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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 333-15789
CHEMFIRST INC.
(Exact name of Registrant as specified in its charter)
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MISSISSIPPI 64-0679456
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 NORTH STREET, P. O. BOX 1249
JACKSON, MISSISSIPPI 39215-1249
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (601) 948-7550
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Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, Par Value $1 New York Stock Exchange
Common Stock, Purchase Rights
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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 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]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 18, 1999 (based on the closing sale price of $21.5625
of the Registrant's Common Stock, as reported on the New York Stock Exchange
Composite Tape on such date) was approximately $367,698,585.
The number of shares of the Registrant's Common Stock outstanding as of
March 18, 1999 is 18,360,735.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain information required to be disclosed in this Form 10-K is
incorporated by reference to the Company's 1998 Annual Report to Stockholders
and the Company's definitive Proxy Statement for the May 25, 1999 annual meeting
of stockholders. The location of the incorporated information is as follows:
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PART I OF FORM 10-K LOCATION IN ANNUAL REPORT
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Item 1. Business...................................... Notes 2 and 12 in Financial Review Insert
PART II OF FORM 10-K
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Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................... p. 12
Item 6. Selected Financial Data....................... p. 2
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... Financial Review Insert
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk................................... See Management's Discussion and Analysis
of Financial Condition and Results of
Operations in Financial Review Insert
Item 8. Financial Statements and Supplementary Data... Financial Review Insert
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LOCATION IN DEFINITIVE
PART III OF FORM 10-K PROXY STATEMENT
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Item 10. Directors and Executive Officers of the
Registrant.................................... pp. 4-7; 10-12
Item 11. Executive Compensation........................ pp. 10; 11; 13-21
Item 12. Security Ownership of Certain Beneficial
Owners and Management......................... pp. 2; 3; 8-10
Item 13. Certain Relationships and Related
Transactions.................................. p. 17
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PART I
ITEM 1. BUSINESS
GENERAL
The principal businesses of ChemFirst Inc. (the "Company") involve the
production of electronic and other specialty chemicals for use in the
semiconductor industry and in agricultural, pharmaceutical, polymer,
photographic and photosensitive applications, as well as the production of
polyurethane chemicals. The Company has reclassified the engineered products and
services operation and the steel operation as discontinued operations pending
disposition of these businesses. It is anticipated that the disposition of the
engineered products and service business will take place during 1999. The
Company also plans to divest the steel business in 1999, although adverse
industry conditions have hampered this effort.
At March 1, 1999, the Company had 1,087 employees, which includes employees
of the parent company and all subsidiaries.
Recent History
The Company was incorporated in Mississippi in 1983 under the name Omnirad,
Inc., as a wholly-owned subsidiary of First Mississippi Corporation ("First
Mississippi"). In November 1996, in anticipation of the Distribution (as defined
below), the Company's name was changed from Omnirad, Inc. to ChemFirst Inc. On
December 23, 1996 (the "Distribution Date"), First Mississippi contributed all
of its assets and subsidiaries, other than those relating to its fertilizer
business, to the Company, which at that time was a wholly owned subsidiary of
First Mississippi and had engaged in no activities during the previous five
years. First Mississippi then spun off the Company in a tax-free distribution of
the Company's common stock to First Mississippi shareholders (the
"Distribution") on the Distribution Date. The Distribution occurred immediately
prior to and in connection with the merger of First Mississippi with a wholly
owned subsidiary of Mississippi Chemical Corporation on December 24, 1996,
pursuant to an Agreement and Plan of Merger and Reorganization dated as of
August 27, 1996. The Company has operated as a publicly held entity since the
Distribution Date. Prior to the Distribution Date, the Company's subsidiaries
were subsidiaries of First Mississippi and the Company's operations were
conducted through subsidiaries of First Mississippi.
Recent Developments
On December 31, 1997, the Company acquired the acylation derivatives
business of Clariant Corporation. This business is conducted through TriQuest,
L.P., a limited partnership in which the Company owns an 87.5% interest, with
the remaining 12.5% interest owned by former members of Clariant Corporation's
acylation derivatives management group who are also employees of TriQuest. This
acylation derivatives business is involved in the development and marketing of
derivatives of 4-hydroxyacetophenone for deep ultraviolet ("DUV") photoresist
resin applications for advanced integrated circuits with line geometries of 0.25
microns and below and for polymer additives and specialty adhesives. Also on
December 31, 1997, the Company acquired certain chemical mechanical
planarization ("CMP") assets of Baikowski International Corporation, a
subsidiary of Baikowski Chimie, SA, and the CMP assets of Moyco Technologies,
Inc. and its affiliate, Sweet Pea Technologies, Inc. The acquisition of these
CMP assets provided the Company with an entrance into the CMP market, which
includes mechanical polishing of silicon wafers utilizing a slurry of abrasives
and chemicals to produce a flatter surface for shorter wavelength lithography.
Acylation derivatives and CMP are included in the Company's Electronic and Other
Specialty Chemicals segment.
On January 22, 1998, the Company sold its 50% interest in Power Sources,
Inc. ("PSI") to Trigen Energy Corporation ("Trigen") for approximately $20.0
million. As of January 21, 1999, there are contingencies specified in the
purchase and sale agreement with Trigen that could result in the Company
refunding as much as $750,000 of the proceeds referenced above, and accordingly,
the Company has classified these proceeds as deferred revenue pending resolution
of the contingencies. The Company no longer has an ownership interest in PSI.
The Company's disposition of its interests in PSI and the planned disposition of
the
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engineered products and services business and the steel business is in
furtherance of the Company's strategy to focus on chemicals.
Forward-Looking Statements
In addition to historical information, this Form 10-K contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements, as well as other
forward-looking statements made from time to time by the Company in the
Company's press releases, Annual Report to Stockholders and other filings with
the U.S. Securities and Exchange Commission, are based on certain underlying
assumptions and expectations of management. These forward-looking statements are
subject to risks and uncertainties which could cause actual results to differ
materially from those expressed in such forward-looking statements. Such risks
and uncertainties include, but are not limited to, general economic conditions,
availability and pricing of raw materials, supply/demand balance for key
products, new product development, manufacturing efficiencies, product demand by
key customers, the timely completion and start-up of construction projects, the
timing and completion of the Company's anticipated sale of the engineered
products and services business and the disposition of the steel business,
pricing pressure as a result of the continued downturn in Asian and other
international markets, successful installation of the new company-wide
Enterprise Resource Planning system to integrate the Company's information
systems, the inability of the Company to either resolve the Company's Year 2000
issues or to accurately estimate the costs associated with Year 2000 compliance,
the resolution of contingencies related to the sale of Power Sources, Inc.,
insurance coverage related to hurricane damage to the Company's Pascagoula
facility and other factors as may be discussed herein.
The following contains further discussion of the Company's business and
properties as grouped by its Electronic and Other Specialty Chemicals segment
and its Polyurethane Chemicals segment. Financial information regarding the
Company's segments, which includes sales, pretax operating results and
identifiable assets, is provided in Note 12 of the Consolidated Financial
Statements, incorporated by reference. Also discussed below is information
regarding the Company's engineered products and services business and steel
business which are reported as discontinued operations in anticipation of the
disposition of these operations. As used in this report, the term "Company"
includes subsidiaries of the registrant.
ELECTRONIC AND OTHER SPECIALTY CHEMICALS
General
The Company's Electronic and Other Specialty Chemicals segment produces
specialty chemicals for use by others in electronic, agricultural,
pharmaceutical, polymer and photosensitive applications. These chemicals are
typically produced by multi-step batch processing. These products are sold both
on specification and performance and must typically be qualified for use by the
customer in addition to meeting certain specifications. The chemicals in this
segment are sold in smaller volumes and have a higher value added component than
those associated with the polyurethane chemicals. Another commonality of the
chemicals sold in this segment is the Company's focus on applied research.
Whereas the primary focus for many of the Company's customers in this segment is
on basic discovery, much of the Company's focus is on development of products
and processes for our customers' next generation semiconductors, pharmaceutical,
agricultural or consumer products. These chemicals are produced at facilities in
Hayward, California, East Kilbride, Scotland, Pascagoula, Mississippi, Tyrone,
Pennsylvania and Dayton, Ohio.
Purchasers of electronic chemicals, who are typically end-users, acquire
the product to achieve a specific performance objective. As with the other
specialty chemicals, these chemicals have very specific uses, although the
customer base is often larger than for other specialty chemicals. The production
and sale of these chemicals are labor intensive and are usually dependent on
highly technical proprietary formulae and a sophisticated, well-trained
applications engineering staff. The Company's electronic chemicals are used in
the semiconductor and related industries. These chemicals include organic
post-metal cleaning solutions which remove photoresist and dry-etch residue
during the manufacture of semiconductors, post-dry-etch polymer removers, deep
ultraviolet resins for production of photoresists, and other performance
chemicals and
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materials for cleaning and polishing silicon wafers in semiconductor
manufacturing. The Company's electronic and other specialty chemicals accounted
for approximately 59%, 60% and 61% of the Company's consolidated sales for 1998,
1997 and 1996, respectively.
Most of the Company's other specialty chemicals are sold to a narrow base
of customers, which are either end-users or producers of performance chemicals.
Because of their specialized, complex molecular structure, these products are
designed for specific end-use for one or two customers and significant technical
service is expected by the customer. The key to successful production of these
specialty chemicals is identifying the markets for the product and developing a
chemical synthesis production route and process. These chemicals are sold as
intermediates to other specialty chemical producers and to agricultural,
electronic, pharmaceutical, polymer and cosmetics companies for use in
herbicides, a plant growth regulator, plastic curatives, cosmetics, protease
inhibitors, rubber processing chemicals, optical brighteners, dyestuffs and
pigments, and photoinitiators. The Company makes substantial sales of a
herbicide ingredient to one manufacturer under an agreement that will expire in
2002.
The Company owns and operates electronic chemical manufacturing facilities
in Hayward, California and East Kilbride, Scotland. The Company's 65,000 square
foot California facility includes offices, research and development labs and
manufacturing and packaging facilities. The California facility currently
utilizes approximately 70% of production capability on a one-shift, five-day
basis. During 1998, the Company completed an expansion and improvement project
at its 26,300 square-foot Scotland facility. The Scotland facility currently
utilizes approximately 80% of available production capability on a one-shift,
five-day basis. Utilization is expected to drop to about 40% within several
months when full capacity and expected operating efficiencies from the 1998
expansion are brought fully online. Thus, the Company has substantial capacity
to expand production. The Company leases office and applications engineering lab
space in Kawasaki City, Japan to provide marketing and technical support for the
Japanese electronic chemical markets, and also leases an applications laboratory
in Phoenix, Arizona for the development of CMP products.
The Company produces specialty chemicals manufactured to the specifications
and performance criteria of its customers ranging from gram to commercial
manufacturing quantities. These multifunctional manufacturing facilities enable
the Company to perform multi-step batch and continuous processing of specialties
and custom production of complex fine chemicals. The Company has versatile
facilities that use numerous reactors capable of producing custom fine chemicals
in quantities ranging from the very small amounts needed for initial product
testing, through pilot plant production of developmental quantities and
continuing through commercial production. Although historically customers have
purchased relatively small quantities of certain specialty chemicals, primarily
for their new product development and market testing, recently the sale of
commercial quantities of product has increased significantly as the trend to
outsource strengthens. Companies involved in the mass production of chemically
based agricultural, pharmaceutical and consumer products often find it expensive
and inefficient to manufacture small quantities of the complex chemicals
required for new product development or products with limited markets. By
providing a versatile array of manufacturing capabilities, related services and
capacity to a number of such companies, the Company achieves economies of scale
and is able to manufacture certain fine specialty chemicals more economically
and timely than they can be manufactured by its customers. As a result,
customers can reduce the time to market and capital exposure associated with the
manufacture and marketing of their new developmental products and are able to
better utilize and focus their own manufacturing capacity and research and
development abilities.
The Company produces specialty and electronic chemicals at Tyrone,
Pennsylvania, Dayton, Ohio and Pascagoula, Mississippi. All of these facilities
are owned by the Company. Annual production capacity at the Tyrone facility is
between 4.5 million and 6.0 million pounds, depending on the product mix and the
type of processing required. Production in 1998 was approximately 6.0 million
pounds. During 1998, the Company completed an expansion at the Dayton facility
for the production of DUV photoresist resins. The Dayton facility also includes
a cGMP (current Good Manufacturing Practices) pilot plant for scale-up work and
production of small quantities of fine and pharmaceutical chemicals. Annual
production capacity at Dayton is between 1.5 million and 2.0 million pounds
depending on the product mix and the type of processing required. Production in
1998 was approximately 1.0 million pounds. Specialty chemical production
capacity at Pascagoula is between 70 million and 80 million pounds, depending on
the product mix and the processing
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required. Production at this facility was approximately 61 million pounds during
1998. At these sites, the Company has differentiated itself by its capacity to
manufacture electronic and/or other specialty chemicals using multi-step batch
processing combined with the capability to produce specialty chemicals through
continuous process technology. In addition, the Company outsources the
manufacture of selected small volume chemicals.
Marketing and Sales
Electronic chemicals are marketed domestically and internationally in
Europe and the Pacific Rim. The California facility serves North America and the
Pacific Rim, and the Scotland facility serves the European community. These
chemicals are distributed in gallon, liter, returnable drum or large volume
dedicated containers. In Japan, the Company's electronic chemicals are
repackaged from bulk containers into returnable containers by the Company's
Japanese distributor. In late 1998, the Japanese distributor began toll
manufacturing select Company products for distribution in Japan. A majority of
the Company's electronic chemicals are sold through its internal sales force
although the Company utilizes independent sales representatives as well.
The Company's other specialty chemicals are marketed globally. Most of
these chemicals are sold by purchase order or short-term agreements although the
Company has long-term contracts with a number of its largest customers. A
significant amount of these chemical sales are to three customers under
long-term contracts. These chemicals sales are made primarily through the
Company's internal sales force. Most of these specialty chemicals are sold in
drums. Exported product is shipped in ocean-going tankers, iso-containers or
drums to European, Japanese and South American markets. Domestic shipments are
typically by truck.
Raw Materials
The primary raw materials for the manufacture of electronic chemicals
include free-base hydroxylamine, diglycolamine, N-methylpyrrolidone and alumina
powders. With the exception of hydroxylamine, raw materials are generally
available in adequate quantities from several suppliers, subject to market
variation in price. Hydroxylamine is currently available from one supplier,
located in Japan. The Company is seeking an additional source of hydroxylamine
and is currently evaluating samples supplied by another manufacturer. The supply
of 4-hydroxyacetophenone, a primary raw material for the Company's acylation
derivatives business, is available from a single source under a long-term
contract.
Primary raw materials for the production of its other specialty chemicals
include hydrogen, hydrogen peroxide, caustic, toluene, ethyl
trifluoroacetoacetate, 2-Fluorophenylhydrazine, o-aminophenol, formaldehyde,
ethanol and natural gas. These raw materials are obtained from a number of
different sources. The Company does not believe that any one source for raw
materials used in the production of these chemicals is material to the Company's
business.
Competition
The Company is one of the largest producers of post-metal cleaning
solutions for semiconductor production. Although there are approximately 12
companies participating in this market worldwide, only the Company and three
others have significant market share for advanced and post-metal cleaning
solutions required by the current state of the art semiconductor and related
industries. Competition is based on service, product performance, quality,
product development capabilities and cost of ownership. The Company has entered
into a cross-licensing agreement with a major competitor whereby the Company
licenses its HDA(TM) (hydroxylamine) patented etch residue remover technology.
The agreement results from a patent infringement complaint brought by the
Company against the competitor in federal court. The agreement allows the
competitor to continue to market its products which utilize the Company's
hydroxylamine technology, but provides for the Company to receive a royalty and
license fee. The Company has approximately five U.S. and four foreign patents
regarding its HDA(TM) technology. The earliest of these patents expires in 2011.
Regarding CMP, the oxide slurry market is dominated by two other companies, with
the larger company holding a 90%
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market share. In the tungsten slurry market, the Company is now the third
largest supplier for this application. The Company is one of the largest
suppliers of products to the global DUV photoresist resin market.
The Company competes domestically and internationally with numerous
producers of specialty chemicals. Major competitors are both smaller and larger
companies. Competition is fierce and is based on service, quality, manufacturing
capabilities and expertise in batch chemical production, research and
development capabilities and price. The Company's large batch manufacturing
sites allow it the flexibility and breadth of service to meet a wide variety of
customer needs, including the ability to provide gram and multi-ton quantities
in either cGMP (current Good Manufacturing Practices) or ISO-9000 manufacturing
environments.
Seasonality of Business
Generally, electronic and other specialty chemical sales are not seasonal
and working capital requirements do not vary significantly from period to
period.
POLYURETHANE CHEMICALS
General
The Company produces aniline and nitrobenzene by a continuous production
process at its facilities in Pascagoula, Mississippi and Baytown, Texas. Unlike
electronic and other specialty chemicals, these chemicals generally require
additional processing steps and chemical reactions to produce the end product
used by consumers and are primarily sold under long-term contracts.
Typically, polyurethane chemicals are more sensitive to the business cycle
and the cost of raw materials than are most electronic and specialty chemicals,
although the Company's sales contracts provide protection from fluctuation in
raw material price for most of the aniline sold. These chemicals are typically
sold in large volumes to industrial customers that purchase on the basis of
product specifications. The key to successful production of these chemicals is
efficient chemical conversion of large quantities of raw materials and
productive use of plant capacity. Providing technical services to customers is
generally less important than for specialty products.
The Company's manufacturing facility in Pascagoula is supported by storage,
rail, truck, barge and ship distribution facilities. The Pascagoula facility
utilizes nitration technology and a proprietary process for continuous
hydrogenation. The annual polyurethane chemical production capacity at the
facility is between 315 million and 350 million pounds depending on the products
being produced. Production of polyurethane chemicals at the Pascagoula facility
during 1998 was approximately 335 million pounds, which was lower than planned
because of production problems during the first half of the year and a hurricane
during the third quarter.
In 1996, the Company entered into a long-term agreement with Bayer
Corporation ("Bayer") to build, own and operate a world scale nitrobenzene and
aniline facility at Bayer's Baytown, Texas chemical complex to supply Bayer's
MDI (methylene diphenyl diisocyantate) manufacturing operations. Phase I of the
facility, with a design capacity of 250 million pounds, was completed in 1998
and is now operating near design capacity. If a potential Phase II to the
facility is constructed, it would add another 250 million pounds of capacity. A
majority of the Company's current aniline production from the Pascagoula
facility is sold to Bayer under a long-term contract. If Phase II of the Baytown
facility is constructed, Bayer may terminate this contract and take requirements
from the Baytown facility.
Aniline is the Company's largest volume product. The Company is among the
largest merchant marketers of aniline in the U.S. Most of the aniline produced
in the U.S. is used to manufacture MDI. MDI's primary end-use is in rigid
polyurethane foam, an insulation material that is widely used in residential and
commercial construction. MDI is also used in the manufacture of impact-resistant
plastic that is used as a replacement for metal in automobile parts such as
bumpers, where flexibility and impact resistance are important. Aniline's other
primary applications are in the production of an antioxidizing (anti-cracking)
agent used in the manufacture of synthetic rubber and in a widely used herbicide
for corn and soybeans.
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Polyurethane chemicals accounted for approximately 41%, 40% and 39% of the
Company's consolidated sales for 1998, 1997 and 1996, respectively.
Nitrobenzene is used to make aniline and is also sold separately for the
manufacture of pharmaceuticals, rubber and agricultural chemicals.
Marketing and Sales
The Company's polyurethane chemicals are sold primarily in the U.S. Most
chemicals produced in this segment are sold under long-term contracts to a
number of customers. The Company's internal sales force accounts for essentially
all of the sales in this segment. These products are generally sold in bulk.
Domestic shipments are by barge, rail or tank trucks and exports are shipped in
ocean-going tankers, iso-containers or drums.
Raw Materials
Benzene, which is a principal raw material for polyurethane chemicals
production, is a readily available commodity by-product of oil refining. Like
most commodities, the price of benzene is subject to fluctuation. Benzene prices
are affected by the demand for a variety of products, principally including
styrene and phenolic resins. The Company is protected from fluctuations in raw
material prices under the contracts in which most of its aniline production is
sold. The remainder of its production is sold under short-term contracts or
purchase orders at prices that generally reflect its actual raw material cost.
Other significant raw materials include ammonia and natural gas. The Company
purchases ammonia at market prices. The Company purchases natural gas in the
spot market for use in producing the hydrogen necessary for its manufacturing
processes. This gas is transported into the Pascagoula plant through an
interstate pipeline. Prices paid by the Company for natural gas are affected by
the degree of interruptibility of the gas supply.
Competition
The Company is one of five major U.S. producers of aniline, with
approximately 25% of domestic capacity and an estimated 7.5% of world capacity.
Major competitors are large chemical companies. Competition for the products
produced in this segment is based on price, service, quality, marketing and
research and development support capabilities.
Seasonality of Business
Generally, the Company's polyurethane chemical sales are not seasonal and
working capital requirements do not vary significantly from period to period.
COMPANY RESEARCH AND DEVELOPMENT
The Company conducts research and development to improve existing products,
to develop and produce new specialty and performance chemicals and to develop
and improve production processes. The Company spent approximately $10.7 million,
$5.3 million and $5.8 million on research and development in 1998, 1997 and
1996, respectively. Research facilities include laboratories, pilot plant and
semi-works for process research and development with gram to multi-pound sample
production capabilities. The Company maintains a radiation curing applications
laboratory in Pascagoula to evaluate new products and provide customer technical
support. The Company's electronic chemicals applications engineering and
research and development labs in California, Texas, Scotland and Japan are
strategically located near key regional semiconductor production centers,
enabling applications engineers to work closely with customers to develop unique
chemical solutions to semiconductor manufacturing needs and to test
developmental products. The Company continues to focus research efforts on
developing new and improved electronic chemicals, including remover products,
CMP and DUV resins. The Company also sponsors applied research at leading
universities in the U.S. and the U.K. These closely directed programs have led
to the development and introduction of proprietary technology in electronic and
other specialty chemicals. In addition, the Company has entered into a joint
development
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arrangement with an industry consortium to develop advanced products to meet
future semiconductor manufacturing technology.
COMPANY PATENTS
The Company owns, or is licensed under, a number of patents, patent
applications and trade secrets covering its products and processes. The Company
believes that, in the aggregate, the rights under such patents and licenses are
important to its operations, but, with the exception of the HDA(TM) etch residue
remover patents referenced above, does not consider any patent, or license, or
group thereof related to a specific process or product, to be of material
importance when viewed from the standpoint of the Company's total business.
ENVIRONMENTAL CONSIDERATIONS
Company operations are subject to a wide variety of environmental laws and
regulations governing emissions to the air, discharges to water sources, and the
handling, storage, treatment and disposal of waste materials, as well as other
laws and regulations concerning health and safety conditions. The Company holds
a number of environmental permits and licenses regulating air emissions, water
discharges and hazardous waste disposal and, to the best of its knowledge, is in
material compliance with such requirements at all locations. The Company makes
capital and other expenditures in a continuing effort to comply with
environmental laws and regulations, or changing interpretations of existing laws
and regulations. The Company's environmental capital expenditures for 1998 were
$0.2 million. Projected environmental capital expenditures for 1999 and 2000 are
$1.4 million and $1.1 million, respectively. While these expenditures are
necessary to comply with environmental laws and regulations, they may also
reduce operating expenses and improve efficiencies.
The Company monitors and participates in the environmental regulatory
development process which assists it in evaluating new laws and regulations. The
Company does not anticipate a material increase in expenses related to current
environmental regulations, but because federal and state environmental laws and
regulations are constantly changing, the Company is unable to predict their
future impact.
The Company has received notices from the U.S. Environmental Protection
Agency or similar state agencies that it has been deemed a potentially
responsible party ("PRP") under Superfund or a comparable state statute at
several sites and, thus, may be liable for a share of the associated remediation
cost. It is difficult to estimate the Company's ultimate liability relating to
these sites due to several uncertainties such as, but not limited to, the method
and extent of remediation, the percentage of material attributable to the
Company at the site relative to that attributable to other parties, and the
financial capabilities of the other PRPs. Based on currently available
information, however, the Company does not believe that its future liability at
these sites will be material to its financial condition, results of operations,
cash flow or competitive position.
DISCONTINUED OPERATIONS
Following is a brief discussion of the Engineered Products and Services
business and the Steel business, both of which are reported as discontinued
operations in anticipation of being divested.
ENGINEERED PRODUCTS AND SERVICES
The Company has announced plans to dispose of the Engineered Products and
Services business and it has been classified as a discontinued operation. The
Company anticipates that the disposition should be completed during 1999. This
business principally includes the development and marketing of proprietary
equipment and systems for industrial applications. These include design and
production of low-emission burners, flares, incinerators and thermal plasma
equipment. Raw materials and components for these operations are available from
numerous vendors. The businesses are not considered materially seasonal. This
business is operated primarily through the Company's subsidiary Callidus
Technologies Inc.
Principal products and services are custom designed and fabricated
gas/liquid incinerators, flares, solid waste systems, vapor recovery units,
burners and thermal plasma heating systems. The Company also provides
engineering and consulting services for environmental and combustion
applications.
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The Company markets these products and services worldwide to refining,
petrochemical, chemical, pharmaceutical, wood products and other industries
requiring disposal of gas, liquid and solid wastes. Marketing is primarily
through a combination of manufacturers' representatives and company personnel.
The market is well established but growing through advancements of existing
technology, driven primarily by increasingly strict environmental regulations
both in the U.S. and abroad. Competition is based on a wide variety of factors,
with the most prominent being price, technological innovation and delivery
schedule. The Company competes with the John Zink Company, which has a
significant share of the burner, flare and vapor recovery markets. Numerous
competitors exist in the gas and liquids incineration market. Primary
competition in the solid waste systems market comes from alternative
technologies. The Company is affected by a variety of factors beyond its
control, including governmental control of environmental standards and
compliance deadlines, competitor pricing strategies and changing technology; any
one of which could impact operating results. The Company leases office space in
Tulsa, Oklahoma, owns a manufacturing and test facility in Beggs, Oklahoma and
has leased foreign offices in Belgium, England, France, Germany and Japan.
STEEL
The Company's Steel business is operated through its subsidiary, FirstMiss
Steel, Inc. This operation is conducted through a 400,000 square-foot steel
melting and production facility in Hollsopple, Pennsylvania, which is
approximately 100 miles east of Pittsburgh. As previously noted, the Company
plans to divest the steel business. These efforts have been hampered by adverse
industry conditions. The Company leases the land on which the facility is
located but has the right to purchase the land for a nominal price at the
conclusion of the lease. Annual capacity of the operation includes 150,000 tons
of carbon, alloy and specialty grade, bottom-poured ingots and 50,000 tons of
high-grade steel billets through a horizontal continuous caster. The value-
added product line includes specialty stainless and tool steel ingots or
billets, which are converted into forged billets, bars and plates by outside
processors. Small quantities of cobalt, nickel, copper and iron-based alloys in
bars and wire are also produced from two small horizontal continuous casters,
small bottom-poured forging ingots and remelt sand ingots. There is an adequate
supply in the North American market of steel scrap and various alloys for raw
material use.
Carbon and alloy steel ingots are sold directly to the forging industry,
ring rollers, extruders and integrated steel producers. The Company competes
primarily with three other steel companies in this market. Specialty steel
products are primarily sold to steel service centers and forgers. Ten customers
account for approximately 60% of the Company's steel revenue. Alloy products are
sold as feedstock directly to forgers, extruders and investment casters. There
are numerous competitors, both domestic and foreign, that compete with the
Company in the specialty steel, ferrous and nonferrous metals markets.
Competitive factors include price, quality and service. Carbon steel ingots and
billets are commodities and are extremely price competitive. Stainless and tool
steel long product pricing is currently being pressured by strong import
penetration.
ITEM 2. PROPERTIES
A description of various properties and the segments to which they relate
is included in the Business discussion located on pages 4 through 10 of this
Form 10-K. In addition to those described above, the Company owns or leases the
following properties:
The Company owns an approximately 26,000 square-foot office building in
Jackson, Mississippi, which is its corporate headquarters.
The Company leases 7 acres of waterfront property from the Jackson County
Port Authority. This property is used for loading and unloading ocean-going
vessels and barges at its Pascagoula, Mississippi facility. The lease expires in
2003.
The Company owns 70 acres of undeveloped industrial land within 2 miles of
the Pascagoula plant and 23 acres directly adjacent to the Pascagoula plant. The
Company also owns approximately 78 acres of undeveloped industrial land directly
adjacent to its Tyrone, Pennsylvania facility.
10
<PAGE> 11
The Company leases research and development laboratory space in Corpus
Christi, Texas to support its acylation derivatives business.
The Company is a party to a long-term lease agreement covering 24,356
square-feet of office space in Jackson, Mississippi. The Company has entered
into an agreement with a real estate management firm to assist the Company in
subleasing this space.
The Company believes that its properties are suitable and adequate for the
purposes for which they are used.
ITEM 3. LEGAL PROCEEDINGS
The Company has pending several claims incurred in the normal course of
business which, in the opinion of management and legal counsel, can be disposed
of without material effect on the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company,
through the solicitation of proxies or otherwise, during the fourth quarter of
1998.
PART II
ITEMS 5-8. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS, SELECTED FINANCIAL DATA, MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, AND
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by Part II, Items 5-8, has been included in the
Registrant's Annual Report to Stockholders for the fiscal year ended December
31, 1998 (or the Financial Review insert attached thereto), which has been
furnished to the Commission and portions of which are incorporated herein by
reference. See "Documents Incorporated by Reference" on Page 2 hereof for the
locations of such information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEMS 10-13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, EXECUTIVE
COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Part III, Items 10-13, has been included in
the Registrant's definitive Proxy Statement for the May 25, 1999 Annual Meeting
of Stockholders, which will be filed with the Commission by March 30, 1999,
pursuant to Regulation 14A, and is incorporated herein by reference. See
"Documents Incorporated by Reference" on Page 2 hereof for the location of such
information.
11
<PAGE> 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
(a)(1) Financial Statements Incorporated by Reference to the Financial
Review insert which is attached to the Registrant's Annual Report to
Stockholders for the fiscal year ended December 31, 1998 and Supplementary Data.
<TABLE>
<CAPTION>
PAGES IN
FINANCIAL REVIEW
INSERT TO THE 1998
ANNUAL REPORT
TO STOCKHOLDERS
INCORPORATED HEREIN
BY REFERENCE
-------------------
<S> <C>
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... p. 6
Consolidated Statements of Operations, years ended December
31, 1998, 1997 and 1996................................... p. 7
Consolidated Statements of Stockholders' Equity, years ended
December 31, 1998, 1997 and 1996.......................... p. 8
Consolidated Statements of Cash Flows, years ended December
31, 1998, 1997 and 1996................................... p. 9
Notes to Consolidated Financial Statements.................. p. 10-28
Independent Auditors' Report................................ p. 28
</TABLE>
(a)(2) Additional schedules are either not required under the applicable
instructions or are inapplicable and have therefore been omitted.
(a)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2(a) Agreement and Plan of Merger and Reorganization, dated as of
August 27, 1996, among Mississippi Chemical Corporation,
MISS SUB, INC. and First Mississippi Corporation, was filed
as Exhibit 2.1 to Amendment No. 1 to the Company's Form S-1
(Registration No. 333-15789) filed on November 18, 1996, and
is incorporated herein by reference.
2(b) Agreement and Plan of Distribution between First Mississippi
Corporation and the Company dated December 18, 1996 was
filed as Exhibit 2.2, Form of Agreement and Plan of
Distribution, to Amendment No. 1 to the Company's Form S-1
(Registration No. 333-15789) filed on November 18, 1996, and
is incorporated herein by reference. The only modification
to the text of the Form of Agreement and Plan of
Distribution which is incorporated herein by reference was
the substitution of "ChemFirst Inc." for "Newco" as a party
to this agreement and the dating of the agreement as of
December 18, 1996.
2(c) Tax Disaffiliation Agreement between First Mississippi
Corporation and the Company dated December 18, 1996 was
filed as Exhibit 2.3, Form of Tax Disaffiliation Agreement,
to Amendment No. 1 to the Company's Form S-1 (Registration
No. 333-15789) filed on November 18, 1996, and is
incorporated herein by reference. The only modification to
the text of the Form of Tax Disaffiliation Agreement which
is incorporated herein by reference was the substitution of
"ChemFirst Inc." for "Newco" as a party to this Agreement
and the dating of the agreement as of December 18, 1996.
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2(d) Employee Benefits and Compensation Agreement between First
Mississippi Corporation and the Company dated December 18,
1996 was filed as Exhibit 2.4, Form of Employee Benefits and
Compensation Agreement, to Amendment No. 1 to the Company's
Form S-1 (Registration No. 333-15789) filed on November 18,
1996, and is incorporated herein by reference. The only
modification to the text of the Form of Employee Benefits
and Compensation Agreement which is incorporated herein by
reference was the substitution of "ChemFirst Inc." for
"Newco" as a party to this Agreement and the dating of the
agreement as of December 18, 1996.
3(a) Amended and Restated Articles of Incorporation of the
Company were filed as Exhibit 3.1 to Amendment No. 1 to the
Company's Form S-1 (Registration No. 333-15789) filed on
November 18, 1996, and is incorporated herein by reference.
3(b) Bylaws of the Company as amended were filed as Exhibit 4.3
to the Company's Form S-8 (Registration No. 333-69965) filed
on December 30, 1998, and is incorporated herein by
reference.
4(a) Articles III, IV, V, VI, VII, VIII, IX and X of the
Company's Charter of Incorporation and the Statements of
Resolution establishing the Company's 1987-A, 1988-A,
1988-1, 1989-A, 1989-1, 1989-2, 1990-1, 1990-2, 1991-1,
1991-2, and 1992-1 Series Convertible Preferred Stock and
the Company's Series X Junior Participating Preferred Stock
are included in Exhibit 3(a).
4(b) Articles II, IV, IX and XII of the Company's Bylaws are
included in Exhibit 3(b).
4(c) ChemFirst Inc. 401(K) Savings Plan was filed as Exhibit 4.4
to the Company's Registration Statement on Form S-8
(Registration No. 333-18691) filed on December 24, 1996 and
is incorporated herein by reference.
4(d) Rights Agreement, dated as of October 30, 1996, between the
Company and KeyCorp Shareholder Services, Inc., was filed as
Exhibit 4 to Amendment No. 1 to the Company's Form S-1
(Registration No. 333-15789) filed on November 18, 1996 and
is incorporated herein by reference.
4(e) First Amendment to Rights Agreement dated effective May 1,
1997, by and among the Company, KeyCorp Shareholders
Services, Inc. and The Bank of New York, was filed as
Exhibit 4.5 to the Company's Form S-8 (File No. 333-69965)
filed on December 30, 1998, and is incorporated herein by
reference.
4(f) Post Spin-Off Agreement between First Mississippi
Corporation and FirstMiss Gold Inc. dated as of September
24, 1995, which was assigned to the Company in connection
with the Distribution, was filed as Exhibit 99.1 to First
Mississippi's Form 8-K dated September 24, 1995, and is
incorporated herein by reference.
4(g) Tax Ruling Agreement between First Mississippi Corporation
and FirstMiss Gold Inc. dated as of September 24, 1995,
which was assigned to the Company in connection with the
Distribution, was filed as Exhibit 99.2 to First
Mississippi's Form 8-K dated September 24, 1995, and is
incorporated herein by reference.
4(h) Loan Agreement between First Mississippi Corporation and
FirstMiss Gold Inc., dated as of September 24, 1995, which
was assigned to the Company in connection with the
Distribution, was filed as Exhibit 99.3 to First
Mississippi's Form 8-K dated September 24, 1995, and is
incorporated herein by reference.
4(i) Amended Tax Sharing Agreement between First Mississippi
Corporation and FirstMiss Gold Inc. dated as of September
24, 1995, which was assigned to the Company in connection
with the Distribution, was filed as Exhibit 99.4 to First
Mississippi's Form 8-K dated September 24, 1995, and is
incorporated herein by reference.
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4(j) Note Purchase Agreement between ChemFirst Inc., State Farm
Life Insurance Company and Nationwide Life Insurance Company
dated October 15, 1998.
10(a)* Termination Agreement, dated May 29, 1996 and effective June
1, 1996, and amended March 15, 1999 between the Company and
its Chief Executive Officer.
10(b)* Form of Termination Agreement, dated May 29, 1996 and
effective June 1, 1996, between the Company and each of the
following executive officers of the Company: Daniel P.
Anderson, Robert P. Barker, William P. Bartlett, Max P.
Bowman, Troy B. Browning, J. Steven Chustz, Paul J. Coder,
William B. Kemp, Scott A. Martin, James L. McArthur, George
M. Simmons, R. Michael Summerford and Thomas G. Tepas, which
was assigned to the Company in connection with the
Distribution, was filed as Exhibit 10(d) to First
Mississippi's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996, and is incorporated herein by
reference. (Company's Termination Agreement with its
executive officers contains terms substantially identical to
those contained in the form of Agreement filed.)
10(c)* ChemFirst Inc. 1980 Long-Term Incentive Plan was filed as
Exhibit 4.6 to the Company's Registration Statement on Form
S-8 (Registration No. 333-18693) filed on December 24, 1996,
and is incorporated herein by reference.
