<PAGE> 1
REGISTRATION NO. 333-87375
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ALCAN ALUMINIUM LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CANADA 3334 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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1188 SHERBROOKE STREET WEST
MONTREAL, QUEBEC, CANADA H3A 3G2
(514) 848-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID MCAUSLAND, SECRETARY
ALCAN ALUMINIUM LIMITED
1188 SHERBROOKE STREET WEST
MONTREAL, QUEBEC, CANADA H3A 3G2
(514) 848-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
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SIMPSON THACHER & BARTLETT MILBANK, TWEED, HADLEY & MCCLOY SULLIVAN & CROMWELL
425 LEXINGTON AVENUE LLP ST. OLAVE'S HOUSE
NEW YORK, N.Y. 10017 1 CHASE MANHATTAN PLAZA IRONMONGER LANE
ATTN: ALAN M. KLEIN NEW YORK, NEW YORK 10005 LONDON EC2V 8EY
(212) 455-2000 ATTN: DONALD B. BRANT, JR. ATTN: SCOTT D. MILLER
(212) 530-5000 011-44-207-710-6500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED DECEMBER 23, 1999
PROSPECTUS U.S. OFFER TO EXCHANGE
ALCAN ALUMINIUM LIMITED
The boards of directors of Alcan Aluminium Limited and Pechiney have
approved a combination of the two companies. The combination is being effected
through an offer by Alcan to exchange newly issued Alcan common shares for all
outstanding Pechiney common shares "A," called herein "Pechiney A Shares,"
Pechiney preferred shares "B," called herein "Pechiney B Shares," and Pechiney
American depositary shares each representing 0.5 of a Pechiney A Share, called
herein "Pechiney ADSs," and together with the Pechiney A Shares and the Pechiney
B Shares, called the "Pechiney Securities."
Alcan is offering to exchange:
- 1.7816 Alcan common shares for every Pechiney A Share,
- 1.9598 Alcan common shares for every Pechiney B Share, and
- 0.8908 of an Alcan common share for every Pechiney ADS.
The offer and withdrawal rights will expire at 11:00 a.m., New York City time,
on , 2000 unless the offer is extended. Pechiney Securities that are
tendered pursuant to the offer may be withdrawn at any time prior to the
expiration date.
Alcan's offer to acquire all of the outstanding Pechiney Securities is
being made through two separate offers:
- a U.S. offer open to all holders of Pechiney Securities who are located
in the United States and Canada, and
- a French offer open at the Paris Bourse to all other holders of Pechiney
Securities who are located outside of the United States or Canada.
These offers together are being made for all of the outstanding Pechiney
Securities.
Alcan is separately offering to acquire all of the outstanding shares of
Alusuisse Lonza Group AG ("Algroup") in exchange for Alcan common shares. That
offer is not being made by and is not covered by this prospectus. Alcan's offers
for the Pechiney Securities and Alcan's offer for the Algroup shares are being
made pursuant to a combination agreement, dated September 15, 1999, among Alcan,
Pechiney and Algroup. The combination agreement contemplates a three-way merger
of equals of Alcan, Pechiney and Algroup. Alcan is referred to in this
prospectus on a pro forma basis following completion of the combination as the
"Combined Company."
This prospectus contains detailed information concerning the U.S. offer for
Pechiney Securities and the proposed combination. The complete combination
agreement is attached as Annex A. We recommend that you read this prospectus and
the combination agreement carefully.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS RELATING TO THE COMBINATION
THAT WE DESCRIBE STARTING ON PAGE 16 OF THIS PROSPECTUS.
The common shares of Alcan are listed on the New York Stock Exchange and
the Toronto Stock Exchange under the symbol "AL."
The information contained in this prospectus is subject to completion and
amendment. A registration statement relating to the Alcan common shares has been
filed with the Securities and Exchange Commission. The Alcan common shares 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 the
Alcan common shares 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.
Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or determined if this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
The Dealer Manager for the U.S. offer is Morgan Stanley Dean Witter.
The date of this prospectus is .
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QUESTIONS AND ANSWERS ABOUT THE COMBINATION AND THE OFFERS
Q: WHY ARE ALCAN, PECHINEY AND ALGROUP PROPOSING TO COMBINE?
A: The combination of Alcan, Pechiney and Algroup will create one of the
world's largest aluminum companies with complementary operations and
technologies, a sustainable low-cost position in primary aluminum, advanced
aluminum fabricating facilities located globally and strong positioning for
future low-cost growth and expansion. It will also create a world leader in
the flexible and specialty packaging business.
The boards of directors of each of Alcan, Pechiney and Algroup believe that
the combination will improve the companies' ability to generate long-term
growth and shareholder value by reducing selling, general and
administrative expenses and optimizing research and development and the
efficiency of their production facilities.
To review the reasons for the combination in greater detail, see "The
Combination -- Reasons for the Combination" on page 21.
Q: IF ALCAN AND PECHINEY ARE COMBINING, WHY IS ALCAN MAKING OFFERS TO ACQUIRE
PECHINEY SECURITIES?
A: The offers by Alcan to exchange Alcan common shares for all Pechiney
Securities and the offer by Alcan to exchange Alcan common shares for all
of Algroup's shares are simply the means to effect the combination in an
efficient manner. The boards of directors of Alcan, Pechiney and Algroup
fully intend the transaction to be a "merger of equals."
Q: ARE THE OFFERS FOR PECHINEY SECURITIES AND ALGROUP SHARES CONDITIONAL UPON
EACH OTHER?
A: No, the offers for Pechiney Securities and the offer for Algroup shares are
independent of each other. If the Algroup offer is not completed but the
offers for Pechiney Securities are completed, Alcan and Pechiney will still
combine. To review the benefits of a combination of Alcan and Pechiney
without Algroup, see "The Combination -- Benefits of an Alcan-Pechiney
Combination" on page 24.
Q: HOW MANY ALCAN COMMON SHARES WILL I RECEIVE IF THIS OFFER IS COMPLETED?
A: You will receive 1.7816 Alcan common shares for each Pechiney A Share you
tender, 1.9598 Alcan common shares for each Pechiney B Share you tender and
0.8908 of an Alcan common share for each Pechiney ADS you tender. This is
referred to as the "exchange ratio." The exchange ratio will not change
even if the market price of Alcan common shares or any Pechiney Securities
increases or decreases.
No fractional Alcan common shares will be issued. Alcan will make
arrangements on reasonable terms for Alcan common shares representing
fractional shares to be aggregated and sold on the market. You will receive
a pro rata portion of the net cash proceeds instead of any fractional Alcan
common shares that would have been issued to you.
Q: ARE THERE ANY CONDITIONS TO THE OBLIGATIONS OF ALCAN TO COMPLETE THIS OFFER?
A: The only condition to this offer is that valid acceptances, that have not
been withdrawn, in respect of Pechiney Securities which carry more than 67%
of the total voting rights of Pechiney, calculated on a fully diluted basis
at the end of the offering period, are tendered in this offer and the
French offer, on a combined basis. If this condition is neither met nor
waived by agreement of both Alcan and Pechiney, Alcan will have the right
to withdraw this offer and will not be required to accept or pay for any
Pechiney Securities tendered pursuant to this offer.
Q: WILL I KNOW WHETHER THE 67% MINIMUM SHARE CONDITION HAS BEEN SATISFIED
BEFORE I LOSE MY RIGHT TO WITHDRAW SHARES FROM THIS OFFER?
A: No, under the terms of this offer, your withdrawal rights extend only to the
expiration date. The definitive results of the offers for Pechiney
Securities will not be known until approximately nine French business days
after the expiration date.
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Q: IF THE OFFERS FOR PECHINEY SECURITIES ARE SUCCESSFUL, WHAT WILL HAPPEN TO
PECHINEY SECURITIES THAT WERE NOT TENDERED OR THAT WERE TENDERED BUT
SUBSEQUENTLY WITHDRAWN? DOES ALCAN INTEND TO "SQUEEZE OUT" FOR CASH OR
OTHER CONSIDERATION ANY PECHINEY SECURITIES THAT REMAIN OUTSTANDING
FOLLOWING COMPLETION OF THE OFFERS?
A: The purpose of the offers is to enable Alcan to acquire all of the
outstanding Pechiney Securities. If Alcan acquires Pechiney Securities
pursuant to the offers, Alcan may exercise its statutory right, to the
extent available, and all other means legally available to it, to acquire
all of the Pechiney Securities not tendered. Alcan may engage in subsequent
transactions with Pechiney to combine and integrate the two businesses. The
resulting financial strategies and dividend policies of Pechiney may differ
from those that would be established by Pechiney if it remained an
independent company. If Alcan were to obtain at least 95% of the total
voting rights in Pechiney, it might consider launching, to the extent
permitted by French law, a withdrawal offer (offre publique de retrait)
which could be followed by a compulsory acquisition (retrait obligatoire)
of the remaining shares.
Q: WHAT PERCENTAGE OF THE COMBINED COMPANY WILL BE OWNED BY FORMER HOLDERS OF
PECHINEY SECURITIES?
A: Assuming acceptance in full of Alcan's offers for the Pechiney Securities
and Algroup's shares, the former holders of Pechiney Securities would own
approximately 29% of the Combined Company's outstanding common shares, on a
fully diluted basis, immediately after the combination. If only the offers
for Pechiney Securities are completed and all of the Pechiney Securities
are exchanged for Alcan common shares, holders of Pechiney Securities will
own approximately 39.7% of the Combined Company's outstanding common
shares, on a fully diluted basis, immediately after the combination.
Q: WHO WILL MANAGE THE COMBINED COMPANY?
A: If the offers for the Pechiney Securities and the offer for the Algroup
shares are both successful, the board of directors of the Combined Company
will consist of 12 members who will be proposed as directors, four of whom
will be nominees of Alcan, four of whom will be nominees of Pechiney and
four of whom will be nominees of Algroup. If only the offers for Pechiney
Securities are completed, the Algroup nominees will not be proposed for
election. Instead, the board of directors of the Combined Company will
consist of 11 members with the four nominees of Alcan selecting two
additional nominees and the four nominees of Pechiney selecting one
additional nominee.
Mr. Jacques Bougie, currently the President and Chief Executive Officer of
Alcan, will serve as the chief executive officer of the Combined Company
and Mr. Jean-Pierre Rodier, currently the Chief Executive Officer of
Pechiney, will serve as president and chief operating officer of the
Combined Company. It is expected that Mr. Bougie will retire after
approximately two years, when the successful integration of the three
companies has been completed, and that Mr. Rodier will succeed Mr. Bougie
as chief executive officer of the Combined Company.
The persons to be nominated to the Board of the Combined Company are listed
under "Summary -- Directors and Management of Alcan after the Combination"
on page 6 and more detailed information, including information on the
executive officers of the Combined Company, is provided in "Management
Information Subsequent to the Combination" on page 100.
Q: WHERE WILL THE COMBINED COMPANY HAVE ITS DOMICILE?
A: The registered office and legal headquarters of the Combined Company will be
in Montreal, Canada. The Combined Company will also have business sector
operating headquarters in Montreal, Paris, Zurich and Cleveland. The office
of the CEO will be in New York City.
Q: WILL I RECEIVE MY USUAL ANNUAL DIVIDEND FROM PECHINEY PRIOR TO THE
COMPLETION OF THE COMBINATION?
A: Yes, if any annual dividend is payable. In addition, Pechiney intends to pay
a special dividend to its shareholders at the time of, and conditional
upon, completion of the
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offers. This special dividend, together with Pechiney's annual dividend,
and including the "precompte" tax and any other tax payable by Pechiney
under French tax law in connection with these dividends, will represent a
gross amount not exceeding $549 million in the aggregate. Any such
dividends will be paid in euros. In the event that the entirety of this
amount is declared and paid as a special dividend, no annual dividend for
fiscal year 1999 will be declared before the completion of the Pechiney
offers.
Q: WHAT IS THE EXPECTED DIVIDEND POLICY OF THE COMBINED COMPANY?
A: Alcan expects that the Combined Company will pay quarterly dividends on the
common shares. The amount of such dividends will be determined by the board
of directors in light of the Combined Company's earnings from operations,
capital requirements and financial condition.
Q: WHAT WILL HAPPEN TO MY FUTURE DIVIDENDS IF I DO NOT ACCEPT THIS OFFER?
A: Alcan is not in a position at this stage to state what the dividend policy
of the Combined Company will be in respect of the Pechiney Securities after
successful offers, but it is likely that such policy will be determined in
the context of Pechiney's integration into the Combined Company. This
policy could bring about a large reduction in the level of dividends paid
on Pechiney Securities, or even an end to the payment of dividends on the
Pechiney Securities, subject to the rights of holders of Pechiney B Shares.
Q: WILL I BE TAXED ON THE ALCAN COMMON SHARES THAT I RECEIVE IN THIS OFFER?
A: It is not currently known whether or not the exchange of shares pursuant to
this offer will require holders of Pechiney Securities to recognize gain
for U.S. federal income tax purposes. For U.S. federal income tax purposes,
whether U.S. holders will recognize gain or loss realized in respect of
their Pechiney Securities exchanged in the offer will depend, in part, on
whether Alcan acquires Pechiney Securities in the offers possessing 80% or
more of the voting rights of all Pechiney Securities. It will also depend,
in part, on whether the U.S. offer and French offer and any subsequent
offers (including a withdrawal offer under French law (offre publique de
retrait)) are made exclusively for Alcan shares rather than cash. If Alcan
subsequently engages in any other offer or transaction through which Alcan
acquires the remaining Pechiney Securities for cash, this offer will likely
be fully taxable to U.S. holders of Pechiney Securities. U.S. holders of
Pechiney Securities will not generally be subject to Canadian federal
income tax in respect of any gain or loss realized in respect of their
Pechiney Securities exchanged in this offer, whether or not gain is
recognized for U.S. federal income tax purposes. We urge you to consider
carefully the discussion of the tax consequences related to this offer and
the combination and to review these tax consequences with your tax advisor.
Q: WHAT WILL BE THE ACCOUNTING TREATMENT OF THE COMBINATION?
A: A combination of all three companies is intended to be accounted for using
the pooling of interests method under generally accepted accounting
principles, or GAAP, of Canada, provided that substantially all of the
Pechiney Securities and the Algroup shares are tendered. A final
determination can be made only when the outcome of the offers for Pechiney
Securities and Algroup shares is known. The combination of all three
companies will be accounted for using the purchase method of accounting
under U.S. GAAP. The combination of Alcan and Pechiney without Algroup will
be accounted for using the purchase method of accounting under both
Canadian and U.S. GAAP. The unaudited pro forma combined financial
information set forth in this prospectus has been prepared to demonstrate
the various possible outcomes. For a more detailed description of the
circumstances affecting the accounting treatment, please see "The
Combination -- Accounting Treatment" on page 37.
Q: I HOLD CERTIFICATES FOR PECHINEY ADSS. HOW DO I ACCEPT THIS OFFER?
A: If you hold certificates for Pechiney ADSs, complete and sign the letter of
transmittal and send it, together with your American depositary share
certificates and any other required documents, to the U.S. exchange agent
before the expiration of this offer. If your certificates are not
available, you may
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also follow guaranteed delivery procedures described in this prospectus. Do
not send your certificates to Alcan, the dealer manager or the information
agent.
Q: I HOLD PECHINEY ADSS IN BOOK-ENTRY FORM. HOW DO I ACCEPT THIS OFFER?
A: If you hold Pechiney ADSs in book-entry form, complete the confirmation of a
book-entry transfer of your Pechiney ADSs into the U.S. exchange agent's
account at The Depositary Trust Company, commonly known as DTC, and send
either an agent's message or a letter of transmittal and any other required
documents to the U.S. exchange agent before the expiration of this offer.
Q: I HOLD PECHINEY A SHARES OR PECHINEY B SHARES THROUGH A FRENCH FINANCIAL
INTERMEDIARY. HOW DO I ACCEPT THIS OFFER?
A: If your Pechiney A Shares or Pechiney B Shares are held through a French
financial intermediary, you do not need to complete the letter of
transmittal. Instead, your French financial intermediary should send you an
order form and instructions for accepting this offer before the last day of
the acceptance period. If you have not yet received instructions from your
French financial intermediary, please contact your French financial
intermediary directly. If your Pechiney shares are held in pure registered
form (nominatif pur), you will first have to request that your shares be
converted to administered registered form (nominatif administre).
Q: I HOLD PECHINEY A SHARES OR PECHINEY B SHARES THROUGH A U.S. CUSTODIAN, SUCH
AS A BROKER, BANK OR TRUST COMPANY. HOW DO I ACCEPT THIS OFFER?
A: If you hold Pechiney A Shares or Pechiney B Shares through a U.S. custodian,
you do not need to complete the letter of transmittal. Instead, your U.S.
custodian should either forward to you the order form sent by the French
financial intermediary that holds the shares on behalf of the U.S.
custodian as record owner or send you a separate form prepared by the U.S.
custodian. If you have not yet received instructions from your U.S.
custodian, please contact your U.S. custodian directly. If your shares are
held in pure registered form (nominatif pur), you will first have to
request that your shares be converted to administered registered form
(nominatif administre).
Q: WILL THERE BE ANY LIMITATIONS ON MY ABILITY TO PARTICIPATE IN THIS OFFER IF
I RECENTLY BOUGHT MY PECHINEY A SHARES OR PECHINEY B SHARES?
A: For your Pechiney A Shares or Pechiney B Shares to be eligible for tender
into this offer, you must have acquired them at least three days before the
expiration date of this offer.
Q: WHAT HAPPENS IF I CHANGE MY MIND AFTER I TENDER MY PECHINEY SECURITIES?
A: You may withdraw your tender of Pechiney Securities at any time before the
expiration date, which has initially been set as 11:00 a.m., New York City
time, on , 2000, unless extended. If the expiration date is
extended you may also withdraw your securities during the extension period.
If you change your mind again, you can retender your securities by
following the tender procedures again before this offer expires.
Q: DO I NEED TO DO ANYTHING IF I WANT TO RETAIN MY PECHINEY SECURITIES?
A: No. If you want to retain your Pechiney Securities, you do not need to take
any action.
Q: WHEN DOES THIS OFFER EXPIRE?
A: This offer will expire at 11:00 a.m., New York City time, on ,
2000 unless extended. You must tender your Pechiney Securities and deliver
all required instructions and documents before then in order to accept this
offer.
Q: WHAT HAPPENS IF THE OFFERS ARE NOT SUCCESSFUL?
A: If the offers for Pechiney Securities are not successful, Alcan will return
your Pechiney Securities to you promptly after determining the outcome of
the offers.
Q: WHEN WILL I KNOW THE OUTCOME OF THE OFFERS?
A: The French Conseil des Marches Financiers, or CMF, will announce the results
of the offers for Pechiney Securities on a preliminary basis between six or
seven French business days after the expiration date and on a final basis
not more than nine French business days after the expiration
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date. Alcan will issue a press release announcing the results of the offers
promptly after each announcement by the CMF.
Q: WILL I HAVE TO PAY ANY BROKERAGE COMMISSIONS OR TRANSACTION FEES?
A: If your Pechiney Securities are registered in your name and you tender them
directly to the U.S. exchange agent, you will not have to pay any brokerage
commissions or transaction fees. If you hold your Pechiney Securities
through a bank or broker, you should consult with them as to whether they
charge any transaction fees or service charges. For more information
regarding brokerage commissions and fees, see "Terms of the Offer -- Fees
and Expenses."
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about this offer, you should contact:
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TABLE OF CONTENTS
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OFFER TO EXCHANGE........................................... i
QUESTIONS AND ANSWERS ABOUT THE COMBINATION AND THE
OFFERS.................................................... ii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... ix
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN
PERSONS................................................... ix
SUMMARY..................................................... 1
SELECTED HISTORICAL FINANCIAL DATA.......................... 8
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION............................................... 11
RISK FACTORS................................................ 16
Integration of the companies may fail or disrupt
operations............................................. 16
Regulatory approvals may not be obtained or may impose
adverse conditions..................................... 16
Increased exposure to currency exchange rate fluctuations
may cause adverse financial results.................... 16
The Combined Company will be exposed to market and credit
risk in derivatives.................................... 17
The substantial increase in the number of Alcan common
shares following the combination may adversely affect
their market price..................................... 17
The Combined Company may be exposed to increased
environmental costs and liabilities.................... 17
The Combined Company will be exposed to trading and
brokerage risks........................................ 17
The Combined Company will be exposed to potential risks of
losses from operations in lesser developed countries... 17
The market for Pechiney Securities may be adversely
affected by the offers................................. 17
CURRENCY PRESENTATIONS AND EXCHANGE RATES................... 19
THE COMBINATION............................................. 20
Background of the Combination............................. 20
Reasons for the Combination............................... 21
Benefits of an Alcan-Pechiney Combination................. 24
Recommendation of Pechiney's Board of Directors........... 25
The Combination Agreement................................. 25
REGULATORY MATTERS.......................................... 35
ACCOUNTING TREATMENT........................................ 37
TERMS OF THE OFFER.......................................... 38
Introduction.............................................. 38
Terms of the Offer........................................ 38
Conditions to Commencement of the Offer................... 38
Condition to Completion of the Offer...................... 38
Compulsory Acquisition.................................... 38
Grounds for Withdrawing the Offer......................... 39
The Expiration Date....................................... 39
Extension, Termination and Amendment...................... 39
Fractional Shares......................................... 40
Procedures for Tendering Pechiney Securities.............. 40
Guaranteed Delivery....................................... 42
Withdrawal Rights......................................... 43
Acceptance and Return of Pechiney Securities.............. 43
Miscellaneous............................................. 44
Delivery of Alcan Common Shares........................... 44
Fees and Expenses......................................... 44
Stock Exchange Listing of Alcan Common Shares............. 44
Treatment of Pechiney Stock Options....................... 45
Effect of the Offers on the market for Pechiney
Securities............................................. 45
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Subsequent Transactions to Integrate the Business of Alcan
and Pechiney and Future Dividend Policy..................... 45
Increased Competition..................................... 46
THE COMPANIES............................................... 47
Alcan..................................................... 47
Pechiney.................................................. 59
Algroup................................................... 75
MATERIAL TAX CONSEQUENCES RELATING TO THE U.S. OFFER........ 94
United States Federal Income Tax Consequences............. 94
Canadian Federal Income Tax Considerations................ 99
MANAGEMENT INFORMATION SUBSEQUENT TO THE COMBINATION........ 100
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS........... 105
DESCRIPTION OF ALCAN COMMON SHARES.......................... 137
MARKET PRICE AND DIVIDEND DATA.............................. 137
COMPARISON OF SHAREHOLDERS' RIGHTS.......................... 139
VALIDITY OF SECURITIES...................................... 151
EXPERTS..................................................... 151
WHERE YOU CAN FIND MORE INFORMATION......................... 152
INFORMATION FROM PECHINEY AND ALGROUP....................... 154
ANNEX A Combination Agreement............................... A-1
ANNEX B Algroup Consolidated Financial Statements and
Management's Discussion
and Analysis.................................. B-1
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are subject to
risks and uncertainties. Forward-looking statements include, but are not limited
to, statements concerning industry growth and other trend projections,
anticipated financial or operating performance, business and financial
prospects, strategies, objectives, goals, targets and synergies, and the savings
and benefits anticipated to be realized from the combination of Alcan, Pechiney
and Algroup or the combination of Alcan and Pechiney. Forward-looking statements
in this prospectus are sometimes preceded by, followed by or include the words
"believe", "expects", "estimates", "intends", "anticipates", "plans" or similar
expressions. Forward-looking statements and information relating to Alcan,
Pechiney and Algroup are based on the beliefs of their respective managements as
well as assumptions made by, and information currently available to, each of
Alcan, Pechiney and Algroup. Although the companies believe that the
expectations reflected in such forward-looking statements are reasonable,
readers are cautioned that these forward-looking statements by their nature
involve risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. Many factors, in addition to those
discussed elsewhere in this prospectus and in the documents we incorporate by
reference, could cause actual results and developments to differ materially from
those expressed or implied by these forward-looking statements. These factors
include those set forth under the heading "Risk Factors" as well as the
following:
- global aluminum supply and demand conditions,
- aluminum ingot prices and the cost or availability of other raw
materials,
- cyclical demand and pricing in the companies' principal markets,
- the effectiveness of management's implementation of its plans and
strategies,
- the development and use of new products and technologies,
- natural disasters and other business conditions,
- changes in government regulations,
- economic developments within the countries in which the companies
conduct business and
- other factors relating to the companies' operations, such as
litigation, labor negotiations and fiscal regimes.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
Alcan is a Canadian corporation. Most of Alcan's directors and officers, as
well as the experts named in this prospectus, are not citizens or residents of
the United States and all or a substantial part of the assets of these
individuals may be located outside the United States. As a result, it may be
difficult for you to effect service of process within the United States upon
these individuals or to realize against them or Alcan within the United States
upon judgments of courts of the United States predicated upon civil liabilities
under the Securities Act of 1933. McCarthy Tetrault, our Quebec counsel, has
advised us, however, that the civil liability provisions of that Act may be
enforced in original actions taken in the Province of Quebec against us or any
such individual, but judgments of United States courts predicated on such
provisions will not be enforceable in the Province of Quebec unless they meet
the requirements for the recognition and enforcement of foreign judgments under
the Civil Code of Quebec.
ix
<PAGE> 11
SUMMARY
This summary highlights selected information from this prospectus. It does
not contain all of the information that is important to you. You should read
carefully the entire prospectus and the additional documents referred to in this
prospectus.
THE COMBINATION AND THE OFFERS
Alcan, Pechiney and Algroup have agreed to combine to form one of the
world's largest aluminum companies, with complementary operations and
technologies, a sustainable low-cost position in primary aluminum, advanced
aluminum fabricating facilities located globally and strong positioning for
future low-cost growth and expansion. In addition, the combination will
establish a world leader in the flexible and specialty packaging business. The
Combined Company had pro forma 1998 revenues of $23.3 billion and will have a
unique strategic position in the global aluminum and packaging markets. See "The
Combination -- Reasons for the Combination."
The combination will be effected through independent offers by Alcan to
exchange Alcan common shares for Pechiney Securities and to exchange Alcan
common shares for Algroup shares. Alcan's offer to exchange Alcan common shares
for Algroup shares is not being made by this prospectus.
Alcan is offering to exchange:
- 1.7816 Alcan common shares for every Pechiney A Share,
- 1.9598 Alcan common shares for every Pechiney B Share, and
- 0.8908 of an Alcan common share for every Pechiney ADS.
For legal and regulatory reasons, Alcan's offer to acquire all of the
Pechiney Securities is being be made through two separate offers:
- a U.S. offer open to all holders of Pechiney Securities who are located
in the United States and Canada, and
- a French offer open at the Paris Bourse to all other holders of Pechiney
Securities who are located outside of the United States or Canada.
The U.S. and French offers for Pechiney Securities will be made at the same
time and on the same terms and completion of the offers will be subject to the
same condition. This prospectus covers only Alcan's U.S. offer for Pechiney
Securities.
Alcan's shareholders approved the issuance of Alcan common shares pursuant
to the offers for Pechiney Securities and the offer for Algroup shares on
November 22, 1999. The combination now remains subject to acceptance of the
offers by holders of at least the requisite percentage of voting rights
pertaining to Pechiney Securities and Algroup shares as well as satisfaction of
other conditions set forth in the combination agreement, including the receipt
of the requisite regulatory approvals. See "The Combination -- The Combination
Agreement."
Although the combination agreement contemplates the combination of Alcan,
Pechiney and Algroup, the offers for Pechiney Securities and the offer for
Algroup shares are independent. There are three possible outcomes of the offers
for Pechiney Securities and Algroup shares that are relevant to holders of
Pechiney Securities:
- the share exchange offers for Pechiney Securities and Algroup shares are
both completed, resulting in the combination of Alcan, Pechiney and
Algroup,
- only the share exchange offers for Pechiney Securities are completed,
resulting in the combination of Alcan and Pechiney, or
- the share exchange offers for Pechiney Securities are not completed,
resulting in Pechiney's continued independence and existence apart from
Alcan and Algroup.
If all of the Pechiney Securities and Algroup shares are acquired and
exchanged for Alcan common shares, the current holders of Pechiney Securities
and Algroup shares will own approximately 29% and 27%, respectively, of the
outstanding common shares of the Combined Company, on a fully diluted basis,
immediately after the combination and the current Alcan shareholders will own
approximately 44% of the
1
<PAGE> 12
outstanding common shares of the Combined Company, on a fully diluted basis,
immediately after the combination.
If only the offers for Pechiney Securities are completed and all of the
Pechiney Securities are acquired and exchanged for Alcan common shares, holders
of Pechiney Securities will own approximately 39.7% of the outstanding common
shares, on a fully diluted basis, and the current Alcan shareholders will own
the remaining 60.3%, on a fully diluted basis.
THE COMPANIES
ALCAN ALUMINIUM LIMITED (See page 47)
1188 Sherbrooke Street West
Montreal, Quebec, Canada H3A 3G2
(514) 848-8000
Alcan is engaged in all significant aspects of the aluminum business,
including the following:
- mining and processing of bauxite and the refining of bauxite into
alumina,
- generation of electricity for use in smelting aluminum,
- the smelting of aluminum from alumina,
- recycling of used and scrap metal,
- fabrication of aluminum and aluminum alloys into semi-finished products,
- distribution and marketing of aluminum, and
- production and sale of industrial chemicals in connection with its
aluminum operations.
In 1998 and the first six months of 1999, Alcan had sales and operating
revenues of $7,789 million and $3,598 million, respectively.
With 1998 production of 1,481,000 metric tonnes, Alcan is the world's
second largest producer of primary aluminum. Alcan has interests in eight
bauxite mines in six countries, totaling about 400,000,000 metric tonnes of
proven bauxite reserves. Its smelter system has operating costs which are among
the lowest in the world with almost 1,700,000 metric tonnes of annual capacity,
mostly drawing on its own hydroelectric power resources. The new Alma smelter
currently under construction will increase this total by over 300,000 metric
tonnes each year. Supplied by its advanced aluminum rolling mills in North
America, Europe and Brazil, Alcan is also a leading producer of flat rolled
products used in beverage cans, automotive and other sectors. It also has a
growing participation in the recycling industry with an annual recycling
capacity of over 805,000 metric tonnes.
Consistent with its resolve to earn in excess of its cost of capital in
order to deliver higher shareholder returns, Alcan set a new additional pre-tax
earnings improvement target of $700 million in March 1999. Together with Alcan's
original target of $300 million launched in 1997, this translates into a $1
billion goal by the end of 2001. Alcan has implemented its Full Business
Potential (FBP) program, aimed at identifying and realizing optimal returns from
existing assets, including projects currently under development, with a view to
achieving this performance goal.
During the past five years, Alcan has refocused its activities on its core
business of primary aluminum and fabrication. It has divested 60 businesses,
using the proceeds to strengthen its balance sheet and invest in its high
quality, low-cost smelting and fabrication system.
PECHINEY (See page 59)
Place du Chancelier Adenauer
75218 Paris Cedex 16
France
011-33-156-28-20-00
Pechiney operates in two core businesses:
- the production of primary aluminum and aluminum products and
- the production of packaging materials.
2
<PAGE> 13
Pechiney mines bauxite and produces alumina, principally for use in its
aluminum smelting facilities, and licenses alumina refining and aluminum
smelting technology. Pechiney also produces semi-finished products for use in
the packaging, transportation, building and equipment industries and distributes
semi-finished aluminum and stainless steel products. Pechiney designs,
manufactures and markets a wide range of packaging materials for food,
healthcare and beauty products. In 1998 and the first six months of 1999,
Pechiney had revenues of E9,836 million and E4,843 million, respectively.
With a controlled capacity of 1,083,000 metric tonnes, Pechiney is the
world's fourth largest producer of primary aluminum and the world's second
largest producer of technical flat rolled products for the aerospace and
transportation industries. It is also a global leader in smelting technology:
80% of the world's recently constructed smelting capacity uses Pechiney
technology. Pechiney is one of the world's foremost specialty packaging
manufacturers and is among the world's largest producers of flexible tubes and
deluxe cosmetics packaging.
Since 1996, Pechiney has successfully implemented an ambitious cost cutting
program. By the end of 1999, Pechiney expects that the target of 20% cost
reduction, excluding raw material, will have been achieved. This program has
enabled Pechiney to strengthen its cost position and implement its strategy of
profitable growth.
ALUSUISSE LONZA GROUP AG (See page 75)
Feldeggstrasse 4,
Postfach CH-8034
Zurich, Switzerland
011-411-386-2273
Algroup is a diversified industrial enterprise whose activities are focused
on aluminum and packaging. Algroup had 1998 net sales of CHF 7.5 billion, or CHF
9.6 billion if Algroup's recently demerged chemicals and energy businesses were
included, and net sales for the six months ended June 30, 1999 of CHF 3.7
billion, or CHF 4.7 billion if Algroup's chemicals and energy businesses were
included.
Algroup currently operates through three divisions:
- Algroup Alusuisse (Primary Materials and Fabricated Products),
- Algroup Lawson Mardon (Food, Flexible and Tobacco Packaging) and
- Algroup Wheaton (Pharmaceutical and Cosmetics Packaging).
Algroup Alusuisse's activities cover all stages of primary aluminum
production. Algroup Alusuisse also produces a wide range of value-added
fabricated products with a particular focus on automotive and mass
transportation customers as well as special products for the industrial and
building markets.
Algroup Lawson Mardon is a producer and converter of flexible packaging
materials for the food and beverage industries and a manufacturer of folding
cartons and flexible packaging materials.
Algroup Wheaton offers a wide range of products for the pharmaceutical
sector, including blister pouches, vials, glass and plastic containers, tubing
glass and folding cartons. It produces aerosols and pump dispenser containers,
tube laminates and glass and plastic bottles for the cosmetics and personal care
sectors.
Algroup has sought to improve profitability through a focused approach to
diversification by which it imposes rigorous financial discipline to assess risk
among its various activities. Algroup manages its diversified activities with
the aim of leading these activities to achieve "best-in-class" standards, as
measured by alva(TM), an economic value added-based standard developed by
Algroup.
Under the terms of the combination agreement, Algroup agreed to divest its
fine and specialty chemicals and energy businesses to existing Algroup
shareholders. This divestiture, which is referred to in this prospectus as the
"chemicals division demerger", was effected on November 1, 1999. The chemicals
and energy businesses represented approximately 24% of Algroup's 1998 net
revenues. These businesses are reflected as discontinued operations in the
Algroup financial statements in this prospectus. See "Algroup -- Business
Description -- The Chemicals Division Demerger."
3
<PAGE> 14
REASONS FOR THE COMBINATION (See page 21)
The companies believe that the combination will create increased value for
the shareholders of all three companies and will form one of the world's largest
aluminum companies. The Combined Company will pool technological expertise,
customer knowledge and technical know-how. In primary aluminum, the Combined
Company will benefit from a sustainable low-cost position and opportunities for
low-cost growth based upon Alcan's owned hydroelectric power providing low-cost
electricity, Pechiney's industry-leading high-amperage technology and Algroup's
access to low-cost bauxite and alumina, among other factors. The Combined
Company will be a world leader in rolled aluminum products, which include sheet
for the beverage can, foil, aerospace and automotive industries.
The combination will also create a world leader in the flexible and
specialty packaging business with pro forma 1998 sales of $4.2 billion. The
packaging business will provide the Combined Company with significant earnings
power and a strong platform from which the Combined Company can actively pursue
growth opportunities in this industry.
Management of Alcan, Pechiney and Algroup believe that the combination will
generate at least $600 million in annual cost synergies to be substantially
achieved within two years of the completion of the combination, over and above
existing profit improvement programs that are already underway in each of the
companies. The synergies are expected to be achieved from:
- lower selling, general and administrative expenses,
- volume purchasing,
- more efficient operations and
- rationalizing research and development efforts.
Estimated one-time costs, including severance costs, to achieve these
savings are expected to be approximately $600 million.
BENEFITS OF A COMBINATION OF ALCAN AND PECHINEY (See page 24)
For a description of the benefits of a combination of Alcan and Pechiney
without Algroup, see page 24.
THE COMBINATION AGREEMENT (See page 25)
On September 15, 1999, Alcan, Pechiney and Algroup executed the combination
agreement setting forth in detail the terms by which the three companies will
combine. The combination agreement is attached as Annex A to this prospectus. We
encourage you to read the combination agreement as it is the legal document that
governs the combination.
TERMINATION OF THE COMBINATION AGREEMENT (See page 29)
Subject to certain conditions and requirements, a party may terminate the
combination agreement with respect to another party if, prior to the
commencement of the relevant offer,
- it provides written notice to the other parties of its intention to
enter into an agreement providing for an alternative transaction, as
defined in the combination agreement, or its board of directors has
resolved to recommend an alternative transaction;
- conditions to commencement of the offer with respect to such companies
have become incapable of satisfaction;
- another party is in material breach of any of its material obligations
under the combination agreement;
- Alcan has not commenced its offer for the other party's securities by
June 30, 2000; or
- a material adverse effect on the financial condition, properties,
business or results of operation of a party has occurred after the date
of the combination agreement.
The circumstances in which Alcan, Pechiney and Algroup can agree to
terminate the combination agreement are described in more detail in "The
Combination -- The Combination Agreement -- Termination."
4
<PAGE> 15
TERMINATION PAYMENTS (See page 31)
Alcan, Pechiney or Algroup may be required to pay a termination fee to one
or both of the other parties under certain circumstances where an alternative
transaction is proposed. As long as all the parties continue to be bound by the
combination agreement, the aggregate termination fee payable by any party is
$150 million. The termination fee payable is reduced to $100 million where the
combination agreement has been terminated with respect to a party and one of the
remaining parties is subsequently required to pay a termination fee.
TERMS OF THE U.S. OFFER (See page 38)
In order to effect the combination, Alcan is offering to exchange:
- 1.7816 Alcan common shares for every Pechiney >A Share you tender,
- 1.9598 Alcan common shares for every Pechiney B Share you tender, and
- 0.8908 of an Alcan common share for every Pechiney ADS you tender.
The U.S. offer will begin on , 2000 and end at 11:00 a.m., New
York City time, on , 2000. The offering period may be extended by the
French Conseil des Marches Financiers under certain circumstances. You must
tender your Pechiney Securities before the expiration of the U.S. offer to
participate.
Completion of the offers for Pechiney Securities is subject to the
condition that Alcan receives valid acceptances, that have not been withdrawn,
in respect of Pechiney Securities which carry more than 67% of the total voting
rights of Pechiney calculated on a fully diluted basis at the end of the
offering period.
CONDITIONS TO COMMENCEMENT OF THE OFFER (See page 38)
Alcan will not make the offers for Pechiney Securities unless certain
conditions to commencing the offers are satisfied or waived, including the
following:
- approval of the New York and Toronto stock exchanges for listing of the
Alcan common shares to be issued in the offers for Pechiney Securities,
and
- the expiration or termination of the applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which is
referred to in this prospectus as the HSR Act, and the Competition Act
(Canada) and clearance of the offers for Pechiney Securities by the
European Commission under the applicable European Council regulation.
EXPIRATION DATE (See page 39)
This offer will expire at 11:00 a.m., New York City time on ,
2000, unless extended.
PROCEDURES FOR TENDERING PECHINEY SECURITIES (See page 40)
The procedure for tendering Pechiney Securities varies depending on whether
you hold Pechiney ADSs, Pechiney A Shares or Pechiney B Shares, whether you
possess physical certificates or a financial intermediary holds physical
certificates for you and whether you hold your securities in book-entry form.
You should read carefully the procedures for tendering your securities on pages
40 through 42 of this prospectus as well as the transmittal materials.
WITHDRAWAL RIGHTS (See page 43)
You will be able to withdraw your tender of Pechiney Securities at any time
prior to the expiration date.
DELIVERY OF ALCAN COMMON SHARES (See page 44)
In the event this offer is successful, the exchange agent will deliver
Alcan common shares to tendering holders promptly following the publication by
the French Conseil des Marches Financiers of the final results of the offers for
Pechiney Securities.
5
<PAGE> 16
INTERESTS OF DIRECTORS AND OFFICERS (See page 100)
You should be aware that certain members of the management and board of
directors of Pechiney have certain interests in the combination that are
different from, or in addition to, the interests they may have as Pechiney
shareholders. Pechiney's senior executive officers and directors collectively
own less than % of Pechiney's outstanding capital stock. These interests are
described in "Management Information Subsequent to the Combination" beginning on
page 100.
DIVIDENDS (See page 138)
Under the terms of the combination agreement, Pechiney will pay a special
dividend to its shareholders at the time of, and conditional upon, successful
completion of the offers pursuant to their terms. This special dividend,
together with the ordinary annual dividend, precompte tax or any other tax
payable by Pechiney under French tax law in connection with these dividends,
will represent a gross amount not exceeding $549 million in the aggregate
including precompte and other tax. See "The Combination -- The Combination
Agreement -- Mutual Covenants -- Operation of Business".
COMPARISON OF RIGHTS OF PECHINEY SHAREHOLDERS AND ALCAN SHAREHOLDERS (See page
139)
You will receive Alcan common shares if you tender your Pechiney Securities
in the offer. There are numerous differences between the rights of a shareholder
in Pechiney, a French company, and the rights of a shareholder in Alcan, a
Canadian corporation. We urge you to review the discussion under "Comparison of
Shareholders' Rights" beginning on page 139 for a summary of these differences.
ACCOUNTING TREATMENT (See page 37)
Assuming that the offers for Pechiney Securities and the offer for Algroup
shares are fully accepted, existing shareholders of Alcan, former shareholders
of Pechiney and former shareholders of Algroup will have 44%, 29% and 27%,
respectively, of the ownership interests in the Combined Company on a fully
diluted basis. Moreover, the board of directors of the Combined Company will be
comprised of an equal number of representatives from each of the combining
companies, and senior management will also be drawn from the three combining
companies. Accordingly, from an accounting point of view, none of the combining
companies will be considered to be an acquirer. Therefore, if substantially all
of the Pechiney Securities and Algroup shares are acquired by Alcan within a
reasonable time of each other pursuant to the share exchange offers, the
combination of all three companies is expected to be accounted for using the
pooling of interests method under Canadian GAAP, subject to regulatory approval.
Under the pooling of interests method, the assets and liabilities of the
combining companies are added together, after harmonization of significant
accounting principles and policies, at their stated book values. If, however,
the share exchange offers for Pechiney and Algroup are not completed within a
reasonable period of time of each other or if less than substantially all of the
Pechiney Securities and Algroup shares are exchanged for Alcan common shares,
the combination will be accounted for using the purchase method of accounting
under Canadian GAAP. Similarly, if the offer for Pechiney Securities is
completed but the offer for Algroup shares is not completed, the combination of
Alcan and Pechiney will be accounted for using the purchase method of accounting
under Canadian GAAP.
Under U.S. GAAP, the combination of all of Alcan, Pechiney and Algroup or
the combination of Alcan and Pechiney without Algroup would be accounted for
using the purchase method of accounting.
Under the purchase method of accounting, the book value of the Alcan common
shares issued pursuant to the share exchange offers would be based on the market
value of the Alcan common shares. Accordingly, in the consolidated financial
statements of the Combined Company, the market value of the Alcan common shares
issued would be allocated to the assets and liabilities of one or the other or
both of Pechiney and Algroup, based upon their respective fair values, with any
excess of the purchase price over the allocated value of the net identifiable
assets being treated as goodwill. This method will result in the carrying values
of the assets, including goodwill, attributable to one or the other or both of
Pechiney and Algroup being substantially higher than the former book values of
those assets.
The Combined Company had pro forma 1998 sales and operating revenues of
$23.3 billion using the pooling of interests method of accounting under Canadian
GAAP and $21.6 billion using the purchase
6
<PAGE> 17
method of accounting under U.S. GAAP. The Combined Company had pro forma 1998
income from continuing operations of $918 million using the pooling of interests
method of accounting under Canadian GAAP and $525 million using the purchase
method of accounting under U.S. GAAP.
REGULATORY APPROVALS (See page 35)
Completion of the combination is subject to certain regulatory approvals
including competition and securities authorities' approvals. There can be no
assurance that all necessary approvals will be granted or that they will be
granted on favorable terms. It is possible that certain regulatory approvals
will be subject to conditions, including the demerger of certain assets or
businesses and thereby materially affect certain of the financial assumptions
upon which the information in this prospectus is based. The companies may choose
to proceed with the Pechiney offers and the Algroup offer even though they are
required to comply with such conditions.
LISTING OF ALCAN SHARES (See page 44)
Alcan will apply for the listing of the common shares issued in the share
exchange offers on the London, New York, Paris, Swiss and Toronto stock
exchanges, among others, and will comply with all of the usual requirements of
such exchanges within the time periods specified by such exchanges. Alcan's
common shares are currently listed on the Toronto, New York, Chicago, Pacific,
London, Paris, Brussels, Amsterdam, Frankfurt and Swiss stock exchanges.
MATERIAL INCOME TAX CONSEQUENCES (See page 94)
FOR U.S. FEDERAL INCOME TAX PURPOSES, WHETHER A U.S. HOLDER WILL RECOGNIZE
GAIN OR LOSS REALIZED IN RESPECT OF THEIR PECHINEY SECURITIES EXCHANGED IN THE
OFFER WILL DEPEND, IN PART, ON WHETHER ALCAN ACQUIRES PECHINEY SECURITIES IN THE
OFFERS POSSESSING 80% OR MORE OF THE VOTING RIGHTS OF ALL PECHINEY SECURITIES.
IT WILL ALSO DEPEND, IN PART, ON WHETHER THE U.S. OFFER AND THE FRENCH OFFER AND
ANY SUBSEQUENT OFFERS FOR PECHINEY SECURITIES (INCLUDING A WITHDRAWAL OFFER
UNDER FRENCH LAW (OFFRE PUBLIQUE DE RETRAIT)) ARE MADE EXCLUSIVELY FOR ALCAN
SHARES RATHER THAN CASH. IF ALCAN SUBSEQUENTLY ENGAGES IN A SQUEEZE OUT UNDER
FRENCH LAW (RETRAIT OBLIGATOIRE) OR ANY OTHER OFFER THROUGH WHICH ALCAN ACQUIRES
THE REMAINING PECHINEY SECURITIES FOR CASH, THIS OFFER WILL LIKELY BE FULLY
TAXABLE TO U.S. HOLDERS OF PECHINEY SECURITIES. U.S. HOLDERS OF PECHINEY
SECURITIES WILL NOT GENERALLY BE SUBJECT TO CANADIAN FEDERAL INCOME TAX IN
RESPECT OF ANY GAIN OR LOSS REALIZED IN RESPECT OF THEIR PECHINEY SECURITIES
EXCHANGED IN THE OFFER, WHETHER OR NOT GAIN IS RECOGNIZED FOR U.S. FEDERAL
INCOME TAX PURPOSES. WE URGE YOU TO CONSIDER CAREFULLY THE DISCUSSION OF THE TAX
CONSEQUENCES RELATED TO THIS OFFER AND THE COMBINATION AND TO REVIEW THESE TAX
CONSEQUENCES WITH YOUR TAX ADVISOR.
THE EXCHANGE AGENT (See page 44)
has been appointed exchange agent in connection with this
offer. The Letter of Transmittal (or facsimile copies thereof) and certificates
for Pechiney ADSs should be sent by each tendering Pechiney securityholder or
his or her broker, dealer, bank or other nominee to the exchange agent at the
addresses set forth on the back cover of this prospectus.
REQUESTS FOR ASSISTANCE
If you have questions or want copies of additional documents, you may
contact:
The information agent, , or
The dealer manager, Morgan Stanley Dean Witter.
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<PAGE> 18
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical financial data of (1)
Alcan and Pechiney as at and for the six months ended June 30, 1999 and 1998 and
each of the last five fiscal years ended December 31, 1998 and (2) Algroup as at
and for the six months ended June 30, 1999 and 1998 and each of the last three
fiscal years ended December 31, 1998. The selected historical financial data of
Alcan and Pechiney have been derived from, and should be read in conjunction
with, Alcan's and Pechiney's consolidated financial statements, including the
notes thereto, which are incorporated by reference into this prospectus. The
selected historical financial data of Algroup have been principally derived
from, and should be read in conjunction with Algroup's consolidated financial
statements, including the notes thereto, which are included as Annex B to this
prospectus.
ALCAN
Alcan reports in U.S. dollars and in accordance with Canadian GAAP with
reconciliation to U.S. GAAP. A description of the differences between Canadian
GAAP and U.S. GAAP is set forth in Note 5 of the "Notes to Consolidated
Financial Statements", included in Alcan's Annual Report on Form 10-K for the
year ended December 31, 1998, which is incorporated by reference into this
prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- --------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----- ----- ----- ----- ------
(unaudited) (audited)
(in millions)of US$ except per share amounts
<S> <C> <C> <C> <C> <C> <C> <C>
CANADIAN GAAP INFORMATION
Sales and operating revenues.................... 3,598 3,939 7,789 7,777 7,614 9,287 8,216
Net income before extraordinary item............ 109 203 399 468 410 543 96
Net income...................................... 109 203 399 485 410 263 96
Total assets.................................... 9,588 9,301 9,901 9,374 9,228 9,736 10,003
Long-term debt (including current portion)...... 1,600 1,262 1,703 1,277 1,338 1,773 2,290
Other debt...................................... 85 198 86 238 178 212 195
Cash and time deposits.......................... 616 440 615 608 546 66 27
Shareholders' equity............................ 5,248 5,405 5,519 5,074 4,864 4,835 4,661
Net income per Share before extraordinary
item.......................................... 0.48 0.87 1.71 2.02 1.74 2.30 0.34
Net income per Share............................ 0.48 0.87 1.71 2.09 1.74 1.06 0.34
Cash dividends per Share........................ 0.30 0.30 0.60 0.60 0.60 0.45 0.30
U.S. GAAP INFORMATION
Net income...................................... 105 211 417 521 420 266 175
Net income per Share............................ 0.46 0.91 1.79 2.25 1.79 1.07 0.69
OTHER FINANCIAL DATA -- CANADIAN GAAP
Net debt*....................................... 1,069 1,020 1,174 907 970 1,919 2,458
EBIT**.......................................... 262 438 745 854 758 1,072 459
EBITDA**........................................ 497 661 1,207 1,290 1,189 1,519 890
</TABLE>
- ---------------
* Net debt equals Long-term debt (including current portion) plus Other debt
less Cash and cash equivalents.
** The supplemental financial data includes earnings before interest and taxes,
referred to as EBIT, and earnings before interest, taxes, depreciation and
amortization, referred to as EBITDA. EBIT and EBITDA are not substitutes for
net income, cash flows and other measures of financial performance as
defined by generally accepted accounting principles, and may be defined
differently by other companies. Management believes that EBITDA provides a
measure of operating results that is unaffected by the financing and
accounting effects of acquisitions and differences in capital structures
among otherwise comparable companies.
In 1998, Alcan adopted, on a retroactive basis without restatement of prior
years, the new Canadian GAAP recommendations dealing with accounting for income
taxes.
In 1995, Alcan adopted, on a prospective basis, the new Canadian GAAP
recommendations dealing with accounting for joint ventures.
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<PAGE> 19
PECHINEY
Pechiney reports in euros and in accordance with U.S. GAAP.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- ----------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----- ------ ----- ------ ------
(unaudited) (audited)
) (in millions of euros except per share and ADS amounts
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. GAAP INFORMATION(1)
Net sales..................................... 4,843 5,225 9,836 10,633 9,813 10,471 9,003
Income (loss) from continuing operations...... 299 181 311 277 (454) 80 (434)
Total assets.................................. 9,744 9,150 9,198 9,076 8,567 8,538 10,605
Long-term debt (including current portion).... 1,348 1,933 1,932 1,832 1,412 1,664 3,460
Other debt.................................... 1,732 782 1,188 1,030 1,458 1,150 962
Cash and marketable securities................ 784 527 1,033 578 618 635 584
Shareholders' equity.......................... 2,926 2,577 2,540 2,458 2,053 2,005 1,658
Earnings (loss) per Common Share "A".......... 3.66 2.21 3.80 3.49 (5.90) 4.04 (9.95)
Earnings (loss) per Preferred Share "B/CIP"... 4.38 2.93 5.25 4.94 (4.45) 5.49 (8.51)
Earnings (loss) per ADS....................... 1.83 1.10 1.90 1.74 (2.95) 2.02 (4.98)
Cash dividends per Common Share "A"........... -- -- 0.80 0.61 0.50 0.50 --
Cash dividends per Preferred Share "B/CIP".... -- -- 1.96 1.57 1.45 1.45 1.45
Cash dividends per ADS........................ -- -- 0.40 0.30 0.25 0.25 --
CANADIAN GAAP INFORMATION
Income (loss) from continuing operations...... 299 181 311 277 (454) N/A N/A
Earnings (loss) per Common Share "A".......... 3.66 2.21 3.80 3.49 (5.90) N/A N/A
OTHER FINANCIAL DATA -- U.S. GAAP
Net debt*..................................... 2,296 2,188 2,087 2,284 2,252 2,179 3,838
EBIT**........................................ 271 326 561 505 (308) 455 (206)
EBITDA**...................................... 471 515 939 888 97 780 491
</TABLE>
- ---------------
In 1998, 1997 and 1996, the consolidated financial statements were initially
prepared in French francs and then translated to euros using the official
exchange rate of 6.55957 French francs per euro in place as of January 1, 1999.
The comparability of Pechiney's consolidated financial statements from one year
to another is not affected by the translation to euros. Additionally, the
comparability of Pechiney's consolidated financial statements with the financial
statements of other companies which are presented in euros in 1998 and which
were previously presented in French francs in 1997 and 1996 is not affected.
However, Pechiney's consolidated financial statements, as presented in euros,
are not comparable with the financial statements of other companies which are
presented in euros in 1998 but which were previously presented in a currency
other than the French franc in 1997 and 1996.
(1) Under U.S. GAAP, investments in joint ventures are accounted for using the
equity method, whereas under Canadian GAAP such investments are accounted
for using the proportionate consolidation method. This difference in
accounting treatment has no impact on income or shareholders' equity. Under
U.S. GAAP, the accrued pension liability recognized in the balance sheet
includes the amount required to recognize the minimum liability arising from
the excess of the accumulated benefit obligation over the fair value of plan
assets. Under Canadian GAAP, the additional minimum liability is not
recognized.
* Net debt equals Long-term debt (including current portion) plus Other debt
less Cash and cash equivalents.
** The supplemental financial data includes earnings before interest and taxes,
referred to as EBIT, and earnings before interest, taxes, depreciation and
amortization, referred to as EBITDA. EBIT and EBITDA are not substitutes for
net income, cash flows and other measures of financial performance as
defined by generally accepted accounting principles, and may be defined
differently by other companies. Management believes that EBITDA provides a
measure of operating results that is unaffected by the financing and
accounting effects of acquisitions and differences in capital structures
among otherwise comparable companies.
9
<PAGE> 20
ALGROUP
Algroup reports in CHF and in accordance with international accounting
standards. For a discussion of the principal differences between international
accounting standards and Canadian GAAP and international accounting standards
and U.S. GAAP as they pertain to Algroup, see Note 33 to Algroup's consolidated
financial statements which are included as Annex B to this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- ---------------------
1999 1998 1998 1997 1996
----------- ----------- ----- ----- -----
(unaudited) (unaudited) (audited)
(in)millions of CHF except per share amounts
<S> <C> <C> <C> <C> <C>
IAS INFORMATION
Net sales................................................... 3,691 3,875 7,497 7,238 5,800
Income from continuing operations........................... 157 165 322 319 245
Total assets................................................ 8,295 7,932 7,400 7,498 6,809
Long-term debt (including current portion).................. 1,392 1,496 1,203 1,592 1,884
Other debt.................................................. 1,249 1,057 980 892 481
Cash and cash equivalents................................... 445 277 360 328 317
Shareholders' equity........................................ 3,327 2,933 3,101 2,765 2,395
Basic earnings per Share from continuing operations......... 25.0 26.4 51.4 51.8 40.0
Diluted earnings per Share from continuing operations....... 25.1 26.4 51.3 51.4 39.8
Basic earnings per Share.................................... 44.2 39.9 84.7 75.3 67.5
Diluted earnings per Share.................................. 43.4 39.1 82.8 73.2 65.4
U.S. GAAP INFORMATION
Income from continuing operations........................... 84 163 303 305 N/A
Diluted earnings per Share from continuing operations....... 14.0 26.1 48.4 49.2 N/A
Diluted earnings per Share.................................. 33.2 39.1 71.4 69.4 N/A
Shareholders' equity........................................ 3,707 N/A 3,537 3,280 N/A
OTHER FINANCIAL DATA -- IAS
Net debt*................................................... 2,196 2,276 1,823 2,156 2,048
EBIT**...................................................... 302 338 648 625 517
EBITDA**.................................................... 511 535 1,034 986 800
</TABLE>
- ---------------
* Net debt equals Long-term debt (including current portion) plus Other debt
less Cash and cash equivalents.
** The supplemental financial data includes earnings before interest and taxes,
referred to as EBIT, and earnings before interest, taxes, depreciation and
amortization, referred to as EBITDA. EBIT and EBITDA are not substitutes for
net income, cash flows and other measures of financial performance as
defined by generally accepted accounting principles, and may be defined
differently by other companies. Management believes that EBITDA provides a
measure of operating results that is unaffected by the financing and
accounting effects of acquisitions and differences in capital structures
among otherwise comparable companies.
10
<PAGE> 21
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The pro forma financial statements in this prospectus are presented in U.S.
dollars. The pro forma financial statements reflecting the combination of Alcan,
Pechiney and Algroup have been prepared using the pooling of interests method of
accounting under Canadian GAAP and the purchase method of accounting under U.S.
GAAP reconciled where necessary to Canadian GAAP. The pro forma financial
statements reflecting the combination of Alcan and Pechiney without Algroup have
been prepared using the purchase method of accounting under U.S. GAAP reconciled
where necessary to Canadian GAAP.
The pro forma financial statements are not necessarily indicative either of
the results that actually would have been achieved if transactions reflected
therein had been effective during the periods presented or of the results which
may be obtained in the future.
The following table sets out certain selected pro forma consolidated
financial information of the combined company based on the consolidated
financial information of Alcan as at and for the six months ended June 30, 1999,
the year ended December 31, 1998 and, with respect to the pooling of interests
method of accounting, the year ended December 31, 1997, adjusted in each case as
indicated to give effect to:
(a) the completion of the share exchange offers for Pechiney Securities
and Algroup shares, the payment of the Pechiney dividends and, in the
case of the purchase method of accounting, the completion of the
initial public offering of American National Can Group, Inc. by
Pechiney, prepared to reflect both the pooling of interests method of
accounting under Canadian GAAP and the purchase method of accounting
under U.S. GAAP;
(b) in the case of the purchase method of accounting, the distribution of
the net assets pursuant to the Algroup chemicals division demerger
and, in the case of the pooling of interests method of accounting, the
reclassification of those net assets as net assets of discontinued
operations;
(c) the completion of the offers for Pechiney Securities, the initial
public offering of American National Can Group, Inc. and the payment
of the Pechiney dividends, prepared using the purchase method of
accounting under U.S. GAAP; and
(d) the completion of the offer for the Algroup shares and the Algroup
chemicals division demerger, prepared using the purchase method of
accounting under U.S. GAAP.
The table assumes that all of the Pechiney Securities and Algroup shares
are acquired pursuant to the share exchange offers and are exchanged for Alcan
common shares. The table should be read in conjunction with the pro forma
financial statements. See also "Accounting Treatment" for an explanation of the
circumstances in which the combination may be accounted for using the pooling of
interests or the purchase methods of accounting.
11
<PAGE> 22
<TABLE>
<CAPTION>
(A)(B)
PECHINEY AND ALGROUP SHARE EXCHANGES (C)
-------------------------------------------------------- PECHINEY
POOLING METHOD PURCHASE METHOD SHARE EXCHANGE
-------------------------------- --------------------- ---------------------
SIX MONTHS YEAR YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, DEC. 31, DEC. 31, JUNE 30, DEC. 31, JUNE 30, DEC. 31,
1999 1998 1997 1999 1998 1999 1998
---------- -------- -------- ---------- -------- ---------- --------
(unaudied and in millions of US$t
<S> <C> <C> <C> <C> <C> <C> <C>
Sales and operating revenues.... 11,109 23,320 24,075 10,289 21,606 7,778 16,438
Net income...................... 480 918 1,000 291 525 309 480
Total assets.................... 25,470 26,594 N/A 28,677 29,678 20,292 21,402
Long-term debt (including
current portion).............. 3,974 4,945 N/A 3,116 3,996 2,531 3,436
Other debt...................... 3,456 2,973 N/A 2,395 2,068 1,358 1,121
Cash and time deposits.......... 1,633 1,982 N/A 1,420 1,862 1,134 1,600
Shareholders' equity............ 9,880 10,281 N/A 14,840 15,084 10,200 10,444
Net income per Share............ 0.95 1.82 1.99 0.57 1.03 0.83 1.30
OTHER FINANCIAL DATA
Net debt*....................... 5,797 5,936 N/A 4,091 4,202 2,755 2,957
EBIT**.......................... 693 1,870 1,897 373 1,172 353 916
EBITDA**........................ 1,304 3,053 3,047 1,118 2,620 860 1,909
<CAPTION>
(D)
ALGROUP
SHARE EXCHANGE
---------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DEC. 31,
1999 1998
---------- --------
<S> <C> <C>
Sales and operating revenues.... 6,109 12,957
Net income...................... 93 473
Total assets.................... 17,729 17,912
Long-term debt (including
current portion).............. 2,185 2,263
Other debt...................... 955 866
Cash and time deposits.......... 902 877
Shareholders' equity............ 9,957 10,204
Net income per Share............ 0.25 1.31
OTHER FINANCIAL DATA
Net debt*....................... 2,238 2,252
EBIT**.......................... 282 1,028
EBITDA**........................ 748 1,932
</TABLE>
- ---------------
* Net debt equals Long-term debt (including current portion) plus Other debt
less Cash and Cash equivalents.
** The supplemental financial data includes earnings before interest and taxes,
referred to as EBIT, and earnings before interest, taxes, depreciation and
amortization, referred to as EBITDA. EBIT and EBITDA are not substitutes for
net income, cash flows and other measures of financial performance as
defined by generally accepted accounting principles, and may be defined
differently by other companies. Management believes that EBITDA provides a
measure of operating results that is unaffected by the financing and
accounting effects of acquisitions and differences in capital structures
among otherwise comparable companies.
PRO FORMA CAPITALIZATION
The following table sets forth the consolidated capitalization of Alcan as
at June 30, 1999, and as at June 30, 1999 adjusted to give effect to:
(a) the completion of the offers for Pechiney Securities and Algroup
shares, the payment of the Pechiney dividends and the completion of
the Algroup chemicals division demerger and, in the case of the
purchase method of accounting, the completion of the initial public
offering of American National Can Group, Inc., prepared to reflect
both the pooling of interests method of accounting under Canadian GAAP
and the purchase method of accounting under U.S. GAAP (see column (a)
below);
(b) the completion of the offers for Pechiney Securities, the initial
public offering of American National Can Group, Inc. and the payment of
the Pechiney dividends, prepared using the purchase method of accounting
under U.S. GAAP (see column (b) below); and
(c) the completion of the offer for Algroup shares and the Algroup
chemicals division demerger, prepared using the purchase method of
accounting under U.S. GAAP (see column (c) below).
12
<PAGE> 23
The table assumes that all of the Pechiney Securities and Algroup shares
are acquired pursuant to the share exchange offers and are exchanged for Alcan
common shares. The table should be read in conjunction with the financial
statements of Alcan and the pro forma financial statements. See also "Accounting
Treatment" for an explanation of the circumstances in which the combination may
be accounted for using the pooling of interests or the purchase methods of
accounting.
<TABLE>
<CAPTION>
(A)
PECHINEY AND ALGROUP
SHARE EXCHANGE OFFERS (B) (C)
----------------------------- PECHINEY ALGROUP
POOLING PURCHASE SHARE EXCHANGE SHARE EXCHANGE
ALCAN METHOD METHOD OFFER OFFER
------------- ------------- ------------- -------------- --------------
AS AT AS AT AS AT AS AT AS AT
JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999
------------- ------------- ------------- -------------- --------------
) (unaudited and US$ millions
<S> <C> <C> <C> <C> <C>
Long-term debt (including
current portion)................ 1,600 3,974 3,116 2,531 2,185
SHAREHOLDERS' EQUITY
Preference shares (authorized --
unlimited).................... 160 176 160 160 160
Common shares (authorized --
unlimited).................... 1,213 3,240 10,741 6,101 5,854
Retained earnings............... 3,946 6,527 4,018 4,018 4,022
Other........................... (71) (63) (79) (79) (79)
----- ------ ------ ------ ------
Total shareholders' equity...... 5,248 9,880 14,840 10,200 9,957
CONSOLIDATED CAPITALIZATION..... 6,848 13,854 17,956 12,731 12,142
===== ====== ====== ====== ======
</TABLE>
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following tables set forth certain historical per share data for Alcan
and Pechiney and unaudited pro forma and equivalent pro forma combined per share
data to reflect the consummation of the combination of (a) Alcan and Algroup,
(b) Alcan, Algroup and Pechiney and (c) Alcan and Pechiney based upon the
historical financial results of Alcan, Pechiney and Algroup and the exchange of
Pechiney Securities and Algroup shares for newly issued Alcan common shares. The
pro forma data are not necessarily indicative of actual or future operating
results or of the financial position that would have occurred or will occur upon
consummation of the combination. You should read the data presented below in
conjunction with the unaudited pro forma combined financial data set forth under
"Unaudited Pro Forma Combined Financial Statements" and the separate historical
consolidated financial statements of Alcan, Pechiney and Algroup which are
included and incorporated herein by reference. All amounts are stated in U.S.
dollars.
13
<PAGE> 24
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
<TABLE>
<CAPTION>
ALCAN PECHINEY(1)
---------------------------------------------- ---------------------------------------------
(B) (C)
(A) (B) (C) PRO FORMA PRO FORMA
HISTORICAL PRO FORMA PRO FORMA PRO FORMA HISTORICAL EQUIVALENT EQUIVALENT
PER PER PER PER PER PER PER
SHARE SHARE SHARE SHARE "A" SHARE "A" SHARE(3) "A" SHARE(3)
---------- --------- --------- --------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
POOLING OF INTERESTS METHOD OF
ACCOUNTING (CANADIAN GAAP)
SIX MONTHS ENDED JUNE 30, 1999
Net income from continuing
operations................... 0.48 N/A 0.95 N/A 1.66 1.69 N/A
Dividends (2).................. 0.30 N/A 0.30 N/A -- 0.53 N/A
Book value..................... 23.38 N/A 19.91 N/A 36.96 35.47 N/A
YEAR ENDED DECEMBER 31, 1998
Net income from continuing
operations................... 1.71 N/A 1.82 N/A 4.45 3.24 N/A
Dividends (2).................. 0.60 N/A 0.60 N/A 0.94 1.07 N/A
Book value..................... 23.71 N/A 20.65 N/A 36.43 36.79 N/A
YEAR ENDED DECEMBER 31, 1997
Net income from continuing
operations................... 2.02 N/A 1.99 N/A 3.84 3.55 N/A
Dividends (2).................. 0.60 N/A 0.60 N/A 0.67 1.07 N/A
YEAR ENDED DECEMBER 31, 1996
Net income/(loss) from
continuing operations........ 1.74 N/A N/A N/A (7.55) N/A N/A
Dividends (2).................. 0.60 N/A 0.60 N/A 0.64 1.07 N/A
PURCHASE METHOD OF ACCOUNTING
(U.S. GAAP)
SIX MONTHS ENDED JUNE 30, 1999
Net income from continuing
operations................... 0.46 0.25 0.57 0.83 1.66 1.02 1.48
Dividends (2).................. 0.30 0.30 0.30 0.30 -- 0.53 0.53
Book value..................... 23.69 28.12 29.81 28.22 36.96 53.10 50.28
YEAR ENDED DECEMBER 31, 1998
Net income from continuing
operations................... 1.79 1.31 1.03 1.30 4.45 1.84 2.32
Dividends (2).................. 0.60 0.60 0.60 0.60 0.94 1.07 1.07
Book value..................... 23.90 28.81 30.30 28.90 36.43 53.97 51.49
<CAPTION>
PECHINEY(1)
------------------------------------------------------------------------------------
(B) (C) (B) (C)
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HISTORICAL EQUIVALENT EQUIVALENT HISTORICAL EQUIVALENT EQUIVALENT
PER PER PER PER PER PER
"B" SHARE "B" SHARE(4) "B" SHARE(4) ADS ADS(5) ADS(5)
----------- -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
POOLING OF INTERESTS METHOD OF
ACCOUNTING (CANADIAN GAAP)
SIX MONTHS ENDED JUNE 30, 1999
Net income from continuing
operations................... 2.41 1.86 N/A 0.82 0.85 N/A
Dividends (2).................. -- 0.59 N/A -- 0.27 N/A
Book value..................... 36.96 N/A N/A 18.48 17.74 N/A
YEAR ENDED DECEMBER 31, 1998
Net income from continuing
operations................... 6.14 3.57 N/A 2.22 1.62 N/A
Dividends (2).................. 2.29 1.18 N/A 0.47 0.53 N/A
Book value..................... 36.43 N/A N/A 18.21 18.39 N/A
YEAR ENDED DECEMBER 31, 1997
Net income from continuing
operations................... 5.43 3.90 N/A 1.91 1.77 N/A
Dividends (2).................. 1.73 1.18 N/A 0.33 0.53 N/A
YEAR ENDED DECEMBER 31, 1996
Net income/(loss) from
continuing operations........ 5.70 N/A N/A (3.78) N/A N/A
Dividends (2).................. 1.86 1.18 N/A 0.32 0.53 N/A
PURCHASE METHOD OF ACCOUNTING
(U.S. GAAP)
SIX MONTHS ENDED JUNE 30, 1999
Net income from continuing
operations................... 2.41 1.12 1.63 0.82 0.51 0.74
Dividends (2).................. -- 0.59 0.59 -- 0.27 0.27
Book value..................... 36.96 N/A N/A 18.48 26.55 25.14
YEAR ENDED DECEMBER 31, 1998
Net income from continuing
operations................... 6.14 2.02 2.55 2.22 0.92 1.16
Dividends (2).................. 2.29 1.18 1.18 0.47 0.53 0.53
Book value..................... 36.43 N/A N/A 18.21 26.99 25.74
<CAPTION>
Algroup(1)
------------------------------------
(A) (B)
PRO FORMA PRO FORMA
HISTORICAL EQUIVALENT EQUIVALENT
PER PER PER
SHARE SHARE(6) share(6)
---------- ---------- ----------
<S> <C> <C> <C>
POOLING OF INTERESTS METHOD OF
ACCOUNTING (CANADIAN GAAP)
SIX MONTHS ENDED JUNE 30, 1999
Net income from continuing
operations................... 8.69 N/A 19.60
Dividends (2).................. -- N/A 6.19
Book value..................... 340.25 N/A 410.72
YEAR ENDED DECEMBER 31, 1998
Net income from continuing
operations................... 36.16 N/A 37.54
Dividends (2).................. -- N/A 12.38
Book value..................... 358.94 N/A 425.97
YEAR ENDED DECEMBER 31, 1997
Net income from continuing
operations................... 35.41 N/A 41.05
Dividends (2).................. 12.62 N/A 12.38
YEAR ENDED DECEMBER 31, 1996
Net income/(loss) from
continuing operations........ N/A N/A N/A
Dividends (2).................. 14.02 N/A 12.38
PURCHASE METHOD OF ACCOUNTING
(U.S. GAAP)
SIX MONTHS ENDED JUNE 30, 1999
Net income from continuing
operations................... 9.09 5.16 11.76
Dividends (2).................. -- 6.19 6.19
Book value..................... 340.25 580.00 614.86
YEAR ENDED DECEMBER 31, 1998
Net income from continuing
operations................... 33.35 27.02 21.25
Dividends (2).................. -- 12.38 12.38
Book value..................... 358.94 594.39 624.97
</TABLE>
- ---------------
(1) Euro and Swiss Francs were translated using the period-end rate at the end
of each financial period.
(2) The Combined Company pro forma dividends per share represents the historical
per share dividend paid by Alcan.
(3) The Pechiney share "A" pro forma equivalent per share data have been
computed on the ratio of 1.7816 Alcan common shares to one Pechiney "A"
share.
(4) The Pechiney share "B" pro forma equivalent per share data have been
computed on the ratio of 1.9598 Alcan common shares to one Pechiney "B"
share.
(5) The Pechiney ADS pro forma equivalent per share data have been computed on
the ratio of 0.8908 Alcan common shares to one Pechiney ADS.
(6) The Algroup pro forma equivalent per share data have been computed on the
ratio of 20.6291 Alcan common shares to one Algroup share.
14
<PAGE> 25
COMPARATIVE PER SHARE MARKET INFORMATION
Alcan common shares are listed for trading on the New York Stock Exchange
under the symbol "AL". Pechiney ADSs are listed for trading on the New York
Stock Exchange under the symbol "PY". Pechiney A Shares are listed for trading
on the monthly settlement market (Premier Marche a Reglement Mensuel) of the
Paris Bourse under the Sicovam code 13290. The Pechiney A shares are also traded
in euros on SEAQ International under the symbol "PECHaq.L". The Pechiney B
Shares are listed on the immediate settlement market (Premier Marche au
Comptant) of the Paris Bourse under the Sicovam code 3640.
The following table presents per share closing market prices as reported on
the New York Stock Exchange Composite Tape for Alcan common shares and Pechiney
ADSs and the closing market price for Pechiney A Shares and Pechiney B Shares on
the Paris Bourse and converted into U.S. dollars:
- on August 9, 1999, the last trading day prior to the public announcement
of this offer, and
- on , 2000, the latest practicable date prior to the printing
of this document.
The table also presents the implied equivalent per share value for Pechiney
A Shares, Pechiney B Shares and Pechiney ADSs by multiplying the price per Alcan
common share by the number of Alcan common shares that will be exchanged for
each Pechiney A Share, Pechiney B Share and Pechiney ADS, i.e., 1.7816, 1.9598
and 0.8908, respectively.
Pechiney shareholders are urged to obtain current market quotations for the
Alcan common shares and Pechiney A Shares, Pechiney B Shares and Pechiney ADSs
before making a decision with respect to the offer.
<TABLE>
<CAPTION>
PECHINEY PECHINEY PECHINEY
PECHINEY PECHINEY A SHARE ADS B SHARE
ALCAN A SHARE B SHARE PECHINEY EQUIVALENT EQUIVALENT EQUIVALENT
SHARE PRICE PRICE PRICE ADS PRICE PRICE PRICE PRICE
----------- ----------- ----------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 9, 1999(1)...... $31.8125 $55.3190 $49.3270 $27.9375 $56.6772 $28.3386 $62.3461
, 2000.........
</TABLE>
- ---------------
(1) The prices per Pechiney A Share and Pechiney B Share have been translated
into U.S. dollars at $1.07 per euro, the noon buying rate in New York City
for cable transfers on August 9, 1999 as certified for customs purposes by
the Federal Reserve Bank of New York.
15
<PAGE> 26
RISK FACTORS
The following risk factors apply to the combination of Alcan, Pechiney and
Algroup as well as to the combination of Alcan and Pechiney without Algroup. You
should carefully consider the factors set forth below together with the
information contained in this prospectus relating to Alcan, Pechiney and Algroup
and the other information contained in this prospectus before making a decision
to exchange your Pechiney Securities.
INTEGRATION OF THE COMPANIES MAY FAIL OR DISRUPT OPERATIONS.
The anticipated benefits and synergies expected to result from the share
exchange offers will depend in part upon whether the operations of Alcan can be
integrated in an efficient and effective manner with those of Pechiney and
Algroup. Successful integration will require the integration of various aspects
of each company's business. It is possible that this integration will not be
accomplished successfully. Failure to successfully integrate the business
organizations could have a material adverse effect on the financial condition
and results of the operations of the Combined Company and result in the failure
to achieve certain of the expected benefits from the combination. The failure to
realize anticipated synergies and other operating efficiencies could result in
the failure to achieve certain of the benefits sought to be achieved in the
combination. The integration of the business organizations could interfere with
the activities of one or more of the companies' businesses which could have
material adverse effects on their operations. In addition, the integration of
the business organizations may involve a number of other risks, including the
diversion of management's attention from the day-to-day operations of each
company's business.
REGULATORY APPROVALS MAY NOT BE OBTAINED OR MAY IMPOSE ADVERSE CONDITIONS.
Completion of the combination is subject to certain regulatory approvals,
including competition and securities authorities' approvals. See "Regulatory
Matters." There can be no assurance that all necessary approvals will be granted
or that they will be granted on favorable terms. It is possible that certain
regulatory approvals will be subject to conditions that adversely affect the
financial position or operations of the Combined Company, including the demerger
or divestiture of certain assets or business divisions or the making of
restrictive undertakings. Should any such demergers or divestitures or
undertakings be required and implemented, there could be a material effect upon
the business of the Combined Company. Although such effect could be negative,
the companies may nevertheless elect to proceed with the share exchange offers
as being in their respective best financial and strategic interests. Any final
decision in this regard would be made by the companies.
Numerous jurisdictions throughout the world claim jurisdiction under their
competition or antitrust laws in respect of acquisitions or mergers which have
the potential to affect their domestic marketplace. Although Alcan, Pechiney and
Algroup do not anticipate that there will be any proceedings in any jurisdiction
which, if taken, would have a material impact on the completion of the share
exchange offers or the operations of the Combined Company, there can be no
assurance that such investigations or proceedings, whether by governmental
authorities or private parties, will not be initiated and, if initiated, will
not have a material impact on the completion of the share exchange offers or the
operations of the Combined Company.
INCREASED EXPOSURE TO CURRENCY EXCHANGE RATE FLUCTUATIONS MAY CAUSE ADVERSE
FINANCIAL RESULTS.
Following completion of the share exchange offers, the Combined Company may
be exposed to additional currency exchange risk with respect to the euro and CHF
and certain other currencies as a significant portion of revenues will be
generated in these currencies and a significant portion of operating expenses
will be incurred in these currencies. Changes in the value of the euro or the
CHF and certain other currencies in relation to the U.S. dollar may have an
adverse effect on the Combined Company's operating results following completion
of the share exchange offers for Pechiney Securities and Algroup shares.
Although the Combined Company may enter into hedging arrangements with respect
to the exchange rate risk, there can be no assurance that the Combined Company
will engage in such arrangements or that such arrangements will be successful.
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<PAGE> 27
THE COMBINED COMPANY WILL BE EXPOSED TO MARKET AND CREDIT RISK IN DERIVATIVES.
Each of Alcan, Pechiney and Algroup uses derivatives to hedge, among other
things, its exposure to changes in exchange rates, interest rates and metals
prices, and in trading activities. In addition, Pechiney expects to hedge its
special dividend to be paid upon completion of the offers for Pechiney
Securities, in a gross amount not to exceed $549 million, against any changes in
the dollar/euro conversion rate from , 2000 until the date of payment of
such dividend. Each company bears both market risk and credit risk with respect
to its use of derivatives.
THE SUBSTANTIAL INCREASE IN THE NUMBER OF ALCAN COMMON SHARES FOLLOWING THE
COMBINATION MAY ADVERSELY AFFECT THEIR MARKET PRICE.
Upon completion of the offers for Pechiney Securities and the offer for
Algroup shares, additional Alcan common shares, representing up to approximately
56% of the share capital of the Combined Company, will be available for trading
in the public market. The increase in the number of Alcan common shares,
including the increase in stock held by persons who were formerly shareholders
in either Pechiney or Algroup, may lead to sales of such shares or the
perception that such sales may occur, either of which may adversely affect the
market for, and the market price of, the Alcan common shares.
THE COMBINED COMPANY MAY BE EXPOSED TO INCREASED ENVIRONMENTAL COSTS AND
LIABILITIES.
Each of Alcan, Pechiney and Algroup is subject to a broad range of
environmental laws and regulations in each of the jurisdictions in which it
operates. These laws and regulations impose increasingly more stringent
environmental protection standards regarding, among other things, air emissions,
wastewater discharges, the use and handling of hazardous materials, waste
disposal practices, and the remediation of environmental contamination. These
standards can create the risk of substantial environmental costs and
liabilities, including liabilities associated with divested assets and past
activities. Currently, each of Alcan, Pechiney and Algroup is involved in a
number of compliance efforts and legal proceedings concerning environmental
matters. Each of Alcan, Pechiney and Algroup has established reserves for
environmental remediation activities and liabilities. However, environmental
matters cannot be predicted with certainty, and there can be no assurance that
these amounts will be adequate. In addition, future developments, such as
changes in law or environmental conditions, could result in increased
environmental costs and liabilities that could have a material adverse effect on
the Combined Company's financial position and results of operations.
THE COMBINED COMPANY WILL BE EXPOSED TO TRADING AND BROKERAGE RISKS.
Each of Pechiney and Algroup engage, and the Combined Company will engage,
in substantial trading activities. Although each of Pechiney and Algroup
believes it has established, and it is expected that the Combined Company will
maintain, appropriate risk management procedures, trading activities involve
elements of forecast, including the purchase and sale of forwards and futures,
as well as options both on and off exchanges, and bearing the market risk with
respect to positions taken and the risk of default by its counterparties.
THE COMBINED COMPANY WILL BE EXPOSED TO POTENTIAL RISKS OF LOSSES FROM
OPERATIONS IN LESSER DEVELOPED COUNTRIES.
The Combined Company will have operations in developing countries which may
be more vulnerable to risks of war, civil disturbances and adverse governmental
action, which may disrupt or impede operations and markets, restrict the
movement of funds, impose limitations on foreign exchange transactions or result
in the expropriation of assets. Certain of the countries in which the Combined
Company will operate have recently been subject to economic instability, which
could adversely affect operations in such countries.
THE MARKET FOR PECHINEY SECURITIES MAY BE ADVERSELY AFFECTED BY THE OFFERS.
If the offers for Pechiney Securities are successful, the liquidity and
market value of the remaining Pechiney Securities held by the public could be
adversely affected by the fact that they will be held by a smaller number of
holders.
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<PAGE> 28
Depending upon the number of Pechiney Securities acquired pursuant to the
Pechiney offers, following their completion the Pechiney ADSs may no longer meet
the requirements of the New York Stock Exchange for continued listing and the
Pechiney A Shares, as well as the Pechiney B Shares, may no longer meet the
requirements of the Paris Bourse for continued listing. Moreover, to the extent
permitted under applicable law and stock exchange regulations, Alcan may seek to
cause the delisting of the Pechiney ADSs, Pechiney A Shares and Pechiney B
Shares on such exchanges.
If one or both of the New York Stock Exchange and the Paris Bourse were to
delist the Pechiney ADSs, Pechiney A Shares and Pechiney B Shares, the market
therefor could be adversely affected. Although it is possible that the Pechiney
ADSs, Pechiney A Shares and Pechiney B Shares would be traded on other
securities exchanges or in the over-the-counter market, and the price quotations
would be reported by such exchanges, or through the National Association of
Securities Dealers, Inc. Automated Quotations System or by other sources, there
can be no assurance that any such trading quotations will occur. In addition,
the extent of the public market for the Pechiney ADSs, Pechiney A Shares and
Pechiney B Shares and the availability of such quotations would, however, depend
upon the number of holders and/or the aggregate market value of the Pechiney
ADSs, Pechiney A Shares and Pechiney B Shares, as the case may be, remaining at
such time, the interest in maintaining a market in the Pechiney ADSs, Pechiney A
Shares and Pechiney B Shares, as the case may be, on the part of securities
firms and the possible termination of registration of ADSs under the Securities
Exchange Act of 1934. If such registration is terminated, Pechiney could cease
filing periodic reports with the SEC, which could further impact the value of
the Pechiney ADSs. To the extent the availability of such listings or quotations
depends on steps taken by Alcan or Pechiney, Alcan or Pechiney may or may not
take such steps. Therefore, you should not rely on any such listing or quotation
being available.
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<PAGE> 29
CURRENCY PRESENTATIONS AND EXCHANGE RATES
In this prospectus, unless otherwise specified, all references to "US$" or
'$" are to United States dollars, all references to "C$" are to Canadian
dollars, all references to "CHF" are to Swiss francs and all references to 'E"
are to euros.
The following table sets out, for the periods and dates indicated, certain
information concerning the rates of exchange for C$ and CHF per US$1.00 and
US$1.00 per ECU and E, based on the noon buying rate in New York City for cable
transfers as certified for customs purposes by the Federal Reserve Bank of New
York.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
-------------- -----------------------
1999 1998 1998 1997 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
High C$....................................... 1.45 1.41 1.41 1.34 1.33
CHF...................................... 1.36 1.44 1.29 1.34 1.16
E........................................ 1.18 -- -- -- --
ECU(2)................................... -- 1.12 1.23 1.25 1.29
Low C$....................................... 1.53 1.47 1.58 1.44 1.38
CHF...................................... 1.56 1.53 1.54 1.54 1.35
E........................................ 1.03 -- -- -- --
ECU(2)................................... -- 1.07 1.07 1.05 1.22
Period end C$....................................... 1.47 1.47 1.54 1.43 1.37
CHF...................................... 1.56 1.52 1.37 1.46 1.34
E........................................ 1.03 -- -- -- --
ECU(2)................................... -- 1.10 1.17 1.10 1.28
Average(1) C$....................................... 1.49 1.44 1.49 1.39 1.36
CHF...................................... 1.49 1.50 1.45 1.45 1.24
E........................................ 1.07 -- -- -- --
ECU(2)................................... -- 1.09 1.12 1.13 1.25
</TABLE>
- ---------------
(1) The average of the noon buying rates for C$, CHF and E on the last business
day of each month during the relevant period.
(2) The euro was launched as the single European currency on January 1, 1999.
Given its recent introduction, there is no historical exchange rate data
concerning the euro for inclusion in this prospectus. As a result, this
section also provides historical exchange rate data concerning the European
Currency Unit, or ECU. The ECU, the predecessor to the euro, is a composite
currency, consisting of specified amounts of currencies of 12 European Union
member states. The ECU basket was composed of specified amounts of the
German mark, the U.K. pound sterling, the French franc, the Italian lira,
the Dutch guilder, the Belgian franc, the Luxembourg franc, the Danish
kroner, the Irish punt, the Greek drachma, the Spanish peseta and the
Portuguese escudo. In accordance with European Council Regulation No.
1103/97, substitution of the euro for the ECU took place at the rate of one
euro for one ECU. Since the United Kingdom, Denmark and Greece are not
currently participating in the European Monetary Union, some of the
currencies (U.K. pound sterling, Danish kroner and Greek drachma) in the ECU
basket were not considered for euro purposes. Accordingly, ECU exchange
rates cannot be regarded as comparable with euro exchange rates for
historical purposes.
On December 22, 1999, the noon buying rate in New York as certified for
customs purposes by the Federal Reserve Bank of New York was C$1.48 and CHF1.59
per US$1.00 and US$1.00 per E1.01.
No representation is made that the Canadian dollar, Swiss franc, euro, ECU
or U.S. dollar amounts could have been or could in the future be so converted at
any particular rate or at all.
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<PAGE> 30
THE COMBINATION
Alcan, Pechiney and Algroup have agreed to combine in accordance with the
terms of the combination agreement. As soon as practicable following the
satisfaction or waiver of all conditions to commencement of the offers for
Pechiney Securities described below, Alcan will offer to acquire every Pechiney
A Share in exchange for 1.7816 Alcan common shares, every Pechiney B Share in
exchange for 1.9598 Alcan common shares and every Pechiney ADS in exchange for
0.8908 of an Alcan common share.
As soon as practicable following the satisfaction or waiver of all
conditions to commencement of the offer for Algroup shares described below,
Alcan will offer to purchase every Algroup share in exchange for 20.6291 Alcan
common shares.
The Algroup exchange ratio was determined on a fully diluted basis,
assuming all of Algroup's outstanding convertible bonds were converted into
Algroup shares prior to the chemicals division demerger. Because all the
convertible bonds were not converted prior to the chemicals division demerger,
the holders of the outstanding bonds will be entitled to receive additional
Algroup shares on exercise of their conversion right as they did not receive
shares in Lonza Group AG in the demerger. To the extent Algroup issues or is
required to issue additional Algroup shares above the threshold set out in the
combination agreement or the bondholders become entitled to shares on
conversion, the Algroup exchange ratio will be reduced in order that the total
number of Alcan common shares issued in the offer for Algroup shares, on a fully
diluted basis, remains the same as if Algroup had only issued, or been required
to issue, shares up to the threshold.
BACKGROUND OF THE COMBINATION
At a regular meeting of Alcan's board of directors on March 25, 1999,
Alcan's management reviewed several strategic opportunities, including potential
business combinations, which Alcan might pursue. The board authorized management
to hold exploratory discussions with potential partners.
On April 13, 1999, representatives of Alcan and Pechiney met in New York
City to discuss general strategic opportunities. As part of this discussion,
Alcan presented Pechiney with a strong strategic rationale for considering a
business combination. Pechiney management agreed to consider the opportunity and
the parties agreed to hold a follow-up meeting at the end of the month.
Separately, on April 26, 1999, representatives of Alcan and Algroup met in
London, England to discuss strategic alternatives and the strategic rationale
for a business combination. Algroup responded positively and the parties also
discussed the possibility of a three-way combination involving Pechiney. On
April 29, 1999, representatives of Alcan and Pechiney met in Paris. At this
meeting, Pechiney agreed to further discussions with Alcan and the parties also
discussed the possibility of a three-way combination involving Algroup.
In parallel with their respective discussions with Alcan, representatives
of Pechiney and Algroup were jointly considering opportunities to maximize
shareholder value through unique industrial combinations. Pechiney and Algroup
agreed during these discussions that there was significant value in combining
the two companies. However, the parties also recognized the unique opportunity
available through a three-way merger with another party. Pechiney and Algroup
identified Alcan as their preferred possible third partner.
Alcan, Pechiney and Algroup each recognized the existence of some common
ground on which to base discussions regarding a business combination. As a
result, a meeting took place in London on May 8, 1999 and a series of follow-up
telephone calls ensued in May 1999 to further advance the principles upon which
a combination could be completed. Alcan had retained Morgan Stanley & Co.
Incorporated to act as its financial advisor in respect of the proposed
transaction on April 1, 1999. At about the same time, Pechiney retained Credit
Suisse First Boston and Rothschild & Cie and Algroup retained Goldman Sachs to
act as financial advisors in evaluating the proposed transaction.
In order to facilitate the parties' discussion of the relative values of
each company and to estimate potential synergies, the parties retained Arthur
Andersen LLP on May 24, 1999 to manage a process intended by the parties to
yield a consistent financial comparison of the parties and to compile
information supplied by each of the parties and eliminate duplication based on
discussion with the parties, while at the same time preventing the transmission
of competitively sensitive information.
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<PAGE> 31
The parties met in New York City on June 19, 1999 to review the compilation
by Arthur Andersen LLP of the potential synergies and to discuss possible
configurations of a business combination.
The parties entered into confidentiality agreements on June 21, 1999 in
order to exchange confidential information for the purpose of evaluating a
business combination, including business and legal due diligence investigations.
On July 3 and 4, 1999 in London, the chief executive officers of the three
companies were presented with the results of the compilation by Arthur Andersen
LLP, the preliminary views of legal counsel with respect to regulatory and
structural issues and the assessment of the financial advisors on structural
alternatives. In discussions following these meetings, the CEOs re-affirmed the
necessity that a combination of the three companies must make strong strategic
sense and have the potential to create significant value for all shareholders.
As part of the negotiation process, each company described its business to
the other parties' financial and strategic advisors. These presentations were
designed to allow for adequate sharing of information among the financial
advisors on which to base a valuation assessment. Following these presentations,
each company's team of advisors prepared a valuation assessment which was shared
among the financial advisors.
On July 17 and 18, 1999 and again on July 29 and 30, 1999, the chief
executive officers met in New York City to discuss the valuation assessment and
structure recommendations of the financial advisors and agreed to the broad
terms of a possible business combination.
As part of the negotiation process, one non-executive director from each
company participated in a working group charged with making recommendations with
respect to corporate governance matters relating to the Combined Company. These
representatives were Dr. John R. Evans for Alcan, Etienne Davignon for Pechiney
and Martin Ebner for Algroup.
In early August, each company called a special meeting of its board of
directors to consider the proposed transaction. After considering the strategic
rationale, valuation assessment, synergy potential and available alternatives,
each of the companies' boards was of the opinion that the proposed transaction
was in the best interests of their respective companies and shareholders.
The boards of directors of Alcan and Algroup authorized their respective
companies to sign a three-way memorandum of understanding and a two-way
definitive combination agreement between Alcan and Algroup. On August 10, 1999,
the Pechiney Board authorized the signing of the memorandum of understanding and
Pechiney commenced the French mandatory information and consultation process
with Pechiney's works councils regarding a possible three-way combination. On
August 11, 1999, the combination was publicly announced.
Pechiney completed the information and consultation process on September
15, 1999, and, on the same date, the Pechiney board of directors then approved
the execution of the combination agreement. The same day, Alcan, Pechiney and
Algroup executed the combination agreement which supersedes the memorandum of
understanding and the two-way combination agreement between Alcan and Algroup
and establishes the terms and conditions of the combination. See "The
Combination Agreement."
REASONS FOR THE COMBINATION
The companies believe that the combination will create increased value for
the shareholders of all three companies. The combination will establish one of
the world's largest aluminum companies with complementary operations and
technologies, a sustainable low-cost position in primary aluminum, advanced
aluminum fabricating facilities located globally and strong positioning for
future low-cost growth and expansion. It will also create a world leader in the
flexible and specialty packaging business. The companies believe that the
consolidation of the three companies will generate at least $600 million in
annual cost synergies, to be substantially achieved within two years from
completion of the combination, over and above existing profit improvement
programs. The Combined Company would have had pro forma 1998 sales and operating
revenues of $23.3 billion using the pooling of interests method of accounting
under Canadian GAAP and $21.6 billion using the purchase method of accounting
under U.S. GAAP and a balanced base of revenues from operations in primary and
fabricated aluminum,
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<PAGE> 32
packaging and trading. The Combined Company will occupy a unique strategic
position in the global marketplace and will have approximately 91,000 employees
working from 276 operating facilities around the world serving increasingly
global as well as regional customers.
SUSTAINABLE LOW-COST POSITION IN PRIMARY ALUMINUM
In addition to low-cost raw materials, primary aluminum production requires
large quantities of electrical energy. Smelting efficiency increases with
increased amperage. Accordingly, the Combined Company will benefit from:
- Alcan's ownership of hydroelectric power, which provides low-cost
electricity,
- Pechiney's industry-leading high-amperage technology, and
- Algroup's access to low-cost bauxite and alumina.
LOW-COST GROWTH
The aluminum industry is capital intensive and therefore, growth typically
requires significant additional capital. The Combined Company will be in a
position to increase its smelting capacity in the following capital-efficient
ways:
- increasing amperage at a number of smelters by using Pechiney's
high-amperage technology,
- expanding existing modern smelters where there is available low-cost
power and existing infrastructure, and
- increasing integration of geographically complementary bauxite, alumina
and smelting capacities, particularly in relation to the Combined
Company's Australian operations.
LEADING ALUMINUM FABRICATION SYSTEM
The fabrication system of the Combined Company presents opportunities for:
- transferring technology and best manufacturing practices to achieve a
lower cost position,
- rationalizing European production facilities, and
- servicing the high growth market for automotive applications in both
North America and Europe.
CREATING A WORLD LEADER IN THE FLEXIBLE AND SPECIALTY PACKAGING BUSINESS
Pechiney and Algroup's packaging businesses offer an advantageous
geographic fit with:
- balanced and complementary activities between North America and Europe,
better enabling the Combined Company to serve multinational customers
with operations in both geographic areas,
- the capability to serve global and regional customers around the world
from 159 facilities with a high standard of quality and service, and
- significant earnings power and a strong platform from which the Combined
Company can actively pursue growth opportunities in this industry.
CUSTOMERS
Customers of the aluminum and specialty packaging industries are themselves
consolidating and becoming increasingly global in the scope of their operations.
These larger customers, as well as regional customers, are seeking full-service
suppliers with the scale and regionally-based facilities to meet their needs.
Aluminum customers will benefit from working with a company that has a
sustainable low-cost position, increased research and development and
technological capabilities, as well as, the capacity and reach to address
aluminum fabrication needs in any region. Packaging customers will benefit from
working with a company that is a leading supplier in most of its chosen areas of
business. As a global aluminum and specialty packaging company, the Combined
Company will be positioned to work with customers anywhere in the world to
address their needs by supplying them with existing products and developing new
technologies and applications which the customers require.
COST SYNERGIES
Management of Alcan, Pechiney and Algroup believe that the Combination will
generate at least $600 million in annual cost synergies, over and above existing
profit improvement programs that are
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<PAGE> 33
already underway in each of the companies. These synergies are expected to be
achieved in the following areas:
- Selling, General and Administrative Expenses. Cost savings are expected
to be realized by combining corporate and head office services and
trading, sales and distribution staff support services.
- Purchasing. Operating and capital cost savings are expected to be
realized through volume purchasing and the ability to manage projects on
a larger scale.
- Operations. Operating cost savings are expected to be realized through
optimizing production and reloading of facilities and extending
production runs.
- R & D. Research and development cost savings are expected to be
realized by combining research facilities, technical services and
information technology.
It is expected that a very substantial portion of these savings will be
realized within approximately 24 months of the completion of the combination.
Estimated one-time costs (including severance costs) to achieve these savings
are expected to be approximately $600 million. The companies believe that
approximately 80% of these savings will be generated from the aluminum
operations with the remainder derived from packaging.
FINANCIAL RESOURCES
The Combined Company will have substantial financial resources. For the
year ended December 31, 1998, the pro forma sales and operating revenues and
EBITDA (the average aluminum metal price for 1998 was $1,380 per metric tonne)
of the Combined Company were $23.3 billion and $3.1 billion, respectively, using
the pooling of interests method of accounting under Canadian GAAP and $21.6
billion and $2.6 billion, respectively, using the purchase method of accounting
under U.S. GAAP. As at December 31, 1998, the pro forma consolidated assets and
shareholders' equity of the Combined Company were $26.6 billion and $10.3
billion, respectively, using the pooling of interests method of accounting under
Canadian GAAP and $29.7 billion and $15.1 billion, respectively, using the
purchase method of accounting under U.S. GAAP. See the pro forma financial
statements reflecting the combination of Alcan, Pechiney and Algroup.
KEY FACTS CONCERNING THE COMBINED COMPANY
The Combined Company will be one of the world's largest low-cost primary
aluminum producers with:
- interests in 11 bauxite mines and 10 alumina refineries,
- interests in 27 aluminum smelters on six continents,
- control of 3.3 million metric tonnes of global smelting capacity
(including capacity under construction), and
- 2.0 million metric tonnes of smelting capacity in the lowest third of
the cost curve of smelters worldwide (including capacity under
construction).
In aluminum fabrication, the Combined Company will have:
- interests in 46 sheet/light gauge production facilities on four
continents (which shipped 2,733,000 metric tonnes in 1998),
- interests in 24 other aluminum fabrication facilities (which shipped
435,000 metric tonnes of other fabricating products in 1998), including
aluminum wire and cable operations in North America, extrusion
operations in Europe and Asia and aluminum composite production in
Europe and Asia, and
- a position as a significant supplier to key industries such as the
aerospace, automotive, other transport and beverage can industries on a
global basis.
The Combined Company intends to pool technological expertise, customer
knowledge and technical know-how in rolled aluminum products. In the automotive
industry, where the use of aluminum is growing, the Combined Company will be a
leading player. In aerospace, the Combined Company will also be an important
supplier with strong customer relationships worldwide. In can sheet, which is
the largest
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<PAGE> 34
application for aluminum sheet, the Combined Company will have a significant
position. The Combined Company will also have a leading aluminum and metal
trading and brokerage business, including a founding seat on the London Metal
Exchange.
