<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 5, 1997
PIONEER COMPANIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-9859 06-1215192
-------- ------ ----------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File No.) Identification No.)
4300 NATIONSBANK CENTER
700 LOUISIANA, HOUSTON, TEXAS 77002 77002
- ------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 713-225-3831
------------
NOT APPLICABLE
--------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. Acquisition or Disposition of Assets.
Pursuant to the terms of an Asset Purchase Agreement dated September
22, 1997, between the Registrant and its indirect subsidiaries, PCI Chemicals
Canada Inc. ("PCI Canada") and PCI Carolina Inc. ("PCI Carolina"), and Imperial
Chemical Industries PLC ("ICI"), ICI Canada Inc. ("ICI Canada") and ICI Americas
Inc. ("ICI Americas"), on November 5, 1997, PCI Canada, PCI Carolina and another
indirect subsidiary of the Registrant, Pioneer Licensing, Inc. ("Pioneer
Licensing") acquired substantially all of the assets and properties used by ICI
Canada and ICI Americas in their North American chlor-alkali business. The
purchase price for the acquisition (the "PCI Canada Acquisition"), which was
determined through arms'-length negotiations, was $235.6 million in cash, and
PCI Canada also assumed certain liabilities relating to the on-going operations.
The transaction was completed on November 5, 1997, with effect as of October 31,
1997.
The assets and properties acquired include chlor-alkali production
facilities at Becancour, Quebec and Dalhousie, New Brunswick with aggregate
annual production capacity of approximately 376,000 tons of chlorine and 423,000
tons of caustic soda. The Becancour facility also produces hydrochloric acid and
bleach, and the Dalhousie facility also produces bleach and sodium chlorate.
Also acquired were facilities located on land leased from ICI Canada in
Cornwall, Ontario and used for the manufacture of bleach, hydrochloric acid,
chlorinated paraffins and pulping additives, and a facility located on land
leased from ICI Americas in Charlotte, North Carolina and used for the
manufacture of pulping additives. The acquired business also includes a research
facility in Mississauga, Ontario, which conducts applications research,
particularly with respect to pulp and paper process technology. PCI Canada, PCI
Carolina and Pioneer Licensing will continue to use the acquired facilities for
the production and sale of industrial chemicals in the United States and Canada.
Certain related agreements were also executed in connection with the
PCI Canada Acquisition. Pursuant to a Noncompetition Agreement, ICI agreed not
to engage in any production or sales of caustic soda until 2002 in designated
areas of North America. Pursuant to a License Agreement, Pioneer Licensing
received a license from ICI and its affiliates for the non-exclusive use of
certain intellectual property. ICI Canada and certain of its affiliates will
provide transition services to PCI Canada and PCI Carolina pursuant to a
Transition Services Agreement.
PCI Canada received the proceeds of an offering of $175.0 million of
9-1/4% Senior Secured Notes due 2007 (the "Offering") which was completed on
November 5, 1997. Pioneer Americas, Inc. ("Pioneer Americas"), an indirect
subsidiary of the Registrant, also borrowed $83.0 million under a Term Loan
Agreement, dated as of October 30, 1997 (the "Term Loan Agreement"), among
Pioneer Americas, Pioneer Americas Acquisition Corp., a subsidiary of the
Registrant ("PAAC"), various financial institutions as the Lenders, DLJ Capital
Funding, Inc. (as the Syndication Agent for the Lenders), Salomon Brothers
Holding Company Inc (as the Documentation Agent for the Lenders), Bank of
America National Trust and Savings Association (as the Administrative Agent for
the Lenders) and United States Trust Company of New York (as the Collateral
Agent for the Lenders). The proceeds of the Offering and the borrowing under the
Term Loan Agreement were used to pay the cash portion of the purchase price for
the PCI Canada Acquisition and related fees and expenses. In addition, $7.0
million of the proceeds will be applied by Pioneer Chlor Alkali Company, Inc.,
an indirect subsidiary of the Registrant, for the construction of a chlorine
pipeline from its plant in St. Gabriel, Louisiana to customers in Geismar,
Louisiana.
The obligations of PCI Canada with respect to the Offering and the
obligations of Pioneer Americas with respect to its borrowings under the Term
Loan Agreement were guaranteed by each of the direct and indirect subsidiaries
of the Registrant. In addition, substantially all of the assets and properties
located in Canada and acquired as a part of the PCI Canada Acquisition, other
than accounts receivable and inventory, were pledged as collateral for such
obligations.
2
<PAGE> 3
ITEM 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
AUDITORS' REPORT TO THE BOARD OF DIRECTORS
We have audited the combined balance sheets of ICI Forest Products - North
America (the "Division") as at December 31, 1996, 1995 and 1994 and the
combined statements of operations, head office account and changes in financial
position for each of the years in the three-year period ended December 31,
1996. These combined financial statements are the responsibility of the
Division's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these combined financial statements present fairly, in all
material respects, the financial position of the Division as at December 31,
1996, 1995 and 1994 and the results of its operations and the changes in its
financial position for each of the years in the three-year period ended
December 31, 1996 in accordance with Canadian generally accepted accounting
principles.
KPMG
Chartered Accountants
Montreal, Canada
September 5, 1997
3
<PAGE> 4
ICI FOREST PRODUCTS - NORTH AMERICA
Combined Balance Sheets
(In thousands of Canadian dollars)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash $ -- $ 19,026 $ 16,210 $ -- $ 771
Accounts receivable (note 3) 31,455 31,271 29,573 31,382 35,272
Inventories (note 4) 9,754 10,738 8,856 16,397 12,855
Prepaid expenses 302 761 604 555 709
-------- -------- -------- -------- --------
41,511 61,796 55,243 48,334 49,607
Property, plant and
equipment (note 5) 88,110 69,822 78,407 67,053 72,610
Other assets (note 6) 3,443 5,079 7,505 5,856 6,879
-------- -------- -------- -------- --------
$133,064 $136,697 $141,155 $121,243 $129,096
======== ======== ======== ======== ========
Liabilities and Head Office Account
Current liabilities:
Bank indebtedness $ 3,857 $ -- $ -- $ -- $ --
Accounts payable 26,575 22,129 23,321 20,228 25,478
Other current liabilities 7,323 6,136 7,097 10,727 14,902
-------- -------- -------- -------- --------
37,755 28,265 30,418 30,955 40,380
Long-term debt (note 7) 2,500 2,500 2,500 2,500 2,500
Other non-current
liabilities (note 8) 9,929 13,249 12,641 16,323 15,461
-------- -------- -------- -------- --------
50,184 44,014 45,559 49,778 58,341
Head office account 82,745 92,670 95,531 71,439 70,576
Cumulative translation adjustment
(note 9) 135 13 65 26 179
Commitments and contingent
liabilities (note 13)
-------- -------- -------- -------- --------
$133,064 $136,697 $141,155 $121,243 $129,096
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE> 5
ICI FOREST PRODUCTS - NORTH AMERICA
Combined Statements of Operations
(In thousands of Canadian dollars)
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Sales $ 203,428 $ 203,210 $ 268,877 $ 271,338 $ 225,714
Less freight 35,549 33,976 44,910 44,878 46,564
--------- --------- --------- --------- ---------
Net sales 167,879 169,234 223,967 226,460 179,150
Cost of sales 110,114 111,011 149,043 149,409 137,614
--------- --------- --------- --------- ---------
Gross profit 57,765 58,223 74,924 77,051 41,536
Other expenses (income):
Selling, general and
administrative expenses 9,690 9,558 12,213 15,092 13,241
Amortization of deferred
investment tax credits (594) (594) (792) (792) (792)
Research expenditures
(note 11) 1,070 1,278 1,683 1,753 1,503
Restructuring (note 12) 362 450 650 910 16,310
--------- --------- --------- --------- ---------
10,528 10,692 13,754 16,963 30,262
--------- --------- --------- --------- ---------
Income before the undernoted item 47,237 47,531 61,170 60,088 11,274
Other income, net 931 2,086 2,045 1,546 875
--------- --------- --------- --------- ---------
Income before interest and
income taxes $ 48,168 $ 49,617 $ 63,215 $ 61,634 $ 12,149
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
5
<PAGE> 6
ICI FOREST PRODUCTS - NORTH AMERICA
Combined Statements of Head Office Account
(In thousands of Canadian dollars)
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Head office account,
beginning of period $ 95,531 $ 71,439 $ 71,439 $ 70,576 $ 99,744
Income before interest and
income taxes 48,168 49,617 63,215 61,634 12,149
Transfer to head office (60,954) (28,386) (39,123) (60,771) (41,317)
-------- -------- -------- -------- --------
Head office account,
end of period $ 82,745 $ 92,670 $ 95,531 $ 71,439 $ 70,576
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE> 7
ICI FOREST PRODUCTS - NORTH AMERICA
Combined Statements of Changes in Financial Position
(In thousands of Canadian dollars)
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash provided by (used in):
Operations:
Income before interest and
income taxes $ 48,168 $ 49,617 $ 63,215 $ 61,634 $ 12,149
Add (deduct) items not
affecting cash:
Loss (gain) on disposal
of property, plant and
equipment 45 126 259 2,682 30
Depreciation and
amortization 6,141 5,756 7,701 7,712 8,514
Amortization of deferred
investment tax credits (594) (594) (792) (792) (792)
Net change in non-cash
working capital balances 2,946 1,171 4,225 (6,246) 8,511
Cumulative translation
adjustment 70 (13) 39 (153) 179
-------- -------- -------- -------- --------
56,776 56,063 74,647 64,837 28,591
Financing:
Transfer to head office (60,954) (28,386) (39,123) (60,771) (41,317)
Investments:
Investments in property,
plant and equipment (15,889) (8,672) (19,335) (4,837) (5,567)
Proceeds on disposal of
property, plant and
equipment -- 21 21 -- --
-------- -------- -------- -------- --------
(15,889) (8,651) (19,314) (4,837) (5,567)
-------- -------- -------- -------- --------
Increase (decrease) in cash (20,067) 19,026 16,210 (771) (18,293)
Cash, beginning of period 16,210 -- -- 771 19,064
-------- -------- -------- -------- --------
Cash (bank indebtedness),
end of period $ (3,857) $ 19,026 $ 16,210 $ -- $ 771
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
7
<PAGE> 8
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION:
The financial statements of ICI Forest Products - North America (the
"Division") represent the combined financial position and results of
operations of the Forest Products divisions of ICI Canada Inc. and ICI
Americas Inc. Both of these companies are indirectly wholly-owned
subsidiaries of Imperial Chemical Industries PLC (a UK corporation)
("ICI").
The combined statements of operations disclose income before interest and
income taxes. Management has not attempted to record interest income or
expense arising from intercompany balances, nor has a provision for income
taxes been recorded for the Division. Further, remediation costs for the
Cornwall plant cellroom, which has been shut down, and the related below
ground environmental restoration costs have been recorded by ICI Canada
Inc. and not the Division.
In all other respects, these combined financial statements are in
accordance with Canadian generally accepted accounting principles expressed
in Canadian dollars.
Unaudited combined financial statements of the Division for the nine months
ended September 30, 1997 and 1996 have been presented for information
purposes only.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Principles of combination:
The balance sheet and results of operations of the two divisions have
been combined to present the financial position and results of
operations of the ICI North American Forest Products business. All
significant intercompany balances and transactions have been eliminated
on combination. Because the Division does not represent a separate
legal entity with issued share capital, the equivalent of shareholders'
equity is represented by a "Head office account".
(b) Foreign exchange:
Monetary assets and liabilities denominated in foreign currencies are
translated at the rates of exchange at the balance sheet dates. Other
balance sheet items are translated at the rates prevailing at the
respective transaction dates. Income and expenses are translated at
average rates prevailing during the period. Gains or losses on foreign
exchange are recorded in the statements of operations.
