As filed with the U.S. Securities and Exchange Commission on June 28, 2010

Registration No. 333-166009

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 2

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Arizona Chemical Ltd.

(Exact name of registrant as specified in its charter)


Bermuda	2821	98-0650421
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

4600 Touchton Road East

Building 100

Suite 1500

Jacksonville, Florida 32246

(800) 526-5294

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Pamela J. Simmons

4600 Touchton Road East

Building 100

Suite 1500

Jacksonville, Florida 32246

(800) 526-5294

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:


Robert W. Downes		Kris F. Heinzelman
Sullivan & Cromwell LLP		Cravath, Swaine & Moore LLP
125 Broad Street		825 Eighth Avenue
New York, New York 10004		New York, New York 10019
(212) 558-4000		(212) 474-1000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o

(Do not check if a smaller reporting company)

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated June 28, 2010

Arizona Chemical Ltd.

Common Shares

This is an initial public offering of common shares of Arizona Chemical Ltd., or Arizona Chemical. The company is offering of the shares to be sold in the offering. The selling shareholder identified in this prospectus is offering an additional shares. The shares to be sold by the company and the selling stockholder will be sold to the underwriters identified in this prospectus. Arizona Chemical will not receive any of the proceeds from the sale of the shares being sold by the selling shareholder.

Prior to this offering, there has been no public market for the common shares. It is currently estimated that the initial public offering price per share will be between $ and $ . Arizona Chemical intends to apply to list the common shares on the New York Stock Exchange under the symbol “ARZ”.

See “Risk Factors” on page 16 to read about factors you should consider before buying common shares.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


	Per Share	Total

Initial price to public	$	$
Underwriting discount	$	$
Proceeds, before expenses, to Arizona Chemical	$	$
Proceeds, before expenses, to the selling shareholder	$	$

To the extent that the underwriters sell more than common shares, the underwriters have the option to purchase up to an additional shares from the selling shareholder at the initial price offered to the public less the underwriting discount. Arizona Chemical will not receive any of the proceeds from the common shares sold by the selling shareholder pursuant to the underwriters’ option to purchase additional shares.

The underwriters expect to deliver the shares against payment in New York, New York on , 2010.

Goldman, Sachs & Co.

Prospectus dated , 2010

TABLE OF CONTENTS

Prospectus


PROSPECTUS SUMMARY			1
RISK FACTORS			16
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			39
USE OF PROCEEDS			41
DIVIDEND POLICY			42
CAPITALIZATION			43
DILUTION			44
SELECTED CONSOLIDATED FINANCIAL DATA			46
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			53
INDUSTRY			92
BUSINESS			103
MANAGEMENT			125
EXECUTIVE COMPENSATION			132
PRINCIPAL AND SELLING SHAREHOLDER			154
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			156
DESCRIPTION OF OUR INDEBTEDNESS			159
DESCRIPTION OF SHARE CAPITAL			163
SHARES ELIGIBLE FOR FUTURE SALE			171
MATERIAL BERMUDA AND UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS			172
UNDERWRITING			177
VALIDITY OF COMMON SHARES			181
EXPERTS			181
WHERE YOU CAN FIND MORE INFORMATION			181
EX-10.20
EX-23.2
EX-23.3

Through and including , 2010 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

This prospectus will be filed with the Registrar of Companies in Bermuda in accordance with Bermuda law. In accepting this prospectus for filing, the Registrar of Companies in Bermuda does not accept any responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed in this prospectus.

MARKET AND INDUSTRY DATA

We use market data, industry forecasts and projections throughout this prospectus. We have obtained portions of this information from market research prepared by Arthur D. Little Benelux S.A./N.V., which we refer to as “ADL”, in a market study that ADL has prepared for us at our expense in connection with this offering. In addition, we have obtained portions of this information from other publicly available industry publications. The forecasts and projections are based on industry surveys and the preparers’ experience in the industry, and there is no assurance that any of the projected amounts will be achieved. We believe that the surveys and market research performed by others, including ADL, are reliable. While we are not aware of any misstatements regarding the industry data presented herein, estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors”.

PROSPECTUS SUMMARY

The following summary highlights selected information contained elsewhere in this prospectus. It does not contain all the information that may be important to you in making an investment decision and should be read together with the more detailed information contained elsewhere in this prospectus. You should read this entire prospectus carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. In this prospectus, unless the context requires otherwise, references to “Arizona Chemical”, “the Company”, “the Issuer”, “we”, “our” or “us” refer to Arizona Chemical Ltd., the issuer of the common shares offered hereby and its consolidated subsidiaries, including Arizona Chem Sweden Holdings AB, a Swedish company whose financial statements are included herein, after giving effect to the Reorganization described below. “Rhône Capital” refers to Rhône Capital L.L.C. and its affiliated entities, including Rhône Capital III L.P., the general partner of certain associated funds with investments in Arizona Chemical, and “International Paper” refers to International Paper Company.

Our Business

We are the world’s leading supplier of pine-based chemicals as measured by sales. We refine and further upgrade two primary feedstocks, crude tall oil, or CTO, and crude sulfate turpentine, or CST, both of which are wood pulping co-products, into specialty chemicals. We focus our resources on six target markets that we believe offer the greatest potential for growth and in which we offer our highest value-added products. These markets are (1) adhesives, (2) inks, (3) tires and rubber, (4) roads and construction, (5) consumer products and (6) renewable energy. Our leading position in our target markets is supported by our recognized brands, including SYLVATAC^®, SYLVARES^®, SYLVAPRINT^® and UNI-REZ^®, among others. These products are complemented by a portfolio of chemical intermediates that includes tall oil rosin, or TOR, tall oil fatty acid, or TOFA, dimer acid and distilled tall oil, or DTO, which have contributed steady profit margins and stable cash flows. The following chart presents the percentage of our net sales attributable to our six target markets plus our portfolio of chemical intermediates.

Arizona Chemical’s 2009 Net Sales $767.5 million


	•	*Adhesives.* We are a leading global supplier of tackifiers to the adhesives industry as measured by sales and the world’s largest producer of tackifier resins from renewable resources in terms of volume.

	•	*Inks.* We are a major supplier of ink resins to many of the world’s leading printing ink companies for use in publication and packaging inks.

	•	*Tires and Rubber.* We are a leading supplier of resins and additives from renewable resources to the global tires and rubber industry as measured by sales.


	•	*Roads and Construction.* We are a major supplier of resins for use in roadmarking, and we believe there are future opportunities to supply fatty acids and tackifier resins for bitumen applications in the roofing and paving sub-markets.

	•	*Consumer Products.* We sell a diverse range of specialty materials used in the formulation of consumer products for the personal care, home care, industrial cleaning and food ingredients sub-markets.

	•	*Renewable Energy.* We are the largest global producer of tall oil pitch, a second generation, cellulosic biofuel used in municipal heating and industrial power generation, as measured by volume. Further, our TOFA can also be used as a raw material in the manufacture of biodiesel.

	•	*Chemical Intermediates.* Our TOR, TOFA, dimer acid and DTO chemical intermediates are sold into a diverse range of markets, including, among others, paints and coatings, lubricants, fuel additives, mining and oilfield, paper chemicals and polymers.

Our products and technical support enhance the value of our customers’ products by improving their performance, providing them with essential attributes, lowering costs and simplifying processes. We have cultivated longstanding relationships with leading customers in our key markets and have a history of co-developing many of our products with our customers to satisfy specific product requirements. Our innovative products and solutions help our customers replace non-renewable raw materials with more sustainable alternatives.

In the three months ended March 31, 2010, we generated net sales of $198.1 million, Adjusted EBITDA of $27.4 million, net income of $10.0 million and net cash provided by operating activities of $2.5 million. In 2009, we generated net sales of $767.5 million, Adjusted EBITDA of $93.9 million, net income of $12.1 million and net cash provided by operating activities of $117.3 million, and we used cash in our investing and financing activities of $44.3 million and $63.8 million, respectively. During 2009, approximately 42% of net sales were to customers in the United States and Canada, 49% to customers in Europe, the Middle East and Africa, 5% to customers in Asia and 4% to customers in Latin America. For a definition of Adjusted EBITDA, a description of our use of Adjusted EBITDA as a measure of operating performance and a reconciliation of Adjusted EBITDA to net income, see “Summary Selected Historical Consolidated Financial Information and Other Data”.

We have reinvigorated our business following our acquisition from International Paper by Rhône Capital in February 2007. Comparing 2006, the last full year we operated as a division of International Paper, to 2009, as a stand-alone company, we have improved our Adjusted EBITDA from $78.3 million to $93.9 million and improved our Adjusted EBITDA as a percentage of net sales, which we refer to as our “Adjusted EBITDA margins”, from 10.2% to 12.2%. During this same period, our net income fluctuated from $33.1 million in 2006, to net losses in both 2007 and 2008 of $23.6 million and $26.6 million, respectively, to net income of $12.1 million in 2009. We have also increased our cash provided by operating activities from $5.0 million to $117.3 million, reduced our headcount from 1,399 to 1,075 employees, reduced our manufacturing fixed costs by $21.7 million (excluding depreciation and the impact of foreign currency exchange) and reduced working capital (excluding cash and cash equivalents and the current portion of long-term debt) from 20.8% to 10.3% of net sales.

We have demonstrated the quality of our business through our ability to improve our operating results and increase our margins and cash flow despite the global economic downturn that began in late 2008. During 2008 and into 2009, we experienced sales volume declines across the majority of our businesses, which we believe was exacerbated by inventory destocking. However, beginning in the second half of 2009, we have seen improving demand in our end markets and believe the declining trend in inventory has stabilized. We believe we are well positioned to continue our recent trajectory as demand patterns shift toward recovery.

A core component of our strategy is an increased focus on innovation. We are pursuing multiple opportunities for future sales growth by developing new higher margin and higher value products and applications and entering new markets. We expect to supplement these initiatives with selective

acquisitions or investments that enhance our market position through unique technology or through access to new market opportunities.

We have a track record of implementing programs that have driven significant costs out of our business, and we believe there are additional opportunities to further optimize our manufacturing footprint, supply chain and overhead, which we continue to pursue. In addition to these cost reduction programs, we continue to work to transform our company from a functional-oriented organization to a process-oriented organization with an increased focus on our customers. This effort is supported by our implementation of a new SAP global enterprise resource planning, or ERP, system, which we completed in the first half of 2010. We expect this new ERP system to generate additional value for our shareholders by providing us with accurate and timely information that will enable us to target additional margin and cost improvement opportunities.

Key Competitive Strengths

The following competitive strengths underpin our ability to create shareholder value by driving sustainable, profitable top-line growth, improving margins and generating strong cash flow:

Leading Market Positions

We are the world’s leading supplier of pine-based chemicals as measured by sales. According to ADL, we are the leading global supplier of each of the following products:


	•	naturally-derived resins used in adhesives, inks and roadmarking applications;

	•	naturally-derived tackifier resins used in hot melt packaging and bookbinding adhesives;

	•	naturally-derived tread enhancement resins for passenger car tires; and

	•	pine-based, non genetically-modified sterols used in food ingredient and nutrient applications through our joint venture, Arboris, LLC.

Scope and Scale Provide Global Access

With manufacturing facilities in Finland, France, Germany, Sweden, the United States and the United Kingdom, we have the largest manufacturing capacity in the pine-based chemicals sector. Our supply chain and commercial infrastructure gives us access to global opportunities as we have the capability to reliably service an increasingly international client base. We believe we are the leading global refiner of CTO and the leading global producer of TOFA and TOR.

Advantageous Feedstock Position

We are the world’s largest buyer of CTO, and have the capacity to refine approximately 650,000 metric tonnes of CTO annually, which, according to ADL, represents approximately 40% of global CTO refining capacity. We have the ability to process a wide variety of CTO feedstocks, including lower quality CTO and black liquor soap, or BLS, a precursor to CTO that we have the ability in the United States to refine into CTO, providing us with access to a broad source of raw materials. When we refer to CTO in this prospectus, we are referring generally to CTO and BLS, together.

We have long-term supply contracts with International Paper pursuant to which they agreed to sell to us, and we agreed to purchase from them, all of the CTO and CST produced at their existing U.S. paper mills. We also have the option to purchase all of the CTO and CST produced at International Paper’s future paper mills worldwide. These contracts provided us with approximately 20% and 27% of our global CTO and CST purchases for the three months ended March 31, 2010 and the year ended December 31, 2009, respectively. CTO and CST accounted for approximately 68% and 64% of our raw material purchases for the three months ended March 31, 2010 and the year ended December 31, 2009, respectively.

Stable Customer Base with Long-standing Relationships and Diverse End Markets

With approximately 1,000 customers in more than 80 countries, we have a broad customer base covering many diverse end-user industries, including adhesives, inks, tires and rubber, roads and construction, consumer products, renewable energy, fuel additives, coatings, lubricants and polymer additives. We have strong, long-standing relationships with our customers, and many of our products have been developed in cooperation with our customers, frequently in response to their specific needs.

Commitment to Innovation

We believe that innovation and new product development are critical to meeting our customers’ needs and to generating profitable future growth. We employ over 50 scientific professionals, many of whom hold Ph.D. degrees. In the five years ended December 31, 2009, we applied for 61 U.S. patents and 18 Patent Cooperation Treaty patents.

During 2009, we instituted a structured approach to growth with dedicated cross-functional teams that are directed toward our six target markets. As part of this approach, we identify and develop new products based on our understanding of our customers’ needs and market opportunities. We utilize a portfolio management system to ensure that we are disciplined in assessing potential opportunities for new products and to allocate resources and capital in accordance with our strategic objectives and priorities.

Our track record of product innovation extends more than 80 years. Examples include:


	•	adhesive tackifiers designed to enable the use of a higher amount of recycled content in packaging materials;

	•	high solid adhesive dispersions for labels and tapes that allow for higher coating speeds and that lower process energy costs;

	•	heat stable rheology, or HSR, ink resins that reduce formulation complexity for ink manufacturers while improving press performance;

	•	tire tread resins that promote wet grip, fuel economy and tire life;

	•	fuel lubricity improvers that ensure low sulfur targets for diesel fuel can be met; and

	•	emulsions and clear gels for skin and sun care applications.

Improving Profit Margins

Our market leading position, together with the importance of our portfolio to our customer base, our value pricing and our ability to shift production and manage costs have enabled us to generate improving profit margins across diverse macroeconomic environments. Despite rapidly changing raw material, energy and freight costs in recent years, as well as the difficult economic environment that affected the chemicals industry in late 2008 and into 2009, we have been successful at increasing our Adjusted EBITDA and margins, as illustrated in the chart below.


													Combined
	Three Months			Three Months			Year Ended			Year Ended			Year Ended
	Ended			Ended			December 31,			December 31,			December 31,
	March 31, 2010			March 31, 2009			2009			2008			2007
							(dollars in thousands)						(Non-GAAP)

Net income (loss)	$	9,997		$	(2,357	)	$	12,098		$	(26,599	)	$	(23,605	)
Gross margins		20.6	%		8.1	%		15.7	%		13.3	%		11.7	%
Adjusted EBITDA		27,378			11,043			93,859			92,723			66,898
Adjusted EBITDA margins		13.8	%		6.2	%		12.2	%		9.3	%		7.8	%

For a definition of Adjusted EBITDA, a description of our use of Adjusted EBITDA as a measure of operating performance and a reconciliation of Adjusted EBITDA to net income, as well as an explanation of our use of combined financial information for the year ended December 31, 2007, see “Summary Selected Historical Consolidated Financial Information and Other Data”.

Experienced and Proven Management Team with Significant Equity Interest

We have a highly motivated management team with an average of more than 25 years of experience, combining a core of pine-based chemical veterans with specialty chemicals experts from outside the pine chemicals industry. Our management team has instilled a shareholder-value-based culture throughout our organization, successfully implemented leading productivity practices and reinvigorated new product development. Through management incentive vehicles, or MIVs, formed to facilitate investment in our company by our senior managers, our management has a significant investment in AZ Chem Investments Partners LP, our parent.

Ability to Satisfy Increasing Demand for Sustainable Raw Materials

Our products are based on naturally-derived, renewable raw materials and, as such, we are well placed to benefit from consumer-driven demand for sustainable alternatives to existing hydrocarbon-based products. In conjunction with our focus on innovation, we expect to leverage the sustainable characteristics of our product range in developing new market opportunities for our products. For example, we expect that the sustainable nature of our gellants and other personal care products will be an increasingly attractive feature in the skin care and cosmetics markets.

Our Business Strategy

Building on our competitive strengths, set forth below are the four key elements to our business strategy.

Organic Growth Through Market Understanding and Development

Building upon our strength in technological innovation, we focus our research and development efforts on opportunities that address the needs of our customers as well as enhance our profitability and growth profile. We look for opportunities in new applications, new products and new markets. For example, we are developing new personal care applications for our polymeric gellant technology that we believe present improved margin opportunities. Additionally, our heat stable rheology, or HSR, ink resin products provide better performance at a lower cost relative to products historically used in “sheet-fed” printing applications, and we have begun to market our HSR ink resin products for use in these applications, which we believe also offer us improved margin opportunities. Other innovations include extra-light color rosin esters for adhesive packaging applications, high solid adhesive dispersions and tire tread enhancement additives. In relation to new market opportunities, we are presently developing compatibilizers for modified bitumen applications, which will enable customers to produce stable, long-lasting synthetic rubber modified bitumen with higher sustainable material content. Products we have developed in the last five years generated approximately 10% of our net sales in 2009.

During 2009, we spent approximately 1% of our annual net sales on research and development efforts, and we plan to double our research and development and marketing resources and related spending within the next three years. In addition to internal research and development, we expect to expand our product offerings through select licensing and/or purchasing of new formulations, technology and products from third parties, and we intend to fund select capital expenditure opportunities where we can expand capacity in high growth, high margin areas, or reduce costs for an appropriate return on investment.

Geographical Expansion into BRIC Countries

We expect to continue to serve our existing global customers as they expand their businesses in emerging countries such as Brazil, Russia, India and China and to target new customers in these regions. In 2009, 2.7% of our net sales were generated in these four countries, and we believe there are significant opportunities to expand our business in these and other emerging economies. We plan to manage our expansion into emerging markets by adding sales and marketing, technical service and other development related personnel, followed by further infrastructure expansion as our sales opportunities in these markets increase.

Active Management of our Business and Asset Portfolio

We plan to accelerate profitable growth through selected acquisitions of companies and/or assets that focus on our six target markets or on high value niche applications and that complement our current product offerings and capabilities. For example, in February 2009, we acquired Abieta Chemie GmbH, a company located in Gersthofen, Germany, that specializes in natural resin products. This acquisition strengthened our position in the tire and rubber market and secured access for us to new products and technology that can be leveraged in other strategic markets.

Productivity Improvement Program

We have a history of implementing programs that have driven significant costs out of our business. We expect to continue to expand our successful productivity improvement initiatives by pursuing operational efficiencies, optimizing available technologies, maintaining a lean organizational structure, further reducing fixed costs, capitalizing on our global procurement organization, rationalizing capacity and efficiently managing capital spending. We intend to take advantage of the enhanced flow of information from the implementation of a new SAP global ERP system, which we completed in the first half of 2010, to further our efforts to improve our margins, drive cost productivity and generate additional cost savings.

Risk Factors

Despite our competitive strengths, investing in our common shares involves substantial risk. In addition, our ability to execute our business strategy is subject to certain risks. The risks described under “Risk Factors” may cause us not to realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our business strategy. Before you invest in our common shares, you should carefully consider all the information in this prospectus, including matters set forth under “Risk Factors”.

Transactions with Rhône Capital and International Paper

On February 28, 2007, Rhône Capital acquired a group of operating companies that comprise Arizona Chemical from International Paper. We refer to this transaction as the “Acquisition”. Since the Acquisition, the companies comprising Arizona Chemical have been subsidiaries of AZ Chem Luxembourg Holdings S.à r.l., which, before giving effect to the Reorganization described below, is also our direct parent and a wholly owned subsidiary of AZ Chem Investments Partners LP.

Prior to the completion of this offering, funds associated with Rhône Capital, which we refer to as the “Rhône Funds”, held a % limited partnership interest in AZ Chem Investments Partners LP, while International Paper held a % limited partnership interest and AZ Chem MIV I Ltd and AZ Chem MIV II LP, which are management incentive vehicles, or MIVs, formed to facilitate investment in our company by our senior managers, collectively held a % limited partnership interest.

The Rhône Funds and International Paper are also members of AZ Chem Investments LLC, the general partner of AZ Chem Investments Partners LP. The Rhône Funds control AZ Chem Investments LLC, and therefore control us.

See “— Corporate and Other Information and the Reorganization” for information about the reorganization of our structure that will occur prior to the completion of this offering.

Our Credit Agreements and Our Outstanding Indebtedness

In connection with the Acquisition, we entered into a First Lien Credit and Guaranty Agreement, which we refer to as our “First Lien Credit Agreement”, and a Second Lien Credit and Guaranty Agreement, which we refer to as our “Second Lien Credit Agreement”. We refer to these agreements together as our “credit agreements”. As a result of the indebtedness we incurred under the credit agreements, we are highly leveraged. As of March 31, 2010, our total consolidated indebtedness was $331.6 million, including $327.4 million outstanding under our credit agreements. As of March 31, 2010, on an as adjusted basis after giving effect to this offering and the application of the net proceeds therefrom (assuming we sell the shares for a per share price equal to $ , the midpoint of the price range set forth on the cover page of this prospectus), our total consolidated indebtedness would have been $ million and we would have had $60.0 million of borrowing capacity available under the revolving credit facility under our First Lien Credit Agreement. See “Description of Our Indebtedness”.

Rhône Capital

Founded in 1996, Rhône Capital focuses on middle-market private equity investments in businesses with pan-European or trans-Atlantic presence or growth prospects. Rhône Capital’s investment philosophy includes the development of strong, strategic partnerships with the management of portfolio companies in which it invests. Rhône Capital currently has investments in a diversified portfolio of companies.

Corporate and Other Information and the Reorganization

On February 12, 2010, we were incorporated as a Bermuda limited company.

Prior to the completion of this offering, AZ Chem Luxembourg Holdings S.à r.l. will transfer all of the equity interests in Arizona Chem Sweden Holdings AB, its wholly owned subsidiary, to us, and we will transfer all of the equity interests in Arizona Chem Sweden Holdings AB to Arizona Chemical Luxembourg S.à.r.l, our wholly owned subsidiary. Following these transfers, AZ Chem Luxembourg Holdings S.à r.l. will dissolve, and we will be a direct, wholly owned subsidiary of AZ Chem Investments Partners LP. Additionally, prior to the completion of this offering, Arizona Chemical Ltd. will effect a for 1 stock split. We refer to these transactions as the “Reorganization”.

The historical financial information presented herein is that of Arizona Chem Sweden Holdings AB and its predecessor prior to the Acquisition, and following the Reorganization, all of our business operations will be conducted through Arizona Chem Sweden Holdings AB and its subsidiaries.

Our principal executive offices are located at 4600 Touchton Road East, Building 100, Suite 1500, Jacksonville, Florida 32246 and at Transistorstraat 16, 1322 CE Almere, The Netherlands and our registered office in Bermuda is located at Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda. We can be reached by telephone at (800) 526-5294 and +(31) 36 5462 800. Our corporate website address is www.arizonachemical.com. We do not incorporate information on, or accessible through, our corporate website into this prospectus, and you should not consider it a part of this prospectus.

Below is an organizational chart illustrating our corporate structure after the Reorganization and before giving effect to this offering.

THE OFFERING


Issuer		Arizona Chemical Ltd.

Common shares offered by the issuer		common shares.

Common shares offered by the selling shareholder		common shares.

Common shares		Immediately following the consummation of this offering, we will have million common shares outstanding.

Use of proceeds		Assuming we sell the shares for a per share price equal to $ , the midpoint of the price range set forth on the cover page of this prospectus, will receive net proceeds from this offering of approximately $ million after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds of this offering to make an approximately $12 million distribution to our parent entity, AZ Chem Investments Partners LP, and to pay transaction-related expenses of $ million. We intend to use the remaining net proceeds to repay $ million of indebtedness under our First Lien Credit Agreement, representing 75% of the remaining net proceeds, and to repay $ million of indebtedness outstanding under our Second Lien Credit Agreement, representing 25% of the remaining net proceeds. We will not receive any proceeds from the sale of our common shares by the selling shareholder.

Dividend policy		Other than the distribution we are making to AZ Chem Investments Partners LP out of the proceeds of this offering, we do not anticipate paying any cash dividends on our common shares for the foreseeable future. We intend to retain all available funds and any future earnings to reduce debt and fund the development and growth of our business.

NYSE Symbol		“ARZ”.

Risk factors		For a discussion of risks relating to our company, our business and an investment in our common shares, see “Risk Factors” and all other information set forth in this prospectus before investing in our common shares.

		Unless we specifically state otherwise, all information in this prospectus assumes no exercise by the underwriters of their option to purchase an additional shares.

SUMMARY SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION AND OTHER DATA

The following tables set forth summary financial and operating data on an historical basis for our predecessor and successor periods (each as defined below). You should read this financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, our historical consolidated financial statements, the notes to our consolidated financial statements and the other financial information included elsewhere in this prospectus.

We were acquired on February 28, 2007 by Rhône Capital in a business combination accounted for under the purchase method of accounting. The summary selected historical financial data for the period from January 1, 2007 to February 28, 2007 is referred to as “predecessor” and represents the period of time when we were operated as a division of International Paper. All periods subsequent to the Acquisition on February 28, 2007, which resulted in a change of control and a change in accounting basis, are referred to as “successor”. The summary selected historical consolidated financial and operating data for the years ended December 31, 2009 and 2008 and the periods March 1, 2007 to December 31, 2007 and January 1, 2007 to February 28, 2007 have been derived from the audited historical consolidated financial statements included elsewhere in this prospectus. The summary financial data for the three months ended March 31, 2010 and 2009 and as of March 31, 2010, have been derived from our unaudited condensed consolidated financial statements, which are included elsewhere in this prospectus. The unaudited condensed consolidated financial statements include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, that management considers necessary for the fair presentation of the condensed consolidated financial information set forth in those statements. Results of operations for the interim periods are not necessarily indicative of the results that might be expected for any other interim period or for an entire year.

As a result of the Acquisition, our assets and liabilities were adjusted to their estimated fair values. In addition, our consolidated statements of operations data for the successor period include interest expense resulting from indebtedness incurred to finance the Acquisition and depreciation and amortization of fair value adjustments to property, plant and equipment and intangible assets related to the Acquisition. Therefore, our successor period financial data generally is not comparable to our predecessor period financial data.

The combined historical results of operations for the year ended December 31, 2007 was derived from the audited consolidated financial statements of our predecessor from January 1, 2007 through February 28, 2007 and of our successor from March 1, 2007 through December 31, 2007. The combined historical results of operations are being presented to assist comparison across the years. The combined information does not comply with accounting principles generally accepted in the United States (“GAAP”) and should not be used in isolation or substitution of the results of operations of either our predecessor period or our successor period. This data is being presented for informational purposes only and does not purport to represent or be indicative of the results that actually would have been obtained had the Acquisition occurred on January 1, 2007 or that may be obtained for any future period.