10(d)* ChemFirst Inc. 1988 Long-Term Incentive Plan was filed as
Exhibit 4.5 to the Company's Registration Statement on Form
S-8 (Registration No. 333-18693) filed on December 24, 1996,
and is incorporated herein by reference.
10(e)* ChemFirst Inc. 1995 Long-Term Incentive Plan was filed as
Exhibit 4.4 to the Company's Registration Statement on Form
S-8 (Registration No. 333-18693) filed on December 24, 1996,
and is incorporated herein by reference.
10(f)* ChemFirst Inc. 1998 Long-Term Incentive Plan was included as
Appendix A to the Company's Proxy Statement filed in
connection with the Annual Meeting of Stockholders held on
May 27, 1998, and is incorporated herein by reference.
10(g)* 1991 Restatement of the First Mississippi Directors'
Retirement Plan, as revised and restated on May 14, 1991,
which was assigned to and assumed by the Company pursuant to
the Benefits Agreement, was filed as Exhibit 10(f) to First
Mississippi's Annual Report on Form 10-K for the fiscal year
ended June 30, 1991, and is incorporated herein by
reference.
10(h)* First Mississippi Corporation 1989 Deferred Compensation
Plan for Outside Directors, as amended on September 12,
1994, which was assigned to and assumed by the Company
pursuant to the Benefits Agreement, was filed as Exhibit
10(g) to First Mississippi's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995, and is incorporated
herein by reference.
10(i)* A description of the Company's Deferred Income Plan for
Directors, Officers and Key Employees ("Plan A") is included
in the Company's Proxy Statement filed in connection with
the Annual Meeting of Stockholders to be held on May 25,
1999, and is incorporated herein by reference.
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(j)* Form of Indemnification Agreement between the Company and
the following Directors or Officers of the Company, which
was assigned to and assumed by the Company in connection
with the Distribution, (Company's Indemnification Agreements
with each such individual contains substantially identical
provisions to those contained in the form): Richard P.
Anderson, Paul A. Becker, James W. Crook, James E. Fligg,
Charles R. Gibson, Robert P. Guyton, Charles P. Moreton,
Paul W. Murrill, William A. Percy, II, Maurice T. Reed, Jr.,
Frank G. Smith, Leland R. Speed, R. Gerald Turner, J. Kelley
Williams, R. Michael Summerford, O. E. Wall, Charles M.
McAuley, J. Steve Chustz, James L. McArthur, Danny P.
Anderson and Thomas G. Tepas was filed as Exhibit 10(t) to
First Mississippi's Annual Report on Form 10-K for the
fiscal year ended June 30, 1988, and is incorporated herein
by reference.
10(k) ChemFirst Inc. 1997 Employee Stock Purchase Plan was filed
as Exhibit 4.3 to the Company's Registration Statement on
Form S-8 (Registration No. 333-35221) filed on September 9,
1997, and is incorporated herein by reference.
13 ChemFirst Inc. 1998 Annual Report to Stockholders and
Financial Review insert attached thereto (such Annual Report
is not, except for those portions thereof which are
expressly incorporated by reference, to be deemed "filed" as
part of this Form 10-K).
21 List of the subsidiaries of the Company.
23 Consent regarding incorporation of auditor's report into
Registration Statement Nos. 333-18691, 333-18693, 333-35221,
and 333-69965.
27 Financial Data Schedule.
</TABLE>
- ---------------
* Indicates management contract or compensatory plan or arrangement.
Certain debt instruments have not been filed. The Company agrees to furnish
a copy of such agreement(s) to the Commission upon request.
(b) No Reports on Form 8-K were filed by the Company during the fourth
quarter of 1998.
(c) Please see (a)(3) above.
The exhibits filed with the Commission are not included in the printed copy
of the Form 10-K. A copy of the exhibits will be provided upon payment of a
reasonable fee, to be specified at the time a request is made.
(d) Please see (a)(2) above.
15
<PAGE> 16
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.
CHEMFIRST INC.
By: /s/ J. KELLEY WILLIAMS
----------------------------------
J. Kelley Williams,
Chief Executive Officer
Date: March 25, 1999
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/ J. KELLEY WILLIAMS Chairman of the Board of March 25, 1999
- ----------------------------------------------------- Directors, Chief Executive
J. Kelley Williams Officer (Principal Executive
Officer) and Director
/s/ R. M. SUMMERFORD President and Chief Operating March 25, 1999
- ----------------------------------------------------- Officer
R. M. Summerford
/s/ MAX P. BOWMAN Vice President, Finance and March 25, 1999
- ----------------------------------------------------- Treasurer (Principal
Max P. Bowman Financial Officer)
/s/ TROY B. BROWNING Controller (Principal March 25, 1999
- ----------------------------------------------------- Accounting Officer)
Troy B. Browning
/s/ RICHARD P. ANDERSON Director March 25, 1999
- -----------------------------------------------------
Richard P. Anderson
/s/ PAUL A. BECKER Director March 25, 1999
- -----------------------------------------------------
Paul A. Becker
/s/ JAMES W. CROOK Director March 25, 1999
- -----------------------------------------------------
James W. Crook
/s/ MICHAEL J. FERRIS Director March 25, 1999
- -----------------------------------------------------
Michael J. Ferris
/s/ JAMES E. FLIGG Director March 25, 1999
- -----------------------------------------------------
James E. Fligg
/s/ ROBERT P. GUYTON Director March 25, 1999
- -----------------------------------------------------
Robert P. Guyton
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PAUL W. MURRILL Director March 25, 1999
- -----------------------------------------------------
Paul W. Murrill
/s/ WILLIAM A. PERCY, II Director March 25, 1999
- -----------------------------------------------------
William A. Percy, II
/s/ DAN F. SMITH Director March 25, 1999
- -----------------------------------------------------
Dan F. Smith
/s/ LELAND R. SPEED Director March 25, 1999
- -----------------------------------------------------
Leland R. Speed
/s/ R. GERALD TURNER Director March 25, 1999
- -----------------------------------------------------
R. Gerald Turner
</TABLE>
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4(j) -- Note Purchase Agreement between ChemFirst Inc., State
Farm Life Insurance Company and Nationwide Life Insurance
Company dated October 15, 1998.
10(a) -- Termination Agreement, dated May 29, 1996 and effective
June 1, 1996, and amended March 15, 1999 between the
Company and its Chief Executive Officer.
13 -- ChemFirst Inc. 1998 Annual Report to Stockholders and
Financial Review insert attached thereto (such Annual
Report is not, except for those portions thereof which
are expressly incorporated by reference, to be deemed
"filed" as part of this Form 10-K).
21 -- List of the subsidiaries of the Registrant.
23 -- Consent regarding incorporation of auditor's report into
Registration Statement Nos. 333-18691, 333-18693,
333-35221 and 333-69965.
27 -- Financial Data Schedule [For EDGAR filing only].
</TABLE>
- ---------------
(Note: The exhibits filed with the Commission are not included in this copy of
the Form 10-K. A copy of the exhibits will be provided upon payment of a
reasonable fee, to be specified at the time a request is made.)
<PAGE> 1
EXHIBIT 4(j)
================================================================================
CHEMFIRST INC.
$15,000,000
6.50% Series 1998-A Senior Notes, Tranche A, due October 30, 2003
$5,000,000
6.75% Series 1998-A Senior Notes, Tranche B, due October 30, 2005
--------------
NOTE PURCHASE AGREEMENT
-------------
Dated as of October 15, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1. AUTHORIZATION OF NOTES.................................................................1
SECTION 2. SALE AND PURCHASE OF NOTES.............................................................1
Section 2.1. Series A Notes.........................................................................1
Section 2.2. Additional Series of Notes.............................................................2
SECTION 3. CLOSING................................................................................2
SECTION 4. CONDITIONS TO CLOSING..................................................................3
Section 4.1. Representations and Warranties.........................................................3
Section 4.2. Performance; No Default................................................................3
Section 4.3. Compliance Certificates................................................................3
Section 4.4. Opinions of Counsel....................................................................3
Section 4.5. Purchase Permitted By Applicable Law, etc..............................................4
Section 4.6. Related Transactions...................................................................4
Section 4.7. Payment of Special Counsel Fees........................................................4
Section 4.8. Private Placement Number...............................................................4
Section 4.9. Changes in Corporate Structure.........................................................4
Section 4.10. Proceedings and Documents..............................................................4
Section 4.11. Conditions to Issuance of Additional Notes.............................................5
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................5
Section 5.1. Organization; Power and Authority......................................................5
Section 5.2. Authorization, etc.....................................................................5
Section 5.3. Disclosure.............................................................................5
Section 5.4. Organization and Ownership of Shares of Restricted
Subsidiaries; Affiliates and Investments...........................................6
Section 5.5. Financial Statements...................................................................7
Section 5.6. Compliance with Laws, Other Instruments, etc...........................................7
Section 5.7. Governmental Authorizations, etc.......................................................7
Section 5.8. Litigation; Observance of Agreements, Statutes and Orders..............................7
Section 5.9. Taxes..................................................................................7
Section 5.10. Title to Property; Leases..............................................................8
Section 5.11. Licenses, Permits, etc.................................................................8
Section 5.12. Compliance with ERISA..................................................................8
Section 5.13. Private Offering by the Company........................................................9
Section 5.14. Use of Proceeds; Margin Regulations....................................................9
Section 5.15. Existing Debt; Future Liens...........................................................10
Section 5.16. Foreign Assets Control Regulations, etc...............................................10
Section 5.17. Status under Certain Statutes.........................................................10
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.18. Environmental Matters.................................................................10
Section 5.19. Computer 2000 Compliant...............................................................11
SECTION 6. REPRESENTATIONS OF THE PURCHASER......................................................11
Section 6.1. Purchase for Investment...............................................................11
Section 6.2. Source of Funds.......................................................................11
SECTION 7. INFORMATION AS TO COMPANY.............................................................13
Section 7.1. Financial and Business Information....................................................13
Section 7.2. Officer's Certificate.................................................................16
Section 7.3. Inspection............................................................................16
SECTION 8. PREPAYMENT OF THE SERIES A NOTES......................................................17
Section 8.1. Required Prepayments..................................................................17
Section 8.2. Optional Prepayments with Make-Whole Amount...........................................17
Section 8.3 Allocation of Partial Prepayments.....................................................17
Section 8.4. Maturity; Surrender, etc..............................................................17
Section 8.5. Purchase of Notes.....................................................................18
Section 8.6. Make-Whole Amount for Series A Notes..................................................18
SECTION 9. AFFIRMATIVE COVENANTS.................................................................19
Section 9.1. Compliance with Law...................................................................19
Section 9.2. Insurance.............................................................................20
Section 9.3. Maintenance of Properties.............................................................20
Section 9.4. Payment of Taxes and Claims...........................................................20
Section 9.5. Corporate Existence, etc..............................................................20
SECTION 10. NEGATIVE COVENANTS....................................................................20
Section 10.1. Transactions with Affiliates..........................................................21
Section 10.2. Consolidated Net Worth................................................................21
Section 10.3. Limitations on Debt...................................................................21
Section 10.4. Limitations on Priority Debt..........................................................21
Section 10.5. Limitation on Liens...................................................................21
Section 10.6. Sales of Assets.......................................................................23
Section 10.7. Merger, Consolidation and Sale of Stock...............................................24
Section 10.8. Non-Significant Subsidiaries..........................................................25
Section 10.8. Designation of Restricted and Unrestricted Subsidiaries...............................25
Section 10.9. Nature of Business....................................................................25
SECTION 11. EVENTS OF DEFAULT.....................................................................25
SECTION 12. REMEDIES ON DEFAULT, ETC..............................................................27
Section 12.1. Acceleration..........................................................................27
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 12.2. Other Remedies........................................................................28
Section 12.3. Rescission............................................................................28
Section 12.4. No Waivers or Election of Remedies, Expenses, etc.....................................28
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.........................................29
Section 13.1. Registration of Notes.................................................................29
Section 13.2. Transfer and Exchange of Notes........................................................29
Section 13.3. Replacement of Notes..................................................................29
SECTION 14. PAYMENTS ON NOTES.....................................................................30
Section 14.1. Place of Payment......................................................................30
Section 14.2. Home Office Payment...................................................................30
SECTION 15. EXPENSES, ETC.........................................................................30
Section 15.1. Transaction Expenses..................................................................30
Section 15.2. Survival..............................................................................31
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT..........................31
SECTION 17. AMENDMENT AND WAIVER..................................................................31
Section 17.1. Requirements..........................................................................31
Section 17.2. Solicitation of Holders of Notes......................................................32
Section 17.3. Binding Effect, etc...................................................................32
Section 17.4. Notes Held by Company, etc............................................................33
SECTION 18. NOTICES...............................................................................33
SECTION 19. REPRODUCTION OF DOCUMENTS.............................................................33
SECTION 20. CONFIDENTIAL INFORMATION..............................................................34
SECTION 21. SUBSTITUTION OF PURCHASER.............................................................35
SECTION 22. MISCELLANEOUS.........................................................................35
Section 22.1. Successors and Assigns................................................................35
Section 22.2. Payments Due on Non-Business Days.....................................................35
Section 22.3. Severability..........................................................................35
Section 22.4. Construction..........................................................................35
Section 22.5. Counterparts..........................................................................36
Section 22.6. Governing Law.........................................................................36
Signature........................................................................................................37
</TABLE>
-iii-
<PAGE> 5
SCHEDULE A -- INFORMATION RELATING TO PURCHASERs
SCHEDULE B -- DEFINED TERMs
SCHEDULE 5.4 -- Subsidiaries, Affiliates and Directors and
Executive Officers of the Company
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.11 -- Licenses, Patents, etc.
SCHEDULE 5.15 -- Existing Debt
SCHEDULE 10.5 -- Existing Liens
EXHIBIT 1 -- Form of 6.50% Series 1998-A Senior Note,
Tranche A, due October 30, 2003
EXHIBIT 2 -- Form of 6.75% Series 1998-A Senior Note,
Tranche B, due October 30, 2005
EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the
Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the
Purchasers
EXHIBIT S -- Form of Supplement to Note Purchase Agreement
-iv-
<PAGE> 6
CHEMFIRST INC.
700 NORTH STREET
JACKSON, MISSISSIPPI 39202-3095
6.50% Series 1998-A Senior Notes, Tranche A, due October 30, 2003
6.75% Series 1998-A Senior Notes, Tranche B, due October 30, 2005
October 15, 1998
TO THE PURCHASERS LISTED IN THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
CHEMFIRST INC., a Mississippi corporation (the "Company"), agrees with
the Purchasers named on Schedule A (the "Purchasers") to this Note Purchaser
Agreement (this or the "Agreement") as follows:
SECTION 1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of (i) $15,000,000
aggregate principal amount of its 6.50% Series 1998-A Senior Notes, Tranche A,
due October 30, 2003 (the "Tranche A Notes"), (ii) $5,000,000 aggregate
principal amount of its 6.75% Series 1998-A Senior Notes, Tranche B, due October
30, 2005 (the "Tranche B Notes", and together with the Tranche A Notes, the
"Series A Notes"). The Series A Notes together with each Series of Additional
Notes which may from time to time be issued pursuant to the provisions of
Section 2.2 are collectively referred to as the "Notes" (such term shall also
include any such notes issued in substitution therefor pursuant to Section 13 of
this Agreement or the Other Agreements (as hereinafter defined)). The Tranche A
Notes and the Tranche B Notes shall be substantially in the forms set out in
Exhibits 1 and 2, respectively, with such changes therefrom, if any, as may be
approved by you and the Company. Certain capitalized terms used in this
Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit"
are, unless otherwise specified, to a Schedule or an Exhibit attached to this
Agreement.
SECTION 2. SALE AND PURCHASE OF NOTES.
Section 2.1. Series A Notes. Subject to the terms and conditions of
this Agreement, the Company will issue and sell to the Purchasers and the
Purchasers will purchase from the Company, at the Closing provided for in
Section 3, Series A Notes of the Tranche and in the principal amount specified
opposite such Purchaser's name in Schedule A at the purchase price of 100% of
the principal amount thereof. The Purchasers' obligation hereunder, and the
obligations of the Additional Purchasers under the Supplements, are several and
not joint obligations, and the Purchasers shall have no obligation under any
Supplement and no liability to any Person for the performance or nonperformance
by any Additional Purchaser thereunder.
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Section 2.2. Additional Series of Notes. The Company may, from time to
time, in its sole discretion but subject to the terms hereof, issue and sell one
or more additional Series of its unsecured promissory notes under the provisions
of this Agreement pursuant to a supplement (a "Supplement") substantially in
the form of Exhibit S. Each additional Series of Notes (the "Additional Notes")
issued pursuant to a Supplement shall be subject to the following terms and
conditions:
(i) each Series of Additional Notes, when so issued, shall be
differentiated from all previous series by sequential alphabetical
designation inscribed thereon;
(ii) Additional Notes of the same Series may consist of more
than one different and separate tranches and may differ with respect to
outstanding principal amounts, maturity dates, interest rates and
premiums, if any, and price and terms of redemption or payment prior to
maturity, but all such different and separate tranches of the same
Series shall vote as a single class and constitute one Series;
(iii) each Series of Additional Notes shall be dated the date
of issue, bear interest at such rate or rates, mature on such date or
dates, be subject to such mandatory and optional prepayment on the
dates and at the premiums, if any, have such additional or different
conditions precedent to closing, such representations and warranties
and such additional covenants as shall be specified in the Supplement
under which such Additional Notes are issued, provided, that any such
additional covenants shall inure to the benefit of all holders of Notes
so long as any Additional Notes issued pursuant to such Supplement
remain outstanding;
(iv) each Series of Additional Notes issued under this
Agreement shall be in substantially the form of Exhibit 1 to Exhibit S
hereto with such variations, omissions and insertions as are necessary
or permitted hereunder;
(v) the minimum principal amount of any Note issued under a
Supplement shall be $100,000, except as may be necessary to evidence
the outstanding amount of any Note originally issued in a denomination
of $100,000 or more;
(vi) all Additional Notes shall constitute Senior Debt of the
Company and shall rank pari passu with all other outstanding Notes; and
(vii) no Additional Notes shall be issued hereunder if at the
time of issuance thereof and after giving effect to the application of
the proceeds thereof, any Default or Event of Default shall have
occurred and be continuing.
SECTION 3. CLOSING.
The sale and purchase of the Series A Notes to be purchased by the
Purchasers shall occur at the offices of Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603, at 11:00 A.M. Chicago time, at a closing (the
"Closing") on November 10, 1998 or on such other Business Day thereafter on or
prior to November 15, 1998 as may be agreed upon by the
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Company and the Purchasers. At the Closing, the Company will deliver to each
Purchaser the Notes to be purchased by such Purchaser in the form of a single
Note (or such greater number of Notes in denominations of at least $100,000 as
such Purchaser may request) dated the date of the Closing and registered in such
Purchaser's name (or in the name of such Purchaser's nominee), against delivery
by such Purchaser to the Company or its order of immediately available funds in
the amount of the purchase price therefor by wire transfer of immediately
available funds for the benefit of the Company to its account at Bank of America
National Trust and Savings Association, Account No. 8188300511 (ABA #071000039).
If, at the Closing, the Company shall fail to tender such Notes to any Purchaser
as provided above in this Section 3, or any of the conditions specified in
Section 4 shall not have been fulfilled to any Purchaser's satisfaction, such
Purchaser shall, at its election, be relieved of all further obligations under
this Agreement, without thereby waiving any rights such Purchaser may have by
reason of such failure or such nonfulfillment.
SECTION 4. CONDITIONS TO CLOSING.
The obligation of each Purchaser to purchase and pay for the Notes to
be sold to such Purchaser at the Closing is subject to the fulfillment to such
Purchaser's satisfaction, prior to or at the Closing, of the following
conditions:
Section 4.1. Representations and Warranties. The representations and
warranties of the Company in this Agreement shall be correct when made and at
the time of the Closing.
Section 4.2. Performance; No Default. The Company shall have performed
and complied with all agreements and conditions contained in this Agreement
required to be performed or complied with by it prior to or at the Closing, and
after giving effect to the issue and sale of the Notes (and the application of
the proceeds thereof as contemplated by Section 5.14), no Default or Event of
Default shall have occurred and be continuing. Neither the Company nor any
Restricted Subsidiary shall have entered into any transaction since the date of
the Memorandum that would have been prohibited by the covenants contained in
Section 10 hereof had such covenants applied since such date.
Section 4.3. Compliance Certificates.
(a) Officer's Certificate. The Company shall have delivered to such
Purchaser an Officer's Certificate, dated the date of the Closing, certifying
that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
(b) Secretary's Certificate. The Company shall have delivered to such
Purchaser a certificate certifying as to the resolutions attached hereto and
other corporate proceedings relating to the authorization, execution and
delivery of the Notes and this Agreement.
Section 4.4. Opinions of Counsel. Such Purchaser shall have received
opinions in form and substance satisfactory to such Purchaser, dated the date of
the Closing (a) from J. Steve Chustz, General Counsel of the Company, covering
the matters set forth in Exhibit 4.4(a) and covering such other matters incident
to the transactions contemplated hereby as such Purchaser
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or such Purchaser's counsel may reasonably request (and the Company hereby
instructs its counsel to deliver such opinion to each Purchaser) and (b) from
Chapman and Cutler, special counsel for the Purchasers in connection with such
transactions, substantially in the form set forth in Exhibit 4.4(b) and covering
such other matters incident to such transactions as such Purchaser may
reasonably request.
Section 4.5. Purchase Permitted By Applicable Law, etc. On the date of
the Closing, the purchase of Notes shall (a) be permitted by the laws and
regulations of each jurisdiction to which any Purchaser is subject, without
recourse to provisions (such as Section 1405(a)(8) of the New York Insurance
Law) permitting limited investments by insurance companies without restriction
as to the character of the particular investment, (b) not violate any applicable
law or regulation (including, without limitation, Regulation U, T or X of the
Board of Governors of the Federal Reserve System) and (c) not subject any
Purchaser to any tax, penalty or liability under or pursuant to any applicable
law or regulation, which law or regulation was not in effect on the date hereof.
If requested by any Purchaser, such Purchaser shall have received an Officer's
Certificate certifying as to such matters of fact as such Purchaser may
reasonably specify to enable such Purchaser to determine whether such purchase
is so permitted.
Section 4.6. Related Transactions. The Company shall have consummated
the sale of the entire principal amount of the Notes scheduled to be sold on the
date of Closing pursuant to this Agreement.
Section 4.7. Payment of Special Counsel Fees. Without limiting the
provisions of Section 15.1, the Company shall have paid, on or before the
Closing, the fees, charges and disbursements of the Purchasers' special counsel
referred to in Section 4.4 to the extent reflected in a statement of such
counsel rendered to the Company at least one Business Day prior to the Closing.
Section 4.8. Private Placement Number. A Private Placement Number
issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the
Securities Valuation Office of the National Association of Insurance
Commissioners) shall have been obtained for each Tranche of the Series A Notes.
Section 4.9. Changes in Corporate Structure. The Company shall not have
changed its jurisdiction of incorporation or been a party to any merger or
consolidation and shall not have succeeded to all or any substantial part of the
liabilities of any other entity, at any time following the date of the most
recent financial statements referred to in Schedule 5.5.
Section 4.10. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
satisfactory to the Purchasers and their special counsel, and the Purchasers and
their special counsel shall have received all such counterpart originals or
certified or other copies of such documents as the Purchasers or their special
counsel may reasonably request.
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Section 4.11. Conditions to Issuance of Additional Notes. The
obligations of the Additional Purchasers to purchase such Additional Notes shall
be subject to the following conditions precedent, in addition to the conditions
specified in the Supplement pursuant to which such Additional Notes may be
issued:
(a) Compliance Certificate. A duly authorized Senior
Financial Officer shall execute and deliver to each Additional
Purchaser an Officer's Certificate dated the date of issue of such
Series of Additional Notes stating that such officer has reviewed the
provisions of this Agreement (including any Supplements hereto) and
setting forth the information and computations (in sufficient detail)
required in order to establish whether the Company is in compliance
with the requirements of Section 10.3 on such date.
(b) Execution and Delivery of Supplement. The Company and
each such Additional Purchaser shall execute and deliver a Supplement
substantially in the form of Exhibit S hereto.
(c) Representations of Additional Purchasers. Each Additional
Purchaser shall have confirmed in the Supplement that the
representations set forth in Section 6 are true with respect to such
Additional Purchaser on and as of the date of issue of the Additional
Notes.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
Section 5.1. Organization; Power and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The Company
has the corporate power and authority to own or hold under lease the properties
it purports to own or hold under lease, to transact the business it transacts
and proposes to transact, to execute and deliver this Agreement and the Series A
Notes and to perform the provisions hereof and thereof.
Section 5.2. Authorization, etc. This Agreement and the Series A Notes
have been duly authorized by all necessary corporate action on the part of the
Company and this Agreement constitutes, and upon execution and delivery thereof
each Note will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Section 5.3. Disclosure. The Company, through its agents, NationsBanc
Montgomery Securities and ABN AMRO Incorporated, has delivered to each Purchaser
a copy of a Private
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Placement Memorandum, dated August, 1998 (the "Memorandum"), relating to the
transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal properties
of the Company and its Restricted Subsidiaries. This Agreement, the Memorandum,
the documents, certificates or other writings delivered to the Purchasers by or
on behalf of the Company in connection with the transactions contemplated hereby
and the financial statements listed in Schedule 5.5, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Since June 30, 1998, there has been no
change in the financial condition, operations, business or properties of the
Company or any Restricted Subsidiary except changes that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
There is no fact known to the Company that could reasonably be expected to have
a Material Adverse Effect that has not been set forth herein or in the
Memorandum or in the other documents, certificates and other writings for the
Company (including the Press Release dated October 22, 1998 relating to the
earnings of the Company for the Fiscal Period ending September 30, 1998
delivered to the Purchasers by or on behalf of the Company specifically for use
in connection with the transactions contemplated hereby.
Section 5.4. Organization and Ownership of Shares of Restricted
Subsidiaries; Affiliates and Investments. (a) Schedule 5.4 contains (except as
noted therein) complete and correct lists (i) of the Company's Restricted and
Unrestricted Subsidiaries, and showing, as to each Subsidiary, the correct name
thereof, the jurisdiction of its organization, and the percentage of shares of
each class of its capital stock or similar equity interests outstanding owned by
the Company and each other Subsidiary, (ii) of the Company's Affiliates, other
than Unrestricted Subsidiaries, (iii) of the Company's directors and executive
officers and (iv) the Investments existing at the Closing, other than
Investments in Subsidiaries and Affiliates.
(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company
and its Subsidiaries have been validly issued, are fully paid and nonassessable
and are owned by the Company or another Subsidiary free and clear of any Lien
(except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each such Subsidiary has the corporate or other power and
authority to own or hold under lease the properties it purports to own or hold
under lease and to transact the business it transacts and proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to, any legal
restriction or any agreement (other than customary limitations imposed by
corporate law statutes) restricting the ability of such Subsidiary to pay
dividends out of profits or make any other similar distributions of profits to
the Company or any of its Subsidiaries that owns outstanding shares of capital
stock or similar equity interests of such Subsidiary.
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Section 5.5. Financial Statements. The Company has delivered to each
Purchaser copies of the financial statements of the Company and its Subsidiaries
listed on Schedule 5.5. All of said financial statements (including in each case
the related schedules and notes) fairly present in all material respects the
consolidated financial position of the Company and its Subsidiaries as of the
respective dates specified in such financial statements and the consolidated
results of their operations and cash flows for the respective periods so
specified and have been prepared in accordance with GAAP consistently applied
throughout the periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to normal, recurring
year-end adjustments).
Section 5.6. Compliance with Laws, Other Instruments, etc. The
execution, delivery and performance by the Company of this Agreement and the
Series A Notes will not (a) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property
of the Company or any Restricted Subsidiary under, any indenture, mortgage, deed
of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws, or any other agreement or instrument to which the Company or any
Restricted Subsidiary is bound or by which the Company or any Restricted
Subsidiary or any of their respective properties may be bound or affected, (b)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority applicable to the Company or any Restricted Subsidiary or
(c) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any Restricted Subsidiary
which could reasonably be expected to have a Material Adverse Effect.
Section 5.7. Governmental Authorizations, etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Company of this Agreement or the Series A Notes.
Section 5.8. Litigation; Observance of Agreements, Statutes and Orders.
(a) There are no actions, suits or proceedings pending or, to the knowledge of
the Company, threatened against or affecting the Company or any Subsidiary or
any property of the Company or any Subsidiary in any court or before any
arbitrator of any kind or before or by any Governmental Authority that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under any term
of any agreement or instrument to which it is a party or by which it is bound,
or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
Section 5.9. Taxes. The Company and its Subsidiaries have filed all tax
returns that are required to have been filed in any jurisdiction, and have paid
all taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and
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payable and before they have become delinquent, except for any taxes and
assessments (a) the amount of which is not individually or in the aggregate
Material or (b) the amount, applicability or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which the Company or a Subsidiary, as the case may be, has established adequate
reserves in accordance with GAAP. The Company knows of no basis for any other
tax or assessment that could reasonably be expected to have a Material Adverse
Effect. The charges, accruals and reserves on the books of the Company and its
Subsidiaries in respect of Federal, state or other taxes for all fiscal periods
are adequate. The Federal income tax liabilities of the Company and its
Subsidiaries have been determined by the Internal Revenue Service and paid for
all fiscal years up to and including the fiscal year ended June 30, 1988.
Section 5.10. Title to Property; Leases. The Company and its
Subsidiaries have good and sufficient title to their respective properties which
the Company and its Subsidiaries own or purport to own that individually or in
the aggregate are Material, including all such properties reflected in the most
recent audited balance sheet referred to in Section 5.5 or purported to have
been acquired by the Company or any Restricted Subsidiary after said date
(except as sold or otherwise disposed of in the ordinary course of business), in
each case free and clear of Liens prohibited by this Agreement. All leases that
individually or in the aggregate are Material are valid and subsisting and are
in full force and effect in all material respects.
Section 5.11. Licenses, Permits, etc. Except as disclosed in Schedule
5.11,
(a) the Company and its Restricted Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights, service
marks, trademarks and trade names, or rights thereto, that individually or in
the aggregate are Material, without known conflict with the rights of others;
(b) to the best knowledge of the Company, no product of the Company or
any Restricted Subsidiary infringes in any Material respect any license, permit,
franchise, authorization, patent, copyright, service mark, trademark, trade name
or other right owned by any other Person; and
(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its Restricted
Subsidiaries with respect to any patent, copyright, service mark, trademark,
trade name or other right owned or used by the Company or any of its Restricted
Subsidiaries.
Section 5.12. Compliance with ERISA. (a) The Company and each ERISA
Affiliate have operated and administered each Plan in compliance with all
applicable laws except for such instances of noncompliance as have not resulted
in and could not reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate has incurred any liability pursuant
to Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of ERISA), and no
event, transaction or condition has occurred or exists that could reasonably be
expected to result in the incurrence of any such liability by the Company or any
ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in
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either case pursuant to Title I or IV of ERISA or to such penalty or excise tax
provisions or to Section 401(a)(29) or 412 of the Code, other than such
liabilities or Liens as would not be individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under each
of the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities, or such deficit, if any, did not exceed
5% of Consolidated Net Worth. The terms "benefit liabilities" has the meaning
specified in section 4001 of ERISA and the terms "current value" and "present
value" have the meaning specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
(d) The expected post-retirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code) of the Company and its Restricted Subsidiaries is not Material or has
otherwise been disclosed in the most recent audited consolidated financial
statements of the Company and its Subsidiaries.
(e) The execution and delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction that is subject to
the prohibitions of section 406 of ERISA or in connection with which a tax could
be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation
by the Company in the first sentence of this Section 5.12(e) is made in reliance
upon and subject to the accuracy of each Purchaser's representation in Section
6.2 as to the sources of the funds used to pay the purchase price of the Notes
to be purchased by such Purchaser.
Section 5.13. Private Offering by the Company. Neither the Company nor
anyone acting on its behalf has offered the Series A Notes or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any Person other
than the Purchasers and not more than 60 other Institutional Investors, each of
which has been offered the Series A Notes at a private sale for investment.
Neither the Company nor anyone acting on its behalf has taken, or will take, any
action that would subject the issuance or sale of the Series A Notes to the
registration requirements of Section 5 of the Securities Act.
Section 5.14. Use of Proceeds; Margin Regulations. The Company will
apply the proceeds of the sale of the Series A Notes to repay outstanding
indebtedness, repurchase shares of capital stock of the Company and for general
corporate purposes. No part of the proceeds from the sale of the Series A Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CFR 207), or for the purpose of
buying or carrying
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or trading in any securities under such circumstances as to involve the Company
in a violation of Regulation X of said Board (12 CFR 224) or to involve any
broker or dealer in a violation of Regulation T of said Board (12 CFR 220).
Margin stock does not constitute more than 5% of the value of the consolidated
assets of the Company and its Subsidiaries and the Company does not have any
present intention that margin stock will constitute more than 5% of the value of
such assets. As used in this Section, the terms "margin stock" and "purpose of
buying or carrying" shall have the meanings assigned to them in said Regulation
U.
Section 5.15. Existing Debt; Future Liens. (a) Except as described
therein, Schedule 5.15 sets forth a complete and correct list of all outstanding
Debt of the Company and its Restricted Subsidiaries as of June 30, 1998, since
which date there has been no Material change in the amounts, interest rates,
sinking funds, installment payments or maturities of the Debt of the Company or
its Restricted Subsidiaries. Neither the Company nor any Restricted Subsidiary
is in default and no waiver of default is currently in effect, in the payment of
any principal or interest on any Debt of the Company or such Restricted
Subsidiary and no event or condition exists with respect to any Debt of the
Company or any Restricted Subsidiary (exceeding such amount) that would permit
(or that with notice or the lapse of time, or both, would permit) one or more
Persons to cause such Debt to become due and payable before its stated maturity
or before its regularly scheduled dates of payment.
(b) Neither the Company nor any Restricted Subsidiary has agreed or
consented to cause or permit in the future (upon the happening of a contingency
or otherwise) any of its property, whether now owned or hereafter acquired, to
be subject to a Lien not permitted by Section 10.5.
Section 5.16. Foreign Assets Control Regulations, etc. Neither the sale
of the Series A Notes by the Company hereunder nor its use of the proceeds
thereof will violate the Trading with the Enemy Act, as amended, or any of the
foreign assets control regulations of the United States Treasury Department (31
CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive
order relating thereto.
Section 5.17. Status under Certain Statutes. Neither the Company nor any
Subsidiary is an "investment company" registered or required to be registered
under the Investment Company Act of 1940, as amended, or is subject to
regulation under the Public Utility Holding Company Act of 1935, as amended, the
ICC Termination Act of 1995 or the Federal Power Act, as amended.
Section 5.18. Environmental Matters. Neither the Company nor any
Restricted Subsidiary has knowledge of any claim or has received any notice of
any claim, and no proceeding has been instituted asserting any claim against the
Company or any of its Restricted Subsidiaries or any of their respective real
properties now owned, leased or operated by any of them or other assets, and
neither the Company nor any Restricted Subsidiary has any knowledge of any
proceeding which has been instituted asserting any claim against the Company or
any of its Restricted Subsidiaries for any real properties formerly owned,
leased or operated by any them, alleging any damage to the environment or
violation of any Environmental Laws, except,
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in each case, such as could not reasonably be expected to result in a Material
Adverse Effect. Except as otherwise disclosed to the Purchasers in writing:
(a) neither the Company nor any Restricted Subsidiary has
knowledge of any facts which would give rise to any claim, public or
private, of violation of Environmental Laws or damage to the
environment emanating from, occurring on or in any way related to real
properties now or formerly owned, leased or operated by any of them or
to other assets or their use, except, in each case, such as could not
reasonably be expected to result in a Material Adverse Effect;
(b) neither the Company nor any of its Restricted
Subsidiaries has stored any Hazardous Materials on real properties now
or formerly owned, leased or operated by any of them and or has
disposed of any Hazardous Materials in a manner contrary to any
Environmental Laws in each case in any manner that could reasonably be
expected to result in a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Company or any of its Restricted Subsidiaries are in
compliance with applicable Environmental Laws, except where failure to
comply could not reasonably be expected to result in a Material Adverse
Effect.
Section 5.19. Computer 2000 Compliant. The Company and its Restricted
Subsidiaries have implemented measures to have all critical business and
computer systems year 2000 compliant in a timely manner and the advent of the
year 2000 and its impact on said internal business and computer systems are not
expected to have a Material Adverse Effect.
SECTION 6. REPRESENTATIONS OF THE PURCHASER.
Section 6.1. Purchase for Investment. Each Purchaser represents that
such Purchaser is purchasing the Series A Notes for its own account or for one
or more separate accounts maintained by it or for the account of one or more
pension or trust funds and not with a view to the distribution thereof, provided
that the disposition of its or their property shall at all times be within its
or their control. Each Purchaser understands that the Series A Notes have not
been registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Series A Notes.