The Combined Company will have advanced technology and new product
development capability in several key areas including:
- alumina refining,
- smelting cell technology,
- aluminum rolling,
- automotive applications, and
- continuous strip caster technologies.
The combination will also result in the creation of a significant world
supplier of both flexible and specialty packaging products with pro forma 1998
sales of $4.2 billion and a leading position in key growth sectors such as
pharmaceutical, personal care, food flexible packaging, tobacco and cosmetics
packaging. By bringing together leading and complementary packaging companies,
the Combined Company will be positioned to serve customers globally in each of
its chosen targeted business areas from 159 facilities.
BENEFITS OF AN ALCAN-PECHINEY COMBINATION
In the event that the offer for Algroup shares is not completed, it is
expected that a two-way Alcan-Pechiney combination would still create
significant value for the shareholders of both companies although the benefits
are expected to be significantly less than those for a three way combination.
The combination of Alcan and Pechiney would establish one of the world's largest
aluminum companies with complementary operations and technologies, a low-cost
position in primary aluminum and advanced aluminum fabricating facilities
located globally. The combination of Alcan and Pechiney would also provide
opportunities for future low-cost growth and expansion. It would also include a
major flexible and specialty packaging business. The combination of Alcan and
Pechiney would have had pro forma 1998 operating revenues of $16.4 billion and
would have a strong strategic position in the global marketplace.
CUSTOMERS
The combination of Alcan and Pechiney would be positioned to work with
customers anywhere in the world to address their needs by supplying them with
existing products and by developing new technologies and applications which the
customers require.
COST SYNERGIES
Management of Alcan expects that the combination of Alcan and Pechiney
would generate approximately $200 million in annual cost synergies to be
achieved in the same areas as described in "Reasons for the Combination -- Cost
Synergies".
It is expected that a very substantial portion of these savings would be
realized within approximately 24 months of the completion of the combination of
Alcan and Pechiney. Estimated one-time costs (including severance costs) to
achieve these savings are expected to be approximately equivalent to expected
cost synergies for one year.
FINANCIAL RESOURCES
The combination of Alcan and Pechiney would have substantial financial
resources. For the year ended December 31, 1998, the pro forma operating
revenues and EBITDA (the average aluminum metal price for 1998 was $1,380 per
metric tonne) of the combination of Alcan and Pechiney were $16.4 billion and
$1.9 billion, respectively. As at December 31, 1998, the pro forma consolidated
assets and shareholders' equity of the combination of Alcan and Pechiney were
$21.4 billion and $10.4 billion, respectively. See the pro forma financial
statements reflecting the combination of Alcan and Pechiney.
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<PAGE> 35
KEY FACTS ABOUT A COMBINATION OF ALCAN AND PECHINEY
The combination of Alcan and Pechiney would be one of the world's largest
low-cost primary aluminum producers with:
- interests in 10 bauxite mines and nine alumina refineries,
- interests in 24 aluminum smelters on six continents,
- control of 3.1 million metric tonnes of global smelting capacity
(including capacity under construction), and
- 1.9 million metric tonnes of smelting capacity in the lowest third of
the cost curve of smelters worldwide (including that which is under
construction).
The combination of Alcan and Pechiney would be one of the world's largest
aluminum rolling companies with:
- interests in 42 sheet/light gauge production facilities on four
continents (which shipped 2,442,000 metric tonnes in 1998),
- interests in 15 other aluminum fabrication facilities (which shipped
331,000 metric tonnes of other fabricating products in 1998), and
- a position as a significant supplier on a global basis to key industries
such as the aerospace, automotive, other transport, and beverage can
industries.
The combination of Alcan and Pechiney would pool technological expertise,
customer knowledge and technical know-how in rolled aluminum products. In the
automotive industry, where the use of aluminum is growing, the combination of
Alcan and Pechiney would be a leading player. In aerospace, the combination of
Alcan and Pechiney would also be an important supplier with strong customer
relationships worldwide. In can sheet, which is the largest application for
aluminum sheet, the combination of Alcan and Pechiney would have a significant
position.
The combination of Alcan and Pechiney would have leadership positions in
research and development and new product development in several key areas
including:
- smelting cell technology,
- aluminum rolling, and
- continuous strip caster technologies.
The combination of Alcan and Pechiney would also be a significant world
supplier of both flexible and specialty packaging with pro forma 1998 sales of
$1.9 billion. The combination of Alcan and Pechiney would be a major supplier of
personal care and cosmetics packaging products to customers around the world,
with a particularly strong position in Europe. Specialty packaging is a
profitable high-growth business and the combination of Alcan and Pechiney would
be well positioned to pursue further opportunities in this consolidating
industry.
RECOMMENDATION OF PECHINEY'S BOARD OF DIRECTORS
Pechiney completed the French mandatory information and consultation
process with its works councils regarding the combination on September 15, 1999,
and, on the same date, the Pechiney board of directors approved the execution of
the combination agreement. Under the combination agreement, the Pechiney board
of directors agreed that it will at all times recommend that holders of Pechiney
Securities accept the offers, except upon the occurrence of specified events
affecting Alcan or Pechiney, regardless of whether the offer for Algroup shares
is completed. On , 2000, the Pechiney board of directors recommended that
holders of Pechiney Securities accept this offer and the French offer.
THE COMBINATION AGREEMENT
The following is a summary of the material terms of the combination
agreement. This description is qualified in its entirety by the full text of the
combination agreement which is attached to this prospectus as Annex A. We urge
you to read the combination agreement carefully. In the event that there are any
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differences between this summary and the combination agreement, the terms of the
combination agreement shall prevail.
ACTION BY ALCAN'S BOARD OF DIRECTORS
Under the combination agreement, Alcan agreed that its board of directors
would recommend that Alcan shareholders approve the issuance of Alcan common
shares in connection with the Pechiney and Algroup share exchange offers, except
as specified below, regardless of whether the offers for both companies are
completed. The Alcan board was permitted to withdraw or adversely modify its
recommendation that shareholders approve the issuance of Alcan common shares in
connection with the offers for Pechiney Securities, or Algroup shares on the
occurrence of certain events affecting either or both of Pechiney and Algroup.
At a meeting held on November 22, 1999, Alcan's shareholders approved the
issuance of Alcan common shares in connection with the offers for Pechiney
Securities and Algroup shares.
The Alcan board may terminate the combination agreement, permitting it to
withdraw or adversely modify its recommendation if a proposal constituting an
alternative transaction of the type described below for Alcan is made. In this
instance, a termination payment would be payable by Alcan.
ACTION BY PECHINEY'S BOARD OF DIRECTORS
Pechiney has agreed its board of directors will recommend at all times that
holders of Pechiney Securities accept the offers for Pechiney Securities, except
as specified below, regardless of whether the offer for Algroup shares is
completed.
The Pechiney board may withdraw or adversely modify its recommendation to
accept the offers for Pechiney Securities on the occurrence of certain events
affecting Alcan or Pechiney.
ACTION BY ALGROUP'S BOARD OF DIRECTORS
Algroup has agreed that its board of directors will recommend at all times
that holders of Algroup shares accept the Algroup share exchange offer, except
as specified below, regardless of whether the offers for Pechiney Securities are
completed.
The Algroup board may withdraw or adversely modify its recommendation to
accept the offer for Algroup shares on the occurrence of certain events
affecting Alcan or Algroup.
MUTUAL COVENANTS
No Solicitation
Each of the parties has agreed that it will not solicit, initiate, assist
or encourage inquiries or proposals from any other person or participate in any
discussions with respect to a competing transaction and, except as described
below under "Alternative Transactions", each party has agreed that it will:
- not furnish any information to any person, other than one of the parties
to the combination agreement in connection with a competing transaction;
- not assist or participate in a competing transaction; or
- not facilitate or encourage any effort by any person with respect to a
competing transaction.
Operation of Business
Each of the parties has agreed that it will, among other things:
- not do anything in the operation of its business that is reasonably
likely to be inconsistent with the economic or business fundamentals of,
or materially hinder, the consummation of either of the share exchange
offers for Pechiney Securities or Algroup shares;
- not issue any shares or rights to acquire shares, except pursuant to
obligations that existed on August 11, 1999 and pursuant to existing
employee stock option and stock purchase plans;
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- not repurchase or redeem any shares or rights to acquire shares or
permit its subsidiaries, except wholly-owned subsidiaries, to repurchase
or redeem any shares or rights to acquire shares, except in connection
with employee stock purchase plans;
- not declare, pay or set aside payment for any dividend or distribution
on its shares or on the shares of its subsidiaries, except as described
below under "Dividend Payments";
- notify each of the other parties of any material breach of any
representation or warranty given by it in the combination agreement and
of any circumstance that would be reasonably likely to result in any
such representation or warranty not being true in all material respects
if repeated at any time during the term of the combination agreement;
- not take any action, or permit any of its subsidiaries to take any
action, that would make any representation or warranty contained in the
combination agreement untrue in any material respect;
- not amend or change its articles of association, by-laws or other
comparable governing instruments, except as contemplated under the
combination agreement;
- not make or commit for capital expenditures exceeding certain limits,
except as previously disclosed;
- not invest in any assets, except in the ordinary course of business, or
shares for consideration exceeding certain limits;
- notify the other parties of any investments in assets or shares for
consideration exceeding certain limits;
- divest or sell any assets, except in the ordinary course of business, or
shares in any subsidiary or associated entity of the party, including
rights to acquire shares with a fair market value exceeding certain
limits, with the exception of the Algroup chemicals division demerger;
and
- not make, and not permit any of its subsidiaries to make, any material
tax election.
DIVIDEND PAYMENTS
In addition, the combination agreement permits the payment by Pechiney of
its regular annual dividend and, subject to the completion of the offers for
Pechiney Securities, a special dividend to holders of Pechiney Securities. This
special dividend, together with the regular annual dividend and including the
precompte tax and any other tax payable by Pechiney under French tax law in
connection with these dividends may not exceed $549 million in the aggregate.
The combination agreement also permits, in the case of Alcan, quarterly
dividends consistent with past practice and, in the case of all three parties,
dividends between wholly-owned companies in a group.
THE COMBINATION
Each of the parties has agreed that it will, among other things:
- cooperate with the other parties and use commercially reasonable efforts
to take, or cause to be taken, all action required in connection with
the completion of the share exchange offers, including:
- the making and obtaining of any necessary government, third-party or
regulatory consents, filings or applications that may be required;
- ensuring that the Alcan common shares to be issued pursuant to the
share exchange offers are listed on the London, New York, Paris, Swiss
and Toronto stock exchanges;
- not do anything, unless it is provided for in the combination agreement,
that would prevent the combination from being accounted for as a
"pooling of interests" under Canadian GAAP; and
- not do anything, unless it is provided for in the combination agreement,
that would cause each of the share exchange offers to fail to constitute
a "tax free" exchange of shares to shareholders resident for tax
purposes in France, Switzerland or the United States, except for a
corporation holding Algroup shares with a value exceeding CHF 2 million.
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COVENANTS BY ALCAN
Alcan has agreed that it will, among other things:
- use its best efforts to ensure that, upon the completion of the
applicable share exchange offer the Alcan common shares issued in
connection with such offer are listed on the London, New York, Paris,
Swiss and Toronto stock exchanges and are freely transferable through
the facilities of such stock exchanges under applicable law, except by a
holder of a sufficient number of Alcan common shares to affect
materially the control of Alcan;
- use commercially reasonable efforts to permit the exchange, through
acceptance of the share exchange offer for Pechiney Securities, of
Pechiney Securities held by Pechiney employees through a Fonds Commun de
Placement d'Entreprise and the exchange of Pechiney Securities resulting
from the exercise of options held by employees through employee option
plans; and
- seek relief from the SEC as necessary to conduct the share exchange
offer for Pechiney Securities in the United States.
COVENANTS BY PECHINEY
Pechiney has agreed that it will, among other things:
- use commercially reasonable efforts to enable outstanding rights granted
by Pechiney to acquire Pechiney Securities to be exercised prior to the
completion of the offers for Pechiney Securities or to cause the holders
of such rights to accept Alcan common shares in place of Pechiney
Securities at the time such rights are exercised;
- use commercially reasonable efforts to permit the exchange, through
acceptance of the share exchange offer for Pechiney Securities, of all
Pechiney Securities held by Pechiney employees through a Fonds Commun de
Placement d'Entreprise; and
- not dispose, and will ensure that Pechiney Nederland N.V. does not
dispose of any of the 982,669 Pechiney A Shares held by Pechiney
Nederland N.V. or tender such shares to the share exchange offer for
Pechiney Securities.
COVENANTS BY ALGROUP
Algroup agreed, among other things, to complete the chemicals division
demerger, which was completed in November 1999. Algroup also agreed that it
would:
- not permit any adjustment to the conversion terms of its outstanding
convertible bonds as a result of the completion of the chemicals
division demerger which would result in more than 6,641,796 Algroup
shares being outstanding, assuming full conversion of such convertible
bonds. If the number of Algroup shares outstanding would exceed such
amount, the exchange ratio for the Algroup share exchange offer would be
adjusted in Alcan's favor to take account of such excess; and
- use commercially reasonable efforts to enable outstanding rights other
than employee options granted by Algroup to acquire Algroup shares to be
exercised prior to the completion of the Algroup share exchange offer or
to cause the holders of such rights to accept Alcan common shares in
place of Algroup shares at the time such rights are exercised.
CORPORATE GOVERNANCE
The parties have agreed to take all action that may be required to ensure
that the nominees described under "Management Information Subsequent to the
Combination -- Executive Officers"; "-- Board of Directors"; and "-- Committees
of the Board of Directors" are appointed to manage the business and affairs of
the Combined Company, which will continue to be governed by the Canada Business
Corporations Act.
A corporation governed by the Canadian Business Corporations Act must meet
certain requirements with respect to the number of resident Canadians on its
board of directors and, in some cases, committees of the board. The Canadian
Minister of Industry has announced the government's intention to introduce
amendments to the Canada Business Corporations Act early in 2000 that would
reduce the current Canadian residency requirement for the members of boards of
directors of corporations governed
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by that Act from a majority to 25%. The proposed amendments have not yet been
released, will be subject to parliamentary approval and may not come into effect
prior to the completion of the share exchange offers. However, the parties
believe that the proposed composition of the Combined Company's board of
directors and its committees described under "Management Information Subsequent
to the Combination" will satisfy the residency requirements of the Canada
Business Corporations Act for the year ended December 31, 2000.
ALTERNATIVE TRANSACTIONS
The combination agreement provides that any party may enter into
discussions with any third party that, without encouragement, enticement or
solicitation by the applicable party, makes a written proposal to that party
that constitutes an "alternative transaction".
The term "alternative transaction" means for these purposes an offer or
proposal made to one or more of Alcan, Pechiney or Algroup, as the case may be,
in writing and duly authorized by the board of directors of the person or entity
making the offer or proposal:
- to acquire by means of amalgamation, merger, purchase, exchange or
otherwise all of the shares of or all or substantially all of the assets
of Alcan, Pechiney or Algroup;
- that would be a transaction substantially more favorable to the
shareholders of Alcan, Pechiney or Algroup than the combination;
- that, except in the case of a transaction involving all or substantially
all of the assets of a party, is available to all holders of shares in
such party; and
- that is reasonably likely to be consummated, taking into account all
legal, financial and regulatory aspects of the offer or proposal.
Such discussions are only permitted to the extent that they are required by
applicable laws and regulations, which includes fiduciary duties applicable to
the board of directors of such party. If a party enters into discussions
regarding an alternative transaction, such party is not permitted to:
- provide to any third party any information about either of the other two
parties to the combination agreement; or
- provide to any third party any information about itself unless such
third party enters into a confidentiality and standstill agreement on
customary terms and which also permits disclosure of the alternative
transaction to the other two parties to the combination agreement.
Each of the parties to the combination agreement has agreed to inform the
other two parties forthwith upon becoming aware of any alternative transaction
or any other unsolicited inquiry, submission, offer or proposal with respect to
a competing transaction.
TERMINATION
The combination agreement may be terminated, with respect to Pechiney, by
the mutual written consent of Pechiney and Alcan, to the extent such termination
is permitted by applicable laws and stock exchange rules. The combination
agreement may be terminated, with respect to Algroup, by the mutual written
consent of Algroup and Alcan, to the extent such termination is permitted by
applicable laws and stock exchange rules.
Termination by Alcan
Alcan may terminate the combination agreement with respect to Pechiney if,
prior to the commencement of the offers for Pechiney Securities:
- Alcan has provided written notice to the other parties of its intention
to enter into an agreement providing for an alternative transaction or
Alcan's board of directors has resolved to recommend an alternative
transaction, provided that Alcan is not in breach of its obligations not
to solicit or initiate a competing transaction, and provided further
that the offers for Pechiney Securities have not commenced;
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- any of the conditions to commencement of the offers for Pechiney
Securities summarized below, except those that may be waived only by
Pechiney, has become incapable of satisfaction and Alcan has given the
other parties at least 10 days' written notice of its intention to
terminate;
- Pechiney is in material breach of any of its material obligations under
the combination agreement and such breach is not curable or is not cured
within 30 days after Alcan gives Pechiney and Algroup written notice of
the breach;
- Alcan has not commenced the offers for Pechiney Securities by June 30,
2000;
- the board of directors of Pechiney withdraws or adversely modifies its
recommendation unless such action is taken for one or more of the
reasons described above under "Action by the Boards of
Directors -- Pechiney Board of Directors", with the exception of the
reason relating to an alternative transaction for Pechiney;
- the Pechiney board has recommended an alternative transaction to holders
of Pechiney Securities; or
- a material adverse effect on the financial condition, properties,
business or results of operation of Pechiney, its subsidiaries and its
interests in associates entities taken as a whole has occurred after the
date of the combination agreement.
Alcan may terminate the combination agreement with respect to Algroup if,
prior to the commencement of the offer for Algroup shares:
- Alcan has provided written notice to the other parties of its intention
to enter into an agreement in connection with an alternative transaction
or Alcan's board of directors has resolved to recommend an alternative
transaction, provided that Alcan is not in breach of its obligations not
to solicit or initiate a competing transaction, and provided further
that the offer for Algroup shares has not commenced;
- any of the conditions to commencement of the offer for Algroup shares
summarized below, except for any condition that may be waived only by
Algroup, has become incapable of satisfaction and Alcan has given the
other parties at least 10 days' written notice of its intention to
terminate;
- Algroup is in material breach of any of its material obligations under
the combination agreement and such breach is not curable or is not cured
within 30 days after Alcan gives Algroup and Pechiney written notice of
the breach;
- Alcan has not commenced the offer for Algroup shares by June 30, 2000;
- the board of directors of Algroup withdraws or adversely modifies its
recommendation, unless such action is taken for one or more of the
reasons described above under "Action by Boards of Directors -- Algroup
Board of Directors", with the exception of the reason relating to an
alternative transaction for Algroup;
- the Algroup board has recommended an alternative transaction to holders
of Algroup shares; or
- a material adverse effect on the financial condition, properties,
business or results of operation of Algroup, its subsidiaries and its
interests in associated entities taken as a whole has occurred after the
date of the combination agreement.
Termination by Pechiney
Pechiney may still terminate the combination agreement with respect to
itself if, prior to the commencement of the offers for Pechiney Securities:
- it has provided written notice to the other parties of its intention to
enter into an agreement providing for an alternative transaction or its
board of directors has resolved to recommend an alternative transaction,
provided that Pechiney is not in breach of its obligations not to
solicit or initiate a competing transaction;
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- any of the conditions to commencement of the offers for Pechiney
Securities summarized below, except those that may be waived only by
Alcan, has become incapable of satisfaction and Pechiney has given the
other parties at least 10 days' written notice of its intention to
terminate;
- Alcan is in material breach of any of its material obligations under the
combination agreement and such breach is not curable or is not cured
within 30 days after Pechiney gives Alcan and Algroup written notice of
the breach;
- Alcan has not commenced the offers for Pechiney Securities by June 30,
2000;
- the board of directors of Alcan has recommended an alternative
transaction to Alcan's shareholders; or
- a material adverse effect on the financial condition, properties,
business or results of operation of Alcan, its subsidiaries and its
interests in associated entities taken as a whole has occurred after the
date of the combination agreement.
Pechiney was also permitted to terminate the combination agreement with
respect to itself if the board of directors of Alcan had withdrawn or adversely
modified its recommendation that Alcan shareholders approve the issuance of
Alcan common shares pursuant to the offers for Pechiney Securities, unless such
action was taken for one or more of the reasons relating to the offers for
Pechiney Securities described above under "Action by Boards of Directors --
Alcan Board of Directors", with the exception of the reason relating to an
alternative transaction for Alcan.
Termination by Algroup
Algroup may still terminate the combination agreement with respect to
itself if, prior to the commencement of the offer for Algroup shares:
- it has provided written notice to the other parties of its intention to
enter into an agreement providing for an alternative transaction or its
board of directors has resolved to recommend an alternative transaction,
provided that Algroup is not in breach of its obligations not to solicit
or initiate a competing transaction;
- any of the conditions to commencement of the offer for Algroup shares
summarized below, except for any condition that may be waived only by
Alcan, has become incapable of satisfaction and Algroup has given the
other parties at least 10 days' written notice of its intention to
terminate;
- Alcan is in material breach of any of its material obligations under the
combination agreement and such breach is not curable or is not cured
within 30 days after Algroup gives Alcan and Pechiney written notice of
the breach;
- Alcan has not commenced the offer for Algroup shares by June 30, 2000;
- Alcan's board of directors has recommended an alternative transaction to
Alcan's shareholders; or
- a material adverse effect on the financial condition, properties,
business or results of operation of Alcan, its subsidiaries and its
interests in associated entities taken as a whole has occurred after the
date of the combination agreement.
Algroup was also permitted to terminate the combination agreement with
respect to itself if the board of directors of Alcan had withdrawn or adversely
modified its recommendation that Alcan's shareholders approve the issuance of
common shares pursuant to the offer for Algroup shares, unless such action was
taken for one or more of the reasons relating to the offer for Algroup shares
described above under "Action by Boards of Directors -- Alcan Board of
Directors", with the exception of the reason relating to an alternative
transaction for Alcan.
Termination Fees
In certain circumstances where Alcan, Pechiney or Algroup terminates the
combination agreement in favor of an alternative transaction or if the board of
directors of a party withdraws or adversely modifies the recommendation to its
shareholders, that party will be required to pay a termination fee to one or
both of the other parties. As long as all the parties continue to be bound by
the combination agreement, the
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aggregate termination fee payable by any party is $150 million. If the
combination agreement has been terminated with respect to a party, and
subsequently one of the remaining parties is required to pay a termination fee,
the termination fee payable by that party is reduced to $100 million.
Payments by Pechiney
Pechiney will be required to pay the termination fee if:
- Pechiney terminates the combination agreement in favor of an alternative
transaction;
- Alcan terminates the combination agreement because Pechiney's board of
directors has withdrawn or adversely modified its recommendation or has
recommended an alternative transaction in circumstances where it is not
permitted to do so; or
- after the commencement of the offers for Pechiney Securities, the
Pechiney board withdraws or adversely modifies its recommendation in
favor of an alternative transaction or the Pechiney board recommends an
alternative transaction.
The termination fee paid by Pechiney will be divided equally between Alcan
and Algroup, unless the combination agreement was previously terminated with
respect to Algroup, in which case Alcan will receive the entire reduced
termination fee of $100 million.
Payments by Algroup
Algroup will be required to pay the termination fee if:
- Algroup terminates the combination agreement in favor of an alternative
transaction;
- Alcan terminates the combination agreement because Algroup's board of
directors has withdrawn or adversely modified its recommendation or has
recommended an alternative transaction in circumstances where it is not
permitted to do so; or
- after the commencement of the offer for Algroup shares, the Algroup
board withdraws or adversely modifies its recommendation in favor of an
alternative transaction or recommends an alternative transaction.
The termination fee paid by Algroup will be divided equally between Alcan
and Pechiney, unless the combination agreement was previously terminated with
respect to Pechiney, in which case Alcan will receive the entire reduced
termination fee of $100 million.
Payments by Alcan
Alcan will be required to pay the termination fee if:
- Alcan terminates the combination agreement in favor of an alternative
transaction;
- Pechiney terminates the combination agreement because the Alcan board of
directors has withdrawn or adversely modified its recommendation that
Alcan shareholders approve the issuance of common shares in connection
with the offers for Pechiney Securities in favor of an alternative
transaction or has recommended an alternative transaction in
circumstances where it is not permitted to do so; or
- Algroup terminates the combination agreement because the Alcan board has
withdrawn or adversely modified its recommendation that Alcan
shareholders approve the issuance of common shares in connection with
the offer for Algroup shares in favor of an alternative transaction or
has recommended an alternative transaction in circumstances where it is
not permitted to do so; or
- after the commencement of the offers for Pechiney Securities or Algroup
shares, the Alcan board withdraws or adversely modifies its
recommendation in favor of an alternative transaction.
The termination fee will be divided equally between Pechiney and Algroup,
unless:
- the combination agreement was previously terminated with respect to
Pechiney, in which case Algroup will receive the entire termination fee
at the reduced level of $100 million; or
- the combination agreement was previously terminated with respect to
Algroup, in which case Pechiney will receive the entire reduced
termination fee of $100 million.
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INDEMNIFICATION
From and after the completion of the offers for Pechiney Securities, Alcan
has agreed to:
- indemnify the present and former directors and officers of Pechiney and
its subsidiaries against any damages, costs and expenses incurred in
connection with matters existing or occurring at or prior to the
consummation of the offers for Pechiney Securities regardless of when
asserted or claimed; and
- maintain in effect for a period of six years the existing directors' and
officers' liability insurance of Pechiney.
From and after the consummation of the offer for Algroup shares, Alcan has
agreed to:
- indemnify the present and former directors and officers of Algroup and
its subsidiaries against any damages, costs and expenses incurred in
connection with matters existing or occurring at or prior to the
consummation of the offer for Algroup shares regardless of when asserted
or claimed; and
- maintain in effect for a period of six years the existing directors' and
officers' liability insurance of Algroup.
CONDITIONS TO COMMENCEMENT OF THE OFFERS FOR PECHINEY SECURITIES
The following is a summary of the conditions that must be satisfied or
waived before Alcan may make the offers for Pechiney Securities.
(1) The issuance of Alcan common shares to be delivered to holders of
Pechiney Securities has been duly approved by Alcan's shareholders. This
condition has been satisfied.
(2) The Alcan common shares issuable to holders of Pechiney Securities
have been authorized for listing on the New York and Toronto stock
exchanges. This condition may be waived only by Pechiney.
(3) Alcan has performed in all material respects, all of the obligations
set forth in the combination agreement that are required to be performed
by Alcan before the commencement of the offers for Pechiney Securities.
This condition may be waived only by Pechiney.
(4) Pechiney has performed in all material respects, all of the
obligations set forth in the combination agreement that are required to
be performed by Pechiney before the commencement of the offers for
Pechiney Securities. This condition may be waived only by Alcan.
(5) No material adverse effect on the financial condition, properties,
business or results of operations of Alcan, its subsidiaries and its
interests in associated entities taken as a whole has occurred since the
date of the combination agreement. This condition may be waived only by
Pechiney.
(6) No material adverse effect on the financial condition, properties,
business or results of operations of Pechiney, its subsidiaries and its
interests in associated entities taken as a whole has occurred since the
date of the combination agreement. This condition may be waived only by
Alcan.
(7) No court or governmental entity has enacted any statute, law,
ordinance, rule, regulation, judgment, decree, injunction or other order
that restrains or prohibits the completion of the offer or the
Combination. This condition may be waived only by the agreement of Alcan
and Pechiney.
(8) The waiting periods applicable to the completion of the offers for
Pechiney Securities under the HSR Act and the Canadian Competition Act
have expired or been terminated, the European Commission has cleared the
offers for Pechiney Securities under the European Council merger
regulation, all filings required to be made with any governmental entity
before the completion of the offers for Pechiney Securities have been
made and all consents, registrations, approvals, permits and
authorizations required to be obtained from any governmental entity
before the
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completion of the offers for Pechiney Securities have been obtained.
This condition may be waived only by the agreement of Alcan and
Pechiney.
(9) Alcan's registration statement on SEC Form S-4 (of which this
prospectus is a part) has become effective under the Securities Act of
1933.
(10) The Algroup chemicals division demerger has been completed, unless the
combination agreement has been terminated with respect to Algroup. This
condition has been satisfied.
(11) The representations and warranties made by Alcan in the combination
agreement are true and correct in all material respects on the date of
satisfaction or waiver of the last to be satisfied or waived of the
conditions set forth in (1), (2), (9) and (10) above. This condition may
be waived only by Pechiney.
(12) The representations and warranties made by Pechiney in the combination
agreement are true and correct in all material respects on the date of
satisfaction or waiver of the last to be satisfied or waived of the
conditions set forth in (1), (2), (9) and (10) above. This condition may
be waived only by Alcan.
CONDITION TO THE COMPLETION OF THE OFFERS FOR PECHINEY SECURITIES
The only condition to the completion of the offers for Pechiney Securities,
once commenced, is that Alcan receives in the U.S. offer and the French offer,
valid acceptances, that have not been withdrawn, in respect of Pechiney
Securities which carry more than 67% of the total voting rights in Pechiney,
calculated on a fully diluted basis at the end of the offering period. If this
condition is not satisfied nor waived by Alcan with the agreement of Pechiney,
Alcan will withdraw the offers for Pechiney Securities and will not be required
to accept or pay for any Pechiney Security tendered to these offers.
TREATMENT OF PECHINEY STOCK OPTIONS AND PECHINEY SECURITIES HELD THROUGH A FONDS
COMMUN DE PLACEMENT D'ENTREPRISE
At the time the offers for Pechiney Securities are commenced, and
conditional upon their completion, Alcan has agreed that it will make separate
offers to the holders of options to subscribe for new Pechiney A Shares under
employee option plans enabling those holders, if they exercise their options,
once these options are vested, to exchange their Pechiney A Shares for Alcan
common shares on the same basis as under the offers for Pechiney Securities. At
the time the offers for Pechiney Securities are commenced, and conditioned upon
their completion, Alcan has also agreed that it will, if necessary, make
separate offers for Pechiney A Shares held by Pechiney employees through a Fonds
Commun de Placement d'Entreprise (i.e., a French employees collective investment
vehicle). These Pechiney A Shares cannot be tendered under the offer.
ACQUISITION OF PECHINEY SECURITIES NOT TENDERED
The purpose of the offers for Pechiney Securities is to enable Alcan to
acquire all of the outstanding Pechiney Securities, with the possible exception
of the 982,669 Pechiney A Shares held by Pechiney Nederland N.V., a Pechiney
subsidiary. If Alcan acquires Pechiney Securities pursuant to the offers, Alcan
may exercise its statutory right, if and to the extent available, and all other
means legally available to it, to acquire all of the outstanding Pechiney
Securities not tendered, other than those held by Pechiney Nederland N.V. If
Alcan were to obtain at least 95% of the total voting rights in Pechiney, it
might consider launching a withdrawal offer (offre publique de retrait) which
could be followed by a compulsory acquisition (retrait obligatoire) of the
remaining shares held by the public.
CONDITION TO COMMENCEMENT OF THE ALGROUP OFFER
Conditions to commencement of the Algroup offer are set forth in the
combination agreement attached as Annex A hereto.
CONDITIONS TO THE COMPLETION OF THE ALGROUP OFFER
The conditions to the completion of the Algroup offer, once commenced, are
also set forth in the combination agreement attached as Annex A hereto.
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REGULATORY MATTERS
In order to complete the combination, the companies must receive
authorization from various U.S., Canadian and European governmental agencies. It
is possible that one or more governmental entities may fail to provide the
requested approvals or may seek, as a condition of approval, various regulatory
concessions. Receipt of all necessary regulatory approvals and consents (other
than immaterial approvals and consents) by each of Alcan, Pechiney and Algroup
is a condition to completion of the combination, and any party may deem that
this condition has not been satisfied if any U.S., Canadian or European
regulatory body conditions its approval upon concessions or satisfaction of
conditions which could reasonably be expected to have a material adverse effect
on the Combined Company. There can be no assurance that the required regulatory
approvals and consents will be obtained within the time frame contemplated by
the combination agreement or on terms that are satisfactory to the parties.
None of Alcan, Pechiney and Algroup is aware of any material licenses or
regulatory permits that it holds which might be adversely affected by the
combination or by the offers for Pechiney Securities and Algroup shares or of
any material approval or other action by any federal, provincial, state or
foreign government or any administrative or regulatory agency that would be
required to be obtained prior to making the offers or accepting securities
pursuant thereto except as have been obtained or applied for, or as described
herein.
ANTITRUST AND COMPETITION
United States Hart-Scott-Rodino Antitrust Improvements Act of 1976
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission, which is referred to below as the FTC, a share exchange offer may
not be completed until notification has been filed with the FTC and the
Antitrust Division of the Department of Justice and a 30 day waiting period has
been observed. This waiting period may be terminated by the FTC and the
Antitrust Division before its expiration. Each of Alcan, Pechiney and Algroup
has filed a notification and report form under the HSR Act with the FTC and the
Antitrust Division. On September 24, 1999, the Antitrust Division requested
additional information and documentary material. This request has the effect of
extending the waiting period under the HSR Act until 20 calendar days after
substantial compliance with the request. The parties are in the process of
complying with this request. The expiration or termination of the waiting period
does not bar the FTC or the Antitrust Division from challenging any of the
offers before or after their completion.
European Union Antitrust Laws
Alcan, Pechiney and Algroup all conduct business in member states of the
European Union. The European Council merger regulation requires that certain
mergers or acquisitions involving parties with aggregate worldwide sales and
individual European Union sales exceeding certain thresholds be formally
notified to and approved by the European Commission before such mergers and
acquisitions are implemented. Formal notification by Alcan of the combination
was accepted by the European Commission on October 6, 1999.
The European Commission must review each of the share exchange offers to
determine if they are compatible with the common market. A merger or acquisition
which does not create or strengthen a dominant position that would significantly
impede effective competition in the common market or in a substantial part of
the common market is considered to be compatible with the common market.
The European Commission has carried out a preliminary phase one
investigation of the transaction and has determined to initiate a phase two
investigation. The European Commission must make a final decision as to whether
or not the combination is compatible with the common market by March 2000.
Competition Act (Canada)
Each of the share exchange offers is a notifiable transaction for the
purposes of Part IX of the Competition Act (Canada) and, therefore, could not be
completed until the applicable waiting periods under that Act expired.
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Although those waiting periods have expired, the Commissioner of
Competition is still reviewing each of the share exchange offers. If the
Commissioner determines that any or all of the share exchange offers would
likely lessen or prevent competition substantially, the Commissioner may apply
to the Competition Tribunal (a special purpose quasi-judicial tribunal), for an
order to, among other things, enjoin or dissolve any or all of the share
exchange offers. The expiration of the waiting periods described above without
the Commissioner having made such an application does not bar him from
challenging a transaction at any time up to three years after such transaction
has been completed.
Swiss Antitrust Laws
Under Swiss antitrust laws, mergers or acquisitions involving parties with
certain aggregate sales and with individual sales within Switzerland exceeding
certain thresholds have to be formally notified to and approved by the Swiss
Competition Commission before such mergers or acquisitions are implemented.
Alcan, Pechiney and Algroup filed formal notification of the Combination with
the Swiss Competition Commission on October 1, 1999.
The Swiss Competition Commission reviewed the share exchange offers and, on
November 8, 1999, approved of the offers as compatible with Swiss antitrust
laws.
Other Jurisdictions
The offers for Pechiney Securities and Algroup shares are also subject to
the requirements of applicable antitrust legislation in certain jurisdictions
outside of the United States, Canada, the European Union and Switzerland in
which Alcan, Pechiney and Algroup conduct business and have operations. In some
jurisdictions, merger notifications and other regulatory filings and consents
are required prior to completion of the combination. Alcan, Pechiney and Algroup
are currently in the process of completing the required filings and responding
to requests for information from the relevant regulatory authorities.
STOCK EXCHANGES
Alcan will apply to list the Alcan common shares issuable pursuant to the
offers for Pechiney Securities and Algroup shares on the London, New York,
Paris, Swiss and Toronto stock exchanges, among others, and will have to comply
with all of the usual requirements of such exchanges within periods specified by
these stock exchanges. Alcan's common shares are currently listed on the
Montreal, Toronto, Vancouver, New York, Chicago, Pacific, London, Paris,
Brussels, Amsterdam, Frankfurt and Swiss stock exchanges.
SECURITIES REGULATORY AUTHORITIES
The offers for Pechiney Securities will be made in accordance with French
law and U.S. federal and state securities law. The Alcan common shares issued
pursuant to the offers for Pechiney Securities to holders resident in the United
States and to holders of Pechiney ADSs will be registered with the SEC.
The offers for Pechiney Securities are not being made to holders of
Pechiney Securities in jurisdictions outside of France or the United States
where the making or acceptance of such offer would not be in compliance with the
laws of such jurisdictions. However, Alcan may seek exemption orders or take
such other actions as it may deem necessary in order to extend the offers for
Pechiney Securities to holders in such jurisdictions. For example, Alcan intends
to seek exemptions from the securities regulatory authorities in Canada to
permit the offers for Pechiney Securities to be made to holders of Pechiney
Securities in Canada without compliance with the take-over bid requirements
otherwise applicable in Canada.
INVESTMENT CONTROLS
Under French investment control rules, acquisitions of businesses engaged
in the defense sector are subject to the prior approval of the French Minister
of Economy, who has a one month period from the date of notification to clear or
postpone the proposed investment. Approval is deemed given in the event that the
Minister fails to respond within that one month period. As certain Pechiney
subsidiaries are currently engaged in the defense industry, a formal application
was filed by Alcan in relation to the offers for Pechiney Securities. The French
State has cleared the proposed combination, subject to Alcan's
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acceptance of certain undertakings relating to, among other things, the
continuation of orders passed by the French Ministry of Defense. The offers for
Pechiney Securities will not be commenced until after the final approval has
been obtained.
ACCOUNTING TREATMENT
Assuming that at least substantially all of the shares of each of Pechiney
and Algroup are acquired by Alcan pursuant to the share exchange offers, the
combination is expected to be accounted for using the pooling of interests
method under Canadian GAAP, subject to certain regulatory review. The use of the
pooling of interests method is appropriate under Canadian GAAP where the
ownership interests of two or more companies are joined together through an
exchange of voting shares and none of the parties can be identified as an
acquirer, irrespective of the fact that the transaction is effected through the
issuance of shares of one of the combining entities. Under the pooling of
interests method, the assets and liabilities of the combined companies are added
together, after harmonization of significant accounting principles and policies,
at their stated book values.
Assuming that all of the Pechiney Securities and Algroup shares are
acquired by Alcan pursuant to the share exchange offers and that such shares are
exchanged for Alcan common shares, existing Alcan shareholders, former Pechiney
shareholders and former Algroup shareholders will have 44%, 29% and 27%,
respectively, of the ownership interests in the Combined Company on a fully
diluted basis. Moreover, if offers for the Pechiney Securities and the Algroup
shares are completed, the board of directors of the Combined Company will be
comprised of an equal number of representatives from each of the combining
companies. Senior management will also be drawn from the three combining
companies. Accordingly, from an accounting point of view, none of the combining
companies will be considered to be an acquirer. See "Unaudited Pro Forma
Combined Financial Information -- Alcan, Pechiney and Algroup -- Pooling
Method -- Canadian GAAP".
Under U.S. GAAP, both the combination of the three companies and a
combination of Alcan and Pechiney without Algroup would be accounted for using
the purchase method of accounting. See "Unaudited Pro Forma Combined Financial
Information -- Alcan, Pechiney and Algroup -- Purchase Method -- U.S. GAAP" and
"-- Alcan and Pechiney -- Purchase Method -- U.S. GAAP."
Under Canadian GAAP, if the offers for the Pechiney Securities are not
completed within a reasonable period of time of the offer for the Algroup
shares, it is likely that the combination would be accounted for under the
purchase method of accounting. In addition, if less than substantially all of
the Pechiney Securities and Algroup shares are exchanged for Alcan common
shares, the combination would be accounted for under the purchase method of
accounting. In addition, the combination of Alcan and Pechiney without Algroup
would be accounted for using the purchase method of accounting under Canadian
GAAP.
Under the purchase method of accounting, the book value of the Alcan common
shares issued pursuant to the exchange offers would be based on the market value
of the common shares. Accordingly, in the consolidated financial statements of
the Combined Company, the market value of the Alcan common shares issued would
be allocated to the assets and liabilities of one or the other or both of
Pechiney and Algroup, based upon their respective fair values, with any excess
of the purchase price over the allocated value of the net identifiable assets
being treated as goodwill. This method will result in the carrying values of the
assets, including goodwill, attributable to one or the other or both of Pechiney
and Algroup being substantially higher than the former book values of those
assets.
The Combined Company had pro forma 1998 sales and operating revenues of
$23.3 billion using the pooling of interests method of accounting under Canadian
GAAP and $21.6 billion using the purchase method of accounting under U.S. GAAP.
The Combined Company had pro forma 1998 income from continuing operations of
$918 million using the pooling of interests method of accounting under Canadian
GAAP and $525 million using the purchase method of accounting under U.S. GAAP.
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TERMS OF THE OFFER
INTRODUCTION
Alcan and Pechiney are entering into a merger of equals pursuant to which
Alcan is offering to exchange newly issued Alcan common shares for all of the
outstanding Pechiney Securities. Alcan is making two concurrent offers for
Pechiney Securities (with separate exchange offer documents): the U.S. offer and
the French offer. The U.S. offer is being made to all beneficial holders or
holders of record of Pechiney Securities in the United States and Canada.
The French offer is being made only to beneficial holders and holders of
record of Pechiney Securities who are not residents of the United States or
Canada. The French offer is not being made directly or indirectly in, or by use
of any means or instrumentality (including, without limitation, the mail,
facsimile transmission, telex or telephone) of interstate or foreign commerce or
any facilities of a national securities exchange of, the United States. The U.S.
offer and the French offer will commence and terminate concurrently.
The French offer will provide the same consideration and will be made on
the same terms and subject to the same conditions and will otherwise be
conducted in substantially the same manner as the U.S. offer, including any
amendments thereto. The offers for Pechiney Securities are not being made in,
nor may any of the offer documents be sent to countries other than the United
States, Canada or the Republic of France.
No later than the date of the commencement of this offer, Alcan will file
with the SEC a statement on Schedule TO furnishing certain information with
respect to this offer as required by Rule 14d-3 under the Exchange Act. Under
Rule 14D-9, Pechiney is required to send to its securityholders a statement
setting forth its position with respect to the U.S. offer, and file with the SEC
a Schedule 14D-9, including such statement, within 10 business days after the
commencement of the U.S. offer. Pechiney will file its Schedule 14D-9
concurrently with the filing of Alcan's Schedule TO.
TERMS OF THE OFFER
In order to effect the combination, Alcan is offering to exchange:
- 1.7816 Alcan common shares for every Pechiney A Share you tender;
- 1.9598 Alcan common shares for every Pechiney B Share you tender; and
- 0.8908 of an Alcan common share for every Pechiney ADS you tender.
CONDITIONS TO THE COMMENCEMENT OF THE OFFER
In accordance with the combination agreement, Alcan will not begin the
offer until all conditions to the combination, which are described under "The
Combination -- The Combination Agreement -- Conditions to the Commencement of
the Offers for Pechiney Securities" are satisfied or waived.
For a full description of the conditions, see the combination agreement
attached as Annex A hereto.
CONDITION TO COMPLETION OF THE OFFER
This offer to exchange Alcan common shares for your Pechiney Securities is
subject to the condition that Alcan has received, in the U.S. offer, at the
expiration date of the U.S. offer, and in the French offer, at the expiration
date of the French offer, on a combined basis, valid acceptances, which have not
been withdrawn, in respect of Pechiney Securities which carry more than 67% of
the total voting rights in Pechiney calculated on a fully diluted basis at the
expiration date of the French offer. For this purpose each Pechiney ADS shall be
treated as carrying one half of one voting right in Pechiney. This condition is
waivable by Alcan but only if Pechiney agrees to such waiver.
COMPULSORY ACQUISITION
If Alcan acquires less than all of the Pechiney Securities pursuant to the
offers, Alcan may exercise its statutory right, to the extent available, and all
other means legally available to it, to acquire all of the Pechiney Securities
not tendered. If Alcan were to obtain at least 95% of the total voting rights in
Pechiney, it may consider launching, to the extent permitted by French law, a
withdrawal offer (offre
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publique de retrait) which could be followed by a compulsory acquisition
(retrait obligatoire) of the remaining shares held by the public.
GROUNDS FOR WITHDRAWING THE OFFER
In accordance with French law and practice, Alcan reserves the right to:
- request that the Conseil des Marches Financiers, or CMF, authorize Alcan
to withdraw the French offer if during the offering period, Pechiney
should take steps that are of certain and immediate effect
(d'application certaine et immediate) that modify the nature
(consistance) of Pechiney, if the CMF authorizes the withdrawal of the
French offer, Alcan may withdraw both the French offer and the U.S.
offer; or
- withdraw the French offer and U.S. offer within five days of the
publication by the CMF of a timetable for a competing offer to acquire
Pechiney Securities filed by another person or group with the CMF and
which is an alternative transaction within the meaning of the
combination agreement.
THE EXPIRATION DATE
To be eligible to receive Alcan common shares pursuant to this offer, you
must validly tender, and not withdraw, your Pechiney Securities on or prior to
the expiration date.
The expiration date will be [ ], 2000 unless this offer is
extended, in which case the expiration date shall be the latest date to which
the offer is extended. If the offer period is extended, Alcan will amend the
expiration date to reflect the final expiration date determined by the CMF and
will notify the U.S. exchange agent by oral or written notice. Alcan will inform
you by press release or other public announcement of any extension of the offer.
EXTENSION, TERMINATION AND AMENDMENT
Subject to applicable U.S. and French law, Alcan may request the CMF to
extend the period of time for the French offer for Pechiney Securities. In
addition, the CMF may, acting on its own, at any time or from time to time
extend the period of time for the French offer. If the French offer is extended,
the U.S. offer will also be extended.
Alcan may terminate the offers upon the occurrence of any of the conditions
specified above under "Grounds for Withdrawing the Offer".
Any extension or termination will be followed as promptly as practicable by
oral or written notice to the U.S. exchange agent. If Alcan makes a material
change to the offer, Alcan will promptly inform you of the change through a
press release or other public announcement. A material change in the terms of
this offer could include the following:
- change in the timing of the offer;
- an increase in the consideration offered for the Pechiney Securities; or
- a waiver of the minimum acceptance condition.
In accordance with French tender offer regulations, in the event that a
competing offer for Pechiney Securities is approved by the CMF, the CMF may
require an extension of the offer period or deem tenders prior to the opening of
such competing offer to be invalid and require retenders for tenders to be
effective under such circumstances.
Except as noted above, during any such extension, all Pechiney Securities
previously tendered and not withdrawn will remain subject to this offer,
provided the tendering holders will have the right to withdraw their Pechiney
Securities at any time prior to the expiration date. See "-- Withdrawal Rights".
Alcan will make public announcements of material changes to the U.S. offer
by issuing a press release to the Dow Jones News Service in the United States.
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FRACTIONAL SHARES
No fractional Alcan common shares will be issued in connection with the
offer. Alcan will make arrangements on reasonable terms for Alcan common shares
representing fractional entitlements to be aggregated and sold on the market and
the net proceeds of sale (converted, to the extent necessary, at the spot rate
of exchange into United States dollars) to be distributed among the persons
entitled thereto.
PROCEDURES FOR TENDERING PECHINEY SECURITIES
By following the procedures described below, your acceptance of this
exchange offer will be a binding agreement between you and Alcan in accordance
with the terms and subject to the conditions set forth in this prospectus and
the letter of transmittal.
Procedures for Tendering Pechiney ADSs
Pechiney ADS Certificates. If you hold Pechiney ADS certificates, you may
tender your Pechiney ADSs by delivering prior to the expiration date the
following materials to the U.S. exchange agent at one of its addresses set forth
on the back cover of this prospectus:
- your Pechiney ADS certificates;
- a properly completed and duly executed letter of transmittal, or a
facsimile copy, with any required signature guarantees; and
- any other documents required by the letter of transmittal.
Pechiney ADSs in Book-Entry Form. If you hold your Pechiney ADSs in
book-entry form, you may tender your Pechiney ADSs following the procedure for
book-entry transfer described below. If you tender your Pechiney ADSs in this
way, you must deliver prior to the expiration date the following materials to
the U.S. exchange agent at one of its addresses set forth on the back cover of
this prospectus:
- a timely confirmation of a book-entry transfer (a "book-entry
confirmation") of such Pechiney ADSs into the U.S. exchange agent's
account at the Depositary Trust Corporation, or DTC, pursuant to the
procedures described below;
- a properly completed and duly executed letter of transmittal, or a
facsimile copy, with any required signature guarantees, or an agent's
message (as defined below); and
- any other documents required by the letter of transmittal.
The U.S. exchange agent will establish an account with respect to Pechiney
ADSs at DTC for purposes of this offer within two business days after the date
of this prospectus. Any financial institution that is a participant in DTC's
systems may make book-entry delivery of Pechiney ADSs by causing DTC to transfer
such Pechiney ADSs into the U.S. exchange agent's account in accordance with
DTC's procedure for the transfer. You must deliver prior to the expiration date
to the U.S. exchange agent at one of its addresses set forth on the back cover
of this prospectus (1) the appropriate letter of transmittal, or a facsimile
copy thereof, properly completed and duly executed, together with any required
signature guarantees, or (2) an agent's message in lieu of the letter of
transmittal, and any other required documents. An "agent's message" is a message
transmitted by DTC to, and received by, the U.S. exchange agent as part of a
book-entry confirmation. The book-entry confirmation states that DTC has
received an express acknowledgment from the DTC participant tendering the
Pechiney ADSs that such participant has received and agrees to be bound by the
terms of the letter of transmittal and that we may enforce such agreement
against such participant.
Signature Guarantees. Signatures on all letters of transmittal must be
guaranteed by a firm that is a member of the Medallion Signature Guarantee
Program, or by any other "eligible institution", as such term is defined in Rule
17Ad-15 under the Exchange Act (each of the foregoing is referred to as an
"eligible institution"). Signature guarantees are not required in cases in which
Pechiney ADSs are tendered:
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- by a registered holder of Pechiney ADSs who has not completed either the
box entitled "Special Registration Instructions" or the box entitled
"Special Delivery Instructions" on the letter of transmittal; or
- for the account of an eligible institution.
Pechiney ADSs Held in "Street Name". If you hold Pechiney ADSs in "street
name" through your broker, bank or custodian, you should contact your broker,
bank or custodian to discuss the appropriate procedures for tendering.
ADS Certificates Registered in Another Name. If a Pechiney ADS certificate
is registered in the name of a person other than the signer of the letter of
transmittal, or if certificates for unexchanged Pechiney ADSs are to be issued
to a person other than the registered holder(s), the certificates representing
these securities must be endorsed or accompanied by appropriate stock powers.
The stock powers must be signed exactly as the name or names of the registered
owner or owners appear on the Pechiney ADS certificate, with the signature(s) on
the certificates or stock powers guaranteed as described above.
In the event you desire to tender Pechiney ADSs pursuant to the offer but
you cannot deliver your Pechiney ADS certificates and other required documents
prior to the expiration date or you cannot complete the procedure for book-entry
transfer on a timely basis, you may nevertheless be able to tender your Pechiney
ADSs pursuant to the procedures for guaranteed delivery described below. See
"-- Guaranteed Delivery". DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS
PROCEDURE DOES NOT CONSTITUTE DELIVERY TO THE U.S. EXCHANGE AGENT.
Pechiney A Shares and Pechiney B Shares held by financial intermediaries.
If your Pechiney A Shares or Pechiney B Shares are held through a French
financial intermediary, you do not need to complete the letter of transmittal.
Instead, your French financial intermediary should send you an order form and
instructions for participating in this offer. If you have not yet received
instructions from your French financial intermediary, please contact your French
financial intermediary directly.
If you hold your shares through a U.S. custodian, you do not need to
complete a letter of transmittal. Instead, your U.S. custodian should either
forward you the order form sent by the French financial intermediary that holds
the shares on behalf of the custodian as record owner or send a separate form
prepared by the custodian. If you have not yet received instructions from your
U.S. custodian, please contact your U.S. custodian directly.
If you hold shares in pure registered (nominatif pur) form, you cannot
tender them unless you first request that they be converted to administered
registered (nominatif administre) form. If you wish to tender such shares, you
must first make the necessary arrangements for such conversion with your French
financial intermediary or U.S. custodian, as applicable.
THE METHOD OF DELIVERY OF CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS,
INCLUDING DELIVERY THROUGH DTC OR A DEPOSITARY BANK, IS AT YOUR OPTION AND RISK.
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE U.S. EXCHANGE
AGENT. IF YOU ELECT TO DELIVER YOUR CERTIFICATES AND OTHER MATERIALS BY MAIL, WE
RECOMMEND THAT YOU USE REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME FOR DELIVERY PRIOR TO
THE EXPIRATION DATE.
Other Requirements
By executing a letter of transmittal, you will irrevocably appoint us or
our designees as your attorneys-in-fact and proxies. Your appointment will be to
the full extent of your rights with respect to the Pechiney Securities tendered
by you and accepted for exchange by us and any and all other Pechiney Securities
issued or issuable in respect of such Pechiney Securities on or after
. Your appointment will be effective, and your voting rights will be
affected, only when we accept for exchange your tendered Pechiney Securities in
accordance with the terms of the offer. Your appointment will be irrevocable.
Upon the effectiveness of your appointment, all prior proxies given by you will
be revoked without further action, and you will not be able to give powers of
attorney, proxies or written consents with respect to the Pechiney Securities
tendered by you. Our designees will have the authority to exercise all your
voting and other rights at any meeting of Alcan's shareholders, by written
consent in lieu of any such meeting or otherwise. Alcan reserves the right to
require that, in order for Pechiney Securities to be
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deemed validly tendered, immediately upon Alcan's acceptance of such Pechiney
Securities for exchange, Alcan must be able to exercise all rights of ownership,
including full voting and disposition rights, with respect to such Pechiney
Securities.
If the letter of transmittal, notice of guaranteed delivery or any
certificates or stock powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or other persons acting
in a fiduciary or representative capacity, such persons should so indicate when
signing. Proper evidence of authority to act must be submitted by such persons,
although we may waive this requirement.
If any Pechiney A Share, Pechiney B Share or Pechiney ADS certificate or
other evidence of ownership has been mutilated, destroyed, lost or stolen, you
must (1) furnish to the U.S. exchange agent satisfactory evidence of ownership
and of the destruction, loss or theft or such certificate, (2) indemnify the
U.S. exchange agent against loss, and (3) comply with any other reasonable
requirements.
Your tender of Pechiney Securities pursuant to any of the procedures
described above will constitute your binding agreement with us to the terms and
conditions of this offer.
Determination of Validity
We will determine, in our discretion, all questions as to the validity,
form and eligibility for exchange of any tendered Pechiney Securities. Our
determination will be final and binding on the holders of Pechiney Securities.
We reserve the absolute right to reject any and all tenders that we determine
are not in proper form. We also reserve the right to waive any defect or
irregularity in the tender or any securities of any particular holder, whether
or not similar defects or irregularities are waived in the case of other
securityholders. Unless otherwise waived by you, your tender of securities will
not be valid until all defects or irregularities have been cured or waived. None
of Alcan, the U.S. exchange agent, the information agent, the dealer manager or
any other person will be under any duty to give notification of any defects or
irregularities in the tender of any securities, or incur any liability for
failure to give any such notification. Our interpretation of the terms and
conditions of this offer will be final and binding on the holders of Pechiney
Securities.
GUARANTEED DELIVERY
If you desire to tender Pechiney Securities pursuant to this offer and your
certificates are not immediately available or you cannot deliver such
certificates and all other required documents to the U.S. exchange agent prior
to the expiration date, or you cannot complete the procedure for book-entry
transfer on a timely basis, you may nevertheless tender such Pechiney Securities
provided that all of the following conditions are satisfied:
- the tender is made by or through an eligible institution;
- a properly completed and duly executed notice of guaranteed delivery,
substantially in the form made available by us, is received by the U.S.
exchange agent as provided below on or prior to the expiration date; and
- the certificates for your tendered Pechiney Securities or a confirmation
of a book-entry transfer of Pechiney Securities into the U.S. exchange
agent's account at DTC as described above, in proper form for transfer,
together with a properly completed and duly executed transmittal letter
or a manually executed facsimile copy, with any required signature
guarantee or, in the case of a book-entry transfer, an agent's message
and all other documents required by the letter of transmittal, are
received by the U.S. exchange agent within three New York Stock Exchange
trading days after the date of execution of such notice of guaranteed
delivery.
The notice of guaranteed delivery may be delivered by hand or transmitted
by facsimile transmission or mailed to the U.S. exchange agent. The notice of
guaranteed delivery must in all cases include a guarantee by an eligible
institution in the form set forth in such notice.
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WITHDRAWAL RIGHTS
Tenders of Pechiney Securities made pursuant to this offer are irrevocable,
except that you may withdraw Pechiney Securities tendered pursuant to this offer
at any time prior to the expiration date. You may also withdraw Pechiney
Securities tendered pursuant to this offer at any time after [ ],
unless Alcan has accepted your Pechiney Securities for exchange pursuant to this
offer.
For a withdrawal to be effective, the U.S. exchange agent must receive a
timely written or facsimile transmission notice of withdrawal at one of its
addresses set forth on the back cover of this prospectus. Any such notice must
specify the name of the person who tendered the Pechiney Securities being
withdrawn, the number of Pechiney Securities being withdrawn and the name of the
registered holder if different from that of the person who tendered such
Pechiney Securities.
If certificates evidencing ADSs being withdrawn have been delivered or
otherwise identified to the U.S. exchange agent, then, prior to the physical
release of such certificates, (1) the U.S. exchange agent also must receive the
name of the registered holder and the serial numbers of the particular
certificate evidencing the ADSs and (2) the signature(s) on the notice of
withdrawal must be guaranteed by an eligible institution unless such ADSs have
been tendered for the account of an eligible institution. If Pechiney Securities
have been tendered pursuant to the procedure for book-entry transfer, any notice
of withdrawal must specify the name and number of the account at DTC to be
credited with the withdrawal of ADSs or warrants. If you have tendered Pechiney
A Shares or Pechiney B Shares, the notice of withdrawal must specify the name
and number of the SICOVAM account to be credited with the withdrawal of shares.
You may not rescind a withdrawal. If you withdraw Pechiney Securities, they
will be deemed not validly tendered for purposes of this offer. However, you may
re-tender withdrawn Pechiney Securities at any time prior to the expiration of
this offer by following the procedures described above under "Terms of the
Offer -- Procedures for Tendering Pechiney Securities."
We will determine, in our sole discretion, all questions as to the form and
validity (including time of receipt) of any notice of withdrawal. Our
determination shall be final and binding on the holders of the Pechiney
Securities. None of Alcan, the U.S. exchange agent, the information agent, the
dealer managers or any other person will be under any duty to give notification
of any defects or irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Pechiney Securities
properly withdrawn will be deemed not to have been validly tendered for purposes
of this offer. However, withdrawn Pechiney Securities may be re-tendered at any
time prior to the expiration date by following the procedures described above
under "-- Procedures for Tendering Pechiney Securities."
ACCEPTANCE AND RETURN OF PECHINEY SECURITIES
Subject to the terms and conditions of the offer, we will exchange Pechiney
Securities validly tendered and not properly withdrawn for Alcan common shares,
or return such Pechiney Securities as promptly as practicable under French
tender offer practice after the expiration date. Subject to applicable rules of
the SEC, we reserve the right to delay acceptance for exchange, or delay
exchange, of Pechiney Securities in order to comply in whole or in part with any
applicable law.
Acceptance of Tendered Pechiney Securities.
If this offer is successful, we will be deemed to have accepted for
exchange Pechiney Securities validly tendered and not properly withdrawn on the
expiration date, as set forth in the final results of the offer (avis de
resultat definitif) published in France by the CMF. Subject to the terms and
conditions of the offer, the newly issued Alcan common shares will be
transferred to the account of the financial intermediary who tendered the
Pechiney Securities.
Return of Tendered Pechiney Securities
In case any Pechiney Securities tendered in accordance with the
instructions set forth in the offer materials are not accepted for exchange
pursuant to the terms and condition of this offer, we will cause these
securities to be returned in accordance with the procedures outlined in such
materials.
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<PAGE> 54
MISCELLANEOUS
If we increase the consideration offered to any holder of Pechiney
Securities prior to the expiration date, we will pay the increased consideration
to all holders of Pechiney Securities that are exchanged in this offer, whether
or not such Pechiney Securities were tendered prior to the announcement of such
increase. In addition, the CMF may require an extension of the offer period or
deem prior tenders invalid from the opening of the increased offer and require
re-tenders in such circumstances. No such increase is currently expected.
DELIVERY OF ALCAN COMMON SHARES
In the event the offer is successful, the U.S. exchange agent will deliver
Alcan common shares to tendering holders of Pechiney Securities promptly
following the publication by the CMF of the final results of the offers for
Pechiney Securities. If the offer is consummated, the final settlement date for
the offer will be within approximately four to 10 business days following
publication of the final results.
FEES AND EXPENSES
Except as set forth below, we will not pay any fees or commissions to any
broker or other person soliciting tenders of Pechiney Securities pursuant to
this offer.
Morgan Stanley is acting as dealer manager in the United States in
connection with this offer and they or certain of their affiliates have provided
certain financial advisory services to Alcan in connection with the
transactions. Morgan Stanley will receive reasonable and customary compensation
for its services as financial advisor and dealer-manager. We will indemnify the
financial advisor against specified liabilities and expenses in connection with
this offer, including liabilities under the U.S. federal securities laws.
We have also retained [ ] to act as information agent in
connection with this offer. The information agent may contact holders of
Pechiney Securities by mail, telephone, telex, fax, e-mail and personal
interview and may request brokers, dealers and other nominee shareholders to
forward these offer materials to owners of Pechiney Securities. The information
agent will receive reasonable and customary fees for these services, plus
reimbursement of out-of-pocket expenses.
We have retained [ ] to act as U.S. exchange agent and the U.S.
forwarding agent in connection with this offer. We will pay the U.S. exchange
agent reasonable and customary compensation for its services in connection with
this offer, plus reimbursement for out-of-pocket expenses. We will reimburse
brokers, dealers commercial banks and trust companies for customary mailing and
handling expenses incurred by them in forwarding material to their customers.
We will indemnify the information agent and the U.S. exchange agent against
certain liabilities and expenses in connection with this offer, including
liabilities under the U.S. federal securities laws.
Indemnification for liabilities under the U.S. federal securities laws may
be unenforceable as against public policy.
The cash expenses to be incurred in connection with this offer will be paid
by Alcan and are estimated in the aggregate to be approximately [ ].
Such expenses include registration fees, fees and expenses of the financial
advisor and dealer-manager, U.S. exchange agent and information agent,
accounting and legal fees and printing costs, among others.
STOCK EXCHANGE LISTING OF ALCAN COMMON SHARES
Alcan will apply for the listing of the common shares issued in the share
exchange offers on the London, New York, Paris, Swiss and Toronto stock
exchanges, among others, and will comply with all of the usual requirements of
such exchanges within the time periods specified by such exchanges. Alcan's
common shares are currently listed on the Toronto, New York, Chicago, Pacific,
London, Paris, Brussels (by means of depository certificates), Amsterdam,
Frankfurt and Swiss stock exchanges.
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TREATMENT OF PECHINEY STOCK OPTIONS
At the time the offers for Pechiney Securities are commenced, and
conditional upon their completion, Alcan has agreed that it will make separate
offers to the holders of options to subscribe for new Pechiney A Shares under
employee option plans enabling those holders, if they exercise their options,
once these options are vested, to exchange their Pechiney A Shares for Alcan
common shares on the same basis as under the offers for Pechiney Securities.
EFFECT OF THE OFFERS ON THE MARKET FOR PECHINEY SECURITIES
If the offers for Pechiney Securities are successful, the liquidity and
market value of the remaining Pechiney Securities held by the public could be
adversely affected by the fact that they will be held by a smaller number of
holders.
The Pechiney ADSs are listed and traded on the New York Stock Exchange. The
Pechiney A Shares are listed and traded on the Paris Bourse and are also quoted
on SEAQ International. The Pechiney B Shares are listed on the Paris Bourse.
Depending upon the number of Pechiney Securities acquired pursuant to the
offers, following their completion the Pechiney ADSs may no longer meet the
requirements of the New York Stock Exchange and the Pechiney A Shares, as well
as the Pechiney B Shares may no longer meet the requirements of the Paris Bourse
for continued listing. Moreover, to the extent permitted under applicable law
and stock exchange regulations, Alcan may seek to cause the delisting of the
Pechiney ADSs, Pechiney A Shares and Pechiney B Shares on such exchanges.
If one or both of the New York Stock Exchange and the Paris Bourse were to
delist the Pechiney ADSs, Pechiney A Shares and Pechiney B Shares, the market
therefor could be adversely affected. Although it is possible that the Pechiney
ADSs, Pechiney A Shares and Pechiney B Shares would be traded on other
securities exchanges or in the over-the-counter market, and the price quotations
would be reported by such exchanges, or through the National Association of
Securities Dealers, Inc. Automated Quotations System or by other sources, there
can be no assurance that any such trading quotations will occur. In addition,
the extent of the public market for the Pechiney ADSs, Pechiney A Shares and
Pechiney B Shares and the availability of such quotations would, however, depend
upon the number of holders and/or the aggregate market value of the Pechiney
ADSs, Pechiney A Shares and Pechiney B Shares, as the case may be, remaining at
such time, the interest in maintaining a market in the Pechiney ADSs, Pechiney A
Shares and Pechiney B Shares, as the case may be, on the part of securities
firms and the possible termination of registration of ADSs under the Securities
Exchange Act of 1934. If such registration is terminated, Pechiney could cease
filing periodic reports with the SEC, which could further impact the value of
the Pechiney Securities. To the extent the availability of such listings or
quotations depends on steps taken by Alcan or Pechiney, Alcan or Pechiney may or
may not take such steps. Therefore, you should not rely on any such listing or
quotation being available.
SUBSEQUENT TRANSACTIONS TO INTEGRATE THE BUSINESSES OF ALCAN AND PECHINEY AND
FUTURE DIVIDEND POLICY
If Alcan obtains greater than 67% but less than 95% of the voting rights of
Pechiney, it may engage in subsequent transactions, such as a simplified
subsequent offer, a merger or transfer of assets, in order to combine and
integrate the two businesses. The resulting financial strategies and dividend
policies of Pechiney may differ from those that would be established by Pechiney
if it remained an independent company. If the Alcan offer for Algroup shares is
successful, such transactions could be extended to include Algroup.
Alcan and Pechiney are not in a position at this stage to state what their
dividend policy will be in respect of Pechiney Securities after a successful
offer, but it is likely that such policy will be determined in the context of
Pechiney's integration into the enlarged combined company. This policy could
bring about a large reduction in the level of dividends paid by Pechiney, or
even an end to dividends being paid at all, subject to the rights of holders of
Pechiney B Shares.
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INCREASED COMPETITION
The global and European Union markets in which Alcan, Pechiney and Algroup
are present are subject to vigorous domestic and foreign competition and may be
adversely affected by, among other things, significant low-cost imports from
Eastern Europe or developing countries, the emergence of new competitors,
capacity growth of existing competitors and competing products. Although some of
the major players are currently engaged in merger processes, the companies'
belief is that this vigorous domestic and foreign competition will remain. If
the offer for Algroup shares is successful but the offers for Pechiney
Securities are not, Pechiney is likely to face increased competition from the
combination of Alcan and Algroup.
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THE COMPANIES
INFORMATION CONCERNING ALCAN
BUSINESS DESCRIPTION
Alcan is the parent company of an international group involved in all
aspects of the aluminum industry. Through subsidiaries, joint ventures and
related companies around the world, the activities of Alcan include bauxite
mining, alumina refining, power generation, aluminum smelting, manufacturing and
recycling as well as research and technology. Approximately 36,000 people are
directly employed by Alcan.
In the 97 years since it was established, Alcan has developed a unique
combination of competitive strengths. Alcan is a multicultural and multilingual
enterprise reflecting the differing corporate and social characteristics of the
many countries in which it operates. Within a universal framework of policies
and objectives, individual subsidiaries conduct their operations with a large
measure of autonomy. With operations and sales offices in more than 30
countries, Alcan is one of the most international aluminum companies and a
leading producer of flat-rolled aluminum products.
1. OVERVIEW OF SEGMENTS/DIVISIONS
In April 1999, Alcan was restructured into two business operating groups to
better support the achievement of its Full Business Potential II targets.
Alcan's bauxite mining, alumina refining, power generation and primary aluminum
activities are the responsibility of the Alcan Primary Metal Group. All
downstream or fabrication activities, such as sheet, foil, flexible packaging,
cable and extrusions as well as recycling activities and secondary metal
production are the responsibility of the Alcan Global Fabrication Group. The two
operating groups are self-sufficient, but operate within a universal framework
of strategy and policies.
The corporate office focuses on enterprise strategy and profitable growth,
while overseeing governance, policy and compliance matters.
2. HISTORY/RECENT DEVELOPMENTS
Alcan is a limited liability Canadian company, incorporated on June 3,
1902, with its headquarters and registered office in Montreal, Canada. It was
formed as a subsidiary of the Pittsburgh Reduction Company, one of the founding
companies of the aluminum industry, to establish a smelter and hydroelectric
power facility in Shawinigan, Quebec. In 1928, the international operations and
domestic U.S. operations were separated into two competing companies that became
Alcan and Alcoa Inc., respectively. During the Second World War substantial
expansion of hydroelectric and smelting capacity took place in Quebec to supply
aluminum for the war effort. In the 1950s, hydroelectric and smelting capacity
was added in British Columbia. During the postwar period Alcan expanded
internationally and invested in fabricating activities to stimulate demand for
its primary metal production. By the 1980s it was the most international of
aluminum companies, including a substantial presence in the United States and in
Europe.
Since 1994, Alcan has divested several fabricating businesses which were
not considered to be a strategic fit for the company and which did not create
long-term value for its shareholders. As part of this process, in 1996, Alcan
sold 12 non-strategic downstream businesses in the U.K. and in the U.S. During
1998, Alcan increased its shareholding in Indian Aluminium Company, Limited
("Indal") from 34.6% to 54.6%, which thereby became a subsidiary. Alcan also
decreased its shareholding in Nippon Light Metal Company, Ltd. ("NLM") from
45.6% to 5.1%. In the first half of 1999, Alcan sold its Aughinish alumina
refinery in Ireland and its pistons business in Nuremberg, Germany. In July
1999, Alcan sold its wholly-owned subsidiary, Alcan France, which produces
building systems. On September 30, 1999, Alcan and South Korea's Taihan Electric
Wire Co., Ltd. announced the formation of Alcan Taihan Aluminum Limited, a
jointly-owned company with modern rolling assets to serve the growing market for
aluminum rolled products throughout the Asia/Pacific region.
On October 18, 1999, Alcan reported third quarter consolidated net income
of $158 million compared to $71 million in the previous quarter and $107 million
in the third quarter of 1998. After dividends paid on
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the Alcan preference shares, net income per Alcan common share for the quarter
is 71 cents compared to 32 cents in the second quarter and 46 cents a year
earlier.
The results for the quarter included net non-operating gains of $42 million
or 19 cents per share. These comprised gains on the sale of non-core assets,
principally a further sale of shares in NLM in Japan and Alcan's building
products business in France, totaling $47 million (21 cents per share), partly
offset by rationalization costs in the Quebec smelter system amounting to $5
million. Also, the currency revaluation of deferred income taxes resulted in a
charge of $2 million (1 cent per share). The prior year quarter included a gain
on currency revaluation of deferred income tax, partly offset by losses at NLM
and restructuring charges, netting to a gain of $4 million, or 2 cents per
share. Excluding all these items, earnings per share were 53 cents compared to
44 cents a year earlier, a 20% improvement.
Consistent with its resolve to earn in excess of its cost of capital in
order to deliver higher shareholder returns, Alcan, in March 1999, set a new
additional earnings improvement target of $700 million, pre-tax. Together with
Alcan's original target of $300 million launched in 1997, this translates into a
$1 billion goal by the end of 2001. Alcan implemented the Full Business
Potential (FBP) program, aimed at identifying and realizing optimal returns from
existing assets (including projects currently under development) with a view to
achieving this performance goal. Alcan also adopted Economic Value Added (EVA),
a performance tool that measures financial returns after a charge for the cost
of capital employed in the business.
3. BAUXITE AND ALUMINA
3.1 Products
Alumina (aluminum oxide) is produced from bauxite, the basic
aluminum-bearing ore, by a chemical process. Depending upon quality, between
four and five metric tonnes of bauxite are required to produce approximately two
metric tonnes of alumina. A portion of the alumina produced by Alcan is sold in
the metallurgical and chemical alumina markets.
3.2 Sales and Marketing/Customers
Alcan produces approximately 3.4 million metric tonnes of smelter-grade
alumina, of which some 3 million metric tonnes is required by its current
smelting operations. The remainder is sold to third parties. In addition, Alcan
produces approximately 400,000 metric tonnes of chemical-grade alumina which is
sold to third parties in the form of various alumina chemicals.
3.3 Production Facilities
3.3.1 Canada Alcan owns alumina facilities with a capacity of about 1.2
million metric tonnes per year at Jonquiere (Quebec). Bauxite for this operation
is obtained from Brazil (see below), Guinea (see below) and other sources.
Alumina and alumina-based chemicals produced at Jonquiere supply, in part, the
smelters in Quebec and are also sold in chemical markets.
3.3.2 Australia Alcan has a 21.4% interest in a company which operates an
alumina plant at Gladstone (Queensland) which has a capacity of about 3.3
million metric tonnes per year. Each participant in that plant supplies bauxite
for toll conversion. Alcan's bauxite is purchased from Comalco Limited
("Comalco") in Australia under a long-term contract. Alcan's share of production
from Gladstone is used to supply the Alcan smelter at Kitimat (British Columbia)
and is also sold to third parties. In 1998, Alcan and Comalco signed an
agreement providing for the future development of Alcan's Ely bauxite mine in
Cape York, Queensland, Australia, with Comalco's adjacent operations. This
becomes effective at the beginning of 2000.
3.3.3 Brazil Alcan purchased close to 2 million metric tonnes of bauxite in
1998 under contracts in effect through 1999 from a 12.5%-owned company,
Mineracao Rio do Norte S.A. ("MRN"). MRN's Trombetas mine in the Amazon region
has an operating capacity of about 10 million metric tonnes per year. Bauxite
purchased from MRN is processed at the Jonquiere plant (see above) and at the
Alumar alumina refinery in Sao Luis (Brazil) which has an annual capacity of
about 1.2 million metric tonnes; Alcan owns a 10% interest and future expansion
rights in the latter refinery. Alcan owns alumina facilities
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(and related bauxite mining facilities) with a capacity of about 150,000 metric
tonnes per year at Ouro Preto which supply smelters in Brazil.
3.3.4 Ghana Alcan purchased about 400,000 metric tonnes of bauxite in 1998
from Ghana Bauxite Co. Ltd. ("GBC") in which it holds an interest of 80%. The
bauxite purchased is used for processing at the Burntisland plant (see below),
the Aughinish plant and the Jonquiere plant (see above).
3.3.5 Guinea Alcan purchased 4 million metric tonnes of bauxite in 1998
under contracts in effect through 2011 from Compagnie des Bauxites de Guinee
S.A. ("CBG"). Alcan has a 33% interest in Halco (Mining) Inc.; Halco holds a 51%
interest in CBG, the remaining 49% being held by the Republic of Guinea. CBG's
mine in the Boke region of Guinea has an operating capacity of about 12 million
metric tonnes per year. Bauxite purchased from CBG is processed at the Aughinish
plant and the Jonquiere plant (see above) and is also sold to third parties.
3.3.6 India In May 1998, Alcan acquired a 20% interest in the proposed Utkal
alumina project in Orissa, India. A further 20% is held by Alcan's subsidiary,
Indal. The project consists of a one million metric tonne integrated alumina
plant and bauxite mine, with potential to further expand production capacity. In
February 1999, Alcan increased its direct interest in the project to 35%,
subject to regulatory approval. Alcan's decision regarding the beginning of
construction is expected to be made in early 2000. Indal owns bauxite mining
facilities at Chandgad and Lohardaga, as well as alumina facilities at Belgaum
and Muri with a total capacity of 360,000 metric tonnes of alumina per year.
3.3.7 Jamaica Alcan has a 93% interest in alumina facilities (and related
bauxite mining facilities) with an annual capacity of about 1.2 million metric
tonnes. The Government of Jamaica owns the remaining 7% interest in these
facilities. Alcan is responsible for management of the operations. In 1998, most
of Alcan's share of the alumina produced was supplied to Alcan smelters in
Canada and the United States.
3.3.8 United Kingdom Alcan operates an alumina plant in Burntisland
(Scotland), which has an annual capacity of approximately 120,000 metric tonnes
of special aluminas and other chemicals. Bauxite for this operation is purchased
from Ghana (see above). Production from this plant is sold in the chemical
market.
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<TABLE>
<CAPTION>
Alumina capacities -- As at August 1999
(thousands of metric tonnes)
<S> <C> <C> <C> <C>
% OF ALCAN
OWNERSHIP ANNUAL SHARE OF
LOCATIONS SUBSIDIARIES + BY ALCAN CAPACITY CAPACITY
- ------------------------ ------------------- --------- -------- --------
SMELTER-GRADE ALUMINA
AUSTRALIA............... Gladstone 21.4 3,500 749(1)
(Queensland)
BRAZIL.................. Ouro Preto 100 150 150
(Saramenha,
Minas Gerais)
Alumar 10 1,200 120
(Sao Luis)
CANADA.................. Vaudreuil 100 1,045 1,045
(Jonquiere, Quebec)
INDIA................... Belgaum 54.6
(Karnataka) 216 216
Muri 54.6
(Bihar)
JAMAICA................. Kirkvine 93
(Manchester) 1,150 1,070(1)
Ewarton 93
(St. Catherine)
TOTAL SMELTER-GRADE ALUMINA 3,350
SPECIALTY CHEMICAL ALUMINAS
CANADA.................. Vaudreuil 100 130 130
(Jonquiere, Quebec)
INDIA................... Belgaum 54.6
(Karnataka) 144 144
Muri 54.6
(Bihar)
UNITED KINGDOM.......... Burntisland 100 120 120
(Fife, Scotland)
TOTAL SPECIALTY CHEMICAL ALUMINAS 394
TOTAL SUBSIDIARIES 3,744
</TABLE>
- ---------------
+ Includes joint ventures, proportionately consolidated.
1 Restated to better reflect the actual production levels achieved over a
period of time.
3.4 Raw Materials
3.4.1 Bauxite Reserves Alcan obtains its bauxite from mining subsidiaries,
joint ventures, consortium companies and third-party suppliers. To meet its
bauxite needs in 1998, Alcan used 8.0 million metric tonnes from its mines and
purchased 3.3 million metric tonnes from third parties. Alcan believes its
demonstrated bauxite reserves are sufficient to meet its needs for the next 30
years. Alcan also has access to additional resources to meet its needs beyond
this period. In 1997 and 1998, Alcan spent $1.6 million and $2.9 million,
respectively, on exploration and development of bauxite reserves.
3.4.2 Chemicals and Other Materials Alcan, together with its subsidiaries,
related companies and joint ventures, produces a wide range of specialty
aluminas and aluminum hydroxides for different uses, such as ceramics,
refractories, water treatment chemicals, catalysts and coagulants. Its products
are also used as flame retardants and smoke suppressants for plastics and
resins. The principal manufacturing facilities for special aluminas and aluminum
hydroxides are located in Canada, the U.K. and India.
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Certain chemicals and other materials, e.g., aluminum fluoride, required
for the production of aluminum at Alcan's smelters, are also produced by its
chemical operations. Other materials, e.g., caustic soda, fuel oil, fluorspar
and petroleum coke, are purchased from third parties.
4. PRIMARY ALUMINUM
4.1 Products
4.1.1 Aluminum Aluminum is produced through the electrolytic reduction of
alumina. Electrical energy is used to separate the aluminum from the oxygen in
alumina. Approximately two metric tonnes of alumina yield one metric tonne of
metal.
4.1.2 Other Aluminum Sources Other sources of aluminum include the
following: purchases of primary aluminum under contracts and spot purchases,
purchases of aluminum used beverage cans and aluminum scrap for recycling and
purchases of customer scrap returned against ingot or semi-fabricated product
sales contracts. In addition, some aluminum fabricated products are purchased
for resale. Purchases in 1998 of aluminum of all types from all sources amounted
to 1,227,000 metric tonnes, compared with 1,254,000 metric tonnes in 1997 and
1,003,000 metric tonnes in 1996.
4.2 Sales and Marketing/Customers
In 1998, Alcan sold 648,000 metric tonnes of primary aluminum to third
parties. Virtually all this ingot was in the form of value-added ingot,
primarily billet, sheet ingot or foundry alloy. The remainder of the primary
metal produced was sold to Alcan's own fabricating operations, primarily as
sheet ingot, wire bar or molten metal, used for the continuous casting of rod or
sheet.
Approximately half of the primary aluminum produced in Alcan's North and
South American smelters is consumed in Alcan's fabricating facilities, while the
remaining half is sold to third party customers, primarily in North America and
Asia. North American third party sales have been focused on both customized
extrusion billet and foundry alloys. These markets have been very strong,
supported by growth in automotive demand, and by a buoyant economy. Although
Alcan has been short of metal in Europe, the duty barrier for aluminum from
Canada and high logistics costs have made it impractical to ship significant
tonnages of metal to Europe.
Alcan is a major supplier of extrusion ingot to independent extruders and
foundry ingot to independent shape casting foundries. Alcan also sells alloys to
independent foundries in Canada, Italy, the United Kingdom and the United
States.
Alcan's ingot product realizations were $1,558 per metric tonne in 1998
compared to $1,739 per metric tonne in 1997 and $1,658 per metric tonne in 1996.
These figures relate to primary and secondary ingot and scrap.
4.3 Production Facilities
4.3.1 Smelting Alcan owns and operates 16 primary aluminum smelters with a
total annual rated capacity of 1,699,000 metric tonnes. Seven of these smelters,
having a total annual rated capacity of 1,118,000 metric tonnes, are located in
Canada; the other smelters are located in Brazil, India, the U.K. and the U.S.
During 1998, Alcan's smelters produced 1,481 kilotonnes of primary aluminum:
1,107,000 metric tonnes in Canada, 129,000 metric tonnes in the U.S., 124,000
metric tonnes in the United Kingdom, 103,000 metric tonnes in Brazil and 18,000
metric tonnes in India.
Utilization of smelting capacities varies from time to time according to
business conditions. Due to difficult industry and market conditions, and
following the consolidation of Indian Aluminium Company, Limited in mid-1998,
approximately 204,000 metric tonnes of capacity remain shut down at smelters in
the U.S., the U.K. and India. In November 1997, Alcan restarted 22 kilotonnes
per year of capacity at its smelter in Kitimat, (British Columbia.), as one of
several elements of a legal agreement reached in August 1997 with the government
of British Columbia to settle the long-standing dispute related to that
government's rejection of the Kemano Completion Project.
For many years, Alcan has been engaged in smelter modernization and
rebuilding programs to retrofit or replace some of its older facilities. It
intends to continue these programs with a view to increasing productivity,
improving working conditions and minimizing the impact of its operations on the
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environment. In 1998, Alcan announced the construction of a 375,000-metric tonne
annual capacity aluminum smelter in Alma, Quebec. The total cost for the new
smelter is estimated at $1.6 billion, and construction is expected to be
completed in 2001. On March 22, 1999, Alcan announced the closure of the
Isle-Maligne smelter to be completed by December 1999. That date has now been
extended to March 2000 for the final 25,000 metric tonnes. It had been
previously intended that the Isle-Maligne smelter be shut down when the new Alma
smelter becomes operational.
<TABLE>
<CAPTION>
Smelter capacities -- As at August 1999
(thousands of metric tonnes)
<S> <C> <C> <C>
% OF
OWNERSHIP ANNUAL
LOCATIONS SUBSIDIARIES BY ALCAN CAPACITY
- ------------------------------ --------------------------- --------- --------
CANADA........................ Arvida 100 238
(Jonquiere, Quebec)
Grande-Baie 100 186
(La Baie, Quebec)
Laterriere 100 210
(Chicoutimi, Quebec)
Shawinigan 100 88
(Quebec)
Isle-Maligne 100 75(1)
(Alma, Quebec)
Beauharnois 100 49
(Melocheville, Quebec)
Kitimat 100 272
(British Columbia)
Total in Canada 1,118
BRAZIL........................ Ouro Preto 100 51
(Saramenha, Minas Gerais)
Aratu 100 58
(Bahia)
INDIA......................... Belgaum 54.6
(Karnataka)
Hirakud 54.6 110(2)
(Orissa)
Alupuram 54.6
(Kerala)
UNITED KINGDOM................ Lynemouth 100 130
(Northumberland, England)
Lochaber 100 38
(Inverness-shire, Scotland)
Kinlochleven 100 8
(Argyll, Scotland)
UNITED STATES................. Sebree 100 186
(Kentucky)
Total outside Canada.......... 581
TOTAL SUBSIDIARIES............ 1,699
</TABLE>
- ---------------
1 This facility will be permanently closed by year-end.
2 Reflects some potline shutdowns at Alupuram.
4.3.2 Other Aluminum Sources Alcan operates three specialized plants in the
U.S., with a total annual capacity of 481,000 metric tonnes, for the recycling
of used beverage cans and process scrap returned from customers. A similar plant
in the U.K. operates with a capacity of 70,000 metric tonnes per year.
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Alcan also operates a facility in the U.K. for the production of 70,000 metric
tonnes per year of sheet ingot from aluminum scrap. In Brazil, Alcan operates a
dedicated used beverage can recycling facility with an initial capacity of
40,000 metric tonnes per year.
Alcan operates secondary aluminum smelters in Italy, India and Thailand
which have capacities of 56,000, 25,000 and 30,000 metric tonnes per year,
respectively, for the production of secondary aluminum from aluminum scrap.
4.4 Raw Materials
4.4.1 Electricity The smelting of one metric tonne of aluminum requires
between 14 and 18.5 megawatt-hours of electric energy. Alcan produces low-cost
electricity at its own hydroelectric generating plants in Canada. These plants
have an installed generating capacity of 3,600 megawatts, of which 2,700
megawatts may be considered to be hydraulically available over the long term.
These facilities supply all the power needs of Alcan's Canadian smelters.
In Canada, all water rights pertaining to Alcan's hydroelectric
installations are owned by Alcan except for those relating to the Peribonka
River in Quebec. A charge (redevance statutaire) is payable to the Quebec
provincial government based on total energy generation, escalating at the same
rate as the Consumer Price Index in Canada. In 1984, Alcan and the Quebec
provincial government signed a lease extending the company's water rights
relating to that river to December 31, 2033 against an annual payment based on
sales realizations of aluminum ingot. In British Columbia, rentals and
generation taxes for electricity used in smelting and related purposes are
directly related to the sales realizations of aluminum produced at Kitimat. For
electricity sold to third parties within that province, Alcan pays provincial
water rentals at rates which are fixed by the British Columbia provincial
government, similar to those paid by B.C. Hydro, the provincially-owned electric
utility.
One-third of Alcan's installed hydroelectric capacity in Canada was
constructed prior to the end of 1943, another third by the end of 1956 and the
remainder by the end of 1959. All these facilities are expected to remain fully
operational over the foreseeable future. In addition to electricity generated at
its generating plants, as described above, Alcan has agreed to purchase, under a
long-term agreement, between one and three billion kWh of electrical energy
annually from Hydro-Quebec beginning in 2001. Electricity required by Alcan's
smelters in Canada is obtained from the foregoing sources. Electricity which is
surplus to Alcan's needs is sold to neighbouring utilities or customers under
both long-term and short-term arrangements.
For smelters located outside of Canada, electricity is obtained from a
variety of sources. The smelters in England and Scotland operate their own
coal-fired and hydroelectric generating plants, respectively. Indal operates its
own coal-fired generating plant for one of its smelters, while its two other
smelters are dependent upon purchased electricity. The smelters in Brazil obtain
some of their electricity requirements from owned hydroelectric generating
plants and purchase the balance. The smelter in the U.S. purchases electricity
under a long-term contract.
5. ALUMINUM CONVERSION
5.1 Products
The conversion of aluminum ingot into semi-fabricated and finished products
requires the application of a variety of intermediate processes, known generally
as fabricating. Many other producers of primary aluminum are also in the
business of supplying those products. In addition, there are many independent
fabricators which purchase primary and recycled aluminum from the primary
producers and the post-consumer market.
Nearly 90 % of Alcan's fabricated aluminum products volume is composed of
rolled products such as sheet and foil as well as flexible packaging. A major
portion of Alcan sheet is can stock for beverage containers. Other important
end-use markets for sheet include building and construction, transportation,the
printing industry and the industrial distribution market. Alcan also rolls foil
for household and commercial packaging applications and for industrial products.
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Since 1990, Alcan has made significant investments in the expansion,
upgrade and acquisition of rolled products facilities in North and South America
and in Europe. In 1998, Alcan undertook an expansion of its rolling mill at
Pindamonhangaba in Brazil. The plant, which has an ultimate capacity of 280
kilotonnes per year, is coming on stream in the second half of 1999 and will
support the rapidly growing South American can sheet market. In the past year,
substantial progress was made by the Alcan Global Automotive Products Group with
the signing of a strategic alliance and long-term supply agreement with General
Motors along with continued progress with GM, Ford and other automakers in North
America and Europe toward developing lighter, more efficient vehicles. In 1998,
Alcan also realigned its interests in the Asia/Pacific region, selling the
majority of its interest in Nippon Light Metal Company, Ltd. in Japan. In
September 1999, Alcan and South Korea's Taihan Electric Wire Co., Ltd. formed a
new company in Korea to provide a platform to serve the growth of the rolled
products market with a focus on can sheet throughout the Asia/Pacific region.
Through a number of selected downstream businesses, Alcan manufactures and
sells other fabricated aluminum products such as rod, wire and cable for the
electrical industry, and extrusions for the building and construction market.
5.2 Sales and Marketing/Customers
In 1998, Alcan shipped 1,823,000 metric tonnes of fabricated products and
manufactured another 289,000 metric tonnes from customer-owned metal, which
together represented 72% of Alcan's total volume for the year. Alcan's
fabricated aluminum products business is mainly composed of a number of large,
capital-intensive rolling operations as well as some smaller downstream
businesses, and represents over 76% of Alcan's total sales and operating
revenues of $7.8 billion. Alcan, together with its subsidiaries, related
companies and joint ventures, carries out fabricating operations in more than 50
plants in 13 countries.
5.2.1 Flat-rolled Products In 1998, Alcan's shipments of rolled products,
including conversion of customer-owned metal amounted to 1,893,000 metric tonnes
or 90% of its total fabricated products shipments. Principal markets are
beverage can sheet, other packaging, transportation (including automotive),
building products, lithographic sheet and other industrial applications.
5.2.2 Wire and Cable Aluminum is also cast and rolled into rod, which is
then drawn into wire and stranded into cable for the transmission and
distribution of electricity. Rod is also used for mechanical applications such
as screen wire and cable armouring.
5.2.3 Castings Another method of fabrication is the casting of molten
aluminum into components for machinery, automotive products and aircrafts.
5.2.4 Extrusions Examples of end-products using extrusions include windows,
doors and automotive components. Alcan is also a major supplier of extrusion
ingot to third party extruders in many countries.
5.3 Production Facilities
5.3.1 Flat-rolled Products Alcan is the world's largest producer and
marketer of flat-rolled aluminum products (sheet and foil), which constitute 90%
of Alcan's fabricated product volume. At the end of 1998, Alcan's annual sheet
and foil manufacturing capacity in its principal fabricating markets was as
follows: over 1,100,000 metric tonnes in North America; 150,000 metric tonnes in
South America; over 950,000 metric tonnes in Europe; and 140,000 metric tonnes
in Asia.
A major portion of Alcan's sheet is in the form of can stock for beverage
containers. Other important end-use markets for sheet include building and
construction, transportation, the printing industry and the industrial
distribution market. Alcan foil is used for household and commercial packaging
applications and for industrial products. Alcan's project to expand capacity at
its Pindamonhangaba, Brazil rolling mill to 280,000 metric tonnes is currently
undergoing customer qualification trials. Alcan will invest $46 million to
expand production of aluminum rolled sheet for the automotive and distribution
markets at its Kingston, Ontario mill. The expansion is expected to be complete
by the end of 2000. In April 1999, Alcan and Arco
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Aluminum, Inc. announced a $22 million expansion of their jointly owned Logan
aluminum rolling mill in Kentucky, U.S.
5.3.2 Wire and Cable Alcan's main wire and cable businesses are located in
Canada and the U.S.
5.3.3 Extrusions Alcan's subsidiaries, related companies and joint ventures
produce extruded products in several countries (including India, Italy, China,
Malaysia and Thailand) and sell these products locally and in other countries
for the building, construction, transportation and engineering markets.
<TABLE>
<CAPTION>
ROLLING CAPACITIES BY REGION
(thousands of metric tonnes) -- As at December 1999
<S> <C> <C> <C>
NORTH AMERICA EUROPE
Saguenay Rogerstone
(Quebec) (United Kingdom)
Kingston Falkirk
(Ontario) (United Kingdom)
Logan Norf
(Kentucky) (Germany)
Oswego Pieve
(New York) (Italy)
Terre Haute Nachterstedt
(Indiana) (Germany)
Fairmont Gottingen
(West Virginia) (Germany)
Louisville Bresso
(Kentucky) (Italy)
TOTAL NORTH AMERICA 1091 TOTAL EUROPE 1267
SOUTH AMERICA ASIA
Pinda Alcan Taihan Aluminium
(Brazil) (South Korea)
Utinga Selangor
(Brazil) (Malaysia)
TOTAL SOUTH AMERICA Patumtani
(Thailand)
262 TOTAL ASIA 135
</TABLE>
6. RECYCLING
6.1 Products
Alcan's annual recycling capacity is now 775 kilotonnes. Alcan operates two
facilities for the production of foundry alloys primarily from recycled
aluminum: one in India, the other in Italy. Most of these plants serve domestic
automotive markets. In addition, sheet ingot is produced from a variety of scrap
in the U.K.
In the case of used beverage cans ("UBCs"), Alcan has a well-established
and growing North American recycling network. Alcan's U.S. plants processed more
than 20.1 billion cans, or 31 % of all UBCs recycled by Americans, in 1998.
Alcan purchases UBCs throughout North America and remelts the UBCs, together
with its customers' can production scrap, at three locations in the U.S.,
producing new can sheet ingot. Over 2.1 billion UBCs were purchased by Alcan in
Canada, which represents roughly 60 % of all aluminum cans recycled in Canada.
6.2 SALES AND MARKETING/CUSTOMERS
Recycled metal is primarily sold to Alcan's own rolling facilities to
produce can sheet.
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6.3 PRODUCTION FACILITIES
In February 1998, Alcan started up a dedicated UBC recycling plant, which
has an ultimate capacity of 80 kilotonnes per year, at Pindamonhangaba, Brazil.
In the U.K., Alcan has a growing infrastructure of 26 can recycling centres and
over 500 independents. Alcan plays leading roles in joint industry programs to
promote aluminum collection and recycling in many of the countries where it
operates.
Alcan also operates an environmentally advanced operation in Quebec for the
recovery of aluminum from the dross that forms on the surface of molten metal.
In Italy, the Borgofranco plant serves Alcan's fabricating plants in Germany,
Switzerland and Italy as well as recycles customers' manufacturing scrap and
post-consumer aluminum packaging material. As well, the plant recovers aluminum
and salt from saline slag, a by-product of aluminum recycling. As a matter of
course, Alcan operates facilities in many plants to recycle aluminum scrap
generated internally by fabricating activities.
<TABLE>
<CAPTION>
Recycling plant capacities -- As at August, 1999
(thousands of metric tonnes)
<S> <C> <C> <C>
% of
ownership Annual
Locations Subsidiaries by Alcan capacity
FOUNDRY ALLOYS AND REMELT SCRAP INGOT
INDIA...................................... Taloja 54.6 25
(Maharastra)
ITALY...................................... Borgofranco di Ivrea 100 70(1)
(Piemonte region)
TOTAL FOUNDRY ALLOYS 95
SHEET INGOT FROM UBCS AND CUSTOMER PROCESS SCRAP
BRAZIL..................................... Pinda 100 100 40*
(Pindamonhangaba,
Sao Paulo)
UNITED KINGDOM............................. Warrington 100 70
(England)
UNITED STATES.............................. Berea 100
(Kentucky)
Greensboro 100 500(1)
(Georgia)
Oswego 100
(New York)
SHEET INGOT FROM MISCELLANEOUS SCRAP
UNITED KINGDOM............................. Warrington 100 70
(England)
TOTAL SHEET INGOT 680
TOTAL SUBSIDIARIES 775
</TABLE>
- ---------------
*Ultimate annual capacity is 80 kilotonnes per year.
(1) Reflects the continued optimization of current assets.
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7. RESEARCH & DEVELOPMENT
Alcan's research and technology efforts are managed by its two operating
groups: Alcan Primary Metal (covering bauxite, alumina and chemicals as well as
primary metal production) and Alcan Global Fabrication. Research and technology
is a global system of three research laboratories, applied engineering centers
and technical departments. The research laboratories, responsible for
approximately 60 % of the total R & D expenses for Alcan, play a major role in
innovation through basic and applied research. Two laboratories are located in
Canada (at Kingston, Ontario, and Jonquiere, Quebec) and one is in the U.K.
(Banbury, Oxfordshire). Together, they employ about 475 people. In recent years,
Alcan's R & D effort has been refocused on core processes and products. Close to
90 % of the activities in the R & D centers are now directed towards improved
product and process development programs for the mainstream businesses and focus
on assisting operating units to achieve increased productivity, higher quality
and reduced costs. Additionally, intellectual property management safeguards
Alcan's process and product technologies and trademarks. Alcan's operating
companies manage applied engineering centers and technical departments located
close to key markets and operating divisions. These include the Applied
Materials Center located in North America for canning technology, and technical
centers in North America and in Europe for automotive technologies. These
centers are focused on major products and provide technical and product
development support to customers, drawing extensively on the resources and
scientific disciplines in the research centers.
RESEARCH AND DEVELOPMENT EXPENSES FOR THE ALCAN GROUP
<TABLE>
<S> <C>
TOTAL FOR 1998 -- $70 MILLION*
Alcan Global Fabrication Group 60%
Alcan Primary Metal Group 40%
</TABLE>
- ---------------
* Includes close to $4 million for environmental R & D projects.
8. ENVIRONMENTAL REGULATIONS
Underlying Alcan's environmental commitment are two major components; a
global Environmental Management System and Product Stewardship. The first is a
commitment to ensuring that Alcan's manufacturing processes are compatible with
the environment. The second is a commitment to ensuring that Alcan's products,
in every stage of their life cycles, make the most of the inherent environmental
value of aluminum.
In most of the countries where Alcan operates production facilities,
environmental control regulations have been established or are in the process of
being established. Alcan believes that its existing and planned anti-pollution
measures will enable it to satisfy statutory and regulatory demands without
material effect on its competitive position. Alcan's capital expenditures to
protect the environment and improve working conditions at the smelters and other
locations were $71 million in 1998. Similar expenditures for 1999 and 2000 are
expected to be $115 million and $190 million, respectively. In addition,
expenditures charged against revenue for environmental protection were $91
million in 1998 and are expected to be $95 million in 1999 and $90 million in
2000. In respect of years beyond 2000, Alcan expects that capital and operating
expenditures will continue at approximately the same levels.