8
<PAGE> 9
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements, page 2
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(b) Foreign exchange (continued):
The Forest Products division of ICI Americas Inc. is considered to be a
self-sustaining foreign operation and its assets and liabilities have
been translated into Canadian dollars at the rate of exchange in effect
at the balance sheet dates. Revenue and expense items (including
depreciation) have been translated at the average rate of exchange
prevailing during the period. Exchange gains and losses arising from
the translation of the financial statements are accumulated in the
cumulative translation adjustment account. The balance in this account
will be recognized in earnings in proportion to any reduction in the
net investment in the US division.
(c) Inventories:
Inventories are valued at the lower of average actual cost and net
realizable value. Manufactured goods include the cost of raw materials,
variable labour and manufacturing overheads, including depreciation.
(d) Property, plant and equipment:
Property, plant and equipment are recorded at cost. Depreciation on
plant and equipment and buildings is provided on a straight-line basis
over the estimated useful lives of the assets. Annual reviews are made
of the residual lives of all productive assets, taking into account
commercial and technological obsolescence as well as physical
condition. Depreciation is not provided for on construction in
progress.
(e) Research expenditures:
All expenditures for research, except property, plant and equipment
used for this purpose, are charged to earnings as incurred, net of
investment tax credits earned.
(f) Provision for environmental liabilities:
Provision is made for environmental expenditures that are required to
comply with governmental regulations, to meet contractual obligations,
or to improve the health and welfare of employees on a best estimate
basis.
(g) Pensions:
The estimated present value of accrued pension benefits is based on
actuarial valuations and the net assets available to provide for these
benefits are at market related values. The pension expense is
determined by ICI Canada Inc. and ICI Americas Inc. for the respective
divisions and allocated to the Division based on its proportionate
number of active employees and retirees. This allocation might differ
from the calculation that would be obtained if performed on the
population of the Division alone.
9
<PAGE> 10
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements, page 3
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(h) Post-retirement benefits other than pensions:
The Division accrues the estimated present value of retirement benefits
which include medical, dental, and life insurance provided to
qualifying employees upon retirement over the employees' periods of
service to their dates of full entitlement. The expense is determined
by ICI Canada Inc. and ICI Americas Inc. for the respective divisions
and allocated to the Division based on its proportionate number of
active employees and retirees. This allocation might differ from the
calculation that would be obtained if performed on the population of
the Division alone.
(i) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the dates of
the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
(j) Investment in joint venture:
The Division's investment in a joint venture has been accounted for
using the cost method under which the investment is recorded at cost
and the net earnings of the joint venture are recognized as income only
to the extent of dividends received from the joint venture.
(k) Financial instruments:
The Division uses derivative financial instruments, principally forward
foreign exchange contracts, to manage risks from fluctuations in
exchange rates related to sales and purchases in foreign currencies.
Derivative financial instruments are not used for trading purposes.
Gains and losses on forward foreign exchange contracts, which have been
designated as hedges of anticipated future transactions, are deferred
and recognized upon completion of the underlying hedged transaction.
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Accounts receivable $ 32,188 $ 32,011 $ 30,386 $ 32,008 $ 34,989
Amounts receivable from
related entities 119 107 36 221 1,140
Less allowance for doubtful
accounts (852) (847) (849) (847) (857)
-------- -------- -------- -------- --------
$ 31,455 $ 31,271 $ 29,573 $ 31,382 $ 35,272
======== ======== ======== ======== ========
</TABLE>
10
<PAGE> 11
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements, page 4
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
4. INVENTORIES:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Raw materials $ 3,245 $ 3,734 $ 2,656 $ 7,744 $ 1,496
Finished goods 3,458 3,957 3,452 5,403 5,734
Stores and supplies 3,051 3,047 2,748 3,250 5,625
------- ------- ------- ------- -------
$ 9,754 $10,738 $ 8,856 $16,397 $12,855
======= ======= ======= ======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
September 30,
1997 1996
-------- --------
(Unaudited)
Accumulated Net book Net book
Cost depreciation value value
-------- ------------ -------- --------
<S> <C> <C> <C> <C>
Plant and equipment $269,527 $186,971 $ 82,556 $ 60,973
Construction in progress 4,562 -- 4,562 7,782
Buildings 874 634 240 270
Land 752 -- 752 797
-------- -------- -------- --------
$275,715 $187,605 $ 88,110 $ 69,822
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
-------- -------- --------
Accumulated Net book Net book Net book
Cost depreciation value value value
-------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Plant and equipment $240,932 $181,059 $ 59,873 $ 61,840 $ 67,830
Construction in progress 17,476 -- 17,476 4,161 3,665
Buildings 873 612 261 292 389
Land 797 -- 797 760 726
-------- -------- -------- -------- --------
$260,078 $181,671 $ 78,407 $ 67,053 $ 72,610
======== ======== ======== ======== ========
</TABLE>
11
<PAGE> 12
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements, page 5
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
6. OTHER ASSETS:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Investment in joint venture
(note 10) $ 674 $ 674 $ 674 $ 674 $ 674
Deferred pension asset 2,769 4,405 4,456 5,182 6,205
Deposit -- -- 2,375 -- --
------ ------ ------ ------ ------
$3,443 $5,079 $7,505 $5,856 $6,879
====== ====== ====== ====== ======
</TABLE>
As at December 31, 1996, the Division made $2.375 million in advance
payments towards the acquisition of plant and equipment.
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Province of New Brunswick,
non-interest bearing loan,
due December 31, 2000 $2,500 $2,500 $2,500 $2,500 $2,500
====== ====== ====== ====== ======
</TABLE>
8. OTHER NON-CURRENT LIABILITIES:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Post-retirement benefits $ 6,120 $ 5,769 $ 5,906 $ 5,644 $ 5,499
Unfunded pension liability 196 150 168 189 220
Restructuring provisions 49 2,974 2,409 5,540 4,000
Deferred investment tax credits 3,564 4,356 4,158 4,950 5,742
------- ------- ------- ------- -------
$ 9,929 $13,249 $12,641 $16,323 $15,461
======= ======= ======= ======= =======
</TABLE>
12
<PAGE> 13
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements, page 6
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
9. CUMULATIVE TRANSLATION ADJUSTMENT:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 65 $ 26 $ 26 $ 179 $ --
Effect of changes in exchange
rates during the period on
the net assets of the US
division 70 (13) 39 (153) 179
----- ----- ----- ----- -----
$ 135 $ 13 $ 65 $ 26 $ 179
===== ===== ===== ===== =====
</TABLE>
10. INVESTMENT IN JOINT VENTURE:
The Division owns 33 1/3% of the issued common shares of Canso Chemicals
Limited. The following information is submitted with respect to the
Division's investment in Canso Chemicals Limited:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Division's equity in earnings
(losses) of the joint
venture for the period $ 63 $ 120 $ 128 $ 90 $(147)
Division's equity in the net
assets of the joint venture 951 880 888 760 670
===== ===== ===== ===== =====
</TABLE>
11. RESEARCH EXPENDITURES:
Research expenditures are net of the following tax credits:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
$260 $180 $199 $207 $251
==== ==== ==== ==== ====
</TABLE>
13
<PAGE> 14
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements, page 7
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
12. RESTRUCTURING:
During 1994, a decision was made to restructure the operations of the
Division. The restructuring charge of $16,310,000 related primarily to
severance, demolition and decommissioning costs, and a write-down of fixed
assets.
During 1995, the Division recorded a provision of $910,000 representing
future minimum lease payments and related expenses attributed to excess
office space which arose from restructuring of the operations.
During 1996, an additional $650,000 was recorded for restructuring
activities primarily affecting the research center.
During 1997, a reserve of $362,000 was recorded for restructuring
activities at the Becancour plant.
13. COMMITMENTS AND CONTINGENT LIABILITIES:
(a) Environmental liabilities:
It is the Division's policy to provide, on a best estimate basis, for
environmental site clean-up costs when actions are required to comply
with government environmental regulations, to meet contractual
obligations, or to improve the health and welfare of employees.
Given the uncertainties inherent in estimating total costs involved
because of the expenses and effectiveness of alternate remedial
technologies, the extent of pollution, the interpretation of complex
regulations and the degree to which the Division itself is involved, it
is reasonably possible that actual costs will differ from amounts
accrued and the differences could be material to the Division.
Remediation costs associated with the Cornwall plant cellroom as well
as below ground environmental restoration costs for the site have not
been accrued for by the Division. These costs have been provided for by
ICI Canada Inc.
14
<PAGE> 15
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements, page 8
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED):
(b) Lease commitments:
The future minimum lease payments under operating leases, primarily for
premises and transportation equipment, are as follows:
<TABLE>
<S> <C>
1997 $ 6,768
1998 4,755
1999 4,143
2000 3,207
2001 2,398
Thereafter 1,860
-------
$23,131
=======
</TABLE>
14. PENSIONS:
ICI Canada Inc. and ICI Americas Inc. have various non-contributory defined
benefit pension plans which cover virtually all employees including those
of the Division. The plans provide pensions based on length of service and
final average earnings.
The estimated present value of accrued pension benefits based on actuarial
valuations and the net assets available to provide for these benefits at
market related values for the entire plans, without allocation for that
portion relating solely to the Division's employees, are shown below:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
ICI Canada Inc:
Accrued pension benefits $264,000 $257,000 $224,000
Pension fund assets 265,000 246,000 233,000
ICI Americas Inc. :
Accrued pension benefits 287,000 287,000 235,000
Pension fund assets 294,000 251,000 207,000
======== ======== ========
</TABLE>
15
<PAGE> 16
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements, page 9
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
15. RELATED PARTY TRANSACTIONS:
Related party transactions occurred in the normal course of business with
the Division's affiliated companies. These transactions were entered into
at normal market-related terms and prices.
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Transactions:
Sales $ 658 $ 491 $ 659 $1,102 $ 694
Purchases 8,428 3,666 6,215 8,368 5,105
Charges from head office 1,062 1,279 1,632 1,823 2,881
Purchases of plant and
equipment 4,400 2,099 4,500 -- --
Research fee income 162 169 217 250 82
Insurance expense 448 480 620 742 716
Balances:
Accounts receivable 119 107 36 221 1,140
Accounts payable 1,430 1,634 3,110 951 537
====== ====== ====== ====== ======
</TABLE>
The Division is charged for corporate administratives costs incurred by the
head office. These expenses are allocated to the Division based on a
combination of negotiated rates and allocation formulas using sales and the
number of employees as a base.
16. FINANCIAL INSTRUMENTS:
(a) Foreign currency risk management:
A portion of the Division's sales and purchases are transacted in
foreign currencies. The Division uses various forward foreign exchange
contracts to manage its foreign exchange risk. The following table
summarizes the Division's commitments to buy and sell foreign currency
at December 31:
<TABLE>
<CAPTION>
National
National Exchange Canadian Fair market
amount rate Maturity equivalent value
------------ -------------- ------------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Sell contracts:
December 1996 US$18,000 average 1.3584 up to June 1997 $ 24,552 $ 24,509
December 1995 US$27,000 average 1.3804 up to September 1996 37,270 36,857
December 1994 US$36,000 average 1.3503 up to December 1995 48,610 50,644
Purchase contracts:
December 1996 (pound)1,000 average 2.0204 up to March 1997 2,091 2,427
------------ -------------- ------------------- ---------- ----------
</TABLE>
16
<PAGE> 17
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements, page 10
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
16. FINANCIAL INSTRUMENTS (CONTINUED):
(a) Foreign currency risk management (continued):
The forward foreign exchange contracts represent an obligation to
exchange principal amounts between the Division and counterparties.
Credit risk exists in the event of failure by counterparties to meet
their obligations. The Division reduces this risk by dealing with only
highly-rated counterparties, normally major Canadian financial
institutions.
(b) Fair value disclosure:
Fair value estimates are made as of a specific point in time, using
available information about the financial instrument. These estimates
are subjective in nature and often cannot be determined with precision.
The Division has determined that the carrying value of its short-term
financial assets and liabilities approximates fair values at the
balance sheet dates because of the short-term maturity of those
instruments. The fair value of pension assets is considered to
approximate the carrying value.