Section 6.2. Source of Funds. Each Purchaser represents that at least
one of the following statements is an accurate representation as to each source
of funds (a "Source") to be used by such Purchaser to pay the purchase price of
the Series A Notes to be purchased by such Purchaser hereunder:
(a) if such Purchaser is an insurance company, the Source is
an "insurance company general account" within the meaning of Department
of Labor Prohibited Transaction Exemption 95-60 (issued July 12, 1995)
and there is no "employee benefit
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plan" (within the meaning of Section 3(3) of ERISA or Section
4975(e)(1) of the Code), treating as a single plan, all plans
maintained by the same employer or employee organization, with respect
to which the amount of the general account reserves and liabilities for
all contracts held by or on behalf of such plan, exceed ten percent
(10%) of the total reserves and liabilities of such general account
(exclusive of separate account liabilities) plus surplus, as set forth
in the NAIC Annual Statement filed with your such Purchaser's state of
domicile; or
(b) the Source is either (i) an insurance company pooled
separate account, within the meaning of Prohibited Transaction
Exemption ("PTE") 90-1 (issued January 29, 1990), or (ii) a bank
collective investment fund, within the meaning of the PTE 91-38 (issued
July 12, 1991) and, except as such Purchaser has disclosed to the
Company in writing pursuant to this paragraph (b), no employee benefit
plan or group of plans maintained by the same employer or employee
organization beneficially owns more than 10% of all assets allocated to
such pooled separate account or collective investment fund; or
(c) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the assets of
all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(1) of
the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part l(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling
or controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest in the
Company and (i) the identity of such QPAM and (ii) the names of all
employee benefit plans whose assets are included in such investment
fund have been disclosed to the Company in writing pursuant to this
paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (e); or
(f) the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.
The Company shall deliver a certificate on the date of the Closing,
with respect to any Purchaser, on the date of the issuance of any Additional
Notes, with respect to any Additional Purchasers and on or prior to the date of
any transfer of any Notes, with respect to any subsequent holder of such Notes,
which certificate shall either state that (i) it is neither a "party in
interest" (as defined in Title I, Section 3(14) of ERISA) nor a "disqualified
person" (as
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<PAGE> 18
defined in Section 4975(e)(2) of the Code), with respect to any plan identified
pursuant to paragraphs (b) or (e) above, or (ii) with respect to any plan,
identified pursuant to paragraph (c) above, neither it nor any "affiliate" (as
defined in Section V(c) of the QPAM Exemption) has at this time, and during the
immediately preceding one year has exercised the authority to appoint or
terminate said QPAM as manager of the assets of any plan identified in writing
pursuant to paragraph (c) above or to negotiate the terms of said QPAM's
management agreement on behalf of any such identified plans.
As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.
SECTION 7. INFORMATION AS TO COMPANY.
Section 7.1. Financial and Business Information. The Company shall
deliver to each holder of Notes that is an Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of
each quarterly fiscal period in each fiscal year of the Company (other
than the last quarterly fiscal period of each such fiscal year),
duplicate copies of:
(i) a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries for such quarter and (in the case of the second
and third quarters) for the portion of the fiscal year ending
with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from normal,
recurring year-end adjustments, provided that delivery within the time
period specified above of copies of the Company's Quarterly Report on
Form 10-Q prepared in compliance with the requirements therefor and
filed with the Securities and Exchange Commission shall be deemed to
satisfy the requirements of this Section 7.1(a);
(b) Annual Statements -- within 105 days after the end of
each fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and
its Subsidiaries, as at the end of such year, and
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(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by
(A) an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state
that such financial statements present fairly, in all material
respects, the financial position of the companies being reported upon
and their results of operations and cash flows and have been prepared
in conformity with GAAP, and that the examination of such accountants
in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such
audit provides a reasonable basis for such opinion in the
circumstances, and
(B) at any time the Company is not subject to the reporting
requirement of the Exchange Act, a certificate of such accountants
stating that they have reviewed this Agreement and stating further
whether, in making their audit, they have become aware of any condition
or event that then constitutes a Default or an Event of Default, and,
if they are aware that any such condition or event then exists,
specifying the nature and period of the existence thereof (it being
understood that such accountants shall not be liable, directly or
indirectly, for any failure to obtain knowledge of any Default or Event
of Default unless such accountants should have obtained knowledge
thereof in making an audit in accordance with generally accepted
auditing standards or did not make such an audit),
provided that the delivery within the time period specified above of
the Company's Annual Report on Form 10-K for such fiscal year (together
with the Company's annual report to shareholders, if any, prepared
pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance
with the requirements therefor and filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this
Section 7.1(b);
(c) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Company or any Restricted Subsidiary to
public securities holders generally, and (ii) each regular or periodic
report, each registration statement (without exhibits except as
expressly requested by such holder), and each prospectus and all
amendments thereto filed by the Company or any Restricted Subsidiary
with the Securities and Exchange Commission and of all press releases
and other statements made available generally by the Company or any
Restricted Subsidiary to the public concerning developments that are
Material;
(d) Notice of Default or Event of Default -- promptly, and in
any event within five days after a Responsible Officer obtains actual
knowledge of any Default or Event of Default or that any Person has
given any notice or taken any action with respect to a claimed default
hereunder or that any Person has given any notice or taken any action
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with respect to a claimed default of the type referred to in Section
11(f), a written notice specifying the nature and period of existence
thereof and what action the Company is taking or proposes to take with
respect thereto;
(e) ERISA Matters -- promptly, and in any event within five
days after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Company or an ERISA Affiliate proposes to take
with respect thereto:
(i) with respect to any Plan, any reportable event,
as defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived
pursuant to such regulations as in effect on the date hereof;
or
(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or
any ERISA Affiliate pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on
any of the rights, properties or assets of the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such
penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material
Adverse Effect;
(f) Notices from Governmental Authority -- promptly, and in
any event within 30 days of receipt thereof, copies of any notice to
the Company or any Restricted Subsidiary from any Federal or state
Governmental Authority relating to any order, ruling, statute or other
law or regulation that could reasonably be expected to have a Material
Adverse Effect;
(g) Supplements -- promptly and in any event within 10
Business Days after the execution and delivery of any Supplement, a
copy thereof; and
(h) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any such holder of Notes that is an
Institutional Investor.
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<PAGE> 21
Notwithstanding the foregoing, in the event that one or more
Unrestricted Subsidiaries shall either (i) own more than 10% of the total
consolidated assets of the Company and its Subsidiaries, or (ii) account for
more than 10% of the consolidated gross revenues of the Company and its
Subsidiaries, determined in each case in accordance with GAAP, then, within the
respective periods provided in Sections 7.1(a) and (b), above, the Company shall
deliver to each holder of Notes that is an Institutional Investor, financial
statements of the character and for the dates and periods as in said Sections
7.1(a) and (b) covering the group of Unrestricted Subsidiaries (on a
consolidated basis), together with a consolidating statement reflecting
eliminations or adjustments required to reconcile the financial statements of
such group of Unrestricted Subsidiaries to the financial statements delivered
pursuant to Sections 7.1(a) and (b).
Section 7.2. Officer's Certificate. Each set of financial statements
delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b)
hereof shall be accompanied by a certificate of a Senior Financial Officer
setting forth:
(a) Covenant Compliance -- the information (including
detailed calculations) required in order to establish whether the
Company was in compliance with the requirements of Section 10.2 through
Section 10.9 hereof, inclusive, during the quarterly or annual period
covered by the statements then being furnished (including with respect
to each such Section, where applicable, the calculations of the maximum
or minimum amount, ratio or percentage, as the case may be, permissible
under the terms of such Sections, and the calculation of the amount,
ratio or percentage then in existence); and
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Company and its Restricted Subsidiaries from the
beginning of the quarterly or annual period covered by the statements
then being furnished to the date of the certificate and that such
review shall not have disclosed the existence during such period of any
condition or event that constitutes a Default or an Event of Default
or, if any such condition or event existed or exists (including,
without limitation, any such event or condition resulting from the
failure of the Company or any Restricted Subsidiary to comply with any
Environmental Law), specifying the nature and period of existence
thereof and what action the Company shall have taken or proposes to
take with respect thereto.
Section 7.3. Inspection. The Company shall permit the representatives
of each holder of Notes that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice
to the Company, to visit the principal executive office of the Company,
to discuss the affairs, finances and accounts of the Company and its
Restricted Subsidiaries with the Company's officers and (with the
consent of the Company, which consent will not be unreasonably
withheld) its independent public accountants, and (with the consent of
the Company, which consent will not be unreasonably withheld) to visit
the other offices and properties of the
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<PAGE> 22
Company and each Restricted Subsidiary, all at such reasonable times
and as often as may be reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Company, to visit and inspect any of the offices
or properties of the Company or any Restricted Subsidiary, to examine
all their respective books of account, records, reports and other
papers, to make copies and extracts therefrom, and (with the consent of
the Company, which consent will not be unreasonably withheld) to
discuss their respective affairs, finances and accounts with their
respective officers and independent public accountants at the Company's
executive offices, all at such times and as often as may be requested.
SECTION 8. PREPAYMENT OF THE SERIES A NOTES.
Section 8.1. Required Prepayments. There shall be no principal
prepayments on any Tranche of the Series A Notes. The entire principal amount of
each Tranche of Series A Notes shall become due and payable on its respective
maturity date.
Section 8.2. Optional Prepayments with Make-Whole Amount. The Company
may, at its option, upon notice as provided below, prepay at any time all, or
from time to time any part of (but if in part then in a minimum principal amount
of $1,000,000), the outstanding Notes of any Series on any interest payment date
for the Notes of such Series at 100% of the principal amount so prepaid, and
accrued interest thereon to the date of prepayment, plus the Make-Whole Amount
determined for the prepayment date with respect to such principal amount of each
Note of the applicable Series then outstanding. The Company will give each
holder of Notes of the Series to be prepaid written notice of each optional
prepayment under this Section 8.2 not less than 30 days and not more than 60
days prior to the date fixed for such prepayment. Each such notice shall specify
such date, the aggregate principal amount of the Notes and each Series of Notes
to be prepaid on such date, the principal amount of each Note held by such
holder to be prepaid (determined in accordance with Section 8.3), and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid, and shall be accompanied by a certificate of a Senior Financial
Officer as to the estimated Make-Whole Amount due in connection with such
prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation. Two Business Days
prior to such prepayment, the Company shall deliver to each holder of Notes of
the Series to be prepaid a certificate of a Senior Financial Officer specifying
the calculation of such Make-Whole Amount as of the specified prepayment date.
Section 8.3. Allocation of Partial Prepayments. In the case of each
partial prepayment of the Notes pursuant to the provisions of Section 8.2, the
principal amount of the Notes of the Series to be prepaid shall be allocated
among all of the Notes of such Series at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof. All
regularly scheduled partial prepayments made with respect to any Additional
Series of Notes pursuant to any Supplement shall be allocated as therein
provided.
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Section 8.4. Maturity; Surrender, etc. In the case of each prepayment
of Notes pursuant to this Section 8, the principal amount of each Note to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such date
and the applicable Make-Whole Amount, if any. From and after such date, unless
the Company shall fail to pay such principal amount when so due and payable,
together with the interest and Make-Whole Amount, if any, as aforesaid, interest
on such principal amount shall cease to accrue. Any Note paid or prepaid in full
shall be surrendered to the Company and cancelled and shall not be reissued, and
no Note shall be issued in lieu of any prepaid principal amount of any Note.
Section 8.5. Purchase of Notes. The Company will not and will not
permit any Restricted Subsidiary or any Affiliate to purchase, redeem, prepay or
otherwise acquire, directly or indirectly, any of the outstanding Notes except
upon the payment or prepayment of the Notes in accordance with the terms of this
Agreement (including any Supplement hereto) and the Notes. The Company will
promptly cancel all Notes acquired by it or any Restricted Subsidiary or any
Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to
any provision of this Agreement and no Notes may be issued in substitution or
exchange for any such Notes.
Section 8.6. Make-Whole Amount for Series A Notes. The term "Make-Whole
Amount" means, with respect to a Series A Note of any Tranche, an amount equal
to the excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of the Series A Note of such
Tranche over the amount of such Called Principal, provided that the Make-Whole
Amount may in no event be less than zero. For the purposes of determining the
Make-Whole Amount, the following terms have the following meanings:
"Called Principal" means, with respect to a Series A Note of
any Tranche, the principal of such Series A Note that is to be prepaid
pursuant to Section 8.2 or has become or is declared to be immediately
due and payable pursuant to Section 12.1, as the context requires.
"Discounted Value" means, with respect to the Called Principal
of a Series A Note of any Tranche, the amount obtained by discounting
all Remaining Scheduled Payments with respect to such Called Principal
from their respective scheduled due dates to the Settlement Date with
respect to such Called Principal, in accordance with accepted financial
practice and at a discount factor (applied on the same periodic basis
as that on which interest on such Series A Note is payable) equal to
the Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of a Series A Note of any Tranche, 0.50% over the yield to
maturity implied by (i) the ask yields reported, as of 10:00 A.M. (New
York City time) on the second Business Day preceding the Settlement
Date with respect to such Called Principal, on the display designated
as "PX-1" on the Bloomberg Financial Market Services Screen (or such
other display as may replace Page PX-1 on Bloomberg Financial Market
Services Screen) for actively traded U.S. Treasury securities having a
maturity equal to the Remaining Average Life of
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<PAGE> 24
such Called Principal as of such Settlement Date, or (ii) if such
yields are not reported as of such time or the yields reported as of
such time are not ascertainable, the Treasury Constant Maturity Series
Yields reported, for the latest day for which such yields have been so
reported as of the second Business Day preceding the Settlement Date
with respect to such Called Principal, in Federal Reserve Statistical
Release H. 15 (519) (or any comparable successor publication) for
actively traded U.S. Treasury securities having a constant maturity
equal to the Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield will be determined, if necessary,
by (a) converting U.S. Treasury bill quotations to bond-equivalent
yields in accordance with accepted financial practice and (b)
interpolating linearly between (1) the actively traded U.S. Treasury
security with the maturity closest to and greater than the Remaining
Average Life and (2) the actively traded U.S. Treasury security with
the maturity closest to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of a Series A Note of any Tranche, all payments of
such Called Principal and interest thereon that would be due after the
Settlement Date with respect to such Called Principal if no payment of
such Called Principal were made prior to its scheduled due date,
provided that if such Settlement Date is not a date on which interest
payments are due to be made under the terms of such Series A Note, then
the amount of the next succeeding scheduled interest payment will be
reduced by the amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to Section 8.2 or
12.1.
"Settlement Date" means, with respect to the Called Principal
of a Series A Note of any Tranche, the date on which such Called
Principal is to be prepaid pursuant to Section 8.2 or has become or is
declared to be immediately due and payable pursuant to Section 12.1, as
the context requires.
SECTION 9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
Section 9.1. Compliance with Law. The Company will, and will cause each
of its Subsidiaries to, comply with all laws, ordinances or governmental rules
or regulations to which each of them is subject, including, without limitation,
Environmental Laws, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their
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respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 9.2. Insurance. The Company will, and will cause each of its
Restricted Subsidiaries to, maintain, with financially sound and reputable
insurers, insurance with respect to their respective properties and businesses
against such casualties and contingencies, of such types, on such terms and in
such amounts (including deductibles, co-insurance and self-insurance, if
adequate reserves are maintained with respect thereto) as is customary in the
case of entities of established reputations engaged in the same or a similar
business and similarly situated.
Section 9.3. Maintenance of Properties. The Company will, and will
cause each of its Restricted Subsidiaries to, maintain and keep, or cause to be
maintained and kept, their respective properties in good repair, working order
and condition (other than ordinary wear and tear), so that the business carried
on in connection therewith may be properly conducted at all times, provided that
this Section shall not prevent the Company or any Restricted Subsidiary from
discontinuing the operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and the Company has
concluded that such discontinuance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Section 9.4. Payment of Taxes and Claims. The Company will, and will
cause each of its Subsidiaries to, file all tax returns required to be filed in
any jurisdiction and to pay and discharge all taxes shown to be due and payable
on such returns and all other taxes, assessments, governmental charges, or
levies imposed on them or any of their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent and all claims for which sums have become due and
payable that have or might become a Lien on properties or assets of the Company
or any Subsidiary, provided that neither the Company nor any Subsidiary need pay
any such tax or assessment or claims if (i) the amount, applicability or
validity thereof is contested by the Company or such Restricted Subsidiary on a
timely basis in good faith and in appropriate proceedings, and the Company or a
Subsidiary has established adequate reserves therefor in accordance with GAAP on
the books of the Company or such Subsidiary or (ii) the nonpayment of all such
taxes and assessments in the aggregate could not reasonably be expected to have
a Material Adverse Effect.
Section 9.5. Corporate Existence, etc. Subject to Sections 10.6 and
10.7, the Company will at all times preserve and keep in full force and effect
its corporate existence and the Company will at all times preserve and keep in
full force and effect the corporate existence of each of its Restricted
Subsidiaries (unless merged into the Company or a Restricted Subsidiary) and all
rights and franchises of the Company and its Restricted Subsidiaries unless, in
the good faith judgment of the Company, the termination of or failure to
preserve and keep in full force and effect such corporate existence, right or
franchise could not, individually or in the aggregate, have a Material Adverse
Effect.
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SECTION 10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
Section 10.1. Transactions with Affiliates. The Company will not and
will not permit any Restricted Subsidiary to enter into directly or indirectly
any transaction or Material group of related transactions (including without
limitation the purchase, lease, sale or exchange of properties of any kind or
the rendering of any service) with any Affiliate, except in the ordinary course
and pursuant to the reasonable requirements of the Company's or such Restricted
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Restricted Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate.
Section 10.2. Consolidated Net Worth. The Company will not at any time
permit Consolidated Net Worth to be less than:
(a) for the fiscal year ending on December 31, 1998, the sum
of (i) $215,000,000 plus (ii) 25% of Consolidated Net Income (but only
if a positive number) for the 3 or 6 month period, as the case may be,
beginning on July 1, 1998 and ending as of the end of each completed
fiscal quarter of such fiscal year; and
(b) for each fiscal year thereafter, the sum of (i) the amount
of Consolidated Net Worth required to be maintained as of the end of
the immediately preceding fiscal year, plus (ii) 25% of Consolidated
Net Income (but only if a positive number) for the 3, 6, 9 or 12 month
period, as the case may be, beginning on the first day of such fiscal
year and ending as of the end of each completed fiscal quarter of such
fiscal year.
Section 10.3. Limitations on Debt. The Company will not at any time
permit Consolidated Debt to exceed 50% of Consolidated Total Capitalization.
Section 10.4. Limitations on Priority Debt. The Company will not, and
will not permit any Restricted Subsidiary to, create, assume or incur or in any
manner be or become liable in respect of any Priority Debt, unless at the time
of issuance thereof and after giving effect thereto and to the application of
the proceeds thereof, Priority Debt shall not exceed 20% of Consolidated Net
Worth.
Any corporation which becomes a Restricted Subsidiary after the date of
this Agreement shall, for all purposes of this Section 10.4, be deemed to have
created, assumed or incurred, at the time it becomes a Restricted Subsidiary,
all Priority Debt of such corporation existing immediately after it becomes a
Restricted Subsidiary.
Section 10.5. Limitation on Liens. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly create,
incur, assume or permit to exist (upon the happening of a contingency or
otherwise) any Lien on or with respect to any property or asset (including,
without limitation, any document or instrument in respect of goods or accounts
receivable) of the Company or any such Restricted Subsidiary, whether now owned
or held or
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hereafter acquired, or any income or profits therefrom, or assign or otherwise
convey any right to receive income or profits (unless it makes, or causes to be
made, effective provision whereby the Notes will be equally and ratably secured
with any and all other obligations thereby secured so long as such other Debt
shall be so secured, such security to be pursuant to an agreement reasonably
satisfactory in the good faith judgment of the holders of more than 50% in
aggregate principal amount of the Notes of all Series then outstanding and, in
any such case, the Notes shall have the benefit, to the fullest extent that, and
with such priority as, the holders of the Notes may be entitled under applicable
law, of an equitable Lien on such property), except:
(a) Liens for property taxes and assessments or governmental
charges or levies and Liens securing claims or demands of mechanics and
materialmen, provided payment thereof is not at the time required by
Section 9.4;
(b) Liens incidental to the normal conduct of business of the
Company or any Restricted Subsidiary or to secure claims for labor,
materials or supplies in respect of obligations not overdue or in
connection with the ownership of its property (including Liens in
connection with worker's compensation, unemployment insurance and other
like laws, warehousemen's and attorney's liens and statutory landlords'
liens) which are not incurred in connection with the incurrence of Debt
or the borrowing of money and which do not in the aggregate Materially
impair the use of such property in the operation of the business of the
Company and its Restricted Subsidiaries, taken as a whole, or the value
of such property for the purpose of such business;
(c) Liens created by or resulting from any litigation or
legal proceeding which is currently being contested in good faith by
appropriate proceedings or which result from a final, nonappealable
judgment which is satisfied, or whose satisfaction is assured by the
posting of a bond or other collateral, within 60 days after such
judgment becomes final and nonappealable;
(d) Liens of carriers, warehousemen, mechanics and
materialmen, and other like Liens, in existence less than 60 days (or
in the case of any Lien with respect to which the underlying claim
shall currently be contested by the Company or such Restricted
Subsidiary in good faith by appropriate proceedings, the period of time
during which such Lien is being contested) from the date of creation
thereof in respect of obligations not overdue or deposits to obtain the
release of such Liens;
(e) Liens securing Debt of a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;
(f) Liens existing as of the date of Closing and reflected in
Schedule 10.5;
(g) minor survey exceptions or minor encumbrances, easements
or reservations, or rights of others for rights-of-way, utilities and
other similar purposes, or zoning or other restrictions as to the use
of real properties, which are necessary for the conduct of the
activities of the Company and its Restricted Subsidiaries or which
customarily exist on real properties of corporations engaged in similar
activities and
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similarly situated and which do not in any event Materially detract
from the value of such real property;
(h) leases or subleases granted to any Person by the Company
or any Restricted Subsidiary, as lessor or sublessor, on any property
owned or leased by the Company or any Restricted Subsidiary, provided
that in each case such lease or sublease shall not Materially detract
from the value of the property leased or subleased;
(i) Liens incurred after the date of Closing given to secure
the payment of the purchase price incurred in connection with the
acquisition or construction of property (other than accounts receivable
or inventory) useful and intended to be used in carrying on the
business of the Company or a Restricted Subsidiary, including Liens
existing on such property at the time of acquisition or construction
thereof, or Liens incurred within 180 days of such acquisition or the
completion of such construction, provided that (i) the Lien shall
attach solely to the property acquired, purchased or constructed, (ii)
at the time of acquisition or construction of such property, the
aggregate amount remaining unpaid on all Debt secured by Liens on such
property, whether or not assumed by the Company or a Restricted
Subsidiary, shall not exceed an amount equal to the lesser of the total
purchase price or fair market value at the time of acquisition or
construction of such property (as determined in good faith by one or
more officers to whom authority to enter into the transaction has been
delegated by the Board of Directors of the Company), and (iii) the
aggregate principal amount of all Debt secured by such Liens shall be
permitted by the limitations set forth in Section 10.3;
(j) any extensions, renewals or replacements of any Lien
permitted by the preceding subparagraphs (e), (f) or (i) of this
Section 10.5, provided that (i) no additional property shall be
encumbered by such Liens, (ii) the unpaid principal amount of the Debt
secured thereby shall not be increased on or after the date of any
extension, renewal or replacement, (iii) the weighted average life to
maturity of the Debt secured by such Liens shall not be reduced, and
(iv) at such time and immediately after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing; and
(k) in addition to the Liens permitted by the preceding
subparagraphs (a) through (j), inclusive, of this Section 10.5, Liens
securing Priority Debt of the Company or any Restricted Subsidiary,
provided that such Priority Debt shall be permitted by the applicable
limitations set forth in Section 10.4.
Section 10.6. Sales of Assets. The Company will not, and will not permit
any Restricted Subsidiary to, sell, lease or otherwise dispose of any
substantial part (as defined below) of the assets of the Company and its
Restricted Subsidiaries; provided, however, that the Company or any Restricted
Subsidiary may sell, lease or otherwise dispose of assets constituting a
substantial part of the assets of the Company and its Restricted Subsidiaries
(including any assets sold pursuant to asset securitization transactions) if, at
such time and after giving effect thereto, no Default or Event of Default shall
have occurred and be continuing and an amount equal to the net proceeds received
from such sale, lease or other disposition shall be used:
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(1) within one year of such sale, lease or disposition, to
acquire property, plant and equipment used or useful in carrying on the
business of the Company and its Restricted Subsidiaries (or the Company
or any Restricted Subsidiary shall be unconditionally committed to
acquire such property) and having a value at least equal to the value
of such assets sold, leased or otherwise disposed of; or
(2) to prepay or retire Senior Debt of the Company and/or its
Restricted Subsidiaries, in which case the Notes will be prepaid,
ratably in accordance with the unpaid principal amount of such Senior
Debt, in compliance with Section 8.2.
As used in this Section 10.6, a sale, lease or other disposition of
assets shall be deemed to be a "substantial part" of the assets of the Company
and its Restricted Subsidiaries if the book value of such assets, when added to
the book value of all other assets sold, leased or otherwise disposed of by the
Company and its Restricted Subsidiaries (other than in transactions in the
ordinary course of business, Excluded Dispositions and Excluded Sale and
Leaseback Transactions) (i) during any fiscal year of the Company, exceeds 15%
of the book value of Consolidated Total Assets, determined as of the end of the
fiscal year immediately preceding such sale, lease or other disposition, or (ii)
during the period beginning on the date of Closing and ending on the date of
such sale, lease or other disposition, exceeds 30% of the book value of
Consolidated Total Assets, determined as of the end of the fiscal year
immediately preceding such sale, lease or other disposition.
Section 10.7. Merger, Consolidation and Sale of Stock. The Company will
not, and will not permit any Restricted Subsidiary to, consolidate with or be a
party to a merger with any other corporation; provided, however, that:
(1) any Restricted Subsidiary may merge or consolidate with
or into the Company or any other Person, so long as in any merger or
consolidation involving the Company, the Company shall be the surviving
or continuing corporation and in any merger involving a Restricted
Subsidiary, such Restricted Subsidiary or another Restricted Subsidiary
is the surviving or continuing entity; and
(2) the Company may consolidate or merge with any other
Person if (i) either (x) the Company shall be the surviving or
continuing corporation, or (y) if the surviving or continuing entity is
other than the Company, (A) such entity is organized under the laws of
the United States or any jurisdiction thereof, (B) such entity
expressly assumes, by written agreement satisfactory in scope and form
to the holders of more than 50% in aggregate principal amount of the
outstanding Notes, all obligations of the Company under the Notes and
this Agreement (C) such entity would be permitted to incur at least
$1.00 of additional Priority Debt under the limitations of Section 10.4
and (D) such entity shall cause to be delivered to each holder of Notes
an opinion of independent counsel to the effect that all agreements or
instruments effecting such assumption are enforceable in accordance
with their terms and comply with the provisions of this Section 10.7
and otherwise satisfactory in scope and form to the holders of more
than 50% in aggregate principal amount of the outstanding Notes, and
(ii) at the time of such consolidation or
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merger and after giving effect thereto, no Default or Event of Default
shall have occurred and be continuing.
Section 10.8. Non-Significant Subsidiaries. The Company will not and
will not permit the Non-Significant Subsidiaries to account for more than 25% of
Consolidated Total Assets or more than 25% of Consolidated Total Revenue.
Section 10.9. Designation of Restricted and Unrestricted Subsidiaries.
(a) The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary and may designate any Restricted
Subsidiary as an Unrestricted Subsidiary, provided that (i) at such time and
immediately after giving effect thereto (x) the Company would be permitted to
incur at least $1.00 of additional Priority Debt under the limitations of
Section 10.4, and (y) no Default or Event of Default shall have occurred and be
continuing, and (ii) the designation of such Subsidiary as Restricted or
Unrestricted shall not be changed pursuant to this Section 10.9 on more than two
occasions, provided further that First Chemical Corporation, Quality Chemicals,
Inc. and EKC Technologies, Inc. shall at all times be designated as Restricted
Subsidiaries. The Company shall, within 10 days after the designation of any
Subsidiary as Restricted or Unrestricted, give written notice of such action to
each holder of a Note.
(b) The Company acknowledges and agrees that if, after the date hereof,
any Person becomes a Restricted Subsidiary, all Debt, leases and other
obligations and all Liens and Investments of such Person existing as of the date
such Person becomes a Restricted Subsidiary shall be deemed, for all purposes of
this Agreement, to have been incurred, entered into, made or created at the same
time such Person so becomes a Restricted Subsidiary.
Section 10.10. Nature of Business. Neither the Company nor any Restricted
Subsidiary will engage in any business if, as a result, the general nature of
the business, taken on a consolidated basis, which would then be engaged in by
the Company and its Restricted Subsidiaries would be substantially changed from
the general nature of the business engaged in by the Company and its Restricted
Subsidiaries on the date of this Agreement.
SECTION 11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on
any Note for more than five Business Days after the same becomes due
and payable; or
(c) the Company defaults in the performance of or compliance
with any term contained in Section 10; or
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(d) the Company defaults in the performance of or compliance
with any term contained herein or in any Supplement (other than those
referred to in paragraphs (a), (b) and (c) of this Section 11) and such
default is not remedied within 30 days after the earlier of (i) a
Responsible Officer obtaining actual knowledge of such default and (ii)
the Company receiving written notice of such default from any holder of
a Note (any such written notice to be identified as a "notice of
default" and to refer specifically to this paragraph (d) of Section
11); or
(e) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this
Agreement or any Supplement or in any writing furnished in connection
with the transactions contemplated hereby or thereby proves to have
been false or incorrect in any material respect on the date as of which
made; or
(f) (i) the Company or any Significant Subsidiary is in
default in the performance of or compliance with any term (including
default in the payment of any principal of, premium or make-whole
amount or interest) of any evidence of any Debt in an aggregate
outstanding principal amount exceeding 5% of Consolidated Net Worth or
of any mortgage, indenture or other agreement relating thereto or any
other condition exists, and as a consequence of such default or
condition such Debt has become, or has been declared (or one or more
Persons are entitled to declare such Debt to be), due and payable
before its stated maturity or before its regularly scheduled dates of
payment, or (ii) as a consequence of the occurrence or continuation of
any event or condition (other than the passage of time or the right of
the holder of Debt to convert such Debt into equity interests), (x) the
Company or any Significant Subsidiary has become obligated to purchase
or repay Debt before its regular maturity or before its regularly
scheduled dates of payment in an aggregate outstanding principal amount
of at least exceeding 5% of Consolidated Net Worth, or (y) one or more
Persons have the right to require the Company or any Significant
Subsidiary so to purchase or repay such Debt; or
(g) the Company or any of its Significant Subsidiaries (i) is
generally not paying, or admits in writing its inability to pay, its
debts as they become due, (ii) files, or consents by answer or
otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction,
(iii) makes an assignment for the benefit of its creditors, (iv)
consents to the appointment of a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, (v) is adjudicated as insolvent or to
be liquidated, or (vi) takes corporate action for the purpose of any of
the foregoing; or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Company
or any of its Significant Subsidiaries, a custodian, receiver, trustee
or other officer with similar powers with respect to it or with respect
to any substantial part of its property, or constituting an order for
relief or approving a petition for relief or reorganization or any
other petition in bankruptcy or for
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liquidation or to take advantage of any bankruptcy or insolvency law of
any jurisdiction, or ordering the dissolution, winding-up or
liquidation of the Company or any of its Significant Subsidiaries, or
any such petition shall be filed against the Company or any of its
Significant Subsidiaries and such petition shall not be dismissed
within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of 5% of Consolidated Net Worth are rendered
against one or more of the Company or any of its Significant
Subsidiaries and which judgments are not, within 60 days after entry
thereof, bonded, discharged or stayed pending appeal, or are not
discharged within 60 days after the expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably expected
to be filed with the PBGC or the PBGC shall have instituted proceedings
under ERISA section 4042 to terminate or appoint a trustee to
administer any Plan or the PBGC shall have notified the Company or any
ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of section 4001(a)(18) of ERISA) under
all Plans, determined in accordance with Title IV of ERISA, shall
exceed 5% of Consolidated Net Worth, (iv) the Company or any ERISA
Affiliate shall have incurred or is reasonably expected to incur any
liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (v) the
Company or any ERISA Affiliate withdraws from any Multiemployer Plan,
or (vi) the Company or any Restricted Subsidiary establishes or amends
any employee welfare benefit plan that provides post-employment welfare
benefits in a manner that would increase the liability of the Company
or any Restricted Subsidiary thereunder; and any such event or events
described in clauses (i) through (vi) above, either individually or
together with any other such event or events, could reasonably be
expected to have a Material Adverse Effect.
As used in Section 11(j), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
SECTION 12. REMEDIES ON DEFAULT, ETC.
Section 12.1. Acceleration. (a) If an Event of Default with respect to
the Company described in paragraph (g) or (h) of Section 11 (other than an Event
of Default described in clause (i) of paragraph (g) or described in clause (vi)
of paragraph (g) by virtue of the fact that such clause encompasses clause (i)
of paragraph (g)) has occurred, all the Notes of every Series then outstanding
shall automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing, any
holder or holders of more than 50% in aggregate principal amount of the Notes of
all Series at the time outstanding may at any time at its or their option, by
notice or notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.
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(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing with respect to any Series of Notes,
any holder or holders of Notes of such Series at the time outstanding affected
by such Event of Default may at any time, at its or their option, by notice or
notices to the Company, declare all the Notes of such Series held by it or them
to be immediately due and payable.
Upon any Note becoming due and payable under this Section 12.1, whether
automatically or by declaration, such Note will forthwith mature and the entire
unpaid principal amount of such Note, plus (x) all accrued and unpaid interest
thereon and (y) the Make-Whole Amount determined in respect of such principal
amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for), and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
Section 12.2. Other Remedies. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Notes have become or
have been declared immediately due and payable under Section 12.1, the holder of
any Note at the time outstanding may proceed to protect and enforce the rights
of such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in any Note, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exercise of any power granted hereby
or thereby or by law or otherwise.
Section 12.3. Rescission. At any time after any Notes of any Series have
been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the
holders of more than 50% in aggregate principal amount of the Notes of all
Series then outstanding, by written notice to the Company, may rescind and annul
any such declaration and its consequences if (a) the Company has paid all
overdue interest on the Notes of such Series, all principal of and Make-Whole
Amount, if any, on any Notes of such Series that are due and payable and are
unpaid other than by reason of such declaration, and all interest on such
overdue principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes of such Series, at
the Default Rate, (b) all Events of Default and Defaults, other than non-payment
of amounts that have become due solely by reason of such declaration, have been
cured or have been waived pursuant to Section 17, and (c) no judgment or decree
has been entered for the payment of any monies due pursuant hereto or to any
Note. No rescission and annulment under this Section 12.3 will extend to or
affect any subsequent Event of Default or Default or impair any right consequent
thereon.
Section 12.4. No Waivers or Election of Remedies, Expenses, etc. No
course of dealing and no delay on the part of any holder of any Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or
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hereafter available at law, in equity, by statute or otherwise. Without limiting
the obligations of the Company under Section 15, the Company will pay to the
holder of each Note on demand such further amount as shall be sufficient to
cover all costs and expenses of such holder incurred in any enforcement or
collection under this Section 12, including, without limitation, reasonable
attorneys' fees, expenses and disbursements.
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
Section 13.1. Registration of Notes. The Company shall keep at its
principal executive office a register for the registration and registration of
transfers of Notes. The name and address of each holder of one or more Notes,
each transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an
Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered holders of Notes.
Section 13.2. Transfer and Exchange of Notes. Upon surrender of any Note
at the principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or its attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Note or part
thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Notes (as requested by the holder
thereof) of an identical Series (and of an identical tranche if such Series has
separate tranches) in exchange therefor, in an aggregate principal amount equal
to the unpaid principal amount of the surrendered Note. Each such new Note shall
be payable to such Person as such holder may request and shall be substantially
in the form of the Note of such Series originally issued hereunder or pursuant
to any Supplement. Each such new Note shall be dated and bear interest from the
date to which interest shall have been paid on the surrendered Note or dated the
date of the surrendered Note if no interest shall have been paid thereon. The
Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $100,000, provided that
if necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $100,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
Section 6.2, provided that such holder may (in reliance upon information
provided by the Company, which shall not be unreasonably withheld) make a
representation to the effect that the purchase by such holder of any Note will
not constitute a non-exempt prohibited transaction under Section 406(a) of
ERISA.
Section 13.3. Replacement of Notes. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note (which evidence shall be, in the case of
an Institutional Investor, notice from such Institutional Investor of such
ownership and such loss, theft, destruction or mutilation), and
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(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, an original Purchaser or another holder of a
Note with a minimum net worth of at least $10,000,000, such Person's
own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and
cancellation thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note of an identical Series (and of an identical tranche if such Series has
separate tranches), dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note if no interest shall
have been paid thereon.
SECTION 14. PAYMENTS ON NOTES.
Section 14.1. Place of Payment. Subject to Section 14.2, payments of
principal, Make-Whole Amount, if any, and interest becoming due and payable on
the Notes shall be made in Chicago, Illinois at the principal office of Bank of
America in such jurisdiction. The Company may at any time, by notice to each
holder of a Note, change the place of payment of the Notes so long as such place
of payment shall be either the principal office of the Company in such
jurisdiction or the principal office of a bank or trust company in such
jurisdiction.
