein and United
States Trust Company of New York, as Trustee, relating to
$200,000,000 principal amount of 9 1/4% Series A Senior
Notes due 2007, including form of Note and Guarantees.
*4.2(a) -- Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(Tacoma, Washington).
*4.2(b) -- Mortgage, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(St. Gabriel, Louisiana).
*4.2(c) -- Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(Henderson, Nevada).
*4.3(a) -- Term Loan Agreement, dated as of June 17, 1997, among
PAAC, Various Financial Institutions, as Lenders, DLJ
Capital Funding, Inc., as the Syndication Agent, Salomon
Brothers Holding Company Inc, as the Documentation Agent
and Bank of America Illinois, as the Administrative Agent
(the "Term Loan Agreement").
</TABLE>
II-2
<PAGE> 189
<TABLE>
<CAPTION>
<C> <S>
*4.3(b) -- Subsidiary Guaranty, dated June 17, 1997, executed by
each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of the Lenders, guaranteeing the
obligations of one another under the Term Loan Agreement.
*4.4 -- Security Agreement, dated as of June 17, 1997, among PCAC
and United States Trust Company of New York, as
Collateral Agent.
*4.5 -- Stock Pledge Agreement, dated as of June 17, 1997, among
PAI and United States Trust Company of New York, as
Collateral Agent.
*4.6(a) -- Loan and Security Agreement, dated as of June 17, 1997,
by and among PAAC, Bank of America Illinois, as Agent and
Lender and the other Lenders party thereto (the
"Revolving Loan Agreement").
*4.6(b) -- Master Corporate Guaranty, dated June 17, 1997, executed
by each of the Subsidiaries 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
Revolving Loan Agreement.
*4.6(c) -- Master Security Agreement, dated June 17, 1997, executed
by each of the Subsidiaries party thereto, as debtor,
respectively, in favor of Bank of America Illinois, as
Agent, for the ratable benefit of the lenders.
*4.7 -- Intercreditor and Collateral Agency Agreement, dated as
of June 17, 1997 by and among United States Trust Company
of New York, as Trustee and Collateral Agent, Bank of
America Illinois, as Agent, PAAC, PAI and PCAC.
*4.8 -- Exchange and Registration Rights Agreement, dated as of
June 17, 1997, by and among PAAC, the Subsidiary
Guarantors and the Initial Purchasers.
*5.1 -- Opinion of Willkie Farr & Gallagher.
*5.2 -- Opinion of Kent R. Stephenson, Esq.
*8.1 -- Opinion of Willkie Farr & Gallagher with respect to
certain tax matters.
*10.1 -- Contingent Payment Agreement, dated as of April 20, 1995,
by and among Pioneer (formerly, GEV corporation), PAAC
and the Sellers defined therein (incorporated by
reference to Exhibit 10.2 to the Current Report on Form
8-K of Pioneer, dated April 20, 1995).
*10.2 -- Tax Sharing Agreement, dated as of April 20, 1995, by and
among Pioneer, PAAC and the Subsidiary Guarantors defined
therein (incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*10.3 -- Pioneer Companies, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*10.4 -- Pioneer Companies, Inc. Key Executive Stock Grant Plan
(incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of Pioneer for the
quarterly period ended June 30, 1996).
*10.5 -- Pioneer Chlor Alkali Company, Inc. Supplemental
Retirement Plan (incorporated by reference to Exhibit
10.5 to the Annual Report on Form 10-K of Pioneer for the
fiscal year ended December 31, 1995).
*10.6 -- Employment Agreement, dated as of April 20, 1995, between
Pioneer and Richard C. Kellogg, Jr. (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q of Pioneer for the quarterly period ended June 30,
1995).
</TABLE>
II-3
<PAGE> 190
<TABLE>
<CAPTION>
<C> <S>
*10.7 -- Employment Agreement, dated November 1, 1992, and First
Amendment to Employment Agreement, dated as of April 20,
1995, between Pioneer Chlor Alkali Company, Inc. and Paul
J. Kienholz (incorporated by reference to Exhibit 10.7 to
Pioneer's Annual Report on Form 10-K for the year ended
December 31, 1995).