Consolidated Statements of Operations Data


	Successor			Successor			Successor			Successor			Combined			Successor			Predecessor
													(Non-GAAP)
	Three			Three												March 1,			January 1,
	Months			Months			Year			Year			Year			2007			2007
	Ended			Ended			Ended			Ended			Ended			through			through
	March 31,			March 31,			December 31,			December 31,			December 31,			December 31,			February 28,
	2010			2009			2009			2008			2007			2007			2007
	(dollars in thousands, except per share data)

Net sales	$	198,051		$	177,934		$	767,465		$	1,001,988		$	855,867		$	723,797		$	132,070
Cost of goods sold		157,333			163,445			646,986			868,536			755,415			642,341			113,074

Gross profit		40,718			14,489			120,479			133,452			100,452			81,456			18,996
Selling, general and administrative		25,673			15,464			78,200			91,936			99,583			86,684			12,899
Unrealized foreign currency exchange (gains) losses(1)		(4,836	)		367			(9,347	)		20,304			—			—			—
Restructuring and impairment(2)		2,047			1,035			26,395			15,513			114			114			—
Other operating income(3)		—			(2,043	)		(5,537	)		—			—			—			—

Operating income (loss)		17,834			(334	)		30,768			5,699			755			(5,342	)		6,097
Interest (expense) income, net		(3,870	)		(4,560	)		(16,546	)		(29,523	)		(28,657	)		(28,775	)		118
Loss on interest rate swaps, net		(709	)		(600	)		(2,541	)		(9,311	)		(2,275	)		(2,275	)		—
Other income(4)		623			2,151			3,635			1,879			—			—			—

Income (loss) before income tax expense (benefit)		13,878			(3,343	)		15,316			(31,256	)		(30,177	)		(36,392	)		6,215
Income tax expense (benefit)		3,885			(836	)		3,831			(4,277	)		(6,299	)		(8,913	)		2,614
Equity in earnings of affiliate(5)		4			150			613			380			273			189			84

Net income (loss)	$	9,997		$	(2,357	)	$	12,098		$	(26,599	)	$	(23,605	)	$	(27,290	)	$	3,685

Earnings per share(6):
Basic and diluted	$	9,997		$	(2,357	)	$	12,098		$	(26,599	)				$	(27,290	)

Weighted average common shares outstanding:
Basic and diluted		1,000			1,000			1,000			1,000						1,000

Consolidated Balance Sheet Data


	As of March 31, 2010
			As Adjusted for
	Actual		the Offering(7)
	(dollars in thousands)

Cash and cash equivalents	$	43,057	$
Total assets		630,275
Total debt		331,645
Total shareholder’s equity		101,495

Other Data


	Successor			Successor			Successor			Successor			Combined			Successor			Predecessor
													(Non-GAAP)
	Three			Three
	Months			Months												March 1,			January 1,
	Ended			Ended			Year Ended			Year Ended			Year Ended			2007 through			2007 through
	March 31,			March 31,			December 31,			December 31,			December 31,			December 31,			February 28,
	2010			2009			2009			2008			2007			2007			2007
	(dollars in thousands)

Gross margin(8)		20.6	%		8.1	%		15.7	%		13.3	%		11.7	%		11.3	%		14.4	%
Depreciation(8)	$	6,599		$	6,872		$	29,781		$	23,311		$	23,790		$	19,693		$	4,097
Amortization		2,444			2,565			10,834			10,899			9,445			9,120			325
Adjusted EBITDA(9)		27,378			11,043			93,859			92,723			66,898			54,874			12,024
Adjusted EBITDA margin		13.8	%		6.2	%		12.2	%		9.3	%		7.8	%		7.6	%		9.1	%
Free cash flow(10)	$	(5,424	)	$	1,845		$	81,803		$	(13,452	)	$	8,446		$	25,132		$	(16,686	)
Net cash provided by (used in) operating activities		2,507			11,100			117,325			20,841			32,934			45,022			(12,088	)
Net cash used in investing activities		(7,931	)		(18,027	)		(44,294	)		(34,293	)		(501,929	)		(497,331	)		(4,598	)
Net cash provided by (used in) financing activities		2,202			(1,220	)		(63,771	)		12,768			498,843			488,547			10,296


(1)		Unrealized foreign currency exchange losses (gains) is primarily related to translation changes in the balance of the Euro-denominated debt under our First Lien Credit Agreement. This is further described in Note 11 of our consolidated financial statements and Note 8 of our unaudited condensed consolidated financial statements appearing at the end of this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

		The following table presents unrealized and realized foreign exchange losses (gains) included in our consolidated statement of operations.


	Successor			Successor			Successor			Successor		Combined			Successor		Predecessor
												(Non-GAAP)
	Three			Three
	Months			Months											March 1,		January 1,
	Ended			Ended			Year Ended			Year Ended		Year Ended			2007 through		2007 through
	March 31,			March 31,			December 31,			December 31,		December 31,			December 31,		February 28,
	2010			2009			2009			2008		2007			2007		2007
	(dollars in thousands)

Unrealized translation related foreign currency exchange (gains) losses	$	(4,836	)	$	367		$	(9,347	)	$	20,304	$	—		$	—	$	—
Realized transaction related foreign currency exchange (gains) losses — selling, general and administrative		(107	)		(1,883	)		214			234		(261	)		238		(499	)
Realized transaction related foreign currency exchange (gains) losses — cost of goods sold		(205	)		37			154			65		20			3		17


(2)		Restructuring and impairment includes pre-tax restructuring charges primarily related to manufacturing facility closures and employee terminations as part of our cost reduction initiatives. This is further described in Note 9 of our consolidated financial statements and Note 7 of our unaudited condensed consolidated financial statements appearing at the end of this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.


		The following table presents details of our restructuring and impairment charges included in our consolidated statement of operations.


	Successor		Successor		Successor		Successor		Combined		Successor		Predecessor
									(Non-GAAP)
	Three		Three
	Months		Months								March 1,		January 1,
	Ended		Ended		Year Ended		Year Ended		Year Ended		2007 through		2007 through
	March 31,		March 31,		December 31,		December 31,		December 31,		December 31,		February 28,
	2010		2009		2009		2008		2007		2007		2007
	(dollars in thousands)

Port St. Joe, Florida	$	—	$	—	$	5,822	$	—	$	—	$	—	$	—
Gersthofen, Germany		108		—		1,251		—		—		—		—
Valdosta, Georgia		97		—		874		—		—		—		—
U.K. facilities		—		—		339		5,369		—		—		—
Niort, France		648		—		—		1,972		—		—		—
Dover, Ohio		—		3		—		635		—		—		—
Pensacola, Florida		—		—		—		534		114		114		—
Sandarne, Sweden		1,194		—		—		—		—		—		—
Impairment		—		1,032		18,109		7,003		—		—		—

Total	$	2,047	$	1,035	$	26,395	$	15,513	$	114	$	114	$	—


(3)		Other operating income of $5.5 million recorded in 2009 included $4.9 million of insurance proceeds related to a fire at our Oulu, Finland manufacturing facility and a gain of $0.7 million on the sale of capital assets realized as a result of the closure of our Bedlington, U.K. manufacturing facility.

(4)		In 2009, other income included a gain on our acquisition of Abieta of $2.1 million and a gain on settlement with International Paper of $1.3 million, whereas in 2008, other income included a gain of $1.9 million on the extinguishment of a portion of our debt. All of these items were excluded from the calculation of Adjusted EBITDA. In the three months ended March 31, 2010, other income primarily related to insurance proceeds relating to a fire at our Sandarne, Sweden manufacturing facility.

(5)		Equity in earnings of affiliate relates to our 10% investment in Arboris, LLC, which was formed in 2002 and is accounted for under the equity method of accounting as we have the ability to exercise significant influence. Our share of the earnings from operations in this investment is recorded in our statement of operations. This is further described in Note 3 of our consolidated financial statements appearing at the end of this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

(6)		Prior to the Acquisition, we were an operating division of International Paper. As a result, the capital structure of our predecessor did not include common stock or other forms of equity shares. Accordingly, earnings per share is not available for periods prior to March 1, 2007. Additionally, the information presented regarding earnings per share and weighted average common shares outstanding is that of Arizona Chem Sweden Holdings AB on an actual basis. The earnings per share of Arizona Chemical Ltd. on an as adjusted basis after giving effect to the Reorganization for the three months ended March 31, 2010 and 2009, the years ended December 31, 2009 and 2008 and the ten month period ended December 31, 2007 would have been $ , $ , $ , $ , and $ , respectively, assuming common shares outstanding.

(7)		Reflects on an adjusted basis the sale of of our common shares in this offering at an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus), and the application of the estimated net proceeds from this offering as described under “Use of Proceeds”, and assumes this offering had been consummated on March 31, 2010.

(8)		Included in these amounts in 2009 is accelerated depreciation associated with the closure of our Port St. Joe facility in the amount of $1.6 million. Accelerated depreciation had a negative impact on our gross margins of 1.3% in 2009.

(9)		Adjusted EBITDA represents net income before interest, taxes, depreciation, and amortization and is adjusted for various items as defined in our credit agreements. Adjusted EBITDA presented in the predecessor period was calculated on the same basis as Adjusted EBITDA


		presented in the successor periods pursuant to our credit agreements. Under the terms of our credit agreements, we use Adjusted EBITDA to calculate our maximum leverage ratio and our minimum interest coverage ratio covenants. See “— Adjusted EBITDA” below.

(10)		Free cash flow represents net cash provided by operating activities, less purchases of property, plant and equipment, software spending and proceeds from disposals of property, plant and equipment. See “ — Free Cash Flow” below.

Adjusted EBITDA

Adjusted EBITDA is not a GAAP concept. We present Adjusted EBITDA because it is used by management to evaluate operating performance and under our credit agreements, we use it to calculate our maximum leverage ratio and our minimum interest coverage ratio covenants. In addition, a reconciliation from net income to Adjusted EBITDA is required for reporting and covenant calculation purposes pursuant to our credit agreements. We consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. We also use Adjusted EBITDA for our executive compensation plan, which bases incentive compensation payments on our Adjusted EBITDA performance.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information. A reconciliation of net income (loss), the most directly comparable GAAP measure, to Adjusted EBITDA is presented below:


	Successor			Successor			Successor			Successor			Combined			Successor			Predecessor
													(Non-GAAP)			March 1,			January 1,
	Three months			Three months			Year Ended			Year Ended			Year Ended			2007 through			2007 through
	ended March 31,			ended March 31,			December 31,			December 31,			December 31,			December 31,			February 28,
	2010			2009			2009			2008			2007			2007			2007(4)
	(dollars in thousands)

Net income (loss)	$	9,997		$	(2,357	)	$	12,098		$	(26,599	)	$	(23,605	)	$	(27,290	)	$	3,685
Interest expense (income), net		3,870			4,560			16,546			29,523			28,657			28,775			(118	)
Income tax expense (benefit)		3,885			(836	)		3,831			(4,277	)		(6,299	)		(8,913	)		2,614
Depreciation and amortization		9,043			9,437			40,615			34,210			33,235			28,813			4,422

EBITDA		26,795			10,804			73,090			32,857			31,988			21,385			10,603
Unrealized foreign currency exchange (gains) losses		(4,836	)		367			(9,347	)		20,304			—			—			—
Restructuring and impairment		2,047			1,035			26,395			15,513			114			114			—
Loss on interest rate swaps, net		709			600			2,541			9,311			2,275			2,275			—
Equity in earnings of affiliate		(4	)		(150	)		(613	)		(380	)		(273	)		(189	)		(84	)
Transaction costs(1)		—			—			—			1,316			10,271			10,271			—
Management fees (2)		495			351			1,538			1,990			1,295			1,295			—
Transition costs(3)		—			—			—			2,984			6,667			6,575			92
Gain on Abieta acquisition		—			(2,151	)		(2,151	)		—			—			—			—
Gain on settlement with International Paper		—			—			(1,316	)		—			—			—			—
Selling, general and administrative severance		—			—			—			3,121			2,235			2,235			—
Third-party advisor fees		2,135			—			—			1,573			—			—			—
Consulting services		—			—			—			3,794			7,616			7,616			—
Gain on debt extinguishment		—			—			—			(1,901	)		—			—			—
Other items		37			187			3,722			2,241			4,710			3,297			1,413

Adjusted EBITDA	$	27,378		$	11,043		$	93,859		$	92,723		$	66,898		$	54,874		$	12,024


(1)		Transaction costs were related to the Acquisition. These costs included legal, tax, IT, professional fees and Rhône Capital transaction fees.

(2)		Management fees are paid to Rhône Group L.L.C., an affiliate of Rhône Capital, for corporate-level support activities provided to us. These management fees will no longer be paid following the completion of the offering.

(3)		Transition costs included fees paid to International Paper in connection with the Acquisition under the transition services agreement (governing interim services provided by International Paper), IT consulting fees, costs for infrastructure build-out (such as IT and phone systems, treasury function setup, HR/payroll) and the cost of a carve-out audit, among other items.

(4)		Adjusted EBITDA presented in the predecessor period was calculated on the same basis as Adjusted EBITDA presented in the successor periods pursuant to our credit agreements.

Free Cash Flow

Free cash flow is not a GAAP concept. We present free cash flow because our management considers it to be a useful, supplemental indicator of our liquidity. When measured over time, free cash flow provides supplemental information to investors concerning our operating results and our ability to generate cash flows to satisfy mandatory debt service requirements and make other non-discretionary expenditures.

Our management believes that consideration of free cash flow should only be supplemental because free cash flow has limitations as an analytical financial measure. Our management compensates for these limitations by relying primarily on our results under GAAP to evaluate our liquidity and by considering independently the economic effects of the foregoing items that are not reflected in free cash flow. As a result of these limitations, free cash flow should not be considered as a substitute for other measures of liquidity reported in accordance with GAAP, including net cash provided by (used in) operating activities, net cash provided by (used in) investing activities, net cash provided by (used in) financing activities or change in cash and cash equivalents. A reconciliation of net cash provided by (used in) operating activities to free cash flow, the most directly comparable GAAP measure, is presented below:


	Successor			Successor			Successor			Successor			Combined			Successor			Predecessor
													(Non-GAAP)			March 1, 2007			January 1, 2007
	Three months			Three months			Year Ended			Year Ended			Year Ended			through			through
	ended March 31,			ended March 31,			December 31,			December 31,			December 31,			December 31,			February 28,
	2010			2009			2009			2008			2007			2007			2007
	(dollars in thousands)

Net cash provided by (used in) operating activities	$	2,507		$	11,100		$	117,325		$	20,841		$	32,934		$	45,022		$	(12,088	)
Less:
Purchases of property, plant and equipment		(4,866	)		(6,677	)		(22,993	)		(34,719	)		(22,846	)		(18,248	)		(4,598	)
Software spending		(3,761	)		(3,268	)		(13,404	)		(142	)		(1,642	)		(1,642	)		—
Proceeds from disposals of property, plant and equipment		—			690			875			212			—			—			—
Other		696			—			—			356			—			—			—

Free cash flow	$	(5,424	)	$	1,845		$	81,803		$	(13,452	)	$	8,446		$	25,132		$	(16,686	)

Net cash (used in) provided by investing activities		(7,931	)		(18,027	)		(44,294	)		(34,293	)		(501,929	)		(497,331	)		(4,598	)
Net cash provided by (used in) financing activities		2,202			(1,220	)		(63,771	)		12,768			498,843			488,547			10,296

RISK FACTORS

An investment in our common shares involves a high degree of risk. You should carefully consider the following information, together with other information in this prospectus, before buying our common shares. If any of the following risks or uncertainties occur, our business, financial condition and results of operations could be materially and adversely affected, the trading price of our common shares could decline and you may lose all or a part of your investment in our common shares.

General Business Risks

Conditions in the Global Economy and Capital Markets May Adversely Affect Our Results of Operations, Financial Condition and Cash Flows.

Our products are sold in markets that are sensitive to changes in general economic conditions. Downturns in general economic conditions can cause fluctuations in demand for our products, product prices, volumes and margins. A decline in the demand for our products or a shift to lower margin products due to deteriorating economic conditions would adversely affect sales of our products and our profitability and could also result in impairments of certain of our assets.

Our business and operating results have been and will continue to be affected by the global recession, including the turbulence in the credit markets, dislocations in the real estate markets, fluctuating commodity prices, volatile exchange rates and other challenges currently affecting the global economy and our customers. If the current global recession continues for a significant period of time or further deteriorates, our results of operations, financial condition and cash flows would be materially adversely affected.

Demand for Many of Our Products is Cyclical, and We May Experience Prolonged Depressed Market Conditions for Our Products, Which Would Decrease Our Net Sales and Operating Margins.

Many of our products are ultimately used in end markets which are cyclical in nature, such as housing, automotive, printed media, road construction and oil and natural gas drilling. We primarily sell our products to other manufacturers who use our products as intermediates and performance modifiers. The housing market directly affects demand for our products through the demand for oil-based paints, as well as flooring and construction adhesives. The automotive market affects demand for tires, metal working fluids, automotive adhesives in new automobile construction and after-market parts such as air filters. The printed media market, such as advertising and magazine publication, is subject to consumer and discretionary spending trends, while the road construction market is dependent on government spending, which affects sales of our products used in road safety striping. Certain of our products are used in oil and natural gas drilling applications, the demand for which is dependent on the overall energy markets. Any adverse development that negatively affects any or all of these industries could cause a material decrease in our net sales and operating margins.

Our Business is Subject to Seasonality That May Affect Our Quarterly Operating Results and Impact the Market Price of Our Common Shares.

Seasonal changes and weather conditions typically affect the inks and roadmarking end-use markets. For example, the demand for our ink products is typically highest in the third quarter of the year due to increased demand for holiday catalog printing. Demand for roadmarking products is typically higher during the warm weather months and can be affected by adverse weather conditions during those periods. Because seasonal weather patterns are difficult to predict, we cannot accurately estimate fluctuations in our quarterly sales in the roadmarking market in any given year. If reduced demand in the inks and roadmarking markets cause our operating results to fall below the periodic expectations of financial analysts or investors, the market price of our common shares may decline.

We Generally do not have Long-Term Contracts with Our Customers, and the Loss of Customers Could Adversely Affect Our Sales and Profitability.

Our five largest customers accounted for approximately 20% of our net sales in 2009. With some exceptions, our business is based primarily upon individual sales orders with our customers. As such, our customers could cease buying our products from us at any time, for any reason, with little or no recourse. If a major customer or multiple smaller customers elected not to purchase products from us, our business prospects, financial condition and results of operations would be materially adversely affected.

We have Recorded a Significant Amount of Identifiable Intangible Assets, But We May Never Realize the Full Value of Those Assets.

Intangible assets are recorded at fair value on the date of acquisition and, in accordance with GAAP, will be reviewed at least annually for impairment. Impairment may result from, among other things, deterioration in our performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products and services sold by our business, and a variety of other factors. The amount of any impairment must be expensed immediately as a charge to our results of operations. Depending on future circumstances, it is possible that we may never realize the full value of our intangible assets. Any future determination of impairment of our intangible assets would have an adverse effect on our financial condition and results of operations.

International Paper and Other Third Parties Provide Operating and Other Services to Us Under Agreements that are Important to Our Business. The Failure of Any of These Parties to Perform Their Obligations, or the Termination of These Agreements, Would Adversely Affect Our Operations.

The operation of certain of our facilities is dependent on services provided by third parties. For example, we have contracts with International Paper pursuant to which International Paper provides our Savannah, Georgia facility with waste water treatment and certain other services. Additionally, Bay County, Florida provides our Panama City facility with waste water treatment services. Bay County is currently considering selling the waste water treatment facility used to treat our waste water to a private company, and we cannot assure you that we will be able to have our waste water treated by this facility in the future. In the event that International Paper, Bay County or another third party fails to provide services to our facilities, we may be required to obtain these services from other third parties at an increased cost or to expend capital to provide these services ourselves. The expenses associated with obtaining or providing these services, as well as any interruption in our operations as a result of the failure of the third party to provide a particular service, may be significant and may adversely affect our results of operations.

Additionally, although we own our Savannah, Georgia facilities, our BLS acidulation facility is located on real property leased from International Paper pursuant to a long-term lease agreement, and this property is surrounded by the International Paper mill. In the event we were to have a dispute with International Paper regarding the terms of our lease agreement or we were otherwise unable to fully access or utilize this portion of our Savannah facility, we could incur higher costs associated with freight to divert BLS to other locations within our acidulation network. Long-term outages would require the expenditure of capital for additional acidulation equipment.

Acquisitions and Joint Ventures that We Pursue May Present Unforeseen Integration Obstacles and Costs, Increase Our Leverage and Negatively Impact Our Performance.

We intend to selectively pursue acquisitions of, and joint ventures with, related businesses as one element of our growth strategy. There can be no assurance that we will decide to pursue acquisitions or joint ventures or whether we will be successful in completing any such transaction. If

such transactions are consummated, the risks described below, and the risks associated with our business generally, may be increased. These transactions may require us to assume or incur additional debt financing, resulting in additional leverage and a complex debt structure. We may pursue acquisitions of a significantly larger scale than in the past.

The expense incurred in consummating acquisitions or our failure to integrate acquired businesses successfully into our existing businesses could negatively impact our results of operations. Furthermore, we may not be able to realize any anticipated benefits from acquisitions or joint ventures. The process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial and management resources that would otherwise be available for the ongoing development or expansion of existing operations. Additional risks associated with our acquisition and joint venture strategy include:


	•	potential disruption of our ongoing business and distraction of management;

	•	unexpected loss of key employees or customers of the acquired company;

	•	conforming the acquired company’s standards, processes, procedures and controls with our operations;

	•	coordinating new product and process development;

	•	hiring additional management and other critical personnel;

	•	increasing the scope, geographic diversity and complexity of our operations;

	•	encountering unforeseen obstacles or costs in the integration of acquired businesses;

	•	the presence of one or more material liabilities of an acquired company that are unknown to us at the time of the acquisition; and

	•	unfavorable reception to the acquisition by our customers.

Our Business Could be Materially and Adversely Affected if We Encounter Problems in the Operation of a New SAP Financial System that has Replaced Our Prior Systems.

We are highly dependent on our information systems infrastructure in order to process orders, track inventory, ship products in a timely manner, prepare invoices to our customers, generate financial reports and otherwise carry on our business in the ordinary course. We recently implemented a new global enterprise resource planning, or ERP, system that we have licensed from SAP AG. The new ERP system is designed to integrate all of our data and processes, including supply chain, inventory and accounting, into a unified system. We expect the implementation to be completed in phases during the first half of 2010. The transition to a new ERP system involves numerous risks, including difficulties in integrating the system with our current operations, potential delay in the processing of customer orders for shipment of products, diversion of management’s attention away from normal daily business operations, increased demand on our operations support personnel, initial dependence on unfamiliar systems while training personnel in its use, increased operating expenses resulting from training, conversion and transition support activities and difficulties in accurately reporting our financial results on a timely basis. If we experience significant problems with the implementation of this system, the resulting disruption could adversely affect our business, sales, results of operations and financial condition.

Risks Related to Raw Materials

We are Highly Dependent On Our Key Raw Materials and Lack of Access to Adequate Supplies of Our Key Raw Materials Would Adversely Affect Our Results of Operations.

The availability of raw materials is essential to our business. Our manufacturing process relies on three key raw materials: crude tall oil, or CTO, crude sulfate turpentine, or CST and, to a lesser extent, D-limonene. CTO and CST accounted for approximately 68% and 64% of our raw material purchases for the three months ended March 31, 2010 and the year ended December 31, 2009,

respectively. We have entered into long-term supply agreements with International Paper pursuant to which we agreed to buy, and International Paper agreed to sell, all of International Paper’s CTO and CST output in the United States. We also have the option to acquire CTO and CST produced at future International Paper paper mills worldwide. We satisfied 20% and 27% of our global CTO and CST purchases pursuant to these agreements for the three months ended March 31, 2010 and the year ended December 31, 2009, respectively. We also maintain agreements with others to supply our raw material needs.

CTO and CST are co-products of the kraft pulping process. As a result, the supply of CTO and CST is based on the demand for the paper products produced by our suppliers, not on the demand for CTO or CST. Accordingly, the global supply of CTO and CST is inherently constrained by the volume of kraft pulp processing and neither International Paper nor our other suppliers are required to supply us with a minimum, or floor, amount of CTO or CST. In addition, substantially all of the global CTO and CST supply is consumed by the producers of CTO and CST or sold pursuant to long-term supply agreements, and CTO and CST are not generally available on the open market. Furthermore, weather conditions in the Southeastern United States, northern Europe and other regions where pine trees are grown have in the past, and may in the future, affect the availability and quality of pine trees used in the kraft pulping process and, therefore, the available supply of CTO and CST. For example, in 2005, a wind storm caused a significant amount of damage to the forests in Sweden. The trees that were felled during the storm were processed by the pulp mills over an extended period of time, which reduced the quantity of CTO and CST yielded from the kraft pulping process in 2005 and 2006. Accordingly, there can be no assurance that CTO and CST will be available in quantities necessary for us to operate our business.

If any of our suppliers fails to meet its obligations under our supply agreements or is otherwise unable to provide us with an adequate supply of our raw materials and we are unable to obtain raw materials from other suppliers, we would be unable to produce the quantity of products that we have historically produced and our results of operations would be adversely affected.

Additionally, we have in the past had disagreements with International Paper, our largest supplier, regarding the terms of our CTO and CST supply agreements. Although we believe we have resolved these disputes to the satisfaction of all parties, there can be no assurance that we will not have disputes with International Paper or another supplier of our raw materials in the future.

The European Union’s Directive on the Promotion of the Use of Energy from Renewable Resources and Similar Legislation in the United States May Incentivize the Use of CTO and CST as Alternative Fuels.

In December 2008, the European Parliament and the Council of the European Union passed a directive on the promotion of the use of energy from renewable sources, which established a 20% European Community-wide target for energy consumed from renewable sources relative to the Community’s gross final consumption of energy, as well as a 10% target for energy consumed from renewable sources in the transport sector. In order to reach these targets, the directive established mandatory targets for each Member State and requires each Member State to adopt a national renewable energy action plan by June 2010 setting forth measures to achieve its mandatory targets.

The directive established sustainability criteria for alternative fuels that must be satisfied in order for the consumption of a fuel to count toward a Member State’s national targets. Although we are engaged in discussions with the European Parliament, the European Commission and various Member States regarding the appropriate status and treatment of CTO and CST under the directive and national renewable energy action plans, CTO and CST currently satisfy the sustainability criteria.

If a Member State’s national renewable energy action plan incentivizes the consumption of CTO or CST (or their precursor chemicals) as alternative fuels, demand for CTO and CST may increase. We are aware of at least one company, SunPine AB, located in Pitéa, Sweden, that is in the process of completing a new manufacturing facility for the production of biodiesel from CTO at least in part in reliance on possible incentives under the directive. This biodiesel manufacturing project, or other

similar future projects elsewhere, will increase the demand for the raw materials that our business currently depends on.

In addition to these developments in the European Union, various pieces of legislation regarding the use of alternative fuels have been introduced in the United States Congress. While this legislation is in its early stages, final legislation may incentivize the use of CTO and CST as alternative fuels in the United States.

Because the supply of CTO and CST is inherently constrained by the volume of paper pulp processing, any diversion of CTO and CST (or their precursor chemicals) for use as alternative fuels would reduce the available supply of CTO and CST. If this diversion were substantial, it could cause prices for CTO and CST to increase materially, place us at a competitive disadvantage relative to our competitors who rely on different primary raw materials, adversely affect our results of operations and threaten our ability to operate our business.

Fluctuations in Costs of Our Raw Materials Could Adversely Affect Our Results of Operations.

Our results of operations are directly affected by the cost of our raw materials, particularly CTO and CST. Raw materials accounted for approximately 60% of our costs of goods sold in 2009, and, accordingly, our gross profit and margins could be adversely affected by changes in the cost of these raw materials if we are unable to pass the increases on to our customers.

CTO and CST, in addition to their ability to be distilled into higher value chemicals, can be burned as alternative fuels. Some paper mills have historically burned CTO to meet their energy needs rather than sell the CTO they produce to third parties. Additionally, because of its inherent fuel properties, we compete for CTO with energy companies and biodiesel manufacturers, as well as other pine chemical companies. As discussed above, certain countries have proposed incentivizing the use of CTO and CST as alternative fuels, which would cause prices for CTO and CST to increase and place us at a competitive disadvantage relative to companies that utilize CTO and CST as an energy source. This could also result in a decrease in available supply of CTO and CST.

Furthermore, the cost of CTO is driven by energy prices generally, in addition to supply/demand balance and product quality, which means that the cost of CTO can fluctuate in accordance with capacity additions or reductions or significant facility operating reductions within the CTO market as well as the broader energy industry.

We cannot assure you that we will be able to pass raw material price increases through to our customers, and any price increase that we cannot pass on to our customers will adversely affect our results of operations.

Increases in Energy Costs Could have an Adverse Effect on Our Results of Operations.

Energy purchases constituted approximately 9% and 8% of our cost of goods sold for the three months ended March 31, 2010 and the year ended December 31, 2009, respectively. Increases in energy costs, unless passed on to our customers, would adversely affect our results of operations. In addition, rising energy costs may increase our raw material costs. If energy prices increase significantly, our business or results of operations may be adversely affected. In addition, rising energy costs negatively impact our customers and the demand for our products. These risks will be heightened if our customers or production facilities are in locations experiencing severe energy shortages.

Risks Related to Our Indebtedness

Our Substantial Indebtedness Could Adversely Affect Our Ability to Raise Additional Capital to Fund Our Operations, Limit Our Ability to React to Changes in the Economy or Our Industry and Prevent Us From Fulfilling Our Obligations Under Our Existing or Future Indebtedness.

We have substantial indebtedness. As of March 31, 2010, our total consolidated indebtedness was $331.6 million, including $327.4 million outstanding under our credit agreements. As of March 31,

2010, on an as adjusted basis after giving effect to this offering and the use of the proceeds therefrom (assuming that we sell the shares for a per share price of $ , the midpoint of the price range set forth on the cover page of this prospectus), we would have had $ million of outstanding indebtedness, including $ million under our First Lien Credit Agreement and $ million outstanding under our Second Lien Credit Agreement. In fiscal 2010, on an as adjusted basis, after giving effect to this offering and the use of the proceeds therefrom, our cash debt service is expected to be approximately $ million (including $ million of short term debt maturities) based on interest rates as of , 2010, of which $ million represents principal and $ million represents interest.