Section 14.2. Home Office Payment. So long as any Purchaser or any
Purchaser's nominee shall be the holder of any Note, and notwithstanding
anything contained in Section 14.1 or in such Note to the contrary, the Company
will pay all sums becoming due on such Note for principal, Make-Whole Amount, if
any, and interest by the method and at the address specified for such purpose in
Schedule A hereto or Schedule A attached to any Supplement, or by such other
method or at such other address as such Purchaser shall have from time to time
specified to the Company in writing for such purpose, without the presentation
or surrender of such Note or the making of any notation thereon, except that
upon written request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of any Note, such Purchaser shall
surrender such Note for cancellation, reasonably promptly after any such
request, to the Company at its principal executive office or at the place of
payment most recently designated by the Company pursuant to Section 14.1. Prior
to any sale or other disposition of any Note held by such Purchaser or such
Purchaser's nominee such Purchaser will, at its election, either endorse thereon
the amount of principal paid thereon and the last date to which interest has
been paid thereon or surrender such Note to the Company in exchange for a new
Note or Notes pursuant to Section 13.2. The Company will afford the benefits of
this Section 14.2 to any Institutional Investor that is the direct or indirect
transferee of any Note.
SECTION 15. EXPENSES, ETC.
Section 15.1. Transaction Expenses. Whether or not the transactions
contemplated hereby are consummated, the Company will pay all costs and expenses
(including
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reasonable attorneys' fees of a special counsel and, if reasonably required,
local or other counsel) incurred by each Purchaser and each other holder of a
Note in connection with such transactions and in connection with any amendments,
waivers or consents under or in respect of this Agreement or the Notes (whether
or not such amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend) any rights under this Agreement
or the Notes or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the Notes, or
by reason of being a holder of any Note, and (b) the costs and expenses,
including financial advisors' fees, incurred in connection with the insolvency
or bankruptcy of the Company or any Subsidiary or in connection with any
work-out or restructuring of the transactions contemplated hereby and by the
Notes. The Company will pay, and will save each Purchaser and each other holder
of a Note harmless from, all claims in respect of any fees, costs or expenses,
if any, of brokers and finders (other than those retained by the Purchasers).
Section 15.2. Survival. The obligations of the Company under this
Section 15 will survive the payment or transfer of any Note, the enforcement,
amendment or waiver of any provision of this Agreement, any Supplement or the
Notes, and the termination of this Agreement or any Supplement.
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein or in any
Supplement shall survive the execution and delivery of this Agreement, such
Supplement and the Notes, the purchase or transfer by any Purchaser or any
Additional Purchaser of any Note or portion thereof or interest therein, and may
be relied upon by any subsequent holder of a Note, regardless of any
investigation made at any time by or on behalf of any Purchaser or any
Additional Purchaser or any other holder of a Note. All statements contained in
any certificate or other instrument delivered by or on behalf of the Company
pursuant to this Agreement or any Supplement shall be deemed representations and
warranties of the Company under this Agreement. Subject to the preceding
sentence, this Agreement (including every Supplement) and the Notes embody the
entire agreement and understanding between the Purchasers and the Additional
Purchasers and the Company and supersede all prior agreements and understandings
relating to the subject matter hereof.
SECTION 17. AMENDMENT AND WAIVER.
Section 17.1. Requirements. (a) This Agreement (including any Supplement
hereto) and the Notes may be amended, and the observance of any term hereof or
of the Notes may be waived (either retroactively or prospectively), with (and
only with) the written consent of the Company and the holders of Notes holding
more than 50% in aggregate principal amount of the Notes at the time
outstanding, except that (a) no amendment or waiver of any of the provisions of
Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used
therein), will be effective as to any Purchaser unless consented to by such
Purchaser in writing, and (b) no such amendment or waiver may, without the
unanimous written consent of all of the holders of Notes of all Series
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at the time outstanding, (i) subject to the provisions of Section 12 relating to
acceleration or rescission, change the amount or time of any prepayment or
payment of principal of, or reduce the rate or change the time of payment or
method of computation of interest or of the Make-Whole Amount on, the Notes of
such Series, (ii) change the percentage of the principal amount of the Notes the
holders of which are required to consent to any such amendment or waiver, or
(iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20. For purposes of this
Section 17.1, any amendment to Section 11 which gives the holders of Notes of
any Series greater rights than the holders of Notes of any other Series with
respect to any Default or Event of Default shall require the consent of more
than 50% in aggregate principal amount of the Notes of each Series.
(b) Supplements. Notwithstanding anything to the contrary contained
herein, the Company may enter into any Supplement providing for the issuance of
one or more Series of Additional Notes consistent with Sections 2.2 and 4.11
hereof without obtaining the consent of any holder of any other Series of Notes.
Section 17.2. Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any holder of
Notes of any waiver or amendment of any of the terms and provisions hereof
unless such remuneration is concurrently paid, or security is concurrently
granted, on the same terms, ratably to each holder of Notes then outstanding
even if such holder did not consent to such waiver or amendment.
Section 17.3. Binding Effect, etc. Any amendment or waiver consented to
as provided in this Section 17 applies equally to all holders of Notes and is
binding upon them and upon each future holder of any Note and upon the Company
without regard to whether such Note has been marked to indicate such amendment
or waiver. No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein, the term "this Agreement" and references thereto shall
mean this Agreement as it may from time to time be amended or supplemented.
-32-
<PAGE> 38
Section 17.4. Notes Held by Company, etc. Solely for the purpose of
determining whether the holders of the requisite percentage of the aggregate
principal amount of Notes then outstanding approved or consented to any
amendment, waiver or consent to be given under this Agreement or the Notes, or
have directed the taking of any action provided herein or in the Notes to be
taken upon the direction of the holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by the Company, any Restricted Subsidiary or any of its
Affiliates shall be deemed not to be outstanding.
SECTION 18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telefacsimile if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to a Purchaser or such Purchaser's nominee, to such
Purchaser or it at the address specified for such communications in
Schedule A, or at such other address as such Purchaser or it shall have
specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at
such address as such other holder shall have specified to the Company
in writing, or
(iii) if to the Company, to the Company at its address set
forth at the beginning hereof to the attention of Chief Financial
Officer, or at such other address as the Company shall have specified
to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
SECTION 19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by any holder of Notes at the time such Notes
were issued (except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to any
holder of Notes, may be reproduced by such holder by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar
process and such holder may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by a Purchaser in the
regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
Section 19 shall not prohibit the Company or any other holder of Notes from
contesting any such reproduction to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.
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<PAGE> 39
SECTION 20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential Information" means
information delivered to any Purchaser by or on behalf of the Company or any
Restricted Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by
such Purchaser as being confidential information of the Company or such
Restricted Subsidiary, provided that such term does not include information that
(a) was publicly known or otherwise known to such Purchaser prior to the time of
such disclosure, (b) subsequently becomes publicly known through no act or
omission by such Purchaser or any Person acting on its behalf, (c) otherwise
becomes known to such Purchaser other than through disclosure by the Company or
any Restricted Subsidiary or (d) constitutes financial statements delivered to
such Purchaser under Section 7.1 that are otherwise publicly available. Each
Purchaser will maintain the confidentiality of such Confidential Information in
accordance with procedures adopted by such Purchaser in good faith to protect
confidential information of third parties delivered to such Purchaser, provided
that such Purchaser may deliver or disclose Confidential Information to (i) such
Purchaser's directors, trustees, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably relates to the
administration of the investment represented by such Purchaser's Notes), (ii)
such Purchaser's financial advisors and other professional advisors who agree to
hold confidential the Confidential Information substantially in accordance with
the terms of this Section 20, (iii) any other holder of any Note, (iv) any
Institutional Investor to which such Purchaser sells or offers to sell such Note
or any part thereof or any participation therein (if such Person has agreed in
writing prior to its receipt of such Confidential Information to be bound by the
provisions of this Section 20), (v) any Person from which such Purchaser offers
to purchase any security of the Company (if such Person has agreed in writing
prior to its receipt of such Confidential Information to be bound by the
provisions of this Section 20), (vi) any federal or state regulatory authority
having jurisdiction over such Purchaser, (vii) the National Association of
Insurance Commissioners or any similar organization, or any nationally
recognized rating agency that requires access to information about such
Purchaser's investment portfolio or (viii) any other Person to which such
delivery or disclosure may be necessary or appropriate (w) to effect compliance
with any law, rule, regulation or order applicable to such Purchaser, (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which such Purchaser is a party or (z) if an Event of Default has
occurred and is continuing, to the extent such Purchaser may reasonably
determine such delivery and disclosure to be necessary or appropriate in the
enforcement or for the protection of the rights and remedies under such
Purchaser's Notes and this Agreement. Each holder of a Note, by its acceptance
of a Note, will be deemed to have agreed to be bound by and to be entitled to
the benefits of this Section 20 as though it were a party to this Agreement. On
reasonable request by the Company in connection with the delivery to any holder
of a Note of information required to be delivered to such holder under this
Agreement or requested by such holder (other than a holder that is a party to
this Agreement or its nominee), such holder will enter into an agreement with
the Company embodying the provisions of this Section 20.
-34-
<PAGE> 40
SECTION 21. SUBSTITUTION OF PURCHASER.
Each Purchaser shall have the right to substitute any one of such
Purchaser's Affiliates as the purchaser of the Notes that such Purchaser has
agreed to purchase hereunder, by written notice to the Company, which notice
shall be signed by both such Purchaser and such Affiliate, shall contain such
Affiliate's agreement to be bound by this Agreement and shall contain a
confirmation by such Affiliate of the accuracy with respect to it of the
representations set forth in Section 6. Upon receipt of such notice, wherever
the word "Purchaser" is used in this Agreement (other than in this Section 21),
such word shall be deemed to refer to such Affiliate in lieu of such Purchaser.
In the event that such Affiliate is so substituted as a purchaser hereunder and
such Affiliate thereafter transfers to such Purchaser all of the Notes then held
by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "Purchaser" is used in this Agreement (other than in this
Section 21), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to such Purchaser, and such Purchaser shall have all the rights of
an original holder of the Notes under this Agreement.
SECTION 22. MISCELLANEOUS.
Section 22.1. Successors and Assigns. All covenants and other agreements
contained in this Agreement (including all covenants and other agreements
contained in any Supplement) by or on behalf of any of the parties hereto bind
and inure to the benefit of their respective successors and assigns (including,
without limitation, any subsequent holder of a Note) whether so expressed or
not.
Section 22.2. Payments Due on Non-Business Days. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of principal
of or Make-Whole Amount or interest on any Note that is due on a date other than
a Business Day shall be made on the next succeeding Business Day without
including the additional days elapsed in the computation of the interest payable
on such next succeeding Business Day.
Section 22.3. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
Section 22.4. Construction. Each covenant contained herein shall be
construed (absent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, the same shall be done in accordance with GAAP, to
-35-
<PAGE> 41
the extent applicable, except where such principles are inconsistent with the
express requirements of this Agreement.
Section 22.5. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which together
shall constitute one instrument. Each counterpart may consist of a number of
copies hereof, each signed by less than all, but together signed by all, of the
parties hereto.
Section 22.6. Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of Illinois excluding choice-of-law principles of the law
of such State that would require the application of the laws of a jurisdiction
other than such State.
* * * * *
-36-
<PAGE> 42
The execution hereof by the Purchasers shall constitute a contract
among the Company and the Purchasers for the uses and purposes hereinabove set
forth. This Agreement may be executed in any number of counterparts, each
executed counterpart constituting an original but all together only one
agreement.
CHEMFIRST INC.
By: /s/ Max P. Bowman
Printed Name: Max P. Bowman
Its: Treasurer
ChemFirst Inc.
700 North Street
Jackson, Mississippi 39202-3095
-37-
<PAGE> 43
Accepted as of the first date written above.
STATE FARM LIFE INSURANCE COMPANY
By: /s/ Donald E. Heltner
Name: Donald E. Heltner
Title: Vice President - Taxable Fixed
Income
By: /s/ Lyle Triebwasser
Name: Lyle Triebwasser
Title: Senior Investment Officer
NATIONWIDE LIFE INSURANCE COMPANY
By: /s/ Mark W. Poeppelman
Name: Mark W. Poeppelman
Title: Authorized Signatory
-38-
<PAGE> 44
INFORMATION RELATING TO PURCHASERS
PRINCIPAL AMOUNT OF
NAME AND ADDRESS TRANCHE A
OF PURCHASERS NOTES TO BE PURCHASED
STATE FARM LIFE INSURANCE COMPANY $10,000,000
One State Farm Plaza
Bloomington, Illinois 61710
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
ChemFirst, Inc., Series A, Tranche A, 6.50% Senior Notes due 2003, PPN 16361 A*
7, principal, premium or interest) to:
The Chase Manhattan Bank
ABA #021000021
SSG Private Income Processing
A/C #900-9-000200
for Credit to: Account Number G 06893
Ref. PPN #16361 A* 7
Rate: 6.50%
Maturity Date: 2003
Notices
All notices with respect to payment, and written confirmation of each such
payment, to be addressed to:
State Farm Life Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710
Attention: Investment Accounting Dept. D-3
Address for all other communications:
State Farm Life Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710
Attention: Investment Department E-10
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 37-0533090
SCHEDULE A
(to Note Purchase Agreement)
<PAGE> 45
PRINCIPAL AMOUNT OF
NAME AND ADDRESS TRANCHE A
OF PURCHASERS NOTES TO BE PURCHASED
NATIONWIDE LIFE INSURANCE COMPANY $5,000,000
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-Income Securities
Telefacsimile: (614) 249-4553
Confirmation: (614) 249-7882
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
ChemFirst, Inc., Series A, Tranche A, 6.50% Senior Notes due 2003, PPN 16361A A*
7, principal, premium or interest) to:
The Bank of New York
ABA #021-000-018
BNF: IOC566
F/A/O Nationwide Life Insurance Company
Attention: P&I Department
Notices
All notices of payment on or in respect of the Notes and written confirmation of
each such payment to:
Nationwide Life Insurance Company
c/o The Bank of New York
P. O. Box 19266
Newark, New Jersey 07195
Attention: P&I Department
With a copy to:
Nationwide Life Insurance Company
One Nationwide Plaza (1-32-05)
Columbus, Ohio 43215-2220
Attention: Investment Accounting
All notices and communications other than those in respect to payments to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 31-4156830
A-2
<PAGE> 46
PRINCIPAL AMOUNT OF
NAME AND ADDRESS TRANCHE B
OF PURCHASERS NOTES TO BE PURCHASED
STATE FARM LIFE INSURANCE COMPANY $5,000,000
One State Farm Plaza
Bloomington, Illinois 61710
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
ChemFirst, Inc., Series A, Tranche B, 6.75% Senior Notes due 2005, PPN 16361A A@
5, principal, premium or interest) to:
The Chase Manhattan Bank
ABA #021000021
SSG Private Income Processing
A/C #900-9-000200
for Credit to: Account Number G 06893
Ref. PPN #16361A A@ 5
Rate: 6.50%
Maturity Date: 2003
Notices
All notices with respect to payment, and written confirmation of each such
payment, to be addressed to:
State Farm Life Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710
Attention: Investment Accounting Dept. D-3
Address for all other communications:
State Farm Life Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710
Attention: Investment Department E-10
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 37-0533090
A-3
<PAGE> 47
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"Additional Notes" is defined in Section 2.2.
"Additional Purchasers" means purchasers of Additional Notes.
"Adjusted Consolidated Net Worth" means, as of the date of any
determination thereof, Consolidated Net Worth less the total amount of all
Restricted Investments in excess of 10% of Consolidated Net Worth as of such
date of determination.
"Affiliate" means, at any time, and with respect to any Person, (a) any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any other Person who, to the knowledge of the
Company, beneficially owns or holds, directly or indirectly, 10% or more of any
class of voting or equity interests of such first Person or any other Person of
which such first Person, to the knowledge of the Company, beneficially owns or
holds, in the aggregate, directly or indirectly, 10% or more of any class of
voting or equity interests. As used in this definition, "Control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. Unless the context
otherwise clearly requires, any reference to an "Affiliate" is a reference to an
Affiliate of the Company.
"Business Day" means (a) for the purposes of Section 8.6 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York
City are required or authorized to be closed, and (b) for the purposes of any
other provision of this Agreement, any day other than a Saturday, a Sunday or a
day on which commercial banks in Chicago, Illinois or Jackson, Mississippi are
required or authorized to be closed.
"Capital Lease" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Capital Lease Obligation" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person, as the lessee under
the Capital Lease, which would appear as a liability on a balance sheet of such
Person in accordance with GAAP.
"Closing" is defined in Section 3.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
SCHEDULE B
(to Note Purchase Agreement)
<PAGE> 48
"Company" means ChemFirst Inc., a Mississippi corporation.
"Confidential Information" is defined in Section 20.
"Consolidated Debt" means, as of the date of any determination thereof,
all Debt of the Company and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means for any period the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided, however, that any gain or
loss on the sale, lease, transfer or disposition of any portion of the capital
stock or assets of FirstMiss Steel, Inc. by the Company shall be excluded from
the determination of Consolidated Net Income.
"Consolidated Net Worth" means, at any time,
(a) the sum of (i) the par value (or value stated on the
books of the corporation) of the capital stock of the Company and its
Restricted Subsidiaries plus (ii) the amount of the paid-in capital and
retained earnings of the Company and its Restricted Subsidiaries, in
each case as such amounts would be shown on a consolidated balance
sheet of the Company and its Restricted Subsidiaries as of such time
prepared in accordance with GAAP, minus
(b) to the extent included in clause (a), all amounts
properly attributable to (i) minority interests, if any, in the stock
and surplus of Restricted Subsidiaries and (ii) Treasury Stock.
"Consolidated Total Assets" means, as of the date of any determination
thereof, the total amount of all assets of the Company and its Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
"Consolidated Total Capitalization" means, as of the date of any
determination thereof, the sum of (i) Consolidated Debt, plus (ii) Adjusted
Consolidated Net Worth.
"Debt" means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in
the ordinary course of business but including, without limitation, all
liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such property);
(c) its Capital Lease Obligations;
B-2
<PAGE> 49
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities); and
(e) Guarantees of such Person with respect to liabilities of
a type described in any of clauses (a) through (d) hereof.
Debt of any Person shall include all obligations of such Person of the
character described in clauses (a) through (e) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under GAAP.
"Consolidated Total Revenue" means, as of the date of any determination
thereof, the total amount of all revenue of the Company and its Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
"Default" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"Default Rate" means that rate of interest that is the greater of (i)
2% per annum above the rate of interest stated in clause (a) of the first
paragraph of any Note or (ii) 2% per annum over the rate of interest publicly
announced by Bank of America, NT & SA in Chicago, Illinois as its "base" or
"prime" rate.
"Environmental Laws" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"Event of Default" is defined in Section 11.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Disposition" means any sale, lease, transfer or other
disposition of the capital stock or assets of FirstMiss Steel, Inc.
"Excluded Sale and Leaseback Transaction" shall mean any sale or
transfer of property owned by the Company or any Restricted Subsidiary to any
Person within 180 days following
B-3
<PAGE> 50
the acquisition or construction of such property by the Company or any
Restricted Subsidiary if the Company or a Restricted Subsidiary shall
concurrently with such sale or transfer lease such property, as lessee.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"Governmental Authority" means
(a) the government of
(i) the United States of America or any State or
other political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Restricted Subsidiary conducts all or any part of its
business, or which asserts jurisdiction over any properties of
the Company or any Restricted Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"Guaranty" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or
payment of such indebtedness or obligation, or (ii) to maintain any
working capital or other balance sheet condition or any income
statement condition of any other Person or otherwise to advance or make
available funds for the purchase or payment of such indebtedness or
obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or
obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
B-4
<PAGE> 51
"Hazardous Material" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"holder" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to Section
13.1.
"Institutional Investor" means (a) any original purchaser of a Note and
(b) any bank, trust company, savings and loan association or other financial
institution, any pension plan, any investment company, any insurance company,
any broker or dealer, or any other similar financial institution or entity,
regardless of legal form.
"Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property or
assets to be used or consumed in the ordinary course of business.
"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"Make-Whole Amount" shall have the meaning (i) set forth in Section 8.6
with respect to any Series A Note, and (ii) set forth in the applicable
Supplement with respect to any other Series of Notes.
"Material" means material in relation to the business, operations,
affairs, financial condition, assets or properties of the Company and its
Restricted Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Restricted Subsidiaries, taken as a whole, or (b) the ability of
the Company to perform its obligations under this Agreement and the Notes, or
(c) the validity or enforceability of this Agreement or the Notes.
"Memorandum" is defined in Section 5.3.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).
B-5
<PAGE> 52
"Non-Significant Subsidiary" means any Restricted Subsidiary that is
not a Significant Subsidiary.
"Notes" is defined in Section 1.
"Officer's Certificate" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Person" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"Priority Debt" means (without duplication), as of the date of any
determination thereof, (i) all unsecured Debt of Restricted Subsidiaries (other
than Debt owing to the Company or another Restricted Subsidiary), and (ii) all
Debt of the Company and its Restricted Subsidiaries secured by Liens other than
permitted by subparagraphs (a) through (j), inclusive, of Section 10.5.
"property" or "properties" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"Responsible Officer" means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this agreement.
"Restricted Investments" means all Investments, other than the
following:
(a) Investments by the Company and its Restricted
Subsidiaries in and to Restricted Subsidiaries, including any
Investment in a corporation which, after giving effect to such
Investment, will become a Restricted Subsidiary;
(b) Investments in commercial paper maturing in 270 days or
less from the date of issuance which, at the time of acquisition by the
Company or any Restricted Subsidiary, are accorded one of the highest
two ratings by Standard & Poor's Rating
B-6
<PAGE> 53
Group, a division of McGraw-Hill, Inc. or by Moody's Investors
Services, Inc. or other nationally recognized credit rating agency of
similar standing;
(c) Investments in direct obligations of the United States of
America or any agency or instrumentality of the United States of
America, the payment or guarantee of which constitutes a full faith and
credit obligation of the United States of America, in either case, or
direct obligations of Canada or any province thereof, maturing within
one year from the date of acquisition thereof which, at the time of
acquisition by the Company or any Restricted Subsidiary, are accorded
one of the highest three ratings by Standard & Poor's Rating Group, a
division of McGraw-Hill, Inc. or by Moody's Investors Services, Inc. or
other nationally recognized credit rating agency of similar standing or
a Canadian credit rating agency of an internationally recognized
similar standing;
(d) Investments in certificates of deposit or bankers
acceptances maturing within one year from the date of issuance thereof,
issued by any bank or trust company organized under the laws of the
United States or any state thereof, whose long-term certificates of
deposit are, at the time of acquisition thereof by the Company or a
Restricted Subsidiary, accorded one of the highest three ratings by
Standard & Poor's Rating Group, a division of McGraw-Hill, Inc. or by
Moody's Investors Services, Inc. or other nationally recognized credit
rating agency of similar standing;
(e) Investments in tax-exempt obligations maturing within one
year from the date of issuance which, at the time of acquisition by the
Company or any Restricted Subsidiary, are accorded one of the highest
two ratings by Standard & Poor's Rating Group, a division of
McGraw-Hill, Inc. or by Moody's Investors Services, Inc. or other
nationally recognized credit rating agency of similar standing;
(f) Investments in assets arising from the sale of goods and
services in the ordinary course of business of the Company and its
Restricted Subsidiaries;
(g) Investments by the Company and its Restricted
Subsidiaries in property, plant and equipment of the Company and its
Restricted Subsidiaries to be used in the ordinary course of business;
(h) Investments in cash equivalents or money market
instrument programs which are classified as current assets of the
Company or any Restricted Subsidiary in accordance with GAAP;
(i) Investments in repurchase agreements having a term of not
more than 90 days;
(j) Investments of the Company and its Restricted
Subsidiaries existing as of the date of Closing and described on
Schedule 5.4; and
B-7
<PAGE> 54
(k) Investments in capital stock of the Company and its
Restricted Subsidiaries constituting Treasury Stock.
In valuing any Investments for the purpose of applying the limitations
set forth in this Agreement, such Investments shall be taken at the original
cost thereof, without allowance for any subsequent write-offs or appreciation or
depreciation therein, but less any amount repaid or recovered on account of
capital or principal.
"Restricted Subsidiary" means any Subsidiary which (i) at least a
majority of the voting securities of such Subsidiary are owned by the Company
and/or one or more Wholly-Owned Restricted Subsidiaries, and (ii) the Company
has designated as a Restricted Subsidiary on Schedule 5.4 or by written notice
given to the holders of all Notes in accordance with Section 10.9.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Senior Debt" means, as of the date of any determination thereof, all
Consolidated Debt, other than Subordinated Debt.
"Senior Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.
"Series A Notes" is defined in Section 1.
"Significant Subsidiary" means at any time any Restricted Subsidiary
that would at such time constitute a "significant subsidiary" (as such term is
defined in Regulation SX of the Securities and Exchange Commission as in effect
on the date of the Closing) of the Company.
"Subordinated Debt" means, as of the date of any determination thereof,
all unsecured Debt of the Company which shall contain or have applicable thereto
subordination provisions providing for the subordination thereof to other Debt
of the Company (including, without limitation, the Notes).
"Subsidiary" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.
"Supplement" is defined in Section 2.2.
B-8
<PAGE> 55
"Treasury Stock" of any Person means any shares of capital stock of
such Person that were issued and outstanding shares of capital stock and have
been subsequently repurchased by such Person and constitute authorized but
unissued, or issued but not outstanding, shares of capital stock of such Person.
"Unrestricted Subsidiary" means any Subsidiary which is not a
Restricted Subsidiary.
"Wholly-Owned Restricted Subsidiary" means, at any time, any Restricted
Subsidiary one hundred percent (100%) of all of the equity interests (except
directors' qualifying shares) and voting interests of which are owned by any one
or more of the Company and the Company's other Wholly-Owned Restricted
Subsidiaries at such time.
B-9
<PAGE> 56
SCHEDULE 5.4
CHEMFIRST INC.
RESTRICTED SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY NAME JURISDICTION OF PERCENT OWNERSHIP
ORGANIZATION (IF OTHER THAN 100% DIRECT OWNERSHIP BY
CHEMFIRST INC.)
<S> <C> <C>
Burmar Chemical, Inc. California 100% by EKC Technology, Inc.
Callidus Technologies Inc. Oklahoma
CALLIDUS TECHNOLOGIES Benelux N.V. Belgium 99% by Callidus Technologies Inc.
1% by Callidus Technologies International, Inc.
Callidus Technologies France, S.A.R.L. France 98% by Callidus Technologies International, Inc.
2% by Callidus Technologies Inc.
Callidus Technologies (Germany) GmbH Germany 90% by Callidus Technologies International, Inc.
10% by Callidus Technologies Inc.
Callidus Technologies International, Inc. Delaware 100% by Callidus Technologies Inc.
Callidus Technologies Italy, S.r.l. Italy 99% by Callidus Technologies International, Inc.
1% by Callidus Technologies Inc.
CALLIDUS TECHNOLOGIES UK LIMITED Great Britain 99% by Callidus Technologies International, Inc.
1% by Callidus Technologies Inc.
CEM Investment, Inc. Mississippi *
ChemFirst Texas, Inc. Texas
Dew Resources, Inc. Mississippi
EKC Technology, Inc. California 95% by FCC Acquisition Corporation
5% by Baikowski Chimie, S.A.
EKC Technology International, Inc. California 100% by EKC Technology, Inc.
EKC Technology Limited Scotland 99.98% by EKC Technology, Inc.
.02% by First Chemical Corporation
EKC Technology K K Japan 100% by EKC Technology International, Inc.
FCC Acquisition Corporation California 100% by First Chemical Corporation
FEC Marketing, Inc. Texas
First Chemical Corporation Mississippi
First Chemical Holdings, Inc. Mississippi 100% by First Chemical Corporation
First Chemical Texas, L.P. Delaware 99% by First Chemical Holdings, Inc. (ltd partner)
1% by FT Chemical, Inc. (gen partner)
First Energy Corporation Mississippi
FirstMiss, Inc. Iowa
FirstMiss Steel, Inc. Pennsylvania 100% by FRM Industries, Inc.
FRM, Inc. Mississippi
FRM Industries, Inc. Delaware
FRM International, Inc. U.S. Virgin Islands
FT Chemical, Inc. Texas 100% by First Chemical Corporation
Industrial Insulations of Texas, Inc. Texas
Maxadyne Corporation California
Maxadyne Corporation of Louisiana Louisiana
Micropel, Inc. California 100% by EKC Technology, Inc.
Mycosil, Inc. California 100% by EKC Technology, Inc.
Plasma Energy Corporation North Carolina
Plasma Energy Technologies Corporation North Carolina 100% by Plasma Energy Corporation
Plasma Processing Corporation Delaware
Quality Chemicals, Inc. Pennsylvania 100% by First Chemical Corporation
Star Corrosion & Refractory, Inc. Louisiana 100% by Maxadyne Corporation of Louisiana
SCE Technologies, Inc. Delaware
TriQuest, L.P. Delaware 99.9% by CEM Investment, Inc. (ltd partner)
.1% by ChemFirst Texas, Inc. (gen partner)
TriQuest Japan K K Japan 100% by TriQuest, L.P.
</TABLE>
*We anticipate issuing 12.5% stock to employees of TriQuest LP in near future
which will leave ChemFirst Inc. ownership at 87.5%.
SCHEDULE 5.4
(to Note Purchase Agreement)
<PAGE> 57
SCHEDULE 5.4
CHEMFIRST INC.
AFFILIATES OF THE COMPANY
<TABLE>
<CAPTION>
NO. OF CEM SHARES
<S> <C>
Goldman Sachs 1,950,000(1)
FRI Group 2,560,630(2)
</TABLE>
(1)According to a Form 13G filed with the Securities and Exchange Commission by
the Goldman Sachs Group, L.P. and Goldman Sachs & Company ("Goldman Sachs"), 85
Broad Street, New York, New York, 10005, Goldman Sachs owned as of December 31
1997, an aggregate of 1,950,000 shares of Common Stock of the Company.
(2)According to a Form 13G filed with the Securities and Exchange Commission by
Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr. (777
Mariners Island Boulevard, San Mateo, California 94404) (collectively, "FRI")
and Franklin Mutual Advisers, Inc. (51 John F. Kennedy Parkway, Short Hills, New
Jersey 07078) ("FMAI") (hereinafter, FRI and FMAI are collectively referred to
as the "FRI Group"), the FRI Group beneficially owned 2,560,630 shares of Common
Stock of the Company.
5.4-2
<PAGE> 58
SCHEDULE 5.4
DIRECTORS AND EXECUTIVE OFFICERS OF CHEMFIRST INC.
<TABLE>
<S> <C>
Chairman of the Board and Chief Executive Officer J. Kelley Williams*
President and Chief Operating Officer R. Michael Summerford*
Vice President Health, Safety and Environmental Affairs Daniel P. Anderson*
Vice President Human Resources William B. Kemp*
General Counsel J. Steve Chustz*
Corporate Secretary James L. McArthur*
Corporate Controller Troy B. Browning
Treasurer Max P. Bowman
Advisor to the Chairman Charles R. Gibson
Assistant Secretary Janet B. Shealy
</TABLE>
*Executive Officers
DIRECTORS:
Richard P. Anderson
Paul A. Becker
James W. Crook
Michael J. Ferris
James E. Fligg
Robert P. Guyton
Paul W. Murrill
William A. Percy
Dan F. Smith
Leland R. Speed
R. Gerald Turner
J. Kelley Williams
5.4-3
<PAGE> 59
SCHEDULE 5.4
CHEMFIRST INC.
SCHEDULE OF INVESTMENTS
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
CORPORATE
<S> <C> <C>
Investment -- Primex Ltd. $ 500,000
Investment -- country club membership $ 54,000
Investment -- Baikowski International $ 500,000
Investment -- miscellaneous stocks $ 3,922
Note Receivable -- Getchell Gold $ 28,031,014 LIBOR rate, due 9/2000(1)
Note Receivable -- Florida Land Sale $ 1,375,000 3 year balloon due 2/2000; 6.5%
FIRSTMISS STEEL NOTE
Note Receivable -- Sunbelt $ 367,807 5 year
PLASMA PROCESSING CORPORATION
Note Receivable -- Phillips $ 2,163,342 5 year
EKC
Investment -- Paradigm Tech Stock $ 4,417
------------
1162 shares
- -----------------------------------------------------------------------
TOTAL INVESTMENTS AS OF 06/30/98 $ 32,999,502
- -----------------------------------------------------------------------
</TABLE>
(1) As of October 31, 1998, balance of Note Receivable -- Getchell Gold is
$28,485,042
5.4-4
<PAGE> 60
SCHEDULE 5.5
CHEMFIRST INC.
FINANCIAL STATEMENTS
See 10Q at Tab VII of the information memorandum.
<PAGE> 61
SCHEDULE 5.11
CHEMFIRST INC.
PATENTS
None
<PAGE> 62
SCHEDULE 5.15
CHEMFIRST INC.
EXISTING DEBT
JUNE 30, 1998
CHEMFIRST INC.
<TABLE>
<CAPTION>
BANK INTEREST RATE BALANCE
<S> <C> <C>
Bank of America 5.875% $ 6,000,000
Bank of America 5.875% $ 5,000,000
Bank of America 5.875% $ 18,000,000
Bank of America 5.875% $ 6,000,000
Bank of America 5.9375% $ 20,000,000
------------
TOTAL BORROWINGS $ 55,000,000(1)
Convertible Subordinated Debentures payable to one
employee with an outstanding principal balance as of
June 30, 1998, of $ 299,983
6.25% note due year 2002 payable to Baikowski
International Corporation with an outstanding principal
balance as of June 30, 1998, of $ 3,825,403
QUALITY CHEMICALS, INC.
Pennsylvania Industrial Development Association
3% due Year 2000 $ 31,818
FIRSTMISS STEEL, INC.
Johnstown Area Economic Development Authority
Pennsylvania Industrial Development Association
Outstanding balance of funded debt $ 1,232,544(2)
------------------------------------------------------------------------
TOTAL DEBT AS OF JUNE 30, 1998 $ 60,389,748
------------------------------------------------------------------------
</TABLE>
EKC TECHNOLOGY, K.K.
On November 9, 1998, EKC Technology, K.K. (100% owned by EKC Technology Inc.)
borrowed 358,000,000 JPY from ABN AMRO at an interest rate of 1.15% p.a.
(equivalent to $3,130,465.20). Borrowing matures on October 27, 1999.
(1) Outstanding debt as of November 5, 1998 through the credit facility is
$58,000,000
(2) Outstanding balance of funded debt for FirstMiss Steel as of September 30,
1998 is $1,083,902.
<PAGE> 63
SCHEDULE 10.5
CHEMFIRST INC.
EXISTING LIENS
JUNE 30, 1998
Subsidiary: FirstMiss Steel, Inc.
Collateral: Building and improvements
Secured Party: Johnstown Area Economic Development Authority
Pennsylvania Industrial Development Association
Outstanding balance of funded debt as of June 30, 1998: $239,415 and $993,095,
respectively
<PAGE> 64
CHEMFIRST INC.
6.50% SERIES 1998-A SENIOR NOTE
TRANCHE A, DUE OCTOBER 30, 2003
No. RA-A2 November 10, 1998
$5,000,000 PPN 16361A A* 7
FOR VALUE RECEIVED, the undersigned, CHEMFIRST INC. (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Mississippi, hereby promises to pay to NATIONWIDE LIFE INSURANCE COMPANY, or
registered assigns, the principal sum of FIVE MILLION DOLLARS on October 30,
2003, with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of 6.50% per annum from
the date hereof, payable semiannually, on the 30th day of April and October in
each year, commencing on the first of such dates after the date hereof, until
the principal hereof shall have become due and payable, and (b) to the extent
permitted by law on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest and any overdue payment of any
Make-Whole Amount (as defined in the Note Purchase Agreement referred to below),
payable semiannually as aforesaid (or, at the option of the registered holder
hereof, on demand), at a rate per annum from time to time equal to the greater
of (i) 8.50% or (ii) 2% over the rate of interest publicly announced by Bank of
America, NT & SA from time to time in Chicago, Illinois as its "base" or "prime"
rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal offices of Bank of America, NT & SA, in Chicago,
Illinois, or at such other place as the Company shall have designated by written
notice to the holder of this Note as provided in the Note Purchase Agreement
referred to below.
This Note is one of a series of Senior Notes (the "Notes") issued or to
be issued pursuant to the Note Purchase Agreement, dated as of October 15, 1998
(as from time to time amended and supplemented, the "Note Purchase Agreement"),
between the Company, the Purchasers named therein and Additional Purchasers of
Notes from time to time issued pursuant to any Supplement to this Note Purchase
Agreement. This Note and the holder hereof are entitled equally and ratably with
the holders of all other Notes of all Series from time to time outstanding under
the Note Purchase Agreement to all the benefits provided for thereby or referred
to therein. Each holder of this Note will be deemed, by its acceptance hereof,
to have made the representation set forth in Section 6.2 of the Note Purchase
Agreement, provided that such holder may (in reliance upon information provided
by the Company, which shall not be unreasonably withheld) make a representation
to the effect that the purchase by such holder of any Note will not constitute a
non-exempt prohibited transaction under Section 406(a) of ERISA.
This Note is registered with the Company and, as provided in the Note
Purchase Agreement, upon surrender of this Note for registration of transfer,
duly endorsed, or
<PAGE> 65
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
of an identical Series and Tranche for a like principal amount will be issued
to, and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
This Note is not subject to regularly scheduled prepayments of
principal. This Note is subject to optional prepayment, in whole or from time to
time in part, at the times and on the terms specified in the Note Purchase
Agreement, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of Illinois
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
CHEMFIRST INC.