*10.8 -- Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and James E. Glattly (incorporated
by reference to Exhibit 10.8 to Pioneer's Annual Report
on Form 10-K for the year ended December 31, 1995).
*10.9 -- Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and Verrill M. Norwood, Jr.
(incorporated by reference to Exhibit 10.9 to Pioneer's
Annual Report on Form 10-K for the year ended December
31, 1995).
*10.10 -- Executive Employment Agreement, dated January 4, 1997,
between Pioneer Companies, Inc. and Michael J. Ferris
(incorporated by reference to Exhibit 10.10 to the Annual
Report on Form 10-K of the Company for the fiscal year
ended December 31, 1996).
*10.11 -- Stock Purchase Agreement, dated January 4, 1997, between
Pioneer Companies, Inc. and Michael J. Ferris
(incorporated by reference to Exhibit 10.11 to the Annual
Report on Form 10-K of the Company for the fiscal year
ended December 31, 1996).
*10.12 -- Non-Qualified Stock Option Agreement, dated January 4,
1997, between Pioneer Companies, Inc. and Michael J.
Ferris (incorporated by reference to Exhibit 10.12 to the
Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1996).
*10.13 -- Chlorine and Caustic Soda Sales Agreement, dated as of
June 17, 1997, between Occidental Chemical Corporation
and PCAC.
*10.14 -- Chlorine Purchase Agreement, dated as of June 17, 1997,
between OCC Tacoma, Inc. and PCAC.
*+10.15 -- Environmental Operating Agreement, dated as of June 17,
1997, between OCC Tacoma and PCAC.
12.1 -- Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.
*16.1 -- Letter from Ernst & Young LLP regarding change in
independent accountants (incorporated by reference to
Exhibit 16.1 to the Company's Registration Statement on
Form S-4 (File No. 33-98828) declared effective by the
Commission on December 22, 1995).
*21.1 -- Subsidiaries of the Registrants.
23.1 -- Independent Auditors' Consent of Deloitte & Touche LLP.
23.2 -- Independent Auditors' Consent of Ernst & Young LLP.
23.3 -- Independent Auditors' Consent of Piercy, Bowler, Taylor &
Kern.
23.4 -- Independent Public Accountants' Consent of Arthur
Andersen LLP.
*23.5 -- Consents of Willkie Farr & Gallagher (included in their
opinions filed as Exhibits 5.1 and 8.1).
*23.6 -- Consent of Kent R. Stephenson, Esq. (included in his
opinion filed as Exhibit 5.2).
*24.1 -- Powers of Attorney (included in the signature pages
hereto).
*25.1 -- Statement on Form T-1 of Eligibility of Trustee.
*99.1 -- Form of Letter of Transmittal.
*99.2 -- Form of Notice of Guaranteed Delivery.
*99.3 -- Form of Letter to Clients.
*99.4 -- Form of Letter to Nominees.
</TABLE>
II-4
<PAGE> 191
- ---------------
* Previously filed.
+ Confidential treatment has been granted for portions of this agreement.
(b) Financial Statement Schedules:
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS.
All other schedules have been omitted because they are not applicable or
not required or the required information is included in the financial statements
or notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act, each filing of PAAC's annual
report pursuant to section 13(a) or section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Registrants
pursuant to the provisions, described under Item 20 above, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrants will, unless in
the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or 497(h) under
the Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-5
<PAGE> 192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 25th day of September, 1997.
PIONEER AMERICAS ACQUISITION CORP.
By: /s/ PHILIP J. ABLOVE
----------------------------------
Name: Philip J. Ablove
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President, Chief Executive Officer September 25, 1997
- ----------------------------------------------------- and Director (principal executive
Michael J. Ferris officer)
/s/ PHILIP J. ABLOVE Vice President, Chief Financial September 25, 1997
- ----------------------------------------------------- Officer and Director (principal
Philip J. Ablove financial officer)
* Controller (principal accounting September 25, 1997
- ----------------------------------------------------- officer)
John R. Beaver
* Director September 25, 1997
- -----------------------------------------------------
William R. Berkley
* Director September 25, 1997
- -----------------------------------------------------
Andrew M. Bursky
* Director September 25, 1997
- -----------------------------------------------------
Donald J. Donahue
* Director September 25, 1997
- -----------------------------------------------------
Richard C. Kellogg, Jr.
