-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IHb7Dv5/37N4WPFKoLkFIydJy7NXJclkoIGs08XtwXzBYLWExgtUPzs8cqBRqAdQ RN7povrWOpHQj9Uxm55tXA== 0000950129-97-004840.txt : 19971118 0000950129-97-004840.hdr.sgml : 19971118 ACCESSION NUMBER: 0000950129-97-004840 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971105 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971117 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER AMERICAS ACQUISITION CORP CENTRAL INDEX KEY: 0000944649 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 061420850 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 033-91702 FILM NUMBER: 97722729 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: SUITE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 8-K 1 PIONEER AMERICAS ACQUISITION CORP. - 11/05/97 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 AMERICAS ACQUISITION CORP. (Exact name of registrant as specified in its charter) DELAWARE 33-98828 06-1420850 -------- -------- ---------- (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) 2 ITEM 2. Acquisition or Disposition of Assets. Pursuant to the terms of an Asset Purchase Agreement dated September 22, 1997, between Pioneer Companies, Inc. ("Pioneer"), the parent of the Registrant, and the Registrant's 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"), a 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, the Registrant, 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 the Registrant and each of its other direct and indirect subsidiaries. In addition, certain 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. ITEM 7. Financial Statements and Exhibits (a) Financial statements of business acquired. 2 3 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 4 ICI FOREST PRODUCTS - NORTH AMERICA Combined Balance Sheets (In thousands of Canadian dollars)
September 30, December 31, 1997 1996 1996 1995 1994 -------- -------- -------- -------- -------- (Unaudited) 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 ======== ======== ======== ======== ========
See accompanying notes to combined financial statements. 4 5 ICI FOREST PRODUCTS - NORTH AMERICA Combined Statements of Operations (In thousands of Canadian dollars)
Nine months ended September 30, Years ended December 31, 1997 1996 1996 1995 1994 --------- --------- --------- --------- --------- (Unaudited) 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 ========= ========= ========= ========= =========
See accompanying notes to combined financial statements. 5 6 ICI FOREST PRODUCTS - NORTH AMERICA Combined Statements of Head Office Account (In thousands of Canadian dollars)
Nine months ended September 30, Years ended December 31, 1997 1996 1996 1995 1994 -------- -------- -------- -------- -------- (Unaudited) 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 ======== ======== ======== ======== ========
See accompanying notes to combined financial statements. 6 7 ICI FOREST PRODUCTS - NORTH AMERICA Combined Statements of Changes in Financial Position (In thousands of Canadian dollars)
Nine months ended September 30, Years ended December 31, 1997 1996 1996 1995 1994 -------- -------- -------- -------- -------- (Unaudited) 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 ======== ======== ======== ======== ========
See accompanying notes to combined financial statements. 7 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 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 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:
September 30, December 31, 1997 1996 1996 1995 1994 -------- -------- -------- -------- -------- (Unaudited) 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 ======== ======== ======== ======== ========
10 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:
September 30, December 31, 1997 1996 1996 1995 1994 ------- ------- ------- ------- ------- (Unaudited) 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 ======= ======= ======= ======= =======
5. PROPERTY, PLANT AND EQUIPMENT:
September 30, 1997 1996 -------- -------- (Unaudited) Accumulated Net book Net book Cost depreciation value value -------- ------------ -------- -------- 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 ======== ======== ======== ========
December 31, 1996 1995 1994 -------- -------- -------- Accumulated Net book Net book Net book Cost depreciation value value value -------- ------------ -------- -------- -------- 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 ======== ======== ======== ======== ========
11 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:
September 30, December 31, 1997 1996 1996 1995 1994 ------ ------ ------ ------ ------ (Unaudited) 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 ====== ====== ====== ====== ======
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:
September 30, December 31, 1997 1996 1996 1995 1994 ------ ------ ------ ------ ------ (Unaudited) Province of New Brunswick, non-interest bearing loan, due December 31, 2000 $2,500 $2,500 $2,500 $2,500 $2,500 ====== ====== ====== ====== ======
8. OTHER NON-CURRENT LIABILITIES:
September 30, December 31, 1997 1996 1996 1995 1994 ------- ------- ------- ------- ------- (Unaudited) 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 ======= ======= ======= ======= =======
12 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:
September 30, December 31, 1997 1996 1996 1995 1994 ----- ----- ----- ----- ----- (Unaudited) 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 ===== ===== ===== ===== =====
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:
September 30, December 31, 1997 1996 1996 1995 1994 ----- ----- ----- ----- ----- (Unaudited) 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 ===== ===== ===== ===== =====
11. RESEARCH EXPENDITURES: Research expenditures are net of the following tax credits:
September 30, December 31, 1997 1996 1996 1995 1994 ---- ---- ---- ---- ---- (Unaudited) $260 $180 $199 $207 $251 ==== ==== ==== ==== ====
13 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 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: 1997 $ 6,768 1998 4,755 1999 4,143 2000 3,207 2001 2,398 Thereafter 1,860 ------- $23,131 =======
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:
December 31, 1996 1995 1994 -------- -------- -------- 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 ======== ======== ========
15 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.
