<PAGE>   1
 
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                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                      ------------------------------------
                                   FORM 10-K
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
                         COMMISSION FILE NUMBER 1-10351
 
                      ------------------------------------
 
                    POTASH CORPORATION OF SASKATCHEWAN INC.
           (Exact name of the registrant as specified in its charter)
 
<TABLE>
<S>                                                         <C>
                 SASKATCHEWAN                                      N/A
       (State or other jurisdiction of                       (I.R.S. employer
        incorporation or organization)                      identification no.)
</TABLE>
 
                             122 - 1ST AVENUE SOUTH
                    SASKATOON, SASKATCHEWAN, CANADA S7K 7G3
                                  306-933-8500
 (Address and telephone number of the registrant's principal executive offices)
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
<TABLE>
<S>                                                <C>
             TITLE OF EACH CLASS                   NAME OF EXCHANGE ON WHICH REGISTERED
             -------------------                   ------------------------------------
         Common Shares, No Par Value                     New York Stock Exchange

</TABLE>
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]

     At March 7, 1997, the registrant had 53,558,910 Common Shares (the
"Shares") outstanding, and the aggregate market value of the 53,526,266 Shares
held by non-affiliates of the registrant was approximately $4,141,594,831.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's 1996 Annual Report to shareholders ("Annual
Report") are incorporated by reference into Part II.

     Portions of the registrant's Proxy Circular for its Annual Meeting of
Shareholders in 1997 are incorporated by reference into Part III.

================================================================================
<PAGE>   2
 
                                     PART I
 
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
 
GENERAL
 
     The Company is one of the world's largest integrated fertilizer companies.
In 1996, the Company's potash production represented an estimated 15% of global
production. In 1996, the Company had 23% of global capacity and an estimated 41%
of global excess capacity, giving it more available potash capacity than any
single company or country other than Canada. The Company is also the third
largest producer of phosphates worldwide by capacity, currently representing
approximately 9% of world production and 7% of world capacity.
 
     Potash Corporation of Saskatchewan Inc. is incorporated under the laws of
Saskatchewan and is the successor to a corporation without share capital
established by the Province of Saskatchewan in 1975. Between 1976 and 1990, the
Company acquired substantial interests in the Saskatchewan potash industry. It
purchased the Cory mine in 1976, the Rocanville and Lanigan mines in 1977, and,
by 1990, 100% of the Allan mine when the Company acquired all of the outstanding
shares of Saskterra Fertilizers Ltd. In addition, in 1978 the Company acquired
reserves at Esterhazy, which are mined by a third party.
 
     In November 1989, the Company was privatized by the Province of
Saskatchewan through the sale of 12.86 million common shares to the public at
Cdn$18.00 per common share. While the Province of Saskatchewan initially
retained an ownership interest in the Company, this interest had been reduced to
zero by the end of 1993. At the time of privatization, limitations on ownership
of common shares were imposed in order to restrict the ability of non-residents
of Canada to own and vote the Shares and to restrict any one person or group of
associated persons from holding more than 5% of the Shares, regardless of
residency or citizenship. In 1994, all restrictions on the holdings of the
Shares were eliminated.
 
     In October 1993, the Company acquired (the "Rio Acquisition") from Rio
Algom Limited ("Rio") its New Brunswick potash and port facilities and its
Patience Lake mine in Saskatchewan.
 
     On April 10, 1995, the Company purchased all of the outstanding shares of
Texasgulf Inc. ("Texasgulf") from Elf Aquitaine, Inc. ("Elf (USA)") and Williams
Acquisition Holding Company, Inc. ("Williams"), for an aggregate purchase price
of $833 million (including acquisition costs). On April 10, 1995, the name
"Texasgulf Inc." was changed to PCS Phosphate Company, Inc. ("PCS Phosphate").
PCS Phosphate manufactures and sells solid and liquid phosphate fertilizers,
animal feed supplements, and purified phosphoric acid which is used in food
products and industrial processes. Its facility in Aurora, North Carolina is the
largest vertically-integrated phosphate mine and processing plant in the world.
Other assets of PCS Phosphate include: animal feed plants in four states; two
industrial phosphoric acid plants owned 50% in a joint venture carrying on
business as Albright & Wilson Company ("Albright"); a solution potash and salt
mine in Moab, Utah; an undivided 50% interest in an ammonia storage terminal in
Savannah, Georgia; and PCS Phosphate's product distribution infrastructure.
 
     On October 31, 1995, the Company purchased all of the outstanding shares of
White Springs Agricultural Chemicals, Inc. ("White Springs") from Occidental
Chemical Corporation ("OxyChem"), for an aggregate purchase price of $288.5
million (including acquisition costs). White Springs' primary assets are a
phosphate mine and two chemical plant complexes in northern Florida, Swift Creek
and Suwannee River, and a bulk terminal facility in Jacksonville, Florida. Other
assets of White Springs include an animal feed plant in Davenport, Iowa and two
more at the Suwannee River facility, and the remaining undivided 50% interest in
the ammonia storage terminal in Savannah, Georgia owned with PCS Phosphate.
 
     In November 1995 the Company, in an underwritten public offering, sold 2.3
million Shares at $73 per share, for gross proceeds of $167,900,000. The
offering proceeds were used in connection with the Company's purchase of the
shares of White Springs.
 
     On March 6, 1997, the Company acquired all of the outstanding capital stock
of Arcadian Corporation ("Arcadian") in exchange for 8,030,336 of the Company's
Common Shares and $555,145,002 in cash. See Recent Acquisition of Arcadian
Corporation.
 
                                       I-1
<PAGE>   3
 
     On December 6, 1996, the Company entered into an agreement with Guano-Werke
GmbH a wholly-owned subsidiary of BASF Aktiengesellschaft, under which the
Company is to purchase 51% of the outstanding shares of Kali und Salz
Beteiligungs Aktiengesellschaft from Guano-Werke GmbH for an aggregate purchase
price of DM 250 million. See Pending Acquisition of Kali und Salz Beteiligungs
Aktiengesellschaft.
 
     Potash Corporation of Saskatchewan Inc. ("PCS") has its head office and
executive offices at Suite 500, 122-1st Avenue South, Saskatoon, Saskatchewan,
Canada S7K 7G3. In this Form 10-K, the term "Company" means PCS, its
predecessors and its direct and indirect subsidiaries unless the context
otherwise indicates.
 
     See Note 15 to the consolidated financial statements for information
concerning the Company's domestic and international results.
 
     Unless otherwise specified, amounts are stated in U.S. Dollars.
 
POTASH OPERATIONS
 
     The Company's potash operations include the mining and production of
potash, which is predominantly used as fertilizer.
 
PROPERTIES
 
     The Company controls the right to mine 677,500 acres of land in
Saskatchewan. Included in these holdings are mineral rights to 474,200 acres
contained in blocks around the six mines in which the Company has an interest,
of which acres approximately 33% are owned by the Company, approximately 51% are
under lease from the Province of Saskatchewan and approximately 16% are leased
from other parties. The majority of the leases are for 21-year terms, renewable
at the Company's option. The Company's remaining 203,300 acres are located
elsewhere in Saskatchewan.
 
     Potash is mined by the Company from two main potash bearing formations in
Saskatchewan, the Patience Lake member of the prairie evaporites in the north,
and the Esterhazy member of the prairie evaporites in the south. The Patience
Lake member is mined at the Lanigan, Allan, Patience Lake and Cory mines, and
the Esterhazy member is mined at the Rocanville and Esterhazy mines.
 
     Under a long-term mining and processing agreement (the "Mining and
Processing Agreement") effective through 2026, International Minerals & Chemical
Corporation (Canada) Limited ("IMC") mines and processes PCS reserves at the
Esterhazy division. PCS has the option to terminate this agreement every five
years. It did not opt to give notice to terminate in December, 1995. IMC has the
option of abandoning the mine at any time after 2011, thus terminating the
Mining and Processing Agreement. For the year ending June 30, 1997, the Company
has notified IMC that it requires total finished potash products in the amount
of 500,000 tons. In each year the maximum the Company is permitted to take under
the Mining and Processing Agreement is 1,050,000 tons and the minimum required
amount is 500,000 tons.
 
     Water inflow at the Esterhazy mine has continued, to a greater or lesser
degree, since December 1985. Substantial pumping capacity has been installed and
remedial efforts have been undertaken. The Company's share of water inflow costs
for 1996 was $4.212 million, of which the majority was expensed. IMC has stated
that it will continue conventional mining. PCS has no indication from IMC that
solution mining or substitute shafts will be pursued at this time.
 
     Potash is also produced by the Company at its New Brunswick mine from the
flank of an elongated salt structure and at its solution mining and milling
operation in Moab, Utah.
 
PRODUCTION
 
     In 1996, the Company's potash mined consisted of 16.75 million tonnes of
ore at an average grade of 23.3% K2O. In 1996, the Company's potash produced
consisted of 5.78 million tonnes of potash (KCl) with an average grade of 61.02%
K2O, representing approximately 37% of North American production.
 
                                       I-2
<PAGE>   4
 
     The Company's present annual potash production capacity is approximately
12.2 million tonnes KCl, which includes maximum production under the Mining and
Processing Agreement with IMC of approximately one million tonnes at Esterhazy.
In December 1996, the Company's production capacity represented approximately
50% of the North American total while its excess capacity was an estimated 73%
of North American excess production capacity. The Company allocates production
among its mines on the basis of various factors, including the grades of product
which can be produced and cost efficiency. The Patience Lake mine, which was
originally a conventional underground mine, now employs a solution mining
method, while the other Saskatchewan mines which the Company owns or in which it
has an interest employ conventional underground mining methods.
 
     The New Brunswick mine is a conventional cut and fill mine, while the Moab,
Utah mine employs a solution mining method. In addition to their potash
production, these mines also produced 840,589 tonnes of sodium chloride (salt)
in 1996.
 
     As part of the Rio Acquisition, the Company granted a royalty interest to
Rio based upon production and revenue from the New Brunswick and Patience Lake
potash mines and mills (the "Royalty"). The terms of the Royalty provide that if
production meets specified base production levels or the sales of potash are at
prices which meet specified base sales prices, a royalty per tonne is to be
paid, calculated on a formula basis. Payments under the Royalty are limited to a
term expiring October 7, 2003 and to a maximum aggregate payment of Cdn$50
million. No payments have been made in respect of the Royalty to date.
 
RESERVES
 
     The Company estimates that its conventional mines in Saskatchewan contained
4.63 billion tonnes of recoverable ore at an average grade of 22.9% K2O as at
December 31, 1996, and that such ore will yield 1.50 billion tonnes of finished
product (KCl) at an average grade of 60% K2O.
 
     The Company's ore reserve estimates for its conventional mining operations
in Saskatchewan are based on exploration drill hole data, seismic data and
actual mining results during the past 25 years. The Company's estimated
recoverable ore and the estimated volumes of finished product from such ore are
as follows:
 
<TABLE>
<CAPTION>
                                                       RECOVERABLE     FINISHED
            MINE                                           ORE         PRODUCT
            ----                                       -----------     --------
                                                         (MILLIONS OF TONNES)
            <S>                                        <C>             <C>
            Allan..................................      1,035.6          333.5
            Cory...................................      1,077.5          359.7
            Esterhazy..............................         82.0           26.1
            Lanigan................................      1,865.0          601.9
            Rocanville.............................        573.5          182.7
                                                         -------        -------
                                                         4,633.6        1,503.9
                                                         =======        =======
</TABLE>
 
     The Company believes that, with production rates at full capacity and
utilizing current technology, the Rocanville mine has a reserve life in excess
of 75 years, each of the Allan, Cory and Lanigan mines has a reserve life in
excess of 100 years, and that the Esterhazy mine has a reserve life of at least
20 years.
 
     Given the characteristics of the solution mining method employed at the
Patience Lake mine, it is not possible to estimate definitively the productive
capacity of or the recoverable ore from this operation. However, based on
information obtained upon acquisition of the mine, current technology and the
present mining area for this operation, the Company believes that the mine has a
reserve life of at least 40 years for the existing mine workings. Different
techniques will have to be utilized to mine reserves outside of the existing
mine workings.
 
     Based on geophysics, exploration drill hole data, definition drilling
underground and actual mining results, the Company estimates proven reserves of
60.3 million tonnes of recoverable ore and 23.0 million tonnes of estimated
finished product (KCl) at its New Brunswick mine. The Company believes that,
based upon its
 
                                       I-3
<PAGE>   5
 
proven reserves, the New Brunswick mine has a reserve life of at least 25 years
with production at full capacity. The Company estimates that probable reserves
at the New Brunswick mine consist of 250 million tonnes of recoverable ore and
90 million tonnes of estimated finished product (KCl). The Company believes
that, based upon its proven and probable reserves, the New Brunswick mine has a
reserve life in excess of 100 years at full production capacity and utilizing
current technology.
 
     The Moab solution operation has an estimated remaining life of 11 to 13
years.
 
PHOSPHATE OPERATIONS
 
     Through PCS Phosphate and White Springs, the Company mines phosphate ore
and manufactures solid and liquid fertilizers, animal feed supplements and
purified phosphoric acid which is used in food products and industrial
processes.
 
PROPERTIES
 
     The Company conducts its phosphate operations primarily at two facilities,
one a 35,000-acre facility near Aurora, North Carolina (the "Aurora Plant") and
the other a 96,000-acre facility near White Springs in northern Florida (the
"White Springs Plant"). The Company believes the Aurora Plant to be the largest
integrated phosphate mine and phosphate processing complex at one site in the
world. The Aurora Plant facilities include a six million tonne per-year mining
operation, an integrated phosphoric acid processing plant, a liquid fertilizer
(11-37-0) plant, a superphosphoric acid plant, two diammonium phosphate ("DAP")
plants and a solid fertilizer plant capable of producing DAP, granular triple
superphosphate ("GTSP") or monoammonium phosphate ("MAP"). The Company has also
entered into the Albright joint venture which produces high purity phosphoric
acid at Aurora. The White Springs Plant is the fifth largest P2O5 producer, by
capacity, in the United States, with an annual capacity of 1.1 million tonnes.
The White Springs Plant facilities include a mine and two production facilities,
Swift Creek and Suwannee River, with two sulfuric acid plants, three phosphoric
acid processing plants, two DAP plants, a dicalcium phosphate plant and a
deflourinated phosphate rock plant located at the Suwannee River complex; and
two sulfuric acid plants and a phosphoric acid processing plant located at the
Swift Creek complex. The Company's other properties include animal feed plants
in Davenport, Iowa, Kinston, North Carolina, Marseilles, Illinois, Saltville,
Virginia and Weeping Water, Nebraska, and bulk terminal facilities at
Jacksonville, Florida and Morehead City, North Carolina.
 
PRODUCTION
 
     The Company extracts phosphate ore using surface mining techniques. At each
mine site, the ore is mixed with recycled water to form a slurry, which is
pumped from the mine site to the Company's processing facilities. The ore is
then screened to remove coarse materials, washed to remove clay and floated to
remove sand to produce phosphate "rock". The annual production capacity of the
Company's mines is currently 9.6 million tonnes of phosphate rock. During 1996,
the Aurora Plant's total production of phosphate rock was 4.3 million tonnes and
the White Springs Plant's total production of phosphate rock was 3.1 million
tonnes. The Company generally operates its phosphate mine and phosphate
processing plants 24 hours a day, seven days a week, using rotating shifts.
 
     Phosphate rock is the major input in the Company's phosphorus processing
operations. In addition to phosphate ore, the principal raw materials required
by the Company are sulfur, sulfuric acid and ammonia. The production of
phosphoric acid requires substantial quantities of sulfur, which the Company
purchases from third parties. The Company purchases substantially all its sulfur
on the spot market or pursuant to one or two-year contracts with quarterly price
adjustments. The Company generally purchases very little of its sulfuric acid
requirements from third parties. Sulfur and sulfuric acid have been in abundant
supply in recent years and remain so at the present time. In 1997, the Company
may transport surplus production of sulfuric acid at White Springs to Aurora as
needed.
 
     The Company purchases substantial quantities of ammonia from third parties.
The Company reacts phosphoric acid with ammonia to produce DAP and MAP, as well
as liquid fertilizers. In addition, ammonia
 
                                       I-4
<PAGE>   6
 
operations include the purchase, sale and terminalling of anhydrous ammonia.
Most of the ammonia that is currently purchased by White Springs is produced in
the Republic of Russia (the "Russian Ammonia") and imported through a White
Springs-operated ammonia terminal located within the port of Savannah (Garden
City, Georgia) and non-company operated terminals located within the ports of
New Orleans (Taft, Louisiana), Houston and Tampa, Florida. The Company's ammonia
expenses at Aurora are slightly higher than those of many of its competitors
because of higher transportation costs incurred in transporting ammonia from
Savannah to Aurora, North Carolina by rail.
 
     Most of the phosphate rock produced by the Company is used internally by
the Company for the production of phosphoric acid, superphosphoric acid ("SPA"),
chemical fertilizers, purified phosphoric acid and animal feed products. The
balance is sold to third parties, mostly in foreign markets, for use as a direct
application fertilizer on acidic soils.
 
