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Executives

Linda Ferguson - Vice President, Administration and Corporate Secretary

Joseph Carleone – President and Chief Executive Officer

Dana Kelley – Vice President, Chief Financial Officer and Treasurer

American Pacific Corporation (APFC) Divestiture of In-Space Propulsion Business Conference Call January 5, 2012 4:30 PM ET

Operator

Good day, ladies and gentlemen and welcome to the American Pacific Corporation to discuss divestiture of In-Space Propulsion business conference call. My name is Jeff and I will be your coordinator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Linda Ferguson, Vice President. And you have the floor ma’am.

Linda Ferguson

Thank you, and good afternoon. Welcome to our conference call. Joe Carleone, our Chief Executive Officer will provide remarks. Following these remarks Joe and Dana Kelley, Chief Financial Officer, will be happy to take your questions.

Today’s call includes forward-looking statements. You can identify these statements by the fact that they use words such as will, expect, anticipate, believe, and other words and terms of similar meaning. These forward-looking statements are not historical facts and are subject to risks and uncertainties. Our actual results may differ materially.

For a description of the factors that may cause actual results to differ materially from our forward-looking statements, please refer to the risk factors, forward-looking statements section of our press release furnished today to the SEC on Form 8-K, our most recent annual report on Form 10-K and our filings made with the SEC. All forward-looking statements are made as of the date hereof and we assume no obligation to update these statements except as required by law.

I will now turn the call over to Joe.

Joseph Carleone

Thank you, Linda, and thank you ladies and gentlemen for joining our call. We are pleased to announce that we have entered an agreement to divest of our aerospace equipment segment, also known as AMPAC In-Space Propulsion, for $46 million in cash. With this divestiture AMPAC has a made a major strategic shift. We believe this will enhance the value of our corporation from many perspectives.

First of all, it will allow AMPAC to focus on the growth of our pharmaceutical business activity. We anticipate this focus will also lead to the enhancement of our financial performance as we continue to build upon our core capability and grow our pharmaceutical related product lines and exploit the potential of efficiencies among our reduced number of production sites.

Furthermore, the influx of cash as a result of this divestiture will allow us the flexibility of improving our balance sheet through reducing leverage and thereby position the company for future value added growth. Overall, aerospace and defense is forecasted to contract in certain segments and we expect consolidations to occur. Thus, you are either a buyer or a seller in the satellite space business as AMPAC ISP.

AMPAC In-Space Propulsion business flourished over the last few years and is poised to grow through expansion of its customer base and product lines both in the United States and in Europe. Achieving this next level of growth in this marketplace however will require support from a much larger player in the aerospace business. It became clear that AMPAC did not have the horsepower to adequately support both the pharmaceutical chemicals play and the aerospace play at the same time. Therefore we decided to monetize our investment in the satellite propulsion business to support the focused pursuit of the pharmaceutical business.

Of course, we will maintain our specialty chemical segment in Utah as currently configured. We’ve spent well over a year finding the right buyer for this business. Moog, in our estimation, will be an excellent parent for this business as their aerospace business is of a significant size and is expanding both in United States and Europe through acquisition and organically. We expect the transaction to close prior to the end of our fiscal year 2012.

We anticipate net proceeds, which is after expenses and taxes, to range from $36 million to $38 million. Of this amount, $4 million will be held in an escrow account for a period of 15 months. The obvious immediate financial impact to the company will be to strengthen our balance sheet with net debt being reduced at closing. Between now and closing, we will be examining our capital structure and how best we can use this influx of cash.

One obvious consideration is to use the deal proceeds to enable a recapitalization by retiring the notes and replacing them with a lower interest rate instrument at a much lower total debt. In effect, we reduce total debt and total interest commitments. Of course, we would want to maintain flexibility in our structure to allow for growth of the business, especially in the pharmaceuticals area.

Thank you for joining our call. We are now happy to answer any questions you may have. Jeff?

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of [Crystal Lynn] with American Pacific. Please proceed.

Unidentified Speaker

Hi, Joe, nice to speak with you again. Thank you for that clarity on one consideration of the proceeds is to reduce debt. You mentioned one consideration, do you have other considerations and how likely is that how much would you consider to reduce the debt?