September 30, December 31, 1997 1996 1996 1995 1994 ------ ------ ------ ------ ------ (Unaudited) 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 ====== ====== ====== ====== ======
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:
National National Exchange Canadian Fair market amount rate Maturity equivalent value ------------ -------------- ------------------- ---------- ----------- 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 ------------ -------------- ------------------- ---------- ----------
16 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 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 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:
Nine months ended September 30, Years ended December 31, 1997 1996 1996 1995 1994 -------- -------- -------- -------- -------- (unaudited) 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 ======== ======== ======== ======== ========
(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:
September 30, December 31 1997 1996 1996 1995 1994 -------- -------- -------- -------- -------- (unaudited) 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 ======== ======== ======== ======== ========
*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 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 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, and 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 22 PRO FORMA BALANCE SHEET AS OF SEPTEMBER 30, 1997 (UNAUDITED) ASSETS
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) Current assets Cash.......................... $ 8,374 (d) $ 8,374 Accounts receivable........... $ 31,455 $ 31,455 $ 22,680 2,782 (e) 25,462 Due from parent............... 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 STOCKHOLDER'S 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) Equity.......................... 82,880 6,780 (c) 89,660 64,649 (64,649)(k) -------- ------- -------- -------- -------- -------- Total liabilities and stockholder's equity............... $133,064 $ 2,000 $135,064 $ 97,386 $181,566 $278,952 ======== ======= ======== ======== ======== ======== ACTUAL PRO FORMA COMPANY COMPANY -------- --------- Current assets Cash.......................... $ 35,799 $ 44,173 Accounts receivable........... 37,039 62,501 Due from parent............... 5,003 5,003 Inventories................... 15,341 22,374 Prepaid expenses.............. 2,467 2,685 -------- -------- Total current assets... 95,649 136,736 Property, plant and equipment, net........................... 171,899 318,734 Investments in and advances to unconsolidated subsidiary..... 30,297 31,016 Other assets, net............... 40,902 54,861 Excess cost over the fair value of net assets acquired,....... 125,104 201,456 -------- -------- Total assets........... $463,851 $742,803 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Accounts payable............ $ 28,976 $ 45,239 Accrued liabilities......... 27,298 30,548 Returnable deposits......... 3,287 3,287 Bank Indebtedness........... Current portion of long-term debt...................... 1,163 2,163 -------- -------- Total current liabilities... 60,724 81,237 Long-term debt, less current maturities.................... 6,620 6,620 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..... 16,733 16,733 Equity.......................... 59,242 59,242 -------- -------- Total liabilities and stockholder's equity............... $463,851 $742,803 ======== ========
(see footnotes on following page) 22 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: (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 =======
(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 24 PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
PRO FORMA ------------------------------------------------- PRIOR PCI CANADA ACTUAL COMPANY ACQUISITIONS(1) ACQUISITION(2) AS ADJUSTED -------------- --------------- ----------------- ----------- (DOLLARS IN THOUSANDS) Revenues................................ $183,326 $83,912 $164,247 $431,485 Cost of sales........................... 126,739 54,941 115,233 296,913 -------- ------- -------- -------- Gross profit............................ 56,587 28,971 49,014 134,572 Selling, general and administrative expenses.............................. 23,528 3,679 13,919 41,126 -------- ------- -------- -------- Operating income........................ 33,059 25,292 35,095 93,446 Equity in net loss of unconsolidated subsidiary............................ (2,607) -- -- (2,607) Interest expense, net................... (17,290) (9,100) (23,492) (49,882) Other income, net....................... 1,684 18 1,594 3,296 -------- ------- -------- -------- Income before income taxes and extraordinary item.................... 14,846 16,210 13,197 44,253 Provision for income taxes.............. 6,735 5,645 4,302 16,682 -------- ------- -------- -------- Income before extraordinary item........ $ 8,111 $10,565 $ 8,895 $ 27,571 ======== ======= ======== ========
(see footnotes on following page) 24 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.
PRO FORMA --------------------------------------------------- ACTUAL TACOMA PRIOR PLANT T.C.PRODUCTS(a) ADJUSTMENTS(b) ACQUISITIONS ------------- ---------------- --------------- ------------ 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 ======= ======= ======= =======
(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: (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 ========
(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 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) ========
25 26 NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED) YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (DOLLARS IN THOUSANDS) (iii) Reflects the following: (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 ========
(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: (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 ========
(vi) Represents the tax effect of all pro forma adjustments. (2) Represents pro forma adjusted amounts for the FP Acquisition, as shown below.