     A portion of the Company's phosphoric acid production, merchant grade
phosphoric acid ("MGA"), is sold in liquid form, mostly to foreign and domestic
producers of solid fertilizers. The solid fertilizers produced by the Company
are DAP and, to a lesser extent, GTSP and MAP. Nearly one-half of the Company's
DAP is exported, with the balance sold domestically, mostly to large regional
dealers that custom blend solid fertilizers.
 
     The Company's liquid fertilizer products, substantially all of which are
sold domestically, consist principally of low-magnesium SPA, which the Company
markets under the name "LoMag". The Company believes that it is the largest U.S.
producer of SPA.
 
     The Company also processes phosphoric acid to produce animal feed
supplements for the poultry and livestock markets. The Albright joint venture
produces purified phosphoric acid for use in various food products and
industrial processes.
 
RESERVES
 
     At December 31, 1996, the Company's Aurora phosphate mine had estimated
proven and probable reserves of approximately 399 million tonnes of phosphate
rock, at an average grade of 30.7% P2O5. These reserves represented
approximately 30% of the presently known recoverable phosphate reserves in the
U.S. and would permit mining to continue at current rates for about 75 years.
The Aurora phosphate mine has an estimated annual capacity of 6.0 million tonnes
of phosphate rock, representing 10% of U.S. production capacity, and its
processing plants have the capacity to produce 1.15 million P2O5 tonnes of
phosphoric acid, representing 10% of U.S. production capacity. On April 6, 1995,
approximately 408 million tonnes of phosphate reserves were transferred to a
newly established company, the common stock of which was transferred to Elf
(USA) and Williams prior to the sale of PCS Phosphate to the Company. The
Company was granted a 20-year right of first refusal (from April 10, 1995) in
the event that newly established company proposes to sell the reserves. In
addition, the newly established company and Elf (USA) and Williams agreed, for a
period of ten years from April 10, 1995 not to compete, and for the first five
years not to make certain preparations to compete, with the Company with respect
to those reserves. See Environmental Matters -- Permits.
 
     The White Springs phosphate mine had estimated proven and probable reserves
of approximately 57 million tonnes of phosphate rock, at an average grade of
30.7% P(2)O(5). The Company estimates that an additional 13 million tonnes of
phosphate rock could be purchased at market rates from nearby owners.
Accordingly, the total reserves of 70 million tonnes of phosphate rock at White
Springs would sustain a 21 year mine at a mining rate of 3.3 million tonnes per
year. The White Springs mine has an estimated annual capacity of 3.6 million
tonnes of phosphate rock and the processing plants have the capacity to produce
annually approximately 1.1 million P2O5 tonnes of phosphoric acid. See
Environmental Matters -- Permits.
 
PCS JOINT VENTURE
 
     The Company indirectly holds all outstanding interests in a limited
partnership (the "PCS Joint Venture") doing business in Florida as Florida
Favorite Fertilizer and in Georgia and Alabama as Farmer's
 
                                       I-5
<PAGE>   7
 
Favorite Fertilizer. PCS Joint Venture manufactures, processes and distributes
fertilizer and other agricultural supplies from plants located in Florida,
Georgia and Alabama.
 
MARKETING
 
     The following table summarizes the Company's sales of potash, phosphates
and other products in the past three calendar years:
 
<TABLE>
<CAPTION>
                                                                 1996        1995        1994
                                                                -------     -------     -------
                                                                     (THOUSANDS OF DOLLARS)
<S>                                                             <C>         <C>         <C>
Potash
  Canada....................................................     14,507      12,483       9,990
  United States.............................................    143,137     128,594     119,170
  Canpotex..................................................    184,025     221,169     185,776
  Other.....................................................     61,526      53,686      48,181
Phosphates
  Canada....................................................     17,672      23,461
  United States.............................................    564,074     247,127
  PhosChem..................................................    275,644     128,320
  Other.....................................................     34,575      18,282
Ammonia.....................................................    108,708      22,958
Florida Favorite Fertilizer.................................     53,551      50,817      43,786
</TABLE>
 
     The following table summarizes the Company's revenue from products, by
category:
 
<TABLE>
<CAPTION>
                                                                 1996        1995        1994
                                                                -------     -------     -------
                                                                     (THOUSANDS OF DOLLARS)
<S>                                                             <C>         <C>         <C>
Potash......................................................    403,196     421,002     363,117
Florida Favorite Fertilizer.................................     53,551      50,817      43,786
Phosphates
  Liquid Fertilizers........................................    239,716     106,330
  Solid Fertilizers (DAP, MAP, GTSP)........................    379,326     151,152
  Animal Feed...............................................    186,145      94,477
  Phosphate Rock, Industrial Products.......................     86,777      60,161
Ammonia.....................................................    108,708      22,958
</TABLE>
 
     Fourth quarter gross margin for 1996 was $51.4 million for the potash
operations and $47.6 million for the phosphate operations. The Company has a
diversified customer base, and apart from sales to Canpotex Limited ("Canpotex")
and Phosphate Chemicals Export Association, Inc. ("PhosChem"), no one customer
accounted for as much as 10% of the Company's sales in 1996.
 
     The following table summarizes average prices per tonne received by the
Company on sales of potash in the past five calendar years expressed as a
percentage of 1992 base prices:
 
<TABLE>
<CAPTION>
                                                     1996      1995      1994      1993      1992
                                                     -----     -----     -----     -----     -----
<S>                                                  <C>       <C>       <C>       <C>       <C>
North America....................................     116%      123%      115%      102%      100%
Offshore.........................................     132%      125%      111%       95%      100%
</TABLE>
 
     In the recent past, fertilizer prices have been volatile. No assurance can
therefore be given that the average market prices for the Company's fertilizer
products will continue at current levels.
 
     The Company sells potash from its Saskatchewan mines for use outside North
America exclusively to Canpotex. PCS Sales (Canada) Inc. (formerly Potash
Corporation of Saskatchewan Sales Limited) ("PCS
 
                                       I-6
<PAGE>   8
 
Sales") executes offshore marketing and sales for the Company's New Brunswick
potash and executes marketing and sales for the Company's potash and phosphate
products in Canada. PCS Sales (USA), Inc. executes marketing and sales for the
Company's potash and phosphate products in the United States. PhosChem, an
association formed under the Webb-Pomerene Act (United States), is the principal
vehicle through which the Company executes offshore marketing and sales for its
phosphate fertilizers.
 
NORTH AMERICAN MARKETING
 
     In 1996, North American sales revenue from potash operations represented
11.2% of the Company's net sales, substantially all of which was attributable to
potash customers in the United States. North American sales are primarily to
large agri-businesses, independent dealers and cooperatives. Typically, North
American potash sales of the Company are greatest in the second calendar
quarter. The Company has no material contractual obligations in connection with
North American sales to sell potash in the future at a specified price.
 
     In 1996, North American sales revenue from phosphate operations represented
41.4% of the Company's net sales, substantially all of which was attributable to
phosphate customers in the United States. Typically, North American phosphate
product sales are greatest in the first and second calendar quarters. In 1996,
approximately 45% of the volume of PCS Phosphate's phosphate rock and phosphate
product sales were made on the spot market with the balance made under short
term contracts. The Company's contractual sales of phosphates are generally made
pursuant to annual sales contracts. The Company has no material contractual
obligations in connection with North American sales to sell phosphate in the
future at a specified price.
 
     Ammonia purchased by White Springs which is not used in the Company's
operations is sold to third party customers in the United States.
 
     At December 31, 1996, the Company's North American sales were handled by 49
employees in Chicago, Illinois, and various other locations in the United
States, and 26 employees in Saskatoon, Saskatchewan.
 
OFFSHORE MARKETING
 
     Potash produced by the Company in Saskatchewan for sale abroad is sold to
Canpotex, which is owned in equal shares by the three potash producers in the
Province of Saskatchewan (including the Company). Canpotex, which was
incorporated in 1970 and commenced operations in 1972, acts as an export company
and as a unified marketing force for all Saskatchewan potash production in the
offshore marketplace. Each shareholder of Canpotex has an equal voting interest
as a shareholder and through its nominees on the board of directors. The Company
and the other shareholders of Canpotex have agreed that, as long as they are
members of Canpotex, and with respect to potash produced in Canada, they will
not make offshore sales independently. Production from the Company's New
Brunswick mine has been exempted from this requirement by members of Canpotex.
Any member may terminate its membership in Canpotex on six months' notice.
 
     In general, Canpotex sales are allocated among the producers based on
production capacity. If a shareholder cannot satisfy demand for potash by
Canpotex, the remaining shareholders are entitled to satisfy the demand pro rata
based on their allotted production capacity. The Company currently supplies
57.5% of Canpotex's requirements. Canpotex sells potash to government agencies
and private firms pursuant to six-month contracts at negotiated prices or by
spot sales.
 
                                       I-7
<PAGE>   9
 
     The following table sets forth the percentage of sales of Canpotex for the
past three calendar years in the various geographical regions:
 
<TABLE>
<CAPTION>
                                                                      1996      1995      1994
                                                                      -----     -----     -----
<S>                                                                   <C>       <C>       <C>
Asia..............................................................      70%       78%       75%
Latin America.....................................................      14         8        10
Oceania...........................................................      11        10        10
Europe............................................................       5         4         4
Other.............................................................      --        --         1
                                                                      -----     -----     -----
Total.............................................................     100%      100%      100%
                                                                      =====     =====     =====
</TABLE>
 
     For 1996, revenue from offshore sales of potash from the New Brunswick
mine, through PCS Sales, represented 4.4% of the net sales of the Company; sales
to Canpotex represented 13.1% of the net sales of the Company in 1996.
 
     Since 1975, PhosChem has been the principal vehicle for United States
exports of phosphate fertilizers. Since at least 1985, PCS Phosphate, IMC-Agrico
Company ("IMC-Agrico"), a joint venture between IMC Global Inc. and
Freeport-McMoRan Resources Partners (or its predecessors) and, until the
Company's acquisition of White Springs, OxyChem, have been members. The PhosChem
members have agreed to export their fertilizer products exclusively through
PhosChem, except for exports to Canada or to any member state of the European
Union or the European Economic Area, sales of superphosphoric acid to the Former
Soviet Union ("FSU") and sales to certain buyers affiliated with members.
Historically, PhosChem negotiated prices and other terms for the export sale of
fertilizer products. According to the terms of a PhosChem agreement effective
January 1, 1995, IMC-Agrico is responsible for the marketing of solid
fertilizers (DAP, MAP and GTSP), and PCS Phosphate, or its sales affiliate (PCS
Sales (USA), Inc.), is responsible for the marketing of liquid fertilizer
products (MGA) to export countries. Total P2O5 sales for 1996 were apportioned
as follows: 66% to IMC-Agrico and 34% to PCS Phosphate. The PhosChem arrangement
relies on the sales forces of IMC-Agrico and PCS Sales (USA), Inc. for sales of
solids and liquids, respectively. The PhosChem agreement will be in effect
through December 31, 1997, and subject to renewal thereafter. If the PhosChem
agreement is not renewed, the Company does not believe the disbanding of
PhosChem would materially affect the Company's sales of fertilizer, but there
can be no assurance that, if PhosChem were to be disbanded, the Company would be
able to find alternative outlets for its products or sell its products at prices
or on terms similar to those expected to be obtained by PhosChem. The Company's
1997 PhosChem allocation is 34%.
 
     Revenue from sales to PhosChem accounted for approximately 19.6% of the
Company's net sales, in 1996. Substantially all of the Company's phosphate sales
to China, India and Pakistan were made through PhosChem. Most of the Company's
sales of phosphate products to China are made to the central purchasing
authority of the Chinese government. Sales to Pakistan were made in response to
government tenders, but sales in India were made to many independent buyers.
 
     The following table sets forth the percentage of sales of PhosChem for the
past three calendar years in the various geographical regions:
 
<TABLE>
<CAPTION>
                                                           1996      1995(1)     1994(1)
                                                           -----     -------     -------
          <S>                                              <C>       <C>         <C>
          Asia.........................................      82%         75%         73%
          Latin America................................      17          13          18
          Europe.......................................       1           3           2
          Mid East.....................................      --           2           5
          Africa.......................................      --           2           1
          Other........................................      --           4          --
                                                           ----        ----        ----
          Total........................................     100%        100%        100%
                                                           ====        ====        ====
</TABLE>
 
---------------
 
(1) Numbers do not add to 100% as a result of rounding.
 
                                       I-8
<PAGE>   10
 
     Offshore sales are subject to those risks customarily encountered in
foreign operations, including (i) fluctuations in foreign currency exchange
rates, (ii) changes in currency and exchange controls, (iii) the availability of
foreign exchange, (iv) laws, policies and actions affecting foreign trade and
(v) other economic, political and regulatory policies of foreign governments.
 
DISTRIBUTION AND TRANSPORTATION
 
     The Company has an extensive infrastructure and distribution system to
transport and store its potash and phosphate products.
 
     Transportation costs add significantly to the total amounts paid by
purchasers of potash. Producers have a definite advantage in markets close to
their sources of supply (e.g. Saskatchewan producers in the Midwestern United
States, New Brunswick producers on the U.S. Eastern Seaboard and New Mexico
producers in the Southern and Western United States). International shipping
cost variances permit offshore producers (including the FSU, Germany, Israel and
Jordan) to compete effectively in some of the Company's traditional markets.
 
     Most of the Company's potash for North American customers is shipped by
rail. Shipments are also made from each of the Company's Saskatchewan mines to
Thunder Bay, Ontario, for shipment by lake vessel to the Company's warehouses
and storage facilities in Canada and the United States.
 
     Potash from the New Brunswick mine is shipped primarily by ocean-going
vessel from the Port of Saint John, although truck and rail transport are also
used for North American customers.
 
     In the case of the Company's sales to Canpotex, potash is transported by
rail principally to Vancouver, British Columbia, where port facilities exist for
storage pending shipment overseas. The Company has an equity interest in
Canpotex Bulk Terminals Limited, which is a part owner of these port facilities.
The Company, through Canpotex, has an interest in the development of a port
facility located in Portland, Oregon. It is expected that this facility will be
completed later this year.
 
     With respect to phosphates, the Company leases a shipping terminal in
Morehead City, North Carolina, which receives and stores raw materials for, as
well as the products manufactured by, the Aurora facility. The Company owns nine
barges (four used for solid products, two for phosphoric acid, one for sulfuric
acid and two for sulfur) and three tug boats, which are used to transport
materials between its Aurora facility and Morehead City. Raw materials and
products are also transported to and from the Aurora facility by rail. The
Company transports sulfur it purchases from Canada in large, dedicated unit
trains. Both CSX Corporation and Norfolk Southern Corporation serve the Aurora
facility. The Company believes that its location and diversified transportation
and terminalling capabilities put it in a comparable position to most of its
Florida competitors in purchasing sulfur. The Company receives ammonia for its
phosphate operations at Aurora through its ammonia terminal in Savannah,
Georgia; the ammonia is shipped by rail from Savannah to the Aurora facility.
 
     Sulfur is delivered to the White Springs Plant by unit trains from Canada
and by rail from multiple domestic sources. The Company receives ammonia for its
phosphate operations at White Springs through its ammonia terminal in Savannah,
Georgia; ammonia is shipped by rail from Savannah to the White Springs Plant.
The Norfolk Southern Corporation is the only railroad serving the White Springs
Plant. Most of the phosphoric acid and chemical fertilizers produced at the
White Springs Plant are shipped to domestic destinations by rail. The Company
also ships some of its phosphoric acid, chemical fertilizers and animal feed
products, produced at the White Springs Plant, through the bulk terminal located
in Jacksonville, Florida, for offshore sales.
 
     The Company makes domestic deliveries of animal feed products (bulk and
bagged) by rail or truck from its manufacturing facilities and from several
warehouses supplied from its manufacturing facilities.
 
     The Company ships the ammonia it sells to third parties through various
modes of transportation, including barge, rail, truck and pipeline.
 
                                       I-9
<PAGE>   11
 
     The Company has approximately 3,650 rail cars, approximately 1,300 of which
are owned by the Company and the balance of which are leased.
 
COMPETITION
 
     The markets for potash, both domestic and foreign, are highly competitive.
Since potash is a commodity, producers must compete based on price and service
(e.g., delivery time and ability to supply all grades). Apart from competitive
pricing, the Company's principal method of competition is in service to
customers. Among other things, the Company serves its customers by maintaining
warehouses and leasing rail cars to enhance its delivery capability. The high
cost of transporting potash limits competition in various areas.
 
     The Company's potash competition includes two producers in Saskatchewan,
three other significant producers in North America and potash producers located
outside North America in the FSU, Israel, Jordan, Germany and France. Because of
the high capital cost and lead time required to construct a new mine, the
Company's principal competition is expected to continue to come from the owners
of existing mines.
 
     Most phosphate products, particularly solid fertilizers, are commodities,
with little or no product differentiation, and thus trade on the basis of prices
determined in highly competitive markets. The vast majority of the United States
phosphate rock not mined by the Company is produced in central Florida,
southeast of Tampa, and most of the United States phosphate processing capacity,
other than at Aurora, is located in Florida and along the coast of the Gulf of
Mexico.
 