9. PROPERTIES
Alcan believes that its properties, most of which are owned, are suitable
and adequate for its operations.
10. EMPLOYEE RELATIONS
At December 31, 1998, the number of Alcan employees were allocated as
follows: approximately 15,000 in North America, 11,000 in Europe, 3,000 in South
America, 5,000 in Asia and Pacific areas and 2,000 in other areas. A majority of
the hourly-paid employees is represented by labor unions. There are 24
collective labor agreements in effect in Canada, the majority of which expire in
2003 or later.
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In February 1998, Alcan and the unions representing Alcan hourly-paid
employees in Quebec signed agreements with 18-year terms, collectively known as
the "Framework Agreement on Operational Stability", under which the parties
commit to attempt to use all means to renew collective agreements and settle
disputes without recourse to traditional leverage tools such as strikes,
lockouts and pressure tactics.
In June and July 1998, Alcan and the unions representing Alcan hourly-paid
employees in Quebec signed labor contracts valid until December 31, 2003.
In July 1999, Alcan and the Canadian Auto Workers, Local 2301, representing
approximately 1400 Kitimat employees, agreed to a three-year contract.
In October 1999, an agreement for a five-year labor contract was reached
between the United Steelworkers of America, Local 9443, representing
approximately 450 Sebree employees.
In April 1999, Alcan signed an agreement with the unions representing
approximately 160 Lochaber employees; it is set to expire in April 2001.
The agreement signed by Alcan and the unions representing approximately 60
Kinlochleven employees will expire in June 2000, upon closure of the plant.
Alcan is currently negotiating with the unions representing approximately
500 Lynemouth employees the Lynemouth plant to replace the agreement set to
expire on December 31, 1999.
YEAR 2000 ISSUE -- SUPPLIERS
Alcan business units have surveyed all critical third party suppliers to
address their Year 2000 readiness and to provide Alcan with information for
contingency planning. The surveying, follow-up and analysis of responses from
these third party suppliers is essentially complete. Suppliers and customers
will generally not provide any guarantee that they will be Year 2000 compliant.
However, if a third party supplier has not confirmed that it has executed a year
2000 program and given Alcan assurance of its readiness for the transition to
the new millennium then the Alcan business unit has prepared contingency plans
to reduce or eliminate the risk presented by such supplier. Communication with
third parties regarding year 2000 is a process that will continue through the
end of 1999 and into the first quarter of 2000, as needed.
Alcan is dependent upon a number of third parties including utilities and
raw material suppliers. Alternate suppliers are not available in all cases.
Alcan operates or controls, through direct ownership or joint ventures, the
supply of a majority of its requirements for bauxite and alumina. This enables
Alcan to assess and manage risk directly with respect to these key raw
materials. Special attention is given to electricity suppliers since Alcan's
smelting and fabricating businesses rely heavily on electricity to process
materials. An interruption of more than a few hours in electricity supplies
could have serious consequences for Alcan's smelters. Alcan generates its own
power for approximately 75% of its smelter capacity requirements which gives
Alcan control over power supply risks from these sources. Other power
requirements are generally from major utilities linked to national grid systems.
These major utilities have reported that they have appropriate year 2000
programs that will limit the likelihood of extended year 2000 related
disruptions.
Costs of Alcan's overall program to address the Year 2000 issue are
expensed as incurred and, including costs associated with contingency planning,
are estimated at less than $50 million. Costs from the beginning of the project
to September 30, 1999 were $41 million. These projections do not include any
costs associated with business disruptions involving supplier or customer
non-performance. Information received to date from customers indicates that they
do not expect the Year 2000 will create a major disruption in their business and
purchases of product from Alcan. The costs of the supplier survey program are
included within these cost figures.
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INFORMATION CONCERNING PECHINEY
BUSINESS DESCRIPTION
1. OVERVIEW OF SEGMENTS/DIVISIONS
Pechiney is one of the global market leaders in two core businesses: the
production of primary aluminum and aluminum products and the production of
packaging materials. Pechiney believes it is the leading European producer and
the world's fourth largest producer of primary aluminum, based on 1998
controlled production capacities, and one of the leading European producers of
flat-rolled aluminum products, based on 1998 sales volume. Pechiney's aluminum
technology is recognized as one of the most efficient in the world. Pechiney
believes that it is also one of the world leaders in the production of packaging
materials for the food, personal care and beauty industries (based on 1998
sales). Pechiney's other activities include the production of ferroalloys and
international trade.
1.1 Aluminum
Pechiney's aluminum business is comprised of two segments: Aluminum Metal
and Aluminum Conversion.
Aluminum Metal. In this segment, Pechiney believes it is the leading
European producer and the world's fourth largest producer of primary aluminum,
based on 1998 controlled production capacity (1,083,000 metric tonnes). Pechiney
also produces bauxite and alumina, principally for use in the primary aluminum
smelting facilities in which Pechiney has an equity interest. In this segment,
Pechiney also licenses alumina and aluminum technology and know-how and sells
related equipment and believes that approximately 80% of world smelting capacity
recently put into operation uses Pechiney's technology.
Aluminum Conversion includes the activities of:
- Aluminium Mill Products, where Pechiney specializes in the manufacture
of flat-rolled aluminum products for the transportation, packaging and
building industries and hard alloy aluminum extrusions. Pechiney
believes it is one of the leading European producers of flat-rolled
aluminum products, based on 1998 sales volumes; and
- Extrusions, where Pechiney specializes primarily in the manufacture and
sale of aluminum extrusions for the building, transportation and
equipment industries.
1.2 Packaging
Pechiney's packaging business is globally organized in three divisions:
Plastic Packaging, Food, Healthcare and Beauty Packaging and Deluxe Cosmetic
Worldwide Packaging.
Plastic Packaging. Pechiney is a leading North American and European
producer of flexible packaging for the food, meat and dairy, healthcare and
specialty markets. Plastic Packaging also includes the production of caps and
overcaps for the wine and liquor industries.
Health and Beauty Packaging. Pechiney is a world leader in the manufacture
of flexible plastic, laminated and aluminum tubes for the cosmetics, personal
care and healthcare markets, based on 1998 production. This segment also
produces aluminum aerosol and spray cans.
Deluxe Cosmetics Worldwide Packaging. Pechiney is one of the world's
principal producers of plastic packaging for makeup, perfume and cosmetics,
based on 1998 sales.
1.3 Other Businesses
Pechiney's business also includes Ferroalloys, where Pechiney mainly
produces silicon and ferroalloys as well as abrasives and refractories, and
International Trade, where Pechiney operates the following lines of business: a
worldwide network of sales agencies, which markets products manufactured by
Pechiney and third parties; a non-ferrous metal and other basic material trading
operation; a metal brokerage activity; and the distribution of semi-finished
aluminum and stainless steel products.
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<PAGE> 70
2. HISTORY AND RECENT DEVELOPMENTS
Pechiney is the successor company of Pechiney Ugine Kuhlman, which was
created through the 1971 merger of two French manufacturing companies, Compagnie
Pechiney and Ugine Kuhlman. Each of these companies for over a century had been
developing new technologies for the conversion of natural resources and basic
raw materials into a wide range of metal and chemical products. At the end of
the 19th century, Pechiney developed a technique for producing aluminum by
electrolysis and dedicated an increasing portion of its capital expenditures to
this manufacturing process. To be more competitive in the post-World War I
environment, Pechiney reorganized its production unit by merging with Societe
Electrometallurgique Francaise. Beginning in 1950, due to its need to access new
energy sources and raw materials, Pechiney decided to participate in the
consolidation of the chemical industry in France (to integrate more closely its
non-ferrous metal conversion activities) and to work in foreign countries to
develop its foreign upstream aluminum activities.
Compagnie Pechiney and Ugine Kuhlman merged in 1971, creating an industrial
group with diversified and complementary activities. In 1983, the company
readopted the name of "Pechiney". After having been included in the
nationalization plan adopted by the French State in 1982, Pechiney was
privatized in December 1995 through an offering of shares and the French State
no longer holds any significant equity interest in Pechiney.
<TABLE>
<CAPTION>
DATE SIGNIFICANT COMPANY TRANSACTIONS BUSINESS
- ---- -------------------------------- --------
<S> <C> <C>
1982.... Nationalized by French State Aluminum
1982.... Sale of specialty steel business Steel
1983.... Sale of specialty chemical business Chemicals
1983.... Reorganization and readoption of the "Pechiney" name
1987.... Sale of copper conversion activities Copper Conversion
1988.... Acquisition of American National Can Beverage Can
1988.... Consolidation of packaging, turbine component and
international aluminum assets in Pechiney International
1992.... Sale of nuclear fuel assembly and zirconium/titanium Nuclear fuel assembly
activities and zirconium/titanium
1995.... Restructuring around core businesses (Aluminum and Packaging, Turbine
Packaging) and divestiture of Food, Metal and Specialty Components
North America, Beverage Glass North America, and Turbine
Components.
1995.... Privatization of Pechiney
1997.... Pechiney International merged into Pechiney
1998.... French State sells its remaining interest in Pechiney
</TABLE>
On August 2, 1999, Pechiney sold its controlling equity interest in
American National Can through an initial public offering conducted in the United
States. Pechiney currently owns approximately 45% of the outstanding capital
stock of American National Can. On September 21, 1999, Pechiney acquired Century
Aluminium Company's rolled products and cast plate units in the United States.
3. ALUMINUM METAL
In the segment of Aluminum Metal, Pechiney specializes in the production
and sale of primary aluminum, and the production of bauxite and alumina.
Pechiney believes that its industrial and commercial positions, together with
its smelter technology, place it at the forefront of the aluminum industry.
Pechiney believes that it is the leading European producer and the world's
fourth largest producer of primary aluminum, based on 1998 controlled production
capacity.
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3.1 Bauxite and Alumina
3.1.1 Products
In addition to producing primary aluminum, Pechiney has interests in
companies that produce bauxite and alumina and produces and sells
non-metallurgical alumina. Pechiney also licenses alumina and aluminum
production technology and sells equipment.
3.1.2 Production Facilities
Bauxite Production Facilities In 1998, the bauxite mines in Greece and
Guinea in which Pechiney has an equity interest supplied all of the bauxite
requirements of Pechiney's Gardanne (France) and Fria (Guinea) alumina
refineries, and a significant portion of the requirements of Pechiney's
Saint-Nicolas (Greece) refinery. Pechiney obtained approximately 2.8 million
metric tonnes of bauxite from these mines in 1998 (including the Friguia mine in
which Pechiney sold its equity interests in October 1998).
In addition to Pechiney's share of output from these mines, Pechiney
purchases, pursuant to long-term supply contracts, bauxite for the supply of
Aluminium de Grece (ADG) and for the Gladstone refinery (Australia) from
Comalco, one of Pechiney's partners in the Gladstone facility.
Alumina Production Facilities. The share of production output obtainable
by Pechiney from the alumina refineries which it owns or in which it has an
equity interest amounts to approximately 2.1 million metric tonnes per year. Its
production of metallurgical alumina is generally sufficient to satisfy more than
85% of the alumina requirements of its smelters. In addition, part of its share
of alumina produced at Gardanne is sold to third parties as non-metallurgical
alumina.
During the first half of 1999, start-ups and developments arising from the
principal investments identified under the Challenge Program, which was designed
to increase capacities and reduce raw material consumption, continued.
- The full effect of previous debottlenecking actions increased the
production capacity of the Gladstone (QAL) plant to 3.65 million metric
tonnes per annum.
- The technical start-up difficulties which were experienced by Pechiney
in relation to the first debottlenecking stage at Aluminium de Grece
plant were resolved in mid-1999. These technical difficulties will lead
to a lower production rate in 1999 than in 1998. The completion of the
second debottlenecking stage was delayed one year and this investment is
scheduled for commissioning in mid-2000. With other minor improvements,
the plant's capacity is expected to reach 680,000 metric tonnes per
annum at the end of 2000 and 750,000 metric tonnes per annum in 2001.
- At Pechiney's Gardanne (France) plant, the new two-stroke attack process
was developed and production should increase from 1998. However, various
technical difficulties prevented full advantage being taken of capacity,
which is expected to stand at 640,000 metric tonnes per annum at the end
of 1999. The cogeneration unit (owned by a subsidiary of Electricite de
France and Gaz de France) was commissioned in mid-year, significantly
reducing energy costs; in the non-metallurgical alumina sector, capacity
of the super-crusher unit was doubled, and another crusher unit is
scheduled to start up in the first half of 2000.
3.2 Primary Aluminum
3.2.1 Products
Primary aluminum is produced by smelting and then is cast into a number of
different products, ranging from basic aluminum ingots, rolling ingots, billets
and wire for conductors, to advanced and specialized products such as mechanical
wire, welding wire and high purity aluminum. Pechiney also produces primary and
secondary alloy ingots, principally for automotive applications.
3.2.2 Sales and Marketing/Customers
Shipments by Geographic Region and by Aluminum Source. The products
marketed by Pechiney are principally sold in the world's three major consumption
zones (Europe, Asia/Pacific and North and South America). This international
presence is made possible by Pechiney's local facilities and its strong
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<PAGE> 72
international sales network. In the case of Alucam (Cameroon), Aluminium de
Grece (Greece) and Aluminium Dunkerque (France), in addition to selling its own
share (based on equity interests in the operating companies) of the production
output of the smelting facilities, Pechiney obtains, for its own use or for
resale, the production output share of the other shareholders of these
facilities. In addition, in order to enhance the geographic efficiency of its
operations and to meet customer requirements, Pechiney may purchase ingots from
third parties for resale in different locations and in different shapes.
Therefore, Pechiney's sales of primary aluminum generally exceed by
approximately 15% to 25% its obtainable share of the annual production output of
the smelting facilities in which it has an interest. In 1998, sales of primary
aluminum originating from third parties represented 21% of total shipments.
Shipments by Product. Pechiney distributes a full range of primary
aluminum products, from the most standard, such as aluminum and alloy ingots,
slabs and billets, to highly technical and specialized products such as welding
and mechanical wire, high purity metals and thixotropic aluminum.
Shipments by Customer Segment. The majority of the primary aluminum
requirements of Pechiney's European conversion activities are supplied by
Pechiney at prevailing market prices. Purchases have historically accounted for
28% to 38% of Pechiney's annual production in each year during the period
1992-1997. In 1998, intragroup sales accounted for 27% of total shipments, or
352,000 metric tonnes. In 1998, 73% of Pechiney's total shipments were made to a
large number of third party customers. More than three-quarters of such
shipments are purchased by customers representing individually less than 1% of
annual production volume. No single customer accounts for more than 5% of sales
to third parties. Pechiney generally enters into long-term supply contracts with
those customers requiring such arrangements.
3.2.3 Production Facilities
As at June 30, 1999, Pechiney's share of primary aluminum obtainable
capacity (in metric tonnes of metal taken off) amounted to 1,083,000 metric
tonnes per annum (which corresponds to the level achieved at the end of 1998).
Approximately 40% of Pechiney's primary aluminum production capacity is
located in France at facilities owned by Aluminium Pechiney (a wholly-owned
subsidiary of Pechiney and Pechiney's principal operating company in France) and
Aluminium Dunkerque (a 35%-owned affiliate). The remaining 60% of Pechiney's
aluminum production capacity is located in Greece, The Netherlands, Australia,
Canada and Cameroon.
Pechiney believes that its portfolio of smelting facilities is well
balanced among modern and competitive facilities, mature facilities, and small
facilities which are becoming obsolete. The aluminum smelter portfolio is
currently made up of:
- new large capacity facilities using advanced technology, with production
costs in line with the top 25% of facilities around the world: the
Tomago facility, the Aluminerie de Becancour facility, the Aluminium
Dunkerque facility and the Saint-Jean-de-Maurienne facility;
- older facilities, with production costs within the average of worldwide
facilities: Aluminium de Grece facility, Pechiney Nederland facility and
Alucam facility;
- two older, small capacity facilities with relatively high production
costs. These facilities will most likely be decommissioned within the
next ten years.
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<PAGE> 73
The following table sets forth selected data regarding the aluminum
smelters in which Pechiney has an interest.
<TABLE>
<CAPTION>
SHARE OF
OUTPUT
EQUITY INTEREST OF CONTROLLED
PECHINEY IN TOTAL CAPACITY SHARE OF OUTPUT BY PECHINEY YEAR OF LAST
OPERATING AT YEAR-END OBTAINED AT YEAR-END MAJOR CAPACITY
COMPANIES 1998 BY PECHINEY (1) 1998 (1) YEAR OF INCREASE OR
PRIMARY ALUMINUM SMELTER DATA (%) (KT/Y) (%) (KT/Y) START-UP MODERNIZATION
- ----------------------------- ------------------ -------------- --------------- ------------ --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
FRANCE
Auzat (owned by Aluminium
Pechiney)................... 100% 45 100% 45 1973 1981
Lannemezan (owned by
Aluminium Pechiney)......... 100% 45 100% 45 1962 1978
Saint-Jean-de-Maurienne
(owned by Aluminium
Pechiney)................... 100% 125 100% 125 1980 1986
Dunkerque (Aluminium
Dunkerque, partly owned by
Pechiney) (2)(5)............ 35% 228 100% 228 1992 --
-----
TOTAL FRANCE................. 443
-----
</TABLE>
<TABLE>
<CAPTION>
SHARE OF
OUTPUT
EQUITY INTEREST OF CONTROLLED
PECHINEY IN TOTAL CAPACITY SHARE OF OUTPUT BY PECHINEY YEAR OF LAST
OPERATING AT YEAR-END OBTAINED AT YEAR-END MAJOR CAPACITY
COMPANIES 1998 BY PECHINEY (1) 1998 (1) YEAR OF INCREASE OR
PRIMARY ALUMINUM SMELTER DATA (%) (KT/Y) (%) (KT/Y) START-UP MODERNIZATION
- ----------------------------- ------------------ -------------- --------------- ------------ --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
REST OF THE WORLD
Saint-Nicolas (owned by ADG)
(3)......................... 60% 150 100% 150 1969 1973
Vlissingen (owned by PNL
C.V., Netherlands).......... 85% 175 85% 149 1971 --
Edea (owned by Alucam,
Cameroon) (3)(5)............ 47% 90 100% 90 1965 1982
Tomago (owned by Tomago
Aluminium Pty.,
Australia).................. 36% 435 36% 157 1984 1998
Becancour (owned by
Aluminerie de Becancour,
Canada) (4)................. 25% 375 25% 94 1986 1990
-----
TOTAL REST OF THE WORLD...... 640
-----
TOTAL........................ 1,083
=====
</TABLE>
- ---------------
(1) Includes the entire output of wholly-owned facilities plus, in the case of
partly owned facilities, aluminum purchased pursuant to long-term contracts
with the operating companies of the facilities (entered into in connection
with Pechiney's indirect equity interest in such companies) and, in certain
cases, aluminum that Pechiney obtains for its own use or resale as manager
of a smelting facility (the total of the foregoing being the "obtainable"
production capacity of a facility). In addition to the noted obtainable
production capacity, with respect to the Tomago smelter, Pechiney has
entered into a long-term purchase agreement with one of the other
shareholders in the venture.
(2) Pechiney owns 35% of the capital of Aluminium Dunkerque, which owns the
Dunkerque facility. Pechiney has entered into a long-term contract pursuant
to which it is obligated to purchase the entire output of Aluminium
Dunkerque. The assets of Aluminium Dunkerque are subject to pledges and
other liens in favor of certain of the lenders that financed the
construction of its smelters, under the related project financing.
(3) As the majority shareholder and manager of ADG and the major industrial
shareholder and manager of Alucam, Pechiney effectively controls the
marketing and sale of the aluminum production of their smelters.
(4) Pechiney owns 50% of Pechiney Reynolds Quebec Inc. (PRQ), which in turn owns
50.1% of the Aluminerie de Becancour which operates the Becancour facility.
PRQ is obligated to take its share of Becancour's output and to cover its
share of Becancour's expenses, as a result of which Pechiney's share of
PRQ's results are included in Pechiney's cost of goods sold.
(5) Accounted for under the equity method.
On the basis of output obtained, the production of primary aluminum
totalled 1,034,000 metric tonnes in 1998. The increase of 71,000 metric tonnes
over 1997 was mainly due to the restart of temporarily idled production capacity
at the Saint-Jean-de-Maurienne, Vlissingen and Saint-Nicolas facilities in the
first half of 1998.
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<PAGE> 74
At the end of 1998 and the beginning of 1999, the 80 cells added to
potlines 1 and 2 at the Tomago facility were started up ahead of schedule,
increasing the plant's production capacity to 435,000 metric tonnes a year.
In the first six months of 1999, Pechiney's primary aluminum production,
calculated on the basis of take-off percentages, totalled 550,000 metric tonnes.
In addition to efficiently operating the plant, the increase in output compared
with 1998 was chiefly the result of the restarts conducted in 1998 and early
1999 and of the increase in Tomago's capacity in late 1998.
Pechiney made various investments in 1998 and early 1999, including the
following:
- a continuous homogenization furnace for billets was installed at the
Vlissingen plant in The Netherlands, resulting in a significant increase
in homogenization capacity and a noticeable increase in the quality of
products. Pechiney believes that the furnace is one of the largest
installations of this type in the world;
- as a part of the restructuring of the primary casting alloys activity,
new casting equipment was installed at the Compiegne facility in France;
and
- new machinery was installed at the Saint-Jean-de-Maurienne smelting
facility for the manufacture of aluminum alloy wire.
3.2.4 Sales of Technology
Pechiney actively sells licenses of primary aluminum smelting and alumina
refining technology and know-how to third parties. Pechiney believes that it is
a world leader in the sales and licensing of such technology. Pechiney estimates
that approximately 80% of recently commissioned smelting capacity in the world
utilizes Pechiney technology. Pechiney also believes that its wholly-owned
subsidiary, Electricite Charpente Levage, which sells specific equipment for
aluminum smelters which exports 90% of its production, is one of the world's
leading manufacturers of this equipment.
Several major technology transfer contracts are currently being executed,
among which are Aluar (which, in aluminum, is completing the extension of its
Puerto Madryn primary aluminum production facility in Argentina using Pechiney
AP-18 potline technology), Alcan's Alma (Quebec) facility (a construction using
Pechiney AP-30 potline technology) and Billiton's Mozal (Mozambique) facility (a
construction using the same Pechiney technology).
3.2.5 Competition
Internationally, Pechiney's competitors in primary aluminum industries
include the main North American industrial groups which, in addition to Alcan,
include Alcoa, Reynolds and Kaiser Aluminium, as well as other major aluminum
producers such as Alusaf (South Africa), Comalco (Australia) and Alba (Bahrain),
and European companies such as Hydro Aluminium, Hoogovens, VAW and Inespal
(purchased by Alcoa at the beginning of 1998).
Aluminum products also compete in many markets with steel, copper, plastic
and other materials that may substitute for aluminum in downstream applications.
3.3 Other Aluminum Products
The Aluminum Metals segment also produces primary and secondary casting
alloys. Pechiney's casting alloy business benefited from the excellent situation
that prevailed in the French and European automotive market, and from the
increased penetration of aluminum alloys in motor vehicles.
Affimet, a wholly-owned subsidiary of Aluminium Pechiney, specializes in
secondary alloys, a part of which is delivered in liquid form to French vehicle
manufacturers.
The restructuring of the primary casting alloys activity, begun in late
1997, was completed at the end of 1998 with the shutdown of the Riouperoux plant
and the start-up of the new casthouse built on Affimet's Compiegne site. The new
tools are now operating at full capacity, helping to consolidate the cost
position of the primary alloys activity.
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<PAGE> 75
The Aluminum Metals segment also produces high purity products. At its
Mercus facility, Pechiney produces refined metal from high grade primary
aluminum produced by the Auzat facility. Both smelter refining techniques
(three-layer and segregation) are used to produce metal for electronic
applications and semiconductors.
4. ALUMINUM CONVERSION
Aluminum Conversion includes the activities of Aluminium Mill Products and
Extrusions.
4.1 Aluminium Mill Products (Rhenalu)
Pechiney believes it is one of the leading European producers of aluminum
semi-finished products, and the second leading producer of flat-rolled aluminum
products in Europe with 13% of European production. It also produces hard alloy
extrusions and specialty aluminum products with high value-added content.
4.1.1 Products
Pechiney converts aluminum into a wide range of semi-finished products such
as heavy plates, coated and uncoated plates and coils, foil, circles for flat
products, bars, sections, tubes and wires made of hard aluminum alloys.
On the basis of 1998 tonnage shipment forecasts, Pechiney believes it is
the leading European producer of can stock and technical rolled products, with a
particularly strong position in the production of heavy plates for the aerospace
industry (the leading European producer and the second largest producer
worldwide). Pechiney believes that it is a world leader in the relevant markets
for circles for cookware, wide coils and refrigeration panels.
4.1.2 Sales and Marketing/Customers
The Neuf-Brisach (France) facility is likely to consolidate its leading
position in can stock, with an increase in European and export shipments. The
"202" beverage can end (narrower and thinner than the "206") accounted in 1998
for over 70% of ends sold in Europe, and can body thickness reduction programs
continue. Partnership relations have been strengthened with Nacanco, PLM, CCE
and Impress Metal Packaging. Finally, the facility is developing its sales with
CC&S in European and export markets, with Ball in China and with Toyo Seikan in
Japan.
The timeframe for sales contracts is usually under one year, except for
certain can stock or technical rolled product contracts, which are entered into
for several years.
In France, Pechiney sells directly from its facilities. Outside France, the
products are either sold directly by Pechiney or through Pechiney's network of
International Trade agencies. A large share of standard rolled products is sold
to independent distributors and to Almet's network.
In the automotive sector, European manufacturers are stepping up their
vehicle weight reduction programs, particularly through the use of aluminum in
bodywork. In 1999, Pechiney has been retained to supply sheets for the hoods of
the Peugeot 607 and the Renault Clio Sport.
In 2000, for the first time in Europe, aluminum body parts are due to be
manufactured for three mass-production vehicles. Pechiney has been selected as a
supplier for these programs, which represent one million vehicles per year.
In the cookware blanks market, Pechiney strengthened its partnership
relations with the Seb-Tefal group.
Sales of Jumbo 3 CM(R) continuous thin casting equipment continued
worldwide; Pechiney strengthened its development and production resources for
high-width thin continuous casting over 2300 mm.
Aerospace, Transport, and Industry. Sales volumes of technical rolled
products (Issoire, France) and hard alloy extrusions are expected to continue at
their high 1998 levels in 1999, especially products for the aerospace markets,
despite substantial reduction of heavy-gauge sheeting inventory by mainly
American customers. Wide coils should also enjoy sales growth, despite the loss
of some Asian
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<PAGE> 76
customers. Demand for the facility's other products -- medium and heavy-gauge
sheeting for mechanical engineering -- is expected to increase in the second
half of 1999.
Sales of hard alloy extrusions for aerospace continued to increase, due to
favourable economic conditions.
4.1.3 Production Facilities
All facilities are located in France and each is specialized in the
production of one or more families of semi-finished products. The facilities at
Neuf-Brisach, Issoire and Annecy also supply intermediate stock to other units,
especially for the Rugles production site.
<TABLE>
<CAPTION>
FACILITIES PRODUCTS MARKETS
- ---------- -------- -------
<S> <C> <C>
CONSUMER GOODS ROLLED PRODUCTS
Neuf-Brisach....... Can stock Packaging (beverage and food cans)
Coils and sheets for automobiles Automotive
Standard rolled products Construction, industry, distribution
Nogueres........... Recycling
Annecy............. Disks Domestic appliances, automotive
Lacquered products Transport, construction
Chambery........... Cooling panels Refrigeration
Rugles............. Foil and thin coils Packaging (flexible and semi-rigid)
Heat exchangers
Voreppe............ Engineering services Technical assistance in rolling
process and sales of continuous
casting and casthouse equipment
AEROSPACE, TRANSPORT AND INDUSTRY
Issoire............ Heavy-gauge sheets Aerospace, industrial equipment
Medium and light-gauge sheets Tanks, dumpers, boats, high-speed
ships, aerospace
Wide coils Shipping containers, trucks, buses,
trailers
Bars and wide sections Transport, mechanical engineering
Montreuil-Juigne... Bars, sections, tubes, wire Bar-machining, aerospace, mechanical
engineering
Carquefou.......... Precision tubes Automotive, aerospace, sports
equipment
Froges............. Refined thin coils Capacitors
Goncelin........... "Bandoxal" anodized bright finish Lighting and decoration
sheets
Etched and anodized foil Electronics (capacitors)
Gerzat............. Bottles and hollow bodies Extinguishers, industrial gases,
diving equipment
Castelsarrazin..... Continuous casting wire Wire drawing
</TABLE>
On September 20 1999, Pechiney acquired two aluminum conversion plants in
the U.S. from Century Aluminum and its subsidiary Century Aluminum of West
Virginia. The activities comprise two units, the overall volumes of which
totaled 216,000 metric tonnes in 1998.
The Ravenswood (West Virginia) plant has an annual production capacity of
over 270,000 metric tonnes of rolled products. The facility's rolling equipment
is among the most powerful worldwide. It is one of the leading North American
suppliers of technical rolled products for aerospace markets. Ravenswood is also
a leading North American supplier of brazed products for the heat exchangers
used in vehicle air-conditioning.
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<PAGE> 77
The Vernon (California) plant, which specializes in the production of
aluminum cast plates, has production capacity of 7,000 metric tonnes per year.
The plant is the world's second largest producer of this type of product, which
is chiefly intended for the mechanical engineering and investment goods markets.
4.1.4 Research and Development
Research and development activities continued:
- in products, in partnership with major customers, in can applications
(thickness reduction), aerospace (approval of alloys for future large
aircraft), automotive (approval of alloys for bodywork), land and sea
transport (alloys for industrial vehicles and high-speed ships) and thin
foil (high-resistance alloys); and
- in classic conversion processes (rolled product casting and heat
treatments) and in continuous casting (low thickness, high width).
4.1.5 Competition
Besides Alcan and Algroup, the principal competitors of Pechiney in Europe
are VAW, Alcoa and Hoogovens. The restructuring of the European rolled products
industry continued in 1998 with the purchase of Inespal by Alcoa and the
take-over of Reynolds' German, Italian and Spanish activities by VAW.
4.2 Extrusions
4.2.1 Products
Pechiney's extrusions business involves the production and sale of soft
aluminum alloy profiles, both raw and finished (by lacquering, anodizing, heat
bar cutting and/or mechanical finishing).
4.2.2 Sales and Marketing/Customers
In 1998, for the second consecutive year, business benefited from a
favorable economic environment characterized by sustained demand in all European
markets, including France and Germany. This environment led to a slight rise in
extrusions sales volume (81,100 metric tonnes as compared with 80,600 metric
tonnes in 1997), representing a production capacity utilization rate of more
than 80%. Over the first half of 1999, market growth remained satisfactory in
both France and Germany.
Both in France and in Germany, further cost reductions were obtained.
Industrial efficiency was increased at Softal and PAP, and action programs
established in order to streamline industrial processes and increase equipment
reliability were continued. In addition, cooperation with the automotive
industry was stepped up and Pechiney worked with the major car makers and parts
manufacturers and, among other products, supplied aluminum sections for door
frames.
4.2.3 Production Facilities
Pechiney has six production facilities, three located in France and three
in Germany.
<TABLE>
<CAPTION>
FACILITIES CAPACITY (KT/Y) MARKETS
- ---------- --------------- ----------------------
<S> <C> <C>
FRANCE -- SOFTAL
Ham (Somme).............................................. 20 Building
Nuits-Saint-Georges (Cote-d'Or).......................... 20 Industry
Aubagne (Bouches-du-Rhone)............................... 12 Building, distribution
GERMANY -- PAP
Landau................................................... 12 Building, industry
Crailsheim............................................... 20 Industry
Burg..................................................... 12 Building, industry
</TABLE>
Pechiney's extrusions business meets the needs of the building industry
(doors, windows, curtain walling systems, interior building frames) as well as
of other industries (e.g., automotive, transport, mechanical applications,
billboards, electricity and furniture).
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<PAGE> 78
Pechiney, with strong positions in France (through its wholly-owned
subsidiary, Softal) and in Germany (through its wholly-owned subsidiary,
Pechiney Aluminium Presswerk -- PAP) believes that it is a major producer in the
European extrusions market.
5. PACKAGING
Pechiney's packaging segment is made up of Plastic Packaging, Health and
Beauty Packaging and Deluxe Cosmetics Worldwide Packaging (fully consolidated as
of June 30, 1997) and also includes the production of caps and other closures.
5.1 Plastic Packaging
5.1.1 Products
Pechiney is a major manufacturer in North America and Europe of flexible
packaging for the food, meat and dairy, healthcare and specialty markets. It is
also a major producer of barrier plastic bottles.
In the United States and Europe, Pechiney produces a wide range of single
and multilayer plain and printed films and laminations, pouches, bags, lidstock
and thermoformed trays. Pechiney's plastic packaging product line includes more
than 2,000 flexible products for its various customers and markets. These
products differ in design and composition and are continually updated and
improved to meet evolving customer demand. Numerous products are
custom-designed. In addition, North American activities include the production
of a wide range of single and multilayer polyolefin and PET barrier bottles for
food products, such as condiments and sauces, and beverages, such as fresh
juices and beer.
Pechiney's plastic packaging products tend to be at the higher value-added
end of both the flexible packaging and plastic bottle markets and are
characterized by their strength and barrier properties that protect contents,
especially food products, from oxygen permeation and, thereby, enhance shelf
life.
5.1.2 Sales and Marketing/Customers
In the United States, Pechiney's plastic packaging customers include Abbott
Laboratories, Case Swayne, ConAgra, Inc., H.J. Heinz Company, Mott's Company
(Cadbury-Schweppes), Hormel Foods Corporation, International Playtex, Inc.,
Johnson & Johnson, Keebler Co., Kraft Foods (a division of Philip Morris
Companies, Inc.), Land O' Lakes, The Procter & Gamble Co. and RJR Nabisco Inc.
Pechiney's five largest customers for plastic packaging in 1998 accounted for
approximately 40% of its sales. In 1999, the market for flexible packaging is
expected to remain very competitive, as consolidation of customers and
competitors continued in Plastic Packaging's primary markets.
Developed in recent years, PET barrier bottles for food products and fruit
juice have experienced significant growth. Pechiney believes that this market
should continue to grow, particularly in venues where glass packaging is not
desirable.
In Europe, pressure from retailers has forced manufacturers to accelerate
cost-reduction initiatives in all areas, including packaging. Although the
market is expected to remain stable in 1999, the industry has experienced
substantial competitive pressure generated by continued consolidation of
customers and competitors. Customers include Andros, Bel, Lactages, Chupa Chups,
Danone, Kraft, Jacob Suchard, Mars, Nestle, Bahlsen and Senoble in the food
industry, and Hoechst, Rhone Poulenc Rorer and Roche in pharmaceuticals.
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<PAGE> 79
5.1.3 Production Facilities
Plastic Packaging currently operates 29 production facilities.
<TABLE>
<CAPTION>
FLEXIBLE PACKAGING NUMBER OF PLANTS PLASTIC BOTTLES NUMBER OF PLANTS
------------------ ---------------- --------------- ----------------
<S> <C> <C> <C>
NORTH AMERICA NORTH AMERICA
United States(1)............. 15 United States(4)............. 3
Canada....................... 1
EUROPE EUROPE
France....................... 2 United Kingdom(5)............ 2
Spain........................ 2
Germany...................... 1
Czech Republic(2)............ 1
ASIA
China........................ 1
AUSTRALIA
New Zealand(3)............... 1
</TABLE>
- ---------------
(1) Includes Kenpak (2 plants) acquisition in April 1999.
(2) Cechobal, unconsolidated.
(3) Danaflex Packaging Corp. unconsolidated.
(4) Of which one is a combined flexible packaging and plastic bottle facility.
(5) Pet Plas' Packaging Ltd. plants; controlled since January 1999.
Pechiney also operates two research and development centers in Neenah,
Wisconsin, and Voreppe, France. The latter was opened in November 1998. Existing
activities previously located in various European facilities have been
centralized and this new site provides Pechiney with a dedicated flexible
packaging development facility in Europe. In addition, Pechiney operates
graphics centers in Neenah, Wisconsin; Dijon, France; Barcelona, Spain; and
Zhongshan, China.
In 1998, Pechiney made the following investments to expand business in
activities which are expected to have potential for profitable growth in
accordance with Pechiney's strategy.
- In February 1998, Pechiney entered into a joint venture with EPL
Technologies to market flexible packaging systems for the fresh-cut
produce market in the United States. The new company will utilize
Pechiney's film-making and marketing expertise along with EPL's produce
quality-maintenance technology to develop packaging systems, including
perforated film, specific to the type, cut and use of vegetables or
fruit. Pechiney and EPL have equal ownership interests in the venture.
- In December 1998, Pechiney acquired a majority interest in and
management control of Danaflex Packaging Corporation Limited, a plastic
packaging converter based in Wellington, New Zealand, which serves the
Asia/Pacific market. The joint venture operates one plant and has
expanded production capacity in the first half of 1999. Danaflex has
been distributing Pechiney's flexible products in the region under a
license agreement since 1991.
- In January 1999, Pechiney acquired a controlling interest in Pet Plas
Packaging Ltd., a manufacturer and marketer of custom PET preforms and
bottles for the beverage and food industries. Pet Plas' experience and
expertise in PET design and manufacture, along with its focus on custom
specialty packaging is expected to strengthen Pechiney's base and
provide bottle making capacity in Europe, enabling Pechiney to expand
operations for single and multilayer bottles. Pet Plas operates two
manufacturing facilities in the United Kingdom and sells to more than 25
countries.
- In April 1999, Pechiney acquired 100 % of Kenpak, Inc., a converter of
pouches and bags for the medical market. The acquisition fills a gap in
Pechiney's product line in healthcare packaging. Kenpak operates two
manufacturing facilities in the United States.
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<PAGE> 80
In the United States, Pechiney actively invests in the improvement and
upgrading of existing production capacity and product lines as well as in new
capacity in order to maintain its competitive position.
During 1998, a major restructuring of manufacturing facilities was
completed to streamline operations and improve customer response time. The
reorganization involved the transfer of more than 30% of the flexible packaging
products to different facilities as part of a business and manufacturing
realignment to technology-focused facilities; the shutdown of approximately
one-third of the equipment base to eliminate outdated machinery and capital
investment of approximately $70 million for new equipment and expansion of
cellular manufacturing sites, designed for shorter lead times and greater
production flexibility to meet customer requirements.
5.1.4 Research and Development
The business's capacity for innovation is supported by teams of scientists
and engineers at its research and development facilities in the United States
and France and is critical to Pechiney's plastic packaging competitiveness.
Pechiney also benefits from substantial know-how regarding numerous production
technologies and has a strong position in the field of co-extruded multilayer
barrier films and lacquered aluminum foil.
Pechiney has significant proprietary technology and know-how in extrusion
blow molding of high-barrier containers. During 1998, Pechiney's plastic bottles
operations has continued to develop and commercialize its co-injection molding
technology to manufacture patented, high-barrier PET plastic preforms. The
preforms are later blown into bottles suited for products requiring
oxygen-barrier protection, such as natural juices, beer, sauces and ketchup.
Pechiney successfully introduced stock 16-ounce and 20-ounce bottles for
packaging juices. In addition, Pechiney continued to improve the barrier PET
beer bottle technology that was first introduced in 1997 in the United Kingdom
- -- the shelf life of the packaging for beer was extended to more than six
months. The new plastic beer bottle uses patented technology, and Pechiney
believes the package offers important advantages for products requiring high
oxygen-barrier protection and has potential for venues where glass is prohibited
or not desirable.
5.1.5 Competition
Pechiney estimates that there are more than 300 participants in the North
American flexible packaging market. Principal competitors in the flexible
packaging market include Rexam, Cryovac (a division of Sealed Air Corporation),
Curwood (a division of Bemis Co., Inc.), Printpack Inc. and, in the bottle
market, Owens Illinois and Graham Packaging.
In Europe, the market is equally fragmented, with approximately 250
companies operating in the sector. The top ten producers, including Pechiney,
account for nearly half of the total market, and consolidation continues at a
steady pace. The principal competitors in the European market include VAW,
Constantia, Danisco (which acquired the flexible packaging operations of
CarnaudMetalbox in 1995 and Sidlaw in 1998) and Amcor (which acquired UCB's
flexible packaging business in 1996).
In China, some larger flexible packaging companies are emerging in a very
fragmented, regional market, as food companies, particularly multinationals,
invest in modern equipment.
5.2 Health and Beauty Packaging (Cebal)
Pechiney believes that its health and beauty packaging industry, with an
international manufacturing base, is a world leader in the manufacture of
collapsible laminated, plastic and aluminum tubes on the basis of 1998
production. It is also a world leader in the production of aluminum aerosol and
spray cans.
5.2.1 Products
Pechiney's principal products are collapsible laminated plastic and
aluminum tubes and seamless aluminum aerosol cans for the cosmetics, personal
care and healthcare markets. In 1998, tubes accounted for 77% of Cebal's sales,
aerosol containers for 19% and other products for 4%. Pechiney believes that
these products have high growth potential, especially in Asia and Latin America
where per
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<PAGE> 81
capita consumption is relatively low and growth in the market for packaging has
been relatively high in recent years.
5.2.2 Sales and Marketing/Customers
In Europe, demand over the first half of 1999 was fairly poor overall, in
line with late 1998.
The economic crisis in Russia and reduced demand in Germany continue to
affect demand for aerosol cans and aluminum tubes, with a recent impact on
toothpaste tubes in Eastern Europe.
In North America, the laminated tubes business is well sustained by several
toothpaste launches and the extension of our activity in the pharmaceuticals
segment. Following a very good year in 1998 for plastic tubes, launches slowed
down in the first months of 1999.
In Asia, the aerosols business, which is currently chiefly related to the
hair products market, declined. This is apparently the result of a fashion for
gels in tubes rather than hair spray in aerosols. However, sharp growth was
recorded in toothpaste, leading Pechiney to increase its production capacities.
5.2.3 Production Facilities
Cebal has an international network of 30 production facilities located in
14 countries. The following table sets forth Cebal's production facilities.
<TABLE>
<CAPTION>
TUBES ALUMINUM PLASTIC LAMINATED AEROSOLS
- ----- -------- ------- --------- --------------
<S> <C> <C> <C> <C> <C>
EUROPE EUROPE
France(1)(4)......................... 1 3 1 France 1
Germany(2)........................... 1 1 Germany(2) 1
Finland(2)........................... 1 1 Spain 1
Italy(2)............................. 1 Finland(2) 1
Poland............................... 1 Italy(2) 1
United Kingdom....................... 1 United Kingdom 1
Czech Republic(3).................... 1 1
Sweden............................... 1
AMERICA
United States (4).................... 4 3
Canada (4)........................... 1 1
Mexico............................... 1
ASIA ASIA
China (5)............................ 1 1 China (5) 1
AFRICA
Morocco (6).......................... 1
</TABLE>
- ---------------
(1) The Cebal division has six additional subsidiaries in France that are not
indicated in this table: Copal (aluminum slugs), Cotuplas (mechanical
construction), Sefimo (molds for plastic materials), DM Photogravure
(photography), Cebal Savoie (molded parts) and Carrillon (adhesive labels).
(2) Combined tube and aerosol facility.
(3) Combined aluminum tube and plastic tube facility.
(4) Combined plastic tube and laminated tube facility.
(5) Combined plastic tube, laminated tube and aerosol facility.
(6) Tubes and household articles.
5.2.4 Competition
Cebal's principal competitors tend to be local producers whose output is
sold principally in a single region or country. Cebal's most significant
international competitor in tubes was the British group Courtaulds, which has
sold its laminated and aluminum tubes unit and put its plastic tubes business up
for sale. In addition to Algroup, Cebal also competes with US Can and CrownCork
in the market for aluminum aerosol cans.
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5.3 Deluxe Cosmetics Worldwide Packaging
The Techpack International group ("TPI") is one of the world's leading
producers of high value added plastic packaging for perfume and cosmetics.
5.3.1 Products
TPI's product development strategy targets markets with high value added --
makeup, perfume, skin care and hair care. It offers customers a wide range of
packaging products, including lipstick tubes, mascara cases, boxes, caps,
bottles, promotional items, jars and dispensers.
Over the past few years, TPI has focused on stock packaging (products which
can be sold to several customers on several continents) whose growth and
profitability rates are higher than the market average because of the rapid
turnover and cost reductions resulting from repetitive production runs. In
makeup, especially, this policy has led to the creation of a wide range of stock
products that can be personalized.
From the beginning of 1999, TPI again demonstrated its creativity and
technological expertise in all its packaging segments and participated in the
launch of many major packaging products, including in skincare and perfume, in
makeup, in blow-molding and in promotional articles.
5.3.2 Sales and Marketing/Customers
TPI has an international network of sales and marketing companies. TPI
works in partnership with the principal French market participants and
well-known international groups. TPI's ten largest customers in 1998 represented
57% of its sales.
57% of TPI's products are sold in selective distribution and 34% in mass
market distribution. Mail-order, direct and other sales constitute the remainder
of its sales. Most of TPI's sales are made directly to its customers through its
own network.
5.3.3 Production Facilities
In order to respond to the increasing internationalization of its customers
and be present in emerging markets, TPI has set up a worldwide industrial
network of 25 industrial facilities.
<TABLE>
<CAPTION>
PERFUME/
SKIN AND BLOW- NUMBER OF
INDUSTRIAL FACILITIES HAIR CARE MAKEUP MOLDING FACILITIES
- --------------------- --------- ------ ------- ----------
<S> <C> <C> <C> <C>
EUROPE
France............................................... X X X 10
Italy................................................ X 2
Spain................................................ X X 3
Germany.............................................. X X 1
AMERICAS
United States........................................ X X 3
Latin America........................................ X X X 4
ASIA/PACIFIC......................................... X X 2
--
TOTAL................................................ 25
==
</TABLE>
In order to rationalize the structure of Pechiney and reduce costs, TPI
continued in 1999 to restructure its activities by sector and specialize
manufacturing facilities by product, as follows:
- blow-molding plastic activities (hair care and personal care) in France
are now exclusively conducted by Decoplast. TPI has also dedicated its
Senlis facility to the manufacture of deluxe products and the La Roche
sur Foron plant to the production of mass market packaging;
- in injection-molding activities in France, LIR France focuses on makeup
(cases and dispensers), while MT Packaging (a new entity resulting from
the merger of Teleplastics into Moulage de Bretagne in December 1998)
concentrates on skin care jars and perfume caps and boxes; and
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<PAGE> 83
- Benson and Laffon in Italy operate in the market for makeup (tubes, cases
and mascara cases), IMC and Eyelet in Spain in makeup (lipstick tubes),
Henlopen and LIR USA in the United States in perfume (caps) and makeup
(lipstick tubes, mascara cases and tubes).
TPI's industrial base in Latin America was strengthened by the acquisition,
in July 1999, of the remaining interest in TPI Novolit in Sao Paulo (Brazil),
which specializes in blow-molding (personal care) and injection-molding (perfume
caps) operations.
5.3.4 Competition
TPI is one of the world leaders in the deluxe plastic packaging industry.
TPI and its five largest competitors -- Crown Cork and Seal (United States),
Qualipac (France), Rexam (United Kingdom -- Taiwan), Yoshida (Japan) and Yoshino
(Japan) -- represent approximately 50% of the world market. The other half of
the market is divided among numerous smaller niche competitors.
5.4 Other Packaging Activities
Pechiney's other packaging activities are focused solely on the manufacture
of caps and overcaps for the global wine, alcohol and spirits market. There are
three production facilities in France and one unit in the United States (Cork &
Seal of California).
In 1998, overcapping benefited from the favorable market conditions,
especially in the segment for glued caps made of thick laminates which reported
strong growth. At the Vinitech fair, new innovations were launched in overcaps
for sparkling wines and spirits. In California, the addition of finishing lines
at existing installations has made it possible to make additional services
available to local producers. This move generated a significant rise in sales
volume and increased market share.
Capping activities both for long screw caps for high-end liquor and short
caps for spirits and pharmaceuticals remained vigorous. Beer foamers (caps which
make it possible to reproduce draft beer foam in canned beer) also contributed
to sales.
The startup of new equipment at the Chalon plant and capital expenditures
at the Mareuil (France) and California (United States) facilities resulted in
substantially improved productivity.
6. OTHER BUSINESSES
6.1 Ferroalloys
Specializing in electric kiln reduction and high-temperature fusion
techniques, Pechiney manufactures ferroalloys, specialty metals and electrofused
products specially designed to upgrade the performance of steel and cast iron,
light alloys, silicones, abrasives and refractories.
6.1.1 Products and Market
Pechiney's principal products and markets are the following.
<TABLE>
<CAPTION>
PRODUCTS MARKETS
- -------- -------
<S> <C>
Ferroalloys (FeSi, CaSi, CaC2, innoculants, Steel (automotive, aerospace,
nodularisers)............................................. electric, packaging and building
industries)
Foundry (automotive, water conveyance
industries)
Metals (Si, Mg, Ca ,Sr, Na)............................... Chemicals (silicon industry)
Light alloys (automotive, aerospace
and packaging industries)
Steel
Fused alumina (white and brown)........................... Abrasives (grinding wheels, cloths and
papers and surface treatment
industries)
Refractories
</TABLE>
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<PAGE> 84
In 1999, Pechiney continued the strategic reorganization of its ferroalloys
business portfolio to focus on value added products by consolidating its
long-term relationships with customers, including manufacturers of
grain-oriented sheets, stainless steel, cast iron pipes, silicones and
abrasives.
6.1.2 Production Facilities
In each of its three principal ferroalloys businesses, Pechiney uses energy
intensive production processes.
In order to create international growth in activities in which it has a
competitive edge, such as silicon and steel-making and smelting alloys, Pechiney
undertook a policy of developing alliances with foreign partners in 1996, which
it continued to implement in 1999.
- Pursuant to an agreement signed in 1996, Pechiney Electrometallurgie and
Polsin-Karbid, a Polish calcium carbide producer, created two joint
ventures in order to manufacture and sell calcium carbide
desulfurization products to the Central and Eastern European steel
industry. The two partners have a production facility in Silesia
(Poland), which began production in 1998 and operates using Pechiney
Electrometallurgie's industrial know-how.
- In addition, under the agreement entered into in late 1998 by Pechiney
Electrometallurgie and the South African company Samancor, the two
companies agreed to merge their silicon activities to form INVENSIL, a
jointly-owned subsidiary to be effective in 1999. The annual capacity of
the new company, comprising four facilities in France and South Africa,
represents 15% of the production of Western countries. This operation
illustrates Pechiney Electrometallurgie's strategic ambition to become
one of the world leaders in the silicon market.
Major investments made in the first half of 1999 include: (i) power
increase and set-up of a new type of electrode in one of the silicon furnaces at
the Monricher facility (France), (ii) installation of a new conditioning unit at
the Laudun facility (France), (iii) commissioning of diffuse fume extraction on
the silicon carbide furnace at the Chateau-Feuillet facility (France) and (iv)
start-up of the last two new-generation calcium furnaces at the La Roche de Rame
facility (France).
6.1.3 Markets and Distribution
In 1998, Pechiney's sales were chiefly made in the European market. Because
Pechiney is a supplier to large heavy industries, its activity levels reflect
trends in its markets. The first half of 1999 was characterized by a
deterioration in the economic climate, leading to a slump in demand and sales
prices for certain products, particularly silicon and alloys for the steel
industry.
6.1.4 Competition
Pechiney's principal competitors in the ferroalloy and silicon markets are
Elkem (Norway) and Globe (United States). Norsk Hydro (Norway and Canada)
remains the major manufacturer of magnesium after Dow Chemical (United States)
decided to stop production. Treibacher (Austria) is the principal European
manufacturer of fused alumina.
6.2 International Trade
The international trade activity of Pechiney consists of three principal
businesses: a global sales agency network through which Pechiney's products and
certain complementary products are sold; trading and metals brokerage.
Since 1999, Pechiney's international trade activity has also included a
distribution business for aluminum semi-fabricated products and, secondarily,
stainless steel products in France, Germany, Switzerland and Austria.
6.2.1 Sales Agency Network
Pechiney's international trade sales agency network maintains an extensive
international presence through its 40 agencies operating in more than 60
countries around the world. The sales agency network offers its principals a
wide range of services, and is structured to keep pace with changes in their
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<PAGE> 85
manufacturing strategies. Through this network, Pechiney distributes a variety
of industrial products, mainly for Pechiney's other activities but also for
third parties.
6.2.2 Trading
Pechiney's international trading activities are carried out through four
companies: Pechiney World Trade USA in the United States, Pechiney Trading
Company (Switzerland), Pechiney Trading France (France) and Brandeis Ltd.
(United Kingdom) in Europe.
In this area, Pechiney specializes in the trading of primary aluminum,
bauxite and metallurgical grade alumina. It maintains a global presence and is
active both in intermediary markets and end user markets. Pechiney believes that
it ranks as one of the largest traders worldwide, present at each stage of
aluminum production, from bauxite mining to metal conversion. In 1998, aluminum
trading activities took full responsibility for the marketing of the aluminum
ingots produced or consumed by Pechiney's European facilities. The market
continued to develop in two ways: first, toward new products such as production
scrap, secondary materials and used beverage cans and, second, toward the sale
of alumina pursuant to aluminum conversion contracts for the production of
aluminum. Alumina trading continued to develop and consolidate its long-term
supply sources in 1998.
The refined copper trading business has also enhanced the development of
synergies among the sales network, trading and brokerage activities.
Operating from the United States, the ores and concentrates activity
remains one of the world's major participants for copper, zinc and lead
concentrates. The business has signed long-term supply contracts with the
biggest mining companies in this field. A specific effort has been made to
develop Australian sources for these products.
6.2.3 Brokerage
Brandeis, a Pechiney subsidiary and a founding member of the London Metal
Exchange, is one of the most active international brokers for nickel, copper,
zinc and aluminum. Through its offices in London, Greenwich (Connecticut),
Singapore and Tokyo, Brandeis provides 24-hour continuous service.
In 1998, Brandeis suffered from the prevailing conditions on the metals
market, i.e. lower metal prices and trading volumes and a reduction of broker
commissions. A dispute with a former customer is currently in arbitration and
was the subject of appropriate provisions in 1997 and 1998.
6.2.4 Distribution
The Almet distribution network operates in Germany, Austria, Switzerland
and France, serving Benelux from its French and German sites.
Focusing on aluminum semi-fabricated products, the network also distributes
stainless steels to complete its range. In synergy with Aluminium Mill Products'
ATI business unit, Almet is particularly active in the aerospace, mechanical
engineering and transport markets, as well as in boilermaking and construction.
Operations involve 38 sales outlets and six service-centers equipped for
finishing (slitting, cutting and machining). Pechiney is the priority source for
the Almet network, on standard market terms.
A company-wide project, supervised by a renewed management team, was
launched in late 1998 with the objectives of capitalizing on the synergy
existing between Aluminium Mill Products and Almet and of restoring
profitability.
INFORMATION CONCERNING ALGROUP
BUSINESS DESCRIPTION
I. Algroup
1. OVERVIEW
Algroup is a diversified industrial enterprise whose activities are focused
on aluminum, packaging and chemicals. With 1998 revenues of CHF 9.6 billion (CHF
7.5 billion reflecting the recently demerged chemical and energy businesses as
discontinued operations) inclusive of trading (CHF 1.0 billion) and discontinued
operations of the packaging business, Algroup is the sixth largest industrial
corporation in
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<PAGE> 86
Switzerland. Algroup operates in over 30 countries and has approximately 30,000
employees worldwide. In 1998, Algroup had operating income of CHF 897 million
and net income was CHF 530 million. Algroup is headquartered in Zurich and its
shares are listed on the Swiss Stock Exchange and form part of the 290-indexed
securities in the SPI (Swiss Performance Index) as well as the much narrower
index of leading stock indicators, the SMI (Swiss Market Index of the 22 most
significant Swiss securities). Although Algroup's Lonza chemical and energy
businesses are reflected as discontinued operations in the Algroup consolidated
financial statements included as Annex B to this prospectus, the information
contained in this overview has been prepared on a basis that includes Lonza
Group AG as a part of the Algroup consolidated group.
Algroup operates through three divisions: Algroup Alusuisse (Primary
Materials and Fabricated Products), Algroup Lawson Mardon (Food Flexible and
Tobacco Packaging) and Algroup Wheaton (Pharmaceutical and Cosmetics Packaging):
Algroup Alusuisse (35.4% of sales and 38.0% of operating income in
1998): Algroup's primary material activities cover all stages of primary
aluminum production, from its bauxite mine and alumina refinery in Australia, to
its smelters in Iceland, Norway and Switzerland as well as its anode plant in
Rotterdam, The Netherlands. In fabricated products, Algroup produces a wide
range of value-added fabricated products with particular focus on automotive and
mass transportation as well as special products for the industrial and building
markets.
Algroup Lawson Mardon (24.7% of sales and 19.6% of operating income in
1998): Algroup Lawson Mardon is a producer and converter of flexible packaging
materials for the food and beverage markets supplying multinational customers
for their branded products with tailor made packaging solutions in a range of
materials from aluminum to plastics and paper. It is also a leading manufacturer
of folding cartons and flexible packaging materials serving major tobacco
customers worldwide.
Algroup Wheaton (14.8% of sales and 10.0% of operating income in
1998): Algroup Wheaton is one of the leading suppliers to the global
pharmaceutical and cosmetic industries. It offers a wide range of products for
the pharmaceutical sector, including blister pouches, vials, glass and plastic
containers, tubing glass as well as folding cartons. The division also
selectively provides contract packaging services to pharmaceutical customers.
Its offerings to the cosmetics and personal care sectors includes aerosols and
pump dispenser containers, tube laminates and glass and plastic bottles.
The remainder of 1998 sales and operating income on a consolidated basis
were attributable to Algroup's demerged chemicals and energy businesses as well
as central costs.
Algroup's divisions in the chemical sector (fine chemicals and specialties
and intermediates and additives), together with the energy business,
constituting approximately 24% of sales and 32% of operating income, have been
contributed to Lonza Group AG, which was demerged from Algroup and distributed
to Algroup's shareholders on November 1, 1999 in the chemicals division
demerger. The remainder of Algroup, constituting the aluminum and packaging
activities, is part of the combination.
2. ALGROUP HISTORY AND DEVELOPMENT
Algroup was founded in 1888, as the
"Aluminium-Industrie-Aktien-Gesellschaft" and began its operation with the
construction of the first European aluminum electrolysis plant at Rheinfall in
Neuhasen in 1889. Over the following 40 years, Algroup, with its own bauxite
mines, aluminum oxide operations, smelters, rolling and foil laminating mills
and forging presses, became a large vertically integrated European lightweight
metals group and played a leading role in the development of technology in the
sector.
After World War II, new plants were built or acquired in Germany, Italy and
the United States. In the 1960s and 1970s following the construction of new
smelters in Germany, Switzerland, Iceland, Norway and the United States, Algroup
became a large primary aluminum producer with an annual capacity of 880,000
metric tonnes. During the latter half of the 1960s, together with an Australian
partner, Algroup acquired the rights to very sizeable bauxite deposits in Gove
in northern Australia. An alumina plant was constructed next to the bauxite mine
and commenced operations in 1972. Today, its annual capacity amounts to 1.8
million metric tonnes of aluminum oxide.
In 1974, following a diversification strategy, Algroup acquired Lonza AG, a
medium-sized Swiss chemicals company which was a supplier of organic
intermediates and polymers as well as of fertilizers
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for the Swiss market. Over the past 25 years, Lonza has developed with a focus
on advanced organic intermediates and has withdrawn from commodity-based
activities.
Since the mid-1980s, following sector structural developments, Algroup has
substantially reduced its reliance on primary aluminum activities. While keeping
its efficient bauxite and alumina presence as well as its anode operations,
Algroup has limited primary metal production to the low cost smelters in Iceland
and Norway, maintaining a limited production volume in Switzerland for local,
logistical reasons. Algroup has also refocused its downstream operations to
emphasize upgrading the product-mix and focus on selected customers requiring
higher technology solutions such as the automotive and mass transportation
industries. In parallel, the packaging activities, originally developed as
aluminum downstream operations, were separated in order to establish a new
platform for growth, with a mandate to offer customers packaging solutions
beyond the existing aluminum product range.
In executing this strategic direction, in 1994 and 1996, Algroup acquired
the Lawson Mardon Group in the food, beverage and tobacco packaging markets and
Wheaton Inc. which provides packaging for the pharmaceutical and cosmetic
markets. With this expanded product range Algroup became a leading supplier of
flexible packaging for multinational customers in the food and beverage areas, a
significant partner to the tobacco industry as well as the leading packaging
supplier to the world's largest pharmaceutical and cosmetics/personal care
companies.
Recognizing the global consolidation process in the aluminum and packaging
industries and in order to promote the related businesses in achieving
best-in-class aspirations and market leadership ambitions, Algroup negotiated in
1998 a full merger with VIAG AG, a diversified German group. Due to differences
in relative valuations which developed late in the process that were peculiarly
relevant to the German corporate environment, this merger was not completed.
Algroup continued to pursue the same aim, leading to the combination agreement
with Alcan and Pechiney in September 1999.
In light of the pending combination, Algroup has demerged its Lonza fine
chemicals and specialities and Lonza intermediates and additives divisions and
its energy business in the chemicals division demerger. These activities were
transferred to a new company, Lonza Group AG. Each Algroup shareholder has
received a right to acquire one share of Lonza Group AG for each share of
Algroup held upon payment of CHF 10. The remaining Algroup, without the
chemicals and energy activities, will then participate in the combination.
3. GROUP STRATEGY
Algroup has taken a focused approach to diversification, believing that
industrial diversification at the corporate level is not the appropriate vehicle
for reducing earnings cyclicality and risk, which is best left to the capital
markets. For a number of years, Algroup has followed a strategy of preventing
inappropriate cross-subsidizing any of its businesses. In all of its activities,
Algroup provides goods and services to industrial customers, usually in the
stage just prior to the approach to the final consumer or industrial end users.
As such, Algroup has developed a core competence in dealing with diverse
industrial market dynamics. Algroup organizes its businesses to address the
level where the marketplace assigns it a distinct identity and where the
businesses compete for customers.
In the aluminum sector, Algroup's strategy is two-fold. The upstream sector
is cost competitive but provides a good platform for selective expansion in
alumina and anodes as well as marginal low cost capacity extension at existing
smelters. The main emphasis in strategic development is in the area of
fabricated products where Algroup has developed technological capabilities to
address higher value added products so as to reduce the portion of large volume
commodity items from the rolling operation. For the most part, the fabricated
product business is European with specialities serving overseas markets.
Algroup's emphasis is to address materials, components and engineering of
lightweight mass transportation vehicles for worldwide customers. Composite
materials and plastic foam panels for facade and display applications are also
geared to international markets. Algroup has been actively engaged in offering
to the European automotive industry lightweight components and sub-assemblies.
The thrust towards specialization is also apparent in the area of speciality
semi-finished products, or "semis", for industrial applications such as aluminum
high-luster sheet, plates and large extrusions.
Algroup's strategy in packaging is to be the leading global supplier to its
major multinational customers by developing long-term, value-based partnerships.
Algroup focuses its packaging activities
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on specific customer needs. The food packaging division concentrates on flexible
packaging media for multinational customers. In the tobacco sector, Algroup
specializes in folding cartons and inner foil for the major tobacco companies
worldwide and invests in geographical regions close to the principal production
sites of its customers. In pharmaceutical and cosmetics packaging, Algroup seeks
to provide a wide product offering and differentiate itself through extensive
technological capabilities.
Algroup has sought to improve profitability through a focused approach to
diversification by which it imposes rigorous financial discipline to assess risk
among its various activities. Algroup manages its diversified activities with
the aim of leading these activities to achieve "best-in-class" standards, as
measured by alva(TM), an economic value added-based standard developed by
Algroup.
II. Aluminum Activities
1. ALUMINUM INDUSTRY OVERVIEW
The aluminum industry is global and is characterized by a number of
vertically integrated competitors covering all relevant activities from bauxite
mining to finished products. Aluminum activities are generally segmented into
two areas: primary materials and fabricated products.
Primary materials activities include bauxite mining, alumina refining and
primary metal production. In 1998, the worldwide production of primary aluminum
amounted to about 20 million metric tonnes. Recycled aluminum has become an
additional raw material source as the industry has matured over time. Fabricated
products are manufactured using a variety of technologies, the most important of
which are rolling, extrusion and casting. Others, such as forging or wire
drawing account for relatively small volumes.
2. ALGROUP ALUSUISSE (PRIMARY MATERIAL AND FABRICATED PRODUCTS)
Algroup Alusuisse encompasses both upstream and downstream aluminum
activities. The following table sets forth principal financial data for this
division for 1997 and 1998:
<TABLE>
<CAPTION>
1998 1997
------ ------
(CHF in millions)
<S> <C> <C>
Net sales................................................... 3,079 2,735
Operating income............................................ 340 300
Operating income (%)........................................ 11.0% 11.0%
Net capital invested*....................................... 1,715 1,599
Return on net operating assets (%)**........................ 19.6% 18.0%
</TABLE>
- ---------------
* Net capital invested comprises the average of all assets and liabilities
committed to the business operations of the group at historical period-end
dates.
** Calculated at historical yearly average rates and includes group companies
acquired during the financial year.
2.1 Primary Materials
2.1.1 Overview Algroup Alusuisse's primary materials activities operates its
bauxite mine and alumina refinery at Gove, Australia, smelters in Iceland,
Norway and Switzerland and an anode plant in the Netherlands. Algroup's own
production of primary aluminum, amounting to 250,000 metric tonnes in 1998,
covers about 65% of its own requirements for its fabricated products and
packaging activities. The remaining requirements are covered by purchases in the
open market and by tolling contracts with customers. In contrast to its primary
aluminum position, the division is a net seller of bauxite, alumina and anodes
as the output of these operations exceed internal requirements. Primary
materials operations are supported by a trading function and research and
development activities, both located in Switzerland, as well as by an
engineering group with operations in Switzerland, Canada and Australia.
2.1.2 Bauxite and Alumina Algroup's principal bauxite mine and refinery
plant, located on the Gove peninsula in the Northern Territory of Australia,
started operation in 1971-72. The assets are jointly owned by Algroup, which
holds a 70% participation through Alusuisse of Australia, and Gove Aluminium
Ltd. ("GAL"), which holds a 30% interest. GAL is held by Australian partners CSR
Limited and AMP as to 70% and 30%, respectively. Each of the joint venturers
also owns 50% of Nabalco Pty Limited, the management company running the
operations. Management of Algroup believes that the Gove joint venture is among
the world's lowest cost alumina producers resulting from the size of operations,
its low bauxite mining costs and the proximity to a large vessel ocean harbor.
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The lease for bauxite mining from the Commonwealth of Australia has a term
of 42 years (starting in 1966) with a right to extend for a further 42 years. In
addition to the right to mine bauxite for local refining purposes, the Gove
joint venture can export up to 40 million metric tonnes of bauxite over a
20-year period for sale to third-party refineries.
In 1998, Algroup's share of bauxite mined at the Gove joint venture was 4.5
million metric tonnes, of which 1.4 million metric tonnes were exported and the
remainder used to produce 1.2 million metric tonnes of alumina. Design capacity
at the start up of the Gove refinery was 1 million metric tonnes of alumina and
has since expanded to 1.7 million metric tonnes. Further steps to increase the
plant's output are currently being introduced to increase capacity to 1.9
million metric tonnes per annum by 2002.
2.1.3 Smelters Algroup Alusuisse produces primary aluminum at three
smelters, Icelandic Aluminium Company Ltd. ("ISAL") located near Reykjavik,
Iceland; Sor-Norge Aluminium A/S ("SOERAL") located at Husnes, Norway; and
Algroup Alusuisse's smelter at Steg, Switzerland. ISAL, which is 100% owned by
Algroup Alusuisse, has a design capacity of 160,000 metric tonnes per year but
produced 162,000 metric tonnes in 1998 and is developing an increased capacity
expected to enable production output of 180,000 metric tonnes per year over the
next three years. Management believes that ISAL is among the first third
industry-wide in terms of cost of production. SOERAL, which is 50% owned by
Algroup Alusuisse produced 112,000 metric tonnes in 1998, while current
upgrading is expected to increase capacity to 128,000 metric tonnes by 2002. The
Steg smelter has a capacity level of 50,000 metric tonnes per year but, in light
of industry over-capacity, Algroup Alusuisse has operated this smelter at an
output of 32,000 metric tonnes in 1998.
In addition to raw materials requirements, the smelting process requires
availability of substantial amounts of energy. Algroup Alusuisse has long-term
arrangements for the supply of raw materials and energy to each of its smelters.
The ISAL smelter is fed from Algroup Alusuisse's interest in the Gove bauxite
mine and its anode plant in Rotterdam. SOERAL is supplied jointly by each of the
partners with Algroup supplying its share from Gove and Rotterdam. The Steg
smelter receives alumina from Gove and anodes from an integrated production
facility. ISAL is supplied with electrical power from Iceland's national power
company which generates primarily from hydroelectric sources and has contracted
supply through 2014 at rates that vary, subject to a collar, based on metal
prices. SOERAL has a number of contracts for energy supply which are not
dependent on metals prices, the most important of which expire in 2006. Steg is
supplied with power generated by Algroup's energy division subject to
medium-term contracts that will remain in place following the chemicals division
demerger.
2.1.4 Anodes In contrast to the customary practice in the aluminum industry,
in which anodes are produced in the smelter operation, Algroup produces anodes
in a central facility in the Netherlands (Aluchemie). Algroup holds 69% of
Aluchemie directly while SOERAL, its 50% joint venture, owns a further 9%.
Aluchemie, the largest anode plant in the world, enables Algroup Alusuisse to
exploit economies of scale as well as the harbor of Rotterdam which permits
favorable logistics for importing raw materials and dispatching baked anodes.
The main raw materials for anode production are calcined petroleum coke and
pitch. Smaller amounts of burned-off anodes from smelters are also added. The
production process is subdivided into two steps: mixing of the raw materials
followed by cold shaping of the anode and baking of the anode at elevated
temperature.
In 1998, Aluchemie shipped 345,000 metric tonnes of anodes. Each of the
three shareholders of Aluchemie is entitled to a volume of anodes corresponding
to their shareholding at prices determined by formulae. Algroup's share of
anodes produced by Aluchemie is sold through its trading arm, to Algroup's own
smelters at ISAL and SOERAL and through longer term contracts, to third-party
customers.
In view of a growing demand for anodes, Aluchemie is expanding production
capacity. Through the upgrading of its three mixing lines and the extension of
two baking furnaces, a total anode output of 400,000 metric tonnes is expected
to be reached in 2002.
2.1.5 Metals Trading Algroup's trading arm, Alusuisse Trading AG, trades on
behalf of the aluminum and packaging activities of Algroup. It also engages in
aluminum and related trading activities for third
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parties. Trading services for Algroup include four main activities: sales of
excess raw materials such as alumina and anodes, purchases of metal and other
raw materials to cover requirements that exceed internal supplies, managing risk
exposures through LME transactions and managing the supply logistics between
smelters and fabricating plants. Algroup's third party trading function, with a
turnover in excess of CHF 1 billion in 1998, has a traditional focus on metal
and alumina transactions and is currently being expanded to include
semi-finished products.
2.1.6 Engineering Alesa Alusuisse Engineering Ltd ("Alesa") provides
engineering services on a global basis to Algroup companies as well as to third
parties. Alesa maintains engineering offices in Switzerland, Canada and
Australia. The Australian office also provides technical services to the Gove
alumina refinery on an ongoing basis. Its main areas of activities are:
- Raw Material Technologies, including alumina refining, anode production
and smelter technology;
- Materials Handling Technologies, including shiploaders and unloaders,
silo systems, airlifts and airgravity conveyors, dense phase conveying
systems, flyash handling, aluminum chips handling and special
applications; and
- Process Automation, including electrolytic cell control systems and
general purpose automation.
Alesa is handling about 30 projects currently, almost all of which are for
third-party customers in the aluminum industry, as well as in other industries
such as power generation, cement production or automobile manufacturing.
2.2 Fabricated Products
2.2.1 Overview The fabricated products division includes all downstream
aluminum activities of Algroup Alusuisse:
- rolling mills in Germany, Switzerland and the United Kingdom;
- extrusion plants in France, Germany, Switzerland and the Czech Republic;
- engineering and marketing/sales of mass transportation systems in
Switzerland;
- facilities producing composite materials in Germany, the United States,
Switzerland, the United Kingdom and China;
- sales and service centres in all important European markets;
- automotive components manufacturing units in Germany and Slovenia; and
- production of specialty aluminas in Germany.
These activities are supported by sales and service centres in all
important European markets and central research and development in Switzerland.
In developing the fabricated products businesses, Algroup Alusuisse has
traditionally pursued a dual strategy of focusing on higher value-added products
and on selected market sectors. While each operation is responsible for reaching
specific performance targets, their marketing and sales as well as product
development activities are bundled in a market-oriented matrix structure
designed to respond to the needs of each key end-user industry: automotive, mass
transportation, display and facade.
Individual operations are structured according to product lines, each with
a specific market orientation. They thus provide the link between operational
responsibility at plant level and joint market focus at divisional level. The
two large fabricated product plants in Sierre, Switzerland and Singen, Germany
incorporate both a rolling mill and extrusion plant. At Singen further
activities such as composites and component manufacturing are also included
within the operations.
2.2.2 Rolling Algroup Alusuisse has a relatively small share of European
rolled product production with an output in 1998 of 260,000 metric tonnes.
Algroup Alusuisse has, over the past several years, focused on higher
value-added product lines and sought to limit production of commodity-like
products. Algroup Alusuisse has rolling operations on the following sites:
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- Singen, Germany, which produced 140,000 metric tonnes in 1998, 50% of
which represented foilstock the intermediate product for aluminum foil,
supplied to the foil rolling and conversion activities of Algroup's
packaging division also located at the Singen site. The close connection
with the packaging activities has facilitated the development of
specific alloy compositions for packaging applications. Furthermore, for
internal deliveries, the rolling plant at Singen produces the skin sheet
used in commodities. A further specialisation is in the areas of
high-quality bright sheet for light reflector applications and closure
stock for the manufacture of bottle caps or aluminum containers.
- Sierre, Switzerland, which produced 85,000 metric tonnes in 1998 with
the two main product lines being automotive sheet and industrial plates.
In automotive sheet, the Sierre rolling mill supported by dedicated
assets, meets the most demanding requirements for surface quality,
formability and adaptation to car body production lines. In the area of
plates the Sierre mill serves only industrial markets such as mould
making, tooling and machinery.
- Bridgnorth, United Kingdom, which had an output of 65,000 metric tonnes
in 1998, of which 35,000 metric tonnes were converted to foilstock for
the packaging division. The remaining output was used to produce litho
sheet for offset printing plate manufactures.
2.2.3 Extrusion Algroup Alusuisse produces extruded products in four
facilities: Singen, Germany, Sierre, Switzerland, St. Florentin, France and
Decin, Czech Republic.
Singen operates the largest extrusion press in Western Europe. The facility
shipped 26,000 metric tonnes in 1998 principally for end-users in
transportation, electromechanical and machinery. A sizeable part of its
production is further processed internally into automotive components.
Sierre production of 25,000 metric tonnes in 1998 was delivered mainly to
the transportation and industrial markets. Large extrusions for railcar
constructions are the most important product line of the operation and accounted
for over 40% of 1998 sales. A further 30% of sales are to other mass
transportation markets such as buses, road vehicles and shipbuilding.
Algroup Alusuisse operates four presslines at St. Florentin. About 80% of
the total output, amounting to 24,000 metric tonnes in 1998, was delivered to
the French market in which Algroup has about a 13% share of sales. The operation
targets end-users in the building (50%), transportation (30%) and industrial
(20%) sectors. A large share of deliveries from this site is supplied with
value-adding operations such as anodizing, lacquering, thermal barrier
insulation or machining.
Algroup Alusuisse owns a 61.5% interest in Alusuisse Decin ("ALD") which
operates an extrusion plant at Decin in the Czech Republic. The remainder is
held by the Czech state company KOD s.p. Shipments of about 30,000 metric tonnes
in 1998 were almost equally divided between hard alloy and soft alloy
extrusions. The product lines include: bars, tubes and profiles. Soft alloy
profiles are primarily sold in the growing local market whereas applications for
other product lines are predominantly found in Western Europe. ALD holds a
leading position for machining bars in the German markets and further
substantial volumes are distributed through Algroup Alusuisse's own sales and
service centers network in other European countries.
2.2.4 Automotive and Other Transportation The main product lines included in
this business area are:
- extrusion-based safety systems and other structural automotive
components, airfreight containers, suspension parts and forgings, all
produced by Alusuisse Singen GmbH;
- diecastings produced by Algroup's wholly-owned subsidiary, Alusuisse
BDW, and its 66%-owned joint venture activity, Alusuisse-Tomos, in
Slovenia.
In 1998, Algroup Alusuisse recorded revenue of CHF 280 million from this
unit. Safety systems include both bumper beams and side impact bars used as door
reinforcement in cars. Algroup Alusuisse has developed a proprietary product in
this area with high energy absorbing capacity that compares favorably to steel
bumpers, which transfer the crash energy to the car structure or require costly
additional energy absorbers. As car insurance costs are increasingly linked to
actual repair costs in Europe, management believes there is a growing market
potential for Algroup's safety systems.
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Structural automotive components include both ready to assemble dashboard
support beams as currently installed in Mercedes A-class cars and spaceframe
components developed for the new aluminum intensive Audi car.
Algroup Alusuisse is also the world's leading producer of airfreight
containers as used for baggage and cargo transport by all airlines. Around the
clock repair services are provided in cooperation with partners on all major
airfields.
Diecastings for automotive application are produced in Germany and
Slovenia. Products are typically machined after casting and delivered ready for
assembly on automotive production lines. Algroup's proprietary diecasting
technique has recently been further developed with a substantial research and
development effort for the production of spaceframe knots required for the new
Audi car. Alusuisse BDW was appointed as sole supplier and is now preparing to
commence deliveries. To expand capacity, Algroup set up a joint venture in
Slovenia to draw on the available competence in diecasting as well as favorable
production costs.
2.2.5 Mass Transportation Marketing/Engineering Algroup Alusuisse's leading
position in sales to end-users in the mass transportation industry has resulted
from a dedicated engineering effort over many decades. With the support of 85
employees currently active, Alusuisse Road & Rail in Zurich has been a driving
force for the substitution of steel by aluminum in mass transportation
applications. Management estimates that 75% of all new passenger railcars being
built worldwide are aluminum constructions and that Algroup Alusuisse's share of
these sales exceeds 50%.
Algroup Alusuisse has developed a number of innovative technical solutions
to overcome the cost disadvantage of aluminum, primarily through assembling
large extruded sections. In recent years, further improvements in cost
efficiencies have been realised by incorporating aluminum-plastic composite
panels for such elements as floor or roof sections.
Similar design principles have been adopted in other areas of mass
transportation such as buses and shipbuilding. Algroup Alusuisse now makes a
wide spectrum of competencies available to the mass transportation market:
design and engineering, prototype building, testing, delivery of components such
as extrusions, composite panels or entire subassembly and fibre reinforced
3D-structures such as driver cabs for railway cars. This development illustrates
Algroup's market-oriented approach towards light weight solutions which
includes, in addition to aluminum, other light weight construction materials
such as plastics.
2.2.6 Composites Algroup Alusuisse's composites activities had revenues of
CHF 425 million in 1998. The main areas of application are facade, display and
transportation. Algroup Alusuisse's products include: aluminum -- plastic
composites, comprising an outer and inner skin of aluminum sheet surrounding a
plastic core; foam plastic materials, covered, if required by specific market
requirements, with paper or plastic layers; and fibre-reinforced plastic
components, mainly for transportation applications. Algroup Alusuisse produces
aluminum-plastic composites, known under the trade name Alucobond(R).
The main applications for these products are ventilated facades for which
composites have a number of advantages over more traditional materials such as
stone or solid aluminum because of their low weight-to-stiffness ratio, ease of
application and design variety. Unlike its principal competitors in this
business, Algroup Alusuisse also produces composites with non-thermoplastic core
materials, such as non-combustible composites with a mineral core material and
super-light panels with a honeycomb core (Alucore(R)). In addition to facade
applications, composites are now commonly used in display and transportation
markets.
Foamed plastic materials, known under tradenames such as FOREX(R),
FOAM-X(R), etc, are also produced on continuous production lines by Algroup
companies in Switzerland, Germany and the United States. Algroup Alusuisse also
produces fibre-reinforced components in Switzerland for such applications as
railcar driver cabs, bus components or car spoilers.
In view of the fast growing market for composites and the growth potential
inherent in new light-weight transportation solutions, Algroup Alusuisse pursues
a strategy of fast growth through
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substantial investment in research and development for innovative product lines
and cost reduction as well as a further expansion of geographic market coverage
and of the product range through alliances with other producers.
2.2.7 Distribution Activities Algroup Alusuisse's own distribution network
operates through legal entities in ten countries in Europe as well as in the
United States and the Far East. These achieved third party sales of CHF 365
million in 1998. All of these companies engage in buy-resell activities on
behalf of production plants and warehouses and are available where required for
a "best-in-class" customer service: "Creating value for the customer" is the
central strategic mission of Algroup Alusuisse's fabricated products
distribution activities. With this aim, dedicated sales personnel operating in
close contact with production plants are employed in different locations. This
process is facilitated by the central management unit, Alusuisse Sales and
Service Centres, as well as by a matrix organisation based on the key product
lines. Added value to customers is provided by specific operations in warehouses
such as saw or water jet cutting of plates to required size and shape.
2.2.8 Specialty Aluminas Algroup Alusuisse's Martinswerk plant located in
Bergheim, Germany, historically produced alumina for European group smelters but
was gradually transformed to a producer of non-metallurgical grade alumina. In
the early 1990s, the plant was redimensioned and bauxite feedstock replaced by
imported aluminum-hydroxide. Its total production of speciality aluminas
amounted to 150,000 metric tonnes in 1998. The Martinswerk facility focuses on
three product lines: flame retardant fillers for plastics, paper additives and
speciality oxides.
III. Packaging Activities
1. PACKAGING INDUSTRY OVERVIEW
The world market for packaging is estimated at $500 billion, of which about
$300 billion or 60% is consumed in North America and Western Europe. Packaging
is used to protect and present consumer goods in individual formats; it is also
used to collate and transport consumer packages, and to protect and transport
industrial and agricultural goods. Algroup is a leader in the manufacture and
sale of individual packages to the producers of consumer goods in North America
and Western Europe. It does not manufacture industrial or transit packaging.
Algroup packaging sales were CHF 3.4 billion in 1998 and are concentrated
in certain product segments where it has built a strong competitive position.
95% of its sales are made to customers in North America and Western Europe and
5% in other parts of the world.
2. ALGROUP LAWSON MARDON (FOOD FLEXIBLES AND TOBACCO PACKAGING)
2.1 Overview and Divisional Strategy
Algroup Lawson Mardon had sales of CHF 2,119 million in 1998. It operates
from 54 manufacturing sites located in Western Europe and North America, and
from one in Turkey. Each site is focused on only a small part of the product and
market range of the Division.
The sites are grouped into sectors according to their product or market
specialisation and the sales breakdown of Algroup Lawson Mardon by sector in
1998 was:
<TABLE>
<S> <C>
- - Food Flexibles........................................... 55%
- - Foil Products............................................ 23%
- - Tobacco Packaging........................................ 14%
- - Cans..................................................... 4%
- - Print Finishing.......................................... 4%
</TABLE>
Algroup Lawson Mardon's businesses have strong competitive positions and
management's principal aim is to maintain and build on these positions, as a
means of growing its value to shareholders. The division intends to exploit
sales growth opportunities by following its customers to regions outside Western
Europe and North America, where demand for its products and expertise is
increasing.
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The following table sets forth key financial data for the food flexibles
and tobacco packaging division:
<TABLE>
<CAPTION>
1998 1997
------- -------
(CHF in millions)
<S> <C> <C>
Net sales................................................... 2,119 2,092
Operating income............................................ 176 169
Operating income (%)........................................ 8.3% 8.1%
Net capital invested*....................................... 809 786
Return on net operating assets (%)**........................ 20.8% 21.1%
</TABLE>
- ---------------
* Net capital invested comprises the average of all assets and liabilities
committed to the business operations of the group at historical period-end
rates.
** Calculated at historical yearly average rates and included group companies
acquired during the financial year.
In flexible packaging, the division's major product line, Algroup Lawson
Mardon has sought to play a role in the further consolidation of the industry
and especially to improve its market position in the North American market. It
purchased Pacquet Oneida for this purpose in 1998. The proposed Combination fits
well with the objective by increasing the scale and scope of operations,
particularly in North America.
2.2 Food Flexibles
2.2.1 Overview The Food Flexibles sector had sales of CHF 1,165 million in
1998, or 55% of Algroup Lawson Mardon sales. Its principal activity is the
printing, coating and laminating of plastic films, aluminum foil and paper into
primary packaging materials for food manufacturers. The origins of this sector
lie in the conversion of aluminum foil produced by the aluminum division.
However, the sector has diversified by acquisition, especially through the 1994
purchase of Lawson Mardon Group. Algroup Lawson Mardon is now "materials
neutral", with a large stake in the conversion of all the major materials
required by customers.
The main processes used in sector plants are rotogravure and flexographic
printing; laminating using adhesives, wax or plastics extrusion; and various
coating processes to add barrier properties, sealability or gloss. The sector's
products are typically produced in wide reel format and then slit into narrow
reels for delivery to customers where they are formed into sealed packages
(around the customer's product) on automated machinery. Other types of flexible
packaging manufactured by the same processes include lidding materials (e.g.,
for dairy cups) and certain types of label (especially for carbonated soft
drinks packed in plastic bottles). In addition to flexible packaging, the sector
also produces rigid plastics trays (e.g., for frozen meals) and, in Spain,
folding cartons.
Of total sales in this sector, 90% are made to food industry customers.
There are also significant sales to non-food markets, including tobacco. The
flexible packaging requirements of users in the pharmaceuticals and cosmetics
industries are met by the Pharmaceuticals and Cosmetics Division, which shares
some plants with Algroup Lawson Mardon and which also has some plants dedicated
to pharmaceuticals flexibles.
The Food Flexibles sector is organized regionally with business units in
the United Kingdom and Ireland, Europe and North America. Additionally, however,
some sales and marketing activities are led on a pan-European or global basis by
a designated senior manager or team of managers. This approach enables the
division to exploit its broad geographic spread of activity, especially with
multinational customers who increasingly specify or buy on a pan-European or
even global basis.
2.2.2 Industry Background Management of Algroup estimates that the size of
the converted flexible packaging market is about $8.5 billion in North America
and E$6.5 billion in Western Europe. The market growth rate, in terms of area,
is estimated to be 4% per year in North America and 2-3% per year in Western
Europe. Apart from the continuing growth of packaged food products, a number of
factors favor flexible packaging. Relative to rigid packages, it uses less
materials and therefore can be attractive for cost or environmental reasons. For
example, demand for stand-up pouches is growing rapidly, either in replacement
of rigid packages or to create differentiated new products. Flexible packaging
is also benefitting from trends to portion packs and multi-packaging.
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On the other hand, flexible packaging makers are also experiencing greater
market pressures from food manufacturers who are in turn responding to
competitive demands from food retailers. Manufacturers are placing margins for
packaging companies under pressure while at the same time demanding more
sophisticated services from packaging companies, both in terms of product
offerings as well as security and speed of supply. As a result, success in
flexible packaging demands a high level of competence in a number of critical
areas, especially product engineering, supply chain management and low-cost
manufacturing.
2.2.3 Market/Products The main markets served by the Food Flexibles business
are confectionery (e.g., countlines, bagged sweets, medicated confectionery,
chewing gum), beverages (e.g., pouch material and film labels), dairy products
(e.g., yoghurt lidding, soft cheese and processed cheese), savoury snacks,
instant dried products (e.g., soups, coffee, bouillon cubes), biscuits,
breakfast cereals and cigarettes.
2.2.4 Strategy Algroup Lawson Mardon intends to expand its position with
major multinational customers of flexible packaging by exploiting its range of
product capability and its wide geographic spread of manufacturing plants. It
will seek further product and service differentiation by harnessing its
innovation capabilities to customer needs, and by continuing preparedness to
dedicate key machines to the requirements of individual customers. Algroup
Lawson Mardon's current program to optimise its network of manufacturing sites
will further specialize each plant on a narrower range of high value added
product types and markets.
2.3 Foil Products
2.3.1 Overview The Foil Products sector had external sales of CHF 488
million in 1998, or 23% of Algroup Lawson Mardon sales. Foil products are sold
mostly in Europe, from four manufacturing sites located in Germany, Switzerland,
the United Kingdom and the Netherlands. Algroup is an integrated aluminum foil
roller and converter. It rolls 100,000 metric tonnes/year. The principal outlets
for this tonnage are set out below:
<TABLE>
<CAPTION>
SOLD OUTSIDE ALGROUP (40%), PRINCIPALLY TO: USED WITHIN ALGROUP (60%)
- ------------------------------------------- -------------------------
<S> <C>
Beverage carton producers Converted by the sector into:
Flexible packaging converters -- foil-based flexible packaging for food and
tobacco
Semi-rigid aluminum foil container -- semi-rigid aluminum foil containers for
manufacturers pet food
Industrial users (e.g., automotive, -- foil products for industrial uses (e.g.,
insulation) condensers)
Transferred to other parts of Algroup for
conversion into foil-based packaging for food,
pharmaceuticals and cosmetics
</TABLE>
The Foil Products sector uses cold rolling mills to roll the foil to its
required thickness while retaining shape and surface quality across the whole
width of the foil. Laminating, coating and printing equipment is used -- as in
food flexibles -- to convert the foil reels. Die stamping presses are used to
form coated or laminated foil materials into shallow trays for the pet food
market.
2.3.2 Industry Background
The production of aluminum foil and thin strip (up to 200 microns) in
Western Europe was 604,000 metric tonnes in 1998. Market growth is anticipated
to be limited in this area although management believes that the replacement of
aluminum foil by other materials which took place in European packaging markets
in the past has largely run its course. There is also some periodic volatility
in the market for plain foil as changes in aluminum market prices from time to
time encourage pipeline filling.
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2.3.3 Products/Markets As outlined above, Algroup Lawson Mardon sells plain
aluminum foil and strip to external customers, and it converts some of its own
production into flexible packaging, containers and industrial/technical
products. One of the largest applications for plain foil is the liquid beverage
carton industry. Beverage carton materials for certain products (such as
long-life milk and fruit juices) include a layer of aluminum foil to provide the
protection necessary to preserve the product.
Algroup Lawson Mardon is also investing in a new non-foil product line --
the coating of plastic films with silicon oxide (Ceramis(R)). Ceramis(R)
products use proprietary technology developed by the division's research and
development center in close cooperation with the Foil Products sector.
Sales of plain and converted foil for industrial applications are made to
an extremely diverse customer base but Algroup Lawson Mardon serves a number of
key external customers in each of its principal product lines. These include
Tetra-Pak and SIG for beverage carton foil; Constantia and Hueck for converter
foil used in flexible packaging; and Plus Pak in strip for foil manufacturers.
In foil-based flexible packaging, key customers include Nestle S.A. and British
American Tobacco plc, while Mars Incorporated and Nestle S.A. are leading
customers for pet food containers.
Quality, service and technical development are all critical to the Foil
Products Sector. In most beverage carton and flexible packaging applications the
market demand has been for thinner foil which must remain absolutely pinhole
free to provide essential oxygen or moisture barrier properties. As in food
flexibles, customers now require much shorter lead times; the logistics
management in rolling foil, laminating it to polypropylene, printing it, and
converting it into pet food containers and lids is therefore critical to
success.
2.3.4 Strategy In plain foil and strip the objective is to increase Algroup
Lawson Mardon's share in the sector's chosen markets by continued investment in
improving the quality and productivity of the main rolling mills. The sector
will also maintain its program of alloy development to reinforce the
differentiation of its speciality products. Improvements to its product range
are expected to sustain its external sales of these products and will ensure the
wider application of some of its speciality converted products, such as easy
opening foil ends for cans. The foil container business, newly focused on the
pet food market, will concentrate on building market share. Its dedication to
one market will assist its efficiencies and its management of the supply chain.
2.4 Tobacco
2.4.1 Overview The Tobacco sector had sales of CHF 286 million in 1998, or
14% of Algroup Lawson Mardon sales. It operates from six sites, two in North
America, three in Western Europe, and one in Turkey. The principal products at
all of these sites are folding carton blanks which are produced by printing
reels of paperboard, cutting and creasing the reels into individual blanks, and
stacking them for delivery to the customer. In a cigarette company's plant the
blanks are fed into automated cigarette-making and packing machines: the
familiar flip-top and shell-and slide cartons of cigarettes. Outer cartons,
typically collating ten packages of twenty cigarettes, are manufactured by the
same process.
2.4.2 Industry Background Cigarette consumption is expected to continue to
decline in North America and Western Europe but to continue to increase
elsewhere which may affect overall demand for packaging. Folding cartons have,
however, consistently taken share in the past from soft packs, and management
expects this trend to continue in the future. Because of the relatively high
concentration among cigarette producers, three customer groups account for 90%
of Algroup Lawson Mardon's sales in this area: British American Tobacco plc,
Philip Morris Companies Inc. and Imperial Tobacco.
Low cost, precision manufacturing and high standards of service are
critical competences in tobacco packaging. Manufacturers must deliver high
quality cartons in exact sizes and appearances. Consistently-sized cartons
ensure maximum performance on customers' high speed filling lines.
2.4.3 Strategy This sector has more than doubled its sales turnover since
1995 by offering major users high quality and service from industry-leading
technology installed in sites dedicated to the tobacco industry. Algroup Lawson
Mardon has successfully built and commissioned two new facilities close to two
of the world's largest cigarette factories in order to provide the highest
levels of flexibility in service.
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Algroup Lawson Mardon's strategy is to continue growth in the Western markets
(including benefits from a wider product range) and to follow the sector's
customers into selected markets in the developing economies. Greenfield plants,
acquisitions and product development are all likely to play a significant part
in the further growth of this sector.
2.5 Other Sectors
2.5.1 Cans and Decorated Containers Food cans and decorated tinplate
containers account for 4% of sales for Algroup Lawson Mardon and are
manufactured on one site in the United Kingdom. Algroup Lawson Mardon operates a
low-cost technology for its principal food can product line and will seek to
grow its business in both pet and human food markets.
2.5.2 Print Finishing The Print Finishing business accounts for 4% of
Algroup Lawson Mardon sales, all in the United Kingdom. The business provides
services such as laminating and varnishing to commercial printers who
manufacture brochures, company annual reports, magazine and book covers and
other printed materials.
2.6 Production Sites and Employees
Algroup Lawson Mardon has 54 manufacturing sites located in 11 countries.
The largest site accounts for only 11% of divisional sales, while, for most
products, the division is not dependent upon a single production site. Algroup
Lawson Mardon has continuously invested in its production sites in order to
increase productivity and, in some cases, to increase capacity. It has also
invested in order to comply with new environmental regulations especially in the
United Kingdom, and to improve its information systems. The division has
approximately 6,600 employees in total at its production sites.
3. PHARMACEUTICAL AND COSMETICS PACKAGING
3.1 Overview
Algroup Wheaton is dedicated to the development, manufacture, and sale of a
broad range of packaging products used in the pharmaceutical and personal
care/cosmetic markets. Its products include a full range of rigid and flexible
packaging. The division also manufactures and markets a line of laboratory
equipment and specialty glass apparatus. Net sales for the year ended 1998 were
CHF1,268 million, 58% of which were directed towards the pharmaceutical market,
with 29% relating to the cosmetics market. In terms of geographical distribution
of sales, 52% of sales were generated in North America, 43% in Europe and 5% in
other parts of the world.
The division produces and sells a full range of packaging products for
pharmaceutical and cosmetic companies. Principal products include: blister
lidding, strip packs, pouches, barrier form packs, flexible tube laminate,
plastic containers and closures, molded glass bottles, glass tubing vials, drawn
glass tubing, folding cartons, glass ampoules, aluminum seals, rubber stoppers,
and contract packaging services. In addition, the division produces and sells
products used primarily in life science laboratories including liquid handling
devices, cell culture equipment, and specialty glass apparatus. Products are
manufactured in facilities in North America, Europe, South America and through a
joint venture in China.
The following table sets forth key financial data for Algroup Wheaton:
<TABLE>
<CAPTION>
1998 1997
------ ------
(CHF in millions)
<S> <C> <C>
Net Sales................................................... 1,268 1,249
Operating income............................................ 90 116
Operating Income (%)........................................ 7.1% 9.3%
Net capital invested*....................................... 666 643
Return on net operating assets (%)**........................ 13.2% 18.5%
</TABLE>
- ---------------
* Net capital invested comprises the average of all assets and liabilities
committed to the business operations of the group at historical period-end
rates.
** Calculated at historical yearly average rates and includes group companies
acquired during the financial year.
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3.2 Industry Background
Pharmaceutical Packaging
The overall market for pharmaceutical packaging products is estimated to be
$10 billion per year and is growing at a rate of about 5% annually. Growth rates
vary significantly among product categories and regions. For example, demand for
flexible packaging in North America is estimated to be growing 10% annually
while demand for molded glass bottles is probably declining worldwide.
As is the case with many industries, pharmaceutical companies continue to
consolidate primarily to create critical mass in research and development of new
drug therapies as well as to enhance marketing position. As consolidation
continues, industry leaders will buy an increasingly disproportionate amount of
packaging materials and services. These large pharmaceutical companies are
expected to continue leveraging their enhanced purchasing power through the use
of strategic sourcing techniques, including competitive tenders (increasingly on
a global basis) to concentrate volume of purchases with fewer suppliers and at
lower prices.
At the same time, in an effort to drive costs out of the supply chain,
pharmaceutical companies are outsourcing more activities, including the physical
packaging of product and, in some cases, primary and secondary manufacturing
steps. This trend towards outsourcing is creating new opportunities in the
supply chain as pharmaceutical companies focus on core competencies (principally
research and marketing).
Cosmetic Packaging
The trend towards consolidation on a global basis is equally prevalent in
the personal care/cosmetic market. Industry leaders such as L'Oreal, Proctor &
Gamble, and Unilever are building global organizations in an attempt to gain
economies of scale and create global brand equity. Overall demand for cosmetic
packaging products is growing about 4% per year with packaging for skin
treatment products growing at the fastest pace.
Leading cosmetic and personal care companies are increasingly using global
bids as a means to drive down costs and are building global purchasing
organizations to facilitate this process. Suppliers to leading companies in this
market must therefore build global capabilities to meet this demand. This trend
towards global consolidation and increased use of large tenders, creates more
intense price pressure as well as putting a premium on low cost supplier status.
3.3 Strategy
The overall strategy for the Algroup Wheaton division is to create a global
organization capable of efficiently delivering the broadest range possible of
packaging products and services specifically for the healthcare and personal
care/cosmetic markets.
Every industry has its unique packaging requirements. Global capabilities
and breadth of product are not therefore sufficient. Successful suppliers must
have a thorough understanding of the critical requirements that are peculiar to
the pharmaceutical and cosmetic markets. Quality systems, manufacturing
environments (e.g., clean room manufacture), individual skill sets and more must
be aligned with core markets.
By choosing to focus on the pharmaceutical and cosmetic packaging markets,
Algroup Wheaton has, in effect, chosen to become a supply chain company to these
industries. Its success therefore depends on a thorough understanding of
specific industry requirements and trends. Everything from developments in
manufacturing technology, training programs for employees, new product
developments, quality programs and more are heavily influenced by the specific
requirements of these core markets.