Our substantial indebtedness could have important consequences for you, including the following:


	•	it may limit our ability to obtain additional financing to fund working capital, capital expenditures, product development, dividend payments, debt service requirements, strategic initiatives or other purposes;

	•	it may limit our flexibility in planning for, or reacting to, changes in our operations or market conditions, and because we are more highly leveraged than some of our competitors, we may be at a competitive disadvantage;

	•	it may make us more vulnerable to further downturns in our industry or the economy;

	•	a substantial portion of our cash flow from operations will be dedicated to the repayment of principal and interest on our indebtedness and will not be available for other purposes;

	•	it may limit our ability to acquire other businesses or assets; and

	•	it may limit our ability to refinance our current indebtedness.

Our ability to make scheduled payments on our debt obligations and to repay our debt obligations as they come due depends on our financial condition and operating performance as well as general financial, business and market conditions and other factors that are beyond our control. There can be no assurances that our business will generate sufficient cash flow from operations or that we will be able to borrow additional funds to satisfy our debt service obligations and other liquidity needs.

The Terms of Our Existing Indebtedness May Restrict Our Current and Future Operations.

The terms of our existing indebtedness contain, and any future indebtedness we may incur would likely contain, restrictive covenants that impose significant operating and financial restrictions on our ability to, among other things:


	•	declare dividends, make distributions or redeem or repurchase common shares;

	•	prepay, redeem or repurchase other debt;

	•	incur liens or grant negative pledges;

	•	make loans and investments and enter into acquisitions and joint ventures;

	•	incur additional indebtedness;

	•	amend or otherwise alter or waive any material rights under any organizational document or any permitted debt agreement;

	•	make capital expenditures;

	•	engage in mergers, acquisitions and asset sales;

	•	engage in sale and lease-back transactions;

	•	conduct transactions with affiliates;


	•	alter the nature of our business; and

	•	change our fiscal quarter or fiscal year.

In addition, our credit agreements require us to achieve certain financial results and maintain compliance with specified financial ratios, which become more restrictive over time. A failure to comply with these covenants could result in an event of default under our credit agreements. In the event of any default under our credit agreements, the lenders thereunder may:


	•	discontinue lending under the revolving credit facility under our First Lien Credit Agreement;

	•	elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable;

	•	foreclose on our collateral; and

	•	force us to file for bankruptcy protection.

See “Description of Our Indebtedness”.

Our Variable-Rate Indebtedness Subjects Us to Interest Rate Risk, Which Could Cause Our Annual Debt Service Obligations to Increase Significantly.

Certain of our indebtedness, including indebtedness under our credit agreements, are or will be at variable rates of interest and expose us to interest rate risk. See “Description of Our Indebtedness”. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same. Assuming the amount of variable rate indebtedness remains the same, after giving effect to the offering and the use of the proceeds therefrom, an increase of 1% in the interest rates payable on our variable rate indebtedness would increase our 2010 estimated debt service requirements by approximately $ million.

Despite Our Substantial Indebtedness, We May Still be Able to Incur Significantly More Debt, Which Could Intensify the Risks Relating to Our Indebtedness Described Above.

The terms of the instruments governing our indebtedness restrict, but do not prohibit, our ability to incur substantial additional indebtedness in the future. As of March 31, 2010, on an as adjusted basis, after giving effect to this offering and the use of proceeds therefrom, we would have had $60.0 million available for additional borrowing under the revolving credit facility under our First Lien Credit Agreement, and the covenants under our credit agreements would allow us to borrow a significant amount of additional indebtedness. The more leveraged we become, the more we, and in turn our security holders, become exposed to the risks described above under “— Our Substantial Indebtedness Could Adversely Affect Our Ability to Raise Additional Capital to Fund Our Operations, Limit Our Ability to React to Changes in the Economy or Our Industry and Prevent Us From Fulfilling Our Obligations Under Our Existing or Future Indebtedness”.

Risks Related to Environmental and Safety Matters

Compliance with Extensive Environmental, and/or Health and Safety Regulations Could Be Costly, Subject Us to Liability for Fines or Damages, and/or Require Us to Modify Our Operations or Products.

Our operations are subject to extensive environmental, health and safety, or EHS, laws and regulations at national, international and local levels in each jurisdiction where we operate. Such laws and regulations include those governing the discharge of pollutants into the air and water, the use, management and disposal of hazardous materials and wastes, the investigation and cleanup of contamination, exposure to chemicals and other hazards, the control of resin dust and occupational health and safety. We have incurred, and will continue to incur, operating costs and capital expenditures to comply with these laws and regulations. In 2009, we incurred capital expenditures of

$1.3 million for EHS improvements, and we expect to incur capital expenditures of $2.7 million for EHS improvements in 2010. Future developments, including the enactment of new or more stringent laws or regulations could require us to make additional unplanned environmental expenditures.

Violations of these laws and regulations or the permits required for our operations could result in restrictions on our operating activities or the imposition of substantial fines, penalties, civil or criminal proceedings, third-party property damage claims (including natural resource damages claims), personal injury claims, reputational harm, cleanup costs or obligations or other losses or costs.

Compliance with EHS laws generally increases the cost of production, including registration and approval requirements, the costs of transportation and storage of raw materials and finished products, as well as the costs of the storage and disposal of wastes, and such costs could have a material adverse effect on our results of operations. Furthermore, environmental laws are subject to change and have tended to become stricter over time. In particular, regulatory efforts to address climate change and greenhouse gas emissions could affect our cost of production, the availability of raw feedstock or product sales. Such changes in environmental laws or their interpretation, or the enactment of new environmental laws, could result in materially increased capital expenditures and compliance costs.

Regulation of Exposure to Certain Process Chemicals Could Require Material Expenditures or Changes in Our Operations.

Certain regulations applicable to our operations, including the Occupational Safety and Health Act and the Toxic Substances Control Act in the United States and the Registration, Evaluation and Authorization of Chemicals, or REACH, directive in Europe, prescribe limits restricting exposure to a number of chemicals used in our operations, including formaldehyde and nonylphenol, a raw material used in our Niort, France facility in the manufacture of phenolic ink resins. Future studies on the health effects of chemicals used in our operations, including nonylphenol and bisphenol A, which is used in our rosin-based ink resins, may result in additional regulation or new requirements in the United States, Europe and elsewhere which further restrict or prohibit the use of, and exposure to, these chemicals. Additional regulation of or requirements for these or other chemicals could require us to change our operations, and these changes could affect the quality or types of products we manufacture and materially increase our costs.

We May be Subject to Cleanup Obligations, Lawsuits and Other Claims Arising Out of Environmental Contamination or Personal Injuries Associated with Chemical Manufacturing.

Many of our facilities have environmental contamination. The investigation and remediation of contamination at our facilities, including the discovery of contamination arising from historical industrial operations at our current and former properties, or at other properties impacted by our operations or to which our wastes were sent for disposal, may expose us to cleanup obligations and other damages which could be costly and may adversely affect our financial condition and results of operations. Under various environmental laws in the United States and other countries where we operate, a current or prior owner or operator of a facility may be liable for the entire cost of remediation of contamination at the facility or at locations where wastes were sent for disposal, in many cases without regard to whether the owner or operator knew of, or caused, the contamination.

For example, we are aware of soil and groundwater contamination at our Sandarne, Sweden facility, as well as costs that we will need to incur in connection with the closure of a landfill at a former Stora Enso site in Sandarne. Though we do not presently expect the costs associated with these matters to be material, it is possible that future unexpected costs associated with these or any other investigations and remediations could adversely affect our financial condition and results of operations.

We face the risk that individuals could seek damages for personal injury due to exposure to chemicals at our facilities or elsewhere, or to chemicals or wastes otherwise owned, controlled or

disposed of by us. We may be subject to claims with respect to workplace exposure, workers’ compensation, claims by neighbors or others alleging personal injury or property damage in connection with our operations or waste disposal. The costs to resolve such claims could be material.

Chemical Manufacturing is Inherently Hazardous, Which Could Result in Accidents that Disrupt Our Operations or Expose Us to Significant Losses or Liabilities.

The hazards associated with chemical manufacturing and the related storage and transportation of raw materials, products and wastes are inherent in our operations and the operations of other occupants with whom we share manufacturing sites. These hazards could lead to an interruption or suspension of operations and have an adverse effect on the productivity and profitability of a particular manufacturing facility or on the Company as a whole. These potential risks include, but are not limited to:


	•	pipeline and storage tank leaks and ruptures;

	•	explosions and fires;

	•	inclement weather and natural disasters, including hurricanes in the Southeastern United States and other extreme weather conditions relating to global climate change;

	•	terrorist attack;

	•	mechanical failures; and

	•	chemical spills and other accidental discharges or releases of toxic or hazardous substances or gases.

These hazards may result in personal injury and loss of life, damage to property and contamination of the environment, which may result in a suspension of operations and the imposition of civil or criminal penalties or fines, expenses for remediation and damage claims brought by governmental entities or third parties. The loss or shutdown of operations over an extended period of time at any of our major operating facilities could have a material adverse effect on our financial condition and results of operations. For example, in April 2008, a fire occurred in the refinery portion of our Oulu, Finland facility due to the failure of a hot oil pump, and in September 2009 a fire occurred at our Sandarne, Sweden facility as the result of welding work being performed by an outside contractor. While the fire at our Sandarne facility had a limited impact on our production or ability to service our customers, the Oulu fire required us to shut down that facility for approximately one month, resulted in property damage of €1.2 million and caused us to incur a business interruption expense €4.1 million, including a €2.6 million loss of profits resulting from lost sales.

In order to mitigate these potential losses and liabilities, we maintain property, business interruption and casualty insurance of the types and in the amounts that we believe are customary for the industry, and the majority of the damage and loss resulting from the fire at our Oulu facility was covered by our insurance. However, we are not fully insured against all potential hazards incidental to our business, and we may not recover the full amount of a loss or liability under the terms of our insurance policies.

Legal and Regulatory Risks

Regulatory and Statutory Changes Applicable to Us or Our Customers Could Adversely Affect Our Financial Condition and Results of Operations.

We and many of the applications for the products in the end-use markets in which we sell our products are regulated by various national and local rules, laws and regulations. Changes in any of these areas could result in additional compliance costs, seizures, confiscations, recall or monetary fines, any of which could prevent or inhibit the development, distribution and sale of our products. For

example, changes in environmental regulations restricting the use of sterols could cause a decline in sales to producers of that product.

We are Subject to Customs, International Trade, Export Control, Antitrust, Zoning and Occupancy and Labor and Employment Laws That Could Require Us to Modify Our Current Business Practices and Incur Increased Costs.

We are subject to numerous regulations, including customs and international trade laws, export control, antitrust laws and zoning and occupancy laws that regulate manufacturers generally and/or govern the importation, promotion and sale of our products, the operation of factories and warehouse facilities and our relationship with our customers, suppliers and competitors. If these regulations were to change or were violated by our management, employees, suppliers, buying agents or trading companies, the costs of certain goods could increase, or we could experience delays in shipments of our goods, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our products and hurt our business and negatively impact results of operations.

Similarly, these laws affect the availability and pricing of our raw materials and competing products. For example, we benefit from certain trade protections, including anti-dumping protection. If we were to lose these protections, our results of operations could be adversely affected. Changes in these laws or regulations may increase the cost of our raw materials or lower the cost of a competing product, which could hurt our business and negatively impact results of operations.

Legal requirements are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effects on our operations. We may be required to make significant expenditures or modify our business practices to comply with existing or future laws and regulations, which may increase our costs and materially limit our ability to operate our business.

Due to the Nature of Our Business and Products, We May Be Liable for Damages Arising Out of Product Liability Claims.

The sale of our products involves the risk of product liability claims. For example, some of the chemicals or substances that are used in our businesses, including alkyl phenols such as bisphenol A and nonylphenol, and flammable solvents such as toluene, xylene and alcohols, as well as rosin, formaldehyde and resin dust, have been identified as having potentially harmful health effects.

In addition, we may be liable for damages based on product liability claims brought against our customers in our end-use markets. Many of our products provide critical performance attributes to our customers’ products that are ultimately sold to consumers who could potentially bring product liability suits in which we could be named as a defendant. If a person were to bring a product liability suit against one of our customers, this customer may attempt to seek contribution from us. A person may also bring a product liability claim directly against us. A successful product liability claim or series of claims against us in excess of our insurance coverage limits, for which we are not otherwise indemnified, could have a material adverse effect on our financial condition or results of operations. While we endeavor to protect ourselves from such claims and exposures in our contractual negotiations, there can be no assurance that our efforts in this regard will ultimately protect us from any such claims.

Risks Related to Worldwide Operations

Our Substantial Worldwide Operations Subject Us to Risks not Faced by Competitors that are Based in or that Operate Solely in the United States, Including Legislative, Judicial, Economic, Political, Regulatory, Labor and Tax Conditions.

We are a Bermuda company with a significant portion of our manufacturing operations located outside the United States. In 2009, our net sales outside the United States represented approximately

59% of our total net sales and included sales to more than 80 countries. In addition, we have production facilities located in Sandarne, Sweden, Oulu, Finland, Chester-le-Street, United Kingdom, Niort, France and Gersthofen, Germany. Accordingly, our business is subject to the differing legal, political, social and regulatory requirements and economic conditions specific to the countries or regions in which we operate, which could materially adversely affect our financial performance. Risks inherent in world-wide operations include, but are not limited to, the following:


	•	difficulty in enforcing agreements through the differing legal systems of the countries in which we operate;

	•	customers in the various countries in which we operate may have long payment cycles;

	•	countries in which we operate may impose withholding taxes or otherwise tax our income from our operations, impose tariffs or adopt other restrictions on trade and investment outside, including currency exchange controls;

	•	restrictions on our ability to repatriate earnings from countries in which we operate;

	•	difficulty in enforcing intellectual property rights and our ability to protect our intellectual property;

	•	high rates of inflation;

	•	fluctuations in exchange rates, including currency devaluation, may affect product demand and may adversely affect our profitability;

	•	increased costs of transportation or shipping;

	•	risk of nationalization of private enterprises;

	•	changes in general economic and political conditions in the countries in which we operate;

	•	changes in laws or regulatory requirements, including those governing environmental protection, export duties and quotas;

	•	difficulty with staffing and managing widespread operations; and

	•	required compliance with laws and regulations of numerous jurisdictions.

A portion of our outstanding debt under our First Lien Credit Agreement is denominated in Euros, and a portion of this debt is attributable to Arizona Chemical AB, whose functional currency is the Swedish Kronor. Accordingly, fluctuations in the exchange rate of the Swedish Kronor to the Euro expose us to both realized and unrealized foreign currency losses. For example, in 2008, we recognized an unrealized loss of $20.3 million due to a stronger Euro against the Swedish Kronor, and in 2009, we recognized $9.3 million and $0.4 million of unrealized gain and realized loss, respectively. For the three months ended March 31, 2010, we recognized $4.8 million and $0.3 million of unrealized gain and realized gain, respectively.

Our overall success as a global business depends, in part, upon our ability to succeed in differing legal, regulatory, economic, social, tax and political conditions. We may not continue to succeed in developing and implementing policies and strategies that will be effective in each location where we do business. Our growth strategy includes expansion into new and existing international markets, and we expect that our operations outside the United States will account for a larger portion of our revenue and profitability in the future. As a result, each of the foregoing risks is likely to take on increased significance.

Currency Translation Risk and Currency Transaction Risk May Negatively Affect Our Net Sales, Cost of Sales and Operating Margins and Could Result in Exchange Losses.

We conduct our business and incur costs in the local currency of most countries in which we operate. In the three months ended March 31, 2010 and the year ended December 31, 2009, our net

sales recorded in currencies other than U.S. dollars represented approximately 51% of our total net sales. Accordingly, our results of operations are recorded in the relevant local currency and then translated to U.S. dollars, our functional currency, at the applicable currency exchange rate for inclusion in our financial statements. Changes in exchange rates between those foreign currencies and the U.S. dollar will affect our net sales, cost of sales and operating margins and could result in exchange losses. In addition to currency translation risks, we incur currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a different currency from the currency in which it records revenues. While we do not currently hedge our exchange rate exposures, we may do so in the future. However, any hedging transactions we enter into may not be effective or could result in foreign exchange hedging loss. The impact of future exchange rate fluctuations on our results of operations cannot be accurately predicted.

Given the volatility of exchange rates, we may not be able to effectively manage our currency transaction and/or translation risks, and any volatility in currency exchange rates may have an adverse effect on our financial condition, cash flows and profitability. We operate our business in countries that historically have been and may continue to be susceptible to recessions or currency devaluation, including Mexico and Turkey. In addition, as we expand our business in emerging markets, particularly China and Russia, the uncertain regulatory environment relating to currency policy in these countries could have a negative impact on our operations there.

Risks Related to Competition

We Face Competition From Other Chemical Companies, Which Could Force Us to Lower Our Prices, Thereby Adversely Affecting Our Business, Operating Margins, Financial Condition, Cash Flows and Profitability.

The markets in which we operate are highly competitive, and this competition could harm our business, operating margins, financial condition, cash flows and profitability. Our competitors include major international producers as well as smaller regional competitors. Current and anticipated future consolidation among our competitors and customers may cause us to lose market share as well as put downward pressure on pricing. Furthermore, there is a trend in the chemical industry toward relocation of manufacturing facilities to lower-cost regions such as Asia. Such relocation may permit some of our competitors to lower their costs and improve their competitive position. Some of our competitors are larger, have greater financial resources and have less debt than we do. As a result, those competitors may be better able to withstand a change in conditions within our industry and throughout the economy as a whole. If we do not compete successfully, our business, operating margins, financial condition, cash flows and profitability could be adversely affected.

Competition From Producers of Substitute Products Could Lead to Declines in Our Net Sales Attributable to These Products.

We face competition from a number of products that are potential substitutes for our products. In particular, hydrocarbon and gum-based resins compete with tall oil-based resins in the adhesives and inks markets, and animal and vegetable-based fatty acids compete with TOFA. We have in certain cases been subject to pricing pressure from Chinese manufacturers of gum rosins, and our hydrocarbon competitors have introduced metallocene-based products that compete directly with many of our adhesive tackifiers. Considerable growth in these substitutes for our products could adversely affect our market share, net sales and results of operations.

We face substantial risk that certain events, such as new product development by our competitors, changing customer needs, production advances for competing products, price changes in raw materials, our failure to secure patents or the expiration of patents, could result in declining demand for our products as our customers switch to substitute products or undertake manufacturing of such products on their own. If we are unable to develop and produce or market our products to effectively compete against our competitors, our results of operations may materially suffer.

Failure to Develop New Products will Make Us Less Competitive.

Our results of operations depend to a significant extent on our ability to expand our product offerings and to continue to develop our production processes to be a competitive producer. We may not be able to continue to develop new products, re-engineer our existing products successfully or bring our products to market in a timely manner. While we believe that the products, pricing and services we offer customers are competitive, we may not be able to continue to attract and retain customers.

In addition, our customers may introduce new generations of their own products or require new technological and increased performance specifications that would require us to develop customized products. Innovation or other changes in our customers’ product performance requirements may also adversely affect the demand for our products. Our future growth will depend on our ability to gauge the direction of the commercial and technological progress in all key end-use markets, and upon our ability to successfully develop, manufacture and market products in such changing end-use markets. If we fail to keep pace with evolving technological innovations or fail to modify our products in response to our customers’ needs, then our business, financial condition and results of operations could be adversely affected as a result of reduced sales of our products.

Pricing Pressures by Our Customers and Increased Competition May Adversely Affect Our Results of Operations.

We have in the past experienced pricing pressure from customers in certain of the markets in which we compete, particularly chemical intermediates and inks. While we are directing our business away from producing low-margin products such as those sold as chemical intermediates and those sold into the inks market, we currently derive a significant portion of our revenues from sales of these chemicals and will continue to do so for the foreseeable future. Accordingly, pricing pressure on these products may reduce our profitability and adversely affect our results of operations.

Risks Related to Intellectual Property

Our Business Relies on Intellectual Property and Other Proprietary Information and Our Failure to Protect Our Rights Could Harm Our Competitive Advantages with Respect to the Manufacturing of Some of Our Products.

Our success depends to a significant degree upon our ability to protect and preserve our intellectual property and other proprietary information of our business. However, we may be unable to prevent third parties from using our intellectual property and other proprietary information without our authorization or from independently developing intellectual property and other proprietary information that is similar to ours, particularly in countries where the laws do not protect our proprietary rights to the same degree as in the United States. Others’ use of our intellectual property and other proprietary information could reduce or eliminate any competitive advantage we have developed, cause us to lose sales or otherwise harm our business. If it becomes necessary for us to litigate to protect these rights, any proceedings could be burdensome and costly, and we may not prevail.

As a result of developing products and markets with selected customers, we have six patent families that are jointly-held with certain of our customers. These patents are in the areas of tackifiers for adhesives and specialty polyamides for fragrance formulations. At the time of such product and/or market development, we entered into written agreements with these customers that limit the rights of each party with respect to jointly developed inventions and inventions made with the confidential information of the other party. These written agreements were made in exchange for exclusive licenses or supply agreements, for limited times. The risks of such joint-development agreements include the risk that our partner will breach its obligations under the agreement. For example our partner might breach the agreement and begin making products that we develop or enter into similar development agreements with our competitors. In the event that our customer exploits a jointly-held patent or breaches its obligations under a joint-development agreement, our business could be

materially adversely affected. Another risk is that title to intellectual property that is managed by an agreement may become clouded. For example, we or our partner may fail to document a change in patent ownership that occurs when certain conditions of an agreement are met. Unclear title or undocumented changes in title make it more difficult to license or sell such a patent.

Any of our patents or patent applications may not provide us with any competitive advantage and may be challenged by third parties. Our competitors also may attempt to design around our patents or copy or otherwise obtain and use our intellectual property and other proprietary information. Moreover, our competitors may already hold or have applied for patents in the United States or abroad that, if enforced or issued, could possibly prevail over our patent rights or otherwise limit our ability to manufacture or sell one or more of our products in the United States or abroad. From time to time, we oppose the issuance of patent applications in the United States and other jurisdictions that we consider overbroad or otherwise invalid to avoid the risk of being sued for patent infringement. With respect to our pending patent applications, we may not be successful in securing patents for these claims. Our failure to secure these patents may limit our ability to protect inventions that these applications were intended to cover. The expiration of a patent can result in increased competition with consequent erosion of profit margins.

In addition, it is our policy to enter into confidentiality agreements when appropriate with our employees and third parties to protect our unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets and know-how, but our confidentiality agreements could be breached or may not provide meaningful protection for our trade secrets or proprietary manufacturing expertise. Adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets, manufacturing expertise and know-how. Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition. In addition, others may obtain knowledge of our trade secrets and know-how through independent development or other access by legal means. Failure to obtain or maintain unpatented know-how and trade secret protection could adversely affect our competitive position.

We have registered and applied for certain service marks and trademarks, and will continue to evaluate the registration of additional service marks and trademarks, as appropriate. The applicable governmental authorities may not approve our pending applications. A failure to obtain trademark registrations in the countries in which we operate could limit our ability to obtain and retain our trademarks and impede our marketing efforts in those jurisdictions. Moreover, third parties may seek to oppose our applications or otherwise challenge the resulting registrations. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands.

The failure of our patents, trademarks or confidentiality agreements to protect our intellectual property and other proprietary information, including our processes, apparatuses, technology, trade secrets, trade names and proprietary manufacturing expertise, methods and compounds, could have a material adverse effect on our competitive advantages over other producers.

Our Products May Infringe the Intellectual Property Rights of Others, Which May Cause Us to Incur Unexpected Costs or Prevent Us from Selling Our Products.

Many of our competitors have a substantial amount of intellectual property that we must continually monitor to avoid infringement. Although it is our policy and intention not to infringe valid patents, we cannot guarantee that our processes and products do not and will not infringe issued patents (whether present or future) or other intellectual property rights belonging to others, including, without limitation, situations in which our products, processes or technologies may be covered by patent applications filed by other parties. From time to time, we oppose patent applications that we consider overbroad or otherwise invalid in order to maintain the necessary freedom to operate fully in our various business lines without

the risk of being sued for patent infringement. If, however, patents are subsequently issued on any such applications by other parties, or if patents belonging to others already exist that cover our products, processes or technologies, we could, possibly, be liable for infringement or have to take other remedial or curative actions to continue our manufacturing and sales activities with respect to one or more products. We may also be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties by us or our licensees in connection with their use of our products. Intellectual property litigation is expensive and time-consuming, regardless of the merits of any claim, and could divert our management’s attention from operating our business. If we were to discover that our processes, technologies or products infringe the valid intellectual property rights of others, we might need to obtain licenses from these parties or substantially re-engineer our products in order to avoid infringement. We may not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to re-engineer our products successfully. Moreover, if we are sued for infringement and lose, we could be required to pay substantial damages and/or be enjoined from using or selling the infringing products or technology. Any of the foregoing could cause us to incur significant costs and prevent us from selling our products.

Risks Related to Employment Matters

Our Future Success Depends on Our Ability to Retain Our Key Employees.

We are dependent on the services of our management team to remain competitive in our industry. This team includes Cornelis Verhaar, our President and Chief Executive Officer, Frederic Jung, our Vice President and Chief Financial Officer, Gary Reed, our Vice President and General Manager — North America, Juhani Tuovinen, our Vice President and General Manager — Europe, David Cowfer, our Vice President, Human Resources and Corporate Communications, and Dick Stuyfzand, our Vice President and General Counsel.

The loss of any member of our senior management team would have an adverse effect on us, and although we maintain employment agreements with several members of our senior management, we cannot assure you that we will be able to retain our management team or that members of our management team will not compete against us in the future.

We May Be Required to Expend Greater Time and Expenses Than Anticipated or Than Other Companies Expend in Dealing With Our Employees, Some of Whom are Unionized, Represented by Workers’ Councils or are Employed Subject to Local Laws That are Less Favorable to Employers Than the Laws of the United States.

As of March 31, 2010, approximately 54% of our 671 employees in the United States were unionized and are covered by collective bargaining agreements. In Europe, nearly all of our employees are represented by local workers councils and/or unions. In addition, some of our employees are employed in countries in which employment laws provide greater bargaining or other rights to employees than the laws of the United States. Such favorable employment rights require us to expend greater time and expense in making changes to employees’ terms of employment or making staff reductions. For example, the workers’ councils that represent most of our employees in Europe must approve any changes in conditions of employment, including salaries and benefits. A significant dispute with our employees may divert management’s attention and otherwise hinder our ability to conduct our business and achieve planned cost savings.

In addition, changes in United States federal, state and local minimum wage laws and other laws, including those in foreign countries, relating to employee benefits could cause us to incur additional wage and benefits costs, which could negatively impact our profitability.

We Operate Under Collective Bargaining Agreements with Several Unions, and We May Experience Labor Unrest and Work Stoppages.

We operate under collective bargaining arrangements with several unions in our U.S. and non-U.S. facilities. Although we believe relations with our unions are generally satisfactory, we cannot be certain that they will remain satisfactory. Accordingly, we cannot assure you that we will not encounter strikes or other types of conflicts with labor unions or our personnel or that such labor disputes will not have an adverse effect on us.

Significant Changes in Pension Fund Investment Performance or Assumptions Relating to Pension Costs May Increase the Valuation of Pension Obligations, Alter the Funded Status of Pension Plans and Increase Our Pension Costs.

Our funding policy for pension plans is to accumulate plan assets that, over the long run, will approximate the present value of projected benefit obligations. Our pension cost is materially affected by the discount rate used to measure pension obligations, the level of plan assets available to fund those obligations at the measurement date and the expected long-term rate of return on plan assets. Significant changes in investment performance or a change in the portfolio mix of invested assets can result in corresponding increases and decreases in the valuation of plan assets, particularly equity securities, or in a change of the expected rate of return on plan assets. A change in the discount rate would result in a significant increase or decrease in the valuation of pension obligations, affecting the reported funded status of our pension plans as well as the net periodic pension cost in the following financial years. Similarly, changes in the expected return on plan assets assumption can result in significant changes in the net periodic pension cost of the following financial years.

Our Pension Plans are Currently Underfunded and We May have to Make Significant Cash Payments to the Plans, Reducing the Cash Available for Our Business.