The fair value of the Division's long-term debt with the government
could not be determined because an independently verifiable market
value for a similar debt instrument is not available.
(c) Credit and concentration of credit risk:
The Division sells to the Canadian and US market in approximately the
same proportions. Six of its customers represent 30% (1995 - 20%; 1994
- 27%) of the combined total sales for fiscal 1996 and 28% (1995 - 27%;
1994 - 20%) of the accounts receivable as at the December 31 balance
sheet dates.
The Division regularly monitors the credit risk exposures and takes
steps to mitigate the likelihood of these exposures resulting in actual
loss. The Division's extension of credit is based on an evaluation of
each customer's financial condition. Credit losses are provided for in
the financial statements and actual losses in each of the three years
ended December 31, 1996 have been nominal.
17
<PAGE> 18
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements, page 11
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
17. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES:
The combined financial statements of ICI Forest Products - North America,
presented before accounting for interest and income taxes, are expressed in
Canadian dollars and are prepared in accordance with Canadian generally
accepted accounting principles ("GAAP"), which conform, in all material
respects, with those generally accepted in the United States except as
described below:
(a) Reconciliation of income before interest and income taxes:
(i) Pension costs and post retirement benefits other than pensions:
Canadian GAAP requires that the discount rate used should
represent management's best estimate of the long-term rate of
return on the pension fund assets. Under US GAAP, the discount
rate to be used should reflect the rate at which the pension
benefits can be effectively settled at the date of the financial
statements.
For US GAAP purposes, the expenses relating to pensions and post
retirement benefits other than pensions have been determined using
the actual demographics of the employees of the Division itself.
(ii) Joint venture:
The investment in joint venture is recognized using the cost
method. Under US GAAP, the investment in joint venture is
accounted for using the equity method.
(iii)Restructuring costs:
Included in restructuring costs are estimates of severance
payments to be paid to employees. Under US GAAP, the liability and
expense related to these costs are only recognized when the
benefit arrangement has been communicated to employees.
(iv) Investment and other tax credits:
Under Canadian GAAP, investment and other tax credits are recorded
as a reduction of the cost of the expenses incurred or as a
reduction of the assets acquired either as a direct reduction or
recorded as a deferred credit and amortized on the same basis as
the related assets. Under US GAAP, tax credits are recorded as a
reduction of the provision for income taxes. As these combined
financial statements present income before interest and income
taxes, no adjustment has been made for this difference.
(v) Foreign exchange contracts:
Under Canadian GAAP, where foreign exchange contracts are
identified as a hedge against an anticipated revenue stream
denominated in a foreign currency, any exchange gain or loss is
deferred. Under US GAAP, anticipated revenue streams do not
qualify for hedge accounting and any exchange gain or loss is
recorded in income for the period.
18
<PAGE> 19
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements, page 12
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
17. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED):
(a) Reconciliation of income before interest and income taxes (continued):
(vi) The application of US GAAP would have the following effect on the
income before interest and income taxes as reported:
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Income before interest
and income taxes -
Canadian GAAP $ 48,168 $ 49,617 $ 63,215 $ 61,634 $ 12,149
Adjustments in respect of:
Pension and post retirement costs 1,189 300 462 1,687 586
Equity in joint venture 63 120 128 90 (147)
Restructuring costs (88) 650 650 (3,800) 3,800
Foreign exchange -- -- -- 2,034 (2,034)
-------- -------- -------- -------- --------
1,164 1,070 1,240 11 2,205
-------- -------- -------- -------- --------
Income before interest
and income taxes -
US GAAP $ 49,332 $ 50,687 $ 64,455 $ 61,645 $ 14,354
======== ======== ======== ======== ========
</TABLE>
(b) Reconciliation of significant balance sheet items:
(i) The application of US GAAP would have a significant effect on the
following balance sheet item as reported:
<TABLE>
<CAPTION>
September 30, December 31
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Head office account -
Canadian GAAP $ 82,745 $ 92,670 $ 95,531 $ 71,439 $ 70,576
Adjustments:
Pension and post retirement costs 5,941 4,590 4,752 4,290 2,603*
Equity in joint venture 277 206 214 86 (4)**
Restructuring costs 562 650 650 -- 3,800
Foreign exchange -- -- -- -- (2,034)
-------- -------- -------- -------- --------
6,780 5,446 5,616 4,376 4,365
-------- -------- -------- -------- --------
Head office account -
US GAAP $ 89,525 $ 98,116 $101,147 $ 75,815 $ 74,941
======== ======== ======== ======== ========
</TABLE>
*includes cumulative adjustment for pension and post retirement costs of
$2,017,000
**includes cumulative adjustment of equity in opening retained earnings in
joint venture of $143,000
19
<PAGE> 20
ICI FOREST PRODUCTS - NORTH AMERICA
Notes to Combined Financial Statements, page 13
Years ended December 31, 1996, 1995 and 1994
(Tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------------------------------------
17. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED):
(c) The combined statements of changes in financial position reconcile the
changes in cash and bank indebtedness. Under US GAAP, bank indebtedness
of $3,857,000 would have been disclosed as financing activities.
20
<PAGE> 21
(b) Pro forma financial information.
The following unaudited pro forma financial information (the "Pro Forma
Financial Information") of the Registrant has been derived from and should be
read in conjunction with (i) the audited consolidated financial statements of
the Registrant and the related notes thereto, as included in the Registrant's
annual report on Form 10-K for the year ended December 31, 1996, and (ii) the
financial statements of the business acquired, included under paragraph (a)
above. The Pro Forma Financial Information has been prepared to illustrate the
effects of the PCI Canada Acquisition, the Offering, the borrowing under the
Term Loan Agreement, the June 1997 acquisition by a subsidiary of the Registrant
of certain chlor alkali assets in Tacoma, Washington (the "Tacoma Acquisition")
and related refinancings, and the July 1996 acquisition by a subsidiary of the
Registrant of T.C. Products, Inc.
("T.C. Products").
The pro forma balance sheet as of September 30, 1997 gives effect to
the PCI Canada Acquisition, the Offering and the borrowing under the Term Loan
Agreement as if they had occurred on September 30, 1997. The pro forma statement
of operations for the year ended December 31, 1996 gives effect to the PCI
Canada Acquisition, the Offering, the borrowing under the Term Loan Agreement,
the Tacoma Acquisition and related financings and the acquisition of T.C.
Products, Inc. as if they had occurred on January 1, 1996. The pro forma
statement of operations for the nine months ended September 30, 1997 gives
effect to the PCI Canada Acquisition, the Offering, the borrowing under the Term
Loan Agreement, the Tacoma Acquisition and related refinancings as if they had
occurred on January 1, 1997. The pro forma statement of operations for the nine
months ended September 30, 1996 gives effect to the PCI Canada Acquisition, the
Offering, the borrowing under the Term Loan Agreement, the Tacoma Acquisition
and related refinancings and the acquisition of T.C. Products as if they had
occurred on January 1, 1996. The Tacoma Acquisition was effective June 17, 1997
and was accounted for using the purchase method. The acquisition of T.C.
Products was effective July 1, 1996 and was accounted for using the purchase
method. The Pro Forma Financial Information is not necessarily indicative of
either future results of operations or the results that might have occurred if
the foregoing transactions had been consummated on the indicated date.
The PCI Canada Acquisition will be accounted for using the purchase
method. After the PCI Canada Acquisition, the total purchase price of the PCI
Canada Acquisition will be allocated to the assets and liabilities of the
business acquired based upon the estimated fair value of the assets and
liabilities acquired. The pro forma adjustments reflected in the Pro Forma
Financial Information are based upon information available as of the date of the
PCI Canada Acquisition. Accordingly, there can be no assurance that the actual
adjustments will not differ significantly from the pro forma adjustments
reflected in the Pro Forma Financial Information. The pro forma adjustments
reflect certain plans and assumptions of management of the Registrant. No
assurance can be given that such plans will be implemented as now contemplated
or that such assumptions will prove to be accurate.
21
<PAGE> 22
PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
PCI CANADA ADJUSTED
ACQUISITION PCI CANADA
BUSINESS US GAAP ACQUISITION
CANADIAN ADJUSTMENTS, PRO FORMA BUSINESS AND
GAAP, $CDN(1) $CDN(2) US GAAP, $CDN US GAAP, US$ ADJUSTMENTS(3) FINANCINGS
------------- ------------ ------------- ------------ -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Current assets
Cash.......................... $ 8,374 (d) $ 8,374
Accounts receivable........... $ 31,455 $ 31,455 $ 22,680 2,782 (e) 25,462
Inventories................... 9,754 9,754 7,033 7,033
Prepaid expenses.............. 302 302 218 218
-------- -------- -------- -------- --------
Total current assets... 41,511 41,511 29,931 11,156 41,087
Property, plant and equipment,
net........................... 88,110 88,110 63,530 83,305 (f) 146,835
Investments in and advances to
unconsolidated subsidiary..... 674 $ 277 (a) 951 686 33 (f) 719
Other assets, net............... 2,769 1,723 (b) 4,492 3,239 10,720 (g) 13,959
Excess cost over the fair value
of net assets acquired,....... 76,352 (h) 76,352
-------- ------- -------- -------- -------- --------
Total assets........... $133,064 $ 2,000 $135,064 $ 97,386 $181,566 $278,952
======== ======= ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable............ $ 26,575 $ 26,575 $ 19,161 $ (2,898)(i) $ 16,263
Accrued liabilities......... 7,323 $ (562)(b) 6,761 4,874 (1,624)(i) 3,250
Returnable deposits.........
Bank Indebtedness........... 3,857 3,857 2,781(i) (2,781)(i)
Current portion of long-term
debt...................... 1,000 (j) 1,000
-------- ------- -------- -------- -------- --------
Total current liabilities... 37,755 (562) 37,193 26,816 (6,303) 20,513
Long-term debt, less current
maturities.................... 2,500 2,500 1,803 (1,803)(i)
Term Loans.................. 82,000 (j) 82,000
9 1/4% Senior Secured
Notes..................... 175,000 (j) 175,000
Returnable deposits.............
Accrued pension and other
employee benefits............. 6,316 (4,218)(b) 2,098 1,513 (74)(i) 1,439
Other long-term liabilities..... 3,613 3,613 2,605 (2,605)(i)
Preferred Stock.................
Equity.......................... 82,880 6,780 (c) 89,660 64,649 (64,649)(k)
-------- ------- -------- -------- -------- --------
Total liabilities and
stockholders'
equity............... $133,064 $ 2,000 $135,064 $ 97,386 $181,566 $278,952
======== ======= ======== ======== ======== ========
<CAPTION>
ACTUAL PRO FORMA
COMPANY COMPANY
-------- ---------
<S> <C> <C>
Current assets
Cash.......................... $ 36,248 $ 44,622
Accounts receivable........... 42,837 68,299
Inventories................... 19,974 27,007
Prepaid expenses.............. 2,668 2,886
-------- --------
Total current assets... 101,727 142,814
Property, plant and equipment,
net........................... 186,149 332,984
Investments in and advances to
unconsolidated subsidiary..... 719
Other assets, net............... 48,621 62,580
Excess cost over the fair value
of net assets acquired,....... 132,011 208,363
-------- --------
Total assets........... $468,508 $747,460
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable............ $ 28,181 $ 44,444
Accrued liabilities......... 27,175 30,425
Returnable deposits......... 3,287 3,287
Bank Indebtedness...........
Current portion of long-term
debt...................... 2,794 3,794
-------- --------
Total current liabilities... 61,437 81,950
Long-term debt, less current
maturities.................... 26,333 26,333
Term Loans.................. 98,750 180,750
9 1/4% Senior Secured
Notes..................... 200,000 375,000
Returnable deposits............. 3,271 3,271
Accrued pension and other
employee benefits............. 18,511 19,950
Other long-term liabilities..... 16,385 16,385
Preferred Stock................. 5,500 5,500
Equity.......................... 38,321 38,321
-------- --------
Total liabilities and
stockholders'
equity............... $468,508 $747,460
======== ========
</TABLE>
(see footnotes on following page)
22
<PAGE> 23
NOTES TO PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) Reflects the actual PCI Canada Acquisition Business balance sheet as
of September 30, 1997 expressed in Canadian dollars, using generally
accepted accounting principles followed in Canada ("Canadian GAAP").