Dana Kelley

Crystal, this is Dana Kelley. How are you today? At this point in time as we work with our -- from our signing and closing of the deal, we are really looking at all the alternatives for refinancing including following the terms of the indenture which would require a partial redemption of the outstanding notes. We are looking at some modification of our existing ADL facility or looking at the potential of refinancing of all debt through a more traditional type of bank funding arrangement. All of those will be considered as we move towards the close to figure which is right for the company.

Unidentified Speaker

And when -- so the net proceeds will be expected in September this year, is that correct? You actually would receive the cash around closing?

Dana Kelley

We do receive the cash on closing with $4 million of that retained in the escrow account. Correct.

Unidentified Speaker

What is this $4 million escrow account for?

Dana Kelley

It’s a holdback of the proceeds from the sale that is there in case there are any claims made for retained liabilities against the -- in the agreement. If there are none made during that period then the full $4 million will be returned to AMPAC at the end of the 15-month period.

Unidentified Speaker

Okay. And would you say this net proceeds, $36 million to $38 million, they are definitely, even though there is no definite answer you can't say that you are going to use all of that to reduce that debt. I guess you would say that some of them will definitely go to reduce debt?

Dana Kelley

We would be required -- the minimum that would be used, would be the requirement such as the indenture, which require that we take 75% of the net proceeds and use those for either qualifying capital expenditures or reductions of notes. But we will look at the full range of alternatives as we proceed in the next couple of months.

Unidentified Speaker

Those 75% of net proceeds will be qualified capital expenditure or/and haven’t looked at that right now?

Dana Kelley

It’s a combination of both. That you get your required 75% of net proceeds to use for either of those two categories.

Unidentified Speaker

Okay. So theoretically speaking, you could use that to -- use that for capital, qualified capital expenditure without any debt reduction? Theoretically speaking.

Dana Kelley

Theoretically, that would still be compliant with the requirements of the indenture but I don’t think that’s consistent with the objectives of the company.

Unidentified Speaker

Okay. And when do you think a decision would be made regarding that?

Dana Kelley

Our objective is to make that decision prior to close.

Unidentified Speaker

Okay. So now it’s June, July, August, so you still have four months. When do you think more likely, is it sometime in September of sometime say in few weeks time? Can you give some color on the timing with that timeframe?

Dana Kelley

The ultimate decision would be made at close because we wouldn’t be able to authorize the refinancing until we were certain that the transaction would close. So you wouldn’t expect to see a refinancing type announcement prior to the firm closing of this transaction.

Unidentified Speaker

Right. Okay. But it is possible also that you use part of the proceeds to do something else. It is not you know saying that all of that proceeds used to draw cash on balance sheet. Is that correct?

Dana Kelley

It is possible. That’s the evaluation that we are going through right now.

Unidentified Speaker

Okay. And with regard to the balance sheet strengthening and capital structure alternative, what would be some of the options of reducing bonds and increasing loans? And there are any other perhaps alternatives you are considering?

Dana Kelley

Those are the primary alternatives that we are looking at right now. You got them.

Operator

(Operator Instructions) Our next question comes from the line of [Don Whitaker with DCW Inc.] Please proceed.

Unidentified Speaker

Ms. Kelley, I am curious about -- I was reading the Review Journal today on the article. In the last paragraph they mentioned a little on the environmental remediation of soil liability. Does any of this possible liability go with the transaction or is that a separate matter totally?

Joseph Carleone

No, this is Joe Carleone. No, none of the environmental liability associated with our interest in our former Henderson facility goes along with it. The ammonium perchlorate part of the business, the stage part of the business, the only part that goes is the acquisition from 2004 and then the subsequent acquisition in 2008 that we acquired. And those have no environmental liability associated with them.

Unidentified Speaker

Got it. Well this transaction sounds great to me. As an long-term analyst in the industry I have been -- very very difficult to try to analyze all the parts and this definitely is a step forward simplifying the whole situation, Joe.

Joseph Carleone

Well, thank you very much. And I think for our people in that segment we found an excellent parent as well. So I think this is a win-win situation for all the parties involved.

Unidentified Speaker

Kudos to everyone.

Operator

Ladies and gentlemen since there are no further questions that concludes the Q&A portion of the call. I would now like to turn the presentation over to Mr. Joe Carleone for closing remarks.

Joseph Carleone

Thank you, Jeff and thank you ladies and gentlemen again for your interest in our company. We hope you will join us for our third quarter earnings call in August. So have a great summer.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, you may now disconnect. Have a wonderful day.

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