As the relevant markets continue to consolidate, industry leaders will
account for a larger share of demand for packaging products and services. This,
coupled with the tendency for industry leaders to rationalize their supply base,
creates a premium on understanding and reacting swiftly to the needs of large
global industry players.
In an effort to coordinate the application of division resources for the
benefit of industry leaders, Algroup Wheaton is implementing global key account
management programs and processes with leading
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pharmaceutical and cosmetic customers. These initiatives include the formation
of global cross-functional teams to coordinate resources with leading customers
as well as the formation of business improvement teams to drive costs out of the
supply chain.
3.4 North American Pharmaceuticals
This business unit manufactures and sells packaging products and services
used principally by ethical and generic drug manufacturers, animal health
companies, biotech firms, diagnostic companies, and medical device companies
based in North America. These products include plastic containers and closures
to package pharmaceuticals, molded glass bottles, drawn glass tubing and tubing
vials as well as folding cartons. Customers use these products to package a full
range of OTC (over the counter) medications including cough and cold remedies
and pain medications, various prescription medications in liquid and solid form,
and injectable drugs for human and animal health. Products are sold primarily on
a direct basis to industry leaders, but also through container distributors.
The business unit ranks among the top three producers of molded glass
bottles, tubing glass vials, and plastic containers for the relevant market. In
addition, it has a growing position in the market for rubber stoppers and
aluminum seals, contract packaging services, and folding cartons.
The top five customers for this business unit for the year ending December
31, 1998 were: Johnson & Johnson, Becton, Dickinson and Company, American Home
Products Corporation, Perrigo Company and Abbott Laboratories. In most
instances, leading customers purchase a wide range of products (e.g., glass,
plastic, cartons, etc.).
3.5 North American Cosmetics
This business unit manufactures and sells packaging products and services
used principally by leading cosmetic and personal care companies based in North
America. These include plastic containers and closures, molded glass bottles,
tubing vials and folding cartons. Products are sold primarily on a direct basis
to industry leaders, but also through container distributors. Customers use
these products to package a full range of personal care and cosmetic products
including skin treatments, hair care products, nail enamel, perfumes, colognes
and more. The business unit is the leading producer of molded glass bottles and
decorated glass containers in the relevant market and is a leading supplier of
plastic containers and closures.
3.6 Pharmaceutical Flexibles
This business unit manufactures and sells packaging products and services
used principally by ethical and generic drug manufacturers, animal health
companies, diagnostic companies, and flexible tube manufacturers. These products
include blister lidding for prescription and OTC pharmaceuticals, formpack
(providing higher barriers), strip pack, tube laminates and pouches. Customers
use these products to package a full range of OTC medications including cough
and cold remedies and pain medications, various prescription medications in
solid form, as well as diagnostic products. Products are sold primarily on a
direct basis to industry leaders, but also through sales agents for export
purposes.
The business unit is the European leader in foil based pharmaceutical
packaging products including blister lidding, pouches, strip packs, and high
barrier aluminum packages. It is the second-largest supplier of these products
in North America. It is also one of the leading suppliers of tube laminate used
in the manufacture of flexible tubes in the health and personal care industries
on a global basis.
3.7 European Pharmaceuticals
This business unit manufactures a broad range of rigid and flexible
packaging products for the pharmaceutical industry. Products are sold
principally to leading pharmaceutical, diagnostic, and biotech companies. As in
North American Pharmaceuticals, customers use these products to package a full
range of OTC medications.
The business unit is the leader in France and the United Kingdom in foil
based pharmaceutical packaging products including blister lidding, pouches,
strip packs, and high barrier aluminum packages. It is also one of the leading
suppliers of plastic containers and closures in the United Kingdom to the
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pharmaceuticals, cosmetic, and food and beverage markets. In addition, it is the
third largest supplier of glass ampoules in Europe with a leading position in 2
point ampoules.
The European market for flexible packaging is growing by approximately 5%
per year driven by the development of new drug therapies, the aging of the
population and other favorable demographic trends. The market for plastic
containers and closures is growing by 4% per year or less as much of the market
has converted to flexible packaging. The market for 2 point ampoules is
declining while demand for other glass ampoules is stagnant.
3.8 European Cosmetic
This business unit is dedicated to the development, manufacture and sale of
aluminum and tinplate aerosol cans for the personal care/cosmetic market. These
products are typically used for hair sprays, deodorants, shaving, and other
personal care products. This business unit is the market leader in Europe for
aluminum aerosol cans used in the relevant market. It is also "backward
integrated" in that it produces its own aluminum slugs in its Belfaux,
Switzerland facility.
The aerosol can market in Europe for personal care applications is
estimated to be 2.4 billion units and is growing by about 2% annually. There is
a recent conversion of deodorant products from aluminum to tinplate cans.
Industry leaders such as L'Oreal and Unilever account for a very large share of
the relevant market and exert tremendous pressure for cost reduction.
3.9 Science Products
This business unit manufactures and sells a broad range of laboratory
products through leading laboratory distributors worldwide. Principal product
lines include plastic containers and closures and molded and tubular glass vials
for laboratory applications, chromatography vials and accessories and other
laboratory equipment. In addition, it sells packaging products to diagnostic
companies based primarily in North America. End customers are typically life
science research laboratories in the healthcare industry as well as government
laboratories, environmental research laboratories, clinical laboratories, and
educational laboratories.
3.10 Sales and Marketing
Each business unit manages its own sales, marketing, and distribution
functions. Each has its own sales forces and, in some instances, individual
operating companies have their own field sales forces, marketing departments,
and distribution channels. Key account management, response to global tenders,
and global supply agreements are coordinated at the division level.
IV. Other Matters
1. INTELLECTUAL PROPERTY
Algroup owns valuable intellectual property assets which relate to its
products and the processes used in its businesses. Algroup holds a number of
patents in various countries in Europe and North America which protect its
processes and products developed by Algroup through its research and development
activities. In addition, Algroup has acquired the right to use certain processes
in its business under license. Algroup also owns a number of trade marks and
trade names which are used to identify its products. For example, Algroup
produces aluminum plastic composites known as Alucobond(R), foamed plastic
materials known as FOREX(R) and high barrier transparent films for beverage
cartons known as Ceramis(R). Algroup does not depend on any single patent,
license or trademark with respect to its aluminum or packaging businesses.
2. ENVIRONMENTAL PROTECTION AND REGULATION
In virtually all of the jurisdictions in which Algroup operates, the
operators are subject to regulations and legislation intended to protect health
and safety and the environment. Algroup's commitment to environmental care is
reflected in a business policy statement on safety, health and the environment
which sets forth a global operating standard for all Algroup companies. This
standard follows the proposals of ISO 14000 but extends them to include health
and safety issues as well as environmental issues.
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In the Algroup Alusuisse division, attention is directed to managing energy
and water utilization, release of greenhouse gases and proper disposal of
hazardous agents or workplace injuries. Algroup Alusuisse's investments in the
areas of safety, health and environmental compliance have been in the range of
CHF 25 million per year with running costs of approximately CHF 50 million per
year.
The principal environmental risks to be managed in the two packaging
divisions relate to the potential for contaminating air, ground water and soil.
The emission of volatile organic compounds (VOCs) into the air is an issue
mostly in the Food and Tobacco Division because of printing and laminating
activities. Capture systems and abatement plants have been installed and the
volume of VOCs has been reduced to one-third of 1994 levels. Plants yet to be
equipped with abatement equipment are in Spain and Ireland where European
directives are taking effect later than elsewhere in Europe and in one rented
site in Canada.
Two foil rolling plants, Bridgnorth, United Kingdom, and Kreuzlingen,
Switzerland, have ground contamination issues caused by oil used in the cold
rolling process. In both cases, the problem has been discussed with local
authorities. At Bridgnorth, continuing oil losses will be stopped by the
completion of a mill refurbishment program. Studies are in progress to determine
the appropriate techniques of remediation to be taken. At Kreuzlingen, the
pollution is controlled and further remediation measures are not required at
present.
Other ground contamination issues exist in the aerosol can business and in
the glass business. They are under control, in cooperation with local
authorities. Wastes are disposed of properly according to regulations: the one
significant landfill issue is in New Jersey and is under active remediation and
future investigation.
3. COMPETITION
The aluminum business is highly competitive and Algroup faces competition
in the sale of both aluminum and aluminum products from a number of major
suppliers in the markets in which it operates. Algroup also faces competition in
the sale of its aluminum and composite products from products made from a number
of other metals and materials.
In its packaging business Algroup faces competition from a wide range of
competitors. In some sectors of the packaging business such as food flexible
packaging, Algroup competes with large, medium and small-scale producers. In
other sectors such as plain aluminum foil and thin strip, Algroup faces
competition from a more limited number of large-scale competitors.
4. EMPLOYEES
At December 31, 1998, Algroup employed approximately 30,000 people,
including over 9,500 in Algroup Alusuisse, over 6,600 in Algroup Lawson Mardon
and over 7,600 in Algroup Wheaton. Algroup's demerged chemicals and energy
businesses employed approximately 5,700 people at the end of 1998.
A majority of Algroup's employees in its production operations are members
of labor unions and are covered by collective bargaining agreements. In certain
operations, including most of the U.K. print-base and in Germany, union
contracts are of relatively short duration (e.g., one year) and are negotiated
on a national basis between representatives of the relevant industries and the
national unions.
There are incentive plans for certain employees in Europe and for a wider
group of employees in North America through which employees can earn annual
bonuses for the achievement of defined objectives.
5. LEGAL PROCEEDINGS
From time to time, Algroup becomes involved in various claims and lawsuits
that arise in the ordinary course of its business. In relation to its continuing
aluminum and packaging divisions, Algroup has not been a party to any legal
proceedings that are reasonably likely to have a material adverse effect on
Algroup's consolidated financial position or results of operations. Algroup is a
defendant in a number of class action lawsuits arising out of an antitrust plea
agreement by entities in Algroup's discontinued chemicals and energy operations
which, pursuant to the Demerger Agreement described under "--The Chemicals
Division Demerger" below, will primarily be the responsibility of the demerged
chemicals entities.
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6. RESEARCH AND DEVELOPMENT
Algroup is committed to research for new products and processes, as well as
to improving continually its existing products and technologies. Much
incremental development is undertaken at the plants, supported by research and
development centers at Neuhausen, Switzerland and Chippis, Switzerland, which
also devote attention to longer-term projects. Further development of the
alumina production technology is carried out at the Gove refinery with the
support of central research and development. Algroup's 1998 expenditure on
research and development was CHF 65 million, of which CHF 38 million related to
aluminum operations.
The Neuhausen centre houses modern laboratories and a pilot plant. As well
as employing 200 researchers, it maintains contact with universities and other
scientific and engineering centres. The core technical competencies of the
centre are converting and printing technology, the cold forming of metals, the
performance of packaging materials, thin film technology, and organic chemical
analysis.
Central research and development is designed to support the high level of
technical competencies required in fields relevant for all of Algroup
Alusuisse's activities. These competencies include: joining technology;
materials technology for aluminum, magnesium and plastics; surface treatment;
corrosion, lamination technology, computer aided engineering and quality
verification; and smelter and casting technologies.
The strategy of forward integration from semi-finished products to
components and systems has required a large part of Algroup Alusuisse's research
and development resources to be dedicated towards this objective. As most
Algroup products will be combined either in its plants or at customers'
facilities, joining technologies including multimaterial joining (e.g. aluminum
with fibre reinforced plastics) and their cost effective application are a key
research area.
Most research and development for new rigid packaging manufacturing
processes and products takes place in Algroup-Lawson Mardon's research center in
Millville, NJ. Here developments are made in plastics (new molding processes,
manufacturing equipment, new materials, etc.). In addition, this facility houses
a complete glass materials laboratory for analysis of batch materials,
development of new glass formulas and more. Additional plastic development takes
place in Algroup's U.K. plastic facilities as well.
In packaging, Algroup focuses on new materials (often to improve barrier)
and improved manufacturing processes. Neuhausen also provides customers with
important services including shelf life predictability programs and a variety of
packaging development competencies.
V. The Chemicals Division Demerger
Algroup and Lonza Group AG entered into a Separation and Demerger Agreement
on 17 September 1999 (the "Demerger Agreement"). The Demerger Agreement sets out
the basis of the separation from Algroup of the entities and businesses to be
included in the chemicals division demerger, the ownership of those entities and
businesses by Lonza Group AG (currently a wholly-owned subsidiary of Algroup)
(the "Separation") and for the demerger of Lonza Group AG to the shareholders of
Algroup (the "Offering"). The Demerger Agreement also provides the basis for
certain new services arrangements between Algroup and Lonza Group AG, which will
be provided on arms'-length terms.
In the Demerger Agreement, Algroup has given certain limited warranties to
Lonza Group AG including in relation to the ownership of intellectual property
rights and that other assets to be owned by Lonza Group AG are to be held free
of encumbrances.
In connection with the chemicals division demerger, Algroup and Lonza Group
AG obtained tax rulings from the Swiss federal and cantonal tax authorities
confirming that the steps of the chemicals division demerger, the Separation and
the Offering qualify as tax privileged transactions under Swiss tax laws.
Subject to the fulfilment of certain conditions set forth below, neither Swiss
federal nor cantonal profits taxes nor withholding taxes will be due in
connection with the chemicals division demerger. These exemptions are based on
Algroup's confirmation to the Swiss federal tax administration that the
chemicals division demerger is not being made with the intention to sell Lonza
Group AG or the shares in Lonza Group AG to a third party, and that no plan
exists to concentrate the majority of the shares in Lonza Group AG in the hands
of a single shareholder or related group of shareholders. If, however, such a
concentration were to occur within five years from the date of the chemicals
division demerger and the federal tax administration was to conclude that such
concentration was intended or planned at the time of
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the chemicals division demerger, Algroup would, under Swiss law, be required to
pay profit taxes on the excess of the fair market value over the tax value of
the transferred chemicals and energy business determined as of the date of the
chemicals division demerger.
Should Lonza Group AG substantially change its business activities or
should a shareholder or a group of shareholders acting in concert acquire,
directly or indirectly (including by the acquisition of Alcan Shares) more than
one-half of the voting rights of Lonza Group AG within five years of the date of
the chemicals division demerger, the tax-exempt transfer of assets of the
chemicals and energy businesses from Algroup to Lonza Group AG may be subject to
retroactive taxation as described in the preceding paragraph.
The issuance of shares in Lonza Group AG in connection with the Offering is
subject to Swiss federal stamp duty at the rate of 1 per cent of the nominal
value of the shares (i.e., 1 per cent on CHF 66.17 million). Lonza Group AG
will, under Swiss law, bear the aggregate of any stamp duty costs due in
connection with the issuance of the shares. Pursuant to the terms of the tax
ruling granted by the Swiss federal tax administration, no stamp duty will be
due on the issuance of securities and on the contribution by Algroup of the
participations comprising the Lonza Business into Lonza Group AG.
However, should a shareholder or a group of shareholders acting in concert
acquire, directly or indirectly (including by the acquisition of Alcan Shares),
more than one-third of the voting rights of Lonza Group AG or Algroup within
five years from the date of the Demerger Agreement, a retroactive stamp duty
liability will arise. In this case, stamp duty will be due by Lonza Group AG in
an amount equal to 1 per cent of the fair market value of Lonza Group AG as of
the date the chemicals division demerger became effective (less the nominal
share capital of Lonza Group AG on which stamp duty upon issuance of the shares
was already paid).
In relation to these provisions, there would not be a retroactive liability
to tax or stamp duty, if the entity directly or indirectly acquiring voting
rights in Algroup or Lonza Group AG were itself a publicly held company which
did not have a shareholder or concert party shareholders holding the requisite
percentage in it. Therefore, the acquisition by Alcan of Algroup shares under
the exchange offer for Algroup shares is not expected to give rise to such tax
or stamp duty.
The Demerger Agreement contains a cross indemnity between Algroup and Lonza
Group AG in relation to any such taxes or stamp duties that become payable
within this five year period. The entity in relation to which a change of
ownership event occurs that results in tax or stamp duty being payable will be
liable for all the taxes or duties so payable whether by itself or the other
party.
No tax rulings have been obtained in relation to the transfer of businesses
and entities outside Switzerland for the purpose of effecting the chemicals
division demerger. However, pursuant to the Demerger Agreement, Lonza Group AG
has agreed to indemnify Algroup for any such taxes to the extent that, after
giving effect to available tax losses, they exceed $20 million in aggregate.
To support the foregoing indemnities Lonza Group AG has agreed that, if
during the five years after the date of the chemicals division demerger, it
distributes or demerges (in one or more transactions) for no consideration or
for consideration substantially below market prices, a subsidiary or a business
which in aggregate has net assets which exceed one-third of the consolidated net
assets of Lonza Group AG, that subsidiary or business would provide a joint and
several guarantee of the tax indemnity obligation of Lonza Group AG.
Assuming the offer for Algroup shares is completed, then the rights and
obligations of Algroup under the Demerger Agreement will be rights and
obligations of a subsidiary of Alcan.
Under the Demerger Agreement, Lonza Group AG is intended to have no net
debt (without giving effect to the cash balance described below). This net debt
will be calculated under the terms of the Demerger Agreement.
In connection with the chemicals division demerger, the parties agreed in
the combination agreement that the demerged company would have $234 million in
cash on the effective date of the chemicals division demerger (June 30, 1999),
conditional upon the successful completion of the offer for Pechiney Securities.
If the offer for Pechiney Securities is not completed successfully, the demerged
company would have $67 million in cash on the effective date of the chemicals
division demerger.
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MATERIAL TAX CONSEQUENCES RELATING TO THE U.S. OFFER
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material United States federal income tax
consequences to U.S. persons of the U.S. offer for Pechiney Securities and of
the ownership or disposition of Alcan common shares acquired as a result of
participation in the U.S. offer represents the opinion of Milbank, Tweed, Hadley
& McCloy LLP to the extent it describes matters of law and legal conclusions.
This discussion is based upon the provisions of United States federal income tax
law, including the Internal Revenue Code of 1986, its legislative history,
existing and proposed regulations thereunder, published rulings and court
decisions, all as in effect on the date of this prospectus. These laws are
subject to change at any time without notice, possibly with retroactive effect.
This summary is also based on statements regarding factual matters made in this
prospectus. This discussion does not address any aspects of state or local
taxation or any aspect of United States federal taxation other than the federal
income tax and does not address any aspects of foreign taxation.
For purposes of this discussion, you are a "U.S. person" if you are:
- an individual citizen or resident of the United States;
- a corporation, or other entity treated as a corporation under United
States federal income tax law, created or organized under the laws of
the United States or of any State or the District of Columbia;
- a partnership, or other entity treated as a partnership under United
States federal income tax law, created or organized under the laws of
the United States or of any State or the District of Columbia except to
the extent the partnership or other entity is not treated as a domestic
partnership under United States federal income tax law;
- an estate the income of which is subject to United States federal income
taxation regardless of its source;
- a trust if its administration is subject to the primary supervision of a
United States court and with respect to which one or more U.S. persons
have the authority to control all substantial decisions of the trust; or
- a trust if the trust was in existence and qualified as a "United States
person", within the meaning of the Internal Revenue Code, on August 20,
1996 under the law as then in effect and elected to continue to be so
treated.
For purposes of this discussion, the term "U.S. holders," is used to refer
to U.S. persons who will become beneficial owners of Alcan common shares as a
result of participation in this offer.
This discussion does not address all aspects of United States federal
income taxation that may be relevant to you if you are a member of a special
class of holders subject to special rules, for example, including:
- if you do not hold your Pechiney Securities, or will not hold your Alcan
common shares, as capital assets;
- if you hold your Pechiney Securities pursuant to the exercise of an
employee share option or otherwise as compensation;
- if you hold your Pechiney Securities, or will hold your Alcan common
shares, as part of a straddle, hedge or conversion transaction;
- if your functional currency (within the meaning of Section 985 of the
Code) is not the United States dollar; or
- if you are subject to special treatment under the United States federal
income tax laws, including (but not limited to) banks, insurance
companies, tax-exempt organizations and broker-dealers.
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In this discussion, when we refer to "control" of Pechiney, we are
referring to direct ownership of Pechiney Securities that represents at least
80% of the aggregate combined voting power of all classes of shares of Pechiney
entitled to vote, including Pechiney ADSs.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO:
- THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF YOUR PARTICIPATION
IN THIS OFFER AND OF YOUR OWNERSHIP AND DISPOSITION OF ALCAN COMMON
SHARES AFTER THE CONSUMMATION OF THIS OFFER; AND
- ANY ESTATE, GIFT, STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES TO YOU OF
YOUR PARTICIPATION IN THIS OFFER AND OF YOUR OWNERSHIP AND DISPOSITION
OF ALCAN COMMON SHARES AFTER THE CONSUMMATION OF THIS OFFER.
Consequences of the Offer
Whether a U.S. holder will recognize any gain or loss realized in respect
of their Pechiney Securities exchanged in this offer will depend, in part, on
whether Alcan acquires control, as specifically defined above, of Pechiney as a
result of this offer and the French offer. It will also depend on whether this
offer and any subsequent offers or other alternative transactions (including a
withdrawal offer under French law (offre publique de retraite)) are treated as
steps in an overall plan and are integrated for U.S. federal income tax
purposes, and whether any subsequent offers or other alternative transactions
are made exclusively for Alcan shares. If Alcan subsequently engages in a
squeeze out under French law (retrait obligatoire) or any other offer through
which Alcan acquires the remaining Pechiney Securities for cash, this offer will
likely be fully taxable to holders of Pechiney Securities. Because the timing,
terms and conditions of any subsequent offer or other alternative transaction
remain uncertain, it is impossible to determine at this time whether this offer
would be treated as part of one transaction with any subsequent offer or other
alternative transaction.
Alcan Acquires Control of Pechiney in the Offers
If Alcan is in control of Pechiney immediately after the consummation of
this offer for Pechiney Securities, this offer will qualify as a
"reorganization" within the meaning of Section 368(a)(1)(B) of the Code if any
and all further offers by Alcan or subsequent transactions between Alcan and
Pechiney are exclusively for Alcan shares. However, if Alcan subsequently
engages in a squeeze out under French law (retrait obligatoire) or any other
offer through which Alcan acquires the remaining Pechiney Securities for cash,
this offer will likely be fully taxable to holders of Pechiney Securities if the
squeeze out or subsequent offer and this offer are integrated for U.S. federal
income tax purposes. If this offer qualifies as a tax-free reorganization, and
subject to the discussion below relating to the application of Section 367 of
the Code:
- you will not recognize taxable gain or loss if you are a U.S. holder who
receives Alcan common shares solely in exchange for Pechiney Securities
pursuant to this offer;
- you will recognize gain or loss if you are a U.S. holder to the extent
you receive cash in lieu of a fractional interest in Alcan common
shares. That gain or loss will be capital in character and will equal
the difference between the U.S. dollar value of the Canadian dollar cash
payment you receive on the date you or your agent receives the Canadian
dollar payment and the ratable portion of the aggregate tax basis of the
Pechiney A Share, Pechiney B Share or ADS, or portion of a share or ADS,
surrendered by you in the exchange offer that is allocable to the
fractional interest;
- your tax basis in each Alcan common share received by you in this offer
will be the same as the tax basis of the Pechiney Securities (or portion
of a Pechiney Security) surrendered by you for each Alcan common share
in this offer. Generally in a corporate reorganization, the average cost
or "blended basis" method of basis allocation is used where the stock
surrendered cannot be specifically identified, although it is possible
that the IRS may allow basis allocation on a specific share by share
basis if the shares are specifically identifiable by certificate. If you
have used the "first-in-first-out" method of basis allocation to
determine the basis of Pechiney Securities sold in
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previous years, you are not permitted to compute the basis of your
remaining Pechiney Securities exchanged in the offer on a blended basis;
and
- your holding period in each Alcan common share received by you in the
exchange offer will include your holding period for the Pechiney
Securities, or portion of a share or receipt, surrendered by you in the
offer.
Alcan Does Not Acquire Control of Pechiney in the Offers
If Alcan is not in control of Pechiney immediately after the consummation
of this offer, and assuming that any subsequent offer or alternative transaction
between Alcan and Pechiney in which control of Pechiney is acquired is not
deemed integrated with this offer by the IRS, then the Alcan common shares you
receive in exchange for Pechiney Securities pursuant to this offer will be
received in a taxable sale or exchange and you will recognize gain or loss, in
an amount equal to the positive or negative difference, as the case may be,
between:
- the fair market value in U.S. dollars of each Alcan common share
received, as determined on the exchange date, plus the U.S. dollar value
on the date of any Canadian dollar cash payment in lieu of a fractional
interest of an Alcan common share that you receive in the offer; and
- your adjusted tax basis in the Pechiney Securities you surrender in the
offer.
Any gain or loss you recognize will be capital gain or loss, and will be
long-term capital gain or loss if your holding period for the Pechiney
Securities exceeds one year, and will be treated as derived from sources within
the United States for foreign tax credit limitation purposes. If you are an
individual U.S. holder, long term gain will be subject to United States federal
income tax at a maximum rate of 20%. Because no cash will be received by you in
the exchange offer, other than cash in lieu of a fractional interest in Alcan
common shares, any United States federal income tax liability arising from the
offer will have to be satisfied from your other resources.
In addition, if taxable gain or loss is recognized by you:
- your tax basis in each Alcan common share received by you in the offer
on the date of the exchange will be equal to the fair market value of
each Alcan common share on that date; and
- your holding period in each Alcan common share will begin on the day
immediately following such date.
Effect of Subsequent Transactions on Tax Consequences
The tax consequences described above in the case in which Alcan is not in
control of Pechiney immediately after completion of this offer could differ if
any subsequent offer or alternative transaction between Alcan and Pechiney were
to occur after the consummation of this offer and Alcan did acquire control of
Pechiney as a result of the subsequent offer or transaction. Then, provided that
the remaining Pechiney Securities not tendered in this offer and held by holders
other than Alcan were exchanged solely for Alcan common shares in the subsequent
transaction, this offer and the subsequent transaction could be treated as
related steps of one overall plan.
If this and any subsequent offer or alternative transaction between Alcan
and Pechiney were treated as related steps of one overall plan, the integrated
transaction should qualify as a "reorganization" within the meaning of Section
368(a) of the Code if any and all subsequent offers by Alcan and transactions
between Alcan and Pechiney are exclusively for Alcan shares. In that case, the
United States federal income tax consequences to you of this offer would be the
same as those described above in the case in which Alcan is in control of
Pechiney immediately after the consummation of this offer. However, if Alcan
subsequently engages in a squeeze out under French law (retrait obligatoire) or
any other offer through which Alcan acquires the remaining Pechiney Securities
for cash, this offer will likely be fully taxable to holders of Pechiney
Securities.
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Application of Code Section 367
If the offer qualifies as a "reorganization" within the meaning of Section
368(a)(1)(B) of the Code and you are a U.S. holder that is a 5% shareholder of
Alcan immediately after the consummation of the offer, you will nevertheless
recognize taxable gain (but not loss) on the offer unless the requirements
described in the next paragraph for nonrecognition of any gain contained in
Section 367(a) of the Internal Revenue Code and the Treasury Regulations
promulgated thereunder are satisfied. None of these requirements apply if you
are a U.S. holder that is not a 5% shareholder of Alcan immediately after the
consummation of the exchange offer. In this discussion, when we refer to "5%
shareholder," we are referring to a U.S. person owning, directly, indirectly,
and with the application of certain constructive ownership rules set out in
Sections 318 and 958(b) of the Code, 5% or more of either the aggregate voting
power or the aggregate value of the shares of Alcan.
Rules Applicable to U.S. Holders Who Will Own 5% or More of Alcan after the
Exchange
If you are a U.S. holder that will be a 5% shareholder of Alcan immediately
after completion of the offer, you will recognize gain realized with respect to
your Pechiney Securities exchanged in the offer unless you file a "gain
recognition agreement" with the Internal Revenue Service. Pursuant to that
agreement, you agree, among other requirements, to file an amended United States
federal income tax return for the tax year in which the offer occurs to report
and pay tax, together with interest, on any gain realized, but not recognized,
by you in connection with the offer, if, within 5 years after the end of the tax
year in which completion of the exchange offer occurs, Alcan disposes of all or
any part of the Pechiney Securities surrendered by you in the offer. If you are
a U.S. holder that will be a 5% shareholder of Alcan immediately after the
consummation of the exchange offer and you fail to timely file a duly completed
gain recognition agreement, the United States federal income tax consequences to
you will be the same as those described above in the case in which, immediately
after completion of the offer, Alcan is not in control of Pechiney. YOU SHOULD
CONSULT YOUR TAX ADVISOR IF YOU THINK YOU MAY BE A U.S. HOLDER THAT WILL BE A 5%
SHAREHOLDER OF ALCAN IMMEDIATELY AFTER THE CONSUMMATION OF THE OFFER.
Consequences of Ownership and Disposition of Alcan common shares
Dividends
If you are a U.S. holder you will include in gross income, as ordinary
dividend income, the gross amount, without reduction for any Canadian
withholding taxes, of any distribution made by Alcan on account of its shares,
held by you and deemed distributed from your proportionate share of Alcan's
current or accumulated earnings and profits, as determined under United States
federal income tax principles, when such distribution is actually or
constructively received by you. This distribution will not be eligible for the
dividends-received deduction generally allowed to United States corporations in
respect of dividends received from other United States corporations. Any
distribution made by Alcan on account of its shares held by you in excess of
your proportionate share of Alcan's current and accumulated earnings and
profits, as determined under United States federal income tax principles, will
be treated as a nontaxable return of capital to the extent thereof, and to that
extent you shall also reduce your adjusted tax basis in the Alcan common shares
with respect to which the distribution is made. Any remaining portion of a
distribution that exceeds your tax basis in the shares will be a capital gain to
you.
For United States federal income tax purposes, the amount of any dividend
distribution by Alcan to a U.S. holder will be the United States dollar value of
the Canadian dollar payment made, determined at the applicable spot exchange
rate on the date of receipt by you or the depository, as the case may be,
regardless of when or whether the payment is in fact converted into U.S.
dollars. Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date the payment is received to the date
it is converted into United Sates dollars will be treated as ordinary income or
loss derived from sources within the United States for foreign tax credit
limitation purposes.
Under the provisions of the Internal Revenue Code relating to the foreign
tax credit, you, as a U.S. holder, will be entitled to a credit against your
United States federal income tax liability subject to generally applicable
limitations, for any tax withheld and paid over to Canada with respect to
dividends Alcan pays to you. The dividends will be treated as derived from
sources without the United States
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(unlike any currency gains or losses as described above) for foreign tax credit
limitation purposes, assuming that no more than 50% of both the aggregate voting
power and the aggregate value of the shares of Alcan will be owned, directly,
indirectly, and with the application of certain constructive ownership rules set
out in Sections 318 and 958(b) of the Code, by U.S. persons at any time after
the offer. The dividends generally will be treated separately, together with
other items of "passive income" (or, in the case of certain U.S. holders,
"financial services income"), from your other foreign-source income in computing
the amount of the foreign tax credit allowable to you. However, you will not be
able to claim a foreign tax credit with respect to Canadian withholding taxes
imposed on distributions made by Alcan with respect to your shares if you have
not held your shares for a period of 16 days during the 30 day period which
begins 15 days before the ex-dividend date, or to the extent that you are under
an obligation, whether pursuant to a short sale or otherwise, to make certain
retained payments with respect to positions in substantially similar or related
property.
In lieu of claiming a credit, if you are a U.S. holder, you may generally
claim a deduction for the amount of Canadian withholding taxes imposed on
distributions made by Alcan with respect to your shares, which in the case of an
individual will be an itemized deduction. While a deduction will not reduce your
United States federal income tax liability on a dollar-for-dollar basis, as
would a fully allowable foreign tax credit claimed with respect to the
withholding taxes, a deduction is not subject to the limitations applicable to
the foreign tax credit that are referred to in the preceding paragraph.
Capital Gains
If you sell or otherwise dispose of your Alcan common shares including in a
redemption distribution treated as a sale or exchange, you will recognize gain
or loss for United States federal income tax purposes in an amount equal to the
difference between the U.S. dollar value of the amount realized upon the sale or
other disposition and your tax basis in the shares, also determined in U.S.
dollars. Generally, this gain or loss will be capital gain or loss, will be
long-term capital gain or loss if your holding period for the shares exceeds one
year on the date of the sale or other disposition, and will be treated as
derived from sources within the United States (as with currency gains or losses)
for foreign tax credit limitation purposes. If you are an individual U.S.
holder, this long-term capital gain will be subject to United States federal
income tax at a maximum rate of 20%.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to dividend
payments, or other taxable distributions, on Alcan common shares if the payments
are made from within the United States and you are a non-corporate U.S. holder,
and "backup withholding" at the rate of 31% will apply to these payments if:
- you fail to provide an accurate taxpayer identification number in the
manner required by the Internal Revenue Code and the applicable Treasury
Regulations;
- the Internal Revenue Service has notified you that you have failed to
report all interest or dividends required to be shown on your United
States federal income tax returns; or
- you fail to comply with applicable certification requirements.
If you are a corporation or a person that is not a U.S. person, you may be
required to establish your exemption from information reporting and back-up
withholding by certifying your status on Internal Revenue Service Forms W-8BEN,
or a suitable substitute form.
Regulations making certain modifications to the backup withholding and
information reporting rules will take effect for payments made after December
31, 2000.
Amounts withheld under the backup withholding rules may be credited against
your United States federal income tax liability, and you may obtain a refund of
any excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS.
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CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the material Canadian federal income tax
consequences of the acquisition, ownership and disposition of Alcan common
shares acquired in the exchange offer is applicable to holders of Pechiney
Securities ("U.S. holders") who are eligible U.S. holders (as defined below) and
who, for the purposes of the Income Tax Act (Canada) (the "ITA"), deal at arm's
length with Pechiney and Alcan, are not and are not deemed to be resident in
Canada and hold Pechiney Securities and Alcan common shares acquired in the
exchange offer as capital property. For this purpose, a holder of Pechiney
Securities or Alcan common shares will be an eligible U.S. holder if the holder
(1) is a person resident in the United States for the purposes of the
Canada-United States Income Tax Convention (the "Treaty"), (2) does not hold the
Pechiney Securities or Alcan common shares in a manner that is effectively
connected with or pertains to a permanent establishment (as defined in the
Treaty) through which the holder carries on business in Canada or a fixed base
through which the holder performs independent personal services in Canada, and
(3) is not otherwise ineligible for the benefits of the Treaty. This summary
represents the opinion of McMillan Binch to the extent it describes matters of
Canadian law or legal conclusions.
This summary is based on the current provisions of the ITA, the regulations
thereunder and specific proposals to amend the ITA and the regulations announced
before the date of this prospectus and takes into account the provisions of the
Treaty and the current administrative and assessing practices of the Canada
Customs and Revenue Agency. This summary does not otherwise anticipate any
changes in the law or administrative practice, nor does it take into account
provincial or foreign tax legislation or considerations.
This summary is of a general nature only and does not constitute legal or
tax advice to any particular holder of Pechiney Securities. Accordingly, holders
of Pechiney Securities should consult with their own tax advisors for specific
advice respecting their particular circumstances, including their status as
eligible U.S. holders and any limitations on the benefits of the Treaty that may
apply.
Consequences of the Offer
A U.S. holder will not be subject to Canadian federal income tax in respect
of any gain or loss realized on Pechiney Securities exchanged in the offer.
Dividends
Dividends (including deemed dividends) on Alcan common shares paid to a
U.S. holder will generally be subject to a 15% Canadian non-resident withholding
tax. This withholding tax rate will be reduced to 5% where the U.S. holder is a
company that beneficially owns 10% or more of the voting stock of Alcan. In
addition, under the Treaty, dividends on Alcan common shares paid to certain
pension, retirement or employee benefit trusts or arrangements or to certain
religious, scientific, literary, educational or charitable organizations, that
are exempt from tax in the United States will generally be exempt from Canadian
withholding tax.
Dispositions
Gains realized by a U.S. holder on a sale or other disposition of Alcan
common shares will not generally be subject to Canadian income tax unless (a) at
any time in the five years immediately preceding the disposition, the U.S.
holder, persons with whom the U.S. holder does not deal at arm's length, or the
U.S. holder and such non-arm's length persons, owned or had under any option a
right to acquire 25% or more of the issued shares of any class or series of the
capital stock of Alcan and (b) the value of the Alcan common shares at the time
of the disposition is derived principally from real property (as defined in the
Treaty) situated in Canada.
A disposition of Alcan common shares to Alcan (unless the shares are
acquired in the open market in the manner in which shares would normally be
purchased by any member of the public) will result in a deemed dividend to a
U.S. holder equal to the amount by which the consideration paid by Alcan for the
Alcan shares exceeds the paid-up capital of such shares for purposes of the ITA.
The amount of such deemed dividend will be subject to the withholding tax
described above.
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MANAGEMENT INFORMATION SUBSEQUENT TO THE COMBINATION
After completion of the offers for Pechiney Securities and the offer for
Algroup shares, the business and operations of Alcan, Pechiney and Algroup will
be combined. The Combined Company's operations will be global in nature such
that senior executives will be posted in various locations throughout the world.
Of particular note will be the legal headquarters in Montreal, Canada, the
office of the Chief Executive Officer in New York City and business sector
operating headquarters in Montreal, Canada, Paris, France, Zurich, Switzerland
and Cleveland, Ohio.
EXECUTIVE OFFICERS
Jacques Bougie is expected to serve as chief executive officer of the
Combined Company and Jean-Pierre Rodier is expected to serve as president and
chief operating officer. Mr. Bougie is expected to retire after approximately
two years, when the successful integration of the three companies has been
completed, and Mr. Rodier is expected to succeed Mr. Bougie as chief executive
officer.
The board of directors of the Combined Company will have a non-executive
chairman who will be appointed by the board annually based on the recommendation
of the governance committee, which is described below. The initial chairman will
be Dr. John R. Evans.
BOARD OF DIRECTORS
If the offers for both Pechiney Securities and Algroup shares are
completed, the board of directors of the Combined Company will take steps to
nominate a board consisting of 12 members, four of whom will be nominees of
Alcan, four of whom will be nominees of Pechiney and four of whom will be
nominees of Algroup.
If only the offers for Pechiney Securities are completed, the Algroup
nominees will not be appointed and the nominees of Alcan will appoint two
additional directors and the nominees of Pechiney will appoint one additional
director.
The following table sets forth the names and municipalities of residence of
the proposed nominees of Alcan, Pechiney and Algroup and their principal
occupations or employments and business addresses.
<TABLE>
<S> <C>
ALCAN NOMINEES
JACQUES BOUGIE, O.C. ..................... President and Chief Executive Officer, Alcan
Outremont, Quebec, Canada 1188 Sherbrooke Street West
Montreal, Quebec, Canada H3A 3G2
DR. JOHN EVANS, C.C. ..................... Chairman of Alcan, Chairman of Torstar Corporation
Toronto, Ontario, Canada 1 Yonge Street, 6(th) Floor,
Toronto, Ontario, Canada M5E 1P9
TRAVIS ENGEN.............................. Chairman and Chief Executive Officer,
New Canaan, Connecticut, U.S.A. ITT Industries, Inc.
4 West Red Oak Lane
White Plains, New York, USA 10604
GUY SAINT-PIERRE, O.C. ................... Chairman, SNC-Lavalin Group Inc.
Montreal, Quebec, Canada 2 Place Felix Martin
Montreal, Quebec, Canada H2Z 1Z3
PECHINEY NOMINEES
ETIENNE DAVIGNON.......................... Chairman and Chief Executive Officer, Societe Generale de
Brussels, Belgium Belgique and Union Miniere
30, rue Royale, 1000 Brussels, Belgium
JEAN FRANCOIS DEHECQ...................... Chairman and Chief Executive Officer, Sanofi
Chatou, France 174, avenue de France, 75635 Paris, France
YVES MANSION.............................. Chief Executive Officer, Assurances Generales de France
Paris, France 87, rue de Richelieu, 75002 Paris, France
JEAN-PIERRE RODIER........................ Chairman and Chief Executive Officer, Pechiney
Paris, France 7, Place du Chancelier Adenauer, 75116 Paris, France
</TABLE>
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<TABLE>
<S> <C>
ALGROUP NOMINEES
MARTIN EBNER.............................. President, BZ Bank Limited
Wilen B. Wollerau, SZ, Switzerland Egglirain, 15, 8832 Wilen, Switzerland
RUPERT GASSER............................. Executive Vice President, Nestle S.A.
Ste-Croix, VD, Switzerland Avenue Nestle, 55, CH-1800, Vevey, Switzerland
WILLI KERTH............................... Consultant, Algroup
Flurlingen, ZH, Switzerland Feldeggstrasse, 4, Postfach, CH-8034 Zurich, Switzerland
SERGIO MARCHIONNE......................... Chief Executive Officer, Algroup
Cham, ZG, Switzerland Feldeggstrasse, 4, Postfach, CH-8034, Zurich, Switzerland
</TABLE>
Jacques Bougie, 52, has been a director of Alcan since 1989 and has been
president and chief executive officer of Alcan since November 1993, having
served earlier as president and chief operating officer since July 1989. Mr.
Bougie joined Alcan in 1979 and held a number of senior management positions
until 1989, including having responsibility for all of Alcan's fabricating
operations other than rolling in North America.
John R. Evans, 70, has been a director of Alcan since 1986 and is chairman
of the board of directors of Alcan as well as chairman of Torstar Corporation.
Dr. Evans was chairman and chief executive officer of Allelix Inc. from 1983 to
1989, president of the University of Toronto from 1972 to 1978 and director of
the Population, Health and Nutrition Department of the World Bank from 1979 to
1983. He is a past chairman of the Rockefeller Foundation. He is also a director
of Connaught Laboratories Ltd., MDS Health Group Ltd. and Pasteur Merieux Serums
& Vaccines.
Travis Engen, 55, has been a director of Alcan since 1996 and is chairman
and chief executive officer of ITT Industries, Inc. and has held several
important positions within the ITT organization, including executive vice
president of ITT Corporation from 1991 to 1995. Mr. Engen is a member of the
U.S. President's National Security Telecommunications Advisory Committee. He is
a director of Fundacion Chile. He is also a director of Lyondell Chemical
Company and a member of the Business Roundtable and the Manufacturers Alliance
Board of Trustees, both of which are United States companies.
Guy Saint-Pierre, 65, has been a director of Alcan since 1994 and is
chairman and a director of SNC-Lavalin Group Inc., having served as president
and chief executive officer from 1989 to 1996. From 1970 to 1976, he served with
the Government of Quebec, first as Minister of Education and then as Minister of
Industry and Commerce. Between 1978 and 1989, he was president and chief
executive officer of Ogilvie Mills Ltd. Mr. Saint-Pierre is a director of BCE
Inc., Bell Canada Ltd., General Motors of Canada and Royal Bank of Canada.
Etienne Davignon, 67, is a member of the board of directors of Pechiney and
is chairman of Compagnie des Wagons-Lits, Sibeka, Societe Generale de Belgique
and Union Miniere (all from Belgium). He also serves as a vice president of
Fortis AG, Tractebel (both from Belgium) and Arbed (Luxembourg). He is a
director of Generale de Banque SA, Sofina SA, Solvay SA, Compagnie Maritime
Belge and Petrofina, all of which are Belgium companies, Accor and Suez
Lyonnaise des Eaux, both of which are French companies, Minorco, a Luxembourg
company, ICL, a United Kingdom company, and Gilead, IDG and Foamex
International, which are United States companies.
Jean-Francois Dehecq, 59, is a member of the board of directors of
Pechiney, is chairman and chief executive officer of Sanofi and holds various
other positions in the Sanofi group, including Yves Rocher and Yves
Saint-Laurent. He is also a director of Air France, Daiichi France and Ecole
Nationale Superieure des Mines de Paris and he is president of the Steering
Committee of the University of Bretagne Sud in France.
Yves Mansion, 48, is a member of the board of directors of Pechiney, is
chief executive officer of Assurances Generales de France and holds various
other positions in this group. He is chairman of the supervisory board of Euler,
a director of Comptoir des Entrepreneurs and an alternate director of Entreprise
de Recherches et d'Activites Petrolieres (ERAP), all of which are from France.
Jean-Pierre Rodier, 52, has been chairman and chief executive officer of
the board of directors of Pechiney since July 1994. Until the completion of the
initial public offering of common stock of American
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National Can Group, Inc., Mr. Rodier served as chairman and chief executive
officer of American National Can Company. Before joining Pechiney in 1994, Mr.
Rodier served as chairman and chief executive officer of Penarroya and managing
director of Penarroya's parent company, Imerys. He has also held the positions
of chairman of the executive board for Metaleurop France and head of Union
Miniere, the Belgian affiliate of Groupe Suez.
Martin Ebner, 54, has been chairman of the board of directors of Algroup
since April 1999. He is also chairman of the board of directors of BZ Group
Holding Limited and since 1985 has been President of BZ Bank Limited. Mr. Ebner
is also a member of the board of directors of ABB Ltd. BZ Group Holding Limited
held, as of August 31, 1999, 1,024,174 shares in Algroup directly and a further
470,000 shares in Algroup indirectly, representing an aggregate of 23.7% of the
share capital of Algroup.
Rupert Gasser, 60, is a member of the board of directors of Algroup and an
executive vice president of Nestle S.A., which he joined in 1962.
Willi Kerth, 63, joined Algroup in 1967 and retired from Algroup in 1999.
Mr. Kerth held a number of management positions in Algroup's German, U.S. and
Swiss subsidiaries before being appointed Managing Director of Alusuisse Swiss
Aluminium Ltd., the principal Swiss operating company in Algroup's aluminum
business. Since his retirement, Mr. Kerth has continued to act as a consultant
to the Algroup Alusuisse division.
Sergio Marchionne, 47, has been chief executive officer of Algroup since
1997 and a member of the board of directors of Algroup since April 1999. He has
been chief executive officer and a member of the board of directors of Lonza
Group Ltd. since October 1999. Mr. Marchionne joined Algroup in July 1994 with
responsibility for corporate development and became chief financial officer in
1995. Prior to joining Algroup, he worked for Lawson Mardon Group Ltd. in a
number of positions, the last of which was as chief financial officer. Mr.
Marchionne, who is a Canadian citizen, has agreed with Alcan to seek to qualify
as a "resident Canadian" for the purposes of the Canadian Business Corporations
Act if necessary for the Combined Company's board of directors to be validly
constituted following the completion of the offer for Algroup shares. In return
for this undertaking, Alcan has agreed to indemnify Mr. Marchionne in respect of
any incremental costs or liabilities he may incur arising from this action.
COMMITTEES OF THE BOARD OF DIRECTORS
In accordance with usual practice, the board of directors of the Combined
Company may delegate certain of its responsibilities to committees of the board,
including the committees described below. These committees are expected to
generally have the mandates described below and would report to the board
accordingly.
Audit Committee. The Audit Committee will be composed of Mr. Saint-Pierre,
Mr. Mansion, who will serve as its chairman, and Mr. Marchionne. It will:
- assist the board of directors of the Combined Company in fulfilling
its functions relating to corporate accounting, reporting practices
and financial and accounting controls,
- provide oversight of the financial reporting process, and
- review financial statements and proposals for the issuance of
securities.
Governance Committee. The Governance Committee will be composed of Dr.
Evans, who will serve as its chairman, and Messrs. Davignon and Ebner. It will
be responsible for:
- reviewing corporate governance practices, including practices and
performance of the board of directors,
- maintaining an overview of the composition of the board of directors and
reviewing candidates for nomination as directors and committee members,
and
- considering recommendations from the Human Resources and Compensation
Committee with respect to the compensation of non-executive directors
and the appointment of the chairman of the board and the chief executive
officer of the Combined Company.
Human Resources and Compensation. The Human Resources and Compensation
Committee will be composed of Messrs. Engen, Dehecq and Marchionne, who will
serve as chairman. It will be responsible:
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- for reviewing and making recommendations with respect to all personnel
policy and employee relations matters, and
- reviewing and approving the Combined Company's executive compensation
policy and making recommendations to the Corporate Governance Committee
with respect to the compensation of non-executive directors and the
appointment of the chairman of the board and the chief executive officer
of the Combined Company.
ORGANIZATIONAL STRUCTURE
The Combined Company's proposed organization will be composed of six
business sectors and a corporate office.
BUSINESS SECTORS
There will be six business sector heads, each responsible for the value
creation of the different business units comprising their sector. They will
provide the strategic leadership for growth and the operating oversight to
profitably deliver on customer expectations. Each will define the configuration
of their respective business units and support functions that will best harness
the Combined Company's capabilities in those sectors' markets.
The following persons will lead these business sectors:
Kurt Wolfensberger, 59, currently head of Algroup's primary materials and
fabricated products divisions, will lead the Bauxite/Alumina business sector
which will be located in Montreal.
Richard Evans, 52, currently president of Alcan's Global Fabrication Group,
will lead the Primary Metal business sector, which will be located in Montreal,
as well as the International Trade and Agencies and Ferroalloys business
sectors.
Brian W. Sturgell, 50, currently executive vice president of Corporate
Development for Alcan, will lead the Aluminium Fabrication, Americas and Asia
business sector which will be located in Cleveland. He will also oversee the
Combined Company's global can sheet business.
Philippe Varin, 46, currently senior executive vice president of Pechiney's
aluminum sector, will lead the Aluminium Fabrication, Europe business sector
which will be located in Paris. He will also oversee the Combined Company's
global aerospace and automotive businesses.
Christel Bories, 35, currently senior executive vice president of
Pechiney's food, health and beauty packaging sector, will lead the Health and
Beauty Packaging business sector which will be located in Paris.
Henk van de Meent, 57, currently head of Algroup's food flexible and
tobacco packaging division, will lead the Food Flexible and Tobacco Packaging
business sector which will be located in Zurich.
CORPORATE OFFICE
The new corporate office is structured to add value to the business
sectors. The corporate office will focus on:
- global strategy;
- growth opportunities;
- strategic capital and human resource allocation;
- corporate governance and compliance issues; and
- the dissemination of best practices.
The new corporate office will play a key role in integrating the six
business sectors and in developing the Combined Company's corporate identity and
culture.
The following persons will assume functional leadership positions in the
corporate office:
Robert L. Ball, 53, currently president of Alcan Europe Limited, and
executive vice president of Alcan, will lead the Combined Company's Research and
Development and Industrial Processes function.
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Daniel Gagnier, 53, currently vice president, corporate affairs,
environment, occupational health and safety for Alcan, will lead the Combined
Company's Corporate and Environmental Affairs function.
David L. McAusland, 45, currently vice president and chief legal officer of
Alcan, will lead the Combined Company's Legal function.
Gaston Ouellet, 57, currently vice president, human resources of Alcan,
will lead the Combined Company's Human Resources function.
Jean-Dominique Senard, 46, currently senior executive vice president and
chief financial officer of Pechiney, will lead the Combined Company's Corporate
Development and Investor Relations functions and the Combined Company's Merger
Integration process.
Suresh Thadhani, 60, currently executive vice president and chief financial
officer of Alcan, will lead the Combined Company's Finance function.
PRINCIPAL SHAREHOLDERS
Based upon shareholdings of Alcan, Pechiney and Algroup as disclosed in
this prospectus:
(1) after completion of the offers for Pechiney Securities and the offer
for Algroup shares and assuming that all of the Pechiney Securities
and Algroup shares are acquired by Alcan and are exchanged for Alcan
common shares, no person or persons acting in concert would
beneficially own or exercise control or direction over Alcan common
shares carrying more than 5% of the voting rights attached thereto,
except for BZ Group Holding Limited, which would hold, directly or
indirectly, approximately 6.4%; and
(2) after completion of the offers for Pechiney Securities only, assuming
that all of the Pechiney Securities are acquired by Alcan and are
exchanged for Alcan common shares, no person or persons acting in
concert would beneficially own or exercise control or direction over
common shares carrying more than 5% of the voting rights attached
thereto, except for Sanford C. Bernstein & Co, Inc., which would hold
approximately 6.6%.
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
This section contains four sets of unaudited pro forma combined financial
statements prepared using four different basic sets of assumptions reflecting
possible outcomes of the proposed transactions and as described under
"Accounting Treatment" on page 37:
(1) On pages 106 to 113, unaudited pro forma combined financial statements
prepared using the pooling of interests method of accounting in
accordance with Canadian GAAP with the assumption that, as intended by
Alcan, Pechiney and Algroup, at least substantially all of the shares of
each of Pechiney and Algroup are acquired by Alcan pursuant to the
offers for Pechiney Securities and Algroup shares within a reasonable
period of time of each other.
(2) On pages 114 to 121, unaudited pro forma combined financial statements
prepared using the purchase method of accounting in accordance with U.S.
GAAP with the assumption that the combination is completed. Notes to
these unaudited pro forma combined financial statements include a
reconciliation to the purchase method of accounting under Canadian GAAP.
Under Canadian GAAP, the purchase method would be used if the
combination is completed with Alcan acquiring less than substantially
all of the Pechiney Securities or Algroup shares, or if the offers for
Pechiney Securities and Algroup shares are not concluded within a
reasonable period of time of each other.
(3) On pages 122 to 129, unaudited pro forma combined financial statements
prepared using the purchase method of accounting in accordance with U.S.
GAAP with the assumption that only the offers for Pechiney Securities
are completed. Notes to these unaudited pro forma combined financial
statements include a reconciliation to the purchase method of accounting
under Canadian GAAP.
(4) On pages 130 to 136, unaudited pro forma combined financial statements
prepared using the purchase method of accounting in accordance with U.S.
GAAP with the assumption that only the offer for the Algroup shares is
completed. Notes to these unaudited pro forma combined financial
statements include a reconciliation to the purchase method of accounting
under Canadian GAAP.
All four sets of pro forma combined financial statements include
assumptions underlying their preparation as well as sensitivity analyses
reflecting the effect of changes to certain of those assumptions.
These pro forma financial statements are not necessarily indicative either
of the results that actually would have been achieved if transactions reflected
therein had been effective during the period presented or of the results which
may be obtained in the future.
105
<PAGE> 116
ALCAN, PECHINEY AND ALGROUP -- POOLING METHOD -- CANADIAN GAAP
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
TRANSLATED TRANSLATED
HISTORICAL PECHINEY HISTORICAL ALGROUP
PECHINEY U.S. TO CDN. ALGROUP IAS TO CDN. PRO FORMA
HISTORICAL NOTES (1), (3) GAAP NOTES (1), (3) GAAP ADJUSTMENTS PRO FORMA
ALCAN (RECLASSIFIED) NOTE (4) (RECLASSIFIED) NOTE (5) NOTE (6) COMBINED
---------- -------------- ------------ -------------- ----------- ----------- ---------
) (in millions of U.S. dollars
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits.... 616 773 (42) 286 -- -- 1,633
Marketable securities..... -- 35 -- -- -- -- 35
Receivables............... 1,461 1,478 1 1,116 -- -- 4,056
Inventories............... 1,194 1,228 15 773 (1) (5)(a) 3,204
Deferred income taxes..... -- 185 -- -- -- 37(b) 222
----- ------ ----- ----- ----- ------ ------
3,271 3,699 (26) 2,175 (1) 32 9,150
Deferred charges and other
assets.................. 481 588 19 28 49 -- 1,165
Investments............... 42 450 (110) 8 -- -- 390
Property, plant and
equipment............... 5,794 3,041 186 1,684 (3) (21)(c) 10,681
Goodwill.................. -- 1,746 -- 165 146 -- 2,057
Deferred income taxes..... -- 513 -- 45 -- 8(d) 566
Net assets from
discontinued
operations.............. -- -- -- 1,227 -- 234(e) 1,461
----- ------ ----- ----- ----- ------ ------
TOTAL ASSETS.............. 9,588 10,037 69 5,332 191 253 25,470
===== ====== ===== ===== ===== ====== ======
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables.................. 1,130 2,104 (30) 447 -- 104(f) 3,755
Short-term borrowings..... 85 1,784 1 803 -- 783(g) 3,456
Income and other taxes.... 57 -- -- 60 -- -- 117
Debt maturing within one
year.................... 282 164 22 -- -- -- 468
----- ------ ----- ----- ----- ------ ------
1,554 4,052 (7) 1,310 -- 887 7,796
Debt not maturing within
one year................ 1,318 1,225 69 894 -- -- 3,506
Deferred credits and other
liabilities............. 589 1,411 -- 825 66 -- 2,891
Deferred income taxes..... 768 175 7 141 10 -- 1,101
Minority interests........ 111 161 -- 24 -- -- 296
SHAREHOLDERS' EQUITY
Preference shares......... 160 16 -- -- -- -- 176
Common shareholders'
equity
Common shares........... 1,213 1,623 -- 404 -- -- 3,240
Retained earnings....... 3,946 1,366 -- 1,734 115 (634) (h) 6,527
Other................... (71) 8 -- -- -- -- (63)
----- ------ ----- ----- ----- ------ ------
5,248 3,013 -- 2,138 115 (634) 9,880
----- ------ ----- ----- ----- ------ ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.... 9,588 10,037 69 5,332 191 253 25,470
===== ====== ===== ===== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
106
<PAGE> 117
ALCAN, PECHINEY AND ALGROUP -- POOLING METHOD -- CANADIAN GAAP
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FROM CONTINUING OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
TRANSLATED TRANSLATED
HISTORICAL PECHINEY HISTORICAL ALGROUP
PECHINEY U.S. TO CDN. ALGROUP IAS TO CDN. PRO FORMA
HISTORICAL NOTES (1), (3) GAAP NOTES (1), (3) GAAP ADJUSTMENTS
ALCAN (RECLASSIFIED) NOTE (4) (RECLASSIFIED) NOTE (5) NOTE (6)
----------- --------------- ------------ --------------- ----------- -----------
) (in millions of U.S. dollars except per share amounts
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sales and operating revenues........ 3,598 5,279 -- 2,511 -- (279)(i)
Other income........................ 78 126 2 -- -- --
----------- ----- ----- ----- ----- -----
3,676 5,405 2 2,511 -- (279)
COSTS AND EXPENSES
Cost of sales and operating
expenses.......................... 2,864 4,505 (9) 1,917 69 (274)(j)
Depreciation........................ 235 189 6 137 -- --
Amortization of goodwill............ -- 29 -- 5 10 --
Selling, administrative and general
expenses.......................... 206 312 1 247 -- --
Research and development expenses... 32 44 -- 20 -- --
Interest............................ 44 94 3 50 (19) 13(k)
Other expenses...................... 77 -- -- -- -- --
----------- ----- ----- ----- ----- -----
3,458 5,173 1 2,376 60 (261)
Income before income taxes and other
items............................. 218 232 1 135 (60) (18)
Income taxes........................ 103 (77) 1 27 (10) (6)(l)
----------- ----- ----- ----- ----- -----
Income before other items........... 115 309 -- 108 (50) (12)
Equity income (loss)................ (1) 22 -- 1 -- --
Minority interests.................. (5) (5) -- (2) -- --
----------- ----- ----- ----- ----- -----
Income from continuing operations... 109 326 -- 107 (50) (12)
Dividends on preference shares...... 4 2 -- -- -- --
----------- ----- ----- ----- ----- -----
Income from continuing operations
attributable to common
shareholders...................... 105 324 -- 107 (50) (12)
=========== ===== ===== ===== ===== =====
Income from continuing operations
per common share
Basic............................. 0.48
Diluted........................... 0.48
Weighted average of common shares
outstanding
Basic............................. 220,100,000
Diluted........................... 224,900,000
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
REVENUES
Sales and operating revenues........ 11,109
Other income........................ 206
-----------
11,315
COSTS AND EXPENSES
Cost of sales and operating
expenses.......................... 9,072
Depreciation........................ 567
Amortization of goodwill............ 44
Selling, administrative and general
expenses.......................... 766
Research and development expenses... 96
Interest............................ 185
Other expenses...................... 77
-----------
10,807
Income before income taxes and other
items............................. 508
Income taxes........................ 38
-----------
Income before other items........... 470
Equity income (loss)................ 22
Minority interests.................. (12)
-----------
Income from continuing operations... 480
Dividends on preference shares...... 6
-----------
Income from continuing operations
attributable to common
shareholders...................... 474
===========
Income from continuing operations
per common share
Basic............................. 0.95
Diluted........................... 0.95
Weighted average of common shares
outstanding
Basic............................. 497,895,700
Diluted........................... 505,576,000
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
107
<PAGE> 118
ALCAN, PECHINEY AND ALGROUP -- POOLING METHOD -- CANADIAN GAAP
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
TRANSLATED TRANSLATED
HISTORICAL PECHINEY HISTORICAL ALGROUP
PECHINEY U.S. TO CDN. ALGROUP IAS TO CDN. PRO FORMA
HISTORICAL NOTES (1), (3) GAAP NOTES (1), (3) GAAP ADJUSTMENTS PRO FORMA
ALCAN (RECLASSIFIED) NOTE (4) (RECLASSIFIED) NOTE (5) NOTE (6) COMBINED
---------- -------------- ------------ -------------- ----------- ----------- ---------
) (in millions of U.S. dollars
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits.... 615 1,136 (31) 262 -- -- 1,982
Marketable securities..... -- 73 -- -- -- -- 73
Receivables............... 1,401 1,508 1 923 -- -- 3,833
Inventories............... 1,413 1,376 15 815 6 (8)(a) 3,617
Deferred income taxes..... -- 120 -- -- -- 37(b) 157
----- ------ ----- ----- ----- ---- ------
3,429 4,213 (15) 2,000 6 29 9,662
Deferred charges and other
assets.................. 517 633 19 31 48 -- 1,248
Investments............... 58 465 (107) 14 -- -- 430
Property, plant and
equipment............... 5,897 3,241 190 1,806 (3) (21)(c) 11,110
Goodwill.................. -- 1,737 -- 166 162 -- 2,065
Deferred income taxes..... -- 473 -- 53 (6) 8(d) 528
Net assets from
discontinued
operations.............. -- -- -- 1,317 -- 234(e) 1,551
----- ------ ----- ----- ----- ---- ------
TOTAL ASSETS.............. 9,901 10,762 87 5,387 207 250 26,594
===== ====== ===== ===== ===== ==== ======
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables.................. 1,104 2,235 (27) 511 -- 104(f) 3,927
Short-term borrowings..... 86 1,390 1 713 -- 783(g) 2,973
Income and other taxes.... 28 -- -- 58 -- -- 86
Debt maturing within one
year.................... 166 731 36 2 -- -- 935
----- ------ ----- ----- ----- ---- ------
1,384 4,356 10 1,284 -- 887 7,921
Debt not maturing within
one year................ 1,537 1,529 70 874 -- -- 4,010
Deferred credits and other
liabilities............. 604 1,541 -- 787 16 -- 2,948
Deferred income taxes..... 747 190 7 154 22 -- 1,120
Minority interests........ 110 174 -- 30 -- -- 314
SHAREHOLDERS' EQUITY
Preference shares......... 160 18 -- -- -- -- 178
Common shareholders'
equity
Common shares........... 1,251 1,620 -- 458 -- -- 3,329
Retained earnings....... 4,078 1,149 -- 1,800 169 (637)(h) 6,559
Other................... 30 185 -- -- -- -- 215
----- ------ ----- ----- ----- ---- ------
5,519 2,972 -- 2,258 169 (637) 10,281
----- ------ ----- ----- ----- ---- ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.... 9,901 10,762 87 5,387 207 250 26,594
===== ====== ===== ===== ===== ==== ======
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
108
<PAGE> 119
ALCAN, PECHINEY AND ALGROUP -- POOLING METHOD -- CANADIAN GAAP
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FROM CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TRANSLATED TRANSLATED
HISTORICAL PECHINEY HISTORICAL ALGROUP
PECHINEY U.S. TO CDN. ALGROUP IAS TO CDN. PRO FORMA
HISTORICAL NOTES (1), (3) GAAP NOTES (1), (3) GAAP ADJUSTMENTS
ALCAN (RECLASSIFIED) NOTE (4) (RECLASSIFIED) NOTE (5) NOTE (6)
----------- -------------- ------------ -------------- ----------- -----------
) (in millions of U.S. dollars except per share amounts
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sales and operating revenues......... 7,789 10,918 -- 5,168 -- (555)(i)
Other income......................... 231 259 -- 170 -- (21)(c)
----------- ------ ----- ----- ----- -----
8,020 11,177 -- 5,338 -- (576)
COSTS AND EXPENSES
Cost of sales and operating
expenses........................... 6,076 9,371 (25) 4,171 (32) (547)(j)
Depreciation......................... 462 362 14 256 -- --
Amortization of goodwill............. -- 58 -- 10 21 --
Selling, administrative and general
expenses........................... 448 587 -- 373 -- --
Research and development expenses.... 70 102 -- 45 -- --
Interest............................. 92 222 8 151 12 33(k)
Other expenses....................... 219 10 3 35 -- --
----------- ------ ----- ----- ----- -----
7,367 10,712 -- 5,041 1 (514)
Income before income taxes and other
items.............................. 653 465 -- 297 (1) (62)
Income taxes......................... 210 109 -- 74 6 (22)(l)
----------- ------ ----- ----- ----- -----
Income before other items............ 443 356 -- 223 (7) (40)
Equity income (loss)................. (48) 11 -- 3 -- --
Minority interests................... 4 (22) -- (5) -- --
----------- ------ ----- ----- ----- -----
Income from continuing operations.... 399 345 -- 221 (7) (40)
Dividends on preference shares....... 10 2 -- -- -- --
----------- ------ ----- ----- ----- -----
Income from continuing operations
attributable to common
shareholders....................... 389 343 -- 221 (7) (40)
=========== ====== ===== ===== ===== =====
Income from continuing operations per
common share
Basic.............................. 1.71
Diluted............................ 1.71
Weighted average of common shares
outstanding
Basic.............................. 227,400,000
Diluted............................ 232,560,000
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
REVENUES
Sales and operating revenues......... 23,320
Other income......................... 639
-----------
23,959
COSTS AND EXPENSES
Cost of sales and operating
expenses........................... 19,014
Depreciation......................... 1,094
Amortization of goodwill............. 89
Selling, administrative and general
expenses........................... 1,408
Research and development expenses.... 217
Interest............................. 518
Other expenses....................... 267
-----------
22,607
Income before income taxes and other
items.............................. 1,352
Income taxes......................... 377
-----------
Income before other items............ 975
Equity income (loss)................. (34)
Minority interests................... (23)
-----------
Income from continuing operations.... 918
Dividends on preference shares....... 12
-----------
Income from continuing operations
attributable to common
shareholders....................... 906
===========
Income from continuing operations per
common share
Basic.............................. 1.82
Diluted............................ 1.82
Weighted average of common shares
outstanding
Basic.............................. 497,895,700
Diluted............................ 505,576,000
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
109
<PAGE> 120
ALCAN, PECHINEY AND ALGROUP -- POOLING METHOD -- CANADIAN GAAP
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FROM CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
TRANSLATED TRANSLATED
ADJUSTED HISTORICAL PECHINEY HISTORICAL
HISTORICAL PECHINEY U.S. TO CDN. ALGROUP
ALCAN NOTES (1), (3) GAAP NOTES (1), (3)
NOTE (2) (RECLASSIFIED) NOTE (4) (RECLASSIFIED)
----------- --------------- ------------ ---------------
(in millions of U.S. dollars except per share amounts)
<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues.......... 7,777 11,943 -- 4,987
Other income.......................... 88 358 -- 101
----- ----------- ------- ----------
7,865 12,301 -- 5,088
COSTS AND EXPENSES
Cost of sales and operating expenses.. 6,005 10,478 (37) 3,947
Depreciation.......................... 436 374 14 239
Amortization of goodwill.............. -- 56 -- 10
Selling, administrative and general
expenses............................ 444 591 2 395
Research and development expenses..... 72 107 1 52
Interest.............................. 101 255 9 154
Other expenses........................ 54 70 11 17
----- ----------- ------- ----------
7,112 11,931 -- 4,814
Income before income taxes and other
items............................... 753 370 -- 274
Income taxes.......................... 211 70 -- 56
----- ----------- ------- ----------
Income before other items............. 542 300 -- 218
Equity income (loss).................. (33) 22 -- 3
Minority interests.................... (4) (11) -- (2)
----- ----------- ------- ----------
Income from continuing operations..... 505 311 -- 219
Dividends on preference shares........ 10 -- -- --
----- ----------- ------- ----------
Income from continuing operations
attributable to common
shareholders........................ 495 311 -- 219
----- ----------- ------- ----------
----- ----------- ------- ----------
Income from continuing operations per
common share
Basic............................... 2.09
Diluted............................. 2.09
Weighted average of common shares
outstanding
Basic............................... 227,000,000
Diluted............................. 231,200,000
ALGROUP
IAS TO CDN. PRO FORMA
GAAP ADJUSTMENTS PRO FORMA
NOTE (5) NOTE (6) COMBINED
----------- ----------- -----------
(in millions of U.S. dollars except per share amounts)
<S> <C> <C> <C>
REVENUES
Sales and operating revenues.......... -- (632) (i) 24,075
Other income.......................... -- -- 547
------- -------- ------
-- (632) 24,622
COSTS AND EXPENSES
Cost of sales and operating expenses.. (15) (619) (i) 19,759
Depreciation.......................... -- -- 1,063
Amortization of goodwill.............. 21 -- 87
Selling, administrative and general
expenses............................ -- -- 1,432
Research and development expenses..... -- -- 232
Interest.............................. 1 32(k) 552
Other expenses........................ -- -- 152
------- -------- ------
7 (587) 23,277]
Income before income taxes and other
items............................... (7) (45) 1,345
Income taxes.......................... (1) (16) (l) 320
------- -------- ------
Income before other items............. (6) (29) 1,025
Equity income (loss).................. -- -- (8)
Minority interests.................... -- -- (17)
------- -------- ------
Income from continuing operations..... (6) (29) 1,000
Dividends on preference shares........ -- -- 10
------- -------- ------
Income from continuing operations
attributable to common
shareholders........................ (6) (29) 990
------- -------- ------
------- -------- ------
Income from continuing operations per
common share
Basic............................... 1.99
Diluted............................. 1.99
Weighted average of common shares
outstanding
Basic............................... 497,895,700
Diluted............................. 505,576,000
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
110
<PAGE> 121
ALCAN, PECHINEY AND ALGROUP -- POOLING METHOD -- CANADIAN GAAP
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
POOLING OF INTERESTS METHOD -- CANADIAN GAAP
(IN MILLIONS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
These unaudited pro forma combined financial statements give effect to the
combination of Alcan, Pechiney and Algroup, as described elsewhere in this
document, using the pooling of interests method in accordance with Canadian
GAAP. The unaudited pro forma combined balance sheets are presented as if the
combination between Alcan, Pechiney and Algroup had been effective December 31,
1998 and June 30, 1999 while the unaudited pro forma combined statements of
income are presented as if the combination between Alcan, Pechiney and Algroup
had been effective January 1, 1997.
All financial information relating to Alcan, Pechiney and Algroup is
presented in U.S. dollars and is prepared in accordance with Canadian GAAP.
Under the "pooling of interests" method, the combined balance sheets and
statements of income are prepared as though the companies had been combined
since inception. Accordingly, the assets and liabilities of Alcan, Pechiney and
Algroup have been combined at their historical carrying values and the combined
statements of income include the earnings of Alcan, Pechiney and Algroup for the
entire periods in which the combination is assumed to have occur. While it is
expected that the pooling of interests method will be used to account for the
combination, the appropriate method to be used cannot be determined until the
combination is completed. Accordingly, it is possible that the combination may
be accounted for using the purchase method (see Note 9).
The unaudited pro forma combined financial statements give effect to the
following assumptions related to the combination:
- Approval by Alcan's shareholders of the issuance of Alcan common shares to
be delivered to holders of Pechiney Securities and Algroup shares in the
offers. This approval was granted on November 22, 1999.
- All of the outstanding Pechiney Securities except those held by a
subsidiary, are tendered for exchange into Alcan common shares.
- All of the outstanding shares of Algroup are tendered for exchange into
Alcan common shares.
- The payment of a dividend of approximately $549 to the shareholders of
Pechiney upon completion of the offers for Pechiney Securities.
- Contribution to Algroup's chemicals and energy business of $234 pursuant
to the Algroup chemicals division demerger.
If the offers for the Pechiney Securities and Algroup shares are completed
and result in 100% acceptance, shareholders of Alcan, Pechiney and Algroup will
own approximately 44%, 29% and 27%, respectively, of the outstanding common
shares of the Combined Company (on a fully diluted basis).
The accompanying unaudited pro forma combined financial statements are based
on and should be read in conjunction with the historical consolidated financial
statements of Alcan, Pechiney and Algroup for the years ended December 31, 1997
and 1998 and for the six-month period ended June 30, 1999, including the notes
thereto which are incorporated by reference or included in this document.
Certain reclassifications have been made to the Pechiney and Algroup historical
financial statements to conform to the presentation expected to be used by the
Combined Company upon completion of the combination.
The unaudited pro forma adjustments are based upon available information and
include certain assumptions and adjustments, which the management of Alcan
believes to be reasonable. These adjustments are directly attributable to the
combination and are expected to have a continuing impact on the Combined
Company's business, results of operations and financial position. The unaudited
pro forma combined financial statements do not give effect to any restructuring
costs nor any potential cost savings or other synergies that could result from
the combination. Plans are currently in development to integrate the operations
of Alcan, Pechiney and Algroup, which may involve certain costs, including
severance, property and information technology related costs.
The unaudited pro forma combined financial statements are not necessarily
indicative either of the results that actually would have been achieved if the
transactions reflected therein had been effective during the periods presented
or of the results which may be obtained in the future.
2. ADJUSTMENT TO ALCAN'S 1997 HISTORICAL STATEMENT OF INCOME
Alcan's 1997 historical statement of income has been restated to reflect the
change in accounting for income taxes adopted by Alcan in 1998.
3. FOREIGN CURRENCY TRANSLATION
The Pechiney historical balance sheets information and related Canadian GAAP
pro forma adjustments as of December 31, 1998 and June 30, 1999 have been
translated into U.S. dollars at the December 31, 1998 and June 30, 1999 rates of
exchange of US$1 -- FF 5.6221 and US$1 -- FF 6.3512, respectively. The Pechiney
historical statements of income information for the years ended December 31,
1998 and 1997 and the six-month period ended June 30, 1999 and related Canadian
GAAP pro forma
111
<PAGE> 122
ALCAN, PECHINEY AND ALGROUP -- POOLING METHOD -- CANADIAN GAAP
adjustments to the unaudited pro forma combined statements of income have been
translated using the average rates of exchange of US$1 -- FF 5.90, US$1 -- FF
6.3512 and US$1 -- FF 6.03, respectively.
The Algroup historical balance sheets information and related Canadian GAAP
pro forma adjustments as of December 31, 1998 and June 30, 1999 have been
translated into U.S. dollars at the December 31, 1998 and June 30, 1999 rates of
exchange of US$1 -- CHF 1.3735 and US$1 -- CHF 1.5555, respectively. The Algroup
historical statements of income information for the years ended December 31,
1998 and 1997 and the six-month period ended June 30, 1999 and related Canadian
GAAP pro forma adjustments to the unaudited pro forma combined statements of
income have been translated at the average rates of exchange of US$1 -- CHF
1.450, US$1 -- CHF 1.4514 and US$1 -- CHF 1.4702, respectively.
4. DIFFERENCES BETWEEN U.S. GAAP AND CANADIAN GAAP AS THEY APPLY TO PECHINEY
Refer to Note 25 of the Pechiney consolidated financial statements which are
incorporated by reference in this document for a description of the differences
between U.S. GAAP and Canadian GAAP as they apply to Pechiney.
5. DIFFERENCES BETWEEN IAS AND CANADIAN GAAP AS THEY APPLY TO ALGROUP
Refer to Note 33 of the Algroup consolidated financial statements which are
included as Annex B to this prospectus for a description of the differences
between IAS and Canadian GAAP as they apply to Algroup.
6. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements incorporate the
following adjustments:
The following adjustments have been made to prepare the pro forma balance
sheet and statement of income. Pro forma statement of income adjustments are
assumed to occur during the period. Pro forma balance sheet adjustments are
assumed to occur on the balance sheet date.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
-------- ------------ ------------
<S> <C> <C> <C>
a) Elimination of intercompany profit in inventory of ANC... 5 8 N/A
==== ==== ====
b) Deferred income taxes on transaction costs............... 37 37 N/A
==== ==== ====
c) Elimination of intercompany revenues..................... 21 21 N/A
==== ==== ====
d) Deferred income taxes on intercompany revenues from
Pechiney to Alcan........................................ 8 8 N/A
==== ==== ====
e) Cash contribution to the Chemicals Division.............. 234 234 N/A
==== ==== ====
f) Accrued transaction costs............................... 104 104 N/A
==== ==== ====
g) Pechiney Dividends....................................... 549 549 N/A
Cash contribution to the Chemicals Division............. 234 234 N/A
---- ---- ----
783 783 N/A
==== ==== ====
h) Accrued transaction costs, net of income taxes of 37..... 67 67 N/A
Pechiney Dividends...................................... 549 549 N/A
Elimination of intercompany profit in inventory of
ANC...................................................... 5 8 N/A
Elimination of intercompany revenues, net of income
taxes of 8............................................... 13 13 N/A
---- ---- ----
634 637 N/A
==== ==== ====
i) Elimination of intercompany sales....................... 279 555 632
==== ==== ====
j) Elimination of intercompany sales....................... 274 547 619
==== ==== ====
k) Additional interest expense on short-term borrowings..... 13 33 32
==== ==== ====
l) Income tax recovery on interest expense and intercompany
profit.................................................... 6 22 16
==== ==== ====
</TABLE>
7. NON-RECURRING EXPENSES RELATING TO THE COMBINATION
For the purpose of the pro forma combined financial statements, transaction
costs, including fees for advisors, lawyers and other consultants and direct
incremental costs of completing the combination, are estimated at approximately
$104 and $67 after-tax. These transaction costs will be charged to retained
earnings upon consummation of the combination.
8. SENSITIVITY ANALYSIS
The unaudited pro forma combined financial statements are based upon the
assumption that 100% of the Pechiney Securities and 100% of the Algroup shares
are exchanged into Alcan common shares.
112
<PAGE> 123
ALCAN, PECHINEY AND ALGROUP -- POOLING METHOD -- CANADIAN GAAP
For each 1% decrease in the number of Pechiney Securities exchanged, pro
forma net income for the years ended December 31, 1997 and 1998 and for the
six-month period ended June 30, 1999 will decrease by $2, $2 and $1,
respectively, and pro forma common shareholders' equity as at December 31, 1998
and June 30, 1999 will decrease by $49.
For each 1% decrease in the number of Algroup shares exchanged, pro forma
net income for the years ended December 31, 1997 and 1998 and for the six-month
period ended June 30, 1999 will decrease by $2, $2 and $1, respectively, pro
forma common shareholders' equity as at December 31, 1998 and June 30, 1999 will
decrease by $46.
9. PURCHASE METHOD
Under Canadian GAAP, a pooling of interests is a business combination in
which the ownership interests of two or more companies are joined together
through an exchange of voting shares and in which none of the parties can be
identified as an acquirer. Accordingly, substantially all of the Pechiney
Securities and Algroup shares must be exchanged for Alcan common shares within a
reasonable period of time of each other. In addition, none of the combining
companies must be identified as an acquirer. If substantially all of the
Pechiney Securities and Algroup shares are not exchanged or one of the companies
can be identified as the acquirer within a reasonable period of time of each
other, the pooling of interests method would not be appropriate and the
combination would be accounted for using the purchase method. Pro forma combined
financial statements under the purchase method are provided in the section
"Unaudited pro forma combined financial statements -- purchase method -- U.S.
GAAP".
113
<PAGE> 124
ALCAN, PECHINEY AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
TRANSLATED TRANSLATED
ALCAN HISTORICAL HISTORICAL ALGROUP
CDN. GAAP TO PECHINEY ALGROUP IAS TO
HISTORICAL U.S. GAAP NOTES (1), (2) NOTES (1), (2) U.S. GAAP
ALCAN NOTE (3) (RECLASSIFIED) (RECLASSIFIED) NOTE (4)
---------- ------------ ---------------- ---------------- ---------
) (in millions of U.S. dollars
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits....... 616 -- 731 286 --
Marketable securities........ -- -- 35 -- --
Receivables.................. 1,461 -- 1,479 1,116 --
Inventories.................. 1,194 -- 1,243 773 (3)
Deferred income taxes........ -- -- 185 -- --
------ ------ ------ ------ ------
3,271 -- 3,673 2,175 (3)
Deferred charges and other
assets..................... 481 (4) 607 28 49
Investments.................. 42 74 340 8 --
Property, plant and
equipment.................. 5,794 (2) 3,227 1,684 (3)
Goodwill..................... -- -- 1,746 165 146
Deferred income taxes........ -- -- 513 45 --
Net assets from discontinued
operations................. -- -- -- 1,227 --
------ ------ ------ ------ ------
TOTAL ASSETS................. 9,588 68 10,106 5,332 189
====== ====== ====== ====== ======
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Payables..................... 1,130 -- 2,074 447 --
Short-term borrowings........ 85 -- 1,785 803 --
Income and other taxes....... 57 -- -- 60 --
Debt maturing within one
year....................... 282 -- 186 -- --
------ ------ ------ ------ ------
1,554 -- 4,045 1,310 --
Debt not maturing within one
year....................... 1,318 -- 1,294 894 --
Deferred credits and other
liabilities................ 589 -- 1,411 825 66
Deferred income taxes........ 768 -- 182 141 9
Minority interests........... 111 -- 161 24 --
SHAREHOLDERS' EQUITY
Preference shares............ 160 -- 16 -- --
Common shareholders' equity
Common shares.............. 1,213 -- 1,623 404 --
Retained earnings.......... 3,946 76 1,366 1,734 114
Other...................... (71) (8) 8 -- --
------ ------ ------ ------ ------
5,248 68 3,013 2,138 114
------ ------ ------ ------ ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY....... 9,588 68 10,106 5,332 189
====== ====== ====== ====== ======
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------
DECONSOLIDATION
OF ANC OTHER PRO FORMA
NOTE (5A) NOTE (5) COMBINED
--------------- -------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits....... (213) -- 1,420
Marketable securities........ -- -- 35
Receivables.................. (225) -- 3,831
Inventories.................. (208) -- 2,999
Deferred income taxes........ (102) 164(b) 247
------ ------ ------
(748) 164 8,532
Deferred charges and other
assets..................... (312) -- 849
Investments.................. 414 (184)(c) 694
Property, plant and
equipment.................. (799) 2,229(d) 12,130
Goodwill..................... (1,204) 5,180(e) 6,033
Deferred income taxes........ (127) 8(f) 439
Net assets from discontinued
operations................. -- (1,227)(g) --
------ ------ ------
TOTAL ASSETS................. (2,776) 6,170 28,677
====== ====== ======
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Payables..................... (587) 504(h) 3,568
Short-term borrowings........ (1,061) 783(i) 2,395
Income and other taxes....... -- -- 117
Debt maturing within one
year....................... (6) -- 462
------ ------ ------
(1,654) 1,287 6,542
Debt not maturing within one
year....................... (543) (309)(j) 2,654
Deferred credits and other
liabilities................ (354) 30(k) 2,567
Deferred income taxes........ (54) 754(l) 1,800
Minority interests........... (22) -- 274
SHAREHOLDERS' EQUITY
Preference shares............ -- (16)(m) 160
Common shareholders' equity
Common shares.............. -- 7,501(n) 10,741
Retained earnings.......... (182) (3,036)(o) 4,018
Other...................... 33 (41)(p) (79)
------ ------ ------
(149) 4,408 14,840
------ ------ ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY....... (2,776) 6,170 28,677
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
114
<PAGE> 125
ALCAN, PECHINEY AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FROM CONTINUING OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
ALCAN TRANSLATED TRANSLATED
CDN. GAAP HISTORICAL HISTORICAL ALGROUP
TO PECHINEY ALGROUP IAS TO
HISTORICAL U.S. GAAP NOTES (1), (2) NOTES (1), (2) U.S. GAAP
ALCAN NOTE (3) (RECLASSIFIED) (RECLASSIFIED) NOTE (4)
----------- ---------- -------------- -------------- ---------
) (in millions of U.S. dollars except per share amounts
<S> <C> <C> <C> <C> <C>
REVENUES
Sales and operating revenues....... 3,598 -- 5,279 2,511 --
Other income....................... 78 -- 128 -- --
----------- --- ----- ----- ----
3,676 -- 5,407 2,511 --
COSTS AND EXPENSES
Cost of sales and operating
expenses.......................... 2,864 -- 4,496 1,917 69
Depreciation....................... 235 (2) 195 137 --
Amortization of goodwill........... -- -- 29 5 10
Selling, administrative and general
expenses.......................... 206 -- 313 247 --
Research and development
expenses.......................... 32 -- 44 20 --
Interest........................... 44 -- 97 50 (19)
Other expenses..................... 77 7 -- -- --
----------- --- ----- ----- ----
3,458 5 5,174 2,376 60
Income before income taxes and
other items....................... 218 (5) 233 233 (60)
Income taxes....................... 103 -- (76) 27 (10)
----------- --- ----- ----- ----
Income before other items.......... 115 (5) 309 108 (50)
Equity income (loss)............... (1) -- 22 1 --
Minority interests................. (5) -- (5) (2) --
----------- --- ----- ----- ----
Income from continuing operations.. 109 (5) 326 107 (50)
Dividends on preference shares..... 4 -- 2 -- --
----------- --- ----- ----- ----
Income from continuing operations
attributable to common
shareholders...................... 105 (5) 324 107 (50)
=========== === ===== ===== ====
Income from continuing operations
per common share
Basic............................. 0.48
Diluted........................... 0.48
Weighted average of common shares
outstanding
Basic............................. 220,100,000
Diluted........................... 215,200,000
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------
DECONSOLIDATION
OF ANC OTHER PRO FORMA
NOTE (5A) NOTE (5) COMBINED
--------------- -------- -----------
<S> <C> <C> <C>
REVENUES
Sales and operating revenues....... (1,195) 96(q) 10,289
Other income....................... (4) -- 202
------- ---- -----------
(1,199) 96 10,491
COSTS AND EXPENSES
Cost of sales and operating
expenses.......................... (947) 96(q) 8,495
Depreciation....................... (39) 112(s) 638
Amortization of goodwill........... (22) 85(t) 107
Selling, administrative and general
expenses.......................... (62) -- 704
Research and development
expenses.......................... (7) -- 89
Interest........................... (32) 7(u) 147
Other expenses..................... 1 -- 85
------- ---- -----------
(1,108) 300 10,265
Income before income taxes and
other items....................... (91) (204) 226
Income taxes....................... (39) (41)(v) (36)
------- ---- -----------
Income before other items.......... (52) (163) 262
Equity income (loss)............... 21 (4)(w) 39
Minority interests................. 2 -- (10)
------- ---- -----------
Income from continuing operations.. (29) (167) 291
Dividends on preference shares..... -- -- 6
------- ---- -----------
Income from continuing operations
attributable to common
shareholders...................... (29) (167) 285
======= ==== ===========
Income from continuing operations
per common share
Basic............................. 0.57
Diluted........................... 0.57
Weighted average of common shares
outstanding
Basic............................. 497,895,700
Diluted........................... 490,893,100
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
115
<PAGE> 126
ALCAN, PECHINEY AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
TRANSLATED TRANSLATED
ALCAN HISTORICAL HISTORICAL ALGROUP
CDN. GAAP PECHINEY ALGROUP IAS TO
HISTORICAL TO U.S. GAAP NOTES (1), (2) NOTES (1), (2) U.S. GAAP
ALCAN NOTE (3) (RECLASSIFIED) (RECLASSIFIED) NOTE (4)
---------- ------------ -------------- -------------- ---------
) (in millions of U.S. dollars
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits................. 615 -- 1,105 262 --
Marketable securities.................. -- -- 73 -- --
Receivables............................ 1,401 -- 1,509 923 --
Inventories............................ 1,413 -- 1,391 815 5
Deferred income taxes.................. -- -- 120 -- --
------ ------ ------ ------ ------
3,429 -- 4,198 2,000 5
Deferred charges and other assets...... 517 2 652 31 48
Investments............................ 58 45 358 14 --
Property, plant and equipment.......... 5,897 (4) 3,431 1,806 (3)
Goodwill............................... -- -- 1,737 166 162
Deferred income taxes.................. -- -- 473 53 (6)
Net assets from discontinued
operations........................... -- -- -- 1,317 --
------ ------ ------ ------ ------
TOTAL ASSETS........................... 9,901 43 10,849 5,387 206
====== ====== ====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables............................... 1,104 -- 2,208 511 --
Short-term borrowings.................. 86 -- 1,391 713 --
Income and other taxes................. 28 -- -- 58 --
Debt maturing within one year.......... 166 -- 767 2 --
------ ------ ------ ------ ------
1,384 -- 4,366 1,284 --
Debt not maturing within one year...... 1,537 -- 1,599 874 --
Deferred credits and other
liabilities.......................... 604 -- 1,541 787 16
Deferred income taxes.................. 747 -- 197 154 22
Minority interests..................... 110 -- 174 30 --
SHAREHOLDERS' EQUITY
Preference shares...................... 160 -- 18 -- --
Common shareholders' equity
Common shares........................ 1,251 -- 1,620 458 --
Retained earnings.................... 4,078 51 1,149 1,800 168
Other................................ 30 (8) 185 -- --
------ ------ ------ ------ ------
5,519 43 2,972 2,258 168
------ ------ ------ ------ ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY............................... 9,901 43 10,849 5,387 206
====== ====== ====== ====== ======
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------
DECONSOLIDATION
OF ANC OTHER PRO FORMA
NOTE (5A) NOTE (5) COMBINED
--------------- -------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits................. (120) -- 1,862
Marketable securities.................. -- -- 73
Receivables............................ (180) -- 3,653
Inventories............................ (236) -- 3,388
Deferred income taxes.................. (110) 164(b) 174
------ ------ ------
(646) 164 9,150
Deferred charges and other assets...... (277) -- 973
Investments............................ 394 (186)(c) 683
Property, plant and equipment.......... (836) 2,229(d) 12,520
Goodwill............................... (1,224) 5,108(e) 5,949
Deferred income taxes.................. (127) 8(f) 401
Net assets from discontinued
operations........................... -- (1,315)(g) 2
------ ------ ------
TOTAL ASSETS........................... (2,716) 6,008 29,678
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables............................... (481) 504(h) 3,846
Short-term borrowings.................. (905) 783(i) 2,068
Income and other taxes................. -- -- 86
Debt maturing within one year.......... (7) -- 928
------ ------ ------
(1,393) 1,287 6,928
Debt not maturing within one year...... (626) (316)(j) 3,068
Deferred credits and other
liabilities.......................... (479) 30(k) 2,499
Deferred income taxes.................. (60) 754(l) 1,814
Minority interests..................... (29) -- 285
SHAREHOLDERS' EQUITY
Preference shares...................... -- (18)(m) 160
Common shareholders' equity
Common shares........................ -- 7,450(n) 10,779
Retained earnings.................... (129) (2,994)(o) 4,123
Other................................ -- (185)(q) 22
------ ------ ------
(129) 4,253 15,084
------ ------ ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY............................... (2,716) 6,008 29,678
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
116
<PAGE> 127
ALCAN, PECHINEY AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FROM CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TRANSLATED TRANSLATED
ALCAN HISTORICAL HISTORICAL ALGROUP
CDN. GAAP TO PECHINEY ALGROUP IAS TO
HISTORICAL U.S. GAAP NOTES (1), (2) NOTES (1), (2) U.S. GAAP
ALCAN NOTE (3) (RECLASSIFIED) (RECLASSIFIED) NOTE (4)
----------- ------------ ---------------- ---------------- ---------
) (in millions of U.S. dollars except per share amounts
<S> <C> <C> <C> <C> <C>
REVENUES
Sales and operating
revenues................. 7,789 -- 10,918 5,168 --
Other income............... 231 -- 195 170 --
----------- ------ ------ ------ ------
8,020 -- 11,113 5,338 --
COSTS AND EXPENSES
Cost of sales and operating
expenses................. 6,076 -- 9,346 4,171 (31)
Depreciation............... 462 (4) 376 256 --
Amortization of goodwill... -- -- 58 10 21
Selling, administrative and
general expenses......... 448 -- 587 373 5
Research and development
expenses................. 70 -- 102 45 --
Interest................... 92 -- 166 151 12
Other expenses............. 219 (14) 13 35 --
----------- ------ ------ ------ ------
7,367 (18) 10,648 5,041 7
Income before income taxes
and other items.......... 653 18 465 297 (7)
Income taxes............... 210 -- 109 74 6
----------- ------ ------ ------ ------
Income before other
items.................... 443 18 356 223 (13)
Equity income (loss)....... (48) -- 11 3 --
Minority interests......... 4 -- (22) (5) --
----------- ------ ------ ------ ------
Income from continuing
operations............... 399 18 345 221 (13)
Dividends on preference
shares................... 10 -- 2 -- --
----------- ------ ------ ------ ------
Income from continuing
operations attributable
to common shareholders... 389 18 343 221 (13)
=========== ====== ====== ====== ======
Income from continuing
operations per common
share
Basic.................... 1.71
Diluted.................. 1.71
Weighted average of common
shares outstanding
Basic.................... 227,400,000
Diluted.................. 222,600,000
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------
DECONSOLIDATION
OF ANC OTHER PRO FORMA
NOTE (5A) NOTE (5) COMBINED
--------------- -------- -----------
<S> <C> <C> <C>
REVENUES
Sales and operating
revenues................. (2,454) 185(q) 21,606
Other income............... (5) (21)(r) 570
------ ------ -----------
(2,459) 164 22,176
COSTS AND EXPENSES
Cost of sales and operating
expenses................. (1,985) 185(q) 17,762
Depreciation............... (80) 224(s) 1,234
Amortization of goodwill... (42) 167(t) 214
Selling, administrative and
general expenses......... (138) -- 1,275
Research and development
expenses................. (15) -- 202
Interest................... (58) 11(u) 374
Other expenses............. 2 62(x) 317
------ ------ -----------
(2,316) 649 21,378
Income before income taxes
and other items.......... (143) (485) 798
Income taxes............... (26) (109)(v) 264
------ ------ -----------
Income before other
items.................... (117) (376) 534
Equity income (loss)....... 49 (6)(w) 9
Minority interests......... 5 -- (18)
------ ------ -----------
Income from continuing
operations............... (63) (382) 525
Dividends on preference
shares................... -- -- 12
------ ------ -----------
Income from continuing
operations attributable
to common shareholders... (63) (382) 513
====== ====== ===========
Income from continuing
operations per common
share
Basic.................... 1.03
Diluted.................. 1.03
Weighted average of common
shares outstanding
Basic.................... 497,895,700
Diluted.................. 490,893,100
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
117
<PAGE> 128
ALCAN, PECHINEY AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
PURCHASE METHOD -- U.S. GAAP
(IN MILLIONS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
These unaudited pro forma combined financial statements have been prepared
to reflect the combination of Alcan, Pechiney and Algroup using the purchase
method and certain reorganizational events occurring prior to the combination.
These unaudited pro forma combined financial statements have been prepared
using U.S. GAAP which is similar, in all material respects, to Canadian GAAP
except as noted in these notes.
The unaudited pro forma combined financial statements are based on the
following assumptions related to the combination:
- Approval by Alcan's shareholders of the issuance of Alcan common shares to
be delivered to holders of Pechiney Securities and Algroup shares in the
offers. This approval was granted on November 22, 1999.
- All of the Pechiney Securities, except those held by a subsidiary, are
tendered for exchange into Alcan common shares.
- All of the outstanding Algroup shares are tendered for exchange into Alcan
common shares.
- Conversion of Algroup's convertible debt.
- The sale of Pechiney's 54.5% interest in American National Can Group, Inc.
("ANC") on August 2, 1999.
- The payment of a dividend of approximately $549 (including withholding
taxes) to the shareholders of Pechiney upon completion of the offers for
Pechiney Securities.
- Contribution to Algroup's chemicals and energy businesses of $234 pursuant
to the Algroup chemicals division demerger.
- The Algroup chemicals division demerger, which occurred on November 1,
1999.
The unaudited pro forma combined balance sheets are presented as if the
combination between Alcan, Pechiney and Algroup had been effective December 31,
1998 and June 30, 1999 while the unaudited pro forma combined statements of
income are presented as if the combination between Alcan, Pechiney and Algroup
had been effective January 1, 1998.
The combination will be accounted for as a "purchase" in accordance with
U.S. GAAP. Under this approach, the purchase price for the outstanding shares of
Pechiney and Algroup has been determined to be $34.00 per share based on the
average of the closing price for the Alcan common shares on the New York Stock
Exchange for the six trading days beginning on August 6, and ending on August
13, 1999. It has been determined that the combination would not qualify as a
pooling of interests under U.S. GAAP.
The purchase price will be allocated to the Pechiney and Algroup assets
acquired and liabilities assumed based on their estimated fair market value. The
excess of the purchase price over the fair market value of the net assets
acquired will be treated as goodwill, to be amortized over 30 years.
118
<PAGE> 129
ALCAN, PECHINEY AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
For the purpose of the unaudited pro forma combined financial statements, an
initial purchase price allocation has been performed:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
---------------- -------------------
<S> <C> <C> <C> <C> <C>
Purchase price
Acquisition of Pechiney and Algroup shares................ 9,529 9,529
Transaction costs (net of tax of 12)........................ 30 30
Book value of net assets acquired........................... (5,265) (5,398)
Cash contribution to Algroup chemicals division........... 234 234
Algroup chemicals division demerger....................... 1,227 1,315
Conversion of convertible debentures...................... (309) (316)
Pechiney's and Algroup's transaction costs................ 62 62
Pechiney dividends........................................ 549 549
Loss on sale of ANC....................................... 149 129
Predecessor goodwill...................................... 853 841
Other..................................................... 12 12
------ ------
(2,488) (2,572)
------ ------
Excess of purchase price over the book value of net assets
acquired.................................................. 7,071 6,987
====== ======
Allocation of the excess of the purchase price over the book
value of the net assets acquired
Property, plant and equipment........................... 2,250 2,250
Restructuring costs (principally severance costs)....... (400) (400)
Investments............................................. (180) (180)
Pensions and other postretirement benefits.............. (30) (30)
Deferred income taxes................................... (602) (602)
Goodwill................................................ 6,033 5,949
------ ------
7,071 6,987
====== ======
</TABLE>
The purchase price for Pechiney has been determined as follows:
<TABLE>
<CAPTION>
ALGROUP PECHINEY
----------- -----------------------
CLASS A CLASS B TOTAL
----------- --------- -----
<S> <C> <C> <C> <C> <C>
Shares outstanding (except those held by a Pechiney
subsidiary)................................................. 6,286,126 79,486,474 1,091,044
Exercise of stock options................................. 4,625 -- --
Conversion of convertible debentures...................... 325,945 -- --
----------- ----------- ---------
6,616,696 79,486,474 1,091,044
Exchange ratio.............................................. 20.6291 1.7816 1.9598
----------- ----------- ---------
Alcan shares to be issued................................... 136,496,483 141,613,102 2,138,228
=========== =========== =========
Price per Alcan share....................................... 34.00 34.00 34.00
Purchase price.............................................. 4,641 4,815 73 9,529
=========== =========== ========= =====
</TABLE>
The final allocation of the purchase price is dependent upon certain
valuations and studies which have not been completed and may result in changes
in the above estimated values and lives for identifiable items as well as
goodwill.
The accompanying unaudited pro forma combined financial statements are based
on and should be read in conjunction with the historical consolidated financial
statements of Alcan, Pechiney and Algroup for the year ended December 31, 1998
and for the six-month period ended June 30, 1999, including the notes thereto
which are incorporated by reference or included in this document. Certain
reclassifications have been made to the Pechiney and Algroup historical
financial statements to conform to the expected presentation to be used by the
Combined Company upon completion of the combination.