(2) Reflects adjustments to convert to generally accepted accounting principles
followed in the United States ("US GAAP"):
(a) Recording of investment in joint venture under the equity method.
(b) Adjustment of pension assets and other liabilities.
(c) Reflects net equity adjustment due to US GAAP adjustments.
(3) Reflects the adjustments to the PCI Canada Acquisition Business balance
sheet, including the following:
(d) Excess cash after payment of purchase price and related acquisition and
financing costs.
(e) Receivable related to difference between base working capital and
actual working capital at closing date.
(f) Adjustment to fair value of acquired property, plant and equipment and
investment in unconsolidated subsidiary in accordance with the purchase
method of accounting.
(g) Reflects the following:
<TABLE>
<S> <C> <C>
(i) Capitalization of transaction and financing costs........... $ 9,794
(ii) Capitalization of patents and trademarks.................... 1,007
(iii) Capitalization of covenant not to compete or solicit........ 3,158
(iv) Elimination of other assets not purchased................... (3,239)
-------
$10,720
=======
</TABLE>
(h) Addition of excess of cost over the fair value of net assets acquired.
(i) Reflects elimination of liabilities not assumed.
(j) Addition of debt incurred in connection with the PCI Canada
Acquisition.
(k) Elimination of the PCI Canada Acquisition Business historical equity
in accordance with the purchase method of accounting.
23
<PAGE> 24
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------------------
PRIOR PCI CANADA
ACTUAL COMPANY ACQUISITIONS(1) ACQUISITION(2) AS ADJUSTED
-------------- --------------- ----------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues................................ $208,908 $83,912 $164,247 $457,067
Cost of sales........................... 150,464 54,941 115,233 320,638
-------- ------- -------- --------
Gross profit............................ 58,444 28,971 49,014 136,429
Selling, general and administrative
expenses.............................. 29,860 3,679 13,919 47,458
-------- ------- -------- --------
Operating income........................ 28,584 25,292 35,095 88,971
Interest expense, net................... (19,212) (9,100) (23,492) (51,804)
Other income, net....................... 887 18 1,594 2,499
-------- ------- -------- --------
Income before income taxes and
extraordinary item.................... 10,259 16,210 13,197 39,666
Provision for income taxes.............. 5,859 5,645 4,302 15,806
-------- ------- -------- --------
Income before extraordinary item........ $ 4,400 $10,565 $ 8,895 $ 23,860
======== ======= ======== ========
</TABLE>
(see footnotes on following page)
24
<PAGE> 25
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) Reflects the pro forma adjusted financial results of the Company's prior
acquisitions of T.C. Products and the Tacoma Facility, as shown below.
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------------------
ACTUAL TACOMA PRIOR
PLANT T.C.PRODUCTS(A) ADJUSTMENTS(B) ACQUISITIONS
------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
Revenues........................... $73,715 $4,255 $ 5,942(i) $83,912
Cost of sales...................... 52,420 2,550 (29)(ii) 54,941
------- ------- ------- -------
Gross profit....................... 21,295 1,705 5,971 28,971
Selling, general and administrative
expenses......................... 1,782 900 997(iii) 3,679
------- ------- ------- -------
Operating income................... 19,513 805 4,974 25,292
Equity in net loss of
unconsolidated subsidiary........ -- --
Interest expense, net.............. (271) (8,829)(iv) (9,100)
Other income (expense), net........ (2,209) 11 2,216(v) 18
------- ------- ------- -------
Income before income taxes and
extraordinary item............... 17,304 545 (1,639) 16,210
Provision for income taxes......... 6,059 241 (655)(vi) 5,645
------- ------- ------- -------
Income before extraordinary item... $11,245 $ 304 $ (984) $10,565
======= ======= ======= =======
</TABLE>
(a) Reflects the pro forma financial results of T.C. Products for the period of
January 1, 1996 to June 30, 1996, the period prior to ownership by the
Company.
(b) Reflects the adjustments to the operating results from the assets acquired
in the Tacoma Acquisition (the "Tacoma Plant") to reflect operations as
part of the Company:
(i) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of freight costs associated with the sale of
100,000 tons per year of chlorine shipped to the Gulf Coast
for which the seller of the Tacoma Plant ("OxyChem") will
bear the cost............................................... $ 6,394
(2) Adjustment to sales to OxyChem for the difference between
historical prices and Gulf Coast prices..................... 60
(3) Additional 5% commission to be paid to OxyChem on OxyChem's
national accounts to be serviced by the Company............. (512)
--------
$ 5,942
========
</TABLE>
(ii) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of the impact of LIFO accounting previously used
by the Tacoma Plant as the Company uses FIFO or average cost
methods of accounting for inventory valuation............... $ 652
(2) Additional depreciation expense with respect to the
properties, plant and equipment purchased in connection with
the Tacoma Acquisition using the straight-line method over
an average life of 20 years................................. 351
(3) Elimination of operating lease expense for equipment
capitalized by the Company which was previously leased by
OCC Tacoma.................................................. (1,532)
(4) Incremental insurance costs................................. 500
--------
$ (29)
========
</TABLE>
25
<PAGE> 26
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(iii) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of OxyChem corporate allocations................ $ (1,782)
(2) Addition of the Company's incremental selling, general and
administrative expenses..................................... 750
(3) Additional amortization expense with respect to intangible
assets purchased in connection with the Tacoma Acquisition
using the straight-line method over periods of 5 to 25
years....................................................... 2,029
--------
$ 997
========
</TABLE>
(iv) Incremental interest expense related to the Existing Term Loans with
an assumed interest rate of 8.375% and to the Senior Secured Notes
with an interest rate of 9.25%. A 0.25% change in the interest rate
applicable to the Existing Term Loans would change pro forma interest
expense by $250.
(v) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of environmental expense associated with the
Tacoma Plant's accrual of known environmental matters....... $ 1,932
(2) Elimination of fees related to the Tacoma Plant's sales of
receivables................................................. 377
(3) Elimination of amortization of deferred gain on equipment
capitalized by the Company, which was previously leased by
the Tacoma Plant............................................ (93)
--------
$ 2,216
========
</TABLE>
(vi) Represents the tax effect of all pro forma adjustments.
(2) Represents pro forma adjusted amounts for the FP Acquisition, as shown
below.
<TABLE>
<CAPTION>
PCI CANADA
ACQUISITION
BUSINESS
CANADIAN US GAAP
GAAP, ADJUSTMENTS US GAAP, US GAAP, PRO FORMA
$CDN(a) $CDN(b) $CDN US$ ADJUSTMENTS(c) AS ADJUSTED
-------- ----------- -------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ $223,967 $ -- $223,967 $164,247 $ -- $164,247
Cost of sales....................... 149,043 -- 149,043 109,301 5,932 (iii) 115,233
-------- ------- -------- -------- -------- --------
Gross profit........................ 74,924 -- 74,924 54,946 (5,932) 49,014
Selling, general and administrative
expenses.......................... 14,546 (1,112)(i) 13,434 9,852 4,067 (iv) 13,919
-------- ------- -------- -------- -------- --------
Operating income.................... 60,378 1,112 61,490 45,094 (9,999) 35,095
Equity in net loss of unconsolidated
subsidiary........................ -- -- -- -- -- --
Interest expense, net............... -- -- -- -- (23,492)(v) (23,492)
Other income, net................... 2,045 128 (ii) 2,173 1,594 -- 1,594
-------- ------- -------- -------- -------- --------
Income before income taxes and
extraordinary item................ 62,423 1,240 63,663 46,688 (33,491) 13,197
Provision (benefit) for income
taxes............................. (792) -- (792) (581) 4,883 (vi) 4,302
-------- ------- -------- -------- -------- --------
Income before extraordinary item.... $63,215 $ 1,240 $64,455 $47,269 $(38,374) $ 8,895
======== ======= ======== ======== ======== ========
</TABLE>
(a) Reflects actual results for the PCI Canada Acquisition Business expressed
in Canadian dollars using Canadian GAAP.
26
<PAGE> 27
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(b) Reflects adjustments to reflect US GAAP:
<TABLE>
<S> <C> <C>
(i) Reflects selling, general and administrative expenses
adjustment including:
Decrease in expenses due to computing pension expense under
US GAAP................................................... $ (462)
Decrease in expenses due to reduction in restructuring
expenses under US GAAP.................................... (650)
-------
$(1,112)
=======
(ii) Increase in income of joint venture investment accounted for under
the equity method.
</TABLE>
(c) Reflects the adjustments to the PCI Canada Acquisition Business' operating
results to reflect operations as a part of the Company:
<TABLE>
<S> <C> <C>
(iii) Additional depreciation expense with respect to the property, plant
and equipment purchased in connection with the PCI Canada
Acquisition using the straight-line method over an average life
of twelve years.
(iv) Reflects the following:
Elimination of ICI corporate allocations.................... $(1,197)
Addition of the Company's incremental selling, general and
administrative expenses................................... 500
Additional amortization expense with respect to intangible
assets purchased in connection with the PCI Canada
Acquisition using the straight-line method over periods of
5 to 25 years............................................. 4,764
-------
$ 4,067
=======
(v) Incremental interest expense related to the Term Loans with an
assumed interest rate of 8.8% and to the Notes with an interest
rate of 9.25%. A 0.25% change in the interest rate applicable to
the Term Loans would change pro forma interest expense by $250.
(vi) Represents the tax provision for the PCI Canada Acquisition
Business plus the tax impact of all pro forma adjustments.
</TABLE>
27
<PAGE> 28
PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------------------
PRIOR
ACTUAL COMPANY ACQUISITIONS(1) FP ACQUISITION(2) AS ADJUSTED
-------------- --------------- ----------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues................................ $172,362 $37,021 $121,961 $331,344
Cost of sales........................... 134,477 26,170 84,220 244,867
-------- ------- -------- --------
Gross profit............................ 37,885 10,851 37,741 86,477
Selling, general and administrative
expenses.............................. 25,411 1,274 10,456 37,141
-------- ------- -------- --------
Operating income........................ 12,474 9,577 27,285 49,336
Interest expense, net................... (17,102) (4,042) (17,619) (38,763)
Other income (expense), net............. 879 (39) 722 1,562
-------- ------- -------- --------
Income (loss) before income taxes and
extraordinary item.................... (3,749) 5,496 10,388 12,135
Provision (benefit) for income taxes.... 46 2,395 3,412 5,853
-------- ------- -------- --------
Income (loss) before extraordinary
item.................................. $ (3,795) $ 3,101 $ 6,976 $ 6,282
======== ======= ======== ========
</TABLE>
(see footnotes on following page)
28
<PAGE> 29
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) Reflects the pro forma adjusted financial results of the Company's prior
acquisition of the Tacoma Plant, as shown below.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL TACOMA --------------------------
PLANT ADJUSTMENTS AS ADJUSTED
------------- ----------- -----------
<S> <C> <C> <C>
Revenues.............................................. $34,491 $ 2,530 (a) $37,021
Cost of sales......................................... 27,141 (971)(b) 26,170
------- ------- -------
Gross profit.......................................... 7,350 3,501 10,851
Selling, general and administrative expenses.......... 539 735 (c) 1,274
------- ------- -------
Operating income...................................... 6,811 2,766 9,577
Equity in net loss of unconsolidated subsidiary....... -- -- --
Interest expense, net................................. -- (4,042)(d) (4,042)
Other income (expense), net........................... 455 (494)(e) (39)
------- ------- -------
Income before income taxes and extraordinary item..... 7,266 (1,770) 5,496
Provision for income taxes............................ 2,545 (150)(f) 2,395
------- ------- -------
Income before extraordinary item...................... $ 4,721 $(1,620) $ 3,101
======= ======= =======
</TABLE>
(a) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of freight costs associated with the sale of
100,000 tons per year of chlorine shipped to the Gulf Coast
for which OxyChem will bear the cost........................ $2,548
(2) Reclassification of freight rebate from other income to
offset freight costs included in revenues................... 586
(3) Adjustment to sales to OxyChem for the difference between
historical prices and Gulf Coast prices..................... (344)
(4) Additional 5% commission to be paid to OxyChem on OxyChem's
national accounts to be serviced by the Company............. (260)
------
$2,530
======
</TABLE>
(b) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of the impact of LIFO accounting previously used
by the Tacoma Plant as the Company uses FIFO or average cost
methods of accounting for inventory valuation............... $ (555)
(2) Additional depreciation expense with respect to the
properties, plant and equipment purchased in connection with
the Tacoma Acquisition using the straight-line method over
an average life of 20 years................................. 121
(3) Elimination of operating lease expense for the equipment
capitalized by the Company which was previously leased by
OCC Tacoma.................................................. (766)
(4) Incremental insurance costs................................. 229
------
$ (971)
======
</TABLE>
29
<PAGE> 30
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(c) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of OxyChem corporate allocations................ $ (539)
(2) Addition of the Company's incremental selling, general and
administrative expenses..................................... 344
(3) Additional amortization expense with respect to intangible
assets purchased in connection with the Tacoma Acquisition
using the straight-line method over periods of 5 to 25
years....................................................... 930
------
$ 735
======
</TABLE>
(d) Incremental interest expense related to the Existing Term Loans with an
assumed interest rate of 8.375% and to the Senior Secured Notes with an
interest rate of 9.25%. A 0.25% change in the interest rate applicable to
the Existing Term Loans would change pro forma interest expense by $125.