We sponsor various pension plans worldwide that are underfunded and require significant cash payments. For example, in 2009, we contributed $4.5 million to our pension plans and, in 2008, we contributed $2.7 million to our pension plans. We are expected to contribute at least $4.1 million to our pension plans in 2010. We may also opt to make additional voluntary contributions to various pension plans worldwide in 2010. Additionally, if the performance of the assets in our pension plans does not meet our expectations, or if other actuarial assumptions are modified, our contributions for those years could be even higher than we expect. For example, the combined asset value of funded pension plans worldwide was $47.6 million as of December 31, 2009. We expect to earn a 5.9% investment return on our pension assets. In the event actual investment returns are 1% lower than expected for one year, we expect our long-term cash requirements to increase by $0.5 million. If our cash flow from operations is insufficient to fund our worldwide pension liability, we may be forced to reduce or delay capital expenditures, seek additional capital or seek to restructure or refinance our indebtedness.

As of March 31, 2010, our worldwide pension plans were underfunded by $14.2 million (based on the actuarial assumptions consistent with GAAP). Our U.S. pension plan is subject to the Employee Retirement Income Security Act of 1974, or ERISA, and our benefit plans in other countries are also subject to laws governing the funding of retirement benefits. The applicable authorities in the countries in which we operate (including, in the United States, the Pension Benefit Guaranty Corporation under ERISA) have the authority to terminate an underfunded pension plan under certain circumstances, which may require us to incur a liability equal to the entire amount of the underfunding for that plan.

Risks Related to Financial Reporting

Our Management and Independent Registered Public Accounting Firm in the Past Determined that There have Been Material Weaknesses and Significant Deficiencies in Our Internal Controls Over Financial Reporting. If We Fail to Maintain an Effective System of Internal Controls Over Financial Reporting, We May not be Able to Accurately Report Our Financial Results.

During their audit of our financial statements as of and for the ten months ended December 31, 2007, our independent registered public accounting firm identified certain reportable conditions that constituted a material weakness in the internal controls over financial reporting process. These conditions included a failure by our corporate finance and accounting function to thoroughly review our consolidated financial statements, a lack of active monitoring and oversight by our corporate finance and accounting function of our European accounting function and the inability of our corporate finance and accounting function to complete the timely closing of the financial accounting books and records and prepare our 2007 financial statements. We remedied these conditions in 2008.

In addition, during their audit of our financial statements as of and for the year ended December 31, 2008 and the ten months ended December 31, 2007, our independent registered public accounting firm identified certain conditions that constituted significant deficiencies in our internal controls over financial reporting, including a significant deficiency relating to our statement of cash flows in 2008 and significant deficiencies regarding our assessment of fraud risk, journal entries, accounting policy and internal control documentation, plant accounting, income taxes and reconciliation review in 2007.

Our audit committee and management team agreed with the matters identified as the material weakness and significant deficiencies. Failure to maintain an effective system of internal controls over financial reporting could have a material adverse effect on our business, financial condition, results of operations and our ability to accurately report our financial results.

If We Are Unable to Implement the Requirements of Section 404 of the Sarbanes-Oxley Act in a Timely Manner, or if We Conclude Our Internal Controls are not Effective in Other Areas, We May Be Subject to Sanctions or Investigation by Regulatory Authorities and Incur Additional Compliance Costs and the Financial Markets May React Negatively.

We are currently performing the system and process evaluation of our internal controls over financial reporting in order to allow management to report on, and our independent auditors to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, which we refer to as Section 404. The requirements of Section 404 will initially apply to us in connection with the filing of our second annual report after becoming subject to the reporting requirements of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). In connection with our preliminary evaluation, we have identified areas of internal controls that may need improvement, such as internal controls related to the segregation of duties, system access and user security profiles, operating policies and procedures. We plan to begin the testing necessary to permit the management certification and auditor attestation required to comply with Section 404 in 2011. As we complete the evaluation and testing required by Section 404, we may identify conditions that may be categorized as significant deficiencies or material weaknesses in the future.

As of March 31, 2010, we have incurred $0.1 million in professional fees in connection with our initial implementation of the systems and internal control documentation required pursuant to Section 404.

If we are not able to implement the requirements of Section 404 in a timely manner, management will not be able to certify as to the effectiveness of our internal control over financial reporting and we may be subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission (the “SEC”). As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may

be required to incur additional costs in improving our internal control system and/or the hiring of additional personnel. Any such action could adversely affect our results of operations.

Risks Related to Our Common Shares and this Offering

We are Controlled by Rhône Capital, Whose Interests in Our Business May Be Different From Yours.

After the completion of this offering, Rhône Capital will exercise control over more than 50% of our outstanding common shares. As a result, Rhône Capital will, subject to applicable law, be able to control the composition of our Board of Directors and therefore will be able to control actions to be taken by us and our Board of Directors, including amendments to our memorandum of association and certain provisions of our bye-laws, the approval of significant corporate transactions such as the amalgamation, discontinuance, voluntary liquidation or sale of our company or our assets, as well as the issuance of additional shares, alteration of our share capital, the implementation of share repurchase programs, and the issuance of dividends.

Additionally, Rhône Capital and its affiliates are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. They may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

As a “Controlled Company”, We Will be Exempt From Certain NYSE Governance Requirements.

Because Rhône Capital and its affiliates will control more than 50% of our voting power after giving effect to this offering, we will be considered a “controlled company” for the purposes of the NYSE listing requirements. As such, we will be exempt from the NYSE corporate governance requirements that our board of directors, our compensation committee and our nominating and corporate governance committee meet the standard of independence established by those corporate governance requirements. As a result, our Board of Directors and those committees will have more directors that would not meet the NYSE independence standards than they would if those standards were to apply. The NYSE independence standards are intended to ensure that directors who meet the independence standard are free of any conflicting interest that could influence their actions as directors.

There is no Existing Public Market for Our Common Shares, and We Do Not Know if One Will Develop, Which Could Impede Your Ability to Sell Your Shares and Depress the Market Price of Our Common Shares.

Prior to this offering, there has been no public market for our common shares. We cannot predict the extent to which investor interest will lead to the development of an active and liquid trading market in our common shares. The failure of an active trading market to develop could affect your ability to sell your shares and depress the market price of your shares. The initial public offering price for our common shares will be determined by negotiations among us, the selling shareholder and the representatives of the underwriters. The initial public offering price of our common shares will be based on numerous factors and may not be indicative of the market price of the common shares that will prevail in the trading market. The market price of your shares may fall below the initial public offering price.

The Market Price of Our Common Shares May be Volatile, Which Could Cause the Value of Your Investment to Decline.

The market price of our common shares could fluctuate significantly, in which case you may not be able to resell your shares at or above the initial public offering price. Some companies that have had volatile market prices for their securities have had securities class action suits filed against them. If a suit were to be filed against us, regardless of the outcome, it could result in substantial costs and a diversion of management’s attention and resources. This could have a material adverse effect on our business, results of operations and financial condition.

The market price of our common shares may fluctuate in response to a number of events, including:


	•	our quarterly operating results;

	•	future announcements concerning our business;

	•	changes in financial estimates and recommendations by securities analysts;

	•	the number of shares to be publicly traded after this offering;

	•	changes in the availability or cost of raw materials;

	•	changes in energy costs;

	•	actions of competitors;

	•	our involvement in acquisitions, strategic alliances or joint ventures;

	•	market and industry perception of our success, or lack thereof, in pursuing our growth strategy;

	•	our ability to develop and market new products on a timely basis;

	•	commencement of, or our involvement in litigation;

	•	dilutive issuances of our shares or the shares of our subsidiaries;

	•	changes in our board or management;

	•	adoption of new or different accounting standards;

	•	changes in government regulations, including environmental regulations;

	•	difficulties in managing international operations and the burden of complying with existing and future domestic and foreign laws;

	•	arrival and departure of key personnel;

	•	general market, economic and political conditions; and

	•	natural disasters, terrorist attacks and acts of war.

In addition, in recent years the stock market has experienced significant price and volume fluctuations. These fluctuations are often unrelated to the operating performance of particular companies. The price of our common shares could fluctuate based upon factors that have little or nothing to do with our company or its ongoing business operations, and these fluctuations could materially reduce the market price of our common shares.

Future Sales or the Possibility or Perception of Future Sales of a Substantial Amount of Our Common Shares Could Adversely Affect the Market Price of Our Common Shares.

The market price of our common shares could decline as a result of sales of a large number of our common shares in the public market after this offering or the perception that these sales could occur. The sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Upon consummation of this offering, there will be common shares outstanding. All common shares sold in this offering will be freely transferable without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”). Of the remaining common shares outstanding, will be restricted securities within the meaning of Rule 144 under the Securities Act, but will be eligible for resale subject to applicable volume, manner of sale, holding period and other limitations of Rule 144. We and certain of our shareholders have agreed to a “lock-up”, pursuant to which neither we nor they will sell any shares without the prior consent of Goldman, Sachs & Co. for 180 days after the date of this prospectus, subject to certain exceptions and extension under certain circumstances. Following the expiration of the applicable lock-up period, all these common

shares will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144.

Any common shares reserved for future issuance under our 2010 Long-Term Incentive Plan could also become eligible for sale in the public market to the extent permitted by the provisions of the various vesting agreements and Rule 144 under the Securities Act.

In addition, the Rhône Funds, International Paper and the MIVs will have certain registration rights with respect to the common shares that they will retain following this offering. See “Shares Eligible for Future Sale” for a discussion of the common shares that may be sold into the public market in the future, and “Certain Relationships and Related Party Transactions — Shareholders Agreement” for a discussion of registration rights.

We may issue our common shares or other securities, including preference shares, from time to time as consideration for future acquisitions and investments. If any such acquisition or investment is significant, the number of our common shares, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial. We may also grant registration rights covering those common shares or other securities in connection with any such acquisitions and investments.

We do not Expect to Pay Any Dividends for the Foreseeable Future.

Other than the distribution we are making to AZ Chem Investments Partners LP out of the proceeds of this offering, we do not anticipate paying any dividends to our shareholders for the foreseeable future. In addition, because we are a holding company, our ability to pay dividends depends on our receipt of cash dividends and distributions from our subsidiaries. The terms of our credit agreements substantially restrict our ability and the ability of our subsidiaries to pay dividends. Accordingly, investors must be prepared to rely on sales of their common shares after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common shares. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend upon our results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law or the SEC and other factors our board deems relevant.

Arizona Chemical Ltd. is a Holding Company that does not Conduct Any Business Operations of its Own, and it Depends on the Performance of its Subsidiaries and Their Ability to Pay Dividends and Make Distributions to it.

Arizona Chemical Ltd. is a holding company that does not conduct any business operations of its own. Arizona Chemical Ltd.’s principal asset is the equity securities of Arizona Chemical Luxembourg S.à.r.l. which will, upon completion of this offering, through its subsidiary Arizona Chem Sweden Holdings AB, own operating subsidiaries. As a result, the issuer is dependent upon cash dividends and distributions or other transfers from its subsidiaries to make dividend payments on its common shares and to meet its other obligations. The ability of the issuer’s subsidiaries to pay dividends and make other payments to the issuer will depend on their operating results and may be restricted by, among other things, applicable corporate, tax and other laws and regulations, agreements entered into by the subsidiaries, such as our credit agreements and any agreement governing any future indebtedness the issuer or its subsidiaries may incur.

In addition, because Arizona Chemical Ltd. is a holding company, your claims as shareholders will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of its subsidiaries, including obligations under existing and future indebtedness. Accordingly, in the event of the issuer’s dissolution, bankruptcy, liquidation or reorganization, the issuer’s assets and the assets of its subsidiaries will be available for distribution to our shareholders only after all of the issuer’s liabilities and the liabilities of its subsidiaries have been paid in full. The

issuer would not be able to make distributions to its shareholders until after the payment in full of the claims of the creditors of its subsidiaries.

If Securities or Industry Analysts do not Publish Research or Publish Inaccurate or Unfavorable Research About Our Business, Our Share Price and Trading Volume Could Decline.

The trading market for our common shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our common shares would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our common shares or publishes inaccurate or unfavorable research about our business, our share price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common shares could decrease, which could cause our share price and trading volume to decline.

Through its Affiliates, One of the Underwriters for this Offering is Also a Creditor of Our Outstanding Indebtedness, and Therefore has Interests in this Offering Beyond Customary Underwriting Discounts and Commissions.

Certain affiliates of Goldman, Sachs & Co. are lenders under our credit agreements, and we expect to use portions of the net proceeds of this offering to repay indebtedness outstanding under our credit agreements. As a result, such affiliates of Goldman, Sachs & Co. may receive portions of the proceeds of this offering and have interests beyond customary underwriting discounts and commissions.

For more information on the use of the proceeds of this offering, see “Use of Proceeds” and “Underwriting”.

You will Experience Immediate and Substantial Dilution as a Result of this Offering and May Experience Additional Dilution in the Future.

The initial public offering price of the common shares is substantially higher than the net tangible book value per outstanding common share. As a result, you would experience immediate and substantial dilution of $ per common share, based on an assumed offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus. For additional information, see “Dilution”.

Risks Related to Holding Shares in a Bermuda Company

We are Incorporated in Bermuda, and a Significant Portion of Our Assets are Located Outside the United States. As a Result, it may not be Possible for Shareholders to Enforce Civil Liability Provisions of the United States Federal or State Securities Laws.

We are incorporated under the laws of Bermuda, and a significant portion of our assets are located outside the United States. It may not be possible to enforce court judgments obtained in the United States against us in Bermuda, or in countries other than the United States where we have assets, based on the civil liability provisions of the federal or state securities laws of the United States. In addition, there is some doubt as to whether the courts of Bermuda and other countries would recognize or enforce judgments of United States courts obtained against us or our directors or officers based on the civil liabilities provisions of the federal or state securities laws of the United States or would hear actions against us or those persons based on those laws. We have been advised by our legal advisors in Bermuda that the United States and Bermuda do not currently have a treaty providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not based solely on United States federal or state

securities laws, would not automatically be enforceable in Bermuda. Similarly, those judgments may not be enforceable in countries other than the United States where we have assets.

We May Issue Preference Shares and Our Bye-Laws and Bermuda Law May Discourage Takeovers, Which Could Affect the Rights of Holders of Our Common Shares.

Following this offering, our board of directors will have the authority to issue up to preference shares without any further vote or action by the shareholders, in accordance with the provisions of our bye-laws. Since the preference shares could be issued with liquidation, dividend and other rights superior to those of the common shares, the rights of the holders of common shares will be subject to, and may be adversely affected by, the rights of the holders of any such preference shares. The issuance of preference shares could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting shares. Further, the provisions of our bye-laws, including a staggered board of directors and the provision related to the ability of shareholders to remove directors only for cause, and of Bermuda law could have the effect of delaying or preventing a change in control of us. See “Description of Share Capital”.

Bermuda Law Differs from the Laws in Effect in the United States and May Afford Less Protection to Shareholders.

Our shareholders may have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction of the United States. As a Bermuda company, we are governed by the Companies Act, 1981 (as amended), or the “Companies Act”. The Companies Act differs in some material respects from laws generally applicable to United States corporations and shareholders, including the provisions relating to interested directors, mergers, amalgamations and acquisitions, takeovers, shareholder lawsuits and indemnification of directors. See “Description of Share Capital — Delaware Law”, “Certain Relationships and Related Party Transactions — Director and Officer Indemnification” and “Description of Share Capital — Indemnification of Directors and Officers”.

Under Bermuda law, the duties of directors and officers of a company are generally owed to the company only. Shareholders of Bermuda companies generally do not have rights to take action against directors or officers of the company, and may only do so in limited circumstances.

In addition, our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on its behalf, against any of its officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

We May Become Subject to Bermuda Taxes After March 28, 2016, Which May have a Material Adverse Effect on Our Financial Condition and Operating Results and Your Investment Could be Adversely Affected.

The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, has given us an assurance that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to us or any of our operations, shares, debentures or other obligations, except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property leased by us in Bermuda. See “Material Bermuda and U.S. Federal Income Tax Considerations”. This assurance by the Bermuda Minister of Finance expires on March 28, 2016. Given the limited duration of the Minister of Finance’s assurance, we cannot be certain that we will not be subject to any Bermuda tax after March 28, 2016. If the Bermuda Government imposed significant taxes on our business, our earnings could decline significantly.

If you Acquire More Than 10% of Our Outstanding Shares, CFC Rules May Apply to you.

Rhône Capital has informed us that it intends to take the position that Arizona Chemical Ltd. and certain of its foreign subsidiaries are controlled foreign corporations (“CFCs”) for United States federal income tax purposes. Each “United States shareholder” of a CFC that directly or indirectly owns shares in the CFC on the last day of the CFC’s taxable year must generally include in its gross income for United States federal income tax purposes its pro rata share of the CFC’s “subpart F income”, even if the subpart F income is not distributed. For these purposes, any U.S. person who owns, directly, indirectly through foreign persons, or constructively (under applicable constructive ownership rules of the Code) 10% or more of the total combined voting power of all classes of shares of a foreign corporation will be considered to be a “United States shareholder” of the corporation.

From Time to Time, Certain Taxing Authorities and International Organizations, Including the U.S. Government and the Organization for Economic Cooperation and Development, or the OECD, have Considered Taking Steps that Would Result in an Increase in Our Taxes, and They May Take Such Steps in the Future.

A number of taxing authorities have from time to time considered imposing measures that would increase the amount of taxes we would be required to pay. Such authorities could implement changes in the applicable tax laws and regulations in order to subject Bermuda companies like us to additional taxes. In addition, the OECD has published reports and launched a global dialogue among member and non-member countries as to whether to impose measures to counteract the effects of tax havens and preferential tax regimes in countries around the world. While the OECD regards Bermuda as a jurisdiction that has substantially complied with internationally agreed tax standards, and as such has listed Bermuda on its “white list”, we are not able to predict whether any changes will be made to this classification or the consequences of any such change.

We are not able to predict what developments with respect to applicable tax laws may occur or, if they do occur, what impact they may have on us. U.S. and international taxing authorities could subject us to additional taxation at any time, which would reduce our income and could adversely affect our profitability and the market value of our shares.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements made under the headings “Summary”, “Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, our audited consolidated financial statements and related notes thereto and elsewhere in this prospectus contain forward-looking statements that reflect our plans, beliefs, expectations and current views with respect to, among other things, future events and financial performance. Forward-looking statements are often characterized by the use of words such as “believes”, “estimates”, “expects”, “projects”, “may”, “intends”, “plans” or “anticipates”, or by discussions of strategy, plans or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or our achievements, or industry results, to differ materially from historical results, any future results, or performance or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to:


	•	conditions in the global economy and capital markets;

	•	our dependence on International Paper and other suppliers to perform their obligations to us;

	•	failure of our suppliers to perform their obligations under long-term supply agreements, or our inability to replace or renew these agreements when they expire, could increase our cost for these materials and interrupt production;

	•	limited availability or increases in prices of raw materials used in our business;

	•	our substantial level of indebtedness and the operating and financial restrictions imposed by our debt instruments and related indentures;

	•	competitive pressures in the specialty chemicals industry;

	•	our ability to continue technological innovation and successful commercial introduction of new products;

	•	our ability to protect intellectual property and other proprietary information;

	•	losses due to liabilities arising out of intellectual property infringement and product liability claims;

	•	losses due to lawsuits arising out of environmental damage or personal injuries associated with chemical manufacturing;

	•	our ability to comply with extensive environmental, health and safety laws, including regulation of exposure to chemicals used in our operations, including formaldehyde, nonylphenol and bisphenol A, that could require material expenditures or changes in our operations;

	•	the risk of accidents that could disrupt our operations or expose us to significant losses or liabilities;

	•	governmental regulations and trade restrictions;

	•	exposure to interest rate and currency fluctuations;

	•	acts of war or terrorism in the United States or worldwide, political or financial instability in the countries where our goods are manufactured and sold; and

	•	other risks and uncertainties described in this prospectus.

These statements are based upon current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements speak only as of the date they are made and we undertake no obligation to update publicly any of them in light of new information or future events.

You should carefully consider the “Risk Factors” and subsequent public statements, or reports filed with or furnished to the SEC, before making any investment decision with respect to our securities. If any of these trends, risks or uncertainties actually occurs or continues, our business, financial condition or operating results could be materially adversely affected, the trading prices of our securities could decline and you could lose all or part of your investment. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

USE OF PROCEEDS

We estimate that the net proceeds to us from our sale of common shares in this offering will be $ million, after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering. This assumes an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. We intend to use the net proceeds of this offering to make an approximately $12 million distribution to AZ Chem Investments Partners LP, our parent entity, which it will use to redeem certain preferred equity interests the Rhône Funds received as consideration for their contribution of $9.5 million of our second lien indebtedness to us in the second half of 2008 (the approximately $12 million payment representing the equivalent of principal and accrued interest on such contribution) and to pay transaction-related expenses of $ million. We will also use the net proceeds to pay Rhône Group L.L.C. a fee of €5.0 million in connection with the amendment of a management agreement under which Rhône Group L.L.C. provides us with certain services. See “Related Party Transactions — Purchase and Contribution of Indebtedness” and “Related Party Transactions — Management Agreement”. We intend to use the remaining net proceeds to repay $ million of borrowings under our First Lien Credit Agreement, representing 75% of the remaining net proceeds, and to repay $ million of borrowings under our Second Lien Credit Agreement, representing 25% of the remaining net proceeds.

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds to us from this offering by $ million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated expenses payable by us.

As of March 31, 2010, our total indebtedness outstanding was $331.6 million, including $327.4 million of borrowings outstanding under our credit agreements. The principal amounts of our term loans under our First Lien Credit Agreement amortize in quarterly installments of 1/4 of 1% of the outstanding principal amount and the remaining outstanding principal amount matures on February 28, 2013. The term loans under our Second Lien Credit Agreement mature on February 28, 2014. Borrowings under our credit agreements bear interest at variable rates. As of March 31, 2010, the weighted average interest rate under our First Lien Credit Agreement was 2.52% and the weighted average interest rate under our Second Lien Credit Agreement was 5.75%, in each case before giving effect to our interest rate swaps. See “Description of Our Indebtedness”.

We will not receive any proceeds from the sale of shares by the selling shareholder.

DIVIDEND POLICY

Other than the distribution we are making to AZ Chem Investments Partners LP out of the proceeds of this offering, we do not anticipate paying any cash dividends on our common shares for the foreseeable future. We intend to retain all available funds and any future earnings to reduce debt and fund the development and growth of our business.

Any future determination to pay dividends will be at the discretion of our board of directors and will take into account:


	•	restrictions in our credit agreements;

	•	general economic and business conditions;

	•	our financial condition and results of operations;

	•	our capital requirements and the capital requirements of our subsidiaries;

	•	the ability of our operating subsidiaries to pay dividends and make distributions to us; and

	•	such other factors as our board of directors may deem relevant.

CAPITALIZATION

The following table sets forth (1) the capitalization of Arizona Chem Sweden Holdings AB as of March 31, 2010 on an actual basis and (2) the capitalization of Arizona Chemical Ltd. as of March 31, 2010 on an as adjusted basis after giving effect to the Reorganization and to reflect the receipt and use by us of the estimated net proceeds from the sale of common shares in this offering as described under the heading “Use of Proceeds”.

This table should be read in conjunction with “Use of Proceeds”, “Selected Historical Consolidated Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.


	As of March 31, 2010
	Actual			As Adjusted(1)
	(dollars in millions, except share data)

Debt:
Senior credit agreements:
First Lien Term Loan	$	211.9		$
Second Lien Term Loan		115.5
Revolving credit facility		—			—
Capital lease obligation		3.7			3.7
Loans related to Abieta		0.5			0.5

Total debt		331.6
Shareholder’s equity:
Common shares — Arizona Chem Sweden Holdings AB, $14.25 par value per share; 1,000 shares issued and outstanding, actual		0.0			—
Paid-in capital — Arizona Chem Sweden Holdings AB		135.7			—
Common shares — Arizona Chemical Ltd., $0.01 par value per share; no shares authorized or issued and outstanding, actual ( shares authorized; shares issued and outstanding, as adjusted)		—
Paid-in capital — Arizona Chemical Ltd.		—
Accumulated deficit		(31.8	)
Accumulated other comprehensive income		(2.4	)

Total shareholder’s equity		101.5

Total capitalization	$	433.1		$


(1)		A $1.00 increase or decrease in the assumed initial public offering price per share would result in an approximately $ million increase or decrease, as applicable, in as adjusted total debt, as adjusted additional paid-in capital, as adjusted total shareholder’s equity and as adjusted total capitalization, assuming the number of shares offered by us, as set forth on the front cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

DILUTION

If you invest in our common shares, your interest will be diluted to the extent of the difference between the initial public offering price per share and the as adjusted net tangible book value per common share after this offering. Our historical net tangible book value as of March 31, 2010 was $(7.8) million, or approximately $ per share (assuming common shares outstanding after the Reorganization). Net tangible book value per share represents the amount of shareholder’s equity less the net book value of intangible assets, divided by the number of common shares outstanding at that date.

Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of common shares in this offering and the as adjusted net tangible book value per common share immediately after completion of this offering. After giving effect to (1) the Reorganization and (2) our sale of common shares in this offering at an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting the estimated underwriting discounts and commissions and offering expenses, our as adjusted net tangible book value as of March 31, 2010 would have been $ per share. This amount represents an immediate increase in net tangible book value of $ per share to existing shareholders and an immediate dilution in net tangible book value of $ per share to purchasers of common shares in this offering, as illustrated in the following table.


Assumed initial public offering price per share						$
Historical net tangible book value per share as of						$
Increase per share attributable to new investors
As adjusted net tangible book value per share after giving effect to this offering

Dilution per share to new investors						$

A $1.00 increase or decrease in the assumed initial public offering price per share would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $ million, dilution per share to new investors by approximately $ and net tangible book value attributable to this offering by $ per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes, as of March 31, 2010, on the as adjusted basis described above, the differences between existing shareholders and new investors with respect to the number of common shares purchased from us, the total consideration paid and the average price per common share paid by existing shareholders, after giving effect to the issuance of our common shares in this offering at an assumed initial public offering price of $ per share (the midpoint of the range on the cover page of this prospectus), before deducting the estimated underwriting discounts and commissions and offering expenses.


					Total				Average
	Shares Purchased				Consideration				Price
	Number	Percent			Amount	Percent			per Share

Existing shareholders				%	$			%	$
New investors

Total			100	%	$	$	100	%

If the underwriters exercise their option to purchase additional shares in full, the number of common shares held by existing shareholders will decrease to , or percent, of the total number of our common shares outstanding after this offering, and the number of common shares held by new investors will increase to , or percent, of the total number of our common shares outstanding after this offering.

A $1.00 increase or decrease in the assumed initial public offering price per share would increase or decrease, as applicable, total consideration paid by new investors to us in this offering by $ million and the average price per share paid by new investors by $1.00, assuming the number of shares of common stock offered by us, set forth on the cover of this prospectus, remains the same.

SELECTED CONSOLIDATED FINANCIAL DATA

The following tables present selected historical consolidated statements of operations, balance sheet and other data for the periods presented and should only be read in conjunction with our audited consolidated financial statements and the related notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which are included elsewhere in this prospectus.

We were acquired on February 28, 2007 by Rhône Capital in a business combination accounted for under the purchase method of accounting. The historical selected consolidated financial data as of December 31, 2009, 2008 and 2007, the years ended December 31, 2009 and 2008, and for the period March 1, 2007 to December 31, 2007 have been derived from our successor audited historical consolidated financial statements included elsewhere in this prospectus. The selected historical consolidated financial and operating data for the period January 1, 2007 to February 28, 2007, which is included elsewhere in this prospectus, and the selected historical consolidated financial and operating data as of and for the years ended December 31, 2006 and 2005, which is not included in this prospectus, have been derived from the audited historical consolidated financial statements of our predecessor period. The selected consolidated financial data for the three months ended March 31, 2010 and 2009 and as of March 31, 2010, have been derived from our unaudited condensed consolidated financial statements, which are included elsewhere in this prospectus. The unaudited condensed consolidated financial statements include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, that management considers necessary for the fair presentation of the unaudited condensed consolidated financial information set forth in those statements. Results of operations for the interim periods are not necessarily indicative of the results that might be expected for any other interim period or for an entire year.