* Director September 25, 1997
- -----------------------------------------------------
Paul J. Kienholz
* Director September 25, 1997
- -----------------------------------------------------
Jack H. Nusbaum
* Director September 25, 1997
- -----------------------------------------------------
Thomas H. Schnitzius
*By: /s/ PHILIP J. ABLOVE
------------------------------------------------
Philip J. Ablove
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 25th day of September, 1997.
PIONEER AMERICAS, INC.
By: /s/ KENT R. STEPHENSON
----------------------------------
Name: Kent R. Stephenson
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and President September 25, 1997
- --------------------------------------------------- (principal executive officer)
Michael J. Ferris
* Vice President, Chief Financial September 25, 1997
- --------------------------------------------------- Officer, Treasurer and Director
Philip J. Ablove (principal financial officer)
* Controller (principal accounting September 25, 1997
- --------------------------------------------------- officer)
John R. Beaver
* Director September 25, 1997
- ---------------------------------------------------
William L. Mahone
*By: /s/ KENT R. STEPHENSON
---------------------------------------------
Kent R. Stephenson
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 25th day of September, 1997.
PIONEER CHLOR ALKALI COMPANY, INC.
By: /s/ KENT R. STEPHENSON
----------------------------------
Name: Kent R. Stephenson
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Director (principal September 25, 1997
- --------------------------------------------------- executive officer)
James E. Glattly
* Vice President and Chief Financial September 25, 1997
- --------------------------------------------------- Officer and Director (principal
Philip J. Ablove financial officer)
* Controller (principal accounting September 25, 1997
- --------------------------------------------------- officer)
John R. Beaver
* Chairman of the Board September 25, 1997
- ---------------------------------------------------
Michael J. Ferris
* Director September 25, 1997
- ---------------------------------------------------
William L. Mahone
*By: /s/ KENT R. STEPHENSON
---------------------------------------------
Kent R. Stephenson
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 195
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 25th day of September, 1997.
IMPERIAL WEST CHEMICAL CO.
By: /s/ KENT R. STEPHENSON
----------------------------------
Name: Kent R. Stephenson
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Director (principal September 25, 1997
- --------------------------------------------------- executive officer)
James M. Wingard
* Vice President and Chief Financial September 25, 1997
- --------------------------------------------------- Officer and Director (principal
Philip J. Ablove financial officer)
* Controller (principal accounting September 25, 1997
- --------------------------------------------------- officer)
John R. Beaver
* Chairman of the Board September 25, 1997
- ---------------------------------------------------
Michael J. Ferris
* Director September 25, 1997
- ---------------------------------------------------
William L. Mahone
*By: /s/ KENT R. STEPHENSON
---------------------------------------------
Kent R. Stephenson
Attorney-in-Fact
</TABLE>
II-9
<PAGE> 196
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 25th day of September, 1997.
ALL-PURE CHEMICAL CO.
By: /s/ KENT R. STEPHENSON
----------------------------------
Name: Kent R. Stephenson
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Director (principal September 25, 1997
- --------------------------------------------------- executive officer)
Ronald E. Ciora
* Vice President and Chief Financial September 25, 1997
- --------------------------------------------------- Officer and Director (principal
Philip J. Ablove financial officer)
* Controller (principal accounting September 25, 1997
- --------------------------------------------------- officer)
John R. Beaver
* Chairman of the Board September 25, 1997
- ---------------------------------------------------
Michael J. Ferris
* Director September 25, 1997
- ---------------------------------------------------
William L. Mahone
*By: /s/ KENT R. STEPHENSON
---------------------------------------------
Kent R. Stephenson
Attorney-in-Fact
</TABLE>
II-10
<PAGE> 197
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 25th day of September, 1997.