     The Company's principal advantage at Aurora in competing with other
producers is that it operates integrated phosphate mine and phosphate processing
complexes while most of its competitors are required to ship phosphate rock by
rail or truck from their mines to their chemical processing plants, thus
incurring substantially higher transportation costs. In addition, ore at Aurora
is of a more uniform grade and is found in thicker seams than that in central
and south Florida.
 
     As a result of its location in North Carolina and the relatively high cost
of transportation, the Company's U.S. phosphate sales from Aurora have a natural
advantage in the Northeast, mid-Atlantic and eastern Midwest regions, while
White Springs and other Florida producers have a natural advantage in the South,
and Gulf coast producers have a natural advantage in areas of the Midwest
accessible to barge traffic up the Mississippi River.
 
     The Company also competes with governmental agencies and independent
phosphate producers in important exporting countries, including Morocco,
Tunisia, Jordan and South Africa.
 
EMPLOYEES
 
     At December 31, 1996, the Company had 4,490 active employees of whom 1,504
were salaried and 2,986 were hourly paid. Of these employees, the Company's
potash operations employed 1,516 people, the phosphate operations employed 2,647
people, and 141 people were employed at PCS Joint Venture. The corporate office
had a staff of 111 while 75 people were employed in the Company's sales group.
The Company has six collective bargaining agreements. The collective bargaining
agreements at the Allan, Cory and Patience Lake divisions expire on April 30,
1997. The Lanigan agreement expires on January 31, 1998. The Company and the
Rocanville Potash Employees Association have agreed to a new contract which
expires on May 31, 1998. The agreement between IMC and the union representing
the employees at the Esterhazy mine expires on January 31, 1998. The Company's
New Brunswick and Aurora operations are non-union. The collective bargaining
agreement with the union representing employees at the White Springs Plant
expires on December 1, 1997. The Company believes its relations with its
employees to be good.
 
                                      I-10
<PAGE>   12
 
GOVERNMENT REGULATIONS
 
     The Company's potash and phosphate operations are subject to various
legislative and regulatory requirements.
 
POTASH
 
     In late September 1987, legislation was adopted in Saskatchewan that
authorized the government to control production at potash mines located in the
Province of Saskatchewan. The legislation, which has not taken effect but which
can be brought into effect by proclamation of the Cabinet of Saskatchewan,
permits the Cabinet, and the Potash Resources Board which would be created under
such legislation, to prescribe rates of potash production in Saskatchewan and to
allocate production among individual mines. In determining rates for individual
mines, the Potash Resources Board would take into account a mine's productive
capacity, the rate of production from the mine, the present and future inventory
and stockpile requirements for the mine, the portion of demand for potash that
has been fulfilled by the primary production of potash from the mine and any
additional factors which may be prescribed by regulation. Increases in
production capacity would be subject to the approval of the government of
Saskatchewan. The Company cannot predict at this time if or when the legislation
will be proclaimed or its effects on the results of the Company's operations.
 
PHOSPHATE
 
     The Company's phosphate mining and processing operations are subject to
general U.S. governmental controls in the form of required permits and
applicable laws and regulations, including the North Carolina Mining Act, which
applies to operations at Aurora, and the Florida Land Reclamation Act and the
severance tax law, which apply to operations at White Springs.
 
ROYALTIES AND CERTAIN TAXES
 
     Saskatchewan potash production is taxed at the provincial level under The
Mineral Taxation Act, 1983 (Saskatchewan). This tax consists of a base payment
and a profit tax. In addition to the potash production tax, rental fees, taxes
and royalties are payable to the Province of Saskatchewan and municipalities by
potash producers in respect of potash reserves or production of potash in the
Province of Saskatchewan. The Company's tax, fees and royalty expenses were
$39.2 million in 1996.
 
     The Company is subject to capital tax on its paid-up capital (as defined in
The Corporation Capital Tax Act of Saskatchewan). In addition, a resource
corporation in the Province of Saskatchewan pays a corporate capital tax surtax
based on the value of Saskatchewan resource sales. This surtax is only payable
to the extent that it exceeds the regular capital tax. In 1996, the Company paid
capital tax of $4.3 million and paid $8.5 million surtax.
 
     The Company pays royalties to the New Brunswick government on the basis of
production from its New Brunswick mine. In addition, the Company pays municipal
taxes. The Company's expenses for such royalties and municipal taxes were $4.4
million in 1996.
 
     The Company does not make royalty payments in connection with its phosphate
operations.
 
Income Taxes
 
     PCS and certain subsidiaries are subject to federal and provincial income
taxes in Canada. By virtue of deductions with respect to non-capital losses
carried forward, capital cost allowance, Canadian development expense, earned
depletion allowance and resource allowance, such taxes have not yet been payable
by PCS. However, the Company is subject to the Large Corporations Tax. At
December 31, 1996, the Canadian tax pools plus the non-capital losses carried
forward exceed the book value of PCS's depreciable assets. PCS will begin to
book a deferred tax provision, at an effective tax rate of 35%, once the tax
pools plus the non-capital losses carried forward are less than the book value
of the assets. This rate assumes that primarily all Canadian profits for income
tax purposes are resource profits eligible for the resource allowance and that
an earned depletion claim of 25% on resource profits is available to the
Company. Assuming the status quo, the
 
                                      I-11
<PAGE>   13
 
Company is likely to begin to record a Canadian deferred income tax provision in
1997 and is unlikely to pay regular Canadian income taxes before the next
decade.
 
     The subsidiaries of the Company which operate in the United States are
subject to U.S. federal and state income taxes. By virtue of certain income tax
deductions available, these subsidiaries are not currently subject to regular
cash income taxes. However, they are subject to alternative minimum tax, which
may be carried forward indefinitely to be applied against regular income tax
liability. In addition, the Company is subject to United States withholding tax
on certain payments received from its U.S. subsidiaries. The tax rate for 1996
was approximately 23.6% of taxable income, of which 13.8% represented deferred
income taxes, and 9.8% represented cash taxes.
 
RESEARCH AND DEVELOPMENT
 
     The Company maintains research and development facilities located in
Saskatoon, Saskatchewan, employing approximately 26 persons who concentrate on
improving efficiency in mine operations and product quality. Research continues
on the use of three-dimensional seismic methods and other geophysical tools to
detect geological disturbances in ore seams. The Company is also proceeding with
automation of mining machines. Other research includes measures to maintain and
enhance product quality in transit and at offsite storage facilities.
 
     Research and development expenditures in potash amounted to $1.35 million,
$1.55 million and $1.53 million in 1996, 1995 and 1994, respectively. The
Company does not anticipate any material change in the level of research and
development expenditures for 1997.
 
     The Company continues to evaluate ways to more fully automate its phosphate
production facilities, including improvements to its sulfuric acid, phosphoric
acid and purified phosphoric acid plants. The Company is also exploring ways of
further debottlenecking its phosphate production facilities and selectively
adding capacity through technological enhancements.
 
ENVIRONMENTAL MATTERS
 
     The Company's operations are subject to environmental controls in the form
of required permits and other applicable Canadian and U.S. federal, provincial,
state and local laws and regulations. Such laws and regulations govern air
emissions, waste water discharges, land reclamation and solid and hazardous
waste management. The Company believes that it is currently in material
compliance with applicable environmental laws and regulations and believes that
it is well positioned to meet anticipated requirements under these laws and
regulations. Although significant capital expenditures and operating costs have
been incurred and will continue to be incurred on account of these laws and
regulations, the Company does not believe, except as otherwise set out herein,
that such environmental laws and regulations have had, or will have, a material
adverse effect on its business. However, the Company cannot predict the impact
of new or changed laws or regulations, including the recently-enacted potash
decommissioning regulations discussed below. The Company anticipates that its
routine expenditures related to environmental matters in 1997 will not differ
materially from the previous year.
 
ENVIRONMENTAL EXPENDITURES
 
Reclamation and Restoration Costs
 
     Site restoration and reclamation costs have been accrued for various sites.
At December 31, 1996, the Company had accrued $35.9 million for the Aurora,
North Carolina facility, $66.7 million for the White Springs, Florida facility,
$27.4 million for the Moab, Utah facility and $16.6 million for various sulfur
facilities. The idle sulfur facilities were part of the acquisition of Texasgulf
and are undergoing dismantlement and environmental restoration efforts. The
current portion of restoration and reclamation accrued in 1996 totalled $4.5
million. These amounts represent the Company's current estimate of potential
site restoration and reclamation costs which were last assessed in November,
1996. The expenditures are generally incurred over an extended period of time.
 
                                      I-12
<PAGE>   14
 
     Annual environmental expenditures for reclamation and restoration during
the year ended December 31, 1996 was $69.9 million. Of this amount, $53.5
million was charged to operations, $6.8 million was capitalized and $9.6 million
was charged against accrued reclamation costs.
 
Capping of By-product Gypsum Stacks
 
     In 1993, the State of Florida passed certain legislation requiring
companies to reduce the potential environmental hazards associated with
accumulations of by-product gypsum (gypsum stacks). The legislation requires
companies to "cap" the gypsum stacks in order to reduce seepage into
groundwater. The procedures are not required until the gypsum stacks are no
longer in use which management currently estimates to be no earlier than the
year 2010. At December 31, 1996, a balance of $34.3 million was included in
accrued reclamation costs for this gypsum stack capping requirement. The
obligations of White Springs regarding the gypsum stacks are guaranteed by PCS.
 
     In North Carolina, on exhaustion of the mine's phosphate reserves,
disposition of the remaining gypsum must comply with the laws in place at that
time.
 
Other Environmental Costs
 
     The Company's estimated operating expenses, other than reclamation and
restoration and gypsum stack capping, relating to compliance with environmental
laws and regulations governing ongoing potash operations, were approximately
$9.5 million for the year ended December 31, 1996.
 
     The Company incurs, at the potash mines which it operates, ongoing and
routine expenditures to maintain the waste salt piles and brine ponds, to
maintain air quality and to meet general environmental objectives.
 
Capital Expenditures
 
     Each year the Company undertakes capital projects to improve the pollution
control facilities at the potash mines which it operates. In 1996, a total of
approximately $2.1 million in capital expenditures was spent to meet the
Company's environmental control objectives at such mines.
 
     PCS Phosphate's capital expenditures with respect to environmental matters
have been primarily related to air emission control, water management, land
reclamation and solid waste disposal. In 1992, PCS Phosphate completed
construction of a $30 million water management system at its Aurora mine and
plant site that the Company believes will address significant water management
issues with respect to both the mine and plant operations for the foreseeable
future. Under the Company's new system of discharge minimization, PCS Phosphate
recycles water used in its slurries and cooling operations, adding new water as
needed.
 
     With respect to air emissions, the Company anticipates that additional
expenditures may be required to meet increasingly stringent U.S. federal and
state regulatory and permit requirements. These requirements include existing
and anticipated regulations under the 1990 amendments to the U.S. federal Clean
Air Act and under state law. In particular, both federal and state regulation of
hazardous air pollutants are expected to require additional pollution control
equipment and increased operating expenditures at some U.S. facilities. The
federal operating permit program is also expected to require the addition of
enhanced emissions monitoring equipment at some facilities, as well as the
imposition of permit fees based upon facility air pollutant emissions. If the
Company undertakes facility expansion at its Aurora and/or White Springs plants,
a federal prevention of significant deterioration permit may be required. This
permit would impose certain restrictions on air pollutant emissions from the
expanded portions of the Aurora and/or White Springs plants.
 
REGULATORY EVALUATION AND REMEDIATION
 
     In addition to environmental regulation of its present operations, the
Company also may incur costs and liabilities in connection with its past and
present waste disposal practices and ownership and operation of real property,
as well as its mining activities. The U.S. federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA") and other U.S.
federal and state laws impose liability
 
                                      I-13
<PAGE>   15
 
on, among others, past and present owners and operators of property at which
hazardous substances have been released into the environment and persons who
arrange for disposal of hazardous substances that are released into the
environment. Liability under these laws may be imposed jointly and severally and
without regard to fault or the legality of the original actions, although such
liability may be divided or apportioned according to various equitable and other
factors. In the course of its present and former operations, including those of
divested businesses, PCS Phosphate and White Springs have generated and the
Company will generate wastes that could result in liability for the Company
under these laws.
 
     A U.S. Environmental Protection Agency ("EPA") contractor conducted a
screening site inspection in November 1989 of a portion of the Aurora facility
in order to determine whether further investigation or cleanup should be
conducted. The contractor's report identified certain pesticide and other
contamination of the soil and potential migration pathways for contamination of
surface water and, to a lesser degree, groundwater, and recommended that the
site be evaluated for cleanup. The Company is not aware of any further action by
EPA or its contractor at this site since the report of this inspection was
issued in March 1991. Another EPA contractor conducted a screening site
inspection in May 1990 on a site that includes the Company's Marseilles,
Illinois facility in order to determine whether further investigation or cleanup
of the site should be conducted. The contractor's report identified certain
contamination of the soil and potential migration pathways for contamination of
groundwater and surface water, but did not make any recommendations for further
action. Illinois Environmental Protection Agency ("Illinois EPA") visited the
site in April 1995. During February 1996, the Company received a CERCLA Site
Inspection Report from Illinois EPA based on the April 1995 visitation.
Officials of the Company were also advised verbally, by the Illinois EPA, that
the site, which included the Marseilles facility, would be given a "no further
action" status. However, the Company has received no written notice of this
status from either EPA or Illinois EPA. The Company does not know if any cleanup
will ultimately be required at these two sites, and consequently is unable to
estimate the total costs of cleanup or its share of such costs if a cleanup is
ordered. During September 1995, an investigation of the Saltville, Virginia
facility was undertaken by EPA in connection with a review of the former
operations of Olin Corporation conducted in and around Saltville. During
October, 1996, the Company received a copy of a Health Consultation for the
Former Hydrazine Plant of Olin Corporation. The only item noted in the
consultation report concerning the former hydrazine plant was the presence of
lead around a tank foundation. The Company plans to analyze the soil at that
tank location and to dispose of, in an appropriate manner, any soil having
elevated levels of lead. The Company has no information indicating that any
cleanup required in connection with the Aurora, Marseilles and Saltville sites
will have a material adverse effect upon the Company's financial condition or
results of operation. Further, the Company believes that if it has any material
liability for such costs, it would have claims against third parties in
connection with such liability. Any such claims would be based on statutory
and/or common law obligations of third parties, such as former owners, occupiers
or disposers.
 
     PCS Phosphate was initially named as a party in two cleanup matters
involving the Colorado School of Mines Research Institute ("CSMRI") in
connection with hazardous substances allegedly generated at some of the former
operations of CSMRI. During May, 1995, Elf (USA) advised EPA that Elf (USA) was
handling the matter on behalf of Texasgulf Inc. and another former Elf (USA)
subsidiary, Texasgulf Metals and Minerals Co. On January 28, 1997, EPA issued a
notice that the required cleanup work at one of the sites had been completed.
 
     PCS Joint Venture and its general partner, Potash Corporation of
Saskatchewan (Florida) Inc. ("PCS Florida"), a wholly-owned subsidiary of the
Company, are subject to various environmental laws of the federal and local
governments in the United States, and from time to time investigations relating
to the enforcement of such laws. Currently, the Florida Department of
Environmental Protection is conducting an investigation into soil and ground
water contamination of a PCS Joint Venture fertilizer plant located in Lakeland,
Florida and certain adjoining property. Assessment of the contamination of the
plant site and of certain adjoining property is continuing. No connection
between the operations of PCS Joint Venture (or its predecessor Florida Favorite
Fertilizer, Inc.) and the contamination has been established. The magnitude of
any liability which PCS Joint Venture and PCS Florida may have regarding the
Lakeland, Florida plant has not yet been determined.
 
                                      I-14
<PAGE>   16
 
     In June 1994, the Georgia Department of Natural Resources, Environmental
Protection Division, wrote to PCS Joint Venture seeking certain environmental
information regarding its Moultrie, Georgia location. In October 1994, an
additional request for information was received from the EPA pursuant to Section
104(e) of the Comprehensive Environmental Response, Compensation and Liability
Act of 1980. Responses to both requests have been provided by PCS Joint Venture.
Based on a preliminary investigation, there appears to be lead-contaminated soil
at the site. However, a complete assessment of the site has not yet been
completed, and the full nature and extent of the contamination cannot be
quantified at this time.
 
     PCS Joint Venture is co-operating with regulatory authorities in their
investigations of the Lakeland and Moultrie sites. It is also attempting to
determine the number and location of other parties who may be liable for
remediation of these sites. However, because site assessments are ongoing and
because other parties may be liable for some or all costs of remediation, the
ultimate liability of PCS Joint Venture has not yet been determined.
 