(e) Reflects the following:
<TABLE>
<S> <C> <C>
(1) Elimination of fees related to the Tacoma Plant's sales of
receivables................................................. $ 138
(2) Elimination of amortization of deferred gain on equipment
capitalized by the Company, which was previously leased by
the Tacoma Plant............................................ (46)
(3) Reclassification of freight rebate to revenues to offset
freight costs............................................... (586)
------
$ (494)
======
</TABLE>
(f) Represents the tax effect of all pro forma adjustments.
(2) Represents pro forma adjusted amounts for the PCI Canada Acquisition, as
shown below.
<TABLE>
<CAPTION>
PCI CANADA
ACQUISITION
BUSINESS
CANADIAN US GAAP
GAAP, ADJUSTMENTS US GAAP, US GAAP, PRO FORMA
$CDN(a) $CDN(b) $CDN US$ ADJUSTMENTS(c) AS ADJUSTED
-------- ----------- -------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................................... $167,879 $ -- $167,879 $121,961 $ -- $121,961
Cost of sales................................ 110,114 -- 110,114 79,996 4,224 (iii) 84,220
-------- ------ --------- -------- -------- --------
Gross profit................................. 57,765 -- 57,765 41,965 (4,224) 37,741
Selling, general and administrative
expenses................................... 11,122 (1,101)(i) 10,021 7,280 3,176(iv) 10,456
-------- ------ --------- -------- -------- --------
Operating income............................. 46,643 1,101 47,744 34,685 (7,400) 27,285
Equity in net loss of unconsolidated
subsidiary................................. -- -- -- -- -- --
Interest expense, net........................ -- -- -- -- (17,619)(v) (17,619)
Other income, net............................ 931 63(ii) 994 722 -- 722
-------- ------ --------- -------- -------- --------
Income before income taxes and extraordinary
item....................................... 47,574 1,164 48,738 35,407 (25,019) 10,388
Provision (benefit) for income taxes......... (594) -- (594) (432) 3,844(vi) 3,412
-------- ------ --------- -------- -------- --------
Income before extraordinary item............. $ 48,168 $1,164 $ 49,332 $ 35,839 $(28,863) $ 6,976
======== ====== ========= ======== ======== ========
</TABLE>
(a) Reflects actual results for the PCI Canada Acquisition Business expressed
in Canadian dollars using Canadian GAAP
(b) Reflects adjustments to reflect US GAAP:
<TABLE>
<S> <C> <C>
(i) Reflects selling, general and administrative expenses
adjustment to reflect:
Decrease in expenses due to computing pension expense under
US GAAP................................................... $(1,189)
Increase in expenses due to restructuring expenses under US
GAAP...................................................... 88
-------
$(1,101)
=======
(ii) Increase in income of joint venture investment accounted for under
the equity method.
</TABLE>
30
<PAGE> 31
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(c) Reflects the adjustments to the PCI Canada Acquisition Business' operating
results to reflect operations as a part of the Company:
<TABLE>
<S> <C> <C>
(iii) Additional depreciation expense with respect to the property, plant
and equipment purchased in connection with the PCI Canada Acquisition
using the straight-line method over an average life of twelve years.
(iv) Reflects the following:
Elimination of ICI corporate allocations.................... $ (772)
Addition of the Company's incremental selling, general and
administrative
expenses.................................................. 375
Additional amortization expense with respect to intangible
assets purchased in connection with the PCI Canada
Acquisition using the straight-line method over periods of
5 to 25 years....................... ..................... 3,573
------
$3,176
======
(v) Incremental interest expense related to the Term Loans with an
assumed interest rate of 8.8% and to the Notes with an interest rate
of 9.25%. A 0.25% change in the interest rate applicable to the Term
Loans would change pro forma interest expense by $125.
(vi) Represents the tax provision for the PCI Canada Acquisition Business
plus the tax impact of all pro forma adjustments.
</TABLE>
31
<PAGE> 32
PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------------------
PRIOR PCI CANADA
ACTUAL COMPANY ACQUISITIONS(1) ACQUISITION(2) AS ADJUSTED
-------------- --------------- -------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................. $159,082 $64,546 $123,718 $347,346
Cost of sales........................ 115,085 42,854 85,631 243,570
-------- ------- -------- --------
Gross profit......................... 43,997 21,692 38,087 103,776
Selling, general and administrative
expenses........................... 23,147 4,627 10,569 38,343
-------- ------- -------- --------
Operating income..................... 20,850 17,065 27,518 65,433
Interest expense, net................ (13,908) (7,000) (17,619) (38,527)
Other income (expense), net.......... 491 1,676 1,613 3,780
-------- ------- -------- --------
Income before income taxes and
extraordinary item................. 7,433 11,741 11,512 30,686
Provision for income taxes........... 4,400 4,064 3,826 12,290
-------- ------- -------- --------
Income before extraordinary item..... $ 3,033 $ 7,677 $ 7,686 $ 18,396
======== ======= ======== ========
</TABLE>
(see footnotes on following page)
32
<PAGE> 33
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) Reflects the pro forma adjusted financial results of the Company's prior
acquisitions of the Tacoma Plant and T.C. Products, as shown below.
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------------
ACTUAL TACOMA T.C.PRODUCTS ADJUSTMENTS PRIOR
PLANT (A) (B) ACQUISITIONS
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues.................................. $56,038 $4,255 $4,253 (i) $64,546
Cost of sales............................. 39,925 2,550 379 (ii) 42,854
------- ------ ------- -------
Gross profit.............................. 16,113 1,705 3,874 21,692
Selling, general and administrative
expenses................................ 2,977 900 750 (iii) 4,627
------- ------ ------- -------
Operating income.......................... 13,136 805 3,124 17,065
Equity in net loss of unconsolidated
subsidiary.............................. -- -- -- --
Interest expense, net..................... -- (271) (6,729)(iv) (7,000)
Other income (expense), net............... -- 11 1,665 (v) 1,676
------- ------ ------- -------
Income before income taxes and
extraordinary item...................... 13,136 545 (1,940) 11,741
Provision for income taxes................ 4,599 241 (776)(vi) 4,064
------- ------ ------- -------
Income before extraordinary item.......... $ 8,537 $ 304 $(1,164) $ 7,677
======= ====== ======= =======
(a) Reflects the pro forma financial results of T.C. Products for the period of January
1, 1996 to June 30, 1996, the period prior to ownership by the Company.
(b) Reflects the adjustments to the Tacoma Plant's operating results to reflect
operations as part of the Company:
(i) Reflects the following:
(1) Elimination of freight costs associated with the sale of
100,000 tons per year of chlorine shipped to the Gulf Coast
for which OxyChem will bear the cost........................ $4,850
(2) Adjustment to sales to OxyChem for the difference between
historical prices and Gulf Coast prices..................... (207)
(3) Additional 5% commission to be paid to OxyChem on OxyChem's
national accounts to be serviced by the Company............. (390)
------
$4,253
======
(ii) Reflects the following:
(1) Elimination of the impact of LIFO accounting previously used
by the Tacoma Plant as the Company uses FIFO or average
costs methods of accounting for inventory valuation......... $ 756
(2) Additional depreciation expense with respect to the
properties, plant and equipment purchased in connection with
the Tacoma Acquisition using the straight-line method over
an average life of 20 years................................. 397
(3) Elimination of operating lease expense for the equipment
capitalized by the Company which was previously leased by
OxyChem..................................................... (1,149)
(4) Incremental insurance costs................................. 375
-------
$ 379
=======
</TABLE>
33
<PAGE> 34
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(iii) Reflects the following:
(1) Elimination of OxyChem corporate allocations................ $(1,334)
(2) Addition of the Company's incremental selling, general and
administrative expenses..................................... 563
(3) Additional amortization expense with respect to intangible
assets purchased in connection with the Tacoma Acquisition
using the straight-line method over periods of 5 to 25
years....................................................... 1,521
-------
$ 750
=======
</TABLE>
(iv) Incremental interest expense related to the Existing Term Loans with an
assumed interest rate of 8.375% and to the Senior Secured Notes with an
interest rate of 9.25%. A 0.25% change in the interest rate applicable
to the Existing Term Loans would change pro forma interest expense by
$125.
<TABLE>
<S> <C> <C>
(v) Reflects the following:
(1) Elimination of environmental expense associated with the
Tacoma Plant's accrual of known environmental matters....... $ 1,449
(2) Elimination of fees related to the Tacoma Plant's sales of
receivables................................................. 285
(3) Elimination of amortization of deferred gain on equipment
capitalized by the Company, which was previously leased by
the Tacoma Plant............................................ (69)
-------
$ 1,665
=======
</TABLE>
(vi) Represents the tax effect of all pro forma adjustments.
(2) Represents to pro forma adjusted amounts for the PCI Canada Acquisition,
as shown below.
<TABLE>
<CAPTION>
PCI CANADA
ACQUISITION US GAAP
CANADIAN GAAP, ADJUSTMENTS, US GAAP, US GAAP, PRO FORMA
$CDN (a) $CDN (b) $CDN US$ ADJUSTMENTS(c) AS ADJUSTED
-------------- ------------ -------- -------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $169,234 $ -- $169,234 $123,718 $ -- $123,718
Cost of sales.............. 111,011 -- 111,011 81,154 4,477(iii) 85,631
-------- ------ -------- -------- -------- --------
Gross profit............... 58,223 -- 58,223 42,564 (4,477) 38,087
Selling, general and
administrative
expenses................. 11,286 (950)(i) 10,336 7,556 3,013(iv) 10,569
-------- ------ -------- -------- -------- --------
Operating income........... 46,937 950 47,887 35,008 (7,490) 27,518
Equity in net loss of
unconsolidated
subsidiary............... -- -- -- -- -- --
Interest expense, net...... -- -- -- -- (17,619)(v) (17,619)
Other income (expense),
net...................... 2,086 120(ii) 2,206 1,613 -- 1,613
-------- ------ -------- -------- -------- --------
Income before income taxes
and extraordinary item... 49,023 1,070 50,093 36,621 (25,109) 11,512
Provision for income
taxes.................... (594) -- (594) (434) 4,260(vi) 3,826
-------- ------ -------- -------- -------- --------
Income before extraordinary
item..................... $ 49,617 $1,070 $ 50,687 $ 37,055 $(29,369) $ 7,686
======== ====== ======== ======== ======== ========
</TABLE>
34
<PAGE> 35
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(a) Reflects actual results for the PCI Canada Acquisition Business expressed
in Canadian dollars using Canadian GAAP.