BLACK MOUNTAIN POWER COMPANY
By: /s/ KENT R. STEPHENSON
----------------------------------
Name: Kent R. Stephenson
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Director (principal September 25 1997
- --------------------------------------------------- executive officer)
Terry K. Graves
* Vice President and Chief Financial September 25 1997
- --------------------------------------------------- Officer and Director (principal
Philip J. Ablove financial officer)
* Controller (principal accounting September 25 1997
- --------------------------------------------------- officer)
John R. Beaver
* Chairman of the Board September 25 1997
- ---------------------------------------------------
Michael J. Ferris
* Director September 25 1997
- ---------------------------------------------------
James E. Glattly
*By: /s/ KENT R. STEPHENSON
---------------------------------------------
Kent R. Stephenson
Attorney-in-Fact
</TABLE>
II-11
<PAGE> 198
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 25th day of September, 1997.
ALL-PURE CHEMICAL NORTHWEST, INC.
By: /s/ KENT R. STEPHENSON
----------------------------------
Name: Kent R. Stephenson
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Director (principal September 25, 1997
- --------------------------------------------------- executive officer)
Ronald E. Ciora
* Vice President and Chief Financial September 25, 1997
- --------------------------------------------------- Officer and Director (principal
Philip J. Ablove financial officer)
* Controller (principal accounting September 25, 1997
- --------------------------------------------------- officer)
John R. Beaver
* Chairman of the Board September 25, 1997
- ---------------------------------------------------
Michael J. Ferris
*By: /s/ KENT R. STEPHENSON
---------------------------------------------
Kent R. Stephenson
Attorney-in-Fact
</TABLE>
II-12
<PAGE> 199
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 25th day of September, 1997.
PIONEER CHLOR ALKALI INTERNATIONAL, INC.
By: /s/ KENT R. STEPHENSON
----------------------------------------
Name: Kent R. Stephenson
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board (principal September 25, 1997
- --------------------------------------------------- executive officer)
Michael J. Ferris
* Vice President (principal financial September 25, 1997
- --------------------------------------------------- officer)
Philip J. Ablove
* Controller (principal accounting September 25, 1997
- --------------------------------------------------- officer)
John R. Beaver
* Director September 25, 1997
- ---------------------------------------------------
David F. Callaghan
* Director September 25, 1997
- ---------------------------------------------------
James A. Fields
* Director September 25, 1997
- ---------------------------------------------------
David A. Leslie
*By: /s/ KENT R. STEPHENSON
---------------------------------------------
Kent R. Stephenson
Attorney-in-Fact
</TABLE>
II-13
<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 25th day of September, 1997.
G. O. W. CORPORATION
By: /s/ KENT R. STEPHENSON
----------------------------------
Name: Kent R. Stephenson
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Director (principal September 25, 1997
- --------------------------------------------------- executive officer)
Terry K. Graves
* Vice President and Chief Financial September 25, 1997
- --------------------------------------------------- Officer (principal financial
Philip J. Ablove officer)
* Controller (principal accounting September 25, 1997
- --------------------------------------------------- officer)
John R. Beaver
*By: /s/ KENT R. STEPHENSON
---------------------------------------------
Kent R. Stephenson
Attorney-in-Fact
</TABLE>
II-14
<PAGE> 201
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 25th day of September, 1997.
PIONEER (EAST), INC.
By: /s/ KENT R. STEPHENSON
----------------------------------
Name: Kent R. Stephenson
Title: President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KENT R. STEPHENSON President, Secretary and Chairman of September 25, 1997
- --------------------------------------------------- the Board (principal executive
Kent R. Stephenson officer)
* Treasurer and Director (principal September 25, 1997
- --------------------------------------------------- financial and accounting officer)
Robert C. Williams
* Director September 25, 1997
- ---------------------------------------------------
Victoria L. Garrett
*By: /s/ KENT R. STEPHENSON
---------------------------------------------
Kent R. Stephenson
Attorney-in-Fact
</TABLE>
II-15
<PAGE> 202
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 25th day of September, 1997.
T.C. HOLDINGS, INC.
By: /s/ KENT R. STEPHENSON
----------------------------------
Name: Kent R. Stephenson
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Director (principal September 25, 1997
- --------------------------------------------------- executive officer)
Ronald E. Ciora
* Vice President and Chief Financial September 25, 1997
- --------------------------------------------------- Officer and Director (principal
Philip J. Ablove financial officer)
* Controller (principal accounting September 25, 1997
- --------------------------------------------------- officer)
John R. Beaver
* Chairman of the Board September 25, 1997
- ---------------------------------------------------
Michael J. Ferris
* Director September 25, 1997
- ---------------------------------------------------
William L. Mahone
*By: /s/ KENT R. STEPHENSON
---------------------------------------------
Kent R. Stephenson
Attorney-in-Fact
</TABLE>
II-16
<PAGE> 203
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 25th day of September, 1997.