Consolidated Statements of Operations Data


	Successor			Successor			Successor			Successor			Successor			Predecessor		Predecessor		Predecessor
	Three			Three
	months			months									March 1, 2007			January 1,
	ended			ended			Year Ended			Year Ended			through			2007 through		Year Ended		Year Ended
	March 31,			March 31,			December 31,			December 31,			December 31,			February 28,		December 31,		December 31,
	2010			2009			2009			2008			2007			2007		2006		2005
	(dollars in thousands, except per share data)

Net sales	$	198,051		$	177,934		$	767,465		$	1,001,988		$	723,797		$	132,070	$	767,882	$	692,446
Cost of products sold		157,333			163,445			646,986			868,536			642,341			113,074		645,125		600,902

Gross profit		40,718			14,489			120,479			133,452			81,456			18,996		122,757		91,544
Selling, general and administrative		25,673			15,464			78,200			91,936			86,684			12,899		74,240		72,838
Unrealized foreign currency exchange (gains) losses(1)		(4,836	)		367			(9,347	)		20,304			—			—		—		—
Restructuring and impairment(2)		2,047			1,035			26,395			15,513			114			—		1,851		5,558
Other operating income(3)		—			(2,043	)		(5,537	)		—			—			—		—		—

Operating income (loss)		17,834			(334	)		30,768			5,699			(5,342	)		6,097		46,666		13,148
Interest (expense) income, net		(3,870	)		(4,560	)		(16,546	)		(29,523	)		(28,775	)		118		461		298
Loss on interest rate swaps, net		(709	)		(600	)		(2,541	)		(9,311	)		(2,275	)		—		—		—
Other income(4)		623			2,151			3,635			1,879			—			—		2,081		(177	)

Income (loss) before income tax expense (benefit)		13,878			(3,343	)		15,316			(31,256	)		(36,392	)		6,215		49,208		13,269
Income tax expense (benefit)		3,885			(836	)		3,831			(4,277	)		(8,913	)		2,614		18,161		9,090
Equity in earnings of affiliate(5)		4			150			613			380			189			84		2,033		(187	)


	Successor		Successor			Successor		Successor			Successor			Predecessor		Predecessor		Predecessor
	Three		Three
	months		months								March 1, 2007			January 1,
	ended		ended			Year Ended		Year Ended			through			2007 through		Year Ended		Year Ended
	March 31,		March 31,			December 31,		December 31,			December 31,			February 28,		December 31,		December 31,
	2010		2009			2009		2008			2007			2007		2006		2005
	(dollars in thousands, except per share data)

Net income (loss)	$	9,997	$	(2,357	)	$	12,098	$	(26,599	)	$	(27,290	)	$	3,685	$	33,080	$	3,992

Earnings per share(6):
Basic and diluted	$	9,997	$	(2,357	)	$	12,098	$	(26,599	)	$	(27,290	)

Weighted average common shares outstanding:
Basic and diluted		1,000		1,000			1,000		1,000			1,000

Consolidated Cash Flow Data


	Successor			Successor			Successor			Successor			Successor			Predecessor			Predecessor			Predecessor
	Three			Three
	Months			Months			Year			Year			March 1			January 1			Year			Year
	Ended			Ended			Ended			Ended			through			through			Ended			Ended
	March 31,			March 31,			December 31,			December 31,			December 31,			February 28,			December 31,			December 31,
	2010			2009			2009			2008			2007			2007			2006			2005
	(dollars in thousands)

Net cash provided by (used in) operating activities	$	2,507		$	11,100		$	117,325		$	20,841		$	45,022		$	(12,088	)	$	5,048		$	44,115
Net cash used in investing activities		(7,931	)		(18,027	)		(44,294	)		(34,293	)		(497,331	)		(4,598	)		(38,131	)		(29,228	)
Net cash provided by (used in) financing activities		2,202			(1,220	)		(63,771	)		12,768			488,547			10,296			28,375			(10,875	)

Consolidated Balance Sheet Data


	As of March 31, 2010
			As Adjusted for
	Actual		the Offering(7)
	(dollars in thousands)

Cash and cash equivalents	$	43,057	$
Total assets		630,275
Total debt		331,645
Total shareholder’s equity		101,495


	Successor		Successor		Successor		Successor		Predecessor		Predecessor
	March 31,		December 31,		December 31,		December 31,		December 31,		February 28,
	2010		2009		2008		2007		2006		2005
	(dollars in thousands)

Total assets	$	630,275	$	618,009	$	691,084	$	708,322	$	553,390	$	449,672
Total debt		331,645		338,853		387,665		388,885		4,231		4,010
Total shareholder’s equity(8)		101,495		97,607		95,509		104,045		382,854		297,089

Other Data


	Successor			Successor			Successor			Successor			Successor			Predecessor			Predecessor			Predecessor
	Three			Three
	Months			Months			Year			Year			March 1			January 1			Year			Year
	Ended			Ended			Ended			Ended			through			through			Ended			Ended
	March 31,			March 31,			December 31,			December 31,			December 31,			February 28,			December 31,			December 31,
	2010			2009			2009			2008			2007			2007			2006			2005
	(dollars in thousands)

Gross margin(9)		20.6	%		8.1	%		15.7	%		13.3	%		11.3	%		14.4	%		16.0	%		13.2	%
Depreciation(9)	$	6,599		$	6,872		$	29,781		$	23,311		$	19,693		$	4,097		$	22,414		$	29,178
Amortization		2,444			2,565			10,834			10,899			9,120			325			1,353			156
Adjusted EBITDA(10)		27,378			11,043			93,859			92,723			54,874			12,024			78,347			62,419
Free cash flow(11)		(5,424	)		1,845			81,803			(13,452	)		25,132			(16,686	)		(33,083	)		14,887


(1)		Unrealized foreign currency exchange losses (gains) is primarily related to translation changes in the balance of the Euro-denominated debt under our First Lien Credit Agreement. This is further described in Note 11 of our consolidated financial statements and Note 8 of our unaudited condensed consolidated financial statements appearing at the end of this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

The following table presents unrealized and realized foreign exchange losses (gains) included in our consolidated statement of operations.


	Successor			Successor			Successor			Successor		Successor		Predecessor			Predecessor		Predecessor
	Three			Three										January 1,
	months			months								March 1, 2007		2007
	ended			ended			Year Ended			Year Ended		through		through			Year Ended		Year Ended
	March 31,			March 31,			December 31,			December 31,		December 31,		February 28,			December 31,		December 31,
	2010			2009			2009			2008		2007		2007			2006		2005
	(dollars in thousands)

Unrealized translation related foreign currency exchange (gains) losses	$	(4,836	)	$	367		$	(9,347	)	$	20,304	$	—	$	—		$	—	$	—
Realized transaction related foreign currency exchange (gains) losses — selling, general and administrative		(107	)		(1,883	)		214			234		238		(499	)		1,151		(192	)
Realized transaction related foreign currency exchange (gains) losses — cost of goods sold		(205	)		37			154			65		3		17			24		2


(2)		Restructuring and impairment includes pre-tax restructuring charges primarily related to manufacturing facility closures and employee terminations as part of our cost reduction initiatives. This is further described in Note 9 of our consolidated financial statements and Note 7 of our unaudited condensed consolidated financial statements appearing at the end of this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.


		The following table presents details of our restructuring and impairment charges included in our consolidated statement of operations.


	Successor		Successor		Successor		Successor		Successor		Predecessor		Predecessor		Predecessor
	Three		Three						March 1,		January 1,
	months		months						2007		2007
	ended		ended		Year Ended		Year Ended		through		through		Year Ended		Year Ended
	March 31,		March 31,		December 31,		December 31,		December 31,		February 28,		December 31,		December 31,
	2010		2009		2009		2008		2007		2007		2006		2005
	(dollars in thousands)

Port St. Joe, FL	$	—	$	—	$	5,822	$	—	$	—	$	—	$	—	$	—
Gersthofen, Germany		108		—		1,251		—		—		—		—		—
Valdosta, GA		97		—		874		—		—		—		—		—
U.K. facilities		—		—		339		5,369		—		—		—		—
Niort, France		648		—		—		1,972		—		—		—		—
Dover, OH		—		3		—		635		114		—		—		—
Pensacola, FL		—		—		—		534		—		—		—		—
Greaker, Norway		—		—		—		—		—		—		—		4,200
Picayune, MS		—		—		—		—		—		—		—		2,100
Sandarne, Sweden		1,194		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		1,851		(742	)
Impairments		—		1,032		18,109		7,003		—		—		—		—

Total	$	2,047	$	1,035	$	26,395	$	15,513	$	114	$	—	$	1,851	$	5,558


(3)		Other operating income of $5.5 million recorded in 2009 included $4.9 million of insurance proceeds related to a fire at our Oulu, Finland manufacturing facility and a gain of $0.7 million on the sale of capital assets realized as a result of the closure of our Bedlington, U.K. manufacturing facility.

(4)		Other income includes a gain on our acquisition of Abieta Chemie GmbH, which we refer to as “Abieta”, of $2.1 million and a gain on settlement with International Paper of $1.3 million in 2009. In 2008 and 2006, other income included a gain of $1.9 million on the extinguishment of a portion of our debt and a legal settlement of $2.1 million, respectively. In the three months ended March 31, 2010, other income primarily related to insurance proceeds relating to a fire at our Sandarne, Sweden manufacturing facility.

(5)		Equity in earnings of affiliate relates to our 10% investment in Arboris, LLC, which was formed in 2002 and is accounted for under the equity method of accounting, as we have the ability to exercise significant influence. Our share of the earnings from operations in this investment is recorded in our statement of operations. This is further described in Note 3 of our consolidated financial statements appearing at the end of this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

(6)		Prior to the Acquisition, we were an operating division of International Paper. As a result, the capital structure of our predecessor did not include common stock or other forms of equity shares. Accordingly, income (loss) attributable to common shareholders per commons share is not available for periods prior to March 1, 2007. Additionally, the information presented regarding earnings per share and weighted average common shares outstanding is that of Arizona Chem Sweden Holdings AB on an actual basis. The earnings per share of Arizona Chemical Ltd. on an as adjusted basis after giving effect to the Reorganization for the three months ended March 31, 2010 and 2009, the years ended December 31, 2009 and 2008 and the ten month period ended December 31, 2007 would have been $ , $ , $ , $ , and $ , respectively, assuming common shares outstanding.

(7)		Reflects on an adjusted basis the sale of of our common shares in this offering at an assumed initial public offering price of $ per share (the mid-point of the price range set forth on the cover page of this prospectus), and the application of the estimated net proceeds from this offering as described under “Use of Proceeds”, and assumes this offering had been consummated on March 31, 2010.


(8)		In the predecessor period, total shareholder’s equity represents our divisional control account as we were a division of International Paper.

(9)		Included in these amounts in 2009 is accelerated depreciation associated with of the closure of our Port St. Joe facility in the amount of $1.6 million. Accelerated depreciation had a negative impact on our gross margins of 1.3% in 2009.

(10)		Adjusted EBITDA represents net income before interest, taxes, depreciation, and amortization and then it is adjusted for various items as defined in our credit agreements. Adjusted EBITDA presented in the predecessor period was calculated on the same basis as Adjusted EBITDA presented in the successor periods pursuant to our credit agreements. Under the terms of our credit agreements, we use Adjusted EBITDA to calculate our maximum leverage ratio and our minimum interest coverage ratio covenants. See “— Adjusted EBITDA” below.

(11)		Free cash flow represents net cash provided by operating activities, less purchases of property, plant and equipment, software spending, proceeds from disposal of property, plant and equipment, and other items. See “— Free Cash Flow” below.

Adjusted EBITDA

Adjusted EBITDA is not a GAAP concept. We present Adjusted EBITDA because it is used by management to evaluate operating performance and because, under our credit agreements, we use it to calculate our maximum leverage ratio and our minimum interest coverage ratio covenants. In addition, a reconciliation from net income to Adjusted EBITDA is required for reporting and covenant calculation purposes pursuant to our credit agreements. We consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. We also use Adjusted EBITDA for our executive compensation plan, which bases incentive compensation payments on our Adjusted EBITDA performance.


	Successor		Successor			Successor		Successor			Successor			Predecessor			Predecessor			Predecessor
	Three		Three
	months		months								March 1, 2007			January 1,
	ended		ended			Year Ended		Year Ended			through			2007 through			Year Ended			Year Ended
	March 31,		March 31,			December 31,		December 31,			December 31,			February 28,			December 31,			December 31,
	2010		2009			2009		2008			2007			2007(4)			2006(4)			2005(4)
	(dollars in thousands)

Net income (loss)	$	9,997	$	(2,357	)	$	12,098	$	(26,599	)	$	(27,290	)	$	3,685		$	33,080		$	3,992
Interest expense (income), net		3,870		4,560			16,546		29,523			28,775			(118	)		(461	)		(298	)
Income tax expense (benefit)		3,885		(836	)		3,831		(4,277	)		(8,913	)		2,614			18,161			9,090
Depreciation and amortization		9,043		9,437			40,615		34,210			28,813			4,422			23,767			29,335

EBITDA		26,795		10,804			73,090		32,857			21,385			10,603			74,547			42,119


	Successor			Successor			Successor			Successor			Successor			Predecessor			Predecessor			Predecessor
	Three			Three
	months			months									March 1, 2007			January 1,
	ended			ended			Year Ended			Year Ended			through			2007 through			Year Ended			Year Ended
	March 31,			March 31,			December 31,			December 31,			December 31,			February 28,			December 31,			December 31,
	2010			2009			2009			2008			2007			2007(4)			2006(4)			2005(4)
	(dollars in thousands)

Unrealized foreign currency exchange (gains) losses		(4,836	)		367			(9,347	)		20,304			—			—			—			—
Restructuring and impairment		2,047			1,035			26,395			15,513			114			—			1,851			5,558
Loss on interest rate swaps, net		709			600			2,541			9,311			2,275			—			—			—
Equity in earnings of affiliate		(4	)		(150	)		(613	)		(380	)		(189	)		(84	)		(2,033	)		187
Transaction costs(1)		—			—			—			1,316			10,271			—			—			—
Management fees(2)		495			351			1,538			1,990			1,295			—			—			—
Transition costs(3)		—			—			—			2,984			6,575			92			—			—
Gain on Abieta acquisition		—			(2,151	)		(2,151	)		—			—			—			—			—
Gain on settlement with International Paper		—			—			(1,316	)		—			—			—			—			—
Selling, general and administrative severance		—			—			—			3,121			2,235			—			—			—
Third-party advisor fees		2,135			—			—			1,573			—			—			—			—
Consulting services		—			—			—			3,794			7,616			—			2,600			—
Gain on debt extinguishment		—			—			—			(1,901	)		—			—			—			—
Divestiture incentive program		—			—			—			—			—			—			5,200			—
Environmental remediation		—			—			—			—			—			—			2,100			—
U.K. land sale		—			—			—			—			—			—			(4,900	)		—
Arboris loan forgiveness		—			—			—			—			—			—			(2,000	)		—
Workers’ compensation		—			—			—			—			—			—			—			5,100
Hurricane impact		—			—			—			—			—			—			—			3,400
Oulu, Finland strike		—			—			—			—			—			—			—			3,100
Other items		37			187			3,722			2,241			3,297			1,413			982			2,955

Adjusted EBITDA	$	27,378		$	11,043		$	93,859		$	92,723		$	54,874		$	12,024		$	78,347		$	62,419


(1)		Transaction costs were related to the Acquisition. These costs included legal, tax, IT, professional fees, and Rhône Capital transaction fees.

(2)		Management fees are paid to Rhône Group L.L.C., an affiliate of Rhône Capital for corporate-level support activities provided to us. We currently expect to terminate the management agreement with Rhône Group L.L.C. in connection with this offering.

(3)		Transition costs included fees paid to International Paper under the transition services agreement (governing interim services provided by International Paper), IT consulting fees, costs for infrastructure build-out (such as IT and phone systems, treasury function setup, HR/payroll) and the cost of a carve-out audit, among other items.

(4)		Adjusted EBITDA presented in the predecessor period was calculated on the same basis as Adjusted EBITDA presented in the successor periods pursuant to our credit agreements.

Free Cash Flow

in) operating activities, net cash provided by (used in) investing activities, net cash provided by (used in) financing activities or change in cash and cash equivalents. A reconciliation of net cash provided by operating activities to free cash flow is presented below:


	Successor			Successor			Successor			Successor			Successor			Predecessor			Predecessor			Predecessor
	Three Months			Three Months									March 1,			January 1,
	Ended			Ended			Year Ended			Year Ended			2007 through			2007 through			Year Ended			Year Ended
	March 31,			March 31,			December 31,			December 31,			December 31,			February 28,			December 31,			December 31,
	2010			2009			2009			2008			2007			2007			2006			2005
	(dollars in thousands)

Net cash provided by (used in) operating activities	$	2,507		$	11,100		$	117,325		$	20,841		$	45,022		$	(12,088	)	$	5,048		$	44,115
Less:
Purchase of property, plant and equipment		(4,866	)		(6,677	)		(22,993	)		(34,719	)		(18,248	)		(4,598	)		(38,131	)		(29,228	)
Software spending		(3,761	)		(3,268	)		(13,404	)		(142	)		(1,642	)		—			—			—
Proceeds from disposals of property, plant and equipment		—			690			875			212			—			—			—			—
Other		696			—			—			356			—			—			—

Free cash flow	$	(5,424	)	$	1,845		$	81,803		$	(13,452	)	$	25,132		$	(16,686	)	$	(33,083	)	$	14,887

Net cash used in investing activities		(7,931	)		(18,027	)		(44,294	)		(34,293	)		(497,331	)		(4,598	)		(38,131	)		(29,228	)
Net cash provided by (used in) financing activities		2,202			(1,220	)		(63,771	)		12,768			488,547			10,296			28,375			(10,875	)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

The financial and operating data of our predecessor period from January 1, 2007 to February 28, 2007 and our successor period from March 1, 2007 to December 31, 2007, have been combined for comparison purposes to present twelve months of data for 2007. We believe the combined results of operations, including segment information, for the twelve months ended December 31, 2007 provide management and investors with a more meaningful perspective on our financial and operational performance than if we did not combine the results of operations of our predecessor and successor periods in this manner. The combined results of operations are non-GAAP financial measures, do not include any pro forma assumptions or adjustments and should not be used in isolation or substitution of our predecessor and our successor results. See “— Results of Operations”.

Our Company

We are the world’s leading supplier of pine-based chemicals as measured by sales. We refine and further upgrade two primary feedstocks, crude tall oil, or CTO, and crude sulfate turpentine, or CST, both of which are wood pulping co-products, into specialty chemicals. We focus our resources on six target markets that we believe offer the greatest potential for growth and in which we offer our highest value-added products. These markets are: (1) adhesives, (2) inks, (3) tires and rubber, (4) roads and construction, (5) consumer products and (6) renewable energy. Our leading position in our target markets is supported by our recognized brands, including SYLVATAC^®, SYLVARES^®, SYLVAPRINT^® and UNI-REZ^®, among others. These products are complemented by a portfolio of chemical intermediates that includes tall oil rosin, or TOR, tall oil fatty acid, or TOFA, dimer acid and distilled tall oil, or DTO, which have contributed steady profit margins and stable cash flows. These products are sold into a diverse range of markets, including paints and coatings, lubricants, fuel additives, mining and oilfield, paper chemicals and polymers, among others.

While our business is based predominantly on the refining and upgrading of CTO and CST, we have the capacity to use both hydrocarbon-based raw materials and gum rosins where appropriate and, accordingly, are able to offer tailored solutions for our customers.

Our History

We were founded in 1930 as a joint venture between International Paper and American Cyanamid to mine salt cake in Camp Verde, Arizona. By 1949, our core business had changed from mining salt cake to the processing of CTO and CST. In 1985, we became the chemical unit of

International Paper after they acquired complete ownership from American Cyanamid. Between 1984 and 2007, we grew from strategic acquisitions that were made by International Paper resulting in the integration of various chemical units into our business. On February 28, 2007, Rhône Capital acquired our business from International Paper in the Acquisition. See “Business — Transactions with Rhône Capital and International Paper” for further information regarding the Acquisition.

Our Transformation since the Acquisition

Since the Acquisition, we have reinvigorated our business. We have engaged a highly motivated and experienced management team to lead our company and instill a shareholder-value-based culture focused on sustainable, profitable top-line growth, improving margins and strong cash flow generation. We have achieved continued margin growth, in spite of the recently difficult economic climate, by focusing on value pricing, a better understanding of our customers, strict management of our cost structure and obtaining operational efficiencies.

Cost Saving Initiatives. As part of our business strategy, we initiated a comprehensive cost reduction program that drives us to continuously reduce our fixed costs, improve our processes and the way we run our business and better serve our customers. A key part of our program has been the optimization of our manufacturing footprint, and we expect our cost reduction program to achieve additional efficiencies in our operations in the future.

The following table presents the aggregate positive impact of our cost saving initiatives for each of the past three years. These savings include savings from variable costs, fixed manufacturing costs and selling, general and administration costs. These savings are measured by initiative and represent the amount of savings achieved in each year compared to the cost structure of the prior year.

Successor

Combined

Year Ended

December 31,

2009

2008

2007

(dollars in millions)

(Non-GAAP)

Savings Achieved

28.9

14.0

7.6

These results were achieved through a series of successful initiatives. Our most notable projects include:


	•	In the third quarter of 2009, we relocated a portion of our rosin upgrading capacity from Valdosta, Georgia to our Savannah, Georgia manufacturing facility, which resulted in manufacturing and operating efficiencies year-over-year. We expect annual costs savings of approximately $4.2 million resulting from this initiative and have achieved cost savings of approximately $1.9 million in 2009. During 2008 and 2009, we spent approximately $19.3 million in capital expenditures in Savannah to facilitate this relocation. In 2009, we incurred $0.9 million for one-time termination benefits related to terminated employees.

	•	In the second quarter of 2009, we closed our Port St. Joe, Florida manufacturing facility and transferred production to our larger manufacturing facilities in Panama City, Florida and Savannah, Georgia to better optimize our existing capacity. As a result, we recognized restructuring costs of $5.8 million, impairment charges of $16.7 million and accelerated depreciation of $1.6 million in 2009. We expect annual costs savings of approximately $13.7 million resulting from these initiatives and achieved cost savings of approximately $7.3 million in 2009. Additional capital expenditures will be required at both of these manufacturing facilities to increase their respective capacity, if and as required to meet market demands. We incurred $1.8 million for one-time termination benefits related to terminated employees. The announcement also was a triggering event for impairment testing purposes. The test resulted in a $16.7 million charge related to the impairment of long-lived assets. We


		also recognized $4.0 million of other qualified costs related to the decommissioning and demolition of our Port St. Joe manufacturing facility.


	•	During 2009, we optimized our use of ocean tankers for bulk shipments of products from the United States to Europe. By establishing direct routes and identifying a new carrier, we were able to eliminate costly transloading activities, generating savings of $2.5 million during 2009.

	•	In the second quarter of 2008, we relocated our polyamide production from our Bedlington, U.K. manufacturing facility to our Dover, Ohio manufacturing facility which resulted in the restructuring of our dimer business, the closure of our Bedlington, U.K. manufacturing facility, a reduction in operations at our Chester-le-Street, U.K. manufacturing facility and the restructuring of certain product lines at our Dover, Ohio manufacturing facility. As a result, we recognized restructuring costs of $8.4 million in 2008. We have achieved cost savings of approximately $6.8 million, including $4.6 million in 2009 and $2.2 million in 2008 as a result of these actions.

	•	In the first quarter of 2008, we relocated a portion of our terpene resin production at our Pensacola, Florida manufacturing facility to our Panama City, Florida manufacturing facility. As a result, we recognized restructuring costs of $1.0 million in 2008. We have achieved cost savings of approximately $0.9 million in 2008 and nominal incremental cost savings in 2009 as a result of this relocation.

	•	During 2008, we reduced our head count at our manufacturing facility in Niort, France. As a result, we recognized restructuring costs of $3.5 million in 2008. We have achieved cost savings of $0.5 million in 2009 and $1.8 million in 2008, as a result of these actions.

	•	During 2007 and 2008, following the Acquisition, we reduced our selling, general and administrative costs through targeted reductions in staff and management headcount. As a result, we recognized severance costs of $3.1 and $2.2 million in 2008 and 2007, respectively. These initiatives generated savings of approximately $11.2 million, including $5.5 million in 2008 and $5.7 million in 2007.

We estimate incremental cost savings during 2010 of approximately $14.0 million related to the 2009 cost savings program. We expect to continue to expand our successful productivity improvement initiatives by pursuing operational efficiencies, optimizing available technologies, maintaining a lean organizational structure, reducing fixed costs, profiting from our global procurement organization, rationalizing capacity and efficiently managing capital spending. We intend to take advantage of the enhanced flow of information from the implementation of a new SAP global enterprise resource planning, or ERP, system, which we completed in the first half of 2010, to further our efforts to improve our margins, drive cost productivity and generate additional cost savings.

Investments. As of March 31, 2010, we have also invested $17.2 million in a new SAP global ERP system. As part of this project, we believe we have implemented best practices and processes for our industry. We will derive the benefits of this significant investment through improved service to our customers, improved productivity and insight, better management of our working capital, reduced costs through increased flexibility and improved financial management and corporate governance. We have successfully implemented the new ERP system in both Europe and North America. The majority of the costs associated with the ERP system have been incurred and capitalized in 2009 and we expect to capitalize less than $2 million associated with the implementation in 2010.

Acquisitions. On February 12, 2009, we acquired Abieta Chemie GmbH, which we refer to as “Abieta”, for $8.8 million net of cash acquired and assumed debt of $6.0 million. Abieta is a company based in Gersthofen, Germany that upgrades gum and tall oil rosin, the acquisition of which has strengthened our position in the tires and rubber market.

Other Initiatives. On January 1, 2010, we changed the way we transact business with our European customers and suppliers by realigning to a single business entity. In the past, each of our European manufacturing facilities operated as stand alone companies, transacting business directly with our customers and suppliers. The new operating structure will provide a single face to our

European customers and suppliers, streamlining our processes and making it easier for them to do business with us. In addition to better customer service, this initiative is expected to reduce administrative costs and further reduce our working capital requirements.

Our Markets

We supply a number of products to customers in the adhesives, inks, tires and rubber, roads and construction, consumer products and renewable energy markets. We also supply a range of chemical intermediates, including tall oil rosin, or TOR, tall oil fatty acid, or TOFA, dimer acid and distilled tall oil, or DTO. These products are described below and in more detail under “Business — Our Markets”.

Adhesives

We are a leading global supplier of tackifiers to the adhesives industry as measured by sales, and the world’s largest producer of tackifier resins from renewable resources in terms of volume. The products that we supply to the adhesives industry include the following:


	•	Rosin-based tackifiers, which are used to improve adhesion to difficult to bond surfaces such as highly recycled packaging materials;

	•	Terpene-based tackifiers, which allow our customers to develop and manufacture adhesives that bond to a wide variety of plastic substrates;

	•	Hot melt polyamides, which are finished adhesives that bond to a wide variety of substrates and offer outstanding resistance to chemicals and oils; and

	•	Alpha-methyl-styrene (AMS)-based tackifiers, which are hydrocarbon-based tackifiers that are almost water-white and adhere well to difficult to bond materials.

Inks

We are a major supplier of ink resins for use in publishing and packaging to many of the world’s leading printing inks companies. These products include:


	•	Phenolic rosin esters, which are used in lithographic and publication gravure inks and confer beneficial attributes such as enhanced adhesion, high gloss, improved drying speed, viscosity and color intensity;

	•	Solution metal resinates, which are used in inks for publication gravure, which is used for high quality, large print run applications such as catalogs and magazines;

	•	Polyamides, which are resins used in inks for flexible packaging such as bread bags, shrink sleeve labels, high end lamination and snack food packaging; and

	•	Solvents, which are used primarily in specialty applications such as vegetable oil-based “sheet-fed” printing to improve the solvency power of the vegetable oils.

Tires and Rubber

We are a leading supplier of resins and additives from renewable resources to the global tires and rubber industry as measured by sales. Our products include:


	•	Polyterpenes, which are used as tire tread enhancement additives to improve the combination of wet grip, fuel economy and tire life;

	•	Disproportionated and non-disproportionated rosin soaps, which are used as emulsifiers in rubber polymerization; and

	•	AMS resins, which are hydrocarbon-based resins used as tire tread composition additives to improve the combination of wet grip, fuel economy and tire life.

Roads and Construction

We are a major supplier of resins for use in roadmarking in markets in the United States, Europe and the Middle East, and we believe there are future opportunities to supply fatty acids and tackifier resins for bitumen applications in the roofing and paving sub-markets. Our products include:


	•	Rosin esters and insoluble maleics, which are used in thermoplastic pavement markings; and

	•	Hot melt polyamides, which are utilized in pre-formed pavement graphics.

Consumer Products

We sell a diverse range of raw materials and ingredients for use in the formulation of consumer products used in the personal care home care, industrial cleaning and food ingredients sub-markets. Our products include:


	•	Alpha pinene and beta pinene, which are used as building blocks in the manufacture of fragrances, camphor, perfumes, terpineol, terpene resin derivatives and insecticides and are used in the institutional and industrial markets as cleaners, solvents and disinfectants;

	•	Sterols, which are pharmaceutical and food additives used to reduce cholesterol absorption, through our joint venture, Arboris, LLC;

	•	Specialty polymeric gellants, which are used to impart structure, rheology, film forming and wear resistance to a variety of products formulated for the personal care and consumer products markets; and

	•	Immobilized functional oils, which allow organic liquids to be solidified into temperature resistant, robust, three dimensional objects and are currently sold in the automotive air freshener market in the United States and Europe.