(b) Reflects adjustments to reflect US GAAP:
<TABLE>
<S> <C> <C>
Reflects selling, general and administrative expenses
(i) adjustment to reflect:
Decrease in expenses due to computing pension expense under
US GAAP..................................................... $ (300)
Decrease in expenses due to reduction in restructuring
expenses under US GAAP...................................... (650)
------
$ (950)
======
</TABLE>
(ii) Increase in income of joint venture investment accounted for under
the equity method.
(c) Reflects the adjustments to the PCI Canada Acquisition Business' operating
results to reflect operations as a part of the Company:
(iii) Additional depreciation expense with respect to the property, plant
and equipment purchased in connection with the PCI Canada Acquisition
using the straight-line method over an average life of twelve years.
(iv) Reflects the following:
<TABLE>
<S> <C> <C>
Elimination of ICI corporate allocations.................... $ (935)
Addition of the Company's incremental selling, general and
administrative expenses..................................... 375
Additional amortization expense with respect to intangible
assets purchased in connection with the PCI Canada
Acquisition using the straight-line method over periods of
5 to 25 years............................................... 3,573
------
$3,013
======
</TABLE>
(v) Incremental interest expense related to the Term Loans with an assumed
interest rate of 8.8% and to the Notes with an interest rate of 9.25%.
A 0.25% change in the interest rate applicable to the Term Loans would
change pro forma interest expense by $125.
(vi) Represents the tax provision for the PCI Canada Acquisition Business
plus the tax impact of all pro forma adjustments.
35
<PAGE> 36
(c) Exhibits. (Exhibits marked with an asterisk (*) are incorporated by
reference.)
EXHIBIT NO. DESCRIPTION OF EXHIBITS
2(a)* Asset Purchase Agreement, dated as of
September 22, 1997, between PCI Chemicals
Canada Inc., PCI Carolina, Inc. and the
Registrant and Imperial Chemical Industries
PLC, ICI Canada Inc. and ICI Americas, Inc.
(incorporated by reference to Exhibit 2 to
the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1997).
2(b) First Amendment to Asset Purchase Agreement,
dated as of October 31, 1997, between PCI
Chemicals Canada Inc., PCI Carolina, Inc.
and the Registrant and Imperial Chemical
Industries PLC, ICI Canada Inc. and ICI
Americas, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PIONEER COMPANIES, INC.
November 17, 1997 By: /s/ PHILIP A. ABLOVE
--------------------
Philip A. Ablove
Vice President and
Chief Financial Officer
36
<PAGE> 37
EXHIBIT INDEX
(c) Exhibits. (Exhibits marked with an asterisk (*) are incorporated
by reference.)
EXHIBIT NO. DESCRIPTION OF EXHIBITS
2(a)* Asset Purchase Agreement, dated as of September
22, 1997, between PCI Chemicals Canada Inc., PCI
Carolina, Inc. and Pioneer Companies, Inc. and
Imperial Chemical Industries PLC, ICI Canada Inc.
and ICI Americas, Inc. (incorporated by reference to
Exhibit 2 to the Registrant's Report on Form 10-Q for
the quarter ended September 30, 1997).
2(b) First Amendment to Asset Purchase Agreement, dated as of
October 31, 1997, between PCI Chemicals Canada Inc., PCI
Carolina, Inc. and Pioneer Companies, Inc. and Imperial
Chemical Industries PLC, ICI Canada Inc. and ICI
Americas, Inc.
<PAGE> 1
EXHIBIT 2(b)
FIRST AMENDMENT TO
ASSET PURCHASE AGREEMENT
This First Amendment ("Amendment") is entered into by and among
PCI CHEMICALS CANADA INC., a New Brunswick corporation, ("Purchaser"), PCI
CAROLINA, INC., a Delaware corporation ("U.S. Purchaser"), PIONEER COMPANIES,
INC., a Delaware corporation ("Pioneer"), ICI CANADA INC., a Canadian
corporation ("Vendor"), ICI AMERICAS INC., a Delaware corporation ("U.S.
Vendor") and IMPERIAL CHEMICAL INDUSTRIES PLC, a United Kingdom corporation
("ICI Parent ").
PRELIMINARY STATEMENTS
1. Purchaser, U.S. Purchaser, Pioneer, Vendor, U.S. Vendor
and ICI Parent (collectively, the "Parties") are parties to that certain Asset
Purchase Agreement dated as of September 22, 1997 contemplating the acquisition
by Purchaser and U.S. Purchaser or their assignee of certain assets, business
and undertakings comprising the Forest Products Division of Vendor and U.S.
Vendor for the consideration and upon the terms and conditions therein set
forth ("Purchase Agreement").
2. The Parties desire to amend the Purchase Agreement to
change the Closing Date, to provide for an effective Time of Closing as of
12:01 a.m. on October 31, 1997 and to make other agreed and conforming changes
to the Purchase Agreement. Capitalized terms used but not defined herein shall
have the meanings set forth in the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereby agree as follows:
Amendment to Definitions in Section 1.1. (a) Certain of
the Definitions set forth in Section 1.1 of Article I of the Purchase Agreement
are amended hereafter to read in their entirety, as follows:
"ACTUAL WORKING CAPITAL" means Working Capital at the Effective
Time calculated in accordance with Schedule 7.4(1);
"BASE WORKING CAPITAL" means the amount of $17,304,000;
"CLOSING DATE" means November 5, 1997 or such other date, not
later than December 31, 1997 as may be agreed to in writing between the
Vendor and the Purchaser;
<PAGE> 2
(b) The following definition shall be added to the definitions
in Section 1.1:
"EFFECTIVE DATE" means October 31, 1997;
"EFFECTIVE TIME" means 12:01 a.m. on October 31, 1997;
(c) The words "Closing Date" utilized in the definition of
VENDOR'S RETAINED ENVIRONMENTAL LIABILITIES shall be changed to the
words "Effective Time," and Clause (b) in such definition is hereby
amended to read in its entirety as follows:
"(b) Operation of the Business or activities conducted on the
Cornwall Site prior to the Effective Time and any activity
carried out thereon by or on behalf of the Vendor or any
Affiliate of the Vendor or any employee of the Purchaser acting
as agent of the Vendor after the Effective Time pursuant to
Section 8.1(2)(l) hereof; and"
Amendment to Section 1.4. Section 1.4 of the Purchase
Agreement is hereby amended to read in its entirety as follows:
"All references to currency herein are to lawful money of Canada,
except that (i) the Purchase Price and adjustments thereto and
the payment to ICI Parent provided for in Section 2.4 shall be
paid pursuant to Section 2.9 in lawful money of the United
States, and (ii) the allocations in Schedule 2.5 are in lawful
money of the United States. For purposes of converting
adjustments provided for in this Agreement from Canadian dollars
to United States dollars, the exchange rate to be used shall be
the closing mid-point spot exchange rate as reported by Bloomberg
(x) in the case of any adjustments provided for in Section 2.4,
two Business Days prior to the Effective Date, and (y) in the
case of any payment to be made pursuant to Section 7.4, two
Business Days prior to the date such payment is due."
Amendments to Section 1.5. (a) Certain of the Schedules
attached to the Purchase Agreement are hereby amended, as follows:
(i) Schedule 2.1(2) dealing with "Machinery and Equipment" is
amended in its entirety to be in the form attached to this
Amendment as Schedule 2.1(2).
-2-
<PAGE> 3
(ii) Schedule 2.1(3) dealing with "Contracts" is amended in its
entirety to be in the form attached to this Amendment as Schedule
2.1(3).
(iii) Schedule 2.1(6) dealing with "Existing Permits" is amended
in its entirety to be in the form attached to this Amendment as
Schedule 2.1(6).
(iv) Schedule 2.2 dealing with "Excluded Assets" is amended in
its entirety to be in the form attached to this Amendment as
Schedule 2.2.
(v) Schedule 2.3 dealing with "Contracts Requiring Consent to
Assignment" is amended in its entirety to be in the form attached
to this Amendment as Schedule 2.3.
(vi) Schedule 3.1(18) dealing with "Environmental Disclosure"
is amended in its entirety to be in the form attached to this
Amendment as Schedule 3.1(18).
(vii) Schedule 3.1(18)(a) dealing with "Environmental Permits"
is amended in its entirety to be in the form attached to this
Amendment as Schedule 3.1(18)(a).
(viii) Schedule 4.6(1) dealing with "Storage Tanks" is amended in
its entirety to be in the form attached to this Amendment as
Schedule 4.6(1).
(ix) Schedule 5.9(a) dealing with "Becancour Chemprox
Employees" is amended in its entirety to be in the form attached
to this Amendment as Schedule 5.9(a).
(x) Schedule 6.1(1)(l) is amended to change its title from
"Confidentiality and Noncompetition Agreement" to "Noncompetition
Agreement" and to be in the form attached to this Amendment as
Schedule 6.1(1)(l).
(xi) Schedule 7.4(1) dealing with "Actual Working Capital" is
amended in its entirety to be in the form attached to this
Amendment as Schedule 7.4(1).
(b) A new Schedule 2.5 entitled "Purchase Price Allocation" is added
to the Purchase Agreement and attached hereto.
- 3 -
<PAGE> 4
Amendments to Section 2.1. (a) The first sentence of
Section 2.1 is hereby amended to read in its entirety as follows:
"Upon and subject to the terms and conditions hereof, the Vendor
will sell to the Purchaser and the Purchaser will purchase from
the Vendor as a going concern, as of and with effect from the
Effective Time, the undertakings, business and operations of the
Business, including all of the assets owned by the Vendor or to
which the Vendor is entitled and belonging to or used in the
Business (collectively "Assets") including, without limitation,
the following:
(b) Section 2.1(5) is hereby amended to delete the words
"Closing Date" appearing therein and replace such words with the words
"Effective Time".
(c) The last sentence of Section 2.1 is hereby amended to read
in its entirety as follows:
"Subject to and simultaneous with completion of the sale and
purchase of the Assets, but effective for all purposes as of the
Effective Time, the U.S. Vendor shall sell to the U.S. Purchaser,
and the U.S. Purchaser shall purchase from the U.S. Vendor, the
undertakings, business and operations of the U.S. Business
including the assets set forth in Schedule 2.1.1 (the "U.S.
Assets")."
Amendment to Section 2.2. The first sentence of Section
2.2 is hereby amended to read in its entirety as follows:
"For the avoidance of doubt, the Excluded Assets listed in
Schedule 2.2 existing as of the Effective Time shall be retained
by the Vendor or the U.S. Vendor and shall not be sold, assigned
or transferred to the Purchaser or the U.S. Purchaser pursuant to
this Agreement."
Amendment to Section 2.4. Section 2.4 of the Purchase
Agreement is hereby amended to read in its entirety as follows:
"The purchase price payable to the Vendor for the Assets and to
the U.S. Vendor for the U.S. Assets will be U.S. $232,412,850
(such amount being hereinafter referred to as the "Purchase
Price), together with interest thereon from the Effective Time to
but excluding the Closing Date at the rate of 8 1/2% per annum,
and subject to adjustment (i) as
- 4 -
<PAGE> 5
contemplated in Sections 7.4 and 4.3(2) (except, as to the
latter, to the extent taken into consideration in the adjustment
of working capital contemplated by Section 7.4) and (ii) for
customary prorations for real property and school taxes and lease
rental payments (except to the extent taken into consideration in
the adjustment of working capital contemplated by Section 7.4),
and (iii) by deducting therefrom the amount of any dividend (or
the fair market value of any distribution) received by the Vendor
with respect to the Canso Common Shares during the period
commencing June 30, 1997 and ending on the Closing Date
(calculated in U.S. currency based upon the closing mid point
spot exchange rate reported by Bloomberg on the date of such
dividend or distribution), which Purchase Price (as so adjusted)
will be allocated in accordance with Section 2.5.