By: /s/ Max P. Bowman
Name: Max P. Bowman
Its: Treasurer
<PAGE> 66
CHEMFIRST INC.
6.50% SERIES 1998-A SENIOR NOTE*
TRANCHE A, DUE OCTOBER 30, 2003
No. RA-A1 November 10, 1998
$10,000,000 PPN 16361A A* 7
FOR VALUE RECEIVED, the undersigned, CHEMFIRST INC. (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Mississippi, hereby promises to pay to STATE FARM LIFE INSURANCE COMPANY, or
registered assigns, the principal sum of TEN MILLION DOLLARS on October 30,
2003, with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of 6.50% per annum from
the date hereof, payable semiannually, on the 30th day of April and October in
each year, commencing on the first of such dates after the date hereof, until
the principal hereof shall have become due and payable, and (b) to the extent
permitted by law on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest and any overdue payment of any
Make-Whole Amount (as defined in the Note Purchase Agreement referred to below),
payable semiannually as aforesaid (or, at the option of the registered holder
hereof, on demand), at a rate per annum from time to time equal to the greater
of (i) 8.50% or (ii) 2% over the rate of interest publicly announced by Bank of
America, NT & SA from time to time in Chicago, Illinois as its "base" or "prime"
rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal offices of Bank of America, NT & SA, in Chicago,
Illinois, or at such other place as the Company shall have designated by written
notice to the holder of this Note as provided in the Note Purchase Agreement
referred to below.
This Note is one of a series of Senior Notes (the "Notes") issued or to
be issued pursuant to the Note Purchase Agreement, dated as of October 15, 1998
(as from time to time amended and supplemented, the "Note Purchase Agreement"),
between the Company, the Purchasers named therein and Additional Purchasers of
Notes from time to time issued pursuant to any Supplement to this Note Purchase
Agreement. This Note and the holder hereof are entitled equally and ratably with
the holders of all other Notes of all Series from time to time outstanding under
the Note Purchase Agreement to all the benefits provided for thereby or referred
to therein. Each holder of this Note will be deemed, by its acceptance hereof,
to have made the representation set forth in Section 6.2 of the Note Purchase
Agreement, provided that such holder may (in reliance upon information provided
by the Company, which shall not be unreasonably withheld) make a representation
to the effect that the purchase by such holder of any Note will not constitute a
non-exempt prohibited transaction under Section 406(a) of ERISA.
This Note is registered with the Company and, as provided in the Note
Purchase Agreement, upon surrender of this Note for registration of transfer,
duly endorsed, or
<PAGE> 67
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
of an identical Series and Tranche for a like principal amount will be issued
to, and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
This Note is not subject to regularly scheduled prepayments of
principal. This Note is subject to optional prepayment, in whole or from time to
time in part, at the times and on the terms specified in the Note Purchase
Agreement, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of Illinois
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
CHEMFIRST INC.
By: /s/ Max P. Bowman
Name: Max P. Bowman
Its: Treasurer
<PAGE> 68
CHEMFIRST INC.
6.75% SERIES 1998-A SENIOR NOTE
TRANCHE B, DUE OCTOBER 30, 2005
No. RA-B1 November 10, 1998
$5,000,000 PPN 16361A A@ 5
FOR VALUE RECEIVED, the undersigned, CHEMFIRST INC. (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Mississippi, hereby promises to pay to STATE FARM INSURANCE COMPANY, or
registered assigns, the principal sum of FIVE MILLION DOLLARS on October 30,
2005, with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of 6.75% per annum from
the date hereof, payable semiannually, on the 30th day of April and October in
each year, commencing on the first of such dates after the date hereof, until
the principal hereof shall have become due and payable, and (b) to the extent
permitted by law on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest and any overdue payment of any
Make-Whole Amount (as defined in the Note Purchase Agreement referred to below),
payable semiannually as aforesaid (or, at the option of the registered holder
hereof, on demand), at a rate per annum from time to time equal to the greater
of (i) 8.75% or (ii) 2% over the rate of interest publicly announced by Bank of
America, NT & SA from time to time in Chicago, Illinois as its "base" or "prime"
rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at Bank of America, NT & SA, in Chicago, Illinois, or at such other
place as the Company shall have designated by written notice to the holder of
this Note as provided in the Note Purchase Agreement referred to below.
This Note is one of a series of Senior Notes (the "Notes") issued or to
be issued pursuant to the Note Purchase Agreement, dated as of October 15, 1998
(as from time to time amended and supplemented, the "Note Purchase Agreement"),
between the Company, the Purchasers named therein and Additional Purchasers of
Notes from time to time issued pursuant to any Supplement to this Note Purchase
Agreement. This Note and the holder hereof are entitled equally and ratably with
the holders of all other Notes of all Series from time to time outstanding under
the Note Purchase Agreement to all the benefits provided for thereby or referred
to therein. Each holder of this Note will be deemed, by its acceptance hereof,
to have made the representation set forth in Section 6.2 of the Note Purchase
Agreement, provided that such holder may (in reliance upon information provided
by the Company, which shall not be unreasonably withheld) make a representation
to the effect that the purchase by such holder of any Note will not constitute a
non-exempt prohibited transaction under Section 406(a) of ERISA.
This Note is registered with the Company and, as provided in the Note
Purchase Agreement, upon surrender of this Note for registration of transfer,
duly endorsed, or
<PAGE> 69
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
of an identical Series and Tranche for a like principal amount will be issued
to, and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
This Note is not subject to regularly scheduled prepayments of
principal. This Note is subject to optional prepayment, in whole or from time to
time in part, at the times and on the terms specified in the Note Purchase
Agreement, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of Illinois
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
CHEMFIRST INC.
By: /s/ Max P. Bowman
Name: Max P. Bowman
Its: Treasurer
<PAGE> 1
EXHIBIT 10(a)
March 15, 1999
Mr. J. Kelley Williams
Chief Executive Officer/Chairman of the Board
ChemFirst Inc.
700 North Street
Jackson, MS 39202 PRIVILEGED AND CONFIDENTIAL
RE: Termination Agreement
Dear Kelley:
ChemFirst Inc. (the "Company") considers it essential to the best
interests of its stockholders to foster the continuous employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many publicly held
corporations and their subsidiaries, the possibility of a Change in Control may
exist and that such possibility, and the uncertainty and questions which it may
raise, may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of the Company's
management to their assigned duties, without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change in
Control of the Company, although no such change is now contemplated.
In order to induce you to remain in the employ of the Company and in
consideration of your agreement set forth in Subsection 2(iii) hereto, the
Company agrees that you shall receive the severance benefits set forth in this
letter agreement ("Agreement") in the event your employment with the Company is
terminated subsequent to a "Change in Control" of the Company (as defined in
Section 2 hereof) under the circumstances described below. This letter, however,
does not otherwise change your employment arrangements and except for the
conditions contained therein pertaining to a Change in Control, your continued
employment continues to be subject to the will of the Board of the Company.
1. Term of Agreement. This Agreement shall be deemed effective on June
1, 1996 and shall continue in effect through May 31, 1999 (the "Original Term");
provided, however, that commencing on June 1, 1999, the term of this Agreement
shall automatically be extended for one additional term of three (3) years
beyond May 31, 1999, unless not later than June 30 of that year, the
<PAGE> 2
2
Company shall have given notice that it does not wish to extend this Agreement.
Notwithstanding the above, if a Change in Control (as defined in Section 2
below) of the Company shall have occurred during the original or extended term
of this Agreement, this Agreement shall continue in effect for a period of three
(3) years beyond the month in which such Change in Control occurred; provided
that, if you qualify as a Bona Fide Executive ("Bona Fide Executive") as that
term is defined under the Fair Labor Standards Act (29 C.F.R. Section 1625.12),
as may be amended, in no event shall this Agreement extend beyond the end of the
month in which you reach the age of 70 years.
2. Change in Control.
(i) No benefits shall be payable hereunder unless there shall
have been a Change in Control of the Company, as set forth below. For
purposes of the Agreement, a "Change in Control" of the Company shall
be deemed to have occurred if:
(A) any "person" (as defined in Section 3(a) (9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as modified and used in Sections 13 (d) and 14 (d) thereof),
other than (i) the Company or any of its subsidiaries, (ii) a
trustee or any fiduciary holding securities under an employee
benefit plan of the Company or any of its subsidiaries, (iii) an
underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of
the Company (a "Person"), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing twenty
percent (20%) or more of the combined voting power of the
Company's then outstanding securities; or
(B) during any period of two consecutive years (not
including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the
Board and any new director (other than a director designated by a
Person who has entered into an agreement with the Company to
effect a transaction described in clause (A), (C) or (D) of this
Subsection) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or
(C) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than (i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding
or be being converted into voting securities of the surviving
entity or any parent thereof), in combination with the ownership
of any trustee or other fiduciary holding securities under an
employee benefits plan of the Company, at least 80% of the
combined voting power of the voting securities of the Company or
such surviving entity or any parent thereof
<PAGE> 3
3
outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar translation) in which
no Person is or becomes the beneficial owner (determined pursuant
to Subsection A above) of twenty percent (20%) or more of the
combined voting power of the Company's then outstanding
securities; or
(D) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale
or disposition by the Company of all or substantially all the
Company's assets.
(ii) For purposes of this Agreement, a "Potential Change in
Control" of the Company shall be deemed to have occurred if:
(A) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Change in Control of
the Company;
(B) any person (including the Company) publicly announces an
intention take or to consider taking actions which if consummated
would constitute a Change in Control of the Company;
(C) any person, other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company, who is or becomes the
beneficial owner, directly or indirectly, of securities of the
Company representing nine and a half (9.5%) percent or more of
the combined voting power of the Company's then outstanding
securities, increases his beneficial ownership of such securities
by five (5%) or more over the amount theretofore owned by such
person; or
(D) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control of the
Company has occurred.
(iii) You agree that, subject to the terms and conditions of this
Agreement, in the event of a Potential Change in Control of the
Company, you will remain in the employ of the Company until the
earliest of (A) a date which is six (6) months from the occurrence of
such Potential Change in Control of the Company, (B) the termination
by you of your employment by reason of Disability, as defined in
Subsection 3(i), or (C) the occurrence of a Change in Control of the
Company.
(iv) Notwithstanding the foregoing, neither a "Change in Control"
nor a "Potential Change in Control" shall be deemed to have occurred
by virtue of the Company entering into any agreement with respect to,
the public announcement of, the approval by the Company's shareholders
or directors of, or the consummation of, any transaction or series of
integrated transactions (including any merger or other business
combination transaction) entered into in connection with, or expressly
conditioned upon the occurrence of, a Spin-Off Transaction (as
<PAGE> 4
4
defined below) immediately following which the recordholders of the
common stock of the Company immediately prior to such transaction or
series of transactions continue to have substantially the same
proportionate ownership in an entity (the "Spun-Off Entity") which
owns all or substantially all of the assets of either of the Company's
Principal Businesses (as defined below) immediately following such
transaction or series of transactions (such transaction or series of
transactions, a "Spin-Off Transaction"); provided that such Spin-Off
Transaction (including any related merger or other business
combination transaction) has been approved by a vote of a majority of
the Company's Continuing Directors (as defined below) then in office.
For purposes of this Agreement (1) "Principal Businesses" shall mean
either of the Company's Chemical or Fertilizer businesses as described
in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995 and (2) "Continuing Director" shall mean any member of
the Board of Directors of the Company who is a member of the Board of
Directors as of the date of this Agreement and any person who
subsequently becomes a member of the Board of Directors, if such
person's nomination for election or election to the Board of Directors
is recommended or approved by a majority of the Continuing Directors.
3. Termination Following Change in Control. If any of the events
described in Subsection 2(i) hereof constituting a Change in Control of the
Company shall have occurred, you shall be entitled to the benefits provided in
Subsection 4(iii) and (iv) hereof upon the subsequent termination of your
employment during the term of this Agreement unless such termination is (A)
because of your death or Disability as defined in Section 3(i), or (B) by the
Company for Cause, or upon your resignation within thirty-six (36) months of the
occurrence of such events as specified in Section 2.
(i) Disability. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the
full-time performance of your duties with the Company for six (6)
consecutive months, and within thirty (30) days after written notice
of termination is given you shall not have returned to the full-time
performance of your duties, your employment may be terminated for
"Disability".
(ii) Cause. Termination by the Company of your employment for
"Cause" shall mean termination upon (A) the willful and continued
failure by you to substantially perform your duties with the Company
(other than any such failure resulting from your incapacity due to
physical or mental illness) or any such actual or anticipated failure
after the issuance of a Notice of Termination after a written demand
for substantial performance is delivered to you by the Board, which
demand specifically identifies the manner in which the Board believes
that you have not substantially performed your duties, or (B) the
willful engaging by you in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise. For
purposes of this Subsection, an act, or failure to act, shall be
deemed "willful" if done, or omitted to be done, by you other than in
good faith and without reasonable belief that your action or omission
was in the best interest of the Company. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of a minimum of
three-quarters (3/4) of the entire membership of the
<PAGE> 5
5
Board at a meeting of the Board called and held for such purpose
(after reasonable notice to you and opportunity for you, together with
your counsel, to be heard before the Board), finding that in good
faith opinion of the Board you were guilty of conduct set forth above
in clauses (A) or (B) of the first sentence of this Subsection and
specifying the particulars thereof in detail.
(iii) Notice of Termination. Any purported termination of your
employment by the Company or by you shall be communicated by written
Notice of Termination to the other party hereto in accordance with
Section 6 hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the
provision so indicated.
(iv) Date of Termination, Etc. "Date of Termination" shall mean
the following: (A) if your employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that
you shall not have returned to the full-time performance of your
duties during such thirty (30) day period), and (B) if your employment
is terminated pursuant to Subsection (ii) above or for any other
reason (other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to
Subsection (ii) above shall not be less than thirty (30) days from the
date such Notice of Termination is given); provided that if within
fifteen (15 days after any Notice of Termination is given, or if
later, prior to the Date of Termination (as determined without regard
to this provision), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of
the parties, by a binding arbitration award, or by a final judgment,
order or decree of a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected); provided further that the
Date of Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will
continue to pay you your full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to
base salary) and continue your participation in all compensation,
benefit and insurance plans in which you were participating when the
notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Subsection. Amounts paid
under this Subsection are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other
amounts due under this Agreement.
4. Compensation Upon Termination or During Disability. Following a
Change in Control of the Company, as defined by Subsection 2(i), upon
termination of your employment or during a period of disability, you
shall be entitled to the following benefits.
<PAGE> 6
6
(i) During any period that you fail to perform your full-time
duties with the Company as a result of incapacity due to physical or
mental illness, you shall continue to receive your base salary at the
rate in effect at the commencement of any such period, together with
all compensation payable to you under the Company's annual bonus plan,
the First Mississippi Corporation 1980 Long-Term Incentive Plan, the
First Mississippi Corporation 1988 Long-Term Incentive Plan, the First
Mississippi Corporation 1995 Long-Term Incentive Plan, or other plan
during such period, until this Agreement is terminated pursuant to
Section 3(i) hereof. Thereafter your benefits shall be determined
under the Company's retirement, insurance and other compensation
programs then in effect in accordance with the terms of such programs.
(ii) If your employment shall be terminated by the Company for
Cause or by you other than for Disability, or death, the Company shall
pay you your full base salary through the Date of Termination at the
rate in effect at the time Notice of Termination is given, plus all
other amounts to which you are entitled under any compensation plan of
the Company at the time such payments are due, and the Company shall
have no further obligations to you under this Agreement.
(iii) If your employment by the Company shall be terminated (a)
by the Company other than for Cause or Disability, then you shall be
entitled to the benefits provided below:
(A) The Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time
Notice of Termination is given, plus all other amounts to
which you are entitled under any compensation plan of the
Company, at the time such payments are due, except as
otherwise provided below.
(B) (1) In lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Company
shall pay to you, subject to subsection 2 below, a lump sum
severance payment (together with the payments provided in
Paragraphs C, E and F below and any payment you may receive
pursuant to Paragraph D below, the "Severance Payments")
equal to 3 times the sum of (i) your average annual base
salary for the five (5) full years preceding the year in
which the Date of Termination occurs averaged over said five
(5) full years, and (ii) either the average annual bonus
earned by you with respect to such five (5) year period, or
the average annual bonus earned by you with respect to such
five (5) year period immediately preceding the date of the
Change in Control, whichever is higher (taking the value of
such bonuses into account whether paid in cash or defined or
converted into another form of compensation under any
Company plan).
(2) Notwithstanding subsection (B)(1) above, if you
will reach the age of 70 years within 36 months after the
Date of Termination, then the lump sum severance payment
calculated in subsection (B)(1) above shall be reduced by
multiplying such payment by a fraction, the numerator of
which shall equal
<PAGE> 7
7
one plus the number of full calendar months between the Date
of Termination and the date on which you attain the age of
70, if you qualify as a Bona Fide Executive, and the
denominator of which shall equal 36.
(C) The Company shall continue to provide you with medical
insurance, life insurance and disability insurance in the amounts
and upon the terms and conditions present immediately prior to
Notice of Termination for a period of three years following the
Date of Termination. However, if during such three year period
you (i) become re-employed with another employer and you are
eligible to receive medical or other welfare benefits under
another employer provided plan, or (ii) you reach the age of 70
years and do not qualify as a Bona Fide Executive, then the
medical and other welfare benefits described above shall no
longer be provided by the Company. In the event that the Company
cannot, despite its best efforts, provide such coverage under its
benefit plans, it shall arrange for equivalent coverage outside
such plans.
(D) Notwithstanding any provision of the Company's Long-Term
Incentive Plans as amended from time to time, or any other
compensation arrangements then in effect, the Company shall pay
to you a lump sum amount equal to the sum of any incentive
compensation which has been allocated or awarded to you for a
year or other measuring period preceding the Date of Termination,
but has not yet been paid.
(E) Except for Incentive Stock Options ("ISOs") which are
hereby specifically excluded, in lieu of shares of common stock
of the Company ("Company Shares") issuable upon exercise of
outstanding options ("Options"), granted to you under the
Company's Long-Term Incentive Plans as amended from time to time,
or any other plan then in effect (which Options shall be canceled
upon the making of the payment referred to below), unless you
notify the Company by giving notice in accordance with Section 6
hereof within fifteen (15) days after receipt of Notice of
Termination that you do not wish such payment, the Company shall
pay to you not later then the fifth day following the Date of
Termination, an amount in cash equal to the product of (i) the
difference (to the extent that such difference is a positive
number) obtained by subtracting the per share exercise price of
each Option held by you whether or not then fully exercisable
from the higher of (A) the closing price of Company Shares as
reported on the New York Stock Exchange on the Date of
Termination, or (B) the highest per share price of Company Shares
actually paid in connection with any Change in Control of the
Company, and (ii) the number of Company Shares covered by each
such Option. In lieu of convertible debentures of the Company
("the Debentures") issuable upon exercise of outstanding options
("Debenture Options") granted to you under the Company's
Long-Term Incentive Plans, as amended from time to time, or any
other plan then in effect (which Debenture Options shall be
canceled upon the making of the payment referred to below),
unless you notify the Company by giving notice in accordance with
Section 6 hereof within fifteen (15) days after receipt of Notice
of Termination that you do not wish to receive such payment, the
Company will pay to you, not later than the fifth
<PAGE> 8
8
(5th) day following the Date of Termination, an amount in cash
equal to the product of (i) the difference (to the extent that
such difference is a positive number) obtained by subtracting the
per share price at which the Debentures would be convertible into
Company Shares whether or not then fully exercisable from the
higher of (A) the closing price of Company Shares as reported on
the New York Stock Exchange on the Date of Termination, or (B)
the highest per share price for Company Shares actually paid in
connection with any Change in Control of the Company, and (ii)
the number of Company Shares issuable upon conversion of the
Debentures covered by the Debenture Options. In lieu of any
conversion rights under any outstanding Debentures issued upon
the exercise of Debenture Options (which Debentures shall be
canceled upon the making of the payment referred to below),
unless you notify the Company by giving notice in accordance with
Section 6 hereof within fifteen (15) days after receipt of Notice
of Termination that you do not wish such payment, the Company
will pay to you an amount in cash equal to the product of (i) the
higher of (A) the closing price of Company Shares as reported on
the New York Stock Exchange on the Date of Termination or (B) the
highest per share price for Company Shares actually paid in
connection with any Change in Control of the Company, and (ii)
the number of Company Shares into which such Debentures are then
convertible. In lieu of any rights under any outstanding
Performance Shares or Performance Units (as each term is defined
in the First Mississippi Corporation 1995 Long-Term Incentive
Plan) granted to you by the Company, the Company shall, pursuant
to the terms and conditions of the First Mississippi Corporation
1995 Long-Term Incentive Plan, pay to you in cash an amount equal
to the value of such Performance Shares or Performance Units.
(F) If on the Date of Termination, you are not 100% vested
under the Retirement Plan For Employees of First Mississippi
Corporation and the corresponding provisions of the First
Mississippi Corporation Benefits Restoration Plan (together the
"Retirement Plan"), the Company shall pay you a lump sum equal to
the present value of a straight life annuity benefit commencing
at the earliest date you could have elected to receive benefits
under the Retirement Plan (using the interest rate and the
mortality table then in use under the Retirement Plan) to provide
the excess of:
(i) an aggregate benefit equal to the benefit that
would have been paid under the Retirement Plan if you were
100% vested under such Retirement Plan, over
(ii) the aggregate benefit actually payable under the
Retirement Plan.
In addition, if on the Date of Termination you are not 100%
vested under either the First Mississippi Corporation 401(k)
Savings Plan and the corresponding provisions of the First
Mississippi Corporation Benefits Restoration Plan (effective
March 1, 1989),
<PAGE> 9
9
the Company shall pay you a lump sum equal to the current amount
forfeited under each such plan.
(G) The Company shall also pay to you all legal fees and
expenses incurred by you as a result of such termination
(including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to
obtain or enforce any right or benefit provided by this Agreement
or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") to any payment or
benefit provided hereunder).
(H) The payments provided for in paragraphs (A), (B), (D),
(E) and (F) above and in Paragraph (iv) below, shall be made not
later than the fifth (5th) day following the Date of Termination,
provided, however, that if the amounts of such payments cannot be
finally determined on or before such day, the Company shall pay
to you on such day an estimate, as determined in good faith by
the Company, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined, but in no event later than
the thirtieth (30th) day after the Date of Termination. In the
event that the amount of the estimated payments exceeds the
amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to you payable on the
fifth (5th) day after demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
(iv) In the event that you become entitled to the Severance
Payments or to any other payments or benefits received or to be
received by you in connection with a Change in Control of the Company
or your termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, (collectively with the Severance Payments, the "Total
Payments"), and if any of the Total Payments will be subject to the
tax (the "Excise Tax") imposed by Section 4999 of the Code, the
Company shall pay to you at the time specified in paragraph (H),
above, an additional amount (the "Gross-Up Payment") such that the net
amount retained by you, after deduction of any Excise Tax on the Total
Payments and any income tax, employment tax and Excise Tax upon the
payment provided for by this paragraph, shall be equal to the Total
Payments. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) the Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of Section
280G(b)(2) shall be treated as subject to the Excise Tax, unless in
the opinion of tax counsel selected by the Company's independent
auditors and acceptable to you such other payments or benefits (in
whole or in part) do not constitute parachute payments, or such excess
parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax, (ii) the amount of the Total Payments which
shall
<PAGE> 10
10
be treated as subject to the Excise Tax shall be equal to the lesser
of (A) the total amount of the Total Payments or (B) the amount of
excess parachute payments within the meaning of Section 280(b)(1)
(after applying clause (i), above), and (iii) the value of any
non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with
the principles of Sections 280(G)(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, you shall
be deemed to pay income taxes at the highest marginal rate of income
taxation in the calendar year in which the Gross-Up Payment is to be
made. In the event that the Excise Tax is subsequently determined to
be less than the amount taken into account hereunder at the time of
termination of your employment, you shall repay to the Company at the
time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such
reduction (plus the portion of the Gross-Up Payment attributable to
the Excise Tax and income tax imposed on the Gross-Up Payment being
repaid by you if such repayment results in a reduction in Excise Tax
and/or an income tax deduction) plus interest on the amount of such
repayment at the rate provided in Section 127(b)(2)(B) of the Code. In
the event that the Excise Tax is determined to exceed the amount taken
into account hereunder at the time of the termination of your
employment (including by reason of any payment the existence or amount
of which cannot be determined at the time of the Gross-Up Payment),
the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest payable with respect to such excess) at
the time that the amount of such excess is finally determined.
(v) Notwithstanding anything to the contrary in this Agreement,
amounts received under paragraph (iii) above shall be in lieu of any
other amount of severance relating to salary or bonus continuation to
be received by you upon termination of employment under any severance
plan, policy or arrangement of the Company.
(vi) You shall not be required to mitigate the amount of any
payment provided for in this Paragraph 4 by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided
for in this Paragraph 4 be reduced by any compensation or benefits
earned by you as the result of employment by another employer (except
as provided in paragraph (iii)(C) above), by retirement benefits, by
offset against any amount claimed to be owed by you to the Company, or
otherwise.
(vii) In addition to all other amounts payable to you under this
Paragraph 4, you shall be entitled to receive all benefits payable to
you under the 401(k) Savings Plan, and any other plan or agreement
relating to retirement benefits.
5. Successors; Binding Agreement.
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and /or assets of the Company to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement
<PAGE> 11
11
prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle you to compensation from the Company
in the same amount and on the same terms as you would be entitled to
hereunder if you terminated your employment for any reason following a
Change in Control of the Company, except that for purposes of
implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be payable to
you hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to your devisee, legatee or other designee or, if
there is no such designee, to your estate. Notwithstanding the
foregoing, you and the Company hereby agree that, upon the
distribution (the "Distribution") of shares of common stock of the
Spun-Off Entity to stockholders of the Company in a Spin-Off
Transaction, the Spun-Off Entity shall assume all of the obligations
and succeed to all of the rights of the Company under this Agreement,
the Company shall be released of all of its obligations under this
Agreement and thereafter, as used in this Agreement, the term
"Company" shall mean the Spun-Off Entity and any successor to its
business and/or assets which assumes and agrees to perform this
Agreement by operation of law or otherwise. This Agreement shall
terminate and be of no further force and effect and you hereby agree
to release the Company and the Spun-Off Entity from any obligations
hereunder upon the Distribution if, as of the Distribution, you are
not employed by the Spun-Off Entity or one of its direct or indirect
subsidiaries.
6. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Mississippi. All references to Sections of the
Exchange Act or the Code shall be deemed also
<PAGE> 12
12
to refer to any successor provisions to such Sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law. The obligations of the Company under Paragraph 4
shall survive the expiration of the term of this Agreement.
8 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
10. Amendment. This Agreement amends and restates in its entirety that
certain Termination Agreement dated May 29, 1996 between J. Kelley Williams and
First Mississippi Corporation, which was assigned to and assumed by ChemFirst
Inc.
If this letter sets forth our agreement on the subject matter hereof, please
sign and return the enclosed copy of this letter to Teresa Holland in the CEM
human resources department which will then constitute our agreement on this
subject.
Sincerely yours,
CHEMFIRST INC.
/s/ Richard P. Anderson
- -------------------------
Richard P. Anderson
Chairman, Compensation and Human Resources Committee
ACCEPTED AND AGREED TO on this, the 22nd day of March, 1999.
/s/ J. Kelley Williams
- -------------------------
J. Kelley Williams
<PAGE> 1
EXHIBIT 13
[LOGO] CHEMFIRST INC.
1998 ANNUAL REPORT
<PAGE> 2
[LOGO] CHEMFIRST PRODUCES CHEMICALS FOR SEMICONDUCTOR, LIFE SCIENCE, AND
POLYURETHANE APPLICATIONS. THE COMPANY'S STOCK TRADES ON THE NEW YORK
STOCK EXCHANGE UNDER THE SYMBOL CEM.
CONTENTS
<TABLE>
- --------------------------------------------------------
<S> <C>
Financial Highlights 1
- --------------------------------------------------------
Selected Financial Data 2
- --------------------------------------------------------
Dear Fellow Shareholders 3
- --------------------------------------------------------
Electronic and Other Specialty Chemicals 7
- --------------------------------------------------------
Polyurethane Chemicals 9
- --------------------------------------------------------
ChemFirst Companies 11
- --------------------------------------------------------
Directors and Officers 11
- --------------------------------------------------------
Corporate Information 12
- --------------------------------------------------------
Financial Review Insert
- --------------------------------------------------------
</TABLE>
<PAGE> 3
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(In Thousands of Dollars, Except Per Share Amounts)
----------------------------------------------------
Years ended December 31,
----------------------------------------------------
1998 1997 %Change
----------------------------------------------------
<S> <C> <C> <C>
Results of Operations:
Sales $ 305,104 $ 297,822 2
Earnings from continuing operations (a) $ 24,660 $ 37,795 (35)
Depreciation and amortization $ 23,688 $ 17,254 37
Capital expenditures $ 43,786 $ 91,442 (52)
Financial Position:
Total assets $ 443,434 $ 433,097 2
Total debt $ 70,561 $ 24,918 183
Shareholders' equity $ 285,482 $ 321,697 (11)
Total debt as percent of total capitalization 20% 7% 186
Per Common Share:
Earnings from continuing operations (a) $ 1.27 $ 1.81 (30)
Cash dividends declared $ .40 $ .40 --
Book value $ 15.48 $ 16.06 (4)
Closing market price at December 31 $ 19.750 $ 28.250 (30)
(a) Includes special items after tax effect:
Gain on sale of Power Sources, Inc. $ 6,142 $ --
Provision for note received on aluminum dross sale $ (458) $ --
Gain on sale of Melamine Chemicals, Inc. $ -- $ 8,810
Gain on Melamine technology sale $ -- $ 1,502
Earnings of former equity affiliates $ -- $ 995
-------------------------------
TOTAL $ 5,684 $ 11,307
-------------------------------
Per common share: $ .29 $ .54
-------------------------------
</TABLE>
<TABLE>
<CAPTION>
[GRAPH] [GRAPH] [GRAPH]
<S> <C> <C>
Cash Flows Provided by Earnings from Capital Expenditures
Continuing Operations Continuing Operations* (Millions of Dollars)
(Millions of Dollars) (Millions of Dollars)
</TABLE>
*Adjusted for Power Sources gain and aluminum dross note provision in 1998,
Melamine gains and equity earnings in 1997, and equity earnings in years
1994-1996.
1
<PAGE> 4
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended December 31,
(In Thousands of Dollars, Except Per Share Amounts)
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
% % % % %
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers:
Electronic and Other Specialty $ 179,579 56 179,549 56 150,873 60 134,536 61 110,532 58
Chemicals
Polyurethane Chemicals 125,525 39 118,273 37 95,139 38 79,698 36 76,358 40
--------- --- -------- --- ------- --- -------- ---- -------- ----
Total sales 305,104 95 297,822 93 246,012 98 214,234 97 186,890 98
Other revenues 16,436 5 22,130 7 5,015 2 6,717 3 3,460 2
--------- --- -------- --- ------- --- -------- ---- -------- ----
Total revenues $ 321,540 100 319,952 100 251,027 100 220,951 100 190,350 100
========= === ======== === ======= === ======== ==== ======== ===
Operating profit from
continuing operations before
income taxes, investee earnings:
Electronic and Other Specialty $ 17,796 27,617 22,536 25,583 21,453
Chemicals
Polyurethane Chemicals 22,648 24,071 21,057 15,067 15,098
--------- --- -------- --- ------- --- -------- ---- -------- ----
40,444 51,688 43,593 40,650 36,551
Unallocated corporate expenses (9,781) (11,347) (13,324) (15,888) (9,910)
Interest income (expense), net 213 3,009 (3,926) (3,777) (6,939)
Other income, net 9,224 14,998 259 1,324 1,372
--------- --- -------- --- ------- --- -------- ---- -------- ----
40,100 58,348 26,602 22,309 21,074
Income taxes 15,440 23,050 10,471 10,327 9,354
Equity in net earnings of equity
investees -- 2,497 846 1,096 410
--------- --- -------- --- ------- --- -------- ---- -------- ----
Earnings from continuing operations 24,660 37,795 16,977 13,078 12,130
Earnings (loss) from discontinued
operations, net of taxes (2,618) 1,103 9,144 44,389 29,628
Net gain (loss) on disposal of
businesses, net of taxes (11,950) -- 223,739 -- --
--------- --- -------- --- ------- --- -------- ---- -------- ----
Net earnings $ 10,092 38,898 249,860 57,467 41,758
========= === ======== === ======= === ======== ==== ======== ====
Earnings (loss) per common share:
Continuing operations $ 1.28 1.85 .83 .64 .60
Discontinued operations (.14) .06 .44 2.16 1.48
Gain (loss) on disposal of
businesses (.62) -- 10.85 -- --
--------- --- ------- --- ------- --- -------- ---- -------- ----
Net earnings $ .52 1.91 12.12 2.80 2.08
========= === ======= === ======= === ======== ==== ======== ====
Earnings (loss) per common share,
assuming dilution:
Continuing operations $ 1.27 1.81 .81 .63 .60
Discontinued operations (.14) .05 .44 2.12 1.45
Gain (loss) on disposal
of businesses (.61) -- 10.70 -- --
--------- --- ------- --- ------- --- -------- ---- -------- ----
Net earnings $ .52 1.86 11.95 2.75 2.05
========= === ======= === ======= === ======== ==== ======== ====
Net working capital $ 116,936 79,936 136,901 127,009 100,421
Long-term debt $ 64,956 3,941 606 80,598 95,057
Total assets $ 443,434 433,097 394,164 390,346 371,328
Stockholders' equity $ 285,482 321,697 308,486 226,757 204,708
Cash dividend payout rate 76 20 3 14 18
Return on average equity -
continuing operations 8 12 6 6 7
Return on sales - continuing
operations 8 13 7 6 6
Long-term debt/equity ratio .23 .01 -- .36 .46
Current ratio 3.66 2.19 3.85 3.81 4.69
Cash dividends per share $ .40 .40 .40 .39 .31
Book value per share $ 15.48 16.06 14.92 11.02 10.07
</TABLE>F
2
<PAGE> 5
[LOGO]
Dear Fellow Shareholders
CHEMFIRST PRODUCES CHEMICALS FOR ELECTRONIC, PHARMACEUTICAL, POLYMER,
AGRICULTURAL, AND POLYURETHANE MARKETS. WE ARE NOW EXCLUSIVELY FOCUSED ON
CHEMICALS. WE HAVE RECLASSIFIED ENGINEERED PRODUCTS AND SERVICES AS DISCONTINUED
OPERATIONS IN ADDITION TO STEEL PENDING DISPOSITION OF THESE BUSINESSES. DURING
THE YEAR WE MADE SUBSTANTIAL INVESTMENTS IN TECHNOLOGY AND CAPACITY ADDITIONS TO
BUILD ON MARKET AND TECHNOLOGY LEADERSHIP IN CHEMICALS AND TO TAKE ADVANTAGE OF
GROWTH OPPORTUNITIES. WE EXPECT TO SEE RESULTS IN 1999.
EARNINGS IN 1998 SUFFERED FROM DEPRESSED CONDITIONS IN MANY OF OUR
MARKETS. VOLUME DECLINED AND PRICES FELL FOR SOME PRODUCTS DUE TO WEAKER DEMAND,
EXCESS CAPACITY, THE STRONG DOLLAR, AND DETERIORATING ECONOMIES IN THE FAR EAST
AND OTHER PARTS OF THE WORLD. AGRICULTURAL CHEMICAL DEMAND ALSO FELL DUE TO
COMPETITION FROM BIOTECHNOLOGY. UNUSUAL AND HOPEFULLY NONRECURRING PRODUCTION
PROBLEMS ALSO HURT RESULTS.
Earnings from continuing operations excluding special items were down
about 30% versus 1997. Peer company earnings were also down, about 25%. The
decline in our earnings reflected development expenses for chemical mechanical
planarization (CMP) for electronic chemical markets as well as the other factors
noted above. Total sales of $305 million were about the same as last year. A 22%
increase in electronic chemical sales was offset by decreased sales in other
areas.
Continuing operations include Electronic and Other Specialty Chemicals
and Polyurethane Chemicals. Emphasis is on chemicals and services for the
semiconductor industry where rapid technology change is creating more and more
opportunities for growth. We intend to build on our market and technology
leadership to take advantage of these opportunities.
FINANCIAL RESULTS
Earnings from continuing operations were $24.7 million, or $1.27 per
share, including special items of 29 cents per share primarily from a gain on
the sale of former equity affiliate Power Sources, Inc.
Results were disappointing following record chemical sales and earnings
last year. However, we made good progress positioning the company in key markets
for future growth. The new Baytown, Texas, aniline facility came on line in
April as planned and operated above design capacity by year end. We introduced
second-generation CMP products for customer trials, established research and
development and production facilities in Japan, and added production capability
for ultra-pure electronic chemicals. The deep ultraviolet (DUV) resins business
acquired last year was profitable and is growing.
Total Sales
(Millions of Dollars)
[GRAPH]
3
<PAGE> 6
CAPITAL EXPENDITURES
CAPITAL EXPENDITURES FOR 1998 WERE $44 MILLION, PRIMARILY FOR
COMPLETION OF THE WORLD SCALE ANILINE FACILITY LOCATED AT BAYER CORPORATION'S
BAYTOWN CHEMICAL COMPLEX. THIS PLANT MORE THAN DOUBLED OUR ANILINE CAPACITY. A
PLANNED SECOND PHASE WILL ADD ANOTHER 250 MILLION POUNDS AND WILL BRING TOTAL
ANILINE CAPACITY TO ABOUT 740 MILLION POUNDS WHEN COMPLETED.