T.C. PRODUCTS, INC.
By: /s/ KENT R. STEPHENSON
----------------------------------
Name: Kent R. Stephenson
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Director (principal September 25, 1997
- --------------------------------------------------- executive officer)
Ronald E. Ciora
* Vice President and Chief Financial September 25, 1997
- --------------------------------------------------- Officer and Director (principal
Philip J. Ablove financial officer)
* Controller (principal accounting September 25, 1997
- --------------------------------------------------- officer)
John R. Beaver
* Chairman of the Board September 25, 1997
- ---------------------------------------------------
Michael J. Ferris
* Director September 25, 1997
- ---------------------------------------------------
William L. Mahone
*By: /s/ KENT R. STEPHENSON
---------------------------------------------
Kent R. Stephenson
Attorney-in-Fact
</TABLE>
II-17
<PAGE> 204
SCHEDULE II
PIONEER AMERICAS ACQUISITION CORP.
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.
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.
II-18
<PAGE> 205
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
*2.1 -- Asset Purchase Agreement, dated as of May 14, 1997, by
and among OCC Tacoma, Inc. and Pioneer (incorporated by
reference to Exhibit 2 to the Company's Current Report on
Form 8-K, dated June 17, 1997).
*3.1 -- Certificate of Incorporation of PAAC (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-4 (File No. 33-98828) declared
effective by the Commission on December 22, 1995).
*3.2 -- By-laws of PAAC (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-4 (File
No. 33-98828) declared effective by the Commission on
December 22, 1995).
*3.3 -- Certificate of Incorporation of PAI (incorporated by
reference to Exhibit 3.3 to the Company's Registration
Statement on Form S-4 (File No. 33-98828) declared
effective by the Commission on December 22, 1995).
*3.4 -- By-laws of PAI (incorporated by reference to Exhibit 3.4
to the Company's Registration Statement on Form S-4 (File
No. 33-98828) declared effective by the Commission on
December 22, 1995).
*3.5 -- Certificate of Incorporation of PCAC (incorporated by
reference to Exhibit 3.5 to the Company's Registration
Statement on Form S-4 (File No. 33-98828) declared
effective by the Commission on December 22, 1995).
*3.6 -- By-laws of PCAC (Incorporated by reference to Exhibit 3.6
to the Company's Registration Statement on Form S-4 (File
No. 33-98828) declared effective by the Commission on
December 22, 1995).
*3.7 -- Certificate of Incorporation of Imperial West
(incorporated by reference to Exhibit 3.7 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*3.8 -- By-laws of Imperial West (incorporated by reference to
Exhibit 3.8 to the Company's Registration Statement on
Form S-4 (File No. 33-98828) declared effective by the
Commission on December 22, 1995).
*3.9 -- Certificate of Incorporation of All-Pure (incorporated by
reference to Exhibit 3.9 to the Company's Registration
Statement on Form S-4 (File No. 33-98828) declared
effective by the Commission on December 22, 1995).
*3.10 -- By-laws of All-Pure (incorporated by reference to Exhibit
3.10 to the Company's Registration Statement on Form S-4
(File No. 33-98828) declared effective by the Commission
on December 22, 1995).
*3.11 -- Certificate of Incorporation of Black Mountain Power
Company (incorporated by reference to Exhibit 3.11 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*3.12 -- By-laws of Black Mountain Power Company (incorporated by
reference to Exhibit 3.12 to the Company's Registration
Statement on Form S-4 (File No. 33-98828) declared
effective by the Commission on December 22, 1995).
*3.13 -- Certificate of Incorporation of All-Pure Chemical
Northwest, Inc. (incorporated by reference to Exhibit
3.13 to the Company's Registration Statement on Form S-4
(File No. 33-98828) declared effective by the Commission
on December 22, 1995).