The Vendor shall undertake to have all utility service meters
recorded as of 8:00 a.m. on the Effective Date, with charges
prior to such time solely for the account of Vendor and charges
thereafter for the account of Purchaser. Purchaser shall make
arrangements for utility services on and after 8:00 a.m. on the
Closing Date.
In addition to the Purchase Price and in consideration of
execution and delivery by ICI Parent of the Noncompetition
Agreement referred to in Section 6.1(1)(l), the U.S. Purchaser
agrees to pay or cause to be paid to ICI Parent the sum of
U.S.$3,157,900, together with interest thereon from the Effective
Time to but excluding the Closing Date at the rate of 8 1/2% per
annum, with respect to the limitations and restrictions therein
provided applicable to the U.S. Business."
Amendment to Section 2.5. The first paragraph of
Section 2.5 of the Purchase Agreement dealing with Purchase Price Allocation is
hereby amended to read in its entirety as follows:
"Each of the Vendor, the U.S. Vendor and the Purchaser and the
U.S. Purchaser have agreed upon an allocation of the Purchase
Price among the Assets and US. Assets prior to the Effective Time
in the manner set forth in Schedule 2.5 attached to this
Agreement. The parties hereby agree to use such allocation and
to cooperate in good faith with each other in connection with the
preparation or filing of any information required to be furnished
to Revenue Canada and
- 5 -
<PAGE> 6
to the Ministere du revenu du Quebec and any applicable
Governmental Authority. The parties further agree that they will
not voluntarily take any inconsistent position thereafter,
whether in the course of an audit by any applicable Governmental
Authority or otherwise."
Amendment to Section 2.7. The words "Closing Date" and
"Time of Closing" in Section 2.7 are hereby deleted and replaced with the words
"Effective Time."
Amendment to Section 2.8. Section 2.8(b) is hereby
amended to delete the words "Time of Closing" appearing therein and to replace
such words with the words "Effective Time".
Amendment to Section 2.9. Section 2.9 is hereby amended
to add a second sentence which shall read in its entirety as follows:
"The amount payable to ICI Parent pursuant to Section 2.4 shall
be payable by delivery to ICI Parent at the Time of Closing of a
certified check or bank draft or by wire transfer of funds to ICI
Parent pursuant to wire transfer account information given to the
Purchaser and the U.S. Purchaser not later than three (3)
Business Days prior to the Closing Date."
Amendments to Section 3.1.
(a) Section 3.1(5)(b) is hereby amended to delete the words
"Closing Date" appearing therein and to replace such words with the
words "Effective Time".
(b) The third sentence of Section 3.1(8) is hereby amended to
delete the words "Closing Date" appearing therein and to replace such
words with the words "Effective Time".
(c) Section 3.1(22)(a) is hereby amended hereafter to read in
its entirety as follows:
"(22) (a) the authorized capital stock of Canso consists of
40,000 common shares, without nominal or par value;
Canso has no shares of capital stock outstanding
except for 11,140 common shares owned by Kimberly
Clark Nova Scotia Inc., 11,140 common shares owned
by Stora Forest Industries Inc. and the Canso
Common Shares (as hereinafter defined); all of the
Canso Common Shares are duly authorized, validly
issued as fully paid and non-assessable; the Vendor
has, and immediately prior to the Effective Date
will have, good and valid title to
- 6 -
<PAGE> 7
11,140 common shares of Canso (the "CANSO COMMON
SHARES"), with full right, power and authority to
transfer the Canso Common Shares to the Purchaser
at the Effective Time, free and clear of any and
all proxies, shareholder agreements, voting
agreements, voting trusts or Encumbrances other
than that certain Shareholders' Agreement dated as
of January 1, 1985, as amended by Extension of
Agreement dated as of January 1, 1990
("SHAREHOLDERS' AGREEMENT") set forth on Schedule
2.3, pursuant to which consent for the transfer of
the Canso Common Shares has been or will be
obtained prior to the Effective Date by the Vendor
from all parties thereto; upon the delivery of
certificates representing the Canso Common Shares
to the Purchaser on the Effective Date, the
Purchaser will acquire good and valid title to the
Canso Common Shares, free and clear of any and all
proxies, shareholder agreements, voting agreements,
voting trusts or Encumbrances, other than the
rights to purchase and restrictions set forth in
the Shareholders' Agreement; and ownership of the
Canso Common Shares does not impose on Purchaser
any obligation to make any contribution to the
capital of Canso or any indemnification obligations
vis a vis the other shareholders of Canso;"
(d) Section 3.1(22)(c)(2) is hereby amended to delete the
words "Closing Date" appearing therein and to replace such words with
the words "Effective Time".
(e) Section 3.1(23)(a) is hereby amended to read in its
entirety as follows:
"(a)" the Vendor is the sole owner by good and
marketable title of, and shall on the Closing Date but
as of the Effective Time transfer to the Purchaser good
and marketable title to, the Real Property, free and
clear of any and all Encumbrances (other than
Existing Encumbrances);"
(f) The third clause of Section 3.1(24) is hereby amended
to read in its entirety as follows:
"there is no material damage to any railcars included in the
Assets for which the Vendor is or would, at the Effective
Time, be liable to the lessor of such railcars;"
(g) The last sentence of Section 3.1(27) is hereby amended
to delete the words "Closing Date" appearing therein and to replace
such words with the words "Effective Time".
- 7 -
<PAGE> 8
Amendment to Section 3.1.1. Section 3.1.1(5)(ii) is
hereby amended to delete the words "Closing Date" appearing therein and
to replace such words with the words "Effective Time".
Amendments to Section 3.2. Sections 3.2(1), 3.2(2) and
3.2(3) are hereby amended by deleting therefrom the words "Closing Date"
and replacing such words with the words "Effective Time."
Amendments to Section 3.3. (a) Section 3.3(3)(b) is
hereby amended to delete the words "Closing Date" appearing therein and
to replace such words with the words "Effective Time".
(b) Section 3.3(5) is hereby amended to delete the words "Time
of Closing" appearing therein and to replace such words with the words
"Effective Time".
Amendments to Section 3.4. (a) Sections 3.4(1) and
3.4(3)(a) are hereby amended to delete the words "Closing Date" appearing
therein and replace such words with the words "Effective Time."
(b) Section 3.4(2) is hereby amended to delete the words "Time
of Closing" appearing therein and to replace such words with the words
"Effective Time".
Amendments to Section 4.1.
(a) The first sentence of Section 4.1 is hereby amended to add
at the end thereof and before the colon the words ", unless otherwise
specified:".
(b) Section 4.1(3) is hereby amended to delete the words "Time
of Closing" appearing in the third line therein and to replace such
words with the words "Effective Time".
(c) Section 4.1(4) is hereby amended to add at the end of the
first sentence thereof the following:
"except as provided pursuant to this Agreement."
(d) Section 4.1(5) is hereby amended to add at the beginning
thereof the following words:
"Through the Effective Time,"
- 8 -
<PAGE> 9
(e) Section 4.1(7) is hereby amended to delete therefrom the
words "including Environmental Laws" and to replace such words with the
following:
"(excluding Environmental Laws)".
(f) Section 4.1(9) is hereby amended to read in its entirety
as follows:
"The Vendor shall execute and deliver a Pension Transfer
Agreement dated and effective as of the Effective Time in respect
of the Employees of the Vendor to be employed by the Purchaser,
such agreement to be in the form attached hereto as Schedule
4.1(1)(9)(i). The U.S. Vendor shall execute and deliver a U.S.
Pension Transfer, Employee Benefits and Leased Employee
Agreement, dated and effective as of the Effective Time ("U.S.
Employee Agreement"), in respect of the U.S. Employees of the
U.S. Vendor to be employed by the U.S. Purchaser, such agreement
to be in the form attached hereto as Schedule 4.1(1)(9)(ii)."
(g) The second and third sentences of Section 4.1(11) of the
Purchase Agreement are hereby amended to read as follows:
"The Vendor shall also obtain and deliver to the Purchaser, on or
prior to the Closing Date, a retail sales tax clearance
certificate ("Ontario Certificate") from the Ministry of Finance
(Ontario) to the effect that all retail sales taxes collectible
by Vendor in the reporting period immediately preceding the
reporting period in which the Effective Time falls, have been
remitted. The Vendor will, in due course, provide the Purchaser
with a further Ontario Certificate which covers the reporting
period in which the Effective Time falls."
(h) Section 4.1 is amended to add the following additional
subsections:
"(14) As far as reasonably practicable, on or prior to the
Effective Time, the Vendor and the U.S. Vendor shall cause all
intercompany accounts receivables and payables existing as of the
Effective Time between the Vendor with respect to the Business
and the U.S. Vendor with respect to the U.S. Business to be fully
paid and discharged, and such intercompany receivables and
payables shall not be taken into consideration in the working
capital adjustment contemplated by Section 7.4 of this
Agreement."
- 9 -
<PAGE> 10
"(15) From and after the Effective Time, neither the Vendor nor
the U.S. Vendor shall pay or declare any dividend or otherwise
make any distribution or other transfer or disposition of cash or
any other assets, properties or rights included in the Assets or
the U.S. Assets as of the Effective Time other than sale or
deliveries of inventory in the Ordinary Course of Business, nor
shall any cash or cash equivalents received after the Effective
Time be used other than in payment of Accounts Payable and other
operating expenses in the Ordinary Course of Business."
"(16) The Vendor and the U.S. Vendor shall retain as Excluded
Assets all cash in bank accounts of the Business and the U.S.
Business (collectively, "Bank Accounts") at the Effective Time.
All cash or cash equivalents received in connection with the
Business or the U.S. Business after the Effective Time shall
constitute Assets or U.S. Assets of the Purchaser or the U.S.
Purchaser, or their assignees, as the case may be. All cash or
cash equivalents received in connection with the Business or the
U.S. Business before the Effective Time which had been applied to
reduce accounts that would otherwise have been Accounts
Receivable at the Effective Time but not yet deposited in the
Bank Accounts shall be retained by the Vendor and the U.S. Vendor
as Excluded Assets. The amount of all checks drawn on the Bank
Accounts issued and outstanding at the Effective Time shall be
treated as Accounts Payable at the Effective Time. All checks
drawn on the Bank Accounts and presented prior to the Closing
Date shall be honored by the Vendor or the U.S. Vendor, as the
case may be, and any shortfall of cash necessary for such purpose
shall be provided by the Vendor or the U.S. Vendor, as
applicable, and taken into account in the adjustment contemplated
by Section 7.4."
Amendments to Section 4.2. (a) Section 4.2(2) is hereby
amended to delete the words "Time of Closing" appearing in the third line
thereof and to replace such words with the words "Effective Time".
(b) Section 4.2(5) is hereby amended to delete the words "at
the Time of Closing" appearing therein and to replace such words with
the words "on the Effective Date".
Amendment to Section 4.3. Section 4.3 is hereby amended
in its entirety to read as set forth in Annex A hereto.
- 10 -
<PAGE> 11
Amendment to Section 4.4(1). Section 4.4(1) is hereby
amended in its entirety to read as follows:
"(1) The U.S. Vendor and the U.S. Purchaser shall execute such
assignments, bills of sale, leases, deeds or other
instruments of transfer, dated and effective as of the
Effective Time and delivered at the Time of Closing, as
shall be reasonably requested by the U.S. Purchaser and
necessary or appropriate to transfer title to the U.S.
Assets to the U.S. Purchaser or its permitted assignee,
free and clear of Encumbrances."
Amendment to Section 4.6. Section 4.6 is hereby amended
to delete therefrom the words "Closing Date" appearing in the initial
parenthetical therein and to replace such words with the words "Effective
Time".