PERMITS
 
     A significant portion of the Company's phosphate reserves in Aurora, North
Carolina is located in wetlands and, under the U.S. federal Clean Water Act, a
permit must be obtained from the U.S. Army Corps of Engineers (the "Corps")
before mining activity that will disturb the wetlands may occur. As part of the
permit process for PCS Phosphate, the Corps issued a draft Environmental Impact
Statement in January 1994 in which five alternative mine plans of PCS Phosphate
were identified and evaluated for their environmental and other impacts. During
May 1995, the Environmental Impact Statement was supplemented to add a sixth
alternative. All six alternatives would enable mining to continue until 2013 at
a mining rate of 5.4 million tonnes of phosphate rock per year. The cost of
mining varies under each of the alternatives, given the significance of the
costs of transporting the phosphate ore from the mine to the plants and of
transporting gypsum and clay to reclamation areas. By letter dated November 21,
1996, PCS Phosphate requested that the alternative which would disturb the least
amount of wetlands be approved by the Corps and that a permit be issued based on
such alternative. No record of decision or permit has yet been issued by the
Corps.
 
     The Company will be required to reach an agreement with the Corps on a
wetlands mitigation plan as a condition of any wetlands permit at Aurora. The
plan will require the Company to create or restore wetlands to compensate for
the wetlands impacted by its mining activities. The Company has recently
acquired additional land adjacent to its Aurora, North Carolina facilities for
this purpose. In order to demonstrate the feasibility of such activities, as of
December 31, 1996, the Company had created or restored 1,988 acres of wetlands.
 
     The Company does not anticipate that an Aurora wetlands permit will be
issued before the spring of 1997. The Company does not expect to begin mining in
areas covered by a wetlands permit before 2003. The implementation of an
approved mine plan could be further delayed by litigation, administrative appeal
or other factors. If approval from the Corps were to be denied or were to be
substantially delayed, the Company has adequate phosphate reserves in
non-wetlands areas in North Carolina to continue mining until 2003.
 
     In addition to the wetlands permit from the Corps, the Company also needs
additional authorizations from agencies of the State of North Carolina to
continue its mining activities in North Carolina. One of these is a
certification from the State that the mining activities will comply with water
quality standards. The Company is also required to have State mining permits
that contain bonding and reclamation requirements. The Company has a State
mining permit for the areas presently being mined by the Company that is
effective through 2003, but this permit must be amended periodically to add
additional acreage during this period. The Company also holds another mining
permit from the State for the area of the property that is the subject of its
wetlands permit application to the Corps. This State wetlands permit has been
renewed until 2005. No mining activity can occur in the area pending issuance of
all required permits. In addition, approval of renewals and amendments of these
permits are conditional upon a determination by the State's Division of Coastal
Management that the land use is consistent with the applicable county land use
plan.
 
     The failure of the Company to obtain any of the foregoing permits would
materially limit its phosphate mining operations in North Carolina beyond 2003.
 
                                      I-15
<PAGE>   17
 
     Gypsum is a by-product of the production of phosphoric acid. Gypsum is
normally placed in above-ground storage areas called gypsum stacks. The gypsum
stacks at the White Springs Plant will continue to be used and when closed will
be covered or capped to the extent required under applicable regulations.
Although the Company's management believes that it will be in compliance with
Florida's Phosphogypsum Rule and as such should be allowed to continue using its
three gypsum stacks for their useful lives of 40 to 50 years, it is not certain
how long White Springs will be allowed to continue using its gypsum stacks
beyond the year 2001. The rule permits the use of existing gypsum stacks until
they reach capacity, if groundwater standards are met by January 1, 2001. A
regulatory prohibition on use of existing stacks would result in a closure/new
stack construction cost in excess of $100 million.
 
     Lands mined by White Springs after July 1, 1975 and unmined lands used in
the mining operations after July 1, 1984 are subject to mandatory reclamation
requirements of the State of Florida. Wetlands must be reclaimed on an
acre-for-acre basis under the rules of the State of Florida Department of
Environmental Protection ("DEP") unless otherwise provided in, or pursuant to, a
Memorandum of Agreement, dated February 1, 1995, between OxyChem and DEP. The
cost of reclamation of mandatory lands is borne solely by White Springs. The
current practice of White Springs is to return most upland areas to commercial
pine plantation, which is the predominant pre-operation land use. Reclaimed
lands include uplands, wetlands and lakes.
 
     In 1996, White Springs completed a series of federal, state, and local
permitting actions effecting a major change in the regulation of the mining
operation and land reclamation. Pursuant to an agreement with the Florida
Department of Environmental Protection ("FDEP"), White Springs will fund a land
acquisition program for environmentally sensitive lands in the region near its
operations. This concept is referred to as "off-site mitigation". Final approval
of state plans to implement the agreement was granted in 1996, as was a required
modification of existing mining permits from Hamilton County. FDEP's and
Hamilton County's approvals are valid for the life of the operations, and define
operating and reclamation standards for that term. Additional permit revisions
incorporating this change were secured from the Corps for federally-regulated
wetlands mining. The revised Corps permit covers operations through the year
2002. Further Corps permitting will be necessary to apply the off-site
mitigation concept to remaining wetlands. Failure to achieve application of this
concept to additional Corps wetlands would result in higher reclamation costs if
on-site wetlands were required. Failure to secure the required permits under
either on-site or off-site mitigation would negatively affect reserves and
costs.
 
POTASH DECOMMISSIONING REGULATIONS
 
     The environmental regulatory authorities in the Province of Saskatchewan
have enacted regulations to require decommissioning and reclamation plans and
financial assurances with respect to decommissioning by owners and operators of
mines. Discussions between the regulatory authorities and various participants
in the mining industry have continued since 1994. Pursuant to the regulations,
the Company is required to file with the responsible Minister by March 31, 1997
a decommissioning and reclamation plan for each of the Company's mines located
in Saskatchewan. Such plans are subject to approval by the Minister and must
include, among other things, a proposal for financial assurance to ensure
completion of the plan. An approved financial assurance mechanism must be
established by March 31, 1999 or one year following approval of the
decommissioning and reclamation plan, whichever is later. Because of the
uncertainty surrounding the amount and structure of the assurance mechanism, the
Company is unable to accurately estimate the related costs or other financial
implications to the Company.
 
RECENT ACQUISITION OF ARCADIAN CORPORATION
 
     On March 6, 1997, the Company acquired all of the outstanding capital stock
of Arcadian. Arcadian was merged with and into PCS Nitrogen, Inc. under which
name the former Arcadian business now operates. As hereafter used, "PCS
Nitrogen" refers to PCS Nitrogen Inc., its predecessors and and its direct and
indirect subsidiaries unless the context otherwise indicates.
 
                                      I-16
<PAGE>   18
 
GENERAL
 
     PCS Nitrogen is the largest producer and marketer of nitrogen fertilizers
and nitrogen chemicals in the Western Hemisphere. These products are used for
both agricultural and industrial purposes. PCS Nitrogen produces ammonia at six
of its seven domestic plants and in Trinidad. The ammonia is used to produce a
full line of upgraded nitrogen products, including urea, ammonium nitrate,
nitric acid and nitrogen solutions. Ammonia, urea, ammonium nitrate and nitrogen
solutions are sold as fertilizers to agricultural customers and to industrial
customers for various applications, while nitric acid is sold to industrial
customers as an intermediate chemical feedstock. In addition to nitrogen
products, PCS Nitrogen manufactures a variety of phosphate products at one
domestic plant for agricultural and industrial purposes. In 1996, PCS Nitrogen's
sales were divided approximately 60% to agricultural customers and 40% to
industrial customers. PCS Nitrogen's plants ship products to agricultural,
industrial and export customers via barge, rail, truck and ship. The locations
of PCS Nitrogen's plants are Augusta, Georgia; Clinton, Iowa; Geismar,
Louisiana; La Platte, Nebraska; Lima, Ohio; Memphis, Tennessee; Wilmington,
North Carolina; and Point Lisas, Trinidad. In March 1995, PCS Nitrogen
indefinitely shut down production activities at its plant in Savannah, Georgia,
and converted it to a product distribution facility. All of the plants, except
for the Lima and Trinidad plants, were acquired in 1989 in connection with the
formation of Arcadian. The Lima and Trinidad plants were acquired in 1993.
 
     Arcadian was created in 1989 with the acquisition of five previously
separate nitrogen fertilizer businesses. From April 1992 to August 1995,
Arcadian conducted substantially all of its operations through a master limited
partnership, Arcadian Partners, L.P. ("Partners" and together with its
subsidiaries, collectively, "Partnership"). Arcadian created the Partnership and
held a 2% general partner interest and a 43% limited partner interest; a 55%
limited partner interest was represented by publicly traded preference units.
Arcadian effectively acquired all of the preference units of Partners in August
1995.
 
PRODUCT SALES
 
     The historical combined net sales of PCS Nitrogen's principal products for
the periods indicated are set forth in the table below.
 
<TABLE>
<CAPTION>
                                           1996                  1995                  1994
                                     -----------------     -----------------     -----------------
                                                 % OF                  % OF                  % OF
                                                 TOTAL                 TOTAL                 TOTAL
                                       NET        NET        NET        NET        NET        NET
                                      SALES      SALES      SALES      SALES      SALES      SALES
                                     -------     -----     -------     -----     -------     -----
                                                         (MILLIONS OF DOLLARS)
<S>                                  <C>         <C>       <C>         <C>       <C>         <C>
Ammonia...........................   $ 385.5      29.3%    $  341.7     27.0%    $  306.2     27.8%
Urea..............................     351.9      26.8        371.5     29.3        276.6     25.1
Nitric Acid.......................      31.2       2.4         30.3      2.4         25.5      2.3
Ammonium Nitrate..................      79.3       6.1         77.6      6.1         87.7      8.0
Nitrogen Solutions................     324.7      24.7        317.6     25.1        273.9     24.9
Phosphate Products................      97.8       7.4         84.0      6.7         91.0      8.3
Other Products....................      43.6       3.3         44.2      3.4         39.4      3.6
                                                           -------               -------
                                                                -                     -
                                     --------    ------                ------                ------
Total Net Sales...................   $1,314.0    100.0%    $1,266.9    100.0%    $1,100.3    100.0%
                                     ========    ======    ========    ======    ========    ======
</TABLE>
 
MARKETING AND DISTRIBUTION
 
     PCS Nitrogen supplies customers in the major crop producing and fertilizer
consuming areas of the U.S. from its domestic plants which are strategically
located throughout the eastern half of the U.S., giving PCS Nitrogen access to a
strong, diversified crop base and lengthy fertilizer consuming seasons.
Following the acquisition, the marketing functions for PCS Nitrogen will by
handled by PCS Sales, the Company's marketing subsidiaries. PCS Nitrogen's
domestic plants have ready access to major railroads, truck, barge or
 
                                      I-17
<PAGE>   19
 
vessel transportation. At the Geismar plant, PCS Nitrogen also has one of the
few U.S. deep-water direct vessel loading facilities in the industry, which
provides it with ready access to the export market.
 
     The primary customers for fertilizer products are retail chain operators,
dealers, distributors and other fertilizer producers. National farm retail
chains and cooperatives have both distribution and application capabilities. PCS
Nitrogen does not sell products directly to farmers.
 
     PCS Nitrogen distributes its products by barge, railcar and truck to its
customers and through its strategically located storage terminals in high
consumption areas. PCS Nitrogen leases or owns approximately 50 terminal
facilities with an aggregate storage capacity of approximately 600,000 tons of
product. The terminals provide off-season storage and also serve local dealers
during the peak seasonal demand period. PCS Nitrogen operates approximately
1,300 railcars, including various types of specialty railcars necessary for
transporting some of PCS Nitrogen's products.
 
     PCS Nitrogen distributes products from the Trinidad plant to markets in
Latin America, Europe and Africa in addition to the United States. PCS
Nitrogen's distribution operations in Trinidad employ two long-term chartered
ocean-going vessels and utilize spot charters as necessary for the
transportation of ammonia. All bulk urea production is shipped through
third-party carriers.
 
SEASONALITY AND VOLATILITY
 
     The markets for nitrogen and phosphate fertilizers are global commodity
markets. These products generally have no proprietary distinction, and the
markets for PCS Nitrogen's fertilizer products are both seasonal and volatile.
The seasonality of PCS Nitrogen's business is primarily the result of the
agricultural growing season, which imposes the need to build inventories for the
annual peak periods of fertilizer application. The volatility of PCS Nitrogen's
business is the result of a number of factors, including U.S. and foreign public
sector policies (including international trade policies), the number of acres
planted, weather patterns and conditions, the mix and yield of crops planted,
disposable farm income, the level of imports and, as with other global markets,
the relative value of the U.S. dollar. The most important factors for domestic
markets are weather patterns and conditions (particularly during periods of high
fertilizer application) and the agricultural and trade policies of the U.S.
government.
 
     The effects of the seasonality of PCS Nitrogen's fertilizer sales are
offset in part by the sale of approximately 40% of its production for
industrial, rather than agricultural, purposes. The industrial market business
cycles for PCS Nitrogen's products are generally independent of the agricultural
cycles.
 
COMPETITION
 
     Although there has been extensive consolidation and privatization
worldwide, substantial competition exists in the nitrogen fertilizer and
chemical industries. PCS Nitrogen competes domestically with a broad range of
companies in the production and sale of nitrogen fertilizer and chemical
products, including subsidiaries of larger chemical companies, farm
cooperatives, integrated energy companies and independent fertilizer companies.
Because fertilizer is a commodity, competition takes place largely on the basis
of price and delivery. The relative cost of, and availability of transportation
for, raw materials and finished products to manufacturing facilities and markets
are important competitive factors.
 
     PCS Nitrogen also competes with foreign companies whose nitrogen products
are imported into the United States. Although diminishing in number, various
foreign competitors receive subsidies from their governments. Some countries
also have natural gas supplies that are surplus to domestic demand. This surplus
natural gas may have a low alternative value and, when used as feedstock for the
manufacture of ammonia and urea, can result in low-cost production. These
low-cost products are being imported into the U.S. and compete with domestically
manufactured nitrogen fertilizers, including those of PCS Nitrogen. In addition,
other importers subsidized by their governments may import products into the
U.S. for reasons not related to U.S. fertilizer market conditions, such as a
need to obtain U.S. dollars.
 
                                      I-18
<PAGE>   20
 
     PCS Nitrogen believes that its production capacities for each of its
principal nitrogen products are the largest in the Western Hemisphere, and that
its major domestic competitors are Farmland Industries, Inc., CF Industries,
Inc., and Terra Industries Inc.
 
     PCS Nitrogen's domestic plants serve agricultural markets with a
diversified crop base that spans a lengthy growing season. PCS Nitrogen's
domestic manufacturing plants are strategically located in agricultural and
industrial end-use markets in the Southeast, Midwest and Gulf Coast regions. PCS
Nitrogen believes that it is more economical to transport natural gas, the
primary raw material in the production of nitrogen fertilizers and chemicals, to
plants situated in the product markets than to transport such products over long
distances. Several of PCS Nitrogen's domestic plants are located closer to their
primary customers than are their competitors. PCS Nitrogen concentrates its
marketing efforts on these nearby markets where lower transportation costs
result in better margins. The Company believes that the number and geographic
diversity of its plants provide competitive advantages in manufacturing,
distribution, marketing, customer service and other areas when compared to
competitors controlling only a few facilities.
 
RAW MATERIALS
 
     Natural gas is the primary raw material used for the production of ammonia
and, as a result, virtually all of PCS Nitrogen's other nitrogen products. The
purchase and transportation of natural gas accounts for approximately 40% of PCS
Nitrogen's total domestic production cost. PCS Nitrogen's natural gas strategy
is to purchase approximately one-third of its natural gas in the spot market or
on short-term contracts, one-third of its natural gas pursuant to fixed-price
physical contracts, reserves in the ground or forward contracts which fix the
price of future deliveries, and the remaining one-third of its natural gas in
Trinidad using a pricing formula related to the market price of ammonia. PCS
Nitrogen purchases nearly all its natural gas from producers or marketers at the
point of delivery of the natural gas into the pipeline system, then pays the
pipeline company and, where applicable, the local distribution company to
transport the natural gas to PCS Nitrogen's facilities. Approximately 75% of PCS
Nitrogen's domestic consumption of natural gas is delivered pursuant to firm
transportation contracts which do not permit the pipeline or local distribution
company to interrupt service to, or divert natural gas from, the plant.
 
     In addition to nitrogen products, PCS Nitrogen produces phosphate products
at the Geismar plant for which supplies of phosphate rock and sulfur are
necessary. PCS Nitrogen purchases phosphate rock from Morocco pursuant to an
agreement with a Moroccan government-owned company, the current term of which
expires on December 31, 2002, wherein prices are reset annually through
negotiation. If no agreement on price is reached, either party may terminate the
agreement. Changes in the agreement could affect the stability of the supply of
the raw material and the profitability of PCS Nitrogen's phosphate products.
Sulfur is purchased pursuant to a contract that may be cancelled by either party
upon 180 days' notice prior to the end of any month. Both phosphate rock and
sulfur are delivered to the Geismar plant via ship and barge.
 