The unaudited pro forma adjustments are based upon available information and
include certain assumptions and adjustments, which the management of Alcan
believes to be reasonable. These adjustments are directly attributable to the
combination and are expected to have a continuing impact on the Combined
Company's business, results of operations and financial position. The unaudited
pro forma combined financial statements do not give effect to any cost savings
or other synergies that could result from the combination. Plans are currently
in development to integrate the operations of Alcan, Pechiney and Algroup, which
may involve certain costs, including severance, property and information
technology related costs. Certain of these costs may be accounted for as accrued
liabilities and included in the allocation of the purchase price consideration
at the date of the consummation of the combination. To the extent that such
costs are not accounted for as accrued liabilities at the date of consummation
of the combination, a charge may result, which may be material. The amount of
the charge cannot be quantified at this time, but is expected to be recognized
in the period in which restructuring occurs. To the extent that such costs are
accounted for as accrued liabilities and included in the allocation of the
purchase price consideration, the amount allocated to goodwill would increase,
and
119
<PAGE> 130
ALCAN, PECHINEY AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
pro forma net income from continuing operations would decrease. For each
additional $100 of accrued liabilities included in the purchase price
allocation, pro forma net income from continuing operations would decrease by
$3.
The unaudited pro forma combined financial statements are not necessarily
indicative either of the results that actually would have been achieved if the
transactions reflected therein had been effective during the periods presented
or of the results which may be obtained in the future.
2. FOREIGN CURRENCY TRANSLATION
The Pechiney historical balance sheets information and related U.S. and
Canadian GAAP pro forma adjustments as of December 31, 1998 and June 30, 1999
have been translated into U.S. dollars at the December 31, 1998 and June 30,
1999 rates of exchange of US$1 -- FF 5.6221 and US$1 -- FF 6.3512, respectively.
The Pechiney historical statements of income information for the year ended
December 31, 1998, the six-month period ended June 30, 1999 and related U.S. and
Canadian GAAP pro forma adjustments to the unaudited pro forma combined
statements of income have been translated at the average rates of exchange of
US$1 -- FF 5.90 and US$1 -- FF 6.03, respectively.
The Algroup historical balance sheets information and related U.S. and
Canadian GAAP pro forma adjustments as of December 31, 1998 and June 30, 1999
have been translated into U.S. dollars at the December 31, 1998 and June 30,
1999 rates of exchange of US$1 -- CHF 1.3735 and US$1 -- CHF 1.5555,
respectively. The Algroup historical statements of income information for the
year ended December 31, 1998, the six-month period ended June 30, 1999 and
related U.S. and Canadian GAAP pro forma adjustments to the unaudited pro forma
combined statements of income have been translated at the average rates of
exchange of US$1 -- CHF 1.4506 and US$1 -- CHF 1.4702, respectively.
3. DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP AS THEY APPLY TO ALCAN
Refer to Note 5 of the Alcan consolidated financial statements which are
incorporated by reference into this prospectus for a description of the
differences between Canadian and U.S. GAAP as they apply to Alcan.
4. DIFFERENCES BETWEEN IAS AND U.S. GAAP AS THEY APPLY TO ALGROUP
Refer to Note 33 of the Algroup consolidated financial statements which are
included as Annex B to this prospectus for a description of the differences
between IAS and U.S. GAAP as they apply to Algroup.
5. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements incorporate the
following adjustments:
The following adjustments have been made to prepare the pro forma balance
sheet and statement of income. Pro forma statement of income adjustments are
assumed to occur as of January 1, 1998. Pro forma balance sheet adjustments are
assumed to occur on the balance sheet date.
a) The revenues and expenses, assets and liabilities of ANC have been
excluded from the pro forma financial statements, and the remaining
45.45% interest is reported as an equity investment. Proceeds of $485 on
the sale of the 54.5% interest in ANC are recorded as a reduction of
short-term borrowings. The Combined Company's share of the equity
earnings has been recorded for each period.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(in milions)of US$l
<S> <C> <C>
b) Deferred income taxes on transaction costs.............. 37 37
Deferred income taxes on restructuring costs....... 127 127
------ ------
164 164
====== ======
c) Fair value allocation to investments................ 180 180
Elimination of intercompany profit in inventory of
equity-accounted affiliate........................... 4 6
------ ------
184 186
====== ======
d) Fair value allocation to property, plant and
equipment........................................... 2,250 2,250
Elimination of intercompany revenues............... (21) (21)
------ ------
2,229 2,229
====== ======
e) Elimination of predecessor goodwill................. (853) (841)
Goodwill arising on acquisition.................... 6,033 5,949
------ ------
5,180 5,108
====== ======
f) Deferred income taxes on intercompany revenues from
Pechiney to Alcan.................................. 8 8
====== ======
g) Algroup chemicals division demerger................. 1,227 1,315
====== ======
</TABLE>
120
<PAGE> 131
ALCAN, PECHINEY AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(in milions)of US$l
<S> <C> <C>
h) Accrued transaction costs............................... 104 104
Accrued restructuring costs........................ 400 400
------ ------
504 504
====== ======
i) Payment of dividend to shareholders of Pechiney.... 549 549
Cash contribution to the Algroup chemicals
division............................................. 234 234
------ ------
783 783
====== ======
j) Conversion of convertible debentures into Algroup
common shares...................................... 309 316
====== ======
k) Fair value allocation to pensions and other
postretirement benefits............................. 30 30
====== ======
l) Deferred income taxes arising on fair value
allocations........................................ 754 754
====== ======
m) Exchange of Pechiney preferred shares for Alcan
common shares....................................... 16 18
====== ======
n) Elimination of Pechiney and Algroup common shares... (2,027) (2,078)
Issuance of Alcan Common Shares.................... 9,528 9,528
------ ------
7,501 7,450
====== ======
o) Elimination of Pechiney and Algroup retained
earnings............................................ 3,032 2,988
Elimination of profit in inventory on sales from
Alcan to an equity-accounted affiliate............... 4 6
------ ------
3,036 2,994
====== ======
p) Elimination of Pechiney and Algroup other
shareholders' equity................................ 8 185
====== ======
q) Elimination of intercompany sales and cost of
sales............................................... 96 185
====== ======
r) Elimination of intercompany revenue................ -- 21
====== ======
s) Depreciation on fair value allocation to property,
plant and equipment over 10 years................... 112 224
====== ======
t) Amortization of goodwill over 30 years............. 85 167
====== ======
u) Additional interest expense on net cash outflow
related to Notes 4a), i) and j)..................... 7 11
====== ======
v) Income taxes on items included in Notes 4r), s), u)
and x).............................................. (41) (109)
====== ======
w) Elimination of profit on sales from Alcan to an
equity-accounted affiliate.......................... 4 6
====== ======
x) Pechiney and Algroup transaction costs.............. -- 62
====== ======
</TABLE>
6. CANADIAN GAAP
Under Canadian GAAP, the pooling of interests method would be used if, as
intended, substantially all of the shares of each Pechiney and Algroup are
exchanged within a reasonable period of time of each other. If substantially all
of the Pechiney Securities and Algroup shares are not exchanged within a
reasonable period of time of each other, the transaction will be accounted for
using the purchase method.
Differences in application of the purchase method between U.S. and Canadian
GAAP are not significant except with respect to the determination of the
purchase price. Under Canadian GAAP, the purchase price is based on the market
value of the Alcan common shares for a reasonable period of time before and
after the transaction is consummated while under U.S. GAAP, the purchase price
is based on the market value of the Alcan common shares for a reasonable period
of time before and after the announcement date, which for the Alcan, Pechiney
and Algroup combination was August 11, 1999. For the purpose of the unaudited
pro forma combined financial statements, it is assumed that the average price
for a reasonable period of time before and after the consummation date is the
same as the average price for a reasonable period of time before and after the
announcement date. For every $1 per share increase or decrease in the purchase
price, goodwill would increase or decrease by $280, pro forma net income would
decrease or increase by $9 and earnings per common share would decrease or
increase by $0.02.
7. SENSITIVITY ANALYSIS
The unaudited pro forma combined financial statements are based upon the
assumption that 100% of the Pechiney Securities except those held by a
subsidiary and 100% of the Algroup shares are exchanged into Alcan common
shares.
For each 1% decrease in the number of Pechiney Securities exchanged, pro
forma net income for the year ended December 31, 1998 and for the six-month
period ended June 30, 1999 will decrease by $2 and $1, respectively, pro forma
common shareholders' equity as at December 31, 1998 and June 30, 1999 will
decrease by $49.
For each 1% decrease in the number of Algroup shares exchanged, pro forma
net income for the year ended December 31, 1998 and for the six-month period
ended June 30, 1999 will decrease by $2 and $1, respectively, pro forma common
shareholders' equity as at December 31, 1998 and June 30, 1999 will decrease by
$46.
121
<PAGE> 132
ALCAN AND PECHINEY -- PURCHASE METHOD -- U.S. GAAP
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
TRANSLATED ADJUSTMENTS
ALCAN HISTORICAL -----------------------------
CDN. GAAP PECHINEY DECONSOLIDATION
HISTORICAL TO U.S. GAAP NOTES (1), (2) OF ANC OTHER PRO FORMA
ALCAN NOTE (3) (RECLASSIFIED) NOTE (4A) NOTE (4) COMBINED
---------- ------------ -------------- --------------- ----------- ---------
) (in millions of U.S. dollars
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits............... 616 -- 731 (213) -- 1,134
Marketable securities................ -- -- 35 -- -- 35
Receivables.......................... 1,461 -- 1,479 (225) -- 2,715
Inventories.......................... 1,194 -- 1,243 (208) -- 2,229
Deferred income taxes................ -- -- 185 (102) 75(b) 158
----- ----- ------ ------- -------- ------
3,271 -- 3,673 (748) 75 6,271
Deferred charges and other assets.... 481 (4) 607 (312) -- 772
Investments.......................... 42 74 340 414 (184)(c) 686
Property, plant and equipment........ 5,794 (2) 3,227 (799) 1,345(d) 9,565
Goodwill............................. -- -- 1,746 (1,204) 2,062(e) 2,604
Deferred income taxes................ -- -- 513 (127) 8(f) 394
----- ----- ------ ------- -------- ------
TOTAL ASSETS......................... 9,588 68 10,106 (2,776) 3,306 20,292
===== ===== ====== ======= ======== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables............................. 1,130 -- 2,074 (587) 200(g) 2,817
Short-term borrowings................ 85 -- 1,785 (1,061) 549(h) 1,358
Income and other taxes............... 57 -- -- -- -- 57
Debt maturing within one year........ 282 -- 186 (6) -- 462
----- ----- ------ ------- -------- ------
1,554 -- 4,045 (1,654) 749 4,694
Debt not maturing within one year.... 1,318 -- 1,294 (543) -- 2,069
Deferred credits and other
liabilities........................ 589 -- 1,411 (354) 30(i) 1,676
Deferred income taxes................ 768 -- 182 (54) 507(j) 1,403
Minority interests................... 111 -- 161 (22) -- 250
SHAREHOLDERS' EQUITY
Preference shares.................... 160 -- 16 -- (16)(k) 160
Common shareholders' equity
Common shares...................... 1,213 -- 1,623 -- 3,265(l) 6,101
Retained earnings.................. 3,946 76 1,366 (182) (1,188)(m) 4,018
Other.............................. (71) (8) 8 33 (41)(n) (79)
----- ----- ------ ------- -------- ------
5,248 68 3,013 (149) 2,020 10,200
----- ----- ------ ------- -------- ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY............................. 9,588 68 10,106 (2,776) 3,306 20,292
===== ===== ====== ======= ======== ======
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
122
<PAGE> 133
ALCAN AND PECHINEY -- PURCHASE METHOD -- U.S. GAAP
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FROM CONTINUING OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
TRANSLATED ADJUSTMENTS
ALCAN HISTORICAL -----------------------------
CDN. GAAP PECHINEY DECONSOLIDATION
HISTORICAL TO U.S. GAAP NOTES (1), (2) OF ANC OTHER PRO FORMA
ALCAN NOTE (3) (RECLASSIFIED) NOTE (4A) NOTE (4) COMBINED
----------- ------------ --------------- --------------- ----------- -----------
) (in millions of U.S. dollars except per share amounts
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sales and operating revenues..... 3,598 -- 5,279 (1,195) 96(o) 7,778
Other income..................... 78 -- 128 (4) -- 202
----------- ------ ------ ------ ------ -----------
3,676 -- 5,407 (1,199) 96 7,980
COSTS AND EXPENSES
Cost of sales and operating
expenses....................... 2,864 -- 4,496 (947) 96(o) 6,509
Depreciation..................... 235 (2) 195 (39) 68(q) 457
Amortization of goodwill......... -- -- 29 (22) 43(r) 50
Selling, administrative and
general expenses............... 206 -- 313 (62) -- 457
Research and development
expenses....................... 32 -- 44 (7) -- 69
Interest......................... 44 -- 97 (32) 5(s) 114
Other expenses................... 77 7 -- 1 -- 85
----------- ------ ------ ------ ------ -----------
3,458 5 5,174 (1,108) 212 7,741
Income before income taxes and
other items.................... 218 (5) 233 (91) (116) 239
Income taxes..................... 103 -- (76) (39) (28)(t) (40)
----------- ------ ------ ------ ------ -----------
Income before other items........ 115 (5) 309 (52) (88) 279
Equity income (loss)............. (1) -- 22 21 (4)(u) 38
Minority interests............... (5) -- (5) 2 -- (8)
----------- ------ ------ ------ ------ -----------
Income from continuing
operations..................... 109 (5) 326 (29) (92) 309
Dividends on preference shares... 4 -- 2 -- -- 6
----------- ------ ------ ------ ------ -----------
Income from continuing operations
attributable to common
shareholders 105 (5) 324 (29) (92) 303
=========== ====== ====== ====== ====== ===========
Income from continuing operations
per common share
Basic.......................... 0.48 0.83
Diluted........................ 0.48 0.83
Weighted average of common shares
outstanding
Basic.......................... 220,100,000 361,399,200
Diluted........................ 215,200,000 354,396,700
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
123
<PAGE> 134
ALCAN AND PECHINEY -- PURCHASE METHOD -- U.S. GAAP
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
TRANSLATED PRO FORMA ADJUSTMENTS
ALCAN HISTORICAL ----------------------------
CDN. GAAP PECHINEY DECONSOLIDATION
HISTORICAL TO U.S. GAAP NOTES (1),(2) OF ANC OTHER PRO FORMA
ALCAN NOTE (3) (RECLASSIFIED) NOTE (4A) NOTE (4) COMBINED
---------- ------------ --------------- --------------- -------- ---------
) (in millions of U.S. dollars
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits.......... 615 -- 1,105 (120) -- 1,600
Marketable securities........... -- -- 73 -- -- 73
Receivables..................... 1,401 -- 1,509 (180) -- 2,730
Inventories..................... 1,413 -- 1,391 (236) -- 2,568
Deferred income taxes........... -- -- 120 (110) 75(b) 85
------ ------ ------ ------ ------ ------
3,429 -- 4,198 (646) 75 7,056
Deferred charges and other
assets........................ 517 2 652 (277) -- 894
Investments..................... 58 45 358 394 (186)(c) 669
Property, plant and equipment... 5,897 (4) 3,431 (836) 1,345(d) 9,833
Goodwill........................ -- -- 1,737 (1,224) 2,083(e) 2,596
Deferred income taxes........... -- -- 473 (127) 8(f) 354
------ ------ ------ ------ ------ ------
TOTAL ASSETS.................... 9,901 43 10,849 (2,716) 3,325 21,402
====== ====== ====== ====== ====== ======
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Payables........................ 1,104 -- 2,208 (481) 200(g) 3,031
Short-term borrowings........... 86 -- 1,391 (905) 549(h) 1,121
Income and other taxes.......... 28 -- -- -- -- 28
Debt maturing within one year... 166 -- 767 (7) -- 926
------ ------ ------ ------ ------ ------
1,384 -- 4,366 (1,393) 749 5,106
Debt not maturing within one
year.......................... 1,537 -- 1,599 (626) -- 2,510
Deferred credits and other
liabilities................... 604 -- 1,541 (479) 30(i) 1,696
Deferred income taxes........... 747 -- 197 (60) 507(j) 1,391
Minority interests.............. 110 -- 174 (29) -- 255
SHAREHOLDERS' EQUITY
Preference shares............... 160 -- 18 -- (18)(k) 160
Common shareholders' equity
Common shares................. 1,251 -- 1,620 -- 3,268(l) 6,139
Retained earnings............. 4,078 51 1,149 (129) (1,026)(m) 4,123
Other......................... 30 (8) 185 -- (185)(n) 22
------ ------ ------ ------ ------ ------
5,519 43 2,972 (129) 2,039 10,444
------ ------ ------ ------ ------ ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.......... 9,901 43 10,849 (2,716) 3,325 21,402
====== ====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
124
<PAGE> 135
ALCAN AND PECHINEY -- PURCHASE METHOD -- U.S. GAAP
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FROM CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TRANSLATED PRO FORMA ADJUSTMENTS
ALCAN HISTORICAL ---------------------------
CDN. GAAP PECHINEY DECONSOLIDATION
HISTORICAL TO U.S. GAAP NOTES (1), (2) OF ANC OTHER PRO FORMA
ALCAN NOTE (3) (RECLASSIFIED) NOTE (4A) NOTE (4) COMBINED
----------- ------------ --------------- --------------- --------- -----------
) (in millions of U.S. dollars except per share amounts
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sales and operating revenues....... 7,789 -- 10,918 (2,454) 185(o) 16,438
Other income....................... 231 -- 195 (5) (21)(p) 400
----------- ------ ------ ------ ------ -----------
8,020 -- 11,113 (2,459) 164 16,838
COSTS AND EXPENSES
Cost of sales and operating
expenses......................... 6,076 -- 9,346 (1,985) 185(o) 13,622
Depreciation....................... 462 (4) 376 (80) 136(q) 890
Amortization of goodwill........... -- -- 58 (42) 87(r) 103
Selling, administrative and general
expenses......................... 448 -- 587 (138) -- 897
Research and development
expenses......................... 70 -- 102 (15) -- 157
Interest........................... 92 -- 166 (58) 12(s) 212
Other expenses..................... 219 (14) 13 2 33(v) 253
----------- ------ ------ ------ ------ -----------
7,367 (18) 10,648 (2,316) 453 16,134
Income before income taxes and
other items...................... 653 18 465 (143) (289) 704
Income taxes....................... 210 -- 109 (26) (76)(t) 217
----------- ------ ------ ------ ------ -----------
Income before other items.......... 443 18 356 (117) (213) 487
Equity income (loss)............... (48) -- 11 49 (6)(u) 6
Minority interests................. 4 -- (22) 5 -- (13)
----------- ------ ------ ------ ------ -----------
Income from continuing
operations....................... 399 18 345 (63) (219) 480
Dividends on preference shares..... 10 -- 2 -- -- 12
----------- ------ ------ ------ ------ -----------
Income from continuing operations
attributable to common
shareholders..................... 389 18 343 (63) (219) 468
=========== ====== ====== ====== ====== ===========
Income from continuing operations
per common share
Basic............................ 1.71 1.30
Diluted.......................... 1.71 1.30
Weighted average of common shares
outstanding
Basic............................ 227,400,000 361,399,200
Diluted.......................... 222,600,000 354,396,700
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
125
<PAGE> 136
ALCAN AND PECHINEY -- PURCHASE METHOD -- U.S. GAAP
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
PURCHASE METHOD -- U.S. GAAP
(IN MILLIONS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
These unaudited pro forma combined financial statements have been prepared
to reflect the combination of Alcan and Pechiney using the purchase method and
certain reorganizational events occurring prior to the combination.
These unaudited pro forma combined financial statements have been prepared
using U.S. GAAP which is similar, in all material respects, to Canadian GAAP
except as noted in these notes.
The unaudited pro forma combined financial statements are based on the
following assumptions related to the combination:
- Approval by Alcan's shareholders of the issuance of Alcan common shares to
be delivered to holders of Pechiney Securities and Algroup shares in the
offers. This approval was granted on November 22, 1999.
- All of the outstanding Pechiney Securities except those held by a
subsidiary, are tendered for exchange into Alcan common shares.
- The sale of Pechiney's 54.5% interest in American National Can Group, Inc.
("ANC") on August 2, 1999.
- The payment of a dividend of approximately $549 (including withholding
taxes) to the shareholders of Pechiney upon completion of the offer for
the Algroup shares.
The unaudited pro forma combined balance sheets are presented as if the
combination between Alcan and Pechiney had been effective December 31, 1998 and
June 30, 1999 while the unaudited pro forma combined statements of income are
presented as if the combination between Alcan and Pechiney had been effective
January 1, 1998.
The combination will be accounted for as a "purchase" in accordance with
U.S. GAAP. Under this approach, the purchase price for the outstanding shares of
Pechiney has been determined to be $34.00 per share based on the average of the
closing price for the Alcan common shares on the New York Stock Exchange for the
six trading days beginning on August 6 and ending on August 13, 1999.
The purchase price will be allocated to the Pechiney assets acquired and
liabilities assumed based on their estimated fair market value. The excess of
the purchase price over the fair market value of the net assets acquired will be
treated as goodwill, to be amortized over 30 years.
126
<PAGE> 137
ALCAN AND PECHINEY -- PURCHASE METHOD -- U.S. GAAP
For the purpose of the unaudited pro forma combined financial statements, an
initial purchase price allocation has been performed:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1999 1998
---------------- ------------------
<S> <C> <C> <C> <C> <C>
Purchase price:
Acquisition of Pechiney shares (except those held by a
subsidiary)............................................. 4,888 4,888
Transaction costs (net of tax of 11)........................ 20 20
Book value of net assets acquired........................... (3,013) (2,972)
Less: Loss on sale of ANC................................. 149 129
Pechiney's predecessor goodwill....................... 542 513
Pechiney's transaction costs.......................... 33 33
Pechiney dividend..................................... 549 549
Other................................................. 14 14
------ ------
(1,726) (1,734)
------ ------
Excess of purchase price over the book value of net assets
acquired.................................................. 3,182 3,174
====== ======
Allocation of the excess of the purchase price over the book
value of the net assets acquired
Property, plant and equipment......................... 1,366 1,366
Investments........................................... (180) (180)
Pensions and other postretirement benefits............ (30) (30)
Restructuring costs (principally severance costs)..... (135) (135)
Deferred income taxes................................. (443) (443)
Goodwill.............................................. 2,604 2,596
------ ------
3,182 3,174
====== ======
</TABLE>
The purchase price for Pechiney has been determined as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
----------- --------- -----
<S> <C> <C> <C> <C> <C>
Pechiney shares outstanding (except those held by a
subsidiary)................................................. 79,486,474 1,091,044
Exercise of stock options................................... -- --
----------- ---------
79,486,474 1,091,044
Exchange ratio.............................................. 1.7816 1.9598
----------- ---------
Alcan shares to be issued................................... 141,613,102 2,138,228
=========== =========
Price per Alcan share....................................... 34.00 34.00
Purchase price.............................................. 4,815 73 4,888
=========== ========= =====
</TABLE>
The final allocation of the purchase price is dependent upon certain
valuations and studies which have not been completed and may result in changes
in the above estimated values and lives for identifiable items as well as
goodwill.
The accompanying unaudited pro forma combined financial statements are based
on and should be read in conjunction with the historical consolidated financial
statements of Alcan and Pechiney for the year ended December 31, 1998 and for
the six-month period ended June 30, 1999, including the notes thereto which are
incorporated by reference in this document. Certain reclassifications have been
made to the Pechiney historical financial statements to conform to the expected
presentation to be used by Alcan upon completion of the combination.
The pro forma adjustments are based upon available information and include
certain assumptions and adjustments, which the management of Alcan believes to
be reasonable. These adjustments are directly attributable to the combination
and are expected to have a continuing impact on Alcan's business, results of
operations and financial position. The unaudited pro forma combined financial
statements do not give effect to any potential cost savings or other synergies
that could result from the combination. Plans are currently in development to
integrate the operations of Alcan and Pechiney, which may involve certain costs,
including severance, property and information technology related costs. Certain
of these costs may be accounted for as accrued liabilities and included in the
allocation of the purchase price consideration at the date of the consummation
of the combination. To the extent that such costs are not accounted for as
accrued liabilities at the date of consummation of the combination, a charge may
result, which may be material. The amount of the charge cannot be quantified at
this time, but is expected to be recognized in the period in which restructuring
occurs. To the extent that such costs are accounted for as accrued liabilities
and included in the allocation of the purchase price consideration, the amount
allocated to goodwill would increase, and pro forma net income from continuing
operations would decrease. For each additional $100 of accrued liabilities
included in the purchase price allocation, pro forma net income from continuing
operations would decrease by $3.
127
<PAGE> 138
ALCAN AND PECHINEY -- PURCHASE METHOD -- U.S. GAAP
The unaudited pro forma combined financial statements are not necessarily
indicative either of the results that actually would have been achieved if the
transactions reflected therein had been effective during the periods presented
or of the results which may be obtained in the future.
2. FOREIGN CURRENCY TRANSLATION
The Pechiney historical balance sheets information and related U.S. and
Canadian GAAP pro forma adjustments as of December 31, 1998 and June 30, 1999
have been translated into U.S. dollars at the December 31, 1998 and June 30,
1999 rates of exchange of US$1 -- FF 5.6221 and US$1 -- FF 6.3512, respectively.
The Pechiney historical statements of income information for the year ended
December 31, 1998, the six-month period ended June 30, 1999 and related U.S. and
Canadian GAAP pro forma adjustments to the unaudited pro forma statements of
income have been translated at the average rates of exchange of US$1 -- FF 5.90
and US$1 -- FF 6.03, respectively.
3. DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP AS THEY APPLY TO ALCAN
Refer to Note 5 of the Alcan consolidated financial statements which are
incorporated by reference into this prospectus for a description of the
differences between Canadian and U.S. GAAP as they apply to Alcan.
4. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements incorporate the
following adjustments:
The following adjustments have been made to prepare the pro forma balance
sheet and statement of income. Pro forma statement of income adjustments are
assumed to occur as of January 1, 1998. Pro forma balance sheet adjustments are
assumed to occur on the balance sheet date.
a) The revenues and expenses, assets and liabilities of ANC have been
excluded from the pro forma financial statements, and the remaining
45.45% interest is reported as an equity investment. Proceeds of $485 on
the sale of the 54.5% interest in ANC are recorded as a reduction of
short-term borrowings. The Combined Company's share of the equity
earnings has been recorded for each period.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(in milions)of US$l
<S> <C> <C>
b) Deferred income taxes on transaction costs.............. 24 24
Deferred income taxes on restructuring costs....... 51 51
------ ------
75 75
====== ======
c) Fair value allocation to investments................ 180 180
Elimination of intercompany profit in inventory of
equity-accounted affiliate........................... 4 6
------ ------
184 186
====== ======
d) Fair value allocation to property, plant and
equipment........................................... 1,366 1,366
Elimination of intercompany revenues............... (21) (21)
------ ------
1,345 1,345
====== ======
e) Elimination of predecessor goodwill................. (542) (513)
Goodwill arising on acquisition.................... 2,604 2,596
====== ======
2,062 2,083
====== ======
f) Deferred income taxes on intercompany revenues from
Pechiney to Alcan.................................. 8 8
====== ======
g) Accrued transactions costs -- Alcan................. 32 32
-- Pechiney............... 33 33
Accrued restructuring costs........................ 135 135
------ ------
200 200
====== ======
h) Payment of dividend to shareholders of Pechiney..... 549 549
====== ======
i) Fair value allocation to pensions and other
postretirement benefits............................ 30 30
====== ======
j) Deferred income taxes arising on fair value
allocations........................................ 507 507
====== ======
k) Exchange of Pechiney preferred shares for Alcan
Common Shares....................................... 16 18
====== ======
l) Elimination of Pechiney common shares.............. (1,623) (1,620)
Issuance of Alcan Common Shares.................... 4,888 4,888
------ ------
3,265 3,268
====== ======
</TABLE>
128
<PAGE> 139
ALCAN AND PECHINEY -- PURCHASE METHOD -- U.S. GAAP
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(in milions)of US$l
<S> <C> <C>
m) Elimination of Pechiney retained earnings............... 1,184 1,020
Elimination of profit in inventory on sales from
Alcan to an equity-accounted affiliate............... 4 6
------ ------
1,188 1,026
====== ======
n) Elimination of Pechiney other shareholders'
equity.............................................. 8 185
====== ======
o) Elimination of intercompany sales and cost of
sales............................................... 96 185
====== ======
p) Elimination of intercompany revenue................. -- 21
====== ======
q) Depreciation on fair value allocation to property,
plant and equipment over 10 years................... 68 136
====== ======
r) Amortization of goodwill over 30 years............. 43 87
====== ======
s) Additional interest expense on net cash outflow
related to Notes 4a) and h)......................... 5 12
====== ======
t) Income taxes on items included in Notes 4p), q), s)
and v)............................................. 28 76
====== ======
u) Elimination of profit on sales from Alcan to an
equity-accounted affiliate.......................... 4 6
====== ======
v) Pechiney transactions costs......................... -- 33
====== ======
</TABLE>
5. CANADIAN GAAP
Differences in application of the purchase method between U.S. and Canadian
GAAP are not significant except with respect to the determination of the
purchase price. Under Canadian GAAP, the purchase price is based on the market
value of the Alcan common shares for a reasonable period of time before and
after the transaction is consummated while under U.S. GAAP, the purchase price
is based on the market value of the Alcan common shares for a reasonable period
of time before and after the announcement date, which for an Alcan and Pechiney
combination was August 11, 1999. For the purpose of the unaudited pro forma
combined financial statements, it is assumed that the average price for a
reasonable period of time before and after the consummation date is the same as
the average price for a reasonable period of time before and after the
announcement date. For every $1 per share increase or decrease in the purchase
price, goodwill would increase or decrease by $144, pro forma net income would
decrease or increase by $5 and earnings per common share would decrease or
increase by $0.01.
6. SENSITIVITY ANALYSIS
The unaudited pro forma combined financial statements are based upon the
assumption that 100% of the Pechiney Securities except those held by a
subsidiary, are exchanged into Alcan common shares.
For each 1% decrease in the number of Pechiney Securities exchanged, pro
forma net income for the year ended December 31, 1998 and for the six-month
period ended June 30, 1999 will decrease by $2 and $1 respectively, pro forma
common shareholders' equity as at December 31, 1998 and June 30, 1999 will
decrease by $49.
129
<PAGE> 140
ALCAN AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
TRANSLATED
ALCAN HISTORICAL ALGROUP
CDN. GAAP TO ALGROUP IAS TO PRO FORMA
HISTORICAL U.S. GAAP NOTE (1), (2) U.S. GAAP ADJUSTMENTS PRO FORMA
ALCAN NOTE (3) (RECLASSIFIED) NOTE (4) NOTE (5) COMBINED
---------- ------------ -------------- --------- ----------- ---------
) (in millions of U.S. dollars
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits......................... 616 -- 286 -- -- 902
Marketable securities.......................... -- -- -- -- -- --
Receivables.................................... 1,461 -- 1,116 -- -- 2,577
Inventories.................................... 1,194 -- 773 (3) -- 1,964
Deferred income taxes.......................... -- -- -- -- 47(a) 47
------ ------ ------ ------ ------ ------
3,271 -- 2,175 (3) 47 5,490
Deferred charges and other assets.............. 481 (4) 28 49 -- 554
Investments.................................... 42 74 8 -- -- 124
Property, plant and equipment.................. 5,794 (2) 1,684 (3) 884(b) 8,357
Goodwill....................................... -- -- 165 146 2,848(c) 3,159
Deferred income taxes.......................... -- -- 45 -- -- 45
Net assets from discontinued operations........ -- -- 1,227 -- (1,227)(d) --
------ ------ ------ ------ ------ ------
TOTAL ASSETS................................... 9,588 68 5,332 189 2,552 17,729
====== ====== ====== ====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables....................................... 1,130 -- 447 -- 158(e) 1,735
Short-term borrowings.......................... 85 -- 803 -- 67(f) 955
Income and other taxes......................... 57 -- 60 -- -- 117
Debt maturing within one year.................. 282 -- -- -- -- 282
------ ------ ------ ------ ------ ------
1,554 -- 1,310 -- 225 3,089
Debt not maturing within one year.............. 1,318 -- 894 -- (309)(g) 1,903
Deferred credits and other liabilities......... 589 -- 825 66 -- 1,480
Deferred income taxes.......................... 768 -- 141 9 247(h) 1,165
Minority interests............................. 111 -- 24 -- -- 135
SHAREHOLDERS' EQUITY
Preference shares.............................. 160 -- -- -- -- 160
Common shareholders' equity
Common shares................................ 1,213 -- 404 -- 4,237(i) 5,854
Retained earnings............................ 3,946 76 1,734 114 (1,848)(j) 4,022
Other........................................ (71) (8) -- -- -- (79)
------ ------ ------ ------ ------ ------
5,248 68 2,138 114 2,389 9,957
------ ------ ------ ------ ------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... 9,588 68 5,332 189 2,552 17,729
====== ====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
130
<PAGE> 141
ALCAN AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FROM CONTINUING OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
TRANSLATED
ALCAN HISTORICAL ALGROUP
CDN. GAAP TO ALGROUP IAS TO PRO FORMA
HISTORICAL U.S. GAAP NOTES (1),(2) U.S. GAAP ADJUSTMENTS PRO FORMA
ALCAN NOTE (3) (RECLASSIFIED) NOTE (4) NOTE (5) COMBINED
------------- ------------ -------------- --------- ----------- -----------
) (in millions of U.S. dollars except per share amounts
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sales and operating revenues.............. 3,598 -- 2,511 -- -- 6,109
Other income.............................. 78 -- -- -- -- 78
----------- ------ ------ ------ ------ -----------
3,676 -- 2,511 -- -- 6,187
COSTS AND EXPENSES
Cost of sales and operating expenses...... 2,864 -- 1,917 69 -- 4,850
Depreciation.............................. 235 (2) 137 -- 44(k) 414
Amortization of goodwill.................. -- -- 5 10 37(l) 52
Selling, administrative and general
expenses................................ 206 -- 247 -- -- 453
Research and development expenses......... 32 -- 20 -- -- 52
Interest.................................. 44 -- 50 (19) (2)(m) 73
Other expenses............................ 77 7 -- -- -- 84
----------- ------ ------ ------ ------ -----------
3,458 5 2,376 60 79 5,978
Income before income taxes and other
items................................... 218 (5) 135 (60) (79) 209
Income taxes.............................. 103 -- 27 (10) (11)(n) 109
----------- ------ ------ ------ ------ -----------
Income before other items................. 115 (5) 108 (50) (68) 100
Equity income (loss)...................... (1) -- 1 -- -- --
Minority interests........................ (5) -- (2) -- -- (7)
----------- ------ ------ ------ ------ -----------
Income from continuing operations......... 109 (5) 107 (50) (68) 93
Dividends on preference shares............ 4 -- -- -- -- 4
----------- ------ ------ ------ ------ -----------
Income from continuing operations
attributable to common shareholders..... 105 (5) 107 (50) (68) 89
=========== ====== ====== ====== ====== ===========
Income from continuing operations per
common share
Basic................................... 0.48 0.25
Diluted................................. 0.48 0.25
Weighted average of common shares
outstanding
Basic................................... 220,100,000 354,144,000
Diluted................................. 215,200,000 349,750,200
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
131
<PAGE> 142
ALCAN AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
TRANSLATED
ALCAN HISTORICAL ALGROUP
CDN. GAAP TO ALGROUP IAS TO PRO FORMA
HISTORICAL U.S. GAAP NOTES (1), (2) U.S. GAAP ADJUSTMENTS PRO FORMA
ALCAN NOTE (3) (RECLASSIFIED) NOTE (4) NOTE (5) COMBINED
---------- ------------ ---------------- --------- ----------- ---------
) (in millions of U.S. dollars
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits....................... 615 -- 262 -- -- 877
Marketable securities........................ -- -- -- -- -- --
Receivables.................................. 1,401 -- 923 -- -- 2,324
Inventories.................................. 1,413 -- 815 5 -- 2,233
Deferred income taxes........................ -- -- -- -- 48(a) 48
------ ------ ------ ------ ------ ------
3,429 -- 2,000 5 48 5,482
Deferred charges and other assets............ 517 2 31 48 -- 598
Investments.................................. 58 45 14 -- -- 117
Property, plant and equipment................ 5,897 (4) 1,806 (3) 884(b) 8,580
Goodwill..................................... -- -- 166 162 2,758(c) 3,086
Deferred income taxes........................ -- -- 53 (6) -- 47
Net assets from discontinued operations...... -- -- 1,317 -- (1,315)(d) 2
------ ------ ------ ------ ------ ------
TOTAL ASSETS................................. 9,901 43 5,387 206 2,375 17,912
====== ====== ====== ====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables..................................... 1,104 -- 511 -- 161(e) 1,776
Short-term borrowings........................ 86 -- 713 -- 67(f) 866
Income and other taxes....................... 28 -- 58 -- -- 86
Debt maturing within one year................ 166 -- 2 -- -- 168
------ ------ ------ ------ ------ ------
1,384 -- 1,284 -- 228 2,896
Debt not maturing within one year............ 1,537 -- 874 -- (316)(g) 2,095
Deferred credits and other liabilities....... 604 -- 787 16 -- 1,407
Deferred income taxes........................ 747 -- 154 22 247(h) 1,170
Minority interests........................... 110 -- 30 -- -- 140
SHAREHOLDERS' EQUITY
Preference shares............................ 160 -- -- -- -- 160
Common shareholders' equity
Common shares.............................. 1,251 -- 458 -- 4,183(i) 5,892
Retained earnings.......................... 4,078 51 1,800 168 (1,967)(j) 4,130
Other...................................... 30 (8) -- -- -- 22
------ ------ ------ ------ ------ ------
5,519 43 2,258 168 2,216 10,204
------ ------ ------ ------ ------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... 9,901 43 5,387 206 2,375 17,912
====== ====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
132
<PAGE> 143
ALCAN AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FROM CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TRANSLATED
ALCAN HISTORICAL ALGROUP
CDN. GAAP TO ALGROUP IAS TO PRO FORMA
HISTORICAL U.S. GAAP NOTES (1),(2) U.S. GAAP ADJUSTMENTS PRO FORMA
ALCAN NOTE (3) (RECLASSIFIED) NOTE (4) NOTE (5) COMBINED
----------- ------------ -------------- --------- ----------- -----------
) (in millions of U.S. dollars except per share amounts
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sales and operating revenues................ 7,789 -- 5,168 -- -- 12,957
Other income................................ 231 -- 170 -- -- 401
----------- ------ ------ ------ ------ -----------
8,020 -- 5,338 -- -- 13,358
COSTS AND EXPENSES
Cost of sales and operating expenses........ 6,076 -- 4,171 (31) -- 10,216
Depreciation................................ 462 (4) 256 -- 88(k) 802
Amortization of goodwill.................... -- -- 10 21 71(l) 102
Selling, administrative and general
expenses.................................. 448 -- 373 5 -- 826
Research and development expenses........... 70 -- 45 -- -- 115
Interest.................................... 92 -- 151 12 (5)(m) 250
Other expenses.............................. 219 (14) 35 -- 29(o) 269
----------- ------ ------ ------ ------ -----------
7,367 (18) 5,041 7 183 12,580
Income before income taxes and other
items..................................... 653 18 297 (7) (183) 778
Income taxes................................ 210 -- 74 6 (31)(n) 259
----------- ------ ------ ------ ------ -----------
Income before other items................... 443 18 223 (13) (152) 519
Equity income (loss)........................ (48) -- 3 -- -- (45)
Minority interests.......................... 4 -- (5) -- -- (1)
----------- ------ ------ ------ ------ -----------
Income from continuing operations........... 399 18 221 (13) (152) 473
Dividends on preference shares.............. 10 -- -- -- -- 10
----------- ------ ------ ------ ------ -----------
Income from continuing operations
attributable to common shareholders....... 389 18 221 (13) (152) 463
=========== ====== ====== ====== ====== ===========
Income from continuing operations per common
share
Basic..................................... 1.71 1.31
Diluted................................... 1.71 1.31
Weighted average of common shares
outstanding
Basic..................................... 227,400,000 354,144,000
Diluted................................... 222,600,000 349,750,200
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
133
<PAGE> 144
ALCAN AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
PURCHASE METHOD -- U.S. GAAP
(IN MILLIONS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
These unaudited pro forma combined financial statements have been prepared
to reflect the combination of Alcan and Algroup using the purchase method and
certain reorganizational events occurring prior to the combination.
These unaudited pro forma combined financial statements have been prepared
using U.S. GAAP which is similar, in all material respects, to Canadian GAAP
except as noted in these notes.
The unaudited pro forma combined financial statements are based on the
following assumptions related to the combination:
- Approval by Alcan's shareholders of the issuance of Alcan common shares to
be delivered to holders of Pechiney Securities and Algroup shares in the
offers. This approval was granted on November 22, 1999.
- All of the outstanding shares of Algroup are tendered for exchange into
Alcan Common Shares.
- Conversion of Algroup's convertible debt.
- Contribution to Algroup's chemicals and energy businesses of $67 pursuant
to the Algroup chemicals division demerger.
- The Algroup chemicals division demerger, which occurred on November 1,
1999.
The unaudited pro forma combined balance sheets are presented as if the
combination between Alcan and Algroup had been effective December 31, 1998 and
June 30, 1999 while the unaudited pro forma combined statements of income are
presented as if the combination between Alcan and Algroup had been effective
January 1, 1998.
The combination will be accounted for as a "purchase" in accordance with
U.S. GAAP. Under this approach, the purchase price for the outstanding shares of
Algroup has been determined to be $34.00 per share based on the average of the
closing price for the Alcan Common Shares on the New York Stock Exchange for the
six trading days beginning on August 6 and ending on August 13, 1999.
The purchase price will be allocated to the Algroup assets acquired and
liabilities assumed based on their estimated fair market value. The excess of
the purchase price over the fair market value of the net assets acquired will be
treated as goodwill, to be amortized over 30 years.
For the purpose of the unaudited pro forma combined financial statements, an
initial purchase price allocation has been performed:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(in milions)of US$l
<S> <C> <C>
Purchase price
Acquisition of Algroup shares............................. 4,641 4,641
Transaction costs (net of tax of 12)........................ 20 20
Book value of net assets acquired........................... (2,252) (2,426)
Less: Cash contribution to Algroup chemicals division..... 67 67
Algroup chemicals division demerger.................. 1,227 1,315
Algroup's predecessor goodwill....................... 311 328
Algroup's transaction costs.......................... 26 29
Conversion of the convertible debentures............. (309) (316)
------ ------
(930) (1,003)
------ ------
Excess of purchase price over the book value of net assets
acquired.................................................. 3,731 3,658
====== ======
Allocation of the excess of the purchase price over the book
value of the net assets acquired
Property, plant and equipment............................. 884 884
Restructuring costs (principally severance costs)......... (100) (100)
Deferred income taxes..................................... (212) (212)
Goodwill.................................................. 3,159 3,086
------ ------
3,731 3,658
====== ======
</TABLE>
134
<PAGE> 145
ALCAN AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
<TABLE>
<S> <C>
The purchase price for Algroup has been determined as
follows:
Algroup shares outstanding.................................. 6,286,126
Exercise of stock options................................. 4,625
Conversion of convertible debentures...................... 325,945
-----------
6,616,696
Exchange ratio.............................................. 20.6291
-----------
Alcan shares to be issued................................... 136,496,483
===========
Price per Alcan share....................................... 34.00
Purchase price.............................................. 4,641
===========
</TABLE>
The final allocation of the purchase price is dependent upon certain
valuations and studies which have not been completed and may result in changes
in the above estimated values and lives for identifiable items as well as
goodwill.
The accompanying unaudited pro forma combined financial statements are based
on and should be read in conjunction with the historical consolidated financial
statements of Alcan and Algroup for the year ended December 31, 1998 and for the
six-month period ended June 30, 1999, including the notes thereto which are
incorporated by reference or included in this document. Certain
reclassifications have been made to the Algroup historical financial statements
to conform to the expected presentation to be used by Alcan upon completion of
the combination.
The pro forma adjustments are based upon available information and include
certain assumptions and adjustments, which the management of Alcan believes to
be reasonable. These adjustments are directly attributable to the combination
and are expected to have a continuing impact on Alcan's business, results of
operations and financial position. The unaudited pro forma combined financial
statements do not give effect to any potential cost savings or other synergies
that could result from the combination. Plans are currently in development to
integrate the operations of Alcan and Algroup, which may involve certain costs,
including severance, property and information technology related costs. Certain
of these costs may be accounted for as accrued liabilities and included in the
allocation of the purchase price consideration at the date of the consummation
of the combination. To the extent that such costs are not accounted for as
accrued liabilities at the date of consummation of the combination, a charge may
result, which may be material. The amount of the charge cannot be quantified at
this time, but is expected to be recognized in the period in which restructuring
occurs. To the extent that such costs are accounted for as accrued liabilities
and included in the allocation of the purchase price consideration, the amount
allocated to goodwill would increase, and pro forma net income from continuing
operations would decrease. For each additional $100 of accrued liabilities
included in the purchase price allocation, pro forma net income from continuing
operations would decrease by $3.
The unaudited pro forma combined financial statements are not necessarily
indicative either of the results that actually would have been achieved if the
transactions reflected therein had been effective during the periods presented
or of the results which may be obtained in the future.
2. FOREIGN CURRENCY TRANSLATION
The Algroup historical balance sheets information and related U.S. and
Canadian GAAP pro forma adjustments as of December 31, 1998 and June 30, 1999
have been translated into U.S. dollars at the December 31, 1998 and June 30,
1999 rates of exchange of US$1 -- CHF 1.3735 and US$1 -- CHF 1.5555,
respectively. The Algroup historical statements of income information for the
year ended December 31, 1998, the six-month period ended June 30, 1999 and
related U.S. and Canadian GAAP pro forma adjustments to the unaudited pro forma
statements of income have been translated at the average rates of exchange of
US$1 -- CHF 1.4506 and US$1 -- CHF 1.4702, respectively.
3. DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP AS THEY APPLY TO ALCAN
Refer to Note 5 of the Alcan consolidated financial statements which are
incorporated by reference into this prospectus for a description of the
differences between Canadian and U.S. GAAP as they apply to Alcan.
4. DIFFERENCES BETWEEN IAS AND U.S. GAAP AS THEY APPLY TO ALGROUP
Refer to Note 33 of the Algroup consolidated financial statements which are
included as Annex B to this prospectus for a description of the differences
between IAS and U.S. GAAP as they apply to Algroup.
135
<PAGE> 146
ALCAN AND ALGROUP -- PURCHASE METHOD -- U.S. GAAP
5. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements incorporate the
following adjustments:
The following adjustments have been made to prepare the pro forma balance
sheet and statement of income. Pro forma income statement adjustments are
assumed to occur as of January 1, 1998. Pro forma balance sheet adjustments are
assumed to occur on the balance sheet date.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(in milions)of US$l
<S> <C> <C>
a) Deferred income taxes on transaction costs............... 19 20
Deferred income taxes on restructuring costs............ 28 28
----- -----
47 48
===== =====
b) Fair value allocation to property, plant and equipment... 884 884
===== =====
c) Elimination of predecessor goodwill...................... (311) (328)
Goodwill arising on acquisition......................... 3,159 3,086
----- -----
2,848 2,758
===== =====
d) Algroup chemicals division demerger...................... 1,227 1,315
===== =====
e) Accrued transaction costs -- Algroup..................... 26 29
-- Alcan........................ 32 32
Accrued restructuring costs............................. 100 100
----- -----
158 161
===== =====
f) Cash contribution to the Algroup chemicals division..... 67 67
===== =====
g) Conversion of convertible debentures into Algroup common
shares.................................................. 309 316
===== =====
h) Deferred income taxes arising on fair value
allocations............................................. 247 247
===== =====
i) Elimination of Algroup common shares.................... (404) (458)
Issuance of Alcan Common Shares......................... 4,641 4,641
----- -----
4,237 4,183
===== =====
j) Elimination of Algroup retained earnings................ 621 652
Chemicals division demerger............................. 1,227 1,315
----- -----
1,848 1,967
===== =====
k) Depreciation on fair value allocation to property, plant
and equipment over 10 years............................. 44 88
===== =====
l) Amortization of goodwill over 30 years.................. 37 71
===== =====
m) Reduction in interest expense on convertible
debentures.............................................. 2 5
===== =====
n) Income taxes on items included in Notes k), m) and o).... 11 31
===== =====
o) Algroup transaction costs................................ -- 29
===== =====
</TABLE>
6. CANADIAN GAAP
Differences in application of the purchase method between U.S. and Canadian
GAAP are not significant except with respect to the determination of the
purchase price. Under Canadian GAAP, the purchase price is based on the market
value of the Alcan common shares for a reasonable period of time before and
after the transaction is consummated while under U.S. GAAP, the purchase price
is based on the market value of the Alcan common shares for a reasonable period
of time before and after the announcement date, which for an Alcan and Algroup
combination was August 11, 1999. For the purpose of the unaudited pro forma
combined financial statements, it is assumed that the average price for a
reasonable period of time before and after the consummation date is the same as
the average price for a reasonable period of time before and after the
announcement date. For every $1 per share increase or decrease in the purchase
price, goodwill would increase or decrease by $136, pro forma net income would
decrease or increase by $4 and earnings per common share would decrease or
increase by $0.01.
7. SENSITIVITY ANALYSIS
The unaudited pro forma combined financial statements are based upon the
assumption that 100% of the Algroup shares are exchanged into Alcan common
shares.
For each 1% decrease in the number of Algroup shares exchanged, pro forma
net income for the year ended December 31, 1998 and for the six-month period
ended June 30, 1999 will decrease by $2 and $1 respectively, pro forma common
shareholders' equity as at December 31, 1998 and June 30, 1999 will decrease by
$46.
136
<PAGE> 147
DESCRIPTION OF ALCAN COMMON SHARES
The authorized capital of Alcan includes an unlimited number of Alcan
common shares of which 217,915,365 shares were issued and outstanding as of
November 30, 1999.
Alcan common shares are subject to the rights of the holders of the
preference shares and of any other senior securities issued in the future.
The holders of common shares are entitled to one vote per share at all
meetings of shareholders of Alcan, to participate ratably in any dividends which
may be declared by the board of directors and, in the event of liquidation,
dissolution or winding-up or other distribution of assets or property of Alcan,
to a pro rata share of the assets of Alcan after payment of all liabilities and
obligations. The common shares have no preemptive, redemption or conversion
rights.
The provisions of the Canada Business Corporations Act require that the
amendment of certain rights of holders of any class of shares, including the
common shares, must be approved by not less than two-thirds of the votes cast by
the holders of such shares voting at a special meeting of the shareholders.
Under Alcan's by-laws, a quorum for a special meeting of the holders of common
shares is 40% of the common shares then outstanding. Therefore, it is possible
for the rights of the holders of common shares to be changed other than by the
affirmative vote of the holders of the majority of the outstanding common
shares. In circumstances where the rights of holders of common shares may be
amended, however, holders of common shares will have the right, under the Canada
Business Corporations Act, to dissent from such amendment and require Alcan to
pay them the then fair value of their common shares.
MARKET PRICE AND DIVIDEND DATA
MARKET PRICES
Alcan
The principal trading markets for Alcan's common shares are the New York
Stock Exchange and The Toronto Stock Exchange. The table below sets forth, for
the periods indicated, the reported high and low quoted prices of the Alcan
shares on the New York Stock Exchange and The Toronto Stock Exchange.
<TABLE>
<CAPTION>
NEW YORK STOCK EXCHANGE TORONTO STOCK EXCHANGE
PRICE PER ALCAN SHARE PRICE PER ALCAN SHARE
------------------------ ----------------------
HIGH LOW HIGH LOW
-------- -------- ------- -------
(US$ ) (US$ ) (C$ ) (C$ )
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
First Quarter............................. 38.250 33.375 52.250 45.700
Second Quarter............................ 37.875 30.500 52.100 42.650
Third Quarter............................. 40.313 33.500 55.700 46.650
Fourth Quarter............................ 35.813 26.063 49.250 37.100
YEAR ENDED DECEMBER 31, 1998
First Quarter............................. 34.500 24.500 48.450 35.100
Second Quarter............................ 33.438 25.938 47.950 38.250
Third Quarter............................. 28.250 18.688 41.600 28.300
Fourth Quarter............................ 28.938 21.750 44.850 33.600
YEAR ENDED DECEMBER 31, 1999
First Quarter............................. 30.875 22.938 46.450 34.150
Second Quarter............................ 33.750 25.938 49.500 38.800
Third Quarter............................. 36.938 29.188 54.900 45.100
Fourth Quarter (through Dec. 22).......... 39.750 31.000 58.950 45.900
</TABLE>
Pechiney
Pechiney A Shares are listed for trading on the monthly settlement market
(Premier Marche a Reglement Mensuel) of the Paris Bourse under the Sicovam code
13290. The Pechiney A Shares are also
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<PAGE> 148
traded in euros on SEAQ International under the symbol "PECHaq.L". The Pechiney
B Shares are listed on the immediate settlement market (Premier Marche au
Comptant) of the Paris Bourse under the Sicovam code 3640. Pechiney ADSs are
listed on the New York Stock Exchange. The table below sets forth, for the
periods indicated, the reported high and low quoted prices of the Pechiney A
Shares on the monthly settlement market (Premier Marche a Reglement Mensuel) of
the Paris Bourse and of the Pechiney B Shares as listed on the immediate
settlement market (Premier Marche au Comptant) of the Paris Bourse as well as
the reported high and low quoted prices of the Pechiney ADSs on the New York
Stock Exchange.
<TABLE>
<CAPTION>
PECHINEY A SHARES PECHINEY B SHARES PECHINEY ADSS
------------------------------------- ------------------------------------- -----------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW
----- ----- ------ ------ ----- ----- ------ ------ ------ ------
) (FF ) (Euros ) (FF ) (Euros (US$)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1997
First Quarter........... 274.3 210.0 23.125 19.625
Second Quarter.......... 236.9 185.5 20.625 16.500
Third Quarter(1)........ 306.0 228.2 300.0 234.0 25.875 18.875
Fourth Quarter.......... 310.0 219.0 303.0 231.0 26.125 18.625
YEAR ENDED DECEMBER 31,
1998
First Quarter........... 290.0 213.0 285.0 230.0 23.375 17.813
Second Quarter.......... 308.9 232.8 308.0 243.8 25.375 20.000
Third Quarter........... 261.0 152.4 264.8 186.0 18.500 15.250
Fourth Quarter.......... 202.0 175.0 231.0 197.8 18.500 15.250
YEAR ENDED DECEMBER 31,
1999
First Quarter........... 34.200 26.700 37.350 30.800 19.125 15.688
Second Quarter.......... 44.060 32.500 44.500 36.200 23.125 17.938
Third Quarter........... 59.150 41.200 60.000 37.500 31.438 21.625
Fourth Quarter through
(Dec. 22)............. 56.600 50.750 70.000 53.800 30.500 27.500
</TABLE>
- ---------------
(1) Pechiney B Shares first began trading publicly on July 16, 1997.
DIVIDENDS
ALCAN. The following table sets forth the aggregate amounts of dividends
paid on each Alcan common share in respect of the six-month period ended June
30, 1999 and each of the five fiscal years ended December 31, 1998.
<TABLE>
<CAPTION>
U.S. DOLLARS PER ALCAN
COMMON SHARE
----------------------
<S> <C>
Six-month period ended June 30, 1999................. 0.30
Year ended December 31,
1998.................. 0.60
1997.................. 0.60
1996.................. 0.60
1995.................. 0.45
1994.................. 0.30
</TABLE>
PECHINEY. The following table sets forth the amounts of dividends paid on
each Pechiney A Share and Pechiney B Share, and the U.S. dollar equivalent of
the amount of dividends paid on each Pechiney ADS for the six-month period ended
June 30, 1999 and each of the five fiscal years ended December 31, 1998.
<TABLE>
<CAPTION>
EURO PER EURO PER U.S. DOLLARS PER
PECHINEY A SHARE PECHINEY B SHARE PECHINEY ADS(1)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Six-month period ended June 30, 1999.............. -- -- --
Year ended December 31,
1998............... 0.80 1.96 0.41
1997............... 0.61 1.57 0.31
1996............... 0.50 1.45 0.26
1995............... 0.50 1.45 0.26
1994............... -- 1.45 --
</TABLE>
- ---------------
(1) Translated for convenience at the rate of exchange of $1.03 euros per
US$1.00, i.e., the June 30, 1999 noon buying rate in New York City for cable
transfers as certified for customs purposes by the Federal Reserve Bank of New
York.
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<PAGE> 149
COMPARISON OF SHAREHOLDERS' RIGHTS
The rights of shareholders of Alcan are governed by the Canada Business
Corporations Act and the provisions of the Alcan Articles of Amalgamation and
by-laws. The rights of shareholders of Pechiney are governed by the French
Company Law and by the provisions of the Pechiney Articles of Association
("statuts"). The following is a summary of the material differences between the
rights of Alcan and Pechiney shareholders. These differences arise from
differences between the Canada Business Corporations Act and the French Company
Law and between Alcan's Articles of Amalgamation and by-laws and Pechiney's
statuts. For more complete information, you should read the articles and by-laws
of Alcan and the statuts of Pechiney.
SIZE AND QUALIFICATIONS OF THE BOARD OF DIRECTORS
ALCAN
Alcan's Articles of Amalgamation provide that the board of directors of
Alcan shall consist of not less than nine, nor more than 20 members. The board
of directors of Alcan currently consists of 12 members. Under the Canada
Business Corporations Act, a majority of the directors generally must be
resident Canadians. However, not more than one-third of the directors of a
holding corporation are required to be resident Canadians where the holding
corporation earns in Canada, directly or through its subsidiaries, less than 5%
of the total corporate gross revenues reflected in its most recent annual
financial statements. The Canada Business Corporations Act also requires that a
corporation whose securities are publicly traded have not fewer than three
directors, at least two of whom are not officers or employees of the corporation
or any of its affiliates.
Under the Canada Business Corporations Act, directors may be elected for a
term expiring not later than the third annual meeting of shareholders following
the election. If no term is specified, a director's term expires at the next
following annual meeting of shareholders. A director may be nominated for re-
election to the board of directors at the end of his term. Currently, all of the
members of Alcan's board of directors are elected at each annual meeting.
Alcan's Articles of Amalgamation provide that the directors can appoint one
or more additional directors above the number elected at the prior meeting
provided that the total number of directors so appointed does not exceed
one-third of the number of directors elected at the previous annual meeting.
PECHINEY
Pechiney's statuts provide that the board of directors of Pechiney shall
consist of:
- not less than nine, nor more than 20 members appointed by the
shareholders of Pechiney during an ordinary shareholders' meeting; under
French law, these members may be natural persons or legal entities;
- two members elected by and among the employees of Pechiney and its
direct and indirect French subsidiaries, or three members so elected if
the board of directors of Pechiney comprises 15 members or more; and
- one member representing the employee-shareholders of Pechiney and its
affiliate companies (in the meaning of applicable French Company Law)
appointed by the shareholders of Pechiney during an ordinary
shareholders' meeting among two candidates or more previously elected by
and among such employee-shareholders (either directly or through a fonds
commun de placement d'entreprise), provided that this member cannot be
reappointed nor replaced if the aggregate number of Pechiney Securities
held by these employees does not represent at least 5% of the total
number of outstanding Pechiney Securities.
Under French Company Law, each director must be a shareholder of the
corporation and according to the statuts of Pechiney, hold at least 10 shares
for as long as he serves as a director. As of December 31, 1999, the board of
directors of Pechiney consisted of 15 members, including 3 members elected by
the employees of Pechiney and its French direct and indirect subsidiaries.
French Company Law provides that each director is eligible for
reappointment upon expiration of his term of office, which is fixed at six years
by Pechiney's statuts, provided that no more than one-third of the directors may
be over 70 years old.
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<PAGE> 150
The chairman of the board of directors of Pechiney is elected by and among
the board members and must be a natural person. Pechiney's statuts provide that
the chairman shall serve for the term determined by the board members when the
chairman is elected. Under French Company Law, the term of the chairman is
automatically terminated upon the expiration of his term as a director and he
may be re-elected as chairman upon his re-election as a director.
DUTIES OF THE BOARD OF DIRECTORS
ALCAN
Alcan's Articles of Amalgamation provide for no restrictions on the
business the corporation may conduct. Under the Canada Business Corporations
Act, the directors have the power to manage the business and affairs of Alcan
and owe fiduciary duties to Alcan. In exercising these powers and discharging
these duties, each director must act honestly and in good faith with a view to
the best interests of the corporation. This duty of care requires that the
directors exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances.
PECHINEY
Pechiney's statuts provide that the board of directors of Pechiney is
vested with the fullest powers to act in any circumstance on behalf of Pechiney,
within the scope of Pechiney's purpose and subject to those powers expressly
attributed by the law to shareholder meetings or to the chairman.
In accordance with French Company Law, Pechiney's statuts provide that the
chairman also serves as president of the company and ensures the management of
the company (i.e. chief executive officer) during his entire term of office and
is vested with the fullest powers to act in any circumstance on behalf of
Pechiney and to represent the company towards third parties, within the scope of
Pechiney's corporate purpose and subject to those powers expressly attributed by
French Company Law to shareholders' meetings or to the board of directors.
The members of the board of directors of Pechiney owe a duty of loyalty and
care to Pechiney. Members of the board of directors of Pechiney are held
accountable, either individually or jointly, as applicable, to the Company or to
third parties for breaches of legislative or regulatory provisions applicable to
public limited companies, for violations of the statuts and for mismanagement.
TRANSACTIONS WITH INTERESTED DIRECTORS AND OFFICERS
ALCAN
Under the Canada Business Corporations Act, contracts or transactions in
which a director or officer has an interest are not invalid because of such
interest, provided that the director or officer who is party to a material
contract or transaction discloses his or her interest in writing to the
corporation or requests to have entered in the minutes of meetings of directors
the nature and extent of his or her interest. If such interest exists, the
director generally may not vote on any resolution to approve the contract or
transaction. No such contract is void or voidable by reason only of the
relationship if such interest is properly disclosed, the contract is approved by
the other directors or by the shareholders and it was fair and reasonable to the
corporation at the time it was approved.
Where a contract or transaction is proposed that, in the ordinary course of
the corporation's business, would not require approval by the directors or
shareholders, the interested director or officer shall disclose in writing to
the corporation or request to have entered in the minutes of meetings of
directors, the nature and the extent of his or her interest forthwith after the
director or officer becomes aware of the contract or transaction or proposed
contract or transaction.
PECHINEY
Under French Company Law, any transaction between, directly or indirectly,
Pechiney and a member of its board of directors and/or its managing directors,
if any, which cannot be reasonably considered in the ordinary course of business
of the company and not at arm's-length is subject to the board of directors'
prior consent. Any transaction concluded without the prior consent of the board
of directors can be nullified if it caused a prejudice to the company. The
interested member of the board of directors
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<PAGE> 151
or managing director can be held liable on this basis. The statutory auditor
must be informed of the transaction within one month following its conclusion
and must prepare a report to be submitted to the shareholders for approval at
their next meeting. In the event the transaction is not ratified by the
shareholders during a shareholder's meeting, it will remain enforceable by third
parties as against the corporation, but the latter may in turn hold the
interested member of the board of directors and possibly the other members of
the board of directors liable for any damages it may suffer as a result thereof.
In addition, in this case, the transaction may be cancelled if it is fraudulent.
Moreover, certain transactions between Pechiney and a member of its board of
directors, and/or its managing directors, if any, are prohibited under French
Company Law.
LIABILITY OF DIRECTORS
ALCAN
Under the Canada Business Corporations Act, except in an action by or on
behalf of the corporation to procure a judgment in its favor, a corporation may
indemnify a director or officer, a former director or officer or a person who
acts or acted at the corporation's request as a director or officer of a body
corporate of which the corporation was or is a shareholder or creditor, and the
individual's heirs and legal representatives, against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a judgment,
reasonably incurred in respect of any civil, criminal or administrative action
or proceeding to which the individual is made a party by reason of being or
having been a director or officer of the corporation or body corporate if:
(1) he acted honestly and in good faith with a view to the best interests
of the corporation; and
(2) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he had reasonable grounds to
believe that his or her conduct was lawful.
Such officer or director is entitled to indemnity from the corporation if
substantially successful on the merits in defense of the action or proceeding
and the individual fulfilled the conditions set out in (1) and (2) above. A
corporation may, with the approval of a court, also indemnify an officer or
director with respect to an action by or on behalf of the corporation or
corporate body to procure a judgment in its favor, if the officer or director
fulfills the conditions set out in (1) and (2) above.
PECHINEY
French Company Law provides that any clause of the statuts of a company
which subordinates the proceedings against the members of the board of directors
to the prior approval or to the authorization of the general shareholders'
meeting or which provides in advance for the waiver of such actions is void.
French Company Law also provides that a resolution adopted by the general
shareholders' meeting cannot result in the extinction of an action brought
against the members of the board of directors for damages due to breach of duty
in their official capacity.
ELECTION AND REMOVAL OF DIRECTORS
ALCAN
Shareholders of a corporation governed by the Canada Business Corporations
Act elect directors by ordinary resolution at each annual meeting of
shareholders at which such an election is required. Under the Canada Business
Corporations Act, the shareholders of Alcan may remove any director before the
expiration of his term of office and may elect any qualified person in such
director's stead for the remainder of such term by a resolution passed by a
majority of the votes cast at a meeting of shareholders called for that purpose.
Under the Canada Business Corporations Act, vacancies that exist on the board of
directors may be filled by the board if the remaining directors constitute a
quorum. In the absence of a quorum, the remaining directors shall call a meeting
of shareholders to fill the vacancy.
PECHINEY
The members of the board of directors of Pechiney may be removed, with or
without cause, prior to the expiration of their terms by a majority vote of the
stockholders. Under French Company Law, removal
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<PAGE> 152
of a member of the board of directors of Pechiney will not subject Pechiney to
liability unless the removed director shows that such director's removal was
made in an injurious and/or vexatious manner.
As required by the French Company Law and Pechiney's statuts, in the case
of a vacancy resulting from the resignation or death of a member of the board of
directors of Pechiney, the remaining members may fill the vacancy by appointing
a new member of the board of directors of Pechiney, subject to ratification by
the shareholders at the next ordinary general meeting. Both the representatives
of the employees and of the employee-shareholders on the board of directors lose
their office in the case of a termination of their employment agreement. The
employee representative is automatically replaced, whereas the vacancy of the
employee shareholder is filled at the next general meeting.
SHAREHOLDER NOMINATIONS
ALCAN
Any shareholder of a corporation governed by the Canada Business
Corporations Act may make nominations at a shareholder meeting for the election
of directors. Such nominations may be made as a shareholder proposal that is
included in the corporation's proxy material if the proposal is signed by the
holders of not less than 5% of the shares of any class entitled to vote at the
meeting to which the proposal is presented. Shareholders of Canadian
corporations may also independently solicit proxies for the election to the
board of directors of nominees other than those presented by management.
Historically, Alcan's corporate governance committee has recommended candidates
for election to the board of directors and the shareholders elect those nominees
at each annual meeting.
PECHINEY
Under French Company Law, stockholders can nominate individuals for the
board of directors of Pechiney at a shareholders' meeting. If the nomination is
part of the agenda of the shareholders' meeting, the nomination must contain the
name, age, professional references, professional activity for the past five
years of the candidate and the number of Pechiney shares owned by such
candidate, if any. Such information must be made available to the shareholders
by the board of directors of Pechiney no less than 15 days before the meeting.
In addition, if the agenda for the stockholder's meeting includes the election
of members of the board of directors of Pechiney, any stockholder may propose a
candidate for election to the board of directors of Pechiney at the
stockholders' meeting, even if the stockholder has not followed the procedures
to make such nomination in advance of the stockholders' meeting and to have the
board of directors of Pechiney notify the stockholders of such nomination in
advance of the stockholders' meeting. Under French Law, a general shareholders'
meeting cannot appoint a new director if its agenda does not include the
election of members of the board of directors, unless such nomination is
necessary to fill the vacancy due to the previous revocation of a director.
SHAREHOLDERS' MEETINGS
ALCAN
Under the Canada Business Corporations Act, the directors of a corporation
must call an annual meeting not later than 18 months after the corporation comes
into existence and thereafter, not later than 15 months after holding the last
preceding annual meeting.
The Canada Business Corporations Act provides that special shareholder
meetings may be called by the board of directors at any time and must be called
by the board of directors when requisitioned by holders of not less than 5% of
the issued shares of the corporation that carry the right to vote at the meeting
sought. If the board of directors fails to call a properly requisitioned meeting
within 21 days after receiving the request, any shareholder who signed the
requisition may call the meeting.
All shareholders' meetings, whether annual or special, must be held in
Canada. Notice of the time and place of a meeting must be sent by the
corporation not less than 21 nor more than 50 days before the meeting to each
shareholder entitled to vote at the meeting, each director of the corporation
and the auditors of the corporation. On the application of a director, a
shareholder entitled to vote at a meeting or the Director appointed under the
Canada Business Corporations Act, a court may order a shareholder meeting to be
held.
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<PAGE> 153
Under Alcan's by-laws, the holders of 40% of the shares entitled to vote at
a meeting, present in person or by proxy, constitute a quorum. The provisions
attached to a specific class or series of shares in Alcan's Articles of
Amalgamation, as amended from time to time, may prescribe a different quorum for
meetings of holders of that class or series of shares.
Any person entitled to notice of a shareholder meeting may attend that
meeting. A shareholder may appoint a proxyholder, who need not be a shareholder,
to attend and act at the meeting in accordance with the authority conferred by
the proxy.
PECHINEY
As required by French Company Law, an annual ordinary general meeting of
the stockholders is to be held within six months of the end of the Company's
fiscal year to among other things, ratify transactions between Pechiney and any
member of the board of directors and/or any managing director, if any, to
receive the board of directors' annual report and the statutory auditor's
reports on the operations of the company for the past fiscal year and approve
the financial statements therefor.
All shareholders' meetings, whether ordinary, extraordinary or special, are
held pursuant to an announcement notice published in a French official legal
gazette (Bulletin des annonces civiles obligatoires or BALO) at least 30 days
before the meeting will take place on first call. This legal requirement applies
to Pechiney as long as Pechiney remains listed on the Paris Bourse. In addition,
a notice to attend the meeting must be further published in the French official
legal gazette (BALO) and in a newspaper authorized to publish legal
announcements and the period of time between the publication of this notice and
the date of the meeting shall be no fewer than 15 days for the first notice (on
first call) and six days for the following notice (on second call). The same
notice must be sent to each shareholder holding shares in his name in registered
form for at least one month prior to the date of the publication in the
newspaper and to the auditors of the company. In the event the board of
directors of Pechiney fails to publish such notice or call a required meeting, a
meeting may be convened by Pechiney's statutory auditor or a court appointed
agent. A court may be requested to appoint an agent by:
- one or more shareholders holding in the aggregate at least 10% of the
capital for a general meeting or 20% of a specific category of shares
for special meetings;
- any interested party in cases of emergency; or
- as long as Pechiney remains listed on the Paris Bourse, certain duly
qualified associations of shareholders.
A quorum for an ordinary general shareholders' meeting consists of the
holders of shares constituting one-fourth of the voting power of the outstanding
shares of Pechiney entitled to vote during this ordinary meeting taking place on
the first call. If this quorum is not reached, no quorum is required with
respect to the ordinary meeting which takes place with the same agenda on the
second call. A quorum for an extraordinary stockholders' meeting consists of the
holders of shares constituting one-third of the voting power of the outstanding
shares of Pechiney entitled to vote during this extraordinary meeting taking
place on the first call. If this quorum is not reached, the quorum consists of
one-fourth of the voting power of the outstanding shares of Pechiney entitled to
vote during the extraordinary meeting which takes place with the same agenda on
the second call.
A quorum for a special shareholders' meeting consists of the holders of
shares constituting one half of the voting power of the outstanding shares of
Pechiney entitled to vote during this special meeting taking place on the first
call. If this quorum is not reached, the quorum consists of one-forth of the
voting power of the outstanding shares of Pechiney entitled to vote during the
special meeting which takes place with the same agenda on the second call. A
majority of the vote cast is required for actions taken at an ordinary
shareholders' meeting and a qualified majority equal to two-thirds (2/3) of the
vote cast is required for actions taken at an extraordinary shareholders'
meeting, provided that unanimity is required to increase liabilities of
stockholders. A qualified majority equal to two-thirds (2/3) of the vote cast is
required for actions taken by a special shareholders' meeting.
According to Pechiney's statuts, only those shareholders owning ten or more
shares are authorized to participate at an ordinary shareholders' meeting.
Several shareholders may join together to reach this
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<PAGE> 154
minimum number and be represented by one of them or their spouse. Any
shareholder owning one share or more is authorized to participate in an
extraordinary shareholders' meeting.
SHAREHOLDERS' PROPOSALS
ALCAN
Under the Canada Business Corporations Act, a shareholder entitled to vote
at an annual meeting of shareholders may submit a proposal consisting of matters
that the shareholder proposes to raise at the next annual meeting. Upon receipt
of the proposal, a corporation that solicits proxies shall set out the proposal
in the management proxy circular and, if requested by the shareholder, include
in the management proxy circular a statement by the shareholder of not more than
200 words in support of the proposal, and the name and address of the
shareholder.
A corporation may within 10 days after receiving a shareholder proposal,
notify the shareholder of its intention to omit the proposal from the management
proxy circular if:
- the proposal is not submitted at least 90 days before the anniversary
date of the previous annual meeting;
- it appears that the proposal is submitted by the shareholder for the
purpose of securing publicity or enforcing or redressing a personal
claim or grievance, or primarily for the purpose of promoting general
economic, political, racial, religious, social or similar causes;
- the corporation, in the previous two years, included a substantially
similar proposal at the request of the shareholder and the shareholder
failed to present the proposal at the annual meeting; or
- a substantially similar proposal was submitted to shareholders within
the past two years and the proposal was defeated.
PECHINEY
Under French Company Law, shareholders representing, individually or
collectively, a defined percentage (less than 5%) of the capital of Pechiney may
request that a resolution that they proposed for adoption at the shareholder
meeting be included in the agenda. Such request must be made within 10 days of
the publication of the announcement notice of the shareholders' meeting in the
French official legal gazette (BALO) and must specify the reasons for such
resolution. In addition, French Company Law requires that the board of directors
of Pechiney respond during such meeting to any questions submitted in writing by
any stockholder.
SHAREHOLDER ACTION BY WRITTEN CONSENT
ALCAN
Under the Canada Business Corporations Act, shareholder action without a
meeting may be taken only by written resolution signed by all shareholders who
would be entitled to vote thereon at a meeting.
PECHINEY
French Company Law does not permit stockholders to act by written consent
outside a general stockholders' meeting. However, shareholders can give a proxy
to the chairman or to another shareholder (natural persons are also authorized
to give a proxy to their spouses) or participate in the meeting through a
mail-in voting form. In the event that a shareholder gives a proxy in blank
without nominating a representative, the chairman of the shareholders' meeting
will vote the shares covered by such blank proxy in favor of all resolutions
proposed or agreed by the board of directors against all others.
PAYMENT OF DIVIDENDS
ALCAN
Under the Canada Business Corporations Act, a corporation may pay a
dividend by issuing fully paid shares of the corporation. A corporation may also
pay a dividend in money or property unless there are reasonable grounds for
believing that:
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<PAGE> 155
(1) the corporation is, or would after the payment be, unable to pay its
liabilities as they become due; or
(2) the realizable value of the corporation's assets would thereby be less
than the aggregate of its liabilities and stated capital of all classes.
PECHINEY
Net income in each fiscal year, after deduction for depreciation and
provisions, as increased or reduced, as the case may be, by a profit or loss
carried forward from prior years, less any contributions to legal reserves,
constitutes the distributable profits (benefice distribuable) available for
distribution to the shareholders of a French company as dividends, subject to
requirements of French law and Pechiney's statuts.
Under French law, Pechiney is required to allocate five percent of its net
profits in each fiscal year to a legal reserve fund until the amount in such
reserve fund is equal to 10% of the nominal amount of the outstanding share
capital. The legal reserve is distributable only upon the liquidation of the
company.
Except in the case of a decrease in share capital, no distribution may be
made to shareholders, if as a result of such distribution, the shareholders'
equity would fall below the amount of the share capital increased by those
reserves which may not be distributed according to applicable legal provisions
or the statuts. The amount of dividends is fixed at the ordinary general meeting
of shareholders at which the annual accounts are approved, following the
recommendation of the board of directors. The methods of payment of dividends
are determined by the general shareholders' meeting or by the board of directors
in the absence of a decision by the shareholders.
If the company has earned a profit since the end of the preceding fiscal
year, as shown on an interim balance sheet certified by the company's auditors,
the board of directors has the authority, subject to French law and regulations,
prior to the approval of the annual financial statements by the shareholders, to
distribute interim dividends to the extent of such profit.
VOTING RIGHTS
ALCAN
Under the Canada Business Corporations Act, an amendment to a corporation's
articles generally requires shareholder approval by special resolution. A
special resolution is a resolution passed by a majority of not less than
two-thirds of the votes cast by the shareholders who are entitled to vote on the
resolution in person or by proxy at the annual or special meeting called for
such purpose, whether or not the shares held by them are designated as voting
shares in the corporation's articles of incorporation. In certain cases, a
special resolution to approve an extraordinary corporate action, such as an
amendment to the articles of incorporation that adversely affects the rights of
a particular class or series of shares, may also be required to be approved
separately by the holders of a class or series of shares, including a class or
series that does not otherwise carry the right to vote.
Under the Canada Business Corporations Act, unless the articles or by-laws
otherwise provide, the directors may, by resolution, make, amend or repeal any
by-law that regulates the business or affairs of a corporation. Where the
directors make, amend or repeal a by-law, they are required under the Canada
Business Corporations Act to submit the by-law, amendment or repeal to the
shareholders at the next meeting of shareholders. The shareholders may confirm,
reject or amend the by-law, amendment or repeal, by an ordinary resolution,
which is a resolution passed by a majority of the voting shareholders.
Under the Canada Business Corporations Act, the following transactions also
require shareholder approval by special resolution:
- amalgamations, other than an amalgamation between a parent corporation
and one or more of its wholly-owned subsidiaries or between two or more
of such subsidiaries, continuances, sales, leases or exchanges of all or
substantially all of the property of a corporation other than in the
ordinary course of business;
- liquidations; and
- dissolutions.
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In certain cases, a special resolution to approve an extraordinary corporate
action must also be approved separately by the holders of a class or series of
shares or by a majority of the votes cast by disinterested shareholders.
A corporation may also apply to a court for an order approving an
arrangement, which could include an amendment of the corporation's articles, an
amalgamation, a transfer of all or substantially all the property of a
corporation to another corporation in exchange for property, money or securities
of the corporation, or liquidation and dissolution of the corporation where it
is not insolvent and where it is not practicable for the corporation to make
such fundamental change in accordance with the provisions of the Canada Business
Corporations Act. The court may make any interim or final order it thinks fit
with respect to such proposed arrangement. Generally, an arrangement involving a
public company must receive shareholder approval as a condition of obtaining the
court order.
PECHINEY
Under French Company Law, the following fundamental transactions require
the approval of the holders of a qualified majority of at least two-thirds (2/3)
of the shares entitled to vote:
- amendments to the Articles of Association;
- transfer of the registered office to a non-neighboring department;
- increase or decrease of the registered capital;
- exclusion of the shareholders' preemptive rights, with respect to any
transaction which either immediately or with the passage of time would
result in an increase in the registered capital;
- authorization of employee stock option and/or purchase plans;
- authorizations of mergers, spin-offs, partial contribution of assets,
dissolution of the corporation, as well as, disposition of all or
substantially all of the assets of Pechiney if such disposition would
entail a modification of the company's corporate purpose.
In addition, the transformation of the corporation into another type of
legal entity requires, depending on the new type of entity, either a unanimous
vote of the stockholders or the approval of the holders of a qualified majority
of at least 75% or two-thirds (2/3) of the shares entitled to vote.
APPRAISAL RIGHTS
ALCAN
The Canada Business Corporations Act provides that shareholders of Alcan
entitled to vote on certain matters are entitled to exercise dissent rights and
be paid the fair value of their shares. The Canada Business Corporations Act
does not distinguish for this purpose between listed and unlisted shares. Such
matters include the following:
- any amalgamation with a corporation, other than with certain subsidiary
corporations;
- an amendment to the articles to add, change or remove any provisions
restricting the issue, transfer or ownership of shares;
- a continuance under the laws of another jurisdiction;
- a sale, lease or exchange of all or substantially all of the property of
the corporation other than in the ordinary course of business;
- a proposed arrangement transaction, where a court order issued in
connection with an application for court approval of the arrangement
permits the exercise of dissent rights; or
- certain amendments to the articles of a corporation which require a
separate class or series vote, provided that a shareholder is not
entitled to dissent if an amendment to the articles is effected by a
court order made in connection with an action for an oppression remedy.
Under the Canada Business Corporations Act, a shareholder may, in addition
to exercising dissent rights, seek an oppression remedy for any act or omission
of a corporation which is oppressive, unfairly prejudicial to or that unfairly
disregards a shareholder's interest.
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PECHINEY
Under applicable French stock market regulations, a shareholder who comes
to hold, alone or in concert, at least 95% of the voting rights of a listed
company may initiate a withdrawal offer (offre publique de retrait) and
following such offer and subject to the initiator having decided at the time of
the launch of the offer, such withdrawal offer may be followed by a mandatory
squeeze out (retrait obligatoire) of the remaining minority shareholders. The
majority shareholder may also reserve its right to initiate a squeeze out until
the withdrawal offer has been completed. In the case of one majority shareholder
holding 95% of the voting rights, any holder of voting equity securities who
does not belong to the majority group can also apply to the CMF to require the
majority shareholder or group of shareholders to file a withdrawal offer, and to
thus offer to acquire the shares of the minority.
In such instance, the consideration to be given to the minority under the
squeeze out cannot be lower than the withdrawal offer (and higher if any event
which would be of influence to the value of the company's securities occurred
after the withdrawal offer was declared receivable by the CMF). The
consideration offered must, in addition, be appraised by an independent expert.
OPPRESSION REMEDY
ALCAN
The Canada Business Corporations Act provides an oppression remedy that
enables the court to make any order, both interim and final, to rectify the
matters complained of if the court is satisfied, upon application by a
complainant, as defined below, that:
- any act or omission of the corporation or an affiliate effects a result;
- the business or affairs of the corporation or an affiliate are or have
been carried on or conducted; or
- the powers of the directors of the corporation or an affiliate are or
have been exercised;
in a manner that is oppressive or unfairly prejudicial to, or that
unfairly disregards the interests of, any security holder, creditor,
director or officer of the corporation or an affiliate.
A complainant includes:
- a present or former registered holder or beneficial owner of securities
of a corporation or any of its affiliates;
- a present or former officer or director of the corporation or any of its
affiliates;
- the Director appointed under the Canada Business Corporations Act; and
- any other person who in the discretion of the court is a proper person
to make such an application.
Because of the breadth of the conduct which can be complained of and the
scope of the court's remedial powers, including the power to order liquidation
and dissolution of the corporation concerned, the oppression remedy is very
flexible and may be relied upon to safeguard the interests of shareholders and
other complainants that have a substantial interest in the corporation. Under
the Canada Business Corporations Act, it is not necessary to prove that the
directors of a corporation acted in bad faith in order to seek an oppression
remedy.
Additionally, under the Canada Business Corporations Act, a court may order
a corporation or its subsidiary to pay the complainant's interim costs,
including legal fees and disbursements. Although the complainant may be held
accountable for the interim costs on final disposition of the complaint, it is
not required to give security for costs in an oppression action.
PECHINEY
The French Company Law does not provide for an oppression remedy.
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STOCKHOLDER SUITS
ALCAN
Under the Canada Business Corporations Act, a complainant may apply to the
court for leave to bring an action in the name of and on behalf of a corporation
or any subsidiary, or to intervene in an existing action to which such
corporation is a party, for the purpose of prosecuting, defending or
discontinuing the action on behalf of the corporation or any subsidiary. Under
the Canada Business Corporations Act, no action may be brought and no
intervention in an action may be made unless the court is satisfied that:
- the complainant has given reasonable notice to the directors of the
corporation or its subsidiary of the complainant's intention to apply to
the court and the directors of the corporation or its subsidiary do not
bring, diligently prosecute or defend or discontinue the action;
- the complainant is acting in good faith; and
- it appears to be in the interests of the corporation or its subsidiary
that the action be brought, prosecuted, defended or discontinued.
Under the Canada Business Corporations Act, the court in such a derivative
action may make any order it thinks fit including:
- an order authorizing the complainant or any other person to control the
conduct of the action;
- an order giving directions for the conduct of the action;
- an order directing that any amount adjudged payable by a defendant in
the action shall be paid, in whole or in part, directly to former and
present security holders of the corporation or its subsidiary instead of
to the corporation or its subsidiary; and
- an order requiring the corporation or its subsidiary to pay legal fees
and any other costs reasonably incurred by the complainant in connection
with the action.
Additionally, under the Canada Business Corporations Act, a court may order
a corporation or its subsidiary to pay the complainant's interim costs,
including legal fees and disbursements. Although the complainant may be held
accountable for the interim costs on final disposition of the complaint, the
complainant is not required to give security for costs in a derivative action.
Once commenced, a derivative proceeding may not be discontinued or settled
without the court's approval.
PECHINEY
Under French Company Law, any shareholder, whatever percentage of the
capital of Pechiney it represents, or any group of shareholders representing, in
the aggregate, a certain portion of the capital of Pechiney (depending on the
outstanding capital of Pechiney), may bring an action for and on behalf of
Pechiney against board members to allow the corporation to recover any damages
suffered by it.
INSPECTION OF BOOKS AND RECORDS
ALCAN
The shareholders, directors and creditors of a corporation incorporated
under the Canada Business Corporations Act, and their agents and legal
representatives, may examine:
- the corporation's articles and by-laws and any amendments thereto;
- minutes of meetings and resolutions of the corporation's shareholders;
- a list of directors; and
- a securities register;
during the usual business hours of the corporation free of charge. A shareholder
of the corporation is entitled, on request and without charge, to take extracts
from those materials and to receive one copy of the articles and by-laws of the
corporation and any amendments thereto.
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As Alcan is a public company, any person, upon payment of a reasonable fee
and providing to Alcan or its agent an affidavit confirming the name and address
of the applicant and stating that the list and any supplemental lists obtained
will not be used other than in connection with:
- an effort to influence shareholder voting;
- an offer to acquire securities of Alcan; or
- any other matter relating to the affairs of Alcan;
may require Alcan or its agent to provide a current list setting out the names
of Alcan's registered holders of shares, options and rights, the number of
shares owned by each shareholder and the address of each holder of shares,
options and rights as shown on the records of the corporation.
PECHINEY
Pechiney's statuts provide that shares may be held in registered or bearer
form at the option of the holder. Pechiney's statuts permit the company to use
the procedure know as titres au porteur identifiables, according to which
Sicovam (the French clearing house system) will, upon Pechiney's request,
disclose:
- the shareholders' name or, concerning legal entities, their corporate
name,
- their nationality,
- their address,
- the number of securities held by each of them which have or which may in
the future acquire, voting rights,
- the year of birth of the shareholders, or the year of setting up of the
legal entities.
Such information may only be requested by Pechiney itself and not
communicated to third parties.
PREEMPTIVE RIGHTS
ALCAN
Under the Canada Business Corporations Act, if the articles of a
corporation so provide, no shares of a class shall be issued, except in limited
circumstances, unless the shares have first been offered to shareholders holding
shares of that class, and those shareholders have preemptive rights to acquire
the offered shares in proportion to their holdings of the shares of that class,
at such price and on such terms as those shares are to be offered to others.
Alcan's Articles of Amalgamation do not currently provide for preemptive rights
of the holders of any of its outstanding shares.
PECHINEY
Under French Company Law, an existing shareholder of a corporation has a
preemptive right to subscribe for any shares or any securities convertible into,
or otherwise giving access to, shares either immediately or with the passage of
time and issued by such corporation in proportion to the shares already held by
such shareholder, unless such right is excluded at an extraordinary general
shareholders' meeting. According to French Company Law, under certain
conditions, unexercised preemptive rights may be individually waived by the
shareholders or transferred to third parties. If expressly authorized at the
extraordinary general shareholders' meeting approving the capital increase, the
shareholders, as well as the third parties to whom preemptive rights were
transferred, may subscribe for the shares subject to the capital increase above
and beyond their pro rata interest in the share capital of the corporation by
subscribing the stock reserved for shareholders who neither exercised nor
transferred their preemptive rights.
TAKE-OVER BIDS AND COMPULSORY ACQUISITION OF SHARES
ALCAN
If a share acquisition constitutes a take-over bid and is not otherwise
exempt, it must be made to all holders of the relevant class by way of a formal
offer and offering circular in the form prescribed under Canadian securities
legislation and the Canada Business Corporations Act. A "take-over bid" includes
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any offer to acquire a number of voting securities which, when added to the
existing holdings of the offeror and its joint actors, would constitute 10% or
more of that class of securities. The bid must remain open for a period of 21
days and, if the consideration offered under the bid includes shares, the bid
documents must contain prospectus-like disclosure with respect to the issuer of
the shares. There are several exemptions under which an offer which constitutes
a "take-over bid" may be made on an "exempt basis"; that is, without that offer
having to be extended to all security holders. The most frequently used
exemptions are:
- the private purchase exemption, which permits acquisitions of any number
of securities in private agreements with not more than 5 persons or
companies if the value of the consideration does not exceed 115% of the
market price of the class of securities at the date of purchase; and
- normal course purchases in any 12 month period through the facilities of
a stock exchange of up to 5% of the class of securities outstanding at
the commencement of such period at prices not in excess of the market
price at the date of acquisition.
Under the Canada Business Corporations Act, if within 120 days of a
take-over bid the holders of 90% of the shares of any class, excluding shares
held by or on behalf of the offeror, accept the take-over bid of that offeror,
the offeror is entitled to acquire the remaining shares of that class. The
holders of the shares not tendered to the take-over bid may elect to transfer
the shares to the offeror on the terms of the take-over bid or to demand payment
of the fair value of those shares.
The securities laws and policies of certain Canadian provinces regulate
take-over bids and related transactions involving Canadian public companies,
including bids for securities of a corporation by its insiders, bids by a
corporation to acquire its own securities and going private transactions in
which the interests of shareholders would be terminated in certain
circumstances, such as a compulsory acquisition of shares described in the
preceding paragraph. Depending on the circumstances, these laws and policies
seek to enhance minority shareholder protections by providing for such things as
independent valuations, approval by a majority of the minority shareholders
concerned and enhanced disclosure, and by recommending the use of independent
directors to review such matters.
PECHINEY
Under applicable French Stock Exchange Regulations, where a natural person
or a legal entity, acting alone or in concert, come to hold, directly or
indirectly, more than a third of the securities or more than a third of the
voting rights of a listed company, this person or legal entity is obliged to
make a tender offer for the entire capital of the company and the other
securities giving access, either immediately or with the passage of time, to the
capital or to the voting rights of the company. Such offer must be on terms and
conditions that are acceptable to the French Conseil des Marches.
The same provisions apply to any natural person or legal entity acting
alone or in concert:
(i) which holds directly or indirectly between a third and a half of the
securities or the voting rights of a company and which, in less than
twelve consecutive months, increases the number of securities or the
voting rights it holds by at least 2% of all the securities or the
voting rights of the company; and
(ii) where more than one third of the capital or voting rights of a listed
company is held by another company and constitutes an essential part
of such company's assets and where:
- a person acquires the control (as determined by French Company Law)
of this company;
- a group of persons acting in concert holds more than 50% of the
capital or of the voting rights of this company without any of
these persons continuing to hold the control individually.
French Stock Exchange Regulations provide certain exemptions to the
obligation to make such mandatory offer, which could be allowed by the CMF.
The bid must remain open for a period of 25 trading days.
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VALIDITY OF SECURITIES
The legality of the Alcan common shares to be issued pursuant to the
combination and certain Canadian tax consequences of the offer will be passed
upon for Alcan by McMillan Binch. Certain U.S. tax consequences of the offer
have been passed upon for Alcan by Milbank, Tweed, Hadley & McCloy LLP.
EXPERTS
The consolidated financial statements of Alcan as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998
incorporated into this prospectus by reference to Alcan's Annual Report on Form
10-K for the year ending December 31, 1998 have been so incorporated in reliance
on the report of PricewaterhouseCoopers LLP (Montreal, Canada), independent
accountants, given upon the authority of that firm as experts in auditing and
accounting.
The consolidated financial statements of Pechiney as of December 31, 1998
and 1997 and for each of the three years in the period ended December 31, 1998
incorporated in this prospectus by reference to Pechiney's Annual Report on Form
20-F for the year ending December 31, 1998 have been so incorporated in reliance
on the report of PricewaterhouseCoopers (Paris, France), independent
accountants, given upon the authority of that firm as experts in auditing and
accounting.
The consolidated financial statements of Algroup as of December 31, 1998
and 1997 and for each of the years in the three-year period ended December 31,
1998, except as they relate to Alusuisse-Lonza America Inc., have been included
in Annex B to this prospectus in reliance upon the report of KPMG Fides Peat
(Zurich, Switzerland), independent accountants and, insofar as they relate to
Alusuisse-Lonza America Inc. whose financial statements are not separately
presented in this prospectus, in reliance upon the report of
PricewaterhouseCoopers LLP (Florham Park, U.S.A.), independent accountants,
whose reports thereon appear elsewhere herein. The aforementioned consolidated
financial statements of Algroup and Alusuisse-Lonza America Inc., to the extent
they have been included in the consolidated financial statements of Algroup,
have been so included in reliance upon the reports of such independent
accountants given on the authority of such firms as experts in auditing and
accounting.
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WHERE YOU CAN FIND MORE INFORMATION
Alcan files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. Pechiney files
annual and special reports and certain other information with the SEC. You may
read and copy any reports, statements or other information on file at the SEC's
public reference room located at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices located at
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511 and at 7 World Trade Center, 13th Floor, New York, New York 10048.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Alcan's SEC filings are also available to the public at the web
site maintained by the SEC at http://www.sec.gov. The Pechiney ADSs and Alcan
common shares are listed on the New York Stock Exchange and, consequently, the
periodic reports, proxy statements and other information filed by Pechiney and
Alcan with the SEC can be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 10005.
Alcan has filed with the SEC a registration statement on Form S-4 to
register the Alcan common shares that holders of Pechiney Securities will
receive following completion and acceptance of the offer. This prospectus does
not contain all the information set forth in the registration statement, some
parts of which are omitted in accordance with the rules and regulations of the
SEC. For further information, you should refer to the registration statement.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be a part of this prospectus, except for
any information superseded by information contained in this prospectus. This
prospectus incorporates by reference the documents set forth below that Alcan
and Pechiney have previously filed with the SEC. These documents contain
important information about Alcan and Pechiney and their financial condition.
<TABLE>
<CAPTION>
ALCAN SEC FILINGS (FILE NO. 1-3677) PERIOD
- ----------------------------------- ----------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Current Reports on Form 8-K Filed on April 26, 1999, August 11, 1999 and
September 16, 1999
Quarterly Reports on Form 10-Q Filed on May 5, 1999, August 6, 1999, and
November 15, 1999
</TABLE>
<TABLE>
<CAPTION>
PECHINEY SEC FILINGS (FILE NO. 1-14110) PERIOD
- --------------------------------------- ----------------------------------------------
<S> <C>
Annual Report on Form 20-F Year ended December 31, 1998
Reports of Foreign Private Issuer on Form 6-K Filed on February 1, 1999, February 5, 1999,
March 10, 1999, April 27, 1999, May 17, 1999,
June 8, 1999, July 6, 1999, July 28, 1999,
August 11, 1999, August 17, 1999, September
17, 1999, October 18, 1999, November 9, 1999,
December 1, 1999 and December 22, 1999.
</TABLE>
We also incorporate by reference into this prospectus additional documents
that may be filed with the SEC by Alcan or Pechiney after the date of this
prospectus until the expiration of the U.S. offer.
Alcan has supplied all information contained or incorporated by reference
in this prospectus relating to Alcan and Pechiney has supplied all such
information relating to Pechiney. Neither Alcan nor Pechiney has independent
knowledge of the matters set forth or incorporated by reference herein by the
other party.
While you may have already received some of the documents incorporated by
reference into this prospectus, you can obtain copies of any of them through
Alcan, Pechiney or the SEC. Documents incorporated by reference are available
without charge from Alcan or Pechiney, as the case may be, excluding all
exhibits other than those specifically incorporated by reference into this
prospectus.
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Shareholders may obtain documents incorporated by reference into this prospectus
by requesting them in writing or by telephone at the following address:
<TABLE>
<CAPTION>
For Alcan Documents: For Pechiney Documents:
- -------------------- ----------------------------------------------
<S> <C>
Alcan Aluminium Limited Pechiney
1188 Sherbrooke Street West Place du Chancelier Adenauer
Montreal Quebec, Canada H3A 3G2 75218 Paris Cedex 16
Attn: Alan Brown Attn: Francois-Jose Bordonado
Investor Relations Investor Relations
Tel.: 514-848-8368 Tel.: 011-33-1-5628-2507
</TABLE>
If you would like to receive documents from Alcan and/or Pechiney before
the expiration of the U.S. offer, please make your request no later than
, five business days before the proposed expiration date.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS TO DECIDE WHETHER TO PARTICIPATE IN THE U.S.
OFFER. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM THAT WHICH IS CONTAINED IN, OR INCORPORATED BY REFERENCE INTO,
THIS PROSPECTUS. THIS PROSPECTUS IS DATED . YOU SHOULD NOT ASSUME THAT
THE INFORMATION CONTAINED IN, OR INCORPORATED BY REFERENCE INTO, THIS PROSPECTUS
IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS
PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF ALCAN COMMON SHARES IN THE OFFER
SHALL CREATE ANY IMPLICATIONS TO THE CONTRARY.
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INFORMATION FROM PECHINEY AND ALGROUP
Pechiney has provided the information contained or incorporated by
reference in this prospectus relating to Pechiney and Algroup has provided the
information in this prospectus relating to Algroup. Although Alcan has no
knowledge indicating that information and statements relating to Pechiney and
Algroup contained or incorporated by reference in this prospectus are
inaccurate, Alcan was not involved in the preparation of the Pechiney and
Algroup information or statements and has not independently verified any of the
Pechiney or Algroup information or statements.
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ANNEX A
COMBINATION AGREEMENT
THIS COMBINATION AGREEMENT is made on September 15, 1999
AMONG:
(1) ALCAN ALUMINIUM LIMITED, a company incorporated under the laws of Canada
(CANADA),
(2) PECHINEY, a company incorporated under the laws of France (FRANCE), and
(3) ALUSUISSE LONZA GROUP AG, a company incorporated under the laws of
Switzerland (SWITZERLAND).
WHEREAS:
(A) The respective Boards of Directors of each of Canada, France and Switzerland
(EACH A PARTY, and together the PARTIES) have determined that it is in the
best interest of their respective companies and shareholders to effect the
combination of their respective businesses as set forth herein (the
COMBINATION) in a "merger-of-equals".
(B) In furtherance of the Combination, Canada, France and Switzerland have
previously entered into a memorandum of understanding dated 11 August, 1999
(the MOU) establishing the structure and principal terms of the
Combination, and Canada and Switzerland entered into an agreement (the
INITIAL COMBINATION AGREEMENT) on the same date setting forth the terms and
conditions of a proposed combination between them.
(C) In furtherance of the Combination, the respective Boards of Directors of
Canada, France and Switzerland have approved and adopted this Combination
Agreement (the AGREEMENT) which sets out the terms and conditions for the
Combination.