Amendment to Section 4.7. Section 4.7(2) is hereby
amended to delete the words "Closing Date" appearing therein and to replace
such words with the words "Effective Time".
Amendment to Section 4.8. Section 4.8 is hereby amended
in the following respects:
(a) In the fourth line of the first paragraph, the words
"Closing Date" shall be deleted and replaced with the words "Effective
Time."
(b) In the fifth line of the first paragraph, the word
"transferred" preceding the words "Environmental Permits" shall be
deleted and replaced with the word "transferable."
(c) In the third line of the second paragraph, the word "of"
shall be deleted and replaced with the word "or."
(d) In the table set forth in Section 4.8 under the column
"YEAR CUMULATIVE EXPENDITURE INCURRED," and in the first line of the
footnote, the words "Closing Date" shall be deleted and replaced with
the words "Effective Time."
Amendment to Article 4. Article 4 is hereby amended to
add a new Section 4.9 dealing with "Montreal Business Office Payment" reading
in its entirety as follows:
"4.9 Montreal Office Lease - Rental on Excess Space
- 11 -
<PAGE> 12
The Vendor hereby agrees to reimburse the Purchaser the
amounts set out below in respect of the rental payments
for the period set out opposite such amounts during the
remaining term of the lease thereof. The Purchaser hereby
grants an option to the Vendor to use such excess space
during the period for which the Vendor is liable to
reimburse the Purchaser in respect of lease rentals. Such
option shall be exercisable by giving at least thirty (30)
days notice to the Purchaser and Vendor shall pay all
costs and expenses incurred to render such excess space
usable by Vendor or in connection with Vendor's cessation
of such use. All amounts due from the Vendor to the
Purchaser pursuant to this Section 4.9(14) shall be paid
promptly upon demand in writing by the Purchaser, which
demand shall be accompanied by reasonable supporting
documentation evidencing payment of rentals for such
month.
<TABLE>
<CAPTION>
Lease Rental per Month, $
<S> <C>
2 months to 31-12-97 7,284
12 months to 31-12-98 7,421
12 months to 31-12-99 9,077
12 months to 31-12-00 9,228
12 months to 31-12-01 9,388
12 months to 31-12-02 9,555
12 months to 31-12-03 9,730"
</TABLE>
Amendment to Section 5.7. The first sentence of Section
5.7 is hereby amended in its entirety hereafter to read as follows:
"The Vendor will prepare and file sales tax returns for the
period from the last required filing date prior to and through
and including the Effective Time."
Amendment to Section 5.10. Section 5.10 is hereby amended
to read in its entirety as follows:
- 12 -
<PAGE> 13
"In connection with that certain agreement entered into between
the Vendor and Stanchem, Inc. dated as of October 29, 1990
("Stanchem Agreement") and which is included in the Contracts
assumed by the Purchaser as of the Effective Time, the Vendor
agrees to indemnify and hold the Purchaser harmless from (a) any
loss, deficiency, shortfall or Claim (excluding any such matter
arising out of the gross negligence or willful misconduct of the
Purchaser) incurred by the Purchaser in performing its
obligations under the Stanchem Agreement during the remaining
term thereof, and during up to four months after termination of
the Stanchem Agreement if Stanchem elects to require Purchaser to
continue packaging products as provided in Section 10.4(f)
thereof, and (b) any costs, including without limitation employee
termination and severance costs and benefits, incurred by the
Purchaser in connection with the termination of the Stanchem
Agreement. All amounts due from the Vendor to the Purchaser
under this Section 5.10 shall be paid promptly upon demand by the
Purchaser, which demand shall include reasonable supporting
documentation."
Amendments to Section 6.1. (a) The words "Time of
Closing" at the end of Section 6.1(1)(b) shall be deleted therefrom and
replaced with the words "Effective Time."
(b) Section 6.1(1)(d) is hereby amended hereafter to read in
its entirety as follows:
"(d) no order or judgment shall have been issued by any court,
Governmental Authority, regulatory body or agency which results
in an order or judgment enjoining, restricting or prohibiting the
sale and purchase of the Assets and the U.S. Assets contemplated
hereby;"
(b) Section 6.1(j)(ii) is hereby amended to add at the end
thereof the following:
"provided that the Purchaser and the US. Purchaser acknowledge
that the amendments made in connection with the consent to
assignment of the Spindrift Bead Technology License Agreement
dated September 22, 1989 are acceptable and that the Purchaser
shall not be entitled to any indemnification with respect to such
agreement."
- 13 -
<PAGE> 14
Amendment to Section 6.2. The words "Time of Closing" at
the end of Section 6.2(1)(b) shall be deleted therefrom and replaced with the
words "Effective Time."
Amendments to Section 7.3. (a) Sections 7.3(1) and
Section 7.3(2) are hereby amended to delete the words "Time of Closing"
appearing therein and to replace such words with the words "Effective Time".
(b) Section 7.3(1)(b) is hereby amended to delete the words
"Closing Date" appearing therein and to replace such words with the
words "Effective Time".
Amendment to Section 7.4. Each of Subsections (8) and (9)
of Section 7.4 is hereby amended: to delete therefrom all words after the words
"interest thereon" and to replace such words with the following:
"from the Effective Time to the date of payment at the rate of 8
1/2% per annum."
Amendment to Section 8.1.
(a) Clauses (i) and (ii) of Section 8.1(2)(a) are hereby
amended to read in their entirety as follows:
"(i) any facts, circumstances, events or occurrences in
existence as of or prior to the Effective Time, relating
to the Assets or the U.S. Assets or the operation of the
Business or the U.S. Business, which form the basis of a
violation of Environmental Laws in effect on or before the
Effective Time or which, if known to exist at the
Effective Time, would under Environmental Laws in effect
at the Effective Time, have required reporting to a
Governmental Authority, monitoring, investigation, clean-
up, removal, treatment or the conduct of an environmental
impact assessment or any other Dealing with Contaminants
in the soil or ground water;
(ii) liability for personal injury, death or property damage
arising out of an alleged Discharge of Contaminants from
Vendor's operation of the Business or the U.S. Business
prior to the Effective Time including Claims arising from
the maintenance of a public or private nuisance by
Vendor;"
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<PAGE> 15
(b) Section 8.1(2)(d) is hereby amended by deleting, under the
column entitled "ENVIRONMENTAL CLAIMS" appearing therein the words
"Closing Date" and replacing such words with the words "Effective Time."
(c) Section 8.1(2)(h)(vi) is hereby amended by deleting the
words "Closing Date" and replacing such words with the words "Effective
Time".
(d) Section 8.1(2)(j)(vi) is hereby amended by deleting the
words "Closing Date" and replacing such words with the words "Effective
Time".
(e) A new Section 8.1(2)(l) is hereby added to Section 8.1(2)
which shall read in its entirety as follows:
(l) The Purchaser shall, after the Effective Time and
until expiration or termination of the Lease
Agreement, provide the services of certain
employees of the Business required to perform
remedial and demolition activities at the Cornwall
site to the Vendor on a sole and exclusive basis,
for so long a period as such employees remain
employees of the Purchaser after the Effective
Time, and until the Vendor notifies the Purchaser
that it no longer requires the services of such
employees, for the purpose of assisting the Vendor
in completing its planned remedial and demolition
activities at the Cornwall site. The Purchaser
shall not terminate the services of any of the
aforesaid employees until notified by the Vendor
that it no longer requires the services of the
employees or unless any such employee has engaged
in conduct, which in the reasonable judgment of
Purchaser, requires such employee's termination.
The Vendor may, at any time, provide such notice
with respect to one or more of the employees. The
aforesaid employees shall be employed by the
Purchaser on substantially the same terms and
conditions of employment as are in effect at the
Effective Time. All salaries and benefits paid by
the Purchaser in accordance with such terms and
conditions to the aforesaid employees shall be
promptly reimbursed by the Vendor. In addition to
the
- 15 -
<PAGE> 16
indemnities for severance costs and obligations in
Section 4.3(2)(ii), the Vendor shall indemnify and
save harmless the Purchaser from any Claims
suffered or incurred by the Purchaser arising from
the remedial and demolition services provided by
the aforesaid employees to the Vendor."
Amendment to Section 8.8. Section 8.8 shall be amended to
delete the words "simultaneous with or after closing" appearing at the end of
the initial sentence thereof, and to replace such words with the words "on or
after the Effective Date".
Amendment of Article 8. A new Section 8.12 is added to
Article 8 to read as follows:
"8.12 Environmental Permits
For the purposes of Environmental Permits only, the
Purchaser shall be the operator of the Assets as of the
Effective Time and hereby appoints the Vendor as its
mandatary to operate the Assets until the Closing Date.
The Vendor hereby covenants to use reasonable efforts to
comply in all material respects with Environmental Laws
and Environmental Permits in force during the period of
time between the Effective Time and the Closing Date.
In the event that the Closing does not occur and that one
or both parties rescind the Asset Purchase Agreement as
amended, the Vendor and the Purchaser shall use their
reasonable efforts to ensure that the Environmental
Permits are transferred back to the Vendor as soon as
possible.
For greater certainty, the risk of loss associated with
the operation of the Assets during the period of time
between the Effective Time and the Closing Date shall be
borne by the Purchaser."
Amendment to Section 8.7. The first sentence of Section
8.7 is amended hereafter to read in its entirety as follows:
- 16 -
<PAGE> 17
"No amendment to this Agreement will be valid or binding unless
set forth in writing and duly executed by all of the parties
hereto."
Amendment of Article 10. The first paragraph of Article
10 is hereby amended by adding thereto, after the words "the Vendor or the U.S.
Vendor" appearing therein, the following clause: "or any permitted assignee of
the Vendor or the U.S. Vendor pursuant to Section 8.8 hereof,".
Amendment to Article 11. The first paragraph of Article
11 is hereby amended by adding thereto, after the words "the Purchaser and the
U.S. Purchaser" appearing therein, the following clause: ",or any permitted
assignee of the Purchaser or the U.S. Purchaser pursuant to Section 8.8
hereof,".
Effect of Amendment. Except as amended and modified by
this Amendment, the Purchase Agreement shall be and continue in full force and
effect as originally written. The Purchase Agreement and this Amendment shall
be read, taken and construed as one and the same instrument. Upon the
effectiveness of this Amendment, each reference in the Purchase Agreement to
"this Agreement" shall mean and be a reference to the Purchase Agreement as
amended hereby.
Governing Law. This Amendment shall in all respects be
governed by and construed in accordance with the laws of the Province of Quebec
and the laws of Canada applicable therein.
Benefit and Burden. This Amendment shall inure to the
benefit of and be binding upon each of the Parties and their respective
successors and permitted assigns.
Counterparts. This Amendment may be executed by the
Parties in counterparts and by telecopy, each of which shall be deemed to
constitute an original and all of which together shall constitute one and the
same instrument.
Severability. If any term or provision of this Amendment
shall be found by a court of competent jurisdiction to be illegal, invalid, or
unenforceable to any extent, the remainder of this Amendment shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
Entire Agreement. This Amendment (a) constitutes the
entire contract between the Parties relative to the amendments to the Purchase
Agreement made hereby, (b) supersedes all prior agreements, consents and
understandings relating to such amendments and (c) may not be contradicted by
evidence of prior, contemporaneous or subsequent oral agreements of the
Parties.
- 17 -
<PAGE> 18
Effectiveness. Upon the execution and delivery of this
Amendment by the Parties, this Amendment shall be and become a binding
agreement among the Parties.
IN WITNESS WHEREOF, the Parties have executed this Agreement as
of October 31, 1997.
PCI CHEMICALS CANADA INC.
Per:
--------------------------------
PCI CAROLINA, INC.
Per:
--------------------------------
PIONEER COMPANIES, INC.
Per:
--------------------------------
ICI CANADA INC.
Per:
------------------------------
ICI AMERICAS INC.
Per:
------------------------------
IMPERIAL CHEMICAL INDUSTRIES PLC
Per:
------------------------------
- 18 -