FACILITIES
 
     PCS Nitrogen manufactures nitrogen products at eight plants, of which seven
are located in the United States and one is located in Trinidad. The following
table sets forth the plant locations and production capabilities:
 
<TABLE>
<CAPTION>
PLANT LOCATIONS                      PRODUCTS PRODUCED
---------------                      -----------------
<S>                                  <C>
Augusta, Georgia...................  Ammonia, urea, nitric acid, ammonium nitrate, and
                                     nitrogen solutions
Clinton, Iowa......................  Ammonia, urea, nitric acid, ammonium nitrate, and
                                     nitrogen solutions
Geismar, Louisiana.................  Ammonia, urea, nitric acid, ammonium nitrate, nitrogen
                                     solutions, phosphoric acid, super-phosphoric acid,
                                     phosphate solutions, and sulfuric acid
LaPlatte, Nebraska.................  Ammonia, urea, nitric acid, ammonium nitrate, and
                                     nitrogen solutions
</TABLE>
 
                                      I-19
<PAGE>   21
 
<TABLE>
<CAPTION>
PLANT LOCATIONS                      PRODUCTS PRODUCED
---------------                      -----------------
<S>                                  <C>
Lima, Ohio.........................  Ammonia, urea, nitric acid, nitrogen solutions, and
                                     ammonium nitrate
Memphis, Tennessee.................  Ammonia and urea
Wilmington, North Carolina.........  Nitric acid, nitrogen solutions, and ammonium nitrate
Point Lisas, Trinidad..............  Ammonia and urea
</TABLE>
 
     PCS Nitrogen leases or owns terminal facilities at approximately 50
locations throughout the southern, southwestern, midwestern and eastern United
States principally for the storage of nitrogen solutions. PCS Nitrogen also
leases office space for its corporate headquarters.
 
SERVICE AGREEMENTS
 
     The Geismar plant is integrated with a larger chemical manufacturing
complex owned by Allied-Signal, Inc. ("Allied"). Under the Geismar Services
Agreement, PCS Nitrogen and Allied provide certain support services to each
other, including the provision of utilities, the discharge of wastewater,
security and emergency services, and other essential services. PCS Nitrogen
believes that most of the services that PCS Nitrogen requires are available from
other sources, if necessary. However, the termination of, or the need to
replace, certain of the services provided (such as steam, well water supply and
dock services) could, in the aggregate, involve potentially significant capital
expenditures, increased operating costs and disruptions to the operations of the
Geismar plant.
 
     BP Chemicals Inc. ("BPC") operates the Lima plant on PCS Nitrogen's behalf
under an operating agreement that can be terminated by either party with one
year notice. PCS Nitrogen's payments to BPC under the operating agreement
generally are intended to approximate BPC's previous cost of operating the Lima
plant and are made through the reimbursement of expenses incurred by BPC in
providing such operating services. In addition, due to the mutual
interdependence of the Lima plant and BPC's operations, PCS Nitrogen and BPC
have agreed to provide each other with certain manufacturing support services at
cost pursuant to a contract extending for as long as the plants continue to
operate and either party is required to provide support services thereunder.
 
     PCS Nitrogen uses contract labor personnel provided by Augusta Service
Company, Inc., which is owned 50% by PCS Nitrogen and 50% by DSM Chemicals North
America, Inc. ("DSM"), to provide purchasing, stores and spare parts management,
maintenance, repair and shipping services for the Augusta plant.
 
PCS NITROGEN LITIGATION
 
DOJ Investigations
 
     In 1993, PCS Nitrogen learned that the Antitrust Division of the Department
of Justice (the "DOJ") had initiated a grand-jury investigation of pricing
practices in the explosives industry. In response to a subpoena issued in that
investigation, PCS Nitrogen produced to the DOJ in 1994 and 1995 documents
concerning ammonium nitrate sold to explosives manufacturers. In late 1996 and
early 1997, PCS Nitrogen learned that the DOJ had begun contacting current and
former PCS Nitrogen employees seeking information concerning PCS Nitrogen's
pricing of ammonium nitrate in 1992. PCS Nitrogen is cooperating fully with the
DOJ investigation and has been informed by the DOJ that, based on currently
available information, neither PCS Nitrogen nor any of its current or former
directors, officers and employees is a target of the investigation. PCS Nitrogen
believes that neither it nor its employees have violated the antitrust laws and
that the DOJ's investigations are unlikely to result in a material adverse
effect on the Company.
 
Lake Charles Plant
 
     In connection with an incident at its Lake Charles plant in 1992, PCS
Nitrogen is contesting penalties proposed by the United States Occupational
Safety and Health Administration ("OSHA") totaling $4.35 million. On February
19, 1997, an administrative law judge of the Occupational Safety and Health
Review Commission issued a decision finding that PCS Nitrogen had committed a
willful violation of the
 
                                      I-20
<PAGE>   22
 
federal Occupational Safety and Health Act and assessing a penalty of $50,000.
PCS Nitrogen plans to appeal the judge's decision. Other phases of the OSHA
proceeding have generally been favorable to PCS Nitrogen. While PCS Nitrogen and
legal counsel anticipate that any civil penalty ultimately paid will be
substantially less than the remaining $4.35 million penalty proposed by OSHA,
they cannot predict with certainty the outcome of the proceeding.
 
     In September 1996, PCS Nitrogen's liability insurers negotiated preliminary
settlements of substantially all of the civil litigation arising from the Lake
Charles incident. The settlements, which in the aggregate are within the policy
limits of PCS Nitrogen's liability insurance, are subject to the negotiation and
execution of definitive settlement agreements and, with respect to the class
action civil litigation, approval as to fairness by the court. There remain
three lawsuits against PCS Nitrogen arising from the incident, which were
brought by former employees at the Lake Charles plant who allege that they were
wrongfully terminated following the incident. Management and legal counsel
believe that these lawsuits are without merit, and that there will be no
material adverse effect on the Company upon their resolution.
 
Port Authority of New York and New Jersey
 
     On March 13, 1996, PCS Nitrogen, two other nitrogen producers, and up to 30
unidentified parties were named as defendants in a lawsuit filed in the name of
the Port Authority of New York and New Jersey (the "Port Authority") in New
Jersey state court. The lawsuit was filed by attorneys hired by the Port
Authority's subrogated insurance carriers. The Port Authority's insurers are
seeking to recover damages allegedly incurred as a result of the explosion at
the World Trade Center in New York City on February 26, 1993. The Port
Authority's insurers allege in their complaint that the two other named
defendants and one or more unidentified parties (as manufacturers of ammonium
nitrate), PCS Nitrogen and one or more unidentified parties (as producers of
urea), and one or more unidentified makers of nitric acid are liable under
various tort theories for unspecified property damages, business interruption
losses, lost rent and other damages allegedly incurred by the Port Authority as
a result of the World Trade Center explosion. The lawsuit was removed to federal
court in New Jersey. On February 7, 1997, the defendants filed a motion to
dismiss the suit for failure to state a claim upon which relief could be
granted. Although neither the Port Authority nor its subrogated insurers have
alleged or otherwise revealed the amount of damages sought from the defendants
in the lawsuit, the Port Authority stated in an affidavit submitted to the court
in support of its motion to disqualify its insurers' counsel that as of April 9,
1996, the Port Authority had submitted to its insurers claims relating to the
explosion totaling approximately $340 million, of which the insurers had paid
approximately $160 million. PCS Nitrogen is unaware of any basis for liability
and intends to vigorously defend the lawsuit.
 
PCS NITROGEN ENVIRONMENTAL MATTERS
 
     The production, distribution and storage of nitrogen and phosphate
fertilizers and chemicals may result in environmental damage. In addition, the
production of fertilizers and chemicals involves the use, handling and
processing of materials that may be considered hazardous within the meaning of
applicable environmental, health and safety laws. PCS Nitrogen believes that the
procedures currently in effect at all of its facilities for the production,
handling and transportation of all materials are consistent with industry
standards and are in general compliance with applicable environmental, health
and safety laws, the violation of which could have a material adverse effect on
the Company.
 
     PCS Nitrogen's operations are subject to extensive and evolving federal,
state and local and certain foreign laws and regulatory requirements relating to
environmental affairs, health and safety, waste management and chemical
products. Permits are required for the operation of PCS Nitrogen's plants and
related facilities, and these permits are subject to revocation, modification
and renewal. Governmental authorities have the power to enforce compliance with
these regulations and permits, and violators are subject to civil and criminal
penalties, including civil fines, injunctions or both. Third parties also may
have the right to pursue legal actions to enforce compliance. Future
developments, such as stricter laws, regulations or enforcement policies
thereunder, could significantly increase the costs of PCS Nitrogen with respect
to the handling, manufacture, use, emission or disposal of substances or wastes
by PCS Nitrogen. Moreover, some risk of environmental costs and liabilities is
inherent in PCS Nitrogen's operations and products, as it is with other
 
                                      I-21
<PAGE>   23
 
companies in the industry, and there can be no assurance that material costs and
liabilities will not be incurred by PCS Nitrogen. PCS Nitrogen's capital
expenditures on projects principally related to environmental control,
remediation and compliance in 1996 were approximately $10 million, and PCS
Nitrogen anticipates expenditures of approximately $11 million for similar
projects during 1997 and $7 million for such projects during 1998. PCS Nitrogen
expects that its capital requirements for environmental projects may increase in
the future due to increasingly stringent environmental regulations arising from
current and future requirements of law.
 
     The federal Clean Air Act Amendments of 1990 ("CAA Amendments") provide for
increased regulation of air emissions, including pollutants that may be
considered toxic within the meaning of the statute, and set forth requirements
for federal air emissions operating permits, applications for which have been
submitted to the relevant state permitting authorities. In addition, several
states, including Louisiana and North Carolina, have adopted or are in the
process of adopting stricter controls on air emissions designated as toxic by
those states, which in certain cases include ammonia. PCS Nitrogen retained an
environmental consulting firm to evaluate the applicability of the CAA
Amendments' requirements to PCS Nitrogen's domestic plants. Based on the results
of the study, PCS Nitrogen will be required to take certain actions to ensure
compliance with the CAA Amendments and related applicable state laws. As the
nature and cost of such actions will be determined as the operating permit
application process for each of its plants proceeds, PCS Nitrogen is currently
not able to estimate the potential costs of such action.
 
     The plant sites on which PCS Nitrogen's production operations are located
have been used for many years. Although PCS Nitrogen has utilized, and believes
that its predecessors generally utilized, operating and disposal practices that
PCS Nitrogen believes complied with industry standards at the time, federal and
state laws relating to the remediation of historical disposal sites have become
more stringent. As a result, to the extent that wastes may have been released or
disposed of at its plant sites, PCS Nitrogen has in the past been, and may in
the future be, required to remediate contaminated property or ground water or
remove previously disposed wastes and address related liabilities.
 
     In connection with certain recent modifications and additions to the
Geismar plant, consultants retained by PCS Nitrogen incorrectly estimated
emissions levels for nitrous oxide ("N0x") associated with such projects. As a
result, preconstruction permit applications required for such projects under the
federal Clean Air Act were not filed by PCS Nitrogen. Pursuant to a consent
order with the Louisiana Department of Environmental Quality ("LDEQ"), such
applications have now been filed, and PCS Nitrogen expects LDEQ to issue
corresponding permits soon. Although PCS Nitrogen is unable to predict with
certainty whether LDEQ will impose N0x emissions controls through such permits,
PCS Nitrogen currently estimates that such controls, if imposed, will require
the expenditure of approximately $750,000.
 
     UAN solutions storage facilities at the Clinton and LaPlatte plants are
subject to recently-issued state secondary containment regulations. These
regulations require the installation of spill prevention and containment
structures and equipment, and the adoption of procedures, to prevent or mitigate
releases of UAN solutions to the environment. Based on currently available
information, PCS Nitrogen expects that it will incur expenditures of $2-2.5
million for each of the Clinton and LaPlatte plants for such purposes. PCS
Nitrogen expects to incur the entire Clinton plant expenditure during 1997,
while the LaPlatte plant expenditure will be incurred over a two-year period
ending in 1998.
 
     In February 1996, the North Carolina Department of Environment, Health and
Natural Resources notified PCS Nitrogen that the Navassa, North Carolina
terminal site had been included on the state's Inactive Hazardous Waste Sites
Priority List. Listed sites normally are subject to detailed assessment of the
environmental condition of concern and the feasible remediation options. PCS
Nitrogen nonetheless currently expects that the cost and liability, if any,
associated with the Navassa terminal site will not have a material adverse
effect on the Company.
 
     In 1991, after extensive environmental assessments, PCS Nitrogen installed
a remediation system at the Memphis plant to address certain contaminants found
in the groundwater. Although the system was installed voluntarily and had been
in operation for over a year, the Tennessee Department of Environment and
Conservation ("TDEC") in 1993 proposed to include the Memphis plant on the
state's list of Inactive
 
                                      I-22
<PAGE>   24
 
Hazardous Substance Sites. The Tennessee Solid Waste Disposal Control Board
rejected a similar proposal made by the TDEC in 1989. Listed sites normally are
subject to detailed assessment of the environmental condition of concern and the
feasible remediation options, but that process may not be fully appropriate as
to the Memphis plant in view of PCS Nitrogen's existing remediation system.
Nevertheless, in 1994, PCS Nitrogen entered into a voluntary consent agreement
and order with the TDEC providing for oversight and possible modification by the
TDEC of PCS Nitrogen's current remedial action, including authority for
requiring assessments of soils associated with PCS Nitrogen's wastewater
treatment system. There can be no assurance that the Memphis plant will not be
listed in the future, but in the event that it is listed, PCS Nitrogen expects
that the compliance costs will not have a material adverse effect on the
Company.
 
     In 1990, PCS Nitrogen implemented a voluntary program to assess groundwater
quality at the Clinton plant due to the presence of nitrates in the groundwater.
PCS Nitrogen provided the results of its investigation to the Iowa Department of
Natural Resources ("IDNR"). Pursuant to negotiations with the IDNR, the Company
will conduct further investigations and, if necessary, remediation. Further, the
Clinton plant site is immediately adjacent to the Chemplex Superfund site at
which groundwater remediation is currently being conducted. Certain volatile
organic compounds associated with the Chemplex site have been detected in small
amounts in the groundwater at the Clinton plant. It is also possible that
remediation activities at the Chemplex site could result in increased levels of
nitrates in groundwater at the Clinton plant. Nonetheless, based on currently
available information, PCS Nitrogen expects that the cost of the further
assessment and any remediation of nitrates will not have a material adverse
effect on the Company.
 
     The Lima plant discharges wastewater to the Ottawa River under a National
Pollutant Discharge Elimination System permit issued by the Ohio Environmental
Protection Agency ("OEPA"). When the permit was renewed in 1989, the OEPA
initially proposed to impose substantial limitations on certain substances
present in the wastewater, based on concerns over the already impaired quality
of the river water as a result of industrial or municipal discharges. The OEPA
later agreed in an administrative settlement to a five-year permit for the Lima
plant with discharge conditions that were more acceptable to the Lima plant's
prior owner, BPC. The permit expired in 1994, was administratively extended and
was renewed by the OEPA in July, 1996, for a shorter than customary term ending
October 31, 1997. While PCS Nitrogen does not expect that substantial additional
discharge restrictions will be imposed in conjunction with the next renewal, the
OEPA may again seek to impose a reduction in the permitted discharge levels.
Such restrictions may require the installation of improved treatment technology,
the cost of which will depend on the limitations ultimately imposed.
 
     DSM, which conducts manufacturing operations immediately adjacent to the
Augusta plant, is subject to certain corrective action requirements under its
Resource Conservation and Recovery Act ("RCRA") hazardous waste management
permit. Pursuant to these requirements, the Georgia Department of Natural
Resources ("GEPD") identified a number of solid waste management units on DSM's
property, including several on property formerly leased from DSM by PCS
Nitrogen, for assessment and potential remediation. During 1996, PCS Nitrogen
purchased the leased land and the GEPD required PCS Nitrogen to enter into a
corrective action consent order for the performance of the assessment and
remediation actions which would have been required of DSM with respect to the
purchased land under its RCRA permit. PCS Nitrogen is preparing a draft
remediation investigation work plan to be submitted to the GEPD providing for
the assessment of the solid waste management units identified by the GEPD at the
Augusta plant. Due to the preliminary nature of the draft work plan and the fact
that it must be approved by the GEPD prior to implementation, PCS Nitrogen is
currently not able to accurately estimate the amount of costs that will be
incurred. Based on currently available information, however, PCS Nitrogen does
not expect that such costs will have a material adverse effect on the Company.
 
     The Parliament of Trinidad and Tobago is considering legislation providing
for the increased regulation of environmental matters. Due to the uncertain and
emerging nature of this legislation and the regulations to be issued thereunder,
PCS Nitrogen is not currently able to accurately predict the impact that such
legislation and associated regulations may have on its operations in Trinidad.
However, PCS Nitrogen does not currently expect that such legislation or
regulations will have a material adverse effect on the Company.
 