(D) The respective Boards of Directors of Canada, France and Switzerland have
concluded that the Combination will be effected by utilizing Canada as the
holding company for the new, combined group. As a result, Canada will be
the vehicle through which the Exchange Offers (as defined below) will be
made to shareholders of Switzerland and France, respectively, and shares of
common stock, without par or nominal value, of Canada (CANADA COMMON
SHARES) shall be issued as consideration in the Exchange Offers.
(E) The respective Boards of Directors of Canada and Switzerland have approved
the exchange offer (the SWISS EXCHANGE OFFER) by Canada for all of the
issued and outstanding registered shares, of CHF 100 per share, of
Switzerland (the SWISS SHARES) upon the terms and subject to the conditions
set forth in this Agreement;
(F) The respective Boards of Directors of each of Canada and France have
approved the exchange offer (the FRENCH EXCHANGE OFFER and, together with
the Swiss Exchange Offer, the EXCHANGE OFFERS) by Canada for all of the
issued and outstanding (i) ordinary shares (A), par value EURO 15.25 per
share, of France (the FRENCH ORDINARY SHARES), (ii) preferred shares (B),
par value EURO 15.25 per share, of France (the FRENCH PREFERRED SHARES) and
(iii) the American Depositary Receipts (ADRS) each representing one-half of
a French Ordinary Share (the French Ordinary Shares, French Preferred
Shares and the ADRs are collectively referred to herein as the FRENCH
SHARES);
(G) The respective Boards of Directors of each of Canada and Switzerland have
determined that it is in the best interests of their respective companies
to have Canada and Switzerland enter into a business combination under the
terms of this Agreement whether or not the French Exchange Offer is
completed;
(H) The respective Boards of Directors of each of Canada and France have
determined that it is in the best interests of their respective companies
to have Canada and France enter into a business combination under the terms
of this Agreement whether or not the Swiss Exchange Offer is completed;
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<PAGE> 166
(I) The Parties intend that each Exchange Offer be treated as a tax free
rollover to shareholders for tax purposes to the maximum extent possible;
(J) The Combination (but neither Exchange Offer alone) is intended to be treated
as a "pooling of interests" under generally accepted accounting principles
in Canada (CANADIAN GAAP); and
(K) This Agreement sets out the terms and conditions of the agreement by each of
Canada, France and Switzerland in relation to the Combination and each
Exchange Offer.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein, the Parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE 1
THE EXCHANGE OFFERS
1.1 Canada, Switzerland and France agree that Canada, with the full
participation and cooperation of Switzerland and France, will make the Swiss
Exchange Offer and the French Exchange Offer, in each case on the basis and in
accordance with the provisions set out in Schedule 1 and on the terms and
subject to the conditions of this Agreement.
1.2 France represents and warrants to Canada and Switzerland that the Board
of Directors of France has adopted and approved this Agreement and the
Combination and is, concurrently with the execution of this Agreement,
recommending to the holders of French Shares that they accept the French
Exchange Offer when made regardless of whether or not the Swiss Exchange Offer
is consummated in accordance with the terms hereof. Unless permitted in
accordance with Article 1.2.1 below, or otherwise required by law, to withdraw
or adversely modify its recommendation, France agrees with Canada and
Switzerland that it will procure that the Board of Directors of France will
recommend at all times prior to the time the French Exchange Offer is made, at
the time the French Exchange Offer is made and during the period of the French
Exchange Offer, that the holders of French Shares accept the French Exchange
Offer regardless of whether or not the Swiss Exchange Offer is consummated. The
recommendation of the Board of Directors of France shall be contained in all
relevant filings and disclosure documents, as applicable, and may only be
withdrawn as permitted hereby.
1.2.1 Notwithstanding anything to the contrary contained herein, whether or not
the French Exchange Offer shall have commenced, the Board of Directors of France
may withdraw or adversely modify its recommendation that holders of French
Shares tender their French Shares in the French Exchange Offer if (i) any of the
representations and warranties of Canada set forth in this Agreement shall have
become untrue in any respect which, individually or in the aggregate, has
resulted, or would be reasonably likely to result, in a Canada Material Adverse
Effect, (ii) Canada is in material breach of any of its obligations set forth in
this Agreement that is not curable or, if curable is not cured within 15 days
after written notice of such breach is given by France to Canada, (iii) Canada
shall have suffered a Canada Material Adverse Effect, (iv) at the time of the
consummation of the Swiss Exchange Offer the Chemicals Division Demerger shall
not have occurred; provided that France's rights pursuant to this clause (iv)
shall expire two business days following receipt of written notice from Canada
of the consummation of the Swiss Exchange Offer and the failure of the Chemicals
Division Demerger to have occurred if France shall not have exercised any of
such rights prior thereto, or (v) a proposal constituting an Alternative
Transaction (as defined below) for France shall have been made.
1.3 Switzerland represents and warrants to Canada and France that the Board
of Directors of Switzerland has unanimously adopted and approved this Agreement
and the Combination and is, concurrently with the execution of this Agreement,
recommending to the shareholders of Switzerland that they accept the Swiss
Exchange Offer when made, regardless of whether or not the French Exchange Offer
is consummated in accordance with the terms hereof. Unless permitted in
accordance with Article 1.3.1 below, or otherwise required by law to withdraw or
adversely modify its recommendation, Switzerland agrees with Canada and France
that the Board of Directors of Switzerland will unanimously recommend at all
times prior to the time the Swiss Exchange Offer is made, at the time the Swiss
Exchange Offer is made and during the period of the Swiss Exchange Offer, that
the holders of Swiss
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Shares accept the Swiss Exchange Offer regardless of whether or not the French
Exchange Offer is consummated. The recommendation of the Board of Directors of
Switzerland shall be contained in all relevant filings and disclosure documents,
as applicable, and may only be withdrawn as permitted hereby.
1.3.1 Notwithstanding anything to the contrary contained herein, whether or not
the Swiss Exchange Offer shall have been commenced, the Board of Directors of
Switzerland may withdraw or adversely modify its recommendation that
shareholders of Switzerland tender their Swiss Shares in the Swiss Exchange
Offer if (i) any of the representations and warranties of Canada set forth in
this Agreement shall have become untrue in any respect which, individually or in
the aggregate, has resulted, or would be reasonably likely to result, in a
Canada Material Adverse Effect, (ii) Canada is in material breach of any of its
obligations set forth in this Agreement that is not curable or, if curable is
not cured within 15 days after written notice of such breach is given by
Switzerland to Canada, (iii) Canada shall have suffered a Canada Material
Adverse Effect, or (iv) a proposal constituting an Alternative Transaction for
Switzerland shall have been made.
1.4 Canada represents and warrants to France and Switzerland that the Board
of Directors of Canada has unanimously adopted and approved this Agreement, the
Combination and each of the Exchange Offers and is, concurrently with the
execution of this Agreement, recommending to the shareholders of Canada that
they approve the issue of Canada Common Shares in connection with each of the
Swiss Exchange Offer and the French Exchange Offer regardless of whether or not
both Exchange Offers are successful. Unless permitted in accordance with Article
1.4.1 or 1.4.2, as applicable, or 1.4.3, or otherwise required by law to
withdraw or adversely modify its recommendation, Canada agrees with France and
Switzerland that the Board of Directors of Canada will recommend at all times
that the holders of Canada Common Shares approve the issue of Canada Common
Shares in connection with each of the France Exchange Offer and the Swiss
Exchange Offer regardless of whether or not both Exchange Offers are
consummated. The recommendation of the Board of Directors of Canada shall be
contained in all relevant filings and disclosure documents, as applicable, and
may only be withdrawn as permitted hereby.
1.4.1 Notwithstanding anything to the contrary contained herein, whether or not
the French Exchange Offer shall have been commenced, the Board of Directors of
Canada may withdraw or adversely modify its recommendation that shareholders of
Canada approve the issuance of Canada Common Shares in connection with the
French Exchange Offer if (i) any of the representations and warranties of France
set forth in this Agreement shall have become untrue in any respect which,
individually or in the aggregate, has resulted, or would be reasonably likely to
result, in a France Material Adverse Effect, (ii) France is in material breach
of any of its obligations set forth in this Agreement that is not curable or, if
curable is not cured within 15 days after written notice of such breach is given
by Canada to France, or (iii) France shall have suffered a France Material
Adverse Effect.
1.4.2 Notwithstanding anything to the contrary contained herein whether or not
the Swiss Exchange Offer shall have been commenced, the Board of Directors of
Canada may withdraw or adversely modify its recommendation that shareholders of
Canada approve the issuance of Canada Common Shares in connection with the Swiss
Exchange Offer if (i) any of the representations and warranties of Switzerland
set forth in this Agreement shall have become untrue in any respect which,
individually or in the aggregate, has resulted, or would be reasonably likely to
result, in a Swiss Material Adverse Effect, (ii) Switzerland is in material
breach of any of its obligations set forth in this Agreement that is not curable
or, if curable is not cured within 15 days after written notice of such breach
is given by Canada to Switzerland, or (iii) Switzerland shall have suffered a
Swiss Material Adverse Effect.
1.4.3 Notwithstanding anything to the contrary contained herein, whether or not
either Exchange Offer has commenced, the Board of Directors of Canada may modify
or withdraw its recommendation that shareholders of Canada approve the issuance
of Canada Common Shares in connection with both the Swiss Exchange Offer and the
French Exchange Offer if a proposal constituting an Alternative Transaction for
Canada shall have been made.
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ARTICLE 2
COMMENCEMENT OF EXCHANGE OFFERS
2.1.1 Canada shall commence the Swiss Exchange Offer as soon as practicable
following the satisfaction or earlier due waiver of the conditions set out in
Part A of Schedule 2; provided, that Canada shall not be required to commence
the Swiss Exchange Offer if this Agreement has been terminated either with
respect to Switzerland or with respect to all Parties pursuant to Article 8.
2.1.2 Canada shall commence the French Exchange Offer as soon as practicable
following the satisfaction or earlier due waiver of the conditions set out in
Part B of Schedule 2; provided, that Canada shall not be required to commence
the French Exchange Offer if this Agreement has been terminated either with
respect to France or with respect to all Parties pursuant to Article 8.
2.2 Each Party agrees that it will notify the other Parties forthwith after
any of its Executive Officers become aware that (i) the conditions set out in
Part A of Schedule 2 have been satisfied or waived or have become incapable of
satisfaction, (ii) the conditions set out in Part B of Schedule 2 have been
satisfied or waived or have become incapable of satisfaction or (iii) a Material
Adverse Effect has occurred or is reasonably likely to occur with respect to
such Party, such notification to indicate in reasonable detail the nature and
effect thereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF FRANCE. Except as set forth in the
disclosure letter dated the date hereof delivered to Canada and Switzerland by
France (the FRANCE DISCLOSURE LETTER), France hereby represents and warrants to
Canada and Switzerland that:
3.1.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of France and its
Material Subsidiaries has been duly organized and is validly existing as a
corporation, and to the extent relevant under the applicable corporate law, in
good standing, under the laws of its respective jurisdiction of organization and
has all requisite corporate or similar power and authority to own and operate
its properties and assets and to carry on its business as presently conducted
and is in good standing as a foreign corporation in each jurisdiction where the
ownership or operation of its properties or conduct of its business requires
such standing, except where the failure to be in good standing would not,
individually or in the aggregate, be reasonably likely to have a France Material
Adverse Effect. France has made available to Canada and Switzerland a complete
and correct copy of France's and its Material Subsidiaries' articles of
association and by-laws, or other comparable governing instruments, each as
amended to date. France's and its Material Subsidiaries' articles of
association, by-laws and other comparable governing instruments as so made
available are in full force and effect.
As used in this Agreement, the term (A) SUBSIDIARY means, with respect to
any Party, any entity, of which at least a majority of the securities or
ownership interests having by their terms ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
is directly or indirectly beneficially owned or controlled by such Party or by
one or more of its respective Subsidiaries or by such Party and any one or more
of its respective Subsidiaries, and (B) MATERIAL SUBSIDIARY means any Subsidiary
constituting more than (i) 5% of the relevant Group's total assets or
shareholder's equity at the end of the fiscal year ended December 31, 1998, or
(ii) 10% of the relevant Group's total net income for the fiscal year ended
December 31, 1998; (C) FRANCE MATERIAL ADVERSE EFFECT means a material adverse
effect on the financial condition, properties, business or results of operations
of the France Group; except for any such effect resulting from any change in
economic or business conditions generally, or with respect to the aluminum or
packaging industries specifically and (D) FRANCE GROUP means France, its
Subsidiaries and its interests in associated entities taken as a whole.
3.1.2 CAPITAL STRUCTURE. The authorized capital stock of France consists of
80,469,343 French Ordinary Shares and an additional number of French Ordinary
Shares with a maximum nominal value (excluding any insurance premium) of
490,000,000 euros, provided that this maximum nominal value is reduced to
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245,000,000 euros unless existing holders of French Ordinary Shares are afforded
pre-emptive rights, and 1,091,044 French Preferred Shares, of which 80,469,343
French Ordinary Shares (which includes the French Shares referred to in Article
4.2.4) and 1,091,044 French Preferred Shares were outstanding as of the close of
business on August 6, 1999. All of the outstanding French Shares have been duly
authorized and are validly issued and fully paid and there is no liability on
the part of the holders to pay any further amount in respect of any French
Share. France has no French Shares reserved for issuance, except that, as of
August 6, 1999, there were up to 2,835,000 French Ordinary Shares authorized for
issuance pursuant to options that have been granted or are eligible to be
granted by France to the officers and employees of France and its Subsidiaries,
of which 1,606,000 French Ordinary Shares were reserved for issuance pursuant to
options that have been granted by France to officers and employees of France and
its Subsidiaries. Each of the outstanding shares of capital stock or other
securities of each of France's Subsidiaries is duly authorized, validly issued
and fully paid and there is no liability on the part of the holders to pay any
further amount in respect of any French Share and, except for directors'
qualifying shares, and except as provided in the French Reports filed prior to
the date hereof, is owned by France or a direct or indirect wholly-owned
Subsidiary of France, free and clear of any lien, pledge, security interest,
claim or other encumbrance. Except as set forth above, there are no preemptive
or other outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue or sell any shares of capital stock or
other securities of France or any of its Subsidiaries or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any
person or entity a right to subscribe for or acquire, any securities of France
or any of its Subsidiaries, and no securities or obligations evidencing such
rights are authorized, issued or outstanding. France does not have outstanding
any bonds, debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the
right to vote) with the stockholders of France on any matter.
3.1.3 AUTHORITY RELATIVE TO THIS AGREEMENT AND APPROVAL. (A) France has all
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement. This Agreement is a legal, valid and binding agreement of France
enforceable against it in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles (the BANKRUPTCY AND EQUITY EXCEPTION).
(B) The Board of Directors of France has approved this Agreement, the
Combination, the French Exchange Offer and the other transactions contemplated
hereby to which it will be a party and, concurrently with the execution of this
Agreement has resolved to recommend to its shareholders to accept the French
Exchange Offer regardless of whether or not the Swiss Exchange Offer is
consummated.
3.1.4 GOVERNMENTAL FILINGS; NO VIOLATIONS. (A) Other than the filings,
approvals and/or notices required to be made (i) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR ACT), the Investment
Canada Act (INVESTMENT CANADA ACT), the Canadian Competition Act (the CANADIAN
COMPETITION ACT), EC Council Regulation 4064/89 (the EC ANTITRUST ACT), and such
other filings as may be required by the antitrust or competition laws, rules or
regulations of the United States, the European Union, Canada, France,
Switzerland and any other applicable jurisdiction (such laws, rules and
regulations together with the HSR Act, the EC Antitrust Act, the Canadian
Competition Act and Investment Canada Act are referred to as the ANTITRUST
LAWS), (ii) under the United States Securities Exchange Act of 1934, as amended
(the EXCHANGE ACT), the United States Securities Act of 1933, as amended (the
SECURITIES ACT), local securities or "blue-sky" laws, takeover, company or
securities laws, rules or regulations of the United States, Canada, Switzerland,
France (including the regulations of the Conseil des Marches Financiers (CMF),
the Commission des Operations de Bourse (COB), the ParisBourse-SBF (SBF)), the
European Union and any other applicable jurisdiction (all such laws, rules and
regulations, together with the Exchange Act and the Securities Act, are referred
to as the SECURITIES LAWS), (iii) under any stock exchange rules or regulations
in the United States, Canada, Switzerland, France, the European Union and any
other applicable jurisdiction and (iv) to the French Ministere de l'Economie,
des Finances et de l'Industrie under regulations for foreign investment in
France, no notices, reports or other filings are required to be made by France
with, nor are any consents, registrations,
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approvals, permits or authorizations required to be obtained by France from, any
governmental or regulatory authority, agency, commission, body or other
governmental entity (GOVERNMENTAL ENTITY), in connection with the execution and
delivery of this Agreement by France and the consummation of the Combination,
the French Exchange Offer and the other transactions contemplated by this
Agreement to which France will be a party, except those that the failure to make
or obtain would not, individually or in the aggregate, be reasonably likely to
have a France Material Adverse Effect or to prevent, materially delay or
materially impair the ability of France to consummate the Combination.
(B) The execution, delivery and performance of this Agreement by France do not,
and the consummation by France of the Combination and the other transactions
contemplated hereby to which France will be a party will not (i) constitute or
result in (I) a breach or violation of, or a default under, the articles of
association or by-laws or the comparable governing instruments of France or any
of its Material Subsidiaries, (II) a breach or violation of, or a default under,
the acceleration of any obligations or the creation of a lien, pledge, security
interest or other encumbrance on or rights in respect of the assets of France or
any of its Subsidiaries (with or without notice, lapse of time or both) pursuant
to, any agreement, lease, contract, note, mortgage, indenture, arrangement or
other obligation (CONTRACTS) binding upon France or any of its Subsidiaries or
any Law or governmental or non-governmental permit or license to which France or
any of its Subsidiaries is subject or (III) any change in the rights or
obligations of any party under any of the Contracts to which France or any of
its Subsidiaries is a party or (ii) require the consent of any counterparty to
any of the Contracts to which France or any of its Subsidiaries is a party,
except, in the case of sub-clauses (II) and (III) of clause (i), for any breach,
violation, default, acceleration, creation, change or, in the case of clause
(ii), any consent that in each case would not, individually or in the aggregate,
be reasonably likely to have a France Material Adverse Effect or prevent,
materially delay or materially impair the ability of France to consummate the
transactions contemplated by this Agreement to which it will be a party.
3.1.5 FRENCH REPORTS; FINANCIAL STATEMENTS. France has made available to each
of Canada and Switzerland each annual report, registration statement, report,
proxy statement or information statement prepared by it since December 31, 1998
(the AUDIT DATE), each in the form (including exhibits, annexes and any
amendments thereto) filed with or provided to the COB or the United States
Securities and Exchange Commission (SEC) (collectively, including any such
reports filed subsequent to the date hereof and as amended, the FRENCH REPORTS).
As of their respective dates (or, if amended, as of the date of such amendment),
the French Reports were, and any French Reports filed with the COB or the SEC
subsequent to the date hereof will be, true, complete and correct in all
material respects and comply with applicable legal requirements. Each of the
consolidated balance sheets included in or incorporated by reference into the
French Reports (including the related notes and schedules) fairly presents, or
will fairly present, in all material respects the consolidated financial
position of France and its Subsidiaries as of its date and each of the
consolidated statements of income and of cash flows included in or incorporated
by reference into the French Reports (including any related notes and schedules)
fairly presents, or will fairly present, the results of operations, retained
earnings and cash flows, as the case may be, of France and its Subsidiaries on a
consolidated basis for the periods set forth therein (subject, in the case of
unaudited statements, to notes and normal year-end audit adjustments that will
not be material in amount or effect), in each case in accordance with the
generally accepted accounting principles of France (FRENCH GAAP) or generally
accepted accounting principles of the United States, as applicable, consistently
applied during the periods involved, except as may be noted therein.
3.1.6 ABSENCE OF CERTAIN CHANGES. Except as fairly disclosed in the French
Reports filed prior to the date of the Initial Combination Agreement and except
as contemplated hereby, since the Audit Date and through the date of the Initial
Combination Agreement, France and its Subsidiaries have conducted their
respective businesses only in, and have not engaged in any material transaction
other than according to, the ordinary course of such businesses and there has
not been (i) any change in the financial condition, properties, business or
results of operations of France and its Subsidiaries or any development or
combination of developments of which the Executive Officers of France have
knowledge that has had or would be, individually or in the aggregate, reasonably
likely to have a France Material Adverse Effect; (ii) any damage, destruction or
other casualty loss with respect to the assets or property owned, leased or
otherwise used by France or any of its Subsidiaries, whether or not covered by
insurance, other than
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any damage, destruction or other casualty loss that would not, individually or
in the aggregate, be reasonably likely to have a France Material Adverse Effect;
(iii) any declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of France or its Subsidiaries,
except for dividends or other distributions on its capital stock publicly
announced prior to the date hereof or made by a wholly owned Subsidiary of
France; or (iv) any change by France in accounting principles, practices or
methods. Since the Audit Date, except as provided for herein or as disclosed in
the French Reports filed prior to the date hereof, there has not been any
increase in the compensation payable or that could become payable by France or
any of its Subsidiaries to officers or key employees or any amendment of any of
the Compensation and Benefit Plans of France other than increases or amendments
in the ordinary course of business consistent with past practice.
As used in this Agreement, the term (i) EXECUTIVE OFFICER means with
respect to France: its Chairman and Chief Executive Officer, Chief Financial
Officer, Chief Legal Officer and Senior Vice President - Corporate Finance and
their successors; Switzerland: its Chief Executive Officer, Chief Legal Officer,
Executive Vice President - Corporate Development and their successors; and
Canada: Chief Executive Officer, Chief Financial Officer, Chief Legal Officer
and its Executive Vice President - Corporate Development and their successors
and (ii) KNOWLEDGE with respect to a particular person shall mean such person's
actual knowledge.
3.1.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the French
Reports filed prior to the date of the Initial Combination Agreement, as of the
date hereof there are no obligations or liabilities, including, in respect of
obligations and liabilities disclosed in any French Report, any change in those
obligations or liabilities, whether or not accrued, contingent or otherwise and
whether or not required to be disclosed, including those relating to matters
involving any Environmental Law, or any other facts or circumstances of which
the Executive Officers of France have knowledge that would be reasonably likely
to result in any claims against, or obligations or liabilities of, France or any
of its Subsidiaries, except for those that would not be reasonably likely to
have a France Material Adverse Effect or prevent or materially delay or
materially impair the ability of France to consummate the transactions
contemplated by this Agreement to which it will be a party.
As used in this agreement, (i) the term AFFILIATE means with respect to a
specified person or entity, a person or entity which directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with the person or entity specified; (ii) the term ENVIRONMENTAL
LAW means any United States, French, Swiss, Canadian, European Union or other
relevant jurisdiction's statute, law, regulation, order, decree, permit,
authorization, opinion, common law or agency requirement relating to: (A) the
protection, investigation or restoration of the environment, health, safety, or
natural resources, (B) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (C) noise, odor, indoor air,
employee exposure, wetlands, pollution, contamination or any injury or threat of
injury to persons or property relating to any Hazardous Substance; and (iii) the
term HAZARDOUS SUBSTANCE means: (A) any substance that is listed, classified or
regulated pursuant to any Environmental Law; (B) any petroleum product or
by-product, asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive material or radon; and (C) any other
substance which may be the subject of regulatory action by any Governmental
Entity in connection with any Environmental Law.
3.1.8 COMPLIANCE WITH LAWS; PERMITS. Except as set forth in the French Reports
filed prior to the date of the Initial Combination Agreement, the businesses of
each of France and its Material Subsidiaries have not been, and are not being,
conducted in violation of any federal, state, local or foreign law, statute,
ordinance, rule, regulation, judgment, order, injunction, decree, arbitration
award, agency requirement, license or permit of any Governmental Entity
(collectively, LAWS), except for violations or possible violations that would
not, individually or in the aggregate, be reasonably likely to have a France
Material Adverse Effect or prevent or materially delay or materially impair the
ability of France to consummate the transactions contemplated by this Agreement
to which it will be a party. Except as set forth in the French Reports filed
prior to the date of the Initial Combination Agreement, no investigation or
review by any Governmental Entity with respect to France or any of its
Subsidiaries is pending or, to the knowledge of the Executive Officers of
France, threatened, nor has any Governmental Entity indicated to France an
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intention to conduct the same, except for those the outcome of which would not,
individually or in the aggregate, be reasonably likely to have a France Material
Adverse Effect or prevent or materially delay or materially impair the ability
of France to consummate the transactions contemplated by this Agreement to which
it will be a party. To the knowledge of the Executive Officers of France, no
material change is required in France's or any of its Subsidiaries' processes,
properties or procedures in connection with any such Laws, except those that,
individually or in the aggregate, would not be reasonably likely to have a
France Material Adverse Effect, and, as of the date hereof, France has not
received any notice or communication of any material noncompliance with any such
Laws that has not been cured as of the date hereof. France and its Subsidiaries
each has all permits, licenses, franchises, variances, exemptions, orders and
other governmental authorizations, consents and approvals necessary to conduct
its business as presently conducted except those the absence of which would not,
individually or in the aggregate, be reasonably likely to have a France Material
Adverse Effect or prevent or materially delay or materially impair the ability
of France to consummate the transactions contemplated by this Agreement to which
it will be a party.
3.1.9 TAX MATTERS; ACCOUNTING. (a) As of the date hereof, neither France nor
any of its Subsidiaries has taken or agreed to take any action, nor do the
Executive Officers of France have any knowledge of any fact or circumstance
relating to France, that would be reasonably likely to prevent the business
combination resulting from the consummation of both of the Exchange Offers from
being accounted for as a "pooling-of-interests" under Canadian GAAP if, in the
absence of such action, such accounting treatment of such business combination
would not have been so prevented.
(b) As of the date hereof, neither France nor any of its Subsidiaries has
taken or agreed to take any action, nor do the Executive Officers of France have
any knowledge of any fact or circumstance relating to France, that would be
reasonably likely to prevent the Exchange Offers contemplated by this Agreement
from qualifying as tax-free transactions to Canada, France, Switzerland and the
shareholders of Canada and to the shareholders of France and Switzerland who are
resident for tax purposes in France, Switzerland and the United States (other
than a corporation holding Swiss Shares with a value in excess of CFH 2 million)
to the extent such shareholders exchange Swiss Shares and French Shares,
respectively, for Canada Common Shares unless, in the absence of such action the
Exchange Offers would have failed to so qualify.
3.1.10 BROKERS AND FINDERS. Neither France nor any of its officers, directors
or employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders fees in connection with the Combination
or the other transactions contemplated in this Agreement, except that France has
employed Credit Suisse First Boston Limited and Rothschilds et Cie as its
financial advisors.
3.1.11 The formation and initial public offering of American National Can Group,
Inc. (ANC) has been consummated in accordance with the description set forth in
the registration statement, as declared effective by the SEC, pursuant to which
the common stock of ANC was offered for sale.
3.1.12 KNOWLEDGE OF BREACHES. France does not have knowledge that any
representation and warranty made by either Canada or Switzerland under this
Article 3 is not true and correct in any material respect.
3.2 REPRESENTATIONS AND WARRANTIES OF SWITZERLAND. Except as set forth in
the disclosure letter dated the date of the Initial Combination Agreement,
delivered to Canada and France by Switzerland (the SWITZERLAND DISCLOSURE
LETTER), Switzerland hereby represents and warrants to Canada and France that:
3.2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of Switzerland and
its Material Subsidiaries has been duly organized and is validly existing as a
corporation, and to the extent relevant under the applicable corporate law,
under the laws of its respective jurisdiction of organization and has all
requisite corporate or similar power and authority to own and operate its
properties and assets and to carry on its business as presently conducted and is
in good standing as a foreign corporation in each jurisdiction where the
ownership or operation of its properties or conduct of its business requires
such standing, except where the failure to be in good standing would not,
individually or in the aggregate, be reasonably likely to have a Swiss Material
Adverse Effect. Switzerland has made available to Canada and France a complete
and correct copy of Switzerland's articles of association and by-laws, or other
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comparable governing instruments each as amended to date. Switzerland's articles
of association, by-laws and other comparable governing instruments as so made
available are in full force and effect.
As used in this Agreement, the term (A) SWISS MATERIAL ADVERSE EFFECT means
a material adverse effect on the financial condition, properties, business or
results of operations of the Switzerland Group except for any such effect
resulting from any change in economic or business conditions generally, or with
respect to the aluminum or packaging industries specifically and (B) SWITZERLAND
GROUP means Switzerland, its Subsidiaries and its interests in associated
entities taken as a whole (the terms "Subsidiary" and Switzerland Group" shall
for purposes of this Agreement exclude any of the entities that are intended to
be the subject of the Chemicals Division Demerger (as defined below)).
3.2.2 CAPITAL STRUCTURE. Switzerland has pursuant to its articles of
association 6,286,126 Swiss Shares which are issued as well as a conditional
capital for a maximum of 551,575 additional shares as of the close of business
on August 6, 1999. As of August 6, 1999, up to a further 325,945 Swiss Shares
would be issued under the conditional capital in connection with the exercise of
conversion or option rights relating to the convertible bonds of Switzerland
assuming the exercise of such rights. All issued Swiss Shares are validly
issued, fully paid up and outstanding. Each of the outstanding shares of capital
stock or other securities of each of Switzerland's Subsidiaries is duly
authorized, validly issued, fully paid and non-assessable and, except for
directors' qualifying shares, and except as provided in the Swiss Reports filed
prior to the date hereof, is owned by Switzerland or a direct or indirect
wholly-owned Subsidiary of Switzerland, free and clear of any lien, pledge,
security interest, claim or other encumbrance. There are no preemptive or other
outstanding rights, options, warrants, conversion rights, stock appreciation
rights, redemption rights, repurchase rights, agreements, arrangements or
commitments to issue or sell any shares of capital stock or other securities of
Switzerland or any of its Subsidiaries or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any person or
entity a right to subscribe for or acquire, any securities of Switzerland or any
of its Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. Except for the securities specified above,
Switzerland does not have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or convertible into or
exercisable for securities having the right to vote) with the stockholders of
Switzerland on any matter.
3.2.3 AUTHORITY RELATIVE TO THIS AGREEMENT AND APPROVAL. (A) Switzerland has
all requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement. This Agreement is a legal, valid and binding agreement of Switzerland
enforceable against it in accordance with its terms, subject to the Bankruptcy
and Equity Exception.
(B) The Switzerland Board of Directors has unanimously approved this Agreement,
the Combination and the Swiss Exchange Offer and the other transactions
contemplated hereby to which it would be a party and the recommendation to its
shareholders to accept the Swiss Exchange Offer (regardless of whether or not
the French Exchange Offer is consummated) and to approve the Chemicals Division
Demerger and to adopt a clause in the Articles of Association of Switzerland
whereby the Swiss tender offer rules requiring a mandatory bid shall not apply
to the Swiss Exchange Offer (OPT-OUT).
3.2.4 GOVERNMENTAL FILINGS; NO VIOLATIONS. (A) Other than the filings,
approvals and/or notices required to be made (i) under the Antitrust Laws, (ii)
under the Securities Laws, (iii) under any stock exchange rules or regulations
in the United States, Canada, Switzerland, France, the European Union and any
other applicable jurisdiction and (iv) required to comply with statutes of
Switzerland relating to the acquisition of land by foreigners, no notices,
reports or other filings are required to be made by Switzerland with, nor are
any consents, registrations, approvals, permits or authorizations required to be
obtained by Switzerland from any Governmental Entity, in connection with the
execution and delivery of this Agreement by Switzerland and the consummation by
Switzerland of the Combination, the Swiss Exchange Offer and the other
transactions contemplated hereby to which Switzerland will be a party, except
those that the failure to make or obtain would not, individually or in the
aggregate, be reasonably likely to have a Swiss Material Adverse Effect or
prevent, materially delay or materially impair the ability of Switzerland to
consummate the Combination.
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(B) The execution, delivery and performance of this Agreement by Switzerland do
not, and the consummation by Switzerland of the Combination, the Swiss Exchange
Offer and the other transactions contemplated hereby to which Switzerland will
be a party will not (i) constitute or result in (I) a breach or violation of, or
a default under, the articles of association or by-laws or the comparable
governing instruments of Switzerland or any of its Subsidiaries, (II) a breach
or violation of, or a default under, the acceleration of any obligations or the
creation of a lien, pledge, security interest or other encumbrance on or rights
in respect of the assets of Switzerland or any of its Subsidiaries (with or
without notice, lapse of time or both) pursuant to, any Contract binding upon
Switzerland or any of its Subsidiaries or any Law or governmental or
non-governmental permit or license to which Switzerland or any of its
Subsidiaries is subject or (III) any change in the rights or obligations of any
party under any of the Contracts to which Switzerland or any of its Subsidiaries
is a party, or (ii) require the consent of any counterparty to any of the
Contracts to which Switzerland or any of its Subsidiaries is a party, except, in
the case of sub-clause (II) or (III) of clause (i) above, for any breach,
violation, default, acceleration, creation or change or, in the case of clause
(ii) above any consent, that in each case would not, individually or in the
aggregate, be reasonably likely to have a Swiss Material Adverse Effect or
prevent, materially delay or materially impair the ability of Switzerland to
consummate the transactions contemplated by this Agreement to which it will be a
party.
3.2.5 SWISS REPORTS; FINANCIAL STATEMENTS. Switzerland has made available to
each of Canada and France each registration statement, proxy statement, annual
report and information statement, and other documents provided by Switzerland to
the Swiss Exchange (SWX) and prepared by it since the Audit Date, each in the
form (including exhibits, annexes and any amendments thereto) provided to the
SWX (collectively, including any such reports provided subsequent to the date
hereof and as amended, the SWISS REPORTS). As of their respective dates, (or, if
amended, as of the date of such amendment) the Swiss Reports were, and any Swiss
Reports provided to the SWX subsequent to the date hereof will be true, complete
and correct in all material respects and comply with applicable legal
requirements. Each of the consolidated balance sheets included in or
incorporated by reference into the Swiss Reports (including the related notes
and schedules) fairly presents, or will fairly present, in all material
respects, the consolidated financial position of Switzerland and its
Subsidiaries as of its date and each of the consolidated statements of income
and of cash flows included in or incorporated by reference into the Switzerland
Reports (including any related notes and schedules) fairly presents, or will
fairly present, the results of operations, retained earnings and cash flows, as
the case may be, of Switzerland and its Subsidiaries on a consolidated basis for
the periods set forth therein (subject, in the case of unaudited statements, to
notes and normal year-end audit adjustments that will not be material in amount
or effect), in each case in accordance with International Accounting Standards
consistently applied during the periods involved, except as may be noted
therein.
3.2.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Swiss Reports
provided to the SWX prior to the date of the Initial Combination Agreement and
except as contemplated hereby, since the Audit Date and through the date of the
Initial Combination Agreement, Switzerland and its Subsidiaries have conducted
their respective businesses only in, and have not engaged in any material
transaction other than according to, the ordinary course of such businesses and
there has not been (i) any change in the financial condition, properties,
business or results of operations of Switzerland and its Subsidiaries or any
development or combination of developments of which the Executive Officers of
Switzerland have knowledge that has had or would be, individually or in the
aggregate, reasonably likely to have a Swiss Material Adverse Effect; (ii) any
damage, destruction or other casualty loss with respect to any asset or property
owned, leased or otherwise used by Switzerland or any of its Subsidiaries,
whether or not covered by insurance, other than any damage, destruction or other
casualty loss that would not, individually or in the aggregate, be reasonably
likely to have a Swiss Material Adverse Effect; (iii) any declaration, setting
aside or payment of any dividend or other distribution in respect of the capital
stock of Switzerland, except for dividends or other distributions on its capital
stock publicly announced prior to the date hereof, the Chemicals Division
Demerger and other than dividends and distributions made by a wholly owned
Subsidiary of Switzerland to Switzerland or a company that will be a wholly
owned Subsidiary of Switzerland after the Chemicals Division Demerger; or (iv)
any change by Switzerland in accounting principles, practices or methods. Since
the Audit Date, except as provided for herein or as
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disclosed in the Swiss Reports filed prior to the date hereof, there has not
been any increase in the compensation payable or that could become payable by
Switzerland or any of its Subsidiaries to officers or key employees or any
amendment of any of the Compensation and Benefit Plans of Switzerland other than
increases or amendments in the ordinary course of business consistent with past
practice.
3.2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the Swiss
Reports provided to the SWX prior to the date of the Initial Combination
Agreement, as of the date hereof there are no obligations or liabilities,
including in respect of obligations and liabilities disclosed in any Swiss
Report, any change in those obligations or liabilities whether or not accrued,
contingent or otherwise and whether or not required to be disclosed, including
those relating to matters involving any Environmental Law, or any other facts or
circumstances of which the Executive Officers of Switzerland have knowledge that
would be reasonably likely to result in any claims against, or obligations or
liabilities of, Switzerland or any of its Subsidiaries, except for those that
would not, individually or in the aggregate, be reasonably likely to have a
Swiss Material Adverse Effect or prevent or materially delay or materially
impair the ability of Switzerland to consummate the transactions contemplated by
this Agreement to which it will be a party.
3.2.8 COMPLIANCE WITH LAWS; PERMITS. Except as set forth in the Swiss Reports
provided to the SWX prior to the date of the Initial Combination Agreement, the
businesses of each of Switzerland and its Material Subsidiaries have not been,
and are not being, conducted in violation of any Laws, except for violations or
possible violations that would not, individually or in the aggregate, be
reasonably likely to have a Swiss Material Adverse Effect or prevent or
materially delay or materially impair the ability of Switzerland to consummate
the transactions contemplated by this Agreement to which it will be a party.
Except as set forth in the Swiss Reports provided to the SWX prior to the date
of the Initial Combination Agreement, no investigation or review by any
Governmental Entity with respect to Switzerland or any of its Subsidiaries is
pending or, to the knowledge of the Executive Officers of Switzerland,
threatened, nor has any Governmental Entity indicated to Switzerland an
intention to conduct the same, except for those the outcome of which would not,
individually or in the aggregate, be reasonably likely to have a Swiss Material
Adverse Effect or prevent or materially delay or materially impair the ability
of Switzerland to consummate the transactions contemplated by this Agreement to
which it will be a party. To the knowledge of the Executive Officers of
Switzerland, no material change is required in Switzerland's or any of its
Subsidiaries' processes, properties or procedures in connection with any such
Laws, except those that, individually or in the aggregate, would not be
reasonably likely to have a Swiss Material Adverse Effect, and, as of the date
hereof, Switzerland has not received any notice or communication of any material
noncompliance with any such Laws that has not been cured as of the date hereof.
Switzerland and its Subsidiaries each has all permits, licenses, franchises,
variances, exemptions, orders and other governmental authorizations, consents
and approvals necessary to conduct its business as presently conducted except
those the absence of which would not, individually or in the aggregate, be
reasonably likely to have a Swiss Material Adverse Effect or prevent or
materially delay or materially impair the ability of Switzerland to consummate
the transactions contemplated by this Agreement to which it will be a party.
3.2.9 TAX MATTERS; ACCOUNTING. (a) As of the date hereof, neither Switzerland
nor any of its Subsidiaries has taken or agreed to take any action, nor do the
Executive Officers of Switzerland have any knowledge of any fact or circumstance
relating to Switzerland, that would be reasonably likely to prevent the business
combination resulting from the consummation of both of the Exchange Offers from
being accounted for as a "pooling-of-interests" under Canadian GAAP if, in the
absence of such action, such accounting treatment of such business combination
would not have been so prevented.
(b) As of the date hereof, neither Switzerland nor any of its Subsidiaries has
taken or agreed to take any action, nor do the Executive Officers of Switzerland
have any knowledge of any fact or circumstance relating to Switzerland, that
would be reasonably likely to prevent the Exchange Offers contemplated by this
Agreement from qualifying as tax-free transactions to Canada, France,
Switzerland and the shareholders of Canada and to the shareholders of France or
Switzerland who are resident for tax purposes in France, Switzerland and the
United States (other than a corporation holding Swiss Shares with a value in
excess of CHF 2 million) to the extent such shareholders exchange Swiss Shares
and
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French Shares, respectively, for Canada Common Shares unless, in the absence of
such action, the Exchange Offers would have failed to so qualify.
3.2.10 BROKERS AND FINDERS. Neither Switzerland nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders fees in connection with
the Combination or the other transactions contemplated by this Agreement, except
that Switzerland has employed Goldman Sachs International as its financial
advisors.
3.2.11 KNOWLEDGE OF BREACHES. Switzerland does not have knowledge that any
representation and warranty made by either Canada or France under this Article 3
is not true and correct in any material respect.
3.3 REPRESENTATIONS AND WARRANTIES OF CANADA. Except as set forth in the
disclosure letter dated the date of the Initial Combination Agreement delivered
to France and Switzerland by Canada (the CANADA DISCLOSURE LETTER), Canada
hereby represents and warrants to France and Switzerland that:
3.3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of Canada and its
Subsidiaries has been duly organized and is validly existing as a corporation,
and to the extent relevant under the applicable corporate law, under the laws of
its respective jurisdiction of organization and has all requisite corporate or
similar power and authority to own and operate its properties and assets and to
carry on its business as presently conducted and is in good standing as a
foreign corporation in each jurisdiction where the ownership or operation of its
properties or conduct of its business requires such standing, except where the
failure to be in good standing would not, individually or in the aggregate, be
reasonably likely to have a Canada Material Adverse Effect (as defined below).
Canada has made available to France and Switzerland a complete and correct copy
of Canada's and its Material Subsidiaries' articles of incorporation and
by-laws, or other comparable governing instruments each as amended to date.
Canada's and its Material Subsidiaries' articles of incorporation, by-laws and
other comparable governing instruments as so made available are in full force
and effect.
As used in this Agreement, the term (A) CANADA MATERIAL ADVERSE EFFECT
means a material adverse effect on the financial condition, properties, business
or results of operations of Canada and its Subsidiaries taken as a whole except
for any such effect resulting from any change in economic or business conditions
generally or with respect to the aluminum or packaging industries specifically
and (B) CANADA GROUP means Canada and its Subsidiaries and its interests in
associated entities taken as a whole.
3.3.2 CAPITAL STRUCTURE. The authorized capital stock of Canada consists of an
unlimited number of Canada Common Shares, an unlimited number of shares of
Preferred Stock, of which 217,647,557 Canada Common Shares, 4,200,000 shares of
Series C Preferred Stock of Canada, 1,500,000 shares of Series C (1985)
Preferred Stock of Canada and 3,000,000 shares of Series E Preferred Stock of
Canada were outstanding as of the close of business on August 6, 1999. All of
the outstanding Canada Common Shares have been duly authorized and are validly
issued, fully paid and nonassessable. Canada has no shares reserved for
issuance, except that, as of August 6, 1999, there were 18,960,088 Canada Common
Shares reserved for issuance pursuant to Canada's Executive Share Option Plan
(the CANADA STOCK PLANS) and 524,934 Canada Common Shares reserved for issuance
pursuant to Canada's dividend reinvestment plan and the Share Purchase Plan of
Canada. Each of the outstanding shares of capital stock or other securities of
each of Canada's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and, except for directors' qualifying shares and except as
provided in the Canada Reports filed prior to the date hereof, is owned by
Canada or a direct or indirect wholly-owned Subsidiary of Canada, free and clear
of any lien, pledge, security interest, claim or other encumbrance. Except as
set forth above, there are no preemptive or other outstanding rights, options,
warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights, agreements, arrangements or commitments to issue or sell any
shares of capital stock or other securities of Canada or any of its Subsidiaries
or any securities or obligations convertible or exchangeable into or exercisable
for, or giving any person or entity a right to subscribe for or acquire, any
securities of Canada or any of its Subsidiaries, and no securities or
obligations evidencing such rights are authorized, issued or outstanding. Canada
does not have outstanding any bonds, debentures, notes or other obligations the
holders of which have
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the right to vote (or convertible into or exercisable for securities having the
right to vote) with the stockholders of Canada on any matter.
3.3.3 AUTHORITY RELATIVE TO THIS AGREEMENT AND APPROVAL. (A) Canada has all
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement except for the approval of the issuance of Canada Common Shares to be
issued pursuant to the Exchange Offers by a majority of the votes cast by the
holders of Canada Common Shares (the REQUISITE VOTE) at a duly held meeting of
the stockholders of Canada and except for the approval by two-thirds of the
votes cast by the holders of Canada Common Shares of the exporting of Canada's
incorporation to the extent required pursuant to Schedule 3. This Agreement is a
legal, valid and binding agreement of Canada enforceable against it in
accordance with its terms, subject to the Bankruptcy and Equity Exception.
(B) The Canada Board of Directors has unanimously approved this Agreement, the
Combination and the Exchange Offers and the other transactions contemplated
hereby to which it will be a party and approved the recommendations to its
shareholders to approve (i) the issuance of Canada Common Shares in connection
with the French Exchange Offer (regardless of whether or not the Swiss Exchange
Offer is consummated), (ii) the issuance of Canada Common Shares in connection
with the Swiss Exchange Offer (regardless of whether or not the French Exchange
Offer is consummated) and (iii) the exporting of Canada's incorporation, if
required.
3.3.4 GOVERNMENTAL FILINGS; NO VIOLATIONS. (A) Other than the filings,
approvals and/or notices required to be made (i) under the Antitrust Laws, (ii)
under the Securities Laws, (iii) under any stock exchange rules or regulations
in the United States, Canada, Switzerland, France, the European Union and any
other applicable jurisdiction, (iv) with the French Ministere de l'Economie, des
Finances et de l'Industrie under regulations for foreign investment in France,
and (v) to comply with statutes of Switzerland relating to the acquisition of
land by foreigners, no notices, reports or other filings are required to be made
by Canada with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by Canada from, any Governmental Entity
in connection with the execution and delivery of this Agreement by Canada and
the consummation by Canada of the Combination, the Exchange Offers and the other
transactions contemplated hereby, to which Canada will be a party except those
that the failure to make or obtain would not, individually or in the aggregate,
be reasonably likely to have a Canada Material Adverse Effect or prevent,
materially delay or materially impair the ability of Canada to consummate the
Combination.
(B) The execution, delivery and performance of this Agreement by Canada do not,
and the consummation by Canada of the Combination, the Exchange Offers and the
other transactions contemplated hereby to which Canada will be a party will not
(i) constitute or result in (I) a breach or violation of, or a default under the
articles of incorporation or by-laws or the comparable governing instruments of
Canada or any of its Subsidiaries, (II) a breach or violation of, or a default
under, the acceleration of any obligations or the creation of a lien, pledge,
security interest or other encumbrance on or rights in respect of the assets of
Canada or any of its Subsidiaries (with or without notice, lapse of time or
both) pursuant to, any Contract binding upon Canada or any of its Subsidiaries
or any Law or governmental or non-governmental permit or license to which Canada
or any of its Subsidiaries is subject or (III) any change in the rights or
obligations of any party under any of the Contracts to which Canada or any of
its Subsidiaries is a party or (ii) require the consent of any counterparty to
any of the Contracts to which Canada or any of its Subsidiaries is a party,
except, in the case of sub-clause (II) or (III) of clause (i) above, for any
breach, violation, default, acceleration, creation or change or in the case of
clause (ii) above, for any consent that in each case would not, individually or
in the aggregate, be reasonably likely to have a Canada Material Adverse Effect
or prevent, materially delay or materially impair the ability of Canada to
consummate the transactions contemplated hereby to which it will be a party.
3.3.5 CANADA REPORTS; FINANCIAL STATEMENTS. Canada has made available to each
of France and Switzerland each management information circular, registration
statement, prospectus, report, annual information form, proxy statement or
information statement prepared by it since the Audit Date, each in the form
(including exhibits, annexes and any amendments thereto) filed with the Ontario
Securities Commission (the OSC) and the SEC (collectively, including any such
reports filed subsequent to the date
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hereof and as amended, the CANADA REPORTS). As of their respective dates, (or,
if amended, as of the date of such amendment) the Canada Reports were, and any
Canada Reports filed with the OSC or the SEC subsequent to the date hereof will
be, true, complete and correct in all material respects and comply with all
applicable legal requirements. Each of the consolidated balance sheets included
in or incorporated by reference into the Canada Reports (including the related
notes and schedules) fairly presents, or will fairly present, in all material
respects, the consolidated financial position of Canada and its Subsidiaries as
of its date and each of the consolidated statements of income and of cash flows
included in or incorporated by reference into the Canada Reports (including any
related notes and schedules) fairly presents, or will fairly present, the
results of operations, retained earnings and cash flows, as the case may be, of
Canada and its Subsidiaries on a consolidated basis for the periods set forth
therein (subject, in the case of unaudited statements, to notes and normal
year-end audit adjustments that will not be material in amount or effect), in
each case in accordance with Canadian GAAP consistently applied during the
periods involved, except as may be noted therein.
3.3.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Canada Reports
filed prior to the date of the Initial Combination Agreement and except as
contemplated hereby, since the Audit Date and through the date of the Initial
Combination Agreement, Canada and its Subsidiaries have conducted their
respective businesses only in, and have not engaged in any material transaction
other than according to, the ordinary course of such businesses and there has
not been (i) any change in the financial condition, properties, business or
results of operations of Canada and its Subsidiaries or any development or
combination of developments of which the Executive Officers of Canada have
knowledge that has had or would be, individually or in aggregate, reasonably
likely to have a Canada Material Adverse Effect; (ii) any damage, destruction or
other casualty loss with respect to any assets or property owned, leased or
otherwise used by Canada or any of its Subsidiaries, whether or not covered by
insurance, other than any damage, destruction or other casualty loss that would
not, individually or in the aggregate, be reasonably likely to have a Canada
Material Adverse Effect; (iii) any declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of Canada, except
for dividends or other distributions on its capital stock publicly announced
prior to the date hereof or made by a wholly-owned Subsidiary of Canada; or (iv)
any change by Canada in accounting principles, practices or methods. Since the
Audit Date, except as provided for herein or as disclosed in the Canada Reports
filed prior to the date hereof, there has not been any increase in the
compensation payable or that could become payable by Canada or any of its
Subsidiaries to officers or key employees or any amendment of any of the
Compensation and Benefit Plans of Canada other than increases or amendments in
the ordinary course of business consistent with past practice.
3.3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the Canada
Reports filed prior to the date of the Initial Combination Agreement, as of the
date hereof, there are no obligations or liabilities, including in respect of
obligations and liabilities disclosed in any Canada Report, any change in those
obligations or liabilities whether or not accrued, contingent or otherwise and
whether or not required to be disclosed, including those relating to matters
involving any Environmental Law, or any other facts or circumstances of which
the Executive Officers of Canada have knowledge that would be reasonably likely
to result in any claims against, or obligations or liabilities of, Canada or any
of its Subsidiaries, except for those that would not, individually or in the
aggregate, be reasonably likely to have a Canada Material Adverse Effect or
prevent or materially delay or materially impair the ability of Canada to
consummate the transactions contemplated hereby to which it will be a party.
3.3.8 COMPLIANCE WITH LAWS; PERMITS. Except as set forth in the Canada Reports
filed prior to the date of the Initial Combination Agreement, the businesses of
each of Canada and its Material Subsidiaries have not been, and are not being,
conducted in violation of any Laws, except for violations or possible violations
that would not, individually or in the aggregate, be reasonably likely to have a
Canada Material Adverse Effect or prevent or materially delay or materially
impair the ability of Canada to consummate the transactions contemplated hereby
to which it will be a party. Except as set forth in the Canada Reports filed
prior to the date of the Initial Combination Agreement, no investigation or
review by any Governmental Entity with respect to Canada or any of its
Subsidiaries is pending or, to the knowledge of the Executive Officers of
Canada, threatened, nor has any Governmental Entity indicated an intention to
Canada to conduct the same, except for those the outcome of which would not be
reasonably likely to
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have a Canada Material Adverse Effect or prevent or materially delay or
materially impair the ability of Canada to consummate the transactions
contemplated hereby to which it will be a party. To the knowledge of the
Executive Officers of Canada, no material change is required in Canada's or any
of its Subsidiaries' processes, properties or procedures in connection with any
such Laws, except those that, individually or in the aggregate, would not
reasonably likely to have a Canada Material Adverse Effect, and, as of the date
hereof, Canada has not received any notice or communication of any material
noncompliance with any such Laws that has not been cured as of the date hereof.
Canada and its Subsidiaries each has all permits, licenses, franchises,
variances, exemptions, orders and other governmental authorizations, consents
and approvals necessary to conduct its business as presently conducted except
those the absence of which would not, individually or in the aggregate, be
reasonably likely to have a Canada Material Adverse Effect or prevent or
materially delay or materially impair the ability of Canada to consummate the
transaction contemplated hereby to which it will be a party.
3.3.9 TAX MATTERS; ACCOUNTING. (a) As of the date hereof, neither Canada nor
any of its Subsidiaries has taken or agreed to take any action, nor do the
Executive Officers of Canada have any knowledge of any fact or circumstance
relating to Canada, that would be reasonably likely to prevent the business
combination resulting from the consummation of both of the Exchange Offers from
being accounted for as a "pooling-of-interests" under Canadian GAAP if, in the
absence of such action, such accounting treatment of such business combination
would not have been so prevented.
(b) As of the date hereof, neither Canada nor any of its Subsidiaries has
taken or agreed to take any action, nor do the Executive Officers of Canada have
any knowledge of any fact or circumstance relating to Canada that would be
reasonably likely to prevent the Exchange Offers contemplated by this Agreement
from qualifying as tax-free transactions to Canada, France, Switzerland and the
shareholders of Canada and to the shareholders of France and Switzerland who are
residents for tax purposes in France, Switzerland or the United States (other
than a corporation holding Swiss Shares with a value in excess of CFH 2 million)
to the extent such shareholders exchange Swiss Shares and French Shares,
respectively, for Canada Common Shares unless, in the absence of such action,
the Exchange Offers would have failed to so qualify.
3.3.10 BROKERS AND FINDERS. Neither Canada nor any of its officers, directors
or employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders fees in connection with the Combination
or the other transactions contemplated in this Agreement, except that Canada has
employed Morgan Stanley Dean Witter as its financial advisors.
3.3.11 KNOWLEDGE OF BREACHES. Canada does not have knowledge that any
representation and warranty made by either France or Switzerland under this
Article 3 is not true and correct in any material respect.
ARTICLE 4
COVENANTS OF CANADA, FRANCE AND SWITZERLAND
4.1 COVENANTS BY EACH OF CANADA, FRANCE AND SWITZERLAND TO EACH OF THE OTHERS
4.1.1 The covenants provided in Articles 4.1.2, 4.1.3, 4.1.4, 4.1.5, 4.1.6,
4.1.8 and 4.1.9 shall be effective from the date hereof until the date on which,
(i) with respect to the France Group, Canada has taken up and paid for French
Shares tendered under the French Exchange Offer, (ii) with respect to the
Switzerland Group, Canada has taken up and paid for Swiss Shares tendered under
the Swiss Exchange Offer, (iii) with respect to the Canada Group and its
obligations to France, Canada has taken up and paid for French Shares tendered
under the French Exchange Offer; provided that Article 4.1.5 shall continue to
be effective until the persons (or their replacement designees) proposed by
France to become directors of Canada as specified in Schedule 3 have been
offered the opportunity, and all necessary actions have been taken by Canada to
permit such persons, to become directors of Canada and (iv) with respect to the
Canada Group and its obligations to Switzerland, Canada has taken up and paid
for Swiss Shares tendered under the Swiss Exchange Offer; provided that Article
4.1.5 shall continue to be effective until the persons (or their replacement
designees) proposed by Switzerland to become directors of Canada
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as specified in Schedule 3 have been offered the opportunity, and all necessary
actions have been taken by Canada to permit such persons, to become directors of
Canada.
4.1.2 Each of Canada, France and Switzerland hereby covenants with the other
Parties that it and its directors, officers, employees, agents and other
representatives will:
(a) not, directly or indirectly, take any action to solicit, initiate, assist
or encourage enquiries, submissions, proposals or offers from any other person,
entity or group relating to it, and will not participate in any discussions or
negotiations regarding, or furnish to any person, entity or group any
information with respect to, or otherwise cooperate in any way or assist or
participate in, or facilitate or encourage any effort or attempt with respect
to:
(i) the direct or indirect acquisition or disposition of all or any shares
or any other securities of it or its subsidiaries; or
(ii) any amalgamation, merger, sale of any substantial part of its or any
of its subsidiaries' assets, take-over bid, share exchange, plan of
arrangement, reorganization, joint venture, strategic alliance,
substantial dividend or distribution out of the ordinary course of
business, recapitalisation, liquidation or winding-up of, reverse
take-over or other business combination or similar transaction involving
it or a substantial part of its assets
(except to the extent it would not be precluded from entering into such a
transaction under the terms of Article 4.1.5 and except for the Chemicals
Division Demerger and except as otherwise specifically contemplated
herein).
The foregoing undertaking shall not, however, to the extent required by
applicable laws and regulations (including, without limitation, relevant
fiduciary duties applicable to the Board of Directors), prevent any Party from
entering into discussions with any third party which, not having been
encouraged, enticed or otherwise solicited as aforesaid, makes a written
proposal which constitutes an Alternative Transaction (as defined below).
Notwithstanding the foregoing, no Party will provide information to any third
party about any other Party. Furthermore no Party will provide any information
to any third party about itself unless that third party enters into a
confidentiality and standstill agreement on customary terms which also permits
disclosure to the other Parties concerning the Alternative Transaction. Each of
the Parties agrees that if it has not already done so, it will promptly request
each third party, if any, that has executed a confidentiality agreement within
the 12 months prior to the date hereof with such Party in connection with the
third party's consideration of a proposal which if made would be reasonably
likely to result in an Alternative Transaction to return or destroy all
confidential information furnished to that third party by or on behalf of it or
any of its Subsidiaries.
(b) inform the other Parties forthwith upon becoming aware of an Alternative
Transaction or an unsolicited enquiry, submission, offer or proposal (however
made) described in Article 4.1.2(a) above, including the identity of the person
or entity who has made the proposal and, if an advisor, the identity of the
principal and of any action taken by it pursuant to the last paragraph of
Article 4.1.2(a) and continue to keep each Party informed in relation thereto.
As used in this Agreement, ALTERNATIVE TRANSACTION means an offer or a
proposal made to either France, Switzerland or Canada or some or all of such
companies, as the case may be, in writing and duly authorised by the board of
directors of the person or entity making the offer or proposal (i) to acquire by
means of amalgamation, merger, purchase, exchange or otherwise all of the shares
or all or substantially all of the assets of France, Switzerland or Canada, (ii)
that would be a transaction substantially more favorable to the shareholders of
such Party than the Combination, (iii) except in case of a transaction involving
all or substantially all of the assets of a Party, that is available to all
holders of shares in such Party and (iv) that is reasonably likely to be
consummated taking into account all legal, financial and regulatory aspects of
the proposal.
4.1.3 Notwithstanding the pre-agreement investigation of any of Canada, France
and Switzerland, (each of which, together with its Subsidiaries shall for the
purposes of this Agreement be referred to as the CORPORATION) conducted by or on
behalf of another Party or the other two Parties, upon reasonable notice, and
except as may otherwise be required by applicable law, each of Canada, France
and Switzerland shall (and shall cause each of its Subsidiaries to) afford the
other Corporations' officers,
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employees, counsel, accountants and other authorized representatives
(REPRESENTATIVES) reasonable access, during normal business hours throughout the
period prior to the consummation of the Combination, to its properties, books,
contracts and records and, during such period, each shall furnish promptly to
the other Corporation (if requested by such Corporation) all information
concerning its business, properties and personnel as may reasonably be
requested, provided that no investigation pursuant to this Article 4.1.3 shall
affect or be deemed to modify any representations and warranties made by any
Corporation, and provided, further, that the foregoing shall not require any
Corporation to permit any inspection, or to disclose any information, that in
the reasonable judgment of such Corporation, would result in the disclosure of
any trade secrets of third parties or violate any of its obligations with
respect to confidentiality if such Corporation shall have used commercially
reasonable efforts to obtain the consent of such third party to such inspection
or disclosure and that the foregoing shall not require the Corporation to
violate any attorney-client privilege or violate any law relating to antitrust
or the regulation of markets generally. All requests for information made
pursuant to this Article 4.1.3 shall be directed to an Executive Officer of the
Corporation, or such person as may be designated by any of the Executive
Officers, as the case may be. All such information shall be governed by the
terms of the Confidentiality Agreement.
4.1.4 Each of France, Switzerland and Canada shall notify forthwith both other
Parties upon its Executive Officers becoming aware of any material breach of the
representations and warranties given by it, and of any circumstance reasonably
likely to result in the representations and warranties not being true and
accurate in all material respects if repeated at any time during the currency of
this Agreement (by reference to the facts and circumstances at that time),
including reasonable details of the breach or circumstance and, if remediable,
the means and time frame for anticipated remedy and the applicable Corporation
agrees to, if remediable, use commercially reasonable efforts to remediate.
4.1.5 Except if specifically contemplated herein (including, without limitation,
taking actions permitted under Article 4.1.2) or in the France Disclosure
Letter, the Switzerland Disclosure Letter or the Canada Disclosure Letter,
respectively, each Party agrees that it will not take any action, or refrain
from taking any action, in the operation of its business that is reasonably
likely to be inconsistent with the economic or business fundamentals of either
of the Exchange Offers or materially hinder the consummation of either of the
Exchange Offers. In furtherance thereof, France, Canada and Switzerland
respectively agree (as to it and its Subsidiaries) that it shall not without the
written consent of the other Parties (such consent not to be unreasonably
withheld or delayed):
(a) issue any shares or capital stock (or rights to acquire shares of
capital stock) except pursuant to obligations in effect on the date of
the Initial Combination Agreement, or pursuant to existing employee
stock option or stock purchase plans in amounts and to the extent
consistent with past practice;
(b) repurchase or redeem any shares or capital stock or permit its
Subsidiaries (other than wholly-owned subsidiaries) to repurchase or
redeem any shares or capital stock (or rights to acquire shares or
capital stock), except that each Party may repurchase, redeem or acquire
shares in it in connection with its employee stock plans in amounts and
to the extent consistent with past practice;
(c) make any declaration, set aside a payment of, or pay any dividend or
other distribution in respect of its capital stock or the capital stock
of its Subsidiaries except (i) in the case of France, the declaration
and the payment in cash by France (I) to the holders of French Shares of
a dividend in an amount not exceeding the regular annual dividend,
consistent with past practice (the amount of such dividend including the
"precompte" tax and any other tax payable by France under French law in
relation thereto being the INITIAL DIVIDEND AMOUNT) and (II) subject to
the consummation of the French Exchange Offer and prior to the
settlement and delivery of Canada Common Shares to be delivered pursuant
to the French Exchange Offer, to the holders of France Shares of a
dividend in an aggregate amount (this amount including the "precompte"
tax or any other tax payable by France under French tax law in
connection with such dividend) in respect of all the French Shares not
exceeding the amount by which US$549,000,000 exceeds the Initial
Dividend Amount, (ii) in the case of Canada, normal
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quarterly dividends consistent with past practice and (iii) dividends by
a wholly owned Subsidiary of a Party to another wholly owned Subsidiary
of that Party (provided in the case of Switzerland such other wholly
owned Subsidiary will be a wholly owned Subsidiary of Switzerland after
the Chemicals Division Demerger), or by a wholly owned Subsidiary of a
Party to that Party;
(d) amend or change its articles of association, bylaws or other
comparable governing instruments;
(e) make or commit for any capital expenditures exceeding an aggregate of
US$ 100 million, in the case of the Canada Group, US$50 million, in the
case of the France Group, and US$50 million, in the case of the
Switzerland; except in all cases for capital expenditures in amounts not
exceeding those provided in the existing group budgets for 1999 and
2000, as applicable, specifically disclosed to the other Parties prior
to the date of the Initial Combination Agreement;
(f) make any investments in assets (other than equipment, inventories and
goods in the ordinary course of business) or shares exceeding an
aggregate of US$500 million, in the case of the Canada Group, US$250
million, in the case of the France Group and US$250 million in the case
of the Switzerland Group; provided, that prior to making any investment
in an aggregate amount in excess of US$100 million, in the case of the
Canada Group and US$50 million in the case of each of the France Group
and the Switzerland Group, it shall notify the other Parties of such
investments;
(g) divest or sell any assets (other than equipment, inventories and goods
in the ordinary course of business) or any shares, or rights to acquire
any shares, in a Subsidiary or associated entity with a fair market
value exceeding an aggregate of US$75 million, in the case of the Canada
Group, US$50 million, in the case of the France Group, and US$50
million, in the case of the Switzerland Group; provided, that the
Chemicals Division Demerger shall not be included in calculating such
amount for the Switzerland Group;
(h) make any material tax election or permit any of its Subsidiaries to do
so; or
(i) take any action, or permit any of its Subsidiaries to take any action,
that would make any representation or warranty hereunder untrue in any
material respect;
4.1.5.1Each of France, Canada and Switzerland respectively represents and
warrants that since the date of the Initial Combination Agreement and through
the date hereof neither it nor its Subsidiaries has taken any action (or failed
to take any action) that would have caused it to violate the provisions of
Article 4.1.5 if such Article had been in effect at such time.
4.1.5.2Each of France, Canada and Switzerland agree that for purposes of
calculating the amounts set forth in subarticles (e), (f) and (g) of Article
4.1.5 all transactions between the date of the Initial Combination Agreement and
the date hereof shall be taken into account.
4.1.6 Each of France, Canada and Switzerland agrees that it shall and shall
cause its Subsidiaries to co-operate with the other Parties and use commercially
reasonable efforts to take, or cause to be taken, all actions required in
connection with (i) the timely production and approval of documentation to be
used in accordance with effecting the Combination, (ii) the making and obtaining
of any governmental or regulatory filings or applications or consents required
to achieve satisfaction as soon as practicable of each of the conditions set out
in Schedule 2, (iii) the listing of the Canada Common Shares to be issued under
each of the Exchange Offers on the New York Stock Exchange, The Toronto Stock
Exchange, SBF, SWX and the London Stock Exchange, (iv) the making and conduct of
the Exchange Offers, and (v) the consummation of each of the Exchange Offers,
including approvals of anti-trust authorities, third parties, securities and
stock exchange authorities and the Applicable Takeover Authorities; such actions
to include also provision of information and, confirming accuracy and
completeness of information provided by it; the public acceptance of
responsibility for information about each Party by the directors of that Party
and the provision of reports and comfort letters and opinions from the
investment bank, auditors and legal advisers of each Party (where required in
connection with an Exchange Offer, registration, listing or shareholder
solicitation document) and in connection therewith:
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(a) Canada, France and Switzerland each agree, as to itself and its
Subsidiaries, that all of the information supplied or to be supplied by
it or its Subsidiaries for inclusion or incorporation by reference in
each document to be used for the purposes of either of the Exchange
Offers or for the purpose of seeking the approval of the shareholders of
Canada to the issue of the New Canada Shares, including, without
limitation, the Canadian take-over bid circular, Proxy Statement, S-4
Registration Statement, Schedule 14D-1, note d'information, the COB
Filing, the CMF Filing, the Joint Prospectus for the French Exchange
Offer, the TOB Filing and the prospectus for the Swiss Exchange Offer,
as of the date such documents are first mailed to shareholders or
declared effective or published, as applicable, will be true, correct
and complete in all material respects, and will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(b) Canada, France and Switzerland each shall, upon request by any of the
others, furnish the requesting Party with all information concerning
itself, its Subsidiaries, directors, officers and stockholders and such
other matters as may be reasonably necessary or advisable in connection
with each document to be used for the purposes of either of the Exchange
Offers or for the purpose of seeking the approval of the shareholders of
Canada to the issue of the New Canada Shares, including, without
limitation, the Proxy Statement, Canadian take-over bid circular, the
S-4 Registration Statement, the CMF Filing, the COB Filing, the note
d'information, the Joint Prospectus for the French Exchange Offer, the
TOB Filing, the Schedule 14D-1 and the prospectus for the Swiss Exchange
Offer or any other statement, filing, notice or application made by or
on behalf of Canada, France or Switzerland or any of their respective
Subsidiaries to any third party and/or any Governmental Entity in
connection with the Combination or either of the Exchange Offers or any
other transaction contemplated by this Agreement; and
(c) Canada, France and Switzerland each shall keep the others apprised of
the status of matters relating to completion of the Combination and each
of the Exchange Offers, including promptly furnishing the others with
copies of notices or other communications received by or on behalf of
France, Switzerland or Canada, as the case may be, or any of its
Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Combination and either of the Exchange Offers or any
other transaction contemplated by this Agreement.
As used in this Agreement, APPLICABLE TAKEOVER AUTHORITY means, with
respect to Switzerland, the relevant regulatory or stock exchange authorities in
Switzerland regulating offers made for shares in public companies and, with
respect to France, the relevant regulatory or stock exchange authorities in
France and the relevant United States regulatory authority regulating offers
made for shares in public companies.
4.1.7 Each of Canada, France and Switzerland agrees that neither it nor any of
its Subsidiaries shall take or cause to be taken any action, whether before or
after the consummation of either of the Exchange Offers, (a) that would prevent
the business combination resulting from the consummation of both of the Exchange
Offers from being accounted for as a "pooling of interests" under Canadian GAAP
or (b) that would cause either of the Exchange Offers to fail to constitute a
"tax-free" exchange of shares to the shareholders in France, Switzerland, and
the United States, who are resident in those countries for tax purposes (other
than a corporation holding Swiss shares with value in excess of CHF 2 million);
provided that no Party shall be deemed to have breached the provisions of this
Article 4.1.7 (a) unless, in the absence of such action, the Combination would
have been so prevented or an Exchange Offer would have so failed or (b) by
reason of taking any action in furtherance of the transactions contemplated
hereby.
4.1.8 Each Party agrees that except with the written consent of each of the
other Parties (which consent shall not be withheld or delayed unreasonably) or
except as required by applicable law or regulation, no Party shall make any
announcement in any jurisdiction in any manner whatsoever with regard to the
Combination or either of the Exchange Offers unless the information announced
was previously disclosed in a substantially similar manner in a disclosure
document filed by one of the Parties with respect to the transactions
contemplated hereby.
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4.1.9 Each of Canada, France and Switzerland agrees that it shall (i) provide
promptly to any and all federal, state, local or foreign court or Government
Entity with jurisdiction over enforcement of any applicable Antitrust Laws
(GOVERNMENT ANTITRUST ENTITY) information and documents requested by any
Government Antitrust Entity, which it is entitled to request under applicable
law, or necessary, proper or advisable to permit consummation of each Exchange
Offer and the Combination and the other transactions contemplated by this
Agreement and shall use commercially reasonable efforts to obtain the consent or
approval of any Government Antitrust Entity thereto and (ii) take promptly, in
the event that any permanent or preliminary injunction or other order is entered
or becomes reasonably foreseeable to be entered in any proceeding that would
make consummation of either of the Exchange Offers or the Combination in
accordance with the terms of this Agreement unlawful or that would prevent or
delay consummation of the Combination or the other transactions contemplated by
this Agreement, commercially reasonable steps (including the appeal thereof or
the posting of a bond) to vacate, modify or suspend such injunction or order so
as to permit such consummation as expeditiously as possible. Any undertakings
required to be given to secure any such regulatory consents or approvals or
necessary in connection with clause (ii) of the preceding sentence shall be on a
basis that is acceptable to each of the Parties, acting reasonably, and shall be
consistent with the best commercial interests of all of the Parties, taken as a
whole.
4.1.10 Canada covenants and agrees that the Proxy Statement shall provide the
shareholders of Canada with the ability to separately approve the issuance of
Canada Common Shares to be issued in the Swiss Exchange Offer and the issuance
of Canada Common Shares to be issued in the French Exchange Offer.
ADDITIONAL COVENANTS BY FRANCE TO EACH OF THE OTHER PARTIES
4.2 France hereby covenants to Canada and Switzerland:
4.2.1 to use its commercially reasonable efforts to assist Canada and
Switzerland to complete the Combination (including the making of the Exchange
Offers and the acceptance of the French Exchange Offer by holders of French
Shares) and to achieve timely satisfaction of each of the conditions set out in
Part B of Schedule 2, including co-operating with Canada and Switzerland in
making all requisite regulatory filings, and giving evidence in relation
thereto, in providing information and in obtaining third party consents as
necessary;
4.2.2 to provide, from time to time as Canada may reasonably request, a list
indicating the aggregate issued share capital in France and changes to it from
the immediately preceding list and of each registered holder of French Shares
and of each registered holder of rights to acquire French Shares together with
such other information relating to the identity of the holders of French Shares
as it may have;
4.2.3 to use its commercially reasonable efforts to (i) (I) enable outstanding
rights, other than employee options, to acquire French Shares granted by France
to be exercised prior to consummation of the French Exchange Offer so that those
French Shares can be tendered under the French Exchange Offer or to cause the
holders of such rights to accept Canada Common Shares in place of French Shares,
(II) permit the exchange, through acceptance of the French Exchange Offer, of
all French Shares held by employees of France through FCPE for Canada Common
Shares (or, if the French Exchange Offer is consummated, rights to acquire
Canada Common Shares using the same ratio as that on which French Ordinary
Shares are acquired under the French Exchange Offer for a reasonable period of
time following the expiry of the period of tax restriction that presently
applies and encourage such exchange) and, (ii) to encourage holders of options
to acquire French Shares granted by France to employees of France and its
Subsidiaries to accept the offer to be made by Canada pursuant to Article 4.4.7;
and
4.2.4 not to, and to procure that Pechiney Nederland N.V. does not, dispose of
any of the 982,669 French Shares held by Pechiney Nederland N.V. and not to, and
to procure that Pechiney Nederland N.V. does not, accept the French Exchange
Offer in respect of such French Shares.
ADDITIONAL COVENANTS BY SWITZERLAND TO EACH OF THE OTHER PARTIES
4.3 Switzerland hereby covenants to France and Canada:
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4.3.1 that subject to obtaining all necessary regulatory approvals/clearances
and the approval of the holders of Swiss Shares, Switzerland shall cause its (i)
fine chemicals and specialities and (ii) its intermediaries and additives
divisions as well as its energy business to be extracted from the Switzerland
Group in accordance with the terms and conditions and with the effect described
in Schedule 4 hereto (the CHEMICALS DIVISION DEMERGER) and that the Chemicals
Division Demerger shall have occurred so as to obtain the benefit of the Swiss
Tax Ruling (as defined in Schedule 4);
4.3.2 to (i) convene a shareholders meeting as soon as practicable, for the
purpose of voting upon the approval of the Chemicals Division Demerger and (ii)
to the extent permissible under applicable law, to recommend that shareholders
approve the Chemicals Division Demerger;
4.3.3 to use its commercially reasonable efforts to assist Canada and France to
complete successfully the Combination (including the making of the Exchange
Offers and their acceptance by shareholders of France and Switzerland) and to
achieve timely satisfaction of each of the conditions set out in Schedule 2 and
of the conditions which will form part of the Swiss Exchange Offer, including
co-operating with Canada and France in making all requisite regulatory filings,
and giving evidence in relation thereto, providing information and in obtaining
third party consents as necessary;
4.3.4 to provide, from time to time as Canada may reasonably request, a list
indicating the aggregate issued share capital in Switzerland and changes to it
from the immediately preceding list and of each registered holder of Swiss
Shares and of each registered holder of rights to be issued Swiss Shares
together with such other information relating to the identity of its
shareholders that it may have;
4.3.5 to use its commercially reasonable efforts to enable rights, other than
employee options, to acquire Swiss Shares granted by Switzerland to be exercised
prior to the consummation of the Swiss Exchange Offer so that the Swiss Shares
can be tendered under the Swiss Exchange Offer or to cause the holders of such
shares to accept Canada Common Shares in place of Swiss Shares and to use
commercially reasonable efforts to permit the exchange of all outstanding rights
to acquire Swiss Shares granted by Switzerland for Canada Common Shares (or
rights to acquire Canada Common shares) on terms that provide the holder with
equivalent economic benefits;
4.3.6 if necessary, as soon as reasonably practicable after the date hereof,
convene and hold a meeting of shareholders of Switzerland for the purpose of
presenting to the shareholders of Switzerland a proposal, and, subject to
applicable law, the positive recommendation of the Board of Directors of
Switzerland to adopt a clause in the Articles of Association of Switzerland
whereby the Swiss tender offer rules requiring a mandatory bid shall not apply
to the Swiss Exchange Offer;
4.3.7 to use its commercially reasonable efforts to obtain on terms satisfactory
to it all consents and authorizations necessary to complete the Chemicals
Division Demerger; and
4.3.8 that it will not permit any adjustment to the conversion terms of the two
convertible issues referred to in the Swiss Disclosure Letter to occur by reason
of the completion of the Chemical Division Demerger such that more than
6,641,796 Swiss Shares will be outstanding assuming full conversion of such
convertibles provided that if the number of Swiss Shares outstanding would
exceed such amount, the exchange ratio for the Swiss Exchange Offer will be
adjusted in Canada's favor to take account of such excess.
ADDITIONAL COVENANTS BY CANADA TO EACH OF THE OTHER PARTIES
4.4 Canada hereby covenants with France and Switzerland:
4.4.1 to use its best efforts to procure that the Canada Common Shares to be
issued pursuant to the Exchange Offers are listed on the New York Stock
Exchange, The Toronto Stock Exchange, the SWX, the SBF and the London Stock
Exchange at the time of expiration of the conditions to the consummation of the
applicable Exchange Offer, subject to official notice of issuance and freely
transferable through the facilities of such exchanges under applicable law
except by a holder of a sufficient number of shares to affect materially the
control of Canada;
4.4.2 to duly convene a meeting of holders of Canada Common Shares (the
STOCKHOLDERS MEETING) as promptly as practicable (but in no event later than 15
November 1999) to consider and vote upon the
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approval of the issuance of Canada Common Shares pursuant to each of the French
Exchange Offer and the Swiss Exchange Offer;
4.4.3 to promptly prepare with the full participation and cooperation of France
and Switzerland and as soon as practicable after the date hereof, mail to its
shareholders a form of proxy together with a management information circular
(which shall include the positive recommendation of the Board of Directors of
Canada required hereby) for use in connection with obtaining such approval (the
PROXY STATEMENT). Canada shall, on the date the Proxy Statement is first mailed
to its shareholders, file the Proxy Statement with all applicable Canadian
securities authorities;
4.4.4 to use its commercially reasonable efforts to assist the other Parties to
complete the Combination (including the making of the Exchange Offers and their
acceptance by shareholders of France and Switzerland) and to achieve timely
satisfaction of each of the conditions set out in Schedule 2 and of the
conditions which will form part of the Exchange Offers, including co-operating
with the other Parties in making all requisite regulatory filings, and giving
evidence in relation thereto, providing information and in obtaining third party
consents as necessary;
4.4.5 to use commercially reasonable efforts to permit the exchange, through
acceptance of the French Exchange Offer, of all of the French Shares held by
France Group employees through FCPE for Canada Common Shares (or, if the French
Exchange Offer is consummated, rights to acquire Canada Common Shares using the
same ratio as that on which French Ordinary Shares are acquired under the French
Exchange Offer for a reasonable period of time following the expiry of the
period of tax restriction that presently applies);
4.4.6 to seek any relief necessary from the SEC to permit the France Exchange
Offer to be conducted in the United States on a basis consistent with the
conduct of the French Exchange Offer in France;
4.4.7 prior to the expiration of the French Exchange Offer to offer (such offer
to be subject only to the conditions that the French Exchange Offer shall have
become unconditional and shall have been consummated) to each employee or former
employee of France and its Subsidiaries holding options to purchase French
Shares, to exchange, if such employee exercises any of such options at any time,
for each French Share issued to such employee pursuant to each such option
exercised, forthwith after its issue, Canada Common Shares using the same ratio
as that on which Ordinary Shares are acquired under the French Exchange Offer.
The foregoing offer of this right will comply with all applicable laws, be open
for acceptance for a period of approximately 25 trading days, will be on
detailed terms to be established at the time, will state that Canada may not be
prepared to exchange French Shares acquired pursuant to the options for Canada
Common Shares except pursuant to this right, will contain an authority/attorney
in favour of Canada or one of its officers to effect such exchange on the
applicable employee's behalf and will contain appropriate provisions for
adjustment of the foregoing exchange ratio to prevent dilution; and
4.4.8 to use commercially reasonable efforts while regularly reporting to and
consulting with France and Switzerland to, as promptly as practicable, obtain
private legislation in order to cause all requirements under the Canada Business
Corporations Act with respect to "resident Canadians" on Canada's Board of
Directors to be declared inoperative or otherwise altered so that those
requirements do not apply to Canada.
ARTICLE 5
INTENTIONALLY OMITTED
ARTICLE 6
CORPORATE GOVERNANCE AND DIRECTORS AND OFFICERS INDEMNIFICATION
6.1 CORPORATE GOVERNANCE
The Parties will take all actions that may be required to give effect to
the matters set forth in Schedule 3, upon consummation of each of the Exchange
Offers.
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6.2 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
6.2.1 From and after the consummation of the Swiss Exchange Offer, with respect
to the directors and officers of Switzerland and its Subsidiaries, and from and
after the consummation of the French Exchange Offer, with respect to the
directors and officers of France and its Subsidiaries, Canada agrees that it
will indemnify and hold harmless each present and former director and officer of
Switzerland and France and their respective Subsidiaries (the INDEMNIFIED
PARTIES), against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, COSTS)
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
consummation of the relevant Exchange Offer, whether asserted or claimed prior
to, at or after such consummation, to the fullest extent permitted by applicable
law (and Canada shall also advance expenses as incurred). If such indemnity is
not available with respect to any Indemnified Party, then Canada and the
Indemnified Party shall contribute to the amount payable in such proportion as
is appropriate to reflect relative faults and benefits (treating Canada in such
case as if it were Switzerland or France).
6.2.2 Canada shall maintain each of France's and Switzerland's existing
officers' and directors' liability insurance (each being D&O INSURANCE) for a
period of six years after the consummation of the France Exchange Offer or the
Swiss Exchange Offer, as the case may be; provided, however, that if the
existing D&O Insurance expires, is terminated or canceled by the carrier during
such six-year period, Canada will use its commercially reasonable efforts to
obtain as much D&O Insurance as can be obtained for the remainder of such
period.
6.2.3 The provisions of Articles 6.2.1 and 6.2.2 are intended to be for the
benefit of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their representatives and each of France and Switzerland is executing
this Agreement as trustee for the benefit of the Indemnified Parties and their
heirs and their representatives.
6.3 After the persons proposed by Switzerland, as specified on Schedule 3
shall have become directors of Canada, Switzerland shall use reasonable
commercial efforts to procure, and procure that the Board of Directors of
Switzerland shall, subject to their fiduciary duties under applicable law,
cooperate with the making of changes to the composition of the Board of
Directors of Switzerland including, without limitation, promptly convening a
meeting of the shareholders of Switzerland to vote on resolutions to appoint and
remove directors of Switzerland.
ARTICLE 7
TERMINATION FEES
7.1 PAYMENTS BY FRANCE
If (x) this Agreement is terminated with respect to France (a) by France
pursuant to Article 8.3.1(d) or (b) by Canada pursuant to Article 8.2.2(d) or
(y) following the commencement of the French Exchange Offer Period, the Board of
Directors of France as permitted by Article 1.2.1(v), withdraws or adversely
modifies its recommendation that holders of French Shares tender their French
Shares in the French Exchange Offer or recommends an Alternative Transaction to
its shareholders, then France shall, prior to or concurrently with a termination
referred to in Article 7.1(x)(a), within two days following a termination
referred to in Article 7.1(x)(b) and within two days following taking the action
referred to in Article 7.1(y), pay the Fee, in each such case to be divided
equally between Canada and Switzerland, unless the Agreement shall have
previously been terminated with respect to Switzerland, without obligation to
make payment of any portion of the Fee, in which case Canada shall receive 100%
of the Fee.
7.2 PAYMENTS BY SWITZERLAND
If (x) this Agreement is terminated with respect to Switzerland (a) by
Canada pursuant to Article 8.2.1(d) or (b) by Switzerland pursuant to Article
8.4.1(d) or (y) following the commencement of the Swiss Exchange Offer, the
Board of Directors of Switzerland (I) as permitted by Article 1.3.1(iv)
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withdraws or adversely modifies its recommendation that shareholders of
Switzerland tender their Swiss Shares in the Swiss Exchange Offer or (II)
recommends an Alternative Transaction to its shareholders, then Switzerland
shall, prior to or concurrently with a termination referred to in Article
7.2(x)(b), within two days following a termination referred to in Article
7.2(x)(a) and within two days following taking the action referred to in Article
7.2(y), pay the Fee, in each such case, to be divided equally between Canada and
France, unless the Agreement shall have previously been terminated with respect
to France, without obligation to make payment of any portion of the Fee, in
which case, Canada shall receive 100% of the Fee.
7.3 PAYMENTS BY CANADA
If (x) this Agreement is terminated (a) by Canada pursuant to Article
8.2.3, (b) by France pursuant to Article 8.3.1(e) or (c) by Switzerland pursuant
to Article 8.4.1(e) or (y) following the commencement of the Swiss Exchange
Offer or the French Exchange Offer Period, the Board of Directors of Canada as
permitted by Article 1.4.3 withdraws or adversely modifies its recommendation
that shareholders of Canada approve the issue of Canada Common Shares in
connection with each of the Swiss Exchange Offer and the French Exchange Offer,
then Canada shall, prior to or concurrently with a termination referred to in
Article 7.3(a), within two days following a termination referred to in Articles
7.3(b) and (c) and within two days following taking the action referred to in
Article 7.3(y), pay the Fee, in each such case, to be divided equally between
Switzerland and France, unless the Agreement shall have previously been
terminated with respect to (i) France, without obligation to make payment of any
portion of the Fee, in which case Switzerland shall receive 100% of the Fee or
(ii) Switzerland, without obligation to make payment of any portion of the Fee,
in which case France shall receive 100% of the Fee.
7.4 FEE
The aggregate fee payable hereunder by any Party shall be US$150,000,000
(the FEE) until such time as this Agreement has been terminated with respect to
one Party in which case the Fee shall be US$100,000,000 except with respect to
any prior obligation, or obligation resulting from such termination, to pay the
Fee and none of Canada, France or Switzerland shall be liable to pay more than
that amount under this Article 7.
ARTICLE 8
TERMINATION
8.1 TERMINATION BY CANADA, FRANCE AND SWITZERLAND
This Agreement may be terminated with respect to (i) Switzerland, whether
before or after the commencement of the Swiss Exchange Offer, to the extent
permitted under applicable law or stock exchange rule by the mutual written
consent of each of Switzerland and Canada by action of their respective Boards
of Directors or (ii) France, whether before or after commencement of the French
Exchange Offer, to the extent permitted under applicable law or stock exchange
rule by the mutual written consent of France and Canada by action of their
respective Boards of Directors.
8.2 TERMINATION BY CANADA
8.2.1 Canada may terminate this Agreement, with respect to Switzerland, by
written notice to the other Parties if prior to the commencement of the Swiss
Exchange Offer:
(a) any of the conditions set out in Part A of Schedule 2 has become
incapable of satisfaction (including as a result of Canada's
unwillingness to waive satisfaction of such condition where its consent
to waiver is required); provided, that Canada shall have provided
written notice of its intention to terminate pursuant to this Article
8.2.1(a) to the other Parties at least 10 days prior to termination (and
in its notice of termination Canada shall specify the condition
concerned); and, provided, further, that a condition waivable only by
Switzerland shall not be deemed incapable of satisfaction for purposes
of this Article 8.2.1(a);
(b) Switzerland is in material breach of any of its material obligations
set forth in this Agreement that is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by
Canada to France and Switzerland;
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(c) the Swiss Exchange Offer shall not have been commenced by Canada by
June 30, 2000;
(d) the Board of Directors of Switzerland shall have withdrawn or
adversely modified its recommendation that shareholders of Switzerland
tender their Swiss Shares in the Swiss Exchange Offer other than
pursuant to Article 1.3.1 (i), (ii) or (iii) or shall have recommended
an Alternative Transaction to its shareholders; or
(e) a Switzerland Material Adverse Effect shall have occurred after the
date of this Agreement.
8.2.2 Canada shall be entitled to terminate the provisions of this Agreement
with respect to France by written notice to the other Parties if, prior to the
commencement of the French Exchange Offer Period:
(a) any of the conditions set out in Part B of Schedule 2 has become
incapable of satisfaction (including as a result of Canada's
unwillingness to waive satisfaction of such condition where its consent
to waiver is required); provided, that Canada shall have provided the
written notice of its intention to terminate pursuant to this Article
8.2.2(a) to the other Parties at least 10 days prior to termination (and
in its notice of termination Canada shall specify the condition
concerned); and, provided, further, that a condition waivable only by
France shall not be deemed incapable of satisfaction for purposes of
this Article 8.2.2(a);
(b) France is in material breach of any of its material obligations set
forth in this Agreement that is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by Canada to
France and Switzerland;
(c) the French Exchange Offer Period shall not have commenced by June 30,
2000;
(d) the Board of Directors of France shall have withdrawn or adversely
modified its recommendation that shareholders of France tender their
French Shares in the French Exchange Offer other than pursuant to
Article 1.2.1 (i), (ii), (iii) or (iv) or shall have recommended an
Alternative Transaction to its shareholders; or
(e) a France Material Adverse Effect shall have occurred after the date of
this Agreement.
8.2.3 Canada shall be entitled to terminate this Agreement by written notice to
the other Parties if, prior to the commencement of the later to be commenced of
the Exchange Offers, Canada shall have provided written notice to the other
Parties of its intention to enter into an agreement providing for an Alternative
Transaction or its Board of Directors' shall have resolved to recommend an
Alternative Transaction; provided, that Canada shall not be entitled to
terminate this Agreement pursuant to this Article 8.2.3 if it is in breach of
Article 4.1.2; provided, further, that this Article 8.2.3 shall be effective
only with respect to the provisions of this Agreement relating to France if the
Swiss Exchange Offer shall have been commenced prior to the time of a
termination pursuant to this Article 8.2.3 and, provided, further, that this
Article 8.2.3 shall be effective only with respect to the provisions of this
Agreement relating to Switzerland if the French Exchange Offer Period shall have
been commenced prior to the time of a termination pursuant to this Article
8.2.3.
8.2.4 Canada shall not be entitled to exercise any of its termination rights
under Article 8.2.1 or 8.2.2 if at the time it seeks to exercise such rights it
is in material breach hereunder. Notwithstanding any such breach, Canada shall
be permitted to exercise its termination right specified in Article 8.2.2(c).
8.3 TERMINATION BY FRANCE
8.3.1 France shall be entitled to terminate the provisions of this Agreement
with respect to itself, by written notice to the other Parties, if prior to the
commencement of the French Exchange Offer Period:
(a) any of the conditions set out in Part B of Schedule 2 has become
incapable of satisfaction (including as a result of France's
unwillingness to waive satisfaction of such condition where its consent
to waiver is required) (and in its notice of termination France shall
specify the condition concerned); provided, that France shall have
provided the written notice to the other Parties of its intention to
terminate pursuant to this Article 8.3.1(a) at least 10 days prior to
termination; and, provided, further, that a condition waivable only by
Canada shall not be deemed incapable of satisfaction for purpose of this
Article 8.3.1(a);
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(b) Canada is in material breach of any of its material obligations set
forth in this Agreement that is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by France to
Canada and Switzerland;
(c) the French Exchange Offer Period shall not have commenced by June 30,
2000;
(d) France shall have provided written notice to the other Parties of its
intention to enter into an agreement providing for an Alternative
Transaction or its Board of Directors shall have resolved to recommend
an Alternative Transaction; provided, that France shall not be permitted
to terminate this Agreement pursuant to this Article 8.3.1(d) if it is
in breach of Article 4.1.2;
(e) the Board of Directors of Canada shall have withdrawn or adversely
modified its recommendation that the shareholders of Canada approve the
issuance of Canada Common Shares pursuant to this Agreement for purposes
of the French Exchange Offer other than pursuant to Article 1.4.1 or
Canada shall have recommended an Alternative Transaction to its
shareholders;
(f) a Canada Material Adverse Effect shall have occurred after the date of
the Agreement; or;
(g) the Board of Directors of Canada shall have withdrawn or adversely
modified its recommendation that the shareholders of Canada approve the
exporting of Canada's incorporation as contemplated in Schedule 3.
8.3.2 Provided that Canada has not taken all necessary actions to permit the
persons proposed by France, specified on Schedule 3 to become directors of
Canada, prior to the consummation of the Swiss Exchange Offer, France shall be
entitled to terminate the provisions of this Agreement with respect to
Switzerland, by written notice to the other Parties if, prior to the
commencement of the Swiss Exchange Offer any of the conditions set forth in Part
A of Schedule 2 has become incapable of satisfaction (including as a result of
France's unwillingness to waive satisfaction of such condition where its consent
to waiver is required) provided, that France shall have provided the written
notice of its intention to terminate pursuant to this Article 8.3.2 to the other
Parties at least 10 days prior to termination (and in its notice of termination
France shall specify the condition concerned); and, provided, further, that a
condition waivable only by Switzerland or Canada (or both) shall not be deemed
incapable of satisfaction for purposes of this Article 8.3.2.
8.3.3 France shall not be entitled to exercise any of its termination
rights under this Article 8.3 if at the time it seeks to exercise such rights it
is in material breach hereunder. Notwithstanding any such breach, France shall
be entitled to exercise its termination right pursuant to Article 8.3.1(d),
except as otherwise provided in Article 8.3.1(d), and its termination right
pursuant to Article 8.3.1(c).
8.4 TERMINATION BY SWITZERLAND
8.4.1 Switzerland shall be entitled to terminate this Agreement, with respect to
itself, by written notice to the other Parties, if prior to the commencement of
the Swiss Exchange Offer:
(a) any of the conditions set out in Part A of Schedule 2 has become
incapable of satisfaction (including as a result of Switzerland's
unwillingness to waive satisfaction of such condition where its consent
to waiver is required); provided, that Switzerland shall have provided
the written notice to the other Parties of its intention to terminate
pursuant to this Article 8.4.1(a) at least 10 days prior to termination
(and in its notice of termination Switzerland shall specify the
condition concerned); and, provided, further, that a condition waivable
only by Canada shall not be deemed incapable of satisfaction for
purposes of this Article 8.4.1(a);
(b) Canada is in material breach of any of its material obligations set
forth in this Agreement that is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by
Switzerland to Canada and France;
(c) the Swiss Exchange Offer shall not have been commenced by Canada by
June 30, 2000;
(d) Switzerland shall have provided written notice to the other Parties of
its intention to enter into an agreement providing for an Alternative
Transaction or its Board of Directors shall have resolved to recommend
an Alternative Transaction; provided, that Switzerland shall not be
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permitted to terminate this Agreement pursuant to this Article 8.4.1(d)
if it is in breach of Article 4.1.2;
(e) the Board of Directors of Canada shall have withdrawn or adversely
modified its recommendation that the shareholders of Canada approve the
issuance of Canada Common Shares pursuant to this Agreement for purposes
of the Swiss Exchange Offer other than pursuant to Article 1.4.2 or
Canada shall have recommended an Alternative Transaction to its
shareholders;
(f) a Canada Material Adverse Effect shall have occurred after the date of
this Agreement; or
(g) the Board of Directors of Canada shall have withdrawn or adversely
modified its recommendation that the shareholders of Canada approve the
exporting of Canada's incorporation as contemplated by Schedule 3.
8.4.2 Provided that Canada has not taken all necessary actions to permit the
persons proposed by Switzerland and specified on Schedule 3 to become Directors
of Canada, prior to the commencement of the French Exchange Offer Period,
Switzerland shall be entitled to terminate the provisions of this Agreement with
respect to France by written notice to the other Parties if, prior to the
commencement of the French Exchange Offer Period any of the conditions set forth
in Part B of Schedule 2 has become incapable of satisfaction (including as a
result of Switzerland's unwillingness to waive satisfaction of such condition
where its consent to waiver is required); provided, that Switzerland shall have
provided the written notice to the other Parties of its intention to terminate
pursuant to this Article 8.4.2 at least 10 days prior to termination (and in its
notice of termination Switzerland shall specify the condition concerned); and,
provided, further, that a condition waivable only by Canada or France (or both)
shall not be deemed incapable of satisfaction for purposes of this Article
8.4.2.
8.4.3 Switzerland shall not be entitled to exercise any of its termination
rights under this Article 8.4 if at the time it seeks to exercise such rights it
is in material breach hereunder. Notwithstanding any such breach, Switzerland
shall be entitled to exercise its termination right pursuant to Article
8.4.1(d), except as otherwise provided in Article 8.4.1(d), and its termination
right pursuant to Article 8.4.1(c).
8.5 TERMINATION WITHOUT NOTICE
8.5.1 The provisions of this Agreement with respect to Switzerland shall
terminate automatically, if (i) the Swiss Exchange Offer shall have expired
without the purchase of Swiss Shares thereunder following any required or
permitted extensions of the Swiss Exchange Offer or (ii) prior to the
commencement of the Swiss Exchange Offer the shareholders of Canada shall have
failed to approve the issuance of Canada Common Shares pursuant to the Swiss
Exchange Offer by the Requisite Vote at a meeting duly held for that purpose.
8.5.2 The provisions of this Agreement with respect to France shall terminate
automatically, if (i) the French Exchange Offer shall have expired without the
purchase of French Shares thereunder following any required or permitted
extensions of the French Exchange Offer or (ii) prior to the commencement of the
French Exchange Offer the shareholders of Canada shall have failed to approve
the issuance of Canada Common Shares pursuant to the French Exchange Offer by
the Requisite Vote at a meeting duly held for that purpose.
8.6 EFFECT OF TERMINATION PROVISIONS
8.6.1 If this Agreement is terminated under this Article 8 solely with respect
to France then (except in relation to obligations under the Surviving
Provisions, which shall survive termination) this Agreement shall terminate and
be of no further force or effect as between (i) Canada and Switzerland on the
one hand and (ii) France on the other hand, and Canada and Switzerland, on the
one hand, shall have no further obligations to France on the other and France
shall have no further rights or obligations hereunder in each case other than
with respect to breaches by any Party prior to such termination. As between
Canada and Switzerland, this Agreement, after such termination, shall continue
as an agreement between the two of them pursuant to which Canada agreed to make
the Swiss Exchange Offer and this Agreement shall be construed and take effect
as if France had never been a party to this Agreement and Canada had never been
obligated to make the French Exchange Offer.
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8.6.2 If this Agreement is terminated under this Article 8 solely with respect
to Switzerland then (except in relation to obligations under the Surviving
Provisions, which shall survive termination) this Agreement shall terminate and
be of no further force or effect as between (i) Canada and France on the one
hand and (ii) Switzerland on the other hand, and Canada and France, on the one
hand, shall have no further obligations to Switzerland on the other and
Switzerland shall have no further rights or obligations hereunder in each case
other than with respect to breaches by any Party prior to such termination. As
between Canada and France, this Agreement, after such termination, shall
continue as an agreement between the two of them pursuant to which Canada agreed
to make the French Exchange Offer, and this Agreement shall be construed and
take effect as if Switzerland had never been a party to this Agreement and
Canada had never been obligated to make the Swiss Exchange Offer.
8.7 In the event this Agreement is terminated with respect to all of the
Parties under this Article 8, then this Agreement (except in relation to
obligations under the Surviving Provisions, which shall survive termination)
shall become void and of no effect.
8.8 Termination hereunder shall not relieve any Party from liability arising
under this Agreement prior to termination and shall not affect the other Party's
right subsequently to claim damages or other compensation under applicable law
for any such breach arising before termination, including under Article 7.
8.9 In this Agreement the SURVIVING PROVISIONS means Article 7, the
provisions of the Confidentiality Agreement, Article 9, Article 8.8 and Article
8.9, which shall all survive termination.