CAPITAL EXPENDITURES IN 1999 WILL BE ONLY ABOUT $30 MILLION FOLLOWING
RECORD EXPENDITURES OVER THE PAST THREE YEARS THAT INCREASED PRODUCTION CAPACITY
IN MAJOR PRODUCT LINES 40% TO 100%. CAPITAL PROJECTS IN 1999 WILL BE PRIMARILY
FOR LAB EQUIPMENT AND PRODUCTION IMPROVEMENTS IN ELECTRONIC CHEMICALS,
MAINTENANCE AND PROCESS AND PRODUCTION IMPROVEMENTS IN OTHER AREAS, AND
COMPLETION OF AN ENTERPRISE RESOURCE PLANNING SYSTEM TO UPGRADE AND INTEGRATE
INFORMATION SYSTEMS.
We do not anticipate major acquisitions. Our focus has been and
continues to be on product-line and technology acquisitions that build on and
extend our existing base of products and technologies.
FINANCIAL STRUCTURE
The balance sheet is strong. Debt is 20% of total capitalization. This
is below our long-term target of 35% and the 36% average of peer companies.
Our former subsidiary Getchell Gold has agreed to merge with Placer
Dome. This will accelerate repayment of a $29 million note to the company.
Following receipt of this repayment and cash from the planned dispositions of
Steel and Engineered Products, financial leverage will decrease further. Excess
cash will be used to reduce debt and repurchase stock and to make product line
and technology acquisitions that complement and extend our existing businesses,
given the right opportunity.
We spent nearly $43 million to repurchase 1.8 million shares of
ChemFirst stock in 1998 and are now working on an additional $50 million
repurchase authorization. We believe stock repurchases are a tax efficient way
to return value to shareholders when other attractive investment opportunities
are not available.
ELECTRONIC AND OTHER SPECIALTY CHEMICALS
ChemFirst is the global market leader in advanced cleaners for
back-end-of-the-line high-value applications in semiconductor production. Sales
volume of our HDA(R)products was up 15% for the year in spite of problems in the
semiconductor industry, which experienced a 4% decline in silicon acreage and a
drop in use of semiconductor materials of nearly 8%. In 1999 silicon acreage
growth is projected at 2% and materials growth at 6%. We should benefit from
this growth and from new product introductions.
During the year we completed an applications lab in Japan to service
semiconductor manufacturers in this market. Japan represents approximately 40%
of the global market for cleaners and removers. Our current market share there
is relatively small. So we view Japan as a growth opportunity.
Growing use of DUV photolithography and CMP is being driven by the
industry shift to smaller feature sizes and increased chip complexity. Chip
geometry is moving from 0.25 to 0.18 micron about 18 months ahead of the
semiconductor industry roadmap.
CAPITAL EXPENDITURES
[PIE CHART]
IDENTIFIABLE ASSETS
[PIE CHART]
EMPLOYEES
[PIE CHART]
[GRAPH]
Electronic and Other Specialty Chemical Sales
(Millions of Dollars)
4
<PAGE> 7
THIS REQUIRES ADVANCED DUV PHOTOLITHOGRAPHY. WE ARE THE LARGEST SUPPLIER OF DUV
PHOTORESIST RESINS INTO THIS RAPIDLY GROWING GLOBAL MARKET.
CMP MARKETS ARE ALSO GROWING. THE PLANARIZED SURFACES CREATED BY CMP
PERMIT SHORTER WAVELENGTH, HIGH-RESOLUTION DUV LITHOGRAPHY REQUIRED FOR THE
SMALLER GEOMETRIES OF HIGHER PERFORMANCE CHIPS.
OTHER SPECIALTY CHEMICALS INCLUDE PRODUCTS FOR PHARMACEUTICAL,
AGRICULTURAL, POLYMER, PHOTOGRAPHIC, AND PHOTOSENSITIVE APPLICATIONS. WE TAKE
PRODUCTS FROM RESEARCH AND DEVELOPMENT THROUGH COMMERCIAL PRODUCTION FOR BOTH
PROPRIETARY AND CUSTOM CHEMICALS. OUR STRATEGY IS TO IDENTIFY AND CAPITALIZE ON
GROWTH OPPORTUNITIES IN NICHE MARKETS FOR PROPRIETARY PRODUCTS AND PRODUCTION
PROCESSES. WE ARE THE ONLY U.S. PRODUCER OF MANY NITROTOLUENES AND DERIVATIVES.
ALTHOUGH MANY MARKETS FOR THESE PRODUCTS ARE MATURE, THIS IS A GOOD NICHE FOR US
BECAUSE OF OUR UNIQUE SUPPLY POSITION. MARKET CONDITIONS PROMPTED PRICE CUTS TO
PROTECT SUPPLY POSITIONS IN 1998. WE HOPE FOR MORE STABLE PRICES IN 1999, BUT
WILL CONTINUE TO DEFEND OUR MARKET SHARE.
POLYURETHANE CHEMICALS
Aniline production is back on track following first-half production
problems and a third-quarter hurricane at Pascagoula. The Baytown aniline plant
started up in March 1998 and is running near design capacity. Demand is good,
and we expect to operate at full rate in 1999 with a substantial increase in
revenues and earnings. We are the industry's largest merchant producer of
aniline.
Cash flow from this business is greater than reinvestment opportunities
except for intermittent large projects. We view it as a source of funds for
growth in other areas.
OUTLOOK
Although the first half will probably be weaker than last year, we
expect the year to be better helped by increased aniline and electronic chemical
sales. A 10% workforce reduction and other cost cuts, which amounted to about 5%
of total fixed costs, will also help 1999 results. This may be offset to some
degree by slightly higher interest expense and possibly some below-the-line
expenses associated with discontinued businesses.
/s/ J. KELLEY WILLIAMS
J. Kelley Williams
Chairman and Chief Executive Officer
/s/ R. MICHAEL SUMMERFORD
R. Michael Summerford
President and Chief Operating Officer
POLYURETHANE CHEMICAL
SALES
(Millions of Dollars)
[GRAPH]
5
<PAGE> 8
ELECTRONIC AND OTHER SPECIALTY CHEMICALS SALES
POLYURETHANE CHEMICALS SALES
[PIE CHART]
ELECTRONIC AND OTHER SPECIALTY CHEMICALS
PRODUCTS INCLUDE:
Residue and photoresist removers, post-clean treatments, CMP slurries, DUV
resins, pharmaceutical, agricultural and color intermediates, photoinitiators,
and polymer promoters and inhibitors.
ULTIMATE CONSUMER MARKETS
Personal computers, flat panel displays and disk drives, AIDS and high blood
pressure drugs, fungicides, herbicides, insecticides, color film developers,
laundry detergents, adhesives, inks, and coatings.
COMPETITIVE ADVANTAGES
Global presence, market leader, customer support, flexible process capability,
and proprietary technology.
POLYURETHANE CHEMICALS
PRODUCTS INCLUDE:
Aniline and nitrobenzene.
ULTIMATE CONSUMER MARKETS
Residential and commercial insulation, automobile bumper and body components,
herbicides, tires, and acetaminophen.
COMPETITIVE ADVANTAGES
Low-cost producer, innovative technology, and long-term customer relationships.
6
<PAGE> 9
ELECTRONIC AND OTHER SPECIALTY CHEMICALS
THE COMPANY PRODUCES CHEMICALS FOR USE IN THE MANUFACTURE OF
SEMICONDUCTOR CHIPS AND FOR AGRICULTURAL, PHARMACEUTICAL, POLYMER, AND
PHOTOSENSITIVE APPLICATIONS. OBJECTIVES ARE TO DEVELOP AND MARKET PROPRIETARY,
HIGH-VALUE SPECIALTY CHEMICALS AND TO PROVIDE RESEARCH AND SCALE-UP PRODUCTION
FOR CUSTOMER PROCESSES.
ELECTRONIC CHEMICALS
THE COMPANY PRODUCES ORGANIC PHOTORESIST REMOVERS, POST-DRY-ETCH POLYMER
REMOVERS, DEEP ULTRAVIOLET RESINS FOR PRODUCTION OF PHOTORESISTS, AND OTHER
PERFORMANCE CHEMICALS AND MATERIALS FOR CLEANING AND POLISHING SILICON WAFERS IN
SEMICONDUCTOR MANUFACTURING. PRODUCTS ARE SOLD ON THE BASIS OF PRODUCT FUNCTION,
PURITY, AND CLEANNESS. THE COMPANY'S APPLICATIONS ENGINEERS WORK CLOSELY WITH
CUSTOMERS TO DEVELOP UNIQUE CHEMICAL SOLUTIONS TO ADVANCED SEMICONDUCTOR
MANUFACTURING ISSUES. PRODUCT PERFORMANCE, APPLICATIONS ENGINEERING SUPPORT, AND
SERVICE ARE KEY TO CUSTOMER SATISFACTION AND COMPETITIVE ADVANTAGE.
Semiconductor growth is being driven by the increasing use of personal
computers and the proliferation of other electronic devices such as digital
television, digital cameras, and wireless communications; by the growing
acceptance of Internet applications and Web TV; and by the need to increase
device performance, speed, and capacity. In addition, new products containing
logic devices are being developed and introduced routinely for an increasing
number of office, home, and automotive applications. All of these devices
require high performance integrated circuits.
REMOVER PRODUCTS
The company is the world's largest supplier of post-dry-etch polymer
removers and the second largest supplier of photoresist removers. Production
facilities and applications engineering labs in Hayward, California; East
Kilbride, Scotland; and Kawasaki-City, Japan, are strategically located near key
regional semiconductor production centers. Patented HDA(R) polymer removers
effectively remove residues formed during dry etching of silicon wafers and
continue to be the fastest-growing products in the history of the company. They
increase yields and improve chip performance, which translates into lower costs
and higher margins for chip manufacturers. This technology has established the
company as a leader in the electronic chemicals industry.
CHEMICAL MECHANICAL PLANARIZATION (CMP)
In January 1998, the company entered the CMP market through two
product-line acquisitions. These acquisitions provided ChemFirst with CMP
technologies, products and customers, slurry manufacturing equipment,
applications labs, and exclusive supply positions for proprietary powders and
abrasives used in CMP slurries.
ELECTRONIC AND OTHER SPECIALTY CHEMICALS
RESULTS OF OPERATIONS
In Thousands of Dollars
<TABLE>
<CAPTION>
1998 1997 % Change
<S> <C> <C> <C>
Sales 179,579 179,549 --
Pretax operating results 17,796 27,617 (36)
Capital expenditures 25,306 36,692 (31)
</TABLE>
HIGHLIGHTS
ESTABLISHED AN ELECTRONIC CHEMICALS APPLICATIONS LAB IN JAPAN.
INTRODUCED NEW MATERIALS FOR CMP APPLICATIONS IN ADVANCED CHIP PRODUCTION
PROCESSES.
COMPLETED A $4.5 MILLION EXPANSION FOR PRODUCTION OF DUV PHOTORESIST RESINS.
ESTABLISHED CUSTOM CHEMICAL SERVICES CAPABILITY FOR CONTRACT RESEARCH, SAMPLES,
AND SMALL-SCALE PRODUCTION FOR FINE CHEMICALS CUSTOMERS.
[CMP SLURRIES PHOTO]
7
<PAGE> 10
During the year, the company introduced new proprietary remover products that
facilitate the use of advanced copper interconnects for tomorrow's semiconductor
devices. These products permit cleaning of copper without corrosion or surface
etching while maintaining compatibility with low-k dielectric materials.
CMP IS RAPIDLY BECOMING AN ESSENTIAL SEMICONDUCTOR PROCESS FOR THE
PRODUCTION OF ADVANCED LOGIC AND MEMORY DEVICES. THE CMP PROCESS INVOLVES
POLISHING THE OXIDE (INSULATING) LAYERS AND THE METAL (CONDUCTOR) LAYERS DURING
SEMICONDUCTOR FABRICATION USING A SLURRY OF ABRASIVES AND CHEMICALS TO PRODUCE A
FLAT OR PLANARIZED SURFACE. FLATTER SURFACES ENABLE THE USE OF SHORTER
WAVELENGTH, HIGH-RESOLUTION LITHOGRAPHY SUCH AS THE NEW DEEP ULTRAVIOLET (DUV)
LITHOGRAPHY TO CREATE THE SMALLER LINE-WIDTH GEOMETRIES NEEDED FOR FUTURE
GENERATIONS OF SMALLER, HIGHER PERFORMANCE, AND FASTER INTEGRATED CIRCUITS. THE
COMPANY'S FOCUS IS ON DEVELOPING PRODUCTS AND MATERIALS FOR METAL CMP
APPLICATIONS AND POST-CMP CLEANING.
Several leading semiconductor manufacturers have announced major
programs to advance the use of copper as an interconnect layer using a new
inlaying or damascene process. Chips made using the damascene process are
faster, less expensive, and more energy efficient than chips made with
conventional processes. Copper damascene processing requires metal CMP.
DEEP ULTRAVIOLET (DUV) RESINS
The company supplies DUV resins to photoresist manufacturers for
production of DUV photoresist used in leading edge manufacture of semiconductor
chips.
In DUV photolithography, a thin film of DUV photoresist is applied to a
highly polished, ultra-pure silicon wafer. This film is then exposed to DUV
light through a pattern mask followed by development, ion implantation, etching,
and other procedures. This processing sequence creates single-layer circuit
tracings onto a wafer and is repeated as necessary to ultimately achieve the
complex, multi-layer circuitry of finished semiconductors.
Growing use of DUV photolithography in semiconductor production is
driven by the trend toward smaller chip geometry for increased productivity
(number of chips per wafer). Smaller design geometries with feature sizes below
0.25 micron are achieved by using DUV photolithography. The company currently is
the largest supplier of products to the global DUV photoresist resin market.
OTHER SPECIALTY CHEMICALS
The company manufactures specialty chemicals using both proprietary and
customer technology. Markets include agricultural, pharmaceutical, polymer,
photographic, dye and pigment and photosensitive applications.
[DUV RESINS PHOTO]
ELECTRONIC CHEMICALS GLOSSARY
CHEMICAL MECHANICAL PLANARIZATION-A process that uses both chemical reactions
and mechanical forces simultaneously to remove materials from a surface.
CHIP-A single square or
rectangular piece of semiconductor material into which a specific electrical
circuit has been fabricated. Also called an integrated circuit or discrete
device.
DAMASCENE-A process using inlaid metal (e.g., copper) to form interconnects
between devices on a chip.
DEEP ULTRAVIOLET OR DUV- Refers to the electromagnetic spectrum where the
wavelength of light is less than 300 nanometers.
DIELECTRIC-A non-conductor of current, an insulator.
DRY ETCH-The process that uses radio frequency energy and gas phase chemicals to
remove a specific layer during semiconductor processing.
FABRICATION-The process of making devices in semi-conductor wafers.
FEATURE SIZE-The smallest line width or spacing between lines or features on a
semiconductor chip.
INTERCONNECT-The conductors among elements on an integrated circuit or between
components on a printed circuit board.
k (as in low-k)-A constant value used to evaluate a dielectric's insulating
properties. The better the insulating properties, the lower the k value.
LINE WIDTH-Width of an opaque line. Usually refers to a dimension on a mask or a
feature on an integrated circuit.
8
<PAGE> 11
LOGIC-Computer circuitry
MASK-A transparent plate covered with an array of patterns used in making
integrated circuits by exposing photoresist that defines areas to be later
etched on a wafer.
MEMORY-A general term for computer hardware that holds information in electrical
or magnetic form.
MICRON-A micrometer. One-millionth of a meter. About 40 millionths of a inch.
Symbol is [illegible].
NANO-A prefix meaning one-billionth. Symbol is n.
PHOTOLITHOGRAPHY-Lithographic techniques involving light as the pattern transfer
medium.
PHOTORESIST-A light-sensitive liquid that is spread as a uniform thin film on a
wafer or substrate. After baking, exposure of specific patterns is performed
using a mask.
PLANAR-Existing essentially in a single plane.
SEMICONDUCTOR-A material with properties of both a conductor and an insulator.
Common semiconductors include silicon and germanium.
SILICON (Si)-The basic element used in most semiconductor devices, i.e., diodes,
transistors, and integrated circuits.
STRIPPING-The process of completely removing a coating such as photoresist.
WAFER-A thin disk of semiconductor material (usually silicon) on which many
separate chips can be fabricated.
WAVELENGTH-Distance between two successive points of a wave that vibrate in the
same phase.
Sources:
Integrated Circuit Engineering Corporation
EKC Technology, Inc.
THE COMPANY HAS VERSATILE LABORATORY AND MANUFACTURING FACILITIES,
INCLUDING A CGMP (CURRENT GOOD MANUFACTURING PRACTICES) PILOT PLANT, AND CAN
PRODUCE GRAM AND MULTI-TON QUANTITIES IN CGMP AND ISO-9000 MANUFACTURING
ENVIRONMENTS. MAJOR CUSTOMERS INCLUDE CHEMICAL AND PHARMACEUTICAL COMPANIES THAT
OUTSOURCE PRODUCTION TO CONCENTRATE ON RESEARCH AND MARKETING, TO CUT COSTS, AND
TO SPEED PRODUCT INTRODUCTIONS. THE COMPANY RECENTLY ESTABLISHED A CUSTOM
CHEMICAL SERVICES CAPABILITY TO PROVIDE CONTRACT RESOURCES, SAMPLES, AND
SMALL-SCALE PRODUCTION FOR FINE CHEMICAL CUSTOMERS. INNOVATIVE PROCESS
DEVELOPMENT, BROAD TECHNOLOGY PLATFORMS, EFFICIENT PRODUCTION IN CONTINUOUS AND
BATCH PROCESSES, COMPLIANCE EXCELLENCE, AND RESPONSIVE CUSTOMER SERVICE
CHARACTERIZE THE COMPANY AND MAKE IT ONE OF THE MOST COMPETITIVE CUSTOM
MANUFACTURERS IN THE UNITED STATES.
The company manufactures chemicals for photo curing applications such as
printing inks, varnishes, lacquers, and adhesives. The photo curing process
utilizes ultraviolet light to convert liquid coatings or inks into a dry or
"cured" film. These products are energy efficient, have shorter curing cycles,
are more environmentally friendly than traditional processes, and create a
higher-quality, more durable finish. The company also produces chemicals for
pharmaceuticals, including protease inhibitors used in the treatment of AIDS,
and other chemical applications such as in herbicides, rubber processing
chemicals, photographic chemicals, optical brighteners, and dyestuffs and
pigments.
POLYURETHANE CHEMICALS
The company is a major producer of aniline and nitrobenzene, with world
scale plants and long-term supply relationships with major chemical companies.
These products are produced in efficient, continuous process facilities.
Aniline is the company's largest product. Approximately 75% of aniline
produced in the U.S. is used to manufacture MDI (methylene diphenyl
diisocyanate) used in polyurethane foams and in urethane elastomers used in
automobile body components. Other significant markets for aniline include tire
and agricultural chemicals and plastics for consumer goods.
The company currently supplies all of Bayer Corporation's North American
aniline requirements under long-term contract from plants in Pascagoula,
Mississippi, and Baytown, Texas.
THE COMPANY RECENTLY ESTABLISHED CUSTOM CHEMICAL SERVICES CAPABILITY FOR
CONTRACT RESEARCH, SAMPLES, AND SMALL-SCALE PRODUCTION FOR FINE CHEMICAL
CUSTOMERS. THIS BUSINESS ENABLES THE COMPANY TO SERVE AS A SINGLE-SOURCE
PROVIDER AND TAKE PRODUCTS FROM R&D TO COMMERCIAL PRODUCTION.
9
<PAGE> 12
MOST OF THE COMPANY'S ANILINE PRODUCTION IS USED IN THE MANUFACTURE OF MDI, USED
TO MAKE POLYURETHANE, INCLUDING RIGID FOAMS FOR INSULATION IN HOME AND
COMMERCIAL CONSTRUCTION, REFRIGERATORS, FREEZERS, AND HOT WATER HEATERS. MDI
ALSO IS USED AS A BINDER FOR WOOD PRODUCTS AND IN ELASTOMERS USED IN GASKETS AND
BELTING APPLICATIONS, AND ENERGY-ABSORBING FOAMS USED TO MAKE AUTOMOBILE AND
TRUCK BUMPERS AND BODY PANELS.
NITROBENZENE IS USED TO MAKE ANILINE AND IS SOLD SEPARATELY FOR THE
MANUFACTURE OF PHARMACEUTICALS, RUBBER CHEMICALS, AND AGRICULTURAL CHEMICALS.
ANILINE AND NITROBENZENE ARE SOLD IN BULK AND DISTRIBUTED BY RAIL,
TRUCK, BARGE, AND SHIP DEPENDING ON THE SIZE AND DESTINATION OF THE SHIPMENT.
DURING THE YEAR, THE COMPANY COMPLETED CONSTRUCTION AND STARTED
PRODUCTION OF THE WORLD SCALE, 250-MILLION-POUND-PER-YEAR ANILINE FACILITY
LOCATED AT BAYER'S BAYTOWN, TEXAS, CHEMICAL COMPLEX. THE FACILITY IS AN INTEGRAL
PART OF BAYER'S U.S. MDI MANUFACTURING OPERATIONS. THIS PLANT, PHASE I OF A
TWO-PHASE PROJECT, MORE THAN DOUBLED THE COMPANY'S ANILINE CAPACITY. A PLANNED
SECOND PHASE WILL ADD ANOTHER 250 MILLION POUNDS OF CAPACITY, BRINGING TOTAL
ANILINE CAPACITY TO APPROXIMATELY 740 MILLION POUNDS WHEN COMPLETED.
RESEARCH AND DEVELOPMENT
R&D activities identify new markets and applications, new and improved
process technologies, and new products. Applied research is sponsored at several
leading universities in the United States and Europe to complement in-house
efforts. University research programs have led to the successful development and
introduction of patented semiconductor wafer cleaners and performance polymers.
The focus of R&D spending in 1998 was primarily on electronic chemicals,
including new CMP products for tungsten and copper applications and DUV resins
development for new photoresists. The company is working with new low-k
materials suppliers to develop chemistries and processes for these new materials
and with etch equipment manufacturers to develop removers for their new etch
recipes. Joint development and cooperative agreements with major semiconductor
equipment suppliers, materials suppliers, and key customers are leading to the
development of chemical solutions for problems related to the production of next
generation chips.
[PHOTO OF PLANT & LAB]
POLYURETHANE CHEMICALS
RESULTS OF OPERATIONS
In Thousands of Dollars
<TABLE>
<CAPTION>
1998 1997 % Change
<S> <C> <C> <C>
Sales 125,525 118,273 6
Pretax operating results 22,648 24,071 (6)
Capital expenditures 11,421 47,910 (76)
</TABLE>
HIGHLIGHTS
Completed construction and started production of the 250-million-pound-per-year
aniline facility at Baytown, Texas.
Became the sole supplier for Bayer Corporation's North American aniline
requirements.
10
<PAGE> 13
<TABLE>
<CAPTION>
CHEMFIRST COMPANIES DIRECTORS OFFICERS
<S> <C> <C>
First Chemical Corporation Richard P. Anderson 2, 3 J. Kelley Williams
(Polyurethane Chemicals and Specialty Maumee, Ohio Chairman
Chemicals) Chairman, Chief Executive Officer
P. O. Box 7005 The Andersons, Inc.
Pascagoula, Mississippi 39568-7005 Agribusiness R. Michael Summerford
- -and- President
First Chemical Texas, L.P. Paul A. Becker 1 Chief Operating Officer
(Polyurethane Chemicals) Vero Beach, Florida
P. O. Box 1607 President, Max P. Bowman
Baytown, Texas 77520 Summit Investment Management Vice President, Finance
George M. Simmons, President Treasurer
James W. Crook 3, 4
Quality Chemicals, Inc. Dataw, South Carolina Daniel P. Anderson
(Electronic and Specialty Chemicals) Retired, Former Chairman of the Board, Vice President
P. O. Box 216 Melamine Chemicals, Inc. Health, Safety & Environmental Affairs
Tyrone, Pennsylvania 16686-0216
- -and- Michael J. Ferris 2 William B. Kemp
1515 Nicholas Road Houston, Texas Vice President
Dayton, Ohio 45418 President and Chief Executive Officer, Human Resources
Scott Martin, President Pioneer Companies, Inc.
J. Steve Chustz
EKC Technology, Inc. James E. Fligg 2 General Counsel
(Electronic Chemicals) Chicago, Illinois
2520 Barrington Court Executive Vice President, Troy B. Browning
Hayward, California 94545-3703 BP Amoco, p.l.c. Controller
P. Jerry Coder, President
Robert P. Guyton 1 James L. McArthur
EKC Technology, Ltd. Sea Island, Georgia Secretary
(Electronic Chemicals) Financial Consultant Manager, Investor Relations
19 Law Place
Nerston, Industrial Estate Dr. Paul W. Murrill 1
East Kilbride Baton Rouge, Louisiana
Glasgow G74 4QL Scotland Professional Engineer
Connell Boyle, Managing Director
William A. Percy, II 2, 4
EKC Technology, K.K. Greenville, Mississippi
(Electronic Chemicals) Chairman of the Board,
KSP R&D D3 42 Staple Cotton Cooperative Association
3-2-1 Sakado, Takatsu-ky, Kawasaki
Kanawaga, 213-0012 Japan Dan F. Smith 1
Satoshi Kumasaka, Managing Director Houston, Texas
President and Chief Executive Officer,
TriQuest, L.P. Lyondell Chemical Company
(Electronic and Specialty Chemicals)
P. O. Box 819005 Leland R. Speed 3
Dallas, Texas 75381-9005 Jackson, Mississippi
Roger L. Van Duyne, President Chairman,
EastGroup Properties
Parkway Properties
Real Estate Trust Companies
Dr. R. Gerald Turner 3, 4
Dallas, Texas
President,
Southern Methodist University
J. Kelley Williams
Jackson, Mississippi
Chairman and Chief Executive Officer,
ChemFirst Inc.
1 Audit Committee
2 Compensation and Human Resources Committee
3 Committee on Director Affairs
4 ChemFirst Foundation Inc. Board of Trustees
</TABLE>
<PAGE> 14
CORPORATE INFORMATION
TRANSFER AGENTS FOR COMMON STOCK
The Bank of New York
1-800-524-4458
Address shareholder inquiries to:
Shareholder Relations Department - 11E
P. O. Box 11258
Church Street Station
New York, New York 10286
Send certificates for transfer and address changes to:
Receive and Deliver Department - 11W
P. O. Box 11002
Church Street Station
New York, New York 10286
e-mail:
[email protected]
Internet: http://stock.bankofny.com
ChemFirst Inc.
Stock Transfer Department
P.O. Box 1249
Jackson, Mississippi 39215-1249
(601) 948-7550
e-mail: [email protected]
COMMON STOCK REGISTRARS
The Bank of New York
Investor Relations Department
P. O. Box 11258
Church Street Station
New York, New York 10286
Deposit Guaranty National Bank
One Deposit Guaranty Plaza
Jackson, Mississippi 39205-1200
Stock Listing
New York Stock Exchange
Trading Symbol: CEM
Note: The Wall Street Journal and many other major daily newspapers list the
stock as "ChemFst."
INVESTOR RELATIONS
If you have questions concerning ChemFirst Inc. or your investment in the
company, we will be pleased to assist you. Contact:
James L. McArthur
Secretary, Manager, Investor Relations
ChemFirst Inc.
P.O. Box 1249
Jackson, Mississippi 39215-1249
(601) 949-0285 or (601) 948-7550
e-mail: [email protected]
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick, LLP
1100 One Jackson Place
Jackson, Mississippi 39201-9988
STOCKHOLDER REPORTS
Stockholders with stock in brokerage accounts who wish to receive quarterly
stockholder reports and other information directly from the company, may do so
by writing, calling or e-mailing the company's Investor Relations Department.
Quarterly earnings reports may also be accessed via the company's Internet site
located at www.chemfirst.com.
FORM 10-K
Stockholders may obtain without charge a copy of the ChemFirst Inc. 10-K as
filed with the Securities and Exchange Commission by calling or writing the
company's Investor Relations Department, or on the company's Internet site
located at www.chemfirst.com.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held May 25, 1999, at 1:30 p.m. in
the Garden Room at Dennery's, 330 Greymont Avenue, Jackson, Mississippi.
Stockholders are cordially invited to attend and participate in the business of
the meeting. All stockholders are requested to return their proxy cards to the
Registrar in the envelope that accompanies the proxy.
[LOGO CHEMFIRST INC.]
STOCK MARKET INFORMATION
The high and low recorded prices of the company's common stock and cash
dividends declared during 1998 and 1997 are presented in the table below. There
were approximately 4,037 shareholders of record as of March 5, 1999.
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------
Dividend Dividend
High Low Rate High Low Rate
------ ------ ---- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
1st Quarter 28 3/8 23 3/4 .10 24 1/8 20 1/2 .10
2nd Quarter 27 1/16 24 7/8 .10 27 5/16 20 1/8 .10
3rd Quarter 25 5/8 15 7/8 .10 28 5/8 25 .10
4th Quarter 21 15 9/16 .10 28 5/8 24 1/4 .10
For the Year 28 3/8 15 9/16 .40 28 5/8 20 1/8 .40
</TABLE>
12
<PAGE> 15
DESIGNED BY DANIEL THOMAS AND GODWINGROUP, JACKSON, MISSISSIPPI
PHOTOGRAPHY BY DAVID X. TEJEDA, DENVER, COLORADO
PRINTING BY HEDERMAN BROTHERS, RIDGELAND, MISSISSIPPI
13
<PAGE> 16
CHEMFIRST INC. POST OFFICE BOX 1249 JACKSON, MISSISSIPPI 39215-1249
14
<PAGE> 17
[LOGO] CHEMFIRST INC.
1998 FINANCIAL REVIEW
<PAGE> 18
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In June 1997, Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and Related Information, was
issued, to be effective for fiscal years beginning after December 15, 1997. This
statement mandates a management approach, based on the way management organizes
businesses within a company for making operating decisions and assessing
performance, to provide selected reporting information. The following discussion
is based upon and should be read in conjunction with the selected historical
financial information and the Company's financial statements, including the
notes thereto, which reflect the adoption of this statement.
1998 VERSUS 1997
CONSOLIDATED RESULTS
Income from continuing operations for 1998 was $24.7 million, down 35%
from the prior year. Results for 1998 include other income of $9.3 million ($5.7
million after tax), primarily related to the gain on the sale of the Company's
50% interest in Power Sources, Inc. (PSI) in the first quarter of 1998. Prior
year results include a $14.7 million gain ($8.8 million after tax) from the
fourth quarter sale of the Companys 23% interest in Melamine Chemicals, Inc.
(Melamine) and $2.5 million equity in net earnings of PSI and Melamine (see note
3 to the Consolidated Financial Statements). Excluding these gains and equity
earnings, earnings from continuing operations were $19.0 million, down 28% from
$26.5 million in 1997 primarily due to lower margins, increased research and
development and higher interest expense. Sales for the year were up 2%,
primarily due to higher aniline volume.
SEGMENTS
Electronic and Other Specialty Chemicals pretax operating profits for
1998 were $17.8 million on sales of $179.6 million. Sales of chemical mechanical
planarization and acylation derivatives products (used primarily in the
manufacture of integrated circuits) from acquisitions in December 1997, were
$14.9 million and pretax operating losses were $2.6 million. Pretax operating
profits and sales, excluding the above acquisitions, were down 26% and 8%,
respectively, due to lower demand for an agricultural chemical intermediate and
lower prices from many products due to competitive pressure. Remover product
sales volume was up 4% and average unit prices were unchanged despite an
estimated 4% decline in worldwide silicon consumption and a downturn in the
semiconductor industry.
Polyurethane Chemicals pretax operating profits were $22.6 million, down
6% from the prior year. Operating profits declined in 1998 as lower production
and higher costs at the Pascagoula, Mississippi, facility and 17% lower average
nitrobenzene prices more than offset the additional production from the Baytown,
Texas, facility. Sales for the year were $125.5 million, up 6% as a 16% increase
in sales volume was partially offset by lower average sales prices. The
increased volume was due to the added production from the Companys new
250-million-pound-per-year aniline facility in Baytown, which began operations
in March 1998. The additional Baytown production was partially offset by reduced
aniline production at Pascagoula mostly due to production inefficiencies and
unscheduled plant maintenance in the first quarter and a scheduled plant
turnaround in the second quarter. Hurricane Georges struck the Pascagoula
facility on September 28, 1998, and shut down operations for 18 days. However,
the Companys insurance will cover most of the facility's repairs and lost
profits incurred during that period.
Unallocated corporate expenses for 1998 were $9.8 million, down 14% from
the prior year primarily due to a reduction in compensation expense indexed to
the Companys stock price. Net interest income was down $2.8 million due to $1.7
million in higher interest expense, net of capitalized interest, and $1.1
million in lower interest income. Capitalized interest for the year was up $0.8
million over the prior year. Interest expense was up on higher debt while
interest income declined as cash proceeds received in 1996 from the fertilizer
disposition were used for capital expenditures and share repurchases. Other
income and expense in 1998 included a $10.1 million gain on the sale of PSI and
a $0.8 million valuation allowance for a note received in the disposition of
Plasma Processing Corporation in January 1997. Other income for 1997 included
the $14.7 million gain on the sale of Melamine.
1
<PAGE> 19
1997 VERSUS 1996
CONSOLIDATED RESULTS
Income from continuing operations for 1997 was $37.8 million versus
$17.0 million for 1996. Results for 1997 include a $14.7 million ($8.8 million
after tax) gain from the sale of Melamine. Excluding this gain and equity
earnings, income from continuing operations for 1997 was $26.5 million, up 64%
from 1996 on a 21% increase in sales and lower interest expense. Interest
expense for 1997 was down $6.3 million from the prior year due to the
extinguishment of most debt of the company with the disposal of fertilizer
operations in December 1996 (see note 2 to the Consolidated Financial
Statements).
SEGMENT OPERATIONS
Electronic and Other Specialty Chemicals operating profits for 1997 were
$27.6 million, up 23% from 1996 as sales grew 19%. The increase in sales was due
to high utilization of capacity expansions completed in December 1996 and
increased nitrotoluene derivative sales volume.
Polyurethane Chemicals pretax operating profits for 1997 were $24.1
million, up 14% from 1996 as sales increased 24% primarily due to higher sales
volumes. Nitrobenzene sales volume was up due to increased production following
modifications at the Pascagoula facility. Aniline sales volume was up 16%,
primarily due to the purchase of product for resale. However, these aniline
sales did not contribute significantly to operating results.
Unallocated corporate expenses for 1997 were $11.3 million, down 15%
from 1996, which included $1.0 million in corporate expenses related to the
companys name change and restructuring in association with the disposition of
fertilizer operations. Net interest income was $3.0 million in 1997 versus a net
interest expense of $3.9 million in 1996, primarily due to the assumption of
debt by Mississippi Chemical Corporation related to the disposal of fertilizer
in December 1996 and higher interest income from the invested cash proceeds of
the transaction. Other income for 1997 included the $14.7 million gain on the
sale of Melamine.
DISCONTINUED OPERATIONS
In the fourth quarter of 1998, the Company's board of directors approved
a plan to dispose of Callidus Technology, Inc. (CTI). The plan assumes this
disposition will be finalized during 1999. CTIs net book amount at December 31,
1998, was $15.6 million. The disposal of CTI, which includes Plasma Energy
Corporation, will complete the disposition of the Engineered Products and
Services segment. The disposition of the other major portion of this segment,
Plasma Processing Corporation, was completed in January 1997.
In the third quarter of 1998, the Company finalized plans to dispose of
its steel operations by the end of 1999. An anticipated loss on disposal of
$12.0 million, net of applicable income taxes of $6.0 million, was recorded at
September 30, 1998, and was primarily related to the writedown of assets to
their estimated net realizable value. As of December 31, 1998, the proceeds of
this disposal, including income tax benefit, are estimated to be approximately
$27.0 million. During the year, the U. S. steel industry was hurt by imports and
by a weak domestic market. This led to a sharp decline in steel orders and
margins. The Company believes these conditions have also negatively affected
disposition of the steel operations.
On December 24, 1996, First Mississippi completed the spinoff of
ChemFirst Inc. and the combining of its fertilizer operations with Mississippi
Chemical Corporation. On October 20, 1995, the Company completed the spinoff of
its 81% owned subsidiary, Getchell Gold Corporation (Getchell), to shareholders.
In November 1998, Getchell and Placer Dome Inc. announced plans to merge.
Closing is anticipated in the second quarter of 1999 and, if consummated, will
result in the prepayment of approximately $29.3 million of principal and
interest due to the Company.
2
<PAGE> 20
The historical results of the above businesses, the gain on disposal of
fertilizer operations and the estimated loss on disposal of steel operations,
are reflected in discontinued operations.