                                      I-23
<PAGE>   25
 
PENDING ACQUISITION OF KALI UND SALZ BETEILIGUNGS AKTIENGESELLSCHAFT
 
     On December 6, 1996, PCS entered into an agreement (the "K&S Purchase
Agreement") with Guano-Werke GmbH ("GW"), a wholly-owned subsidiary of BASF
Aktiengesellschaft ("BASF"), under which PCS will purchase 51% of the
outstanding shares (the "K&S Shares") of Kali und Salz Beteiligungs
Aktiengesellschaft ("K&S") from GW for an aggregate purchase price of DM 250
million (approximately $162 million, as at December 31, 1996) (the "K&S
Acquisition"). Upon the closing of the purchase, GW will continue to hold
approximately 25.4% of the outstanding K&S Shares and the remaining 23.6% will
continue to be widely held and publicly traded in Germany. K&S's primary assets
are a 51% interest in Kali und Salz GmbH ("K&S Sub") and a 50% interest in
Potash Company of Canada Limited ("Potacan"). The primary assets of K&S Sub are
its six potash and two salt mines and processing plants in Germany. The primary
assets of Potacan are its potash mine and processing plant in Canada. Wholly
owned subsidiaries of K&S are engaged in the businesses of providing dry solid
waste disposal services and providing transportation and terminalling for
certain bulk commodities. Waste disposal takes place at some of the mines of K&S
Sub and is conducted in compliance with German environmental and other
regulatory requirements. Terminalling services are provided through a terminal
in Hamburg, Germany. As used herein, "DM" means Deutsche Marks.
 
PURCHASE AGREEMENT
 
     The K&S Purchase Agreement provides that GW will sell 2,550,000 K&S Shares
to PCS for a purchase price of DM 250 million to be paid in cash in two
installments consisting of DM 150 million payable at closing and DM 100 million
payable no earlier than one year and no later than three years from closing. In
addition, GW agreed to grant to PCS a call option to purchase the remaining
1,272,789 K&S Shares held by it at any time before January 1, 2000, at a price
of DM 124.8 million and a right of first refusal thereafter to January 1, 2010.
PCS will fund the purchase price of the K&S Shares with cash obtained from
either its existing cash or borrowings.
 
     The K&S Purchase Agreement contains conditions to closing thereunder,
including the obtaining of certain applicable regulatory approvals. BASF and PCS
have each made the necessary filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the waiting period thereunder expired
at midnight on January 12, 1997. Submissions have been made to the Canadian and
German regulatory authorities regarding the proposed transaction and discussions
are continuing with the Canadian authorities. On February 28, 1997 the German
Federal Cartel Office issued an order prohibiting the transaction. PCS and BASF
are preparing and intend to file, as soon as practicable, an application for
authorization from the German Minister of Economics for the transaction to
proceed.
 
     The K&S Purchase Agreement contains certain representations and warranties
made with respect to K&S, K&S Sub and certain other principal operating
subsidiaries, including that, to the best knowledge of GW, (a) any environmental
pollution of the real estate used in the businesses to be acquired, for which
such businesses could be held liable, and (b) any decommissioning costs
applicable to such businesses, under current law or presently required final
operation plans, are covered by enforceable obligations against third parties or
by proper financial statement accruals. The K&S Purchase Agreement also contains
representations and warranties made with respect to K&S, K&S Sub and certain
other principal operating subsidiaries that, to the best knowledge of GW, all
licenses, permits and authorizations necessary to continue such businesses as
currently operated have been obtained. GW has agreed to indemnify PCS for a
period of two years after closing for claims arising out of GW's breaches of its
representations and warranties under the K&S Purchase Agreement. However,
certain environmental claims will be indemnified for a period of five years, and
certain tax claims will be indemnified for a period six months longer than the
applicable statute of limitations.
 
     The financial obligations of GW under the K&S Purchase Agreement are
guaranteed by BASF.
 
                                      I-24
<PAGE>   26
 
DESCRIPTION OF K&S SUB'S BUSINESS
 
German Mining Operations
 
     K&S Sub produces and markets a broad line of fertilizer products compounded
from potassium, magnesium and sulfur. It also produces and markets salt (NaCl).
In 1996, K&S Sub's sales were DM 1375 million, of which 67% was attributable to
sales of muriate of potash and sulphate of potash.
 
Properties
 
     K&S Sub operates two groups of potash and salt mines and processing plants,
the North Group and the Werra Group. The North Group consists of operating mines
and processing plants at Sigmundshall, Zielitz, Bernburg and
Braunschweig-Luneberg and a processing plant at Bergmannsegen-Hugo. The Werra
Group consists of operating mines and processing plants at Wintershall, Hattorf,
Unterbreizbach and Neuhof-Ellers.
 
<TABLE>
<CAPTION>
                                                                       CAPACITY
                                   MINE                          (THOUSAND TONNES/YR)
            --------------------------------------------------   --------------------
            <S>                                                  <C>
            NORTH GROUP
            Sigmundshall......................................          450 K(2)O
            Zielitz...........................................        1,250 K(2)O
            Bernburg..........................................        2,000 NaCl
            Braunschweig -- Luneburg..........................          600 NaCl
            WERRA GROUP
            Wintershall.......................................          600 K(2)O
            Hattorf...........................................          700 K(2)O
            Unterbreizbach....................................          350 K(2)O
            Neuhof -- Ellers..................................          350 K(2)O
</TABLE>
 
Production
 
     K&S Sub extracts ore from its potash mines using conventional underground
drill and blast techniques. The salt mines also utilize various drill and blast
mining methods underground with nearly 50% of the salt production at Bernburg
coming from solution mining caverns. K&S Sub generally operates its mines 24
hours a day, 5 days a week, using 3 shifts, and operates its processing plants
24 hours a day, 7 days a week, using 3 shifts a day.
 
     In the processing plants, saleable products are separated from waste
material by crushing to a fine fraction and then using either electro-static
separation or flotation techniques. In some plants, crystallization circuits are
utilized to improve recovery or produce more refined potassium chloride
products. Finished products are screened to required size ranges and, in some
cases, compactor circuits are utilized to produce a larger size granular product
suitable for bulk blending with other fertilizers.
 
     The collective annual capacity of the operating Werra Group mines and
processing plants is 1.6 million tonnes of potassium chloride, 1.2 million
tonnes of potassium sulfate, 1.3 million tonnes of potassium-magnesium products,
1.1 million tonnes of magnesium sulfate products, 0.2 million tonnes of
magnesium chloride products, and 0.6 million tonnes of sodium chloride.
Production pattern flexibility in the Werra group could permit increases in
annual potassium chloride capacity of 0.5 million tonnes, in annual potassium-
magnesium products capacity of 0.4 million tonnes, and in annual magnesium
sulfate products capacity of 0.2 million tonnes, limited however by the overall
capacity. Thus, an increase in one product may result in a decrease in the
availability of other products. The collective annual capacity of the operating
North Group mines and processing plants is 2.9 million tonnes of potassium
chloride and 2.6 million tonnes of sodium chloride.
 
                                      I-25
<PAGE>   27
 
Reserves
 
     K&S Sub has calculated its ore reserves as of October 1996 for the various
operations as follows:
 
<TABLE>
<CAPTION>
                                                                                         MINE LIFE
                                                                  ORE RESERVES       (YEARS AT CURRENT
MINE                                                            (MILLION TONNES)     PRODUCTION RATES)
----                                                            ----------------     -----------------
<S>                                                             <C>                  <C>
NORTH GROUP
Sigmundshall.................................................           36                   14
Zielitz......................................................          222                   50
Bernburg.....................................................           53                   57
Braunschweig-Luneburg........................................           18                   30
WERRA GROUP
Wintershall..................................................          390                   51
Hattorf......................................................          736                   84
Unterbreizbach...............................................          144                   48
Neuhof-Ellers................................................          170                   57
</TABLE>
 
Marketing
 
     In 1996, European sales of DM 1045 million represented approximately 76% of
K&S Sub's total sales. European sales were primarily to cooperatives, brokers,
compound fertilizer producers, bulk blenders and industrial customers. Offshore
sales were primarily to cooperatives, brokers, compound fertilizer producers,
bulk blenders and industrial customers located in Brazil, India, Indonesia,
Japan, Malaysia, the United States, Columbia and China. In 1996, no one customer
accounted for as much as 10% of K&S Sub's total sales.
 
     In 1996, K&S Sub had approximately 2,800 European customers, with the top
10 (ranked by volume) accounting for 37% of European sales, and had
approximately 260 overseas customers, with the top 10 (ranked by volume)
accounting for 44% of overseas sales. Sales volumes are spread relatively
uniformly over the year, with sales in the first and fourth quarters exceeding
in a minor amount sales in the second and third quarters. Generally, sales are
made on a spot basis, with 90% of European sales and 75% of offshore sales being
made to traditional long-term customers.
 
Distribution and Transportation
 
     K&S Sub ships product from its mines to customers by various means,
including rail, barge, truck and ship. Most offshore sales are handled through
the K&S-owned port facility in Hamburg, Germany. In 1996, 2.7 million tonnes of
potash were exported through Hamburg, 0.5 million tonnes of salt and potash
through Wismar, Germany, to Baltic destinations, and lesser quantities through
the ports of Lubeck and Antwerp. K&S's warehouse capacity for all products,
excluding rock salt, totals approximately 1.7 million tonnes, with approximately
1.0 million tonnes capacity at the mines, approximately 0.3 million tonnes
capacity at the port of Hamburg, approximately 0.2 million tonnes of capacity
elsewhere in Germany, and approximately 0.2 million tonnes of storage elsewhere
in Europe.
 
Competition
 
     Potash is a bulk commodity industry in which production and transportation
costs determine the relative competitiveness of the producers in the various
global regional markets. K&S Sub supplies nearly all of Germany's internal
consumption of potash. In 1996, this represented 20% of its total potash sales.
Western Europe is the most important export market for K&S Sub, representing 42%
of its total potash sales in 1996. K&S Sub competes against indigenous producers
in France and the United Kingdom. Key competitors in Western Europe (ranked in
order of relative share of export sales) in 1996 were located in Israel, Spain,
the United Kingdom, the former Soviet Union, Canada and Jordan. Potash sales
into Asia, particularly India, and into Latin America, particularly Brazil,
represent the other key markets for K&S Sub. In the Indian market,
 
                                      I-26
<PAGE>   28
 
key competitors for K&S Sub are producers from the former Soviet Union, Jordan
and Israel. In the Brazilian market, key competitors for K&S Sub are producers
from Canada, the former Soviet Union and Israel. K&S Sub is most competitive in
its domestic market and in European markets where it enjoys some transportation
cost advantage. Moreover, the European markets are the key markets for the
supply of specialty fertilizers containing potassium, magnesium and sulphur. In
1996, approximately 34% of K&S Sub's potash sales was in the form of potassium
sulphate and other specialty fertilizers, a specialized potassium market in
which there are fewer competitors globally.
 
Employees
 
     At December 31, 1996, K&S directly and through subsidiaries employed 8,846
full-time employees which included 8,431 employees of K&S Sub of which 86
employees worked under part-time contracts.
 
GOVERNMENT OWNERSHIP
 
     In 1993, a reorganization of the German potash industry occurred and K&S
Sub was created. K&S contributed its mines and properties to K&S Sub and
received 51% of its shares. The Treuhandanstalt, a state agency established for
the purpose of privatizing East German industrial activities, contributed the
former East German mines and properties plus DM 1.0 billion to K&S Sub and
received 49% of its shares.
 
     At present, the German federal government, through Beteiligungs --
Management -- Gesellschaft Berlin mbH ("BMGB"), beneficially owns and controls
49% of the shares of K&S Sub. BMGB's shareholder rights are exercised by
Bundesanstalt fur vereinigungsbedingte Sonderaufgaben, as successor to the
Treuhandanstalt.
 
     On May 13, 1993, a shareholders agreement (the "Shareholders Agreement")
was entered into between K&S and the Treuhandanstalt. It contains a five-year
(to December 31, 1997) business plan (the "Business Plan") and reserves to the
shareholders of K&S Sub authority to amend, or approve deviations from, the
Business Plan. It also establishes a special 75% majority with respect to most
matters requiring shareholder approval, including amendments to the Business
Plan, which special majority provision will expire December 31, 1997, except as
described below.
 
     After 1997, and for so long as BMGB and K&S hold, in the aggregate, 75% or
more of the shares of K&S Sub, a shareholders resolution regarding (a) adoption
of annual financial statements, (b) distribution of profits (i.e., dividends),
or (c) establishment of new waste disposal sites requires an affirmative vote of
at least 75% of the shares outstanding.
 
     In addition, while such aggregate shareholding is at least 75%, BMBG is
entitled to nominate one of the five managing directors of K&S Sub and one-half
of the shareholders representatives on the supervisory board of K&S Sub. The
articles of association of K&S Sub provide that until the shareholders'
resolution approving the 1997 financial statements of K&S Sub is adopted, any
transfer of shares of K&S Sub requires the consent of the non-transferring
shareholder. For the period thereafter, the articles of association provide for
a right of first refusal in favor of K&S regarding the sale by BMGB of its
shares.
 
     The Business Plan requires K&S Sub to make investments, repairs and
remediation to existing mines in an aggregate amount exceeding DM 800 million
and to decommission other mines. The Business Plan also provides for a
structured reduction in the size of the K&S Sub workforce through the end of
1997. It establishes projected cash flows through the period and requires the
shareholders to fund K&S Sub in the event that such cash flows are not attained.
The proportionate liability of each shareholder for such funding is determined
according to a formula, but in no case is K&S's share greater than 20% of the
amount required.
 
LITIGATION AND REGULATORY PROCEEDINGS
 
     K&S Sub has been sued for damages for breach of contract and additional
compensation before the Commercial Court of Brussels by Cogepotasse S.A. and
ITEMA S.A., both of which are subsidiaries of Societe Commerciale et de l'Azote
("SCPA"). The claim by Cogepotasse is for 66,141,121 Belgian francs ("BFR"). The
claim by ITEMA is for approximately 1,513,000 BFR. (On September 30, 1996, one
BFR equalled 0.03344 U.S. dollar.) The claims are based on the purported breach
of an exclusive distribution
 
                                      I-27
<PAGE>   29
 
agreement for the territory of Belgium and Luxembourg entered into by
Cogepotasse with the former East German potash export entity Kali-Bergbau. The
Commercial Court has rejected ITEMA's claim entirely and Cogepotasse's claim in
part. K&S Sub has been deemed liable to pay to Cogepotasse the "half gross
profit" realized on the basis of the exclusive distribution right during a
three-year period to be calculated on the average figures of the past three
years. The Commercial Court has appointed an accountant as expert to determine
the profits of Cogepotasse in the past three years and the costs incurred due to
the agreement in order to allow the Commercial Court to calculate the exact
amount to be paid by K&S Sub. K&S has appealed the decision of the Commercial
Court to the Belgian Court of Appeal.
 
     On December 14, 1993, the Commission of the European Communities (the
"European Commission") gave clearance under the European Communities' merger
control rules by allowing the merger of K&S (in which the West German potash
activities were operated) and MdK (in which the East German potash activities
were operated) into K&S Sub, subject to certain conditions. Such conditions have
been fulfilled by K&S Sub. On February 18, 1994, the Republic of France filed a
lawsuit against the European Commission before the European Court of Justice
applying for an annulment of the European Commission's decision of December 14,
1993. On February 25, 1994, SCPA and Enterprise Miniere et Chimique ("EMC")
filed a lawsuit against the European Commission in the European Court of First
Instance in which the plaintiffs applied for a partial revision of the European
Commission's decision with respect to the conditions set out by the European
Commission and the restructuring of Potacan's sales activities. Neither K&S nor
K&S Sub is a party to either lawsuit, although they have intervenor status.
Based on information currently available to it, K&S does not expect either
lawsuit to result in a ruling which will have a material effect on the 1993
decision of the European Commission.
 
     In March 1994, the European Commission implemented an anti-dumping duty on
imports of muriate of potash into the European Communities from Russia, Belarus
and Ukraine. The effect of the duty is to establish minimum prices for the sale
of such imports in the European Communities. Imports of potash from such
countries have been significantly reduced from import levels prior to the
imposition of duties. The European Commission is presently conducting a review
of the existing anti-dumping order. The outcome of the review cannot be
accurately predicted. If, however, the review results in a reduction or
elimination of the minimum price, imports of potash from Russia, Belarus and
Ukraine into the European Communities could increase significantly from current
levels.
 
CANADIAN MINING OPERATIONS
 
     K&S holds 50% of the outstanding shares of Potacan, while the remaining 50%
is held by EMC. Potacan Mining Company ("PMC"), a partnership between Potacan
and a wholly owned subsidiary of Potacan, owns and operates a potash mine and
processing plant in Sussex, New Brunswick, Canada. The mine has an annual
productive capacity of approximately 1.2 million tonnes of potassium chloride
and a proven and probable reserve life in excess of 17 years at current rates of
production. At present, most of the potash produced by PMC is marketed by
Potacan through offices in Toronto and Atlanta. Each of the two shareholders in
Potacan has a right to 50% of the production of PMC and may take such product in
kind upon the delivery of proper notice. In 1996, Potacan's sales were CDN$167.5
million (approximately U.S.$122.2 million based on the exchange rate at December
31, 1996, of CDN$1.00 = U.S.$.7296).
 