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 -------- ----------- -------- -------- -------------- ----------- 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 ======== ======= ======== ======== ======== ========
(a) Reflects actual results for the PCI Canada Acquisition Business expressed in Canadian dollars using Canadian GAAP. 26 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: (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.
(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: 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.
27 28 PRO FORMA STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
PRO FORMA ------------------------------------------------- PRIOR ACTUAL COMPANY ACQUISITIONS(1) FP ACQUISITION(2) AS ADJUSTED -------------- --------------- ----------------- ----------- (DOLLARS IN THOUSANDS) Revenues................................ $150,073 $37,021 $121,961 $309,055 Cost of sales........................... 112,553 26,170 84,220 222,943 -------- ------- -------- -------- Gross profit............................ 37,520 10,851 37,741 86,112 Selling, general and administrative expenses.............................. 19,580 1,274 10,456 31,310 -------- ------- -------- -------- Operating income........................ 17,940 9,577 27,285 54,802 Equity in net loss of unconsolidated subsidiary............................ (2,552) -- -- (2,552) Interest expense, net................... (16,189) (4,042) (17,619) (37,850) Other income (expense), net............. 882 (39) 722 1,565 -------- ------- -------- -------- Income (loss) before income taxes and extraordinary item.................... 81 5,496 10,388 15,965 Provision (benefit) for income taxes.... 1,779 2,395 3,412 7,586 -------- ------- -------- -------- Income (loss) before extraordinary item.................................. $ (1,698) $ 3,101 $ 6,976 $ 8,379 ======== ======= ======== ========
(see footnotes on following page) 28 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.
PRO FORMA ACTUAL TACOMA -------------------------- PLANT ADJUSTMENTS AS ADJUSTED ------------- ----------- ----------- 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 ======= ======= =======
(a) 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........................ $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 ======
(b) Reflects the following: (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) ======
29 30 NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED) NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS) (c) Reflects the following: (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 ======
(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: (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) ======
(f) Represents the tax effect of all pro forma adjustments. (2) Represents pro forma adjusted amounts for the PCI Canada Acquisition, as shown below.
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 -------- ----------- -------- -------- -------------- ----------- 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 ======== ====== ========= ======== ======== ========
(a) Reflects actual results for the PCI Canada Acquisition Business expressed in Canadian dollars using Canadian GAAP (b) Reflects adjustments to reflect US GAAP: (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.
30 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: (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.
31 32 PRO FORMA STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
PRO FORMA ------------------------------------------------ PRIOR PCI CANADA ACTUAL COMPANY ACQUISITIONS(1) ACQUISITION(2) AS ADJUSTED -------------- --------------- -------------- ----------- (DOLLARS IN THOUSANDS) Revenues............................. $140,835 $64,546 $123,718 $329,099 Cost of sales........................ 98,600 42,854 85,631 227,085 -------- ------- -------- -------- Gross profit......................... 42,235 21,692 38,087 102,014 Selling, general and administrative expenses........................... 19,142 4,627 10,569 34,338 -------- ------- -------- -------- Operating income..................... 23,093 17,065 27,518 67,676 Equity in net loss of unconsolidated subsidiary......................... (912) -- -- (912) Interest expense, net................ (12,766) (7,000) (17,619) (37,385) Other income (expense), net.......... 507 1,676 1,613 3,796 -------- ------- -------- -------- Income before income taxes and extraordinary item................. 9,922 11,741 11,512 33,175 Provision for income taxes........... 4,868 4,064 3,826 12,758 -------- ------- -------- -------- Income before extraordinary item..... $ 5,054 $ 7,677 $ 7,686 $ 20,417 ======== ======= ======== ========
(see footnotes on following page) 32 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.
PRO FORMA ------------------------------------------- ACTUAL TACOMA T.C.PRODUCTS ADJUSTMENTS PRIOR PLANT (a) (b) ACQUISITIONS ------------- ------------ ----------- ------------ 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 =======
33 34 NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED) NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) (DOLLARS IN THOUSANDS) (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 =======
(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. (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 =======
(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.
PCI CANADA ACQUISITION US GAAP CANADIAN GAAP, ADJUSTMENTS, US GAAP, US GAAP, PRO FORMA $CDN (a) $CDN (b) $CDN US$ ADJUSTMENTS(c) AS ADJUSTED -------------- ------------ -------- -------- --------------- ----------- 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 ======== ====== ======== ======== ======== ========
34 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: 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) ======
(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: 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 ======
(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 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 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. 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 AMERICAS ACQUISITION CORP. November 17, 1997 By: /s/ PHILIP A. ABLOVE ----------------------------- Philip A. Ablove Vice President and Chief Financial Officer 36 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. EX-2.B 2 FIRST AMEND. TO ASSET PURCHASE AGREEMENT 10/31/97 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; 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- 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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.
Lease Rental per Month, $ 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"
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 - 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 - 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;" - 14 - 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 - 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 - 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 - 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 - -----END PRIVACY-ENHANCED MESSAGE-----