*3.14 -- By-laws of All-Pure Chemical Northwest, Inc.
(incorporated by reference to Exhibit 3.14 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
</TABLE>
<PAGE> 206
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
*3.15 -- Certificate of Incorporation of Pioneer Chlor Alkali
International, Inc. (incorporated by reference to Exhibit
3.15 to the Company's Registration Statement on Form S-4
(File No. 33-98828) declared effective by the Commission
on December 22, 1995).
*3.16 -- By-laws of Pioneer Chlor Alkali International, Inc.
(incorporated by reference to Exhibit 3.16 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*3.17 -- Certificate of Incorporation of G.O.W. Corporation
(incorporated by reference to Exhibit 3.17 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*3.18 -- By-laws of G.O.W. Corporation (incorporated by reference
to Exhibit 3.18 to the Company's Registration Statement
on Form S-4 (File No. 33-98828) declared effective by the
Commission on December 22, 1995).
*3.19 -- Certificate of Incorporation of Pioneer (East), Inc.
*3.20 -- By-laws of Pioneer (East), Inc.
*3.21 -- Certificate of Incorporation of T.C. Holdings, Inc.
*3.22 -- By-laws of T.C. Holdings, Inc.
*3.23 -- Certificate of Incorporation of T.C. Products, Inc.
*3.24 -- By-laws of T.C. Products, Inc.
*4.1 -- Indenture, dated as of June 17, 1997, by and among PAAC,
the Subsidiary Guarantors defined therein and United
States Trust Company of New York, as Trustee, relating to
$200,000,000 principal amount of 9 1/4% Series A Senior
Notes due 2007, including form of Note and Guarantees.
*4.2(a) -- Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(Tacoma, Washington).
*4.2(b) -- Mortgage, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(St. Gabriel, Louisiana).
*4.2(c) -- Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(Henderson, Nevada).
*4.3(a) -- Term Loan Agreement, dated as of June 17, 1997, among
PAAC, Various Financial Institutions, as Lenders, DLJ
Capital Funding, Inc., as the Syndication Agent, Salomon
Brothers Holding Company Inc, as the Documentation Agent
and Bank of America Illinois, as the Administrative Agent
(the "Term Loan Agreement").
*4.3(b) -- Subsidiary Guaranty, dated June 17, 1997, executed by
each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of the Lenders, guaranteeing the
obligations of one another under the Term Loan Agreement.
*4.4 -- Security Agreement, dated as of June 17, 1997, among PCAC
and United States Trust Company of New York, as
Collateral Agent.
*4.5 -- Stock Pledge Agreement, dated as of June 17, 1997, among
PAI and United States Trust Company of New York, as
Collateral Agent.
*4.6(a) -- Loan and Security Agreement, dated as of June 17, 1997,
by and among PAAC, Bank of America Illinois, as Agent and
Lender and the other Lenders party thereto (the
"Revolving Loan Agreement").
*4.6(b) -- Master Corporate Guaranty, dated June 17, 1997, executed
by each of the Subsidiaries 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
Revolving Loan Agreement.
</TABLE>
<PAGE> 207
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<S> <C>
*4.6(c) -- Master Security Agreement, dated June 17, 1997, executed
by each of the Subsidiaries party thereto, as debtor,
respectively, in favor of Bank of America Illinois, as
Agent, for the ratable benefit of the lenders
*4.7 -- Intercreditor and Collateral Agency Agreement, dated as
of June 17, 1997 by and among United States Trust Company
of New York, as Trustee and Collateral Agent, Bank of
America Illinois, as Agent, PAAC, PAI and PCAC.
*4.8 -- Exchange and Registration Rights Agreement, dated as of
June 17, 1997, by and among PAAC, the Subsidiary
Guarantors and the Initial Purchasers.
*5.1 -- Opinion of Willkie Farr & Gallagher.
*5.2 -- Opinion of Kent R. Stephenson, Esq.
*8.1 -- Opinion of Willkie Farr & Gallagher with respect to
certain tax matters.
*10.1 -- Contingent Payment Agreement, dated as of April 20, 1995,
by and among Pioneer (formerly, GEV corporation), PAAC
and the Sellers defined therein (incorporated by
reference to Exhibit 10.2 to the Current Report on Form
8-K of Pioneer, dated April 20, 1995).