     The Potacan shareholder agreement between K&S and EMC provides a right of
first refusal in the event either EMC or K&S intends to sell its shares in
Potacan. BASF has advised PCS that EMC has sought to exercise such right and
that K&S had notified EMC that no sale of Potacan shares is occurring and that
therefore the right of first refusal is not applicable. On November 13, 1996,
EMC initiated an arbitration of the matter pursuant to the terms of the
shareholder agreement.
 
                                      I-28
<PAGE>   30
 
EXECUTIVE OFFICERS OF THE COMPANY
 
     The name, age, period of service and position held of each of the executive
officers of the Company as at February 28, 1997 are as follows:
 
<TABLE>
<CAPTION>
NAME                                AGE    SERVED SINCE    POSITION HELD
----                                ---    ------------    -------------
<S>                                 <C>    <C>             <C>
CHARLES E. CHILDERS..............   64         1987        Chairman of the Board,
                                                           President and Chief Executive Officer
WILLIAM J. DOYLE.................   46         1987        Executive Vice President, Potash and
                                                           Sales
JOHN GUGULYN.....................   61         1987        Senior Vice President, Administration
BARRY E. HUMPHREYS...............   53         1976        Senior Vice President, Finance and
                                                           Treasurer
JAMES J. BUBNICK.................   57         1976        Senior Vice President, Potash Operations
JOHN L.M. HAMPTON................   43         1988        Senior Vice President, General Counsel
                                                           and Secretary
WAYNE R. BROWNLEE................   44         1988        Senior Vice President, Expansion and
                                                           Development
BETTY-ANN HEGGIE.................   43         1981        Senior Vice President, Corporate
                                                           Relations
GARTH W. MOORE...................   48         1982        Senior Vice President, Technical
                                                           Services
PETER BRAUN......................   56         1977        Vice President, Audit
THOMAS J. WRIGHT.................   64         1995        Executive Vice President, PCS Phosphate
</TABLE>
 
     All of the officers have had the principal occupation indicated for the
previous five years except as follows: Mr. Doyle was President of PCS Sales and
located in Chicago, Illinois, prior to becoming Executive Vice President of the
Company in 1995; Mr. Wright was President and Chief Operating Officer of
Texasgulf from 1988 to 1993 and President and Chief Executive Officer from 1993
to April 1995; and on April 27, 1995, Mr. Hampton, Mr. Brownlee, Ms. Heggie, and
Mr. Moore were promoted from Vice President to Senior Vice President, and Mr.
Braun was promoted from Director, Internal Audit, to Vice President.
 
ITEM 3.  LEGAL PROCEEDINGS
 
AGREEMENT SUSPENDING POTASH DUMPING INVESTIGATION
 
     In March 1987, the U.S. International Trade Commission made a preliminary
determination that there was a reasonable indication that the U.S. potash
producers had been injured by imports of Canadian potash, assuming that Canadian
potash had been "dumped" into the U.S. market at less than "fair value". On
August 26, 1987, the U.S. Department of Commerce ("Commerce") determined on a
preliminary basis that Canadian potash was, or was likely to be, sold in the
United States at less than "fair value".
 
     On January 8, 1988, Commerce signed a suspension agreement with all of the
potash producers in Canada, suspending the dumping investigation by Commerce.
The agreement stipulates that each producer's minimum price for potash sold in
the United States is to be based upon a formula determined by Commerce for each
producer that is designed to limit any dumping by that producer in the future.
Compliance with the agreement is monitored by Commerce. The agreement can be
terminated without termination of the suspended investigation if Commerce
determines that sales are made below the price determined under the formula,
producers having 15% or more of the total Canadian volume or value exported into
the United States withdraw from the agreement, or the conditions of the
agreement are otherwise not being met, in which case the suspended investigation
could be resumed by Commerce.
 
CIVIL ANTITRUST COMPLAINTS
 
     In June, 1993, the Company and PCS Sales were served with a complaint
relating to a suit filed in the United States District Court for Minnesota
against most North American potash producers, including the Company. The
complaint alleged a conspiracy among the defendants to fix the price of potash
purchased by the plaintiffs as well as potash purchased by the members of a
class of certain purchasers proposed by the plaintiffs. The complaint sought
treble damages in an unspecified amount and other relief. Similar complaints
 
                                      I-29
<PAGE>   31
 
were filed in the United States District Courts for the Northern District of
Illinois and the Western District of Virginia. On motion of the defendants, all
of the complaints were transferred and consolidated for pre-trial purposes in
the United States District Court for Minnesota. Amended complaints were filed in
March and April 1994. On January 12, 1995, the Minnesota Federal Court granted
the plaintiffs' motion for class certification. Merits discovery was completed
in September 1995. Expert discovery was completed in November 1995. The Company
and PCS Sales filed a motion for summary judgment on December 22, 1995. On
January 2, 1997, Judge Richard H. Kyle issued an order granting the motions for
summary judgment and dismissing the lawsuit. The plaintiffs appealed that order
to the United States Court of Appeals for the Eighth Circuit, on January 31,
1997.
 
     Additional complaints were filed in the California and Illinois State
Courts on behalf of purported classes of indirect purchasers of potash in those
states. The Company moved to dismiss the California State Court lawsuit for lack
of personal jurisdiction and the court ruled that it does not have personal
jurisdiction over PCS but that it does have personal jurisdiction over PCS
Sales. The case remains at an early stage; no merits discovery has taken place.
The Illinois State Court dismissed the Illinois State Court complaint for
failure to state a cause of action. The Illinois plaintiff appealed that
dismissal and that dismissal was affirmed by the Appellate Court of Illinois on
November 27, 1996. On January 15, 1997 the appellate court denied the
plaintiff's request for rehearing. The plaintiff has the right to petition the
Supreme Court of Illinois to review the Appellate Court's decision.
 
FTC INVESTIGATION
 
     PCS Phosphate received a letter dated October 2, 1995 from the Federal
Trade Commission requesting certain information concerning its phosphate
operations in connection with a non-public investigation being conducted by its
Bureau of Competition. The investigation is described in the letter as being
made in order to determine whether manufacturers of concentrated phosphates may
have engaged in or are engaging in practices prohibited under the Federal Trade
Commission Act. The Company cooperated in the investigation and responded to the
government's requests for information. On November 21, 1996, an official of the
Bureau of Competition advised the Company that the investigation had been
closed.
 
BFI, INC. LITIGATION
 
     On May 20, 1995 a complaint was filed by OxyChem against Bienville Forest
Investments, Inc. ("BFI, Inc.") seeking conveyance of 365 acres of land from
BFI, Inc., pursuant to an option to purchase reclaimed lands. BFI, Inc.
counterclaimed against OxyChem seeking damages arising from alleged trespass,
nuisance, interference with business relationships and fraud. BFI, Inc. also
requested that the court require OxyChem to convey certain properties to BFI,
Inc. that had been previously deeded by BFI, Inc. to OxyChem. White Springs
moved to intervene as a party and the court granted the motion. BFI, Inc. has
argued that the option is unenforceable on grounds including: (i) the option
allegedly constitutes an unreasonable restraint on alienation or a violation of
the rule against perpetuities; and (ii) enforcement allegedly is barred by the
statute of limitations, by the doctrine of laches, or by estoppel. White Springs
has similar options with respect to approximately 25,000 additional acres of
land in which BFI, Inc., and/or its affiliates, has an interest. On August 22,
1996, White Springs, BFI, Inc. and Glawson Investments Corp., a BFI, Inc.
affiliate ("Glawson"), signed a Settlement Agreement and a Letter of Intent for
Operating Agreement. The agreements settle the dispute among the parties thereto
as to current and future land ownership and use. The agreements also release
White Springs from claims occurring after October 30, 1995, but do not release
claims that occurred while OxyChem owned White Springs. Under the agreements,
White Springs did not agree to release any of its rights to mine on any
property; however, White Springs released future rights to purchase property in
the Suwannee River mining area while acquiring the right to purchase immediately
property in the Swift Creek mining area, and White Springs agreed to exchange
with BFI, Inc. and Glawson certain properties, to make their respective holdings
more nearly contiguous. White Springs was formally dismissed from the BFI, Inc.
litigation on December 16, 1996.
 
                                      I-30
<PAGE>   32
 
PCS NITROGEN LEGAL MATTERS
 
     See Recent Acquisition of Arcadian Corporation -- PCS Nitrogen Litigation.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
 
     Not Applicable.
 
                                      I-31
<PAGE>   33
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
     The information under "Common Share Prices and Volumes" in the registrant's
1996 Annual Report is incorporated herein by reference.
 
ITEM 6.  SELECTED FINANCIAL DATA.
 
     The information under "Selected Ten-Year Data" in the registrant's 1996
Annual Report is incorporated herein by reference.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
 
     The information under "Manager's Discussion and Analysis of Financial
Condition and Results of Operations" in the registrant's 1996 Annual Report is
incorporated herein by reference.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
     The consolidated financial statements and notes thereto in the registrant's
1996 Annual Report are incorporated herein by reference.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
     None.
 
                                      II-1
<PAGE>   34
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
     The information under "Election of Directors" in the Proxy Circular for the
Annual Meeting of Shareholders in 1997 is incorporated herein by reference.
Information concerning executive officers is set forth under "Executive Officers
of the Company" in Part I.
 
ITEM 11.  EXECUTIVE COMPENSATION.
 
     The information under "Executive Compensation" in the Proxy Circular for
the Annual Meeting of Shareholders in 1997 is incorporated herein by reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
     The information under "Ownership of Shares by Directors and Executive
Officers" and "Election of Directors" in the Proxy Circular for the Annual
Meeting of Shareholders in 1997 is incorporated herein by reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
     The information under "Election of Directors" and "Executive Compensation"
in the Proxy Circular for the Annual Meeting of Shareholders in 1997 is
incorporated herein by reference.
 
                                      III-1
<PAGE>   35
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
 
(a) Lists of Documents Filed as Part of this Report
 
1. Financial Statements in Annual Report
 
<TABLE>
<S>                                                                                   <C>
Auditors' Report....................................................................
Consolidated Statements of Financial Position.......................................
Consolidated Statements of Income and Retained Earnings.............................
Consolidated Statements of Cash Flow................................................
Notes to the Consolidated Financial Statements......................................
</TABLE>
 
2. Schedules
 
     All Schedules are omitted because the required information is inapplicable
or it is presented in the Consolidated Financial Statements or the notes
thereto.
 
3. Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT NUMBER                               DESCRIPTION OF DOCUMENT
--------------    -----------------------------------------------------------------------------
<S>               <C>
 
2(a)              Agreement and Plan of Merger dated September 2, 1996, as amended, by and
                  among the registrant, Arcadian Corporation and PCS Nitrogen, Inc,
                  incorporated by reference to Exhibit 2(a) to Amendment Number 2 to the
                  registrant's Form S-4 (File No. 333-17841).
 
3(i)              Restated Articles of Incorporation of the registrant dated October 31, 1989,
                  as amended May 11, 1995, incorporated by reference to Exhibit 3(i) to the
                  registrant's report on Form 10-K for the year ended December 31, 1995 (the
                  "1995 Form 10-K").
3(ii)             Bylaws of the registrant dated March 2, 1995, incorporated by reference to
                  Exhibit 3(ii) to the 1995 Form 10-K.
 
4                 Term Credit Agreement between The Bank of Nova Scotia and other financial
                  institutions and the registrant dated October 4, 1996, incorporated by
                  reference to Exhibit 4(b) to the registrant's Form S-4 (File No. 333-17841).
 
The registrant hereby undertakes to file with the Securities and Exchange Commission, upon
request, copies of any constituent instruments defining the rights of holders of long-term debt
of the registrant or its subsidiaries that have not been filed herewith because the amounts
represented thereby are less than 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis.
 
10(a)             Suspension Agreement concerning Potassium Chloride from Canada dated January
                  7, 1988, among U.S. Department of Commerce, Potash Corporation of
                  Saskatchewan, International Minerals and Chemical (Canada) Limited, Noranda,
                  Inc. (Central Canada Potash Co.), Potash Company of America, a Division of
                  Rio Algom Limited, S & P Canada, II (Kalium Chemicals), Cominco Ltd., Potash
                  Company of Canada Limited, Agent for Denison-Potacan Potash Co. and Saskterra
                  Fertilizers Ltd., incorporated by reference to Exhibit 10 (a) to the
                  registrant's Form F-1 (File No. 33-31303) (the "F-1 Registration Statement").
 
10(b)             Sixth Voting Agreement dated April 22, 1978, between Central Canada Potash,
                  Division of Noranda, Inc., Cominco Ltd., International Minerals and Chemical
                  Corporation (Canada) Limited, PCS Sales and Texasgulf Inc., incorporated by
                  reference to Exhibit 10(f) to the F-1 Registration Statement.
</TABLE>
 
                                      IV-1
<PAGE>   36
 
<TABLE>
<CAPTION>
EXHIBIT NUMBER                               DESCRIPTION OF DOCUMENT
--------------    -----------------------------------------------------------------------------
<S>               <C>
10(c)             Canpotex Limited Shareholders Seventh Memorandum of Agreement effective April
                  21, 1978, between Central Canada Potash, Division of Noranda Inc., Cominco
                  Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS
                  Sales, Texasgulf Inc. and Canpotex Limited as amended by Canpotex S & P
                  amending agreement dated November 4, 1987, incorporated by reference to
                  Exhibit 10(g) to the F-1 Registration Statement.
 
10(d)             Producer Agreement dated April 21, 1978, between Canpotex Limited and PCS
                  Sales, incorporated by reference to Exhibit 10(h) to the F-1 Registration
                  Statement.
 
10(e)             Agreement of Limited Partnership of Arcadian Fertilizer, L.P. (now PCS
                  Nitrogen Fertilizer, L.P.) dated as of March 3, 1992 (form), and the related
                  Certificate of Limited Partnership of Arcadian Fertilizer L.P., filed with
                  the Secretary of State of the State of Delaware on March 3, 1992
                  (incorporated by reference to Exhibits 3.1 and 3.2 to Arcadian Partners
                  L.P.'s Registration Statement on Form S-1 (File No. 33-45828)).
 
10(f)             Geismar Complex Services Agreement dated June 4, 1984, between Allied
                  Corporation and Arcadian Corporation (incorporated by reference to Exhibit
                  10.4 to Registration Statement on Form S-1 (Registration No. 33-34357)).
 
10(g)             PCS Sales -- Saskterra Special Canpotex Entitlement effective June 13, 1990,
                  incorporated by reference to Exhibit 10(n) to the registrant's Form S-1 (File
                  No. 33-36283).
 
10(h)             Canpotex/PCS Amending Agreement, dated with effect October 1, 1992,
                  incorporated by reference to Exhibit 10(f) to the 1995 Form 10-K.
 
10(i)             Canpotex PCA Collateral Withdrawing/PCS Amending Agreement, dated with effect
                  October 7, 1993, incorporated by reference to Exhibit 10(g) to the 1995 Form
                  10-K.
 
10(j)             Esterhazy Restated Mining and Processing Agreement dated January 31, 1978,
                  between International Minerals and Chemical Corporation (Canada) Limited and
                  the registrant's predecessor, incorporated by reference to Exhibit 10(e) to
                  the F-1 Registration Statement.
 
10(k)             Agreement dated December 21, 1990, between International Minerals & Chemical
                  Corporation (Canada) Limited and the registrant, amending the Esterhazy
                  Restated Mining and Processing Agreement dated January 31, 1978, incorporated
                  by reference to Exhibit 10(p) to the registrant's report on Form 10-K for the
                  year ended December 31, 1990.
 
10(l)             Operating Agreement dated May 11, 1993, between BP Chemicals Inc. and
                  Arcadian Ohio, L. P., as amended by the First Amendment to the Operating
                  Agreement dated as of November 20, 1995, between BP Chemicals Inc. and
                  Arcadian Ohio, L. P. ("First Amendment") (incorporated by reference to
                  Exhibit 10.2 to Arcadian Partners L. P.'s current report on Form 8-K for the
                  report event dated May 11, 1993 ("Partners 5/11/93 Report"), except for the
                  First Amendment which is incorporated by reference to Arcadian Corporation's
                  report on Form 10-K for the year ended December 31, 1995 ("Arcadian 10-K")).
 
10(m)             Manufacturing Support Agreement dated May 11, 1993, between BP Chemicals Inc.
                  and Arcadian Ohio, L. P. (incorporated by reference to Exhibit 10.3 to the
                  Partners 05/11/93 Report).
 
10(n)             Agreement dated October 13, 1995 between the registrant and Charles E.
                  Childers, incorporated by reference to Exhibit 10(j) to the 1995 Form 10-K.
 
10(o)             Potash Corporation of Saskatchewan Inc. Stock Option Plan -- Directors,
                  incorporated by reference Exhibit 4(a) to the registrant's Form S-8 (File No.
                  333-19215) (the "Form S-8").
</TABLE>
 
                                      IV-2
<PAGE>   37
 
<TABLE>
<CAPTION>
EXHIBIT NUMBER                               DESCRIPTION OF DOCUMENT
--------------    -----------------------------------------------------------------------------
<S>               <C>
10(p)             Potash Corporation of Saskatchewan Inc. Stock Option Plan -- Officers and Key
                  Employees, incorporated by reference to Exhibit 4(b) to the Form S-8.
 