ARTICLE 9
GENERAL
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties shall not, in the case of France, survive the
consummation of the French Exchange Offer and, in the case of Switzerland, the
consummation of the Swiss Exchange Offer. The representations and warranties
shall not, in the case of Canada, with respect to France, survive the
consummation of the French Exchange Offer and, with respect to Switzerland,
survive the consummation of the Swiss Exchange Offer. No investigations made by
or on behalf of any Party hereunder or any of their authorized agents at any
time shall have the effect of waiving, diminishing the scope of or otherwise
affecting any representation or warranty or covenant made by the Corporation in
or pursuant to this Agreement, provided that no Party may rely on any
representation or warranty which it knew was untrue at the time it was given.
The covenants made hereunder shall survive in accordance with the terms of this
Agreement.
9.2 ASSIGNMENT. This Agreement shall not be assignable by any Party hereto
without the consent of the other Parties by operation of law or otherwise.
9.3 TIMING. Time shall be of the essence in this Agreement.
9.4 NO PARTNERSHIP OR AGENCY. Nothing in this Agreement (or any of the
arrangements contemplated by it) shall be deemed to constitute a partnership
between the Parties nor, save as may be expressly set out in it, constitute any
Party the agent of another Party for any purpose.
9.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of England without regard to its conflict of laws
principles.
9.6 SETTLEMENT OF DISPUTES. Any dispute arising out of or in connection with
this Agreement shall be subject to the jurisdiction of the English courts, to
which each Party hereby submits for such purpose, and each will, if necessary,
appoint an agent for service of process in England.
9.7 ENTIRE AGREEMENT. This Agreement, the France Disclosure Letter, the
Switzerland Disclosure Letter and the Canada Disclosure Letter, the letter from
Canada to Switzerland dated the date of the Initial Combination Agreement, the
Schedules hereto, the letter delivered by Canada to Switzerland and France dated
August 11, 1999, together with the confidentiality agreement dated June 21, 1999
between Canada, Switzerland and France (the CONFIDENTIALITY AGREEMENT),
constitute the entire agreement and understanding between and among the Parties
hereto with respect to the subject matter hereof and
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supersedes any prior agreement (including the MOU and the Initial Combination
Agreement), representation or understanding with respect thereto other than any
rights arising from any breaches of the Initial Combination Agreement dated
August 11, 1999 between Canada and Switzerland. Each party hereto agrees that,
except for representations and warranties expressly contained in this Agreement
(including the Schedules hereto), none of Canada, France and Switzerland makes
any other representations or warranties, and each hereby disclaims any other
representations or warranties made by itself or any of its officers, directors,
employees, agents, financial and legal advisors or other representatives, with
respect to the execution and delivery of this Agreement, notwithstanding the
delivery or disclosure to the other or the other's representatives of any
documentation or other information with respect to any one or more of the
foregoing.
9.8 SPECIFIC PERFORMANCE AND OTHER EQUITABLE RIGHTS. Each of the Parties
recognises and acknowledges that this Agreement is an integral part of the
Exchange Offers, that Canada would not make the Exchange Offers, and that the
other Parties would not agree to facilitate the Exchange Offers, unless this
Agreement was executed, and accordingly acknowledges and agrees that a breach by
a Party of any warranties, covenants or other commitments contained in this
Agreement will cause any of the other Parties to sustain injury for which it
would not have an adequate remedy at law for money damages. Therefore, each of
the Parties agrees that in the event of any such breach, the aggrieved Party
shall be entitled to the remedy of specific performance of such covenants or
commitments and preliminary and permanent injunctive and other equitable relief
in addition to any other remedy to which it may be entitled, at law or in
equity, and the Parties further agree to waive, to the extent permitted by
applicable law any requirement for the securing or posting of any bond or giving
an undertaking in damages in connection with the obtaining of any such
injunctive or other equitable relief.
9.9 INFORMATION. Notwithstanding anything to the contrary herein including,
without limitation, the obligations of cooperation and participation undertaken
by the Parties in respect of the Exchange Offers, each Party shall be
responsible for the accuracy and completeness, to relevant prospectus standards,
only of the information with respect to it specifically agreed by it in writing
to be included in specific documents in the context of the Exchange Offers
(including the documents to be sent to shareholders of Canada in connection with
the issuance of Canada Common Shares pursuant to the Exchange Offers), and, in
relation to the pro forma presentation of information in connection with the
Exchange Offers, including the documents to be sent to shareholders of Canada in
connection with the issuance of Canada Common Shares pursuant to the Exchange
Offers, of all information and disclosure about and provided by it which
underlies that pro forma presentation. The Parties also will be jointly
responsible for the accuracy and completeness of information and disclosure
about the Combination (including information regarding the adjustments
underlying the pro forma presentation as well as the pro forma results of such
adjustments); provided, that with respect to information and disclosure that
relates solely to a transaction between either Canada and Switzerland or Canada
and France, only those Parties to which such information and disclosure relates
shall be jointly responsible for the accuracy and completeness of such
information and disclosure. A statement to the foregoing effect shall be
included in all relevant disclosure documents.
9.10 NOTICES. Any notice, request, consent, agreement or approval which may or
is required to be given pursuant to this Agreement shall be in writing and shall
be sufficiently given or made if delivered (by mail or by facsimile), in the
case of:
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<TABLE>
<S> <C>
SWITZERLAND FRANCE
Feldeggstrasse 4, Pechiney,
PO Box 7, place du Chancelier Adenauer,
CH 8034 Zurich. 75116 Paris, France
Attention: Chief Legal Officer Attention: Antoine Bied-Charreton
fax: ( ) +411 386-2273 fax: +33 (0)1 56 28 33 06
(with a copy to Scott D. Miller (with a copy to Didier Martin
Sullivan & Cromwell, Bredin Prat et Associes
St. Olave's House 130, rue du Faubourg Saint-Honore
9a Ironmonger Lane 75008 Paris, France
London, England fax: +33 (0)1 42 89 10 73)
EC2V 8EY
fax: +44171 710 6565)
CANADA
Alcan Aluminium Limited,
1188 Sherbrooke Street West,
Montreal, Quebec
H3A 3G2, Canada
Attention: David McAusland, Chief Legal Officer
fax: (514) 848-1341
(with a copy to Gavin Darlington
Freshfields
69 Boulevard Haussmann
Paris, France 75008
Fax: +33 (0)1 4456 4400)
</TABLE>
or to such other address or facsimile number as the relevant Party may from time
to time advise by notice in writing given pursuant to this Article. The date of
receipt of any such notice, request, consent, agreement or approval shall be
deemed to be the date of delivery or telecopy (if during normal business hours
or, if not, the next business day).
9.11 EXPENSES. Each of the Parties shall pay its legal, financial advisory and
accounting costs and expenses incurred in connection with the preparation,
execution and delivery of this Agreement and all documents and instruments
executed, prepared or filed pursuant hereto or any other costs and expenses
whatsoever and howsoever incurred.
9.12 COUNTERPARTS. This Agreement may be executed in one or more counterparts
which together shall be deemed to constitute one valid and binding agreement and
delivery of the counterparts may be effected by means of a telecopied
transmission.
9.13 AMENDMENTS. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by all of the Parties hereto.
9.14 SEVERABILITY. If any provision of this Agreement is held to be invalid or
unenforceable, then such provision shall (so far as it is invalid or
unenforceable) be given no effect and shall be deemed not to be included in this
Agreement but without invalidating any of the remaining provisions of this
Agreement. The parties shall then use all commercially reasonable efforts to
replace the invalid or unenforceable provisions by a valid and enforceable
substitute provision the effect of which is as close as possible to the intended
effect of the invalid or unenforceable provision.
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IN WITNESS WHEREOF, the undersigned have each executed and delivered this
agreement as of the date first above written.
ALCAN ALUMINIUM LIMITED
By: /s/ Jacques Bougie
PECHINEY
By: /s/ Jean-Pierre Rodier
ALUSUISSE LONZA GROUP AG
By: /s/ Sergio Marchionne
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<PAGE> 196
SCHEDULE 1
DETAILS OF THE SWISS EXCHANGE OFFER
OFFEROR: Canada, following satisfaction or due waiver of the
conditions to the commencement of the Swiss Exchange
Offer.
SHARES TO BE OFFERED FOR: all of the Swiss shares with all rights attached
thereto except rights arising from the Chemicals
Division Demerger.
JURISDICTIONS IN WHICH THE
OFFER WILL BE MADE: Switzerland and such further jurisdictions as are
agreed to by Canada and Switzerland (such agreement
not to be unreasonably withheld or the delayed).
OFFER CONSIDERATION: Canada Common Shares at the rate of 20.6291 Canada
Common Shares for each Swiss Share (the CANADA SWISS
OFFER SHARES).
FRACTIONS: Fractions of Canada Common Shares will not be issued.
Instead, Canada will make arrangements on reasonable
terms for Canada Common Shares representing
fractional entitlements to be aggregated and sold on
the market and the net proceeds of sale (converted at
the spot rate of exchange into Swiss francs) to be
distributed amongst the persons entitled thereto or
such other procedure agreed to by Switzerland and
Canada to equitably compensate holders of Swiss
Shares for fractional share interests in Canada
Common Shares.
OFFER CONDITIONS: The Swiss Exchange Offer shall become unconditional
if at the end of the Swiss Exchange Offer Acceptance
Period the following conditions shall have been
satisfied or duly waived:
(i) the approval, at a general shareholders'
meeting of Canada, of the issue of Canada Common
Shares to be issued as consideration pursuant to
the Swiss Exchange Offer (which condition may be
waived by Canada, without prejudice to any other
rights Switzerland may have hereunder);
(ii) at the end of the applicable Swiss Exchange
Offer Acceptance Period, Canada having received
valid acceptances (which have not been
withdrawn) in respect of more than 67 per cent
of the total number of Swiss Shares calculated
on a fully diluted basis as of the end of such
Swiss Exchange Offer Acceptance Period (the
SWISS MINIMUM CONDITION);
(iii) the Chemicals Division Demerger having been
completed;
(iv) The European Commission having adopted a
decision under Articles 6(1)(b) or 8(2) of
Council Regulation No 4064/89/ EEC clearing the
Swiss Exchange Offer (the SWISS EC
CLEARANCE); and
(v) The Swiss Competition Commission having adopted
a decision clearing the Swiss Exchange Offer, if
and to the extent required.
SWISS EXCHANGE OFFER
ACCEPTANCE PERIOD: Excluding the initial period of 10 trading days when
shares cannot be tendered in relation to which a
waiver will be sought:
(i) the Swiss Exchange Offer will be open for
acceptance for 20 trading days. Canada shall
have the right to extend the
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Swiss Exchange Offer on one or more occasions
for a total duration of 40 trading days and
shall be obliged to so extend upon the request
of Switzerland; and
(ii) there will be no further extension of the
period during which the Swiss Exchange Offer is
open for acceptance unless it is required by the
Applicable Takeover Authority, including to
permit satisfaction of conditions (the SWISS
EXCHANGE OFFER ACCEPTANCE PERIOD).
SWISS EXCHANGE OFFER
PERIOD: the Swiss Exchange Offer Acceptance Period plus:
(i) whatever time is required thereafter to
establish that all the conditions to the Swiss
Exchange Offer have been satisfied, or that the
Swiss Exchange Offer has failed; and
(ii) if all the conditions to the Swiss Exchange
Offer are satisfied so that it becomes
unconditional, a further period of 10 trading
days to permit additional acceptances only.
ANNOUNCEMENT OF
ACCEPTANCE LEVEL: As soon as practicable after the end of the Swiss
Exchange Offer Acceptance Period in accordance with
Swiss regulations.
AMENDMENT OR WAIVER: (a) Without the prior written consent of
Switzerland, Canada shall not decrease the
Canada Swiss Offer Shares or make any other
change in the terms or conditions of the Swiss
Exchange Offers adverse to the holders of Swiss
Shares, except to implement the provisions set
forth below under the caption, "Adjustments to
Prevent Dilution".
(b) Without the prior written consent of
Switzerland, Canada shall not decrease the
number of Swiss Shares being sought in the Swiss
Exchange Offer, change the form of consideration
proposed to be paid in the Swiss Exchange Offer
or change the Swiss Minimum Condition.
(c) Without the prior written consent of
Switzerland any waiver or purported waiver by
Canada of the Swiss Minimum Condition shall not
be deemed effective.
ADJUSTMENTS TO PREVENT
DILUTION: In the event that (A) Switzerland changes the number
of (i) Swiss Shares or (ii) securities convertible or
exchangeable into or exercisable for Swiss Shares, or
(B) Canada changes the number of (i) Canada Common
Shares or (ii) securities convertible or exchangeable
into or exercisable for Canada Common Shares, issued
and outstanding prior to the time at which the
exchange of Canada Common Shares for Swiss Shares
occurs as a result of a reclassification, stock split
(including a reverse split), stock dividend or
distribution, recapitalization, merger, subdivision,
issuer tender or exchange offer, or other similar
transaction, the Canada Swiss Offer Shares shall be
equitably adjusted; but for the avoidance of doubt no
such adjustment shall be required as a result of the
Chemicals Division Demerger.
GOVERNING LAW OF SWISS
EXCHANGE OFFER: Swiss law for governance of the conduct of the Swiss
Exchange Offer in Switzerland and other laws as
appropriate for other jurisdictions.
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DETAILS OF THE FRENCH EXCHANGE OFFER
OFFEROR: Canada, following satisfaction or due waiver of the
conditions to the commencement of the French Exchange
Offer Period.
SHARES TO BE OFFERED FOR: all of the French Shares, with all rights attached
thereto, other than rights relating to the dividend
contemplated in Article 4.1.5(c)(i)(II).
JURISDICTION IN WHICH THE
OFFER WILL BE MADE: The United States and France and such further
jurisdictions as are agreed to by France and Canada
(such agreement shall not be unreasonably withheld or
delayed).
OFFER CONSIDERATION: Canada Common Shares at the rate of (i) 1.7816 Canada
Common Shares for each French Ordinary Share, (ii)
1.9598 Canada Common Shares for each French Preferred
Share and (iii) 0.8908 of a Canada Common Share for
each ADR (the CANADA FRENCH OFFER SHARES).
FRACTIONS: Fractions of Canada Common Shares will not be issued.
Instead, Canada will make arrangements on reasonable
terms for Canada Common Shares representing
fractional entitlements to be aggregated and sold on
the market and the net proceeds of sale (converted at
the spot rate of exchange into French francs) to be
distributed amongst the persons entitled thereto.
OFFER CONDITION: At the end of the French Exchange Offer acceptance
period, Canada having received valid acceptances
(which have not been withdrawn) in respect of French
Shares which carry more than 67% of the total voting
rights calculated on a fully diluted basis at the end
of the French Exchange Offer Acceptance Period (the
FRENCH MINIMUM CONDITION). This condition may be
waived only upon agreement of France and Canada.
FRENCH EXCHANGE OFFER
ACCEPTANCE PERIOD: The normal period for a public offer in France (25
trading days) during which acceptance may be made,
subject to:
(i) any extension of such period permitted by the
Applicable Takeover Authority and agreed by
Canada and France; and
(ii) any extension of such period required by the
Applicable Takeover Authority.
FRENCH EXCHANGE OFFER
PERIOD: the period commencing with the filing of the formal
French Exchange Offer documentation with the
Applicable Takeover Authorities followed by the
French Exchange Offer Acceptance Period (the FRENCH
EXCHANGE OFFER PERIOD) then followed by such period
as is required to establish that the condition to the
French Exchange Offer has been satisfied or that the
French Exchange Offer has failed.
RIGHT OF WITHDRAWAL OF
ACCEPTANCES: minimum required by applicable law.
ANNOUNCEMENT OF ACCEPTANCE
LEVEL: as soon as possible after the end of the French
Exchange Offer Acceptance Period.
AMENDMENT, WAIVER: (a) Without the prior written consent of France,
Canada shall not decrease the Canada French
Offer Shares or make any other change in the
terms or conditions of the French Exchange
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Offer which is adverse to the holders of French
Shares, except to implement the provisions below
under the caption "Adjustments to Prevent
Dilution".
(b) Without the prior written consent of France,
Canada shall not decrease the number of French
Shares being sought in the French Exchange
Offer, change the form of consideration proposed
to be paid in the French Exchange Offer or
change the French Minimum Condition.
(c) Without the prior written consent of France,
any waiver or purported waiver by Canada of the
French Minimum Condition shall not be deemed
effective.
(d) Canada shall be entitled, during the French
Exchange Offer Period and in accordance with and
subject to the provisions of the second
paragraph of Article 5-2-9 of the General
Regulation of the CMF, to withdraw the French
Exchange Offer if France takes immediate and
definitive steps that would result in "a
modification of sa consistence" for the purposes
of that Article to alter its substance and which
would also constitute a breach of Article 4.1.5
of this Agreement.
ADJUSTMENTS TO PREVENT
DILUTION: In the event that (A) France changes the number of
(i) French Shares or (ii) securities convertible or
exchangeable into or exercisable for French Shares,
or (B) Canada changes the number of (i) Canada Common
Shares or (ii) securities convertible or exchangeable
into or exercisable for Canada Common Shares, issued
and outstanding prior to the time at which the
exchange of Canada Common Shares for French Shares
occurs as a result of a reclassification, stock split
(including a reverse split), stock dividend or
distribution, re-capitalisation, merger, subdivision,
issuer tender or exchange offer, or other similar
transaction, the Canada French Offer Shares shall be
equitably adjusted.
GOVERNING LAW FOR FRENCH
EXCHANGE OFFER: French law for governance of the conduct of the
French Exchange Offer in France and other laws as
appropriate for other jurisdictions.
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SCHEDULE 2
PART A
CONDITIONS TO BE SATISFIED OR WAIVED BEFORE THE MAKING OF THE SWISS EXCHANGE
OFFER
1. The Canada Common Shares issuable to the shareholders of Switzerland
pursuant to the Combination shall have been authorized for listing on the
New York Stock Exchange and The Toronto Stock Exchange upon official notice
of issuance, provided, however, that this condition may be waived only by
Switzerland.
2. The representations and warranties of Canada set forth in this Agreement
shall be true and correct in all material respects as if made on and as of
the date on which the last of the conditions set forth in paragraphs 2, 9
and 10 of this Part A of Schedule 2 shall be satisfied or waived (the SWISS
OFFER CONDITION SATISFACTION DATE) (except to the extent any such
representation or warranty is expressly made as of an earlier date, in
which case it need be true and correct only as of such date); provided,
however, that this condition may be waived only by Switzerland.
3. The representations and warranties of Switzerland set forth in this
Agreement shall be true and correct in all material respects as if made on
and as of the Swiss Offer Condition Satisfaction Date (except to the extent
any such representation or warranty is expressly made as of an earlier
date, in which case it shall need be true and correct only as of such
date); provided, however, that this condition may be waived only by Canada.
4. Canada shall have performed in all material respects all obligations that
are required to be performed by it under this Agreement prior to the
commencement of the Swiss Exchange Offer; provided, however, that this
condition may be waived only by Switzerland.
5. Switzerland shall have performed in all material respects all obligations
that are required to be performed by it under this Agreement prior to the
commencement of the Swiss Exchange Offer; provided, however, that this
condition may be waived only by Canada.
6. There shall have occurred no Canada Material Adverse Effect since the date
of the Agreement; provided, however, that this condition may be waived only
by Switzerland.
7. There shall have occurred no Swiss Material Adverse Effect since the date of
the Agreement; provided, however, that this condition may be waived only by
Canada.
8. No court or Governmental Entity of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, law,
ordinance, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Swiss
Exchange Offer or the Combination; provided; that this condition may be
waived only by agreement of both Canada and Switzerland.
9. The waiting period applicable to the consummation of the Swiss Exchange
Offer under the HSR Act and the Competition Canada Act shall have expired
or been earlier terminated and all notices, reports and other filings
required to be made prior to the acquisition by Canada of Swiss Shares
under the terms of the Swiss Exchange Offer, by Switzerland and Canada or
any of their respective Subsidiaries with, and all consents, registrations,
approvals, permits and authorizations required to be obtained prior to the
acquisition by Canada of Swiss Shares under the terms of the Swiss Exchange
Offer by Switzerland and Canada or any of their respective Subsidiaries
(including consents and authorizations under the Investment Canada Act, but
excluding the Swiss EC Clearance and any clearance under the Swiss
Competition Act) from, any Governmental Entity in connection with the
execution and delivery of this Agreement and the consummation of the Swiss
Exchange Offer by Switzerland and Canada shall have been made or obtained
(as the case may be), except those that the failure to make or to obtain
would not, individually or in the aggregate, be reasonably likely to have a
Canada Material Adverse Effect on the assumption that Switzerland is a
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wholly owned subsidiary of Canada and considering Switzerland and Canada
taken as a whole; provided, that this condition may be waived only by
agreement of both Canada and Switzerland.
10. The opt-out shall have become effective. This condition may only be waived
by Canada.
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PART B
CONDITIONS TO BE SATISFIED OR WAIVED BEFORE THE MAKING OF THE FRENCH EXCHANGE
OFFER
1. The issuance of Canada Common Shares in connection with the French Exchange
Offer shall have been duly approved by holders of shares of Canada Common
Shares constituting the Requisite Vote; provided, however, this condition
may be waived only by agreement of both Canada and France.
2. The Canada Common Shares issuable to the holders of French Shares pursuant
to the Combination shall have been authorised for listing on the New York
Stock Exchange and The Toronto Stock Exchange upon official notice of
issuance; provided, however, that this condition may be waived only by
France.
3. The representations and warranties of Canada set forth in this Agreement
shall be true and correct in all material respects as if made on the date
on which the last of the conditions set forth in paragraphs 1, 2, 11 and 12
of this Part B of Schedule 2 shall be satisfied or waived (the FRENCH OFFER
CONDITION SATISFACTION DATE) (except to the extent any such representation
or warranty is expressly made as of an earlier date, in which case it need
be true and correct only as of such date), provided, however, that this
condition may be waived only by France.
4. The representations and warranties of France set forth in this Agreement
shall be true and correct in all material respects as if made on and as of
the French Offer Condition Satisfaction Date (except to the extent any such
representation or warranty is expressly made as of an earlier date, in
which case it need be true and correct only as of such date); provided,
however, that this condition may be waived only by Canada.
5. Canada shall have performed in all material respects all obligations that
are required to be performed by it under this Agreement prior to the
commencement of the French Exchange Offer Period; provided, however, that
this condition may be waived only by France.
6. France shall have performed in all material respects all obligations that
are required to be performed by it under this Agreement prior to the
commencement of the French Exchange Offer Period; provided, however, that
this condition may be waived only by Canada.
7. There shall have occurred no Canada Material Adverse Effect since the date
of the Agreement; provided; however, that this condition may be waived only
by France.
8. There shall have occurred no France Material Adverse Effect since the date
of the Agreement; provided; however, that this condition may be waived only
by Canada.
9. No court or Governmental Entity of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, law,
ordinance, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the French
Exchange Offer or the Combination; provided, however, this condition may be
waived only by agreement of both Canada and France.
10. The waiting period applicable to the consummation of the French Exchange
Offer under the HSR Act and the Canadian Competition Act shall have expired
or been earlier terminated and the European Commission has adopted a
decision under Articles 6(1)(b) or 8(2) of Council Regulation No.
4064/89/EEC clearing the French Exchange Offer and all notices, reports and
other filings required to be made prior to the acquisition by Canada of
French Shares under the terms of the French Exchange Offer by France,
Switzerland and Canada or any of their respective Subsidiaries with, and
all consents, registrations, approvals, permits and authorizations required
to be obtained prior to the acquisition by Canada of French Shares under
the terms of the French Exchange Offer by France, Switzerland and Canada or
any of their respective Subsidiaries (including consents and authorizations
under the Investment Canada Act) from, any Governmental Entity (but
excluding the CMF and the COB) in connection with the execution and
delivery of this Agreement and the consummation of the Combination, the
Exchange Offers and the other transactions contemplated
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hereby by France, Switzerland and Canada shall have been made or obtained
(as the case may be), except those that the failure to make or to obtain
would not, individually or in the aggregate, be reasonably likely to have a
Canada Material Adverse Effect (on the assumption that France is a wholly
owned Subsidiary of Canada and considering France and Canada as a whole);
provided, however, this condition may be waived only by agreement of both
Canada and France.
11. The S-4 Registration Statement shall have become effective under the
Securities Act. No stop order suspending the effectiveness of the S-4
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been initiated or be threatened, by the SEC.
12. Unless this Agreement has been terminated with respect to Switzerland, the
Chemicals Division Demerger shall have been completed; provided, however,
that this condition may be waived only by France.
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SCHEDULE 3
RESIDENCY MATTERS: (a) The Canada Business Corporation Act (the
"CBCA") provides that, except as provided in
paragraph (b) below, a majority of the directors
of a corporation incorporated under the CBCA
must be resident Canadians (the "Majority
Canadian Resident Requirements"). If the
Majority Canadian Resident Requirements apply,
the CBCA also provides that the majority of the
members of each committee of the board of
directors of a corporation incorporated under
the CBCA must be resident Canadians.
(b) The CBCA also provides that not more than
one-third of the directors of a holding
corporation need be resident Canadians if the
holding corporation earns in Canada directly or
through its subsidiaries less than 5% of the
gross revenues of the holding corporation and
all of its subsidiary bodies corporate as shown
in the most recent financial statements of the
holding corporation and its subsidiary bodies
corporate as at the end of the last completed
financial year of the holding corporation (the
"Holding Corporation Test").
(c) Based on financial information with respect to
Canada, France and Switzerland, Canada expects
to meet the Holding Corporation Test during the
year ending December 31, 2000 in circumstances
where:
(i) only the French Exchange Offer is
completed;
(ii) only the Swiss Exchange Offer is
completed; or
(iii) both the French Exchange Offer and the
Swiss Exchange Offer are completed.
(d) Canada is seeking a legislative amendment to
the CBCA which would reduce the number of
Canadian residents required on the board of
directors of a corporation incorporated under
the CBCA. Any amendment to the CBCA that
provides that not more than one-quarter of the
directors of corporation incorporated under the
CBCA must be resident Canadians is referred to
in this Schedule as the "Legislative Amendment".
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(e) If: (i) either or both of the French Exchange
Offer and the Swiss Exchange Offer is completed;
(ii) a majority of the directors of Canada to be
appointed in accordance with this Schedule 3
will not be resident Canadians; (iii) the
Legislative Amendment has not been obtained and
either (x) the Board of Directors has not
determined at the time that each of the French
Exchange Offer and the Swiss Exchange Offer is
completed that Canada will satisfy the Holding
Corporation Test during 2000 or (y) the Board of
Directors has not determined at the end of the
third quarter of 2000 that Canada will satisfy
the Holding Corporation Test during 2001, Canada
will immediately seek shareholder approval
(supported by a positive recommendation of the
board of directors of Canada) authorizing all
matters in respect of which shareholder approval
is required to effect the export of Canada's
incorporation to another jurisdiction in Canada
in which there are no requirements with respect
to resident Canadians on the Board of Directors
and the committees thereof and authorizing the
Board of Directors to take the steps necessary
and desirable to give effect thereto. Canada
will take all steps necessary to effect the
export as soon as practicable following receipt
of shareholder approval.
(f) If: (i) either or both of the French Exchange
Offer and the Swiss Exchange Offer is completed;
and (ii) the Legislative Amendment has not been
obtained on or before December 31, 2000 (whether
or not a majority of the directors of Canada are
resident Canadians and whether or not the board
of directors of Canada determines that Canada
will satisfy the Holding Corporation Test during
2001), Canada will seek shareholder approval
(supported by a positive recommendation of the
board of directors of Canada) at its annual
meeting of shareholders in 2001 to authorize all
matters in respect of which shareholder approval
is required to effect the export of Canada's
incorporation to another jurisdiction in Canada
in which there are no requirements with respect
to resident Canadians on the Board of Directors
and the committees thereof and authorizing the
Board of Directors to take the steps necessary
and desirable to give effect thereto. Canada
will take all steps necessary to effect the
export as soon as practicable following receipt
of shareholder approval.
(g) If the Legislative Amendment is obtained: (i)
prior to the date of the meeting of shareholders
described in paragraph (e) or (f) above, the
export resolution may be withdrawn and not voted
on by the shareholders; or (ii) following the
date that shareholder approval is obtained
pursuant to paragraph (e) or (f) above, but
prior to the effective date of the export, the
export need not be effected.
BOARD OF DIRECTORS:
NUMBER OF DIRECTORS: 12, if both of the Exchange Offers are completed.
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COMPOSITION: (a) (i) If either of the Exchange Offers is
completed, the Board of Directors will
include the following four nominees of
Canada:
John Evans
Jacques Bougie
Travis Engen
Guy Saint-Pierre
(ii) If the France Exchange Offer is
completed, the Board of Directors will
include the following four nominees of
France:
Etienne Davignon
Jean Pierre Rodier
Jean-Francois Dehecq
Yves Mansion
(iii) If the Swiss Exchange Offer is
completed, the Board of Directors will
include the following four nominees of
Switzerland:
Martin Ebner
Rupert Gasser
Sergio Marchionne
Willi H. Kerth
(b) (i) If the Swiss Exchange Offer is completed
before the France Exchange Offer, the
nominees of Canada will appoint an
additional nominee to the Board of
Directors and Canada and Sergio Marchionne
will take the requisite steps such that Mr.
Marchionne will qualify as soon as
practicable as a resident Canadian for
purposes of the CBCA so that there will be
an aggregate of five nominees for Canada
and four nominees for Switzerland.
(ii) If the France Exchange Offer is
subsequently completed, such additional
nominee of Canada will resign.
(iii) If the Combination Agreement has been
terminated with respect to France, the
nominees of each of Canada and Switzerland
to the Board of Directors each shall be
entitled to appoint an additional nominee
to the Board of Directors so that there
will be an aggregate of six nominees of
Canada and five nominees of Switzerland.
(c) If the France Exchange Offer is completed
before the Swiss Exchange Offer, then the
nominees of Canada will appoint two additional
nominees and the nominees of France will appoint
one additional nominee, which additional
nominees will resign from the Board of Directors
if the Swiss Exchange Offer is subsequently
completed.
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NON-EXECUTIVE CHAIR: The Board of Directors will have a non-executive
Chair who will be appointed by the Board annually on
consideration of the recommendation of the Governance
Committee. The initial Chair will be John Evans.
COMMITTEES: The Board of Directors will have such committees as
it determines, provided that it will at all times
have Audit, Governance and Human Resources and
Compensation Committees, which initially will consist
of an equal number of persons nominated by each of
Canada and the other Parties in respect of which an
Exchange Offer is completed. These nominees will be
the following individuals:
Audit -- Guy Saint-Pierre (Canada), Yves Mansion
(chair) (France) and Sergio Marchionne (Switzerland);
Governance -- John Evans (chair) (Canada), Etienne
Davignon (France) and Martin Ebner (Switzerland);
Human Resources and Compensation -- Travis Engen
(Canada), Jean-Francois Dehecq (France) and Sergio
Marchionne (chair) (Switzerland).
The Governance Committee will be chaired by the
nominee of Canada and, if the Swiss Exchange Offer is
completed, the Human Resources and Compensation
Committee will be chaired by the nominee of
Switzerland and, if the France Exchange Offer is
completed, the Audit Committee will be chaired by the
nominee of France. If only one of the Exchange Offers
is completed, the vacant chair will be an individual
agreed by Canada and the Party in respect of which an
Exchange Offer was completed.
So long as the Majority Canadian Resident
Requirements are applicable to Canada's Board of
Directors and so require, each of the committees of
the Board of Directors will be expanded to include
that number of additional members who are resident
Canadians and who are approved by the Board of
Directors sufficient to result in a majority of the
members of the committee being resident Canadians.
MEETINGS: At least half of the meetings of the Board of
Directors will be held outside of Canada to foster
communications and relationships with the global
constituencies of Canada.
SENIOR OFFICERS: It is intended that the CEO will be Jacques Bougie
and that the President and COO will be Jean Pierre
Rodier. It is also intended that Mr. Bougie will
retire after approximately two years, when the
successful integration of the three companies has
been completed. It is intended that Mr. Rodier
succeed Mr. Bougie as CEO.
PRINCIPAL OFFICES: The legal headquarters will be located at Montreal,
Canada.
Additionally, the office of the CEO will be in New
York. There will be regional headquarters in Europe.
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SCHEDULE 4
BASIC TERMS OF THE
CHEMICALS DIVISION DEMERGER
1. BASIC TRANSACTION
Prior to the launch of the Switzerland Exchange Offer, Switzerland intends
to transfer its Chemical and Energy businesses ("Butterfly Business" or the
"Business") into a separate legal structure and to demerge the Business to
Switzerland's shareholders. The holding company to be formed for the Business is
referred to as "Butterfly AG", and the demerger transaction as the "Butterfly
Demerger" or the "Demerger".
The Butterfly Business is to be spun off free of any net debt on a combined
basis as of July 1, 1999. If any such net debt is determined to have existed on
such date, a corresponding amount of cash or cash equivalents will be
transferred by Switzerland to Butterfly.
The Butterfly Demerger will be made pursuant to an agreement to be entered
into between Switzerland and Butterfly AG (the "Separation Agreement"). The
Separation Agreement will reflect in all material respects the general
principles set forth below.
2. DEFINITION OF THE BUTTERFLY BUSINESS
The Butterfly Business, as a fully operational and autonomous business,
will include (i) the chemicals business of Switzerland (Switzerland's fine
chemicals and specialities and its intermediaries and additives divisions) and
the (ii) the energy business of Switzerland, as currently conducted primarily by
the entities listed in ANNEX I (the "Butterfly Companies"). The Butterfly
Business will include all of the assets and liabilities of whatever kind which
are attached to, or which relate primarily to the Butterfly Business. For the
avoidance of doubt, all assets and liabilities of the Butterfly Companies are
included in the Butterfly Business unless specifically excluded herein.
Switzerland believes that, except for the assets and liabilities identified on
ANNEX II, virtually all of the assets and liabilities of the Butterfly Business
are held through the Butterfly Companies.
An unaudited pro-forma combined balance sheet (the "Combined Balance
Sheet") of Butterfly as of December 31, 1998 (the "Pro Forma Accounting Date")
is attached as ANNEX III. In order to support the determination of net debt,
Butterfly will confirm to Switzerland that the Butterfly Business has been
operated in the ordinary course since December 31, 1998.
Furthermore, the Business will include:
a) U.S.$234 million in cash; provided that if the France Exchange Offer
is not duly completed by Canada the calculation amount to be included
shall be reduced to US$67 million through an adjustment to the net debt
in paragraph 6;
b) subject to the provisions of the Agreement, all liabilities and
obligations relating to, or caused by, the Butterfly Business, it being
understood that Butterfly Group shall, as of the Separation Effective
Date, not have net debt (to be calculated in accordance with paragraph
6); and
All employees working essentially full time for the Butterfly Business,
plus certain individuals employed in central headquarters or other common
divisions or entities needed for the efficient operation of Butterfly and not
required for the operation of Switzerland will to the extent not already
employees of a Butterfly Company become employees of Butterfly.
3. SEPARATION OF THE BUTTERFLY BUSINESS
Switzerland will use commercially reasonable efforts to transfer the
Business to Butterfly as soon as practicable (the "Separation Date"). For
accounting and tax purposes and as between the parties the transfer is intended
to have been made to the extent possible under applicable law with effect as of
July 1, 1999 (hereinafter the "Separation Effective Date").
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a) Switzerland will transfer the entire Butterfly Business to Butterfly
AG or to any of the Butterfly Companies directly or indirectly owned by
Butterfly AG by way of (i) capital contributions or (ii) purchase and
sale agreements to the extent possible and reasonable under applicable
tax laws. In return, Switzerland will initially be entitled to shares of
Butterfly (the "Consideration Shares") and/or certain loans against
Butterfly (hereinafter the "Loans") (the allocation between
Consideration Shares and Loans will be made in the manner that in
Switzerland's judgment is most tax efficient to both parties in the
aggregate in the context of the Butterfly Demerger).
b) Butterfly AG will assume the liabilities and obligations related
thereto attached to the Butterfly Business. Butterfly will use
reasonable efforts to cause third parties to approve the assumption by
Butterfly or a designee of Butterfly of, and to release or discharge
Switzerland from, any liabilities to the extent necessary to fulfil this
term. If any third party does not provide any necessary release or
discharge, arrangements will be made which would allow such obligations
to be assumed by, or otherwise economically transferred to Butterfly, at
no greater costs to Switzerland than it would have incurred had the
third party approved the assumption immediately.
c) Except as otherwise specifically agreed, Butterfly will be responsible
from the Separation Effective Date for the terms and conditions of
employment of the employees of central headquarters or other common
divisions or entities who have become employees of Butterfly as of the
Separation Date; Switzerland will be responsible for all claims relating
to the employment of such employees arising prior to the Separation
Effective Date. Baldi to check boiler-plate wording and propose
modifications To the extent that the employment of such employees is
terminated prior to the Separation Date, other than in contemplation of
the Demerger, Switzerland will be responsible for any claims related to
such termination. To the extent that the employment of such employees is
terminated on or after the Separation Date, Butterfly will be
responsible for any claims related to such termination.
d) As a general matter, joint pension funds or pension provisions will be
split in proportion to the respective projected benefit obligations to
the employees remaining with Switzerland (or funds controlled by
Switzerland), and the projected benefit obligations to the employees
covered or to be covered by Butterfly. Notwithstanding the foregoing, if
the split of any such pension funds or provisions is governed by
mandatory local rules, such pension funds or pension provisions will be
split according to such mandatory local rules but adjustments will be
made to the extent practicable in order that, on an aggregate basis, the
principles provided for in the previous sentence are given effect.
e) If a legal transfer of an asset of the Butterfly Business or of shares
in a Butterfly Company cannot be effected on the Separation Date as of
the Separation Effective Date, Switzerland will to the extent possible
transfer beneficial ownership or otherwise agree a solution which best
approximates the situation that would have existed had the legal
transfer occurred with the same financial effect as if it had been
transferred on the Separation Effective Date.
f) It is intended that the Butterfly Business will be a fully
operational and autonomous business and not have to rely on services,
assets or other facilities of Switzerland; however, Switzerland and
Butterfly will enter into commercially reasonable cooperation and
service agreements under which each will provide necessary transitional
services to the other. It is expected that such services will generally
be provided for a customary arm's length fee or, if such customary fee
cannot be ascertained, at costs plus a 5% margin. The energy supply
agreements between Switzerland and Butterfly will continue for their
agreed duration in accordance with their terms.
4. RESTRUCTURING OF BUTTERFLY
In order to create the Butterfly Group, Switzerland will complete an
internal restructuring which will create a separate legal structure, with
Butterfly AG as the holding company for the Butterfly Group.
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The internal restructuring described below (the "Internal Restructuring")
will comprise the following key steps (subject to amendment by Switzerland if
necessary or advisable for a more efficient restructuring process):
1. French, Benelux and German subsidiaries of the Butterfly Business
will be acquired by A-L Europe BV.
2. U.K. subsidiaries in the Butterfly Business will be reorganized under
a new UK intermediate holding company held by a new Dutch intermediate
holding company (Dutchco)
3. French, Dutch and German companies will be contributed to Dutchco.
4. Dutchco will be distributed to Switzerland.
5. Switzerland will form a Jersey subsidiary to acquire the Singapore
Group in the Butterfly Business.
6. US Butterfly Business subsidiaries will be reorganized under two
intermediate holding companies.
7. Brazilian sales office in the Butterfly Business will be acquired by
new Brazilian subsidiary.
8. Remaining minority (0.0001%) interest in French subsidiary of
Switzerland business will be sold to an Switzerland group company.
9. All top tier subsidiaries of Switzerland in the Butterfly Business
will be transferred to Butterfly in exchange for shares and capital
contribution.
10. Butterfly and Switzerland enter into Separation Agreement.
As part of the Internal Restructuring, certain of steps 1-9 above (or
comparable steps in any amended structure) may result in income, capital gains,
transfer or other taxes to Butterfly and/or Switzerland. These taxes are
expected largely to be offset, directly or indirectly, by tax losses available
to either Butterfly or Switzerland. To the extent that any such steps result in
taxes payable by Switzerland or a Switzerland subsidiary (i.e. by entities that
are not part of the Butterfly Business), Butterfly will indemnify the
Switzerland company that is subject to that tax, except to the extent that such
tax liability may be offset by a tax loss carryforward or other tax credit
available to Switzerland or any subsidiary of Switzerland at the Separation
Date. Notwithstanding this, Butterfly will be responsible for any such taxes
only if and to the extent that Switzerland or any subsidiary of Switzerland has
paid an aggregate amount in cash of $20 million resulting from the Internal
Restructuring. For purposes of the foregoing indemnity, the operations and
transactions contemplated by paragraphs 5 and 6 below shall be deemed to form
part of the Internal Restructuring (except to the extent that such taxes results
from actions or inaction referred to in 8).
Following the Internal Restructuring, the Butterfly Group will be organized
substantially as set out in ANNEX IV (subject to amendment by Switzerland if
necessary or advisable for a more efficient restructuring process)
5. DEMERGER
(A) PRINCIPLE
It is intended that Butterfly AG will be spun off to the Switzerland
shareholders on the basis described below and in accordance with the
Swiss Tax Ruling (as defined below), as soon as reasonably practicable
(hereafter "the Demerger Date")
(B) STRUCTURE
Switzerland will demerge Butterfly AG and thus the Butterfly Business to
Switzerland's shareholders by a rights offering structure. This
structure involves the following steps:
- Butterfly AG will increase its share capital by issuing a maximum of
6,616,796 shares with a nominal value of CHF 10 each, whereby
Switzerland will not exercise its pre-emptive rights and whereby a
syndicate of banks (the "Underwriters") will underwrite the new
shares and pay the nominal value of the underwritten shares to
Butterfly AG;
A-4-3
<PAGE> 211
- Rights to purchase newly issued Butterfly shares from the
Underwriters will be allocated to the shareholders of Switzerland who
will receive one right per Switzerland share, each such right (a
"Right") giving its holder an option to purchase on a given date (the
"Payment Date") one Butterfly share from the Underwriters for CHF 10
per Butterfly share.
- Switzerland shareholders may either exercise the Rights allocated to
them or sell such Rights during a limited period of time prior to the
last date the Rights can be exercised;
- shares of Butterfly AG as to which the rights have not been exercised
or as to which no payment occurs on the Payment Date will be sold
back by the underwriters to Butterfly at CHF 10 per share;
(c) TRANSFER OF CONSIDERATION SHARES AND LOANS
Switzerland will transfer the Consideration Shares and the Loans to
Butterfly AG against consideration. The consideration to be paid to
Switzerland for the Consideration Shares and for the Loans will be
deemed to constitute a financial debt owed by Butterfly to Switzerland
for purposes of the net debt calculation. Alternatively, if the Parties
so agree, and if such action enables Switzerland to retain the benefit
of the Swiss Tax Ruling referred to in paragraph 8 below and does not
affect the calculation of net debt under paragraph 6 Switzerland will
sell the Consideration Shares at market value and transfer the proceeds
of the sale to Butterfly.
(d) Each Party shall be responsible for the accuracy and completeness, to
relevant prospectus standards, of the information with respect to it
included in any disclosure documents related to the Butterfly Demerger
and the listing of the Butterfly shares.
6. DEBT FREE STATUS OF BUTTERFLY AND CASH EQUALIZATION
The Butterfly Business is intended to be effectively debt free as of the
Separation Effective Date. Therefore, if Butterfly has net debt (as described
below) as of the Separation Effective Date, Butterfly shall receive from
Switzerland an amount in cash or cash equivalents within a short time after the
net debt statement described below is finalized in an amount designed to put
Butterfly in the situation in which it would have been had the Butterfly
Business been transferred free of net debt as of the Separation Effective Date.
In order to achieve this, the following provisions will apply (eliminating any
duplication).
(a) As soon as is practicable after the Separation Date, Butterfly will
prepare a statement determining "net debt" for the Butterfly Business
which will be prepared under international accounting standards (IAS)
applied on a basis consistent with (A) those used in the preparation of
the Combined Balance Sheet and (B) those used in the preparation of
Switzerland's historical financial statements, and reflect the following
items as of the Separation Effective Date on a consolidated basis:
(i) all financial third party debt of the Butterfly Business;
(ii) all financial net debts of the Butterfly business owed to
Switzerland or its subsidiaries; and
(iii) all pension liabilities relating to the German business to the
extent they are recorded on Butterfly's balance sheet as of the
Separate Effective Date;
less: (w) cash, cash equivalents and refundable deposits within the
Business;
(x) all costs attributable to Butterfly but paid by Switzerland;
(y) all payments by Butterfly to employees transferred to Butterfly and
relating to their employment for Switzerland prior to the Separation
Date referred to in paragraph 3 (c); and
(z) any consideration paid by Butterfly to Switzerland for the transfer
of any portion of the Business to Butterfly AG or its subsidiaries
pursuant to the Separation Agreement.
(b) The remainder of the sum of (i), (ii) and (iii) above less the sum of
(w) through (z) above shall, if a positive amount, constitute net debt
for the purposes hereof.
(c) Switzerland will make a payment to Butterfly if required to eliminate
any net debt together with interest from the Separation Date.
A-4-4
<PAGE> 212
(d) For the avoidance of doubt, the following items will not be considered
in the determination of net debt:
- Net cash proceeds (after stamp taxes) received by Butterfly in
connection with the subscription for shares in its capitalization as
part of the Butterfly Demerger transaction;
- The costs to be borne by Butterfly in connection with the Butterfly
Demerger;
- the CHF 2 million lump sum payment for expenses of the Butterfly
Demerger as contemplated below.
- the cash amount described under clause (a) of paragraph 2;
(e) To the extent that any items used in the calculation of net debt as
described in clause (a) are recorded at subsidiaries that are not
wholly-owned, the relevant amount will be given effect after multiplying
it by the decimal equivalent of Butterfly's effective ownership interest
in such subsidiary.
(f) The net debt calculation shall be subject to a customary post-closing
audit and any payments made pursuant to this Section 6 shall be adjusted
in accordance with the results of this audit.
7. REPRESENTATIONS AND WARRANTIES
It is intended that Butterfly be provided with all of the assets (and
assume all of the liabilities) currently held by Switzerland and its
subsidiaries prior to the Separation Effective Date and related to the Butterfly
Business. To give effect to this, the Separation Agreement will contain transfer
provisions and representations/warranties (together with an undertaking by each
party to take further action necessary to give effect to the relevant transfer):
(a) from Switzerland to Butterfly with respect to:
- absence of liens other than as related to the Butterfly business;
- intellectual property rights for Butterfly business;
- contractual rights relating to Butterfly business; and
- liabilities not relating to Butterfly business.
(b) from Butterfly to Switzerland with respect to:
- liabilities relating to the Butterfly business Appendix A hereto.
together in the case of (a) and (b) with any representation and warranties
necessary in connection with the issuance of rights and shares in Butterfly
AG and the listing of Butterfly AG shares.
8. TAX TREATMENT
Subject to the conditions specified in the tax ruling (the "Swiss Tax
Ruling" dated August 6, 1999) received from the relevant tax authorities in
Switzerland, the Butterfly de-merger will not be subject to Swiss taxes to
Switzerland or Butterfly.
Switzerland and Butterfly will each indemnify the other for losses (and
related costs) resulting from any action or inaction by it or by a third party
with respect to it that causes the conditions to the Swiss Tax Ruling not to be
satisfied.
9. INDEMNIFICATION
In addition to the cross indemnity for tax treatment above, Switzerland and
Butterfly will also each indemnify the other for losses relating to or arising
from:
(a) liabilities incurred or paid by the other party relating to the
indemnifying party's business;
(b) breaches of representations, warranties or covenants in the Separation
Agreement.
The parties acknowledge that no indemnifiable "loss" will have been
suffered in respect of any liability or contingent liability relating to the
Business which does not exceed the remaining total of provisions which have been
made in the Combined Balance Sheet for such kind of liability or contingent
A-4-5
<PAGE> 213
liability (after deducting any and all previous such liabilities which have been
charged against such provisions);
In addition, no indemnity will be available for any claim under clause (b)
above
- if the breach is not material (for the purpose of this provision a
breach shall not be material if it can be remedied for less than CHF 1.5
million); or
- if, and to the extent, all material claims made under this indemnity do
not exceed a total amount of CHF 20 million.
In the event that Butterfly, within five years of the Separation Date,
distributes (by way of dividend, distribution, demerger or the like) for nil or
nominal consideration, a subsidiary or a business, which, individually or in the
aggregate, together with any such previous distribution, has net assets which
exceed one-third of the consolidated net assets of Butterfly, that subsidiary or
business will provide, effective upon such distribution, a joint and several
guarantee of the indemnification obligations of Butterfly relating to the tax
issues described in paragraphs 4 and 8, and liabilities for environmental
matters of Butterfly and its subsidiaries.
The indemnity will be subject to a two-year survival period, except for
those claims relating to taxes (which shall have a five year survival period)
(but for the avoidance of doubt shall cover the consequences of actions or
inactions that occur during the five years after the demerger) and environmental
liabilities (which shall survive in perpetuity).
10. COSTS
Subject to the provisions of the Separation Agreement, or those of the
transition service agreements, Butterfly shall bear all costs, expenses and
taxes arising in connection with the Butterfly Demerger (except as described
elsewhere herein), it being understood that Switzerland shall pay a lump sum of
CHF 2 million as a participation to such costs.
11. DISCLOSURE
Switzerland and Butterfly will provide each other with reasonable access on
an ongoing basis to information relevant to their respective obligations and to
verify the satisfaction of the other party's obligations in respect of the
Butterfly Demerger.
A-4-6
<PAGE> 214
ANNEX
B
ALGROUP CONSOLIDATED FINANCIAL STATEMENTS
AND
MANAGEMENT'S DISCUSSION AND ANALYSIS
B-1
<PAGE> 215
AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED
31 DECEMBER 1998, 1997 AND 1996
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Alusuisse Lonza Group AG:
We have audited the accompanying consolidated balance sheets of Alusuisse Lonza
Group AG Zurich, and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income and cash flows for each of the years
in the three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Group's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits. We did not audit the financial statements of Alusuisse-Lonza America
Inc., a wholly-owned subsidiary, which statements reflect total assets
constituting 20 percent and 21 percent in 1998 and 1997, respectively, and total
revenues constituting 19 percent and 20 percent in 1998 and 1997, respectively,
of the related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Alusuisse-Lonza America Inc., is based
solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Alusuisse Lonza Group AG and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with International Accounting Standards.
International Accounting Standards vary in certain significant respects from
accounting principles generally accepted in the United States and Canada.
Application of accounting principles generally accepted in the United States and
Canada would have affected results of operations for each of the years in the
two-year period ended December 31, 1998 to the extent summarized in Note 33 to
the consolidated financial statements.
KPMG Fides Peat
Zurich, Switzerland
February 3, 1999, except for Notes 26(a) and 29,
as to which the date is October 18, 1999
B-2
<PAGE> 216
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
Alusuisse-Lonza America Inc.
We have audited the accompanying consolidated balance sheets of Alusuisse-Lonza
America Inc. and its subsidiaries (the "Company"), a wholly-owned subsidiary of
Alusuisse Lonza Group Ltd ("algroup"), at December 31, 1998 and 1997, and the
related consolidated statements of operations, of stockholders' equity and of
cash flows for the years then ended (not presented separately herein). These
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 did not audit the 1998 and 1997 financial statements of ALA
(Nevada) Inc., a wholly-owned subsidiary of the Company, which statements
reflect total assets (principally intercompany notes and loans receivables) of
$434,249,000 and $31,506,000 at December 31, 1998 and 1997, respectively, and
total net income (principally intercompany interest and dividend income) of
$27,828,000 and $19,945,000 for the year ended December 31, 1998 and for the
period from April 10, 1997 (inception) to December 31, 1997. The aforementioned
intercompany notes and loans receivable and intercompany interest and dividend
income of this company substantially eliminate in the Company's consolidation.
Those statements were audited by KPMG Fides Peat, whose report thereon has been
furnished to us, and the opinion expressed herein, insofar as it relates to the
amounts included for ALA (Nevada) Inc., is based solely on the report of the
other auditor.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 the other auditor
provide a reasonable basis for our opinion.
In our report dated January 20, 1998, we expressed an opinion that the 1997 and
1996 financial statements did not fairly present financial position, results of
operations, and cash flows in conformity with accounting principles generally
accepted in the United States because of a departure from such principles; the
Company excluded from deferred tax assets, net of valuation allowance, certain
income tax benefits related to a portion of an available unused tax loss
carryforward. As described in Note 19 to the financial statements, the Company
has changed its method of accounting for these items and restated its 1997
financial statements to conform with accounting principles generally accepted in
the United States. Accordingly, our present opinion on the 1997 financial
statements, as presented herein, is different from that expressed in the
previous report.
In our opinion, based upon our audits and the report of the other auditor, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Alusuisse-Lonza America Inc., and
its subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
Accounting principles generally accepted in the United States vary in certain
significant respects from International Accounting Standards. The application of
the latter would have affected the determination of consolidated stockholder's
equity and consolidated financial position at December 31, 1998 and 1997 and the
determination of consolidated net income (loss) for the years then ended to the
extent summarized in Note 21 to the consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
FLORHAM PARK, NEW JERSEY, USA
SEPTEMBER 22, 1999
B-3
<PAGE> 217
ALGROUP
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31,
<TABLE>
<CAPTION>
NOTE 1997 1998
----- ------ ------
(In millions)of
CHF
<S> <C> <C> <C>
ASSETS
FIXED ASSETS
Property, plant and equipment............................... 4 6,926 7,156
Accumulated depreciation.................................... 4 (4,518) (4,676)
Intangible assets and goodwill.............................. 4 255 246
Other noncurrent assets..................................... 4,22 122 87
Investments in affiliates................................... 4,6 21 19
Long-term loans and advances................................ 4,14 51 11
------ ------
TOTAL FIXED ASSETS.......................................... 4 2,857 2,843
------ ------
CURRENT ASSETS
Inventories, net............................................ 7 1,092 1,120
Trade receivables, net...................................... 8 940 926
Other receivables, prepaid expenses and accrued income...... 9 368 325
Short-term advances......................................... 14 33 17
Cash and cash equivalents................................... 10,14 328 360
------ ------
TOTAL CURRENT ASSETS........................................ 2,761 2,748
------ ------
Net assets of discontinuing operations...................... 26 1,880 1,809
------ ------
TOTAL ASSETS................................................ 7,498 7,400
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Share capital............................................... 12 780 629
Consolidated reserves....................................... 1,985 2,472
------ ------
TOTAL SHAREHOLDERS' EQUITY.................................. 12 2,765 3,101
------ ------
MINORITY INTERESTS.......................................... 32 41
------ ------
LIABILITIES
Long-term provisions........................................ 13,22 633 608
Long-term debt:
Bonds..................................................... 14,17 828 867
Due to banks and other financial institutions............. 14 696 333
------ ------
TOTAL LONG-TERM LIABILITIES................................. 2,157 1,808
------ ------
Current liabilities:
Trade payables............................................ 16 752 702
Other liabilities and deferred items...................... 15 832 765
Short-term debt:
Due to banks and other financial institutions............. 14 892 980
Long-term debts due within one year....................... 14 68 3
------ ------
TOTAL CURRENT LIABILITIES................................... 2,544 2,450
------ ------
TOTAL LIABILITIES........................................... 4,701 4,258
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 7,498 7,400
====== ======
</TABLE>
See the accompanying notes to the consolidated financial statements.
B-4
<PAGE> 218
ALGROUP
CONSOLIDATED INCOME STATEMENTS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
NOTE 1996 1997 1998
----- ------ ------ ------
)(In millions of CHF
<S> <C> <C> <C> <C>
NET SALES................................................. 5,800 7,238 7,497
Changes in inventory of work-in-progress and finished
goods................................................... 6 48 14
------ ------ ------
INCOME FROM PRODUCTION.................................... 5,806 7,286 7,511
Material costs............................................ (2,904) (3,604) (3,790)
Energy costs.............................................. (249) (252) (282)
Personnel expenses........................................ (1,339) (1,660) (1,712)
Other operating income and expenses, net.................. 19 (573) (840) (751)
Depreciation and amortization............................. 4 (276) (347) (371)
------ ------ ------
OPERATING INCOME.......................................... 465 583 605
Amortization of goodwill.................................. 4 (7) (14) (15)
------ ------ ------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES
AND MINORITY INTEREST................................... 458 569 590
Interest income and exchange gains........................ 20 97 78 111
Interest expenses and exchange losses..................... 21 (241) (248) (270)
Other income, net......................................... 8 5 5
------ ------ ------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND MINORITY INTEREST................................... 322 404 436
Income taxes.............................................. 22 (74) (82) (107)
Income attributable to minorities......................... (3) (3) (7)
------ ------ ------
INCOME FROM CONTINUING OPERATIONS......................... 245 319 322
NET INCOME FROM DISCONTINUING OPERATIONS.................. 168 144 208
------ ------ ------
NET INCOME................................................ 413 463 530
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
CHF CHF CHF
------ ------ ------
<S> <C> <C> <C> <C>
Basic earnings per share continuing operations............ 31 40.0 51.8 51.4
Diluted earnings per share continuing operations.......... 31 39.8 51.4 51.3
Basic earnings per share Group............................ 31 67.5 75.3 84.7
Diluted earnings per share Group.......................... 31 65.4 73.2 82.8
</TABLE>
See the accompanying notes to the consolidated financial statements.
B-5
<PAGE> 219
ALGROUP
CONSOLIDATED CASH FLOW STATEMENTS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
NOTE 1996 1997 1998
---- ------------- ----------- -----------
) (In millions of CHF
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations................. 245 319 322
Depreciation on property, plant and equipment..... 4 271 340 365
Amortization of intangibles....................... 4 5 7 6
Amortization of goodwill.......................... 4 7 14 15
Increase in long-term provisions, net............. 13 54 27 3
Income from application of the equity method...... (5) (5) (4)
Increase in net working capital................... (10) (95) (93)
------ ---- ----
NET CASH PROVIDED BY CONTINUING OPERATIONS........ 567 607 614
NET CASH PROVIDED BY DISCONTINUING OPERATIONS..... 26 321 227 367
------ ---- ----
TOTAL CASH PROVIDED BY OPERATING ACTIVITIES....... 888 834 981
------ ---- ----
Purchase of property, plant and equipment......... 4 (422) (531) (507)
Sale (purchase) of intangibles.................... 4 3 (6) (16)
Goodwill from purchase of operations.............. 4 0 0 (4)
Sale of investments in affiliates, net............ 4 14 3 7
Purchase of consolidated companies (less cash
acquired)....................................... 3,23 (508) (18) (61)
Sale of consolidated companies (less cash
disposed)....................................... 23 9 2 211
Sale of property, plant and equipment............. 4 18 2 24
(Purchase) sale of other assets................... (4) 7 5
Decrease in other long-term liabilities........... 3 11 0
Decrease (increase) in loans and advances......... (27) 40 60
------ ---- ----
NET CASH USED IN INVESTING ACTIVITIES
(CONTINUING).................................... (914) (490) (281)
NET CASH USED IN INVESTING ACTIVITIES
(DISCONTINUED).................................. 26 (393) (381) (342)
------ ---- ----
TOTAL CASH USED IN INVESTING ACTIVITIES........... (1,307) (871) (623)
------ ---- ----
Increase (decrease) of capital, net............... 0 103 (113)
Increase (decrease) in debts...................... 247 79 (197)
Dividends paid.................................... (115) (115) 0
Contributions (to) from minority interest......... 4 (1) 8
------ ---- ----
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (CONTINUING)......................... 136 66 (302)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (DISCONTINUED)....................... 26 4 (1) (2)
------ ---- ----
TOTAL CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES...................................... 140 65 (304)
------ ---- ----
TRANSLATION ADJUSTMENTS........................... 50 (17) (22)
------ ---- ----
Net increase (decrease) in cash................... (229) 11 32
Cash and cash equivalents at 1 January............ 10 546 317 328
------ ---- ----
CASH AND CASH EQUIVALENTS AT DECEMBER 31,......... 10 317 328 360
====== ==== ====
-- Interest paid................................ 184 237 152
-- Taxes paid................................... 55 73 26
</TABLE>
See the accompanying notes to the consolidated financial statements.
B-6
<PAGE> 220
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
GENERAL INFORMATION
The consolidated financial statements are based on the annual accounts of
the individual subsidiaries at December 31, which have been drawn up according
to uniform Group principles. The consolidated accounts are prepared in
conformity with the current International Accounting Standard (IAS), published
by the International Accounting Standards Committee (IASC).
At the extraordinary shareholders' meeting of algroup of 18 October 1999 the
shareholders approved the demerger of the chemical business (composed of two
divisions of the group, fine chemicals and specialties and intermediates and
additives) and the energy business. The above mentioned activities are treated
as discontinuing operations. In order to reflect the debt free status effective
as of 1 July 1999, as stated in the Separation and Demerger Agreement and
related to the above mentioned activities, all the debt and accordingly the
interest positions are shown under the continuing operations. The financial
statements have been restated accordingly.
RESTATEMENT
For comparative purposes, the previous years' data were reclassified to
conform with the current year presentation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements represent the accounts for the year
ended December 31, of Alusuisse Lonza Group AG and its subsidiaries.
Subsidiaries acquired during the year are included in the consolidated
accounts from the date of acquisition, while any subsidiaries sold are excluded
from the accounts from the date of sale. Acquisitions are accounted for by the
use of purchase method accounting. The full consolidation method is used,
whereby the assets, liabilities, income and expenses are incorporated in full.
The proportion of the net assets and net income attributable to minority
shareholders is shown separately in the consolidated balance sheet and income
statement.
Payables, receivables, income and expenses between the companies included in
the consolidation are eliminated. Intercompany profits included at the year-end
in inventories of goods produced within the Group have been eliminated.
Transactions between subsidiaries are concluded under market conditions.
Jointly controlled entities are consolidated using the proportionate method
of consolidation. The method of proportionate consolidation takes into account
individual assets, liabilities, income and expenses line-by-line pro rata to the
participation in the equity.
Investments in affiliates are reflected in the balance sheet using the
equity method of accounting. Under this method, the investment is initially
recorded at cost, and is increased or decreased by the proportionate share of
the affiliate's profits or losses after the date of acquisition, adjusted for
any amortization of goodwill arising on acquisition and depreciation of fair
market value increments/decrements recognized at that time. Dividends paid
during the year reduce the carrying value of the investments.
Investments of less than 20 percent are not consolidated and are stated at
cost, less any write-offs that are necessary.
Discontinued operations are not included in the consolidated financial
statements on a line-by-line basis but segregated and shown as a net line item
(net assets, net income) in the Group's statements.
The principal companies included in the consolidation are shown in note 32.
DEFINITIONS
A SUBSIDIARY is a Group company which Alusuisse Lonza Group AG controls
normally by holding (either directly or indirectly) more than 50 percent of the
voting shares of the company.
An AFFILIATE is a Group company in which Alusuisse Lonza Group AG holds
(either directly or indirectly) 20 to 50 percent of the voting shares of the
company.
LONG-TERM LIABILITIES AND PROVISIONS include all amounts becoming due and
payable after more than one year.
CURRENT LIABILITIES AND DEFERRED ITEMS include all amounts becoming due and
payable within one year. This item also includes the proportion of long-term
debts becoming due within one year. Receivables and payables bearing interest
are stated as loans and advances and debts respectively.
CONSOLIDATION OF FOREIGN SUBSIDIARIES
All assets and liabilities of a foreign subsidiary which is consolidated are
translated using the exchange rates in effect at the balance sheet date (the
current rate method). Income and expenses are translated at the average exchange
rate for the year. Differences resulting from the application of these different
methods of translation of the balance sheet and income statement, together with
exchange gains or losses on the opening net asset values of the subsidiaries,
are added to or deducted from consolidated reserves in the balance sheet.
B-7
<PAGE> 221
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are recorded using exchange rates in
effect at the time of the transaction. Gains or losses arising on settlement of
these transactions are included in the current year's income. Foreign currency
denominated monetary assets and liabilities at December 31, are translated using
the exchange rate in effect at the balance sheet date. Any gains or losses
resulting from this translation are included in the current year's income.
DERIVATIVE FINANCIAL INSTRUMENTS
To manage interest rate and currency exposures, the Group uses interest rate
swaps and options as well as currency forwards and option contracts. The Group
recognizes interest differentials on interest rate swaps and options as
adjustments to interest expense in the period they occur. Realized and
unrealized gains and losses arising from currency forwards and options are
recognized as adjustments to the gains and losses resulting from the underlying
transactions. Derivatives instruments designated as a hedge of the Group's net
asset exposures related to foreign subsidiaries are reflected in the currency
translation adjustment section of shareholders' equity offsetting the
translation gains or losses relating to those net asset exposures.
FIXED ASSETS
Fixed assets (property, plant and equipment) are stated at cost less
depreciation.
The assets are depreciated over their estimated useful lives, which vary
from 25 to 50 years for buildings and structures, and 3 to 12 years for
production facilities, machinery, plant, equipment and vehicles. Depreciation is
charged on the straight-line basis.
Long-term leasing arrangements, which effectively constitute assets
purchased with long-term financing, are carried as fixed assets at their
purchase price and written off over their estimated useful lives. The
corresponding liabilities are included in the long-term and short-term debts.
INTANGIBLE ASSETS
Intangibles include software, licences, patents, trademarks and similar
rights granted by third parties. These assets are amortized on the straight-line
principle over their estimated useful lives.
GOODWILL
At the time of their initial consolidation, the assets and liabilities of
consolidated subsidiaries are recorded at their estimated fair value. Goodwill
represents the difference between the purchase price and the fair value of the
net identifiable assets acquired. Goodwill is capitalized and amortized on a
straight-line basis over its estimated useful life not exceeding 20 years.
Goodwill relating to acquisitions prior to December 31, 1994 was deducted from
the consolidated reserves.
INVENTORIES
Inventories are reported at the lower of cost (purchase price or Group
production cost) or market value (net realizable values). The cost of
inventories is calculated using the monthly or weighted average method. Prorated
production overheads are included in the valuation of inventories. Goods with
long storage periods and obsolete goods are written down. Intercompany profits
on inventories of goods produced in the Group have been eliminated from net
income.
Work-in-progress relating to long term construction contracts is accounted
for using the percentage of completion method.
RECEIVABLES
Trade receivables as well as other receivables are disclosed at nominal
values minus expected economic adjustments at fair value.
CASH AND CASH EQUIVALENTS
Cash includes cash on hand, in postal and bank accounts, as well as deposits
becoming due or payable within no more than 90 days.
DEFERRED TAXES
Tax expense is calculated using the balance sheet liability method.
Additional deferred taxes are provided wherever temporary differences exist
between the tax base of an asset or liability and its carrying amount in the
consolidated results for the year.
Provisions for and recoveries of income taxes are accounted for in the same
way as the transactions and other events giving rise to the temporary
differences. Therefore, for transactions and other events recognized in the
income statement, any related tax effects are recognized in the income
statement. For transactions and other events recognized directly in equity, any
related tax effects are recognized directly in equity.
B-8
<PAGE> 222
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RETIREMENT BENEFITS
Most of the subsidiaries operate their own pension plans, mainly legally
independent from the Group. Generally, they are funded by employees' and
employer's contributions.
A policy has been established whereby actuarial valuations will be performed
on a three-year basis and roll-forwards will be conducted during the intervening
period. The cumulative effect from initial application of IAS 19 as of 1 January
1995 is included as a transitional amount and is recognized as an asset or
liability respectively, over a period not exceeding the expected remaining
working lives of the participating employees. In following years, the actuarial
gains and losses are recognized over the same period as above if the accumulated
gain and loss exceed the corridor of 10 % of the greater of plan assets and
projected benefits obligation.
RESEARCH AND DEVELOPMENT
Expenditure on research and development is not capitalized, but charged
immediately to expenses. Expenses for research and development include
associated wages and salaries, material costs, as well as overhead costs.
NOTE 1 - EXCHANGE RATES
The following exchange rates were used to translate the most important
currencies in the Group:
<TABLE>
<CAPTION>
BALANCE SHEET INCOME STATEMENT
YEAR-END RATES AVERAGE YEARLY RATES
------------------ -----------------------------
EXCHANGE RATES 1997 1998 1996 1997 1998
- -------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
USA.................................... dollar 1 1.4535 1.3775 1.2360 1.4501 1.4497
Canada................................. dollar 1 1.0142 0.8896 0.9066 1.0474 0.9798
Australia.............................. dollar 1 0.9513 0.8448 0.9684 1.0794 0.9135
Great Britain.......................... pound sterling 1 2.4100 2.2860 1.9319 2.3747 2.4008
Germany................................ mark 100 81.3080 82.1190 82.1210 83.7200 82.3850
France................................. franc 100 24.2990 24.4870 24.1578 24.8700 24.5740
Italy.................................. lira 100 0.0827 0.0829 0.0803 0.0853 0.0835
Netherlands............................ guilder 100 72.1560 72.8860 73.2995 74.4000 73.0860
Spain.................................. peseta 100 0.9594 0.9657 0.9760 0.9912 0.9704
</TABLE>
NOTE 2 - FINANCIAL INSTRUMENTS
RISK MANAGEMENT ACTIVITIES
The Group is exposed to market risk from changes in interest rates and
currency exchange rates. To manage the volatility relating to these exposures,
the Group enters into various derivative transactions pursuant to the Group's
policies in areas such as counterparty exposure and hedging practices.
Counterparties to these agreements are major international financial
institutions. Positions are monitored using techniques such as market value and
sensitivity analyses.
The following tables present information for interest rate and foreign
exchange contracts. The notional amount of derivatives summarized below
represents the gross amount of the contracts and includes already closed
transactions which have not yet matured. Therefore the figures are not a direct
measure of the Group's exposure. The market value approximates the cost to
settle the outstanding contracts. These market value amounts should be viewed
not in isolation but in relation to the market values of the underlying hedged
transactions and the overall reduction in the Group exposure to adverse
fluctuation of interest and foreign exchange rates.
<TABLE>
<CAPTION>
INTEREST RATE CONTRACTS 1997 1998
----------------------- ----------- -----------
(In)millions of CHF
<S> <C> <C>
Notional amount............................................. 1,478 1,471
Net negative market value................................... (65) (57)
Net negative book value..................................... (31) (21)
Difference market value/book value.......................... (34) (36)
CREDIT RISK................................................. 0 7
</TABLE>
INTEREST RATE MANAGEMENT
The Group's policy is to manage interest cost using a mix of fixed and
variable rate debt. In order to manage this mix in a cost efficient manner, the
Group enters into interest rate swaps, to exchange, at specified intervals, the
difference between fixed and variable interest amounts calculated by reference
to a corresponding notional principal amount.
B-9
<PAGE> 223
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 - FINANCIAL INSTRUMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOREIGN EXCHANGE CONTRACTS 1997 1998
- -------------------------- ----------- -----------
(In)millions of CHF
<S> <C> <C>
Notional amount............................................. 2,128 2,620
Net negative market value................................... (51) (61)
Net negative book value..................................... (51) (61)
Difference market value/book value.......................... 0 0
CREDIT RISK................................................. 9 22
</TABLE>
FOREIGN EXCHANGE MANAGEMENT
In management of its exposure to fluctuation in foreign currency exchange
rates, the Group has entered into a variety of currency swaps, foreign exchange
contracts and options. These agreements generally include the exchange of one
currency for a second currency at a future date.
NOTE 3 - CHANGES IN THE SCOPE OF CONSOLIDATION
In 1996, the following companies were acquired or newly consolidated:
Wheaton Inc, Millville, New Jersey, USA (at 24.5.1996) Celltech Biologics plc,
Slough, Berkshire, GB (at 28.6.1996)
In 1997, the following companies were acquired or newly consolidated:
Alusuisse Tomos Doo, Koper, Slovenia (at 1 July 1997, 66.6 % ownership interest)
Lawson Mardon Wheaton (UK) Ltd, formerly ACI Rockware, Kingston, Norwich, GB (at
29 July 1997).
In 1998, the following company was acquired: Pacquet Oneida, Inc, Clifton,
NJ, US (at 1 August 1998).
See additional details in note 23.
NOTE 4 - MOVEMENTS IN FIXED ASSETS
<TABLE>
<CAPTION>
CURRENCY CHANGE IN
TRANSLATION THE SCOPE
AT COST AT 31.12.1996 DIFFERENCES OF CONSOLIDATION ADDITIONS DISPOSALS TRANSFERS
- ------- ------------- ----------- ---------------- --------- --------- ---------
) (In millions of CHF
<S> <C> <C> <C> <C> <C> <C>
Land............................ 132 (2) 9 1 (1) 0
Buildings and structures........ 1,367 (14) 27 27 (3) 84
Production facilities,
machinery, plant, equipment
and vehicles.................. 4,579 (112) 193 237 (63) 272
Construction in progress and
advances for property, plant
and equipment................. 285 (3) 1 266 0 (356)
------ ---- ---- ---- ---- ----
PROPERTY, PLANT AND EQUIPMENT... 6,363 (131) 230 531 (67) 0
Intangible assets............... 55 (1) 0 6 0 0
Goodwill........................ 251 19 0 0 0 0
Other noncurrent assets......... 158 (2) 5 0 (39) 0
Investments in affiliates....... 155 (3) (25) 0 (8) 0
Long-term loans and advances.... 130 (1) 0 0 (51) 0
------ ---- ---- ---- ---- ----
TOTAL FIXED ASSETS.............. 7,112 (119) 210 537 (165) 0
====== ==== ==== ==== ==== ====
<CAPTION>
FIXED ASSETS
NET AT
AT COST AT 31.12.1997 31.12.1997
- ------- ------------- ------------
<S> <C> <C>
Land............................ 139 122
Buildings and structures........ 1,488 505
Production facilities,
machinery, plant, equipment
and vehicles.................. 5,106 1,588
Construction in progress and
advances for property, plant
and equipment................. 193 193
------ -----
PROPERTY, PLANT AND EQUIPMENT... 6,926 2,408
Intangible assets............... 60 8
Goodwill........................ 270 247
Other noncurrent assets......... 122 122
Investments in affiliates....... 119 21
Long-term loans and advances.... 78 51
------ -----
TOTAL FIXED ASSETS.............. 7,575 2,857
====== =====
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
CURRENCY CHANGE IN DEPRECIATION
TRANSLATION THE SCOPE AT
ACCUMULATED DEPRECIATION AT 31.12.1996 DIFFERENCES OF CONSOLIDATION ADDITIONS DISPOSALS TRANSFERS 31.12.1997
- ------------------------ ------------- ----------- ---------------- --------- --------- --------- ------------
) (In millions of CHF
<S> <C> <C> <C> <C> <C> <C> <C>
Land (impairment)............... (17) 0 0 0 0 0 (17)
Buildings and structures........ (948) 12 (15) (34) 2 0 (983)
Production facilities,
machinery, plant, equipment
and vehicles.................. (3,210) 70 (135) (306) 63 0 (3,518)
------ ---- ---- ---- ---- ---- ------
PROPERTY, PLANT AND EQUIPMENT... (4,175) 82 (150) (340) 65 0 (4,518)
Intangible assets............... (47) 2 0 (7) 0 0 (52)
Goodwill........................ (8) (1) 0 (14) 0 0 (23)
Investments in affiliates....... (85) 2 (15) 0 0 0 (98)
Long-term loans and advances.... (26) 0 0 (1) 0 0 (27)
------ ---- ---- ---- ---- ---- ------
TOTAL DEPRECIATION.............. (4,341) 85 (165) (362) 65 0 (4,718)
------ ---- ---- ---- ---- ---- ------
TOTAL FIXED ASSETS NET.......... 2,771 (34) 45 175 (100) 0 2,857
====== ==== ==== ==== ==== ==== ======
<CAPTION>
ACCUMULATED DEPRECIATION
- ------------------------
<S> <C>
Land (impairment)...............
Buildings and structures........
Production facilities,
machinery, plant, equipment
and vehicles..................
PROPERTY, PLANT AND EQUIPMENT...
Intangible assets...............
Goodwill........................
Investments in affiliates.......
Long-term loans and advances....
TOTAL DEPRECIATION..............
TOTAL FIXED ASSETS NET..........
</TABLE>
B-10
<PAGE> 224
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 - MOVEMENTS IN FIXED ASSETS -- (CONTINUED)
<TABLE>
<CAPTION>
CURRENCY CHANGE IN
TRANSLATION THE SCOPE
AT COST AT 31.12.1997 DIFFERENCES OF CONSOLIDATION ADDITIONS DISPOSALS TRANSFERS
- ------- ------------- ----------- ---------------- --------- --------- ---------
) (In millions of CHF
<S> <C> <C> <C> <C> <C> <C>
Land.............................. 139 (3) 3 2 (2) 0
Buildings and structures.......... 1,488 (35) 10 13 (4) 8
Production facilities, machinery,
plant, equipment and vehicles... 5,106 (167) 66 211 (128) 202
Construction in progress and
advances for property, plant and
equipment....................... 193 (7) 0 281 (10) (210)
------ ---- ---- ---- ---- ----
PROPERTY, PLANT AND EQUIPMENT..... 6,926 (212) 79 507 (144) 0
Intangible assets................. 60 (2) 0 16 (1) 0
Goodwill.......................... 270 (12) 2 4 0 0
Other noncurrent assets........... 122 (3) 0 0 (32) 0
Investments in affiliates......... 119 1 0 4 (7) 0
Long-term loans and advances...... 78 (3) 0 0 (58) 0
------ ---- ---- ---- ---- ----
TOTAL FIXED ASSETS................ 7,575 (231) 81 531 (242) 0
====== ==== ==== ==== ==== ====
<CAPTION>
FIXED ASSETS
AT NET AT
AT COST 31.12.1998 31.12.1998
- ------- ----------- ------------
<S> <C> <C>
Land.............................. 139 122
Buildings and structures.......... 1,480 489
Production facilities, machinery,
plant, equipment and vehicles... 5,290 1,622
Construction in progress and
advances for property, plant and
equipment....................... 247 247
------ -----
PROPERTY, PLANT AND EQUIPMENT..... 7,156 2,480
Intangible assets................. 73 18
Goodwill.......................... 264 228
Other noncurrent assets........... 87 87
Investments in affiliates......... 117 19
Long-term loans and advances...... 17 11
------ -----
TOTAL FIXED ASSETS................ 7,714 2,843
====== =====
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
CURRENCY CHANGE IN DEPRECIATION
TRANSLATION THE SCOPE AT
ACCUMULATED DEPRECIATION AT 31.12.1997 DIFFERENCES OF CONSOLIDATION ADDITIONS DISPOSALS TRANSFERS 31.12.1998
- ------------------------ ------------- ----------- ---------------- --------- --------- --------- ------------
) (In millions of CHF
<S> <C> <C> <C> <C> <C> <C> <C>
Land (impairment)............... (17) 0 0 0 0 0 (17)
Buildings and structures........ (983) 24 0 (35) 3 0 (991)
Production facilities,
machinery, plant, equipment
and vehicles.................. (3,518) 95 (32) (330) 117 0 (3,668)
------ ---- ---- ---- ---- ---- ------
PROPERTY, PLANT AND EQUIPMENT... (4,518) 119 (32) (365) 120 0 (4,676)
Intangible assets............... (52) 2 0 (6) 1 0 (55)
Goodwill........................ (23) 2 0 (15) 0 0 (36)
Investments in affiliates....... (98) 0 0 0 0 0 (98)
Long-term loans and advances.... (27) 1 0 0 20 0 (6)
------ ---- ---- ---- ---- ---- ------
TOTAL DEPRECIATION.............. (4,718) 124 (32) (386) 141 0 (4,871)
------ ---- ---- ---- ---- ---- ------
TOTAL FIXED ASSETS NET.......... 2,857 (107) 49 145 (101) 0 2,843
====== ==== ==== ==== ==== ==== ======
<CAPTION>
ACCUMULATED DEPRECIATION
- ------------------------
<S> <C>
Land (impairment)...............
Buildings and structures........
Production facilities,
machinery, plant, equipment
and vehicles..................
PROPERTY, PLANT AND EQUIPMENT...
Intangible assets...............
Goodwill........................
Investments in affiliates.......
Long-term loans and advances....
TOTAL DEPRECIATION..............
TOTAL FIXED ASSETS NET..........
</TABLE>
Commitments for capital expenditure in property, plant and equipment amount
to CHF 101 million at year end 1998 (1997: CHF 89 million).
NOTE 5 - LEASES
The Group has approximately CHF 2 million of equipment acquired under
capital leases at December 31, 1998.
Commitments for capital leases and non-cancellable operating leases at
year-end are due as follows:
<TABLE>
<CAPTION>
YEAR CAPITAL LEASES OPERATING LEASES
- ---- -------------- ----------------
(In millions of CHF)
<S> <C> <C>
1999........................................................ 1 14
2000........................................................ 1 11
2001........................................................ 0 9
2002........................................................ 0 8
Thereafter.................................................. 0 55
-- --
TOTAL FUTURE MINIMUM LEASE PAYMENTS......................... 2 97
== ==
Less amount representing interest........................... 0 0
Present value of net minimum lease payments................. 2 0
Sublease income............................................. 0 1
</TABLE>
B-11
<PAGE> 225
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 - INVESTMENTS IN AFFILIATES
<TABLE>
<CAPTION>
KEY FIGURES 1997 1998
- ----------- ---- ----
(In)millions of
CHF
<S> <C> <C>
Total assets................................................ 35 33
Total liabilities........................................... 26 24
Turnover.................................................... 54 50
Net income.................................................. 2 2
</TABLE>
These key figures pertaining to investments held, using the equity method of
accounting, mainly reflect the Group's interest in the companies: Alufluor
Aktiebolag, Helsingborg, Sweden; Plus Pack A/S, Haustrup, EKCO, Odense, Denmark.
NOTE 7 - INVENTORIES
<TABLE>
<CAPTION>
1997 1998
--------------------------- ---------------------------
(In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C>
Raw materials............................................... 221 20 216 19
Work in process & finished goods............................ 650 60 657 59
Others...................................................... 221 20 247 22
----- --- ----- ---
TOTAL....................................................... 1,092 100 1,120 100
===== === ===== ===
</TABLE>
NOTE 8 - TRADE RECEIVABLES
<TABLE>
<CAPTION>
1997 1998
---- ----
(In)millions of
CHF
<S> <C> <C>
Receivables from customers.................................. 949 917
Accounts receivable from affiliates......................... 25 45
Value adjustments........................................... (34) (36)
--- ---
TOTAL....................................................... 940 926
=== ===
</TABLE>
The credit risk is generally very diversified due to the large number of
entities comprising the companies' customer bases and their dispersion across
many different industries and regions.
NOTE 9 - OTHER RECEIVABLES, PREPAID EXPENSES AND ACCRUED INCOME
<TABLE>
<CAPTION>
1997 1998
---- ----
(In)millions of
CHF
<S> <C> <C>
Other receivables........................................... 198 115
Prepaid taxes and social security payments.................. 74 60
Prepaid expenses and accrued income......................... 60 67
Accrued interest income..................................... 36 83
--- ---
TOTAL....................................................... 368 325
=== ===
</TABLE>
NOTE 10 - CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1997 1998
---- ----
(In)millions of
CHF
<S> <C> <C>
Cash........................................................ 312 309
Time deposits............................................... 16 51
--- ---
TOTAL....................................................... 328 360
=== ===
</TABLE>
NOTE 11 - PLEDGES AND ASSETS UNDER RESERVATION OF OWNERSHIP
The assets pledged for security of own liabilities amount to CHF 94 million
(1997: CHF 83 million).
NOTE 12 - CHANGE IN SHAREHOLDERS' EQUITY
SHARE CAPITAL TRANSACTIONS
At the Shareholders' Meeting of 24 March 1998, the following capital
transactions were approved:
B-12
<PAGE> 226
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 - CHANGE IN SHAREHOLDERS' EQUITY -- (CONTINUED)
-- Conversion of 2 024 088 bearer shares each with a par value of CHF 125
into the same number of registered shares each with a par value of CHF
125.
-- Reduction of the share capital from CHF 780 million to CHF 624 million by
reducing the par value of each share by CHF 25 from CHF 125 to CHF 100.
The released par value capital of CHF 25 per share was repaid on 24 June
1998 to the shareholders, including those who acquired their shares
between 1 January and 19 June 1998 by way of exercising convertible
bonds.
In 1998, conversion rights were exercised on 46 980 (1997: 113 930)
registered shares with a par value of CHF 5 million (1997: CHF 14 million), of
these a total of 4 431 (1997: 3 965) registered shares as part of the employee
participation program, 34 595 (1997: 113 930) registered shares through
conversion of the 2 1/4% 1995-2002 convertible bond issue, and 7 954 registered
shares through conversion of the 2 % 1996-2001 convertible bond issue.
The Board of Directors' discretion to issue CHF 40 000 000 in authorized
capital expired on 29 March 1998 and was not renewed.
All the issued shares are in circulation and therefore entitled to voting
rights and dividend payments in accordance with the Articles of Association.
At December 31, 1998, the capital subject to a condition comprised 551 575
(1997: 598 555) totaling CHF 55 million (1997: CHF 75 million). This represents
a decrease compared to 1997, due to the reduction in the par value per share as
well as the exercising of conversion rights.
Of these, the following are reserved:
-- A TOTAL OF 91 475 (1997: 126 070) shares for securing conversion rights
on the 2 1/4% convertible bond issue maturing in 2002, with conversion
possible during 1995-2002
-- A TOTAL OF 234 570 (1997: 238 865) registered shares for conversion
rights on the 2 % 1996-2001 convertible bond issue from Alusuisse-Lonza
Finance Ltd
-- A TOTAL OF 38 054 (1997: 42 485) for the employee participation program
and
-- A TOTAL OF 187 476 (1997: 191 135) shares for the purchase of new shares
from future negotiable and warrant issues.
Further information per security is shown in note 31.
CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
TRANSLATION INCOME SHAREHOLDERS'
SHARE CAPITAL PREMIUM DIFFERENCES RESERVES EQUITY
------------- ------- -------------------- -------- -------------
(In millions of CHF)
<S> <C> <C> <C> <C> <C>
AT 31.12.1995........................... 765 589 (606) 1,177 1,925
Net income.............................. 413 413
Dividend................................ (115) (115)
Translation differences................. 172 172
---- --- ---- ----- -----
AT 31.12.1996........................... 765 589 (434) 1,475 2,395
Increase of capital..................... 15 88 103
Net income.............................. 463 463
Dividend................................ (115) (115)
Translation differences................. (81) (81)
---- --- ---- ----- -----
AT 31.12.1997........................... 780 677 (515) 1 823 2,765
Increase of capital..................... 5 38 43
Share capital repayment................. (156) (156)
Net income.............................. 530 530
Translation differences................. (81) (81)
---- --- ---- ----- -----
AT 31.12.1998........................... 629 715 (596) 2,353 3,101
==== === ==== ===== =====
</TABLE>
The increase in the premium is mainly due to the conversion of the
outstanding bonds.
B-13
<PAGE> 227
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 - LONG-TERM PROVISIONS
<TABLE>
<CAPTION>
1997 1998
----- -----
(In millions of CHF)
<S> <C> <C>
Deferred taxes.............................................. 201 212
Retirement benefits......................................... 226 227
Others 206 169
---- ----
TOTAL....................................................... 633 608
==== ====
</TABLE>
The provisions for retirement benefits mainly comprise the pension liability
of the Group's defined benefit pension plans as disclosed in note 25. Included
in the above amounts are provisions for healthcare relating to the Group's US
subsidiaries.
NOTE 14 - NET DEBT
The net debt comprises:
<TABLE>
<CAPTION>
1997 1998
----- -----
(In millions)of CHF
<S> <C> <C>
LONG-TERM DEBT
Bonds....................................................... 828 867
Due to banks and others:
Banks..................................................... 612 261
Leasing................................................... 23 18
Others.................................................... 5 3
Other financial institutions.............................. 56 51
----- -----
TOTAL....................................................... 1,524 1,200
===== =====
</TABLE>
Debt due after more than five years in 1998: CHF 70 million (1997: CHF 219
million).
<TABLE>
<CAPTION>
1997 1998
----- -----
(In millions)of CHF
<S> <C> <C>
SHORT-TERM DEBT
Due to banks and other financial institutions............... 876 966
Others...................................................... 16 14
Long-term debt due within one year.......................... 68 3
----- -----
TOTAL....................................................... 960 983
----- -----
TOTAL DEBT.................................................. 2,484 2,183
===== =====
LOANS AND ADVANCES
Long-term loans and advances................................ (51) (11)
Short-term advances......................................... (33) (17)
Cash and cash equivalents................................... (328) (360)
----- -----
TOTAL....................................................... (412) (388)
----- -----
NET DEBT.................................................... 2,072 1,795
===== =====
</TABLE>
Loans and advances to affiliates amount to CHF 13 million (1997: CHF 12
million), whereas the debt owed to them amount to CHF 24 million (1997: CHF 18
million).
<TABLE>
<CAPTION>
1997 1998
--------------------------- ---------------------------
(In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C>
BREAKDOWN OF DEBTS BY CURRENCIES
Swiss franc................................................ 699 28 411 19
Pound sterling............................................. 465 19 435 20
Italian lira............................................... 105 4 108 5
US dollar.................................................. 918 37 909 42
Australian dollar.......................................... 54 2 120 5
German mark................................................ 69 3 65 3
Others..................................................... 174 7 135 6
----- --- ----- ---
TOTAL...................................................... 2,484 100 2,183 100
===== === ===== ===
</TABLE>
B-14
<PAGE> 228
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 - OTHER LIABILITIES AND DEFERRED ITEMS
<TABLE>
<CAPTION>
1997 1998
---- ----
(In millions of
CHF)
<S> <C> <C>
Short-term provisions....................................... 315 266
Capital tax payables........................................ 30 17
Current tax payables........................................ 33 63
Other liabilities........................................... 229 245
Accrued liabilities and deferred items...................... 185 66
Accrued interest payables................................... 40 108
--- ---
TOTAL....................................................... 832 765
=== ===
</TABLE>
NOTE 16 - TRADE PAYABLES
<TABLE>
<CAPTION>
1997 1998
----- -----
(In millions of CHF)
<S> <C> <C>
Payable to third parties.................................... 710 647
Payable to affiliates....................................... 42 55
---- ----
TOTAL....................................................... 752 702
==== ====
</TABLE>
NOTE 17 - BONDS
<TABLE>
<CAPTION>
1997 1998
ORIGINAL BOND NOT -------------------- --------------------
AMOUNT IN REDEEMABLE INTEREST LONG-TERM LONG-TERM
MILLIONS MATURITY BEFORE RATE % (IN MILLIONS OF CHF) (IN MILLIONS OF CHF)
------------- -------- ---------- -------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alusuisse Lonza Group
Ltd................... D CHF 150 91 / 01 1999 6.75 150 150
D CHF 150 93 / 03 2001 6.75 150 150
C CHF 240 95 / 02 -- 2.25 126 91
Lotschen.............. D CHF 50 93 / 03 2001 5.00 50 50
Alusuisse Lonza
Finance Ltd*........ C USD 252 96 / 01 2000 2.00 342 320
E CHF 10 97 / 02 1998 5.25 10 10
E DEM 16 98 / 08 1999 3.91 -- 13
E DEM 25 98 / 08 1999 3.91 -- 21
ALA (Nevada) Inc...... E USD 45 98 / 01 1999 0.50 -- 62
--- ---
TOTAL................. 828 867
=== ===
D Debenture issue
C Convertible issue
E Euro Medium Term
Note Program
</TABLE>
- ---------------
(*)Net of unamortized discount of US$12.4 million (1997: US$17.1 million).
Effective interest rate 4.25 %.
Some bonds can be redeemed prior to their original maturity date.
NOTE 18 - CONTINGENT LIABILITIES
Contingent liabilities concern bills discounted, purchase commitments and
guarantees given to third parties in the ordinary course of business. They
amount to CHF 189 million (1997: CHF 214 million).
Various lawsuits and claims are pending against the Group and its
subsidiaries for losses allegedly incurred under contracts, personal injury,
property and environmental damage, and franchise and property tax assessments.
In the opinion of management, disposition of these lawsuits and claims will not
involve sums that would have a material adverse effect upon the consolidated
financial position of the Group.
B-15
<PAGE> 229
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 - OTHER OPERATING INCOME AND EXPENSES
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(In millions of CHF)
<S> <C> <C> <C>
Other operating income...................................... 95 69 135
Other operating expenses.................................... (668) (909) (886)
---- ---- ----
TOTAL....................................................... (573) (840) (751)
==== ==== ====
</TABLE>
Apart from the repair and maintenance costs of CHF 345 million (1997: CHF
336 million; 1996: CHF 263 million), the major items reported under other
operating expenses are selling, general and administrative expenses.
NOTE 20 - INTEREST INCOME AND EXCHANGE GAINS
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(In)millions of CHF
<S> <C> <C> <C>
Interest income............................................. 73 58 64
Other financial income...................................... 24 20 47
---- ---- ----
TOTAL....................................................... 97 78 111
==== ==== ====
</TABLE>
NOTE 21 - INTEREST EXPENSES AND EXCHANGE LOSSES
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(In)millions of CHF
<S> <C> <C> <C>
Interest expense............................................ (198) (224) (219)
Other financial expenses.................................... (43) (24) (51)
---- ---- ----
TOTAL....................................................... (241) (248) (270)
==== ==== ====
</TABLE>
NOTE 22 - INCOME TAXES
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(In)millions of CHF
<S> <C> <C> <C>
MAJOR COMPONENTS OF TAX EXPENSE
Current taxes............................................... (40) (50) (61)
Deferred tax expense relating to the origination and
reversal of temporary differences......................... (34) (33) (46)
Deferred tax expense (income) resulting from tax rate
changes................................................... 0 1 0
---- ---- ----
TOTAL....................................................... (74) (82) (107)
==== ==== ====
RECONCILIATION OF TAX EXPENSE
Tax at the domestic rates applicable to the profits earned
in the country concerned.................................. 100 122 141
Tax effect of expenses that are not deductible for tax
purposes.................................................. 4 3 8
Tax credits earned.......................................... 0 0 (3)
Tax benefits from changes in valuation allowance............ (26) (48) (37)
Deferred tax benefit from tax rate changes.................. 0 (1) 0
All other................................................... (4) 6 (2)
---- ---- ----
TOTAL....................................................... 74 82 107
==== ==== ====
DEFERRED TAX EXPENSES CHARGED DIRECTLY TO EQUITY............ 0 0 (16)
</TABLE>
B-16
<PAGE> 230
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22 - INCOME TAXES -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
) (In millions of CHF
<S> <C> <C> <C> <C>
COMPONENTS OF DEFERRED INCOME TAX BALANCES
Short-term operating provisions............................. 23 27 17 6
Long-term operating provisions.............................. 44 16 10 50
Property, plant and equipment............................... 0 141 0 140
Pension benefits............................................ 0 17 0 16
Tax loss carry forwards..................................... 114 0 79 0
---- ---- ---- ----
SUBTOTAL.................................................... 181 201 106 212
Valuation allowance......................................... (78) 0 (33) 0
---- ---- ---- ----
DEFERRED INCOME TAXES....................................... 103 201 73 212
==== ==== ==== ====
</TABLE>
These amounts are included in the following captions in the balance sheet.
<TABLE>
<S> <C> <C> <C> <C>
Other noncurrent assets and deferred items.................. 103 73
Long-term provisions........................................ (201) (212)
---- ----
NET DEFERRED TAX LIABILITY.................................. (98) (139)
==== ====
</TABLE>
The presentation of deferred income tax assets and liabilities in the 1997
balance sheet has been restated in accordance with IAS 12 (revised).
NOTE 23 - PURCHASE AND/OR SALE OF CONSOLIDATED COMPANIES
<TABLE>
<CAPTION>
PURCHASE PURCHASE PURCHASE SALE
1996 1997 1998 1998
-------- -------- -------- ----
(In millions of CHF)
<S> <C> <C> <C> <C>
Cash........................................................ 23 13 1 (4)
Current assets.............................................. 207 15 20 (142)
Goodwill.................................................... 219 0 4 0
Property, plant and equipment and other fixed assets........ 267 15 46 (128)
Total liabilities........................................... (185) (12) (9) 59
---- ---- ---- ----
PURCHASE OR SALES PRICES.................................... 531 31 62 (215)
Minus cash.................................................. (23) (13) (1) 4
---- ---- ---- ----
CASH OUTFLOW (INFLOW)....................................... 508 18 61 (211)
==== ==== ==== ====
</TABLE>
NOTE 24 - RESEARCH AND DEVELOPMENT
Research and development expenses primarily reflect the cost incurred in
basic scientific research and development. In 1998, these expenses amounted to
CHF 65 million (1997: CHF 76 million; 1996: CHF 64 million).
NOTE 25 - PENSION BENEFITS
The Group sponsors pension plans according to the regulations of the
countries in which it operates. All significant plans provide defined benefits
on retirement. The benefits are primarily based on years of service and the
employees' compensation for certain periods during the last years of employment.
During 1998, actuarial valuation was performed for the significant defined
benefit plan using the projected unit credit valuation method. The long-term
provisions for retirement benefits relating to the Group's German subsidiaries
have been included in this calculation.
A policy has been established whereby actuarial valuations will be performed
periodically and roll-forwards will be conducted as at December 31, each year
during the intervening period.
The weighted average assumptions used in the actuarial valuations are
according to the underlying national economic conditions of the respective
countries:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 6.4% 6.0% 5.8%
Expected long-term rates of return on plan assets........... 6.5% 6.8% 6.7%
Rates of increase in compensation........................... 3.9% 3.8% 3.6%
</TABLE>
B-17
<PAGE> 231
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 25 - PENSION BENEFITS -- (CONTINUED)
Except for the Group's German subsidiaries, pension costs are generally
funded currently within national regulatory limitations. The projected benefit
obligation for the German subsidiaries is included in the following table. The
funded status for substantially all defined benefit plans, shown separately for
plans whose assets exceeded and are less than the projected benefit obligation,
is as follows:
<TABLE>
<CAPTION>
PLANS WITH ASSETS PLANS WITH PBO
IN EXCESS OF PBO IN EXCESS OF ASSETS
------------------------ ------------------------
31.12.1997 31.12.1998 31.12.1997 31.12.1998
---------- ---------- ---------- ----------
) (In millions of CHF
<S> <C> <C> <C> <C>
Projected benefits obligation (PBO)......................... (2,389) (1,332) (574) (1,849)
Plan assets at fair value................................... 2,577 1,453 324 1,517
------ ------ ---- ------
PLAN ASSETS IN EXCESS OF (LESS THAN) PROJECTED BENEFIT
OBLIGATION................................................ 188 121 (250) (332)
Long-term provision......................................... 0 0 208 202
------ ------ ---- ------
FUNDED STATUS............................................... 188 121 (42) (130)
====== ====== ==== ======
</TABLE>
The pension assets and liabilities calculated above are disclosed in the
financial statements for 1998.
The net change of the prepaid pension costs accounted in financial year 1998
amounts to CHF 8 million and is reflected under prepaid expenses and accrued
income. The prepaid amount at the end of 1998 is CHF 109 million (1997: CHF 101
million).
Net periodic pension costs for the Group's significant defined benefit plans
consist of the following:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(In)millions of CHF
<S> <C> <C> <C>
Service costs............................................... 36 44 55
Interest costs.............................................. 139 161 179
Actual return on plan assets................................ (136) (168) (196)
Net amortization and deferral............................... (9) (8) (7)
---- ---- ----
TOTAL....................................................... 30 29 31
==== ==== ====
</TABLE>
NOTE 26 - DISCONTINUING OPERATIONS
The discontinuing operations are composed of the following activities:
a) At the extraordinary shareholders' meeting of algroup of 18 October 1999
the shareholders approved the Demerger of the chemical business (composed
of two divisions of the Group, fine chemicals and specialties and
intermediates and additives) and the energy businesses free of any net
financial debt as of 1 July 1999. The above mentioned activities are
treated as discontinuing operations. The financial statements have been
restated accordingly.
b) In 1997, the Group had identified several operations, mainly in its Food
Flexible and Tobacco Packaging division, as not being strategic
businesses to the Group. In July 1997, these activities were proposed for
divestiture and accordingly classified as discontinuing operations.