Renewable Energy

We supply tall oil pitch, a second generation, cellulosic biofuel that is used in municipal heating and industrial power generation, to the European biofuel market. Additionally, in 2009, we began selling TOFA, a co-product of the CTO refining process, to a third party for conversion into second generation, cellulosic biodiesel for use as a transportation fuel.

Chemical Intermediates

We produce a portfolio of pine-based chemical intermediates that are sold into markets as diverse as paints and coatings, lubricants, fuel additives, mining and oilfield, paper chemicals and polymer additives. These products include:


	•	Tall oil rosin, or TOR, which is used in all major rosin applications for the manufacture of resins for adhesives, inks and roadmarking, emulsifiers for rubber size for paper and chewing gum;

	•	Tall oil fatty acid, or TOFA, which, among its other uses, is used in alkyd paints, primarily for decorative coatings, helping to bring durability and gloss and is a key component in additives used to improve the lubricity of low-sulfur diesel fuel;

	•	Distilled tall oil, or DTO, which is used as an emulsifier for metalworking fluids;

	•	Dimer acids, which are used for the production of polyamides for epoxy coatings, flexographic inks, and high performance adhesive applications; and

	•	Curing agents, which are used to cure (harden) epoxy resins, primarily those used in marine and protective coatings.

Factors Affecting Our Industry and Business

Challenging Macroeconomic Environment

The results of our operations depend on the demand for our naturally-derived resins and other pine-based chemical products. Demand for our manufactured products has been significantly affected in late 2008 and 2009 by the global decline in general economic conditions. During the fourth quarter of 2008 and into the first half of 2009, we experienced the impact of the weakening global economy, which was a factor in the decline in our sales volumes of approximately 23% for the first half of 2009 compared to the first half of 2008. While the effects of the global economic slowdown on our business began to subside in the second half of 2009, demand remained at reduced levels. This was a significant factor in the 11% decline in our volumes during the second half of 2009 compared to the second half of 2008. As the global economy stabilizes and we actively seek future opportunities for sales growth, we expect growth in our sales volumes during 2010 compared to 2009.

Pricing

Throughout 2009, decreasing global demand led to downward pricing pressure within several of our end markets. We continually assess our pricing and, starting in July 2009, we announced the implementation of a series of price increases in Europe and North America which were broad-based across our adhesives and tires and rubber markets, as well as price increases in our chemical intermediates and inks markets within Europe in response to increased demand. In some cases, we decided to forgo lower priced business in order to strengthen our market position in higher priced specialized end markets, such as alpha pinene, which is used in aroma chemical applications. This is in line with our overall strategy to shift our focus away from lower margin products to higher priced specialized end markets and applications.

Raw Materials

Raw materials represented approximately 66% and 59% of our cost of goods sold for the three months ended March 31, 2010 and 2009, respectively, and 60%, 62% and 61% of our cost of goods sold for the years ended December 31, 2009, 2008 and 2007, respectively. Our most significant raw materials are CTO and CST which represented approximately 68% and 64% of our raw material purchases in the three months ended March 31, 2010 and the year ended December 31, 2009, respectively. The prices we pay for CTO tend to be correlated with oil prices. However, the sales prices for competitive products derived from alternative chemistries, such as vegetable oils, biofuels and hydrocarbon resins, tend to also correlate with oil prices. Historically, we have been successful in passing on raw material cost increases to our customers.

We obtained approximately 20% and 27% of our global CTO and CST purchases for the three months ended March 31, 2010 and the year ended December 31, 2009, respectively, through our long-term supply agreements with International Paper. These agreements are terminable by either party on February 28, 2027 and each anniversary thereafter, subject to a five year notice provision. We believe that through these contractual arrangements and through our long-standing relationships with other suppliers, we can presently source adequate supplies of CTO and CST at competitive, market-based prices in volumes sufficient for our commercial needs.

For information regarding risks associated with our supply of CTO and CST, see “Risk Factors — Risks Related to Raw Materials”.

Additionally, CTO, CST and pitch, a by-product of the CTO refining process, possess inherent fuel properties and can be burned by mills for use in their operations. We maintain agreements with pulp and paper manufacturers in Europe that enable us to exchange our pitch by-products for their CTO. These agreements enable us to both maximize our CTO supply and sell our pitch by-products, while enabling our suppliers to ensure that they have adequate supplies of renewable fuels for their mills.

Energy Costs

Our energy purchases represented approximately 9% of our cost of goods sold for the three months ended March 31, 2010 and 2009 and 8%, 9% and 9% of our cost of goods sold for the years ended December 31, 2009, 2008 and 2007, respectively. Natural gas is the primary fuel source utilized in our operations overall, accounting for nearly 45% of our total energy costs and approximately 65% in North America during 2009. The supply of natural gas is critical to our production, and supply disruptions and major price increases could adversely impact our operating results. We manage this risk, in part, by purchasing forward contracts for future delivery of natural gas that mature on a rolling basis over a twelve month period. Our European operations primarily rely on electricity and internally generated biofuels, primarily pitch, which accounted for 71% of our European energy costs in 2009.

Currency Fluctuations

We operate a geographically diverse business. In 2009, approximately 42% of net sales were to customers in the United States and Canada, 49% to customers in Europe, the Middle East and Africa, 5% to customers in Asia, and 4% to customers in Latin America. Although we sell and manufacture our products in many countries, our sales and production costs are mainly denominated in U.S. dollars, Euros, Swedish Kronor and British Pound Sterling. Our financial results are subject to gains and losses on transactions denominated in currencies other than the functional currency of the relevant operations. Any gains and losses are included in operating income. These transactional gains and losses were not material in the three months ended March 31, 2010 or the years ended December 31, 2009, 2008 and 2007. See “Summary Selected Historical Consolidated Financial and Other Data — Other Data”. With respect to currency translation risk, our financial condition and results of operations are measured and recorded in the relevant domestic currency and then translated into U.S. dollars, our functional currency, for inclusion in our consolidated financial statements. Approximately half of our net sales and costs are denominated in U.S. dollars. We also have net sales and costs denominated in Euros, Swedish Kronor and British Pound Sterling. We currently do not enter into foreign currency option or futures contracts to reduce our exposure to fluctuations in exchange rates.

We are also exposed to foreign currency translation gains and losses, including the revaluation of the Euro-denominated debt under our First Lien Credit Agreement, which is recorded by one of our subsidiaries, Arizona Chemical AB, whose functional currency is the Swedish Kronor. In the three months ended March 31, 2010 and the year ended December 31, 2009, we recognized an unrealized gain of $4.8 million and $9.3 million, respectively, primarily associated with the revaluation of our Euro-denominated debt due to the strengthening of the Swedish Kronor against the Euro. In contrast, in 2008 and 2007, we recognized unrealized losses of $20.3 million and $1.9 million, respectively, in our statements of operation primarily due to a stronger Euro against the Swedish Kronor. Historically, we have not undertaken hedging strategies to minimize the effect of currency fluctuations as we receive proceeds from certain European segment sales in Euros, which provides sufficient Euro denominated cash flows to service our Euro-denominated debt.

Seasonality

Historically, our business has been subject to seasonal fluctuations of raw material inventory, due to the seasonal trends in availability of CTO and CST. CTO and CST are co-products of the kraft pulping process. Yields of CTO and CST are higher during the first half of the year due to the natural growth and associated chemical yield cycles of trees in addition to higher yields from kraft pulping during the cooler months. CTO and CST receipts rise during the first and second quarters, generally peaking during the early summer. In addition our business has seasonal fluctuations associated with customer demand. In preparation for stronger demand in our markets during the second and third quarters of the year, we build inventory of finished goods which generally peaks in the second quarter. Many factors drive the increase in demand in the second and third quarters, including the holiday printing season (affecting our customers in the inks market) and the seasonality of the roadmarking

and construction industries, which see increased activity in warmer months. As a result, demand and consequently sales have been historically lower in our first and fourth quarters.

The following table presents the percentage of our net sales by quarter averaged over the three year period ended December 31, 2009.


	Net Sales
	% Total Average
	Sales

First Quarter		23.6	%
Second Quarter		26.4	%
Third Quarter		26.0	%
Fourth Quarter		24.0	%

Government Policies

Newly promulgated restrictions on the emission of greenhouse gases in the European Union and pending legislative and regulatory initiatives in the United States and elsewhere could affect the market for our products, our costs of production, the cost or availability of feedstocks and otherwise affect our operations. For example, demand for renewable sources of energy is increasing in line with government-mandated targets, often with associated incentives, to reduce greenhouse gas emissions and dependency on fossil fuels which, consequently, could increase demand and the cost to acquire our CTO and CST feedstocks. At the same time, applicable laws and regulations require our facilities to obtain and comply with a wide variety of environmental permits and authorizations for different aspects of their operations. Generally, these environmental laws and regulations are becoming increasingly stringent and the cost of compliance with these various requirements can be expected to increase over time. Many of the policies being enacted by governments are being designed to discourage the consumption of hydrocarbon products. As many of our products are substitutes for hydrocarbon-based products, we see potential opportunities to benefit from such changes.

Results of Operations

We operate in two segments, North America and Europe, each of which sells a similar portfolio of products. These segments are our primary areas of measurement and decision-making. The North America segment is comprised of all operations within the American and Asian continents. The European segment is comprised of all operations in the rest of the world. Net sales in each segment consist of sales of our products to customers in the following markets: adhesives, inks, roads and construction, tires and rubber, consumer products, renewable energy and chemical intermediates. Our chief executive officer evaluates our performance, in part, based upon each segment’s net sales and net income.

The following table presents certain information relating to our operating results for the three months ended March 31, 2010 and 2009, the years ended December 31, 2009 and December 31, 2008 and combined historical results of operations for the year ended December 31, 2007. The 2007 combined historical results were derived from the audited consolidated financial statements of Arizona Chemical Division a division of International Paper (predecessor) for the period January 1, 2007 through February 28, 2007 and Arizona Chem Sweden Holdings AB (successor) for the period from March 1, 2007 through December 31, 2007. Prior to the Acquisition, we operated as a division of International Paper. Accordingly, all operating, financing and investing activities were funded through inter-divisional accounts at International Paper and its other operating divisions and subsidiaries. The financial statements prior to February 28, 2007 were prepared from separate records maintained by International Paper and may not be indicative of the conditions that would have existed or the results of operations if we would have been operated as an unaffiliated company. During that period, certain expenses represent allocations of corporate office items applicable to International Paper as a whole.

We believe that the allocations from International Paper represents all of our costs of doing business incurred on our behalf.

The historical operating results are being presented to assist comparison across the years. The successor periods for the three months ended March 31, 2010 and 2009, the years ended December 31, 2009 and December 31, 2008 and the period from March 1, 2007 through December 31, 2007 in the operating results include the effect of fair value adjustments and transaction costs resulting from the Acquisition. Due to the change in the basis of accounting resulting from the Acquisition, Arizona Chemical Division predecessor’s consolidated financial statements and Arizona Chem Sweden Holdings AB successor’s consolidated financial statements are not completely comparable. We believe that the scope and nature of our operating activities were unchanged by the Acquisition and the effects of purchase accounting and increased debt arising from the Acquisition are accurately quantified and disclosed throughout our discussion and analysis below.

The combined information for 2007 is a non-GAAP financial measure and should not be used in isolation or substitution of the results of operations of either Arizona Chemical Division predecessor or Arizona Chem Sweden Holdings AB successor. This data is being presented for informational purposes only and does not purport to represent or be indicative of the results that actually would have been obtained had the Acquisition occurred on January 1, 2007 or that may be obtained for any future period.


	Successor			Successor			Successor			Successor			Combined			Successor			Predecessor
													(Non-GAAP)
	Three Months			Three Months												March 1, 2007			January 1, 2007
	Ended			Ended			Year Ended			Year Ended			Year Ended			through			through
	March 31,			March 31,			December 31,			December 31,			December 31,			December 31,			February 28,
	2010			2009			2009			2008			2007			2007			2007
	(dollars in thousands)

Net sales	$	198,051		$	177,934		$	767,465		$	1,001,988		$	855,867		$	723,797		$	132,070
Cost of goods sold		157,333			163,445			646,986			868,536			755,415			642,341			113,074

Gross profit		40,718			14,489			120,479			133,452			100,452			81,456			18,996
Gross margin		20.6	%		8.1	%		15.7	%		13.3	%		11.7	%		11.3	%		14.4	%
Selling, general and administrative		25,673			15,464			78,200			91,936			99,583			86,684			12,899
Unrealized foreign currency exchange
(gains) losses		(4,836	)		367			(9,347	)		20,304			—			—			—
Restructuring and impairment		2,047			1,035			26,395			15,513			114			114			—
Other operating income		—			(2,043	)		(5,537	)		—			—			—			—

Operating income (loss)		17,834			(334	)		30,768			5,699			755			(5,342	)		6,097
Interest (expense) income, net		(3,870	)		(4,560	)		(16,546	)		(29,523	)		(28,657	)		(28,775	)		118
Loss on interest rate swaps, net		(709	)		(600	)		(2,541	)		(9,311	)		(2,275	)		(2,275	)
Other income		623			2,151			3,635			1,879			—			—			—

Income (loss) before income tax expense (benefit)		13,878			(3,343	)		15,316			(31,256	)		(30,177	)		(36,392	)		6,215
Income tax expense (benefit)		3,885			(836	)		3,831			(4,277	)		(6,299	)		(8,913	)		2,614
Equity in earnings of affiliate		4			150			613			380			273			189			84

Net income (loss)	$	9,997		$	(2,357	)	$	12,098		$	(26,599	)	$	(23,605	)	$	(27,290	)	$	3,685

Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009


	Successor						Successor
	Three Months						Three Months
	Ended						Ended
	March 31,			% of			March 31,			% of						%
	2010			sales			2009			sales			Change			Change

Net sales	$	198,051			100.0	%	$	177,934			100.0	%	$	20,117			11.3	%
Cost of goods sold		157,333			79.4			163,445			91.9			(6,112	)		(3.7	)

Gross profit		40,718			20.6			14,489			8.1			26,229			181.0
Selling, general and administrative		25,673			13.0			15,464			8.7			10,209			66.0
Unrealized foreign currency exchange (gains) losses		(4,836	)		(2.4	)		367			0.2			(5,203	)		(1,417.7	)
Restructuring and impairment		2,047			1.0			1,035			0.6			1,012			97.8
Other operating income		—			—			(2,043	)		(1.1	)		2,043			—

Operating income (loss)		17,834			9.0			(334	)		(0.2	)		18,168			5,439.5
Interest expense, net		(3,870	)		(2.0	)		(4,560	)		(2.6	)		690			15.1
Loss on interest rate swaps, net		(709	)		(0.4	)		(600	)		(0.3	)		(109	)		(18.2	)
Other income		623			0.3			2,151			1.2			(1,528	)		(71.0	)

Income (loss) before income tax expense (benefit)		13,878			7.0			(3,343	)		(1.9	)		17,221			515.1
Income tax expense (benefit)		3,885			2.0			(836	)		(0.5	)		4,721			564.7
Equity in earnings of affiliates		4			0.0			150			0.1			(146	)		(97.3	)

Net income (loss)	$	9,997			5.0	%	$	(2,357	)		(1.3	)%	$	12,354			524.1	%

Net Sales. Net sales for the three months ended March 31, 2010 were $198.1 million, an increase of $20.1 million, or 11.3%, as compared to $177.9 million for the three months ended March 31, 2009. This increase was due to an increase in volume of $6.0 million, which was driven by an increase in demand across all of our end-markets for our products, with the exception of Inks. Pricing increases contributed $6.6 million to the increase in net sales, associated with price increases in our European segment across all markets. The effects of foreign currency fluctuations resulted in a favorable impact on net sales of $7.5 million in the three months ended March 31, 2010, which was primarily due to a strengthening of the Swedish Kronor and the Euro against the U.S. dollar. The components of the quarter-to-quarter change in net sales are as follows:


Price increase	3.7	%
Volume increase	3.4	%
Favorable impact of foreign currency	4.2	%

Total net sales increase	11.3	%

Net sales in each of our reportable segments consist of sales of our products to customers in the following markets: adhesives, inks, roads and construction, tires and rubber, consumer products and renewable energy and sales of our chemical intermediates. The following table presents net sales

mix by market for our North American and European segments for the periods ended March 31, 2010 and March 31, 2009.


	North America							Europe
	Three Months		Three Months					Three Months		Three Months
	Ended		Ended					Ended		Ended
	March 31,		March 31,					March 31,		March 31,
Market	2010		2009		Change			2010		2009		Change
	(dollars in thousands)

Adhesives	$	30,305	$	26,348		15.0	%	$	26,132	$	20,959		24.7	%
Inks		10,599		13,638		(22.3	)%		6,716		9,162		(26.7	)%
Tires and Rubber		5,531		3,190		73.4	%		10,182		8,801		15.7	%
Roads and Construction		6,488		5,442		19.2	%		4,284		2,857		49.9	%
Consumer Products		3,587		3,618		(0.9	)%		4,087		1,940		110.7	%
Renewable Energy		583		632		(7.8	)%		21,123		17,006		24.2	%
Chemical Intermediates		39,240		32,687		20.0	%		29,194		31,654		(7.8	)%

Total net sales	$	96,333	$	85,555		12.6	%	$	101,718	$	92,379		10.1	%

North America. Net sales for the three months ended March 31, 2010 were $96.3 million, an increase of $10.8 million, or 12.6%, as compared to $85.5 million for the three months ended March 31, 2009. Volume increases positively impacted net sales by $11.7 million, offset by unfavorable pricing pressure resulting in a decrease of $0.9 million.


Price decline	(1.1	)%
Volume increase	13.7

Total net sales increase	12.6	%

Several factors contributed to the change in net sales in North America, including:


	•	Chemical intermediates net sales increased by $6.6 million driven by increased demand for dimer acids in Asian markets and higher volumes in TOFA sales.

	•	Adhesives net sales increased $4.0 million primarily due to increased market demand for rosin esters.

	•	Inks net sales decreased by $3.0 million driven by loss of share at a major North American customer and demand weakness in publication printing.

	•	Tires and rubber net sales increased $2.3 million due primarily to an increase in orders from a major customer’s North American operations.

Europe. Net sales for the three months ended March 31, 2010 were $101.7 million, an increase of $9.3 million, or 10.1%, as compared to $92.4 million for the three months ended March 31, 2009. The increase in net sales was driven by price increases of $7.5 million and a $7.5 million favorable impact of foreign exchange. The increase in pricing was offset by a decrease in volumes of $5.7 million due to lower demand for publication printing inks and decreased sales of chemical intermediates due to lower levels of TOFA supply during the three months ended March 31, 2010.


Price increase	8.1	%
Volume decline	(6.1	)
Favorable impact of foreign currency	8.1

Total net sales increase	10.1	%

Several factors contributed to the change in net sales in Europe, including:


	•	Adhesives net sales increased $5.2 million due to increased market demand for rosin esters resulting from a decline in availability of gum rosin resins. As a result, we were able to increase both volume and price of our rosin esters.


	•	Renewable energy net sales increased $4.1 million primarily due to higher prices of our pitch by-product.

	•	Price increases across all other markets were partially offset by lower demand for publication printing inks and lower levels of chemical intermediates supply during the three months ended March 31, 2010.

Cost of Goods Sold. Cost of goods sold for the three months ended March 31, 2010 was $157.3 million, a decrease of $6.1 million, or 3.7%, as compared to $163.4 million for the three months ended March 31, 2009. Gross margins rose to 20.6% in the three months ended March 31, 2010 from 8.1% in the three months ended March 31, 2009.

The decrease of $6.1 million was due primarily to the following:


	•	An increase in sales volumes of $2.1 million in the three months ended March 31, 2010 compared to the three months ended March 31, 2009.

	•	Lower raw material costs of $14.5 million which were a result of lower CTO and BLS prices primarily due to energy based pricing on supply contracts which reset every quarter as well as lower pentaerythritol, sulfuric and TETA prices associated with lower commodity prices.

	•	Depreciation and amortization expense included within cost of goods sold for the three months ended March 31, 2010 was $6.6 million, a decrease of $0.5 million compared to $7.1 million in the three months ended March 31, 2009 due primarily to manufacturing facility closures in 2009.

	•	The effect of foreign currency fluctuations resulted in an unfavorable impact on cost of goods sold of $6.9 million for the three months ended March 31, 2010 primarily due to the strengthening of the Swedish Kronor and the Euro against the U.S. dollar.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended March 31, 2010 were $25.7 million, an increase of $10.2 million, or 66.0%, as compared to $15.5 million for the three months ended March 31, 2009. The increase between the periods was due in part to an increase of $3.2 million of personnel costs resulting from an investment in marketing and R&D, a reduction in personnel costs capitalized as part of our implementation of SAP, and a temporary increase in personnel in Europe relating to the realignment and transition of our European operations to a single business entity. In addition to the increased personnel costs, an additional $2.3 million of third party professional fees related to the implementation of SAP and the preparation of this registration statement for filing with the Securities and Exchange Commission in connection with our proposed initial offering, a decrease of $1.8 million in realized transaction related foreign currency exchange gains, and an unfavorable impact of $0.6 million due to the strengthening of the Euro against the U.S. dollar contributed to the increase in selling, general and administrative expenses for the three months ended March 31, 2010 as compared to the three months ended March 31, 2009.

Unrealized Foreign Currency Exchange (Gains) Losses. Unrealized foreign currency exchange (gains) losses for the three months ended March 31, 2010 was a gain of $4.8 million, an increase of $5.2 million as compared to a $0.4 million loss for the three months ended March 31, 2009. The swing from a net loss to a net gain was primarily associated with the impact of exchange rate movements of the Swedish Kronor versus the Euro on our Euro-denominated debt under the First Lien Credit Agreement. The average exchange rate for the three months ended March 31, 2010 and the three months ended March 31, 2009 was 9.60 SEK/EUR and 12.18 SEK/EUR, respectively.

Restructuring and Impairment. Restructuring and impairment charges for the three months ended March 31, 2010 were $2.0 million, an increase of $1.0 million, as compared to $1.0 million for the three months ended March 31, 2009. Restructuring charges for the three months ended March 31, 2010 were primarily related to employee severance expenses of $1.2 million for our Sandarne, Sweden manufacturing facility and $0.7 million for our Niort, France manufacturing facility as a result of the realignment of our business in Europe to a single business entity as of January 1, 2010. Restructuring and impairment charges for the three months ended March 31, 2009 were primarily

related to the impairment of certain fixed assets at our Dover, Ohio facility. These restructuring and impairment activities have all been recorded as expenses in the consolidated statements of operations. This is further described in Note 7 of our unaudited condensed consolidated financial statements appearing at the end of this prospectus.

Other Operating Income. No other operating income was earned during the three months ended March 31, 2010. Other operating income for the three months ended March 31, 2009 of $2.0 million was comprised of $1.4 million business interruption insurance proceeds related to a fire at our Oulu, Finland manufacturing facility and $0.7 million related to the gain on the sale of land at our Bedlington, U.K. manufacturing facility.

Interest Expense, Net. Interest expense, net for the three months ended March 31, 2010 was $3.9 million, a decrease of $0.7 million, or 15.1%, as compared to $4.6 million for the three months ended March 31, 2009. The decrease was primarily due to lower average outstanding debt due to principal payments made in 2009.

Loss on Interest Rate Swaps and Interest Rate Caps, Net. Our loss on interest rate swaps and interest rate caps was $0.7 million for the three months ended March 31, 2010, an increase of $0.1 million as compared to $0.6 million for the three months ended March 31, 2009. The increase in the loss was primarily attributable to a $0.7 million loss recognized in the three months ended March 31, 2010 on our interest rate caps due to a decline in interest rates partially offset by the expiration of two interest rate swap contracts with notional values of $165 million and €40 million at fixed rates of 4.825% and 3.998%, respectively.

Other Income. Other income was $0.6 million for the three months ended March 31, 2010, a decrease of $1.5 million as compared to $2.1 million for the three months ended March 31, 2009. In the three months ended March 31, 2010, we received $0.7 million related to insurance proceeds to cover the loss of certain fixed assets due to a fire which took place in our Sandarne, Sweden manufacturing facility. The $2.1 million for the three months ended March 31, 2009 relates to the gain we recognized on our acquisition of Abieta Chemie GmbH.

Income Tax Expense (Benefit). Income tax expense for the three months ended March 31, 2010 was $3.9 million, compared to an income tax benefit of $0.8 million for the three months ended March 31, 2009 driven by higher income. The effective tax rate was 28.0% for the three months ended March 31, 2010, as compared to 25.0% for the three months ended March 31, 2009. The change in the effective tax rate is attributable to a change in the mix of country pre-tax profits and losses.

Adjusted EBITDA. Adjusted EBITDA for the three months ended March 31, 2010 was $27.4 million, an increase of $16.4 million as compared to $11.0 million for the three months ended March 31, 2009. This increase was primarily due to the following:


	•	Increase in selling prices positively impacted Adjusted EBITDA by $6.6 million.

	•	Sales volumes positively impacted Adjusted EBITDA by $3.9 million.

	•	Lower raw material prices positively impacted Adjusted EBITDA by $14.5 million in the three months ended March 31, 2010 as compared to the three months ended March 31, 2009, primarily due to an environment of lower commodity prices that reduced the cost of CTO and our other raw materials, and our ability to manage our primary raw material costs.

	•	An increase in selling, general and administrative costs negatively impacted Adjusted EBITDA by $7.3 million after taking into account adjustments to Adjusted EBITDA.

	•	Other items totaling $1.2 million also negatively impacted Adjusted EBITDA, which primarily related to the difference of $1.4 million in insurance proceeds related to a fire at our Oulu, Finland manufacturing facility and a gain of $0.7 million on the sale of capital assets realized as a result of the closure of our Bedlington, U.K. manufacturing facility in the three months


		ended March 31, 2009 and $0.7 million of insurance proceeds relating to a fire at our Sandarne, Sweden manufacturing facility recorded in the three months ended March 31, 2010.


	•	The aggregate effect of foreign currency fluctuations did not have a significant impact on Adjusted EBITDA.

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008


	Successor						Successor
	Year Ended						Year Ended
	December 31,			% of			December 31,			% of						%
	2009			sales			2008			sales			Change			Change
	(dollars in thousands)

Net sales	$	767,465			100.0	%	$	1,001,988			100.0	%	$	(234,523	)		(23.4	)%
Cost of goods sold		646,986			84.3			868,536			86.7			(221,550	)		(25.5	)

Gross profit		120,479			15.7			133,452			13.3			(12,973	)		(9.7	)
Selling, general and administrative		78,200			10.2			91,936			9.2			(13,736	)		(14.9	)
Unrealized foreign currency exchange (gains) losses		(9,347	)		(1.2	)		20,304			2.0			(29,651	)		(146.0	)
Restructuring and impairment		26,395			3.4			15,513			1.5			10,882			70.1
Other operating income		(5,537	)		(0.7	)		—			—			(5,537	)		—

Operating gain (loss)		30,768			4.0			5,699			0.6			25,069			439.9
Interest expense, net		(16,546	)		(2.2	)		(29,523	)		(2.9	)		12,977			44.0
Loss on interest rate swaps, net		(2,541	)		(0.3	)		(9,311	)		(0.9	)		6,770			72.7
Other income		3,635			0.5			1,879			0.2			1,756			93.5

Income (loss) before income tax expense (benefit)		15,316			2.0			(31,256	)		(3.1	)		46,572			149.0
Income tax expense (benefit)		3,831			0.5			(4,277	)		(0.4	)		8,108			189.6
Equity in earnings of affiliate		613			0.1			380			0.0			233			61.3

Net income (loss)	$	12,098			1.6	%		(26,599	)		(2.7	)%	$	38,697			145.5	%

Net Sales. Net sales for 2009 were $767.5 million, a decrease of $234.5 million or 23.4% as compared to $1,002.0 million for 2008. This decrease was due to a decline in volume of $198.8 million, which was driven by a decrease in demand as a result of the recent global economic downturn, which negatively impacted sales in most of our markets, except for consumer products. Despite the decline in volume, we were able to keep pricing relatively flat year-over-year in an environment of declining raw material prices, as we managed our sales mix. Average pricing remained relatively flat from 2009 to 2008. The effects of foreign currency fluctuations resulted in an unfavorable impact on net sales of $51.8 million in 2009, which was primarily due to the strengthening of the U.S. dollar against the Swedish Kronor. These decreases were partially offset by our acquisition of Abieta in 2009, which increased net sales within our tires and rubber market by $20.4 million.