10(q)             Short Term Incentive Plan of the registrant, effective January 1, 1995.
 
10(r)             Long-Term Incentive Plan of the registrant, as amended December 15, 1995,
                  incorporated by reference to Exhibit 10(n) to the 1995 Form 10-K.
 
10(s)             Resolution and Forms of Agreement for Supplemental Retirement Income Plan,
                  for officers and key employees of the registrant, as incorporated by
                  reference to Exhibit 10(o) to the 1995 Form 10-K.
 
10(t)             Forms of Agreement dated December 30, 1994, between the registrant and
                  certain officers of the registrant, concerning a change in control of the
                  registrant, incorporated by reference to Exhibit 10(p) to the 1995 Form 10-K.
 
10(u)             Form of Agreement of Indemnification dated August 8, 1995, between the
                  registrant and certain officers and directors of the registrant, incorporated
                  by reference to Exhibit 10(q) to the 1995 Form 10-K.
 
10(v)             Deferred Compensation Plan, for certain officers of PCS Phosphate Company,
                  Inc, incorporated by reference to Exhibit 10(r) to the 1995 Form 10-K.
 
10(w)             Supplemental Retirement Benefits Plan, for eligible employees of PCS
                  Phosphate Company, Inc., incorporated by reference to Exhibit 10(s) to the
                  1995 Form 10-K.
 
10(x)             Second Amended and Restated Membership Agreement dated January 1, 1995, among
                  Phosphate Chemicals Export Association, Inc. and members of such association,
                  including Texasgulf Inc. (now PCS Phosphate Company, Inc.), incorporated by
                  reference to Exhibit 10(t) to the 1995 Form 10-K.
 
10(y)             International Agency Agreement dated January 1, 1995, between Phosphate
                  Chemicals Export Association, Inc. and Texasgulf Inc. (now PCS Phosphate
                  Company, Inc.) establishing Texasgulf Inc. as exclusive marketing agent for
                  such association's wet phosphatic materials, incorporated by reference to
                  Exhibit 10(u) to the 1995 Form 10-K.
 
10(z)             General Partnership Agreement forming Albright & Wilson Company, dated July
                  29, 1988 and amended January 31, 1995, between Texasgulf Inc. (now PCS
                  Phosphate Company, Inc.) and Albright & Wilson Americas, Inc., incorporated
                  by reference to Exhibit 10(v) to the 1995 Form 10-K.
 
10(aa)            Royalty Agreement dated October 7, 1993, by and between the registrant and
                  Rio Algom Limited, incorporated by reference to Exhibit 10(x) to the 1995
                  Form 10-K.
 
10(bb)            Amending Resolution and revised forms of agreement regarding Supplemental
                  Retirement Income Plan of the registrant, incorporated by reference to
                  Exhibit 10(x) to the registrant's report on Form 10-Q for the quarterly
                  period ended June 30, 1996 (the "Second Quarter Form 10-Q").
</TABLE>
 
                                      IV-3
<PAGE>   38
 
<TABLE>
<CAPTION>
EXHIBIT NUMBER                               DESCRIPTION OF DOCUMENT
--------------    -----------------------------------------------------------------------------
<S>               <C>
10(cc)            Employment Agreement dated May 16, 1996, by and between PCS Phosphate
                  Company, Inc. and Thomas J. Wright, incorporated by reference to Exhibit
                  10(y) to the Second Quarter Form 10-Q.
 
10(dd)            Shareholders Rights Agreement dated November 10, 1994, as amended on March
                  28, 1995, and May 4, 1995, and approved the shareholders on May 11, 1995,
                  incorporated by reference to Exhibit 4(a) to the 1995 Form 10-K.
 
11                Statement re Computation of Per Share Earnings.
 
13                1996 Annual Report.
 
21                Subsidiaries of the Registrant.
 
23                Consent of Deloitte & Touche.
 
27                Financial Data Schedule.
</TABLE>
 
(b) No reports on Form 8-K were filed by the registrant during the last quarter
of 1996.
 
                                      IV-4
<PAGE>   39
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                    POTASH CORPORATION OF SASKATCHEWAN, INC.
 
                                    By: /s/ CHARLES E. CHILDERS
                                       -------------------------------------
                                       Charles E. Childers
                                       Chief Executive Officer
                                       March 26, 1997
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
              SIGNATURE                               TITLE                         DATE
              ---------                               -----                         ----
 
<C>                                    <S>                                     <C>
       /s/ CHARLES E. CHILDERS         Chairman of the Board, President and    March 26, 1997
-------------------------------------  Chief Executive Officer
         Charles E. Childers
 
       /s/ BARRY E. HUMPHREYS          Sr. Vice President, Finance and         March 26, 1997
-------------------------------------  Treasurer (Principal Financial and
         Barry E. Humphreys            Accounting Officer)
       /s/ ISABEL B. ANDERSON          Director                                March 26, 1997
-------------------------------------
         Isabel B. Anderson
 
        /s/ DOUGLAS J. BOURNE          Director                                March 26, 1997
-------------------------------------
          Douglas J. Bourne
 
          /s/ DENIS J. COTE            Director                                March 26, 1997
-------------------------------------
            Denis J. Cote
 
        /s/ WILLIAM J. DOYLE           Director                                March 26, 1997
-------------------------------------
          William J. Doyle
 
   /s/ HON. WILLARD Z. ESTEY, Q.C.     Director                                March 26, 1997
-------------------------------------
     Hon. Willard Z. Estey, Q.C.
 
         /s/ DALLAS J. HOWE            Director                                March 26, 1997
-------------------------------------
           Dallas J. Howe
 
        /s/ JAMES F. LARDNER           Director                                March 26, 1997
-------------------------------------
          James F. Lardner
</TABLE>
 
                                      IV-5
<PAGE>   40
 
<TABLE>
<CAPTION>
              SIGNATURE                               TITLE                         DATE
              ---------                               -----                         ----
 
<C>                                    <S>                                     <C>
 
       /s/ DONALD E. PHILLIPS          Director                                March 26, 1997
-------------------------------------
         Donald E. Phillips
 
         /s/ PAUL SCHOENHALS           Director                                March 26, 1997
-------------------------------------
           Paul Schoenhals
 
         /s/ DARYL K. SEAMAN           Director                                March 26, 1997
-------------------------------------
           Daryl K. Seaman
 
    /s/ E. ROBERT STROMBERG, Q.C.      Director                                March 26, 1997
-------------------------------------
      E. Robert Stromberg, Q.C.
 
          /s/ JACK G. VICQ             Director                                March 26, 1997
-------------------------------------
            Jack G. Vicq
 
        /s/ BARRIE A. WIGMORE          Director                                March 26, 1997
-------------------------------------
          Barrie A. Wigmore
 
          /s/ PAUL S. WISE             Director                                March 26, 1997
-------------------------------------
            Paul S. Wise
</TABLE>
 
                                      IV-6
<PAGE>   41
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT NUMBER                              DESCRIPTION OF DOCUMENT
--------------   ------------------------------------------------------------------------------
<S>              <C>
 
2(a)             Agreement and Plan of Merger dated September 2, 1996, as amended, by and among
                 the registrant, Arcadian Corporation and PCS Nitrogen, Inc, incorporated by
                 reference to Exhibit 2(a) to Amendment Number 2 to the registrant's Form S-4
                 (File No. 333-17841).
3(i)             Restated Articles of Incorporation of the registrant dated October 31, 1989,
                 as amended May 11, 1995, incorporated by reference to Exhibit 3(i) to the
                 registrant's report on Form 10- K for the year ended December 31, 1995 (the
                 "1995 Form 10-K").
 
3(ii)            Bylaws of the registrant dated March 2, 1995, incorporated by reference to
                 Exhibit 3(ii) to the 1995 Form 10-K.
 
4                Term Credit Agreement between The Bank of Nova Scotia and other financial
                 institutions and the registrant dated October 4, 1996, incorporated by
                 reference to Exhibit 4(b) to the registrant's Form S-4 (File No. 333-17841).
 
10(a)            Suspension Agreement concerning Potassium Chloride from Canada dated January
                 7, 1988, among U.S. Department of Commerce, Potash Corporation of
                 Saskatchewan, International Minerals and Chemical (Canada) Limited, Noranda,
                 Inc. (Central Canada Potash Co.), Potash Company of America, a Division of Rio
                 Algom Limited, S & P Canada, II (Kalium Chemicals), Cominco Ltd., Potash
                 Company of Canada Limited, Agent for Denison-Potacan Potash Co. and Saskterra
                 Fertilizers Ltd., incorporated by reference to Exhibit 10(a) to the
                 registrant's Form F1 (File No. 33-31303) (the "F-1 Registration Statement").
 
10(b)            Sixth Voting Agreement dated April 22, 1978, between Central Canada Potash,
                 Division of Noranda, Inc., Cominco Ltd., International Minerals and Chemical
                 Corporation (Canada) Limited, PCS Sales and Texasgulf Inc., incorporated by
                 reference to Exhibit 10(f) to the F-1 Registration Statement.
 
10(c)            Canpotex Limited Shareholders Seventh Memorandum of Agreement effective April
                 21, 1978, between Central Canada Potash, Division of Noranda Inc., Cominco
                 Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS
                 Sales, Texasgulf Inc. and Canpotex Limited as amended by Canpotex S & P
                 amending agreement dated November 4, 1987, incorporated by reference to
                 Exhibit 10(g) to the F-1 Registration Statement.
 
10(d)            Producer Agreement dated April 21, 1978, between Canpotex Limited and PCS
                 Sales, incorporated by reference to Exhibit 10(h) to the F-1 Registration
                 Statement.
 
10(e)            Agreement of Limited Partnership of Arcadian Fertilizer, L.P. (now PCS
                 Nitrogen Fertilizer, L.P.) dated as of March 3, 1992 (form), and the related
                 Certificate of Limited Partnership of Arcadian Fertilizer L.P., filed with the
                 Secretary of State of the State of Delaware on March 3, 1992 (incorporated by
                 reference to Exhibits 3.1 and 3.2 to Arcadian Partners L.P.'s Registration
                 Statement on Form S-1 (File No. 33-45828)).
 
10(f)            Geismar Complex Services Agreement dated June 4, 1984, between Allied
                 Corporation and Arcadian Corporation (incorporated by reference to Exhibit
                 10.4 to Registration Statement on Form S-1 (Registration No. 33-34357).
 
10(g)            PCS Sales -- Saskterra Special Canpotex Entitlement effective June 13, 1990,
                 incorporated by reference to Exhibit 10(n) to the registrant's Form S-1 (File
                 No. 33-36283).
 
10(h)            Canpotex/PCS Amending Agreement, dated with effect October 1, 1992,
                 incorporated by reference to Exhibit 10(f) to the 1995 Form 10-K.
 
10(i)            Canpotex PCA Collateral Withdrawing/PCS Amending Agreement, dated with effect
                 October 7, 1993, incorporated by reference to Exhibit 10(g) to the 1995 Form
                 10-K.
</TABLE>
 
                                      IV-7
<PAGE>   42
 
<TABLE>
<CAPTION>
EXHIBIT NUMBER                              DESCRIPTION OF DOCUMENT
--------------   ------------------------------------------------------------------------------
<S>              <C>
10(j)            Esterhazy Restated Mining and Processing Agreement dated January 31, 1978,
                 between International Minerals and Chemical Corporation (Canada) Limited and
                 the registrant's predecessor, incorporated by reference to Exhibit 10(e) to
                 the F-1 Registration Statement.
 
10(k)            Agreement dated December 21, 1990, between International Minerals & Chemical
                 Corporation (Canada) Limited and the registrant, amending the Esterhazy
                 Restated Mining and Processing Agreement dated January 31, 1978, incorporated
                 by reference to Exhibit 10(p) to the registrant's report on Form 10-K for the
                 year ended December 31, 1990.
 
10(l)            Operating Agreement dated May 11, 1993, between BP Chemicals Inc. and Arcadian
                 Ohio, L.P., as amended by the First Amendment to the Operating Agreement dated
                 as of November 20, 1995, between BP Chemicals Inc. and Arcadian Ohio, L.P.
                 ("First Amendment") (incorporated by reference to Exhibit 10.2 to Arcadian
                 Partners L.P.'s current report on Form 8-K for the report event dated May 11,
                 1993 ("Partners 5/11/93 Report"), except for the First Amendment which is
                 incorporated by reference to Arcadian Corporation's report on Form 10-K for
                 the year ended December 31, 1995 ("Arcadian 10-K")).
 
10(m)            Manufacturing Support Agreement dated May 11, 1993, between BP Chemicals Inc.
                 and Arcadian Ohio, L.P. (incorporated by reference to Exhibit 10.3 to the
                 Partners 05/11/93 Report).
 
10(n)            Agreement dated October 13, 1995 between the registrant and Charles E.
                 Childers, incorporated by reference to Exhibit 10(j) to the 1995 Form 10-K.
 
10(o)            Potash Corporation of Saskatchewan Inc. Stock Option Plan -- Directors,
                 incorporated by reference Exhibit 4(a) to the registrant's Form S-8 (File No.
                 333-19215) (the "Form S-8").
 
10(p)            Potash Corporation of Saskatchewan Inc. Stock Option Plan -- Officers and Key
                 Employees, incorporated by reference to Exhibit 4(b) to the Form S-8.
 
10(q)            Short Term Incentive Plan of the registrant, effective January 1, 1995.
 
10(r)            Long-Term Incentive Plan of the registrant, as amended December 15, 1995,
                 incorporated by reference to Exhibit 10(n) to the 1995 Form 10-K.
 
10(s)            Resolution and Forms of Agreement for Supplemental Retirement Income Plan, for
                 officers and key employees of the registrant, incorporated by reference to
                 Exhibit 10(o) to the 1995 Form 10-K.
 
10(t)            Forms of Agreement dated December 30, 1994, between the registrant and certain
                 officers of the registrant, concerning a change in control of the registrant,
                 incorporated by reference to Exhibit 10(p) to the 1995 Form 10-K.
 
10(u)            Form of Agreement of Indemnification dated August 8, 1995, between the
                 registrant and certain officers and directors of the registrant, incorporated
                 by reference to Exhibit 10(q) to the 1995 Form 10-K.
 
10(v)            Deferred Compensation Plan, for certain officers of PCS Phosphate Company,
                 Inc, incorporated by reference to Exhibit 10(r) to the 1995 Form 10-K.
 
10(w)            Supplemental Retirement Benefits Plan, for eligible employees of PCS Phosphate
                 Company, Inc., incorporated by reference to Exhibit 10(s) to the 1995 Form
                 10-K.
 
10(x)            Second Amended and Restated Membership Agreement dated January 1, 1995, among
                 Phosphate Chemicals Export Association, Inc. and members of such association,
                 including Texasgulf Inc. (now PCS Phosphate Company, Inc.), incorporated by
                 reference to Exhibit 10(t) to the 1995 Form 10-K.
</TABLE>
 
                                      IV-8
<PAGE>   43
 
<TABLE>
<CAPTION>
EXHIBIT NUMBER                              DESCRIPTION OF DOCUMENT
--------------   ------------------------------------------------------------------------------
<S>              <C>
10(y)            International Agency Agreement dated January 1, 1995, between Phosphate
                 Chemicals Export Association, Inc. and Texasgulf Inc. (now PCS Phosphate
                 Company, Inc.) establishing Texasgulf Inc. as exclusive marketing agent for
                 such association's wet phosphatic materials, incorporated by reference to
                 Exhibit 10(u) to the 1995 Form 10-K.
 
10(z)            General Partnership Agreement forming Albright & Wilson Company, dated July
                 29, 1988 and amended January 31, 1995, between Texasgulf Inc. (now PCS
                 Phosphate Company, Inc.) and Albright & Wilson Americas, Inc., incorporated by
                 reference to Exhibit 10(v) to the 1995 Form 10-K.
 
10(aa)           Royalty Agreement dated October 7, 1993, by and between the registrant and Rio
                 Algom Limited, incorporated by reference to Exhibit 10(x) to the 1995 Form
                 10-K.
 
10(bb)           Amending Resolution and revised forms of agreement regarding Supplemental
                 Retirement Income Plan of the registrant, incorporated by reference to Exhibit
                 10(x) to the registrant's report on Form 10-Q for the quarterly period ended
                 June 30, 1996 (the "Second Quarter Form 10-Q").
 
10(cc)           Employment Agreement dated May 16, 1996, by and between PCS Phosphate Company,
                 Inc. and Thomas J. Wright, incorporated by reference to Exhibit 10(y) to the
                 Second Quarter Form 10-Q.
 
10(dd)           Shareholders Rights Agreement dated November 10, 1994, as amended on March 28,
                 1995, and May 4, 1995, and approved by shareholders on May 11, 1995,
                 incorporated by reference to Exhibit 4(a) to the 1995 Form 10-K.
 
11               Statement re Computation of Per Share Earnings.
 
13               1996 Annual Report.
 
21               Subsidiaries of the Registrant.
 
23               Consent of Deloitte & Touche.
 
27               Financial Data Schedule.
</TABLE>
 
                                      IV-9