Loss from discontinued operations for 1998 was $2.6 million versus
earnings of $1.1 million and $9.1 million in 1997 and 1996, respectively. The
loss in 1998 was primarily in steel operations. The earnings in 1996 included
$36.6 million in earnings from fertilizer operations, partially offset by $27.5
million in total losses in steel and engineered products and services
operations. Engineered products and services losses in 1996 were primarily due
to write-downs and accruals made in anticipation of the sale of aluminum
recovery operations. In 1998, the Company recorded a net loss from disposal of
steel operations of $12.0 million. The gain on disposal of businesses in 1996
includes $225.4 million in gain from the disposal of fertilizer operations, net
of $1.7 million in losses related to operations discontinued in prior years (see
notes 1 and 2 to the Consolidated Financial Statements for the details of these
transactions).
ENVIRONMENTAL MATTERS
The Company's operations are subject to a wide variety of constantly
changing environmental laws and regulations governing emissions to the air,
discharges to water sources, and the handling, storage, treatment and disposal
of waste materials, as well as other laws and regulations concerning health and
safety conditions for which it must incur certain costs. The Companys capital
expenditures for environmental protection were $0.2 million in 1998. Capital
expenditures are projected to be $1.4 million and $1.1 million for 1999 and
2000, respectively. In addition, the Company accrues for anticipated costs
associated with investigatory and remediation efforts relating to the
environment. At December 31, 1998, the Companys accrued liability for these
matters totaled $1.6 million, $1.4 million of which is for discontinued
operations and $0.2 million for continuing operations. Based on information
presently available, the Company believes any amounts paid in excess of the
accrued liabilities will not have a material adverse effect on its financial
position, cash flows or results of operations.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, Environmental Remediation Liabilities. This
statement provides guidance in applying existing accounting literature to
calculating, recording and disclosing environmental remediation liabilities. The
adoption of this standard did not have a material effect on the Company's 1997
or 1998 financial statements.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operations was $34.2 million, up $10.6 million from
1997. Net cash provided by operating activities in 1997 was lower, primarily due
to the reduction of accruals made in 1996 related to the fertilizer disposition.
Investing activities for the year included pretax proceeds of $19.0 million from
the sale of PSI and $43.8 million in capital expenditures. Capital expenditures
were down versus 1997 when the bulk of expenditures for the new aniline facility
in Baytown and expenditures for specialty chemical expansions in Pascagoula were
made. Financing activities for 1998 included $42.6 million for the repurchase of
Company stock and $46.4 million in net borrowings.
Projected capital expenditures for 1999 are approximately $30.0 million.
Also, the Company has approximately $48.0 million remaining in its current stock
repurchase plan. The Company believes that its cash flow from operations,
combined with access to its existing or additional bank credit facilities,
adequately provide for the Companys cash requirements. Additional anticipated
sources of cash include proceeds related to discontinued operations, including
the disposal of its steel operations and CTI, plus collection of a note due from
Getchell (see Discontinued Operations).
3
<PAGE> 21
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee (AcSEC)
released Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP identifies the
characteristics of internal-use software and provides guidance for accounting
treatment of costs for computer software developed or obtained for internal use
as related to capitalization or expense decisions. The statement is effective
for fiscal years beginning after December 15, 1998. In April 1998, AcSEC
released SOP 98-5, Reporting on the Costs of Start-Up Activities. The SOP
broadly defines start-up activities and provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. The
statement is effective for fiscal years beginning after December 15, 1998.
Adoption of these statements is not expected to have a material impact on the
Companys financial statements.
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998, effective for fiscal years beginning after
June 15, 1999. The statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. All derivatives are required
to be recognized as either assets or liabilities in the statement of financial
position and measured at fair value. Changes in fair value will be reported
either in earnings or outside earnings depending on the intended use of the
derivative and the resulting designation. Entities applying hedge accounting are
required to establish at the inception of the hedge the method used to assess
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. The Company currently follows
SFAS No. 52, Foreign Currency Translation, and applies hedge accounting
treatment to certain foreign currency transactions by entering into forward
exchange contracts. Gains and losses associated with currency rate changes on
forward contracts hedging foreign currency transactions are recorded in income
and generally offset the transaction losses or gains on the foreign currency
cash flows that they are intended to hedge. Gains and losses on contracts
hedging firm sales commitments are deferred until the related transactions are
consummated. The Company has not completed its analysis of SFAS No. 133 and,
accordingly, has not determined what effect, if any, it may have on future
operations and financial statement disclosure.
MARKET RISK
The Company is exposed to changes in financial market conditions in the
normal course of its business, including changes in interest rates and foreign
currency exchange rates. At December 31, 1998, the Companys derivative and other
financial instruments included long-term debt denominated in U.S. dollars and
short-term debt denominated in Japanese yen and a series of short-term forward
sales of Japanese yen. Due to the short-term nature and size of these yen
obligations, the Company does not consider its exposure to foreign currency or
interest rate fluctuations on these instruments to be material.
The Company utilizes fixed and variable-rate debt to maintain liquidity
and fund its business operations, with the terms and amounts based on business
requirements, market conditions and other factors. At December 31, 1998, the
market value of the Company's fixed rate borrowings was approximately $24.0
million. A 100 basis point change in interest rates (all other variables held
constant) as of December 31, 1998, would result in a $1.0 million change in fair
market value, but would not affect interest expense or cash flow. At December
31, 1998, the Company had $41.0 million in variable-rate debt. A 100 basis point
change in interest rates (all other variables held constant) on this portion of
the Company's debt, would result in a change in interest expense of
approximately $0.4 million.
YEAR 2000
The advent of the Year 2000 poses significant risks to many companies
because of calculation limitations imposed by some equipment and systems limited
to storing a year as a two-digit field (e.g., 1998 as 98), which may lead to
computational errors when the years 2000 or later are used in calculations. In
1996, the Company began a study which led to the purchase in 1997 of a
company-wide Enterprise Resource Planning (ERP) system to integrate the
Company's information systems, replacing small, stand-alone purchased systems.
4
<PAGE> 22
The ERP system will be Year 2000 compliant, with the material portion of
the system planned for completion by the middle of 1999. Installation is being
completed in stages, with the first sites converted at December 31, 1998. To
date, the Company has spent $8.9 million on this project and is projecting to
spend approximately $2.0 million in 1999. If difficulties are encountered that
delay the ERP system implementation, contingency plans provide for the purchase
of select, Year 2000 compliant personal computer software products, the cost of
which should not be material.
A corporate-wide survey of other information technology (IT) and non-IT
equipment and systems utilizing date or time functions has been undertaken. The
current estimated cost to remediate is less than $0.6 million, most of which
will be incurred in 1999. Remediation, including verification testing of most
non-compliant systems, equipment and software is targeted for completion by
April 30, 1999. Some remediations at the Pascagoula facility, however, will
occur in the fourth quarter of 1999 to coincide with the next scheduled plant
maintenance turnaround. Contingency plans are currently being developed in the
event the remediations do not occur or are delayed. Severe delay or widespread
failure affecting both the remediation effort and the contingency plans,
although not expected, could have a material effect on the Company's financial
condition and results of operations.
Key customers, as well as service and raw material suppliers, are being
surveyed about their Year 2000 readiness. Depending on their responses,
contingency plans will be developed as appropriate. It is anticipated that this
process will be completed no later than September 30, 1999. Although the Company
cannot quantify the precise effect, significant or prolonged disruptions of key
customers or suppliers could have a material effect on the Companys financial
condition and results of operations. For example, the majority of aniline
produced by the Company is sold through long-term contracts to a few customers.
Their inability to utilize the Company's aniline could have a material adverse
effect.
FORWARD-LOOKING STATEMENTS
Certain statements included in this Managements Discussion and Analysis
of Financial Condition and Results of Operations that relate to the Year 2000,
proceeds from the discontinuance of steel and engineered products and services
operations, the prepayment of a note by Getchell and insurance recoveries
related to recent hurricane damage, as well as other statements in this Annual
Report that are not historical in nature, may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements, as well as other forward-looking
statements made from time to time by the Company or in the Company's press
releases and filings with the U.S. Securities and Exchange Commission, are based
on certain underlying assumptions and expectations of management.
These forward-looking statements are subject to risks and uncertainties
which could cause actual results to differ materially from those expressed in
such forward-looking statements. Such risks and uncertainties include, but are
not limited to, general economic conditions, availability and pricing of raw
materials, supply/demand balance for key products, new product development,
manufacturing efficiencies, conditions of and product demand by key customers,
the timely completion and start up of construction projects, pricing pressure as
a result of the downturn in markets, successful installation of the Company's
new ERP system, the inability of the Company to either resolve the Companys Year
2000 issues or to accurately estimate the costs associated with Year 2000
compliance, the resolution of contingencies related to the sale of PSI,
insurance coverage related to hurricane damage to the Company's Pascagoula
facility and other factors as may be discussed in the Company's Form 10-K for
the fiscal year ended December 31, 1998.
5
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In Thousands of Dollars)
December 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 11,226 7,766
Receivables:
Trade, less allowance for doubtful accounts of $317 and $97, respectively 40,646 48,694
Affiliated companies -- 303
Other 3,152 4,065
--------- ---------
Total receivables 43,798 53,062
--------- ---------
Inventories:
Finished products 32,872 22,234
Work in process 7,045 6,880
Raw materials and supplies 11,378 10,139
--------- ---------
Total inventories 51,295 39,253
--------- ---------
Prepaid expenses and other current assets 8,274 7,640
Net current assets of discontinued operations 46,309 39,445
--------- ---------
Total current assets 160,902 147,166
--------- ---------
Investments and other assets:
Investments in affiliated companies -- 7,138
Other investments 32,769 31,573
Intangible and other assets, at cost less amortization 16,362 17,918
--------- ---------
Total investments and other assets 49,131 56,629
--------- ---------
Property, plant and equipment, net 227,401 204,577
--------- ---------
Noncurrent assets of discontinued operations 6,000 24,725
--------- ---------
$ 443,434 433,097
========= =========
Liabilities and Stockholders Equity
Current liabilities:
Notes payable $ 5,354 20,700
Current installments of long-term debt 251 277
Deferred revenue 104 56
Accounts payable - trade (including book overdrafts of
$6,673 and $10,793, respectively) 22,020 29,911
Accrued expenses and other current liabilities 16,237 16,286
--------- ---------
Total current liabilities 43,966 67,230
--------- ---------
Long-term debt, excluding current installments 64,956 3,941
Other long-term liabilities 24,783 19,562
Noncurrent liabilities of discontinued operations 10,097 10,537
Deferred income taxes 13,501 10,130
Minority interest 649 --
Stockholders equity:
Serial preferred stock. Authorized 20,000,000 shares; none issued
Common stock of $1 par value. Authorized 100,000,000 shares;
outstanding 18,445,391 and 20,030,939 shares, respectively 18,445 20,031
Additional paid-in capital 22,212 18,869
Accumulated other comprehensive income (293) --
Retained earnings 245,118 282,797
--------- ---------
Total stockholders equity 285,482 321,697
--------- ---------
$ 443,434 433,097
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 24
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(In Thousands of Dollars,
Except Per Share Amounts)
Years ended December 31,
--------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Sales $ 305,104 297,822 246,012
Interest and other income, net 16,436 22,130 5,015
--------- --------- ---------
321,540 319,952 251,027
--------- --------- ---------
Costs and expenses:
Cost of sales 228,916 217,386 174,857
General, selling and administrative expenses 40,077 38,362 37,268
Other operating expenses 10,461 5,573 5,721
Interest expense 1,986 283 6,579
--------- --------- ---------
281,440 261,604 224,425
--------- --------- ---------
Earnings from continuing operations before
income taxes and investee earnings 40,100 58,348 26,602
Income tax expense 15,440 23,050 10,471
Equity in net earnings of affiliated companies -- 2,497 846
--------- --------- ---------
Earnings from continuing operations 24,660 37,795 16,977
Earnings (loss) from discontinued operations, net of taxes (2,618) 1,103 9,144
Net gain (loss) on disposal of businesses, net of taxes (11,950) -- 223,739
--------- --------- ---------
Net earnings $ 10,092 38,898 249,860
========= ========= =========
Earnings (loss) per common share :
Earnings (loss) per common share:
Continuing operations $ 1.28 1.85 .83
Discontinued operations (.14) .06 .44
Net gain (loss) on disposal of businesses (.62) -- 10.85
--------- --------- ---------
Net earnings $ .52 1.91 12.12
========= ========= =========
Earnings (loss) per common share, assuming dilution:
Continuing operations $ 1.27 1.81 .81
Discontinued operations (.14) .05 .44
Net gain (loss) on disposal of businesses (.61) -- 10.70
--------- --------- ---------
Net earnings $ .52 1.86 11.95
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 25
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In Thousands of Dollars, Except Share Amounts)
Years ended December 31, 1998, 1997 and 1996
--------------------------------------------------------------------------------
Accumulated
Common Stock Additional Other
------------------------------ Paid-In Comprehensive Retained
Shares Amount Capital Income Earnings
------------ ------------ ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 20,584,991 $ 20,585 14,202 -- 191,972
Net earnings -- -- -- -- 249,860
Dividends declared - $.40 per share -- -- -- -- (8,246)
Distribution of common stock of
Mississippi Chemical Corp. -- -- -- -- (162,346)
Common stock issued:
Employee stock options 41,704 42 768 -- --
Convertible debentures 46,583 47 308 -- --
Purchase and retirement of
common shares (500) (1) -- -- (13)
Income tax benefit on exercise of stock
options and convertible debentures -- -- 1,308 -- --
------------ ------------ ------------- ------------ ----------
Balance, December 31, 1996 20,672,778 20,673 16,586 -- 271,227
Net earnings -- -- -- -- 38,898
Dividends declared - $.40 per share -- -- -- -- (8,147)
Common stock issued:
Employee stock options 65,620 66 881 -- --
Convertible debentures 93,317 93 516 -- --
Purchase and retirement of
common shares (800,776) (801) -- -- (19,181)
Income tax benefit on exercise of stock
options and convertible debentures -- -- 886 -- --
------------ ------------ ------------- ------------ ----------
Balance, December 31, 1997 20,030,939 20,031 18,869 -- 282,797
Net earnings -- -- -- -- 10,092
Dividends declared - $.40 per share -- -- -- -- (7,659)
Common stock issued:
Employee stock options 43,102 43 724 -- --
Convertible debentures 148,930 149 1,008 -- --
Employee Stock Purchase Plan 51,417 51 933 -- --
Purchase and retirement of
common shares (1,828,997) (1,829) -- -- (40,112)
Income tax benefit on exercise of stock
options and convertible debentures -- -- 678 -- --
Foreign currency translation adjustments -- -- -- (293) --
------------ ------------ ------------- ------------ ----------
Balance, December 31, 1998 18,445,391 $ 18,445 22,212 (293) 245,118
============= ============ ============= ==========
Total comprehensive income:
Net earnings for year ended December 31, 1998 10,092
------------
Total comprehensive income $ 9,799
============
</TABLE>
See accompanying notes to consolidated financial statements
8
<PAGE> 26
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In Thousands of Dollars)
Years ended December 31,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 10,092 38,898 249,860
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 23,688 17,254 13,669
Provision for losses on receivables 203 505 364
Deferred income taxes 3,057 (1,254) (575)
Net (gain) loss on disposal of businesses, net of tax benefit 11,950 -- (223,739)
Gain on sale of equity investees (10,069) (14,684) --
Undistributed earnings of affiliates, net of taxes -- (2,497) (846)
Changes in current assets and liabilities, net of effects of
acquisitions and dispositions:
Receivables 15,237 (11,365) (397)
Inventories (12,481) (2,184) (1,940)
Prepaid expenses (320) 2,291 27
Accounts payable (7,943) 4,275 (1,334)
Accrued expenses and other current liabilities 1,588 (8,826) 7,279
Deferred revenue 3,301 3,296 2,788
Other, net (800) (2,034) (1,273)
Net (earnings) loss from discontinued operations 2,618 (1,103) (9,144)
---------- ---------- ----------
Net cash provided by continuing operations 40,121 22,572 34,739
Net cash provided by (used in) discontinued operations (5,970) 965 46,162
---------- ---------- ----------
Net cash provided by operating activities 34,151 23,537 80,901
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (43,786) (91,442) (48,889)
Acquisitions of businesses -- (11,166) --
Proceeds from sale of businesses -- 2,100 142,665
Proceeds from sale of property, plant and equipment 371 1,222 (100)
Proceeds from sale of equity investees 18,986 26,138 --
Other investing 365 (216) 243
---------- ---------- ----------
Net cash provided by (used in) investing activities of
continuing operations (24,064) (73,364) 93,919
Net cash used in investing activities of discontinued operations (3,204) (4,041) (48,547)
---------- ---------- ----------
Net cash provided by (used in) investing activities (27,268) (77,405) 45,372
---------- ---------- ----------
Cash flows from financing activities:
Net borrowings on notes payable 46,354 20,000 11,000
Principal repayments of long-term debt (22) (22) (105,170)
Repayments of other notes payable (700) -- --
Dividends (7,659) (8,147) (8,246)
Purchase of common stock (42,617) (19,312) (12)
Proceeds from issuance of common stock 1,669 1,475 914
---------- ---------- ----------
Net cash used in financing activities, continuing operations (2,975) (6,006) (101,514)
Net cash used in financing activities, discontinued operations (441) (745) (1,122)
---------- ---------- ----------
Net cash used in financing activities (3,416) (6,751) (102,636)
---------- ---------- ----------
Effect of exchange rate changes on cash (7) -- --
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 3,460 (60,619) 23,637
Cash and cash equivalents at beginning of year 7,766 68,385 44,748
---------- ---------- ----------
Cash and cash equivalents at end of year $ 11,226 7,766 68,385
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized $ 1,814 288 7,214
========== ========== ==========
Income taxes, net $ 7,283 20,832 11,132
========== ========== ==========
</TABLE>
Material noncash investing and financing activities are disclosed in notes 2 and
6.
See accompanying notes to consolidated financial statements.
9
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars, except share data; disclosures included in the Notes
to Consolidated Financial Statements relate to continuing operations, unless
otherwise indicated.)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGE IN ORGANIZATION
ChemFirst Inc. (the Company) was incorporated in Mississippi in 1983
under the name, Omnirad, Inc., as a wholly owned subsidiary of First Mississippi
Corporation (First Mississippi). In November 1996, in anticipation of the
Distribution (as described below), the Companys name was changed from Omnirad,
Inc. to ChemFirst Inc.
Prior to December 23, 1996, the Companys subsidiaries were subsidiaries
of First Mississippi and the Companys operations were conducted through
subsidiaries of First Mississippi. On December 23, 1996 (the Distribution Date),
First Mississippi contributed all of its assets and subsidiaries, other than
those relating to its fertilizer business, to the Company, which at that time
was a wholly owned subsidiary of First Mississippi and had engaged in no
operating activities during the previous five years. First Mississippi then spun
off the Company in a tax-free distribution of the Companys common stock to First
Mississippi shareholders (the Distribution) on the Distribution Date. The
Distribution occurred immediately prior to and in connection with the merger of
First Mississippi with a wholly owned subsidiary of Mississippi Chemical
Corporation (MCC), pursuant to an Agreement and Plan of Merger and
Reorganization dated as of August 27, 1996 (the Merger). The Company has
operated as a publicly held entity since the Distribution Date. For financial
reporting purposes, this transaction has been accounted for as a disposal of the
fertilizer business. Accordingly, the Companys financial statements prior to the
Distribution are the historical financial statements of First Mississippi
restated to present the fertilizer business as a discontinued operation. For
further information, see note 2.
BASIS OF PRESENTATION
The principal businesses of the Company involve the production of
electronic and other specialty chemicals for use in the semiconductor industry
and in agricultural, pharmaceutical, polymer, photographic and photosensitive
applications, as well as the production of polyurethane chemicals. Further
descriptions of the Companys products and the relative significance of its
operations are included in the segment information data in note 12.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Material
estimates that are susceptible to significant change in the near term relate to
the estimated losses and timing of discontinuation and disposal of businesses.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation. Investments in equity investments are accounted for
by the equity method.
RECOGNITION OF REVENUE
Revenues generally are recorded when title and risk of ownership pass
except for long-term construction-type contracts of certain discontinued
operations, which are accounted for under the percentage of completion method.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out and weighted average methods.
10
<PAGE> 28
INTANGIBLE ASSETS
Intangible assets are reviewed for impairment when the facts and
circumstances indicate that the carrying amount may not be recoverable.
DEPRECIATION AND AMORTIZATION
Depreciation of plant and equipment and depreciable investments is based
on cost and the estimated useful lives of the separate units of property. The
straight-line method is used in determining the amount of depreciation charged
to expense. Goodwill of businesses acquired is generally amortized up to 20
years using the straight-line method. Other intangibles are amortized over their
estimated useful lives (5-17 years) using the straight-line method.
Loan costs are amortized over the terms of related loans using the
interest method.
PENSION PLANS
Pension cost is determined using the projected unit credit actuarial
method for financial reporting purposes. The Companys funding policy is to
contribute annually at amounts not less than the minimum requirements of the
Employee Retirement Income Security Act of 1974.
INCENTIVE COMPENSATION
All outstanding stock options are nonqualified and require no charges to
expense upon grant or exercise. The tax benefit the Company receives from
dispositions that result in ordinary income to option recipients is included in
stockholders equity.
Phantom share units require no charge to expense upon grant or
redemption except that compensation plan discounts are amortized to expense over
various holding periods of up to three years. The share units are credited with
equivalent dividends equal to cash dividends paid by the Company. Equivalent
dividends are expensed through the statement of operations.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with original
maturities of three months or less to be cash equivalents.
INVESTMENTS
Realized gains and losses on investments are determined on the basis of
specific costs.
CONTINGENCIES
Estimates of loss contingencies, including environmental liability costs
for remediation, are charged to expense when it is probable an asset has been
impaired or a liability incurred and the amount can be reasonably estimated. If
a potentially material loss contingency is reasonably possible, or probable but
cannot be estimated, then the nature of the contingency and an estimated range
of possible loss, if determinable and material, are disclosed.
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign subsidiaries are translated into U.S.
dollars at current rates, except that revenues, costs and expenses are
translated at average current rates during each reporting period. Net exchange
gains or losses resulting from the translation of foreign financial statements
and the effect of exchange rate changes on intercompany transactions of a
long-term investment nature are accumulated in other comprehensive income.
11
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses forward exchange contracts to hedge certain foreign
receivables and firm sales commitments to be denominated in currencies other
than the functional currency of the entity involved. The contracts are
designated and effective as hedges. Gains and losses on contracts that hedge
recorded receivables activity offset the exchange rate fluctuations of the
underlying hedged transaction. Accounting for gains and losses on contracts
designated as hedges of identifiable foreign currency sales commitments involves
deferring recognition until the related transactions are consummated. When
consummated, these gains and losses are recorded in net income (see note 15).
ACCOUNTING CHANGES
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of,
was adopted by the Company in 1996 with no material effect to the Company.
SFAS No. 123, Accounting for Stock-Based Compensation, was adopted by
the Company in 1996. In accounting for employee stock options and similar equity
instruments, companies are given the choice of either recognizing related
compensation cost by adopting the fair value method, or to continue using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25
(APB No. 25), Accounting for Stock Issued to Employees, and supplementally
disclose the proforma effect on earnings and earnings per share using SFAS No.
123 measurement criteria. The Company elected to continue to follow the
requirements of APB No. 25, and accordingly, there is no effect on the results
of operations.
SFAS No. 128, Earnings per Share, was adopted by the Company in 1997.
This Statements objective is to simplify and standardize, relative to other
countries, the computation of earnings per share (EPS) previously required by
APB Opinion No. 15, Earnings per Share. It requires dual presentation of basic
and diluted EPS on the face of the income statement and a reconciliation of
basic and diluted EPS for continuing operations. Adoption of this Statement did
not have a material effect on the Companys EPS.
SFAS No. 129, Disclosure of Information about Capital Structure, was
adopted by the Company in 1997 relative to descriptive disclosure of securities
outstanding. The Companys disclosure requirements are unchanged from previous
requirements.
SFAS No. 130, Reporting Comprehensive Income, was adopted by the Company
in 1998. Its objective is to report all changes in equity during a period except
those resulting from investments by owners and distributions to owners. The
Company has presented comprehensive income detail in the consolidated statements
of stockholders equity.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, was adopted by the Company in 1998. Its objective is to report
segment information based on the way management organizes the segments within
the enterprise for making operating decisions and assessing performance. Segment
information has been presented on this basis.
SFAS No. 132, Employers Disclosures about Pensions and Other
Postretirement Benefits, was adopted by the Company in 1998. The purpose of this
statement is to provide additional insight into benefit obligation and plan
asset changes.
12
<PAGE> 30
FUTURE IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998, effective for fiscal years beginning after
June 15, 1999. The statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. All derivatives are required
to be recognized as either assets or liabilities in the statement of financial
position and measured at fair value. Changes in fair value will be reported
either in earnings or outside earnings depending on the intended use of the
derivative and the resulting designation. Entities applying hedge accounting are
required to establish at the inception of the hedge the method used to assess
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. The Company currently follows
SFAS No. 52, Foreign Currency Translation, and applies hedge accounting
treatment to certain foreign currency transactions by entering into forward
exchange contracts. Gains and losses associated with currency rate changes on
forward contracts hedging foreign currency transactions are recorded in income
and generally offset the transaction losses or gains on the foreign currency
cash flows that they are intended to hedge. Gains and losses on contracts
hedging firm sales commitments are deferred until the related transactions are
consummated. The Company has not completed its analysis of SFAS No. 133 and,
accordingly, has not determined what effect, if any, it may have on future
operations and financial statement disclosure.
2. ACQUISITIONS AND DISPOSALS
ACQUISITIONS
On December 31, 1997, the Company acquired from Clariant Corporation an
acylation derivatives business involved in the development and marketing of
photoresist applications, as well as the chemical mechanical planarization
assets of Baikowski International Corporation and Moyco Technologies, Inc. The
aggregate purchase price of these three businesses was approximately $14,900,
including approximately $11,200 in cash and contingent consideration of
approximately $3,700 (approximately $5,000 face value before discounting),
payable in five years. Goodwill is amortized on a straight-line basis over the
period assigned to each acquisition, ranging from five to 15 years.
DISPOSALS
In the fourth quarter of 1998, the Companys board of directors approved
a plan to dispose of Callidus Technology, Inc. (CTI). The plan assumes this
disposition will be finalized during 1999. The assets and liabilities of CTI
have been classified, net, as current discontinued assets of $9,600 and
non-current discontinued assets of $6,000. With this disposal, the Company will
complete the disposition of its Engineered Products and Services segment. The
disposition of the other major portion of this segment, Plasma Processing
Corporation was completed in January 1997 with a sale for $4,100, generating no
gain or loss on disposal. The Company recorded pretax charges of $20,402,
($18,256 and $2,146 during the second and fourth quarters of 1996, respectively)
in anticipation of the sale. These charges included $13,941 in asset writedowns
and $6,461 in accruals, consisting of $4,146 in estimated costs in excess of
market value to process inventory to meet contractual obligations, $500 for
disposal of marketable inventory, $525 for severance and $1,290 for contract
cancellations and other estimated costs. In December 1998, an additional accrual
of $1,465 was made to dispose of unprocessed inventory. In 1998 and prior years,
the Company expended $888 and $5,598, respectively, in cash against these
accruals, primarily related to inventory processing and severance payments,
leaving an accrual balance of $1,440.
In the third quarter of 1998, the Companys board of directors approved a
plan to discontinue its steel operations through a disposal of the assets of
FirstMiss Steel, Inc. by September 1999 and accordingly, the assets and
liabilities, net, have been classified as current. The carrying amount of these
assets was written down by $14,872 in the third quarter of 1998 to estimated net
realizable amount. In addition, accruals of $3,128 were recorded for estimated
costs of exiting this business. The carrying amount of the Steel net assets was
$26,565 at December 31, 1998. A previous writedown of $10,125 was taken in 1996.
13
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
As discussed in note 1, on December 23, 1996, First Mississippi
completed the spinoff of the Company and on December 24, 1996, First Mississippi
and its fertilizer operations (Fertilizer) were merged with a wholly owned
subsidiary of MCC. Prior to the completion of the transaction, First Mississippi
borrowed $150,500, which was used to refinance First Mississippis existing
indebtedness and pay certain transaction costs. This debt remained the
obligation of First Mississippi, which became a subsidiary of MCC as a result of
the Merger. As part of the transaction, for each share of First Mississippi
common stock outstanding at the close of trading on December 23, 1996, First
Mississippi shareholders received one share of ChemFirst Inc. common stock and
approximately one-third share of MCC common stock. The total value of the
transaction was approximately $312,500, based on the value of the assumed
indebtedness of $150,500 and the value, approximately $162,000, of the shares of
MCC distributed to First Mississippi shareholders. These total proceeds, less
the net book value of the Fertilizer assets and related transaction costs,
resulted in a pretax gain of approximately $222,000 and an after tax gain of
approximately $225,000. The gain on disposition of the Fertilizer assets is
included in gain on disposal of businesses in the December 31, 1996,
consolidated statements of operations. The tax benefit from the transaction was
for certain tax deductible expenses incurred by the Company. The distribution of
MCC shares to First Mississippi shareholders is reported as a reduction of
stockholders equity in the accompanying December 31, 1996, financial statements.
A pretax loss of $2,700 was also recorded during the year ended December
31, 1996, related to other previously discontinued businesses and is included in
gain on disposal of businesses, net of applicable income tax benefit of $954, in
the consolidated statements of operations. Such loss resulted from revised
estimates of environmental remediation costs and settlements of operating costs
related to previously discontinued phosphate fertilizer (1982) and oil and gas
(1993) businesses.
The net assets and liabilities of discontinued operations included in
the consolidated financial statements are classified as current assets,
noncurrent assets and noncurrent liabilities by segment as follows:
<TABLE>
<CAPTION>
Engineered Products
Steel and Services and Other Total
------------------------------------------------------------------------------------------
December 31, December 31, December 31,
-------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 24,766 39,186 33,172 30,426 57,938 69,612
Investments and other assets -- -- 359 -- 359 --
Property, plant and equipment, net 9,300 -- 8,489 -- 17,789 --
Current liabilities (7,036) (13,705) (22,276) (16,462) (29,312) (30,167)
Long-term debt, excluding
current installments (465) -- -- -- (465) --
---------- ---------- ---------- ---------- ---------- ----------
Net current assets of
discontinued operations $ 26,565 25,481 19,744 13,964 46,309 39,445
========== ========== ========== ========== ========== ==========
Investments and other assets $ -- 500 6,000 326 6,000 826
Property, plant and equipment, net -- 16,894 -- 7,005 -- 23,899
---------- ---------- ---------- ---------- ---------- ----------
Noncurrent assets of discontinued
operations $ -- 17,394 6,000 7,331 6,000 24,725
========== ========== ========== ========== ========== ==========
Long-term debt, excluding
current installments $ -- 924 -- -- -- 924
Deferred income taxes and other, net -- -- 10,097 9,613 10,097 9,613
---------- ---------- ---------- ---------- ---------- ----------
Noncurrent liabilities of
discontinued operations $ -- 924 10,097 9,613 10,097 10,537
========== ========== ========== ========== ========== ==========
</TABLE>
14
<PAGE> 32
The statements of operations have been reclassified to separate
discontinued and continuing operations. Revenues and net earnings (losses) of
the discontinued operations, by segment, for the years ended December 31, 1998,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fertilizer
Sales and revenues $ -- -- 231,195
======== ======== ========
Earnings from operations before taxes -- -- 57,725
Income tax expense -- -- 21,356
Equity in net earnings of equity investees -- -- 193
-------- -------- --------
Earnings from discontinued operations, net $ -- -- 36,562
======== ======== ========
Steel
Sales and revenues $ 54,620 75,304 73,750
======== ======== ========
Loss from operations before taxes (1,499) (1,134) (11,596)
Income tax benefit (585) (444) (4,291)
-------- -------- --------
Loss from discontinued operations, net $ (914) (690) (7,305)
======== ======== ========
Engineered Products and Services and Other
Sales and revenues $ 68,011 72,798 65,431
======== ======== ========
Earnings (loss) from operations before taxes (2,705) 2,952 (31,926)
Income tax expense (benefit) (1,001) 1,159 (11,813)
-------- -------- --------
Earnings (loss) from discontinued operations, net $ (1,704) 1,793 (20,113)
======== ======== ========
Total operating results of discontinued operations $ (2,618) 1,103 9,144
======== ======== ========
</TABLE>
Earnings (loss) from operations of discontinued businesses included
interest expense allocations (based on the ratio of net assets of discontinued
operations to consolidated net assets plus debt) of $309, $41 and $1,086 in
1998, 1997 and 1996, respectively.
3. INVESTMENTS
On January 22, 1998, the Company sold its 50% interest in Power Sources,
Inc. (PSI) to Trigen Energy Corporation for a net cash amount of $18,986 after
payments of incentives to former PSI management. A pretax gain of $10,069 was
recognized in 1998, with an additional gain of $1,500 deferred pending
resolution of contingencies related to the transaction. In November 1997, the
Company sold its 23% interest in Melamine Chemicals, Inc. (Melamine) to Borden
Chemical Inc. for $26,138 in cash, recognizing a pretax gain of $14,684. With
these dispositions, the Company has no investments in equity affiliates at
December 31, 1998.
Investment in affiliated companies accounted for by the equity method
was $7,138 at December 31, 1997. Equity earnings, net of taxes, were $2,497 and
$846, respectively, for the years ended December 31, 1997 and 1996. At December
31, 1997, affiliated company summary balances consisted of current assets of
$2,300, noncurrent assets of $22,004, current liabilities of $1,900, noncurrent
liabilities of $8,129 and net equity of $14,275.
The terms of the January 1997 sale of Plasma Processing Corporation
included a note for $2,000. A pretax provision for $750 was made in the fourth
quarter of 1998 related to the note based on managements estimate of
collectibility.
15
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
On October 20, 1995, First Mississippi distributed to its shareholders
its entire ownership of Getchell Gold Corporation (Getchell), formerly known as
FirstMiss Gold Inc. Each First Mississippi shareholder received approximately
seven-tenths of a common share of Getchell for each share of First Mississippi
owned. At the date of the Getchell spinoff, the Company received a promissory
note in settlement of all prior cash advances. The note bears interest at a rate
based on the London Interbank Offered Rate (5.625% at December 31, 1998).
Interest and principal are due in September 2000. The aggregate unpaid principal
amount of the note, including accrued interest, of $28,918 and $27,138 at
December 31, 1998 and 1997, respectively, is included in other investments. In
November 1998, Getchell and Placer Dome Inc. announced plans to merge, with
completion of the transaction anticipated in the second quarter of 1999. If the
merger is completed, Getchell must prepay all principal and interest due to the
Company.
4. INTANGIBLE AND OTHER ASSETS
The major classes of intangible and other assets are summarized below:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Goodwill $ 26,343 25,766
Other 1,055 1,350
---------- ----------
27,398 27,116
Less accumulated amortization 11,036 9,198
---------- ----------
$ 16,362 17,918
========== ==========
</TABLE>
The net carrying amounts of goodwill at December 31, 1998 and 1997 were
$15,890 and $17,036, respectively. Amortization expense amounted to $2,106 in
1998, $1,204 in 1997 and $1,535 in 1996.
5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment, at cost, follows:
<TABLE>
<CAPTION>
December 31,
Estimated -------------------------
useful lives 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
ASSETS AT COST:
Land and land improvements 10-20 $ 6,856 6,759
Buildings 20-45 31,075 25,591
Plant facilities and equipment 25-20 270,505 196,782
Other facilities and equipment 25-12 36,276 25,321
Construction in progress 22,102 69,088
---------- ----------
Total property, plant and equipment 366,814 323,541
Less accumulated depreciation and
amortization 139,413 118,964
---------- ----------
Net property, plant and equipment $ 227,401 204,577
========== ==========
</TABLE>
Depreciation and amortization expense related to the above was $21,582
in 1998, $16,050 in 1997 and $12,134 in 1996.
Capitalized interest related to the above amounted to $915 in 1998, $141
in 1997 and $920 in 1996.
16
<PAGE> 34
6. LONG-TERM DEBT AND CREDIT AGREEMENTS
A summary of long-term debt follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
Unsecured:
Senior notes payable:
Tranche A, 6.50%, due October 30, 2003 $ 15,000 --
Tranche B, 6.75%, due October 30, 2005 5,000 --
Revolving credit facility, due May 2002 41,000 --
BK International Corporation note, 6.25%, due December 2002 3,956 3,693
Other 228 482
--------- ---------
65,184 4,175
Secured 23 43
--------- ---------
65,207 4,218
Less current installments of long-term debt 251 277
--------- ---------
$ 64,956 3,941
========= =========
</TABLE>
There were no compensating balance requirements under loan agreements in
effect at December 31, 1998. The above obligations mature in various amounts
through 2005, including $251 in 1999, $44,956 in 2002, $15,000 in 2003 and
$5,000 in 2005.
In November 1998, the Company entered into a $20,000 private placement
of senior notes with two institutional investors. The Tranche A and B notes have
interest-only payments until October 30, 2003 and October 30, 2005, at interest
rates of 6.50% and 6.75%, respectively.
The Company has a $100,000 bank revolving credit facility originating
June 1997, which is committed until May 2002. At December 31, 1998, there was a
balance of $41,000 outstanding under the facility at a weighted average rate of
5.85%. Outstanding letters of credit under the facility were $8,678, leaving
$50,322 available for borrowings. Interest rates are based on either the London
Interbank Offered Rate or the prime rate. A facility fee ranging from .125 to
..150 of 1% per annum is charged. The facility fee was $126 for the year ended
December 31, 1998 and $80 for the period from June 1997 to December 31, 1997.