The components of the year-over-year change in net sales are as follows:


Price decline	(0.4	)%
Volume decline	(19.8	)
Acquisition of Abieta	2.0
Unfavorable impact of foreign currency	(5.2	)

Total net sales decrease	(23.4	)%


	North America							Europe
Market	2009		2008		Change			2009		2008		Change
	(dollars in thousands)

Adhesives	$	104,469	$	129,515		(19.3	)%	$	92,229	$	109,103		(15.5	)%
Inks		54,102		69,251		(21.9	)		31,941		51,777		(38.3	)
Tires and Rubber		15,724		16,049		(2.0	)		43,937		23,093		90.3
Roads and Construction		28,762		34,990		(17.8	)		14,911		18,847		(20.9	)
Consumer Products		26,836		18,651		43.9			13,316		12,426		7.2
Renewable Energy		2,815		8,577		(67.2	)		71,456		115,580		(38.2	)
Chemical Intermediates		146,394		215,212		(32.0	)		120,573		178,917		(32.6	)

Total net sales	$	379,102	$	492,245		(23.0	)%	$	388,363	$	509,743		(23.8	)%

North America. Net sales of products sold by our North American segment for 2009 were $379.1 million, a decrease of $113.1 million, or 23.0%, as compared to $492.2 million for 2008. The downturn in the global economy resulted in decreased volume across many of the markets within our North American segment which negatively impacted net sales by $111.1 million while price declines negatively impacted net sales by $2.1 million.


Price decline	(0.4	)%
Volume decline	(22.6	)%
Impact of foreign currency exchange	0.0	%

Total net sales decrease	(23.0	)%

Several factors contributed to the change in net sales in North America, including:


	•	Chemical intermediates net sales decreased by $68.8 million from 2008 driven by deteriorating global economic conditions and, in particular, lower demand in housing, automotive, coatings and oilfield applications.

	•	Adhesives net sales decreased $25.0 million primarily due to lower demand in hot melt packaging, while inks net sales declined $15.1 million driven by demand weakness in publication printing.

	•	Despite lower demand, we strategically focused on reducing the portion of our sales mix attributable to lower margin products. Consumer products net sales increased by $8.2 million primarily due to shifting our sales mix from certain lower priced adhesive products to higher priced consumer products.

	•	Roads and construction net sales decreased by $6.2 million, primarily due to a decrease in sales of our rosin resin products as a result of aggressive competitor pricing, which we chose not to match, as we shifted our sales mix to higher priced markets.

	•	Renewable energy net sales decreased by $5.8 million, primarily due to a decrease in throughput of CTO and a corresponding reduction in the supply of our pitch by-product.

Europe. Net sales of products sold by our European segment for 2009 were $388.4 million, a decrease of $121.4 million or 23.8% as compared to $509.7 million in 2008. The downturn in the global economy resulted in lower volumes across many of the markets within our European segment. The decrease in net sales was driven by volume decreases of $87.7 million, partially offset by the addition of the Abieta acquisition which positively impacted net sales by $20.4 million. Notwithstanding lower demand,

we strategically focused on reducing the portion of our sales mix attributable to lower margin products and as a result, we were able to maintain or increase pricing in some of our markets. Our pricing was also negatively impacted by lower global vegetable oil commodity prices and lower oil prices, which impacted pricing of substitutes for several of our products, including TOFA and pitch. Price declines negatively impacted net sales by $2.4 million while foreign currency fluctuations negatively impacted net sales by $51.8 million, primarily associated with the weakening of the Swedish Kronor versus the U.S. dollar.


Price decline	(0.4	)%
Volume decline	(17.2	)
Acquisition of Abieta	4.0
Unfavorable impact of foreign currency	(10.2	)

Total net sales decrease	(23.8	)%

Several factors contributed to the change in net sales in Europe, including:


	•	Chemical intermediates net sales decreased by $58.3 million due to lower demand in coatings, metal workings and automotive. In addition, prices were negatively impacted by a pricing decline in competing global vegetable oil used in coatings, consistent with the declining pricing environment for oil and biofuels.

	•	Renewable energy net sales decreased $44.1 million as volume declined primarily due to a decrease in availability of our pitch by-product for sale as a result of lower CTO throughput, and a reduction in oil prices which negatively impacted pricing.

	•	Tires and rubber net sales increased by $20.8 million primarily due to our acquisition of Abieta.

	•	Inks and adhesives net sales declined by $19.8 million and $16.9 million, respectively, driven by lower demand in printing ink and hot melt packaging applications, respectively.

	•	Roads and construction net sales decreased by $3.9 million, primarily due to a decline in net sales of our roadmarking products. The roadmarking industry was less impacted by the global economic downturn than some of our other markets as a result of increased government spending, however, our year-over-year sales were lower due to shortened customer order lead times during the peak summer season accompanied by inventory shortages.

	•	We strategically focused on reducing the portion of our sales mix attributable to lower margin products and as a result, our consumer products net sales increased by $0.9 million primarily due to shifting our sales mix to higher priced consumer products.

Cost of Goods Sold. Cost of goods sold for 2009 was $647.0 million, a decrease of $221.6 million or 25.5% as compared to $868.5 million for 2008. Gross margins rose to 15.7% in 2009 from 13.3% in 2008.

The decrease of $221.6 million was due primarily to the following:


	•	Declining sales volumes of $113.4 million.

	•	Declining raw material prices of $40.6 million due primarily to lower CTO and pentaerythritol prices associated with lower oil and commodity prices.

	•	Favorable energy prices of $11.1 million as compared to 2008 primarily a result of lower natural gas prices in North America of $10.4 million.

	•	Restructuring initiatives at certain of our manufacturing facilities in the United States and Europe yielded cost savings of $17.6 million in 2009, partially offset by an increase in fixed costs of $5.0 million associated with the addition of the Gersthofen, Germany manufacturing facility from our Abieta acquisition. A focus on cost control and lower production rates as a result of the economic environment further reduced manufacturing fixed costs by $6.4 million.


	•	Depreciation and amortization included in cost of goods sold for 2009 was $31.3 million, an increase of $6.7 million as compared to $24.6 million for 2008. Depreciation and amortization in 2009 includes $1.8 million of depreciation for the newly acquired Gersthofen, Germany manufacturing facility.

	•	The effect of foreign currency fluctuations resulted in a favorable impact on cost of goods sold of $44.1 million in 2009 primarily due to the strengthening of the U.S. dollar against the Swedish Kronor.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for 2009 were $78.2 million, a decrease of $13.7 million, or 14.9%, as compared to $91.9 million for 2008. The decrease was primarily due to lower transaction and transition costs of $14.8 million, primarily related to the Acquisition, as well as a $4.6 million reduction in salary expense, as salaries associated with our ERP implementation were capitalized, favorable foreign exchange impact of $2.9 million, primarily due to the weakening of the Swedish Kronor to the U.S. dollar. These decreases were partially offset by increased training and other ERP implementation costs of $2.3 million, increased incentive compensation benefits and personnel costs of $3.5 million, which were primarily due to performance above plan and other administrative cost increases of $2.8 million. Selling, general and administrative expenses as a percentage of net sales increased 1.0% to 10.2% in 2009, compared to 9.2% in 2008.

Unrealized Foreign Currency Exchange (Gains) Losses. Unrealized foreign currency exchange losses (gains) for 2009 was a gain of $9.3 million, an increase of $29.7 million as compared to a $20.3 million loss for 2008. The swing from a net loss to a gain was primarily associated with the impact of exchange rate movements of the Swedish Kronor versus the Euro on our Euro-denominated debt under the First Lien Credit Agreement. The average exchange rate for 2009 and 2008 was 10.60 SEK/EUR and 9.58 SEK/EUR, respectively.

Restructuring and Impairment. Restructuring and impairment charges for 2009 were $26.4 million, an increase of $10.9 million, or 70.1%, as compared to $15.5 million for 2008. Restructuring charges for 2009 were primarily related to the closure of our Port St. Joe, Florida manufacturing facility. During 2008, we closed our Bedlington, U.K. manufacturing facility, reduced capacity at our Chester-le-Street, U.K. manufacturing facility, restructured certain product lines at our Dover, Ohio manufacturing facility and restructured our operations at our Niort, France manufacturing facility. These restructuring activities have all been recorded as expenses in the consolidated statements of operations. We have paid for substantially all of these restructuring activities as of December 31, 2009 and expect to incur the remaining cash payments of $2.0 million in 2010. This is further described in Note 9 of our consolidated financial statements appearing at the end of this prospectus.

Other Operating Income. Other operating income was $5.5 million in 2009, an increase of $5.5 million compared to 2008. Other operating income is primarily comprised of insurance proceeds of $4.9 million to reimburse us for lost sales and related costs incurred due to a fire at our Oulu, Finland manufacturing facility in 2008 and a $0.7 million gain on sale of land related to the closure of our Bedlington, U.K. manufacturing facility.

Interest Expense, Net. Interest expense, net for 2009 was $16.5 million, a decrease of $13.0 million, or 44.0%, as compared to $29.5 million for 2008. The decrease was primarily due to lower interest rates in 2009 compared to 2008 on our floating rate debt, combined with lower average outstanding debt due to revolver reductions and principal payments in 2009. We expect our interest expense to decline further in 2010 due to the expiration of two swap contracts with notional values of $165 million and €40 million at fixed rates of 4.825% and 3.998%, respectively.

Loss on Interest Rate Swaps, Net. Our loss on interest rate swaps was $2.5 million in 2009, a decrease of $6.8 million, or 72.7%, as compared to $9.3 million for 2008. The losses on the swap contracts resulted principally from declines in LIBOR.

Other Income. Other income was $3.6 million in 2009, an increase of $1.8 million as compared to $1.9 million for 2008. In 2009, we recorded a gain of approximately $2.1 million on our

acquisition of Abieta and a gain of $1.3 million on a settlement with International Paper. In 2008, other income included a gain of $1.9 million on the extinguishment of a portion of our debt. During 2008, Rhône Capital purchased $27.2 million face value of our outstanding second lien debt. In accordance with our credit agreements, Rhône Capital contributed 35% of the debt, or $9.5 million face value, to AZ Chem Investments Partner LP, which debt was then contributed to us and extinguished, resulting in a gain of $1.9 million that was recognized as other income in 2008.

Income Tax Expense (Benefit). Income tax expense for 2009 was $3.8 million, an increase of $8.1 million compared to the income tax benefit of $4.3 million for 2008 driven by higher income. The effective tax rate was 25.0% for 2009, as compared to 13.7% for 2008. Our effective tax rate for 2009 was less than our statutory Swedish income tax rate of 26.3% primarily due to valuation allowances by our international subsidiaries for certain tax benefits that were considered not likely.

Adjusted EBITDA. Adjusted EBITDA for 2009 was $93.9 million, an increase of $1.1 million, or 1.2%, as compared to $92.7 million for 2008. This increase was due to the following:


	•	Declines in volume and lower selling prices in 2009 as compared to 2008 negatively impacted Adjusted EBITDA by $64.9 million and $4.4 million respectively.

	•	Raw material prices declined $40.6 million in 2009 as compared to 2008, primarily due to an environment of lower oil prices and commodity prices that reduced the cost of CTO and our other raw materials, and our ability to manage our primary raw material costs.

	•	Energy prices were $11.1 million lower in 2009 as compared to 2008 primarily due to declining natural gas prices.

	•	Lower manufacturing fixed costs of $24.0 million were incurred during 2009 as compared to 2008 due to the partial year savings resulting from the closure of our Port St. Joe, Florida manufacturing facility in August 2009 and other cost saving initiatives within both of our reportable segments, partially offset by $5.0 million of increased costs associated with the addition of our Gersthofen, Germany facility from the Abieta acquisition.

	•	Unfavorable foreign currency exchange of $4.8 million and higher selling, general and administration costs of $2.3 million after taking into account adjustments to Adjusted EBITDA.

	•	Favorable impact from the receipt of $4.9 million of insurance proceeds to reimburse us for lost sales and costs incurred during 2008 as a result of a fire at our Oulu, Finland manufacturing facility and other favorable items of $1.9 million.

During 2009, unusual items in Adjusted EBITDA included the insurance proceeds from the fire at our Oulu, Finland facility of $4.9 million, the capitalization of salaries, net of additional expenses, for the implementation of SAP of $2.3 million and the gain on sale of land of $0.7 million related to the closure of our Bedlington, U.K. manufacturing facility.

Despite a 23.4% decrease in net sales, we increased our Adjusted EBITDA year-over-year in an economic environment of decreasing demand and volumes. We were able to increase our Adjusted EBITDA margin by proactively managing pricing in an environment that saw significant price pressures while decreasing our cost for raw materials and energy. We managed our cost structure through spending controls and restructuring activities that reduced production capacity and related costs in order to meet lower volume needs. Moreover, we were able to selectively shift products sold from lower margin to higher margin markets, which we expect to continue to do as we increasingly focus on our target markets.

Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

The following table presents combined historical results of operations for the year ended December 31, 2007, and was derived from the audited consolidated financial statements of our

predecessor period January 1, 2007 through February 28, 2007 and our successor period from March 1, 2007 through December 31, 2007.

The historical operating results are being presented to assist comparison across the years. The successor period for 2007 and 2008 in the operating results includes the effect of fair value adjustments resulting from the Acquisition. Due to this change in the basis of accounting, our predecessor consolidated financial statements and our successor consolidated financial statements are not necessarily comparable.


	Successor						Combined
							(Non-GAAP)
	Year Ended						Year Ended
	December 31,			% of			December 31,			% of
	2008			Sales			2007			Sales			Change			% Change
	(dollars in thousands)

Net sales	$	1,001,988			100.0	%	$	855,867			100.0	%	$	146,121			17.1	%
Cost of goods sold		868,536			86.7			755,415			88.3			113,121			15.0

Gross profit		133,452			13.3			100,452			11.7			33,000			32.9
Selling, general and administrative		91,936			9.2			99,583			11.6			(7,647	)		(7.7	)
Unrealized foreign currency transaction and exchange losses — net		20,304			2.0			—			—			20,304			—
Restructuring and impairment		15,513			1.5			114			0.0			15,399			—

Operating gain (loss)		5,699			0.6			755			0.1			4,944			654.8
Interest expense, net		(29,523	)		(2.9	)		(28,657	)		(3.3	)		(866	)		(3.0	)
Loss on interest rate swaps, net		(9,311	)		(0.9	)		(2,275	)		(0.3	)		(7,036	)		(309.3	)
Other income		1,879			0.2			—			—			1,879			—

Loss before income tax benefit		(31,256	)		(3.1	)		(30,177	)		(3.5	)		(1,079	)		(3.6	)
Income tax benefit		(4,277	)		(0.4	)		(6,299	)		(0.7	)		2,022			32.1
Equity earnings of affiliate		380			0.0			273			0.0			107			39.2

Net loss	$	(26,599	)		(2.7	)%	$	(23,605	)		(2.8	)%	$	(2,994	)		(12.7	)%

Net Sales. Net sales for 2008 were $1,002.0 million, an increase of $146.1 million, or 17.1%, as compared to $855.9 million for 2007. The increase in net sales was driven by pricing increases of $86.6 million and volume increases of $38.8 million. We were able to increase prices and capitalize on increased global demand within many of our markets as we began to focus more on value-added benefits of our products to our customers. The effects of foreign currency fluctuations provided a favorable impact to net sales of $20.7 million in 2008 as compared to 2007. The favorable impact was primarily due to the strengthening of the Euro and the Swedish Kronor against the U.S. dollar.

The components of the year-over-year change in net sales are as follows:


Price increase	10.1	%
Volume increase	4.6
Favorable impact of foreign currency	2.4

Total net sales increase	17.1	%

The following table presents consolidated net sales mix by market for the periods ended December 31, 2008 and December 31, 2007 for our two reportable segments, North America and Europe.


	North America							Europe
			Combined							Combined
			Non-GAAP							Non-GAAP
Market	2008		2007		Change			2008		2007		Change
	(dollars in thousands)

Adhesives	$	129,515	$	130,412		(0.7	)%	$	109,103	$	102,681		6.3	%
Inks		69,251		64,734		7.0			51,777		64,341		(19.5	)
Tires and Rubber		16,049		13,534		18.6			23,093		23,935		(3.5	)
Roads and Construction		34,990		20,029		74.7			18,847		12,905		46.0
Consumer Products		18,651		18,879		(1.2	)		12,426		12,080		2.9
Renewable Energy		8,577		8,408		2.0			115,580		62,511		84.9
Chemical Intermediates		215,212		176,730		21.8			178,917		144,688		23.7

Total net sales	$	492,245	$	432,726		13.8	%	$	509,743	$	423,141		20.5	%

North America. Net sales generated by our North American segment for 2008 were $492.2 million, an increase of $59.5 million, or 13.8%, as compared to $432.7 million for 2007. The increase in net sales was driven by pricing increases of $33.6 million primarily due to our management of sales mix and our ability to pass through raw material price increases to our customers, and an increase in volume of $26.0 million.


Price increase	7.8	%
Volume increase	6.0
Impact of foreign currency exchange	0.0

Total net sales increase	13.8	%

Several factors contributed to the growth in net sales in North America, including:


	•	Chemical intermediates net sales increased by $38.5 million driven by increased volumes and prices due to increased demand in the PVC stabilizers, oilfield, coatings and metalworking applications.

	•	Roads and construction net sales increased by $15.0 million, primarily due to increased sales of roadmarking resins.

	•	Inks net sales increased by $4.5 million, primarily due to volume increases in publication printing ink applications, without a reduction in our pricing.

	•	Tires and rubber net sales increased $2.5 million due to an introduction of new resins into the tire market. In addition, net sales of upgraded rosins increased due to increased demand for rubber emulsification applications.

Europe. Net sales for 2008 of $509.7 million increased by $86.6 million, or 20.5%, as compared to $423.1 million for 2007. The increase in net sales was primarily driven by pricing increases of $53.1 million across most of our markets, a favorable foreign exchange impact of $20.7 million and a favorable volume increase of $12.8 million. Within our European segment, the rise in oil prices and increased demand for competing products favorably impacted sales prices. The impact was higher in our European segment compared to North America as the majority of our global pitch is sold into the Scandinavian energy market.


Price increase	12.5	%
Volume increase	3.1
Favorable impact of foreign currency	4.9

Total net sales increase	20.5	%

Several factors contributed to the growth in net sales in Europe, including:


	•	Renewable energy net sales increased by $53.1 million due to an increase in volume, price and a favorable impact of foreign exchange. The volume increase in net sales is attributable to a reduction of inventory levels during 2008, from 2007 highs, in advance of increased prices in the first quarter of 2008.

	•	Chemical intermediates net sales increased by $34.2 million, primarily due to an increase in TOFA prices driven by the increase in demand and pricing for competing vegetable oils in the renewable energy and coatings market. TOFA volumes declined as a result of a fire that caused a shutdown in 2008 of our Oulu, Finland manufacturing facility. Curing agent and dimer acid prices increased due to higher demand in coatings applications, while DTO prices increased due to stronger demand in the automotive industry combined with improved strategic product positioning.

	•	Inks net sales decreased by $12.6 million, primarily due to decreases in sales volumes of phenolics for printing inks due to competitive pricing, which we choose not to meet in order to focus on higher margin products in other markets. In 2008 we also exited the solid resinate product line.

	•	Adhesives net sales increased by $6.4 million, primarily due to increased sales for hot melt packaging. We reduced our prices to defend our market share against foreign competition and imports, due to an unusually strong Euro compared to other foreign currencies.

	•	Roads and construction net sales increased by $5.9 million, primarily due to increased volumes for roadmarking, which was partially offset by a decline in prices to increase volumes and to respond to opportunistic imports from foreign competitors associated with a stronger Euro.

Cost of Goods Sold. Cost of goods sold for 2008 was $868.5 million, an increase of $113.1 million, or 15.0%, as compared to $755.4 million for 2007. Gross margins rose to 13.3% in 2008 from 11.7% in 2007.

The increase of $113.1 million was due primarily to the following:


	•	Increased sales volume of $33.2 million.

	•	Higher prices for raw materials accounted for $38.8 million of the increase. Raw material price increases for both CTO and our secondary raw materials including pentaerythritol and sulfuric acid were driven by the impact of higher oil and natural gas prices, increased demand and capacity constraints.

	•	Energy prices increased by $13.3 million from 2007 to 2008, due to increasing natural gas prices and fuel oil prices.

	•	Depreciation and amortization expense included within cost of goods sold for 2008 was $24.6 million, a decrease of $0.6 million, or 2.4%, as compared to $25.2 million in 2007.

	•	Manufacturing fixed costs increased $14.4 million in 2008 as compared to 2007 due to increased tank car and storage costs to support increased volumes, as well as higher maintenance and operating costs, partially offset by $6.2 million of savings primarily from restructuring initiatives in Europe.


	•	During 2008 we incurred $2.3 million of increased raw material, delivery and other operating expenses associated with a fire at our Oulu, Finland manufacturing facility.

	•	The effect of foreign currency fluctuations provided an unfavorable impact to cost of goods sold of $17.9 million in 2008 as compared to 2007. This decrease was primarily due to the strengthening of the Euro and Swedish Kronor against the U.S. dollar.

We were successful in passing on raw material and energy price increases to product prices, which is consistent with the pricing increases referred to above in net sales.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for 2008 were $91.9 million, a decrease of $7.6 million, or 7.7%, as compared to $99.6 million for 2007. The decrease was primarily due to lower transaction and transition costs of $11.2 million compared to 2007 related primarily to the Acquisition. Partially offsetting those declines were higher incentive compensation expense, consulting expenses, bad debt reserve and other administrative expenses. Foreign currency exchange resulted in an unfavorable impact of $2.1 million primarily due to the strengthening of the Swedish Kronor to the U.S. dollar. Selling, general and administrative expenses as a percentage of net sales declined 2.4% to 9.2% in 2008, compared to 11.6% in 2007.

Unrealized Foreign Currency Exchange Losses (Gains). Costs associated with unrealized foreign currency exchange losses (gains) for 2008 were $20.3 million. The increase in the unrealized loss was primarily due to the translation of our Euro-denominated debt into Swedish Kronor, as the Swedish Kronor weakened against the Euro during the period. There were no significant unrealized transaction gains or losses in 2007.

Restructuring and Impairment. Restructuring and impairment charges for 2008 were $15.5 million, compared to $0.1 million in 2007. The restructuring charges were primarily composed of personnel costs related to three restructuring activities that occurred in 2008; including the cost reduction initiatives at the Niort, France manufacturing facility, the shutdown of the terpene resin production at our Pensacola, Florida manufacturing facility, and the restructuring of our dimer business and relocation of our polyamide production from our Bedlington, U.K. manufacturing facility to Dover, Ohio. These items are further described in Note 9 of our consolidated financial statements appearing at the end of this prospectus.

Interest Expense, Net. Interest expense, net for 2008 was $29.5 million, an increase of $0.9 million, or 3.0%, as compared to $28.7 million for 2007. The year over year change is a result of several factors, including an increase in debt issuance expenses, two additional months of expense in 2008 since the debt under our credit agreements was incurred at the end of February 2007 in connection with the Acquisition, and a higher revolver balance in 2008 due to working capital increases associated with higher raw materials cost and higher demand for our products. These amounts were offset by a reduction in the outstanding balance of the term loans under our First Lien and Second Lien Credit Agreements by approximately $30.1 million from December 31, 2007, due to excess cash flow payments of $14.0 million, Rhône Capital’s acquisition of $27.2 million and subsequent extinguishment of $9.5 million of our second lien debt and foreign exchange impact.

Loss on Interest Rate Swaps, Net. Loss on interest rate swaps, net for 2008 was $9.3 million, an increase of $7.0 million, as compared to a loss of $2.3 million for 2007. We had three interest rate swap agreements that were put in place to hedge the interest rate risk associated with the $375 million credit facilities bearing variable interest rates. The increase is primarily due to a $5.2 million non-cash mark-to-market loss in 2008 on these interest rate swaps due to declines in LIBOR.

Other Income. Other income for 2008 was $1.9 million as compared to $0 for 2007. During 2008, Rhône Capital purchased $27.2 million face value of our outstanding second lien debt. In accordance with our amended credit agreement, 35% of the debt, or $9.5 million face value was contributed to us and extinguished, resulting in a gain of $1.9 million that was recognized as other income in 2008.

Income Tax Expense (Benefit). Income tax benefit for 2008 was $4.3 million, a decrease of $2.0 million, or 32.1%, as compared to $6.3 million for 2007. The income tax benefit was primarily related to a pre-tax loss of $36.4 million incurred from the period of March 1, 2007 through December 31, 2007. The effective tax rate was 13.7% for 2008, as compared to 20.9% for 2007 for the net tax benefit for the full 12-month period. Our effective tax rate for 2008 was less than our statutory Swedish income tax rate of 28.0% primarily due to valuation allowances by our international subsidiaries that could not recognize a tax benefit for certain tax benefits that were considered unlikely.

Adjusted EBITDA. Adjusted EBITDA for 2008 was $92.7 million, an increase of $25.8 million, or 38.6%, compared to $66.9 million for 2007. This increase was due to the following:


	•	Increases in selling prices from 2007 to 2008 increased Adjusted EBITDA by $86.6 million. Sales volumes positively impacted Adjusted EBITDA by $5.6 million.

	•	Higher raw material prices negatively impacted Adjusted EBITDA by $38.8 million as compared to 2007 due to higher CTO and secondary raw material prices.

	•	Energy prices increased by $13.3 million from 2007 to 2008 as a result of increasing natural gas and fuel oil prices.

	•	Manufacturing fixed costs increased $8.2 million compared to 2007. The increase was primarily due to higher costs for materials used in the manufacturing process, additional tank car and storage spending, and maintenance costs of $14.4 million, partially offset by $6.2 million of costs savings from restructuring initiatives.

	•	Increased costs associated with a fire at our Oulu, Finland manufacturing facility of $2.3 million and higher selling, general and administrative costs of $5.9 million after taking into account adjustments to Adjusted EBITDA.

	•	Favorable foreign exchange impact of $0.6 million.

The fire at our Oulu, Finland facility was the most significant unusual item during 2008, negatively impacting Adjusted EBITDA by $6.3 million including $2.3 million of additional expenses and $4.0 million of lost sales margin.

Adjusted EBITDA margin for 2008 was 9.3% as compared to 7.8% for 2007. The increase of 1.5% from 2007 to 2008 was primarily due to an increase in sales prices, which was partially offset by higher raw materials and energy prices, and other costs.

Non-GAAP Financial Measures

Adjusted EBITDA and EBITDA

Adjusted EBITDA represents net income before interest, taxes, depreciation, and amortization and then it is adjusted for various items as defined in our credit agreements. Under the terms of our credit agreements, we use Adjusted EBITDA to calculate our maximum leverage ratio and our minimum interest coverage ratio covenants. The maximum leverage ratio, which is calculated as of the last day of each fiscal quarter, is the ratio of (i) consolidated total debt to (ii) consolidated Adjusted EBITDA for the twelve month period then ended. The minimum interest coverage ratio, which is calculated as of the last day of each fiscal quarter, is the ratio of (i) consolidated Adjusted EBITDA for the twelve month period then ended to (ii) consolidated interest expense for the same twelve month period. For more information about our covenants and our compliance with these covenants under our credit agreements, see “Source of Liquidity”, “Description of Our Indebtedness — First Lien Credit Agreement — Certain Covenants and Events of Default” and “Description of Our Indebtedness — Second Lien Credit Agreement”.

We present Adjusted EBITDA because it is used for reporting and covenant calculation purposes pursuant to our credit agreements, and by management to evaluate operating performance, and we consider it an important supplemental measure of our performance. We also believe it is frequently

used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. In addition, our compensation plan bases incentive compensation payments in part on our Adjusted EBITDA performance.

EBITDA represents net income before interest, taxes, depreciation and amortization. We present EBITDA because it is used by management to evaluate operating performance, and we consider it an important supplemental measure of our performance. We also believe it is used by other interested parties in the evaluation of companies in our industry.

Adjusted EBITDA and EBITDA have limitations as analytical tools, and you should not consider these in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:


	•	Adjusted EBITDA and EBITDA do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

	•	Adjusted EBITDA and EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

	•	Adjusted EBITDA and EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

	•	Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and EBITDA do not reflect any cash requirements for such replacements; and

	•	Other companies in our industry may calculate Adjusted EBITDA and EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these and other limitations, Adjusted EBITDA and EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA and EBITDA only as supplemental information. See the Consolidated Statements of Cash Flows included in our financial statements included elsewhere in this prospectus.