*10.2 -- Tax Sharing Agreement, dated as of April 20, 1995, by and
among Pioneer, PAAC and the Subsidiary Guarantors defined
therein (incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*10.3 -- Pioneer Companies, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-4 (File No.
33-98828) declared effective by the Commission on
December 22, 1995).
*10.4 -- Pioneer Companies, Inc. Key Executive Stock Grant Plan
(incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of Pioneer for the
quarterly period ended June 30, 1996).
*10.5 -- Pioneer Chlor Alkali Company, Inc. Supplemental
Retirement Plan (incorporated by reference to Exhibit
10.5 to the Annual Report on Form 10-K of Pioneer for the
fiscal year ended December 31, 1995).
*10.6 -- Employment Agreement, dated as of April 20, 1995, between
Pioneer and Richard C. Kellogg, Jr. (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q of Pioneer for the quarterly period ended June 30,
1995).
*10.7 -- Employment Agreement, dated November 1, 1992, and First
Amendment to Employment Agreement, dated as of April 20,
1995, between Pioneer Chlor Alkali Company, Inc. and Paul
J. Kienholz (incorporated by reference to Exhibit 10.7 to
Pioneer's Annual Report on Form 10-K for the year ended
December 31, 1995).
*10.8 -- Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and James E. Glattly (incorporated
by reference to Exhibit 10.8 to Pioneer's Annual Report
on Form 10-K for the year ended December 31, 1995).
*10.9 -- Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and Verrill M. Norwood, Jr.
(incorporated by reference to Exhibit 10.9 to Pioneer's
Annual Report on Form 10-K for the year ended December
31, 1995).
*10.10 -- Executive Employment Agreement, dated January 4, 1997,
between Pioneer Companies, Inc. and Michael J. Ferris
(incorporated by reference to Exhibit 10.10 to the Annual
Report on Form 10-K of the Company for the fiscal year
ended December 31, 1996).
</TABLE>
<PAGE> 208
<TABLE>
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EXHIBIT DESCRIPTION
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*10.11 -- Stock Purchase Agreement, dated January 4, 1997, between
Pioneer Companies, Inc. and Michael J. Ferris
(incorporated by reference to Exhibit 10.11 to the Annual
Report on Form 10-K of the Company for the fiscal year
ended December 31, 1996).
*10.12 -- Non-Qualified Stock Option Agreement, dated January 4,
1997, between Pioneer Companies, Inc. and Michael J.
Ferris (incorporated by reference to Exhibit 10.12 to the
Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1996).
*10.13 -- Chlorine and Caustic Soda Sales Agreement, dated as of
June 17, 1997, between Occidental Chemical Corporation
and PCAC.
*10.14 -- Chlorine Purchase Agreement, dated as of June 17, 1997,
between OCC Tacoma, Inc. and PCAC.
*+10.15 -- Environmental Operating Agreement, dated as of June 17,
1997, between OCC Tacoma and PCAC
12.1 -- Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.
*16.1 -- Letter from Ernst & Young LLP regarding change in
independent accountants (incorporated by reference to
Exhibit 16.1 to the Company's Registration Statement on
Form S-4 (File No. 33-98828) declared effective by the
Commission on December 22, 1995).
*21.1 -- Subsidiaries of the Registrants.
23.1 -- Independent Auditors' Consent of Deloitte & Touche LLP.
23.2 -- Independent Auditors' Consent of Ernst & Young LLP.
23.3 -- Independent Auditors' Consent of Piercy, Bowler, Taylor &
Kern.
23.4 -- Independent Public Accountants' Consent of Arthur
Andersen LLP.
*23.5 -- Consents of Willkie Farr & Gallagher (included in their
opinions filed as Exhibits 5.1 and 8.1).
*23.6 -- Consent of Kent R. Stephenson, Esq. (included in his
opinion filed as Exhibit 5.2).
*24.1 -- Powers of Attorney (included in the signature pages
hereto).
*25.1 -- Statement on Form T-1 of Eligibility of Trustee.
*99.1 -- Form of Letter of Transmittal.
*99.2 -- Form of Notice of Guaranteed Delivery.