Prior to June 1997, the Company had a $65,000 bank revolving credit facility.
Interest rates were based on either the London Interbank Offered Rate or the
prime rate. Commitment fees for the period January 1997 through May 1997 and for
the year ended December 31, 1996, were $45 and $133, respectively.
The senior notes and the revolving credit facility contain certain
convenants, the most significant of which require a specified ratio of earnings
before interest and taxes to cover fixed charges, maintaining a minimum net
worth amount, and a specified debt to capitalization ratio. At December 31,
1998, the Company was in compliance with these covenants.
The Company has access to a $10,000 short-term uncommitted facility for
foreign or trade related borrowings. The facility, which originated during 1998
and expires in August 1999, is renewable at the Companys request and the banks
option. The total outstanding at December 31, 1998, was $5,354. Interest rates
are based on either the London Interbank Offered Rate or the Tokyo Interbank
Offered Rate. The average interest rate for the short-term facility was 1.15% at
year-end 1998.
The Company also has access to an uncommitted facility for the issuance
of foreign currency letters of credit. The total outstanding at December 31,
1998, was $1,642. The possibility of default is considered remote but would
cause these letters of credit to come due immediately. If this occurred,
payments would be made from available cash or borrowings under the revolving
credit facility.
17
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Total interest costs incurred for the years ended December 31, 1998,
1997 and 1996, were $2,901, $424 and $7,499, respectively.
7. INCOME TAXES
Total income tax expense (benefit) for the years ended December 31,
1998, 1997 and 1996, was allocated as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Continuing operations $ 15,440 23,050 10,471
Discontinued operations (1,586) 715 5,252
Segment dispositions (6,050) -- (3,928)
Stockholders equity related to compensation
expense for tax purposes in excess of amounts
recognized for financial reporting purposes (678) (886) (1,308)
---------- ---------- ----------
$ 7,126 22,879 10,487
========== ========== ==========
</TABLE>
Income tax expense differs from the statutory federal rate of 35%
applied to earnings from continuing operations before income taxes and investee
earnings for the years ended December 31, 1998, 1997 and 1996 as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Computed expected tax expense $ 14,035 20,422 9,311
State income taxes, net of federal income tax benefit 1,407 1,658 661
Amortization of goodwill 394 388 131
Exempt earnings of Foreign Sales Corporation (94) (172) (47)
Increase in net cash surrender value of life insurance (362) (331) (156)
Tax provision adjustments for pending
Internal Revenue Service (IRS) matters -- 400 150
Other, net 60 685 421
---------- ---------- ----------
Actual tax expense of continuing operations $ 15,440 23,050 10,471
========== ========== ==========
</TABLE>
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 8,950 20,539 10,104
State 2,169 2,515 942
Foreign 1,264 1,250 --
---------- ---------- ----------
12,383 24,304 11,046
========== ========== ==========
Deferred:
Federal 3,062 (1,290) (650)
State (5) 36 75
Foreign -- -- --
---------- ---------- ----------
3,057 (1,254) (575)
========== ========== ==========
Total:
Federal 12,012 19,249 9,454
State 2,164 2,551 1,017
Foreign 1,264 1,250 --
---------- ---------- ----------
$ 15,440 23,050 10,471
========== ========== ==========
</TABLE>
18
<PAGE> 36
The significant components of deferred income tax expense attributable
to earnings from continuing operations are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
Deferred tax expense (benefit) from changes in temporary
differences $ 3,057 (1,254) (575)
========== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and the deferred tax liabilities at December
31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Note and accounts receivable, principally due to
allowance for doubtful note receivable $ 317 37
Deferred compensation 5,060 3,936
Accrued incentive compensation 464 1,323
Inventory costs 1,803 1,144
State net operating loss carryforward 92 47
Accrued vacation costs 767 672
Accrued pension costs 980 1,143
Other, net 1,103 --
--------- ---------
Total deferred tax assets 10,586 8,302
--------- ---------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation (19,235) (12,416)
Undistributed earnings from equity affiliates -- (1,396)
State income taxes (1,714) (1,709)
Other, net -- (87)
--------- ---------
Total gross deferred tax liabilities (20,949) (15,608)
--------- ---------
Net deferred tax liability $ (10,363) (7,306)
========= =========
</TABLE>
The net deferred tax liability at December 31, 1998 and 1997 consists of
a long-term deferred tax liability of $13,501 and $10,130, respectively, and a
current deferred tax asset of $3,138 and $2,824, respectively. The current
deferred tax asset is included in prepaid expenses and other current assets in
the consolidated balance sheets.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, recoverable taxes
paid, projected taxable income and tax planning strategies in making this
assessment. Based on the reversal of existing deferred tax liabilities and
projections for future taxable income over the periods in which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefit of these deductible differences.
Current income taxes payable of $3,569 at December 31, 1998, and
refundable income taxes of $2,655 at December 31, 1997, are included in accrued
expenses and other current liabilities and other receivables, respectively, in
the accompanying consolidated financial statements.
19
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
As a result of the Merger described in note 1, the Company assumed
liability for the prior tax returns of First Mississippi. The federal income tax
returns have been examined through June 30, 1996, and all years prior to June
30, 1989 are closed. In December 1998, the Company agreed to a resolution of the
remaining disputed issues for the years ended June 30, 1989 through June 30,
1996. Management believes that adequate provision has been made for any
adjustments which might be assessed for open years through December 31, 1998.
8. EMPLOYEE BENEFIT AND INCENTIVE PLANS
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time permanent employees. The benefits are based on years
of service and participants compensation during the last five years of
employment. The following tables present plan information at December 31, 1998
and 1997, and for the years ended December 31, 1998, 1997 and 1996: December 31,
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 37,494 27,020
Service cost 2,958 2,376
Interest cost 2,749 2,157
Actuarial loss 3,350 6,925
Benefits paid (2,934) (984)
Curtailment gain (2,792) --
-------- --------
Benefit obligation at end of year $ 40,825 37,494
======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 36,206 29,620
Actual return on plan assets 6,154 7,309
Employer contribution 105 261
Benefits paid (2,934) (984)
-------- --------
Fair value of plan assets at end of year $ 39,531 36,206
======== ========
RECONCILIATION OF FUNDED STATUS
Funded status $ (1,294) (1,288)
Unrecognized net actuarial gain (5,968) (4,880)
Unrecognized transition asset (1,872) (2,178)
Unrecognized prior service cost 457 1,040
-------- --------
Accrued pension liability $ (8,677) (7,306)
======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
WEIGHTED-AVERAGE ASSUMPTIONS --------------------------------------
AS OF DECEMBER 31 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Discount rate - net periodic pension cost 7.50% 7.75% 7.75%
Discount rate - benefit obligations 7.00% 7.50% 7.75%
Expected return on plan assets 9.50% 9.00% 9.00%
Rate of compensation increase 4.00% 4.00% 4.00%
COMPONENTS OF NET PERIODIC PENSION COST
Service cost $ 2,958 2,376 2,289
Interest cost 2,747 2,157 1,943
Expected return on plan assets (3,369) (2,631) (2,200)
Recognized net actuarial gain (645) (243) (170)
Amortization of transition asset (304) (304) (304)
Amortization of prior service cost 89 89 88
-------- -------- --------
Net periodic pension cost $ 1,476 1,444 1,646
======== ======== ========
</TABLE>
20
<PAGE> 38
Net annual pension expense allocated to discontinued operations was
$1,211, $1,162 and $1,354 for the years ended December 31, 1998, 1997 and 1996,
respectively. Plan assets are invested primarily in equity securities and U. S.
Government and corporate bonds.
The Company has a contributory 401(k) savings plan and an employee stock
ownership plan, both of which cover substantially all eligible employees who
have completed six months of service. Total expense under the plans amounted to
approximately $1,116, $1,038 and $813 for the years ended December 31, 1998,
1997 and 1996, respectively. These plans and the pension plan invest in the
Companys stock. The total number of shares held by the plans at December 31,
1998 and 1997, was 387,261 and 355,964, respectively.
The Company has various nonqualified plans that act to restore earned
benefits limited by income tax regulations, or allow for other compensation
deferrals. Beginning in July 1997, participants in certain of these plans could
elect to convert existing deferred balances and/or future deferrals, at the
start of each new year, into phantom share units tracking the performance of the
Companys stock. Additionally, a 15 percent discount on the market value of the
stock at the original conversion date and each new plan year is given to those
participants making this election. Beginning in 1998, Company officers could
elect to defer a portion of salary and/or bonuses into phantom share units on a
pretax basis at a 15 percent discount. The total liability for these deferrals
at December 31, 1998 is $936. The nonqualified supplemental pension plan
provides for incremental pension payments from the Companys funds, and is based
on the same actuarial assumptions as the qualified plan. The total liability
relating to this unfunded plan at December 31, 1998 and 1997, was $1,689 and
$1,378, respectively. Net annual pension expense for this plan was $311, $77
(net of an actuarial adjustment of $233), and $250 for the years ended December
31, 1998, 1997 and 1996, respectively. The cost of the nonqualified 401(k) and
ESOP plans was $355, $622 and $274 for the years ended December 1998, 1997 and
1996, respectively. Individual life insurance contracts were purchased, with the
Company as beneficiary, to assist in the funding of portions of certain
nonqualified deferred compensation plans covering directors, officers and key
employees. The expense for these plans was $896, $795 and $802 for the years
ended December 31, 1998, 1997 and 1996, respectively.
Directors, officers and certain key employees of the Company participate
in the long-term incentive plans (the Plans) under which the Company has
reserved shares of common stock for issuance. Awards under the Plans include
stock options, options to purchase debentures convertible into preferred stock
and then convertible into common stock of the Company, stock appreciation
rights, performance units, restricted stock, supplemental cash and such other
forms as the Board of Directors may direct. Options under all plans are granted
at the market price of the shares on the date of the grants, with vesting
occurring no earlier than six months after grant and expiration no later than 10
years after grant. At December 31, 1998, shares available for grant under the
referenced plans totaled 694,113 shares of common stock. Additional information
follows:
<TABLE>
<CAPTION>
STOCK OPTIONS DEBENTURE OPTIONS
---------------------------------------------------------
AVERAGE AVERAGE
NUMBER OPTION PRICE NUMBER OPTION PRICE
OF SHARES PER SHARE OF SHARES PER SHARE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance December 31, 1995 316,451 $ 19.64 336,168 $ 8.92
Options granted before spinoff 227,050 24.05 -- --
Options exercised before spinoff (41,704) 19.42 (10,143) 10.12
Option conversion adjustment - MCC* 120,902 -- 81,525 --
Options forfeited (18,251) 22.34 -- --
---------- ---------- ---------- ----------
Balance December 31, 1996 604,448 17.30 407,550 7.10
Options granted 479,910 23.30 -- --
Options exercised (65,620) 14.43 (78,492) 6.74
Options forfeited (6,800) 23.13 -- --
---------- ---------- ---------- ----------
Balance December 31, 1997 1,011,938 20.34 329,058 7.19
Options granted 376,725 26.54 -- --
Options exercised (43,102) 17.80 (116,730) 7.72
Options forfeited (127,015) 23.93 -- --
---------- ---------- ---------- ----------
Balance December 31, 1998 1,218,546 $ 21.93 212,328 $ 6.90
========== ========== ========== ==========
Exercisable December 31, 1998 651,005 $ 19.18 212,328 $ 6.90
========== ========== ========== ==========
</TABLE>
21
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
* The number of shares of common stock underlying outstanding
debentures, debenture options and nonqualifying stock options, as well as stock
option prices, were adjusted to reflect the distribution value of the fertilizer
business sale (note 2). This adjustment, which increased the number of shares
underlying the outstanding awards and reduced the exercise prices by a factor of
1.25 is reflected in the total number of shares and ending average option prices
at December 31, 1998, 1997 and 1996.
In accordance with SFAS No. 123, the following additional disclosures
are required related to stock-based compensation shares granted during the
three-year period ended December 31, 1998:
The fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants made during the years ended December 31, 1998, 1997
and 1996, respectively: dividend yields of 1.5, 1.7 and 2.1 percent; expected
volatilities of 33, 26 and 25 percent; risk-free interest rates of 6.1, 6.8 and
6.9 percent, and expected lives of four years for all periods presented. A
summary of the status of the Companys stock-based compensation shares at
December 31, 1998, 1997 and 1996, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1998 WEIGHTED-AVG. 1997 Weighted-avg. 1996 Weighted-avg.
SHARES EXERCISE PRICE Shares exercise price Shares exercise price
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,012,904 $ 20.84 551,212 $ 18.33 269,598 $ 21.59
Granted 394,108 26.02 518,010 23.18 227,050 24.05
Exercised before spinoff -- -- -- -- (37,437) 20.56
Spinoff conversion adjustments -- -- -- -- 110,252 --
Exercised after spinoff (77,982) 20.18 (49,518) 16.98 -- --
Forfeited (127,015) 23.93 (6,800) 23.13 (18,251) 22.34
----------- ----------- ----------- ----------- ----------- -----------
Outstanding at end of year 1,202,015 $ 22.26 1,012,904 $ 20.84 551,212 $ 18.33
----------- ----------- ----------- ----------- ----------- -----------
Exercisable at end of year 634,474 501,694 283,773
=========== =========== ===========
Weighted-average fair value $ 7.86 $ 6.11 $ 4.93
=========== =========== ===========
</TABLE>
The following table summarizes information about stock-based
compensation shares for the period ended December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
- ------------------------------------------------------------------------ ------------------------------
WEIGHTED-AVG.
RANGE OF NUMBER REMAINING WEIGHTED-AVG. NUMBER WEIGHTED-AVG.
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$16.30-$26.75 1,202,015 8.1 years $ 22.26 634,474 $ 19.32
=============== ========== ========= ======= ======= =======
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its stock-based compensation plans. Had compensation cost been determined
based on the fair value at the grant dates for awards under the plan consistent
with the method prescribed by SFAS No. 123, the Companys net income, earnings
per common share and earnings per common share, assuming dilution, would have
been reduced to the pro forma amounts indicated below for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ------------
<S> <C> <C> <C>
Net earnings As reported $ 10,092 $ 38,898 $ 249,860
Pro forma $ 8,998 $ 37,955 $ 248,902
Earnings per common share As reported $ .52 $ 1.91 $ 12.12
Pro forma $ .47 $ 1.86 $ 12.07
Earnings per common share, assuming dilution As reported $ .52 $ 1.86 $ 11.95*
Pro forma $ .46 $ 1.82 $ 11.90*
</TABLE>
* Dilutive earnings per share for 1996 differs from last years
historical presentation due to restated continuing operations effect
on the calculation.
22
<PAGE> 40
9. STOCKHOLDERS' EQUITY
Earnings per common share calculations are based on the weighted average
number of common shares outstanding during each year. Calculations for fully
diluted earnings per common share are based on the weighted average number of
outstanding common shares and common share equivalents during each year. A
reconciliation of the numerators and denominators for basic and diluted per
share computations from continuing operations for the years ended December 31,
1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
Weighted-avg.
Income Shares Per Share
(Numerator) Denominator) Amount
------------ ------------ ------------
<S> <C> <C> <C>
BASIC EPS
Earnings from continuing operations - 1998 $ 24,660 19,255,344 $ 1.28
Effect of Dilutive Securities
Options -- 79,178 --
Convertible debentures -- 144,300 --
------------ ------------ ------------
DILUTED EPS
Earnings from continuing operations - 1998 $ 24,660 19,478,822 $ 1.27
============ ============ ============
BASIC EPS
Earnings from continuing operations - 1997 $ 37,795 20,395,060 $ 1.85
Effect of Dilutive Securities
Options -- 195,867 --
Convertible debentures -- 296,825 --
------------ ------------ ------------
DILUTED EPS
Loss from continuing operations - 1997 $ 37,795 20,887,752 $ 1.81
============ ============ ============
BASIC EPS
Earnings from continuing operations - 1996 $ 16,977 20,615,087 $ .83
Effect of Dilutive Securities
Options -- 78,249 --
Convertible debentures -- 215,827 --
------------ ------------ ------------
DILUTED EPS
Earnings from continuing operations - 1996 $ 16,977 20,909,163 $ .81
============ ============ ============
</TABLE>
In connection with the Shareholder Rights Plan adopted by the Company on
October 30, 1996, preferred stock purchase rights were distributed to
stockholders and are deemed to be attached to the outstanding shares of common
stock of the Company. Under certain conditions, each right may be exercised to
purchase one one-hundredth (1/100) of a share of a new series of preferred
stock, at an exercise price of $100 per share (subject to adjustment). The
rights, which do not have voting rights, expire in 2006 and may be redeemed by
the Company at a price of $0.01 per right prior to a specified period of time
after the occurrence of certain events. In certain events, each right (except
certain rights beneficially owned by 10% or more owners, which rights are
voided) will entitle its holder to purchase shares of common stock with a value
of twice the then-current exercise price.
In August 1998, the Companys directors authorized a $50,000 stock
repurchase program. This addition brings total repurchase authorizations, since
inception at January 1997, to $110,000.
23
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
10. COMMITMENTS AND CONTINGENT LIABILITIES
The Company has entered into various operating leases for transportation
equipment (primarily railroad tank cars), chemical pipelines and storage
facilities, office buildings and land and other miscellaneous items of
equipment. The following is a schedule by years of future minimum rental
payments for those operating leases with initial or remaining noncancelable
terms in excess of one year, as of December 31, 1998:
<TABLE>
<CAPTION>
Years ending Operating
December 31, Leases
------------ ---------
<S> <C>
1999 $ 1,037
2000 1,204
2001 1,171
2002 1,141
2003 731
Later years 2,573
---------
Total minimum payments required $ 7,857
=========
</TABLE>
Provisions applicable to certain transportation equipment leases provide
for mileage credits computed on the basis of usage. No recognition has been
given to the effect of such credits in the amounts presented above.
Rental expense, including short-term rentals (net of mileage credits and
short-term subleases of approximately $483, $407 and $244 for the years ended
December 31, 1998, 1997 and 1996, respectively), was approximately $1,590, $781
and $1,012 for the years ended December 31, 1998, 1997 and 1996, respectively.
In most cases management expects that leases will be renewed or replaced by
other leases in the normal course of business.
Company operations are subject to a wide variety of environmental laws
and regulations governing emissions to the air, discharges to water sources, and
the handling, storage, treatment and disposal of waste materials, as well as
other laws and regulations concerning health and safety conditions. The Company
accrues for anticipated costs associated with investigatory and remediation
efforts relating to the environment. At December 31, 1998 and 1997, the Companys
estimated liability for these matters totaled $1,338 and $1,399, respectively,
for discontinued operations. The estimated liability related to continuing
operations at December 31, 1998 was $244.
The Company has pending several claims incurred in the normal course of
business which, in the opinion of management and legal counsel, can be disposed
of without material effect on the accompanying consolidated financial
statements.
11. INTEREST AND OTHER INCOME
Interest and other income, net, items are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Interest income $ 2,198 3,282 2,067
Royalty, license, rental and fee income 4,280 3,830 2,329
Gain on sale of Melamine Chemicals, Inc.
and Power Sources, Inc. (note 3) 10,069 14,684 --
Net gain on disposition of other
noncurrent assets 19 159 546
Other (130) 175 73
-------- -------- --------
$ 16,436 22,130 5,015
======== ======== ========
</TABLE>
24
<PAGE> 42
12. SEGMENT INFORMATION
The Company operates in two segments: Electronic and Other Specialty
Chemicals and Polyurethane Chemicals. The Electronic and Other Specialty
Chemicals segment produces specialty chemicals for use by others in electronic,
agricultural, pharmaceutical, polymer and photosensitive applications. These
chemicals are typically produced by multi-step batch processing with products
sold both on specification and performance. This segment includes research and
development for new products and processes. The Polyurethane Chemicals segment
produces aniline and nitrobenzene by a continuous production process. These
chemicals generally require more processing to produce the end product used by
consumers and are primarily sold under long-term contracts to industrial
customers. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance and allocates resources based on the segments profit or
loss from operations before interest income and expense and income taxes. The
Company's reportable segments are based on similarities in products and
services, type and class of customers, production processes and methods of
distribution.
The polyurethane chemicals segment had unaffiliated major customer sales
of $99,522, $86,806 and $75,910 for the years ended December 31, 1998, 1997 and
1996, respectively.
The following is a breakdown by segment of certain Company financial
information at December 31, 1998, 1997 and 1996 and for each of the years then
ended:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Sales to unaffiliated customers:
Electronic and Other Specialty Chemicals $ 179,579 179,549 150,873
Polyurethane Chemicals 125,525 118,273 95,139
--------- --------- ---------
Total $ 305,104 297,822 246,012
========= ========= =========
Operating profit before income taxes
and investee earnings:
Electronic and Other Specialty Chemicals $ 17,796 27,617 22,536
Polyurethane Chemicals 22,648 24,071 21,057
--------- --------- ---------
40,444 51,688 43,593
Unallocated corporate expenses (9,781) (11,347) (13,324)
Interest income (expense), net 213 3,009 (3,926)
Other income, net 9,224 14,998 259
--------- --------- ---------
Total $ 40,100 58,348 26,602
========= ========= =========
Depreciation and amortization:
Electronic and Other Specialty Chemicals $ 14,623 12,541 10,382
Polyurethane Chemicals 8,148 4,341 2,844
Corporate 917 372 443
--------- --------- ---------
Total $ 23,688 17,254 13,669
========= ========= =========
Identifiable assets:
Electronic and Other Specialty Chemicals $ 214,192 224,778 162,807
Polyurethane Chemicals 113,217 81,844 45,374
--------- --------- ---------
327,409 306,622 208,181
Corporate 63,716 62,305 120,260
Discontinued operations 52,309 64,170 65,723
--------- --------- ---------
Total $ 443,434 433,097 394,164
========= ========= =========
Capital expenditures:
Electronic and Other Specialty Chemicals 25,306 36,692 40,411
Polyurethane Chemicals $ 11,421 47,910 8,259
Corporate 7,059 6,840 219
--------- --------- ---------
Total $ 43,786 91,442 48,889
========= ========= =========
</TABLE>
25
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Revenues from sales to all foreign countries were $46,207, $43,096 and
$36,982 in 1998, 1997 and 1996, respectively, and are attributed to those
countries based on ship-to location of customers. Identifiable assets in foreign
countries were $17,386, $7,736 and $5,881.
Identifiable assets by segment are those assets used in the Companys
operations. Corporate assets and investments are principally cash and cash
equivalents, nontrade receivables and certain other investments.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral on trade receivables. The Company believes
that adequate allowances are maintained for any uncollectible trade receivables.
Certain corporate expenses, primarily those related to the overall management of
the Company, were not allocated to the operating segments.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data follows:
<TABLE>
<CAPTION>
Quarters ended Year ended
------------------------------------------------------------------------------
03/31 06/30 09/30 12/31 12/31
-------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1998:
Sales $ 74,173 78,100 74,752 78,079 305,104
============== =========== =========== =========== ==========
Gross profit $ 18,252 19,283 19,718 18,935 76,188
============== =========== =========== =========== ==========
Earnings from
continuing operations $ 9,445 3,853 5,107 6,255 24,660
============== =========== =========== =========== ==========
Net earnings (loss) $ 9,753 3,954 (7,687) 4,072 10,092
============== =========== =========== =========== ==========
Earnings (loss) per common share:
Continuing operations $ .47 .20 .27 .33 1.28
============== =========== =========== =========== ==========
Net earnings (loss) $ .49 .20 (.41) .22 .52
============== =========== =========== =========== ==========
Earnings (loss) per common
share, assuming dilution:
Continuing operations $ .47 .19 . 27 .33 1.27
============== =========== =========== =========== ==========
Net earnings (loss) $ .48 .20 (.40) .22 .52
============== =========== =========== =========== ==========
</TABLE>
Net earnings during the first quarter of 1998 included the gain on the
sale of Power Sources, Inc. (note 3), while results in the third quarter reflect
charges related to the discontinuance of steel operations.
<TABLE>
<CAPTION>
Quarters ended Year ended
------------------------------------------------------------------------------------------
03/31 06/30 09/30 12/31 12/31
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1997:
Sales $ 74,473 72,018 69,743 81,588 297,822
============== ============== ============== ============== ==============
Gross profit $ 19,701 18,842 20,243 21,650 80,436
============== ============== ============== ============== ==============
Earnings from
continuing operations $ 7,958 7,379 6,623 15,835 37,795
============== ============== ============== ============== ==============
Net earnings $ 8,119 7,875 6,800 16,104 38,898
============== ============== ============== ============== ==============
Earnings per common share:
Continuing operations $ .38 .36 .33 .78 1.85
============== ============== ============== ============== ==============
Net earnings $ .39 .39 .33 .80 1.91
============== ============== ============== ============== ==============
Earnings per common share,
assuming dilution:
Continuing operations $ .38 .35 .32 .76 1.81
============== ============== ============== ============== ==============
Net earnings $ .39 .38 .33 .78 1.86
============== ============== ============== ============== ==============
</TABLE>
26
<PAGE> 44
Net earnings increased during the fourth quarter of 1997 due to the gain
on the sale of Melamine Chemicals, Inc. (note 3).
The above quarterly earnings (loss) per share calculations are based on
the weighted average number of common shares outstanding during each quarter for
earnings (loss) per common share and the weighted average number of outstanding
common shares and common share equivalents during each quarter for the earnings
(loss) per common share, assuming dilution. The annual earnings (loss) per share
calculations are based on the weighted average number of common shares
outstanding during each year for earnings (loss) per common share and the
weighted average number of outstanding common shares and common share
equivalents during each year for earnings (loss) per common share, assuming
dilution.
14. VALUATION AND QUALIFYING ACCOUNTS
Details regarding the valuation allowances for discontinued operations
and doubtful trade accounts for continuing operations are as follows:
<TABLE>
<CAPTION>
CHARGED TO OTHER
BEGINNING COSTS AND ADDITIONS ENDING
BALANCE EXPENSES (DEDUCTIONS)* BALANCE
--------- ---------- ------------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1998 $ 10,222 15,063 29 25,314
Year ended December 31, 1997 $ 24,433 12 (14,223) 10,222
Year ended December 31, 1996 $ 13 24,432 (12) 24,433
</TABLE>
* Businesses disposed and/or amounts written off.
15. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1998 and 1997, cash and cash equivalents, trade
receivables, notes receivable, trade payables, accrued liabilities and notes
payable are reflected in the financial statements at fair value. The $20,000
senior notes, placed with institutional investors in November 1998, approximate
fair value based on current rates offered the Company for debt of similar
characteristics and maturities. The revolving credit facilities have floating
interest rates and approximate fair value.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into forward foreign exchange contracts to minimize
its exposure related to foreign receivables denominated in yen. To lessen the
short-term effect of exchange rate fluctuations on consolidated performance, the
Company hedges a portion of these yen-denominated receivables and future sales
commitments. The forward contracts related to existing receivables are
marked-to-market each month and offset the underlying hedged transaction. Gains
and losses on contracts related to firm sales commitments are deferred and
recorded in net income in the period in which the related transactions are
consummated. The open contracts at December 31, 1998, represent forward sales of
664,500,000 yen with a U.S. dollar value of $5,857 and have terms of one year or
less.
27
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16. YEAR 2000 (UNAUDITED)
In 1996, the Company began a study which led to the purchase in 1997 of
a company-wide Enterprise Resource Planning (ERP) system to integrate the
Companys information systems, replacing small, stand-alone purchased systems.
The ERP system will be Year 2000 compliant, with the material portion of the
system planned for completion by the middle of 1999. Installation is being
completed in stages, with the first sites converted at December 31, 1998. To
date, the Company has spent $8,900 on this project, and is projecting to spend
approximately $2,000 in 1999 on this project. If difficulties are encountered
that delay the ERP system implementation, contingency plans provide for the
purchase of select Year 2000 compliant personal computer software products, the
cost of which should not be material.
A corporate-wide survey of other information technology (IT) and non-IT
equipment and systems utilizing date or time functions has been undertaken. The
current estimated cost to remediate is less than $600, most of which will be
incurred in 1999. Remediation, including verification testing, of most
noncompliant systems, equipment and software is targeted for completion by April
30, 1999. Some remediations at the Pascagoula facility, however, will occur in
the fourth quarter of 1999 to coincide with the next scheduled plant maintenance
turnaround. Contingency plans are currently being developed in the event the
remediations do not occur or are delayed. Severe delay or widespread failure
affecting both the remediation effort and the contingency plans, although not
expected, could have a material effect on the Companys financial condition and
results of operations.
Key customers, as well as service and raw material suppliers, are being
surveyed about their Year 2000 readiness. Depending on their responses,
contingency plans will be developed as appropriate. It is anticipated that this
process will be completed no later than September 30, 1999. Although the Company
cannot quantify the precise effect, significant or prolonged disruptions of key
customers or suppliers could have a material effect on the Companys financial
condition and results of operations. For example, the majority of aniline
produced by the Company is sold through long-term contracts to a few customers.
Their inability to utilize the Companys aniline could have a material adverse
effect.
INDEPENDENT AUDITORS REPORT
The Board of Directors and Stockholders
ChemFirst Inc.
We have audited the consolidated balance sheets of ChemFirst Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders equity and cash flows for each of the
years in the three-year period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ChemFirst
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Jackson, Mississippi KPMG Peat Marwick LLP
February 19, 1999
28
<PAGE> 46
CHEMFIRST INC. POST OFFICE BOX 1249 JACKSON, MISSISSIPPI 39215-1249
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF CHEMFIRST INC.
<TABLE>
<CAPTION>
JURISDICTION OF
ORGANIZATION
COMPANY NAME
<S> <C>
Burmar Chemical, Inc. ...................................... California
Callidus Technologies Inc. ................................. Oklahoma
Callidus Technologies International, Inc. .................. Delaware
CEM Investment, Inc. ....................................... Mississippi
ChemFirst Foundation, Inc. ................................. Mississippi
ChemFirst Texas, Inc. ...................................... Texas
Dew Resources, Inc. ........................................ Mississippi
EKC Technology, Inc. ....................................... California
EKC Technology International, Inc. ......................... California
EKC Technology K K ......................................... Japan
EKC Technology Limited ..................................... Scotland
FCC Acquisition Corporation ................................ California
FEC Marketing, Inc. ........................................ Texas
First Chemical Corporation ................................. Mississippi
First Chemical Holdings, Inc. .............................. Mississippi
First Chemical Texas, L.P. ................................. Delaware
First Energy Corporation ................................... Mississippi
FirstMiss, Inc. ............................................ Iowa
FirstMiss Steel, Inc. ...................................... Pennsylvania
FRM, Inc. .................................................. Mississippi
FRM Industries, Inc. ....................................... Delaware
FRM International, Inc. .................................... U.S. Virgin Islands
FT Chemical, Inc. .......................................... Texas
Industrial Insulations of Texas, Inc. ...................... Texas
Maxadyne Corporation ....................................... California
Maxadyne Corporation of Louisiana .......................... Louisiana
Micropel, Inc. ............................................. California
Mycosil, Inc. .............................................. California
Plasma Energy Corporation .................................. North Carolina
Plasma Energy Technologies Corporation ..................... North Carolina
Quality Chemicals, Inc. .................................... Pennsylvania
Star Corrosion & Refractory, Inc. .......................... Louisiana
SCE Technologies, Inc. ..................................... Delaware
TriQuest, L.P. ............................................. Delaware
TriQuest Japan K K ......................................... Japan
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
ChemFirst Inc.:
We consent to incorporation by reference in the Registration Statements on
Form S-8 (Nos. 333-18691, 333-18693, 333-35221 and 333-69965) of our report
dated February 19, 1999 relating to the consolidated balance sheets of ChemFirst
Inc. and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998, which report
is incorporated by reference in the December 31, 1998 annual report on Form 10-K
of ChemFirst Inc.
/s/ KPMG PEAT MARWICK LLP
------------------------------------
KPMG Peat Marwick LLP
Jackson, Mississippi
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 11,226
<SECURITIES> 0
<RECEIVABLES> 44,115
<ALLOWANCES> 317
<INVENTORY> 51,295
<CURRENT-ASSETS> 160,902
<PP&E> 366,814
<DEPRECIATION> 139,413
<TOTAL-ASSETS> 443,434
<CURRENT-LIABILITIES> 43,966
<BONDS> 64,956
0
0
<COMMON> 18,445
<OTHER-SE> 267,037
<TOTAL-LIABILITY-AND-EQUITY> 443,434
<SALES> 305,104
<TOTAL-REVENUES> 0
<CGS> 228,916
<TOTAL-COSTS> 228,916
<OTHER-EXPENSES> 10,461
<LOSS-PROVISION> 203
<INTEREST-EXPENSE> 1,986
<INCOME-PRETAX> 40,100
<INCOME-TAX> 15,440
<INCOME-CONTINUING> 24,660
<DISCONTINUED> (14,568)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,092
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 7,766 68,385 44,748
<SECURITIES> 0 0 0
<RECEIVABLES> 53,159 38,854 36,453
<ALLOWANCES> 97 1 13
<INVENTORY> 39,253 32,246 30,304
<CURRENT-ASSETS> 147,166 184,911 172,203
<PP&E> 323,541 235,020 186,259
<DEPRECIATION> 118,964 105,865 93,009
<TOTAL-ASSETS> 433,097 394,164 390,346
<CURRENT-LIABILITIES> 67,230 48,010 45,194
<BONDS> 3,941 606 80,598
0 0 0
0 0 0
<COMMON> 20,031 20,673 20,585
<OTHER-SE> 301,666 287,813 206,172
<TOTAL-LIABILITY-AND-EQUITY> 433,097 394,164 390,346
<SALES> 297,822 246,012 214,234
<TOTAL-REVENUES> 0 0 0
<CGS> 217,386 174,857 149,095
<TOTAL-COSTS> 217,386 174,857 149,095
<OTHER-EXPENSES> 5,573 5,721 5,227
<LOSS-PROVISION> 505 364 67
<INTEREST-EXPENSE> 283 6,579 8,157
<INCOME-PRETAX> 58,348 26,602 22,309
<INCOME-TAX> 23,050 10,471 10,327
<INCOME-CONTINUING> 37,795 16,977 13,078
<DISCONTINUED> 1,103 232,883 44,389
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 38,898 249,860 57,467
<EPS-PRIMARY> 1.91 12.12 2.80
<EPS-DILUTED> 1.86 11.95 2.75
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998 JAN-01-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998 SEP-30-1998
<CASH> 17,110 8,027 11,712
<SECURITIES> 0 0 0
<RECEIVABLES> 42,440 46,730 42,971
<ALLOWANCES> 317 317 317
<INVENTORY> 46,114 49,066 40,026
<CURRENT-ASSETS> 155,999 159,842 161,091
<PP&E> 335,219 346,196 341,250
<DEPRECIATION> 123,547 129,629 134,248
<TOTAL-ASSETS> 441,863 450,362 437,708
<CURRENT-LIABILITIES> 69,032 36,868 31,763
<BONDS> 4,001 59,062 68,895
0 0 0
0 0 0
<COMMON> 19,853 19,053 18,813
<OTHER-SE> 304,753 286,318 271,616
<TOTAL-LIABILITY-AND-EQUITY> 441,863 450,362 437,708
<SALES> 74,173 152,273 227,025
<TOTAL-REVENUES> 0 0 0
<CGS> 55,921 114,738 169,772
<TOTAL-COSTS> 55,921 114,738 169,772
<OTHER-EXPENSES> 2,554 5,333 8,979
<LOSS-PROVISION> 12 26 53
<INTEREST-EXPENSE> 70 471 1,144
<INCOME-PRETAX> 15,357 21,623 29,925
<INCOME-TAX> 5,912 8,325 11,520
<INCOME-CONTINUING> 9,445 13,298 18,405
<DISCONTINUED> 308 408 (12,385)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 9,753 13,707 6,020
<EPS-PRIMARY> 0.49 0.70 0.31
<EPS-DILUTED> 0.48 0.69 0.31
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 46,940 22,273 13,094
<SECURITIES> 0 0 0
<RECEIVABLES> 39,030 40,416 40,861
<ALLOWANCES> 97 97 97
<INVENTORY> 33,593 31,441 33,863
<CURRENT-ASSETS> 166,074 137,345 134,527
<PP&E> 251,229 274,664 296,408
<DEPRECIATION> 109,021 113,573 117,410
<TOTAL-ASSETS> 386,375 379,839 395,746
<CURRENT-LIABILITIES> 37,482 29,765 38,285
<BONDS> 601 541 254
0 0 0
0 0 0
<COMMON> 20,472 20,330 20,316
<OTHER-SE> 289,339 291,278 294,913
<TOTAL-LIABILITY-AND-EQUITY> 386,375 379,839 395,476
<SALES> 74,473 146,491 216,234
<TOTAL-REVENUES> 0 0 0
<CGS> 54,772 107,948 157,448
<TOTAL-COSTS> 54,772 107,948 157,448
<OTHER-EXPENSES> 1,336 2,652 3,980
<LOSS-PROVISION> 91 308 446
<INTEREST-EXPENSE> 54 160 222
<INCOME-PRETAX> 12,480 21,771 32,382
<INCOME-TAX> 4,930 8,600 12,790
<INCOME-CONTINUING> 7,958 15,337 21,960
<DISCONTINUED> 161 657 834
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 8,119 15,994 22,794
<EPS-PRIMARY> 0.39 0.78 1.11
<EPS-DILUTED> 0.39 0.76 1.09
</TABLE>