A reconciliation of net income (loss), the most directly comparable GAAP measure, to Adjusted EBITDA is presented below:


	Successor			Successor			Successor			Successor			Combined			Successor			Predecessor
	Three Months			Three Months									(Non-GAAP)			March 1, 2007			January 1, 2007
	Ended			Ended			Year Ended			Year Ended			Year Ended			through			through
	March 31,			March 31,			December 31,			December 31,			December 31,			December 31,			February 28,
	2010			2009			2009			2008			2007			2007			2007(4)
	(dollars in thousands)

Net income (loss)	$	9,997		$	(2,357	)	$	12,098		$	(26,599	)	$	(23,605	)	$	(27,290	)	$	3,685
Interest (income) expense, net		3,870			4,560			16,546			29,523			28,657			28,775			(118	)
Income tax expense (benefit)		3,885			(836	)		3,831			(4,277	)		(6,299	)		(8,913	)		2,614
Depreciation and amortization		9,043			9,437			40,615			34,210			33,235			28,813			4,422

EBITDA		26,795			10,804			73,090			32,857			31,988			21,385			10,603
Unrealized foreign currency exchange (gains) losses		(4,836	)		367			(9,347	)		20,304			—			—			—
Restructuring and impairment		2,047			1,035			26,395			15,513			114			114			—
Loss on interest rate swaps		709			600			2,541			9,311			2,275			2,275			—
Equity in earnings of affiliate		(4	)		(150	)		(613	)		(380	)		(273	)		(189	)		(84	)
Transaction costs(1)		—			—			—			1,316			10,271			10,271			—
Management fees(2)		495			351			1,538			1,990			1,295			1,295			—
Transition costs(3)		—			—			—			2,984			6,667			6,575			92
Gain on Abieta acquisition		—			(2,151	)		(2,151	)		—			—			—			—
Gain on settlement with International Paper		—			—			(1,316	)		—			—			—			—
Selling, general and administrative severance		—			—			—			3,121			2,235			2,235			—
Third-party advisor fees		—			—			—			1,573			—			—			—
Consulting services		2,135			—			—			3,794			7,616			7,616			—
Gain on debt extinguishment		—			—			—			(1,901	)		—			—			—
Other items		37			187			3,722			2,241			4,710			3,297			1,413

Adjusted EBITDA	$	27,378		$	11,043		$	93,859		$	92,723		$	66,898		$	54,874		$	12,024


(1)		Transaction costs were related to the Acquisition. These costs included legal, tax, IT, professional fees, and Rhône Capital transaction fees.

(2)		Management fees are paid to Rhône Group L.L.C., an affiliate of Rhône Capital for certain monitoring and other management services and assistance, including reimbursement of its out-of-pocket expenses.

(3)		Transition costs included fees paid to International Paper in connection with the Acquisition under the transition services agreement, IT consulting fees, costs for infrastructure build-out and the cost of a carve-out audit, among other items.

(4)		Adjusted EBITDA presented in the predecessor period was calculated on the same basis as Adjusted EBITDA presented in the successor periods pursuant to our credit agreements.

Free Cash Flow

Free cash flow is defined by us as net cash provided by (used in) operating activities, less purchases of property, plant and equipment, software spending, proceeds from disposals of property, plant and equipment, and other items, all as disclosed in our consolidated statements of cash flows or the consolidated statements of operations.

We have included data with respect to free cash flow because our management considers free cash flow to be a useful, supplemental indicator of our liquidity. When measured over time, free cash flow provides supplemental information to investors concerning our operating results and our ability to generate cash flows to satisfy mandatory debt service requirements and make other non-discretionary expenditures.

Our management believes that consideration of free cash flow should be supplemental, however, free cash flow has limitations as an analytical financial measure, including:


	•	Free cash flow is subject to variability on a quarterly basis as a result of the timing of payments made or received related to accounts receivable, accounts payable and other current operating assets and liabilities.

	•	Free cash flow may be calculated in a different manner by other companies in our industry, which limits its usefulness as a comparative measure.

Our management compensates for these limitations by relying primarily on our results under GAAP to evaluate our operating results and by considering independently the economic effects of the foregoing items that are not reflected in free cash flow. As a result of these limitations, free cash flow should not be considered a substitute for other measures of liquidity reported in accordance with GAAP, including net cash provided by (used in) operating activities, net cash provided by (used in) investing activities, net cash provided by (used in) financing activities or change in cash and cash equivalents.

The following table sets forth a reconciliation of net cash provided by (used in) operating activities to free cash flow, the most directly comparable GAAP measure:


	Successor			Successor			Successor			Successor			Combined			Successor			Predecessor
	Three Months			Three Months									(Non-GAAP)			March 1,			January 1,
	Ended			Ended			Year Ended			Year Ended			Year Ended			2007 through			2007 through
	March 31,			March 31,			December 31,			December 31,			December 31,			December 31,			February 28,
	2010			2009			2009			2008			2007			2007			2007
	(dollars in thousands)

Net cash provided by (used in) by operating activities	$	2,507		$	11,100		$	117,325		$	20,841		$	32,934		$	45,022		$	(12,088	)
Less:
Purchases of property, plant and equipment		(4,866	)		(6,677	)		(22,993	)		(34,719	)		(22,846	)		(18,248	)		(4,598	)
Software spending		(3,761	)		(3,268	)		(13,404	)		(142	)		(1,642	)		(1,642	)		—
Proceeds from disposals of property, plant and equipment		—			690			875			212			—			—			—
Other		696			—			—			356			—			—			—

Free cash flow	$	(5,424	)	$	1,845		$	81,803		$	(13,452	)	$	8,446		$	25,132		$	(16,686	)

Net cash used in investing activities		(7,931	)		(18,027	)		(44,294	)		(34,293	)		(501,929	)		(497,331	)		(4,598	)
Net cash provided by (used in) financing activities		2,202			(1,220	)		(63,771	)		12,768			498,843			488,547			10,296

Free cash flow for the three months ended March 31, 2010 was a deficit of $5.4 million, a decrease of $7.3 million as compared to $1.8 million for the three months ended March 31, 2009. Operating cash flow decreased $8.6 million due to an increase in working capital at the end of our first quarter relating to the timing of sales earned during the quarter, partially offset by improved profitability.

Free cash flow for 2009 was $81.8 million, an increase of $95.3 million as compared to a deficit of $13.5 million for 2008. Operating cash flow increased $96.5 million due to improved profitability and reductions in working capital of $48.5 million. Capital spending declined $11.7 million as we deferred certain non-critical maintenance projects to 2010 to preserve cash, while software spending related to the global implementation of our ERP system increased $13.3 million.

During 2009, we instituted a working capital management program focused on improving our working capital as we managed the impact on our operations of the global economic slowdown. This program resulted in an 18% decrease in accounts receivable and a 34% decrease in inventory, which ultimately resulted in a decrease in working capital of $48.5 million. We instituted long-term working capital improvements to reduce our investment in working capital measured as a percentage of sales. We are targeting for working capital as a percent of sales to continue to decline supported by ongoing cost saving initiatives and the global implementation of our ERP system.

At March 31, 2010, we experienced an increase in accounts receivable of $26.3 million, or 26.4%, compared to December 31, 2009. This is a direct result of the timing of sales earned during the first quarter of 2010 versus the last quarter of 2009. In particular, we experienced an increase of $16.2 million, or 28.2%, in sales in March 2010 compared to December 2009. Due to higher sales in March 2010, we ended the month with a higher accounts receivable balance. We are not aware of any unusual collection issues associated with this increase in accounts receivable, which is supported by us maintaining the same percentage of current receivables and slightly decreasing our days sales outstanding from December 31, 2009. Accounts payable increased by $15.2 million, or 18.4%, compared to December 31, 2009, primarily due to increased inventory purchases driven by the increase in sales. However, as a result of a strong focus on working capital management, our inventory declined by $2.7 million, or 3.0%, compared to December 31, 2009.

Free cash flow for 2008 was a deficit of $13.5 million, a decrease of $21.9 million as compared to free cash flows of $8.4 million for the same period in the prior year. The decrease was primarily due to a decrease in operating cash flows of $12.1 million due to an increase in working capital of $7.2 million. Capital spending increased $11.9 million primarily due to capital expenditures at our Savannah, Georgia facility associated with our relocation of capacity from our Valdosta, Georgia facility.

Liquidity and Capital Resources

Summary

At March 31, 2010, we had $43.1 million of cash and cash equivalents. We ended 2009 with $47.0 million of cash and cash equivalents, compared to $34.0 million at the end of 2008. The increase in cash and cash equivalents was primarily due to lowering our working capital by $48.6 million and increasing net income by $56.2 million with depreciation, amortization and impairment excluded. This increase in cash enabled us to invest $36.4 million in property, plant and equipment and our new ERP system. We also repaid a portion of our long-term debt and repaid the amounts outstanding on the revolving credit facility under out First Lien Credit Agreement net of proceeds of $58.2 million, which will reduce future interest expense.

Our debt outstanding at March 31, 2010 under our credit agreements was $327.4 million. As a result of the global economic slowdown and market conditions, the cost and availability of new credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce and, in some cases, cease to provide funding to borrowers. Continued difficulties in the markets may adversely affect our liquidity and financial condition, the liquidity and financial condition of our customers, our ability to replace maturing liabilities in a timely fashion, and otherwise constrain access to the capital markets to meet our liquidity needs, thus resulting in adverse effects on our financial condition and results of operations. This credit contraction has not impacted our access to borrowings.

Working capital, the excess of current assets over current liabilities excluding cash and cash equivalents and the current portion of long-term debt, was $92.8 million at March 31, 2010, an increase of

$13.8 million from $79.0 million at December 31, 2009. This increase in working capital was primarily related to the timing of sales earned during the three months ended March 31, 2010 compared to the three months ended December 31, 2009, when sales increased 28.2% in March 2010 compared to December 2009, and we increased our purchases of inventory. These factors contributed to higher accounts receivable and accounts payable balances during this period. Working capital was $79.0 million at the end of 2009, down from $127.6 million at the end of 2008. Working capital as a percentage of sales was 10.3%, 12.7% and 14.1% for 2009, 2008 and 2007, respectively.

Our principal sources of liquidity are cash flow from operations and borrowings under our credit agreements. Going forward, there can be no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available to fund liquidity needs in an amount sufficient to enable us to service our indebtedness or other obligations.

Our principal uses of cash are debt service payments as described below, capital expenditures, and working capital requirements.

Cash Flow

The following table summarizes our cash provided by (used in) from operating, investing and financing activities for the years ended December 31, 2009, 2008 and 2007:


																Successor			Predecessor
	Successor			Successor			Successor			Successor			Combined			March 1,			January 1,
	Three Months			Three Months									(Non-GAAP)			2007			2007
	Ended			Ended			Year Ended			Year Ended			Year Ended			through			through
	March 31,			March 31,			December 31,			December 31,			December 31,			December 31,			February 28,
	2010			2009			2009			2008			2007			2007			2007
	(dollars in thousands)

Operating	$	2,507		$	11,100		$	117,325		$	20,841		$	32,934		$	45,022		$	(12,088	)
Investing		(7,931	)		(18,027	)		(44,294	)		(34,293	)		(501,929	)		(497,331	)		(4,598	)
Financing		2,202			(1,220	)		(63,771	)		12,768			498,843			488,547			10,296
Effect of foreign exchange		(744	)		(4,278	)		3,715			(3,354	)		1,783			1,848			(65	)

Increase (decrease) in cash and cash equivalents	$	(3,966	)	$	(12,425	)	$	12,975		$	(4,038	)	$	31,631		$	38,086		$	(6,455	)

Operating Activities

Operating cash flows in the three months ended March 31, 2010 were $2.5 million, a decrease of $8.6 million as compared to $11.2 million in the three months ended March 31, 2009. This change in operating cash flows was primarily driven by the following factors:


	•	Net income increased $12.4 million for reasons previously described.

	•	Non-cash items affecting net income increased $1.7 million compared to the three months ended March 31, 2009.

	•	Changes in working capital reduced cash provided by operating activities by $15.7 million in the three months ended March 31, 2010, which is $22.7 million lower than the three months ended March 31, 2009. This reduction of operating cash flows from working capital was primarily driven by the following:


	•	Accounts receivable increased $29.4 million, primarily related to the timing of sales which occurred near the quarter end.

	•	The increase in accounts receivable was partially offset by an increase in accounts payable of $20.3 million as a result of an increase in purchases to support the increase in sales.

Operating cash flows in 2009 were $117.3 million, an increase of $96.5 million as compared to $20.8 million in 2008. This change in operating cash flows was primarily driven by the following factors:


	•	Net income increased $38.7 million for reasons previously described.

	•	Non-cash items affecting net income declined $16.3 million compared to 2008.


	•	During 2009, we instituted a working capital management program focused on improving our working capital as we managed the impact on our operations of the global economic slowdown.

	•	Working capital contributed $58.3 million to operating cash flows in 2009, $74.0 million higher than 2008. This contribution of operating cash flows from working capital was primarily driven by the following:


	•	Accounts receivable declined $25.9 million, of which $10.5 million was due to a five day decline in days sales outstanding and the remainder due to lower sales.

	•	Inventory declined $57.4 million of which $31.2 million was associated with reductions in inventory on hand as the result of our on-going working capital improvement initiatives and in response to lower demand. In addition, $26.1 million of the decline was associated with lower raw material prices.

	•	The declines in accounts receivable and inventories were partially offset by a decrease in accounts payable of $16.8 million as a result of a decline in purchases and lower purchase prices.

Operating cash flows for 2008 were $20.8 million, a decrease of $12.1 million as compared to $32.9 million for 2007. This change in operating cash flows was primarily driven by the following factors:


	•	Net income declined $3.0 million for reasons previously described.

	•	Non-cash items affecting net income increased $45.1 million compared to 2007.

	•	Working capital consumed $15.7 million of operating cash in 2008, a decrease of $54.2 million compared to 2007. The working capital consumption of operating cash flows related to the following:


	•	Accounts receivable increased $9.6 million associated with higher sales and a six day increase in days sales outstanding.

	•	Inventory increased $6.2 million due primarily to volume, while accounts payable declined $3.9 million.

Investing Activities

Net cash used in investing activities totaled $8.6 million for the three months ended March 31, 2010, compared to $18.0 million for the three months ended March 31, 2009. The decrease of $9.4 million primarily relates to the acquisition of Abieta in the three months ended March 31, 2009, which impacted cash used in investing activities by $8.8 million net of cash acquired and assumed debt of $6.0 million, which excludes factored receivables of approximately $1.9 million.

Net cash used in investing activities totaled $44.3 million for 2009 compared to $34.3 million for 2008. The increase of $10.0 million was driven by lower capital maintenance spending, mostly offset by spending on the implementation costs of our ERP system in the amount of $13.4 million. In addition, during 2009 we completed the acquisition of Abieta for $8.8 million net of cash acquired and assumed debt of $6.0 million, which excludes factored receivables of approximately $1.9 million.

Net cash used in investing activities totaled $34.3 million for 2008 compared to $501.9 million for 2007, which included $477.4 million cost of the Acquisition. Capital spending for 2008 was $34.7 million or $11.9 million higher than 2007 primarily due to $8.7 million of spending on expanded capacity at our Savannah, Georgia manufacturing facility, which was associated with the realignment of our Valdosta, Georgia manufacturing facility.

Financing Activities

Net cash provided by financing activities was $2.2 million in the three months ended March 31, 2010, compared to $1.2 million used in the three months ended March 31, 2009. This increase is primarily the

result of a cash payment of $3.0 million following the assignment and assumption of the management MIV loans. As described under “Certain Relationships and Related Party Transactions — Management Loans”, we provided loans to certain members of our management to assist them in financing investments in the MIVs. The MIVs, Rhône Capital and International Paper all own a percentage of AZ Chem Investments Partners LP, our parent entity. On February 19, 2010, we entered into an Assignment and Assumption Agreement with AZ Chem Investments Partners LP pursuant to which we assigned, and AZ Chem Investments Partners LP assumed, all outstanding loans to members of our management team and board of directors in exchange of a cash payment of $3.0 million. After the assignment and assumption, we have no outstanding loans related to the MIVs and there will be no future loans by us related to the MIVs.

Net cash used by financing activities was $63.8 million in 2009 as compared to $12.8 million in 2008. This increase is primarily the result of the use of cash to reduce our long-term debt balance during 2009, including a $20.1 million reduction in the term loan under our First Lien Credit Agreement and a $29.3 million reduction in the revolving credit facility under our First Lien Credit Agreement. During 2009 we also assumed debt of $6.0 million in our acquisition of Abieta, which we were able to reduce to $0.7 million by December 31, 2009.

Net cash provided by financing activities in 2008 was $12.8 million compared to $498.8 million in 2007 which included $130.0 million issuance of common stock, $375.0 million of proceeds from issuance of long-term debt gross of $14.3 million of debt issuance costs associated with the Acquisition by Rhône Capital. During 2008, we drew on the revolving credit facility under our First Lien Credit Agreement to fund working capital needs, in particular to increase our cash reserves in response to the global credit crisis in the fourth quarter. During 2008, we permanently reduced our outstanding debt balance under our First Lien Credit Agreement by $16.5 million, including a payment of 50% of the excess cash flow from the prior year as required by our First Lien Credit Agreement, compared to $1.9 million in 2007 of scheduled debt payments.

Source of Liquidity

We anticipate that operating cash flow, together with available borrowings under the revolving credit facility under our First Lien Credit Agreement, will be sufficient to meet our working capital requirements, fund strategic growth initiatives and capital expenditures, and service our debt obligations for at least the next 12 months. We have available to us $60 million under the revolving credit facility under our First Lien Credit Agreement, on which we had no borrowings at March 31, 2010. Under the terms of our credit agreements we are subject to certain financial covenants, including maintenance of a minimum interest coverage ratio, a maximum leverage ratio and a maximum consolidated capital expenditure amount. We use consolidated Adjusted EBITDA to calculate these ratios. We are required to maintain a fiscal quarter end interest coverage ratio and a fiscal quarter end leverage ratio as illustrated in the table below. The maximum consolidated capital expenditure amount, as defined in the First Lien Credit Agreement, permitted for 2010 is $32 million and $35 million in 2011 and thereafter; our credit agreements allow a 50% carryover of any unspent amounts at year-end to be applied to the following year’s maximum consolidated capital expenditure. As of March 31, 2010, our interest coverage ratio was 4.51 and our leverage ratio was 2.78, which were in compliance with the applicable financial ratios and the other covenants contained in our credit agreements. The ratio limits for future periods are as follows:


	Interest
	Coverage		Leverage
Term	Ratio(1)		Ratio(2)

March 31, 2010 — March 30, 2011		2.25		4.50
March 31, 2011 and thereafter		2.50		4.00


(1)		Our interest coverage ratio must exceed the amounts illustrated above for the periods shown.

(2)		Our leverage ratio must not exceed the amounts illustrated above for the periods shown.

The maintenance of these financial ratios is based on our level of profitability relative to our level of indebtedness. If the global economic environment worsens or other factors arise which negatively impact our profitability, we may not be able to satisfy our covenants. If we are unable to satisfy these covenants in the future, we would need to seek an amendment or waiver of these financial covenants. The respective lenders under our credit agreements may not consent to any amendment or waiver requests that we may make in the future, and, if they do consent, they may not do so on terms which are favorable to us. In the event that we were unable to obtain any such waiver or amendment and we were not able to refinance or repay our debt instruments, our inability to meet the financial covenants or other provisions of our credit agreements would constitute an event of default, which would permit the lenders to accelerate the amounts due under our credit agreements.

From time to time, we evaluate options with respect to our overall debt structure, including the possibility of refinancing our existing credit agreements at least one year in advance of their respective maturities. The principal amounts of our term loans under our First Lien Credit Agreement amortize in quarterly installments of 1/4 of 1% of the outstanding principal amount and the remaining outstanding principal amount matures on February 28, 2013. The term loans under our Second Lien Credit Agreement mature on February 28, 2014. We may also selectively pursue acquisitions of, and joint ventures with, related businesses as one element of our growth strategy. There can be no assurance that we will decide to pursue acquisitions or joint ventures or whether we will be successful in completing any such transaction. These transactions may require us to assume or incur additional debt financing, resulting in additional leverage. We plan on financing capital expenditures through cash flows from operations.

For more information about our outstanding indebtedness and our available borrowings under our credit agreements see “Description of Our Indebtedness”.

Capital Expenditures

Our capital expenditure program is a key component of our long-term strategy. This program includes, among other things, maintenance, performance improvement and cost reduction initiatives and environmental, health and safety spending, but excludes our investment in our new ERP system.

We have historically split investment between maintenance and expansion-type capital expenditure activities. Maintenance includes planned and unplanned maintenance and environmental, health and safety spending and expansion includes cost reduction, performance improvement and capacity enhancement spending. In accordance with our accounting policy, expenditures for major repairs and improvements are capitalized because they extend the useful lives of the assets, whereas normal repairs and maintenance are expensed as incurred.

The following table presents maintenance and expansion expenditures incurred.

Successor

Combined

Successor

Predecessor

March 1,

January 1,

(Non-GAAP)

2007

Year Ended

through

December 31,

February 28,

2009

2008

2007

(dollars in thousands)

Major maintenance

10,671

21,469

21,333

17,065

4,268

Expansion

12,322

13,250

1,513

1,183

330

Total capital expenditures

22,993

34,719

22,846

18,248

4,598

During 2009, we closely managed our capital spending in response to the weak economic environment. Despite this environment, we continued to invest in the capacity expansion at our Savannah, Georgia manufacturing facility and spent $10.5 million and $8.7 million in 2009 and 2008, respectively. This capacity expansion was part of our realignment initiative, and the partial closure of our Valdosta, Georgia manufacturing facility. We expect our capitalized maintenance expenditures to

increase in 2010 from reduced levels in 2009, to approximately $20 million, then decline thereafter to a more normalized annualized trend line of approximately $15 million, consistent with fewer manufacturing facility sites than we have had in recent years. We estimate our 2010 expansion capital to be approximately $2 million. During the three months ended March 31, 2010, we incurred $3.9 million and $0.5 million of major maintenance and expansion expenditures, respectively.

Contractual Obligations and Commercial Commitments

Our principal outstanding contractual obligations relate to the debt under our credit agreements and related interest expense, and operating leases on certain facilities. The following table sets forth our long-term contractual cash obligations as of December 31, 2009:


	Years ending December 31,
	Total(1)		2010		2011			2012			2013		2014		Thereafter
	(dollars in thousands)

First Lien Credit Agreement	$	218,543	$	3,360	$	2,460		$	2,460		$	210,263	$	—	$	—
Second Lien Credit Agreement		115,498		—		—			—			—		115,498		—
Other loans(2)		717		575		142			—			—		—		—
Interest expense(3)		58,875		15,356		16,419			15,095			9,950		2,055		—
Payments on interest rate swaps(4)		2,840		2,983		(73	)		(70	)		—		—		—
Operating leases(5)		33,562		9,842		8,708			4,046			3,743		3,691		3,532
Capital lease(6)		4,095		299		324			341			360		379		2,392
Post retirement benefits(7)		4,117		4,117		—			—			—		—		—
Natural gas forward contracts(8)		4,378		4,378		—			—			—		—		—

Total contractual obligations	$	442,625	$	40,910	$	27,980		$	21,872		$	224,316	$	121,623	$	5,924


(1)		The $60 million revolving credit facility under our First Lien Credit Agreement was not included in the table above as there was no outstanding balance at December 31, 2009.

(2)		Other loans primarily relate to the fixed rate debt assumed in our acquisition of Abieta in 2009.

(3)		The LIBOR and Euribor rates assumed for future interest payments on our floating rate debt resulted in average interest rates including the spread between 4.70% and 4.20%, respectively, for all future periods presented. Amounts presented are representative of estimated cash payments and do not include amortization of debt issuance costs or other accruals.

(4)		Payments on interest rate swaps are based on mark-to-market calculations at year-end, based on the expected rates over the term of the swap agreements.

(5)		Operating leases include various operating leases and other rent payments.

(6)		Capital leases primarily relate to our office building lease for our Almere, The Netherlands location that includes executive, administrative and research and development functions.

(7)		Liabilities for post retirement benefits relate to our foreign and domestic defined benefit and retirement pension plans for the following plan year. As of December 31, 2009, our recorded liability for the U.S. and Non-U.S. pension, early retirement and jubilee plans was $15.5 million. The table above includes contributions we expect to make to the plans in 2010. Contributions for years beyond 2010 were excluded from the table above since we cannot reasonably make estimates of the timing of future payments.

(8)		Amounts due in 2010 are based on fixed volume and average fixed price of natural gas forward contracts outstanding at December 31, 2009.

Major Maintenance and Expansion. At December 31, 2009, we had open purchase orders totaling $2.6 million for major maintenance and expansion expenditures. We intend to fulfill these commitments with cash generated from our operations. The commitments primarily relate to the upgrade of fire safety equipment for the Panama City, Florida manufacturing facility and the replacement of process equipment at the Dover, Ohio and Savannah, Georgia manufacturing facilities.

Uncertainty in Income Taxes. As of December 31, 2009, net unrecognized tax benefits totalled $0.4 million, which are excluded from the table above since we cannot make reasonably reliable estimates of the timing of future payments.

Raw Materials. We have long-term supply contracts with International Paper pursuant to which they agreed to sell to us, and we agreed to purchase from them, all of the CTO and CST produced at their existing U.S. paper mills. We also have the option to purchase all of the CTO and CST produced at International Paper’s future paper mills worldwide. International Paper is not required to produce any minimum quantities of CTO or CST, and the amount of CTO and CST that we are required to purchase under these agreements varies depending upon the amount of CTO and CST actually produced by International Paper, which is dependent on demand for its products. However, subject to the agreement of International Paper, we may purchase less than 100% of the output of each mill, provided that in the event that we purchase 75% or less of the output from a particular mill for four consecutive quarters, we will lose the right to purchase the CTO or CST produced by that mill. The contracts provide for the purchase price for CTO to fluctuate, as it is determined by reference to energy prices, while the purchase price for CST is fixed, subject to adjustment every three years based on changes in market price. We purchased approximately $49.8 million, $59.0 million and $52.0 million of CTO and CST from International Paper for the years ended December 31, 2009 and 2008 and the ten months ended December 31, 2007, respectively.

We receive monthly wood processing data from International Paper’s mills and compute the expected quantity of CTO and CST that International Paper will provide. We issue purchase orders and record inventory based upon the weight of CTO and CST measured by the paper mills. Actual quantities shipped approximate quantities received and weighed by our manufacturing facilities.

These contracts provided us with approximately 20% and 27% of our global CTO and CST purchases for the three months ended March 31, 2010 and the year ended December 31, 2009, respectively. CTO and CST accounted for approximately 68% and 64% of our raw material purchases for the three months ended March 31, 2010 and the year ended December 31, 2009, respectively. These contracts are terminable by either party on February 28, 2027 and each anniversary thereafter, subject to a five year notice requirement.

To ensure adequate supplies of CTO and CST, we also maintain long-standing relationships with other major suppliers in the United States and Europe that enable us to manage our CTO and CST needs.

We believe we are well positioned to acquire the CTO and CST required for our operations.

Pension Plans. We sponsor various pension plans worldwide that are underfunded and require significant cash payments. For example, in 2009, we contributed $4.5 million to our pension plans and, in 2008, we contributed $2.7 million to our pension plans. We are expected to contribute at least $4.1 million to our pension plans in 2010. We may also opt to make additional voluntary contributions to various pension plans worldwide in 2010. Additionally, if the performance of the assets in our pension plans does not meet our expectations, or if other actuarial assumptions are modified, our contributions for those years could be even higher than we expect. For example, the combined asset value of funded pension plans worldwide was $47.6 million as of December 31, 2009. We expect to earn a 5.9% investment return on our pension assets. In the event actual investment returns are 1% lower than expected for one year, we expect our long-term cash requirements to increase by $0.5 million. As of December 31, 2009, our worldwide pension plans were underfunded by $14.8 million (based on the actuarial assumptions consistent with GAAP).

Other Contingencies

We had no material operating expenditures for environmental fines, penalties, or government imposed remedial or corrective actions during the years ended December 31, 2009, 2008 or 2007.

We are party to various lawsuits, claims and contingent liabilities arising from the conduct of our business; however, these matters are not expected to have a material adverse effect on our consolidated results of operations, cash flows or financial position.

Off-Balance Sheet Arrangements

We use natural gas in our production processes and, as a result, we are exposed to commodity price risk. To offset the impact of price changes, we enter into forward purchase contracts that require our contract counterparties to deliver natural gas to us at the contract maturity dates. As a result of the requirements of counterparties to physically deliver the gas to us at the settlement date, these contracts do not qualify as derivatives for financial reporting purposes.

These contracts help us to partially fix the price of natural gas that we use in production which offsets adverse changes in natural gas price movements. The remaining terms of our contracts range from one month to approximately twelve months.

We are exposed to the risk that

Arizona Chemical Ltd. S-1/A