*99.3 -- Form of Letter to Clients.
*99.4 -- Form of Letter to Nominees.
</TABLE>
- ---------------
* Previously filed.
+ Confidential treatment has been granted for portions of this agreement.
<PAGE> 1
EXHIBIT 12.1
Statement Regarding Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------------------
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1, 1995
--------------------------- THROUGH
1992 1993 1994 APRIL 20, 1995
------- ------- ------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
Ratio of earnings to fixed charges
Consolidated pretax income from continuing
operations....................................... $ 4,346 $ 542 $ 8,388 $11,621
Equity pickup of less than 50% owned affiliates.... (26) (1,149) (183) (204)
Interest........................................... 8,189 7,551 6,407 1,665
Interest portion of rental expense................. 2,467 2,753 2,814 692
Amortization of debt financing costs............... 920 933 944 453
------- ------- ------- -------
Earnings........................................... $15,896 $10,630 $18,370 $14,227
------- ------- ------- -------
Interest........................................... $ 8,189 $ 7,551 $ 6,407 $ 1,665
Interest portion of rental expense................. 2,467 2,753 2,814 692
Amortization of debt financing costs............... 920 933 944 453
------- ------- ------- -------
Fixed charges...................................... $11,576 $11,237 $10,165 $ 2,810
------- ------- ------- -------
Ratio of earnings to fixed charges................. 1.37 -- 1.81 5.1
------- ------- ------- -------
Deficiency......................................... $ 607
</TABLE>
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
THROUGH YEAR ENDED SIX MONTHS
DECEMBER 31, DECEMBER 31, ENDED
1995 1996 JUNE 30, 1997
------------ ------------ -------------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
Ratio of earnings to fixed charges
Consolidated pretax income (loss) from continuing
operations........................................... $12,629 $14,846 $(3,884)
Equity pickup of less than 50% owned affiliates........ -- (713) 470
Interest............................................... 12,905 17,290 9,438
Interest portion of rental expense..................... 1,572 3,107 1,354
Amortization of debt financing costs................... 465 636 348
------- ------- -------
Earnings............................................... $27,571 $35,166 $ 7,726
------- ------- -------
Interest............................................... $12,905 $17,290 $ 9,438
Interest portion of rental expense..................... 1,572 3,107 1,354
Amortization of debt financing costs................... 465 636 348
------- ------- -------
Fixed charges.......................................... $14,942 $21,033 $11,140
------- ------- -------
Ratio of earnings to fixed charges..................... 1.8 1.7 --
------- ------- -------
Deficiency............................................. $ 3,414
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-30683 of Pioneer Americas Acquisition Corp. of our report dated March 7,
1997 in the Prospectus, which is a part of such Registration Statement, and to
the reference to us under the heading "Experts" in such Prospectus.
Deloitte & Touche LLP
Houston, Texas
September 25, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the captions "Selected
Historical Financial Data," "Experts" and "Change in Independent Public
Auditors" and to the use of our report dated June 26, 1995 in the Registration
Statement (Amendment No. 2 to Form S-4) and related Prospectus of Pioneer
Americas Acquisition Corp. for the registration of $200,000,000 9 1/4% Series B
Senior Secured Notes due 2007.
Ernst & Young LLP
Houston, Texas
September 25, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 30, 1995 on the combined financial
statements of Basic Investments, Inc. and affiliates in the Registration
Statement (Amendment No. 2 to Form S-4) and related Prospectus of Pioneer
Americas Acquisition Corp. for the registration of $200,000,000 9 1/4% Series B
Senior Secured Notes due 2007.
PIERCY, BOWLER, TAYLOR & KERN
CERTIFIED PUBLIC ACCOUNTANTS AND
BUSINESS ADVISORS
A PROFESSIONAL CORPORATION
Las Vegas, Nevada
September 25, 1997
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) dated February 28, 1997 on the
financial statements of the Tacoma Plant in the Registration Statement
(Amendment No. 2 to Form S-4) and related Prospectus of Pioneer Americas
Acquisition Corp. for the registration of $200,000,000 9 1/4% Series B Senior
Secured Notes due 2007.
Arthur Andersen LLP
Dallas, Texas
September 25, 1997