This divestment program was completed in the second half of 1998.
The Group financial statements reflect the net income of discontinuing
operations as a separate item and the related assets and liabilities have been
classified in the consolidated balance sheet as net assets discontinuing
operations.
B-18
<PAGE> 232
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 26 - DISCONTINUING OPERATIONS -- (CONTINUED)
The components of net operating assets, net income and cash flow provided by
(used in) discontinuing operations are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
(In millions of CHF)
<S> <C> <C> <C>
SUMMARIZED BALANCE SHEETS
Fixed assets................................................ 1,913 1,994
Current assets.............................................. 1,005 902
Current liabilities......................................... (638) (677)
Other assets and liabilities................................ (400) (410)
------ ------
NET ASSETS DISCONTINUING OPERATIONS......................... 1,880 1,809
====== ======
SUMMARIZED INCOME STATEMENTS
Net sales................................................... 2,281 2,537 2,263
Operating expenses and others............................... (1,888) (2,143) (1,796)
Depreciation and amortization............................... (158) (181) (184)
------ ------ ------
EARNINGS BEFORE INTEREST, TAXES AND MINORITY INTEREST....... 235 213 283
Financial expenses.......................................... 0 (1) 1
Income taxes................................................ (66) (68) (78)
(Income)/loss attributable to minorities.................... (1) 0 2
------ ------ ------
NET INCOME FROM DISCONTINUING OPERATIONS.................... 168 144 208
====== ====== ======
SUMMARIZED CASH FLOW STATEMENTS
Net cash provided by operating activities................... 321 227 367
Net cash used in investing activities....................... (393) (381) (342)
Net cash provided by (used in) financing activities......... 4 (1) (2)
</TABLE>
NOTE 27 - BOARD OF DIRECTORS AND MAJOR SHAREHOLDERS
There are no receivables or liabilities due from or to Directors or major
shareholders. In 1998, payments to the Board of Directors of Alusuisse Lonza
Group Ltd totalled CHF 1.2 million (1997: CHF 1.3 million).
NOTE 28 - YEAR 2000
The challenge that Year 2000 compliance presents to organizations and
individuals alike worldwide has been recognized. In 1997 a comprehensive Year
2000 compliance program was initiated including the inter alia testing of plant,
machinery and facilities equipped with electronic devices supposed to have a
time-related computing function. This assurance program is well under way.
The group is dependent on a large number of external suppliers whose
services and products also need to achieve compliance. These relationships are
managed proactively and suppliers are required to certify their products and
services as Year 2000 compliant. However, it is not possible to be certain that
all aspects of the year 2000 issue affecting the Group will be fully resolved.
Costs associated with Year 2000 system adjustments are being expensed as
incurred over the 1998 and 1999 periods.
NOTE 29 - EVENTS AFTER BALANCE SHEET DATE (UNAUDITED)
On 11 August 1999, Algroup announced that it had agreed to the principal
terms of three-way combination agreement with Alcan Aluminium Limited (Alcan)
and Pechiney SA (Pechiney). The combination will be accomplished through two
independent exchange offers in which shares in Alcan will be issued. In
connection therewith, Algroup announced that it would demerge its chemical and
energy businesses prior to the effective date of the three-way combination.
Upon completion of the demerger, Algroup will contribute US$234 million in
cash (approximately CHF 322 million at December 31, 1998 rates) to the Chemical
and Energy businesses. In the event there is only a two-way combination between
Alcan and Algroup, excluding Pechiney, US$167 million (approximately CHF 230
million at December 31, 1998 rates) must be paid to Algroup.
On 18 October 1999, at an extraordinary shareholders' meeting, the
shareholders of Algroup approved the demerger of the chemical and energy
businesses.
Management anticipates that the separation of the chemical and energy
businesses will be achieved without substantial current tax liabilities as any
taxable gain on the separation should be sheltered by capital and net operating
losses carried forward.
B-19
<PAGE> 233
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 30 - SEGMENT DATA
<TABLE>
<CAPTION>
NET CAPITAL
NET SALES TO CUSTOMERS OPERATING INCOME INVESTED*
---------------------------- ----------------------- -------------------
1996 1997 1998 1996 1997 1998 1997 1998
----- ----- ------------ ---- ---- --------- ----- -----------
) (In millions of CHF
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BY DIVISION
Primary materials and fabricated
products............................... 2,370 2,735 3,079 242 300 340 1,599 1,715
Food flexible and tobacco packaging...... 1,868 2,092 2,119 148 169 176 786 809
Pharmaceutical and cosmetics packaging... 809 1,249 1,268 76 116 90 643 666
Holding and others....................... 7 4 6 (1) (2) (1) 45 74
----- ----- ----- --- --- --- ----- -----
SUBTOTAL................................. 5,054 6,080 6,472 465 583 605 3,073 3,264
Trading.................................. 746.. 1,158 1,025 na na na na na
----- ----- ----- --- --- --- ----- -----
TOTAL.................................... 5,800 7,238 7,497 465 583 605 3,073 3,264
===== ===== ===== === === === ===== =====
</TABLE>
<TABLE>
<CAPTION>
NET CAPITAL
NET SALES TO CUSTOMERS OPERATING INCOME INVESTED*
---------------------------- ----------------------- -------------------
1996 1997 1998 1996 1997 1998 1997 1998
----- ----- ------------ ---- ---- --------- ----- -----------
) (In millions of CHF
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BY REGION
Europe................................... 4,687 5,769 5,993 312 372 411 2,172 2,323
Other regions............................ 1,113 1,469 1,504 153 211 194 901 941
----- ----- ----- --- --- --- ----- -----
TOTAL.................................... 5,800 7,238 7,497 465 583 605 3,073 3,264
===== ===== ===== === === === ===== =====
</TABLE>
* Net capital invested comprises the average of all assets and liabilities
committed to the business operations of the Group at historical period end
rates.
SALES
<TABLE>
<CAPTION>
1996 1997 1998
---------------------------- ---------------------------- ----------------------------
(In millions of CHF) % (In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C> <C> <C>
BY PRODUCTION AREA
- ----------------------------
Switzerland................. 2,666 34 3,410 34 3,513 35
EU.......................... 3,861 49 4,625 46 4,628 46
Rest of Europe.............. 100 1 271 3 306 2
------ --- ------ --- ------ ---
EUROPE...................... 6,627 84 8,306 83 8,447 83
North America............... 854 11 1,267 13 1,310 13
Other areas................. 430 5 387 4 374 4
------ --- ------ --- ------ ---
SUBTOTAL.................... 7,911 100 9,960 100 10,131 100
Eliminations................ (2,111) (2,722) (2,634)
------ ------ ------
TOTAL....................... 5,800 7,238 7,497
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
--------------------------- --------------------------- ---------------------------
(In millions of CHF) % (In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C> <C> <C>
BY MARKETING AREA
- ------------------------------
Switzerland................... 356 6 374 5 434 6
EU............................ 3,452 60 4,121 57 4,257 57
Rest of Europe................ 269 4 443 6 536 7
------ --- ------ --- ------ ---
EUROPE........................ 4,077 70 4,938 68 5,227 70
North America................. 1,068 18 1,570 22 1,650 22
Other areas................... 655 12 730 10 620 8
------ --- ------ --- ------ ---
TOTAL......................... 5,800 100 7,238 100 7,497 100
====== === ====== === ====== ===
</TABLE>
B-20
<PAGE> 234
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 30 - SEGMENT DATA -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1997 1998
--------------------------- --------------------------- ---------------------------
(In millions of CHF) % (In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C> <C> <C>
BY DIVISION
- ------------------------------
Primary materials and
fabricated products......... 2,370 41 2,735 38 3,079 41
Food flexible and tobacco
packaging................... 1,868 32 2,092 29 2,119 28
Pharmaceutical and cosmetics
packaging................... 809 14 1,249 17 1,268 17
Holding and others............ 7 0 4 0 6 0
------ --- ------ --- ------ ---
SUBTOTAL...................... 5,054 87 6,080 84 6,472 86
Trading....................... 746 13 1,158 16 1,025 14
------ --- ------ --- ------ ---
TOTAL......................... 5,800 100 7,238 100 7.497 100
====== === ====== === ====== ===
</TABLE>
DEPRECIATION & AMORTISATION
<TABLE>
<CAPTION>
1996 1997 1998
BY DIVISION --------------------------- --------------------------- ---------------------------
----------- (In millions of CHF) % (In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C> <C> <C>
Primary materials and
fabricated products........... 135 49 158 46 172 46
Food flexible and tobacco
packaging................... 96 35 105 30 107 29
Pharmaceutical and cosmetics
packaging................... 44 16 83 24 91 25
Holding and others............ 1 0 1 0 1 0
--- --- --- --- --- ---
TOTAL......................... 276 100 347 100 371 100
=== === === === === ===
</TABLE>
RESEARCH & DEVELOPMENT
<TABLE>
<CAPTION>
1996 1997 1998
BY DIVISION --------------------------- --------------------------- ---------------------------
----------- (In millions of CHF) % (In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C> <C> <C>
Primary materials and
fabricated products........... 36 56 46 61 38 58
Food flexible and tobacco
packaging................... 26 41 24 32 22 34
Pharmaceutical and cosmetics
packaging................... 2 3 6 7 5 8
Holding and others............ 0 0 0 0 0 0
--- --- --- --- --- ---
TOTAL......................... 64 100 76 100 65 100
=== === === === === ===
</TABLE>
INVESTMENTS IN PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1997 1998
BY REGION --------------------------- --------------------------- ---------------------------
--------- (In millions of CHF) % (In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C> <C> <C>
Switzerland................... 44 10 62 12 54 11
EU............................ 294 70 271 51 247 49
Rest of Europe................ 9 2 19 3 21 4
--- --- --- --- --- ---
EUROPE........................ 347 82 352 66 322 64
North America................. 50 12 122 23 130 26
Other areas................... 25 6 57 11 55 10
--- --- --- --- --- ---
TOTAL......................... 422 100 531 100 507 100
=== === === === === ===
</TABLE>
B-21
<PAGE> 235
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 30 - SEGMENT DATA -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1997 1998
BY REGION --------------------------- --------------------------- ---------------------------
--------- (In millions of CHF) % (In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C> <C> <C>
Primary materials and
fabricated products........... 246 58 300 56 222 44
Food flexible and tobacco
packaging................... 131 31 110 21 157 31
Pharmaceutical and cosmetics
packaging................... 44 10 119 22 128 25
Holding and others............ 1 1 2 1 0 0
--- --- --- --- --- ---
TOTAL......................... 422 100 531 100 507 100
=== === === === === ===
</TABLE>
Investments calculated at average rates.
PERSONNEL
<TABLE>
<CAPTION>
1996 1997 1998
BY PRODUCTION AREA ------------------ ------------------ ------------------
------------------ % % %
<S> <C> <C> <C> <C> <C> <C>
Switzerland............................................ 2,992 13 3,117 13 3,146 13
EU..................................................... 12,496 54 12,427 53 12,199 51
Rest of Europe......................................... 763 3 983 4 1,002 5
------ --- ------ --- ------ ---
EUROPE................................................. 16,251 70 16,527 70 16,347 69
North America.......................................... 6,155 26 6,173 26 6,552 28
Other areas............................................ 836 4 872 4 921 3
------ --- ------ --- ------ ---
TOTAL.................................................. 23,242 100 23,572 100 23,820 100
====== === ====== === ====== ===
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
BY DIVISION ------------------ ------------------ ------------------
----------- % % %
<S> <C> <C> <C> <C> <C> <C>
Primary materials and fabricated products.............. 8,733 38 9,293 39 9,495 40
Food flexible and tobacco packaging.................... 6,736 29 6,619 28 6,611 28
Pharmaceutical and cosmetics packaging................. 7,631 33 7,514 32 7,568 32
Holding and others*.................................... 142 0 146 1 146 0
------ --- ------ --- ------ ---
TOTAL.................................................. 23,242 100 23,572 100 23,820 100
====== === ====== === ====== ===
</TABLE>
NOTE 31 - INFORMATION PER SECURITY
<TABLE>
<CAPTION>
REGISTERED SHARES 1996 1997 1998*
----------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Number issued............................................... 4,097,163 4,215,058 6,286,126
Number ranking for a dividend............................... 4,097,163 4,215,058 6,286,126
Nominal value............................................... CHF 125 125 100
</TABLE>
<TABLE>
<CAPTION>
BEARER SHARES 1996 1997 1998
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Number issued............................................... 2,024,088 2,024,088 --
Number ranking for a dividend............................... 2,024,088 2,024,088 --
Nominal value............................................... CHF 125 125 --
</TABLE>
<TABLE>
<CAPTION>
RATIOS PER SECURITY 1996 1997 1998
------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic weighted average number of shares..................... 6,120,068 6,153,102 6,260,541
Diluted weighted average number of shares................... 6,539,216 6,602,429 6,634,814
Basic earnings per share continuing operations.............. CHF 40.0 51.8 51.4
Diluted earnings per share continuing operations............ CHF 39.8 51.4 51.3
Basic earnings per share Group.............................. CHF 67.5 75.3 84.7
Diluted earnings per share Group............................ CHF 65.4 73.2 82.8
Total dividend (in million CHF)............................. 115 -- 157
Share capital repayment (CHF 25 per share).................. -- 156 --
</TABLE>
B-22
<PAGE> 236
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 31 - INFORMATION PER SECURITY -- (CONTINUED)
- ---------------
(*) In line with the decision of its Shareholders' Meeting of 24 March 1998,
Alusuisse Lonza Group Ltd has only one class of shares (registered shares),
exclusively traded since 15 April 1998.
NOTE 32 - SIGNIFICANT SUBSIDIARIES CONTINUING OPERATIONS 31 DECEMBER 1998
<TABLE>
<CAPTION>
NET SALES SHARE CAPITAL % HOLDING
REGISTERED OFFICE ACTIVITIES CURRENCY IN MILLION IN 000 DIRECT
----------------- ---------- -------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
EUROPEAN COUNTRIES
Aluchemie -- Aluminium & Chemie
Rotterdam BV....................... Rotterdam, NL OK NLG 303 33,000
Alusuisse Decin sro................ Decin, CZ OK CZK 2,813 1,097,800 62
Alusuisse France SA................ St-Florentin, FR OK FRF 572 100,000
Alusuisse Schweizerische
Aluminium AG....................... Sierre, CH MOK CHF 528 60,000 100
Alusuisse Singen GmbH.............. Singen/Hohentwiel, DE OK DEM 1,094 160,000
Alusuisse Trading AG............... Zurich, CH K CHF 2,288 5,000 100
ISAL - Icelandic Aluminium
Company Ltd........................ Hafnarfjodur, IS OK CHF 307 6,388 100
Lawson Mardon Boxal SA............. Beaurepaire, FR OK FRF 325 60,000
Lawson Mardon Boxal BV............. Veenendaal, NL OK NLG 99 13,000
Lawson Mardon Morin SA............. Sarrebourg, FR OK FRF 417 11,280
Lawson Mardon Neher AG............. Kreuzlingen, CH MOK CHF 180 15,000 100
Lawson Mardon
Packaging UK Ltd................... Bristol, GB OK GBP 175 20,991
Lawson Mardon Picopac BV........... Zutphen, NL OK NLG 111 1,220
Lawson Mardon Singen GmbH.......... Singen/Hohentwiel, DE OK DEM 517 50,000
Lawson Mardon Star Ltd............. Bristol, GB OK GBP 96 10,433
Martinswerk GmbH fur chemische
und metallurgische Produktion...... Bergheim/Erft, DE OK DEM 209 55,000
OTHER COUNTRIES
Austraswiss -
Swiss Aluminium Australia Ltd...... Canberra, AU KS AUD 331 146,000
Lawson Mardon Packaging Inc........ Wilmington, DE, US OK USD 276 39,087
Lawson Mardon Wheaton, Inc......... Millville, NJ, US MOK USD 405 1
HOLDING COMPANIES AND OTHER
ALA (Nevada Inc)................... Sparks, NV, US S USD 3
Alusuisse Holdings AG.............. Neuhausen am Rheinfall, CH S CHF 4 1,000 100
Alusuisse-Lonza GmbH............... Singen/Hohentwiel, DE S DEM 10 262,200 1
Alusuisse-Lonza Capital Ltd........ St. Helier, Jersey, GB S GBP 250
Alusuisse-Lonza Europe BV.......... Breda, NL S NLG 550 100
Alusuisse-Lonza Finance Ltd........ St. Helier, Jersey, GB S USD 50
<CAPTION>
% HOLDING
INDIRECT
---------
<S> <C>
EUROPEAN COUNTRIES
Aluchemie -- Aluminium & Chemie
Rotterdam BV....................... 73
Alusuisse Decin sro................
Alusuisse France SA................ 100
Alusuisse Schweizerische
Aluminium AG.......................
Alusuisse Singen GmbH.............. 100
Alusuisse Trading AG...............
ISAL - Icelandic Aluminium
Company Ltd........................
Lawson Mardon Boxal SA............. 100
Lawson Mardon Boxal BV............. 100
Lawson Mardon Morin SA............. 100
Lawson Mardon Neher AG.............
Lawson Mardon
Packaging UK Ltd................... 100
Lawson Mardon Picopac BV........... 100
Lawson Mardon Singen GmbH.......... 100
Lawson Mardon Star Ltd............. 100
Martinswerk GmbH fur chemische
und metallurgische Produktion...... 100
OTHER COUNTRIES
Austraswiss -
Swiss Aluminium Australia Ltd...... 100
Lawson Mardon Packaging Inc........ 100
Lawson Mardon Wheaton, Inc......... 100
HOLDING COMPANIES AND OTHER
ALA (Nevada Inc)................... 100
Alusuisse Holdings AG..............
Alusuisse-Lonza GmbH............... 99
Alusuisse-Lonza Capital Ltd........ 100
Alusuisse-Lonza Europe BV..........
Alusuisse-Lonza Finance Ltd........ 100
</TABLE>
- ---------------
M Research/Applications
O Production
K Sales
S Services/Financing
Abbreviations of countries and currencies in accordance with ISO standards.
Holding percentages are rounded off.
B-23
<PAGE> 237
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 33 - RECONCILIATION
Significant Differences Between International Accounting Standards and
Generally Accepted Accounting Principles in the United States and Canada
The Group's consolidated financial statements have been prepared in
accordance with International Accounting Standards (IAS) of the International
Accounting Standards Committee (IASC) which differ in certain significant
respects from generally accepted accounting principles in the United States
(U.S. GAAP) and Canada (Canadian GAAP). The significant differences that affect
the consolidated net income and shareholders' equity are set out below.
RECONCILIATION OF NET INCOME TO U.S. GAAP
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
NOTE 1997 1998
---- ------ ------
million CHF
<S> <C> <C> <C>
Net income as reported in the consolidated income statements
in accordance with IAS...................................... 463 530
Adjustments required to conform with U.S. GAAP:
Goodwill amortization..................................... (a) (31) (28)
Capitalized interest...................................... (b) 19 13
Inventories............................................... (c) (4) 7
Debt issue costs.......................................... (d) (1) (1)
Fixed assets.............................................. (e) 14 3
Pensions.................................................. (f) 13 25
Stock ownership plan...................................... (g) (6) (8)
Accruals.................................................. (h) (26) 1
Provisions................................................ (i) 11 (66)
Restructuring provisions.................................. (j) 10 (1)
Deferred taxes............................................ (k) (14) (5)
Other..................................................... (5) 1
Tax effect of U.S. GAAP adjustments....................... (l) (5) (16)
------ ------
Net income in accordance with U.S. GAAP..................... 438 455
====== ======
Continuing operations..................................... 305 303
Discontinued operations................................... 133 152
Basic earnings per share in accordance with U.S. GAAP: CHF CHF
Continuing operations..................................... 49.57 48.38
Discontinued operations................................... 21.62 24.27
------ ------
Net income................................................ (m) 71.19 72.65
====== ======
Diluted earnings per share in accordance with U.S GAAP: CHF CHF
Continuing operations..................................... 49.23 48.41
Discontinued operations................................... 20.14 22.99
------ ------
Net income................................................ (m) 69.37 71.40
====== ======
</TABLE>
B-24
<PAGE> 238
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 33 - RECONCILIATION -- (CONTINUED)
RECONCILIATION OF NET INCOME TO CANADIAN GAAP
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
NOTE 1997 1998
---- ------ ------
million CHF
<S> <C> <C> <C>
Net income as reported in the consolidation income
statements in accordance with IAS........................... 463 530
Adjustments required to conform with Canadian GAAP:
Goodwill amortization..................................... (a) (31) (28)
Capitalized interest...................................... (b) 19 13
Inventories............................................... (c) (2) 8
Debt issue costs.......................................... (d) (1) (1)
Fixed assets.............................................. (e) 14 3
Pensions.................................................. (f) 13 25
Derivatives............................................... (h) (26) 1
Accruals.................................................. (i) 11 (66)
Restructuring provisions.................................. (j) 10 (1)
Deferred taxes............................................ (k) (14) (5)
Other..................................................... (5) 1
Tax effect of Canadian GAAP adjustments................... (l) (5) (16)
------ ------
Net income in accordance with Canadian GAAP................. 446 464
====== ======
Continuing operations..................................... 312 311
Discontinued operations................................... 134 153
Earnings per share in accordance with Canadian GAAP: (m) CHF CHF
Continuing operations..................................... 50.71 49.66
Discontinued operations................................... 21.78 24.43
------ ------
Net income................................................ 72.49 74.09
====== ======
Fully diluted earnings per share in accordance with Canadian
GAAP: (m) CHF CHF
Continuing operations..................................... 50.29 49.62
Discontinued operations................................... 20.30 23.14
------ ------
Net income................................................ 70.59 72.76
====== ======
</TABLE>
B-25
<PAGE> 239
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 33 - RECONCILIATION -- (CONTINUED)
RECONCILIATION OF SHAREHOLDERS' EQUITY TO U.S. GAAP
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
NOTE 1997 1998
---- ------ ------
million CHF
<S> <C> <C> <C>
Shareholders' equity as reported in the consolidated balance
sheets in accordance with IAS............................... 2,765 3,101
Adjustments required to conform with U.S. GAAP:
Goodwill:
Cost.................................................... (a) 561 548
Amortization............................................ (a) (306) (334)
Capitalized interest...................................... (b) 68 80
Inventories............................................... (c) (6) 2
Debt issue costs.......................................... (d) 4 3
Fixed assets.............................................. (e) 23 26
Pensions.................................................. (f) 82 98
Derivatives............................................... (h) (26) (24)
Accruals.................................................. (i) 94 28
Restructuring provisions.................................. (j) 10 8
Deferred taxes............................................ (k) 33 28
Other..................................................... 2 6
Tax effect of U.S. GAAP adjustments....................... (l) (24) (33)
------ ------
Shareholders' equity in accordance with U.S. GAAP........... 3,280 3,537
====== ======
</TABLE>
RECONCILIATION OF SHAREHOLDERS' EQUITY TO CANADIAN GAAP
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
NOTE 1997 1998
---- ------ ------
million CHF
<S> <C> <C> <C>
Shareholders' equity as reported in the consolidated balance
sheets in accordance with IAS............................... 2,765 3,101
Adjustments required to conform with Canadian GAAP:
Goodwill:
Cost.................................................... (a) 561 548
Amortization............................................ (a) (306) (334)
Capitalized interest...................................... (b) 68 80
Inventories............................................... (c) (4) 5
Debt issue costs.......................................... (d) 4 3
Fixed assets.............................................. (e) 23 26
Pensions.................................................. (f) 82 118
Derivatives............................................... (h) (26) (24)
Accruals.................................................. (i) 94 28
Restructuring provisions.................................. (j) 10 8
Deferred taxes............................................ (k) 33 28
Other..................................................... 2 6
Tax effect of Canadian GAAP adjustments................... (l) (24) (33)
------ ------
Shareholders' equity in accordance with Canadian GAAP....... 3,282 3,560
====== ======
</TABLE>
(A) GOODWILL AND BUSINESS COMBINATIONS
In accordance with IAS 22 (revised 1993), the difference between the
purchase price and the aggregate fair value of tangible and identifiable
intangible assets and liabilities acquired in a business combination is
capitalized as goodwill and amortized over its useful life, not to exceed 20
years. Prior to January 1, 1995, in accordance with IAS, goodwill was charged by
the Group directly to
B-26
<PAGE> 240
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 33 - RECONCILIATION -- (CONTINUED)
shareholders' equity. For U.S. and Canadian GAAP purposes, goodwill acquired
prior to January 1, 1995 is recorded as an asset and is being amortized over its
estimated useful life of 15 years.
IAS 22 requires a review of the recoverability of unamortized goodwill at
each balance sheet date and a write-off to the extent it no longer represents
future economic benefits. Under U.S. GAAP, if a long-lived asset being tested
for recoverability was acquired in a business combination, the goodwill that
arose in that transaction shall be included as part of the asset grouping in
determining recoverability. In instances where goodwill is identified with
assets that are subject to impairment loss under SFAS No. 121, the carrying
amount of the identified goodwill must be eliminated before making any reduction
of the carrying amounts of impaired long-lived assets and identifiable
intangibles. Under U.S. GAAP, the Group has chosen to measure impairments of
"enterprise" goodwill based on an analysis of estimated future discounted
operating cash flows of the underlying businesses. Under Canadian GAAP, goodwill
must be written down to the extent that there has been a permanent impairment in
the value of the unamortized portion of goodwill. For Canadian GAAP purposes,
the Group has chosen to measure any impairments of goodwill based on an analysis
of estimated future discounted operating cash flows of the underlying
businesses.
In 1996, for U.S. and Canadian GAAP purposes, an impairment of CHF 212 was
recognized on the basis of the operating performance of the underlying
businesses. This impairment principally resulted from the acquisition of Lawson
Mardon in 1994. The remaining balance of goodwill associated with the Lawson
Mardon acquisition is being amortized over its estimated remaining useful life
of 12 years.
(B) CAPITALIZED INTEREST
Under IAS, the capitalization of interest on major capital projects, which
extend useful lives or increase capacity, is not required. In accordance with
U.S. GAAP, interest costs incurred during the construction period (i.e. the
period of time necessary to bring a constructed fixed asset to the condition and
location necessary for its intended use) must be capitalized as part of the cost
of the fixed asset. Under Canadian GAAP, the capitalization of interest on major
capital projects is permitted but not required. The Group has chosen to
capitalize interest for Canadian GAAP purposes.
(C) INVENTORIES
Costs of certain raw materials and consumables are recorded at replacement
cost according to current market prices. Under U.S. and Canadian GAAP,
inventories are valued at the lower of cost and market value, with market value
defined as the lower of current replacement cost or net realizable value less a
normal profit margin.
For IAS reporting purposes, the Group values inventory at certain U.S.
subsidiaries using the average cost method. Under U.S. GAAP, these inventories
are valued using the LIFO method, consistent with the stand-alone reporting of
such subsidiaries. Under Canadian GAAP, the Group has chosen to value the
inventories at these U.S. subsidiaries using the average cost method.
(D) DEBT ISSUANCE COSTS
Under IAS, the Group expensed debt issuance costs as incurred. Under U.S.
and Canadian GAAP, these costs are required to be capitalized and amortized over
the life of the related debt issue.
(E) FIXED ASSETS
Under IAS, cost and expenses for future maintenance and repairs of
long-lived assets may be provided on a basis of reasonable estimates. Under U.S.
and Canadian GAAP, such costs may only be recognized if a liability has been
incurred. Additionally, costs and expenses are capitalized to the extent (i) it
is probable that future economic benefits will be realized and/or (ii) the
estimated useful life of a long-lived asset is extended.
(F) PENSION AND POSTRETIREMENT BENEFITS
Under IAS, pension costs and similar obligations are accounted for in
accordance with IAS No. 19 Retirement Benefit Costs. Under U.S. GAAP, pension
costs and similar obligations are accounted for in accordance with SFAS No. 87
Employers' Accounting for Pensions which was adopted by the Group effective
January 1, 1989 for all operations except those in the United States where SFAS
No. 87 was adopted effective January 1, 1987. For Canadian GAAP purposes, the
Group has chosen to early adopt on a retroactive restatement basis the
provisions of Section 3461, Employee Future Benefits, of the Handbook of the
Canadian Institute of Chartered Accountants (C.I.C.A.). As permitted by Section
3461, the Group has applied the provisions of the Section in a manner that
produces the same recognized and unrecognized amounts for all of its benefit
plans as determined under U.S. GAAP.
Upon adoption of IAS 19, the Group ceased deferring actuarial and net asset
gains and losses. Deferred losses were charged to expense at that date. Under
U.S. and Canadian GAAP, actuarial and net asset gains and losses are deferred
and amortized in future periods, when gains and losses exceed prescribed limits.
In accordance with IAS 19, gains and losses are recognized without regard to
prescribed limits. In addition, IAS 19 stipulates the use of long-term
assumptions, while U.S. and Canadian GAAP require assumptions to reflect current
market and economic conditions.
B-27
<PAGE> 241
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 33 - RECONCILIATION -- (CONTINUED)
Under U.S. GAAP, a minimum pension liability is recognized as a separate
component of equity when the unfunded accumulated benefit obligation exceeds the
accrual. Under IAS and Canadian GAAP, recognition of a minimum pension liability
is not required.
(G) STOCK OWNERSHIP PLAN
Effective in 1995, the Board of Directors approved the Executive Stock
Ownership Plan. Under the Plan, officers and key employees of the Group receive
rights to purchase shares of the Group at prices lower than market prices
prevailing at the time the rights are granted. The Board of Directors has
absolute discretion to determine whether any purchase rights will be granted in
any one year, to specify the performance goals to be achieved in the year and to
select the officers and key employees who will be granted such rights. On
October 1, 1999, the Group terminated its stock ownership plan in connection
with the proposed transaction described in Note 26(a).
Under IAS, compensation expense was not recognized for rights granted under
the Plan. Under U.S. GAAP, the Group has chosen to utilize the provisions of APB
Opinion 25 for measuring compensation expense associated with the Plan. APB 25
requires that compensation expense be recognized for the difference between the
market value and share purchase price. For Canadian GAAP purposes, it is not
necessary to recognize the compensation element for such plans.
(H) DERIVATIVES
The Group enters into various derivative financial instruments consistent
with its strategy to reduce the Group's economic risk. Under IAS, these
strategies have been treated as hedges for accounting purposes. Under U.S. and
Canadian GAAP, certain of these strategies do not qualify for hedge accounting
and accordingly, the related derivative instruments are marked to market with
the associated unrealized gains or losses reflected in income immediately.
In order to manage the volatility of LME pricing for aluminum, the Group
enters into various derivative transactions pursuant to the Group's policies in
areas such as counterparty exposure and hedging practices. The objective of such
strategies is to preserve the economic performance of the Group's primary metal
operations by stabilizing the associated revenue stream over a number of years.
This objective is normally set on a multi-year basis and is achieved by securing
guaranteed selling prices well in excess of productions costs for these
commodities within pre-established price bands. These strategies are reviewed by
management on a continuous basis, and rely mainly on the use of LME futures and
options. The key element of these strategies is to secure the profitability of
the primary metal operations by obtaining a guaranteed minimum price, in
exchange for which the Group foregoes the right to participate in price
increases in excess of the pre-established bands. The Group utilizes a
combination of futures and options to implement these strategies.
Under IAS, these strategies have been treated as hedges, and the gain or
loss on these instruments has been deferred to match the timing of the Group's
production and sale of the underlying commodities. Under U.S. and Canadian GAAP,
some of these strategies do not qualify for hedge accounting and have been
marked to market, thus giving rise to unrealized gains and losses that are
reflected in income immediately. There is no certainty that any of these mark to
market adjustments will result in realized gains and losses.
As a consequence of the proposed merger of the Group with Alcan and
Pechiney, these strategies have not been continued and will mature in accordance
with their terms.
(I) ACCRUALS
Under U.S. and Canadian GAAP, costs and expenses are accrued and charged to
income only if it is probable that an asset has been impaired or a liability has
been incurred at the date of the financial statements and the amount of the loss
can be reasonably estimated. If a loss is probable and the reasonable estimate
of the loss is a range and no amount within the range appears to be a better
estimate than any other amount, the minimum amount in the range should be
accrued. If an amount or a range of amounts cannot be reasonably estimated, no
accrual shall be made. Furthermore, general or unspecified risks or possible
losses do not meet the conditions for an accrual under U.S. and Canadian GAAP.
Under IAS, accruals can be made on the basis of reasonable estimates of expected
costs and expenses.
(J) RESTRUCTURING PROVISIONS
The Group has recorded restructuring and similar provisions for IAS purposes
in the period management committed itself to a plan, it was probable that a
liability had been incurred and the amount was estimable. These criteria differ
from those specified by U.S. and Canadian GAAP, which are more prescriptive that
IAS in terms of the timing of recognizing restructuring provisions and exit
costs, as well as the types of costs that may be accrued.
(K) DEFERRED TAXES
U.S. GAAP requires recognition of deferred tax assets and liabilities for
temporary differences using enacted tax rates in effect at year-end in
accordance with SFAS No. 109 Accounting for Income Taxes. Prior to the adoption
of IAS 12 (revised), as of
B-28
<PAGE> 242
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 33 - RECONCILIATION -- (CONTINUED)
January 1, 1996, the Group applied the provisions of IAS 12 (original). The
effect of the January 1, 1998 adoption of IAS 12 (revised) eliminated the
netting of deferred tax assets and liabilities.
For Canadian GAAP purposes, the Group has chosen to early adopt on a
retroactive restatement basis the provisions of C.I.C.A. Handbook Section 3465,
Income Taxes, which in the Group's circumstances, results in no significant
differences from U.S. GAAP on accounting for income taxes.
U.S. and Canadian GAAP requires deferred taxes to be recognized for all
differences between the bases of assets and liabilities for tax and financial
reporting purposes. Additionally, under U.S. and Canadian GAAP, net operating
loss carryforwards ("NOLs") and other credits that are available to reduce
future taxes are recognized as deferred tax assets. Such amounts are reduced by
a valuation allowance to the extent that it is more likely than not that the tax
benefit related to the utilization of such NOLs or credits will not be realized.
Under IAS, deferred tax assets are only recognized when it is probable that they
will be realized. In addition, under U.S. and Canadian GAAP, NOLs and other
credits existing at the date of a purchased business combination that are first
recognized subsequent to the acquisition date (by reduction of the valuation
allowance) are reported in the following manner:
- First, the positive goodwill related to the acquisition is reduced to
zero;
- Second, other non-current intangible assets related to the acquisition are
reduced to zero; and
- Third, any remaining benefit is reported as a reduction of income tax
expense.
(L) TAX EFFECT OF U.S. GAAP AND CANADIAN GAAP ADJUSTMENTS
The deferred tax adjustment included in the reconciliation of IAS to U.S.
and Canadian GAAP includes the income tax effects of the U.S. and Canadian GAAP
adjustments where appropriate.
(M) EARNINGS PER SHARE
Under IAS and U.S. GAAP, the presentation of basic and diluted earnings per
share (EPS) is required. Basic EPS is calculated by dividing earnings available
to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted EPS takes into account the dilutive
effect of options and convertible securities using the treasury stock method.
Under Canadian GAAP, basic EPS is calculated in the same manner as IAS and
U.S. GAAP. Fully diluted EPS is computed taking into account the dilutive effect
of options and convertible securities using the "if converted" method for
convertible securities and imputing earnings on the assumed exercise of options,
warrants or other rights.
ADDITIONAL U.S. AND CANADIAN GAAP INFORMATION
TOTAL COST METHOD
As allowed under IAS, the Group has presented its statement of operations
under the "total cost" method. Under U.S. and Canadian GAAP, the statement of
operations would be presented in a cost of sales format. Such difference in
presentation has no effect on net income.
INCOME STATEMENT
Certain items in the consolidated income statements would be classified
differently under U.S. and Canadian GAAP. These items include the reversal of
certain provisions and allowances for doubtful accounts that would generally be
recorded as reductions to the original expense line item under U.S. and Canadian
GAAP rather than in other income and the interest component of net periodic
pension cost would be recorded within pension expense rather than interest
expense under U.S. and Canadian GAAP.
B-29
<PAGE> 243
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 33 - RECONCILIATION -- (CONTINUED)
COMPREHENSIVE INCOME
Beginning in 1998, U.S. GAAP requires the disclosure of comprehensive income
which, for the Group, is net income increased or decreased for translation
differences as presented in Note 12. The following presents the Group's
comprehensive income based upon IAS for each of the years ended December 31,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1996 1997 1998
---- ---- ----
million CHF
<S> <C> <C> <C>
Net income in accordance with IAS........................... 413 463 530
Other comprehensive income:
Currency translation adjustment........................... 172 (81) (81)
---- ---- ----
Comprehensive income........................................ 585 382 449
==== ==== ====
</TABLE>
SPIN-OFF OF CHEMICALS BUSINESS
Under Canadian GAAP, liabilities that will be assumed by a purchaser or
discharged from the proceeds of sale may not be offset against assets held for
disposal. Accordingly, the liabilities of discontinued operations that have been
offset against the assets of discontinued operations and classified as a part of
net assets of discontinued operations in the consolidated balance sheet under
IAS would be shown on a broad basis, rather than net. Such difference in
presentation has no impact on consolidated shareholders' equity.
DISCONTINUED OPERATIONS
As described in Note 26(b), certain Lawson Mardon businesses that were
acquired during 1994 have been classified as discontinued operations under IAS.
Under U.S. and Canadian GAAP, the requirements to be classified as discontinued
operations are more prescriptive. Accordingly, the results of operations for
these disposals would be classified as part of income from continuing
operations. Had such businesses been classified as continuing operations at
December 31, 1997, the Group's total assets and liabilities, as prepared in
accordance with IAS, would have increased by approximately CHF 225 million and
the net assets of discontinued operations would be decreased by the same amount.
Net sales for the years ended December 31, 1998 and 1997 would have increased by
approximately CHF 110 million and CHF 440 million, respectively.
DEFERRED TAXES
Under IAS, the Group's deferred tax assets and liabilities are classified as
long-term. Under U.S. and Canadian GAAP, the Group's deferred tax assets and
liabilities would be segregated between current and long-term.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as 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 may differ from those
estimates.
PROPORTIONAL CONSOLIDATION
Under IAS, the Group's interest in a mining joint venture is reported using
the proportionate consolidation method. This method takes into account
individual assets, liabilities, income and expenses line-by-line pro rata to the
participation in the equity.
Under U.S. and Canadian GAAP, this joint venture would be fully
consolidated, with a corresponding balance reflected for the minority interest,
as the Group has effective operating control of the joint venture.
Under the full consolidation method, the Group's consolidated financial
statements would include 100 percent of the assets and liabilities of the joint
venture and reflect the related minority ownership interest. The effect of fully
consolidating the joint venture would be to increase total assets and the
minority interest by approximately CHF 98 million and CHF 101 million at
December 31, 1998 and 1997, respectively, principally representing the operating
fixed assets of the joint venture. Operating expenses and minority interests
would be increased by approximately CHF 97 million and CHF 96 million for the
years ended December 31, 1998 and 1997, respectively, principally representing
the minority interest's share of the joint venture's operating expenses. These
adjustments would have no impact on the Group's net income for the respective
periods.
OTHER U.S. GAAP STATEMENTS ISSUED BUT NOT ADOPTED:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), Accounting for Derivative
Instruments and Hedging Activities. This Statement establishes accounting and
reporting for
B-30
<PAGE> 244
ALGROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 33 - RECONCILIATION -- (CONTINUED)
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments an fair value. This Statement, as amended by SFAS No. 137, is
effective for all fiscal years beginning after June 15, 2000. Management has not
determined the effect of the adoption of SFAS No. 133.
B-31
<PAGE> 245
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
ALGROUP
INTERIM CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1998 AND AT JUNE 30, 1999
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
---------------- ------------
<S> <C> <C>
(unaudited)
<CAPTION>
(In millions of CHF)
<S> <C> <C>
ASSETS
FIXED ASSETS
Property, plant and equipment............................... 7,156 7,688
Accumulated depreciation.................................... (4,676) (5,069)
Intangible assets and goodwill.............................. 246 274
Other noncurrent assets..................................... 87 84
Investments in affiliates................................... 19 13
Long-term loans and advances................................ 11 12
------ ------
TOTAL FIXED ASSETS.......................................... 2,843 3,002
------ ------
CURRENT ASSETS
Inventories, net............................................ 1,120 1,203
Trade receivables, net...................................... 926 1,269
Other receivables, prepaid expenses and accrued income...... 325 430
Short-term advances......................................... 17 37
Cash and cash equivalents................................... 360 445
------ ------
TOTAL CURRENT ASSETS........................................ 2,748 3,384
Net assets of discontinued operations....................... 1,809 1,909
------ ------
TOTAL ASSETS................................................ 7,400 8,295
====== ======
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Share capital............................................... 629 629
Consolidated reserves....................................... 2,472 2,698
------ ------
TOTAL SHAREHOLDERS' EQUITY.................................. 3,101 3,327
------ ------
MINORITY INTERESTS.......................................... 41 37
------ ------
LIABILITIES
Long-term provisions........................................ 608 616
Long-term debt:
Bonds..................................................... 867 699
Due to banks and other financial institutions............. 333 692
------ ------
TOTAL LONG-TERM LIABILITIES................................. 1,808 2,007
------ ------
Current liabilities:
Trade payables............................................ 702 695
Other liabilities and deferred items...................... 765 979
Short-term debt:
Due to banks and other financial institutions............. 980 1,249
Long-term debt due within one year........................ 3 1
------ ------
TOTAL CURRENT LIABILITIES................................... 2,450 2,924
------ ------
TOTAL LIABILITIES........................................... 4,258 4,931
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 7,400 8,295
====== ======
</TABLE>
See accompanying notes to the interim consolidated financial statements
B-32
<PAGE> 246
ALGROUP
INTERIM CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1999
-------- --------
(In millions of CHF)
) (unaudited
<S> <C> <C>
NET SALES................................................... 3,875 3,691
Changes in inventory of work-in-progress and finished
goods..................................................... 32 24
- ------------------------------------------------------------
------ ------
INCOME FROM PRODUCTION...................................... 3,907 3,715
Material costs.............................................. (1,992) (1,828)
Energy costs................................................ (146) (137)
Personnel expenses.......................................... (845) (883)
Other operating income and expenses, net.................... (412) (387)
Depreciation and amortization............................... (190) (201)
------ ------
OPERATING INCOME............................................ 322 279
Amortization of goodwill.................................... (7) (8)
------ ------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES
AND MINORITY INTEREST..................................... 315 271
Interest income and exchange gains.......................... 41 130
Interest expenses and exchange losses....................... (143) (203)
Other income, net........................................... 2 1
------ ------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
MINORITY INTEREST......................................... 215 199
Income taxes................................................ (47) (39)
Income attributable to minorities........................... (3) (3)
------ ------
INCOME FROM CONTINUING OPERATIONS........................... 165 157
Net income from discontinuing operations.................... 84 121
------ ------
NET INCOME.................................................. 249 278
====== ======
</TABLE>
<TABLE>
<CAPTION>
1998 1999
CHF CHF
------ ------
<S> <C> <C>
Basic earnings per share continuing operations.............. 26.4 25.0
Diluted earnings per share continuing operations............ 26.4 25.1
Basic earnings per share group.............................. 39.9 44.2
Diluted earnings per share group............................ 39.1 43.4
</TABLE>
See accompanying notes to the interim consolidated financial statements.
B-33
<PAGE> 247
ALGROUP
INTERIM CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1998 1999
----- -----
(In)millions of
(unauditedCHF)
<S> <C> <C>
Income from continuing operations........................... 165 157
Depreciation on property, plant and equipment............... 188 197
Amortization of intangibles................................. 2 4
Amortization of goodwill.................................... 7 8
Increase in long-term provisions............................ 0 7
Income from application of the equity method................ (1) (1)
Increase in net working capital............................. (202) (288)
---- ----
NET CASH PROVIDED BY CONTINUING OPERATIONS.................. 159 84
NET CASH PROVIDED BY DISCONTINUING OPERATIONS............... 104 180
---- ----
TOTAL CASH PROVIDED BY OPERATING ACTIVITIES................. 263 264
---- ----
Purchase of property, plant and equipment................... (198) (173)
Purchase of intangibles..................................... (4) (1)
Goodwill from purchase of operations........................ 0 (11)
Sale of investments in affiliates........................... 4 7
Purchase of consolidated companies (less cash acquired)..... (12) 0
Sale of consolidated companies (less cash disposed)......... 185 2
Sale of property, plant and equipment....................... 7 6
Decrease in other long-term liabilities..................... 6 0
Decrease (increase) in loans and advances................... 12 (18)
---- ----
NET CASH USED IN INVESTING ACTIVITIES (CONTINUING).......... 0 (188)
NET CASH USED IN INVESTING ACTIVITIES (DISCONTINUING)....... (168) (73)
---- ----
TOTAL CASH USED IN INVESTING ACTIVITIES..................... (168) (261)
---- ----
Increase (decrease) of capital, net......................... (125) 1
Increase (decrease) in debts................................ (31) 241
Dividend payout............................................. 0 (157)
Contribution from (distribution to) minority interests...... 3 (3)
---- ----
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
(CONTINUING).............................................. (153) 82
NET CASH PROVIDED BY FINANCING ACTIVITIES (DISCONTINUING)... 5 3
---- ----
TOTAL CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....... (148) 85
---- ----
TRANSLATION ADJUSTMENTS..................................... 2 (3)
---- ----
Net increase (decrease) in cash............................. (51) 85
Cash and cash equivalents at 1 January...................... 328 360
---- ----
CASH AND CASH EQUIVALENTS AT JUNE 30,....................... 277 445
==== ====
</TABLE>
See accompanying notes to the interim consolidated financial statements.
B-34
<PAGE> 248
ALGROUP
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING PRINCIPLES
These consolidated financial statements are based on the accounts of the
individual subsidiaries at June 30, which have been drawn up according to
uniform Group accounting principles consistent with those adopted by algroup in
its consolidated financial statements for the year ended December 31, 1998 and
include all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for fair presentation. The
consolidated accounts are rendered in conformity with the existing International
Accounting Standards (IAS), published by the International Accounting Standards
Committee (IASC).
For comparative purposes, the previous period's data were reclassified to
conform with the current period's presentation.
2. DISCONTINUING OPERATIONS
The discontinuing operations are comprised of the following activities:
a) At the shareholders' meeting of algroup of 18 October 1999 the
shareholders' approved the Demerger of the chemical business (composed of
two divisions of the Group, fine chemicals and specialties and
intermediates and additives) and the energy business free of any net
financial debts effective as of 1 July 1999. The aforementioned algroup
activities are consequently treated as discontinuing operations. The
financial statements of the periods contemplated have been restated
accordingly.
b) In 1997, Algroup had identified several operations, mainly in its Food
Flexible and Tobacco Packaging division, as not being strategic
businesses to the group. In July 1997, these activities were proposed for
divestiture and accordingly classified as discontinuing operations second
half of 1998 with the exception of two operations (LM Can and LM Star)
which have been reincorporated as continuing operations (with restatement
of 1997 data). The divestment program was completed in the second half of
1998.
The Group financial statements reflect the net income of discontinuing
operations as a separate item and related assets and liabilities have been
classified in the consolidated balance sheet as net assets discontinuing
operations.
3. CHANGE IN THE SCOPE OF CONSOLIDATION
Pacquet Oneida, Inc, Clifton, NJ, US, a company engaged in the production of
flexible packaging was acquired effective 1 August 1998.
4. EVENTS AFTER BALANCE SHEET DATE (UNAUDITED)
On 11 August 1999, Algroup announced that it had agreed to the principal
terms of three-way merger agreement with Alcan Aluminium Limited (Alcan) and
Pechiney SA (Pechiney). The combination will be accomplished through two
independent exchange offers in which shares in Alcan will be issued. In
connection therewith, Algroup announced that it would demerge its chemical and
energy businesses prior to the effective date of the three-way combination.
Upon completion of the demerger, Algroup will contribute US$234 million in
cash (approximately CHF 360 million at June 30, 1999 rates) to the Chemical and
Energy businesses. In the event there is only a two-way merger between Alcan and
Algroup, excluding Pechiney, US$167 million (approximately CHF 260 million at
June 30, 1999 rates) must be paid to Algroup.
On 18 October 1999, at an extraordinary shareholders' meeting, the
shareholders of the Group approved the demerger of the chemical and energy
businesses.
Management anticipates that the separation of the chemical and energy
businesses will be achieved without substantial current tax liabilities as any
taxable gain on the separation should be sheltered by capital and net operating
losses carried forward.
5. CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
-------- --------
(In millions of CHF)
<S> <C> <C>
BEGINNING OF PERIOD......................................... 2,765 3,101
Share capital increase...................................... 31 1
Net income.................................................. 249 278
Dividend.................................................... 0 (157)
Nominal value repayment (CHF 25 per share).................. (156) 0
Translation differences..................................... 44 104
----- -----
END OF PERIOD............................................... 2,933 3,327
===== =====
</TABLE>
B-35
<PAGE> 249
ALGROUP
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. EXCHANGE RATES
<TABLE>
<CAPTION>
INCOME STATEMENT
BALANCE SHEET ----------------------
------------------------ HALF-YEAR HALF-YEAR
DECEMBER 31, JUNE 30, AVERAGE RATE CHF
1998 1999 1998 1999
------------ -------- --------- ---------
(CHF per unit)
<S> <C> <C> <C> <C> <C> <C>
USA........................................... Dollar 1 1.38 1.55 1.48 1.47
Canada........................................ Dollar 1 0.89 1.05 1.03 0.99
Australia..................................... Dollar 1 0.84 1.02 0.96 0.95
Great Britain................................. Pound Sterling 1 2.29 2.44 2.45 2.38
Germany....................................... Mark 100 82.12 81.90 82.18 81.80
France........................................ Franc 100 24.49 24.42 24.52 24.39
Italy......................................... Lira 100 0.083 0.083 0.083 0.083
</TABLE>
7. SEGMENT DATA
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
SALES BY DIVISION --------------------------- ---------------------------
----------------- (In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C>
Primary materials and fabricated products.................. 1,580 41 1,512 41
Food, flexible and tobacco packaging....................... 1,065 27 1,036 28
Pharmaceutical and cosmetics packaging 675 17 653 18
Holding and others......................................... 3 1 4 0
----- --- ----- ---
SUBTOTAL................................................... 3,323 86 3,205 87
Trading.................................................... 552 14 486 13
----- --- ----- ---
TOTAL...................................................... 3,875 100 3,691 100
===== === ===== ===
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
OPERATING INCOME BY DIVISION --------------------------- ---------------------------
---------------------------- (In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C>
Primary materials and fabricated products.................. 176 54 164 59
Food, flexible and tobacco packaging....................... 86 27 85 30
Pharmaceutical and cosmetics packaging..................... 58 18 48 17
Holding and others......................................... 2 1 (18) (6)
----- --- ----- ---
SUBTOTAL................................................... 322 100 279 100
Trading.................................................... na na
----- --- ----- ---
TOTAL...................................................... 322 100 279 100
===== === ===== ===
</TABLE>
DEPRECIATION & AMORTISATION
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
BY DIVISION --------------------------- ---------------------------
----------- (In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C>
Primary materials and fabricated products................ 89 47 93 46
Food, flexible and tobacco packaging..................... 54 28 60 30
Pharmaceutical and cosmetics packaging................... 46 24 48 24
Holding and others....................................... 1 1 0 0
------ --- ------ ---
TOTAL.................................................... 190 100 201 100
====== === ====== ===
</TABLE>
B-36
<PAGE> 250
ALGROUP
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SEGMENT DATA -- (CONTINUED)
INVESTMENTS IN PROPERTY, PLANT & EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
BY DIVISION --------------------------- ---------------------------
----------- (In millions of CHF) % (In millions of CHF) %
<S> <C> <C> <C> <C>
Primary materials and fabricated products................. 80 40 90 52
Food, flexible and tobacco packaging...................... 53 27 49 28
Pharmaceutical and cosmetics packaging.................... 65 33 33 19
Holding and others 0 0 1 1
------ --- ------ ---
TOTAL..................................................... 198 100 173 100
====== === ====== ===
</TABLE>
PERSONNEL
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
BY PRODUCTION AREA -------------- --------------
------------------ % %
<S> <C> <C> <C> <C>
Switzerland................................................. 3,166 13 3,190 13
EU.......................................................... 12,665 53 12,235 51
Rest of Europe.............................................. 1,012 4 997 5
------ --- ------ ---
Europe...................................................... 16,843 70 16,422 69
North America............................................... 6,259 26 6,460 27
Other areas................................................. 871 4 938 4
------ --- ------ ---
TOTAL....................................................... 23,973 100 23,820 100
====== === ====== ===
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
BY DIVISION -------------- --------------
----------- % %
<S> <C> <C> <C> <C>
Primary materials and fabricated products................... 9,707 40 9,698 41
Food, flexible and tobacco packaging........................ 6,552 27 6,561 28
Pharmaceutical and cosmetics packaging...................... 7,569 32 7,413 31
Holding and others.......................................... 145 1 148 0
------ --- ------ ---
TOTAL....................................................... 23,973 100 23,820 100
====== === ====== ===
</TABLE>
B-37
<PAGE> 251
ALGROUP
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RECONCILIATION
Significant Differences Between International Accounting Standards and
Generally Accepted Accounting Principles in the United States and Canada.
The Algroup unaudited interim consolidated financial statements have been
prepared in accordance with International Accounting Standards (IAS) of the
International Accounting Standards Committee (IASC) which differ in certain
significant respects from generally accepted accounting principles in the United
States (U.S. GAAP) and Canada (Canadian GAAP). The significant differences that
affect the consolidated net income and shareholders' equity are set out below.
U.S. and Canadian GAAP have been applied on a basis consistent with that of the
consolidated financial statements for the year ended December 31, 1998.
RECONCILIATION OF NET INCOME TO U.S. GAAP
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------
1998 1999
----- -----
million CHF
<S> <C> <C>
Net income as reported in the consolidated income statements
in accordance with IAS...................................... 249 278
Adjustments required to conform with U.S. GAAP:
Goodwill amortization..................................... (14) (12)
Capitalized interest...................................... 7 6
Inventories............................................... 1 (4)
Debt issue costs.......................................... (1) (1)
Fixed assets.............................................. 2 7
Pensions.................................................. 16 14
Stock ownership plan...................................... (4) --
Derivatives............................................... 12 (94)
Accruals.................................................. (10) 13
Restructuring provisions.................................. -- (14)
Deferred taxes............................................ (5) (4)
Other..................................................... 4 2
Tax effect of U.S. GAAP adjustments....................... (8) 20
----- -----
Net income in accordance with U.S. GAAP..................... 249 211
===== =====
Continuing operations................................... 163 84
Discontinued operations................................. 86 127
Basic earnings per share in accordance with U.S. GAAP: CHF CHF
Continuing operations..................................... 26.07 13.36
Discontinued operations................................... 13.76 20.20
----- -----
Net income................................................ 39.83 33.56
===== =====
Diluted earnings per share in accordance with U.S. GAAP: CHF CHF
Continuing operations..................................... 26.09 14.02
Discontinued operations................................... 13.03 19.20
----- -----
Net income................................................ 39.12 33.22
===== =====
</TABLE>
B-38
<PAGE> 252
ALGROUP
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RECONCILIATION -- (CONTINUED)
RECONCILIATION OF NET INCOME TO CANADIAN GAAP
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------
1998 1999
------ ------
(unaudited)
million CHF
<S> <C> <C>
Net income as reported in the consolidation income
statements in accordance with IAS........................... 249 278
Adjustments required to conform with Canadian GAAP:
Goodwill amortization and impairment...................... (14) (12)
Capitalized interest...................................... 7 6
Inventories............................................... 1 (2)
Debt issue costs.......................................... (1) (1)
Fixed assets.............................................. 2 7
Pensions.................................................. 16 14
Derivatives............................................... 12 (94)
Accruals.................................................. (10) 13
Restructuring provisions.................................. -- (14)
Deferred taxes............................................ (5) (4)
Other..................................................... 4 2
Tax effect of Canadian GAAP adjustments................... (8) 20
------ ------
Net income in accordance with Canadian GAAP:................ 253 213
====== ======
Continuing operations................................... 166 85
Discountinued operations................................ 87 128
Earnings per share in accordance with Canadian GAAP: CHF CHF
Continuing operations..................................... 26.55 13.52
Discontinued operations................................... 13.92 20.36
------ ------
Net income................................................ 40.47 33.88
====== ======
Fully diluted earnings per share in accordance with Canadian
GAAP: CHF CHF
Continuing operations..................................... 26.55 14.17
Discontinued operations................................... 13.18 19.36
------ ------
Net income................................................ 39.73 33.53
====== ======
</TABLE>
B-39
<PAGE> 253
ALGROUP
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RECONCILIATION -- (CONTINUED)
RECONCILIATION OF SHAREHOLDERS' EQUITY TO U.S. AND CANADIAN GAAP
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -----------------
US CANADIAN US CANADIAN
GAAP GAAP GAAP GAAP
----- -------- ----- --------
million CHF
<S> <C> <C> <C> <C>
Shareholders' equity as reported in the consolidated balance
sheets in accordance with IAS............................... 3,101 3,101 3,327 3,327
Adjustments required to conform with U.S. and Canadian GAAP:
Goodwill
Cost.................................................... 548 548 552 552
Amortization............................................ (334) (334) (335) (335)
Capitalized interest...................................... 80 80 87 87
Inventories............................................... 2 5 (3) 2
Debt issue costs.......................................... 3 3 3 3
General accruals.......................................... 26 26 33 33
Pensions.................................................. 98 118 109 132
Derivatives............................................... (24) (24) (117) (117)
Accruals.................................................. 28 28 41 41
Restructuring provisions.................................. 8 8 (6) (6)
Deferred taxes............................................ 28 28 25 25
Other..................................................... 6 6 3 3
Tax effect of U.S. and Canadian GAAP adjustments.......... (33) (33) (12) (12)
----- ----- ----- -----
Shareholders' equity in accordance with U.S. and Canadian
GAAP...................................................... 3,537 3,560 3,707 3,735
===== ===== ===== =====
</TABLE>
COMPREHENSIVE INCOME
Beginning in 1998, U.S. GAAP requires the disclosure of comprehensive income
which, for the Group, is net income increased or decreased for translation
differences. The following presents the Group's comprehensive income based upon
IAS for each of the six-month periods ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
------------
1997 1998
---- ----
million CHF
<S> <C> <C>
Net income in accordance with IAS........................... 249 278
Other comprehensive income:
Currency translation adjustment........................... 44 104
--- ---
Comprehensive income........................................ 293 382
=== ===
</TABLE>
B-40
<PAGE> 254
MANAGEMENT'S DISCUSSION AND ANALYSIS
ALGROUP
The following discussion should be read in conjunction with algroup's
consolidated financial statements and the notes thereto which are included
elsewhere in this document. These financial statements have been prepared in
accordance with International Accounting Standards (IAS) which differ in certain
significant respects from U.S. GAAP (Note 33). In light of the demerger of Lonza
Group AG from algroup, which was completed in October 1999, the financial
results of Lonza Group are reflected as discontinued operations. The following
discussion related to algroup's continuing operations, consisting of its primary
materials and fabricated products, food flexible and tobacco packaging and
pharmaceutical and cosmetic packaging divisions.
RESULTS OF OPERATIONS
The following table sets forth certain income statement data on a
group-wide basis expressed in millions of Swiss Francs:
CONTINUING OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- ----------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
) (CHF in millions
<S> <C> <C> <C> <C> <C>
Total net sales............................... 5,800 7,238 7,497 3,875 3,691
Income from production........................ 5,806 7,286 7,511 3,907 3,715
Material and energy costs..................... (3,153) (3,856) (4,072) (2,138) (1,965)
Personnel costs............................... (1,339) (1,660) (1,712) (845) (883)
Other operating expenses, net................. (573) (840) (751) (412) (387)
Depreciation and amortization................. (283) (361) (386) (197) (209)
Earnings before interest and taxes............ 458 569 590 315 271
Net finance and interest expenses............. (136) (165) (154) (100) (72)
Income taxes.................................. (74) (82) (107) (47) (39)
Minority interests............................ (3) (3) (7) (3) (3)
Income from continuing operations............. 245 319 322 165 157
</TABLE>
B-41
<PAGE> 255
ALGROUP
Algroup's continuing operations are conducted through three divisions,
algroup Alusuisse (Primary Materials and Fabricated Products), algroup Lawson
Mardon (Food Flexible and Tobacco Packaging) and algroup Wheaton (Pharmaceutical
and Cosmetics Packaging). The following table sets forth sales and operating
income by division.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- ----------------
1996 1997 1998 1998 1999
----- ----- ----- ------ ------
) (CHF in millions
<S> <C> <C> <C> <C> <C>
SALES BY DIVISION
Primary materials and
Fabricated products................................ 2,370 2,735 3,079 1,580 1,512
Food flexible and tobacco packaging................ 1,868 2,092 2,119 1,065 1,036
Pharmaceutical and cosmetics packaging............. 809 1,249 1,268 675 653
Holding and others................................. 7 4 6 3 4
----- ----- ----- ----- -----
SUBTOTAL........................................... 5,054 6,080 6,472 3,323 3,205
----- ----- ----- ----- -----
Trading............................................ 746 1,158 1,025 552 486
----- ----- ----- ----- -----
TOTAL.............................................. 5,800 7,238 7,497 3,875 3,691
===== ===== ===== ===== =====
OPERATING INCOME
Primary materials and Fabricated products.......... 242 300 340 176 164
Food flexible and tobacco packaging................ 148 169 176 86 85
Pharmaceutical and cosmetics packaging............. 76 116 90 58 48
Holding and others................................. (1) (2) (1) 2 (18)
----- ----- ----- ----- -----
SUBTOTAL........................................... 465 583 605 322 279
----- ----- ----- ----- -----
Trading............................................ na na na na na
----- ----- ----- ----- -----
TOTAL.............................................. 465 583 605 322 279
===== ===== ===== ===== =====
</TABLE>
B-42
<PAGE> 256
ALGROUP
HALF YEAR ENDED JUNE 30, 1999 COMPARED TO
HALF YEAR ENDED JUNE 30, 1998
NET SALES
Total net sales of in the continuing aluminum and packaging activities for
the six months ended June 30, 1999 decreased by 4.7% to CHF 3,691 million. On a
constant exchange rate basis (applying 1999 actual exchange rates to local
currency sales in 1998), the decrease was 1%. The fall in groupwide net sales
reflected declines in each of algroup's principal operating segments. Sales by
division are discussed in greater detail below.
PRIMARY MATERIALS AND FABRICATED PRODUCTS. Net sales in the aluminum
business for the first six months of 1999 fell by 4.3% compared with the
corresponding period in the prior year to CHF 1,512 million. This decrease
reflected lower prices for bauxite, alumina and metal in the primary materials
businesses in the wake of lower LME notations. In the fabricated products
operations some softness in demand for industrial products was felt in response
to the delay in economic recovery in the central European economies. This was
largely offset by a stronger order book for mass transportation applications and
a favorable development of the automotive sector. Demand for composites was
substantially more robust than in the comparable period in 1998.
FOOD AND TOBACCO PACKAGING. Total net sales for the Food and Tobacco
Packaging division decreased by CHF 29 million (2.7%) to CHF 1,036 million for
the first six months of 1999 as compared to the corresponding period of 1998.
This decline corresponds to a decrease of 1% at constant exchange rates.
Food flexible sales were stable reflecting mixed conditions in the various
geographic markets. Food flexible packaging sales in Continental Europe
decreased by CHF 12 million or 9.1%. Output was satisfactory but market
conditions remained tight. Sales in the UK and Ireland decreased by CHF 18
million or 7%. The UK food flexible market remained soft with confectionery
production impacted by falling export levels as a result of the continuing
strength of the Pound Sterling. Share gains in snacks and other film products
partly offset soft market conditions in other areas. Food flexible packaging
sales in North America increased by CHF 30 million or 16%. The mid-1998
acquisition of Pacquet Oneida accounted for CHF 28 million of this increase.
Significant growth was also achieved in drink pouches. The roll-fed label
business was affected by weak sales of soft drinks in PET bottles.
Tobacco packaging sales were also stable. The tobacco market declined in
the United States owing to tax increases and in Turkey and Russia due to
economic difficulties. These market factors, combined with a destocking program
at a major customer, were offset by market share gains.
The sales of other packaging products decreased by CHF 26 million or 7.6%.
Sales of foil products and print finishing were satisfactory but the price level
of aluminum based products was significantly lower than in the first half of
1998 reflecting fluctuations in aluminum prices.
PHARMACEUTICAL AND COSMETICS PACKAGING. Total net sales for the first six
months of 1999 decreased by 3.3% to CHF 653 million from CHF 675 million for the
corresponding period of 1998. This decrease corresponds to a 2.0% reduction on a
constant exchange rate basis. The decline was attributable to Cosmetics market
shortfalls.
Pharmaceutical trading performance was strong across most product
categories in the first half of 1999 while in some areas moderate competitive
price pressures were experienced. Sales of pharmaceutical, glass, plastics and
tubing products in North America showed good development. Contract manufacturing
services and sales of pharmaceutical cartons also improved after a slow start in
1999. Progress was made with the penetration of plastic packaging media in the
European market. Positive development was also evident in European tubing
operations as a result of our progress in establishing global alliances with the
major pharmaceutical customers. Poor market conditions in Brazil including the
significant devaluation of its currency, have negatively impacted both net sales
and operating income in that region.
B-43
<PAGE> 257
ALGROUP
Challenging market conditions have been experienced in both North America
and European cosmetics markets. Aggressive pricing pressures have also impacted
both North American molded glass and European aerosols.
OPERATING COSTS
Overall operating costs decreased by CHF 149 million from CHF 3,585 million
(92.5% of net sales) in the six months ended June 30, 1998 to CHF 3,436 (93.1%
of net sales) in the six months ended June 30, 1999. This represents a decrease
of 4.2% compared to the previous year period in absolute terms and a 3.1%
decrease on a constant exchange rate basis. The principal driver was lower
materials costs which declined 8.2% to CHF 1,828 in the period ended June 30,
1999 from the corresponding period of 1998, reflecting the lower raw materials
prices that also affected net sales for the period.
OPERATING INCOME
Total operating income declined 13.4% to CHF 279 million in the first half
of 1999 from CHF 322 million in the first half of 1998 and the group wide
operating margin fell from 8.3% to 7.6% mainly due to the costs (CHF 18 million)
related to the foreseen merger with the VIAG group and reduced operating margins
in pharmaceutical and cosmetics packaging. The aluminum and food flexibles
businesses recorded relatively steady margins notwithstanding pressures from
materials prices and competitive conditions.
PRIMARY MATERIALS AND FABRICATED PRODUCTS. Operating income in this sector
decreased by 6.8% on the prior year period. The most significant factor was the
lower margin on alumina and metal sales of the primary materials activities,
which more than offset the impact of strong trading results, including
significant metal hedging gains. Fabricated products operating income increased
in the industry and transport businesses as a result of the benefits of plant
restructuring and through good regional growth. The composites businesses also
enjoyed substantial improvement in profitability resulting from strong organic
growth and the successful introduction of significant new products, despite also
absorbing the planned start-up losses of a new Chinese joint venture for the
local production of Alocobond(R) facade material.
FOOD FLEXIBLE AND TOBACCO PACKAGING. Total operating income was stable at
CHF 85 million compared to CHF 86 million for the first half of 1998. Operating
margin for the period was 8.2% compared to 8.1% for the first half of 1998,
reflecting reductions in food flexibles offset by improved productivity in
tobacco and other packaging products. Difficulties faced with the start-up of
new equipment in the first quarter combined with the weakness of demand in some
market segments affected the profitability of the UK food flexible units
productivity and cost control. enabled the Continental European units to improve
steadily their results despite tight market conditions.
Despite stable sales in the tobacco sector, continuing efforts in improving
productivity had a positive impact on operational performance.
PHARMACEUTICALS AND COSMETICS PACKAGING. Total operating profit decreased
by 17.2% from CHF 58 million to CHF 48 million for the corresponding period of
1998. This was attributable to the cosmetics sector.
The decrease in European Cosmetics was due to aggressive pricing in the
marketplace, a pronounced emphasis on smaller-sized, less profitable product
mix, and an overall softness in the aerosol can business.
The decrease in North American Cosmetics resulted also from lower prices
and compared to the first half of 1998 operational difficulties in connection
with the introduction of the new technology for molded glass.
B-44
<PAGE> 258
ALGROUP
FINANCIAL RESULTS
The financial results of algroup, consisting of net interest expense and
exchange gains and losses, improved from CHF (100) million in the first half of
1998 to CHF (72) million in the comparable period of 1999. This decrease in
mainly due to the decrease of market rates.
TAXES
Income taxes declined from CHF 47 million in the first half of 1998 to CHF
39 million in the same period in 1999. Algroup's effective tax rate improved to
18.9% in the first half of 1999 from 21.4% in the comparable period of the prior
year. This reflected a shift in earnings to jurisdictions with lower statutory
tax rates.
NET INCOME
Net income, after minority interests, but before discontinued operations
fell CHF 8 million to CHF 157 million in the first half of 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO
YEAR ENDED DECEMBER 31, 1997
NET SALES
Algroup's net sales improved 3.6% to CHF 7,497 million in 1998 from CHF
7,238 million in 1997. On a constant exchange rate basis, net sales improved
4.6%. The net sales improvement primarily reflected improved price and volume
conditions in the aluminum business as well as modest improvements in the
packaging business. Net sales by division are analyzed in greater detail below.
PRIMARY MATERIALS AND FABRICATED PRODUCTS. Net sales for 1998 increased to
CHF 3,079 million, or 12.6% as compared with 1997. On a constant exchange rate
basis, net sales increased 14.8%. Significantly increased trading volumes,
favorable LME prices in the earlier months of the year and the first full year
operation of the smelter expansion in Iceland contributed to a 30% increase in
sales in the Primary Materials operations. Fabricated Products sales increased
by 8% year-on-year, reflecting very strong demand for automotive products and
strength, particularly in the earlier months of the year, in industrial
products. In composites, the decline in sales to the Asian facade market could
not be fully offset by the increasing market demand in Europe and in the
Americas.
FOOD FLEXIBLES AND TOBACCO PACKAGING. Total net sales for the Food and
Tobacco Packaging division increased by CHF 27 million from CHF 2,092 million in
1997 to CHF 2,119 million in 1998. This represents an increase of 1.3%. On a
constant exchange rate basis, net sales increased 2.0%.
Food Flexible sales increased by CHF 35 million or 3.0% reflecting strong
increases in Continental Europe and North America, offset by reduced sales in
the U.K. In Continental Europe food flexible packaging sales showed an
improvement with strong demand from dairy customers mainly in France. Sales in
the UK were belowed the 1997 level as the key markets of confectionery and
biscuits remained sluggish and demand was affected by the strength of the Pound
Sterling. Food flexible packaging sales in North America increased by 9.8%. The
mid year acquisition of Pacquet Oneida accounted for more than two thirds of
this increase.
Tobacco packaging sales increased 7.5% with market share gains in North
America and growing demand in Turkey and Central Asia.
The sales of other packaging products decreased by 4.0% mainly due to foil
products sales which were impacted by declining aluminum prices in the second
part of the year, combined with a slowdown of activity.
PHARMACEUTICAL AND COSMETIC PACKAGING. Total net sales in the
pharmaceutical and cosmetic packaging division increased by 1.5% to CHF 1,268
million in 1998 from CHF 1,249 million in 1997. On a constant exchange rate
basis net sales improved 2.1%. Overall strong demand for our pharmaceutical
offering in both North America and Europe was offset by softness in the U.S.
cosmetics business.
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ALGROUP
Pharmaceutical packaging benefitted from sales growth across all product
lines and regions, but particularly in the North American pharma flexibles
operations. Multi-year global supply agreements were reached with pharmaceutical
industry leaders across the division's broad, multi-product offering.
In Cosmetics packaging activities, the aerosol business in Europe enjoyed
continuing strong demand particularly from the leading European-based cosmetics
companies. However, North American Cosmetics was adversely impacted by the
start-up of the new glass-tanks due to the advanced technology and automation
incorporated in their design.
OPERATING COSTS
Algroup's operating costs increased 3.0% from CHF 6,703 million (92.6% of
net sales) in 1998 to CHF 6,906 million (92.1% of net sales) in 1999. On a
constant exchange rate basis, costs increased 3.8% Increases were driven by a
5.2% increase in materials costs, an 11.9% increase in energy costs and a 3.1%
increase in personnel costs and a 10.6% decrease in other operating income and
expenses.
OPERATING INCOME
Operating income increased 3.8% from CHF 583 million in 1997 to CHF 605
million in 1998 reflecting an substantial improvement in aluminum operations as
well as improved results in food flexible and tobacco packaging, offset by poor
market conditions affecting foil products and pharmaceutical and cosmetics
packaging.
PRIMARY MATERIALS AND FABRICATED PRODUCTS. Operating income in the
aluminum business increased 13.3% to CHF 340 million. Strong margin performance
in the alumina and smelting operations were augmented by sharply increased
trading profits to push primary materials operating income up by 35%. Fabricated
Products operating profit, however, softened year-on-year, despite significant
performance improvements across most industrial and automotive businesses. The
key negative issue was operational problems in the German formed parts business
which triggered a major plant restructuring program. Also contributing to the
weaker overall performance was a much lower profit performance in the export
composite materials as a result of the collapse of Asian markets at the end of
1997.
FOOD FLEXIBLE AND TOBACCO PACKAGING. Total operating profit in this
division increased by CHF 7 million or 4.1% driven by improved tobacco packaging
income and a solid performance in food flexibles that was offset by slower foil
products sales. Operating margin for the period was 8.3% compared to 8.1% for
1997.
Food flexible operating profit increased with a stable performance in North
America, UK and Ireland, but with a significant improvement in Continental
Europe. This performance was achieved as a result of significant cost reductions
and productivity improvements and despite increasingly competitive market
conditions in the second half of the year.
The major contributor to the division's improved operating results was
tobacco packaging where operating income improved by as a result of productivity
improvement in the UK and sales growth in North America and Turkey.
Other packaging operating profit declined owing to the significant slowdown
of foil product sales and the impact of reduced aluminum prices on inventories.
PHARMACEUTICAL AND COSMETICS PACKAGING. The total operating income for
this division decreased by 22.4% from CHF 116 million to CHF 90 million. The
primary driver for the decrease were the start-up issues in North American
Cosmetics.
North American Cosmetics operating income showed an pronounced decline of
CHF 27 million. The main factors in the year-over-year decrease were: (a) lost
sales volume during the start-up of the new glass tanks, (b) a 3% price decline,
and (c) additional depreciation on the new investment (CHF 4 million increased
cost).
Pharma Flexibles operating income improved buoyed by significant
operational improvements in the Shelbyville, Kentucky Pharma Center as well as
double digit sales growth at this facility.
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ALGROUP
FINANCIAL RESULTS
Net financial results improved from CHF (165) million net in 1997 to CHF
(154) million net in 1998. A lower interest rate environment together with
improved capital management are the main reason for the improvement.
TAXES
Income taxes increased from CHF 82 million in 1997 to CHF 107 million in
1998, reflecting in part the higher pre-tax income and in part a higher
effective tax rate which increased from 19.9% in 1997 to 24.0% in 1998,
reflecting the reduced benefit from previously recognized tax losses.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO
YEAR ENDED DECEMBER 31, 1996
NET SALES
Algroup's net sales of CHF 7,238 million in 1997 reflected a 24.8% increase
over the CHF 5,800 million recorded in 1996. On a constant exchange rate basis,
net sales improved by 15.9%. The increased net sales primarily reflected solid
performance in the aluminum and food and tobacco packaging business as well as a
significant increase in the pharmaceutical and cosmetics business due in part to
the full year impact of the acquisition of Wheaton Inc..
PRIMARY MATERIALS AND FABRICATED PRODUCTS. Net sales for 1997 in the
division increased by 15.4% compared with 1996 to CHF 2,735 million. Increasing
demand for primary aluminum, a stable LME price and a strong US dollar combined
to lift sales in primary materials. Algroup Alusuisse also benefitted from
additional capacity created by productivity programs and the start-up of the
additional potline commissioned in Iceland in September 1997. Fabricated
Products sales increased 14% driven in particular by healthy demand for
industrial products, especially in the electrotechnical and machine industry as
customers restocked in response to the rapid rise in LME prices in the last
quarter of 1996. Very strong exports of composite facade materials to the Far
East, continued until the third quarter.
FOOD AND TOBACCO PACKAGING. Total net sales for the Food and Tobacco
Packaging division increased by CHF 224 million from CHF 1,868 million in 1996
to CHF 2,092 million in 1997. This represents an increase of 12%. Because more
than half of the sales of the division were in North America, the UK and
Ireland, the impact of changing exchange rates was significant as these
currencies strengthened by between 15% and 20% versus the Swiss Franc in the
period. At constant exchange rates the increase in net sales was -0.8%.
In Food Flexibles, sales in the UK declined by 5%, as reductions in raw
material costs were passed on to customers. In North America, sales of roll
labels and drink pouches increased significantly but were partly offset by the
impact of the loss of a major customer (CHF 28 million of sales) in the plastic
tray business. Sales were up by 33% in Tobacco, benefitting from recent
investments in the Netherlands and Turkey, an excellent start-up of the new
greenfield operation in the US and new capacity in the UK. In other packaging
products, the demand for aluminum foil and packaging converters was very strong
and sales increased by 9% against 1996.
PHARMACEUTICAL AND COSMETICS PACKAGING. Total net sales for 1997 increased
by 54.4% to CHF 1,249 million from CHF 809 million for the corresponding period
in 1996. The most significant factor was the full year impact of the Wheaton,
Inc. acquisition in 1997 compared to seven months in 1996. The year-over-year
difference directly attributable to Wheaton, Inc. is CHF 302 million.
While most of the growth was attributable to the full year inclusion of
Wheaton, Inc., the division experienced strong demand for its pharmaceutical
offerings, more than offsetting softness in the U.S. cosmetics area.
Sales to multinational customers increased substantially in 1997.
Particular growth was achieved in flexible pharma packaging throughout Europe,
as well as in plastic bottles and glass tubing vials in North
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ALGROUP
America. Solid growth was achieved also in our Canadian folding cartons and
contract packaging activities.
In our cosmetics activities, the overall market development in molded glass
products was flat and characterized by competitive pressures. The aerosol
businesses in Europe, on the other hand, enjoyed continuing strong demand.
In July 1997, we acquired the plastic bottle and closure activities of ACI
Rockware in the UK. With much of its revenue coming from leading personal
care/cosmetics customers, this acquisition complements our other offerings in
the UK and continental European cosmetics market.
OPERATING COSTS
Algroup's operating costs advanced 25.5% from CHF 5,341 million in 1996 to
CHF 6,703 million in 1997. On a constant exchange rate basis, these costs
increased 16.6%. The increase was driven by higher materials costs which rose
24.1% to CHF 3,604 million in 1997 and higher personnel costs (24.0% higher) and
other operating expenses (46.6% higher) reflecting the full year impact of the
Wheaton acquisition.
OPERATING INCOME
Group operating income improved 25.4% to CHF 583 million in 1997 from CHF
465 million in 1996. This improvement benefitted from a significantly stronger
performance in the aluminum business as well as a solid increase in
profitability from the food and tobacco business as well as pharmaceutical and
cosmetics activities inclusive of the 12 months results of Wheaton.
PRIMARY MATERIALS AND FABRICATED PRODUCTS. Operating income increased
24.0% to CHF 300 million, mainly related to improved volume and especially
margins on all products of the primary sector. Higher and stable LME prices
together with a stronger US dollar were a significant contributory margin factor
for alumina and aluminum. Most aluminum product lines, however, experienced an
ongoing margin squeeze in Europe because of currency-related increases in raw
material costs. The profitability of the composites business rose strongly based
on business growth in the American and Asian markets supported also by the
successful introduction of new display products.
FOOD AND TOBACCO PACKAGING. Total operating income increased by CHF 21
million or 14.2%. Operating margin for the period was 8.1% compared to 7.9% for
1996. Food Flexible operating profit increased by despite a shortfall in profit
in North America owing to the loss of a major customer for plastic trays. The
major gains were due to productivity improvement in flexo printing in the UK and
strong performance by the Irish business.
Tobacco posted a very strong increase in operating income mainly related to
volume growth. Other packaging operating profit increased also by volume growth
in aluminum foil for converters.
PHARMACEUTICAL AND COSMETICS PACKAGING. Total operating profit increased
by 52.6% from CHF 76 million to CHF 116 million for the corresponding period of
1997. The increased profit directly attributable to the full year impact of
Wheaton, Inc. was CHF 28 million. In addition, Pharma Flexibles operating profit
improved substantially due to their strong growth in 1997.
FINANCIAL RESULTS
Net financial results fell from CHF (136) million in 1996 to CHF (165)
million in 1997 reflecting lower interest income and exchange gains.
TAXES
Income taxes increased to CHF 82 million in 1997 from CHF 74 million in
1996; however, the group's effective tax rate improved from 23.1% to 19.9% due
to the recognition of previously unrecognized tax benefits.
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ALGROUP
NET INCOME FROM CONTINUING OPERATIONS
As a result of these factors, Algroup's income from continuing operations
improved 30.2% to CHF 319 million in 1997 from CHF 245 million in 1996.
LIQUIDITY AND FINANCIAL RESOURCES
The proposed source of funds for algroup's operations in cash generated
from operating activities. The following table shows summarized cash flow data
for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1996 1997 1998 1998 1989
----- ----- ----- ----- -----
) (CHF in millions
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Income from Continuing Operations................... 245 319 322 165 157
Non-cash operating Items............................ 332 383 385 196 215
(Increase) decrease in working capital.............. (10) (95) (93) (202) (288)
Net cash provided by (used for)
continuing operating activities..................... 567 607 614 159 84
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Property, Plant & Equipment............. (422) (531) (507) (198) (173)
Sales of Investments & Assets....................... 37 14 247 196 15
Purchase of Consolidated Companies.................. (508) (18) (61) (12) 0
Decrease (Increase) in loans and liabilities........ (24) 51 60 18 (18)
Other............................................... 3 (6) (20) (4) (12)
Net cash used in investing activities
(continuing)..................................... (914) (490) (281) 0 (188)
CASH FLOWS FROM FUNDING:
Increase (decrease) in capital...................... 0 103 (113) (125) 1
Increase (decrease) in debt......................... 247 79 (197) (31) 241
Dividends paid...................................... (115) (115) 0 0 (157)
Minority interests.................................. 4 (1) 8 3 (3)
Net cash provided by (used in) financing activities
(continuing)........................................ 136 66 (302) (153) 82
</TABLE>
OPERATING ACTIVITIES
Net cash provided by continuing operating activities was CHF 614 million
for the year 1998, slightly over the level of previous comparable period 1997
(CHF 607 million), which in turn improved from CHF 567 million in 1996. The Net
Working Capital increase at the end of June 1998 and 1999 compared to the year
end amounts of 1996, 1997 and 1998 is partially due to the increase in stocks in
order to deal with summer shut-downs.
INVESTING ACTIVITIES
Net cash used in investing activities amounted to CHF 281 million in 1998
and CHF 490 in 1997. The decrease of 42.6% is mainly due to the realization of
the sales program of some packaging activities accordingly classified as
discontinuing operations. Algroup realized CHF 247 million in net proceeds from
sales of investments and assets in 1998, the bulk of which was recorded in the
first half of the year. Capital expenditure levels represent approximately 8 to
9% of sales (sales before trading activities). Those capital expenditures
reflects the need for state of the art facilities in order to retain a leading
position in the development of the business sections in which the group
operates.
FINANCING AND SOURCES OF FUNDS
The forecasted capital expenditure program for the next years will be fully
financed by the cash provided by the operating operations.
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ALGROUP
RISK MANAGEMENT
The group is exposed to market risk from changes in commodity prices and
currency exchange rates. Algroup manages its exposure to changes in metals
prices through an active trading arm. Alusuisse Trading which sells excess
materials such as alumina and anodes and purchases metals to cover the shortfall
between internal aluminum production and groupwide requirements. Alusuisse
Trading also manages risk exposures through trading on the London Metals
Exchange (LME) on behalf of algroup and third parties.
To manage the volatility relating to the Group's exposures to market risk
from changes in interest rates and currency exchange rates, algroup enters into
various derivative transactions pursuant to the Group's policies in areas such
as counterparty exposure and hedging practices. Counterparties to these
agreements are major international financial institutions. Positions are
monitored using techniques such as market value and sensitivity and analyses.
The following tables present information for interest rate and foreign
exchange contracts. The notional amount of derivatives summarized below
represents the gross amount of the contracts and includes already closed
transactions which have not yet matured. Therefore the figures are not a direct
measure of algroup's exposure. The market value approximates the cost to settle
the outstanding contracts. These market value amounts should be viewed not in
isolation but in relation to the market values of the underlying hedged
transactions and the overall reduction in algroup exposure to adverse
fluctuation of interest and foreign exchange rates.
<TABLE>
<CAPTION>
1997 1998
----------- -----------
million CHF million CHF
<S> <C> <C>
INTEREST RATE CONTRACTS
Notional amount........................................... 1,478 1,471
Net negative market value................................. (65) (57)
Net negative book value................................... (31) (21)
Difference market value/book value........................ (34) (36)
CREDIT RISK............................................... 0 7
</TABLE>
INTEREST RATE MANAGEMENT. Algroup's policy is to manage interest cost
using a mix of fixed and variable rate debt. In order to manage this mix in a
cost efficient manner, algroup enters into interest rate swaps, to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to a corresponding notional principal amount.
<TABLE>
<CAPTION>
1997 1998
----------- -----------
million CHF million CHF
<S> <C> <C>
FOREIGN EXCHANGE CONTRACTS
Notional amount........................................... 2,128 2,620
Net negative market value................................. (51) (61)
Net negative book value................................... (51) (61)
Difference market value/book value........................ 0 0
CREDIT RISK............................................... 9 22
</TABLE>
FOREIGN EXCHANGE MANAGEMENT. In management of its exposure to fluctuation
in foreign currency exchange rates, algroup has entered into a variety of
currency swaps, foreign exchange contracts and options. These agreements
generally include the exchange of one currency for a second currency at a future
date.
COMMODITY RISK MANAGEMENT. In order the manage the volatility of LME
pricing for aluminum, algroup enters into various derivative transactions
pursuant to the Group's policies in areas such as counterparty exposure and
hedging practices. The objective of such strategies to present the economic
performance of the Group's upstream assets by stabilizing the associated revenue
stream over a number of years. This objective is normally set on a multi-year
basis and is achieved by securing guaranteed selling prices for these
commodities within pre-established price bands. These strategies are reviewed by
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ALGROUP
management on a continuous basis, and rely mainly on the use of LME futures and
options. The key element of these strategies is to secure the profitability of
the upstream assets by obtaining a guaranteed minimum price, in exchange for
which the group foregoes the right to participate in price increases in excess
of the pre-established bands. Historically, the group has found these strategies
quite successful in safeguarding the financial performance of its upstream
assets, especially in times when depressed LME pricing would normally have led
to significant earnings volatility and poor financial results. As a consequence
of the proposed merger of algroup with Alcan and Pechiney, these strategies have
not been continued and will mature in accordance with their terms.
YEAR 2000 COMPLIANCE
In 1997, a comprehensive Year 2000 compliance program was initiated
including, inter alia, the testing of plant, machinery and facilities equipped
with electronic devices supposed to have a time-related computing function. This
assurance program is almost completed. Algroup is dependent on a large number of
external suppliers whose services and products also need to achieve compliance.
These relationships are managed proactively and suppliers are required to
certify their products and services as Year 2000 compliant. Costs associated
with Year 2000 system adjustments are being expensed as incurred over the 1998
and 1999 period. While management does not believe that Algroup will suffer any
major damage as a result of Year 2000 problems, no assurance can be given in
this respect. For additional information on Year 2000 compliance, see Note 28 to
the Algroup Consolidated Financial Statements.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Canada Business Corporations Act (the "Act"), the governing Act to
which the Company is subject, provides that, except in the case of an action
taken by the Company or of a derivative action taken by a shareholder on behalf
of the Company as provided below, a Director or Officer may be indemnified by
the Company against all costs, charges and expenses, including an amount paid to
settle an action or satisfy a judgment if (i) he acted honestly and in good
faith with a view to the best interests of the Company; and (ii) in the case of
a criminal or administrative action or proceeding he had reasonable grounds for
believing that his conduct was lawful. The right of indemnification is more
limited where Directors and Officers are sued by the Company or on its behalf by
a shareholder. In those cases, the Company may with the approval of a court
indemnify Directors and Officers against all costs, charges and expenses but not
the amount of the judgment or settlement of an action, provided he fulfills the
conditions of (i) and (ii) above. A Director or Officer must be indemnified for
costs, charges and expenses if he was substantially successful on the merits in
his defense and fulfills the conditions of (i) and (ii) above.
The Directors' Standing Resolution pertaining to indemnification of
Directors and Officers of the Company represents, in general terms, the extent
to which Directors and Officers may be indemnified by the Company under the Act.
This resolution provides as follows:
"18. INDEMNITY. Subject to the limitations contained in the governing
Act but without limit to the right of the Corporation to indemnify as
provided for in the Act, the Corporation shall indemnify a Director or
Officer, a former Director or Officer, or a person who acts or acted at the
Corporation's request as a director or officer of a body corporate of which
the Corporation is or was a shareholder or creditor (or a person who
undertakes or has undertaken any liability on behalf of the Corporation or
at the Corporation's request on behalf of any such body corporate) and his
heirs and legal representatives, against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgment,
reasonably incurred by him in respect of any civil, criminal or
administrative action or proceeding to which he is made a party by reason
of being or having been a Director or Officer of the Corporation or such
body corporate or by reason of having undertaken such liability, if
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful."
The Company also has an insurance policy covering Directors and Officers of
the Company and of its subsidiaries against certain liabilities which might be
incurred by them in their capacities as such, but excluding those claims for
which such insured persons could be indemnified by the Company or its
subsidiaries.
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<PAGE> 266
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS AND SCHEDULES.
(a) The following Exhibits are filed herewith unless otherwise indicated:
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGINATION BY
SEQUENTIAL
EXHIBIT NUMBERING
NO. DESCRIPTION SYSTEM
- ------- ----------- -------------
<C> <S> <C>
2 Combination Agreement dated September 16, 1999 (included as
Annex A to the prospectus which is part of this registration
statement)..................................................
3.1 Articles of Amalgamation, dated as of January 1, 1995, as
amended as of May 8, 1995 (incorporated herein by reference
to exhibit 3.1 of the Annual Report on Form 10-K of Alcan
for 1996 (File No. 1-3677)).................................
3.2 By-law No. 1A (incorporated herein by reference to exhibit
3.5 to the Annual Report on Form 10-K of Alcan for 1987
(File No. 1-3677))..........................................
5 Opinion of McMillan Binch regarding validity of securities
being registered.*..........................................
8.1 Opinion of Milbank, Tweed, Hadley & McCloy LLP regarding
United States tax consequences of the combination.*.........
8.2 Opinion of McMillan Binch regarding Canadian tax
consequences of the combination.*...........................
21 Subsidiaries (incorporated herein by reference to the Annual
Report on Form 10-K for the fiscal year ended December 31,
1998 (File No. 1-3677)).....................................
23.1 Consent of PricewaterhouseCoopers LLP as auditors of the
financial statements of Alcan...............................
23.2 Consent of PricewaterhouseCoopers as auditors of the
financial statements of Pechiney............................
23.3 Consent of McCarthy Tetrault.**.............................
23.4 Consent of KPMG Fides Peat as auditors of the financial
statements of Algroup.......................................
23.5 Consent of PricewaterhouseCoopers LLP as auditors of the
financial statements of Alusuisse-Lonza America Inc.........
23.6 Consent of Milbank, Tweed, Hadley & McCloy LLP (included in
the opinion filed as Exhibit 8.1 to this registration
statement and incorporated herein by reference).............
23.7 Consents of McMillan Binch (included in the opinions filed
as Exhibits 5 and 8.2 to this registration statement and
incorporated herein by reference)...........................
24 Powers of Attorney.**.......................................
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules
Not Applicable
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
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<PAGE> 267
(i) To include any prospectus required in Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
will be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To file a post-effective amendment to the Registration Statement to
include any financial statements required by Rule 3-19 of Regulation
S-X at the start of any delayed offering or throughout a continuous
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in
the Registration Statement will be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time will be deemed to be the initial bona
fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and
is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
will be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the
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<PAGE> 268
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant 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 registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes: (i) 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; and (ii) to
arrange or provide for a facility in the United States for the purpose
of responding to such requests. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(f) The undersigned registrant hereby undertakes 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 the registration statement when it became effective.
II-4
<PAGE> 269
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of Montreal, Province of
Quebec, Country of Canada on December 23, 1999.
ALCAN ALUMINIUM LIMITED
(Registrant)
/s/ JACQUES BOUGIE*
By:
-----------------------------------------
Name: Jacques Bougie
Title: President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE FOLLOWING
CAPACITIES ON DECEMBER 23, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JACQUES BOUGIE* Director, President and Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer)
Jacques Bougie
/s/ WARREN CHIPPINDALE* Director
- ---------------------------------------------
Warren Chippindale
/s/ ELEANOR R. CLITHEROE* Director
- ---------------------------------------------
Eleanor R. Clitheroe
/s/ TRAVIS ENGEN* Director
- ---------------------------------------------
Travis Engen
/s/ JOHN R. EVANS* Chairman of the Board
- ---------------------------------------------
John R. Evans
/s/ ALLAN E. GOTLIEB* Director
- ---------------------------------------------
Allan E. Gotlieb
/s/ J.E. NEWALL* Director
- ---------------------------------------------
J.E. Newall
/s/ PETER H. PEARSE* Director
- ---------------------------------------------
Peter H. Pearse
/s/ SIR GEORGE RUSSELL* Director
- ---------------------------------------------
Sir George Russell
/s/ GUY SAINT-PIERRE* Director
- ---------------------------------------------
Guy Saint-Pierre
</TABLE>
<PAGE> 270
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ GERHARD SCHULMEYER* Director
- ---------------------------------------------
Gerhard Schulmeyer
Director
- ---------------------------------------------
Paul M. Tellier
/s/ SURESH THADHANI* Executive Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer)
Suresh Thadhani
/s/ RICHARD GENEST* Corporate Controller (Principal Accounting Officer)
- ---------------------------------------------
Richard Genest
/s/ WILLIAM H. JAIRRELS* Authorized Representative in the United States of
- --------------------------------------------- America
William H. Jairrels
</TABLE>
<TABLE>
<C> <S>
/s/ ROY MILLINGTON
*By ----------------------------------------
Roy Millington as Attorney-in-fact
</TABLE>
<PAGE> 271
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGINATION BY
SEQUENTIAL
EXHIBIT NUMBERING
NO. DESCRIPTION SYSTEM
- ------- ----------- -------------
<C> <S> <C>
2 Combination Agreement dated September 16, 1999 (included as
Annex A to the prospectus which is part of this registration
statement)..................................................
3.1 Articles of Amalgamation, dated as of January 1, 1995, as
amended as of May 8, 1995 (incorporated herein by reference
to exhibit 3.1 of the Annual Report on Form 10-K of Alcan
for 1996 (File No. 1-3677)).................................
3.2 By-law No. 1A (incorporated herein by reference to exhibit
3.5 to the Annual Report on Form 10-K of Alcan for 1987
(File No. 1-3677))..........................................
5 Opinion of McMillan Binch regarding validity of securities
being registered.*..........................................
8.1 Opinion of Milbank, Tweed, Hadley & McCloy LLP regarding
United States tax consequences of the combination.*.........
8.2 Opinion of McMillan Binch regarding Canadian tax
consequences of the combination.*...........................
21 Subsidiaries (incorporated herein by reference to the Annual
Report on Form 10-K for the fiscal year ended December 31,
1998 (File No. 1-3677)).....................................
23.1 Consent of PricewaterhouseCoopers LLP as auditors of the
financial statements of Alcan...............................
23.2 Consent of PricewaterhouseCoopers as auditors of the
financial statements of Pechiney............................
23.3 Consent of McCarthy Tetrault.**.............................
23.4 Consent of KPMG Fides Peat as auditors of the financial
statements of Algroup.......................................
23.5 Consent of PricewaterhouseCoopers LLP as auditors of the
financial statements of Alusuisse-Lonza America Inc.........
23.6 Consent of Milbank, Tweed, Hadley & McCloy LLP (included in
the opinion filed as Exhibit 8.1 to this registration
statement and incorporated herein by reference).............
23.7 Consents of McMillan Binch (included in the opinions filed
as Exhibits 5 and 8.2 to this registration statement and
incorporated herein by reference)...........................
24 Powers of Attorney.**.......................................
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 23.1
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Directors of Alcan Aluminium Limited:
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of our report dated
February 11, 1999 which appears on page 40 of the 1998 Annual Report to
Shareholders of Alcan Aluminium Limited which is incorporated by reference in
Alcan Aluminium Limited's Annual Report on Form 10-K for the year ended December
31, 1998. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
Montreal, Canada /s/ PRICEWATERHOUSECOOPERS LLP
23 December 1999 PricewaterhouseCoopers LLP
COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA-U.S. REPORTING DIFFERENCES
In the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph) when
there is a change in accounting principles that has a material effect on the
comparability of a company's financial statements, such as the change described
in Note 3 to the 1998 consolidated financial statements of Alcan Aluminium
Limited. Our report to the shareholders dated 11 February 1999 is expressed in
accordance with Canadian reporting standards which do not require a reference to
such a change in accounting principles in the auditor's report when the change
is properly accounted for and adequately disclosed in the financial statements.
Montreal, Canada /s/ PRICEWATERHOUSECOOPERS LLP
23 December 1999 PricewaterhouseCoopers LLP
<PAGE> 1
EXHIBIT 23.2
[PRICEWATERHOUSECOOPERS LETTERHEAD]
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Alcan Aluminium
Limited of our report dated March 9, 1999, which appears on page 118 of Pechiney
1998 Annual Report to Shareholders, which is incorporated by reference in its
Annual Report on Form 20-F for the year ended December 31, 1998. We also consent
to the references to us under the heading "Experts" in such Prospectus.
Paris, December 23, 1999
/s/ PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers
<PAGE> 1
EXHIBIT 23.4
[KPMG FIDES PEAT LETTERHEAD]
The Board of Directors
Alusuisse Lonza Group AG:
We consent to the inclusion of our report dated February 3, 1999, except for
Notes 26(a) and 29, as to which date is October 18, 1999, with respect to the
consolidated balance sheets of Alusuisse Lonza Group AG and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of income
and cash flows for each of the years in the three-year period ended December 31,
1998, which report appears in the Form S-4 of Alcan Aluminium Limited dated
December 23, 1999. We did not audit the financial statements of Alusuisse-Lonza
America Inc., a wholly-owned subsidiary, which statements reflect total assets
constituting 20 percent and 21 percent in 1998 and 1997, respectively, and total
revenues constituting 19 percent and 20 percent in 1998 and 1997, respectively,
of the related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Alusuisse-Longa America Inc., is based on
the report of the other auditors.
We also consent to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG FIDES PEAT
Zurich, Switzerland
December 23, 1999
<PAGE> 1
EXHIBIT 23.5
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of this Registration Statement on Form S-4 of Alcan
Aluminium Limited of our report dated September 22, 1999 relating to the
consolidated financial statements of Alusuisse-Lonza America Inc. (not appearing
separately therein). We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
December 23, 1999
